As filed with the Securities and Exchange Commission on December 23, 1999
Registration No. 333-82215
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO.1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------
KEYBANK NATIONAL ASSOCIATION
(Seller to the Trusts described herein)
(Exact name of registrant as specified in its Charter)
United States 34-0797057
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Key Tower
127 Public Square
Cleveland, Ohio 44114
(216) 689-6300
(Address, including zip code, and telephone number, including area code,
of principal executive offices)
----------
Daniel R. Stolzer, Esq.
Senior Vice President and Associate General Counsel
KeyBank National Association
Key Tower
127 Public Square
Cleveland, Ohio 44114
(216) 689-6300
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
----------
With a copy to:
Gail G. Watson, Esq. Robert C. Wipperman, Esq.
Brown & Wood LLP Stroock & Stroock & Lavan LLP
One World Trade Center 180 Maiden Lane
New York, New York 10048 New York, New York, 10038
(212) 839-5300 (212) 806-6000
Approximate date of commencement of proposed sale to the public:
From time to time on or after the effective date of the registration
statement, as determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please 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 statement 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, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to Be Registered Registered(1) Offering Price Aggregate Registration
Per Unit(2) Offering Price(2) Fee(3)
===================================================================================================================================
<S> <C> <C> <C> <C>
Asset-Backed Certificates and $1,000,000 100% $1,000,000 $278
Asset-Backed Notes...............
===================================================================================================================================
</TABLE>
(1) This Registration Statement also relates to secondary market
transactions that may be made by McDonald Investments Inc., A KeyCorp Company,
an affiliate of the Registrant, the volume of which cannot be determined.
(2) Estimated for the purpose of calculating the registration fee.
(3) Previously paid.
This Registration Statement is also being used to register securities
that may be sold in secondary market transaction by an affiliate of the
Registrant. 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 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the SEC is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1999
Prospectus Supplement dated ___________,________
To Prospectus dated _____________
$___________ (approximate)
[ ] Home Equity Loan Trust 199_-_
Home Equity Loan Asset-Backed Certificates, Series 199_-_
[ ] KeyBank National Association
as master servicer as seller
The certificates represent obligations of the trust only and do not represent
an interest in or obligation of KeyBank National Association, the trustee or
any of their affiliates.
This prospectus supplement may be used to offer and sell the certificates only
if accompanied by the prospectus.
The trust:
o will issue [5] classes of senior certificates
o will issue a single residual certificate
o will make a REMIC election for federal income tax purposes
The certificates:
o represent the entire beneficial interest in a trust, whose assets are a
pool of closed-end fixed rate first and second lien mortgage loans
o currently have no trading market
o are not guaranteed
Credit enhancement:
o will be provided in the form of [overcollateralization] and an irrevocable
and unconditional certificate guaranty insurance policy issued by
[certificate insurer].
Review the information in "Risk Factors" on page S-9 and on page 2 in the
prospectus.
For complete information about the senior certificates, read both this
prospectus supplement and the prospectus.
[____________], the underwriter, will buy the senior certificates from
KeyBank National Association at a price equal to ________ of their face value.
The underwriter will sell the senior certificates from time to time in
negotiated transactions.
Neither the SEC nor any state securities commission has approved or disapproved
of these securities or passed upon the adequacy or accuracy of this prospectus.
Any representation to the contrary is a criminal offense.
[Underwriter]
___________, 199_
<PAGE>
Table of Contents
<PAGE>
<TABLE>
<CAPTION>
Page
----
Prospectus Supplement
<S> <C>
Summary.........................................................................................................S-3
Risk Factors....................................................................................................S-9
The Certificate Insurer........................................................................................S-13
KeyBank National Association...................................................................................S-13
The Master Servicer............................................................................................S-13
Description of the Mortgage Loans..............................................................................S-16
Prepayment and Yield Considerations............................................................................S-21
Description of the Certificates................................................................................S-26
Use of Proceeds................................................................................................S-52
Federal Income Tax Consequences................................................................................S-52
State Taxes....................................................................................................S-55
ERISA Considerations...........................................................................................S-55
Legal Investment Considerations................................................................................S-57
Underwriting...................................................................................................S-57
Experts........................................................................................................S-58
Legal Matters..................................................................................................S-58
Ratings........................................................................................................S-58
Annex I........................................................................................................S-60
Prospectus
Risk Factors......................................................................................................2
The Trusts........................................................................................................9
Use of Proceeds..................................................................................................56
The Loans........................................................................................................10
Description of the Securities.....................................................................................5
Enhancement......................................................................................................19
Servicing Compensation and Payment of Expenses...................................................................29
The Agreements...................................................................................................31
Legal Aspects of the Loans.......................................................................................43
Federal Income Tax Consequences..................................................................................56
State Tax Considerations.........................................................................................88
ERISA Considerations.............................................................................................88
Legal Investment.................................................................................................93
Plan of Distribution.............................................................................................94
Legal Matters....................................................................................................94
Available Information............................................................................................94
Ratings..........................................................................................................93
Index of Defined Terms...........................................................................................96
</TABLE>
<PAGE>
Summary
This summary highlights selected information from this document and does
not contain all of the information that you need to consider in making your
investment decision. Please read this entire prospectus supplement and the
accompanying prospectus carefully for additional information about the offered
certificates.
<TABLE>
<CAPTION>
Home Equity Loan Asset-Backed Certificates, Series 199_-_
R>
Initial Class Last Scheduled
Offered Certificates Certificate Rate Principal Balance Distribution Date
<S> <C> <C> <C>
Class A-1 % $ --
Class A-2 % $ --
Class A-3 % $ --
Class A-4 % $ --
Class A-5 % $ --
Non-offered Certificates
Class R N/A $0 --
</TABLE>
(1) All balances are subject to a variance of 5%.
The Seller
o KeyBank National Association.
o KeyBank National Association maintains its principal office at [ Key
Tower, 127 Public Square, Cleveland, Ohio 44114]. Its telephone
number is [(212) 689-6300].
We refer you to "KeyBank National Association" in this prospectus
supplement for additional information.
The Master Servicer
o [ ].
o [ ] maintains its principal office at [ ,
, ]. Its telephone number is [ ].
o The master servicer will receive a monthly fee from the interest
payments on the mortgage loans equal to __% per annum on the principal
balance of each mortgage loan.
We refer you to "The Master Servicer" in this prospectus supplement for
additional information.
Trust Fund
o [ ] Home Equity Loan Trust 199_-_.
Trustee
o [ ]
Certificate Insurer
o [ ].
We refer you to "The Certificate Insurer" in this prospectus supplement
for additional information.
Cut-Off Date
o ____________, 199_.
Closing Date
o ________________, 199_.
Distribution Date
o The 25th day of each month, or if such day is not a business day, the
next business day. The first distribution date is ___________ 199_.
Due Period
o The calendar month immediately preceding a determination date or a
distribution date, as applicable.
Registration of Offered Certificates
We will issue the offered certificates in book-entry form. You will hold
your interests either through a depository in the United States or
through one of two depositories in Europe. While the certificates are
book-entry, they will be registered in the name of the applicable
depository, or in the name of the depository's nominee.
We refer you to "Risk Factors--Consequences on Liquidity and Payment
Delay Because of Owing Book-Entry Certificates", "Description of the
Certificates-- Book-Entry Certificates" and Annex I" in this prospectus
supplement for additional information.
Trust Fund Property
The trust fund property is held by the trustee for the benefit of the
certificateholders. The trust fund property includes:
o a pool of closed-end fixed mortgage loans, secured by first and second
deeds of trust or mortgages on one- to four-family residential
properties;
o payments on the mortgage loans received on and after the cut-off date;
o property that secured a mortgage loan which has been acquired by
foreclosure or deed in lieu of foreclosure;
o rights under any hazard insurance policies covering the mortgaged
properties;
o amounts on deposit in certain accounts described in this prospectus
supplement; and
o the certificate of insurance policy issued by [insurer].
The Mortgage Loans
On the closing date, the trust fund will acquire a pool of fixed rate
home equity loans, or "mortgage loans" with an aggregate principal
balance as of the cut-off date of $____________.
The mortgage loans will have the following characteristics as of the
cut-off date:
o number of mortgage loans: _______
o aggregate principal balance: $___________
o mortgaged property location: __ states and the District of Columbia
o average principal balance: $___________
o maximum principal balance: $___________
o interest rates range: _____% to ____%
o weighted average interest rate: _________% (approximate)
o weighted average remaining term to stated maturity, based on
principal balance: ___ months (approximate)
o term to stated maturity range: __ months to 360 months
o combined loan-to-value ratio range: ____% to _____% (approximate)
o balloon loans - loans with amortization schedules that don't fully
amortize by their maturity date: _____% (approximate).
We refer you to "Description of the Mortgage Loans" in this prospectus
supplement for additional information.
Monthly Advances
If the master servicer reasonably believes that cash advances can be
recovered from future payments or collections on the mortgage loans, the
master servicer will make cash advances to the trust fund to cover
delinquent mortgage loan payments in respect of interest. The master
servicer will make advances only to maintain a regular flow of scheduled
interest and principal payments on the certificates, not to guarantee or
insure against losses.
We refer you to "Description of the Certificates--Monthly Advances" in
this prospectus supplement for additional information.
The Certificates
1. General
o Each month the trustee will calculate the amount you are owed.
o If you hold a certificate on the last day of a calendar month, you will
be entitled to receive payments on the distribution date in the next
month.
We refer you to "Description of the Certificates" in this prospectus
supplement for additional information.
2. Interest Distributions
o Interest accrues on the certificates from the first day of a calendar
month through the last day of that calendar month.
On each distribution date, you will be entitled to the following:
o interest at the related certificate rate that accrued during the
related interest period; and
o any interest that was due on a prior distribution date and not paid.
In addition, interest will have accrued on the amount of interest
which was previously due and not paid.
We refer you to "Description of the Certificates--Interest" in this
prospectus supplement for additional information.
3. Principal Distributions
o Principal distributions are payable on each distribution date.
However, no class of certificates will receive a principal
distribution until the other classes with a lower numerical class
designation are paid in full.
o Shortfalls in available funds may result in a class receiving less
than what is due.
o The calculation of the amount a class is entitled to receive on each
distribution date and the priority of principal distributions among
the certificates is described in this prospectus supplement under
"Description of the Certificates--Principal."
We refer you to "Description of the Certificates--Principal" in this
prospectus supplement for additional information.
Credit Enhancements
1. The Certificate Insurance Policy: The certificate insurance policy
guarantees the payment of:
o accrued and unpaid interest on the senior certificates;
o principal losses on the mortgage loans in excess of
overcollateralization; and
o any principal amounts owed to the certificateholders on the last
scheduled distribution date.
We refer you to "The Certificate Insurer" in this prospectus supplement
for additional information.
2. Overcollateralization: On the closing date the aggregate principal
balance of the mortgage loans will equal the aggregate principal balance
of the certificates. The interest payments on the mortgage loans are
expected to exceed the amount of interest due and payable on the
certificates. This excess will be applied as principal payments to the
class of offered certificates then entitled to principal on that
distribution date. This will result in a limited acceleration of
principal payments on the certificates relative to the amortization of
the related mortgage loans, thereby creating overcollateralization for
the senior certificates. Once the required level of overcollateralization
is reached, the application of the excess interest payments will stop,
until it is again needed to maintain the required level of
overcollateralization.
The level of required overcollateralization will increase and decrease
over time. For example, an increase in the required level of
overcollateralization will result if the delinquency or default
experience on the mortgage loans exceeds certain set levels. In that
event, amortization of the offered certificates would be accelerated
until the level of overcollateralization reaches its required level.
We refer you to "Description of the Certificates--Overcollateralization"
in this prospectus supplement for additional information.
Pre-Funding Account
On the closing date, the trustee shall deposit $_______________ in the
pre-funding account. The trust will use the amounts on deposit in the
pre-funding account to acquire additional mortgage loans from the seller.
The trustee may only acquire such additional mortgage loans until
_________________.
If any amounts are left in the pre-funding account on
___________________, holders of the certificates will receive amounts
left in the pre-funding account on the next distribution date as payment
of principal.
We refer you to "Description of the Certificates--Pre-Funding Account" in
this prospectus supplement for additional information.
Capitalized Interest Account
On the closing date, the trustee shall deposit $_______________ in the
capitalized interest account. The trust will use the amounts on deposit
in the capitalized interest accounts to cover interest shortfalls on the
certificates expected to occur prior to the trust's purchase of the
additional mortgage loans. Until the trust purchases the additional
mortgage loans or prepays the certificates, interest payments on the
loans will not cover the amount of interest due on the certificates.
Any amounts left in the capitalized interest account after
_______________ will be paid to KeyBank.
We refer you to "Description of the Certificates--Capitalized Interest
Account" in this prospectus supplement for additional information.
Optional Termination
If the total pool principal balance declines below __% of the total pool
principal balance as of the cut-off date, then the seller may purchase
all of the mortgage loans and the related properties in the trust fund.
If the seller purchases all of the mortgage loans, you will receive a
final distribution and the trust fund will be terminated.
We refer you to "Description of the Certificates--Termination; Purchase
of the Mortgage Loans" in this prospectus supplement for more detail.
Federal Tax Considerations
For federal income tax purposes:
o An election will be made to treat the trust fund as a REMIC
o The offered certificates will be regular interests in the REMIC and
will be treated as debt instruments of the REMIC
o The residual certificates will represent the beneficial ownership of
the sole class of residual interest in the REMIC.
We refer you to "Federal Income Tax Consequences" in this prospectus
supplement and in this prospectus for additional information.
ERISA Considerations
The fiduciary responsibility provisions of the Employee Retirement Income
Security Act of 1974, or ERISA, can limit investments by certain pension
and other employee benefit plans. For example, the acquisition of
certificates by certain plans may be considered a "prohibited
transaction" under ERISA. Certain exemptions from the prohibited
transaction rules could be applicable to the acquisition of the offered
certificates. If you are a fiduciary of a pension or other employee
benefit plan which is subject to ERISA, you should consult with your
counsel regarding the applicability of the provisions of ERISA and the
tax code before purchasing an offered certificate.
We refer you to "ERISA Considerations" in this prospectus supplement and
the prospectus for additional information.
Legal Investment Considerations
The offered certificates are not mortgage related securities, for
purposes of the Secondary Mortgage Market Enhancement Act of 1984.
We refer you to "Legal Investment Considerations" in this prospectus
supplement and "Legal Investment" in the prospectus for additional
information.
Certificate Rating
The offered certificates will not be issued unless they receive the
following ratings:
___ by _________________
___ by _________________
A rating is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal by either rating agency.
We refer you to "Ratings" and "Risk Factors--Rating of the Securities" in
the prospectus for additional information.
<PAGE>
Risk Factors
You should carefully consider the following risk factors prior to any
purchase of certificates. You should also carefully consider the information
set forth under "Risk Factors" in the prospectus.
Consequences on Liquidity and Payment Delay Because of Owning Book-Entry
Certificates
o Limit on Liquidity of Certificates.
Issuance of certificates in book-entry form may reduce the liquidity of
the certificates in the secondary trading market since investors may be
unwilling to purchase certificates for which they cannot obtain physical
certificates.
o Limit on Ability to Transfer or Pledge.
Since transactions in the book-entry certificates can be effected only
through DTC, participating organizations, indirect participants and certain
banks, your ability to transfer or pledge a book-entry certificate to persons
or entities that do not participate in the DTC system or otherwise to take
actions in respect of such certificates, may be limited due to lack of a
physical certificate representing the book-entry certificates.
o Delays in Distributions.
You may experience some delay in the receipt of distributions on the
book-entry certificates since the distributions will be forwarded by the
trustee to DTC for DTC to credit the accounts of its participants which will
thereafter credit them to your account either directly or indirectly through
indirect participants, as applicable.
We refer you to "Description of the Certificates--Book-Entry Certificate"
in this prospectus supplement.
[Balloon Loan Risk
Balloon loans pose a risk because a borrower must pay a large lump sum
payment of principal at the end of the loan term. If the borrower is unable to
pay the lump sum or refinance such amount, you will suffer a loss if the
certificate insurer fails to perform its obligations under the policy.
Approximately ___% of the mortgage loans are balloon loans.]
Delay in Receipt of Liquidation Proceeds; Liquidation Proceeds May Be
Less than Mortgage Loan Balance
Substantial delays could be encountered in connection with the
liquidation of delinquent mortgage loans. Further, liquidation expenses such
as legal fees, real estate taxes and maintenance and preservation expenses
will reduce the portion of liquidation proceeds payable to you. If a mortgaged
property fails to provide adequate security for the mortgage loan, you will
incur a loss on your investment if the certificate insurer fails to perform
its obligations under the certificate insurance policy.
We refer you to "Legal Aspects of Loans--Foreclosure on Mortgages" in the
prospectus.
Prepayments Affect Timing and Rate of Return on Your Investment
The yield to maturity on your certificates will be directly related to
the rate of principal payments on the mortgage loans. Please consider the
following:
o Mortgagors may fully or partially prepay their mortgage loan at any
time. [However, some mortgage loans require that the mortgagor pay a
fee with any prepayment. This may result in the rate of prepayments
being slower than otherwise be the case.]
o All the mortgage loans contain due-on-sale provisions. Due-on-sale
provisions require the mortgagor to fully pay the mortgage loan when
the mortgaged property is sold. Generally, the master servicer will
enforce the due-on-sale provision unless prohibited by applicable law.
o The rate of principal payments on pools of mortgage loans is
influenced by a variety of factors, including general economic
conditions, interest rates, the availability of alternative financing
and homeowner mobility.
o We cannot predict the rate at which borrowers will repay their
mortgage loans, nor are we aware of any publicly available studies or
statistics on the rate of prepayment of mortgage loans similar to the
mortgage loans in the pool.
We refer you to "Prepayment and Yield Considerations" in this prospectus
supplement.
Certificate Rating Based Primarily on Claims-Paying Ability of the Certificate
Insurer
The rating on the certificates depends primarily on the claim's paying
ability of the certificate insurer. Therefore, a reduction of the rating
assigned to the claims-paying ability of the certificate insurer may have a
corresponding reduction on the ratings assigned to the certificates. A
reduction in the rating assigned to the certificates would reduce the market
value of the certificates and may affect your ability to sell them. In
general, the rating on your certificate addresses credit risk and does not
address the likelihood of prepayments.
We refer you to "Ratings" in this prospectus supplement.
Lien Priority Could Result in Payment Delay and Loss
Some of the mortgage loans are secured by mortgages which are junior in
priority. For mortgage loans in the trust fund secured by first mortgages, the
master servicer may consent under certain circumstances to a new first
priority lien regardless of the principal amount, which has the effect of
making the first mortgage a junior mortgage. Mortgage loans that are secured
by junior mortgages will receive proceeds from a sale of the related mortgaged
property only after any senior mortgage loans and prior statutory liens have
been paid. If the remaining proceeds are insufficient to satisfy the mortgage
loan in the trust fund and the certificate insurer fails to perform its
obligations under the policy, then:
o there will be a delay in distributions to you while a deficiency
judgment against the borrower is sought; and
o you may incur a loss if a deficiency judgment cannot be obtained.
Distributions and Rights of Investors Adversely Affected by Insolvency of
Seller
The sale of the mortgage loans from the seller to the trust will be
treated by the seller and the trust as a sale of the mortgage loans. If the
seller were to become insolvent, a receiver or conservator for, or a creditor
of, the seller, may argue that the transaction between the seller and the
trust is a pledge of mortgage loans as security for a borrowing rather than a
sale. Such an attempt, even if unsuccessful, could result in delays in
distributions to you.
[The seller will maintain possession of the documentation relating to
each mortgage and no assignment of any mortgage is required to be recorded in
the name of the trustee, unless the seller's long-term debt rating is reduced
below [describe]. Within 30 days of any such occurrence, the seller is
required to deliver the mortgage documents to the trustee and to either record
the assignments or deliver a legal opinion to the effect that recordation of
the assignments is not necessary in order to perfect the interest of trust in
the mortgages. Prior to delivery and recording, the interest of the trustee in
the mortgages, the mortgage notes and any proceeds from the mortgage loans may
be subject to the claims of creditors or to sale to a third party, as well as
to a receiver or conservator appointed in the event of the insolvency of the
seller.]
In an insolvency proceeding of the seller, if the mortgage notes have not
been delivered to the trustee and the mortgages have not been assigned of
record in the real property recording office to the trustee, the trust may be
a general unsecured creditor of the seller. If the trust were determined to be
a general unsecured creditor of the seller, the mortgages, the mortgage notes
and the proceeds thereof would not be available to make payments on the
certificates.
Interest Payments on the Mortgage Loans May Be Reduced
o Prepayments of Principal May Reduce Interest Payments. If a mortgagor
fully prepays a mortgage loan, the mortgagor is charged interest only
up to the date of the prepayment, instead of a full month. This may
result in an interest shortfall. The master servicer is obligated to
pay that interest shortfall, without any right of reimbursement, up to
the amount of its servicing fee for that month. If the servicing fee
is insufficient to pay such interest shortfalls attributed to
prepayments, they will be covered by the certificate insurance policy.
o Certain Interest Shortfalls Are Not Covered by the Master Servicer or
the Certificate Insurance Policy. The Soldiers' and Sailors' Civil
Relief Act of 1940 permits certain modifications to the payment terms
for mortgage loans, including a reduction in the amount of interest
paid by the borrower, under certain circumstances. Neither the master
servicer nor the certificate insurer will pay for any interest
shortfalls created by the Soldiers' and Sailors' Civil Relief Act of
1940.
Geographic Concentration Increases Risk That Certificate Yields Can be Impaired
The mortgaged properties relating to the mortgage loans are located in __
states and the District of Columbia. However, __% of the mortgaged properties
(by principal balance as of the cut-off date) are located in ______. If these
states experience in the future weaker economic conditions or greater rates of
decline in real estate values than the United States generally, then the
mortgage loans may experience higher rates of delinquencies and foreclosures
than would otherwise be the case.
Prepayment Risk Due to Lack of Subsequent Mortgage Loans
The trust will buy additional mortgage loans from the seller until
_______. The seller will sell mortgage loans to the trust if it has mortgage
loans to sell. The ability of the seller to originate and acquire additional
mortgage loans is affected by a variety of factors, including interest rates,
unemployment levels, the rate of inflation and consumer perception of economic
conditions generally. If the full amount deposited in the pre-funding account
for the purpose of purchasing additional mortgage loans cannot be used for
that purpose within [three] months from the closing date, any remaining
amounts will be paid to you as a prepayment on the certificates.
Risks Associated With Year 2000 Compliance
As is the case with most companies using computers in their operations,
the master servicer is faced with the task of preparing its computer systems
for year 2000. The year 2000 issue is the result of prior computer programs
being written using two digits, rather than four digits, to define the
applicable year. Any of the servicer's computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. Major computer system failure or miscalculations
may occur as a result. The servicer is presently engaged in various procedures
to ensure that their computer systems and software will be year 2000
compliant.
However, if the servicer or any of its suppliers, customers, brokers or
agents do not successfully and timely achieve year 2000 compliance, the
performance of obligations of the servicer could be materially adversely
affected. This could result in delays in processing payments on the mortgage
loans and may cause a related delay in payments to you.
The Certificate Insurer
[TO BE PROVIDED BY CERTIFICATE INSURER]
KeyBank National Association
KeyBank National Association, the seller, is a wholly owned subsidiary of
KeyCorp. The seller is a national banking association headquartered in
Cleveland, Ohio. The seller provides:
o retail and private banking services to customers including consumer
lending and deposit services;
o commercial banking services to small businesses, middle-market and
large corporate customers;
o capital market services; and
o trust and asset management services.
o The principal executive offices of the seller are located at Key
Tower, 127 Public Square, Cleveland, Ohio 44114 - - ====== (Telephone:
(216) 689-6300).
The Master Servicer
___________________, as master servicer will be responsible for servicing
the mortgage loans in accordance with the terms of the pooling and servicing
agreement. [Beginning on _______________, __________________________, as
subservicer, will service the mortgage loans for the master servicer pursuant
to a subservicing agreement. The terms and conditions of the subservicing
agreement are consistent with and do not violate the provisions of the pooling
and servicing agreement. The subservicing does not relieve the master servicer
from any of its obligations to service the mortgage loan in accordance with
the terms and conditions of the pooling and servicing agreement.] See
"--Servicing and Collection Procedures."
Credit and Underwriting Guidelines
The following is a description of the underwriting guidelines customarily
employed by the master servicer with respect to mortgage loans which it
purchases or originates.
[ ]
Servicing and Collection Procedures
The following is a description of the servicing policies and procedures
customarily and currently employed by the master servicer with respect to the
portion of its mortgage loan portfolio which it services.
[ ]
Delinquency Experience
The following table sets forth _____________'s delinquency experience on
its servicing portfolio of home equity loans (which includes home equity loans
subserviced by others for __________) similar to the mortgage loans for the
periods indicated. [The servicer believes that there have been no material
trends or anomalies in the historical delinquency and loss experience as
represented in the following tables. The information has not been adjusted to
eliminate the effect of the growth in the size of the servicer's portfolio
during the periods shown. Accordingly, loss and delinquency as percentages of
aggregate principal balance of such loans for each period may be higher than
those shown if a group of such loans were artificially isolated at a point in
time and the information showed the activity only in that isolated group.
There can be no assurance that the delinquency and loss experience of the
loans will be similar to that set forth below.] [The delinquency and loss
experience set forth below represents the experience with respect to only a
portion of the servicer's loan production for the periods indicated and has
not been adjusted to eliminate the effect of the significant growth in size of
the servicer's portfolio of mortgage loans during the periods shown.
Accordingly, loss and delinquency as a percentage of mortgage loans serviced
for each period could be higher than those shown if a group of mortgage loans
were artificially isolated at a point in time and the information showed the
activity only in that isolated group.]
<PAGE>
<TABLE>
<CAPTION>
[Champion Mortgage Co., Inc.]
[Delinquency Experience
(Dollars in thousands)
Year Ending September 30,
-----------------------------------------------------------------------
1996 1997 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number of Loans............. 9,058 14,327 19,565 25,244
Dollar Amount of
Loans.................... $ 526,816 $ 866,673 $ 1,309,172 $ 1,827,491
Delinquency Period
30-59 days
% of number of
loans............ 1.30% 2.14% 1.43% 1.58%
% of dollar
amount of loans.. 1.17% 2.16% 1.24% 1.17%
60-89 days
% of number of
loans............ 0.15% 0.34% 0.27% 0.42%
% of dollar
amount of loans... 0.14% 0.35% 0.25% 0.38%
90 days and over*
% of number of
loans.............. 0.69% 1.20% 0.82% 1.22%
% of dollar
amount of loans... 0.81% 1.27% 0.72% 1.03%
Loans in Foreclosure
% of number of
loans.............. 0.62% 0.51% 0.60% 0.61%
% of dollar amount
of loans........... 0.76% 0.60% 0.56% 0.71%
Total*
% of number of
loans................ 2.14% 3.68% 3.32% 4.08%
% of dollar amount
of loans............. 2.12% 3.78% 2.97% 3.52%
- -----------------------
*Includes loans in foreclosure and real estate owned.
</TABLE>
<TABLE>
<CAPTION>
Loss Experience
(Dollars in thousands)
Year Ending September 30,
-------------------------
1996 1997 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average Dollar
Amount of Loans
Outstanding During
Period....................... $ 367,584 $ 702,555 $ 1,103,510 $ 1,616,324
Net Losses...................... $ 39 $ 488 $ 1,142 $ 2,317
Net Losses as a
Percentage of
Average Amount
Outstanding.................. 0.01% 0.07% 0.11% 0.14%
- ----------------------
"Net Losses" means gross losses minus recoveries.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
[KeyBank National Association]
[Delinquency Experience
(Dollars in thousands)
Nine Months
Year Ending December 31, Ending September 30,
------------------------ --------------------
1997 1998 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number of Loans................ 228,837 220,017 224,088 219,784
Dollar Amount of
Loans....................... $ 5,519,071 $ 5,412,379 $ 5,508,729 $ 5,685,658
Delinquency Period
30-59 days
% of dollar
amount of loans...... 0.73% 0.81% 0.65% 0.65%
60-89 days
% of dollar
amount of loans....... 0.23% 0.30% 0.22% 0.18%
90+ days*
% of dollar
amount of loans....... 0.34% 0.36% 0.31% 0.30%
Total*
% of dollar amount
of loans............ 1.30% 1.47% 1.18% 1.13%
- ------------
*Includes loans in foreclosure and real estate owned.
</TABLE>
<TABLE>
<CAPTION>
Loss Experience
(Dollars in thousands)
Nine Months
Year Ending December 31, Ending September 30,
------------------------ --------------------
1997 1998 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Dollar
Amount of Loans
Outstanding At
End Of Period......... $ 5,519,071 $ 5,412,379 $ 5,508,729 $ 5,685,658
Net Losses............... $ 6,623 $ 5,954 $ 6,060 $ 6,823
Percentage of
Dollar Amount of Loans.... 0.12% 0.11% 0.11% 0.12%
- ------------
"Net Losses" means gross losses minus recoveries.
</TABLE>
Description of the Mortgage Loans
General
The statistical information presented in this prospectus supplement is
only with respect to the mortgage loans included in the trust and is based on
the characteristics of the mortgage loans as of _______, 199_, the cut-off
date.
The mortgage loans to be purchased by the trust will be originated or
purchased by the seller and transferred by the seller to the trust.
The mortgage pool consists of mortgage loans with an aggregate principal
balance, or pool principal balance, as of the cut-off date of $_________. The
principal balance of a mortgage loan, other than a liquidated mortgage loan on
any day is equal to its cut-off date principal balance minus all collections
applied in reduction of the cut-off date principal balance of the mortgage
loan.
In no event will more than 5% of the cut-off date pool principal balance
deviate from the characteristics of the mortgage loans described below.
The mortgage loans provide that interest is charged to the borrowers and
payments are due from the borrowers, as of a scheduled day of each month which
is fixed at the time of origination. Scheduled monthly payments made by the
borrowers on the mortgage loans either earlier or later than the scheduled due
dates will not affect the amortization schedule or the application of the
payments to principal and interest.
The sum of the columns below may not equal the total indicated due to
rounding. In addition, unless otherwise set forth herein, all percentages set
forth herein with respect to the mortgage loans are percentages of the cut-off
date pool principal balance.
<PAGE>
<TABLE>
<CAPTION>
Cut-Off Date Principal Balances
Range of Cut-Off Number of Cut-Off Date % of Cut-Off Date
Date Principal Balances Mortgage Loans Pool Balance Pool Balance
----------------------- -------------- ------------ -----------------
<S> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Geographic Distribution by State
Number of Cut-Off Date % of Cut-Off Date
State Mortgage Loans Pool Balance Pool Balance
----- -------------- ------------ -----------------
<S> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Loan-to-Value Ratios
Number of Cut-Off Date % of Cut-Off Date
Loan-to-Value Ratio Mortgage Loans Pool Balance Pool Balance
------------------- -------------- ------------ -----------------
<S> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Loan Rates
Number of Cut-Off Date % of Cut-Off Date
Loan Rates Mortgage Loans Pool Balance Pool Balance
- ---------- -------------- ------------ -----------------
<S> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Original Term to Stated Maturity
Original Term to Number of Cut-Off Date % of Cut-Off Date
Stated Maturity Mortgage Loans Pool Balance Pool Balance
- ---------------- -------------- ------------ -----------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Remaining Months to Stated Maturity
Remaining Term to Number of Cut-Off Date % of Cut-Off Date
Stated Maturity Mortgage Loans Pool Balance Pool Balance
- ------------------ -------------- ------------ -----------------
<S> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Months Since Origination
Number of Cut-Off Date % of Cut-Off Date
Months Since Origination Mortgage Loans Pool Balance Pool Balance
- ------------------------ -------------- ------------ -----------------
<S> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Property Type
Number of Cut-Off Date % of Cut-Off Date
Property Type Mortgage Loans Pool Balance Pool Balance
- ------------- -------------- ------------ -----------------
<S> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Occupancy Type
Number of Cut-Off Date % of Cut-Off Date
Occupancy Type Mortgage Loans Pool Balance Pool Balance
- -------------- -------------- ------------ -----------------
<S> <C> <C> <C>
</TABLE>
[Conveyance of Subsequent Mortgage Loans
The pooling and servicing agreement permits the trust fund to purchase
from __________, subsequent to the date hereof and prior to _______, 19__,
subsequent mortgage loans in an amount not to exceed approximately $________
in aggregate principal balance for inclusion in the trust fund. Each
subsequent mortgage loan will have been originated or purchased by __________
in accordance with the underwriting guidelines set forth above under "Credit
Underwriting and Guidelines." Accordingly, the statistical characteristics of
the mortgage pool set forth above are based exclusively on the initial
mortgage loans and the statistical characteristics of the mortgage pool after
giving effect to the acquisition of any subsequent mortgage loans will likely
differ from the information specified herein. Each date on which a subsequent
mortgage loan is transferred to the trust fund shall be referred to herein as
a subsequent transfer date.
Each conveyance of subsequent mortgage loans will be subject to, among
other things, the following conditions:
o the subsequent mortgage loans must
(a) comply with each representation and warranty as to the mortgage
loans set forth in the pooling and servicing agreement;
o the subsequent mortgage loan must not have been selected by the seller
in a manner that it believes is adverse to the interests of the
certificateholders,
o no subsequent mortgage loan may be ___ or more days contractually
delinquent as of the applicable cut-off date;
o no subsequent mortgage loan may have a remaining term to maturity in
excess of ___ years;
o no subsequent mortgage loan may have a mortgage rate less than ____%;
o following the purchase of subsequent mortgage loans by the trust fund,
the mortgage loans:
(b) will have a weighted average mortgage rate of at least ____%;
(c) will have a weighted average loan-to- value ratio of not more than
____%;
(d) will not have a weighted average remaining term to stated maturity
of more than ____ months; and
(e) will, in each case, have a principal balance in excess of $_______
as of the cut-off date;
o __________ [and the trustee shall not have been notified by either
rating agency that the conveyance of such subsequent mortgage loans will
result in a qualification, modification or withdrawal of its
then-current rating of any class of certificates] [shall have notified
each rating agency of such conveyance as required by the pooling and
servicing agreement]; and
o the trustee shall have received certain opinions of counsel as to, among
other things, the enforceability and validity of the transfer agreements
relating to such conveyance of such subsequent mortgage loans.]
Prepayment and Yield Considerations
General
The rate of principal payments on the offered certificates, the aggregate
amount of distributions on the offered certificates and the yield to maturity
of the offered certificates will be related to the rate and timing of payments
of principal on the mortgage loans. The rate of principal payments on the
mortgage loans will in turn be affected by the amortization schedules of the
mortgage loans and by the rate of principal prepayments including for this
purpose prepayments resulting from refinancing, liquidations of the mortgage
loans due to defaults, casualties, condemnations and repurchases by the
seller. The mortgage loans may be prepaid by the mortgagors at any time.
[However, approximately __% of the mortgage loans are subject to prepayment
penalties which vary from jurisdiction to jurisdiction.]
Prepayments, liquidations and purchases of the mortgage loans, including
any optional purchase by the master servicer of the remaining mortgage loans
in connection with the termination of the trust fund, will result in
distributions on the offered certificates of principal amounts which would
otherwise be distributed over the remaining terms of such mortgage loans.
Since the rate of payment of principal of the mortgage loans will depend on
future events and a variety of factors, no assurance can be given as to the
rate or the rate of principal prepayments. The extent to which the yield to
maturity of an offered certificate may vary from the anticipated yield will
depend upon the degree to which a certificate is purchased at a discount or
premium, and the degree to which the timing of payments is sensitive to
prepayments, liquidations and purchases of the mortgage loans.
The rate of prepayment on the mortgage loans cannot be predicted. The
prepayment experience of the trust fund with respect to the mortgage loans may
be affected by a wide variety of factors, including economic conditions,
prevailing interest rate levels, the availability of alternative financing and
homeowner mobility and changes affecting the deductibility for federal income
tax purposes of interest payments on loans. All of the mortgage loans contain
"due-on-sale" provisions, and, with respect to the mortgage loans, the master
servicer is required by the pooling and servicing agreement to enforce such
provisions, unless such enforcement is not permitted by applicable law. The
enforcement of a "due-on-sale" provision will have the same effect as a
prepayment of the related mortgage loan. See "Certain Legal Aspects of
Loans--Due-on-Sale Clauses in Mortgage Loans" in the prospectus.
As with fixed rate obligations generally, the rate of prepayment on a
pool of mortgage loans with fixed rates such as the mortgage loans is affected
by prevailing market rates for mortgage loans of a comparable term and risk
level. When the market interest rate is below the interest rate on a mortgage,
mortgagors may have an increased incentive to refinance their mortgage loans.
Depending on prevailing market rates, the future outlook for market rates and
economic conditions , some mortgagors may sell or refinance mortgaged
properties in order to realize their equity in the mortgaged properties, to
meet cash flow needs or to make other investments.
In addition to the foregoing factors affecting the weighted average life
of the offered certificates, the use of excess spread to pay principal of the
offered certificates to the extent required by the pooling and servicing
agreement will result in the acceleration of the offered certificates,
relative to the amortization of the mortgage loans in early months of the
transaction as well as, accelerating the first date on which each other class
of certificates will begin to receive distributions of principal than would
otherwise be the case. This acceleration feature creates overcollateralization
which results from the excess of the aggregate principal balance of mortgage
loans over the aggregate principal balance of the offered certificates. Once
the required level of overcollateralization is reached, the acceleration
feature will cease, unless necessary to maintain the required level of
overcollateralization. See "Description of the
Certificates--Overcollateralization Provisions."
Weighted Average Lives
Generally, greater than anticipated prepayments of principal will
increase the yield on the offered certificates purchased at a price less than
par and will decrease the yield on the offered certificates purchased at a
price greater than par. The effect on an investor's yield due to principal
prepayments on the mortgage loans occurring at a rate that is faster or slower
than the rate anticipated by the investor in the period immediately following
the issuance of the certificates will not be entirely offset by a subsequent
reduction or increase in the rate of principal payments. The weighted average
life of the offered certificates will also be affected by the amount and
timing of delinquencies and defaults on the mortgage loans and the recoveries,
if any, on defaulted mortgage loans and foreclosed properties.
The "weighted average life" of a certificate refers to the average amount
of time that will elapse from the date of issuance to the date each dollar in
respect of principal of such certificate is repaid. The weighted average life
of a certificate of any class is determined by (a) multiplying the amount of
each distribution in reduction of the related principal balance by the number
of years from the date of issuance of the certificate to the related
distribution date, (b) adding the results, and (c) dividing the sum by the
highest related principal balance of the certificate. The weighted average
life of any class of offered certificates will be influenced by, among other
factors, the rate at which principal payments are made on the mortgage loans,
including final payments made upon the maturity of balloon loans.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement is
the prepayment assumption, which represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of the pool of
mortgage loans for the life of the mortgage loans. A 100% prepayment
assumption assumes a conditional prepayment rate ("CPR") of [ ]% per annum of
the outstanding principal balance of such mortgage loans in the first month of
the life of the mortgage loans and an additional [ ]% (precisely [ ],
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 mortgage loans, a conditional prepayment rate of 20%
per annum each month is assumed. As used in the table below, 0% prepayment
assumption assumes a conditional prepayment rate equal to 0% of the prepayment
assumption, i.e., no prepayments. Correspondingly, [200]% prepayment
assumption assumes prepayment rates equal to [200]% 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 mortgage loans, including the
mortgage loans. KeyBank believes that no existing statistics of which it is
aware provide a reliable basis for holders of the offered certificates to
predict the amount or the timing of receipt of prepayments on the mortgage
loans.
Since the tables were prepared on the basis of the assumptions in the
following paragraph, there are discrepancies between characteristics of the
actual mortgage loans and the characteristics of the mortgage loans assumed in
preparing the tables. Any such discrepancy may have an effect upon the
percentages of the principal balances outstanding and weighted average lives
of the offered certificates set forth in the tables. In addition, since the
actual mortgage loans in the trust fund have characteristics which differ from
those assumed in preparing the tables set forth below, the distributions of
principal on the offered certificates may be made earlier or later than as
indicated in the tables.
For the purpose of the tables below, it is assumed that:
o the mortgage loans consist of pools of loans with the level-pay and
balloon amortization characteristics set forth below,
o the closing date for the offered certificates is ________________,
o distributions on the offered certificates are made on the 25th day of
each month regardless of the day on which the distribution date actually
occurs, commencing in _____________ and are made in accordance with the
priorities described herein,
o the scheduled monthly payments of principal and interest on the mortgage
loans will be timely delivered on the first day of each month, with no
defaults commencing in _______________,
o all prepayments are prepayments in full received on the last day of each
month, commencing ______________ and include 30 days' interest ,
o no optional termination is exercised,
o the offered certificates of each class have the respective certificate
rates and initial offered principal balances as set forth herein,
o the overcollateralization levels are set initially as specified in the
pooling and servicing agreement, and decrease in accordance with the
provisions of the pooling and servicing agreement,
o with respect to pools of loans with an assumed cut-off date of
_________________, interest will be calculated at a rate of % per annum
for one month],
o six-month LIBOR for each interest period will be % and
o one-month LIBOR for each interest period will be %.]
<TABLE>
<CAPTION>
Original Original Original
Amortiztion Term to Term to
Amortization Principal Term Maturity Maturity
Methodology Balance Loan Rate (months) (months) (months)
- ------------ --------- --------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
Balloon........... $
Level Pay.......... $
Level Pay.......... $
</TABLE>
Subject to the foregoing discussion and assumptions, the following table
indicates the weighted average life of each class of offered certificates, and
sets forth the percentages of the initial principal balance of each class of
offered certificates that would be outstanding after each of the dates shown
at various percentages of prepayment assumption.
<PAGE>
<TABLE>
<CAPTION>
Percent of Initial Class A Principal Balance Outstanding
at the Following Percentages of the Prepayment Assumption
Class A-1 Class A-2
--------- ----------
Distribution Date % % % % % % % %
- ----------------- - - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percentage....... 100 100 100 100 100 100 100 100
Weighted Average
Life (years).....
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class A-3 Class A-4
--------- ---------
Distribution Date % % % % % % % %
- ----------------- - - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percentage....... 100 100 100 100 100 100 100 100
Weighted Average
Life (years).....
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class A-5
---------
<S> <C> <C> <C> <C>
Distribution Date % % % %
Initial
Percentage....... 100 100 100 100
Weighted Average
Life (years)*....
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
These tables have been prepared based on the assumptions described above,
including the assumptions regarding the characteristics and performance of the
mortgage loans, which differ from the actual characteristics and performance ,
and should be read in conjunction therewith.
Description of the Certificates
The offered certificates will be issued pursuant to the pooling and
servicing agreement. The form of the pooling and servicing agreement has been
filed as an exhibit to the registration statement of which this prospectus
supplement and the prospectus is a part. The following summaries describe
certain provisions of the pooling and servicing agreement. The summaries do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the pooling and servicing
agreement. When particular sections or defined terms of the pooling and
servicing agreement are referred to, such sections or defined terms are
incorporated by reference.
General
The offered certificates will be issued in denominations of $[1,000] and
multiples of $[1] in excess thereof and will evidence specified undivided
interests in the trust fund. The property of the trust fund will consist of,
to the extent provided in the pooling and servicing agreement:
o the mortgage loans;
o payments on the mortgage loans received on and after the cut-off date,
exclusive of payments in respect of interest on the mortgage loans due
prior to the cut-off date and received thereafter;
o mortgaged properties relating to the mortgage loans that are acquired
by foreclosure or deed in lieu of foreclosure;
o the collection account and the distribution account and funds on
deposit excluding net earnings ; and
o rights under certain hazard insurance policies covering the mortgaged
properties.
In addition, KeyBank has caused the certificate insurer to issue an
irrevocable and unconditional certificate guaranty insurance policy for the
benefit of the holders of the offered certificates, pursuant to which the
certificate insurer will guarantee payments to the certificateholders.
Physical certificates will be transferable and exchangeable at the corporate
trust office of the trustee, which will initially act as certificate
registrar. See "--Book-Entry Certificates" below. No service charge will be
made for any registration of exchange or transfer of the certificates, but the
trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
The principal balance of a class of offered certificates on any
distribution date is equal to the related principal balance on the closing
date minus the aggregate of amounts actually distributed as principal to the
holders of that class. On any date, the aggregate principal balance is the
aggregate of the principal balances of the Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 certificates.
The person in whose name a certificate is registered in the certificate
register is referred to as a "certificateholder."
The "percentage interest" of a Class A certificate as of any date of
determination will be equal to the percentage obtained by dividing the
denomination of the certificate by the principal balance for the related class
as of the cut-off date.
The certificates will not be listed on any securities exchange.
Book-Entry Certificates
The offered certificates will be book-entry certificates. Persons
acquiring beneficial ownership interests in the offered certificates, or
"certificate owners," will hold their offered certificates through the
Depository Trust Company, commonly referred to as DTC, in the United States,
or Cedel Bank societe anonyme ("CEDEL") or the Euroclear System ("Euroclear")
in Europe, if they are participants of such systems, or indirectly through
organizations which are participants in such systems. The book-entry
certificates will be issued in one or more certificates which equal the
aggregate principal balance of the offered certificates and will initially be
registered in the name of Cede & Co., 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. Citibank
N.A. will act as depositary for CEDEL and Chemical Bank 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
certificate principal balances of $1,000 and in multiples of $1 in excess
thereof. Except as described below, no beneficial owner acquiring a book-entry
certificate will be entitled to receive a physical certificate representing
their certificate. Unless and until physical certificates are issued, it is
anticipated that the only certificateholder of the offered certificates will
be Cede & Co., as nominee of DTC. Certificate owners will not be
certificateholders as that term is used in the pooling and servicing
agreement. Certificate owners are only permitted to exercise their rights
indirectly through the DTC participants and DTC.
The certificate 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 that maintains the beneficial owner's account for
such purpose. In turn, the financial intermediary's ownership of a 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).
Certificate owners will receive all distributions of principal of, and
interest on, the offered certificates from the trustee through DTC and DTC
participants. Under the DTC system, DTC is required to make book-entry
transfers among its participants with respect to the book-entry certificates
and is required to receive and transmit distributions of principal of, and
interest on, the book-entry certificates. Participants and indirect
participants are similarly required to make book-entry transfers and receive
and transmit such distributions on behalf of their clients. Accordingly,
although certificate owners will not possess physical certificates, the DTC
system provides a mechanism by which certificate owners will receive
distributions and will be able to transfer their interest.
Generally, certificate owners will not receive or be entitled to receive
physical certificates representing their interests in the offered
certificates. Unless and until physical certificates are issued, certificate
owners who are not DTC participants may transfer ownership of book-entry
certificates only through the DTC system. Under the DTC system and in
accordance with DTC's normal procedures, transfers of ownership of book-entry
certificates will be executed through DTC and the accounts of the respective
participants at DTC will be debited and credited. Similarly, the participants
and indirect participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing certificate owners.
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 or Euroclear participant 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
settlement in DTC. For information with respect to tax documentation
procedures relating to the certificates, see "Federal Income Tax
Consequences--Foreign Investors" and "Backup Withholding" herein and "Global
Clearance, Settlement and Tax Documentation Procedures--Certain U.S. Federal
Income Tax Documentation Requirements" in Annex I.
Transfers between participants will occur in accordance with the DTC
system. 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 the DTC system on behalf of the relevant European
international clearing system by the Relevant Depositary. These cross market
transactions, however, 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
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.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its participants or representatives, some of which own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the book-entry certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of book-entry certificates will be subject to the rules,
regulations and procedures governing DTC and DTC participants as in effect
from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations 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 28 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 its 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 be
settled in any of 32 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 "Belgian
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 Belgian Cooperative. The Belgian
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 New York banking
corporation 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
distribution date by the trustee to 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 payments to the beneficial owners of the
book-entry certificates that it represents and to each financial intermediary
for which it acts as agent. Each 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. Distributions with
respect to 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.
See "Federal Income Tax Consequences--Foreign Investors" and "Backup
Withholding" herein. 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 DTC system,
or otherwise take actions in respect of such book-entry certificates, may be
limited due to the lack of physical certificates . In addition, issuance of
the book-entry certificates in book-entry form may reduce the liquidity of the
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 fund will be provided to Cede &
Co., as nominee of DTC, and may be made available by Cede & Co. to beneficial
owners upon request, in accordance with the rules, regulations and procedures
creating and affecting the DTC, and to the financial intermediaries to whose
DTC accounts the book-entry certificates of such beneficial owners are
credited.
DTC has advised the trustee that, unless and until physical certificates
are issued, DTC will take any action permitted to be taken by the holders of
the book-entry certificates under the pooling and servicing agreement only at
the direction of one or more financial intermediaries to whose DTC accounts
the book-entry certificates are credited, to the extent that such actions are
taken on behalf of financial intermediaries whose holdings include book-entry
certificates. CEDEL or the Euroclear Operator, as the case may be, will take
any other action permitted to be taken by a certificateholder under the
pooling and servicing agreement on behalf of a CEDEL participant or Euroclear
participant only in accordance with its relevant rules and procedures and
subject to the ability of the Relevant Depositary to effect such actions on
its behalf through DTC. DTC may take actions, at the direction of the related
participants, with respect to some book-entry certificates which conflict with
actions taken with respect to other book-entry certificates.
Physical certificates will be issued to beneficial owners of the
book-entry certificates, or their nominees, rather than to DTC, only if (a)
DTC or the seller advises the trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as
nominee and depository with respect to the book-entry certificates and the
seller or the trustee is unable to locate a qualified successor, (b) the
seller, at its sole option, with the consent of the trustee, elects to
terminate a book-entry system through DTC or (c) after the occurrence of an
Event of Servicing Termination (as defined under "--Events of Servicing
Termination"), beneficial owners having percentage interests aggregating not
less than 51% of the aggregate principal balance of the book-entry
certificates advise the trustee and DTC through the financial intermediaries
and the DTC participants in writing that the continuation of a book-entry
system through DTC, or its successor is no longer in the best interests of
beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
physical certificates. Upon surrender by DTC of the global certificate or
certificates representing the book-entry certificates and instructions for
re-registration, the trustee will issue physical certificates, and the trustee
will recognize the holders of the physical certificates as certificateholders
under the pooling and servicing agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of book-entry 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.
None of the seller, the master servicer 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 & Co., as nominee of DTC, or for maintaining, supervising or reviewing
any records relating to the beneficial ownership interests.
Assignment of Mortgage Loans
On the closing date, which is [___________], the seller will transfer to
the trust fund all of its right, title and interest in and to each mortgage
loan, the related mortgage notes, mortgages and other related documents
(collectively, the "Related Documents"), including all payments received on or
with respect to each such mortgage loan on or after the applicable cut-off
date, but not including interest payment due prior to the cut-off date. The
trustee, concurrently with the transfer, will deliver the certificates to the
seller. Each mortgage loan transferred to the trust fund will be identified on
a schedule delivered to the trustee pursuant to the pooling and servicing
agreement. The mortgage loan schedule will include information as to the
principal balance of each mortgage loan as of the cut-off date, its loan rate
as well as other information.
[Under the terms of the pooling and servicing agreement, the seller will
maintain possession of the mortgage file, the documentation relating to each
mortgage loan for so long as an Assignment Event has not occurred.
[An Assignment Event will occur on the [ ]th day following either:
o the occurrence and continuance of an event of default,
o the reduction of the seller's long-term unsecured debt rating below
"Baa2" by Moody's or "BBB" by S&P or Fitch, or
o the suspension, termination or withdrawal of the seller's long-term
unsecured debt rating by Moody's or S&P.]
[Within [ ] days of an Assignment Event, the seller will cause as soon as
practicable the mortgage files pertaining to each mortgage loan to be
delivered to the trustee. As specified in the pooling and servicing agreement,
the trustee will acknowledge the assignment of the mortgage loans to the trust
fund and KeyBank will agree to hold the mortgage files for and on behalf of
the trustee.]
Within [ ] days of an Assignment Event, the trustee will review the
mortgage loans and the Related Documents pursuant to the pooling and servicing
agreement and if any mortgage loan or Related Document is found to be
defective in any material respect and the defect is not cured within [ ] days
following notification to the seller, the seller will be obligated to either
replace the defective mortgage loan with an Eligible Substitute Mortgage Loan
or to repurchase the defective mortgage loan. A substitution is permitted only
within two years of the closing date and may not be made unless an opinion of
counsel is provided to the effect that the substitution will not disqualify
the trust fund or result in a prohibited transaction tax under the Internal
Revenue Code of 1986, as amended. The seller may purchase the defective
mortgage loan at a price equal to the outstanding principal balance of that
mortgage loan as of the date of purchase, plus all accrued and unpaid interest
thereon, computed at the loan rate, net of the master servicing fee, if
KeyBank is the master servicer, plus the amount of any unreimbursed servicing
advances made by the master servicer. The purchase price will be deposited in
the collection account on or prior to the next succeeding Determination Date
after such obligation arises. The Determination Date is the eighteenth day of
each month. The obligation of the seller to repurchase or substitute for a
defective mortgage loan is the sole remedy regarding any defects in the
mortgage loans and related documents available to the trustee or the
certificateholders.
In connection with the substitution of an Eligible Substitute Mortgage
Loan, the seller will be required to deposit in the collection account on or
prior to the next succeeding Determination Date after such obligation arises
an amount (the "Substitution Adjustment") equal to the excess of the principal
balance of the related defective mortgage loan over the principal balance of
the Eligible Substitute Mortgage Loan.
An "Eligible Substitute Mortgage Loan" is a mortgage loan substituted by
the seller for a defective mortgage loan which must, on the date of such
substitution:
o have an outstanding principal balance (or in the case of a substitution
of more than one mortgage loan for a defective mortgage loan, an
aggregate principal balance), equal to or less than [ ]% less than the
principal balance of the defective mortgage loan;
o have a loan rate not less than the loan rate of the defective mortgage
loan and not more than [ ]% in excess of the loan rate of a defective
mortgage loan;
o have a mortgage of the same or higher level of priority as the defective
mortgage loan at the time the mortgage was transferred to the trust fund;
o have a remaining term to maturity not more than six months earlier and
not later than the remaining term to maturity of the defective mortgage
loan;
o comply with each representation and warranty set forth in the pooling and
servicing agreement (deemed to be made as of the date of substitution);
o have an original loan-to- value ratio not greater than that of the
defective mortgage loan; and
o be of the same type of mortgaged property as the defective mortgage loan
or a detached single family residence. More than one Eligible Substitute
Mortgage Loan may be substituted for a defective mortgage loan if such
Eligible Substitute Mortgage Loans meet the foregoing attributes in the
aggregate and the substitution is approved in writing in advance by the
certificate insurer.
The seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
trustee with respect to each mortgage loan (e.g., cut-off date principal
balance and the loan rate). In addition, the seller will represent and
warrant, on the closing date, that, among other things:
o at the time of transfer to the trust fund, the seller has transferred or
assigned all of its right, title and interest in each mortgage loan and
the Related Documents, free of any lien; and
o each mortgage loan complied, at the time of origination, in all material
respects with applicable state and federal laws.
Upon discovery of a breach of any representation and warranty which
materially and adversely affects the interests of the trust fund, the
certificateholders or the certificate insurer in the related mortgage loan and
Related Documents, the seller will have a period of [ ] days after discovery
or notice of the breach to effect a cure. If the breach cannot be cured within
the [ ]-day period, the seller will be obligated to substitute for the
defective mortgage loan with an Eligible Substitute Mortgage Loan or purchase
the defective mortgage loan from the trust fund. The same procedure and
limitations that are set forth above for the substitution or purchase of
defective mortgage loans as a result of deficient documentation will apply to
the substitution or purchase of a defective mortgage loan as a result of a
breach of a representation or warranty in the pooling and servicing agreement
that materially and adversely affects the interests of the certificateholders
or the certificate insurer.
Pursuant to the pooling and servicing agreement, the master servicer will
service and administer the mortgage loans as more fully set forth above.
Payments on Mortgage Loans; Deposits to Collection Account and Distribution
Account
The master servicer shall establish and maintain in the name of the
trustee a separate collection account for the benefit of the holders of the
certificates. The collection account will be an Eligible Account. Subject to
the investment provision described in the following paragraphs, upon receipt
by the master servicer of amounts in respect of the mortgage loans (excluding
amounts representing the master servicing fee), the master servicer will
deposit such amounts in the collection account. Amounts deposited may be
invested in Eligible Investments maturing no later than two business days
prior to the next succeeding date on which amounts on deposit in the
collection account are required to be deposited in the distribution account.
The trustee will establish an account into which amounts withdrawn from
the collection account for distribution to certificateholders on a
Distribution Date will be deposited. The distribution account will be an
Eligible Account. Amounts on deposit in the distribution account may be
invested in Eligible Investments maturing on or before the business day prior
to the related distribution date.
An "Eligible Account" is an account that is [ maintained with a
depository institution whose debt obligations at the time of any deposit
therein have the highest short-term debt rating by the rating agencies, and
whose accounts are fully insured by either the Savings Association Insurance
Fund or the Bank Insurance Fund of the FDIC established by such fund with a
minimum long-term unsecured debt rating of "A2" by Moody's and "A" by S&P,
otherwise acceptable to each rating agency and the certificate insurer as
evidenced by a letter from each rating agency and the certificate insurer to
the trustee, without reduction or withdrawal of their then current ratings of
the certificates.]
Eligible Investments are specified in the pooling and servicing agreement
and are limited to investments which meet the criteria of the rating agencies
from time to time as being consistent with their then current ratings of the
certificates. "Eligible Investments" are limited to:
o direct obligations of, or obligations fully guaranteed as to timely
payment of principal and interest by, the United States or any agency or
instrumentality of the United States, provided that such obligations are
backed by the full faith and credit of the United States;
o repurchase agreements on obligations specified in the prior clause
maturing not more than three months from the date of acquisition ,
provided that the short-term unsecured debt obligations of the party
agreeing to repurchase such obligations are at the time rated by each
rating agency in its highest short-term rating category;
o certificates of deposit, time deposits and bankers' acceptances (which,
if Moody's is a rating agency, shall each have an original maturity of
not more than 90 days and, in the case of bankers' acceptances, shall in
no event have an original maturity of more than 365 days) of any U.S.
depository institution or trust company incorporated under the laws of
the United States or any state thereof and subject to supervision and
examination by either federal or state banking authorities, provided that
the unsecured short-term debt obligations of such depository institution
or trust company at the date of acquisition have been rated by each of
the rating agencies in its highest unsecured short-term debt rating
category;
o commercial paper (having original maturities of not more than 90 days) of
any corporation incorporated under the laws of the United States or any
state thereof which on the date of acquisition has been rated by the
rating agencies in their highest short-term rating categories;
o short term investment funds sponsored by any trust company or bank
incorporated under the laws of the United States or any state thereof
which on the date of acquisition has been rated by the rating agencies in
their respective highest rating category of long term unsecured debt;
o interests in any money market fund which at the date of acquisition of
the interests in such fund and throughout the time as the interest is
held in such fund has the rating specified by each rating agency; and
o other obligations or securities that are acceptable to each rating agency
as an Eligible Investment and will not result in a reduction in the then
current rating of the certificates, as evidenced by a letter to such
effect from such rating agency and with respect to which the master
servicer has received confirmation that, for tax purposes, the investment
complies with the last clause of this definition; provided that no
instrument described hereunder shall evidence either the right to receive
o only interest with respect to the obligations underlying such instrument
or
o 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 120% of
the yield to maturity at par of the underlying obligations; and
o provided, further, that no instrument described in this prospectus
supplement 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 its stated maturity.]
Advances
Not later than two business days prior to each distribution date, the
master servicer will remit to the trustee for deposit in the distribution
account the monthly advance. The amount of the monthly advance is equal to the
sum of the interest accrued due on each mortgage loan through the related due
date but not received by the master servicer as of the close of business on
the last day of the related due period net of the master servicing fee. This
obligation of the master servicer continues with respect to each mortgage loan
until the mortgage loan becomes a liquidated mortgage loan.
In the course of performing its servicing obligations, the master
servicer will pay all reasonable and customary "out-of-pocket" costs and
expenses incurred in the performance of its servicing obligations, including,
but not limited to, the cost of:
o the preservation, restoration and protection of the mortgaged properties,
o any enforcement or judicial proceedings, including foreclosures, and
o the management and liquidation of mortgaged properties acquired in
satisfaction of the related mortgage. Each such expenditure will
constitute a servicing advance.
The master servicer's right to reimbursement for servicing advances is
limited to late collections on the related mortgage loan, including
liquidation proceeds, insurance proceeds and other amounts which may be
collected by the master servicer from the related mortgagor or otherwise
relating to the mortgage loan in respect of which the unreimbursed amounts are
owed. The master servicer's right to reimbursement for monthly advances shall
be limited to late collections of interest on any mortgage loan and to
liquidation proceeds and insurance proceeds on the related mortgage loan. The
master servicer's right to the reimbursements is prior to the rights of
certificateholders.
Notwithstanding the foregoing, the master servicer is not required to
make any monthly advance or servicing advance if in the good faith judgment
and sole discretion of the master servicer, the master servicer determines
that an advance will not be ultimately recoverable from collections received
from the mortgagor in respect of the related mortgage loan or other recoveries
in respect of the mortgage loan. However, if any servicing advance or monthly
advance is determined by the master servicer to be nonrecoverable from such
sources, the amount of the nonrecoverable advance may be reimbursed to the
master servicer from other amounts on deposit in the collection account.
Distribution Dates
On the [25th] day of each month, or if that day is not a business day,
then on the first business day thereafter, commencing in ___________, each
such day a "distribution date", the holders of the offered certificates will
be entitled to receive amounts to the extent of funds available in the
distribution account in accordance with the priorities and in the amounts
described below under "Priority of Distributions." Distributions will be made
in an aggregate amount equal to the sum of the class interest distribution for
each class of offered certificates and (b) the Class A Principal
Distributions.
The Class A Principal Distribution will be made by:
o wire transfer or otherwise to the account of the certificateholder at a
domestic bank or other entity having appropriate facilities in
immediately available funds to holders of the offered certificates, the
aggregate principal balance of which is at least $1,000,000, or
o by check to the address of the person on the certificate register
maintained by the certificate registrar.
Deposits to the Distribution Account
No later than one business day prior to each Distribution Date, the
following amounts and the previous Due Period shall be deposited into the
distribution account (the "Available Funds"). The amount of Available Funds
for any distribution date will be equal to the sum of:
o payments of principal and interest on the mortgage loans net of amounts
representing the master servicing fee with respect to each mortgage loan
and reimbursement for related monthly advances and servicing advances;
o net liquidation proceeds and insurance proceeds with respect to the
mortgage loans, net of amounts applied to the restoration or repair of a
mortgaged property;
o the purchase price for repurchased defective mortgage loans with respect
to the mortgage loans and any related substitution adjustment amounts;
o payments from the master servicer in connection with
o monthly advances,
o prepayment interest shortfalls and
o the termination of the trust fund with respect to the mortgage loans as
provided in the pooling and servicing agreement; and
o any amounts paid under the certificate insurance policy.
Priority of Distributions
On each distribution date the trustee shall withdraw from the
distribution account the sum of Available Funds in the following order
of priority:
o to the trustee, the trustee fee for such distribution date;
o to holders of each class certificates, an amount equal to the related
class interest distribution for such distribution date;
o sequentially, to the Class A-1, Class A-2, Class A-3, Class A-4 and Class
A-5 certificateholders, in that order, until the respective principal
balance of each class is reduced to zero, the related Class A Principal
Distribution other than the portion constituting the Distributable Excess
Spread for such distribution date; provided, however, that after the
occurrence and continuance of an Insurer Default, such portion of the
principal distribution will be distributed pro rata to the holders
thereof based on the respective principal balances;
o to the certificate insurer, the amount owing to the certificate insurer
under the insurance agreement for the premium payable in respect of the
certificates; and
o sequentially, to the Class A-1, Class A-2, Class A-3, Class A-4 and Class
A-5 certificateholders, in that order, until the respective principal
balance of each class is reduced to zero, the related Distributable
Excess Spread for such distribution date; provided, however, that after
the occurrence and continuance of an Insurer Default, such Distributable
Excess Spread for the [ ] will be distributed pro rata to the holders
based on the respective principal balances.
(i)to the master servicer, the amount of any accrued and unpaid
master servicing fee;
(ii) to the certificate insurer, amounts owing to the
certificate insurer for reimbursement for prior draws made on the policy;
(iii) to the master servicer, the amount of nonrecoverable
advances not previously reimbursed;
(iv) to the certificate insurer, any other amounts owing to the
certificate insurer under the insurance agreement; and
(v)to the Class R certificateholders, the balance.]
"Interest period" means, with respect to each distribution date, the period
from the first day of the calendar month preceding the month of the
distribution date through the last day of the calendar month. Interest in
respect of any distribution date will accrue on the certificates during each
interest period on the basis of a 360-day year consisting of twelve 30-day
months.
Interest
On each distribution date, to the extent of funds available , interest
will be distributed with respect to each class of offered certificates in an
amount (each, a "Class Distribution") equal to the sum of
o one month's interest at the related certificate rate on the related
principal balance immediately prior to the distribution date ("Class
Monthly Interest Distributable Amount") and
o any Class Interest Carryover Shortfall for the class for the distribution
date. As to any distribution date and class of offered certificates, the
"Class Interest Carryover Shortfall" is equal to the excess of the
related Class Monthly Interest Distributable Amount for the preceding
distribution date and any outstanding Class Interest Carryover Shortfall
with respect to the class on the preceding distribution date, over the
amount in respect of interest that is actually distributed to such class
on the preceding distribution date plus
o one month's interest on such excess, to the extent permitted by law, at
the related certificate rate. [The interest entitlement of one month's
interest at the related certificate rate on the related principal balance
will be reduced by such class' pro rata share of Civil Relief Act
Interest Shortfalls, if any, for such distribution date. Civil Relief Act
Interest Shortfalls will not be covered by payments under the Policy.]
On each distribution date, the Class Interest Distribution for each class
of offered certificates will be distributed on an equal priority and any
shortfall in the amount required to be distributed as interest to each class
will be allocated between the classes pro rata based on the amount each class
would have been distributed in the absence of the shortfall. See
"--Crosscollateralization" below.
Principal
On each distribution date, to the extent of funds available , in
accordance with the priorities described above under "--Priorities of
Distributions," principal will be distributed to the holders of offered
certificates then entitled to distributions of principal in an amount equal to
the lesser of (a) the related aggregate principal balance and (b) the related
Class A Principal Distribution for the distribution date. "Class A Principal
Distribution" means, with respect to any distribution date, the sum of the
related Class A Monthly Principal Distributable Amount for such distribution
date and any outstanding Class A Principal Carryover Shortfall as of the close
of business on the preceding distribution date.
"Class A Monthly Principal Distributable amount" means, with respect to
any distribution date, to the extent of funds available the amount equal to
the sum of the following amounts (without duplication) with respect to the
immediately preceding Due Period (as defined below):
o [(i) each payment of principal on a mortgage loan received by the master
servicer during the Due Period, including all full and partial principal
prepayments,
o the principal balance as of the end of the immediately preceding Due
Period of each mortgage loan that became a liquidated mortgage loan for
the first time during the related Due Period,
o the portion of the purchase price allocable to principal of all
repurchased defective mortgage loans with respect to the Due Period,
o any Substitution Adjustment Amounts received on or prior to the previous
Determination Date and not yet distributed, and
o such portion not greater than 100% of Excess Spread, if any, required to
be distributed on such distribution date to satisfy the required level of
overcollateralization for such distribution date (the "Distributable
Excess Spread").]
"Class A Principal Carryover Shortfall" means, with respect to any
distribution date, the excess of the sum of the related Class A Monthly
Principal Distributable Amount for the preceding distribution date and any
outstanding Class A Principal Carryover Shortfall on the preceding
distribution date over the amount in respect of principal that is actually
distributed to the Class A certificateholders on such preceding distribution
date.
If the required level of overcollateralization is reduced below the then
existing amount of overcollateralization or if the required level of
overcollateralization is satisfied, the amount of the related Class A Monthly
Principal Distributable Amount on the following distribution date will be
correspondingly reduced by the amount of the reduction or by the amount
necessary such that the overcollateralization will not exceed the required
level of overcollateralization after giving effect to the distribution in
respect of principal to be made on such distribution date.
The application of Distributable Excess Spread is intended to create
overcollateralization to provide a source of additional cashflow to cover
losses on the mortgage loans. A draw on the certificate insurance policy in
respect of principal will not be made until the principal balance exceeds the
aggregate principal balance of the mortgage loans. See "--The Policy."
Accordingly, there may be distribution dates on which offered
certificateholders receive little or no distributions in respect of principal.
So long as an insurer default has not occurred and is continuing,
distributions of the Class A Principal Distribution will be applied,
sequentially, to the distribution of principal to the Class A-1, Class A-2,
Class A-3, Class A-4 and Class A-5 certificates, in that order, such that no
class of certificates having a higher numerical designation is entitled to
distributions of principal until the principal balance of each such class of
certificates having a lower numerical designation has been reduced to zero. On
any distribution date if an insurer default has occurred and is continuing,
the Class A Principal Distribution will be applied to the distribution of
principal of each such class outstanding on a pro rata basis in accordance
with the principal balance of each such class.
On each distribution date following an insurer default, net losses
realized in respect of liquidated mortgage loans, to the extent such amount is
not covered by Available Funds or the crosscollateralization mechanics , will
reduce the amount of overcollateralization, if any.
"Due Period" means, with respect to any Determination Date or
distribution date, the calendar month immediately preceding the Determination
Date or distribution date, as the case may be.
A liquidated mortgage loan, as to any distribution date, is a mortgage
loan with respect to which the master servicer has determined, in accordance
with the servicing procedures specified in the pooling and servicing
agreement, as of the end of the preceding Due Period, that all liquidation
proceeds which it expects to recover with respect to such mortgage loan
(including disposition of the related REO property) have been recovered.
"Excess Spread" means, with respect to any distribution date, the
positive excess, if any, of (a) Available Funds for such distribution date
over (b) the amount required to be distributed pursuant to first four items as
set forth under the heading "Description of the Certificates--Priority of
Distributions" on the Distribution Date.
An insurer default will occur in the event the certificate insurer fails
to make a payment required under the certificate insurance policy or if
certain events of bankruptcy or insolvency occur with respect to the
certificate insurer.
The Policy
The following information has been supplied by the certificate insurer
for inclusion in this prospectus supplement. Accordingly, neither the seller
nor the master servicer makes any representation as to the accuracy and
completeness of such information.
[TO BE PROVIDED BY CERTIFICATE INSURER]
Overcollateralization
The credit enhancement provisions of the trust fund result in a limited
acceleration of the offered certificates relative to the amortization of the
mortgage loans in the early months of the transaction. The accelerated
amortization is achieved by the application of Distributable Excess Spread to
principal distributions on the offered certificates. This acceleration feature
creates overcollateralization (i.e., the excess of the aggregate outstanding
principal balance of the mortgage loans over the related aggregate principal
balance). Once the required level of overcollateralization is reached, and
subject to the provisions described in the next paragraph, the acceleration
feature will cease, until necessary to maintain the required level of
overcollateralization.
The pooling and servicing agreement provides that, subject to certain
floors, caps and triggers, the required level of overcollateralization may
increase or decrease over time. Any decrease in the required level of
overcollateralization will occur only at the sole discretion of the
certificate insurer. Any decrease will have the effect of reducing the
amortization of the offered certificates below what it otherwise would have
been.
[Pre-Funding Account
On the closing date, $___________ will be deposited in a funding account.
The prefunding account shall be in the name of and maintained by the trustee
and shall be part of the trust fund and will be used to acquire subsequent
mortgage loans. During the funding period beginning on the closing date and
terminating on _____________, 19__, the pre-funded amount will be reduced by
the amount used to purchase subsequent mortgage loans in accordance with the
pooling and servicing agreement. Any pre-funded amount remaining at the end of
the funding period will be distributed to holders of the classes of
certificates entitled to receive principal on the distribution date in
______________, 19__ in reduction of the related certificate principal
balances, this will result in a partial principal prepayment of the related
certificates on that date.
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
capitalized interest account. The pre-funding account shall not be an asset of
the REMIC. All reinvestment earnings on the pre-funding account shall be owned
by, and be taxable to, the seller.
Capitalized Interest Account
On the closing date, a portion of the proceeds from the sale of
certificates will be deposited in the capitalized interest account. The
capitalized interest account shall be maintained with and in the name of the
trustee on behalf of the trust fund. The amount deposited therein will be used
by the trustee on the distribution dates in __________________ 19__,
_____________ 19__ and ______________, 19__ to cover shortfalls in interest on
the certificates that may arise as a result of interest shortfalls on the
certificates during the funding period. Any amounts remaining in the
capitalized interest account at the end of the funding period which are not
needed to cover shortfalls on the distribution date in ___________ 19__ are
required to be paid directly to KeyBank. [The capitalized interest account
shall not be an asset of the REMIC. All reinvestment earnings on the
capitalized interest account shall be owned by, and be taxable to, the
seller.]
Reports to Certificateholders
Concurrently with each distribution to the certificateholders, the
trustee will forward to each holder a statement, based solely on information
received from the master servicer, setting forth among other items with
respect to each distribution date:
(1) the aggregate amount of the distribution to each class of
certificateholders on such distribution date;
(2) the amount of distribution set forth in paragraph (1) above in
respect of interest and the amount thereof in respect of any Class
Interest Carryover Shortfall, and the amount of any Class Interest
Carryover Shortfall remaining;
(3) the amount of distribution set forth in paragraph (1) above in
respect of principal and the amount thereof in respect of the Class A
Principal Carryover Shortfall, and any remaining Class A Principal
Carryover Shortfall;
(4) the amount of Excess Spread and the amount applied as to a
distribution on the certificates;
(5) the Guaranteed Principal Amount, if any, for such distribution
date;
(6) the amount paid under the certificate insurance policy for such
distribution date in respect of the Class Interest Distribution to each
class of certificates;
(7) the master servicing fee;
(8) the pool principal balance, as of the close of business on the
last day of the preceding Due Period;
(9) the aggregate principal balance and the principal balance of
each class of offered certificates after giving effect to payments
allocated to principal above;
(10) the amount of overcollateralization as of the close of business
on the distribution date, after giving effect to distributions of
principal on such distribution date;
(11) the number and aggregate principal balances of the mortgage
loans as to which the minimum monthly payment is delinquent for 30-59
days, 60-89 days and 90 or more days, respectively, as of the end of the
preceding Due Period;
(12) the book value of any real estate which is acquired by the
trust fund through foreclosure or grant of deed in lieu of foreclosure;
(13) the aggregate amount of prepayments received on the mortgage
loans during the previous Due Period; and
(14) the weighted average loan rate on the mortgage loans as of the
first day of the month prior to the distribution date.
In the case of information furnished pursuant to clauses (2) and (3)
above, the amounts shall be expressed as a dollar amount per certificate with
a $1,000 denomination.
Within 60 days after the end of each calendar year, the trustee will
forward to each person, if requested in writing by the person, who was a
certificateholder during the prior calendar year a statement containing the
information set forth in clauses (2) and (3) above aggregated for such
calendar year.
Last Scheduled Distribution Date
The last scheduled distribution date for each class of offered
certificates is as follows:
o Class A-1 certificates, ;
o Class A-2 certificates, ;
o Class A-3 certificates, ;
o Class A-4 certificates, and
o Class A-5 certificates.
It is expected that the actual last distribution date for each class of
offered certificates will occur significantly earlier than such scheduled
distribution dates. See "Prepayment and Yield Considerations".
Such last scheduled distribution dates are based on a 0% prepayment
assumption with no Distributable Excess Spread and the assumptions set forth
above under "Prepayment and Yield Considerations--Weighted Average Lives";
provided that the last scheduled distribution dates for the Class A-5
certificates have been calculated assuming that the mortgage loan having the
latest maturity date allowed by the pooling and servicing agreement amortizes
according to its terms, plus one year.
Collection and Other Servicing Procedures on Mortgage Loans
The master servicer will make reasonable efforts to collect all payments
called for under the mortgage loans and will, consistent with the pooling and
servicing agreement, follow such collection procedures as it follows from time
to time with respect to the loans in its servicing portfolio comparable to the
mortgage loans. Consistent with the above, the master servicer may in its
discretion waive any late payment charge or any assumption or other fee or
charge that may be collected in the ordinary course of servicing the mortgage
loans.
With respect to the mortgage loans, the master servicer may arrange with
a borrower a schedule for the payment of interest due and unpaid for a period,
provided that any such arrangement is consistent with the master servicer's
policies with respect to the mortgage loans it owns or services.
Hazard Insurance
The master servicer will cause to be maintained fire and hazard insurance
with extended coverage customary in the area where the mortgaged property is
located, in an amount which is at least equal to the lesser of:
o [the maximum insurable value of the improvements securing the mortgage
loan from time to time and
o the combined principal balance owing on the mortgage loan and any
mortgage loan senior to such mortgage loan.]
o The master 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 lesser of:
o the maximum insurable value from time to time of the improvements which
are a part of such property and
o the combined principal balance owing on such mortgage loan and any senior
to such mortgage loan.]
In cases in which any mortgaged property is located in a federally designated
flood area as designated by the Federal Emergency Management Agency, the
hazard insurance to be maintained for the related mortgage loan shall include
flood insurance to the extent such flood insurance is available and the master
servicer has determined such insurance to be necessary in accordance with
accepted first and second mortgage loan servicing standards, as applicable.
o All such flood insurance shall be in amounts equal to the lesser of
o [ the amount in the combined principal balance owing on the mortgage loan
and any mortgage loan senior to such mortgage loan and
o the maximum amount of insurance available under the National Flood
Insurance Act of 1968, as amended.] The master servicer will also
maintain on REO property, to the extent such insurance is available, fire
and hazard insurance in the applicable amounts described above, liability
insurance and, to the extent required and available under the National
Flood Insurance Act of 1968, as amended, and the master servicer
determines that such insurance is necessary in accordance with accepted
mortgage servicing practices of prudent lending institutions, flood
insurance in an amount equal to that required above. Any amounts
collected by the master servicer under any such policies (other than
amounts to be applied to the restoration or repair of the mortgaged
property, or to be released to the mortgagor in accordance with customary
mortgage servicing procedures) will be deposited in the collection
account, subject to retention by the master servicer to the extent such
amounts constitute servicing compensation or to withdrawal pursuant to
the pooling and servicing agreement.
In the event that the master servicer obtains and maintains a blanket
policy as provided in the pooling and servicing agreement insuring against
fire and hazards of extended coverage on all of the mortgage loans, then, to
the extent such policy names the master servicer as loss payee and provides
coverage in an amount equal to the aggregate unpaid principal balance of the
mortgage loans without coinsurance, and otherwise complies with the
requirements of the first paragraph of this subsection, the master servicer
will be deemed conclusively to have satisfied its obligations with respect to
fire and hazard insurance coverage.
Realization upon Defaulted Mortgage Loans
The master servicer will foreclose upon or otherwise comparably convert
to ownership mortgaged properties securing the mortgage loans as they come
into default when, in accordance with applicable servicing procedures under
the pooling and servicing agreement, no satisfactory arrangements can be made
for the collection of delinquent payments. In connection with the foreclosure
or other conversion, the master servicer will follow practices as it deems
necessary or advisable and as are in keeping with its general mortgage
servicing activities, provided that the master servicer will not be required
to expend its own funds in connection with foreclosure or other conversion,
correction of default on a related senior mortgage loan or restoration of any
property unless, in its sole judgment, such foreclosure, correction or
restoration will increase net liquidation proceeds. The master servicer will
be reimbursed out of liquidation proceeds for advances of its own funds as
liquidation expenses before any net liquidation proceeds are distributed to
certificateholders.
Servicing Compensation and Payment of Expenses
With respect to each Due Period, the master servicer will receive from
interest payments in respect of the mortgage loans, on behalf of itself, a
portion of such interest payments as a monthly servicing fee in the amount
equal to 0.__% per annum, or the servicing rate, on the principal balance of
each mortgage loan as of the first day of each such Due Period. All assumption
fees, late payment charges and other fees and charges, to the extent collected
from borrowers, will be retained by the master servicer as additional
servicing compensation.
The master servicer's right to reimbursement for unreimbursed servicing
advances is limited to late collections on the related mortgage loan,
including liquidation proceeds, insurance proceeds and such other amounts as
may be collected by the master servicer from the related mortgagor or
otherwise relating to the mortgage loan in respect of which such unreimbursed
amounts are owed. The master servicer's right to reimbursement for
unreimbursed monthly advances shall be limited to late collections of interest
on any mortgage loan and to liquidation proceeds and insurance proceeds on the
related mortgage loan. The master servicer's right to such reimbursements is
prior to the rights of certificateholders. However, if any servicing advance
or monthly advance is determined by the master servicer to be nonrecoverable
from such sources, the amount of such nonrecoverable advances may be
reimbursed to the master servicer from other amounts on deposit in the
collection account.
Civil Relief Act Interest Shortfalls will not be covered by the
certificate insurance policy, although Prepayment Interest Shortfalls, after
application of the master servicing fee, will be covered. The master servicer
is not obligated to offset any of the master servicing fee against, or to
provide any other funds to cover, any shortfalls in interest collections on
the mortgage loans that are attributable to the application of the Civil
Relief Act ("Civil Relief Act Interest Shortfalls"). See "Risk
Factors--Payments on the Mortgage Loans" in this Prospectus Supplement.
Evidence as to Compliance
The pooling and servicing agreement provides for delivery on or before
[the last day of the fifth month following the end of the master servicer's
fiscal year, beginning in 199_,] to the trustee, the seller, the certificate
insurer and the rating agencies of an annual statement signed by an officer of
the master servicer to the effect that the master servicer has fulfilled its
material obligations under the pooling and servicing agreement throughout the
preceding fiscal year, except as specified in such statement.
On or before [the last day of the fifth month] following the end of the
master servicer's fiscal year, beginning in 199_, the master servicer will
furnish a report prepared by a firm of nationally recognized independent
public accountants (who may also render other services to the master servicer
or KeyBank) to the trustee, the seller, the certificate insurer and the rating
agencies to the effect that such firm has examined certain documents and the
records relating to servicing of the mortgage loans under the Uniform Single
Attestation Program for Mortgage Bankers and such firm's conclusion with
respect thereto.
The master servicer's fiscal year is the calendar year.
Events of Default
Events of default will consist of:
(1) (a) any failure of the master servicer to make any required monthly
advance or (b) any other failure of the master servicer to deposit in the
collection account or distribution account any deposit required to be made
under the pooling and servicing agreement, which failure continues unremedied
for two business days after the giving of written notice of such failure to
the master servicer by the trustee, or to the master servicer and the trustee
by the certificate insurer or any certificateholder;
(2) any failure by the master servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the pooling and
servicing agreement which, in each case, materially and adversely affects the
interests of the certificateholders or the certificate insurer and continues
unremedied for [ ] days after the giving of written notice of such failure to
the master servicer by the trustee, or to the master servicer and the trustee
by the certificate insurer or any certificateholder;
(3) any failure by the master servicer to make any required servicing
advance, which failure continues unremedied for a period of [ ] days after the
giving of written notice of such failure to the master servicer by the
trustee, or to the master servicer and the trustee by the certificate insurer
or any certificateholder; or
(4) any insolvency event which includes events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings relating to the master servicer and actions by the master servicer
indicating insolvency, reorganization or inability to pay its obligations.
Upon the occurrence and continuation beyond the applicable grace period
of the event described in clause (1) (a) above, if any monthly advance is not
made by [ ] P.M., New York City time, on the second business day following
written notice to the master servicer of such event, the trustee will make
such monthly advance and either the trustee or a successor master servicer
will immediately assume the duties of the master servicer.
Upon removal or resignation of the master servicer, the trustee will be
the successor master servicer. The trustee, as successor master servicer, will
be obligated to make monthly advances and servicing advances and other
advances unless it determines reasonably and in good faith that such advances
would not be recoverable.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (1) above for a period of [ ] business days or
referred to under clause (2) above for a period of [ ] business days, shall
not constitute an event of default if such delay or failure could not be
prevented by the exercise of reasonable diligence by the master servicer and
such delay or failure was caused by an act of God or other similar occurrence.
Upon the occurrence of any such event the master servicer shall not be
relieved from using its best efforts to perform its obligations in a timely
manner in accordance with the terms of the pooling and servicing agreement and
the master servicer shall provide the trustee, the certificate insurer and the
certificateholders prompt notice of such failure or delay by it, together with
a description of its efforts to so perform its obligations.
Rights upon an Event of Default
So long as an event of default remains unremedied, either (1) the
trustee, certificateholders holding certificates evidencing at least 51% of
the voting rights in the trust fund, with the consent of the certificate
insurer, or (2) the certificate insurer may terminate all of the rights and
obligations of the master servicer under the pooling and servicing agreement
and in and to the mortgage loans. In these circumstances, the trustee will
succeed to all the responsibilities, duties and liabilities of the master
servicer under the pooling and servicing agreement and will be entitled to
similar compensation arrangements. In the event that the trustee would be
obligated to succeed to all the responsibilities, duties and liabilities of
the master servicer but is unwilling or unable so to act, it may appoint, or
petition a court of competent jurisdiction for the appointment of, a housing
and home finance institution or other mortgage loan or home equity loan
servicer with all licenses and permits required to perform its obligations
under the pooling and servicing agreement. The appointed servicer must have a
net worth of at least [$50,000,000] and must be acceptable to the certificate
insurer to act as successor to the master servicer under the pooling and
servicing agreement. Pending such appointment, the trustee will be obligated
to act in such capacity unless prohibited by law. Such successor will be
entitled to receive the same compensation that the master servicer would
otherwise have received, or lesser compensation as the trustee and such
successor may agree. A receiver or conservator for the master servicer may be
empowered to prevent the termination and replacement of the master servicer if
the only event of default that has occurred is an insolvency event specified
in Clause (4) under "-Events of Default."
Amendment
The pooling and servicing agreement may be amended from time to time by
the seller, the master servicer, and the trustee and with the consent of the
certificate insurer, but without the consent of the certificateholders, to
cure any ambiguity, to correct or supplement any provisions therein which may
be inconsistent with any other provisions of the pooling and servicing
agreement, to add to the duties of the seller or the master servicer to comply
with any requirements imposed by the Internal Revenue Code or any regulation
thereunder, or to add or amend any provisions of the pooling and servicing
agreement as required by the rating agencies in order to maintain or improve
any rating of the offered certificates. After obtaining the ratings in effect
on the closing date, neither the seller, the trustee, the certificate insurer
nor the master servicer is obligated to obtain, maintain, or improve any such
rating or to add 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 will not, as evidenced by an opinion of counsel,
materially and adversely affect the interests of any certificateholder or the
certificate insurer; provided, further, that any such amendment will not be
deemed to materially and adversely affect the certificateholders and no such
opinion will be required to be delivered if the person requesting the
amendment obtains a letter from the rating agencies stating that the amendment
would not result in a downgrading of the then current rating of the offered
certificates. The pooling and servicing agreement may also be amended from
time to time by the seller, the master servicer, and the trustee, with the
consent of certificateholders evidencing at least 51% of the percentage
interests of each class affected and the certificate insurer 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 of modifying in any
manner the rights of the certificateholders, provided that no such amendment
will
o reduce in any manner the amount of, or delay the timing of, collections
of payments on the certificates or distributions or payments under the
certificate invoice policy which are required to be made on any certificate
without the consent of the certificateholder, or
o reduce the percentage interest required to consent to any such
amendment, without the consent of the holders of all offered certificates
then outstanding.
Termination; Purchase of Mortgage Loans
The trust fund will terminate on the distribution date following the
later of
o payment in full of all amounts owing to the certificate insurer unless
the certificate insurer shall otherwise consent and
o the earliest of
(1) the distribution date on which the aggregate principal balance of
the offered certificates has been reduced to zero,
(2) the final payment or other liquidation of the last mortgage loan in
the trust fund,
(3) the optional purchase by the master servicer of the mortgage loans,
as described below and
(4) the distribution date in [ ] on which date the certificate invoice
policy will be available to pay the outstanding aggregate principal
balance of the offered certificates.
Subject to provisions in the pooling and servicing agreement concerning
adopting a plan of complete liquidation, the master servicer may, at its
option, terminate the pooling and servicing agreement on any date on which the
pool principal balance is less than 5% of the sum of the cut-off date pool
principal balance by purchasing, on the next succeeding distribution date, all
of the outstanding mortgage loans at a price equal to the sum of the
outstanding pool principal balance (subject to reduction as provided in the
pooling and servicing agreement if the purchase price is based [in part on the
appraised value of any REO property included in the trust fund and such
appraised value is less than the principal balance of the related mortgage
loan) and accrued and unpaid interest thereon at the weighted average of the
loan rates through the end of the Due Period preceding the final distribution
date together with all amounts due and owing to the certificate insurer.]
Any such purchase shall be accomplished by deposit into the distribution
account of the purchase price specified above.
Voting Rights
Under the pooling and servicing agreement, the voting rights will be
allocated to the offered certificates among the classes in proportion to their
respective principal balances. Voting rights allocated to a class of
certificates will be further allocated among the certificates of such class on
the basis of their respective percentage interests. [So long as no insurer
default is continuing, the certificate insurer will be entitled to exercise
the voting rights of the Class A certificates].
The Trustee
________________________________________, has been named trustee pursuant
to the pooling and servicing agreement.
The trustee may have normal banking relationships with the seller and the
master servicer.
The trustee may resign at any time, in which event the seller will be
obligated to appoint a successor trustee, as approved by the certificate
insurer. The seller may also remove the trustee if the trustee ceases to be
eligible to continue as such under the pooling and servicing agreement or if
the trustee becomes insolvent. Upon becoming aware of such circumstances, the
seller will be obligated to appoint a successor trustee, as approved by the
certificate insurer. 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.
No holder of a certificate will have any right under the pooling and
servicing agreement to institute any proceeding with respect to the pooling
and servicing agreement unless such holder previously has given to the trustee
written notice of default and unless certificateholders holding certificates
evidencing at least 51% of the percentage interests in the trust fund have
made written requests 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. The trustee will be under no obligation to exercise any
of the trusts or powers vested in it by the pooling 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 certificateholders, unless such
certificateholders have offered to the trustee reasonable security or
indemnity against the cost, expenses and liabilities which may be incurred.
Use of Proceeds
The net proceeds to be received from the sale of the certificates will be
applied by the seller towards general corporate purposes.
Federal Income Tax Consequences
An election will be made to treat the trust fund as a REMIC for federal
income tax purposes under the Internal Revenue Code of 1986, as amended (the
"Code"). In the opinion of tax counsel, the offered certificates will be
designated as "regular interests" in the REMIC and the Class R certificates
will be designated as the sole class of residual interests in the REMIC. See
"Federal Income Tax Consequences--Taxation of the REMIC and its Holders" in
the prospectus.
The offered certificates generally will be treated as debt instruments
issued by the REMIC for federal income tax purposes. Income on the offered
certificates must be reported under an accrual method of accounting.
The offered certificates may, depending on their issue price, be issued
with original issue discount ("OID") for federal income tax purposes. Holders
of the certificates issued with OID will be required to include OID in income
as it accrues under a constant yield method, in advance of the receipt of cash
attributable to the income. The OID regulations do not contain provisions
specifically interpreting Code Section 1272(a)(6) which applies to prepayable
securities similar to the offered certificates. Until the Treasury Department
issues guidance to the contrary, the trustee intends to base its OID
computation on Code Section 1272(a)(6) and the OID regulations as described in
the prospectus. However, because no regulatory guidance currently exists under
Code Section 1272(a)(6), there can be no assurance that such methodology
represents the correct manner of calculating OID.
The yield used to calculate accruals of OID with respect to the offered
certificates with OID will be the original yield to maturity of the
certificates, determined by assuming that the mortgage loans will prepay in
accordance with % of the prepayment assumption. No representation is made as
to the actual rate at which the mortgage loans will prepay.
In the opinion of Tax Counsel, the offered certificates will be treated
as regular interests in a REMIC under section 860G of the Code. Accordingly,
the offered certificates will be treated as
o assets described in section 7701(a)(19)(C) of the Code, and
o "real estate assets" within the meaning of section 856(c)(4)(A) of the
Code, in each case to the extent described in the prospectus.
Interest on the offered certificates 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 to the same extent that the offered
certificates are treated as real estate assets. See "Federal Income Tax
Consequences" in the prospectus.
Backup Withholding
Certain certificate owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the offered certificates if the
certificate owners, upon issuance, fail to supply the trustee or their broker
with their taxpayer identification number, furnish an incorrect taxpayer
identification number, fails to report interest, dividends, or other
"reportable payments" (as defined in the Code) properly, or, under certain
circumstances, fails to provide the trustee or their broker with a certified
statement, under penalty of perjury, that they are not subject to backup
withholding.
The trustee will be required to report annually to the IRS, and to each
offered certificateholder of record, the amount of interest paid (and OID
accrued, if any) on the offered certificates (and the amount of interest
withheld for Federal income taxes, if any) for each calendar year, except as
to exempt holders (generally, holders that are corporations, certain
tax-exempt organizations or nonresident aliens who provide certification as to
their status as nonresidents). As long as the only "Class A certificateholder"
of record is Cede, as nominee for DTC, certificate owners and the IRS will
receive tax and other information including the amount of interest paid on the
certificates owned from participants and indirect participants rather than
from the trustee. (The trustee, however, will respond to requests for
necessary information to enable participants, indirect participants and
certain other persons to complete their reports.) Each non-exempt certificate
owner will be required to provide, under penalty of perjury, a certificate on
IRS Form W-9 containing his or her name, address, correct federal taxpayer
identification number and a statement that he or she is not subject to backup
withholding. Should a nonexempt certificate owner fail to provide the required
certification, the participants or indirect participants (or the paying agent)
will be required to withhold 31% of the interest (and principal) otherwise
payable to the holder, and remit the withheld amount to the IRS as a credit
against the holder's federal income tax liability.
Any interest paid or OID accrued will be deemed distributed to the
affected certificate owner for all purposes of the certificates, the pooling
and servicing agreement and the certificate invoice policy.
Final regulations dealing with withholding tax on income paid to foreign
persons, backup withholding and related matters (the "New Withholding
Regulations") were issued by the Treasury Department on October 6, 1997. The
New Withholding Regulations generally will be effective for payments made
after December 31, 2000, subject to certain transition rules. Prospective
certificate owners are strongly urged to consult their own tax advisors with
respect to the New Withholding Regulations.
Federal Income Tax Consequences to Foreign Investors
The following information describes the United States federal income tax
treatment of holders that are not United States persons ("Foreign Investors").
The term "Foreign Investor" means any person other than:
o a citizen or resident of the United States,
o a corporation, partnership or other entity organized in or under the
laws of the United States, any state thereof or the District of
Columbia, (other than a partnership that is not treated as a United
States person under any applicable Treasury Department regulations),
o an estate the income of which is includible in gross income for United
States federal income tax purposes, regardless of its source,
o a trust fund if a court within the United States is able to exercise
primary supervision over the administration of the trust fund and one
or more United States persons have authority to control all substantial
decisions of the trust fund, or
o certain trusts treated as United States persons before August 20, 1996
that elect to continue to be so treated to the extent provided in
regulations.
The Code and Treasury Department regulations generally subject interest
paid to a Foreign Investor to a withholding tax at a rate of 30% (unless the
withholding tax rate were changed by an applicable treaty). The withholding
tax, however, is eliminated with respect to certain "portfolio debt
investments" issued to Foreign Investors. Portfolio debt investments include
debt instruments issued in registered form for which the United States payor
receives a statement that the beneficial owner of the instrument is a Foreign
Investor. The offered certificates will be issued in registered form,
therefore if the information required by the Code is furnished (as described
below) and no other exceptions to the withholding tax exemption are
applicable, no withholding tax will apply to the offered certificates.
For the offered certificates to constitute portfolio debt investments
exempt from the United States withholding tax, the withholding agent must
receive from the certificate owner an executed IRS Form W-8 or similar form
signed under penalty of perjury by the certificate owner stating that the
certificate owner is a foreign investor and providing the certificate owner's
name and address. The statement must be received by the withholding agent in
the calendar year in which the interest payment is made, or in either of the
two preceding calendar years.
A certificate owner that is a nonresident alien or foreign corporation
will not be subject to United States federal income tax on gain realized on
the sale, exchange, or redemption of the offered certificate, provided that:
o the gain is not effectively connected with a trade or business carried
on by the certificate owner in the United States,
o in the case of a certificate owner that is an individual, the
certificate owner is not present in the United States for 183 days or
more during the taxable year in which such sale, exchange or redemption
occurs and
o in the case of gain representing accrued interest, the conditions
described in the immediately preceding paragraph are satisfied.
In addition, prospective certificate owners are strongly urged to consult
their own tax advisors with respect to the New Withholding Regulations. See
"Federal Income Tax Consequences - Backup Withholding".
State Taxes
The seller makes no representations regarding the tax consequences of
purchase, ownership or disposition of the offered certificates under the tax
laws of any state. Investors considering an investment in the certificates
should consult their own tax advisors regarding such tax consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the certificates.
ERISA Considerations
Any Plan fiduciary which proposes to cause a Plan to acquire any of the
offered certificates should consult with its counsel with respect to the
potential consequences under the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and the Code, of the Plan's acquisition and
ownership of the certificates. See "Erisa Considerations" in the Prospectus.
The U.S. Department of Labor has granted to _________________________ the
underwriter Prohibited Transaction Exemption _____ (the "Exemption") which
exempts from the application of the prohibited transaction rules transactions
relating to (1) the acquisition, sale and holding by Plans of certain
certificates representing an undivided interest in certain asset-backed
pass-through trusts, with respect to which _____________ or any of its
affiliates is the sole underwriter or the manager or co-manager of the
underwriting syndicate; and (2) the servicing, operation and management of
such asset-backed pass-through trusts, provided that the general conditions
and certain other conditions set forth in the Exemption are satisfied. The
Exemption will apply to the acquisition, holding and resale of the offered
certificates by a Plan, provided that certain conditions (certain of which are
described below) are met.
Among the conditions which must be satisfied for the Exemption to apply
are the following:
(1) The acquisition of the offered certificates by a Plan is on
terms (including the price for such certificates) that are at least as
favorable to the investing Plan as they would be in an arm's-length
transaction with an unrelated party;
(2) The rights and interests evidenced by the offered certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust fund;
(3) The offered 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 S&P, Moody's, DCR or Fitch .
(4) The sum of all payments made to and retained by the underwriter
in connection with the distribution of the offered certificates
represents not more than reasonable compensation for underwriting such
certificates; the sum of all payments made to and retained by the seller
pursuant to the sale of the mortgage loans to the trust fund represents
not more than the fair market value of these mortgage loans; the sum of
all payments made to and retained by the master servicer represents not
more than reasonable compensation for the master servicer's services
under the pooling and servicing agreement and reimbursement of the master
servicer's reasonable expenses in connection therewith;
(5) The trustee is not an affiliate of any underwriter, the seller,
the master servicer, the certificate insurer, any borrower whose
obligations under one or more mortgage loans constitute more than 5% of
the aggregate unamortized principal balance of the assets in the trust
fund, or any of their respective affiliates; and
(6) The Plan investing in the offered certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the SEC under
the Securities Act of 1933, as amended.
The underwriter believes that the Exemption as amended will apply to the
acquisition and holding of the offered certificates by Plans and that all
conditions of the Exemption other than those within the control of the
investors will be met.
We suggest that any Plan fiduciary considering whether to purchase any
offered certificates on behalf of a Plan consult with its counsel regarding
the applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment. Among other things,
before purchasing any offered certificates, a fiduciary of a Plan subject to
the fiduciary responsibility provisions of ERISA or an employee benefit plan
subject to the prohibited transaction provisions of the Code should make its
own determination as to the availability of the exemptive relief provided in
the Exemption, and also consider the availability of any other prohibited
transaction exemptions.
Legal Investment Considerations
The offered certificates will constitute mortgage related securities for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") so
long as they are rated in one of the two highest rating categories by at least
one nationally recognized statistical rating organization and are legal
investments for certain entities to the extent provided in SMMEA.
Institutions whose investment activities are subject to review by federal
or state regulatory authorities should consult with their counsel or the
applicable authorities to determine whether an investment in the offered
certificates complies with applicable guidelines, policy statements or
restrictions. See "Legal Investment" in the Prospectus.
Underwriting
Subject to the terms and conditions set forth in the underwriting
agreement, dated ____________________, between the seller and
______________________, the seller has agreed to sell to the underwriter and
the underwriter has agreed to purchase from the seller the offered
certificates.
Distributions of the offered certificates will be made from time to time
in negotiated transactions or otherwise at varying prices to be determined at
the time of sale. Proceeds to the seller from the sale of the offered
certificates will be approximately $ , plus accrued interest, before deducting
expenses payable by the seller, estimated to be $ in the aggregate. In
connection with the purchase and sale of the offered certificates, the
underwriter may be deemed to have received compensation from the seller in the
form of underwriting discounts.
The seller has been advised by the underwriter that it presently intends
to make a market in the offered certificates; however, it is not obligated to
do so, any market-making may be discontinued at any time, and there can be no
assurance that an active public market for the offered certificates will
develop.
The underwriting agreement provides that the seller will indemnify the
underwriter against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended.
Experts
[__________]
Legal Matters
Certain legal matters with respect to the offered certificates will be
passed upon for the seller by _____________________, and ___________________,
and for the underwriter by ____________________.
Ratings
It is a condition to the issuance of the offered certificates that they
receive ratings of "AAA" by _______ and "Aaa" by ______.
A securities rating addresses the likelihood of the receipt by offered
certificateholders of distributions on the mortgage loans. The rating takes
into consideration the characteristics of the mortgage loans and the
structural, legal and tax aspects associated with the offered certificates.
The ratings on the offered certificates do not, however, constitute statements
regarding the likelihood or frequency of prepayments on the mortgage loans or
the possibility that offered certificateholders might realize a lower than
anticipated yield.
The ratings assigned to the offered certificates will depend primarily
upon the creditworthiness of the certificate insurer. Any reduction in a
rating assigned to the claims-paying ability of the certificate insurer below
the ratings initially assigned to the offered certificates may result in a
reduction of one or more of the ratings assigned to the offered certificates.
A securities 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 securities rating should be evaluated
independently of similar ratings on different securities.
<TABLE>
<CAPTION>
Index of Defined Terms
<S> <C>
Assignment Event.............................................................................................S-30
Available Funds..............................................................................................S-35
Class A Monthly Principal Distributable Amount...............................................................S-38
Class A Principal Carryover Shortfall........................................................................S-38
Class Distribution...........................................................................................S-37
Class Interest Carryover Shortfall...........................................................................S-37
Class Interest Distribution..................................................................................S-37
Class Monthly Interest Distributable Amount..................................................................S-37
Closing Date..................................................................................................S-5
Code.........................................................................................................S-49
Cut-Off Date..................................................................................................S-5
Distributable Excess Spread..................................................................................S-36
Distribution Date.............................................................................................S-5
Due Period...................................................................................................S-39
Eligible Account.............................................................................................S-32
Eligible Investment.........................................................................................S-32
Eligible Substitute Mortgage Loan............................................................................S-31
Excess Spread................................................................................................S-39
Insurer Default..............................................................................................S-36
Related Documents............................................................................................S-30
Substitution Adjustment......................................................................................S-31
</TABLE>
<PAGE>
Annex I
Global Clearance, Settlement and Tax Documentation Procedures
Except in certain limited circumstances, the globally offered [ ] Home
Equity Loan Asset-Backed Certificates, Series 199___ (the "Global Securities")
will be available only in book-entry form. Investors in the Global Securities
may hold these Global Securities through any of DTC, CEDEL or Euroclear. The
Global Securities will be tradeable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary
trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior mortgage pass-through
certificates issues.
Secondary cross-market trading between CEDEL or Euroclear and DTC
participants holding Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of CEDEL
and Euroclear (in such capacity) and as DTC participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. ("Cede") as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect participants in DTC. As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to prior Mortgage Pass-Through
Certificates issues. Investor securities custody accounts will be credited
with their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants.
Secondary market trading between DTC participants will be settled using
the procedures applicable to prior mortgage pass-through certificates issues
in same-day funds.
Trading between CEDEL and/or Euroclear Participants.
Secondary market trading between CEDEL participants or Euroclear
participants will be settled using the procedures applicable to conventional
eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser.
When Global Securities are to be transferred from the account of a DTC
participant to the account of a CEDEL participant or a Euroclear participant,
the purchaser will send instructions to CEDEL or Euroclear through a CEDEL
participant or Euroclear participant at least one business day prior to
settlement. CEDEL or Euroclear will instruct the respective depositary, as the
case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date, on the basis of
either the actual number of days in such accrual period and a year assumed to
consist of 360 days or a 360-day year of 12 30-day months as applicable to the
related class of Global Securities. For transactions settling on the 31st of
the month, payment will include interest accrued to and excluding the first
day of the following month. Payment will then be made by the respective
Depositary of the DTC participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the CEDEL participant's or Euroclear
participant's account. The securities credit will appear the next day
(European time) and the cash debt will be back-valued to, and the interest on
the Global Securities will accrue from, the value date (which would be the
preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the CEDEL or
Euroclear cash debt will be valued instead as of the actual settlement date.
CEDEL participants and Euroclear participants will need to make available
to the respective clearing systems the funds necessary to process same-day
funds settlement. The most direct means of doing so is to preposition funds
for settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL participants or Euroclear participants can elect not to
preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL participants or Euroclear participants
purchasing Global Securities would incur overdraft charges for one day,
assuming they cleared the overdraft when the Global Securities were credited
to their accounts. However, interest on the Global Securities would accrue
from the value date. Therefore, in many cases the investment income on the
Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will
depend on each CEDEL participant's or Euroclear participant's particular cost
of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending Global Securities
to the respective European depositary for the benefit of CEDEL participants or
Euroclear participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC participants a cross-market
transaction will settle no differently than a trade between two DTC
participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser.
Due to time zone differences in their favor, CEDEL participants and
Euroclear participants may employ their customary procedures for transactions
in which Global Securities are to be transferred by the respective clearing
system, through the respective Depositary, to a DTC participant. The seller
will send instructions to CEDEL or Euroclear through a CEDEL participant or
Euroclear participant at least one business day prior to settlement. In these
cases CEDEL or Euroclear will instruct the respective depositary, as
appropriate, to deliver the Global Securities to the DTC participant's account
against payment. Payment will include interest accrued on the Global
Securities from and including the last coupon payment to and excluding the
settlement date on the basis of either the actual number of days in such
accrual period and a year assumed to consist of 360 days or a 360-day year of
12 30-day months as applicable to the related class of Global Securities. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. The payment
will then be reflected in the account of the CEDEL participant or Euroclear
participant the following day, and receipt of the cash proceeds in the CEDEL
participant's or Euroclear participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the CEDEL participant or Euroclear participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the CEDEL participant's or
Euroclear participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC participants for delivery to CEDEL participants or
Euroclear participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC participant no
later than one day prior to settlement, which would give the Global Securities
sufficient time to be reflected in their CEDEL or Euroclear account in order
to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participant is at least one
day prior to the value date for the sale to the CEDEL participant or Euroclear
participant.
U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through CEDEL
or Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8).
Beneficial owners of Global Securities that are non-U.S. Persons can
obtain a complete exemption from the withholding tax by filing a signed Form
W-8 (Certificate of Foreign Status). If the information shown on Form W-8
changes, a new Form W-8 must be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224).
A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001).
Non-U.S. Persons that are Certificate Owners residing in a country that
has a tax treaty with the United States can obtain an exemption or reduced tax
rate (depending on the treaty terms) by filing Form 1001 (Ownership, Exemption
or Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by the Certificate Owners or his agent.
Exemption for U.S. Persons (Form W-9).
U.S. Persons can obtain a complete exemption from the withholding tax by
filing Form W-9 (Payer's Request for Taxpayer Identification Number and
Certification).
U.S. Federal Income Tax Reporting Procedure.
The Certificate Owner of a Global Security or, in the case of a Form 1001
or a Form 4224 filer, his agent, files by submitting the appropriate form to
the person through whom it holds (the clearing agency, in the case of persons
holding directly on the books of the clearing agency). Form W-8 and Form 1001
are effective for three calendar years and Form 4224 is effective for one
calendar year.
The term "U.S. Person" means
o (i) a citizen or resident of the United States,
o (ii) a corporation or partnership organized in or under the laws of the
United States, any state thereof or the District of Columbia, (other
than a partnership that is not treated as a United States person under
any applicable Treasury Department regulations),
o (iii) an estate the income of which is includible in gross income for
United States tax purposes, regardless of its source,
o (iv) 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.
o certain trusts treated as United States persons before August 20, 1996
that elect to continue to be so treated to the extent provided in regulations.
This summary does not deal with all aspects of U.S. Federal income tax
withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Global
Securities.
<PAGE>
[ ] Home Equity
Loan Trust 199_-_
$-------------
$ _________ Class A-1 _____% Certificates
$ _________ Class A-2 _____% Certificates
$ _________ Class A-3 _____% Certificates
$ _________ Class A-4 _____% Certificates
$ _________ Class A-5 _____% Certificates
Home Equity Loan
Asset-Backed Certificates
Series 199_-_
KeyBank National Association,
as seller
[ ]
as master servicer
Until [Date], all dealers selling the offered certificates will deliver a
prospectus supplement and prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters of the offered
certificates and with respect to their unsold allotments or subscriptions.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the offered certificates in any state where the offer
is not permitted.
We do not claim that the information in this prospectus supplement and
prospectus is accurate as of any date other than the dates stated on the
respective covers.
PROSPECTUS SUPPLEMENT
________, 199_
- ------------------------------------------------------------------------------
Underwriter
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the SEC is effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
[ALTERNATE PAGE]
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1999
Prospectus Supplement dated___________________
To Prospectus dated _____________
$___________ (approximate)
[ ] Home Equity Loan Trust 199_-_
Home Equity Loan Asset-Backed Certificates, Series 199_-_
[ ] KeyBank National Association
as master servicer as seller
- -------------------------------------------------------------------------------
The certificates represent obligations of the trust only and do not represent
an interest in or obligation of KeyBank National Association, the trustee or
any of their affiliates.
This prospectus supplement may be used to offer and sell the certificates only
if accompanies by the prospectus.
- -------------------------------------------------------------------------------
The trust:
o will issue [5] classes of senior certificates
o will issue a single residual certificate
o will make a REMIC election for federal income tax purposes
The certificates:
o represent the entire beneficial interest in a trust, whose assets are a
pool of closed-end fixed rate first and second lien mortgage loans
o currently have no trading market
o are not guaranteed
Credit enhancement:
o will be provided in the form of [overcollateralization] and an
irrevocable and unconditional certificate guaranty insurance policy
issued by [certificate insurer].
Review the information in "Risk Factors" on page S-9 and on page 2 in the
prospectus.
o For complete information about the Class A Certificates, read both this
prospectus supplement and the prospectus.
o [____________], the underwriter, will buy the Class A Certificates from
KeyBank National Association at a price equal to ________ of their face
value. The underwriter will sell the Class A Certificates from time to
time in negotiated transactions.
This Prospectus Supplement and the Prospectus to which it relates are to
be used by McDonald Investments Inc., a KeyCorp. Company and an affiliate of
the seller, in connection with offers and sales related to market making
transactions in the securities in which it acts as principal and/or agent.
Sales will be made at prices related to the prevailing prices at the time of
sale.
Neither the SEC nor any state securities commission has approved or
disapproved of these securities or passed upon the adequacy or accuracy of
this prospectus. Any representation to the contrary is a criminal offense
[Underwriter]
___________, 199_
<PAGE>
[ALTERNATE PAGE]
Plan of Distribution
This prospectus supplement and the prospectus to which it relates are to
be used by McDonald Investments Inc., a KeyCorp Company and an affiliate of
the seller ("McDonald"), or its successors, in connection with offers and
sales related to market-making transactions in the certificates in which
McDonald acts as principal. McDonald may also act as agent in such
transactions. Sales will be made at prices related to prevailing prices at the
time of sale. Any obligations of McDonald are the sole obligations of McDonald
and do not create any obligations on the part of any affiliate of McDonald.
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the SEC is effective. This prospectus is not an offer to sell
these securities and it is not solicitig an offer to buy these securities
in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1999
Prospectus supplement dated ________ __, ____
To prospectus dated _________ __, ____
$----------
[ ] Home Equity Loan Trust ____-_
Home Equity Loan Asset-Backed Certificates, Series ____-_
[ ] KeyBank National Association
as master servicer as seller
The certificates:
- -------------------------
The certificates o represent the entire beneficial interest
represent obligations in a trust, whose assets are a pool of
of the trust only and
do not represent an
interest in or o home equity revolving credit
obligation of line loans secured primarily by
KeyBank National [second liens] on residential
Association, the properties that are primarily
trustee or any of their one- to four-family properties,
affiliates. and
This prospectus o home improvement installment sales
supplement may be contracts and installment loan
used to offer and sell agreements.
the certificates only if
accompanied by the o currently have no trading market
prospectus.
- --------------------------
Credit enhancement
o [Letter of Credit] [Surety Bond]
Review the information in "Risk Factors" on page S-9 of this prospectus
supplement and on page 2 in the prospectus.
Neither the SEC or any state securities commission has approved or
disapproved of these certificates or passed upon the adequacy or accuracy
of this prospectus. Any representation to the contrary is a criminal
offense.
[Underwriter]
____________, 199_
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the offered certificates in any state where the
offer is not permitted.
We do not claim that the information in this prospectus supplement
and prospectus is accurate as of any date other than the dates stated on the
respective covers.
Dealers will deliver a prospectus supplement and prospectus when
acting as underwriters of the offered certificates and with respect to their
unsold allotments or subscriptions. In addition, all dealers selling offered
certificates will be required to deliver a prospectus supplement and
prospectus for ninety days following the date of this prospectus supplement.
<TABLE>
<CAPTION>
Page
Prospectus Supplement
<S> <C>
Summary.........................................................................................................S-3
Risk Factors...................................................................................................S-10
The [Letter of Credit] [Surety Bond] Issuer....................................................................S-12
The Home Equity Line of Credit Lending Program.................................................................S-12
The Master Servicer............................................................................................S-12
The HELOCS.....................................................................................................S-18
Prepayment and Yield Considerations............................................................................S-20
Description of the Certificates................................................................................S-21
Use of Proceeds................................................................................................S-35
Legal Investment Considerations................................................................................S-35
ERISA Considerations...........................................................................................S-35
Underwriting...................................................................................................S-37
Legal Matters..................................................................................................S-38
Rating.........................................................................................................S-38
</TABLE>
<TABLE>
<CAPTION>
Prospectus
<S> <C>
Risk Factors..................................................................................... 2
Description of the Securities.................................................................... 5
The Trusts....................................................................................... 9
Enhancements..................................................................................... 19
Servicing Of Loans............................................................................... 22
The Agreements................................................................................... 31
Legal Aspects of Loans........................................................................... 43
The Seller....................................................................................... 55
Use Of Proceeds.................................................................................. 56
Federal Income Tax Considerations................................................................ 56
State Tax Considerations......................................................................... 88
ERISA Considerations............................................................................. 88
Legal Investment................................................................................. 93
Ratings.......................................................................................... 93
Plan Of Distribution............................................................................. 94
Legal Matters.................................................................................... 94
Available Information............................................................................ 94
</TABLE>
<PAGE>
Summary
This summary highlights selected information from this document and
does not contain all of the information that you need to consider in making
your investment decision. To understand all of the terms of the offering of
the certificates, read carefully this entire document and the accompanying
prospectus.
This summary provides an overview of certain calculations, cash flows
and other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in this
prospectus supplement and the accompanying prospectus.
<TABLE>
<CAPTION>
Home Equity Loan Asset-Backed Certificates, Series 199_-_
<S> <C> <C> <C>
Initial Class Last Scheduled
Offered Certificates Certificate Rate Principal Balance Distribution Date
------------------------- ------------------ ------------------------- ----------------------
Class A-1 % $ -
------------------------- ------------------ ------------------------- ----------------------
------------------------- ------------------ ------------------------- ----------------------
Class A-2 % $ -
------------------------- ------------------ ------------------------- ----------------------
------------------------- ------------------ ------------------------- ----------------------
Class A-3 % $ -
------------------------- ------------------ ------------------------- ----------------------
------------------------- ------------------ ------------------------- ----------------------
Class A-4 % $ -
------------------------- ------------------ ------------------------- ----------------------
------------------------- ------------------ ------------------------- ----------------------
Class A-5 % $ -
------------------------- ------------------ ------------------------- ----------------------
------------------------- ------------------ ------------------------- ----------------------
Non-offered Certificates
------------------------- ------------------ ------------------------- ----------------------
------------------------- ------------------ ------------------------- ----------------------
Class R N/A $0 -
------------------------- ------------------ ------------------------- ----------------------
</TABLE>
All balances are subject to a variance of 5%.
The Trust
[ ] Home Equity Loan Trust ____-_ will be formed on _________ __, ____ by
KeyBank National Association, [servicer] and [trustee]. KeyBank National
Association [the transferor] will sell the mortgage loans to the trust.
[Trustee] will act as trustee for the benefit of the securityholders.
Certificates Offered
On the closing date, __________ __, ____, the trust will issue the
certificates. Each certificate represents an undivided interest in the
trust. KeyBank National Association will hold the remaining undivided
interest in the trust not represented by the certificates.
The certificates will be offered for purchase in denominations of
[$1,000] and integral multiples thereof.
Registration of Certificates
We will issue the offered certificates in book-entry form. You will hold
your interests through a depository. While the certificates are
book-entry they will be registered in the name of the depository. The
limited circumstances under which definitive certificates will replace
the book-entry certificates are described in this prospectus supplement.
Trust Property
The trust property is held by the trustee for the benefit of the
certificateholders. The trust property includes:
o a pool of home equity loans, the "mortgage loans," which are secured
primarily by [second liens] on primarily one- to four-family
residential properties.
o payments on the mortgage loans received on and after [the cut-off
date].
o any additions to the loan balances on the mortgage loans during the
life of the trust. The mortgage loans arise under home equity lines
of credit, or "HELOCs". Principal amounts may be drawn down by the
borrower under the HELOC from time to time, subject to the borrower's
credit limit. The draws are funded by the
[bank][servicer][transferor]. A borrower may repay principal at any
time.
o the [deed of trust] [mortgage] related to each mortgage loan.
o property that secured a mortgage loan which has been acquired by
foreclosure or deed in lieu of foreclosure.
o the benefits of the [Letter of Credit][Surety Bond].
o rights of the transferor under any hazard insurance policies
covering the mortgaged properties.
The Mortgage Loans
On [the closing date], the trust will acquire the pool of mortgage loans.
The information below is based on the pool as it existed on [the cut-off
date] of $__________. The mortgage loans have the following characteristics
as of [the cut-off date]:
o number of mortgage loans:
o aggregate principal balance: $
o mortgaged property location: __states other than __% of mortgaged
properties located in [state], no state represents more than ___% of
the mortgage loans, by loan balance
o maximum combined loan to value ratio at origination: ____% (based on
credit limit)
o weighted average combined loan-to-value ratio: ____% (approximate)
o combined loan-to-value ratio range: ____% to ____% (approximate)
o loan balance range: $____ to $____________
o credit limit range $___________ to $__________ (approximate)
o mortgage loan origination range from __________ to __________, ____
o weighted average loan utilization rate: ___% (approximate)
o average loan balance: $____________
o maximum principal balance: $_________
o interest rates range: ____% to ____%
o weighted average interest rate: ____% (approximate)
o weighted average remaining term to stated maturity, based on principal
balance: ____ months (approximate)
o term to stated maturity range: __ months to __ months
o last maturity date:
o average credit limit: $_________
o [use and type of each mortgaged property: ____% owner occupied; ____%
second vacation home;
o [____% first priority and ____% second priority lien]
We refer you to "The Home Equity Lending Program"; and "THE HELOCS"; in
this prospectus supplement and "Legal Aspects of Loans--Applicability of
Usury Laws" in the prospectus.
Interest on the Mortgage Loans
Interest on each mortgage loan is payable monthly and computed on the
average daily outstanding loan balance for each billing cycle at a variable
rate per annum (subject to minimum and maximum rates, including applicable
usury limitations) equal to the sum of
(1) the [index], and
(2) a margin, currently __%.
Principal amounts may be drawn down by the borrower under the HELOC from
time to time, subject to the borrower's credit limit. A borrower may repay
principal at any time.
We refer you to "The Home Equity Lending Program--HELOC Terms" in this
prospectus supplement and "Legal Aspects of Loans-Applicability of Usury
Laws" in the prospectus.
Servicer
The servicer of the mortgage loans will be [ ].
We refer you to "Servicing of the Mortgage Loans--The Servicer."
Servicing
The servicer will be responsible for servicing, managing and making
collections on the mortgage loans. The servicer will receive a monthly
servicing fee equal to, on an annualized basis, __% of the pool balance.
The servicer will also be entitled to certain other amounts as servicing
compensation from the trust.
We refer you to "Description of the Certificates--Distributions on the
Certificates"; and "Servicing of the Mortgage Loans--Servicing Compensation
and Payment of Expenses."
In 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.
We refer you to "Servicing of Loans-- Matters Regarding the Servicer" and
"The Agreements--Events of Default; Rights Upon Events of Default" in the
Prospectus.
Collections
The servicer will allocate collections received on the trust property as
either interest collections or principal collections. All such amounts will
then be allocated in accordance with the interests of the
certificateholders, based on the investor interest, and the interests of
the transferor based on the transferor interest.
We refer you to "Description of the Certificates--Payments on Mortgage
Loans; Deposits to Collection Account" herein and "Servicing of
Loans--Deposits to and Withdrawals from the Collection Account" in the
prospectus.
Distribution of Certificateholders
You are entitled to receive monthly payments of interest at the certificate
rate, and monthly payments of principal during the amortization period.
These payments will be funded from a percentage of the payments received
with respect to the mortgage loans, in certain circumstances, from draws on
the [letter of credit] [surety bond.]
The distribution date will be the ____ day of each month, or if the ____
day is not a business day the next business day, starting with __________
__, ____.
We refer you to "Description of the Certificates" in this prospectus
supplement and "Description of the Securities" in the prospectus.
Payments to you of principal will be based on the investor interest in the
trust. The investor interest is the aggregate undivided interest in the
trust represented by the certificates and will initially represent
$___________ of principal. The investor interest will decline as principal
is paid to the certificateholders during the amortization period, except as
described in this prospectus supplement. The transferor will hold the
transferor interest which represents the remaining undivided interest in
the trust not represented by the certificates.
On the ______ business day, but no later than the ______ calendar day, of
each month, the servicer will calculate, and instruct the trustee
regarding, the amounts to be paid to you.
The pool balance is the aggregate amount of the loan balances for the
mortgage loans, including the additional balances. The pool balance will
fluctuate from day to day because the amount of draws by borrowers and the
amount of principal payments by borrowers will usually differ on each day.
Because the transferor interest represents the interest in the trust not
represented by the certificates, the amount of the transferor interest will
fluctuate from day to day as draws are made and principal is paid under the
mortgage loans.
[The interest in the loan balances represented by the certificates will
never exceed the aggregate certificate principal balance. If, for example,
draws by borrowers under the HELOCs causes the aggregate loan balance held
by the trust to exceed the aggregate certificate balance, the excess will
be part of the transferor interest.]
Interest
Interest will be distributed monthly on the distribution date, starting on
__________ __, ____. Interest will accrue during the period starting on the
preceding distribution date (or in the case of the first distribution date,
from the closing date) through the day preceding the current distribution
date on the basis of the [actual number of days in the interest period and
a 360-day year].
Interest payments will be funded from the portion of the interest
collections collected during the immediately preceding calendar month (or,
in the case of the initial distribution date, the period from
_____________, ___ through the last day of the calendar month immediately
preceding such distribution date) allocable to the investor interest and,
if necessary from draws on the [Letter of Credit] [Surety Bond].
We refer you to "Description of the Securities" and "Risk Factors--Limits
on Credit Enhancement" in the prospectus.
Payments of Principal; Revolving Period
You will not be entitled to receive payments of principal during the
revolving period. The revolving period is expected to last from the closing
date through __________ __, ____. The revolving period will terminate
earlier if an early amortization event occurs. In order to maintain the
certificate principal balance at $__________ (except in certain limited
circumstances) during the revolving period, principal collections allocable
to the investor interest will be paid to the transferor rather than the
certificateholders. During the revolving period the certificateholders will
maintain the same investor interest in the trust. Unless earlier terminated
by the occurrence of an early amortization event, the revolving period will
end on
-----------.
We refer you to "Description of the Certificates."
Principal Payments; Amortization Period
During the amortization period the principal collections allocated to the
investor interest will be paid to you and will no longer be paid to the
transferor. The amortization period will begin __________ __, ____ or, if
prior to that date an early amortization event occurs, ____________. The
amortization period will end when the certificate principal balance has
been reduced to zero or when the trust terminates. The distributions of
principal collections will be made monthly on each distribution date
starting on the distribution date in the month following the month in which
the amortization period commences.
Payments to you of principal will be based on the investor interest in the
trust. The investor interest is the aggregate undivided interest in the
trust represented by the certificates and will initially represent
$___________ of principal. The investor interest will decline as principal
is paid to the certificateholders during the amortization period, except as
described in the prospectus supplement.
We refer you to "Description of the Certificates--Early Amortization
Events" for a discussion of the events which might lead to the early
commencement of the amortization period.
On each distribution date you will be entitled to receive an amount equal
to the investor percentage multiplied by the principal collections received
during the preceding calendar month. On the last day of the revolving
period, the trustee will determine the investor percentage. The investor
percentage will equal the principal balance of the certificates divided by
the balance of the pool of mortgage loans.
Allocations based upon the investor percentage during the amortization
period may result in distributions of principal in amounts that are greater
relative to the declining balance of the certificate principal balance than
would be the case if a fixed investor percentage were not used to determine
the percentage of principal collections distributed in respect of the
investor interest.
We refer you to "Description of the Certificates--Payments on Mortgage
Loans;" "Deposits to Collection Account."
[Letter of Credit] [Surety Bond]
On [the closing date], [issuer] will issue a [letter of credit] [surety
bond]. If available amounts on deposit in the collection account on any
distribution date are insufficient to provide for the payment of the amount
required to be distributed to you and the servicer, the trustee will draw
on the [letter of credit] [surety bond], to the extent of the [letter of
credit] [surety bond] amount for such distribution date. Any amounts
remaining in the collection account with respect to the preceding
collection period, after all other distributions have been made, will be
distributed to the [letter of credit] [surety bond] issuer.
We refer you to "The [Letter of Credit] [Surety] Bond Issuer"; "Description
of The Certificates--The [Letter of Credit] [Surety Bond]";
"--Distributions on the Certificates" herein and "Risk Factors--Limits on
Credit Enhancement" and "Enhancement" in the prospectus.
[Letter of Credit] [Surety Bond] Amount
The amount available under the [letter of credit] [surety bond] for the
first distribution date will be $----------.
For each distribution date after the first distribution date, the amount
will equal the lesser of a percentage of the pool balance and an amount
based on amounts drawn under the [letter of credit] [surety bond] and
amounts paid to the issuer of the [letter of credit] [surety bond].
Final Payment of Principal; Termination
The trust will terminate on the distribution date following the earlier of:
(1) the reduction of the certificate principal balance to zero and after
which there is no unreimbursed certificate principal balance loss
deduction amount; and
(2) the final payment or other liquidation of the last mortgage loan and
private security in the trust.
On any distribution date when the certificate principal balance is less
than or equal to $________ ([5]% of the initial certificate principal
balance) the investor interest will be subject to optional retransfer to
the transferor. The retransfer price will be equal to the sum of the
outstanding certificate principal balance and accrued and unpaid interest
thereon at the certificate rate through the day preceding the final
distribution date.
We refer you to "Description of the Certificates--Optional Termination"
herein and "The Agreements--Termination" in the prospectus.
Federal Tax Considerations
[Tax Counsel] is of the opinion that, the certificates are debt of the
transferor for federal income tax purposes. The transferor will treat the
certificates as indebtedness for federal, state and local income and
franchise tax purposes.
We refer you to "Federal Income Tax Considerations" in the prospectus for
additional information concerning the application of Federal income tax
laws.]
ERISA Considerations
[We suggest that a fiduciary of any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") or
the IRS carefully review with its legal advisors whether the purchase or
holding of certificates could give rise to a transaction prohibited or not
otherwise permissible under ERISA or the Code.]
[The certificates generally may not be transferred to a fiduciary of any
employee benefit plan subject to ERISA or Section 4975 of the Code.]
We refer you to "ERISA Considerations" in the prospectus and in this
prospectus supplement.
Certificate Rating
Before the certificates can be issued, the trust must obtain a rating on
the certificates of:
[Rating][Rating Agency]
The ratings address credit risk. When evaluating credit risk, the rating
agencies look at the likelihood of whether or not you will receive your
interest and principal payments. Credit risk does not relate to the
likelihood of prepayments on the mortgage loans. Prepayments affect the
timing of your payments, such that your actual return could differ
substantially from your anticipated return on your investment.
We refer you to "Rating" and "Risk Factors--Rating of the Securities Relate to
Credit Risk Only" in the prospectus.
<PAGE>
Risk Factors
[Servicer's Ability to Change the Terms of the HELOCS May Affect Payments on
the HELOCs.
Under certain conditions, the servicer may permit an increase in the
credit limit under a HELOC, subject to the trustee's consent.
The servicer may agree to other changes in the terms of a loan
agreement, provided that the changes do not materially adversely affect the
interest of the certificateholders, and
o are consistent with prudent business practice,
o are also being applied to the comparable segment of home
equity credit lines being held for the servicer's own
account, and
o do not change the terms of the HELOC so as to change the
terms for the amortization of principal. The servicer may
also extend the period during which draws under the HELOCS
may be made.
In addition, there can be no assurance that changes in applicable law
or the marketplace for home equity loans or prudent business practice will not
result in changes in the terms of the loan agreements.
These modifications could result in changes to the payments on the
mortgage loans and corresponding changes in amounts available to make payments
to you. The rate and timing of payments, prepayments or delinquencies could
increase or decrease.]
[Delinquent Mortgage Loans Included in Trust Property May be More Likely to
Default than Non-Delinquent Mortgage Loans.
The trust will include mortgage loans which are ___ days or fewer
delinquent. As of the cut-off date, the aggregate loan balance of such
delinquent mortgage loan was $__________. [In addition, the mortgage loans in
all likelihood include obligations of borrowers who are or are about to become
bankrupt or insolvent.] If there are not sufficient funds from interest
collections allocated to the investor interest to cover the [liquidation loss
amount] for any collection period and the [letter of credit] [surety bond]
amount has been reduced to zero, the certificate principal balance will be
reduced which (unless otherwise later reimbursed) would result in a reduction
in the aggregate amount of principal returned to the certificateholders and in
the amount of interest collections allocable to the investor interest and
available to provide protection against defaults in subsequent collection
periods.]
[Recharacterization of Certificates by IRS Could Result in Tax Liability.
In the opinion of special tax counsel to the transferor, the
certificates are properly characterized as debt of the transferor for federal
income tax purposes. If the IRS were to contend successfully that the
certificates were not debt obligations of the transferor for federal income
tax purposes, the arrangement among the transferor and the certificateholders
might be classified for federal income tax purposes as either a partnership or
an association taxable as a corporation that owns the mortgage loans. Any tax
liability associated with such recharacterization will be an obligation of the
trust and will reduce the amount of money available to pay you and may result
in a loss to you. We refer you to "Federal Income Tax Considerations" in the
prospectus.]
Consequences of Owning Book-Entry Certificates
Limit on Liquidity of Certificates.
Issuance of the certificates in book-entry form may reduce the
liquidity of such certificates in the secondary trading market since investors
may be unwilling to purchase certificates for which they cannot obtain
physical certificates.
Limit on Ability to Transfer or Pledge.
Since transactions in the certificates can be effected only through
DTC, Cedelbank, Euroclear, participating organizations, indirect participants
and certain banks, your ability to pledge your certificate to persons or
entities that do not participate in the DTC, Cedelbank or Euroclear system or
otherwise to take actions in respect of such certificates, may be limited due
to lack of a physical certificate representing the certificates.
Delays in Distributions.
As a beneficial owner, you may experience some delay in your receipt
of distributions of interest on and principal of your certificates since such
distributions will be forwarded by the trustee to DTC and DTC will credit such
distributions to the accounts of its participants which will thereafter credit
them to the accounts of the beneficial owners either directly or indirectly
through indirect participants.
We refer you to "Description of the Certificates--Book-Entry
Certificates."
Risks Associated With Year 2000 Compliance
As is the case with most companies using computers in their
operations, the servicer is faced with the task of preparing its computer
systems and programs for the year 2000. The year 2000 issue is the result of
prior computer programs being written using two digits, rather than four
digits, to define the applicable year. Any of the servicer's computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. Major computer system failure or
miscalculations may occur as a result. The servicer is presently engaged in
various procedures to ensure that their computer systems and software will be
year 2000 compliant.
However, if the servicer or any of its suppliers, customers, brokers
or agents do not successfully and timely achieve year 2000 compliance, the
performance of obligations of the servicer could be materially adversely
affected. This could result in delays in processing payments on the mortgage
loans and may cause a related delay in payments to you.
The [Letter of Credit] [Surety Bond] Issuer
[Description of LC/Surety Issuer]
The following information with respect to _________ ______________
("___________") has been furnished by ____________.
The Home Equity Line of Credit Lending Program
General
The mortgage loans were originated by ___________________ , the
transferor, under its home equity lending program. The transferor has offered
variable-rate home equity revolving credit lines since ____________. As of
_____________, _____, the transferor's portfolio owned approximately
$__________ million aggregate principal amount of outstanding loans originated
in the State of ____________ under home equity credit lines.
The Master Servicer
[The servicer is a ___________ which is wholly owned by _____________.
The servicer conducts a general banking business throughout the
_________, and, with its subsidiaries, offers a broad array of commercial and
retail loan and deposit products and services, mortgage banking and brokerage
and investment services. At _________, the servicer had total assets of
approximately $________ billion and total deposits of approximately $_________
billion.
The principal executive offices of the servicer are located at
_________________________ ________ (telephone (___-___-_____)).]
Credit and Underwriting Guidelines
The following is a description of the underwriting guidelines
customarily employed by ________ with respect to mortgage loans which it
purchases or originates.
[ ]
Servicing and Collection Procedures
The following is a description of the servicing policies and
procedures customarily and currently employed by ___________ with respect to
the portion of its mortgage loan portfolio which it services.
[ ]
Delinquency Experience
The following table sets forth __________'s delinquency experience on
its serving portfolio of home equity loans (which includes home equity loans
subserviced by others for ____________) similar to the mortgage loans for the
periods indicated. [The servicer believes that there have been no material
trends or anomalies in the historical delinquency and loss experience as
represented in the following tables. The information has not been adjusted to
eliminate the effect of the growth in the size of the servicer's portfolio
during the periods shown. Accordingly, loss and delinquency as percentages of
aggregate principal balance of such loans for each period may be higher than
those shown if a group of such loans were artificially isolated at a point in
time and the information showed the activity only in that isolated group.
There can be no assurance that the delinquency and loss experience of the
loans will be similar to that set forth below.]
Servicing of HELOCS
[Centralized controls and standards have been established by the
servicer for the servicing and collection of home equity lines of credit.
Servicing includes, but is not limited to, post-origination loan processing,
customer service, remittance processing, collections and liquidations. The
collection process is initiated ten days after the payment due date with the
computer generation of a late notice. To make payment arrangements, a
collector attempts to contact the borrower when the home equity line of credit
is 15 to 30 days past due.
During the period when an account is 45 to 60 days past due, a credit
bureau report is obtained, homeowner's insurance is verified, the status of
senior mortgages and property taxes is checked and a title search and
"drive-by" appraisal are ordered.
If arrangements have not been made to cure the delinquency within 61
days of the line becoming past due, drawing privileges are cancelled. The line
is referred to outside counsel and is placed on a "non-accrual" status after
90 days of delinquency. All legal expenses are assessed to the account and
become the responsibility of the borrower. When it is determined by the
servicer that there is no possibility of recovery from the mortgaged property
or from other leviable assets or wage attachments, the line is charged-off.
Reinstatement arrangements can be made up until the point of sale.
Any foreclosures initiated on a junior mortgage are subject to the senior
mortgage or mortgages and any outstanding property taxes. If the servicer
purchases the property through the foreclosure action, the account is
transferred to the servicer's REO department which is maintained at
__________________. The REO department is responsible for maintaining and
marketing the property.
The servicer may not foreclose on the property securing a junior
mortgage loan unless the servicer forecloses subject to any senior mortgages,
in which case the servicer may pay the entire amount due on the senior
mortgage to the senior mortgagees at or prior to the foreclosure sale. If a
senior mortgage is in default after the servicer has initiated its foreclosure
action, the servicer may advance funds to keep senior mortgages current until
such time as the servicer satisfies such senior mortgages. In the event that
foreclosure proceedings have been instituted on a senior mortgage prior to the
initiation of the servicer's foreclosure action, the servicer may either
satisfy the senior mortgage at the time of the foreclosure sale or take other
action to protect the trust's interest in the related property.]
See "Servicing of Loans" in the prospectus for additional information
regarding the servicer's servicing of the mortgage loans pursuant to the
pooling and servicing agreement.
Delinquency and Loss Experience of the Servicer's Portfolio
The following tables set forth the delinquency and loss experience
for each of the periods shown for the servicer's portfolio of home equity
lines of credit. [The servicer believes that there have been no material
trends or anomalies in the historical delinquency and loss experience as
represented in the following tables. The information in the tables below has
not been adjusted to eliminate the effect of the growth in the size of the
servicer's portfolio during the periods shown. Accordingly, loss and
delinquency as percentages of aggregate principal balance of such loans for
each period may be higher than those shown if a group of such loans were
artificially isolated at a point in time and the information showed the
activity only in that isolated group.] [The delinquency and loss experience
set forth below represents the experience with respect to only a portion of
the servicer's loan production for the periods indicated and has not been
adjusted to eliminate the effect of the significant growth in size of the
servicer's portfolio of mortgage loans during the periods shown. Accordingly,
loss and delinquency as a percentage of mortgage loans serviced for each
period could be higher than those shown if a group of mortgage loans were
artificially isolated at a point in time and the information showed the
activity only in that isolated group.] The data presented in the following
tables are for illustrative purposes only, and there is no assurance that the
delinquency and loss experience of the HELOCs will be similar to that set
forth below.
<PAGE>
<TABLE>
<CAPTION>
[Champion Mortgage Co., Inc.]
[Delinquency Experience
(Dollars in thousands)
Year Ending September 30,
1996 1997 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Number of Loans............. 9,058 14,327 19,565 25,244
Dollar Amount of
Loans.................... $ 526,816 $ 866,673 $ 1,309,172 $ 1,827,491
Delinquency Period
30-59 days
% of number of
loans............ 1.30% 2.14% 1.43% 1.58%
% of dollar
amount of loans.. 1.17% 2.16% 1.24% 1.17%
60-89 days
% of number of
loans............ 0.15% 0.34% 0.27% 0.42%
% of dollar
amount of loans... 0.14% 0.35% 0.25% 0.38%
90 days and over*
% of number of
loans.............. 0.69% 1.20% 0.82% 1.22%
% of dollar
amount of loans... 0.81% 1.27% 0.72% 1.03%
Loans in Foreclosure
% of number of
loans.............. 0.62% 0.51% 0.60% 0.61%
% of dollar amount
of loans........... 0.76% 0.60% 0.56% 0.71%
Total*
% of number of
loans................ 2.14% 3.68% 3.32% 4.08%
% of dollar amount
of loans............. 2.12% 3.78% 2.97% 3.52%
</TABLE>
- -----------------------
*Includes loans in foreclosure and real estate owned.
<TABLE>
<CAPTION>
Loss Experience
(Dollars in thousands)
Year Ending September 30,
1996 1997 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average Dollar
Amount of Loans
Outstanding During
Period....................... $ 367,584 $ 702,555 $ 1,103,510 $ 1,616,324
Net Losses...................... $ 39 $ 488 $ 1,142 $ 2,317
Net Losses as a
Percentage of
Average Amount
Outstanding.................. 0.01% 0.07% 0.11% 0.14%
</TABLE>
- -----------------------
"Net Losses" means gross losses minus recoveries.
<PAGE>
[KeyBank National Association]
[Delinquency Experience
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months
Year Ending December 31, Ending September 30,
1997 1998 1998 1999
<S> <C> <C> <C> <C>
Number of Loans................ 228,837 220,017 224,088 219,784
Dollar Amount of
Loans....................... $ 5,519,071 $ 5,412,379 $ 5,508,729 $ 5,685,658
Delinquency Period
30-59 days
% of dollar
amount of loans...... 0.73% 0.81% 0.65% 0.65%
60-89 days
% of dollar
amount of loans....... 0.23% 0.30% 0.22% 0.18%
90+ days*
% of dollar
amount of loans....... 0.34% 0.36% 0.31% 0.30%
Total*
% of dollar amount
of loans............ 1.30% 1.47% 1.18% 1.13%
</TABLE>
- ------------
*Includes loans in foreclosure and real estate owned.
<TABLE>
<CAPTION>
Loss Experience
(Dollars in thousands)
Nine Months
Year Ending December 31, Ending September 30,
----------------------- --------------------
1997 1998 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Dollar
Amount of Loans
Outstanding At
End Of Period......... $ 5,519,071 $ 5,412,379 $ 5,508,729 $ 5,685,658
Net Losses............... $ 6,623 $ 5,954 $ 6,060 $ 6,823
Percentage of
Dollar Amount of Loans 0.12% 0.11% 0.11% 0.12%
</TABLE>
- ------------
"Net Losses" means gross losses minus recoveries.
Servicing Compensation and Payment of Expenses
The servicing compensation to be paid to the servicer for its
servicing activities with respect to the mortgage loans are payable out of
interest payments on each mortgage loan or from amounts drawn on the [Letter
of Credit] [Surety Bond]. The servicing fee rate will be equal to ____% per
annum of the pool balance of the mortgage loans. The investor percentage of
the servicing fee will be paid as described under "Description of the
Certificates--Distribution on the Certificates--Distribution of Interest
Collections and Draw Amounts" herein. The servicer is also entitled to
receive, as additional servicing compensation, all late payment charges and
other fees and charges, to the extent collected from borrowers.
<PAGE>
[The servicer will pay certain ongoing expenses associated with the
trust in connection with its responsibilities under the pooling and servicing
agreement, including, without limitation, payment of the fees and
disbursements of the trustee, any custodian appointed by the trustee, the
certificate registrar and any paying agent.] In addition, the servicer will be
entitled to reimbursement for certain expenses incurred by it in connection
with defaulted mortgage loans and in connection with the restoration of
mortgaged properties, such right of reimbursement being prior to the rights of
certificateholders to receive any related liquidation proceeds.
The HELOCS
The trust will be formed in accordance with the laws of the State of
[New York] pursuant to the pooling and servicing agreement. The transferor
will transfer the mortgage loans to the trust, without recourse, in exchange
for the certificates and a transferor certificate representing the
transferor's interest in the trust. The property of the trust will consist of
o the mortgage loans,
o all proceeds of the mortgage loans,
o all monies on deposit in the collection account and the certificate
account,
o the mortgages on the properties securing the mortgage loans, including
any properties acquired by foreclosure or deed in lieu of foreclosure,
o the benefits of the [Letter of Credit] [Surety Bond], and
o the proceeds on any insurance policies covering the mortgage
loans or mortgaged properties or any obligors on the
mortgages.
[Pursuant to the pooling and servicing agreement, the transferor will
be required to transfer Eligible Additional Mortgage Loans (to the extent
available) to the trust, in order to avoid the occurrence of any Early
Amortization Event resulting from a decline in the transferor's interest, and
otherwise will be allowed to transfer Eligible Additional Mortgage Loans to
the trust (subject to certain limitations and conditions) from time to time.
See "Description of the Certificates--Transfers of Eligible Additional
Mortgage Loans to the Trust" herein.] In addition, subject to certain
limitations and conditions specified in the pooling and servicing agreement,
the transferor may cause the retransfer from the trust to it of certain
mortgage loans. See "Description of the Certificates--Optional Retransfers of
Mortgage Loans to the Transferor" herein.
The mortgage loans transferred to the trust are evidenced by credit
line loan agreements secured by [deeds of trust] [mortgages] (which are
primarily second [deeds of trust] [mortgages] on mortgaged properties.
Approximately ____% of the mortgaged property are located in _____________ and
approximately ____% of the mortgaged property are located in other states,
with no single state accounting for more than ____% of the cut-off date pool
balance[, and represent substantially all of the home equity credit lines
originated by the transferor which meet the criteria specified in the pooling
and servicing agreement and described below]. Because the mortgage loans
include the loans generated under substantially all of the HELOCs and because
the loan balances will include all amounts payable by borrowers under such
HELOCs, some of the mortgage loans will be generated under recently solicited,
unseasoned HELOCs [and the pool of mortgage loans will include delinquent
mortgage loans and may include obligations of borrowers who are or are about
to become bankrupt or insolvent]. Many of the mortgage loans are less than the
credit limit under the corresponding HELOC. Additional balances on such
mortgage loans will be property of the trust and will increase the pool
balance. The amount of the [Letter of Credit] [Surety Bond] was determined
taking into account, among other considerations, the nature of the HELOCs and
the mortgage loans.
Each mortgage loan included in the mortgage loan pool was generated
under a HELOC that, as of the cut-off date, was an Eligible HELOC. An
"Eligible HELOC" is defined in the pooling and servicing agreement as any home
equity credit line that: [selection criteria of HELOCs to be added]. Each
HELOC was originated between __________ and the cut-off date [in the ordinary
course of the transferor's home equity revolving credit program]. Subject to
exceptions deemed appropriate by the [transferor] as to individual HELOCs, the
[transferor's] general policy was to require that the combined loan-to-value
ratio under the HELOC at the origination not exceed 80% of the market value of
the mortgaged property, based upon an appraisal or the tax assessed value of
the mortgaged property at the time the HELOC was originated, as described
under "The Home Equity Lending Program" herein. Substantially all of the
mortgage properties were one- to four-family residential properties. As of the
cut-off date, the weighted average loan utilization rate was approximately
- -----%.
On the closing date, no more than 5% of the loans (by aggregate
principal balance as of the cut-off date) will have characteristics that
deviate from the description of the loans in this prospectus supplement. Set
forth below is a description of certain additional characteristics of the
HELOC's as of the cut-off date:
[TABULAR INFORMATION]
No assurance can be given that the values of the mortgaged properties
as of the dates of origination of the related HELOCs have remained or will
remain constant or have not declined. If the residential real estate market
generally or the residential real estate market in ________________ should
experience an overall decline in property values such that the outstanding
loan balances under the HELOCs, together with any senior financing on the
mortgaged properties, equal or exceed the value of the mortgaged properties,
the actual rates of delinquencies, foreclosures and losses could be higher
than those currently experienced in the mortgage lending industry in general.
For information concerning possible declines in value of the mortgaged
properties, see "Risk Factors--Decrease in Value of Mortgaged Property Would
Disproportionately Affect Junior Lienholders" in the prospectus. In addition,
adverse economic conditions (which may or may not affect real property values)
may affect the timely payment by borrowers of scheduled payments under the
mortgage loans and, accordingly, the actual rates of delinquencies,
foreclosures and losses with respect to the mortgage loan pool. To the extent
that these losses are not covered by draws on the [Letter of Credit] [Surety
Bond], they will be borne by holders of the certificates.
The descriptions in this prospectus supplement of the mortgage loan
pool and the mortgaged properties are based upon the mortgage loan pool as it
is expected to be constituted as of the close of business on the cut-off date,
as adjusted for the scheduled principal and interest payments due on or before
such date. Prior to the issuance of the certificates, mortgage loans may be
removed from the mortgage loan pool as a result of prepayments, delinquencies,
incomplete documentation, or otherwise if the transferor deems such removal
necessary or desirable. A limited number of other mortgage loans may be
included in the mortgage loan pool prior to the issuance of the certificates,
unless including such mortgage loans would materially alter the
characteristics of the mortgage loan pool as described in this prospectus
supplement. The transferor believes that the information set forth herein will
be representative of the characteristics of the mortgage loan pool as it will
be constituted at the time the certificates are issued, although the range of
loan rates and maturities and certain other characteristics of the mortgage
loans in the mortgage loan pool may vary.
Prepayment and Yield Considerations
The pooling and servicing agreement provides that the
certificateholders will not receive payments of principal until the
distribution date on ___________ (i.e., the first distribution date after the
first Collection Period following the end of the revolving period) or, if
earlier, the distribution date in the month after the first Collection Period
of an Early Amortization Event. During the Amortization Period,
certificateholders will be entitled to receive on each distribution date the
investor percentage of the principal collections received in the preceding
Collection Period until the certificate principal balance is reduced to zero.
Allocations of principal collections based on the investor percentage (which
is fixed for the amortization period to equal the percentage derived from
dividing the Certificate Principal Balance by the pool balance, in each case
at the end of the revolving period) may result in distributions of principal
to the certificateholders greater than those that would result from
distributions of principal based upon the proportion that the declining
Certificate Principal Balance bears to the pool balance. [The pooling and
servicing agreement permits the transferor, at its option, but subject to the
satisfaction of certain conditions specified in the agreement, including the
conditions described herein, to remove mortgage loans from the trust at any
time during the life of the trust (including the Amortization Period), so long
as the pool balance after such removal is not less than the pool balance at
the closing date. The transferor may also, under certain circumstances, add
Eligible Additional Mortgage Loans to the trust. Such removals and additions
may affect the rate at which principal is distributed to certificateholders.
See "Description of the Certificates--Transfers of Eligible Additional
Mortgage Loans to the Trust" and "--Optional Retransfers of Mortgage Loans to
the Transferor."]
[All] of the mortgage loans may be prepaid without penalty in full or
in part at any time. The prepayment experience with respect to the mortgage
loans will affect the life of the certificates.
The rate of prepayment on the mortgage loans cannot be predicted.
Home equity credit lines such as the mortgage loans have been originated in
significant volume only during the past few years and the transferor is not
aware of any publicly available studies or statistics on the rate of
prepayment of such loans. Generally, home equity credit lines are not viewed
by borrowers as permanent financing. Accordingly, the mortgage loans may
experience a higher rate of prepayment than traditional first mortgage loans.
On the other hand, if the mortgage loans amortize as described in this
prospectus supplement, then absent voluntary borrower prepayments the rates of
principal payment could be slower than, or similar to, those of traditional
full-amortizing first mortgages. The prepayment experience of the trust with
respect to the mortgage loans may be affected by a wide variety of factors,
including general economic conditions, economic conditions in _____________,
prevailing interest rate levels, the availability of alternative financing and
homeowner mobility, the frequency and amount of any future draws on the HELOCs
and changes affecting the deductibility for federal income tax purposes of
interest payments on home equity credit lines. Substantially all of the
mortgage loans contain "due-on-sale" provisions, and the servicer intends to
enforce such provisions, unless such enforcement is not permitted by
applicable law. The enforcement of a "due-on-sale" provision will have the
same effect as a prepayment of the related mortgage loan. See "Legal Aspects
of Loans--Due-on-Sale Clauses In Mortgage Loans" in the prospectus. The yield
to an investor who purchases the certificates in the secondary market at a
price other than par will vary from the anticipated yield if the actual rate
of prepayment on the mortgage loans is different than the rate anticipated by
such investor at the time such certificates were purchased.
Collections on the mortgage loans may vary because, among other
things, borrowers may make payments during any month as low as the minimum
monthly payment for such month or as high as the entire principal outstanding
balance plus accrued interest and the fees and charges thereon. It is possible
that borrowers may fail to make scheduled payments. Collections on the
mortgage loans may vary due to seasonal purchasing and payment habits of
borrowers. Because the mortgage loans have a variable interest rate and a
fixed payment, changes in underlying interest rates will vary the allocation
of payments between interest and principal.
No assurance can be given as to the level of prepayments that will be
experienced by the trust and it can be expected that a portion of borrowers
will not prepay their mortgage loans to any significant degree. See
"Description of the Securities--Weighted Average Life of the Securities" in
the prospectus.
Description of the Certificates
The certificates will be issued pursuant to the pooling and servicing
agreement. The form of this agreement has been filed as an exhibit to the
registration statement of which this prospectus supplement and the prospectus
is a part. The following summaries describe certain provisions of the pooling
and servicing agreement. The summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the pooling and servicing agreement. Wherever particular
sections or defined terms of the pooling and servicing agreement are referred
to, such sections or defined terms are hereby incorporated herein by
reference.
General
The certificates will be issued in denominations of [$1,000] and
integral multiples thereof and will evidence specified undivided interests in
the trust. [Physical certificates, if issued, will be transferable and
exchangeable at the corporate trust office of the trustee, which will
initially act as certificate registrar. See "--Registration of Certificates"
below. No service charge will be made for any registration of exchange or
transfer of certificates, but the trustee may require payment of a sum
sufficient to cover any tax or other governmental charge.]
The outstanding principal amount of the certificates (the
"Certificate Principal Balance") will be equal to the initial principal amount
of the certificates, minus the amount of principal payments paid to the
certificateholders, and minus the amount of any Certificate Loss Amounts which
have not been reimbursed as provided herein. See "--Distributions on the
Certificates" below. Each certificate represents the right to receive payments
of interest at the certificate rate and payments of principal during the
amortization period funded from interest collections and principal
collections, respectively, allocated to the investor interest and draws on the
[Letter of Credit] [Surety Bonds].
The transferor will own the interest not represented by the
certificates. The transferor interest will represent an undivided interest in
the trust, including the right to receive (the transferor percentage) of
interest collections and principal collections. The initial amount of the
transferor interest was determined, among other factors, to be able to absorb
reductions in the aggregate amount of loan balances in the trust without
causing an Early Amortization Event, which would result in the early
commencement of the amortization period. There can be no assurance that the
transferor interest will be sufficient for such purpose.
During the revolving period, the Certificate Principal Balance will
remain constant except in certain limited circumstances. See "--Distributions
on the Certificates" below. The pool balance, however, will vary each day as
principal is paid on the mortgage loans, liquidation losses are incurred,
additional balances are drawn down by borrowers under the HELOCs, mortgage
loans are retransferred to the transferor or Eligible Additional Mortgage
Loans are transferred to the trust. Consequently, the amount of the transferor
interest will fluctuate each day to reflect the changes in the pool balance.
During the amortization period, the certificate principal balance will decline
as the investor percentage of principal collections is distributed to the
certificateholders.
Assignment of Mortgage Loans
At the time of issuance of the certificates, the transferor will
transfer to the trust all of its right, title and interest in and to each
mortgage loan, including any additional balances arising in the future
conveyed by it to the trust. The transferor will also transfer all principal
including net liquidation proceeds, interest received on or with respect to
each mortgage loan subsequent to the closing date but not including amounts
received in respect of taxes, insurance premiums, assessments and similar
items, as provided in the pooling and servicing agreement. Investor percentage
of interest collections on the mortgage loans during the period from the
cut-off date to the second business day preceding the closing date, but not in
excess of the amount needed to distribute the required interest to
certificateholders on the first distribution date and to pay the investor
percentage of the servicing fee. The trustee, concurrently with this transfer,
will deliver the certificates and the transferor interest to the transferor.
Each HELOC under which a mortgage loan assigned to the trust was generated
will be identified in a schedule appearing as an exhibit to the pooling and
servicing agreement.
The transferor will deliver the mortgage files containing, among
other things, the loan agreement, the mortgage note and the mortgage relating
to each mortgage loan to the trustee. The trustee (or a custodian on its
behalf) will review each mortgage file within ___ days of receipt. If any
document is found not to have been executed or received or to be unrelated to
the mortgage loan or to have not been recorded as required by the pooling and
servicing agreement, the trustee (or custodian on its behalf) will notify the
transferor. The transferor shall have a period of ____ days after the notice
to correct or cure the defect. If the defect cannot be cured within the
specified period, the transferor will be obligated to accept the retransfer of
the mortgage loan from the trust. Upon this retransfer, the loan balance of
the mortgage loan will be deducted from the pool balance, thus reducing the
amount of the transferor interest by the same amount. If the deduction would
cause the transferor interest to become less than zero, the transferor will be
obligated to make a deposit in the collection account in the amount
("Retransfer Deposit Amount") by which the Transferor Interest is less than
zero. Notwithstanding the foregoing, however, no retransfer shall be
considered to have occurred unless the deposit is actually made. The
obligation of the transferor to accept a retransfer of a defective mortgage
loan and, if applicable, pay the Retransfer Deposit Amount, is the sole remedy
regarding any defects in the mortgage files available to the trustee or the
certificateholders.
The transferor will make certain representations and warranties as to
the accuracy in all material respects of certain information furnished to the
trustee with respect to each mortgage loan on the schedule of mortgage loans
appearing as an exhibit to the pooling and servicing agreement. In addition,
the transferor will represent and warrant that, among other things:
o each mortgage loan has been generated under an eligible HELOC;
o at the time of transfer to the trust, the transferor has
transferred all of the transferor's right, title and
interest in each mortgage loan, free of any lien (subject to
certain exceptions);
o each mortgage loan was generated under a HELOC that
complied, at the time of origination, in all material
respects with applicable state and federal laws; and
o as of the date of origination of the related HELOC, the
related mortgaged property was covered by hazard insurance
in the amount at least equal to the lesser of (a) the
maximum insurable value of the improvements thereon and (b)
the combined credit limit under the HELOC and the unpaid
principal balance of any mortgage loan senior thereto].
Upon discovery of a breach of any of the above representations and
warranties which materially and adversely affect the interests of the trust,
the certificateholders or the [Letter of Credit] [Surety Bond] issuer in the
related mortgage loan, the transferor will have a period of ____ days after
discovery or notice of the breach to effect a cure. If the breach cannot be
cured within the specified period, the transferor will be obligated to accept
a retransfer of the mortgage loan from the trust. The same procedure and
limitations that are set forth in the preceding paragraph for the retransfer
of a mortgage loan respecting which there is a defect in the mortgage file
will apply to the retransfer of a mortgage loan that is required to be
retransferred because of a breach of a representation or warranty in the
pooling and servicing agreement that materially and adversely affects the
interests of the certificateholders.
Any mortgage loan required to be retransferred to the transferor as
described in the preceding two paragraphs is referred to as a "defective
mortgage loan".
The transferor may, but is not obligated to, retransfer a defective
mortgage loan to the trust within ____ days of the transfer of the defective
mortgage loan to the transferor if all defects in respect of the defective
mortgage loan have been cured and the defective mortgage loan satisfies the
applicable representations and warranties in the pooling and servicing
agreement at the time of retransfer to the trust.
[Transfers of Eligible Additional Mortgage Loans to the Trust
If, for each of [five] consecutive business days during the revolving
period, the transferor interest for each such date is less than [10]% of the
pool balance, then not later than the first business day of the calendar month
beginning at least ten business days after such fifth business day, the
transferor will be obligated to transfer to the trust, Eligible Additional
Mortgage Loans. The transferor is only obligated to transfer Eligible
Additional Mortgage Loans to the extent available in the [transferor's]
portfolio, which may be generated under home equity credit lines in any
billing cycle, so that, after giving effect to such transfer, the transferor
interest will equal at least 10% of the pool balance on such date. An Eligible
Additional Mortgage Loan is a home equity loan that was originated under a
HELOC that, as of the notice date by the transferor to the trustee, the
servicer and the [Letter of Credit] [Surety Bond] issuer of its transfer to
the trust. The Eligible Additional Mortgage Loan is an Eligible HELOC and
that, as of the notice date, complies with the representations and warranties
described under "Assignment of Mortgage Loans" above. The transferor must
satisfy the following conditions, among others, in order to transfer Eligible
Additional Mortgage Loans to the trust:
o the pool balance, after giving effect to such transfer,
will not exceed $___________;
o the mortgage files for such Eligible Additional Mortgage
Loans shall have been delivered to the trustee (or a
custodian on its behalf); and
o the transferor shall have given notice of the proposed
transfer to the rating agency and the rating agency has not
notified the transferor in writing prior to the transfer
date that such transfer will result in a reduction or
withdrawal of its then-current rating for the certificates.
[In addition, the transferor may, at its election, transfer Eligible
Additional Mortgage Loans subject to satisfaction of the conditions described
above.]
[Optional Retransfers of Mortgage Loans to the Transferor
Subject to the conditions specified in the pooling and servicing
agreement, the transferor may, at its option, require the retransfer of one or
more mortgage loans which may have been generated under a HELOC in any billing
cycle from the trust to it on the last day of any Collection Period. The pool
balance after giving effect to such retransfer must not be less than the pool
balance on the closing date. The retransfer will be required to satisfy the
following conditions, among others:
o no Early Amortization Event shall have occurred, and the
transferor shall reasonably believe that such retransfer
will not cause an Early Amortization Event to occur;
o as of the fifth business day prior to the proposed transfer,
not more than 10% (based on the pool balance) of the
mortgage loans (after giving effect to the proposed
transfer) are delinquent more than 30 days and the weighted
average delinquency of all of the mortgage loans (before and
after giving effect to the proposed transfer) is not more
than 60 days;
o the transferor shall have represented that no selection
procedures reasonably believed by the transferor to be
adverse to the interests of the certificateholders or the
[Letter of Credit] [Surety Bond] issuer were used to select
the mortgage loans to be removed;
o the transferor shall have received evidence satisfactory to
it that the reassignment will not, as of the date thereof,
prevent the transfer of the mortgage loans (including any
additional balances) to the trust from being recognized as a
sale under generally accepted accounting principles and
shall have received no evidence that such reassignment will,
as of the date thereof, prevent such transfer from being
recognized as a sale for regulatory purposes; and
o each rating agency shall have been notified of the proposed
retransfer and prior to the date of retransfer has not
notified the transferor in writing that such retransfer
would result in a reduction or withdrawal of its
then-current rating of the certificates.]
Payments on Mortgage Loans; Deposits to Collection Account
The servicer will follow the collection procedures with respect to the
mortgage loans as it follows from time to time with respect to mortgage loans
in its servicing portfolio comparable to the mortgage loans. See "Servicing of
Loans--Collection Procedures; Escrow Accounts" in the prospectus.
The servicer will establish and maintain a separate collection
account in the name of the trustee for the benefit of the certificateholders
and the [Letter of Credit] [Surety Bond] issuer. See "Servicing of
Loans--Deposits to and Withdrawals from the Collection Account" in the
prospectus. [The collection account will be established initially with the
trust department of the trustee.] Funds in the collection account may be
invested in Eligible Investments maturing in general not later than the
business day preceding the next distribution date. Eligible Investments
consist of certain investments acceptable to each rating agency for a
structured transaction having the rating initially assigned to the
certificates. All net income and gain realized from any such investment will
be paid to the servicer.
[Investor Percentage and Transferor Percentage.
Pursuant to the pooling and servicing agreement, the servicer will
allocate between the investor interest and the transferor interest all amounts
including any net liquidation proceeds collected under the mortgage loans on
account of principal and the liquidation loss amount of the unrecovered loan
balance of any defaulted mortgage loan at the end of the Collection Period in
which such defaulted mortgage loan became a loan. A "defaulted mortgage loan"
is a mortgage loan that has been written off as uncollectible by the servicer.
The Collection Period for a distribution date is the calendar month preceding
such distribution date or, in the case of the first distribution date, the
period from the cut-off date through the last day of the calendar month
preceding the month in which such distribution date occurs. The servicer will
make each allocation by reference to the investor percentage and the
transferor percentage applicable in each case during a collection period.
For convenience, this prospectus supplement refers to the investor
percentage with respect to interest collections, principal collections and
liquidation loss amounts as if the investor percentage were the same
percentage at all times in each case. The investor percentage may be a
different percentage for each collection period, and will vary primarily as a
result of changes in the pool balance.
The investor percentage will be calculated as follows:
Interest Collections and Liquidation Loss Amounts.
When used with respect to interest collections and
Liquidation Loss Amounts at any time, and principal collections
during the revolving period, investor percentage means the percentage
equivalent of a fraction the numerator of which is the Certificate
Principal Balance and the denominator of which is the pool balance,
in each case as of the end of the immediately preceding collection
period (or, in the case of the first collection period, as of the
closing date).
When used with respect to principal collections during the
amortization period, investor percentage means the percentage
equivalent of a fraction the numerator of which is the amount of the
Certificate Principal Balance and the denominator of which is the
pool balance, in each case as of the end of the revolving period.
The transferor percentage will, in all cases, be equal to
100% minus the applicable investor percentage.
As a result of the calculation described above, interest collections
in each collection period will be allocated to the certificateholders based on
the relationship of the Certificate Principal Balance to the pool balance
(which may fluctuate from month to month). During the amortization period the
amount of principal collections allocated to the investor interest will be
determined by reference to a fixed percentage which will be equal to the
investor percentage with respect to principal collections on the last day of
the revolving period.
Deposits in the Collection Account and Payments to the Transferor.
On the closing date, the servicer will deposit in the collection
account funds in the amount of the investor percentage of interest collections
on the mortgage loans received during the period from the cut-off date to the
second business day preceding the closing date, but not in excess of the
amount needed to distribute the required interest on the certificates and the
investor percentage of the servicing fee to be distributed on the initial
distribution date. On and after the closing date, the servicer will, subject
to the following paragraph, deposit on a daily basis within two business days
following receipt of:
o the investor percentage of interest collections during each
collection period in the revolving period and
o the investor percentage of all interest collections and
principal collections during each collection period in the
amortization period.
The servicer will pay to the transferor within two business days of its
receipt thereof
o during each collection period in the revolving period, the
transferor percentage of all interest collections and, if
the transferor interest after giving effect to any transfers
of additional balances or Eligible Additional Mortgage Loans
to the trust on such day is equal to or greater than zero,
the transferor percentage of all principal collections and
the investor percentage of all principal collections and
o during each collection period in the amortization period,
the transferor percentage of interest collections and, if
the transferor interest, after giving effect to any
transfers of additional balances or Eligible Additional
Mortgage Loans to the trust on such day, is greater than
zero, the transferor percentage of all principal
collections.]
The trustee will establish and maintain a separate distribution
account. On the business day preceding each distribution date the servicer
will transfer amounts in the collection account for distribution to
certificateholders to the distribution account.
The trustee will deposit in the distribution account any amounts
drawn on the [Letter of Credit] [Surety Bond] as described below.
Any unallocated principal collections will be deposited and retained
in the collection account for payment to the transferor, during the revolving
period, if and when the transferor interest is greater than zero and, during
the amortization period, to the certificateholder.
Distributions on the Certificates
Beginning with the distribution date occurring on ____________,
distributions on the certificates will be made by the trustee out of amounts
on deposit in the distribution account on each distribution date to the
persons in whose names the certificates are registered at the close of
business on the [day prior to each Distribution Date] (the "Record Date"),
except as provided in "Registration of Certificates" below. The term
"distribution date" means the ___ day of each month (or if such day is not a
business day the next succeeding business day). Distributions will be made
o in immediately available funds to holders of offered
certificates, the aggregate principal balance of which is at
least $______________, by wire transfer or to the account of
such certificate holder at a domestic bank or other entity
having appropriate facilities, if the certificateholder has
notified the trustee in accordance with the pooling and
servicing agreement, or
o by check mailed to the address of the person entitled as it
appears on the certificate register maintained by the
trustee as certificate registrar.
As described in this prospectus supplement, the distribution amount
is calculated on the ______ business day, but no later than the _____ calendar
day of the month in which the related distribution date occurs (the
"Determination Date"). However, the final distribution in respect of the
certificates will be made only upon presentation and surrender thereof at the
office or the agency of the trustee specified in the notice to
certificateholders of such final distribution.
Distributions of Interest Collections and Required Amounts.
On each distribution date, the trustee, will pay the following
amounts in the following order of priority to the following persons from the
investor interest of all interest collections collected during the related
collection period, together with the insured amounts, if any, drawn on the
[Letter of Credit] [Surety Bond] for such distribution date.
(1) [to the certificateholders, interest at the certificate rate
for the interest period preceding the distribution date on
the certificate principal balance outstanding immediately
prior to the distribution date;
(2) to the certificateholders, any interest on the certificates
accrued in accordance with clause (1) that has not been
previously distributed to certificateholders plus, to the
extent legally permissible, interest thereon at the
certificate rate applicable from time to time (an "Unpaid
Interest Shortfall");
(3) to the servicer, the investor percentage of the servicing
fee for the related interest period and all such accrued and
unpaid fees for previous interest periods;
(4) if the distribution date is in the revolving period, to the
transferor, the investor percentage of the aggregate of all
Liquidation Loss Amounts incurred in the preceding
collection period; provided that the transferor interest,
after giving effect to any transfers of additional balances
and Eligible Additional Mortgage Loans on such date and to
the distribution of the Liquidation Loss Amount is equal to
or greater than zero;
(5) if the distribution date is in the amortization period, to
the certificateholders, the investor percentage of the
aggregate of all Liquidation Loss Amounts incurred in the
preceding collection period;
(6) to the certificateholders, the aggregate of the amounts
allocable pursuant to clause (5) that were not previously
distributed pursuant to such clause (each such undistributed
amount being referred to in this document as a "Certificate
Loss Amount"); and
(7) to the certificateholder, accrued and unpaid interest on
each unreimbursed Certificate Loss Amount (such interest
being calculated at the certificate rate for each interest
period during which such unreimbursed amount was
outstanding.]
Any amounts remaining in the collection account collected during or
with respect to the preceding collection period, after all other distributions
have been made, will be distributed to the [Letter of Credit] [Surety Bond]
issuer.
A Certificate Loss Amount represents a loss of principal in respect
of defaulted mortgage loans allocable to the investor interest and will arise
when the investor percentage of interest collections and the insured amounts
are not sufficient to cover such loss, in accordance with the priority of
distributions described above. As described under "General" above, any
Certificate Loss Amounts which have not been reimbursed, as provided herein,
will reduce the certificate principal balance.
The insured amount for each distribution date will be the lesser of
o the [Letter of Credit] [Surety Bond] Amount and
o the amount, if any, by which (a) the full amount
distributable on such distribution date pursuant to clauses
(1) through (7) above exceeds (b) the investor percentage of
the interest collections for the related collection period.
The insured amounts will be drawn on the [Letter of Credit]
[Surety Bond].
Distributions of Principal.
On each distribution date after the first collection period in the
amortization period, the trustee will distribute to the certificateholders the
investor percentage of principal collections received in the preceding
collection period. In addition, the trustee will distribute to the
certificateholders on any distribution date during the amortization period any
retransfer deposit amount (or drawn on the [Letter of Credit] [Surety Bond] in
respect thereof) received in the preceding collection period and any
unallocated principal collections then on deposit in the distribution amount.
The aggregate distributions of principal to the certificateholders will not
exceed the initial Certificate Principal Balance.
[Calculation of Certificate Rate.
With respect to the initial distribution date, the certificate rate
will be as set forth on page S-3. Thereafter, on each distribution date, the
certificate rate will be equal to LIBOR as of the second London Business Day
prior to the immediately preceding Distribution Date plus 0.___% per annum.
However, if the certificate rate calculated as described in the preceding
sentence for any such distribution date is greater than the weighted average
of the net loan rates for the mortgage loans for the preceding collection
period, the certificate rate for any such distribution date will be equal to
the weighted average of the net loan rates. The net loan rate for a mortgage
loan is its loan rate less the servicing fee rate. Interest payable on any
distribution date will accrue on the certificates from the preceding
distribution date (or, in the case of the first distribution date, from the
closing date) through the day preceding such distribution date (an "interest
period"). All calculations of interest accrued on the certificates will be
made on the basis of the actual number of days in an interest period and a
year assumed to consist of 360 days.
The term "Certificate Principal Balance" means (1) the original
principal amount of the certificates less (2) all amounts previously
distributed to certificateholders under "--Distributions of Principal" above,
less (3) the aggregate of all unreimbursed Certificate Loss Amounts.
Calculation of LIBOR.
"LIBOR" with respect to any Distribution Date will be determined by
the trustee and will be equal to the offered rates for deposits in United
States dollars having a maturity of one month (the "Index Maturity")
commencing on the second London Business Day prior to the previous
distribution date, which appear on the Reuters Screen LIBO Page as of
approximately 11:00 A.M., London Time, on such date of calculation. If at
least two such offered rates appear on the Reuters Screen LIBO Page, LIBOR
will be the arithmetic mean (rounded upwards, if necessary, to the nearest
one-sixteenth of a percent) of such offered rates. If fewer than two such
quotations appear, LIBOR with respect to such distribution date will be
determined at approximately 11:00 A.M., London time, on such determination
date on the basis of the rate at which deposits in United States dollars
having the Index Maturity are offered to prime banks in the London interbank
market by four major banks in the London interbank market selected by the
trustee and in a principal amount equal to an amount of not less than U.S.
$1,000,000 and that is representative for a single transaction in such market
at such time. The trustee will request the principal London office of each of
such banks to provide a quotation of its rate. If at least two such quotations
are provided, LIBOR will be the arithmetic mean (rounded upwards as aforesaid)
of such quotations. If fewer than two quotations are provided, LIBOR with
respect to such distribution date will be the arithmetic mean (rounded upwards
as aforesaid) of the rates quoted at approximately 11:00 A.M., New York City
time, on such determination date by three major banks in New York, New York
selected by the trustee for loans in United States dollars to leading European
banks having the Index Maturity and in a principal amount equal to an amount
of not less than U.S. $1,000,000 and is representative for a single
transaction in such market at such time; provided, however, that if the banks
selected as aforesaid by the transferor are not quoting as mentioned in this
sentence, LIBOR in effect for the applicable period will be LIBOR in effect
for the previous period.]
For purposes of calculating LIBOR, a "London Business Day" will be
any business day on which dealings in deposits in United States dollars are
transacted in the London interbank market and "Reuters Screen LIBO Page" will
be the display designated as page "LIBO" on the Reuters 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.)
The [Letter of Credit] [Surety Bond]
On the closing date, the [letter of credit] [surety bond] issuer will
issue the [letter of credit] [surety bond] in favor of the trustee on behalf
of the trust to support payments on the certificates. On each Determination
Date, the servicer will determine the amounts required to be drawn on the
[letter of credit] [surety bond], up to the [letter of credit] [surety bond]
amount, on the related distribution date. On each distribution date, any
amounts remaining in the collection account with respect to the preceding
collection period, after all other distributions have been made as described
above, will be distributed to the [letter of credit] [surety bond] issuer. See
"Distributions on Certificates" above.
The amount available under the [letter of credit] [surety bond]
amount for the initial distribution date will be $ . For each distribution
date thereafter, the [letter of credit] [surety bond] amount will equal the
lesser of (i) __% of the pool balance as of the first day of the preceding
collection period (after giving effect to any amounts distributed with respect
to principal of the mortgage loans on the distribution date occurring in such
preceding collection period) and (ii) the [letter of credit] [surety bond]
amount as of the first day of the preceding collection period, minus any
amounts drawn under the [letter of credit] [surety bond] during such preceding
collection period, plus any amounts paid to the [letter of credit] [surety
bond] issuer on the distribution date occurring in such preceding collection
period up to the amount of any previous draws on the [letter of credit]
[surety bond].
Early Amortization Events
As described above, the revolving period will continue until the
close of business on the last day of __________ unless an Early Amortization
Event occurs prior thereto. The term "Early Amortization Event" refers to any
of the following events:
[(a) failure on the part of the servicer or the transferor:
(1) to make any payment or deposit on the date required
under the pooling and servicing agreement within
five business days after such payment or deposit is
required to be made;
(2) to observe or perform in any material respect
certain covenants of the servicer or the
transferor; or
(3) to observe or perform in any material respect any
other covenants or agreements of the servicer or
the transferor set forth in the pooling and
servicing agreement, which failure, in each case,
materially and adversely affects the interests of
the certificateholders and which, in the case of
clause (3), continues unremedied for a period of 60
days after written notice and continues to
materially and adversely affect the interests of
the certificateholders for such period;
(b) any representation or warranty made by the servicer or the
transferor in the pooling and servicing agreement proves to have been
incorrect in any material respect when made, as a result of which the
interests of the certificateholders are materially and adversely affected,
which continues to be incorrect in any material respect for a period of 60
days after written notice and which continues to materially and adversely
affect the interests of the certificateholders for such period; provided,
however, that an Early Amortization Event shall not be deemed to occur
thereunder if the transferor has accepted retransfer of the related mortgage
loan or all the mortgage loans, if applicable, this such period (or such
longer period (not to exceed an additional 60 days) as the trustee may
specify) in accordance with the provisions of the pooling and servicing
agreement;
(c) the trust becomes subject to registration as an investment
company under the Investment Company Act of 1940, as amended;
(d) if the transferor fails to transfer to the trust Eligible
Additional Mortgage Loans by the time it is required to do so;
(e) an event of default under the trust agreement (as described in
the prospectus under "The Agreements--Events of Default") occurs;
(f) the [letter of credit] [surety bond] amount is less than [ ]% of
the certificate principal balance; or
(g) if the average of the investor percentage of interest collections
for any three consecutive collection periods is less than the amounts to be
distributed to certificateholders as set forth in subsections (1) through (7)
under "Distributions on the Certificates--Distributions of Interest
Collections and Required Amounts" above for the three distribution dates
relating to the collection periods.]
[In the case of any event described in clauses (a) or (b), an Early
Amortization Event will be deemed to have occurred only if, after the
expiration of the applicable grace period, if any, described in the clauses,
either the trustee or holders of certificates evidencing percentage interests
aggregating more than 51% or the [letter of credit] [surety bond] issuer, but
only if the [letter of credit] [surety bond] is outstanding or the [letter of
credit] [surety bond] issuer has not been fully reimbursed for all amounts
paid to the trust by the [letter of credit] [surety bond] issuer), by written
notice to the transferor and the servicer (and to the trustee if given by the
certificateholders or the [letter of credit] [surety bond] issuer) declare
that an Early Amortization Event has occurred as of the date of such notice.
In the case of any event described in clauses (c), (d), (e) or (f), an Early
Amortization Event will be deemed to have occurred without any notice or other
action on the part of the trustee or the certificateholders or the [letter of
credit] [surety bond] Issuer immediately upon the occurrence of such event. On
the date on which an Early Amortization Event is deemed to have occurred, the
amortization period will commence. In such event, distributions of principal
to the certificateholders will begin on the first distribution date following
the month in which the Early Amortization Date occurs. If, because of the
occurrence of an Early Amortization Event, the amortization period begins
earlier than ____________, the date on which the amortization period is
scheduled to commence, certificateholders will begin receiving distributions
of principal earlier than they would otherwise have under the pooling and
servicing agreement, which may shorten the final maturity of the
certificates.]
Optional Termination
The transferor may effect a retransfer of the certificateholders'
interest in each mortgage loan, and all property acquired in respect of any
mortgage loan, remaining in the trust for an amount equal to the sum of the
certificate principal balance plus accrued and unpaid interest thereon at the
applicable certificate rate through the day preceding the final distribution
date if the Certificate Principal Balance immediately prior to the final
distribution date is less than or equal to [ ]% of the original Certificate
Principal Balance. The purchase price will be distributed to the
certificateholders in lieu of the amount that would otherwise be distributed
if such options were not exercised, which will be applied as provided in the
pooling and servicing agreement.
[Registration of Certificates
The certificates will initially be registered in the name of Cede &
Co., the nominee of DTC. DTC is a limited- purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC accepts securities for deposit from
its participating organizations ("participants") and facilitates the clearance
and settlement of securities transactions between participants in such
securities through electronic book-entry changes in accounts of 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 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").
Certificate owners who are not participants but desire to purchase,
sell or otherwise transfer ownership of the certificates may do so only
through participants (unless and until physical certificates are issued). In
addition, certificate owners will receive all distributions of principal of
and interest on the certificates from the trustee through participants.
Certificate owners will not receive or be entitled to receive certificates
representing their respective interests in the certificates, except under the
limited circumstances described below.
Unless and until physical certificates are issued, it is anticipated
that the only certificateholder of the certificates will be Cede & Co., as
nominee of DTC, certificate owners will not be certificateholders as that term
is used in the pooling and servicing agreement. Certificate owners are only
permitted to exercise the rights of certificateholders indirectly through
participants.
While the certificates are outstanding except under the circumstances
described below, under the rules, regulations and procedures creating and
affecting DTC and its operations, DTC is required to make book-entry transfers
among participants on whose behalf it acts with respect to the certificates
and is required to receive and transmit distributions of principal of and
interest on the certificates. Participants with whom certificate owners have
accounts with respect to certificates are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective certificate owners. Accordingly, although certificate owners
will not possess certificates, the rules provide a mechanism by which
certificate owners will receive distributions and will be able to transfer
their interests.
Unless and until physical certificates are issued, certificate owners
who are not participants may transfer ownership of certificates only through
participants by instructing such participants to transfer certificates, by
book-entry transfer, through DTC for the account of the purchasers of such
certificates, which account is maintained with their respective participants.
Under the DTC system and in accordance with DTC's normal procedures, transfers
of ownership of certificates 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 certificate owners.
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
certificateholder to pledge certificates to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
certificates, may be limited due to the lack of a physical certificate for
such certificates.
Physical certificates will be issued in registered form to
certificate owners, or their nominees, rather than to DTC, only if:
o DTC 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
certificates and the servicer or the trustee is unable to
locate a qualified successor,
o the servicer, at its sole option, advises the trustee in
writing that it elects to terminate the book-entry system
through DTC, or
o after the occurrence of an Event of Servicing Termination,
DTC, at the direction of certificate owners owning
certificates evidencing percentage interests aggregating at
lease 51%, advises the trustee in writing that the
continuation of a book-entry system through DTC or a
successor thereto to the exclusion of any physical
certificates being issued to certificate owners is no longer
in the best interests of certificate owners.
Upon the issuance of physical certificates to certificate owners, the
certificates will be transferable directly (and not exclusively on a
book-entry basis) and registered holders will deal directly with the trustee
with respect to transfers, notices and distributions. If physical certificates
are issued, the Record Date may be changed to the last day of the month
immediately preceding the related distribution date.
DTC has advised the servicer and the trustee that, unless and until
physical certificates are issued, DTC 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
certificates are credited. DTC has advised the servicer that DTC will take
such action with respect to any percentage interests of the certificates only
at the direction of and on behalf of such participants with respect to such
percentage interests of the certificates. DTC may take actions, at the
direction of the related participants, with respect to some certificates which
conflict with actions taken with respect to other certificates.]
Use of Proceeds
The net proceeds to be received from the sale of the certificates
will be applied by the transferor towards the purchase of the mortgage loans.
The mortgage loans will have been acquired by the transferor in privately
negotiated transactions.
Legal Investment Considerations
[Although, as a condition to their issuance, the certificates will be
rated in the [highest] rating category of the rating agency, the certificates
will not constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"), because most of
the mortgages securing the mortgage loans are not first mortgages.
Accordingly, many institutions with legal authority to invest in comparably
rated securities based on first mortgage loans may not be legally authorized
to invest in the certificates, which because they evidence interests in a pool
that includes junior mortgage loans are not "mortgage related securities"
under SMMEA. See "Legal Investment" in the prospectus.]
Federal Income Tax Consequences
In the opinion of [ ], special tax counsel to the trust, for federal
income tax purposes, the certificates will be treated as debt and the trust
will not be characterized as an association, a publicly traded partnership
taxable as a corporation, or a taxable mortgage pool. The trust and each
certificateholder will agree to treat the certificates as indebtedness for
federal income tax purposes. Alternative characterizations of the trust and
the certificates are possible, and we suggest that prospective investors
consult their tax advisors regarding the federal income tax consequences of
any possible alternative characterization. Based on their anticipated offering
prices, it is expected that the certificates will not be issued with original
issue discount ("OID"). The prepayment assumption to be used for calculating
the accrual of OID and market discount and amortization of bond premium will
be [ ]. For additional information regarding federal income tax consequences,
see "Federal Income Tax Consequences" in the prospectus.
ERISA Considerations
Section 406 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and Section 4975 of the Internal Revenue Code (the
"Code") prohibit a pension, profit sharing or other employee benefit or other
plan (such as an individual retirement account or a Keogh plan) that is
subject to Title I of ERISA or to Section 4975 of the Code 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. Certain governmental plans, although not subject to ERISA or the
Code, are subject to federal, state or locals laws ("Similar Law") that impose
similar requirements (such plans subject to ERISA, Section 4975, or Similar
Law referred to herein as "Plans"). A violation of these "prohibited
transaction" rules may generate excise tax and other liabilities under ERISA
and the Code or under Similar Law for such persons.
ERISA also imposes certain duties on persons who are fiduciaries of
Plans subject to ERISA, including the requirements of investment prudence and
diversification, and the requirement that such a Plan's investments be made in
accordance with the documents governing the Plan. 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.
Certain transactions involving the trust might be deemed to
constitute prohibited transactions under ERISA and the Code if assets of the
trust were deemed to be assets of a Benefit Plan. Under a regulation issued by
the United States Department of Labor (the "Plan Assets Regulation"), the
assets of the trust would be treated as plan assets of a Benefit Plan for the
purposes of ERISA and the Code only if the Benefit Plan acquires an "equity
interest" in the trust 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. It is expected that the certificates will be considered equity
interests in the trust for purposes of the Plan Assets Regulation, and that
the assets of the trust may therefore constitute plan assets if certificates
are acquired by Plans. It is not expected that the certificates will
constitute "publicly-offered securities" and the trustee will not monitor
ownership of the certificates to ensure that ownership by benefit plan
investors is not significant.
[Furthermore, the trust does not contain only assets to which the
Exemption, described in the prospectus, applies.
As a result, certificates shall not be transferred and the trustee
shall not register any proposed transfer of certificates unless it receives
o a representation substantially to the effect that the
proposed transferee is not a Plan and is not acquiring the
certificates on behalf of or with the assets of a Plan
(including assets that may be held in an insurance company's
separate or general accounts where assets in such accounts
may be deemed "plan assets" for purposes of ERISA), or
o an opinion of counsel in form and substance satisfactory to
the trustee and the transferor that the purchase or holding
of the certificates by or on behalf of a Plan will not
constitute a prohibited transaction and will not result in
the assets of the trust being deemed to be "plan assets" and
subject to the fiduciary responsibility provisions of ERISA
or the prohibited transaction provisions of ERISA and the
Code or any Similar Law or subject the trustee, the
certificate administrator or the transferor to any
obligation in addition to those undertaken in the trust
agreement.]
[It is expected that the Exemption will apply to the acquisition and
holding by Plans of the certificates, and that all conditions of the Exemption
other than those within the control of the investors will be met. In addition,
as of the date hereof, there is no single mortgagor that is the obligor on
five percent of the obligations included in the trust by aggregate unamortized
principal balance of the assets of the trust.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the
Exemption, and the potential consequences in their specific circumstances,
prior to making an investment in the certificates.]
Underwriting
Subject to the terms and conditions set forth in the underwriting
agreement, dated ____________, between the transferor and [the underwriter],
the transferor has agreed to sell to the underwriter, and the underwriter has
agreed to purchase from the transferor, all of the certificates.
The underwriting agreement provides that the underwriter's
obligations hereunder are subject to certain conditions precedent, and that
the underwriter will be obligated to purchase all of the certificates if any
are purchased.
The distribution of the certificates by the underwriter will be
effected from time to time in one or more negotiated transactions or otherwise
at varying prices to be determined, in each case, at the time of sale. The
underwriter may effect such transactions by selling the certificates to or
through dealers, and such dealers may receive from the underwriter
compensation in the form of underwriting discounts, concessions or
commissions. The underwriter and any dealers that participate with the
underwriter in the distribution of the certificates may be deemed to be
underwriters, and any discounts, commissions or concessions received by them,
and any profit on the resale of the certificates purchased by them, may be
deemed to be underwriting discounts and commissions under the Securities Act
of 1933, as amended (the "Act").
The underwriting agreement provides that the transferor will
indemnify the underwriter against certain civil liabilities, including
liabilities under the Act.
Legal Matters
Certain legal matters with respect to the certificates will be passed
upon for the transferor by [ ] and for the underwriter by [ ].
Rating
It is a condition to issuance that each class of the certificates be
rated not lower than "____" by [rating agency] and "____" by [rating agency].
A securities rating addresses the likelihood of the receipt by
certificateholders of distributions on the mortgage loans. The rating takes
into consideration the characteristics of the mortgage loans and the
structural, legal and tax aspects associated with the certificates. The
ratings on the certificates do not, however, constitute statements regarding
the likelihood or frequency of prepayments on the mortgage loans or the
possibility that certificateholders might realize a lower than anticipated
yield.
A securities 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 securities rating should be evaluated
independently of similar ratings on different securities.
<PAGE>
<TABLE>
<CAPTION>
Index of Defined Terms
<S> <C>
Amortization Period............................................................................................S-17
Certificate Loss Amount........................................................................................S-25
Certificate Principal Balance..............................................................................S-18, 26
Code...........................................................................................................S-32
Collection Period..............................................................................................S-17
Defective Mortgage Loan....................................................................................S-20, 22
Determination Date.............................................................................................S-24
Distribution Date..............................................................................................S-24
Early Amortization Event.......................................................................................S-28
Eligible Additional Mortgage Loans.............................................................................S-00
Eligible HELOC.................................................................................................S-16
Event of Servicing Termination.................................................................................S-31
Index Maturity.................................................................................................S-26
Interest Period................................................................................................S-26
LIBOR..........................................................................................................S-26
Liquidation Loss Amounts....................................................................................S-23,25
London Business Day............................................................................................S-27
Record Date....................................................................................................S-24
Retransfer Deposit Amount......................................................................................S-25
Transfer Interest..............................................................................................S-20
Unpaid Interest Shortfall......................................................................................S-25
</TABLE>
<PAGE>
$---------
[ ] HOME EQUITY
LOAN TRUST ____-_
$_________ [Fixed] [Floating] Rate
Asset-Backed Certificates
Series ____-_
KeyBank National Association
(Transferor)
-----------------
PROSPECTUS SUPPLEMENT
[ , --- ]
---------------------
[Underwriter]
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the SEC is effective. This prospectus is not an offer to sell
these securities and it is not solicitig an offer to buy these securities
in any state where the offer or sale is not permitted.
[ALTERNATE PAGE]
SUBJECT TO COMPLETION, DATED DECEMBER 23, 1999
Prospectus supplement dated ________ __, ____
To prospectus dated _________ __, ____
$----------
[ ] Home Equity Loan Trust ____-_
Home Equity Loan Asset-Backed Certificates, Series ____-_
[ ] KeyBank National Association
as master servicer as seller
The certificates:
- ---------------------
The certificates
represent obligations
of the trust only and o represent the entire beneficial interest
do not represent an in a trust, whose assets are a pool of
interest in or obligation
of KeyBank National Association,
the trustee or any of their
affiliates. o home equity revolving credit
line loans secured primarily by
This prospectus [second liens] on residential
supplement may be properties that are primarily
used to offer and sell one- to four-family properties,
the certificates only if and
accompanied by the
prospectus. o home improvement installment
- ------------------------ sales contracts and installment
loan agreements.
o currently have no trading market
Credit enhancement
o [Letter of Credit] [Surety Bond]
Review the information in "Risk Factors" on page S-9 of this prospectus
supplement and on page 2 in the prospectus.
This prospectus supplement and the prospectus to which it relates are
to be used by McDonald Investments Inc., a KeyCorp. Company and an affiliate
of the seller, in connection with offers and sales related to market-making
transactions in the securities in which it acts as principal and/or agent.
Sales will be made at prices related to the prevailing prices at the time of
sale.
Neither the SEC nor any state securities commission has approved or
disapproved of these securities or passed upon the adequacy or accuracy of
this prospectus. Any representation to the contrary is a criminal offense
[Underwriter]
___________, 199_
[ALTERNATE PAGE]
Plan of Distribution
This prospectus supplement and the prospectus to which it relates are
to be used by McDonald Investments Inc., a KeyCorp Company and an affiliate of
the seller ("McDonald"), or its successors, in connection with offers and
sales related to market-making transactions in the certificates in which
McDonald acts as principal. McDonald may also act as agent in such
transactions. Sales will be made at prices related to prevailing prices at the
time of sale. Any obligations of McDonald are the sole obligations of McDonald
and do not create any obligations on the part of any affiliate of McDonald.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
securities and exchange commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
Subject to completion, dated December 23, 1999.
Prospectus
KEYBANK NATIONAL ASSOCIATION
Asset-Backed Certificates
Asset-Backed Notes
Issuable in series
KeyBank National Association, as the seller, may offer from time to time under
this prospectus and the prospectus supplement asset-backed notes and
asset-backed certificates which may be sold from time to time in one or more
series. Each series of securities will be issued in one or more classes.
The prospectus supplement will set forth the specific assets of the trust and
the seller or sellers from whom such assets are acquired. The assets may
include:
(a) one or more pools of:
o closed-end and revolving home equity loans or certain balances
thereof and loans of which the proceeds have been applied to the
purchase of the related mortgaged property, secured by mortgages
primarily on one- to four-family residential properties and
properties that include residential and income-producing
non-residential units;
o home improvement installment sales contracts and installment
loan agreements which may be unsecured, secured by mortgages
primarily on one- to four-family residential properties, or
secured by purchase money security interests in the related home
improvements;
o private securities; and
o agency securities;
(b) all monies due under the above assets, which may be net of certain
amounts payable to the servicer; and
(c) funds or accounts established for the trust or one or more forms of
enhancement.
The prospectus supplement will state if the trust will make a REMIC election
for federal income tax purposes.
For a discussion of certain risks associated with an investment in the
securities, see Risk Factors on page 2.
Neither the SEC nor any state securities commission has approved or
disapproved the offered securities or determined if this prospectus is
accurate or complete. Making any contrary representation is a criminal
offense.
<PAGE>
Risk Factors
You should carefully consider the following risk factors prior to any
purchase of the securities.
Limited Liquidity May Result in Delays in Liquidations or Lower Returns
There will be no market for the securities of any series prior to its
issuance, 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 that any market will continue for the life of the securities.
One or more underwriters, as specified in the prospectus supplement, may
expect to make a secondary market in the securities, but they have no
obligation to do so. Absent a secondary market for the securities you may
experience a delay if you choose to sell your securities or the price you
receive may be less than that which is offered for a comparable liquid
security.
Payments on Securities Are Limited to the Assets of Trust
The securities will be payable solely from the assets of the trust,
including if applicable, any amounts available pursuant to any enhancement.
There will be no recourse to the seller or any other person for any default on
the notes or any failure to receive distributions on the certificates. If
payments from the assets of the trust become insufficient to make payments on
the securities, no other assets would be available for payment of the
deficiency and you could experience a loss.
In addition, as specified in the prospectus supplement, at certain
times, trust assets and any funds remaining in the collection account or
distribution account immediately after making all payments due on the
securities and other required payments, may be released or remitted to the
seller, the servicer, the provider of any enhancement or any other entitled
person and will not be available for making payments to securityholders.
We refer you to "The Agreements - Assignment of Trust Assets."
Enhancement May Be Insufficient to Cover Losses
Although enhancement is intended to reduce the risk of delinquent
payments or losses to holders of securities, the amount of the enhancement, if
any, will be limited, as set forth in the prospectus supplement. The available
enhancement may decline or be depleted before the securities are paid in full,
and as a result, you may suffer losses. For example, enhancement may be
insufficient in cases of greater than anticipated losses or where the
enhancement provider is unable to meet its obligations.
We refer you to "Enhancement."
Timing and Rate of Prepayments May Result in Lower Yield
The yield to maturity experienced by a holder of securities may be
affected by the rate of payment of principal of the trust assets. An investor
who purchases a security at a discount may realize a lower yield if
prepayments are less than anticipated, alternatively, an investor who
purchases a security at a premium may realize a lower yield if prepayments are
greater than anticipated. The timing of principal payments of the securities
of a series will be affected by a number of factors, including the following:
o the extent of prepayments of the loans and the underlying loans
relating to the private securities and the agency securities, which
prepayments may be influenced by a variety of factors,
o the manner of allocating principal payments among the classes of
securities as specified in the prospectus supplement and
o the exercise by the entitled party of any right of optional
termination. Prepayments may also result from repurchases of these
assets due to material breaches of the seller's warranties.
We refer you to "Description of the Securities--Weighted Average
Life of Securities."
Interest payable on the securities on a distribution date will
include all interest accrued during the period specified in the 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.
We refer you to "Description of the Securities--Payments of Interest."
Junior Liens May Result in Losses in Foreclosure Proceedings
Since some of the mortgages are junior liens, the proceeds from any
liquidation, insurance or condemnation proceedings will be available to
satisfy the outstanding balance of the junior mortgage only to the extent that
the claims of 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. The trust will not have any source of
funds to satisfy the senior mortgages or make payments due to the senior
mortgagees.
Decrease in Value of Mortgaged Property Would Disproportionately Affect Junior
Lienholders
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 property before having any effect
on the related senior interest. If a decline occurs, the rates of
delinquencies, foreclosure and losses on the junior loans may increase,
resulting in losses in the securities.
Costs for Cleaning Environmentally Contaminated Property May Result in Losses
Under certain state and federal laws, an environmentally contaminated
property may give rise to a lien on the property to assure the costs of
cleanup. In addition these laws may impute liability for cleanup costs to the
lender if the lender was involved in the operations of the borrower, even if
the environmental damage was caused by a prior owner. Any lien or costs
attached to a contaminated property could result in a loss to securityholders.
We refer you to "Certain Legal Aspects of the Loans--Environmental
Risks" in this prospectus for more detail.
State and Federal Laws May Limit Ability to Collect on Loans
Applicable federal and state laws regulate interest rates and other
charges and require certain disclosures. In addition, other laws, public
policy and general principles of equity relating to the protection of
consumers, unfair and deceptive practices and debt collection practices may
apply to the origination, servicing and collection of the mortgage loans.
Depending on the provisions of the applicable law and the specific facts
involved, violations may limit the ability to collect all or part of the
principal of or interest on the mortgage loans. In some cases, the borrower
may be entitled to a refund of amounts previously paid and, could subject the
trust to damages and administrative enforcement.
The home improvement contracts are also subject to federal and state
laws which protect a homeowner from defective craftmanship or incomplete work
by a contractor. These laws permit the borrower to withhold payment if the
work does not meet the quality and durability standards agreed to by the
homeowner and the contractor. These laws may have the effect of subjecting the
trust to all claims and defenses which the borrower had against the seller.
We refer you to "Certain Legal Aspects of the Loans" in this
prospectus for more detail.
Rating of the Securities Does Not Assure Payment
It will be a condition to the issuance of the securities offered
hereby that they be rated in one of the four highest rating categories by each
rating agency identified in the prospectus supplement. The ratings of the
securities will be based on, among other things, the adequacy of the value of
the trust assets and any enhancement. The rating should not be deemed a
recommendation to purchase, hold or sell the securities, particularly since
the ratings do not address market price or suitability for an investor. There
is no assurance that the ratings will remain in effect over the life of the
securities, and may be lowered or withdrawn.
We refer you to "Rating" in this prospectus for more detail.
Liquidation Value of Trust Assets May Be Insufficient to Satisfy All Claims
Against Trust
There is no assurance that the market value of the trust assets at
any time will equal the principal amount of the securities. In addition, under
any situation in which the trust assets are required to be sold, the proceeds
will be paid to cover administrative costs before being paid to you. The net
proceeds may be insufficient to pay the principal and interest on the
securities.
Description of the Securities
General
The securities will be issued in series. The notes will be issued
pursuant to an indenture between the trust and the trustee identified in the
prospectus supplement. A form of indenture has been filed as an exhibit to the
registration statement of which this prospectus forms a part. The certificates
will be issued in pursuant to either a pooling and servicing agreement or a
trust agreement among KeyBank National Association as the seller, the servicer
specified in the prospectus supplement 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 term "Agreement" is
used in this prospectus to refer to, 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.
The following summaries describe material provisions in the
Agreements common to each series of securities. Where particular provisions or
terms used in the Agreements are referred to, the actual provisions 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:
o compound interest securities,
o fixed interest securities,
o variable interest securities,
o planned amortization class securities,
o zero coupon securities,
o principal only securities,
o interest only securities, or
o 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 prospectus supplement. Upon satisfaction of the conditions, if any,
applicable to a class of a series, as described in the prospectus supplement,
the transfer of the securities may be registered and the securities may be
exchanged at the office of the trustee 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 prospectus
supplement, one or more classes of a series may be available in book-entry
form only.
As specified in the 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 by check mailed to registered
securityholders at their registered addresses. Payments may be made by wire
transfer -at the expense of the requesting securityholder- as described in the
prospectus supplement. The 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 prospectus supplement. Typically, all payments with respect to the trust
assets for a series, together with reinvestment income thereon, amounts
withdrawn from any reserve fund, and amounts available pursuant to any other
enhancement specified in the prospectus supplement will be deposited directly
into a separate collection account established by the trustee or the servicer.
The amount deposited to the collection account, if and as provided in the
prospectus supplement, will be net of certain amounts payable to the servicer
and any other person specified in the prospectus supplement. Amounts on
deposit in the collection account will be deposited into the distribution
account and will be available to make payments on securities of a series on
the next distribution date. See "The Trusts--Collection and Distribution
Accounts."
Valuation of the Trust Assets
If specified in the prospectus supplement for a series of notes,
each trust asset included in the trust for a series will be assigned an
initial asset value. The asset value of the trust assets will be equal to the
product of the asset value percentage as set forth in the indenture and the
lesser of:
o the stream of remaining regularly scheduled payments on the
trust assets, net, unless otherwise provided in the 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
o the then principal balance of the trust assets.
Typically, the initial asset value of the trust assets will be at least equal
to the principal amount of the notes of the related series at the date of
issuance.
The "assumed reinvestment rate", if any, for a series will be the
highest rate permitted by each rating agency specified in the prospectus
supplement or a rate insured by means of a surety bond, guaranteed investment
contract, deposit agreement or other arrangement satisfactory to those rating
agencies. If the assumed reinvestment rate is so insured, the 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 from the date and at the rate per annum specified,
or calculated in the method described, in the prospectus supplement. Interest
on a class of securities of a series will be payable on the distribution date
and in the priority specified in the prospectus supplement. The rate of
interest on the securities of a series may be fixed or variable or may change
with changes in the annual percentage rates of the loans or underlying loans,
as applicable, included in the related trust or as prepayments occur with
respect to such loans or underlying loans, as applicable. Principal only
securities will be entitled to little or no interest distributions. Any
interest on zero coupon securities that is not paid on a distribution date
will accrue and be added to the principal balance.
Interest payable on the securities on a distribution date will
include all interest accrued during the period specified in the prospectus
supplement. In the event interest accrues during the calendar month preceding
a distribution date, the effective yield to securityholders 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, principal payments will be made to those
securityholders entitled to principal, to the extent set forth in the
prospectus supplement. The principal payments will be made in an aggregate
amount determined as specified in the prospectus supplement and will be
allocated among the respective classes of a series in the manner, at the times
and in the priority set forth in the prospectus supplement.
Interest only securities are not entitled to principal. Interest only
securities may be assigned a notional amount, but such value will be used
primarily for the calculation of interest payments and will not represent the
right to receive any distributions allocable to principal.
Final Scheduled Distribution Date
The final scheduled distribution date with respect to each class of
notes is the date on which the principal of the class of notes will be fully
paid. With respect to each class of certificates, the final scheduled
distribution date will be the date on which the entire aggregate principal
balance of the class of certificates is expected to be reduced to zero. These
calculations will be based on the assumptions described in the prospectus
supplement. The final scheduled distribution date for each class of securities
will be specified in the prospectus supplement.
The actual final distribution date of the securities of a series will
depend primarily upon the rate of principal payment of the loans and the
underlying loans relating to the private securities and the agency securities,
as applicable, in the trust. Since payments on the trust assets, including
prepayments, 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 class will occur earlier, and may occur
substantially earlier, than its final scheduled distribution date.
Furthermore, with respect to the certificates, as a result of delinquencies,
defaults and liquidations of the trust assets in the trust, 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 the trust assets. See "Weighted Average Life of the
Securities".
Special Redemption
If specified in the prospectus supplement, under certain
circumstances, one or more classes of securities may be subject to special
redemption, in whole or in part, if a determination is made that the amount of
interest that will accrue on the trust assets will be less than the amount of
interest that will accrue on the securities. In such event, the trustee will
redeem a principal amount of securities as this will cause the available
interest amount to equal the amount of interest that will accrue on the
securities outstanding after such redemption.
Optional Redemption, Purchase of Trust Assets or Securities, Termination
of Trust
The seller 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. Alternatively, if specified in
the prospectus supplement, the seller, the servicer, or another entity
designated in the prospectus supplement may, at its option, cause an early
termination of a trust by repurchasing all of the trust assets from the trust.
Notice of such redemption, purchase or termination must be given by the seller
or the trustee prior to the related date. The redemption, purchase or
repurchase price will be set forth in the prospectus supplement. If specified
in the 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 securityholders could be fully paid significantly
earlier than would otherwise be the case if payments or distributions were
solely based on the activity of the trust 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. In general, the weighted average
life of a security will be influenced by the rate at which the amount financed
under the loans or underlying loans, as applicable, included in the trust 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 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 and the
percentage of the original principal amount of each class of securities that
would be outstanding on specified distribution dates based on the assumptions
stated in the prospectus supplement.
There is, however, no assurance that prepayment of the loans or
underlying loans, as applicable, included in the trust will conform to any
level of any prepayment standard or model specified in the prospectus
supplement. The rate of principal prepayments on pools of loans is influenced
by a variety of economic, demographic, geographic, legal, tax, social and
other factors.
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, 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, as applicable. If any loans or underlying loans, 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 dates, even in the absence of
prepayments and a reinvestment return higher than the assumed reinvestment
rate.
The Trusts
General
The notes will be secured by the pledge of the assets of the trust,
and the certificates will represent interests in the trust assets, or in a
group of assets specified in the prospectus supplement. The trust of each
series will include assets purchased from the seller composed of:
o the loans;
o amounts available from the reinvestment of payments on the trust
assets at the assumed reinvestment rate, if any, specified in
the prospectus supplement;
o enhancements;
o properties that secured a loan but which are acquired by
foreclosure or deed in lieu of foreclosure or repossession; and
o the amount, if any, initially deposited in the collection
account or distribution account for a series as specified in the
prospectus supplement.
The securities will be non-recourse obligations of the trust.
Typically, the assets of the trust will serve as collateral for only one
series of securities. Noteholders may only proceed against such collateral in
the case of a default and may not proceed against any assets of the seller,
any of its affiliates or the assets of the trust not pledged to secure such
notes.
The trust assets for a series will be sold by the seller to the
trust. Private securities will be purchased by the seller in secondary market
transactions, not from the issuer of the securities or an affiliate of the
issuer. Agency securities will be purchased either in the secondary market or
otherwise. Loans may be purchased by the seller in privately negotiated
transactions, which may include transactions with affiliates of the seller.
The trust assets will be transferred by the seller to the trust. Loans
relating to a series will be serviced by the servicer specified in the
prospectus supplement, which may be the seller, pursuant to a pooling and
servicing agreement or a servicing agreement.
A trust relating to a series of securities may be a business trust
formed pursuant to a trust agreement between the seller and the trustee, as
described in the prospectus supplement. The trust assets may consist of any
combination of loans, private securities and agency securities, as specified
in the prospectus supplement.
With respect to each trust, prior to the initial offering of the
related series of securities, the trust will have no assets or liabilities. No
trust is expected to engage in any activities other than acquiring, managing
and holding the trust assets and other assets contemplated herein and in the
prospectus supplement and the related proceeds, issuing securities and making
payments and distributions thereon and certain related activities. No trust is
expected to have any source of capital other than its assets and any related
enhancement.
The Loans
The term "loans" as used in this prospectus includes mortgage loans,
which may be closed-end or revolving credit line home equity loans, and home
improvement contracts.
Mortgage Loans.
The property which secures repayment of the loans is referred to as
the "mortgaged properties". The trust assets for a series may consist, in
whole or in part, of closed-end and revolving home equity loans or certain
balances thereof and loans of which the proceeds have been applied to the
purchase of the related mortgaged property 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 in this section and in the prospectus supplement.
As more fully described in the prospectus supplement, interest on
each revolving credit line loan, excluding introductory rates offered from
time to time during promotional periods, may be computed and payable monthly
on the average daily outstanding principal balance of such loan. Principal
amounts on the revolving credit line loans may be drawn down up to a maximum
amount as set forth in the prospectus supplement or repaid from time to time.
If specified in the prospectus supplement, new draws by borrowers under the
revolving credit line loans will automatically become part of the trust. As a
result, the aggregate balance of the revolving credit line loans will
fluctuate from day to day as new draws by borrowers are added to the trust and
principal payments are applied to such balances and the amounts of such draws
and payments will usually differ each day, as more specifically described in
the prospectus supplement.
Typically, the full principal amount of a closed-end loan is advanced
at origination of the loan and is repayable in equal or substantially equal
installments of an amount sufficient to fully amortize such loan at its stated
maturity. As more fully described in the prospectus supplement, interest on
each mortgage loan is calculated on the basis of the outstanding principal
balance of such loan multiplied by the interest rate thereon and further
multiplied by a fraction described in the prospectus supplement. The original
terms to stated maturity of the loans usually will not exceed 360 months.
Under certain circumstances, under either a revolving credit line loan or a
closed-end loan, a borrower may choose an interest only payment option and is
obligated to pay only the amount of interest which accrues on the loan during
the billing cycle. An interest only payment option may be available for a
specified period before the borrower must begin paying at least the minimum
monthly payment of a specified percentage of the average outstanding balance
of the loan.
The mortgaged properties will include primarily single family
property. The mortgaged properties may consist of:
o detached individual dwellings,
o individual condominiums,
o townhouses,
o duplexes,
o row houses,
o individual units in planned unit developments, and
o other attached dwelling units.
As specified in the prospectus supplement, 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 of at least ten years 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.
The mortgaged properties may also include a small portion (no more
than 5.00%) of mixed-use properties that are partly income producing
non-residential properties. At least 50% of the square footage of each of
these properties are residential. Also included in this category are
properties containing five or more residential units and no non-residential
space. These mixed-use properties may be owner occupied or investor properties
and the loan purpose may be a refinancing or a purchase.
Typically, 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 loans secured by mortgaged
properties that are owner-occupied will be disclosed in the prospectus
supplement. The basis for a representation that a given percentage of the
loans are secured by single family property that is owner-occupied usually is
either:
o the making of a representation by the mortgagor at origination
of the 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
o 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 prospectus supplement, the mortgaged properties
may include non-owner occupied investment properties and vacation and second
homes.
The initial combined loan-to-value ratio of a loan is computed in the
manner described in the prospectus supplement and may take into account the
amounts of any related senior mortgage loans.
Home Improvement Contracts.
The trust assets for a series may consist, in whole or part, of home
improvement installment sales contracts and installment loan agreements
originated by a home improvement contractor in the ordinary course of
business. As specified in the prospectus supplement, the home improvement
contracts will either be unsecured or secured by the mortgages primarily on
single family properties which are usually subordinate to other mortgages on
the same mortgaged property or by purchase money security interests in home
improvements. As specified in the 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 in this section and in the prospectus supplement.
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 panels.
If applicable, the initial loan-to-value ratio of a home improvement
contract is computed in the manner described in the prospectus supplement.
Additional Information.
The selection criteria which shall 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 prospectus supplement.
Some loans may be delinquent or non-performing as specified in the
prospectus supplement. Loans may be originated by or acquired from an
affiliate of the seller and an affiliate of the seller may be an obligor with
respect to any such loan. To the extent provided in the prospectus supplement,
additional loans may be periodically added to the trust, or may be removed
from time to time if certain asset value tests are met, as described in the
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 prospectus supplement. As further described in
the prospectus supplement, the loans for a series may include loans that do
not have a specified stated maturity.
The prospectus supplement for each series will provide information
with respect to the loans that are trust 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 or the
aggregate unpaid principal balance included in the trust for
the related series;
(b) the range and weighted average interest rate on the loans,
and, in the case of adjustable rate loans, the range and
weighted average of the current interest 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 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 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;
(l) the credit limit utilization rate of any revolving credit
line loans; and
(m) the delinquency status and year of origination of the loans.
The 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 seller at the time the securities are initially offered,
approximate or more general information of the nature described in the
previous paragraph 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.
Trust assets for a series may consist, in whole or in part, of
private securities which include pass-through certificates representing
beneficial interests in loans and collateralized obligations secured by loans.
The private securities will have previously been:
o offered and distributed to the public pursuant to an effective
registration statement, or
o 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 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.
Although individual loans underlying the private securities, may be
insured or guaranteed by the United States or an agency or instrumentality of
the United States, they need not be, and private securities themselves will
not be so insured or guaranteed. 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. The underlying loans will be
secured by mortgages on mortgaged properties.
All purchases of private securities for a series by the seller will
be made in secondary market transactions, not from the issuer of such private
securities or any affiliate of the issuer. As a result, no such purchases of
private securities offered and distributed to the public pursuant to an
effective registration statement will be made by the seller for at least
ninety days after the initial issuance of such private securities.
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 under 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
seller. As specified in the prospectus supplement, the obligations of the PS
Sponsor will be limited to certain representations and warranties with respect
to the assets conveyed by it to the related trust. Typically, 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 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.
As specified in the prospectus supplement, payments on the private securities
will be distributed directly to the trustee as the registered owner of such
private securities. 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 prospectus supplement.
Enhancement Relating to Private Securities.
Enhancement 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
enhancement may be provided with respect to the underlying loans or with
respect to the private securities themselves. The type, characteristics and
amount of enhancement 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 trust assets
includes private securities will specify the material terms of the private
securities, which may include:
(a) the aggregate approximate principal amount and type of the
private securities to be included in the trust for such series;
(b) certain characteristics of the underlying loans including:
o the payment features of the underlying loans, i.e.,
whether they are fixed rate or adjustable rate and
whether they provide for fixed level payments or
other payment features,
o the approximate aggregate principal balance, if known, of
the underlying loans insured or guaranteed by a
governmental entity,
o the servicing fee or range of servicing fees with respect
to the underlying loans,
o the minimum and maximum stated maturities of the
underlying loans at origination,
o the lien priority and credit utilization rates, if any, of
the underlying loans, and
o the delinquency status and year of origination of the
underlying loans;
(c) the maximum original term-to-stated maturity of the private
securities;
(d) the weighted average term-to-stated maturity of the private
securities;
(e) the pass-through or certificate rate or ranges for the private
securities;
(f) the PS Sponsor, the PS Servicer (if other than the PS Sponsor)
and the PS Trustee for such private securities;
(g) certain characteristics of credit support, if any, such as
reserve funds, insurance policies, letters of credit or
guarantees relating to the underlying loan or to such private
securities themselves;
(h) 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
(i) the terms on which underlying loans may be substituted for
those originally underlying the private securities.
Agency Securities
Trust assets for a series may consist, in whole or in part, of agency
securities which include securities issued by Ginnie Mae, Freddie Mac and
Fannie Mae.
All of the agency securities will be registered in the name of the
trustee or its nominee or, in the case of agency securities issued only in
book-entry form, a financial intermediary that is a member of the Federal
Reserve System or of a clearing corporation on the books of which the security
is held. Each agency security will evidence an interest in a pool of mortgage
loans that would be eligible to be mortgage loans and in principal
distributions and interest distributions thereon.
The descriptions of Ginnie Mae, Freddie Mac and Fannie Mae
certificates in this prospectus supplement are descriptions of certificates
representing proportionate interests in a pool of mortgage loans and in the
payments of principal and interest thereon. Ginnie Mae, Freddie Mac or Fannie
Mae may also issue mortgage-backed securities representing a right to receive
distributions of interest only or principal only or disproportionate
distributions of principal or interest or to receive distributions of
principal and interest prior or subsequent to distributions on other
certificates representing interests in the same pool of mortgage loans. The
terms of the agency certificates to be included in a trust and of the
underlying mortgage loans will be described in the prospectus supplement.
Ginnie Mae.
Ginnie Mae is a wholly owned corporate instrumentality of the United
States within HUD. Section 306(g) of Title III of the National Housing Act of
1934, as amended (the "Housing Act"), authorizes Ginnie Mae to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pools of loans guaranteed or insured by the FHA or the VA
and by pools of other eligible mortgage loans.
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which may
be required to be paid under any guaranty under this subsection". To meet its
obligations under its guaranties, Ginnie Mae is authorized to borrow from the
United States Treasury with no limitations as to amount.
Freddie Mac.
Freddie Mac is a corporate instrumentality of the United States
created pursuant to Title III of the Emergency Home Finance Act of 1970, as
amended. Freddie Mac's common stock is owned by the Federal Home Loan Banks,
and its preferred stock is owned by the stockholders of such Federal Home Loan
Banks. Freddie Mac was established primarily for the purpose of increasing the
availability of mortgage credit for the financing of urgently needed housing.
It seeks to provide an enhanced degree of liquidity for residential mortgage
investments primarily by assisting in the development of secondary markets for
conventional mortgages. The principal activity of Freddie Mac currently
consists of the purchase of first lien conventional residential mortgage loans
or participation interests in such mortgage loans and the resale of the
mortgage loans so purchased in the form of mortgage securities. Freddie Mac is
confined to purchasing, so far as practicable, conventional mortgage loans and
participation interests in conventional mortgage loans which it deems to be of
such quality, type and class as to meet the purchase standards imposed by
private institutional mortgage investors.
Freddie Mac certificates are not guaranteed by the United States or
by any Federal Home Loan Bank and do not constitute debts or obligations of
the United States or any Federal Home Loan Bank. The obligations of Freddie
Mac under its guaranty are obligations solely of Freddie Mac and are not
backed by, or entitled to, the full faith and credit of the United States. If
Freddie Mac were unable to satisfy its obligations, distributions to holders
of Freddie Mac certificates would consist solely of payments and other
recoveries on the underlying mortgage loans and, accordingly, monthly
distributions to holders of Freddie Mac certificates would be affected by
delinquent payments and defaults on such mortgage loans.
Freddie Mac certificates duly presented for registration of ownership
on or before the last business day of a month are registered effective as of
the first day of the month. The first remittance to a registered holder of a
Freddie Mac certificate will be distributed so as to be received normally by
the 15th day of the second month following the month in which the purchaser
became a registered holder of such Freddie Mac certificate. Thereafter, such
remittance will be distributed monthly to the registered holder so as to be
received normally by the 15th day of each month. The Federal Reserve Bank of
New York maintains book-entry accounts with respect to Freddie Mac
certificates sold by Freddie Mac on or after January 2, 1985, and makes
payments of principal and interest each month to the registered holders in
accordance with such holders' instructions.
Fannie Mae.
Fannie Mae is a federally chartered and privately owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act, as amended. Fannie Mae was originally established in 1938 as a United
States government agency to provide supplemental liquidity to the mortgage
market and was transformed into a stockholder-owned and privately-managed
corporation by legislation enacted in 1968.
Fannie Mae provides funds to the mortgage market primarily by
purchasing mortgage loans from lenders, allowing lenders to make more loans.
Fannie Mae acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgages, expanding the total
amount of funds available for housing. Operating nationwide, Fannie Mae helps
to redistribute mortgage funds from capital-surplus to capital-short areas.
Fannie Mae guarantees to each registered holder of a Fannie Mae
certificate that it will distribute amounts representing scheduled principal
and interest at the applicable pass-through rate on the underlying mortgage
loans, whether or not received, and such holder's proportionate share of the
full principal amount of any foreclosed or other finally liquidated mortgage
loan, whether or not such principal amount is actually recovered. If Fannie
Mae were unable to perform such obligations, distributions on Fannie Mae
certificates would consist solely of payments and other recoveries on the
underlying mortgage loans and, accordingly, delinquencies and defaults would
affect monthly distributions to holders of Fannie Mae certificates. The
obligations of Fannie Mae under its guarantees are obligations solely of
Fannie Mae and are not backed by, nor entitled to, the full faith and credit
of the United States.
Fannie Mae certificates evidencing interests in pools of mortgage
loans formed on or after May 1, 1985, other than Fannie Mae certificates
backed by pools containing graduated payment mortgage loans or mortgage loans
secured by multifamily projects, are available in book-entry form only.
Distributions of principal and interest on each Fannie Mae certificate will be
made by Fannie Mae on the 25th day of each month to the persons in whose name
the Fannie Mae certificate is entered in the books of the Federal Reserve
Banks, or registered on the Fannie Mae certificate register in the case of
fully registered Fannie Mae certificates, as of the close of business on the
last day of the preceding month. With respect to Fannie Mae certificates
issued in book-entry form, distributions thereon will be made by wire, and
with respect to fully registered Fannie Mae certificates, distributions
thereon will be made by check.
Stripped Securities.
Agency securities may consist of one or more stripped securities,
each as described in this prospectus and in the prospectus supplement. Each
such agency security will represent an undivided interest in all or part of
either only the principal distributions or only the interest distributions, or
in some specified portion of the principal and interest distributions on
certain Freddie Mac, Fannie Mae or Ginnie Mae certificates. The underlying
securities will be held under a trust agreement by Freddie Mac, Fannie Mae or
Ginnie Mae, each as trustee, or by another trustee named in the prospectus
supplement. The prospectus supplement will specify whether Freddie Mac, Fannie
Mae or Ginnie Mae will guarantee each stripped agency security to the same
extent as such entity guarantees the underlying securities backing such
stripped agency security.
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 prospectus supplement
to be initially deposited by the seller, all amounts received on or with
respect to the trust assets and, usually, the income earned thereon. As
specified in the prospectus supplement, the trustee shall be required to apply
a portion of the amount in the collection amount, together with reinvestment
earnings from Eligible Investments 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 distribution account to be established by the
trustee for such series, each in the manner and at the times established in
the prospectus supplement. Certain amounts available pursuant to any
enhancement, as provided in the prospectus supplement, will also be deposited
in the distribution account. All amounts deposited in the distribution account
will be available, as specified in the prospectus supplement, for:
o application to the payment of principal of and interest on such
series of securities on the next distribution date,
o the making of adequate provision for future payments on certain
classes of securities, and
o any other purpose specified in the 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 seller, any provider of enhancement with respect to such series
or any other entitled person in the manner and at the times established in the
prospectus supplement. The trustee will invest the funds in the collection and
distribution accounts in Eligible Investments maturing, with certain
exceptions. In the case of funds in the collection account, the trustee will
invest the funds no later than the day preceding the date the funds are due to
be deposited in the distribution account or otherwise distributed and, in the
case of funds in the distribution account, the trustee will invest the funds
no later than the day preceding the next distribution date for the related
series of securities. Eligible Investments include, as is acceptable to the
rating agency, among other investments:
o obligations of the United States and certain government agencies,
o federal funds,
o certificates of deposit,
o commercial paper,
o demand and time deposits and banker's acceptances,
o certain repurchase agreements of United States government
securities, and
o certain guaranteed investment contracts.
Notwithding any of the foregoing, amounts may be deposited and
withdrawn pursuant to any deposit agreement or minimum principal payment
agreement as specified in the prospectus supplement.
Enhancement
If stated in the prospectus supplement relating to a series of
securities, simultaneously with the seller's assignment of the trust assets to
the trustee, the seller will obtain enhancement in favor of the trustee on
behalf of some or all securityholders. Enhancement may take the form of:
o an irrevocable letter of credit,
o surety bond or insurance policy,
o reserve funds,
o subordinate securities
o a combination of the above,
o or as specified in the prospectus supplement.
Enhancement will support the payment of principal and interest on the
securities, and may be applied for other purposes to the extent and under the
conditions set forth in the prospectus supplement. If so specified in the
prospectus supplement, any of the enhancements may be structured so as to
protect against losses relating to more than one trust.
Subordinate Securities
If specified in the prospectus supplement, enhancement for a series
may consist of one or more classes of subordinate securities. The rights of
holders of 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
prospectus supplement.
Insurance
If stated in the prospectus supplement, enhancement for a series may
consist of special hazard insurance policies, bankruptcy bonds and other types
of insurance relating to the trust assets, as described in this section and in
the prospectus supplement.
Pool Insurance Policy.
If specified in the prospectus supplement, the seller will obtain a
pool insurance policy for the loans in the trust. The pool insurance policy
will cover most losses caused by 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 prospectus supplement.
Special Hazard Insurance Policy.
Although the terms of special hazard insurance policies vary to some
degree, they typically provide that, where there has been damage to property
securing a defaulted or foreclosed loan and 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:
(a) the cost of repair or replacement of such property, or
(b) 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, 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 clause
(a) 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 clause (b) 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.
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
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 provided in the prospectus supplement, the seller or other entity
specified in the prospectus supplement will obtain a bankruptcy bond or
similar insurance contract 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 prospectus supplement for all loans in the trust for such
series. Typically, the aggregate amount of coverage will be reduced by
payments made under the bankruptcy bond and will not be restored.
Reserve Funds
If so specified in the prospectus supplement relating to a series of
securities, the seller will establish one or more reserve funds with the
trustee as part of the trust for such series or for the benefit of any
enhancer. The seller will deposit in the reserve funds cash, a letter or
letters of credit, cash collateral accounts, Eligible Investments, or other
instruments meeting the criteria of each rating agency rating the securities
in the amount specified in the prospectus supplement. In the alternative or in
addition to such deposit, a reserve fund may be funded over time through
application of all or a portion of the excess cash flow from the trust assets,
as described in the 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 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 enhancer or for any other purpose, in the manner and to the
extent specified in the 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
prospectus supplement.
Minimum Principal Payment Agreement
If stated in the prospectus supplement relating to a series of
securities, the seller will enter into a minimum principal payment agreement
with an entity meeting the criteria of the rating agency pursuant to which the
entity will provide certain payments on the securities of such series in the
event that aggregate scheduled principal payments and prepayments on the trust
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 the prospectus supplement, the seller and the trustee
will enter into a guaranteed investment contract or an investment agreement,
or a "deposit agreement", with the entity specified in such prospectus
supplement on or before the sale of such series of securities. Pursuant to the
deposit agreement, all or a portion of the amounts held in the collection
account, the distribution account or in any reserve fund would be invested
with the entity specified in the prospectus supplement. 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 trustee would be
entitled to withdraw amounts invested pursuant to a deposit agreement, plus
interest at a rate equal to the assumed reinvestment rate, in the manner
specified in the prospectus supplement. The prospectus supplement for a series
of securities pursuant to which a deposit agreement is used will contain a
description of the terms of the deposit agreement.
Derivative Products
If specified in the prospectus supplement, derivative products may be
included as assets of the trust. Derivative products may consist of a swap to
convert floating or fixed rate payments, as applicable on the loans, private
securities or agency securities into fixed or floating rate payments, as
applicable, on the securities or in a cap or floor agreement intended to
provide protection against changes in floating rates of interest payable on
the loans, private securities, agency securities or the securities.
Other Insurance, Surety Bonds, Guaranties, Letters of Credit and Similar
Instruments or Agreements
A trust may also include insurance, guaranties, surety bonds, letters
of credit or similar arrangements for the purpose of:
o maintaining timely payments to securityholders or providing
additional protection against losses on the assets included in
such trust,
o paying administrative expenses, or
o establishing a minimum reinvestment rate on the payments made in
respect of such assets or principal payment rate on such assets.
These arrangements may include agreements under which securityholders are
entitled to receive amounts deposited in various accounts held by the trustee
upon the terms specified in the prospectus supplement.
Servicing of Loans
General
The servicer will provide customary servicing functions with respect
to loans comprising the trust assets in the trust pursuant to the related
servicing agreement or pooling and servicing agreement, as the case may be. In
performing its 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. In addition, if specified in the prospectus
supplement, the servicer will act as custodian and will be responsible for
maintaining custody of the loans and related documentation on behalf of the
trustee.
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 enhancement, follow such
collection procedures as it follows with respect to comparable loans held in
its own portfolio. The servicer may, in its discretion:
o waive any assumption fee, late payment charge, or other charge
in connection with a loan, and
o to the extent provided in the related Agreement, arrange with an
obligor a schedule for curing delinquencies by modifying the due
dates for scheduled payments on such loan.
As specified in the prospectus supplement, the servicer, to the
extent permitted by law, may establish and maintain escrow or impound 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. If loans do not require such payments under the loan documents, 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:
o taxes,
o assessments,
o mortgage and hazard insurance,
o to refund to obligors amounts determined to be overages,
o to pay interest to obligors on balances in the escrow account to
the extent required by law,
o to repair or otherwise protect the property securing the
related loan, and
o to clear and terminate such escrow account.
The servicer will be responsible for the administration of the escrow accounts
and may make advances to such account when a deficiency exists.
Deposits to and Withdrawals From the Collection Account
As specified in the prospectus supplement, the trustee or the
servicer will establish the collection account in the name of the trustee.
Typically, the collection account will be an account maintained:
o at a depository institution, the long-term unsecured debt
obligations of which at the time of any deposit are rated by
each rating agency rating the securities of such series at
levels satisfactory to each rating agency or
o 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.
As specified in the 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 prospectus supplement, the
servicer will be entitled to receive as additional compensation any interest
or other income earned on funds in the collection account.
As specified in the prospectus supplement, the servicer, the trustee
or the seller, as appropriate, will deposit into the collection account 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 the time period specified in
the prospectus supplement after the date of receipt, the following payments
and collections received or made by it, other than in respect of principal of
and interest on the trust assets due on or before such cut-off date:
o all payments on account of principal, including prepayments,
on the trust assets;
o all payments on account of interest on the trust assets after
deducting, at the discretion of the servicer but only to the
extent of the amount permitted to be withdrawn or withheld from
the collection account in accordance with the related Agreement,
the servicing fee;
o all amounts received by the servicer in connection with the
liquidation of trust assets or property acquired in respect of
liquidation, whether through foreclosure sale, repossession or
otherwise, including payments in connection with such trust
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,
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;
o all proceeds under any title insurance, hazard insurance or
other insurance policy covering any trust 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;
o all amounts required to be deposited from any applicable
reserve fund pursuant to the related Agreement;
o all advances of delinquent payments of principal and interest on
a loan or of other payments specified in the Agreement made by
the servicer as required pursuant to the related Agreement; and
o all repurchase prices of any trust assets repurchased by the
servicer or the seller pursuant to the related Agreement.
Typically, the servicer is permitted, from time to time, to make
withdrawals from the collection account for each series for the following
purposes:
o 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;
o 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;
o 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;
o 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;
o to reimburse itself for expenses incurred by and recoverable by
or reimbursable to it pursuant to the related Agreement;
o to pay to the applicable person with respect to each trust asset
or REO property that has been repurchased or removed from the
trust by 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;
o to make payments to the trustee of such series for deposit into
the distribution account, if any, or for remittance to the
securityholders of such series in the amounts and in the manner
provided for in the related Agreement; and
o 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, it may, at any time, withdraw
such amount from such collection account.
Advances and Limitations
The prospectus supplement will describe the circumstances, if any,
under which the servicer will make advances with respect to delinquent
payments on loans. The servicer may be obligated to make advances of, among
other things, delinquent payments of interest and principal, and such
obligations 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 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, distribution
account, or from a specified reserve fund, to the extent specified in the
prospectus supplement.
Maintenance of Insurance Policies and Other Servicing Procedures
Standard Hazard Insurance; Flood Insurance.
Except as specified in the prospectus supplement, the servicer will
be required to maintain or either (a) cause the obligor on each loan to
maintain or (b) require the obligor to agree to acquire and 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; however, in
the case of clause (b), the servicer may not verify compliance by the obligor.
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 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, as
limited by 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, the policies will not contain
identical terms and conditions. The basic terms are usually determined by
state law but will be similar in many respects. Most hazard insurance policies
typically do not cover any physical damage resulting from:
o war,
o revolution,
o governmental actions,
o floods and other water-related causes,
o earth movement, including earthquakes, landslides, and mudflows,
o nuclear reaction,
o wet or dry rot,
o vermin,
o rodents,
o insects or domestic animals,
o theft, and
o 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 enhancement will adversely
affect distributions to securityholders. 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 and, if such insurance is placed by the servicer, the associated
premiums may be added to the balance of the related loan.
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:
o the actual cash value, i.e., the replacement cost less physical
depreciation, of the property, including the improvements, if
any, damaged or destroyed or
o 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.
Typically, coverage will be in an amount at least equal to the
greater of the amount necessary to avoid the enforcement of any co-insurance
clause contained in the policy and the outstanding principal balance of the
related loan. The servicer typically 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 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 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, in the event that there has been a loss that would have been covered by
such policy absent such deductible clause, 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 the loans come into and continue in default and
as to which no satisfactory arrangements can be made for the 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:
o such restoration or foreclosure will increase the liquidation
proceeds in respect of the related loan available to the
securityholders after reimbursement to itself for such expenses
and
o 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 for
which a REMIC election has been made, the servicer shall liquidate any
property acquired through foreclosure within three 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, if applicable, will have no ability
to do so and neither the servicer nor the seller will be required to do so.
The servicer may arrange with the obligor on a defaulted loan, a
modification of such loan to the extent provided in the 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 prospectus
supplement.
Enforcement of Due-On-Sale Clauses
Typically, 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 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 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
The servicer will be entitled to a periodic fee as servicing
compensation in an amount to be determined as specified in the prospectus
supplement. The servicing fee may be fixed or variable. In addition, the
servicer may 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.
When an obligor makes a principal prepayment in full between due
dates on the related loan, the obligor will usually be required to pay
interest on the amount prepaid only to the date of prepayment. If and to the
extent provided in the prospectus supplement, in order that one or more
classes of the securityholders 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 securityholders may occur.
As specified in the 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 securityholders 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 has been exhausted, the related securityholders 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 securityholders.
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
securityholders to receive any related proceeds of insurance policies,
liquidation proceeds or amounts derived from other enhancement. Typically, the
servicer is also entitled to reimbursement from the collection account for
advances.
In general, 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 securityholders of such series.
Evidence as to Compliance
If specified in the 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 the
firm has examined certain documents and records relating to the servicing of
the loans by the servicer and that, on the basis of the examination, the firm
is of the opinion that the servicing has been conducted in compliance with
such Agreement, except for exceptions as the firm believes to be immaterial
and any other exceptions that are set forth in the statement.
If specified in the prospectus supplement, the applicable Agreement
for each series will also provide for delivery to the trustee 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.
Termination and Liability of the Servicer
The servicer will be identified in the prospectus supplement. The
servicer may be the seller or an affiliate of the seller and may have other
business relationships with the seller and its affiliates.
In the event of an event of default under either a servicing
agreement or a pooling and servicing agreement, the servicer may be replaced
by the trustee or a successor servicer. In general, 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."
The servicer usually does not have the right to assign its rights and
delegate its duties and obligations under the related Agreement unless the
successor servicer accepting the assignment or delegation:
o services similar loans in the ordinary course of its business,
o is reasonably satisfactory to the trustee for the related series,
o has a net worth of not less than the amount specified in the
related Agreement,
o 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
o executes and delivers to the trustee an agreement, in form and
substance reasonably satisfactory to the trustee, which contains
an assumption by the successor 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 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 in this paragraph; 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. However, the servicer may have the right to enter into
subservicing arrangements which will be referred to in the related Agreement.
Any such arrangement will not relieve the servicer from its obligations under
the servicing agreement.
Typically, 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 trust, the seller or the securityholders 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:
o any breach of warranty or representations made under such
Agreement,
o the failure to perform its obligations in compliance with any
standard of care set forth in such Agreement, or
o 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.
Each Agreement will further provide that the servicer and any director,
officer, employee or agent of the servicer is entitled to indemnification from
the trust 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 or
by reason of reckless disregard of obligations and duties. 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 action which it may deem necessary or desirable with respect to
the related Agreement and the rights and duties of the parties and the
interests of the securityholders. In such event, the legal expenses and costs
of such action and any resulting liability may be expenses, costs, and
liabilities of the trust and the servicer may be entitled to be reimbursed out
of the collection account.
The Agreements
The following summaries describe the material 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 Trust Assets
General.
At the time of issuance of the securities of a series, the seller
will transfer, convey and assign to the trust all right, title and interest of
the seller in the trust assets and other property to be transferred to the
trust for a series. Such assignment will usually include all principal and
interest due on or with respect to the trust assets after the cut-off date
specified in the prospectus supplement. The trustee will, concurrently with
such assignment, execute and deliver the securities.
Assignment of Loans.
Typically, the seller will, as to each loan, deliver or cause to be
delivered to the trustee, or, as specified in the prospectus supplement, a
custodian on behalf of the trustee, the mortgage note endorsed without
recourse to the order of the trustee or in blank, the original mortgage with
evidence of recording indicated thereon and an assignment of the mortgage in
recordable form. In the case of any mortgage not returned from the public
recording office, a copy of the mortgage will be delivered, together with a
certificate that the original of the mortgage was delivered to the recording
office. The trustee or a custodian will hold the documents in trust for the
benefit of the securityholders.
In general, the seller 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 seller will
execute a UCC-1 financing statement identifying the trustee as the secured
party and identifying all home improvement contracts as collateral. Usually,
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
prospectus supplement, the seller 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 prospectus supplement, the
seller will cause such assignments to be recorded within the time after
issuance of the securities as is specified in the prospectus supplement, in
which event, the Agreement may require the seller to repurchase from the
trustee any loan the related mortgage of which is not recorded within such
time, at the price described under "--Repurchase and Substitution of
Non-Conforming Trust Assets " with respect to repurchases by reason of
defective documentation. The enforcement of the repurchase obligation would
constitute the sole remedy available to the securityholders 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 will specify with respect to each
loan:
o the original principal amount and unpaid principal balance as
of the cut-off date;
o the current interest rate;
o the current scheduled payment of principal and interest;
o the maturity date, if any, of the related mortgage note; and,
o if the loan is an adjustable rate loan,
o the lifetime rate cap, if any, and
o the current index, if applicable.
Assignment of Private Securities.
The seller will cause the 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. As specified in the prospectus supplement, the trustee will not be
in possession of or be an assignee of record of any underlying assets for a
private security. See "The Trusts--Private Securities." Each private security
will be identified in a schedule appearing as an exhibit to the related
Agreement, 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. In the
Agreement, the seller will represent and warrant to the trustee regarding the
private securities:
o that the information contained in the certificate schedule is
true and correct in all material respects;
o that, immediately prior to the conveyance of the private
securities, the seller had good title, and was the sole owner;
o that there has been no other sale by it of such private
securities; and
o that there is no existing lien, charge, security interest or
other encumbrance on such private securities.
Repurchase and Substitution of Defective Trust Assets.
As specified in the prospectus supplement, if any document in the
file relating to the trust assets delivered by the seller 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 seller does not cure such defect within 90 days, the
seller will, not later than 90 days after the trustee's notice to the seller,
as the case may be, of the defect, repurchase the trust asset or any related
property from the trustee at a price equal to:
(a) the lesser of:
o the outstanding principal balance of such trust asset and
o the trust's federal income tax basis in the trust asset
and
(b) accrued and unpaid interest to the date of the next scheduled
payment on such trust asset at the rate set forth in the related Agreement
less any unreimbursed advances respecting such trust asset.
However, the purchase price shall not be limited in clause (a) above to the
trust's federal income tax basis if the repurchase at a price equal to the
outstanding principal balance of such trust asset will not result in any
prohibited transaction tax under Section 860F(a) of the Code.
If provided in the prospectus supplement, the seller, as the case may
be, may, rather than repurchase the trust asset as described in the previous
paragraph, remove such trust asset from the trust and substitute in its place
one or more other trust assets provided, however, that:
o with respect to a trust 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
o with respect to a trust 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 to lose its status as a REMIC or otherwise
subject the trust to a prohibited transaction tax.
As specified in the prospectus supplement, any substitute trust asset
will have, on the date of substitution:
o 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 removed trust
asset, with the amount of any shortfall to be deposited to the
collection account in the month of substitution for distribution
to securityholders,
o an interest rate not less than and not more than 2% greater
than the interest rate of the removed trust
asset, and
o a remaining term-to-stated maturity not greater than and not
more than two years less than that of the removed trust asset,
and will comply with all of the representations and warranties
set forth in the applicable Agreement as of the date of
substitution.
The seller or another entity will make representations and warranties
with respect to the trust assets. If the seller or such entity cannot cure a
breach of any such representations and warranties in all material respects
within the time period specified in the 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 the trust asset, the seller
or such entity is obligated to repurchase the affected trust asset or, if
provided in the prospectus supplement, provide a substitute trust asset under
the same conditions and limitations provided for purchases and substitutions.
As specified in the prospectus supplement, the cure, repurchase or
substitution obligations constitute the sole remedies available to the
securityholders or the trustee for a material defect in a document for a trust
asset.
No securityholder, solely by virtue of their status as a
securityholder, will have any right under the applicable Agreement to
institute any proceeding with respect to such Agreement, unless the
securityholder previously has given to the trustee written notice of default
and unless the securityholders evidencing not less than 51% of the aggregate
voting rights of the securities have made written request upon the trustee to
institute such proceeding in its own name as trustee and have offered to the
trustee reasonable indemnity, and the trustee for 60 days has neglected or
refused to institute any such proceeding.
Pre-Funding Account
If so provided in the prospectus supplement, the seller will, on
behalf of the securityholders, deposit cash into a pre-funding account on the
closing date. The pre-funding account will be maintained with the trustee. The
deposit will not exceed 50% of the initial aggregate principal amount of the
securities. The money will be used by the trustee to purchase additional loans
from the seller from time to time during the funding period. Monies on deposit
in the pre-funding account will not be available to cover losses on or in
respect of the loans. The funding period for a trust will begin on the closing
date and will end on the date specified in the prospectus supplement, which
will not be later than one year after the closing date. Monies on deposit in
the pre-funding account may be invested in Eligible Investments as specified
in the related Agreement. Earnings on investment of funds in the pre-funding
account will be applied as specified in the prospectus supplement and losses
will be charged against the funds on deposit in the pre-funding account. Any
amounts remaining in the pre-funding account at the end of the funding period
will be distributed to securityholders as a prepayment of principal, in the
manner and priority specified in the prospectus supplement.
In addition, if so provided in the prospectus supplement, on the
closing date the seller will make a deposit to a capitalized interest account,
which will be maintained with the trustee. The funds on deposit in the
capitalized interest account will be used solely to cover shortfalls in
interest that may arise as a result of utilization of the pre-funding account.
Monies on deposit in the capitalized interest account will not be available to
cover losses on or in respect of the loans. To the extent that the entire
amount on deposit in the capitalized interest account has not been used to
cover shortfalls in interest by the end of the funding period, any remaining
amounts will be paid to the seller.
Reports to Securityholders
The trustee or other entity specified in the prospectus supplement
will prepare and forward to each securityholder 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:
(a) the amount of principal distributed to holders of the
securities and the outstanding principal balance of the
securities following the distribution;
(b) the amount of interest distributed to holders of the securities
and the current interest rate on the securities;
(c) the amounts of (1) any overdue accrued interest included in the
distribution, (2) any remaining overdue accrued interest with
respect to the securities or (3) any current shortfall in
amounts to be distributed as accrued interest to holders of the
securities;
(d) the amounts of (1) any overdue payments of scheduled principal
included in the distribution, (2) any remaining overdue
principal amounts with respect to the securities, (3) any
current shortfall in receipt of scheduled principal payments on
the trust assets or (4) any realized losses or liquidation
proceeds to be allocated as reductions in the outstanding
principal balances of the securities;
(e) the amount received under any enhancement, and the remaining
amount available under the enhancement;
(f) the amount of any delinquencies with respect to payments on the
trust assets;
(g) the book value of any REO property acquired by the trust; and
(h) such other information as specified in the related Agreement.
The report to securityholders for any series of securities may include
additional or other information of a similar nature.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer or the trustee will mail to each securityholder of
record at any time during the calendar year a report containing customary
information as may be deemed necessary or desirable for securityholders to
prepare their tax returns. The report will not be examined or reported upon by
independent public accountants.
Events of Default; Rights Upon Event of Default
Pooling and Servicing Agreement; Sale and Servicing Agreement;
Servicing Agreement.
As specified in the prospectus supplement, events of default under
the applicable Agreement for a series relating to the servicing of loans
include:
o any failure by the servicer to deposit amounts in the
collection account and distribution account to enable the
trustee to distribute to securityholders of such series any
required payment, which failure continues unremedied for the
number of days specified in the 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 securityholders of such series evidencing not
less than 25% of the aggregate voting rights of the
securityholders for such series;
o 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
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 securityholders of such
series evidencing not less than 25% of the aggregate voting
rights of the securityholders; and
o 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 relating to the servicing of loans
remains unremedied under the applicable Agreement, as specified in the
prospectus supplement, the trustee for the series or securityholders of
securities of the series evidencing not less than 51% of the aggregate voting
rights of the securities for the series may terminate all of the rights and
obligations of the servicer under the applicable Agreement, other than its
right to recovery of other expenses and amounts advanced pursuant to the terms
of the 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 the Agreement. In that case, the
trustee 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
the 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 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 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 securityholders of such series, and, as
specified in the prospectus supplement, securityholders of securities
evidencing not less than 51% of the aggregate voting rights of the securities
for the 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 remedy or to exercise any of the trusts or powers
unless the securityholders have offered the trustee reasonable security or
indemnity against the cost, expenses and liabilities which may be incurred by
the trustee. Also, 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 securityholders.
Indenture.
As specified in the prospectus supplement, events of default under
the indenture for each series of notes include:
o a default for five (5) days or more in the payment of any
interest on any note of that series or the default in the
payment of principal of any note at the note's maturity;
o failure to perform in any material respect any other covenant
of the seller or the trust in the indenture which continues for
a period of sixty (60) days after notice is given in accordance
with the procedures described in the prospectus supplement;
o any representation or warranty made by the seller or the trust
in the indenture or in any certificate or other writing
delivered pursuant or in connection with the 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 is
given in accordance with the procedures described in the
prospectus supplement;
o certain events of bankruptcy, insolvency, receivership or
liquidation of the seller or the trust; or
o 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 the
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, of all the notes of the 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 the 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 the acceleration, elect to
maintain possession of the collateral securing the notes of the series and to
continue to apply distributions on the collateral as if there had been no
declaration of acceleration if the collateral continues to provide sufficient
funds for the payment of principal and interest on the notes of that 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 the series
for thirty (30) days or more, unless:
o the holders of 100% of the then aggregate outstanding amount of
the notes of the series consent to the sale,
o the proceeds of the sale or liquidation are sufficient to pay
in full the principal and accrued interest, due and unpaid, on
the outstanding notes of the series at the date of the sale, or
o the trustee determines that the collateral would not be
sufficient on an ongoing basis to make all payments on the
notes as the payments would have become due if the notes had
not been declared due and payable,
o and the trustee obtains the consent of the holders of 66 2/3%
of the then aggregate outstanding amount of the notes of the
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 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, in the event of a
default, the amount available for distribution to the noteholders would 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 securityholders of the notes after the occurrence of such an event of
default.
As specified in the prospectus supplement, in the event the principal
of the notes of a series is declared due and payable, the holders of any notes
issued at a discount from par may be entitled to receive no more than an
amount equal to the unpaid principal amount 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 occurs and continues with respect to
a series of notes, the trustee shall be under no obligation to exercise any of
the rights or powers under the indenture at the request or direction of any of
the noteholders, unless the noteholders 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 the 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 a series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee or
exercising any trust or power conferred on the trustee with respect to the
notes of the 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, 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.
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 prospectus supplement. The entity serving as trustee may have
normal banking relationships with the seller 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 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 shall 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. The
agents shall have any or all of the rights, powers, duties and obligations of
the trustee conferred on them by such appointment; provided that the trustee
shall continue to be responsible for its duties and obligations under the
Agreement.
Duties of the Trustee
The trustee makes no representations as to the validity or
sufficiency of the Agreement, the securities or of any trust asset or related
documents. If no event of default 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 by it or the securityholders to 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 securityholders 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 seller, resign at any
time, in which event the seller 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 giving 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:
o if the trustee ceases to be eligible to continue as such under
the Agreement,
o if the trustee becomes insolvent, or
o by the securityholders of securities evidencing over 50% of the
aggregate voting rights of the securities in the trust upon
written notice to the trustee and to the seller.
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
As specified in the prospectus supplement, the Agreement for each
series of securities may be amended by the parties to the Agreement, without
notice to or consent of the securityholders:
(a) to cure any ambiguity,
(b) to correct any defective provisions or to correct or supplement
any provision,
(c) to add to the duties of the seller, the trust or servicer,
(d) to add any other provisions with respect to matters or
questions arising under such Agreement or related enhancement,
(e) 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, or
(f) to comply with any requirements imposed by the Code;
provided that any amendment except pursuant to clause (f) above, will not
adversely affect in any material respect the interests of any securityholders
of the series, as evidenced by an opinion of counsel. Any amendment, except
pursuant to clause (f) of the preceding sentence, shall be deemed not to
adversely affect in any material respect the interests of any securityholder
if the trustee receives written confirmation from each rating agency rating
the securities that the amendment will not cause the rating agency to reduce
the then current rating.
As specified in the prospectus supplement, the Agreement may also be
amended by the parties to the Agreement with the consent of the
securityholders possessing not less than 51% of the aggregate outstanding
principal amount of the securities. If only certain classes are affected by
the amendment, 51% of the aggregate outstanding principal amount of each class
affected, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Agreement or modifying in
any manner the rights of securityholders; provided, however, that no such
amendment may without the consent of securityholders of 100% of the affected
securities:
(a) reduce the amount or delay the timing of payments on any
security without the consent of the securityholder of such
security or
(b) reduce the percentage required to consent to any such
amendment.
Voting Rights
The prospectus supplement will set forth the method of determining
allocation of voting rights with respect to a series.
List of Securityholders
Upon written request of three or more securityholders of record, for
purposes of communicating with other securityholders with respect to their
rights under the Agreement, the trustee will afford such securityholders
access during business hours to the most recent list of securityholders of
that series held by the trustee. The request should be accompanied by a copy
of the proposed communication.
No Agreement will provide for the holding of any annual or other
meeting of securityholders.
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 may be performed by a REMIC administrator, who may be an
affiliate of the seller.
Termination
Pooling and Servicing Agreement; Sale and Servicing Agreement;
Trust Agreement.
The obligations created by the Agreement for a series will terminate
upon the distribution to securityholders of all amounts distributable to them
pursuant to the Agreement after the earlier of:
o the later of (a) the final payment or other liquidation of the
last trust asset remaining in the trust and (b) the disposition
of all property acquired upon foreclosure or deed in lieu of
foreclosure or repossession in respect of any trust asset or
o the repurchase by the servicer or other entity specified in the
prospectus supplement from the trustee of all trust assets and
other property at that time subject to the Agreement.
As specified in the prospectus supplement, the Agreement for each series
permits, but does not require, the servicer or other entity specified in the
prospectus supplement to purchase from the trust all remaining trust assets at
a price equal to:
o 100% of the aggregate principal balance of such trust assets,
o plus, with respect to any property acquired in respect of a
trust asset, if any, the outstanding principal balance of the
related trust asset at the time of foreclosure,
o minus related unreimbursed advances, or in the case of the
trust assets, only to the extent not already reflected in the
computation of the aggregate principal balance of such trust
assets,
o minus unreimbursed expenses that are reimbursable pursuant to
the terms of the pooling and servicing agreement,
o plus accrued interest at the weighted average rate on the trust
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:
o 100% of the aggregate principal balance of the trust assets,
plus accrued interest thereon at the applicable net rates on
the trust assets through the last day of the month of the
repurchase and
o the aggregate fair market value of the trust assets plus the
fair market value of any property acquired in respect of a
trust asset and remaining in the trust.
The exercise of such right will effect early retirement of the
securities, but the right to purchase the trust assets only vests when the
principal balance of the trust assets has been reduced to an amount set forth
in the prospectus supplement. 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 in the Agreement. For each series,
the servicer or the trustee, as applicable, will give written notice of
termination of the Agreement to each securityholder, 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
provided in the prospectus supplement, the seller or another entity may effect
an optional termination of the trust under the circumstances described in the
prospectus supplement. See "Description of the Securities--Optional
Redemption, Purchase or Termination."
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 or, with
certain limitations, upon deposit with the trustee of funds sufficient for the
payment in full of all of the notes.
In addition to such discharge with certain limitations, the indenture
may provide that the trust will be discharged from any and all obligations in
respect of the notes, except for certain administrative duties, upon the
deposit with the trustee of money or direct obligations of or obligations
guaranteed by the United States of America which through the payment of
interest and principal 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 on the last scheduled distribution date and any installment of
interest on such notes in accordance with the terms of the indenture and the
notes. In the event of any defeasance and discharge of notes, noteholders
would be able to look only to such money or direct obligations for payment of
principal and interest, if any, on their notes until maturity.
Legal Aspects of Loans
The following discussion contains summaries of the material legal
aspects of mortgage loans, home improvement installment sales contracts and
home improvement installment loan agreements which are general in nature.
Because certain of these legal aspects are governed by applicable state law
and each state's laws differ, 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. The summaries are
qualified in their entirety by reference to the applicable federal and state
laws governing the loans.
Mortgages
The mortgage 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, depending upon the prevailing practice in the state in
which the property subject to a mortgage loan is located. Such mortgage loans
and home improvement contracts are referred to in this section as "mortgage
loans". 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 the 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 the instruments depends on their terms, the knowledge of the parties to the
mortgage and 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, 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, typically 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 deed of trust transactions, the directions of
the beneficiary.
Foreclosure on Mortgages
Foreclosure of a mortgage is usually accomplished by judicial action.
Typically, 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
non-judicial power of sale.
Foreclosure of a deed of trust is usually accomplished by a
non-judicial 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 powers. Typically, 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 counter-claims 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 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.
Environmental Risks
Real property pledged as security to a lender may be subject to
unforeseen environmental risks. Under the laws of certain states,
contamination of a property may give rise to a lien on the property to assure
the payment of the costs of clean-up. In several states such a lien has
priority over the lien of an existing mortgage against the property. In
addition, under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA"), the EPA may impose a lien on property
where the EPA has incurred clean-up costs. However, a CERCLA lien is
subordinate to pre-existing, perfected security interests.
Under the laws of some states, and under CERCLA, it is conceivable
that a secured lender may be held liable as an owner or operator for the costs
of addressing releases or threatened releases of hazardous substances at a
mortgaged property, even though the environmental damage or threat was caused
by a prior or current owner or operator. CERCLA imposes liability for such
costs on any and all responsible parties, including owners or operators.
However, CERCLA excludes from the definition of "owner or operator" a secured
creditor who holds indicia of ownership primarily to protect its security
interest (the "secured creditor exclusion"). Thus, if a lender's activities
begin to encroach on the actual management of a contaminated facility or
property, the lender may incur liability as an owner or operator under CERCLA.
Similarly, if a lender forecloses and takes title to a contaminated facility
or property, the lender may incur CERCLA liability in various circumstances,
including, but not limited to, when it holds the facility or property as an
investment, including leasing the facility or property to a third party, or
fails to market the property in a timely fashion.
If a lender is or becomes liable, it can bring an action for
contribution against any other responsible parties, including a previous owner
or operator, who created the environmental hazard, but those persons or
entities may be bankrupt or otherwise judgment proof. The costs associated
with environmental cleanup may be substantial and may result in a loss to
securityholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ("RCRA"), which regulates underground petroleum storage tanks,
except heating oil tanks. The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under this rule, a holder
of a security interest in an underground storage tank or real property
containing an underground storage tank is not considered an operator of the
underground storage tank as long as petroleum is not added to, stored in or
dispensed from the tank. In addition, under the Asset Conservation, Lender
Liability and Deposit Insurance Protection Act of 1996, the protections
accorded to lenders under CERCLA are also accorded to holders of security
interests in underground tanks. It should be noted, however, that liability
for cleanup of petroleum contamination may be governed by state law, which may
not provide for any specific protection for secured creditors.
Whether actions taken by a lender would constitute participation in
the management of a mortgaged property, or the business of a borrower, so as
to render the secured creditor exemption unavailable to a lender has been a
matter of judicial interpretation of the statutory language, and court
decisions have been inconsistent. In 1990, the Court of Appeals for the
Eleventh Circuit suggested that the mere capacity of the lender to influence a
borrower's decisions regarding disposal of hazardous substances was sufficient
participation in the management of the borrower's business to deny the
protection of the secured creditor exemption to the lender.
This ambiguity appears to have been resolved by the enactment of the
Asset Conservation, Lender Liability and Deposit Insurance Protection Act of
1996, which was signed into law by President Clinton on September 30, 1996.
The new legislation provides that in order to be deemed to have participated
in the management of a mortgaged property, a lender must actually participate
in the operational affairs of the property or the borrower. The legislation
also provides that participation in the management of the property does not
include "merely having the capacity to influence, or unexercised right to
control" operations. Rather, a lender will lose the protection of the secured
creditor exemption only if it exercises decision-making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, or assumes day-to-day management of all operational
functions of the mortgaged property.
As specified in the prospectus supplement, at the time the loans were
originated, no environmental assessments or very limited environmental
assessments of the properties were conducted.
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 trust assets included
in the trust 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, 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, extinguishing the
junior 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, 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.
The form of credit line, trust deed or mortgage used by most
institutional lenders which make revolving home equity loans typically
contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the borrower by the beneficiary
or lender are to be secured by the deed of trust or mortgage. The priority of
the lien securing any advance made under the clause may depend in most states
on whether the deed of trust or mortgage is called and recorded as a credit
line deed of trust or mortgage. If the beneficiary or lender advances
additional amounts, the advance is entitled to receive the same priority as
amounts initially advanced under the trust deed or mortgage, notwithstanding
the fact that there may be junior trust deeds or mortgages and other liens
which intervene between the date of recording of the trust deed or mortgage
and the date of the future advance, and notwithstanding that the beneficiary
or lender had actual knowledge of such intervening junior trust deeds or
mortgages and other liens at the time of the advance. In most states, the
trust deed or mortgage lien securing mortgage loans of the type which includes
revolving home equity credit lines applies retroactively to the date of the
original recording of the trust deed or mortgage, provided that the total
amount of advances under the home equity credit line does not exceed the
maximum specified principal amount of the recorded trust deed or mortgage,
except as to advances made after receipt by the lender of a written notice of
lien from a judgment lien creditor of the trustor.
Anti-Deficiency Legislation and the Bankruptcy Code
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 the
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 bring 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 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
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 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 organization 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") generally
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. As a result, due-on-sale clauses have
become enforceable except in those states whose legislatures exercised their
authority to regulate the enforceability of such clauses with respect to
mortgage loans that were:
o 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
o originated by lenders other than national banks, federal
savings institutions and federal credit unions.
Freddie Mac has taken the position in its published mortgage servicing
standards that, out of a total of eleven "window period states," five states,
i.e., 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.
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
designed to relieve the borrower from the legal effect of his defaults under
the loan documents. Examples of judicial remedies that have been fathomed
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 Federal Home Loan Bank
Board 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, as amended ("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 Federal Home Loan Bank Board is authorized to issue
rules and regulations and to publish interpretations governing implementation
of Title V. Title 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.
Applicability of Lending Laws
The loans may be subject to the Home Ownership and Equity Protection
Act of 1994 (the "Act") which amended the Truth in Lending Act as it applies
to mortgages subject to the Act. The Act requires certain additional
disclosures, specifies the timing of such disclosures and limits or prohibits
inclusion of certain provisions in mortgages subject to the Act. The Act also
provides that any purchaser or assignee of a mortgage covered by the Act, such
as the trust with respect to the loans, is subject to all of the claims and
defenses which the borrower could assert against the original lender. The
maximum damages that may be recovered under the Act from an assignee is the
remaining amount of indebtedness plus the total amount paid by the borrower in
connection with the loan. If the trust includes loans subject to the Act, it
will be subject to all of the claims and defenses which the borrower could
assert against the seller. Any violation of the Act which would result in such
liability would be a breach of the seller's representations and warranties,
and the seller would be obligated to cure, repurchase or, if permitted by the
Agreement, substitute for the loan in question.
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 generally
are "chattel paper" or constitute "purchase money security interests" each as
defined in the UCC. Such home improvement contracts are hereinafter referred
to in this section as "contracts". 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 seller will transfer physical
possession of the contracts to the trustee or a designated custodian or may
retain possession of the contracts as custodian for the trustee. In addition,
the seller 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. As specified in the prospectus supplement, the contracts will not
be stamped or otherwise marked to reflect their assignment from the seller 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
grant to the originator of the contracts a purchase money security interest in
the 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 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 judgment.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade
Commission is intended to defeat the ability of the transferor of a consumer
credit contract which is the seller of goods which gave rise to the
transaction and certain related lenders and assignees to transfer such
contract free of notice of claims by the debtor. The effect of this rule is to
subject the assignee of 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 the 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 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 Contracts
The loans may also consist of installment contracts. Under an
installment 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 contract, the borrower is typically 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
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 contracts
typically 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 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 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 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
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 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.
In most cases, the lender's procedures for obtaining possession and
clear title under an installment 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:
o 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,
o 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
o 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 noted 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 for a series is relieved
pursuant to the Soldiers' and Sailors' Civil Relief Act of 1940, none of the
trust, the servicer, the seller nor the trustee will be required to advance
such amounts, and any consequent loss may reduce the amounts available to be
paid to the holders of the certificates of such series. As specified in the
prospectus supplement, any shortfalls in interest collections on loans or
underlying loans relating to the Private Securities, as applicable, included
in a trust 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 the series that is entitled to receive interest in respect of
the loans or underlying loans in proportion to the interest that each class of
securities would have otherwise been entitled to receive in respect of the
loans or underlying loans had the interest shortfall not occurred.
Consumer Protection Laws
Numerous federal and state consumer protection laws impose
substantive requirements upon mortgage lenders in connection with originating,
servicing and enforcing loans secured by certain residential properties.
Theses laws include the federal Truth-in-Lending Act and Regulation Z, Real
Estate Settlement Procedures Act and Regulation B, Equal Credit Opportunity
Act, Fair Credit Billing Act, Fair Credit Reporting Act and related statutes
and regulations. In particular, Regulation Z requires certain disclosures to
borrowers regarding terms of the loans; the Equal Credit Opportunity Act and
Regulation B prohibit discrimination in the extension of credit on the basis
of age, race, color, sex, religion, martial status, national origin, receipt
of public assistance or the exercise of any right under the Consumer Credit
Protection Act; and the Fair Credit Reporting Act regulates the use and
reporting of information related to the borrower's credit experience. Certain
provisions of these laws impose specific statutory liabilities upon lenders
who fail to comply therewith. In addition, violations of these laws may limit
the ability of the servicer to collect all or part of the principal of or
interest on the loans and could subject the servicer and in some cases its
assignees to damages and administrative enforcement.
The Seller
General
KeyBank National Association, the seller, is a wholly owned
subsidiary of KeyCorp. The seller is a national banking association
headquartered in Cleveland, Ohio. The seller provides: retail and private
banking services to consumers; commercial banking services to small
businesses, middle-market and large corporate customers; capital market
services; and trust and asset management services.
The seller's retail banking services include consumer lending, including
residential mortgage, home equity and direct installment loans, deposit
services, and private banking services. The principal executive offices of the
seller are located at Key Tower, 127 Public Square, Cleveland, Ohio 44114. The
telephone number of the seller is: (216) 689-6300. None of the servicer, the
trustee, the seller or any of their respective affiliates has guaranteed or is
otherwise obligated with respect to the securities of any series.
Use of Proceeds
The seller 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:
o to purchase the related trust assets,
o to establish any reserve funds described in the prospectus
supplement,
o to pay costs of structuring and issuing such securities,
including the costs of obtaining enhancement, if any, and
o for general corporate purposes.
If specified in the prospectus supplement, the purchase of the trust assets
for a series may be effected by an exchange of securities with the seller of
the trust assets.
Federal Income Tax Consequences
General
The following is a summary of the material federal income tax
consequences of the purchase, ownership, and disposition of the securities and
is based on advice of tax counsel. The summary is based upon the provisions
and regulations of the Code, including, where applicable, proposed
regulations, and the judicial and administrative rulings and decisions now in
effect, all of which are subject to change or possible differing
interpretations. The statutory provisions, regulations, and interpretations on
which this interpretation is based are subject to change, and those changes
could apply retroactively.
The summary does not purport to deal with all aspects of federal
income taxation that may affect particular investors in light of their
individual circumstances, nor with certain types of investors subject to
special treatment under the federal income tax laws. This summary focuses
primarily upon investors who will hold securities as capital assets within the
meaning of Section 1221 of the Code, but much of the discussion is applicable
to other investors as well. Prospective investors are advised to consult their
own tax advisers concerning the federal, state, local and any other tax
consequences to them of the purchase, ownership and disposition of the
securities.
The federal income tax consequences to holders will vary depending
on whether
o the securities are classified as indebtedness;
o an election is made to treat the trust as a REMIC or a FASIT
under the Internal Revenue Code of 1986, as amended (the
"Code");
o the securities represent an ownership interest in some or all
of the trust assets; or
o an election is made to treat the trust as a partnership.
The prospectus supplement will specify how the securities will be
treated for federal income tax purposes and will discuss whether a REMIC or
FASIT election will be made.
Taxation of Debt Securities
Status as Real Property Loans.
Typically, tax counsel will have advised the seller that:
o securities held by a domestic building and loan association
will constitute "loans... secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v);
and
o securities held by a real estate investment trust will
constitute "real estate assets" within the meaning of Code
Section 856(c)(5)(A) and interest on these securities will be
considered "interest on obligations secured by mortgages on
real property or on interests in real property" within the
meaning of Code Section 856(c)(3)(B).
The Small Business Job Protection Act of 1996, as part of the repeal
of the bad debt reserve method for thrift institutions, repealed the
application of Code Section 593(d) to any taxable year beginning after
December 31, 1995.
Interest and Acquisition Discount.
Securities representing regular interests in a REMIC are generally
taxable to holders in the same manner as evidences of indebtedness issued by
the REMIC. Stated interest on the regular interest securities will be taxable
as ordinary income and taken into account using the accrual method of
accounting, regardless of the holder's normal accounting method. Interest,
other than original issue discount, on securities, other than regular interest
securities, that are characterized as indebtedness for federal income tax
purposes will be includible in income by holders in accordance with their
usual methods of accounting. Securities characterized as debt for federal
income tax purposes and regular interest securities will be referred to
collectively as debt securities. If a FASIT election is made, the material
federal tax income consequences for investors associated with the purchase,
ownership and disposition of those securities will be set forth under the
heading "Federal Income Tax Consequences" in the prospectus supplement.
Debt securities that are compound interest securities will, and other
debt securities may, be issued with original issue discount, which we refer to
as "OID". The following discussion is based in part on the rules governing OID
which are set forth in Sections 1271-1275 of the Code and the Treasury
regulations issued on February 2, 1994, which we refer to as "OID
Regulations". A holder should be aware, however, that the OID Regulations do
not adequately address some issues relevant to prepayable securities, such as
the debt securities.
In general, OID, will equal the difference between the stated
redemption price at maturity of a debt security and its issue price. A holder
of a debt security must include OID in gross income as ordinary interest
income as it accrues under an accrual method of accounting. In general, OID
must be included in income in advance of the receipt of the cash representing
that income. The amount of OID on a debt security will be considered to be
zero if it is less than a de minimis amount determined under the Code.
The issue price of a debt security is the first price at which a
substantial amount of debt securities of that class are sold to the public,
excluding bond houses, brokers, underwriters or wholesalers. If less than a
substantial amount of a particular class of debt securities is sold for cash
on or prior to the closing date, the issue price for the class will be treated
as the fair market value of the class on the closing date. The issue price of
a debt security also includes the amount paid by an initial debt security
holder for accrued interest that relates to a period prior to the issue date
of the debt security. The stated redemption price at maturity of a debt
security includes the original principal amount of the debt security, but
generally will not include distributions of interest if distributions
constitute qualified stated interest.
Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or qualified variable rate and those
interest payments are unconditionally payable at intervals of one year or less
during the entire term of the debt security. The OID Regulations state that
interest payments are unconditionally payable only if a late payment or
nonpayment is expected to be penalized or reasonable remedies exist to compel
payment. Some debt securities may provide for default remedies in the event of
late payment or nonpayment of interest. The interest on those debt securities
will be unconditionally payable and constitute qualified stated interest, not
OID. However, absent clarification of the OID Regulations, where debt
securities do not provide for default remedies, the interest payments will be
included in the debt security's stated redemption price at maturity and taxed
as OID. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between payments.
Distributions of interest on debt securities on which deferred interest will
accrue will not constitute qualified stated interest payments and will be part
of the stated redemption price at maturity of those debt securities. Where the
interval between the issue date and the first distribution date on a debt
security is either longer or shorter than the interval between subsequent
distribution dates, all or part of the interest foregone, in the case of the
longer interval, and all of the additional interest, in the case of the
shorter interval, will be included in the stated redemption price at maturity
and tested under the de minimis rule described in the next paragraph. In the
case of a debt security with a long first period which has non-de minimis OID,
all stated interest in excess of interest payable at the effective interest
rate for the long first period will be included in the stated redemption price
at maturity and the debt security will usually have OID. Holders of debt
securities should consult their own tax advisors to determine the issue price
and stated redemption price at maturity of a debt security.
Under the de minimis rule, OID on a debt security will be considered
to be zero if the OID is less than 0.25% of the stated redemption price at
maturity of the debt security multiplied by the weighted average maturity of
the debt security. For this purpose, the weighted average maturity of the debt
security is computed as the sum of the amounts determined by multiplying the
number of full years from the issue date until each distribution in reduction
of stated redemption price at maturity is scheduled to be made by a fraction,
the numerator of which is the amount of each distribution included in the
stated redemption price at maturity of the debt security and the denominator
of which is the stated redemption price at maturity of the debt security.
Holders usually must report de minimis OID pro rata as principal payments are
received, and such income will be capital gain if the debt security is held as
a capital asset. However, accrual method holders may elect to accrue all de
minimis OID as well as market discount under a constant interest method.
Debt securities may provide for interest based on a qualified
variable rate. Under the OID Regulations, interest is treated as payable at a
qualified variable rate and not as contingent interest if, generally:
o the interest is unconditionally payable at least annually,
o the issue price of the debt instrument does not exceed the
total noncontingent principal payments and
o interest is based on a qualified floating rate, an objective
rate, or a combination of qualified floating rates that do not
operate in a manner that significantly accelerates or defers
interest payments on the debt security.
In the case of compound interest securities, some interest weighted
securities, and other debt securities, none of the payments under the
instrument will be considered qualified stated interest, and thus the
aggregate amount of all payments will be included in the stated redemption
price.
The IRS recently issued final regulations governing the calculation
of OID on instruments having contingent interest payments. The regulations
specifically do not apply for purposes of calculating OID on debt instruments
subject to Code Section 1272(a)(6), such as the debt security. Additionally,
the OID Regulations do not contain provisions specifically interpreting Code
Section 1272(a)(6). Until the Treasury issues guidance to the contrary, the
trustee intends to base its computation on Code Section 1272(a)(6) and the OID
Regulations as described in this Prospectus. However, because no regulatory
guidance currently exists under Code Section 1272(a)(6), there can be no
assurance that this methodology represents the correct manner of calculating
OID.
The holder of a debt security issued with OID must include in gross
income, for all days during its taxable year on which it holds the debt
security, the sum of the "daily portions" of the OID. The amount of OID
includible in income by a holder will be computed by allocating to each day
during a taxable year a pro rata portion of the OID that accrued during the
relevant accrual period. In the case of a debt security that is not a regular
interest security and the principal payments on which are not subject to
acceleration resulting from prepayments on the loans, the amount of OID
includible in income of a holder for an accrual period, which typically is the
period over which interest accrues on the debt instrument, will equal the
product of the yield to maturity of the debt security and the adjusted issue
price of the debt security, reduced by any payments of qualified stated
interest. The adjusted issue price is the sum of its issue price plus prior
accruals or OID, reduced by the total payments made with respect to the debt
security in all prior periods, other than qualified stated interest payments.
The amount of OID to be included in income by a holder of a debt
instrument, that is subject to acceleration due to prepayments on other debt
obligations securing such instruments, is computed by taking into account the
anticipated rate of prepayments assumed in pricing the debt instrument. The
amount of OID that will accrue during an accrual period on a this type of
security is the excess, if any, of the sum of
o the present value of all payments remaining to be made on the
security as of the close of the accrual period and
o the payments during the accrual period of amounts included in
the stated redemption price of the security, over the adjusted
issue price of the security at the beginning of the accrual
period.
The present value of the remaining payments is to be determined on the basis
of three factors:
o the original yield to maturity of the pay-through security,
which is determined on the basis of compounding at the end of
each accrual period and properly adjusted for the length of the
accrual period,
o events which have occurred before the end of the accrual
period, and
o the assumption that the remaining payments will be made in
accordance with the original prepayment assumption.
The effect of this method is to increase the portions of OID required to be
included in income by a holder to take into account prepayments with respect
to the loans at a rate that exceeds the prepayment assumption, and to
decrease, but not below zero for any period, the portions of OID required to
be included in income by a holder of this type of security to take into
account prepayments with respect to the loans at a rate that is slower than
the prepayment assumption. Although OID will be reported to holders of these
securities based on the prepayment assumption, no representation is made to
holders that loans will be prepaid at that rate or at any other rate.
The seller may adjust the accrual of OID on a class of regular
interest securities or other regular interests in a REMIC in a manner that it
believes to be appropriate, to take account of realized losses on the loans,
although the OID Regulations do not provide for such adjustments. If the IRS
were to require that OID be accrued without such adjustments, the rate of
accrual of OID for a class of regular interest securities could increase.
Some classes of regular interest securities may represent more than
one class of REMIC regular interests. As specified in the prospectus
supplement, the trustee intends, based on the OID Regulations, to calculate
OID on these securities as if, solely for the purposes of computing OID, the
separate regular interests were a single debt instrument.
A subsequent holder of a debt security will also be required to
include OID in gross income, but a holder who purchases that debt security for
an amount that exceeds its adjusted issue price will be entitled, as will an
initial holder who pays more than a debt security's issue price, to offset
such OID by comparable economic accruals of portions of the excess.
Effects of Defaults and Delinquencies.
Holders will be required to report income with respect to the
securities under an accrual method without giving effect to delays and
reductions in distributions attributable to a default or delinquency on the
loans, except possibly to the extent that it can be established that those
amounts are uncollectible. As a result, the amount of income, including OID,
reported by a holder of that security in any period could significantly exceed
the amount of cash distributed to the holder in that period. The holder will
eventually be allowed a loss, or will be allowed to report a lesser amount of
income, to the extent that the aggregate amount of distributions on the
securities is deducted as a result of a loan default. However, the timing and
character of the losses or reductions in income are uncertain and,
accordingly, holders of securities should consult their own tax advisors on
this point.
Interest Weighted Securities.
It is not clear how income should be accrued with respect to regular
interest securities or stripped securities, which we define under "--Tax
Status as a Grantor Trust; General", the payments on which consist solely or
primarily of a specified portion of the interest payments on qualified
mortgages held by the REMIC or on loans underlying pass-through securities
which we refer to interest weighted securities. The seller intends to take the
position that all of the income derived from an interest weighted security
should be treated as OID and that the amount and rate of accrual of such OID
should be calculated by treating the interest weighted security as a compound
interest security. However, in the case of interest weighted securities that
are entitled to some payments of principal and that are regular interest
securities the IRS could assert that income derived from an interest weighted
security should be calculated as if the security were a security purchased at
a premium equal to the excess of the price paid by the holder for the security
over its stated principal amount, if any. Under this approach, a holder would
be entitled to amortize such premium only if it has in effect an election
under Section 171 of the Code with respect to all taxable debt instruments
held by such holder. Alternatively, the IRS could assert that an interest
weighted security should be taxable under the rules governing bonds issued
with contingent payments. That treatment may be more likely in the case of
interest weighted securities that are stripped securities. See "--Tax Status
as a Grantor Trust--Discount or Premium on Pass-Through Securities."
Variable Rate Debt Securities.
In the case of debt securities bearing interest at a rate that varies
directly, according to a fixed formula, with an objective index, it appears
that
o the yield to maturity of those debt securities and
o in the case of pay-through securities, the present value of all
payments remaining to be made on those debt securities, should
be calculated as if the interest index remained at its value as
of the issue date of those securities.
Because the proper method of adjusting accruals of OID on a variable rate debt
security is uncertain, holders of variable rate debt securities should consult
their own tax advisers regarding the appropriate treatment of such securities
for federal income tax purposes.
Market Discount.
A purchaser of a security may be subject to the market discount rules
of Sections 1276-1278 of the Code. A holder that acquires a debt security with
more than a prescribed de minimis amount of market discount, which generally
is the excess of the principal amount of the debt security over the
purchaser's purchase price, will be required to include accrued market
discount in income as ordinary income in each month, but limited to an amount
not exceeding the principal payments on the debt security received in that
month and, if the securities are sold, the gain realized. Market discount
would accrue in a manner to be provided in Treasury regulations but, until
regulations are issued, market discount would in general accrue either:
o on the basis of a constant yield, in the case of a security
subject to prepayment, taking into account a prepayment
assumption, or
o in the ratio of (a) in the case of securities or the loans
underlying pass-through security that have not been originally
issued with OID, stated interest payable in the relevant period
to total stated interest remaining to be paid at the beginning
of the period or (b) in the case of securities or the loans
underlying pass-through security originally issued at a
discount, OID in the relevant period to total OID remaining to
be paid.
Section 1277 of the Code provides that, regardless of the origination
date of the debt security or the loans for a pass-through security, the excess
of interest paid or accrued to purchase or carry a security or the underlying
loans for a pass-through security with market discount over interest received
on the security is allowed as a current deduction only to the extent excess is
greater than the market discount that accrued during the taxable year in which
interest expense was incurred. In general, the deferred portion of any
interest expense will be deductible when market discount is included in
income, including upon the sale, disposition, or repayment of the security or
an underlying loan for a pass-through security. A holder may elect to include
market discount in income currently as it accrues, on all market discount
obligations acquired by holder during the taxable year the election is made
and after, in which case the interest deferral rule will not apply.
Premium.
A holder who purchases a debt security, other than an interest
weighted security as described under "--Taxation of Debt Securities; Interest
Weighted Securities", at a cost greater than its stated redemption price at
maturity, generally will be considered to have purchased the security at a
premium, which it may elect to amortize as an offset to interest income on
such security, and not as a separate deduction item, on a constant yield
method. Although no regulations addressing the computation of premium accrual
on securities similar to the securities have been issued, the legislative
history of the 1986 Act indicates that premium is to be accrued in the same
manner as market discount. Accordingly, it appears that the accrual of premium
on a class of pay-through securities will be calculated using the prepayment
assumption used in pricing. If a holder makes an election to amortize premium
on a debt security, the election will apply to all taxable debt instruments,
including all REMIC regular interests and all pass-through securities
representing ownership interests in a trust holding debt obligations, held by
the holder at the beginning of the taxable year in which the election is made,
and to all taxable debt instruments acquired after by the holder, and will be
irrevocable without the consent of the IRS. Purchasers who pay a premium for
the securities should consult their tax advisers regarding the election to
amortize premium and the method to be employed. Recently, the IRS issued final
regulations dealing with amortizable bond premium. These regulations
specifically do not apply to prepayable debt instruments subject to Code
Section 1272(a)(6) such as the securities. Absent further guidance from the
IRS, the trustee intends to account for amortizable bond premium in the manner
described above. Prospective purchasers of the securities should consult their
tax advisors regarding the possible application of these regulations.
Election to Treat All Interest as Original Issue Discount.
The OID Regulations permit a holder of a debt security to elect to
accrue all interest, discount, including de minimis market or OID, and premium
income as interest, based on a constant yield method for debt securities
acquired on or after April 4, 1994. If an election were to be made with
respect to a debt security with market discount, the holder of the debt
security would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such holder of the debt security acquires during the year
of the election or thereafter. Similarly, a holder of a debt security that
makes this election for a debt security that is acquired at a premium will be
deemed to have made an election to amortize bond premium for all debt
instruments having amortizable bond premium that such holder owns or acquires.
The election to accrue interest, discount and premium on a constant yield
method for a debt security is irrevocable.
Taxation of the REMIC and its Holders
In the opinion of tax counsel, if a REMIC election is made with
respect to a series of securities, then the arrangement by which the
securities of that series are issued will be treated as a REMIC as long as all
of the provisions of the applicable Agreement are complied with and the
statutory and regulatory requirements are satisfied. Securities will be
designated as regular interests or residual interests in a REMIC, as specified
in the prospectus supplement.
Generally, if a REMIC election is made with respect to a
series of securities,
o securities held by a domestic building and loan association will
constitute "a regular or a residual interest in a REMIC" within
the meaning of Code Section 7701(a)(19)(C)(xi), assuming that at
least 95% of the REMIC's assets consist of cash, government
securities, "loans secured by an interest in real property," and
other types of assets described in Code Section 7701(a)(19)(C);
and
o securities held by a real estate investment trust will
constitute "real estate assets" within the meaning of Code
Section 856(c)(5)(B), and income with respect to the securities
will be considered "interest on obligations secured by mortgages
on real property or on interests in real property" within the
meaning of Code Section 856(c)(3)(B), assuming, for both
purposes, that at least 95% of the REMIC's assets are qualifying
assets.
If less than 95% of the REMIC's assets consist of the qualifying assets
described above, then a security will be a qualifying asset in the proportion
that REMIC assets are qualifying assets.
REMIC Expenses; Single Class REMICs
As a general rule, all of the expenses of a REMIC will be taken into
account by holders of the residual interest securities. In the case of a
single class REMIC, however, the expenses will be allocated, under Treasury
regulations, among the holders of the regular interest securities and the
holders of the residual interest securities, on a daily basis in proportion to
the relative amounts of income accruing to each holder on that day. In the
case of a holder of a regular interest security who is an individual or a
pass-through interest holder, including certain pass-through entities but not
real estate investment trusts, expenses will be deductible only to the extent
that expenses, plus other "miscellaneous itemized deductions" of the holder,
exceed 2% of the holder's adjusted gross income. In addition, for taxable
years beginning after December 31, 1990, the amount of itemized deductions
otherwise allowable for the taxable year for an individual whose adjusted
gross income exceeds the applicable amount, which amount will be adjusted for
inflation for taxable years beginning after 1990, will be reduced by the
lesser of:
o 3% of the excess of adjusted gross income over the applicable
amount, or
o 80% of the amount of itemized deductions otherwise allowable
for such taxable year.
The reduction or disallowance of this deduction may have a
significant impact on the yield of the regular interest security to such a
holder. In general terms, a single class REMIC is one that either:
o would qualify, under existing Treasury regulations, as a
grantor trust if it were not a REMIC, treating all interests as
ownership interests, even if they would be classified as debt
for federal income tax purposes, or
o is similar to a trust and which is structured with the
principal purpose of avoiding the single class REMIC rules.
As specified in the prospectus supplement, the expenses of the REMIC will be
allocated to holders of the related residual interest securities.
Taxation of the REMIC
General.
Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the holders of
residual interests. As described in "--Taxation of Debt Securities; Interest
and Acquisition Discount", the regular interests are generally taxable as debt
of the REMIC.
Calculation of REMIC Income.
The taxable income or net loss of a REMIC is determined under an
accrual method of accounting and in the same manner as in the case of an
individual, with certain adjustments. In general, the taxable income or net
loss will be the difference between
o the gross income produced by the REMIC's assets, including
stated interest and any OID or market discount on loans and
other assets, and
o deductions, including stated interest and OID accrued on
regular interest securities, amortization of any premium with
respect to loans, and servicing fees and other expenses of the
REMIC.
A holder of a residual interest security that is an individual or a
pass-through interest holder, including certain pass-through entities, but not
including real estate investment trusts, will be unable to deduct servicing
fees payable on the loans or other administrative expenses of the REMIC for a
given taxable year, to the extent that such expenses, when aggregated with
such holder's other miscellaneous itemized deductions for that year, do not
exceed two percent of such holder's adjusted gross income.
For purposes of computing its taxable income or net loss, the REMIC
should have an initial aggregate tax basis in its assets equal to the
aggregate fair market value of the regular interests and the residual
interests on the day that the interests are issued, which we refer to as the
"start up day". The aggregate basis will be allocated among the assets of the
REMIC in proportion to their respective fair market values.
The OID provisions of the Code apply to loans of individuals
originated on or after March 2, 1984, and the market discount provisions apply
to loans originated after July 18, 1984. Subject to possible application of
the de minimis rules, the method of accrual by the REMIC of OID income on the
loans will be equivalent to the method under which holders of pay-through
securities accrue OID, i.e., under the constant yield method taking into
account the prepayment assumption. The REMIC will deduct OID on the regular
interest securities in the same manner that the holders of the regular
interest securities include such discount in income, but without regard to the
de minimis rules. See "Taxation of Debt Securities". However, a REMIC that
acquires loans at a market discount must include such market discount in
income currently, as it accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans, taking into account the prepayment assumption on a constant
yield method. Although the law is somewhat unclear regarding recovery of
premium attributable to loans originated on or before that date, it is
possible that the premium may be recovered in proportion to payments of loan
principal.
Prohibited Transactions and Contributions Tax.
The REMIC will be subject to a 100% tax on any net income derived
from a "prohibited transaction." For this purpose, net income will be
calculated without taking into account any losses from prohibited transactions
or any deductions attributable to any prohibited transaction that resulted in
a loss. In general, prohibited transactions include:
o the sale or other disposition of any qualified mortgage
transferred to the REMIC;
o the sale or other disposition of a cash flow investment;
o the receipt of any income from assets not permitted to be held
by the REMIC; or
o the receipt of any fees or other compensation for services
rendered by the REMIC.
It is anticipated that a REMIC will not engage in any prohibited transactions
in which it would recognize a material amount of net income. In addition, a
tax is generally imposed at the rate of 100% on amounts contributed to a REMIC
after the close of the three-month period beginning on the startup day. The
holders of residual interest securities will generally be responsible for the
payment of any such taxes imposed on the REMIC. To the extent not paid by such
holders or otherwise, however, taxes will be paid out of the trust and will be
allocated pro rata to all outstanding classes of securities of such REMIC.
Taxation of Holders of Residual Interest Securities
The holder of a security representing a residual interest security
will take into account the "daily portion" of the taxable income or net loss
of the REMIC for each day during the taxable year on which holder held the
residual interest security. The daily portion is determined by allocating to
each day in any calendar quarter its ratable portion of the taxable income or
net loss of the REMIC for such quarter, and by allocating that amount among
the holders, on that day of the residual interest securities in proportion to
their respective holdings on such day.
The holder of a residual interest security must report its
proportionate share of the taxable income of the REMIC whether or not it
receives cash distributions from the REMIC attributable to the income or loss.
The reporting of taxable income without corresponding distributions could
occur, for example, in certain REMIC issues in which the loans held by the
REMIC were issued or acquired at a discount, since mortgage prepayments cause
recognition of discount income, while the corresponding portion of the
prepayment could be used in whole or in part to make principal payments on
REMIC regular interests issued without any discount or at an insubstantial
discount. If this occurs, it is likely that cash distributions will exceed
taxable income in later years. Taxable income may also be greater in earlier
years of certain REMIC issues as a result of the fact that interest expense
deductions, as a percentage of outstanding principal on REMIC regular interest
securities, will typically increase over time as lower yielding securities are
paid, whereas interest income with respect to loans will generally remain
constant over time as a percentage of loan principal.
In any event, because the holder of a residual interest security is
taxed on the net income of the REMIC, the taxable income derived from a
residual interest security in a given taxable year will not be equal to the
taxable income associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pretax yield.
Therefore, the after-tax yield on the residual interest security may be less
than that of a bond or instrument.
Limitation on Losses.
The amount of the REMIC's net loss that a holder may take into
account currently is limited to the holder's adjusted basis at the end of the
calendar quarter in which the loss arises. A holder's basis in a residual
interest security will initially equal such holder's purchase price, and will
subsequently be increased by the amount of the REMIC's taxable income
allocated to the holder, and decreased, but not below zero, by the amount of
distributions made and the amount of the REMIC's net loss allocated to the
holder. Any disallowed loss may be carried forward indefinitely, but may be
used only to offset income of the REMIC generated by the same REMIC. The
ability of holders of residual interest securities to deduct net losses may be
subject to additional limitations under the Code, as to which such holders
should consult their tax advisers.
Distributions.
Distributions on a residual interest security, whether at their
scheduled times or as a result of prepayments, will generally not result in
any additional taxable income or loss to a holder of a residual interest
security. If the amount of such payment exceeds a holder's adjusted basis in
the residual interest security, however, the holder will recognize gain,
treated as gain from the sale of the residual interest security, to the extent
of the excess.
Sale or Exchange.
A holder of a residual interest security will recognize gain or loss
on the sale or exchange of a residual interest security equal to the
difference, if any, between the amount realized and the holder's adjusted
basis in the residual interest security at the time of the sale or exchange.
Except to the extent provided in regulations, which have not yet been issued,
any loss upon disposition of a residual interest security will be disallowed
if the selling holder acquires any residual interest in a REMIC or similar
mortgage pool within six months before or after the disposition.
Excess Inclusions.
The portion of the REMIC taxable income of a holder of a residual
interest security consisting of "excess inclusion" income may not be offset by
other deductions or losses, including net operating losses, on the holder's
federal income tax return. Further, if the holder of a residual interest
security is an organization subject to the tax on unrelated business income
imposed by Code Section 511, the holder's excess inclusion income will be
treated as unrelated business taxable income of the holder. In addition, under
Treasury regulations yet to be issued, if a real estate investment trust, a
regulated investment company, a common trust, or certain cooperatives were to
own a residual interest security, a portion of dividends or other
distributions paid by the real estate investment trust or other entity would
be treated as excess inclusion income. If a Residual security is owned by a
foreign person excess inclusion income is subject to tax at a rate of 30%
which may not be reduced by treaty, is not eligible for treatment as portfolio
interest and is subject to certain additional limitations.
See "Tax Treatment of Foreign Investors."
The Small Business Job Protection Act of 1996 has eliminated the
special rule permitting Section 593 institutions, i.e., thrift institutions,
to use net operating losses and other allowable deductions to offset their
excess inclusion income from REMIC residual certificates that have
`significant value" within the meaning of the REMIC Regulations, effective for
taxable years beginning after December 31, 1995, except with respect to
residual certificates continuously held by a thrift institution since November
1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum
taxable income for such residual holder is determined without regard to the
special rule that taxable income cannot be less than excess inclusions.
Second, a residual holder's alternative minimum taxable income for a tax year
cannot be less than the excess inclusions for the year. Third, the amount of
any alternative minimum tax net operating loss deductions must be computed
without regard to any excess inclusions. These rules are effective for tax
years beginning after December 31, 1986, unless a residual holder elects to
have such rules apply only to tax years beginning after August 20, 1996.
The Small Business Job Protection Act of 1996, as part of the repeal
of the bad debt reserve method for thrift institutions, repealed the
application of Code Section 593(d) to any taxable year beginning after
December 31, 1995.
The excess inclusion portion of a REMIC's income is generally equal
to the excess, if any, of REMIC taxable income for the quarterly period
allocable to a residual interest security, over the daily accruals for the
quarterly period of:
o 120% of the long term applicable federal rate on the startup day
multiplied by
o the adjusted issue price of the residual interest security at the
beginning of the quarterly period.
The adjusted issue price of a residual interest at the beginning of each
calendar quarter will equal its issue price, calculated in a manner analogous
to the determination of the issue price of a regular interest, increased by
the aggregate of the daily accruals for prior calendar quarters, and
decreased, but not below zero, by the amount of loss allocated to a holder and
the amount of distributions made on the residual interest security before the
beginning of the quarter. The long-term federal rate, which is announced
monthly by the Treasury Department, is an interest rate that is based on the
average market yield of outstanding marketable obligations of the United
States government having remaining maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of
residual securities may be disregarded. See "--Restrictions on Ownership and
Transfer of Residual Interest Securities" and "--Tax Treatment of Foreign
Investors" below.
Restrictions on Ownership and Transfer of Residual Interest Securities.
As a condition to qualification as a REMIC, reasonable arrangements
must be made to prevent the ownership of a residual interest security by any
disqualified organization. Disqualified organizations include the United
States, any State or political subdivision 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. Accordingly, the applicable Agreement will
prohibit disqualified organizations from owning a residual interest security.
In addition, no transfer of a residual interest security will be permitted
unless the proposed transferee shall have furnished to the trustee an
affidavit representing and warranting that it is neither a disqualified
organization nor an agent or nominee acting on behalf of a disqualified
organization.
If a residual interest security is transferred to a disqualified
organization in violation of the restrictions set forth above, a substantial
tax will be imposed on the transferor of the residual interest security at the
time of the transfer. In addition, if a disqualified organization holds an
interest in a pass-through entity, including, among others, a partnership,
trust, real estate investment trust, regulated investment company, or any
person holding as nominee, that owns a residual interest security, the
pass-through entity will be required to pay an annual tax on its allocable
share of the excess inclusion income of the REMIC.
Under the REMIC Regulations, if a residual interest security is a
noneconomic residual interest, a transfer of the residual interest security to
a United States person will be disregarded for all federal tax purposes unless
no significant purpose of the transfer was to impede the assessment or
collection of tax. A residual interest security is a noneconomic residual
interest unless, at the time of the transfer:
o the present value of the expected future distributions on the residual
interest security at least equals the product of the present value of the
anticipated excess inclusions and the highest rate of tax for the year in
which the transfer occurs, and
o the transferor reasonably expects that the transferee will receive
distributions from the REMIC at or after the time at which the taxes
accrue on the anticipated excess inclusions in an amount sufficient to
satisfy the accrued taxes.
If a transfer of a residual interest is disregarded, the transferor would be
liable for any Federal income tax imposed upon taxable income derived by the
transferee from the REMIC. The REMIC Regulations provide no guidance as to how
to determine if a significant purpose of a transfer is to impede the
assessment or collection of tax. A similar type of limitation exists with
respect to certain transfers of residual interest securities by foreign
persons to United States persons. See "--Tax Treatment of Foreign Investors."
Mark to Market Rules.
Prospective purchasers of a residual interest security should be
aware that the IRS regulations which provide that a residual interest security
acquired after January 3, 1995 cannot be marked-to-market.
Administrative Matters
The REMIC's books must be maintained on a calendar year basis and the
REMIC must file an annual federal income tax return. The REMIC will also be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit, by the IRS in
a unified administrative proceeding.
Tax Status as a Grantor Trust
General.
As specified in the prospectus supplement if a REMIC election is not
made, in the opinion of tax counsel, the trust relating to a series of
securities will be classified for federal income tax purposes as a grantor
trust under Subpart E, Part I of Subchapter J of the Code and not as an
association taxable as a corporation. In some series there will be no
separation of the principal and interest payments on the loans. In such
circumstances, a holder will be considered to have purchased a pro rata
undivided interest in each of the loans. In other cases, i.e. stripped
securities, sale of the securities will produce a separation in the ownership
of all or a portion of the principal payments from all or a portion of the
interest payments on the loans.
Each holder must report on its federal income tax return its share of
the gross income derived from the loans, not reduced by the amount payable as
trustee fees and the servicing fees, at the same time and in the same manner
as those items would have been reported under the holder's tax accounting
method had it held its interest in the loans directly, received directly its
share of the amounts received with respect to the loans, and paid directly its
share of the servicing fees. In the case of pass-through securities other than
stripped securities, the income will consist of a pro rata share of all of the
income derived from all of the loans and, in the case of stripped securities,
the income will consist of a pro rata share of the income derived from each
stripped bond or stripped coupon in which the holder owns an interest. The
holder of a security will generally be entitled to deduct servicing fees under
Section 162 or Section 212 of the Code to the extent that the servicing fees
represent reasonable compensation for the services rendered by the trustee and
the master servicer or third parties that are compensated for the performance
of services. In the case of a noncorporate holder, however, servicing fees, to
the extent not otherwise disallowed, e.g., because they exceed reasonable
compensation, will be deductible in computing the holder's regular tax
liability only to the extent that the fees, when added to other miscellaneous
itemized deductions, exceed 2% of adjusted gross income and may not be
deductible to any extent in computing the holder's alternative minimum tax
liability. In addition, the amount of itemized deductions otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds the
applicable amount, which will be adjusted for inflation, will be reduced by
the lesser of:
o 3% of the excess of adjusted gross income over the applicable
amount or
o 80% of the amount of itemized deductions otherwise allowable
for the taxable year.
Discount or Premium on Pass-Through Securities.
The holder's purchase price of a pass-through security is to be
allocated among the loans in proportion to their fair market values,
determined as of the time of purchase of the securities. In the typical case,
the trustee, to the extent necessary to fulfill its reporting obligations,
will treat each loan as having a fair market value proportional to the share
of the aggregate principal balances of all of the loans that it represents,
since the securities generally will have a relatively uniform interest rate
and other common characteristics. To the extent that the portion of the
purchase price of a pass-through security allocated to a loan, other than to a
right to receive any accrued interest thereon and any undistributed principal
payments, is less than or greater than the portion of the principal balance of
the loan allocable to the security, the interest in the loan allocable to the
pass-through security will be deemed to have been acquired at a discount or
premium, respectively.
The treatment of any discount will depend on whether the discount
represents OID or market discount. In the case of a loan with OID in excess of
a prescribed de minimis amount or a stripped security, a holder of a security
will be required to report as interest income in each taxable year its share
of the amount of OID that accrues during that year in the manner described
above. OID with respect to a loan could arise, for example, by virtue of the
financing of points by the originator of the loan, or by virtue of the
charging of points by the originator of the loan in an amount greater than a
statutory de minimis exception, in circumstances under which the points are
not deductible under the Code. Any market discount or premium on a loan will
be includible in income, generally in the manner described in "--Taxation of
Debt Securities; Premium and Market Discount", except that in the case of
pass-through securities, market discount is calculated on the loans underlying
the Certificate, rather than on the security. A holder that acquires an
interest in a loan originated after July 18, 1984 with more than a de minimis
amount of market discount, generally, the excess of the principal amount of
the loan over the purchaser's allocable purchase price, will be required to
include accrued market discount in income in the manner set forth above. See
"--Taxation of Debt Securities; Market Discount" and "--Premium" above.
In the case of market discount on a pass-through security
attributable to loans originated on or before July 18, 1984, the holder
generally will be required to allocate the portion of the discount that is
allocable to a loan among the principal payments on the loan and to include
the discount allocable to each principal payment in ordinary income at the
time such principal payment is made. That treatment would generally result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described in the preceding
paragraph.
Stripped Securities.
A stripped security may represent a right to receive only a portion
of the interest payments on the loans, a right to receive only principal
payments on the loans, or a right to receive certain payments of both interest
and principal. Certain stripped securities such as ratio strip securities may
represent a right to receive differing percentages of both the interest and
principal on each loan. Under Section 1286 of the Code, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from ownership of the right to receive some or all of the principal
payments results in the creation of stripped bonds with respect to principal
payments and stripped coupons with respect to interest payments. Section 1286
of the Code applies the OID rules to stripped bonds and stripped coupons. For
purposes of computing OID, a stripped bond or a stripped coupon is treated as
a debt instrument issued on the date that such stripped interest is purchased
with an issue price equal to its purchase price or, if more than one stripped
interest is purchased, the ratable share of the purchase price allocable to
the stripped interest.
Servicing fees in excess of reasonable servicing fees will be treated
under the stripped bond rules. If the excess servicing fees are less than 100
basis points or 1% interest on the loan principal balance or the securities
are initially sold with a de minimis discount, assuming no prepayment
assumption is required, any non-de minimis discount arising from a subsequent
transfer of the securities should be treated as market discount. The IRS
appears to require that reasonable servicing fees be calculated on a loan by
loan basis, which could result in some loans being treated as having more than
100 basis points of interest stripped off.
The Code, OID Regulations and judicial decisions provide no direct
guidance as to how the interest and OID rules are to apply to stripped
securities and other pass-through securities. Under the method described in
"--Taxation of Debt Securities; Interest and Acquisition Discount" for
prepayment securities or the cash flow bond method, a prepayment assumption is
used and periodic recalculations are made which take into account with respect
to each accrual period the effect of prepayments during the period. However,
the 1986 Act does not, absent Treasury regulations, appear specifically to
cover instruments such as the stripped securities which technically represent
ownership interests in the underlying loans, rather than being debt
instruments secured by those loans. Nevertheless, it is believed that the cash
flow bond method is a reasonable method of reporting income for the
securities, and it is expected that OID will be reported on that basis, as
specified in the prospectus supplement. In applying the calculation to
pass-through securities, the trustee will treat all payments to be received by
a holder with respect to the underlying loans as payments on a single
installment obligation. The IRS could, however, assert that OID must be
calculated separately for each loan underlying a security.
Under certain circumstances, if the loans prepay at a rate faster
than the prepayment assumption, the use of the cash flow bond method may
accelerate a holder's recognition of income. If, however, the loans prepay at
a rate slower than the prepayment assumption, in some circumstances the use of
this method may decelerate a holder's recognition of income.
In the case of a stripped security that is an interest weighted
security, the trustee intends, absent contrary authority, to report income to
securityholders as OID, in the manner described above for interest weighted
securities.
Possible Alternative Characterizations.
The characterizations of the stripped securities described in the
preceding section are not the only possible interpretations of the applicable
Code provisions. Among other possibilities, the IRS could contend that:
o in some series, each non-interest weighted security is composed of an
unstripped undivided ownership interest in loans and an installment
obligation consisting of stripped principal payments;
o the non-interest weighted securities are subject to the contingent
payment provisions of the Contingent Regulations; or
o each interest weighted stripped security is composed of an unstripped
undivided ownership interest in loans and an installment obligation
consisting of stripped interest payments.
Given the variety of alternatives for treatment of the stripped
securities and the different federal income tax consequences that result from
each alternative, potential purchasers are urged to consult their own tax
advisers regarding the proper treatment of the securities for federal income
tax purposes.
Character as Qualifying Loans.
In the case of stripped securities, there is no specific legal
authority existing regarding whether the character of the securities, for
federal income tax purposes, will be the same as the loans. The IRS could take
the position that the loans' character is not carried over to the securities.
Pass-through securities will be, and, although the matter is not free from
doubt, stripped securities should be considered to represent "real estate
assets" within the meaning of Section 856(c)(5)(B) of the Code and "loans
secured by an interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code. In addition, interest income attributable to
the securities should be considered to represent "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. Reserves or funds underlying
the securities may cause a proportionate reduction in the above-described
qualifying status categories of securities.
Sale or Exchange
Subject to the discussion below with respect to trusts as to which a
partnership election is made, a holder's tax basis in its security is the
price such holder pays for a security, plus amounts of original issue or
market discount included in income and reduced by any payments received, other
than qualified stated interest payments, and any amortized premium. Gain or
loss recognized on a sale, exchange, or redemption of a security, measured by
the difference between the amount realized and the security's basis as so
adjusted, will generally be capital gain or loss, assuming that the security
is held as a capital asset. In the case of a security held by a bank, thrift,
or similar institution described in Section 582 of the Code, however, gain or
loss realized on the sale or exchange of a regular interest security will be
taxable as ordinary income or loss. In addition, gain from the disposition of
a regular interest security that might otherwise be capital gain will be
treated as ordinary income to the extent of the excess, if any, of the amount
that would have been includible in the holder's income if the yield on the
regular interest security had equaled 110% of the applicable federal rate as
of the beginning of the holder's holding period, over the amount of ordinary
income actually recognized by the holder on the regular interest security.
Miscellaneous Tax Aspects
Backup Withholding.
Subject to the discussion below with respect to trusts as to which a
partnership election is made, a holder, other than a holder of a residual
interest security, may, under certain circumstances, be subject to "backup
withholding" at a rate of 31% with respect to distributions or the proceeds of
a sale of certificates to or through brokers that represent interest or OID on
the securities. This withholding generally applies if the holder of a security
o fails to furnish the trustee with its taxpayer identification number;
o furnishes the trustee an incorrect taxpayer identification number;
o fails to report properly interest, dividends or other "reportable
payments" as defined in the Code; or
o under some circumstances, fails to provide the trustee or such holder's
securities broker with a certified statement, signed under penalty of
perjury, that the taxpayer identification number provided is its correct
number and that the holder is not subject to backup withholding.
Backup withholding will not apply, however, to some payments made to holders,
including payments to certain exempt recipients, such as exempt organizations,
and to certain nonresidents. Holders should consult their tax advisers as to
their qualification for exemption from backup withholding and the procedure
for obtaining the exemption.
The trustee will report to the holders and to the master servicer for
each calendar year the amount of any reportable payments during the year and
the amount of tax withheld, if any, with respect to payments on the
securities.
Tax Treatment of Foreign Investors
Subject to the discussion below with respect to trusts as to which a
partnership election is made, under the Code, unless interest, including OID,
paid on a security, other than a residual interest security, is considered to
be effectively connected with a trade or business conducted in the United
States by a nonresident alien individual, foreign partnership or foreign
corporation, which we define as "nonresident", those interest will normally
qualify as portfolio interest, except where the recipient is a holder,
directly or by attribution, of 10% or more of the capital or profits interest
in the issuer, or the recipient is a controlled foreign corporation to which
the issuer is a related person, and will be exempt from federal income tax.
Upon receipt of appropriate ownership statements, the issuer normally will be
relieved of obligations to withhold tax from the interest payments. These
provisions supersede the generally applicable provisions of United States law
that would otherwise require the issuer to withhold at a 30% rate, unless that
rate were reduced or eliminated by an applicable tax treaty, on, among other
things, interest and other fixed or determinable, annual or periodic income
paid to nonresidents. Holders of pass-through securities and stripped
securities, including ratio strip securities, however, may be subject to
withholding to the extent that the loans were originated on or before July 18,
1984.
Interest and OID of holders who are foreign persons are not subject
to withholding if they are effectively connected with a United States business
conducted by the holder. They will, however, generally be subject to the
regular United States income tax.
Payments to holders of residual interest securities who are foreign
persons will generally be treated as interest for purposes of the 30% or lower
treaty rate United States withholding tax. Holders should assume that the
income does not qualify for exemption from United States withholding tax as
portfolio interest. It is clear that, to the extent that a payment represents
a portion of REMIC taxable income that constitutes excess inclusion income, a
holder of a residual interest security will not be entitled to an exemption
from or reduction of the 30% or lower treaty rate withholding tax rule. If the
payments are subject to United States withholding tax, they generally will be
taken into account for withholding tax purposes only when paid or distributed
or when the residual interest security is disposed of. The Treasury has
statutory authority, however, to promulgate regulations which would require
that these amounts to be taken into account at an earlier time in order to
prevent the avoidance of tax. Such regulations could, for example, require
withholding prior to the distribution of cash in the case of residual interest
securities that do not have significant value. Under the REMIC Regulations, if
a residual interest security has tax avoidance potential, a transfer of a
residual interest security to a nonresident will be disregarded for all
federal tax purposes. A residual interest security has tax avoidance potential
unless, at the time of the transfer the transferor reasonably expects that the
REMIC will distribute to the transferee amounts that will equal at least 30%
of each excess inclusion, and that these amounts will be distributed at or
after the time at which the excess inclusions accrue and not later than the
calendar year following the calendar year of accrual. If a Nonresident
transfers a residual interest security to a United States person, and if the
transfer has the effect of allowing the transferor to avoid tax on accrued
excess inclusions, then the transfer is disregarded and the transferor
continues to be treated as the owner of the residual interest security for
purposes of the withholding tax provisions of the Code. See "--Excess
Inclusions."
On October 6, 1997, the Treasury Department issued new regulations
which make certain modifications to the withholding and information reporting
rules described in the preceding paragraph. The new regulations attempt to
unify certification requirements and modify reliance standards. The new
regulations will generally be effective for payments made after December 31,
2000, subject to certain transition rules. We suggest that prospective
investors consult their own tax advisors regarding the new regulations.
Tax Characterization of the Trust as a Partnership
Tax counsel will deliver its opinion that a trust will not be treated
as a publicly traded partnership taxable as a corporation for federal income
tax purposes. This opinion will be based on the assumption that the terms of
the related Agreement and related documents will be complied with, and on
counsel's conclusions that the nature of the income of the trust will exempt
it from the rule that certain publicly traded partnerships are taxable as
corporations or the issuance of the securities has been structured as a
private placement under an IRS safe harbor, so that the trust will not be
characterized as a publicly traded partnership taxable as a corporation.
If the trust were taxable as a corporation for federal income tax
purposes, the trust would be subject to corporate income tax on its taxable
income. The trust's taxable income would include all its income, possibly
reduced by its interest expense on the notes. Any such corporate income tax
could materially reduce cash available to make payments on the notes and
distributions on the certificates, and certificateholders could be liable for
any tax that is unpaid by the trust.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness.
The trust will agree, and the noteholders will agree by their
purchase of notes, to treat the notes as debt for federal income tax purposes.
Generally, tax counsel will advise the seller that the notes will be
classified as debt for federal income tax purposes. The discussion below
assumes this characterization of the notes is correct.
OID, Indexed Securities, etc.
The discussion below assumes that all payments on the notes are
denominated in U.S. dollars, and that the notes are not indexed securities or
strip notes. Moreover, the discussion assumes that the interest formula for
the notes meets the requirements for qualified stated interest under the OID
Regulations, and that any OID on the notes, i.e., any excess of the principal
amount of the notes over their issue price, does not exceed a de minimis
amount, i.e., 0.25% of their principal amount multiplied by the number of full
years included in their term, all within the meaning of the OID Regulations.
If these conditions are not satisfied with respect to any given series of
notes, additional tax considerations with respect to such notes will be
disclosed in the prospectus supplement.
Interest Income on the Notes.
Based on the above assumptions, except as discussed in the following
paragraph, the notes will not be considered issued with OID. The stated
interest thereon will be taxable to a noteholder as ordinary interest income
when received or accrued in accordance with noteholder's method of tax
accounting. Under the OID Regulations, a holder of a note issued with a de
minimis amount of OID must include such OID in income, on a pro rata basis, as
principal payments are made on the note. It is believed that any prepayment
premium paid as a result of a mandatory redemption will be taxable as
contingent interest when it becomes fixed and unconditionally payable. A
purchaser who buys a note for more or less than its principal amount will
generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
A holder of a note that has a fixed maturity date of not more than
one year from the issue date of note which we refer to as a short-term note
may be subject to special rules. An accrual basis holder of a short-term note
and certain cash method holders, including regulated investment companies, as
set forth in Section 1281 of the Code generally would be required to report
interest income as interest accrues on a straight-line basis over the term of
each interest period. Other cash basis holders of a short-term note would, in
general, be required to report interest income as interest is paid or, if
earlier, upon the taxable disposition of the short-term note. However, a cash
basis holder of a short-term note reporting interest income as it is paid may
be required to defer a portion of any interest expense otherwise deductible on
indebtedness incurred to purchase or carry the short-term note until the
taxable disposition of the short-term note. A cash basis taxpayer may elect
under Section 1281 of the Code to accrue interest income on all nongovernment
debt obligations with a term of one year or less, in which case the taxpayer
would include interest on the short-term note in income as it accrues, but
would not be subject to the interest expense deferral rule referred to in the
preceding sentence. Certain special rules apply if a short-term note is
purchased for more or less than its principal amount.
Sale or Other Disposition.
If a noteholder sells a note, the holder will recognize gain or loss
in an amount equal to the difference between the amount realized on the sale
and the holder's adjusted tax basis in the note. The adjusted tax basis of a
note to a particular noteholder will equal the holder's cost for the note,
increased by any market discount, acquisition discount, OID and gain
previously included by noteholder in income with respect to the note and
decreased by the amount of bond premium, if any, previously amortized and by
the amount of principal payments previously received by noteholder with
respect to the note. Any such gain or loss will be capital gain or loss if the
note was held as a capital asset, except for gain representing accrued
interest and accrued market discount not previously included in income.
Capital losses generally may be used only to offset capital gains.
Foreign Holders.
Interest payments made or accrued to a noteholder who is a
nonresident alien, foreign corporation or other non-United States person
generally will be considered portfolio interest, and generally will not be
subject to United States federal income tax and withholding tax, if the
interest is not effectively connected with the conduct of a trade or business
within the United States by the foreign person, and the foreign person:
o is not actually or constructively a "10 percent shareholder" of the trust
or the seller, including a holder of 10% of the outstanding certificates,
or a "controlled foreign corporation" with respect to which the trust or
the seller is a "related person" within the meaning of the Code and
o provides the trustee or other person who is otherwise required to
withhold U.S. tax with respect to the notes with an appropriate statement
on Form W-8 or a similar form, signed under penalties of perjury,
certifying that the beneficial owner of the note is a foreign person and
providing the foreign person's name and address.
If a note is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide the
relevant signed statement to the withholding agent; in that case, however, the
signed statement must be accompanied by a Form W-8 or substitute form provided
by the foreign person that owns the note. If such interest is not portfolio
interest, then it will be subject to United States federal income and
withholding tax at a rate of 30 percent, unless reduced or eliminated by an
applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or
other taxable disposition of a note by a foreign person will be exempt from
United States federal income and withholding tax, if:
o the gain is not effectively connected with the conduct of a trade or
business in the United States by the foreign person and
o in the case of an individual foreign person, the foreign person is not
present in the United States for 183 days or more in the taxable year.
Backup Withholding.
Each holder of a note, other than an exempt holder such as a
corporation, tax-exempt organization, qualified pension and profit-sharing
trust, individual retirement account or nonresident alien who provides
certification as to status as a nonresident, will be required to provide,
under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that
the holder is not subject to backup withholding. Should a nonexempt noteholder
fail to provide the required certification, the trust will be required to
withhold 31 percent of the amount otherwise payable to the holder, and remit
the withheld amount to the IRS as a credit against the holder's federal income
tax liability.
Possible Alternative Treatments of the Notes.
If, contrary to the opinion of tax counsel, the IRS successfully
asserted that one or more of the notes did not represent debt for federal
income tax purposes, the notes might be treated as equity interests in the
trust. If so treated, the trust might be treated as a publicly traded
partnership taxable as a corporation with the adverse consequences described
in "--Tax Characterization of the Trust as a Partnership" and the taxable
corporation would not be able to reduce its taxable income by deductions for
interest expense on notes recharacterized as equity. Alternatively, and most
likely in the view of tax counsel, the trust might be treated as a publicly
traded partnership that would not be taxable as a corporation because it would
meet certain qualifying income tests. Nonetheless, treatment of the notes as
equity interests in such a publicly traded partnership could have adverse tax
consequences to some holders. For example, income to certain tax-exempt
entities including pension funds would be unrelated business taxable income,
income to foreign holders generally would be subject to U.S. tax and U.S. tax
return filing and withholding requirements, and individual holders may be
limited in their ability to deduct their share of the trust's expenses.
Tax Consequences to Holders of the Certificates
Treatment of the Trust as a Partnership.
The trust and the master servicer will agree, and the
certificateholders will agree by their purchase of certificates, to treat the
trust as a partnership for purposes of federal and state income tax, franchise
tax and any other tax measured in whole or in part by income, with the assets
of the partnership being the assets held by the trust, the partners of the
partnership being the certificateholders, and the notes being debt of the
partnership. However, the proper characterization of the arrangement involving
the trust, the certificates, the notes, the trust and the master servicer is
not clear because there is no authority on transactions closely comparable to
that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the certificates have certain features characteristic of debt, the
certificates might be considered debt of the trust. Any such characterization
would not result in materially adverse tax consequences to certificateholders
as compared to the consequences from treatment of the certificates as equity
in a partnership. The following discussion assumes that the certificates
represent equity interests in a partnership.
Indexed Securities, etc.
The following discussion assumes that all payments on the
certificates are denominated in U.S. dollars, none of the certificates are
indexed securities or strip certificates, and that a series of securities
includes a single class of certificates. If these conditions are not satisfied
with respect to any given series of certificates, additional tax
considerations with respect to such certificates will be disclosed in the
prospectus supplement.
Partnership Taxation.
As a partnership, the trust will not be subject to federal income
tax. Rather, each certificateholder will be required to separately take into
account such holder's allocated share of income, gains, losses, deductions and
credits of the trust. The trust's income will consist primarily of interest
and finance charges earned on the loans including appropriate adjustments for
market discount, OID and bond premium and any gain upon collection or
disposition of loans. The trust's deductions will consist primarily of
interest accruing with respect to the notes, servicing and other fees, and
losses or deductions upon collection or disposition of loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the related Agreement and
related documents. The Agreement will provide, in general, that the
certificateholders will be allocated taxable income of the trust for each
month equal to the sum of:
o the interest that accrues on the certificates in accordance with their
terms for the month, including interest accruing at the pass-through rate
for the month and interest on amounts previously due on the certificates
but not yet distributed;
o any trust income attributable to discount on the loans that corresponds
to any excess of the principal amount of the certificates over their
initial issue price;
o prepayment premium payable to the certificateholders for the month; and
o any other amounts of income payable to the certificateholders for the
month.
The allocation will be reduced by any amortization by the trust of
premium on loans that corresponds to any excess of the issue price of
certificates over their principal amount. All remaining taxable income of the
trust will be allocated to the seller. Based on the economic arrangement of
the parties, this approach for allocating trust income should be permissible
under applicable Treasury regulations, although no assurance can be given that
the IRS would not require a greater amount of income to be allocated to
certificateholders. Moreover, even under the foregoing method of allocation,
certificateholders may be allocated income equal to the entire pass-through
rate plus the other items described in the preceding paragraph even though the
trust might not have sufficient cash to make current cash distributions of
such amount. Thus, cash basis holders will in effect be required to report
income from the certificates on the accrual basis and certificateholders may
become liable for taxes on trust income even if they have not received cash
from the trust to pay taxes. In addition, because tax allocations and tax
reporting will be done on a uniform basis for all certificateholders but
certificateholders may be purchasing certificates at different times and at
different prices, certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to
them by the trust.
All of the taxable income allocated to a certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
including an individual retirement account will constitute unrelated business
taxable income generally taxable to the holder under the Code.
An individual taxpayer's share of expenses of the trust including
servicing fees but not interest expense would be miscellaneous itemized
deductions. The deductions might be disallowed to the individual in whole or
in part and might result in the holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to the holder over the life of
the trust.
The trust intends to make all tax calculations relating to income and
allocations to certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each loan, the trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on certificateholders.
Discount and Premium.
It is believed that the loans were not issued with OID, and,
therefore, the trust should not have OID income. However, the purchase price
paid by the trust for the loans may be greater or less than the remaining
principal balance of the loans at the time of purchase. If so, the loan will
have been acquired at a premium or discount, as the case may be. As indicated
above, the trust will make this calculation on an aggregate basis, but might
be required to recompute it on a loan by loan basis.
If the trust acquires the loans at a market discount or premium, the
trust will elect to include any discount in income currently as it accrues
over the life of the loans or to offset any premium against interest income on
the loans. As indicated above, a portion of market discount income or premium
deduction may be allocated to certificateholders.
Section 708 Termination.
Pursuant to final regulations issued on May 9, 1997 under Code
Section 708, a sale or exchange of 50% or more of the capital and profits in a
partnership would cause a deemed contribution of assets of the partnership
(the "old partnership") to a new partnership (the "new partnership") in
exchange for interests in the new partnership. Such interests would be deemed
distributed to the partners of the old partnership in liquidation thereof,
which would not constitute a sale or exchange. Accordingly under these new
regulations, if the trust fund were characterized as a partnership and a sale
of certificates terminated the partnership under Code Section 708, the
purchaser's basis in its ownership interest would not change.
Disposition of Certificates.
Generally, capital gain or loss will be recognized on a sale of
certificates in an amount equal to the difference between the amount realized
and the seller's tax basis in the certificates sold. A certificateholder's tax
basis in a certificate will generally equal the holder's cost increased by the
holder's share of trust income includible in income and decreased by any
distributions received with respect to such certificate. In addition, both the
tax basis in the certificates and the amount realized on a sale of a
certificate would include the holder's share of the notes and other
liabilities of the trust. A holder acquiring certificates at different prices
may be required to maintain a single aggregate adjusted tax basis in such
certificates, and, upon sale or other disposition of some of the certificates,
allocate a portion of such aggregate tax basis to the certificates sold rather
than maintaining a separate tax basis in each certificate for purposes of
computing gain or loss on a sale of that certificate.
Any gain on the sale of a certificate attributable to the holder's
share of unrecognized accrued market discount on the loans would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The trust does not expect to have any other assets
that would give rise to such special reporting requirements. Thus, to avoid
those special reporting requirements, the trust will elect to include market
discount in income as it accrues.
If a certificateholder is required to recognize an aggregate amount
of income not including income attributable to disallowed itemized deductions
described in "--Tax Consequences to Holders of Certificates; Partnership
Taxation" over the life of the certificates that exceeds the aggregate cash
distributions, the excess will generally give rise to a capital loss upon the
retirement of the certificates.
Allocations Between Transferors and Transferees.
In general, the trust's taxable income and losses will be determined
monthly and the tax items for a particular calendar month will be apportioned
among the certificateholders in proportion to the principal amount of
certificates owned by them as of the close of the last day of such month. As a
result, a holder purchasing certificates may be allocated tax items which will
affect its tax liability and tax basis attributable to periods before the
actual transaction.
The use of a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed or only applies to
transfers of less than all of the partner's interest, taxable income or losses
of the trust might be reallocated among the certificateholders. The trust's
method of allocation between transferors and transferees may be revised to
conform to a method permitted by future regulations.
Section 754 Election.
In the event that a certificateholder sells its certificates at a
profit or loss, the purchasing certificateholder will have a higher lower
basis in the certificates than the selling certificateholder had. The tax
basis of the trust's assets will not be adjusted to reflect that higher or
lower basis unless the trust were to file an election under Section 754 of the
Code. In order to avoid the administrative complexities that would be involved
in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the trust will not make an election. As a
result, certificateholders might be allocated a greater or lesser amount of
trust income than would be appropriate based on their own purchase price for
certificates.
Administrative Matters.
The trustee is required to keep or have kept complete and accurate
books of the trust. Such books will be maintained for financial reporting and
tax purposes on an accrual basis and the fiscal year of the trust will be the
calendar year. The trustee will file a partnership information return on IRS
Form 1065 with the IRS for each taxable year of the trust and will report each
certificateholder's allocable share of items of trust income and expense to
holders and the IRS on Schedule K-1. The trust will provide the Schedule K-l
information to nominees that fail to provide the trust with the information
statement described in the following paragraph and nominees will be required
to forward information to the beneficial owners of the certificates.
Generally, holders must file tax returns that are consistent with the
information return filed by the trust or be subject to penalties unless the
holder notifies the IRS of all inconsistencies .
Under Section 6031 of the Code, any person that holds certificates as
a nominee at any time during a calendar year is required to furnish the trust
with a statement containing certain information on the nominee, the beneficial
owners and the certificates so held. The information includes:
o the name, address and taxpayer identification number of the nominee and
o as to each beneficial owner
o the name, address and identification number of the person,
o whether the person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned
agency or instrumentality of either of the foregoing, and
o some information on certificates that were held, bought or sold on behalf
of the person throughout the year.
In addition, brokers and financial institutions that hold certificates through
a nominee are required to furnish directly to the trust information as to
themselves and their ownership of certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the trust. The information referred to above for any
calendar year must be furnished to the trust on or before the following
January 31. Nominees, brokers and financial institutions that fail to provide
the trust with the information described above may be subject to penalties.
The seller will be designated as the tax matters partner in the
Agreement and will be responsible for representing the certificateholders in
any dispute with the IRS. The Code provides for administrative examination of
a partnership as if the partnership were a separate and distinct taxpayer.
Generally, the statute of limitations for partnership items does not expire
before three years after the date on which the partnership information return
is filed. Any adverse determination following an audit of the return of the
trust by the appropriate taxing authorities could result in an adjustment of
the returns of the certificateholders. In some circumstances, a
certificateholder may be precluded from separately litigating a proposed
adjustment to the items of the trust. An adjustment could also result in an
audit of a certificateholder's returns and adjustments of items not related to
the income and losses of the trust.
Tax Consequences to Foreign Certificateholders.
It is not clear whether the trust would be considered to be engaged
in a trade or business in the United States for purposes of federal
withholding taxes with respect to non-U.S. persons because there is no clear
authority dealing with that issue under facts substantially similar to those
describing the trust. Although it is not expected that the trust would be
engaged in a trade or business in the United States for such purposes, the
trust will withhold as if it were so engaged in order to protect the trust
from possible adverse consequences of a failure to withhold. The trust expects
to withhold on the portion of its taxable income that is allocable to foreign
certificateholders under Section 1446 of the Code, as if such income were
effectively connected to a U.S. trade or business, at a rate of 35% for
foreign holders that are taxable as corporations and 39.6% for all other
foreign holders. Subsequent adoption of Treasury regulations or the issuance
of other administrative pronouncements may require the trust to change its
withholding procedures. In determining a holder's withholding status, the
trust may rely on IRS Form W-8, IRS Form W-9 or the holder's certification of
nonforeign status signed under penalties of perjury.
The term "U.S. Person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States, any state of the United States or the
District of Columbia, other than a partnership that is not treated as a United
States person under any applicable Treasury regulation , or an estate whose
income is subject to U.S. federal income tax regardless of its source of
income, or a trust if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return including, in the case of a corporation, the
branch profits tax on its share of the trust's income. Each foreign holder
must obtain a taxpayer identification number from the IRS and submit that
number to the trust on Form W-8 in order to assure appropriate crediting of
the taxes withheld. A foreign holder generally would be entitled to file with
the IRS a claim for refund with respect to taxes withheld by the trust taking
the position that no taxes were due because the trust was not engaged in a
U.S. trade or business. However, interest payments made or accrued to a
certificateholder who is a foreign person generally will be considered
guaranteed payments to the extent such payments are determined without regard
to the income of the trust. If these interest payments are properly
characterized as guaranteed payments, then the interest will not be considered
portfolio interest. As a result, certificateholders will be subject to United
States federal income tax and withholding tax at a rate of 30 percent, unless
reduced or eliminated by an applicable treaty. In that case, a foreign holder
would only be entitled to claim a refund for that portion of the taxes in
excess of the taxes that should be withheld with respect to the guaranteed
payments.
Backup Withholding. Distributions made on the certificates and
proceeds from the sale of the certificates will be subject to a "backup"
withholding tax of 31% if, in general, the certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt
recipient under applicable provisions of the Code.
FASIT Securities
General
The FASIT provisions of the Code were enacted by the Small Business
Job Protection Act of 1996 and create a new elective statutory vehicle for the
issuance of mortgage-backed and asset-backed securities. Although the FASIT
provisions of the Code became effective on September 1, 1997, no Treasury
regulations or other administrative guidance has been issued with respect to
those provisions. Accordingly, definitive guidance cannot be provided with
respect to many aspects of the tax treatment of FASIT securityholders. In the
opinion tax counsel, if a FASIT election is made with respect to a series of
securities, then the arrangement by which the securities of that series are
issued will be treated as a FASIT assuming compliance with all of the
provisions of the applicable Agreement, including the making of a timely FASIT
election, and certain representations made by the seller as to factual
matters. In addition, the trust's qualification as a FASIT depends on its
ability to satisfy the requirements of the FASIT provisions on an ongoing
basis, including, without limitation, requirements of proposed, temporary or
final Treasury regulations that may be promulgated in the near future under
the FASIT provisions and that may apply to the trust or as a result of any
change in the applicable law. Investors also should note that the FASIT
discussion contained herein constitutes only a summary of the federal income
tax consequences to holders of FASIT securities. With respect to each series
of FASIT securities, the prospectus supplement will provide a detailed
discussion regarding the federal income tax consequences associated with the
particular transaction.
FASIT securities will be classified as either FASIT regular
securities, which generally will be treated as debt for federal income tax
purposes, or FASIT ownership securities, which generally are not treated as
debt for federal income tax purposes, but rather as representing rights and
responsibilities with respect to the taxable income or loss of the related
series FASIT. The prospectus supplement for each series of securities will
indicate whether one or more FASIT elections will be made for that series and
which securities of that series will be designated as regular interests, and
which, if any, will be designated as ownership interests.
Qualification as a FASIT
The trust underlying a series, or one or more designated pools of
assets held in the trust, will qualify under the Code as a FASIT in which the
FASIT regular securities and the FASIT ownership securities will constitute
the "regular interests" and the "ownership interests," respectively, if
o a FASIT election is in effect,
o certain tests concerning the composition of the FASIT's assets and the
nature of the securityholders" interests in the FASIT are met on a
continuing basis, and
o the trust is not a regulated investment company as defined in Section
851(a) of the Code.
Asset Composition
In order for a trust, or one or more designated pools of assets held
by a trust, to be eligible for FASIT status, substantially all of the assets
of the trust or the designated pool must consist of "permitted assets" as of
the close of the third month beginning after the closing date and at all times
thereafter (the "FASIT Qualification Test"). Permitted assets include:
o cash or cash equivalents,
o debt instruments with fixed terms that would qualify as REMIC regular
interests if issued by a REMIC, i.e., instruments that provide for
interest at a fixed rate, a qualifying variable rate, or a qualifying
interest-only type rate,
o foreclosure property,
o certain hedging instruments, generally, interest and currency rate swaps
and enhancement contracts, that are reasonably required to guarantee or
hedge against the FASIT's risks associated with being the obligor on
FASIT interests,
o contract rights to acquire qualifying debt instruments or qualifying
hedging instruments,
o FASIT regular interests, and
o REMIC regular interests.
Permitted assets do not include any debt instruments issued by the
holder of the FASIT's ownership interest or by any person related to the
holder.
Interests in a FASIT
In addition to the foregoing asset qualification requirements, the
interests in a FASIT also must meet certain requirements. All of the interests
in a FASIT must belong to either of the following:
o one or more classes of regular interests or
o a single class of ownership interest that is held by a fully taxable
domestic C corporation.
In the case of series that include FASIT ownership securities, the
ownership interest will be represented by the FASIT ownership securities.
A FASIT interest generally qualifies as a regular interest if:
o it is designated as a regular interest,
o it has a stated maturity no greater than thirty years,
o it entitles its holder to a specified principal amount,
o the issue price of the interest does not exceed 125% of its stated
principal amount,
o the yield to maturity of the interest is less than the applicable
Treasury rate published by the IRS plus 5%, and
o if it pays interest, such interest is payable at either (a) a fixed rate
with respect to the principal amount of the regular interest or (b) a
permissible variable rate with respect to such principal amount.
Permissible variable rates for FASIT regular interests are the same as
those for REMIC regular interests, i.e., certain qualified floating rates
and weighted average rates. See "--Taxation of Debt Securities--Variable
Rate Debt Securities."
If a FASIT security fails to pay a specified principal amount, has an
issue price that exceeds 125% of its stated principal amount, or has yield to
maturity in excess of the AFR, but otherwise meets the above requirements, it
may still qualify as a type of regular interest known as a high-yield
interest. In addition, if a FASIT security fails to pay a fixed rate or a
permissible variable rate, but the interest payable on the security consists
of a specified portion of the interest payments on permitted assets and that
portion does not vary over the life of the security, the security also will
qualify as a high-yield interest. A high-yield interest may be held only by
domestic C corporations that are fully subject to corporate income tax
("Eligible Corporations"), other FASITs, and dealers in securities who acquire
high yield interests as inventory, rather than for investment. In addition,
holders of high-yield interests may be limited in offsetting income derived
from such interest. See "--Tax Treatment of FASIT Regular
Securities--Treatment of High-Yield Interests."
Consequences of Disqualification
If a series FASIT fails to comply with one or more of the Code's
ongoing requirements for FASIT status during any taxable year, the Code
provides that its FASIT status may be lost for that year and thereafter. If
FASIT status is lost, the treatment of the former FASIT and the interests
therein for federal income tax purposes is uncertain. The former FASIT might
be treated as a grantor trust, as a separate association taxation as a
corporation, or as a partnership. See "- Tax Characterization of the Trust as
a Partnership". The FASIT Regular securities could be treated as debt
instruments for federal income tax purposes or as equity interests. Although
the Code authorizes the Treasury to issue regulations that address situations
where a failure to meet the requirements for FASIT status occurs inadvertently
and in good faith, FASIT regulations have not yet been issued. It is possible
that disqualification relief might be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the FASIT's income for
the period of time in which the requirements for FASIT status are not
satisfied.
Tax Treatment of FASIT Regular Securities
General.
Payments received by holders of FASIT regular securities generally
should be accorded the same tax treatment under the Code as payments received
on other taxable corporate debt instruments and on REMIC regular interests. As
in the case of holders of REMIC Regular interests, holders of FASIT regular
interests must report income from such interests under an accrual method of
accounting, even if they otherwise would have used the cash receipts and
disbursements method. Except in the case of FASIT regular interests issued
with original issue discount or acquired with market discount or premium,
interest paid or accrued on a FASIT regular interest generally will be treated
as ordinary income to the securityholder and a principal payment on such
security will be treated as a return of capital to the extent that the
securityholder's basis is allocable to that payment. FASIT regular interests
issued with original issue discount or acquired with market discount or
premium generally will treat interest and principal payments on such
securities in the same manner described for REMIC regular interests. See
"--Taxation of Debt Securities," "--Market Discount," and "--Premium" above.
high-yield securities may be held only by fully taxable domestic C
corporations, other FASITs, and certain securities dealers. securityholders of
high-yield securities may be limited in their ability to use current losses or
net operating loss carryforwards or carrybacks to offset any income derived
from those securities.
If a FASIT regular interest is sold or exchanged, the securityholder
generally will recognize gain or loss upon the sale in the manner described in
"--Taxation of Debt Securities; Sale or Exchange". In addition, if a FASIT
regular interest becomes wholly or partially worthless as a result of default
and delinquencies on the underlying assets, the holder of such security should
be allowed to deduct the loss sustained or alternatively be able to report a
lesser amount of income. However, the timing and character of such losses in
income are uncertain. See "--Taxation of Debt Securities--Effects of Default
and Delinquencies."
FASIT regular securities held by a REIT will qualify as "real estate
assets" within the meaning of section 856(c)(4) of the Code, and interest on
such securities will be considered Qualifying REIT Interest to the same extent
that REMIC securities would be so considered. FASIT regular securities held by
a thrift institution taxed as a "domestic building and loan association" will
represent qualifying assets for purposes of the qualification requirements set
forth in Code Section 7701(a)(19) to the same extent that REMIC securities
would be so considered. See "--Taxation of Debt Securities." In addition,
FASIT regular securities held by a financial institution to which Section 585
of the Code applies will be treated as evidences of indebtedness for purposes
of Section 582(c)(1) of the Code. FASIT securities will not qualify as
"government securities" for either REIT or RIC qualification purposes.
Treatment of High-Yield Interests
High-yield interests are subject to special rules regarding the
eligibility of holders of such interests, and the ability of such holders to
offset income derived from their FASIT security with losses. High-yield
interests may be held only by Eligible Corporations, other FASITs, and dealers
in securities who acquire such interests as inventory. If a securities dealer,
other than an Eligible Corporation, initially acquires a high-yield interest
as inventory, but later begins to hold it for investment, the dealer will be
subject to an excise tax equal to the income from the high-yield interest
multiplied by the highest corporate income tax rate. In addition, transfers of
high-yield interests to disqualified holders will be disregarded for federal
income tax purposes, and the transferor still will be treated as the holder of
the high-yield interest.
The holder of a high-yield interest may not use non-FASIT current
losses or net operating loss carryforwards or carrybacks to offset any income
derived from the high-yield interest, for either regular federal income tax
purposes or for alternative minimum tax purposes. In addition, the FASIT
provisions contain an anti-abuse rule that imposes corporate income tax on
income derived from a FASIT regular interest that is held by a pass-through
entity, other than another FASIT, that issues debt or equity securities backed
by the FASIT regular interest and that have the same features as high-yield
interests.
Tax Treatment of FASIT Ownership Securities
A FASIT ownership security represents the residual equity interest in
a FASIT. As such, the holder of a FASIT ownership security determines its
taxable income by taking into account all assets, liabilities, and items of
income, gain, deduction, loss, and credit of a FASIT. In general, the
character of the income to the holder of a FASIT ownership interest will be
the same as the character of such income to the FASIT, except that any
tax-exempt interest income taken into account by the holder of a FASIT
ownership interest is treated as ordinary income. In determining that taxable
income, the holder of a FASIT ownership security must determine the amount of
interest, original issue discount, market discount, and premium recognized
with respect to the FASIT's assets and the FASIT regular securities issued by
the FASIT according to a constant yield methodology and under an accrual
method of accounting. In addition, holders of FASIT ownership securities are
subject to the same limitations on their ability to use losses to offset
income from their FASIT security as are the holders of high-yield interests.
See "--Tax Treatment of FASIT Regular Securities--Treatment of High-Yield
Interests."
Rules similar to the wash sale rules applicable to REMIC residual
securities also will apply to FASIT ownership securities. Accordingly, losses
on dispositions of a FASIT ownership security generally will be disallowed
where, within six months before or after the disposition, the seller of the
security acquires any other FASIT ownership security or, in the case of a
FASIT holding mortgage assets, any interest in a taxable mortgage pool, that
is economically comparable to a FASIT ownership security. In addition, if any
security that is sold or contributed to a FASIT by the holder of the related
FASIT ownership security was required to be marked-to-market under Code
section 475 by such holder, then section 475 will continue to apply to such
securities, except that the amount realized under the mark-to-market rules
will be the greater of the securities value under present law or the
securities value after applying special valuation rules contained in the FASIT
provisions. Those special valuation rules generally require that the value of
debt instruments that are not traded on an established securities market be
determined by calculating the present value of the reasonably expected
payments under the instrument using a discount rate of 120% of the applicable
federal rate, compounded semiannually.
The holder of a FASIT ownership security will be subject to a tax
equal to 100% of the net income derived by the FASIT from any prohibited
transactions. Prohibited transactions include:
o the receipt of income derived from assets that are not permitted assets,
o certain dispositions of permitted assets,
o the receipt of any income derived from any loan originated by a FASIT,
and
o in certain cases, the receipt of income representing a servicing fee or
other compensation.
Any series for which a FASIT election is made generally will be
structured in order to avoid application of the prohibited transaction tax.
Backup Withholding, Reporting and Tax Administration
Securityholders of FASIT securities will be subject to backup
withholding to the same extent holders of REMIC securities would be subject.
See "--Miscellaneous Tax Aspects--Backup Withholding." For purposes of
reporting and tax administration, holders of record of FASIT securities
generally will be treated in the same manner as holders of REMIC securities.
Foreign Securityholders
Foreign holders of FASIT securities will be subject to withholding to
the same extent foreign holders of notes would be subject. See "- Tax
Consequences to Holders of the Notes - Foreign Holders."
Due to the complexity of the federal income tax rules applicable to
securityholders and the considerable uncertainty that exists with respect to
many aspects of those rules, we suggest that potential investors consult their
own tax advisors regarding the tax treatment of the acquisition, ownership,
and disposition of the securities.
State Tax Considerations
In addition to the federal income tax consequences described in
"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, we suggest that potential investors consult their own tax
advisors with respect to the various state and local tax consequences of an
investment in the securities.
ERISA Considerations
The Employee Retirement Income Security Act of 1974, as amended and
the Code impose certain restrictions on employee benefit plans subject to
ERISA and on plans and other arrangements subject to Section 4975 of the Code
("Plans"), and on persons who are parties in interest or disqualified persons
("parties in interest") with respect to such Plans. Certain employee benefit
plans, such as governmental plans and church plans (if no election has been
made under Section 410(d) of the Code), are not subject to the restrictions of
ERISA, and assets of such plans may be invested in the securities without
regard to the ERISA considerations described in this section, subject to other
applicable federal and state law. However, any such governmental or church
plan which is qualified under Section 401(a) of the Code and exempt from
taxation under Section 501(a) of the Code is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
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.
Section 406 of ERISA prohibits parties in interest with respect to a
Plan from engaging in prohibited transactions involving a Plan and its assets
unless a statutory, regulatory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes or, in some
cases, a civil penalty may be assessed under Section 502(i) of ERISA, on
parties in interest which engage in non-exempt prohibited transactions.
Depending on the relevant facts and circumstances, certain prohibited
transaction exemptions may apply to the purchase or holding of the
securities--for example:
o Prohibited Transaction Class Exemption ("PTE") 96-23, exempts
certain transactions effected on behalf of a Plan by an
in-house asset manager;
o PTE 95-60, exempts certain transactions between insurance
company general accounts and parties in interest;
o PTE 91-38, exempts certain transactions between bank collective
investment funds and parties in interest;
o PTE 90-1, exempts certain transactions between insurance
company pooled separate accounts and parties in interest; and
o PTE 84-14, exempts certain transactions effected on behalf of a
Plan by a qualified professional asset manager.
There can be no assurance that any of these exemptions will apply with respect
to any Plan's investment in the securities, or that such an exemption, if it
did apply, would apply to all prohibited transactions that may occur in
connection with such investment. Furthermore, these exemptions would not apply
to transactions involved in operation of the trust if the assets of the trust
were considered to include Plan assets.
The DOL has issued a final regulation (29 C.F.R. Section 2510.3-101)
(the "Plan Assets Regulation") containing rules for determining what
constitutes the assets of a Plan. The Plan Assets Regulation provides that, as
a general rule, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
investment in an equity interest will be deemed for purposes of ERISA to be
assets of the Plan unless certain exceptions apply.
Under the terms of the Plan Assets Regulation, the trust may be
deemed to hold plan assets by reason of a Plan's investment in a security;
such plan assets would include an undivided interest in the trust assets and
any other assets held by the trust. In such an event, persons providing
services with respect to the assets of the trust may be parties in interest,
subject to the fiduciary responsibility provisions of Title I of ERISA,
including the prohibited transaction provisions of Section 406 of ERISA and of
Section 4975 of the Code, with respect to transactions involving such assets
unless such transactions are subject to a statutory, regulatory or
administrative exemption.
The look-through rule of the Plan Assets Regulation does not apply if
the interest acquired by the Plan is treated as indebtedness under applicable
local law and has no substantial equity features. Generally, a profits
interest in a partnership, an undivided ownership interest in property and a
beneficial ownership interest in a trust are deemed to be equity interests
under the final regulation. If notes of a particular series were deemed to be
indebtedness under applicable local law without any substantial equity
features, an investing Plan's assets would include such notes, but not, by
reason of such purchase, the underlying assets of the trust. The prospectus
supplement related to a series will indicate the expected treatment of the
securities in that series under the Plan Assets Regulation.
If the interest is an equity interest, the Plan Assets Regulation
creates an exception if the class of equity interests in question is:
o widely held, i.e., held by 100 or more investors who are
independent of the seller and each other;
o freely transferable; and
o sold as part of an offering pursuant to
o an effective registration statement under the Securities
Act of 1933, and then subsequently registered under the
Securities Exchange Act of 1934 or
o an effective registration statement under Section 12(b) or
12(g) of the Securities Exchange Act of 1934.
In addition, the regulation provides that if at all times more than 75% of the
value of all classes of equity interests in the seller or the trust are held
by investors other than benefit plan investors, which includes Plans; employee
benefit plans as defined under ERISA, whether or not they are subject to
ERISA; and any entity whose underlying assets include plan assets by reason of
a plan's investment in the entity, the investing Plan's assets will not
include any of the underlying assets of the seller or the trust.
The DOL has granted to certain underwriters individual administrative
exemptions (the "Underwriter Exemptions") from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section
4975 of the Code with respect to the initial purchase, the holding and the
subsequent resale by Plans of certificates in pass-through trusts that consist
of certain receivables, loans and other obligations that meet the conditions
and requirements of the Underwriter Exemptions. These securities may include
the certificates. The obligations covered by the Underwriter Exemptions
include obligations such as the trust assets other than private securities and
agency securities which are not insured or guaranteed by the United States or
an agency or instrumentality of the United States, or home improvement
contracts that are unsecured. The Underwriter Exemptions may apply to the
acquisition, holding and resale of the securities by a Plan provided that
certain conditions are met, including those listed in the next paragraph.
While each Underwriter Exemption is an individual exemption
separately granted to a specific underwriter, the terms and conditions are
generally similar and include:
o the acquisition of the certificates by a Plan is on terms,
including the price, that are at least as favorable to the Plan
as they would be in an arm's-length transaction with an
unrelated party;
o 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;
o the 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 S&P, Moody's, DCR
or Fitch;
o The sum of all payments made to the underwriter 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 seller
pursuant to the sale of the obligations to the trust represents
not more than the fair market value of such obligations. The
sum of all payments made to and retained by any servicer
represents not more than reasonable compensation for such
servicer's services under the related servicing agreement and
reimbursement of the servicer's reasonable expenses in
connection therewith;
o The trustee must not be an affiliate of any other member of the
Restricted Group; and
o The Plan investing in the certificates is an accredited
investor as defined in Rule 501(a)(1) of Regulation D under the
Securities Act of 1933.
The trust also must meet the following requirements:
o the corpus of the trust must consist solely of assets of the
type which have been included in other investment pools;
o securities in such other investment pools must have been rated
in one of the three highest rating categories of a rating
agency for at least one year prior to the Plan's acquisition of
securities; and
o securities 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 securities.
On July 21, 1997, the DOL published in the Federal Register
an amendment to the Underwriter Exemptions, which extends exemptive
relief to certain mortgage-backed and asset-backed securities
transactions using pre-funding accounts for trusts issuing
pass-through certificates. The amendment generally allows mortgage
loans or other secured receivables (the "Obligations") supporting
payments to certificateholders, and having a value equal to no more
than twenty-five percent (25%) of the total principal amount of the
certificates being offered by the trust, to be transferred to the
trust within a 90-day or three-month pre-funding period following the
closing date, instead of requiring that all such Obligations be
either identified or transferred on or before the closing date. The
relief is available when the following conditions are met:
(1) The ratio of the amount allocated to the pre-funding
account to the total principal amount of the certificates being
offered must not exceed twenty-five percent (25%).
(2) All Obligations transferred after the closing date
(the "Additional Obligations") must meet the same terms and
conditions for eligibility as the original Obligations used to
create the trust, which terms and conditions have been approved
by a rating agency.
(3) The transfer of such Additional Obligations to the
trust during the pre-funding period must not result in the
certificates to be covered by the Underwriter Exemption
receiving a lower credit rating from a rating agency upon
termination of the pre-funding period than the rating that was
obtained at the time of the initial issuance of the
certificates by the trust.
(4) Solely as a result of the use of pre-funding, the
weighted average annual percentage interest rate for all of the
Obligations in the trust at the end of the pre-funding period
must not be more than 100 basis points lower than the average
interest rate for the Obligations transferred to the trust on
the closing date.
(5) In order to insure that the characteristics of the
Additional Obligations are substantially similar to those of
the original Obligations which were transferred to the trust:
o the characteristics of the Additional Obligations
must be monitored by an insurer or other credit
support provider that is independent of the seller;
or
o an independent accountant retained by the seller
must provide the seller with a letter (with copies
provided to each rating agency rating the
certificates, the related underwriter and the
related trustee) stating whether or not the
characteristics of the Additional Obligations
conform to the characteristics described in the
related prospectus, prospectus supplement, or
pooling and servicing agreement. In preparing such
letter, the independent accountant must use the
same type of procedures as were applicable to the
Obligations transferred to the trust as of the
closing date.
(6) The pre-funding period must end no later than three
months or 90 days after the closing date or earlier in certain
circumstances if the pre-funding account falls below the
minimum level specified in the pooling and servicing agreement
or an Event of Default occurs.
(7) Amounts transferred to any pre-funding account and
capitalized interest account used in connection with the
pre-funding may be invested only in certain permitted
investments.
(8) The related prospectus or prospectus supplement must
describe:
o any pre-funding account and capitalized interest
account used in connection with a pre-funding
account;
o the duration of the pre-funding period;
o the percentage or dollar value of the amount
allocated to the pre-funding account for the
trust; and
o that the amounts remaining in the pre-funding
account at the end of the pre-funding period will
be remitted to certificateholders as repayments of
principal.
(9) The related pooling and servicing agreement must
describe the permitted investments for the pre-funding account
and capitalized interest account and, if not disclosed in the
related prospectus or prospectus supplement, the terms and
conditions for eligibility of Additional Obligations.
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 securities in a trust holding
receivables as to which the fiduciary or its affiliates is an obligor provided
that, among other requirements:
o in the case of an acquisition in connection with the initial
issuance of securities, at least fifty (50) percent of each
class of securities in which Plans have invested is acquired by
persons independent of the Restricted Group and at least fifty
(50) percent of the aggregate interest in the trust is acquired
by persons independent of the Restricted Group;
o such fiduciary or affiliate is an obligor with respect to five
(5) percent or less of the fair market value of the obligations
contained in the trust;
o a Plan's investment in securities does not exceed twenty-five
(25) percent of all of the securities outstanding after the
acquisition; and
o immediately after the acquisition, no more than twenty-five
(25) percent of the assets of any Plan for which such person is
a fiduciary are invested in securities 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 seller, the
underwriters of the securities, any trustee, any servicer, any insurer, any
obligor with respect to obligations included in a trust constituting more than
five (5) percent of the aggregate unamortized principal balance of the assets
in a trust, or any affiliate of such parties (the "Restricted Group").
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the potential application of the
Underwriter Exemptions to the purchase and holding of the securities and the
potential consequences to their specific circumstances, prior to making an
investment in the securities. Moreover, each Plan fiduciary should determine
whether under the general fiduciary standards of investment procedure 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.
Legal Investment
As specified in the prospectus supplement, the securities will not
constitute mortgage-related securities under the Secondary Mortgage Market
Enhancement Act of 1984. 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.
Ratings
It will be a requirement for issuance of any series that the
securities offered by this prospectus and the 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 prospectus supplement will be as set forth in the
prospectus supplement. A securities rating should be evaluated independently
of similar ratings on different types of securities. A securities rating does
not address the effect that the rate of prepayments on loans or underlying
loans, as applicable, for a series may have on the yield to investors in the
securities of such series.
Plan of Distribution
The seller may offer each series of securities through one or more
underwriters that may be designated at the time of each offering of such
securities. The prospectus supplement will set forth the specific terms of the
offering of the series of securities and of each class within the series, the
names of the underwriters, the purchase price of the securities, the proceeds
to the seller 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 the series.
This prospectus may be used by McDonald Investments Inc., a
wholly-owned subsidiary of KeyCorp and an affiliate of the seller, or its
successors, in connection with offers and sales related to secondary market
transactions in the securities in which McDonald Investments Inc. acts a
principal. McDonald Investments Inc. may also act as agent in such
transactions. McDonald Investments Inc. is a member of the New York Stock
Exchange, Inc. McDonald Investments Inc. is not a bank or a thrift, is an
entity separate from the seller, and is solely responsible for its own
contractual obligations and commitments.
Legal Matters
As specified in the prospectus supplement, certain legal matters in
connection with the securities will be passed upon for the seller by Brown &
Wood LLP, New York, New York.
Available Information
The seller is subject to the informational requirements of the
Securities Exchange Act of 1934 and accordingly files reports and other
information with the SEC. Such reports and other information can be inspected
and copied at the public reference facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, and at its Regional Offices
located as follows:
o Midwest Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and
o Northeast Regional Office, 7 World Trade Center, Suite 1300,
New York, New York 10048.
Copies of such material can also be obtained from the Public
Reference Section of the SEC, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the SEC maintains a
Web site at http://www.sec.gov containing reports, proxy and information
statements and other information regarding registrants, including the seller,
that file electronically with the SEC.
Copies of the registration statement of which this prospectus forms a
part and the exhibits are on file at the offices of the SEC in Washington,
D.C. Copies may be obtained at rates prescribed by the SEC upon request to the
SEC, and may be inspected, without charge, at the offices of the SEC, 450
Fifth Street, N.W., Washington, D.C.
Incorporation of Documents by Reference
All documents subsequently filed by or on behalf of the trust
referred to in the accompanying prospectus supplement with the SEC pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this
prospectus and prior to the termination of any offering of the securities
issued by the trust 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
the 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 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 statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus.
The seller on behalf of any trust 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 in the previous
paragraph that have been or may be incorporated by reference in this
prospectus but not including exhibits to the information that is incorporated
by reference unless the exhibits are specifically incorporated by reference
into the information that this prospectus incorporates. Such requests should
be directed to Corporate Secretary, Key Tower, 127 Public Square, Cleveland,
Ohio 44114.
<PAGE>
Index of Defined Terms
Agreement.................................................5
Assumed reinvestment rate.................................6
Code......................................................56
Eligible Investments......................................18,19
Loans.....................................................10
Mortgaged properties......................................10
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the Certificates being registered under
this Registration Statement, other than underwriting discounts and
commissions:
SEC Registration Fee.......................................... $ 278.00
Printing and Engraving........................................ $ 35,000.00
Legal Fees and Expenses....................................... $ 65,000.00
Trustee Fees and Expenses..................................... $ 15,000.00
Accounting Fees & Expenses.................................... $ 25,000.00
Blue Sky Fees & Expenses...................................... $ 5,000.00
Rating Agency Fees............................................ $ 125,000.00
Miscellaneous ................................................ $ 5,000.00
Total ................................................$ 275,278.00
===============
- --------------------
Item 15. Indemnification of Directors and Officers.
Article Tenth of the Registrant's Articles of Association provides
for indemnification of directors and officers of the Registrant as follows:
Article Tenth. (a) This Association shall indemnify, to the full
extent permitted or authorized by the Ohio General Corporation Law as it may
from time to time be amended, any person made or threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, or investigative, by reason of the fact that
he is or was a director, officer, or employee of this Association, or is or
was serving at the request of this Association as a director, trustee,
officer, or employee of another association, corporation, partnership, joint
venture, trust, or other enterprise; in the case of a person serving at the
request of this Association, such request shall be evidenced by a resolution
of the Board of Directors or a duly-authorized committee thereof or by a
writing executed by an officer of this Association pursuant to a resolution of
the Board of Directors or a duly-authorized committee thereof. In the case of
a merger into this Association of a constituent association which, if its
separate existence had continued, would have been required to indemnify
directors, officers, or employees in specified situations prior to the merger,
any person who served as a director, officer, or employee of the constituent
association, or served at the request of the constituent association as a
director, trustee, officer, or employee of another association, corporation,
partnership, joint venture, trust, or other enterprise, shall be entitled to
indemnification by this Association (as the surviving association) for acts,
omissions, or other events or occurrences prior to the merger to the same
extent he would have been entitled to indemnification by the constituent
association if its separate existence had continued. The indemnification
provided by this Article Tenth shall not be deemed exclusive of any other
rights to which any person seeking indemnification may be entitled by law or
under these Articles or the Bylaws, or any agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, trustee,
officer, or employee and shall inure to the benefit of the heirs, executors,
and administrators of such a person.
(b) Notwithstanding division (a) of this Article Tenth, no
director, officer, or employee of this Association shall be
indemnified against expenses, including attorneys' fees, penalties or
other payments incurred in an administrative proceeding or action
instituted by the Comptroller of the Currency or other appropriate
bank regulatory agency when such proceeding or action results in a
final order assessing civil money penalties against, or requiring
affirmative action of, such director, officer, or employee in the
form of payments to this Association.
(c) This Association may purchase and maintain insurance or
furnish similar protection, including but not limited to trust funds,
letters of credit, or self-insurance on behalf of or for any person
who is or was a director, officer, employee, or agent of this
Association, or is or was serving at the request of this Association
as a director, trustee, officer, employee, or agent of another
association, corporation, partnership, joint venture, trust, or other
enterprise, against any liability asserted against him and incurred
by him in any capacity, or arising out of his status as such, whether
or not this Association would have the power to indemnify him against
liability under the provisions of this Article Tenth or of the Ohio
General Corporation Law; provided, however, such insurance shall
explicitly exclude insurance coverage for a formal order assessing
civil money penalties against a director, officer, or employee of
this Association as a result of an administrative proceeding or
action instituted by the Comptroller of the Currency or other
appropriate bank regulatory agency. Insurance may be purchased from
or maintained with a person in which this Association has a financial
interest.
(d) Expenses (including attorney's fees) incurred by a director
in defending any action, suit, or proceeding referred to in division
(a) of this Article Tenth commenced or threatened against the
director for any action or failure to act as a director shall be paid
by this Association, as they are incurred, in advance of final
disposition of the action, suit, or proceeding upon receipt of an
undertaking by or on behalf of the director in which he agrees both
(i) to repay the amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or
failure to act involved an act or omission undertaken with deliberate
intent to cause injury to this Association or undertaken with
reckless disregard for the best interests of this Association and
(ii) to reasonably cooperate with this Association concerning the
action, suit, or proceeding. The provisions of this paragraph shall
not apply if the only liability asserted against the director in such
action, suit, or proceeding is for (i) the payment of a dividend or
distribution, or the making of a distribution of assets to
shareholders, or the purchase or redemption of this Association's own
shares, contrary in any such case of law or these Articles of
Association, or (ii) a distribution of assets to shareholders during
the winding up of the affairs of the Association, on dissolution or
otherwise, without the payment of all known obligations of the
Association, or without making adequate provision therefor.
Expenses (including attorney's fees) incurred by a director (to the
extent the expenses are not required to be advanced pursuant to the preceding
paragraph), officer, or employee in defending any action, suit, or proceeding
referred to in division (a) of this Article Tenth may be paid by this
Association, as they are incurred, in advance of final disposition of the
action, suit, or proceeding, as authorized by the Board of Directors in the
specific case, upon receipt of an undertaking by or on behalf of the director,
officer, or employee to repay the amount if it is ultimately determined that
he is not entitled to be indemnified by this Association.
(e) Notwithstanding division (d) of this Article Tenth,
expenses, including attorneys' fees, incurred by a present or former
director, officer, or employee of this Association in defending an
administrative proceeding or action instituted by the Comptroller of
the Currency or other appropriate bank regulatory agency that seeks a
final order assessing civil money penalties or requiring affirmative
action by an individual or individuals in the form of payments to
this Association, may be paid by this Association as they are
incurred in advance of the final disposition of the action, suit, or
proceeding, only in the event that:
(i) the Board of Directors of this Association, in good faith,
determines in writing that all of the following conditions
are met:
(A) the director, officer, or employee has a substantial
likelihood of prevailing on the merits;
(B) in the event the director, officer, or employee does
not prevail, he will have the financial capability to
reimburse this Association;
(C) all applicable laws and regulations affecting loans
to the director, officer, or employee will be
complied with in the event reimbursement is required;
(D) payment of expenses by this Association will not
adversely affect this Association's safety and
soundness; and
(ii) the director, officer, or employee enters into an
agreement with this Association to repay such amount if:
(A) such administrative proceeding or action instituted
by the Comptroller of the Currency or other
appropriate bank regulatory agency results in a final
order assessing civil money penalties against, or
requiring affirmative action of, such director,
officer, or employee in the form of payments to this
Association; or
(B) the Board of Directors of this Association finds that
the director, officer, or employee willfully
misrepresented factors relevant to the Board of
Directors' determination of conditions (A) or (B) set
forth in (i), above.
If at any time the Board of Directors of this Association believes that any of
the conditions set forth in (i) above are no longer met, such expenses will no
longer be paid by this Association.
(f) Notwithstanding divisions (a) through (e) of this Article Tenth,
all of the provisions of this Article Tenth are subject to the authority
of the Office of the Comptroller of the Currency to direct a modification
of a specific indemnification by a national bank through appropriate
administrative action.
Item 16. Exhibits.
1.1 Form of Underwriting Agreement.
3.1 Articles of Association of the Registrant.*
3.2 Bylaws of the Registrant.*
4.1 Form of Pooling and Servicing Agreement.
4.2 Form of Sale and Servicing Agreement.
4.3 Form of Trust Agreement.
4.4 Form of Indenture.
5.1 Opinion of Brown & Wood LLP as to legality of the Securities
(including consent of such firm).**
8.1 Opinion of Brown & Wood LLP as to certain tax matters
(including consent of such firm).**
10.1 Form of Mortgage Loan Purchase Agreement.
23.1 Consent of Brown & Wood LLP (included in exhibits 5.1
and 8.1 hereof).**
24.1 Powers of Attorney.*
- -------------
*Filed previously with the Commission on July 2, 1999 as an exhibit
to the Registration Statement on Form S-3 (No.333-82215)
**To be filed.
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:
(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; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change of such
information 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 that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
(f) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(h) 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 of
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.
(j) 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 in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Act.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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
Amendment No. 1 to Form S-3 Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Cleveland, State
of Ohio, on the 23rd day of December, 1999.
KEYBANK NATIONAL ASSOCIATION
By: /s/ Daniel R. Stolzer
------------------------------
Name: Daniel R. Stolzer
Title: Senior Vice President
and Associate General
Counsel
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to Form S-3 Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
* President, Chief Executive Officer December 23, 1999
- ------------------------------------ (principal executive officer) and Director
Gary R. Allen
* Chief Financial Officer (principal financial December 23, 1999
- ------------------------------------ and accounting officer) and Director
Kevin P. Riley
* Director December 23, 1999
- ------------------------------------
Patrick V. Auletta
* Director December 23, 1999
- ------------------------------------
James S. Bingay
* Director December 23, 1999
- ------------------------------------
Michael A. Butler
* Director December 23, 1999
- ------------------------------------
Linda A. Grandstaff
* Director December 23, 1999
- ------------------------------------
Allen J. Gula, Jr.
* Director December 23, 1999
- ------------------------------------
Carl C. Heintel, Jr.
* Director December 23, 1999
- ------------------------------------
Robert G. Jones
* Director December 23, 1999
- ------------------------------------
Daniel E. Klimas
* Director December 23, 1999
- ------------------------------------
Jack L. Kopnisky
* Director December 23, 1999
- ------------------------------------
John H. Mancuso
* Director December 23, 1999
- ------------------------------------
Bruce D. Murphy
* Director December 23, 1999
- ------------------------------------
K. Brent Somers
* Director December 23, 1999
- ------------------------------------
Kenton A. Thompson
* By: /s/ Daniel R. Stolzer Attorney-in-Fact December 23, 1999
------------------------------- under Power of Attorney
Daniel R. Stolzer
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- ------- ----------------------
1.1 Form of Underwriting Agreement.
3.1 Articles of Association of the Registrant.*
3.2 Bylaws of the Registrant.*
4.1 Form of Pooling and Servicing Agreement.
4.2 Form of Sale and Servicing Agreement.
4.3 Form of Trust Agreement.
4.4 Form of Indenture.
5.1 Opinion of Brown & Wood LLP as to legality of the
Securities (including consent of such firm).**
8.1 Opinion of Brown & Wood LLP as to certain tax
matters (including consent of such firm).**
10.1 Form of Mortgage Loan Purchase Agreement.
23.1 Consent of Brown & Wood LLP (included in exhibits 5.1
and 8.1 hereof).**
24.1 Powers of Attorney.*
- -------------
*Filed previously with the Commission on July 2, 1999 as an exhibit to
the Registration Statement on Form S-3 (No. 333-82215).
** To be filed.
<PAGE>
Exhibit 4.1
=============================================================================
KEYBANK NATIONAL ASSOCIATION,
as Seller
and
[ ],
as Seller and Master Servicer
and
[ ],
as Trustee
-----------------------
POOLING AND SERVICING AGREEMENT
Dated as of [ ]
----------------------
[ ] Home Equity Loan Asset-Backed Certificates
Series [ ]
==============================================================================
<PAGE>
Table of Contents
Page
ARTICLE I.
Definitions
Section 1.01 Definitions.......................................1
Section 1.02 Interest Calculations............................22
ARTICLE II.
Conveyance of Mortgage Loans; Original Issuance of
Certificates; Tax Treatment
Section 2.01 Conveyance of Mortgage Loans.....................23
Section 2.02 Acceptance by Trustee............................26
Section 2.03 Representations and Warranties Regarding the
Seller and the Master Servicer...................27
Section 2.04 Representations and Warranties of the Seller
Regarding the Mortgage Loans.....................29
Section 2.05 Representations and Warranties of the Seller.....36
Section 2.06 Substitution of Mortgage Loans...................37
Section 2.07 Execution and Authentication of Certificates.....38
Section 2.08 Designation of Interests in the REMIC............38
Section 2.09 Designation of Start-up Day......................38
Section 2.10 REMIC Certificate Maturity Date..................38
Section 2.11 Tax Returns and Reports to Certificateholders....39
Section 2.12 Tax Matters Person...............................39
Section 2.13 REMIC Related Covenants..........................39
ARTICLE III.
Administration and Servicing of Mortgage Loans
Section 3.01 The Master Servicer..............................42
Section 3.02 Collection of Certain Mortgage Loan Payments.....44
Section 3.03 Withdrawals from the Collection Account..........46
Section 3.04 Maintenance of Hazard Insurance; Property
Protection Expenses..............................47
Section 3.05 Maintenance of Mortgage Impairment Insurance.....47
Section 3.06 Fidelity Bond....................................48
Section 3.07 Management and Realization Upon Defaulted
Mortgage Loans...................................48
Section 3.08 Trustee to Cooperate.............................50
Section 3.09 Servicing Compensation; Payment of Certain
Expenses by Master Servicer......................50
Section 3.10 Annual Statement as to Compliance................50
Section 3.11 Annual Servicing Report..........................51
Section 3.12 Access to Certain Documentation and Information
Regarding the Mortgage Loans.....................51
Section 3.13 Reserved.........................................51
Section 3.14 Reserved.........................................51
Section 3.15 Reports of Foreclosures and Abandonments of
Mortgaged Properties, Returns Relating to
Mortgage Interest Received from Individuals and
Returns Relating to..............................51
Section 3.16 Advances by the Master Servicer..................52
Section 3.17 Superior Liens...................................52
Section 3.18 Assumption Agreements............................53
Section 3.19 Payment of Taxes, Insurance and Other Charges....54
Section 3.20 Optional Purchase of Defaulted Mortgage Loans....54
Section 3.21 Compensating Interest............................54
ARTICLE IV.
The Certificate Insurance Policy
Section 4.01 The Certificate Insurance Policy.................54
Section 4.02 [Reserved].......................................55
Section 4.03 Claims Upon the Certificate Insurance Policy.....55
ARTICLE V.
Payments and Statements to Certificateholders;
Rights of Certificateholders
Section 5.01 Distributions....................................56
Section 5.02 Reserved.........................................58
Section 5.03 Statements.......................................58
Section 5.04 Distribution Account.............................61
Section 5.05 Investment of Accounts...........................61
ARTICLE VI.
The Certificates
Section 6.01 The Certificates.................................62
Section 6.02 Registration of Transfer and Exchange of
Certificates.....................................63
Section 6.03 Mutilated, Destroyed, Lost or Stolen
Certificates.....................................68
Section 6.04 Persons Deemed Owners............................68
Section 6.05 Appointment of Paying Agent......................68
ARTICLE VII.
The Seller and the Master Servicer
Section 7.01 Liability of the Seller and the Master Servicer .69
Section 7.02 Merger or Consolidation of, or Assumption of
the Obligations of, the Seller or the Master
Servicer.........................................69
Section 7.03 Limitation on Liability of the Master Servicer
and Others.......................................69
Section 7.04 Master Servicer Not to Resign....................70
Section 7.05 Delegation of Duties.............................70
Section 7.06 Indemnification of the Trust by the Master
Servicer.........................................71
Section 7.07 Inspection.......................................71
ARTICLE VIII.
Default
Section 8.01 Events of Default................................72
Section 8.02 Trustee to Act; Appointment of Successor.........74
Section 8.03 Waiver of Defaults...............................75
Section 8.04 Notification to Certificateholders...............75
Section 8.05 Rights of the Certificate Insurer to Exercise
Rights of Class A Certificateholders.............75
Section 8.06 Trustee to Act Solely with Consent of the
Certificate Insurer..............................76
Section 8.07 Mortgage Loans, Trust and Accounts Held for
Benefit of the Certificate Insurer...............76
Section 8.08 Certificate Insurer Default......................77
ARTICLE IX.
The Trustee
Section 9.01 Duties of Trustee................................77
Section 9.02 Certain Matters Affecting the Trustee............79
Section 9.03 Trustee Not Liable for Certificates or
Mortgage Loans...................................82
Section 9.04 Trustee May Own Certificates.....................83
Section 9.05 Master Servicer to Pay Trustee Fees and
Expenses.........................................83
Section 9.06 Eligibility Requirements for Trustee.............84
Section 9.07 Resignation or Removal of Trustee................84
Section 9.08 Successor Trustee................................85
Section 9.09 Merger or Consolidation of Trustee...............85
Section 9.10 Appointment of Co-Trustee or Separate Trustee....86
Section 9.11 Limitation of Liability..........................87
Section 9.12 Trustee May Enforce Claims Without Possession
of Certificates; Inspection......................87
Section 9.13 Suits for Enforcement............................88
Section 9.14 Reports to the Commission........................88
ARTICLE X.
Termination
Section 10.01 Termination......................................88
Section 10.02 Additional Termination Requirements..............90
ARTICLE XI.
Miscellaneous Provisions
Section 11.01 Amendment........................................91
Section 11.02 Recordation of Agreement.........................92
Section 11.03 Limitation on Rights of Certificateholders.......92
Section 11.04 Governing Law....................................93
Section 11.05 Notices..........................................93
Section 11.06 Severability of Provisions.......................95
Section 11.07 Assignment.......................................95
Section 11.08 Certificates Nonassessable and Fully Paid........95
Section 11.09 Third-Party Beneficiaries........................95
Section 11.10 Counterparts.....................................95
Section 11.11 Effect of Headings and Table of Contents.........95
EXHIBIT A - FORM OF REGULAR CERTIFICATE....................A-1
EXHIBIT B - FORM OF CLASS R CERTIFICATE....................B-1
EXHIBIT C - MORTGAGE LOAN SCHEDULE.........................C-1
EXHIBIT D - MONTHLY INFORMATION DELIVERED TO TRUSTEE.......D-1
EXHIBIT E - ERISA REPRESENTATION LETTER....................E-1
EXHIBIT F - LETTER OF REPRESENTATIONS......................F-1
EXHIBIT G - FORM OF REQUEST FOR RELEASE....................G-1
EXHIBIT H - FORM OF INVESTMENT LETTER......................H-1
EXHIBIT I - TRANSFER AFFIDAVIT.............................I-1
EXHIBIT J - LIST OF SERVICING OFFICERS.....................J-1
EXHIBIT K - CLOSING LETTER.................................K-1
EXHIBIT L - FORM OF CERTIFICATE INSURANCE POLICY...........L-1
EXHIBIT M-1 CERTIFICATION AS TO ASSIGNMENTS..............M-1-1
EXHIBIT M-2 CERTIFICATION AS TO MORTGAGE FILE
(OTHER THAN ASSIGNMENTS).....................M-2-1
<PAGE>
This Pooling and Servicing Agreement, dated as of [ ], among KeyBank
National Association, as Seller (the "Seller"), and [ ] as Master Servicer (in
such capacity, the "Master Servicer"), and [ ], as Trustee (the "Trustee").
PRELIMINARY STATEMENT
The Seller is the owner of the Trust that is hereby conveyed to the
Trustee in return for the Certificates. The Trust for federal income tax
purposes will consist of a single REMIC. The Certificates will represent the
entire beneficial ownership interest in the Trust. The Regular Certificates
will represent the "regular interests" in the Trust and the Residual
Certificates will represent the single "residual interest" in the Trust. The
"latest possible maturity date" for federal income tax purposes of all
interests created hereby will be the REMIC Certificate Maturity Date.
In consideration of the mutual agreements herein contained, the
parties hereto 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.
Accounts: Collectively, the Collection Account and the Distribution
Account.
Affiliate: With respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of
a Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise and "controlling" and "controlled" shall
have meanings correlative to the foregoing.
Aggregate Class Principal Balance: As to any Distribution Date, the
sum of the Class Principal Balances of each Class of Regular Certificates
immediately prior to such Distribution Date.
Agreement: This Pooling and Servicing Agreement and all amendments
hereof and supplements and exhibits hereto.
Appraised Value: The appraised value of the Mortgaged Property based
upon the appraisal made by or for the originator at the time of the
origination of the related Mortgage Loan.
Assignment Event: The 30th day following either (i) the occurrence
and continuance of an Event of Default, (ii) a Rating Downgrade Event, (iii)
the declaration of an Assignment Event by the Certificate Insurer, pursuant to
Section 2.01 or (iv) with respect to a particular Mortgage Loan, the
occurrence of a foreclosure proceeding or the insolvency of the related
Mortgagor.
Assignment of Mortgage: With respect to any Mortgage, an assignment,
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the sale of the Mortgage to the Trustee, which assignment,
notice of transfer or equivalent instrument may be in the form of one or more
blanket assignments covering the Mortgage Loans secured by Mortgaged
Properties located in the same jurisdiction.
Available Funds: As to any Distribution Date, the sum of (A) the sum
of all amounts described in clauses (i) through (vii) inclusive, of Section
3.02(b) received by the Master Servicer (including any amounts paid by the
Master Servicer and the Seller and excluding (a) any amounts not required to
be deposited in the Collection Account pursuant to Section 3.02(b) and (b) any
amounts paid to the Master Servicer or withdrawn by the Trustee pursuant to
Sections 3.03(ii), (iii), (iv), (v), (vi), (vii) and (viii) in respect of the
Mortgage Loans) during the related Due Period and deposited into the
Collection Account, (B) Insured Payments, if any, and (C) any Termination
Price with respect to the Mortgage Loans deposited to the Distribution Account
pursuant to Section 10.01(a). No amount included in this definition by virtue
of being described by any component of the definition thereof shall be
included twice by virtue of also being described by any other component or
otherwise.
Balloon Loans: Any Mortgage Loan that provided for monthly payments
which would not be sufficient to fully amortize its Principal Balance on the
related maturity date.
BIF: The Bank Insurance Fund, as from time to time constituted,
created under the Financial Institutions Reform, Recovery and Enhancement Act
of 1989, or, if at any time after the execution of this Agreement the Bank
Insurance Fund is not existing and performing duties now assigned to it, the
body performing such duties on such date.
Book-Entry Certificate: Any Class of Regular Certificates registered
in the name of the Depository or its nominee, ownership of which is reflected
on the books of the Depository or on the books of a Person maintaining an
account with such Depository (directly or as an indirect participant in
accordance with the rules of such Depository).
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
day on which banking institutions in the States of New York, Rhode Island or
the state in which the Corporate Trust Office is located are required or
authorized by law or executive order to be closed.
Certificate: Any Class A or Class R Certificate.
Certificate Insurance Policy: The Certificate Guaranty Insurance
Policy (No. 28162) with respect to the Class A Certificates and all
endorsements thereto dated the Closing Date, issued by the Certificate Insurer
to the Trustee for the benefit of the Holders of each Class of Class A
Certificates, a copy of which is attached hereto as Exhibit L.
Certificate Insurer: MBIA Insurance Corporation, a stock insurance
company organized and created under the laws of the State of New York, or any
successor thereto.
Certificate Insurer Default: (i) Any failure of the Certificate
Insurer to make a payment required under the Certificate Insurance Policy in
accordance with its terms; (ii) the entry by a court having jurisdiction in
the premises of (A) a decree or order for relief in respect of the Certificate
Insurer in an involuntary case or proceeding under any applicable United
States federal or state bankruptcy, insolvency, rehabilitation, reorganization
or other similar law or (B) a decree or order adjudging the Certificate
Insurer as bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, rehabilitation, arrangement, adjustment or composition
of or in respect of the Certificate Insurer under any applicable United States
federal or state law, or appointing a custodian, receiver, liquidator,
rehabilitator, assignee, trustee, sequestrator or other similar official of
the Certificate Insurer or of any substantial part of its property, or
ordering the winding-up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in each case in effect for a period of 60 consecutive days; or (iii) the
commencement by the Certificate Insurer of a voluntary case or proceeding
under any applicable United States federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated as bankrupt or insolvent, or the consent by the Certificate
Insurer to the entry of a decree or order for relief in respect of the
Certificate Insurer in an involuntary case or proceeding under any applicable
United States federal or state bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Certificate Insurer, or the filing by the Certificate
Insurer of a petition or answer or consent seeking reorganization or relief
under any applicable United States federal or state law, or the consent by the
Certificate Insurer to the filing of such petition or to the appointment of or
the taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Certificate Insurer or of any
substantial part of its property, or the making by the Certificate Insurer of
an assignment for the benefit of its creditors, or the failure by the
Certificate Insurer to pay debts generally as they become due, or the
admission by the Certificate Insurer in writing of its inability to pay its
debts generally as they become due, or the taking of corporate action by the
Certificate Insurer in furtherance of any such action.
Certificate Owner: The Person who is the beneficial owner of a
Book-Entry Certificate.
Certificate Rate: With respect to the Class A-1 Certificates, [ ]%
per annum. With respect to the Class A-2 Certificates, [ ]% per annum. With
respect to the Class A-3 Certificates, [ ]% per annum. With respect to the
Class A-4 Certificates, [ ]% per annum. With respect to the Class A-5
Certificates, [ ]% per annum. With respect to the Class A-6 Certificates, the
lesser of (a) [ ]% per annum or (b) the Maximum Rate. With respect to the
Class A-7 Certificates, [ ]% per annum.
Certificate Register and Certificate Registrar: The register
maintained and the registrar appointed pursuant to Section 6.02.
Certificateholder or Holder: The Person in whose name a Certificate
is registered in the Certificate Register, except that, solely for the purpose
of giving any consent, direction, waiver or request pursuant to this
Agreement, (x) any Class of Certificates registered in the name of the Seller,
the Master Servicer or any Person actually known to a Responsible Officer of
the Trustee to be an Affiliate of the Seller or the Master Servicer and (y)
any Class of Certificates for which the Seller, the Master Servicer or any
Person actually known to a Responsible Officer of the Trustee to be an
Affiliate of the Seller or the Master Servicer is the Certificate Owner or
Holder shall be deemed not to be outstanding (unless to the actual knowledge
of a Responsible Officer of the Trustee (i) the Seller or the Master Servicer
or such Affiliate is acting as trustee or nominee for a Person who is not an
Affiliate of the Seller or the Master Servicer and who makes the voting
decision with respect to such Class of Certificates or (ii) the Seller or the
Master Servicer or such Affiliate is the Certificate Owner or Holder of all
the Certificates of a Class, but only with respect to the Class as to which
the Seller or the Master Servicer or such Affiliate owns all the Certificates)
and the Percentage Interest evidenced thereby shall not be taken into account
in determining whether the requisite amount of Percentage Interests necessary
to effect any such consent, direction, waiver or request has been obtained.
Civil Relief Act: The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
Civil Relief Act Interest Shortfall: With respect to any Distribution
Date, for any Mortgage Loan as to which there has been a reduction in the
amount of interest collectible thereon for the most recently ended Due Period
as a result of the application of the Civil Relief Act, the amount by which
(i) interest collectible on such Mortgage Loan during such Due Period is less
than (ii) one month's interest on the Principal Balance of such Mortgage Loan
at the Net Loan Rate for such Mortgage Loan before giving effect to the
application of the Civil Relief Act.
Class: With respect to each of Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5, Class A-6, Class A-7 and Class R, all of the Certificates of
such Class.
Class A Certificate: Any of the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6 or Class A-7 Certificates.
Class A Certificateholder: A Holder of a Class A Certificate.
Class A Monthly Principal Distributable Amount: With respect to any
Distribution Date, the amount equal to the sum of the following amounts
(without duplication) with respect to the immediately preceding Due Period:
(i) that portion of all Monthly Payments allocable to principal on Mortgage
Loans and actually collected, including all Curtailments and Principal
Prepayments received during the related Due Period, (ii) the Principal Balance
of each Mortgage Loan which first became a Liquidated Mortgage Loan for the
first time during the related Due Period, (iii) the portion of the Purchase
Price allocable to principal of all Defective Mortgage Loans that were
repurchased during the related Due Period, (iv) the principal portion of any
Substitution Adjustments for Mortgage Loans, deposited to the Distribution
Account pursuant to Section 2.06 on or prior to the related Determination Date
and not previously distributed and (v) the Distributable Excess Spread, if
any, for such Distribution Date.
Class A Principal Distribution Amount: With respect to any
Distribution Date, the sum of (a) the Class A Monthly Principal Distributable
Amount for such Distribution Date and (b) any Class A Principal Shortfall
Amount for such Distribution Date.
Class A Principal Shortfall Amount: With respect to any Distribution
Date, the amount, if any, by which the Aggregate Class Principal Balance
exceeds the Pool Principal Balance at the end of the related Due Period after
giving effect to all distributions of amounts on deposit in the Distribution
Account available to pay the Class A Monthly Principal Distributable Amount
(exclusive of Distributable Excess Spread) and draws under the Policy for such
Distribution Date.
Class A-1 Certificate: Any Certificate executed and authenticated by
the Trustee and substantially in the form attached hereto as Exhibit A and
designated as a Class A-1 Certificate pursuant to Section 6.01.
Class A-2 Certificate: Any Certificate executed and authenticated by
the Trustee and substantially in the form attached hereto as Exhibit A and
designated as a Class A-2 Certificate pursuant to Section 6.01.
Class A-3 Certificate: Any Certificate executed and authenticated by
the Trustee and substantially in the form attached hereto as Exhibit A and
designated as a Class A-3 Certificate pursuant to Section 6.01.
Class A-4 Certificate: Any Certificate executed and authenticated by
the Trustee and substantially in the form attached hereto as Exhibit A and
designated as a Class A-4 Certificate pursuant to Section 6.01.
Class A-5 Certificate: Any Certificate executed and authenticated by
the Trustee and substantially in the form attached hereto as Exhibit A and
designated as a Class A-5 Certificate pursuant to Section 6.01.
Class A-6 Certificate: Any Certificate executed and authenticated by
the Trustee and substantially in the form attached hereto as Exhibit A and
designated as a Class A-6 Certificate pursuant to Section 6.01.
Class A-7 Certificate: Any Certificate executed and authenticated by
the Trustee and substantially in the form attached hereto as Exhibit A and
designated as a Class A-7 Certificate pursuant to Section 6.01.
Class A-7 Principal Distribution Amount: With respect to any
Distribution Date, will be the product of (i) the applicable Class A-7
Principal Payment Percentage for such Distribution Date and (ii) the Class A-7
Pro Rata Principal Distribution Amount for such Distribution Date; provided
that the Class A-7 Principal Distribution Amount shall not exceed the Class
Principal Balance of the Class A-7 Certificates.
Class A-7 Principal Payment Percentage: For each Distribution Date
shall be as follows:
Principal Payment
Distribution Dates Percentage
Class A-7 Pro Rata Principal Distribution Amount: For any
Distribution Date, an amount equal to the product of (x) a fraction, the
numerator of which is the Class Principal Balance of the Class A-7
Certificates immediately prior to such Distribution Date and the denominator
of which is the aggregate Class Principal Balance of all Classes of the Class
A Certificates immediately prior to such Distribution Date and (y) the Class A
Principal Distribution Amount for such Distribution Date.
Class Interest Carryover Shortfall: With respect to any Class of
Regular Certificates and any Distribution Date, the amount by which the Class
Interest Distribution for such Class for each prior Distribution Date exceeded
the amount of interest actually distributed on such prior Distribution Dates.
Class Interest Distribution: With respect to any Distribution Date
and each Class of Regular Certificates, the sum of (i) the applicable Class
Monthly Interest Distributable Amount for such Class on such Distribution Date
and (ii) the applicable Outstanding Class Interest Carryover Shortfall for
such Class on such Distribution Date.
Class Monthly Interest Distributable Amount: As to any Distribution
Date and Class of Regular Certificates, interest accrued during the related
Interest Period at the applicable Certificate Rate on the related Class
Principal Balance immediately prior to such Distribution Date reduced by an
amount equal to such Class' pro rata share (based on the amount of interest to
which such Class would have been otherwise entitled) of the Civil Relief Act
Interest Shortfall, if any, for such Distribution Date.
Class Principal Balance: As of any date of determination and Class of
Class A Certificates, the Original Class Certificate Principal Balance for
such Class reduced by the aggregate of all amounts previously distributed to
the Certificateholders of such Class in respect of principal from the Class A
Principal Distribution Amount on all previous Distribution Dates.
Class R Certificate: Any Certificate executed and authenticated by
the Trustee substantially in the form set forth in Exhibit B hereto.
Class R Certificateholder: The Holder of a Class R Certificate.
Closing Date: [ ].
Code: The Internal Revenue Code of 1986, as the same may be amended
from time to time (or any successor statute thereto).
Collection Account: The custodial account or accounts created and
maintained pursuant to Section 3.02(b). The Collection Account shall be an
Eligible Account.
Combined Loan-to-Value Ratio or CLTV: With respect to any Mortgage
Loan, (i) the sum of the original principal balance of such Mortgage Loan and
the outstanding principal balance of the First Lien, if any, as of the date of
origination of the Mortgage Loan, divided by the (ii) the lesser of (a)
Appraised Value or (b) the related purchase price for the related Mortgaged
Property, as applicable.
Commission: The Securities and Exchange Commission.
Compensating Interest: As to any Distribution Date, the amount
calculated pursuant to Section 3.21.
Corporate Trust Office: The office of the Trustee at which at any
particular time its corporate business shall be principally administered,
which office on the Closing Date is located at 450 West 33rd Street, New York,
New York 10001, Attention: Structured Finance Services.
CPR: The Constant Prepayment Rate, which represents an assumed
constant rate of prepayment each month, expressed as a per annum percentage
principal balance of the pool of Mortgage Loans for that month.
Curtailment: 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 not
intended to satisfy the Mortgage Loan in full, nor is intended to cure a
delinquency or to be applied for subsequent Monthly Payments as and when the
same come due pursuant to directions from the Mortgagor to such effect.
Cut-Off Date: The commencement of business on [ ].
Cut-Off Date Pool Principal Balance: $[ ], which equals, as of the
Closing Date, the Pool Principal Balance.
Cut-Off Date Principal Balance: With respect to any Mortgage Loan,
the unpaid principal balance thereof as of the Cut-Off Date (or as of the
applicable date of substitution with respect to an Eligible Substitute
Mortgage Loan pursuant to Section 2.02 or 2.04).
Debt Service Reduction: As to any Mortgage Loan and any Determination
Date, the excess of (i) the installment of principal and interest due on the
related Due Date under the terms of such Mortgage Loan over (ii) the amount of
the monthly payment of principal and/or interest required to be paid by the
Mortgagor as established by a court of competent jurisdiction (pursuant to an
order which has become final and nonappealable) as a result of a proceeding
initiated by or against the related Mortgagor under the Bankruptcy Code, as
amended from time to time (11 U.S.C.).
Defective Mortgage Loan: Any Mortgage Loan subject to repurchase or
substitution by the Seller pursuant to Section 2.02 or 2.04.
Deficiency Amount: With respect to any Distribution Date: (A) the
excess, if any, of (i) the Class Monthly Interest Distributable Amount for
each Class of Class A Certificates plus any Class Interest Carryover Shortfall
for each Class of Class A Certificates over (ii) funds on deposit in the
Distribution Account available to be distributed therefor on such Distribution
Date (less the Trustee Fee, the Premium Amount for such Distribution Date and
any Insured Payment) and (B) the Guaranteed Principal Amount.
Definitive Certificates: As defined in Section 6.02(c).
Delinquency Percentage: With respect to any Distribution Date, a
fraction, the numerator of which is the 90 Day+ Rolling Average for such
Distribution Date and the denominator of which is the aggregate Principal
Balances of the Mortgage Loans as of the last day of the preceding Due Period.
Deposit Event: The lowering of the Master Servicer's short-term debt
rating below "P-1" by Moody's or "A-1" by S&P.
Seller: KeyBank National Association, a national banking association
headquartered in Cleveland, Ohio, or any successor thereto.
Depository: The initial Depository shall be The Depository Trust
Company, the nominee of which is Cede & Co., as the registered Holder of Class
A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6 and Class A-7
Certificates evidencing $[ ], $[ ], $[ ], $[ ], $[ ], $[ ] and $[ ],
respectively, in initial aggregate principal amount of such Certificates. The
Depository shall at all times be a "clearing corporation" as defined in
Section 8-102(3) of the UCC of the State of New York.
Depository Participant: A broker, dealer, bank or other financial
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Determination Date: With respect to the first Distribution Date, the
Closing Date and with respect to any other Distribution Date, the eighteenth
day of the month in which such Distribution Date occurs (or if such day is not
a Business Day, the Business Day immediately succeeding such eighteenth day).
Distributable Excess Spread: As to any Distribution Date, the lesser
of (i) the portion of Available Funds for such Distribution Date remaining
after the application thereof pursuant to Section 5.01 (a)(i)-(iv) and (ii)
the excess, if any, of the Targeted Overcollateralization Amount for such
Distribution Date over the Overcollateralization Amount for such date.
Distribution Account: The account established by the Trustee pursuant
to Section 5.04. The Distribution Account shall be an Eligible Account.
Distribution Date: The twenty-fifth day of each month or, if such day
is not a Business Day, then the next Business Day, beginning in January 1999.
Due Date: As to any Mortgage Loan, the day of the month on which the
Monthly Payment is due from the Mortgagor exclusive of any days of grace.
Due Period: With respect to each Distribution Date, the calendar
month preceding the month in which such Distribution Date occurs.
Eligible Account: A segregated account that is (i) maintained with a
depository institution whose debt obligations at the time of any deposit
therein have the highest short-term debt rating by the Rating Agencies and
whose accounts are fully insured by either the SAIF or the BIF of the Federal
Deposit Insurance Corporation established by such fund with a minimum
long-term unsecured debt rating of "Aa2" by Moody's and "AA" by S&P (except
that such ratings shall be "A1" by Moody's and "A" by S&P for so long as such
account is held at [ ]), and which is any of (A) a federal savings and loan
association duly organized, validly existing and in good standing under the
federal banking laws, (B) an institution duly organized, validly existing and
in good standing under the applicable banking laws of any state, (C) a
national banking association duly organized, validly existing and good
standing under the federal banking laws, (D) a principal subsidiary of a bank
holding company; (ii) a segregated trust account maintained with the corporate
trust department of a federal or state chartered depository institution or
trust company, having capital and surplus of not less than $100,000,000
(except that such capital and surplus requirement shall not be less than
$50,000,000 so long as such institution is [ ]), acting in its fiduciary
capacity or (iii) otherwise acceptable to each Rating Agency and the
Certificate Insurer as evidenced by a letter from each Rating Agency and the
Certificate Insurer to the Trustee, without reduction or withdrawal of the
then current ratings of the Certificates.
Eligible Investments: One or more of the following (excluding any
callable investments purchased at a premium):
(i) direct obligations of, or obligations fully guaranteed as to
timely payment of principal and interest by, the United States or any
agency or instrumentality thereof, provided that such obligations are
backed by the full faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause (i)
maturing not more than 30 days from the date of acquisition thereof,
provided however, that collateral transferred pursuant to such repurchase
obligation must be of the type described in clause (a) above and must (i)
be valued daily at current market price plus accrued interest, (ii)
pursuant to such valuation, be equal, at all times, to 105% of the cash
transferred by the Trustee in exchange for such collateral and (iii) be
delivered to the Trustee or, if the Trustee is supplying the collateral,
an agent for the Trustee, in such a manner as to accomplish perfection of
a security interest in the collateral by possession of certified
securities;
(iii) federal funds, certificates of deposit, time deposits and
bankers' acceptances of any U.S. depository institution or trust
company incorporated under the laws of the United States or any state
thereof and subject to supervision and examination by federal and/or
state banking authorities, provided that the unsecured short-term debt
obligations of such depository institution or trust company at the date
of acquisition thereof have been rated by S&P and Moody's in their
respective highest unsecured short-term debt rating category and that
each such investment has an original maturity of not more than 365 days;
(iv) commercial paper (having original maturities of not more than 90
days) of any corporation incorporated under the laws of the United States
or any state thereof which on the date of acquisition have been rated by
S&P and Moody's in their respective highest short-term rating categories;
(v) short term investment funds ("STIFS"), sponsored by any trust
company or national banking association incorporated under the laws of
the United States or any state thereof, which on the date of acquisition
has been rated by S&P and Moody's in their respective highest rating
category;
(vi) interests in any money market fund which at the date of
acquisition of the interests in such fund and throughout the time as the
interest is held in such fund has a rating of "AAA" by S&P and a rating
of "Aaa" by Moody's; and
(vii) other obligations or securities that are acceptable to each
Rating Agency and the Certificate Insurer as an Eligible Investment
hereunder and will not result in a reduction in the then current rating
of the Certificates, as evidenced by a letter to such effect from such
Rating Agency and the Certificate Insurer and with respect to which
the Master Servicer and the Trustee have received confirmation that, for
tax purposes, the investment complies with the last clause of this
definition;
provided that no instrument described hereunder 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 and the interest and principal payments
with respect to such instrument provided a yield to maturity at par greater
than 120% of the yield to maturity at par of the underlying obligations.
Eligible Substitute Mortgage Loan: A Mortgage Loan substituted by the
Seller for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance), not in excess of and not more than 5% less than
the Principal Balance of the Defective Mortgage Loan; (ii) have a Loan Rate
not less than the Loan Rate of the Defective Mortgage Loan and not more than
1% in excess of the Loan Rate of such Defective Mortgage Loan; (iii) have a
Mortgage of the same or higher level of priority as the Mortgage relating to
the Defective Mortgage Loan at the time such Mortgage was transferred to the
Trust; (iv) have a remaining term to maturity not more than six months earlier
and not later than the remaining term to maturity of the Defective Mortgage
Loan; (v) comply with each representation and warranty set forth in Section
2.04 (deemed to be made as of the date of substitution); (vi) have an original
Combined Loan-to-Value Ratio not greater than that of the Defective Mortgage
Loan; and (vii) be of the same type of Mortgaged Property as the Defective
Mortgage Loan or a detached single family residence. More than one Eligible
Substitute Mortgage Loan may be substituted for a Defective Mortgage Loan if
such Eligible Substitute Mortgage Loans meet the foregoing attributes in the
aggregate.
ERISA-Restricted Certificate: As defined in Section 6.02.
Event of Default: As defined in Section 8.01.
Excess Overcollateralization Amount: As to any Distribution Date, the
amount by which (i) the Overcollateralization Amount for such Distribution
Date exceeds (ii) the Targeted Overcollateralization Amount for such
Distribution Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
FDIC: The Federal Deposit Insurance Corporation or any successor
thereto.
Fannie Mae: Fannie Mae, formerly known as The Federal National
Mortgage Association, or any successor thereto.
Freddie Mac: Freddie Mac, formerly known as The Federal Home Loan
Mortgage Corporation, or any successor thereto.
Final Scheduled Distribution Date: With respect to each Class of
Regular Certificates, the Distribution Dates set forth below:
Class Distribution Date
- ---------------------- ---------------------------------------------
A-1 November 2010
A-2 June 2013
A-3 June 2013
A-4 September 2013
A-5 February 2019
A-6 December 2028
A-7 June 2013
First Lien: With respect to any Mortgage Loan which is a second
priority lien, the mortgage loan relating to the corresponding Mortgaged
Property having a first priority lien.
Fiscal Agent: As defined in the Certificate Insurance Policy.
Foreclosure Profits: With respect to a Liquidated Mortgage Loan, the
amount, if any, by which (i) the aggregate of its Net Liquidation Proceeds
exceeds (ii) the related Principal Balance (plus accrued and unpaid interest
thereon at the applicable Loan Rate from the date interest was last paid
through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Mortgage Loan immediately prior to the final recovery of its
Liquidation Proceeds.
Guaranteed Principal Amount: For any Distribution Date (other than
the Distribution Date in December 2028), the amount, if any, by which the
Aggregate Class Principal Balance (after giving effect to all distributions of
principal on the Class A Certificates on such Distribution Date) exceeds the
Pool Principal Balance at the end of the previous month. For the Distribution
Date in December 2028, an amount equal to the Aggregate Class Principal
Balance (after giving effect to all other distributions of principal on the
Class A Certificates on such Distribution Date).
Insurance Agreement: The Insurance Agreement dated as of [ ] among
the Seller, the Trustee, the Master Servicer and the Certificate Insurer,
including any amendments and supplements thereto.
Insurance Proceeds: Proceeds paid by any insurer (other than the
Certificate Insurer) pursuant to any insurance policy covering a Mortgage Loan
or Mortgaged Property, net of any component thereof (i) covering any expenses
incurred by or on behalf of the Master Servicer in connection with obtaining
such proceeds, (ii) applied to the restoration or repair of the related
Mortgaged Property, (iii) released to the Mortgagor in accordance with the
Master Servicer's normal servicing procedures or (iv) required to be paid to
any holder of a mortgage senior to such Mortgage Loan.
Insured Payment: With respect to any Distribution Date, the sum of
(i) any Deficiency Amount and (ii) any Preference Amount.
Interest Period: With respect to any Distribution Date, the period
from and including the first day of the calendar month preceding the month of
such Distribution Date through and including the last day of such calendar
month.
Late Payment Rate: As defined in the Insurance Agreement.
Liquidation Loan Losses: For each Liquidated Mortgage Loan, the
amount, if any, by which the Principal Balance thereof plus accrued and unpaid
interest thereon plus unreimbursed Servicing Advances is in excess of the Net
Liquidation Proceeds realized thereon.
Liquidated Mortgage Loan: As to any Distribution Date, any Mortgage
Loan in respect of which the Master Servicer has determined, in accordance
with the servicing procedures specified herein, as of the end of the related
Due Period, that all Liquidation Proceeds which it expects to recover with
respect to the liquidation of the Mortgage Loan or disposition of the related
REO Property have been recovered.
Liquidation Proceeds: Proceeds (including Insurance Proceeds but not
including amounts drawn under the Certificate Insurance Policy) received in
connection with the liquidation of any Mortgage Loan or related REO Property,
whether through trustee's sale, foreclosure sale or otherwise (including
rental income).
Loan Rate: With respect to any Mortgage Loan as of any day, the per
annum rate of interest applicable under the related Mortgage Note to the
calculation of interest for such day on the Principal Balance.
Loss Trigger Event: A Loss Trigger Event with respect to any
Distribution Date has occurred if cumulative Liquidation Loan Losses as of
such Distribution Date exceed the percentages of the Cut-Off Date Pool
Principal Balance set forth below with respect to such Distribution Date:
Percentage of the
Cut-Off Date Pool
Due Period Principal Balance
[ ]
Lost Note Affidavit: The lost note affidavit signed by the Seller.
Majority Certificateholder: The Holder or Holders of each Class of
Regular Certificates evidencing Percentage Interests in excess of 51% in the
aggregate with respect to such Class.
Master Servicer: [ ], a national banking association, or any
successor thereto or any successor hereunder.
Maximum Rate: With respect to the Interest Period, a rate equal to
the average of the Net Loan Rates for each Mortgage Loan weighted on the basis
of the related Principal Balance of each such Mortgage Loan as of the first
day of the related Due Period.
Monthly Advance: An advance made by the Master Servicer pursuant to
Section 3.16.
Monthly Payment: The scheduled monthly payment of principal and/or
interest required to be made by a Mortgagor on the related Mortgage Loan.
Monthly Report: As defined in Section 5.03.
Moody's: Moody's Investors Service, Inc., or its successors in
interest.
Mortgage: The mortgage, deed of trust or other instrument creating a
first or second lien on an estate in fee simple interest in real property
securing a Mortgage Loan.
Mortgage File: The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement.
Mortgage Loan Schedule: With respect to any date, the schedule of
Mortgage Loans constituting assets of the Trust. The Mortgage Loan Schedule is
the schedule set forth herein as Exhibit C, which schedule sets forth as to
each Mortgage Loan: (i) the Cut-Off Date Principal Balance, (ii) the account
number, (iii) the original principal amount, (iv) the name of the borrower,
(v) the interest rate, (vi) lien position, (vii) property state, (viii)
property zip code, (ix) property type and (x) Combined Loan-to-Value Ratio.
The Mortgage Loan Schedule will be amended from time to time to reflect the
substitution of an Eligible Substitute Mortgage Loan for a Defective Mortgage
Loan from time to time hereunder.
Mortgage Loans: The mortgage loans that are transferred and assigned
to the Trustee on behalf of the Trust pursuant to Sections 2.01 and 2.06,
together with the Related Documents, exclusive of Mortgage Loans that are
transferred to the Seller, from time to time pursuant to Sections 2.02 and
2.06, as from time to time are held as a part of the Trust, such mortgage
loans originally so held being identified in the Mortgage Loan Schedule
delivered on the Closing Date.
Mortgage Note: With respect to a Mortgage Loan, the note or other
evidence of indebtedness pursuant to which the related Mortgagor agrees to pay
the indebtedness evidenced thereby which is secured by the related Mortgage.
Mortgaged Property: The underlying property, including real property
and improvements thereon, securing a Mortgage Loan.
Mortgagor: The obligor or obligors under a Mortgage Note.
Net Liquidation Proceeds: With respect to any Liquidated Mortgage
Loan, Liquidation Proceeds net of unreimbursed Servicing Fees, Servicing
Advances and Monthly Advances with respect thereto.
Net Loan Rate: With respect to any Mortgage Loan as to any day, the
Loan Rate less the sum of the Servicing Fee Rate, the Premium Percentage and
the Trustee Fee Rate.
Net Simple Interest Excess: As of any Distribution Date, the excess,
if any, of the aggregate Simple Interest Excess for all Simple Interest
Qualifying Loans in respect of such Distribution date over the aggregate
Simple Interest Shortfall for all Simple Interest Qualifying Loans in respect
of such Distribution Date.
Net Simple Interest Shortfall: As of any Distribution Date, the
excess, if any, of the aggregate Simple Interest Shortfall for all Simple
Interest Qualifying Loans in respect of such Distribution Date over the
aggregate Simple Interest Excess for all Simple Interest Qualifying Loans in
respect of such Distribution Date.
90 Day Delinquency Amount: For any Due Period, the aggregate of the
Principal Balances of all Mortgage Loans that are 90 or more days delinquent,
in bankruptcy, in foreclosure or REO Property as of the end of such Due
Period.
90 Day + Rolling Average: With respect to any Distribution Date, the
average of the applicable 90 Day Delinquency Amounts for each of the three
immediately preceding Due Periods.
Nonrecoverable Advances: With respect to any Mortgage Loan, (i) any
Servicing Advance or Monthly Advance previously made and not reimbursed
pursuant to Section 3.03(ii) or (ii) a Servicing Advance or Monthly Advance
proposed to be made in respect of a Mortgage Loan or REO Property which, in
the good faith business judgment of the Master Servicer, as evidenced by an
Officer's Certificate delivered to the Certificate Insurer, the Seller and the
Trustee no later than the Business Day following such determination, would not
be ultimately recoverable pursuant to Sections 3.03(ii) or 3.03(vii).
Officer's Certificate: A certificate signed by the President, an
Executive Vice President, a Senior Vice President, a First Vice President, a
Vice President, Assistant Vice President, the Treasurer, Assistant Treasurer,
the Secretary, an Assistant Secretary, Comptroller or Assistant Comptroller or
any other authorized officer of the Master Servicer or the Seller, as the case
may be, and delivered to the Trustee.
Opinion of Counsel: A written opinion of counsel reasonably
acceptable to the Trustee, who may be in-house counsel for the Master
Servicer, Seller or its Affiliate (except that any opinion relating to the
qualification of the Trust as a REMIC or compliance with the REMIC Provisions
must be an opinion of independent outside counsel) and who, in the case of
opinions delivered to each of the Rating Agencies and the Certificate Insurer,
is reasonably acceptable to each of them.
Original Class Certificate Principal Balance: With respect to the
Class A-1 Certificates, $[ ], with respect to the Class A-2 Certificates, $[
], with respect to the Class A-3 Certificates, $[ ], with respect to the Class
A-4 Certificates, $[ ], with respect to the Class A-5 Certificates, $[ ], with
respect to the Class A-6 Certificates, $[ ] and with respect to the Class A-7
Certificates, $[ ].
Outstanding Class Interest Carryover Shortfall: With respect to any
Class of Regular Certificates and any Distribution Date, the amount of Class
Interest Carryover Shortfall for such Distribution Date plus one month's
interest thereon, at the related Certificate Rate, to the extent permitted by
law.
Overcollateralization Amount: As to any Distribution Date, the
excess, if any, of (a) the Pool Principal Balance, as of the close of business
on the last day of the related Due Period over (b) the Aggregate Class
Principal Balance (after giving effect to amounts available in respect of the
Class A Monthly Principal Distributable Amount for such Distribution Date).
Overcollateralization Release Amount: As to any Distribution Date, an
amount equal to the lesser of (i) the related Excess Overcollateralization
Amount for such Distribution Date and (ii) Available Funds remaining after
making the distributions required to be made pursuant to Section 5.01(a)(i)
and (ii) on such Distribution Date.
Ownership Interest: As to any Certificate or security interest in
such Certificate, 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.
Paying Agent: Any paying agent appointed pursuant to Section 6.05.
Percentage Interest: As to any Class of Regular Certificates, the
percentage obtained by dividing the principal denomination of such Certificate
by the aggregate of the principal denominations of all Certificates of the
same Class. As to any Class R Certificate, the portion of the Class evidenced
thereby as stated on the face thereof, which shall be on the Closing Date
either 99.999999% or, but only with respect to the Tax Matters Person Residual
Interest held by the Tax Matters Person, 0.000001%.
Permitted Transferee: Any Person other than (i) the United States,
any State or any political subdivision thereof or any agency or
instrumentality of any of the foregoing, (ii) a foreign government,
international organization or any agency or instrumentality of either of the
foregoing, (iii) an organization which is exempt from tax imposed by Chapter 1
of the Code (including the tax imposed by section 511 of the Code on unrelated
business taxable income) (except certain farmers' cooperatives described in
Code section 521) on any excess inclusions (as defined in Section 860E(c)(1))
with respect to any Class R Certificate, (iv) rural electric and telephone
cooperatives described in Code section 1381(a)(2)(C), (v) a Person that is not
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,
any state thereof or the District of Columbia, or an estate 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, 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 Persons have the
authority to control all substantial decisions of the trust and (vi) any other
Person so designated by the Trustee based on an Opinion of Counsel to the
effect that any transfer to such Person may cause the Trust to fail to qualify
as a REMIC at any time the Certificates are outstanding. The terms "United
States", "State" and "international organization" shall have the meanings set
forth in Code section 7701 or successor provisions. A corporation will not be
treated as an instrumentality of the United States or of any State or
political subdivision thereof if all of its activities are subject to tax and,
with the exception of the FREDDIE MAC, a majority of its board of directors is
not selected by such governmental unit.
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
Pool Principal Balance: With respect to any date, the aggregate of
the Principal Balances of all Mortgage Loans as of such date.
Preference Amount: As defined in the Certificate Insurance Policy.
Preliminary Statement: That Section hereof entitled "PRELIMINARY
STATEMENT."
Premium Amount: As to any Distribution Date, the product of the
Premium Percentage and the Aggregate Class Principal Balance after giving
effect to distributions to be made on such Distribution Date.
Premium Percentage: As defined in the Insurance Agreement.
Prepayment Assumption: The prepayment assumption described in the
Prospectus Supplement under "Prepayment and Yield Considerations."
Prepayment Interest Shortfall: With respect to any Distribution Date,
for each Mortgage Loan that was the subject during the related Due Period of a
Principal Prepayment, an amount equal to the excess, if any, of (i) 30 days'
interest on the Principal Balance of such Mortgage Loan at the Loan Rate (or
at such lower rate as may be in effect for such Mortgage Loan pursuant to
application of the Civil Relief Act or as reduced by any Debt Service
Reduction) minus the Servicing Fee for such Mortgage Loan over (ii) the amount
of interest actually remitted by the Mortgagor in connection with such
Principal Prepayment less the Servicing Fee for such Mortgage Loan in such
month.
Principal Balance: As to any Mortgage Loan and any day, other than a
Liquidated Mortgage Loan, the related Cut-Off Date Principal Balance, minus
all collections credited against the Principal Balance of any such Mortgage
Loan. For purposes of this definition, a Liquidated Mortgage Loan shall be
deemed to have a Principal Balance equal to the Principal Balance of the
related Mortgage Loan as of the final recovery of related Liquidation Proceeds
and a Principal Balance of zero thereafter.
Principal Distribution Amount: With respect to any Distribution Date
(other than the Distribution Date in December 2028), the lesser of (a) the
Aggregate Class Principal Balance for such Distribution Date and (b) the Class
A Principal Distribution Amount for such Distribution Date. With respect to
the Distribution Date in December 2028, the Principal Distribution Amount
shall be the Aggregate Class Principal Balance.
Principal Prepayment: 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 intended to satisfy a
Mortgage Loan in full.
Prospectus: The base prospectus of the Seller dated December 15,
1997.
Prospectus Supplement: The prospectus supplement dated [ ], relating
to the offering of the Regular Certificates.
Purchase Agreement: The Mortgage Loan Purchase Agreement, dated as of
[ ], among the Seller, as seller, and the trust, as purchaser, with respect to
the Mortgage Loans.
Purchase Price: As to any Mortgage Loan purchased from the Trust on
any date pursuant to Section 2.02, 2.04 or 3.20 an amount equal to the sum of
(i) the unpaid Principal Balance thereof as of the date of purchase, (ii) the
greater of (a) all unpaid accrued interest thereon to the end of the Due
Period preceding the Distribution Date on which such Purchase Price is
included in Available Funds and (b) 30 days' interest thereon, computed at the
applicable Loan Rate; provided, however, that if at the time of repurchase the
Seller is an affiliate of the Master Servicer, the amount described in clause
(ii) shall be computed at the Net Loan Rate and, (iii) (x) if the Master
Servicer is not an Affiliate of the Seller, any unreimbursed Servicing
Advances with respect to such Mortgage Loan and (y) expenses reasonably
incurred or to be incurred by the Master Servicer or the Trustee in respect of
the breach or defect giving rise to the purchase obligation.
Purchaser: The [Depositor] in its capacity as purchaser under the
Purchase Agreement.
Rating Agency: Any statistical credit rating agency, or its
successor, that rated the Regular Certificates at the request of the Seller at
the time of the initial issuance of the Certificates. If such agency or a
successor is no longer in existence, "Rating Agency" shall be such statistical
credit rating agency, or other comparable Person, designated by the Seller and
acceptable to the Certificate Insurer, notice of which designation shall be
given to the Trustee. References herein to the highest short term unsecured
rating category of a Rating Agency shall mean "A-1" or better in the case of
S&P and "P-1" or better in the case of Moody's and in the case of any other
Rating Agency shall mean such equivalent ratings. References herein to the
highest long-term rating category of a Rating Agency shall mean "AAA" in the
case of S&P and "Aaa" in the case of Moody's and in the case of any other
Rating Agency, such equivalent rating.
Rating Downgrade Event: The day on which the senior, unsecured
long-term debt rating of the Seller is less than "Baa2" by Moody's or "BBB+"
by S&P.
Record Date: With respect to each Distribution Date (other than the
first Distribution Date), the last Business Day of the month immediately
preceding the month in which the related Distribution Date occurs. With
respect to the first Distribution Date, the Closing Date.
Regular Certificates: All Classes of Certificates (other than the
Class R Certificates).
Reimbursement Amount: As of any Distribution Date, the sum of (x)(i)
Insured Payments previously received by the Trustee and not previously re-paid
to the Certificate Insurer pursuant to Section 5.01(a)(iv) plus (ii) interest
accrued on such Insured Payment not previously repaid, calculated at the Late
Payment Rate (as defined in the Insurance Agreement) from the date the Trustee
received such Insured Payment and (y)(i) the amount of any Premium Amount not
paid on the date due plus (ii) interest on such amount at the Late Payment
Rate from the date such premium was due.
Related Documents: As defined in Section 2.01.
Released Mortgaged Property Proceeds: As to any Mortgage Loan,
proceeds received by the Master 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, mortgage servicing standards the Master Servicer would use in
servicing mortgage loans for its own account and this Agreement.
REMIC: A "real estate mortgage investment conduit" within the meaning
of Section 860D of the Code.
REMIC Certificate Maturity Date: The "latest possible maturity date"
of the Regular Certificates as that term is defined in Section 2.10.
REMIC Change of Law: 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 Provisions: 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 promulgated thereunder, as the foregoing may be in effect from
time to time.
REO Property: A Mortgaged Property that is acquired by the Master
Servicer on behalf of the Trustee in foreclosure or by deed in lieu of
foreclosure.
Replacement Event: As defined in Section 4.02.
Residential Dwelling: A one- to four-family dwelling, mobile home or
manufactured home, a unit in a planned unit development, a unit in a
condominium development or a townhouse.
Responsible Officer: When used with respect to the Trustee, any
officer of the Trustee within the Corporate Trust Office of the Trustee
including any vice president or assistant vice president, assistant treasurer,
assistant secretary, senior trust officer or trust officer or, with respect to
a particular corporate trust 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 Seller or the Master
Servicer, the President or any Vice President, Assistant Vice President,
Treasurer or Assistant Treasurer or any Secretary or Assistant Secretary or
any other authorized officer of the Seller or the Master Servicer.
SAIF: The Savings Association Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989 or, if at any time after the execution of this
Agreement the Savings Association Insurance Fund is not existing and
performing duties now assigned to it, the body performing such duties on such
date.
S&P: Standard & Poor's Ratings Services, or its successors in
interest.
Seller: [ ], a national banking association, or any successor
thereto, as seller under the Purchase Agreement.
Servicing Advances: All reasonable and customary "out of pocket"
costs and expenses incurred in the performance by the Master Servicer of its
servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of the Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of the REO Property, including reasonable fees paid
to any independent contractor in connection therewith, (iv) compliance with
the obligations under Section 3.07 and (v) in connection with the liquidation
of a Mortgage Loan, expenditures relating to the purchase or maintenance of
the First Lien pursuant to Section 3.17, all of which reasonable and customary
out-of-pocket costs and expenses are reimbursable to the Master Servicer to
the extent provided in Sections 3.03(ii) and 3.03(vii) and 3.07.
Servicing Certificate: A certificate completed and executed by a
Servicing Officer on behalf of the Master Servicer.
Servicing Fee: As to each Distribution Date and each Mortgage Loan,
the annual fee payable to the Master Servicer as provided herein, which
subject to Section 3.21 is calculated as an amount equal to the product of the
Servicing Fee Rate and the Principal Balance thereof at the beginning of the
related Due Period.
Servicing Fee Rate: [ ]% per annum.
Servicing Officer: Any officer of the Master Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name and specimen signature appear on a list of servicing officers furnished
to the Trustee (with a copy to the Certificate Insurer) by the Master
Servicer, as such list may be amended from time to time, initially set forth
in Exhibit J hereto.
Simple Interest Excess: As of any Distribution Date and for each
Simple Interest Qualifying Loan, the excess, if any, of (i) the portion of the
related Monthly Payment actually applied to the payment of interest pursuant
to the terms of such Mortgage Loan with respect to the related Due Period, net
of the Servicing Fee, over (ii) one month's interest on the Principal Balance
of such Mortgage Loan at the Loan Rate, net of the Servicing Fee.
Simple Interest Loan: Any Mortgage Loan as to which, pursuant to the
Mortgage Note related thereto, interest is calculated on the basis of the
outstanding principal balance of the Mortgage Loan multiplied by the
applicable Loan Rate and further multiplied by a fraction, of which the
numerator is the number of days in the period elapsed since the date to which
interest was last paid and the denominator is the number of days in the annual
period for which interest accrues on such Mortgage Loan, and the Monthly
Payment received is applied first to interest accrued to the date of payment
and the balance is applied to reduce the unpaid principal balance.
Simple Interest Qualifying Loan: As of any Distribution Date, each
Simple Interest Loan other than (a) one that was prepaid in full during the
related Due Period or (b) one as to which no payment of interest was made
during the related Due Period.
Simple Interest Shortfall: As of any Distribution Date and for each
Simple Interest Qualifying Loan, the excess, if any, of (i) one month's
interest on the Principal Balance of such Mortgage Loan at the Loan Rate, net
of the Servicing Fee, over (ii) the portion of the related Monthly Payment
actually applied to the payment of interest pursuant to the terms of such
Mortgage Loan with respect to the related Due Period, net of the Servicing
Fee.
Start-up Day: The day designated as such pursuant to Section 2.09.
Stepdown Date: The date which is the later of the date on which
principal in the amount of one-half of the Cut-Off Date Pool Principal Balance
has been received by the Class A Certificateholders and the thirtieth
Distribution Date following the Closing Date.
Subservicer: Any Person with whom the Master Servicer has entered
into a Subservicing Agreement and who satisfies the requirements set forth in
Section 3.01(b) in respect of the qualification of a Subservicer.
Mortgage Lenders Network USA, Inc. shall be an initial Subservicer.
Subservicing Agreement: Any agreement between the Master Servicer and
any Subservicer relating to subservicing and/or administration of certain
Mortgage Loans as provided in Section 3.01(b), a copy of which shall be
delivered, along with any modifications thereto, to the Trustee and the
Certificate Insurer.
Substitution Adjustment: As to any date on which a substitution
occurs pursuant to Section 2.06, the sum of (a) the excess of (i) the
aggregate Principal Balances of all Defective Mortgage Loans to be replaced by
Eligible Substitute Mortgage Loans (after application of principal payments
received on or before the date of substitution of any Eligible Substitute
Mortgage Loans as of the date of substitution) over (ii) the Principal Balance
of such Eligible Substitute Mortgage Loans and (b) the greater of (x) accrued
and unpaid interest (accruing at the Loan Rate for such Defective Mortgage
Loan) on such excess through the Due Period relating to the Distribution Date
for which such Substitution Adjustment will be included as part of Available
Funds and (y) 30 days' interest on such excess calculated on a 360-day year in
each case at the Loan Rate (or Net Loan Rate if the Seller is an affiliate of
the Master Servicer) and (c) if the Master Servicer is not the Seller, the
amount of any unreimbursed Servicing Advances made by the Master Servicer with
respect to such Defective Mortgage Loan.
Supplemental Mortgage Loan Schedule: As defined in Section 2.06(b).
Targeted Overcollateralization Amount:
(A) With respect to any Distribution Date on or prior to the
Stepdown Date, the product of [ ]% and the Cut-Off Date Pool
Principal Balance;
(B) For any Distribution Date after the Stepdown Date, the
greater of (i) the product of [ ]% and the Pool Principal
Balance as of the last day of the related Due Period and (ii)(a)
if, with respect to such Distribution Date, the Delinquency
Percentage exceeds [ ]%, [ ]% of the aggregate Principal Balance
of the Mortgage Loans that are 60 or more days past due or
delinquent, or in bankruptcy or foreclosure or REO Property or
(b) if, with respect to such Distribution Date, the Delinquency
Percentage is equal to or greater than [ ]% but less than [ ]%,
[ ]% of the aggregate Principal Balance of all Mortgage Loans
that are 90 or more days past due or delinquent or in bankruptcy
or foreclosure or an REO Property;
(C) Notwithstanding clauses (A) above, for any Distribution Date
on or prior to the Stepdown Date, (1) if the Delinquency
Percentage, with respect to such Distribution Date, is equal to
or greater than [ ]%, the Targeted Overcollateralization Amount
will be the greater of (i) the product of [ ]% and the Cut-Off
Date Pool Principal Balance and (ii) [ ]% of the aggregate
Principal Balance of all Mortgage Loans which are 60 or more
days past due or delinquent, or in bankruptcy or in foreclosure
or REO Property and (2) if the Delinquency Percentage, with
respect to such Distribution Date, is greater than or equal to [
]% but less than [ ]%, the Targeted Overcollateralization Amount
shall be the greater of (i) the product of [ ]% and the Cut-Off
Date Pool Principal Balance and (ii) [ ]% of the aggregate
Principal Balance of all Mortgage Loans which are 90 or more
days past due or delinquent, in bankruptcy or in foreclosure or
REO Property.
Tax Matters Person: As defined in Section 2.12.
Tax Matters Person Residual Interest: A 0.000001% interest in the
Class R Certificates, which shall be issued to and held by the Trustee.
Transfer Date: The Closing Date.
Trigger Event: A Trigger Event occurs on a Distribution Date if any
of the following has occurred and is continuing on such Distribution Date:
(i) a Loss Trigger Event has occurred in respect of such
Distribution Date;
(ii) with respect to any Distribution Date, cumulative
Liquidation Loan Losses for the Mortgage Loans for any
12-month period exceed [ ]% of the Cut-off Date Pool
Principal Balance;
(iii) the Delinquency Percentage for such Distribution Date
exceeds []%.
Trust: The trust created by this Agreement which shall be entitled "[
] Home Equity Loan Trust [ ]," the corpus of which consists of the Mortgage
Loans, such assets as shall from time to time be deposited in the Collection
Account and the Distribution Account in accordance with this Agreement,
property that secured a Mortgage Loan and that has become REO Property, the
Certificate Insurance Policy, certain hazard insurance policies maintained by
the Mortgagors or the Master Servicer in respect of the Mortgage Loans and an
assignment of the Seller's rights under the Purchase Agreement and all
proceeds of each of the foregoing.
Trustee Fee: The fee owed to the Trustee pursuant to a letter
agreement between the Master Servicer and the Trustee.
Trustee Fee Rate: The per annum rate at which the Trustee Fee is
calculated.
UCC: The Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
Voting Rights: The portion of the aggregate voting rights of all the
Certificates evidenced by a Certificate. At all times during the term of this
Agreement, the Voting Rights shall be allocated among Holders of the Regular
Certificates in proportion to the Original Class Certificate Principal
Balances of their respective Classes. Voting Rights allocated to a Class of
Certificates shall be allocated among the Certificates of each such Class in
accordance with their respective Percentage Interests. The Holders of the
Class R Certificates shall have no Voting Rights.
Section 1.02 Interest Calculations. All calculations of interest that
are made in respect of the Principal Balance of a Simple Interest Loan shall
be made on the basis of a 365-day year and the actual number of days elapsed.
All calculations of interest that are made in respect of the Principal Balance
of each Mortgage Loan (other than Simple Interest Loans) shall be made on the
basis of a 360-day year consisting of twelve 30-day months. The Certificate
Rate for the Regular Certificates shall be calculated on the basis of a
360-day year consisting of twelve 30-day months. The calculation of the
Servicing Fee and the Trustee Fee shall be made on the basis of a 360-day year
consisting of twelve 30-day months. All dollar amounts calculated hereunder
shall be rounded to the nearest penny with one-half of one penny being rounded
down.
ARTICLE II.
Conveyance of Mortgage Loans;
Original Issuance of Certificates;
Tax Treatment
Section 2.01 Conveyance of Mortgage Loans. The Seller, concurrently
with the execution and delivery of this Agreement, does hereby transfer,
assign, sell, set over and otherwise convey to the Trustee for the benefit of
the Certificateholders without recourse (subject to Sections 2.02 and 2.04)
(i) all of its right, title and interest in and to each Mortgage Loan,
including the Cut-Off Date Principal Balance, and all collections in respect
of interest and principal received on or after the Cut-Off Date; (ii) property
which secured such Mortgage Loan and which has been acquired by foreclosure or
deed in lieu of foreclosure; (iii) its interest in any insurance policies in
respect of the Mortgage Loans; (iv) all proceeds of any of the foregoing; and
(v) the Seller's rights under the Purchase Agreement with respect to the
representations and warranties of the Seller thereunder together with all
rights of the Seller to require the Seller to cure any breach thereof or to
repurchase or substitute for any affected Mortgage Loan in accordance with the
Purchase Agreement. In addition, on or prior to the Closing Date, the Seller
shall cause the Certificate Insurer to deliver the Certificate Insurance
Policy to the Trustee.
On or prior to the Closing Date (with respect to item (i) below),
within 90 days following the Closing Date (with respect to item (iii) below)
and within 60 days of an Assignment Event (with respect to items (ii), (iv),
(v) and (vi) below), the Seller shall deliver to the Trustee, the following
documents or instruments with respect to each Mortgage Loan (the "Related
Documents") and on or prior to the Closing Date the Seller shall deliver to
the Trustee the Mortgage Loan Schedule in computer readable format:
(i) the original Mortgage Note, endorsed in blank, with all
intervening endorsements showing a complete chain of title from the
originator of such Mortgage Loan to the Seller or a copy of such
original Mortgage Note with an accompanying lost note affidavit;
(ii) the original Mortgage, with evidence of recording
thereon, provided that if the original Mortgage has been delivered
for recording to the appropriate public recording office of the
jurisdiction in which the Mortgaged Property is located but has not
yet been returned to the Seller by such recording office, the Seller
shall deliver to the Trustee a certified true copy of such original
Mortgage to be so certified by the applicable originator, together
with a certificate of the Seller certifying that such original
Mortgage has been so delivered to such recording office; in all such
instances, the Seller shall deliver or cause to be delivered the
original recorded Mortgage to the Trustee promptly upon receipt of
the original recorded Mortgage; provided that an Assignment Event
shall have occurred;
(iii) the original Assignment of Mortgage, from the Seller
in blank or to "[ ], as Trustee for [ ] Home Equity Loan Trust [ ]",
which assignment shall be in form and substance acceptable for
recording;
(iv) the original attorney's opinion of title or the
original policy of title insurance, provided that if any such
original policy of title insurance has not yet been received by the
Seller, the Seller shall deliver to the Trustee a copy of such policy
or a title insurance binder or commitment for the issuance of such
policy;
(v) originals of all intervening assignments of Mortgage,
with evidence of recording thereon, showing a complete chain of title
from the originator to the Seller, provided that if any such original
intervening assignment of Mortgage has been delivered for recording
to the appropriate public recording office of the jurisdiction in
which the Mortgaged Property is located but has not yet been returned
to the Seller by such recording office, the Seller shall deliver to
the Trustee a certified true copy of such original assignment of
Mortgage to be so certified by the applicable originator, together
with a certificate of the Seller certifying that such original
assignment of Mortgage has been so delivered to such recording
office; in all such instances, the Seller shall deliver or cause to
be delivered any such original assignments to the Trustee promptly
upon receipt thereof, provided that an Assignment Event shall have
occurred; and
(vi) originals of all assumption and modification
agreements, if any.
On the Closing Date (i) no more than [ ]% of the Mortgage Loans (by
Cut-Off Date Principal Balance) shall have Lost Note Affidavits in lieu of
original Mortgage Notes and (ii) the Seller shall deliver to the Trustee a
copy of the original Mortgage Note for each Mortgage Loan with respect to
which a Lost Note Affidavit is delivered.
Except as herein provided, the Master Servicer shall, as custodian
and for the benefit of the Trustee, the Certificateholders and the Certificate
Insurer, be entitled to maintain possession of the foregoing documents and
instruments described in clauses (ii), (iv), (v) and (vi) above and shall not
be required to deliver any of them to the Trustee. In the event, however, that
possession of any such documents or instruments is required by any Person
(including the Trustee) acting as successor Master Servicer pursuant to
Section 8.02 in order to carry out the duties of the Master Servicer
hereunder, then such successor master servicer shall be entitled to request
delivery, at the expense of the Master Servicer, of such documents or
instruments by the Master Servicer and to retain such documents or instruments
for servicing purposes; provided that the Trustee or such successor master
servicers shall maintain such documents at such offices as may be required by
any regulatory body having jurisdiction over such Mortgage Loans.
The Seller hereby confirms to the Trustee that it has made the
appropriate entries in its general accounting records, to indicate that such
Mortgage Loans have been transferred to the Trustee and constitute part of the
Trust in accordance with the terms of the trust created hereunder.
The Certificate Insurer shall have the right to declare an Assignment
Event if, in its judgment, it is necessary to declare an Assignment Event in
order to protect its interest.
The Trustee agrees, for the benefit of the Certificateholders, within
90 days following the receipt of the original Assignment of Mortgage from the
Seller as specified in clause (iii) above, to certify (in the form of Exhibit
M-1) to the Seller, the Certificate Insurer and the Master Servicer that it
has reviewed such Assignment of Mortgage and that as to each Mortgage Loan
listed in the Mortgage Loan Schedule (other than any Mortgage Loan paid in
full): (i) all Assignments of Mortgage required to be delivered to it pursuant
to Section 2.01(iii) are in its possession and (ii) such documents have been
reviewed by it, appear to be what they purport to be and relate to such
Assignment of Mortgage. If, within such 90-day period, the Trustee finds any
Assignment of Mortgage not to have been executed or received or to be
unrelated to the related Mortgage Loan identified in the Mortgage Loan
Schedule or if, in the course of its review, the Trustee determines that such
Assignment of Mortgage is otherwise defective in any material respect, the
Trustee shall notify the parties and the Seller shall then have a period of 60
days after such notice (subject to Section 2.02) within which to correct or
cure any such defect, to purchase the related Mortgage Loan at the applicable
Purchase Price or to substitute an Eligible Substitute Mortgage Loan therefor
in accordance with the provisions of Section 2.06.
Within 60 days of an Assignment Event, the Master Servicer shall, at
its expense, either (x) record an Assignment of Mortgage in favor of the
Trustee (which may be a blanket assignment if permitted by applicable law) in
the appropriate real property or other records or (y) deliver to the Trustee
an Opinion of Counsel addressed to the Trustee and the Certificate Insurer to
the effect that recording is not required to protect the Trustee's right,
title and interest in and to the related Mortgage Loan or, in case a court
should recharacterize the sale of the Mortgage Loans as a financing, to
perfect a first priority security interest in favor of the Trustee in the
related Mortgage Loan, which Opinion of Counsel also shall be reasonably
acceptable to each of the Rating Agencies (as evidenced in writing, a copy of
which shall be delivered to the Trustee) and the Certificate Insurer. The
Trustee is hereby appointed as the attorney-in-fact of the Master Servicer
with the power (subject to Section 9.03) to prepare, execute and record
Assignments of Mortgages in the event that the Master Servicer fails to do so
on a timely basis as provided in this paragraph.
The Trustee agrees, for the benefit of Certificateholders, within 60
days following (a) the Closing Date with respect to the Mortgage Notes and (b)
the receipt of the remainder of the Mortgage Files after an Assignment Event,
to certify (in the form of Exhibit M-2) to the Seller, the Seller, the
Certificate Insurer and the Master Servicer that it has reviewed each Mortgage
File and that, as to each Mortgage Loan listed in the Mortgage Loan Schedule
(other than any Mortgage Loan paid in full or any Mortgage Loan specifically
identified in the certification as not covered by such certification), (i) all
documents constituting part of such Mortgage File required to be delivered to
it pursuant to paragraphs (i) - (iv) of Section 2.01(a) are in its possession,
(ii) such documents have been reviewed by it, appear to be what they purport
to be and relate to such Mortgage Loan, (iii) based on its examination and
only as to the foregoing, the information set forth in the Mortgage Loan
Schedule which corresponds to items (ii), (iii) and (iv) of the definition of
"Mortgage Loan Schedule" accurately reflects information set forth in the
Mortgage File. If within such 60-day period, the Trustee finds any document
constituting a part of the Mortgage File not to have been executed or received
or to be unrelated to the Mortgage Loans identified in said Mortgage Loan
Schedule or, if in the course of its review, the Trustee determines that such
Mortgage File is otherwise defective in any material respect, the Trustee
shall notify the parties, and the Seller shall have a period of 60 days after
such notice (subject to Section 2.02) within which to correct or cure any such
defect or to purchase such Mortgage Loan at the related Purchase Price or
substitute on Eligible Substitute Mortgage Loan therefor pursuant to Section
2.06.
The Trustee shall have no responsibility for reviewing any Mortgage
File except as expressly provided in this Section 2.01. In reviewing any
Mortgage File pursuant to this Section, the Trustee shall have no
responsibility for determining whether any document is valid and binding,
whether the text of any assignment or endorsement is in proper or recordable
form (except, if applicable, to determine if the Trustee is the assignee or
endorsee), 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, whether any Person executing any
document is authorized to do so or whether any signature thereon is genuine,
but shall only be required to determine whether a document has been executed,
that it appears to be what it purports to be, and, where applicable, that it
purports to be recorded.
Section 2.02 Acceptance by Trustee. The Trustee hereby acknowledges
the sale and assignment of the Mortgage Loans. The Trustee hereby acknowledges
its receipt of the Certificate Insurance Policy. If the Seller is given notice
of an omission or defect under Section 2.01 and if the Seller does not correct
or cure such omission or defect within the 60-day period following such
notice, the Seller shall purchase the related Mortgage Loan from the Trust or
substitute an Eligible Substitute Mortgage Loan for such Mortgage Loan on the
Determination Date in the month following the month in which such 60-day
period expired at the Purchase Price of such Mortgage Loan or in accordance
with Section 2.06, as applicable. The Purchase Price for the purchased
Mortgage Loan which is purchased as described in the preceding sentence shall
be deposited in the Collection Account no later than the Business Day prior to
the next succeeding Distribution Date after such obligation arises; provided
that, upon receipt by the Trustee of written notification of such deposit
signed by an officer of the Seller, the Trustee shall release to the Seller
the related Mortgage File and the Trustee shall execute and deliver such
instruments of transfer or assignment, prepared by and at the expense of the
Seller, in each case without recourse, representation or warranty as shall be
necessary to vest in the Seller or its designee any Mortgage Loan released
pursuant hereto. It is understood and agreed that the obligation of the Seller
to purchase any Mortgage Loan or substitute an Eligible Substitute Mortgage
Loan for such Mortgage Loan as to which a material defect in or omission of a
constituent document exists shall constitute the sole remedy against the
Seller respecting such defect or omission available to the Certificate
Insurer, the Certificateholders or the Trustee on behalf of
Certificateholders. An Opinion of Counsel to the effect set forth in Section
2.06(d) shall be delivered to the Trustee in connection with any such
repurchase.
The Master Servicer, promptly following the transfer of (i) a
Defective Mortgage Loan from or (ii) an Eligible Substitute Mortgage Loan to
the Trust pursuant to this Section 2.02 and Section 2.06, as the case may be,
shall amend the Mortgage Loan Schedule and deliver a copy of such amended
Schedule to the Trustee and make appropriate entries in its general account
records to reflect such transfer and the addition of any Eligible Substitute
Mortgage Loan, if applicable.
Section 2.03 Representations and Warranties Regarding the Seller and
the Master Servicer. (a) The Seller and the Master Servicer each represent and
warrant each as to itself that, as of the Transfer Date:
(i) Each of the Seller and the Master Servicer is a national
banking association, validly existing under the laws of the United
States and continues to hold a valid certificate to do business as
such, and has the power to own its assets and to transact the
business in which it is currently engaged. Each of the Seller and the
Master Servicer is duly authorized to transact business and is in
good standing in each jurisdiction in which the character of the
business transacted by it or any properties owned or leased by it
requires such authorization and in which the failure to be so
authorized would have a material adverse effect on the business,
properties, assets, or condition (financial or other) of each of the
Seller and the Master Servicer and their respective subsidiaries,
considered as one enterprise;
(ii) Each of the Seller and the Master Servicer has the
power and authority to make, execute, deliver and perform this
Agreement and all of the transactions contemplated under the
Agreement, and has taken all necessary action to authorize the
execution, delivery and performance of this Agreement. When executed
and delivered, this Agreement will constitute the legal, valid and
binding obligation of each of the Seller and the Master Servicer
enforceable in accordance with its terms, except as enforcement of
such terms may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally and by the
availability of equitable remedies and except as enforcement of such
terms may be limited by receivership, conservatorship and supervisory
powers of bank regulatory agencies generally;
(iii) Each of the Seller and the Master Servicer is not
required to obtain the consent of any other party or any consent,
license, approval or authorization from, or registration or
declaration with, any governmental authority, bureau or agency in
connection with the execution, delivery, performance, validity or
enforceability of this Agreement, except for such consent, license,
approval or authorization, or registration or declaration, as shall
have been obtained or filed, as the case may be, prior to the Closing
Date;
(iv) The execution, delivery and performance of this
Agreement by each of the Seller and the Master Servicer will not
violate any provision of any existing law or regulation or any order
or decree of any court applicable to each of the Seller and the
Master Servicer or any provision of the articles of association or
bylaws of the Seller or the Master Servicer, as appropriate, or
constitute a material breach of any mortgage, indenture, contract or
other agreement to which the Seller or the Master Servicer is a party
or by which it may be bound;
(v) No litigation or administrative proceeding of or before
any court, tribunal or governmental body is currently pending, or to
the knowledge of the Seller or the Master Servicer threatened,
against either the Seller or the Master Servicer or any of their
respective properties or with respect to this Agreement which in the
opinion of either the Seller or the Master Servicer has a reasonable
likelihood of resulting in a material adverse effect on the
transactions contemplated by this Agreement;
(vi) No certificate of an officer, statement furnished in
writing or report delivered pursuant to the terms hereof by the
Seller or the Master Servicer contains any untrue statement of a
material fact or omits to state any material fact necessary to make
the certificate, statement or report not misleading;
(vii) The transactions contemplated by this Agreement are in
the ordinary course of the Seller's and the Master Servicer's
business;
(viii) Neither the Seller nor the Master Servicer is
insolvent, nor will the Seller or the Master Servicer be made
insolvent by the transfer of the Mortgage Loans, nor is the Seller or
the Master Servicer aware of any pending insolvency;
(ix) Neither the Seller nor the Master Servicer is in
violation of, and the execution and delivery of this Agreement by it
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 Seller's and the Master
Servicer's condition (financial or otherwise) or operations or any of
the Seller's and the Master Servicer's properties or materially and
adversely affect the performance of any of its duties hereunder;
(x) There are no actions or proceedings against, or
investigations of it, pending or, to its knowledge, threatened,
before any court, administrative agency or other tribunal (A) that,
if determined adversely, would prohibit the Seller or the Master
Servicer from entering into this Agreement, (B) seeking to prevent
the consummation of any of the transactions contemplated by this
Agreement or (C) that, if determined adversely, would prohibit or
materially and adversely affect the Seller's and the Master
Servicer's performance of any of their respective obligations under,
or the validity or enforceability of, this Agreement;
(xi) The Master Servicer represents and warrants that the
collection practices used by the Master Servicer with respect to the
Mortgage Loans have been, in all material respects, legal, proper,
prudent and customary in the home equity mortgage servicing business;
(xii) The Master Servicer represents and warrants that it
believes that the Servicing Fee Rate is a "current (normal) servicing
fee rate" as that term is used in Statement of Financial Accounting
Standard No. 65 by the FASB and that the Master Servicer will not
report in any financial statements any part of the servicing fee as
an adjustment to the sales price of the Mortgage Loans;
(xiii) The Seller represents and warrants that it did not
sell the Mortgage Loans to the [Depositor] as Purchaser under the
Purchase Agreement with any intent to hinder, delay or defraud any of
its creditors; and the Seller will not be rendered insolvent as a
result of the sale of the Mortgage Loans under the Purchase
Agreement;
(xiv) The Seller represents and warrants that it acquired
title to the Mortgage Loans in good faith, without notice of any
adverse claim; and
(xv) The Seller represents and warrants that the transfer,
assignment and conveyance of the Mortgage Notes and the Mortgages by
the Seller pursuant to the Purchase Agreement are not subject to the
bulk transfer laws or any similar statutory provisions in effect in
any applicable jurisdiction.
(b) The representations and warranties set forth in this Section
shall survive the sale and assignment of the Mortgage Loans to the Trust. Upon
discovery of a breach of any representations and warranties which materially
and adversely affects the interests of the Certificateholders or the
Certificate Insurer, the Person discovering such breach shall give prompt
written notice to the other parties and the Certificate Insurer. Within 90
days of its discovery or its receipt of notice of breach or, with the prior
written consent of a Responsible Officer of the Trustee, such longer period
specified in such consent, the Seller or the Master Servicer, as appropriate,
shall cure such breach in all material respects.
Section 2.04 Representations and Warranties of the Seller Regarding
the Mortgage Loans. (a) The Seller represents and warrants to the Trust, the
Certificate Insurer and the Trustee on behalf of the Certificateholders as
follows as of the Transfer Date:
(i) All information set forth as to the Mortgage Loans in
the Mortgage Loan Schedule attached hereto as Exhibit C, is complete,
true and correct in all material respects; the Mortgage File
delivered by the Seller to the Purchaser or its designee includes all
of the Seller's records and documents with respect to the Mortgage
Loans; and at the time of origination the Mortgage Loans conformed to
the Underwriting Guidelines as set forth in the Prospectus
Supplement;
(ii) All payments required under the terms of the Mortgage
Notes to have been made up to 30 days prior to the Closing Date have
been made, other than with respect to [ ]% of the Mortgage Loans
which are between 30 and 59 days past due. No Mortgage Loan is more
than 59 days past due;
(iii) No Mortgage Note or Mortgage has been assigned or
pledged, and the Seller has good and marketable title thereto and is
the sole owner thereof and has the full right to transfer and sell
the Mortgage Loans to the Purchaser free and clear of any
encumbrance, equity, lien, pledge, charge, claim or security
interest. The assignment of the Mortgage Loans has been duly executed
by the Seller and is in form acceptable for recording under the laws
of the jurisdiction in which the Mortgaged Property is located.
Immediately upon the transfer and assignment herein contemplated, the
Seller shall have transferred all of its right, title and interest in
and to each Mortgage Loan to the Purchaser (or its assignee) and the
Purchaser (or its assignee) will hold good, marketable and
indefeasible title, to and be the sole owner of each Mortgage Loan
subject to no Liens;
(iv) All parties to the Mortgage Notes and the Mortgages had
legal capacity to enter into the Mortgage Notes and the Mortgages and
to execute and deliver such Mortgage Note and Mortgage; the Mortgage
Notes and the Mortgages have been duly and properly executed and
delivered by such parties; the Mortgage Notes and the Mortgages are
in every respect genuine and are the legal, valid, binding and
enforceable obligations of the related Mortgagor; and the Mortgage
Notes and the Mortgages contain customary, valid, legal and
enforceable provisions which render the rights and remedies of the
holder thereof adequate for the realization against the Mortgaged
Property of the benefits of the security, including, (i) in the case
of a Mortgage designated as a deed of trust, by trustee's sale, and
(ii) otherwise by judicial or non-judicial foreclosure;
(v) The proceeds of the Mortgage Loans, including any
escrows of such proceeds, have been fully disbursed; the Mortgage
Notes and the Mortgages are not subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury, nor
will the operation of any of the terms of the Mortgage Notes or the
Mortgages, or the exercise of any right thereunder, render the
Mortgage Notes or Mortgages unenforceable, 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;
(vi) No Mortgagor has been released from liability on any
Mortgage Note and no property has been released from the related
Mortgage;
(vii) Any and all requirements of any federal, state or
local law including without limitation, usury, truth in lending, real
estate settlement procedures, consumer credit protection, equal
credit opportunity or disclosure laws applicable to the Mortgage
Loans and the transfer thereof hereunder (including notice of
transfer of servicing to the Master Servicer) have been complied
with, in all material respects, in the origination, servicing and
collection of the Mortgage Loans;
(viii) Each Mortgagor has executed a statement to the effect
that such Mortgagor has received all disclosure materials including
the notice of the right of cancellation or rescission required by
applicable law with respect to the making of the Mortgage Loan and
any waiver of any right of cancellation or rescission exercised by
the Mortgagor was in accordance with applicable law and is binding on
the Mortgagor;
(ix) Each Mortgage was recorded in the appropriate public
office of land evidence records concurrently with the origination of
such Mortgage Loan so as to perfect the lien of the Mortgage under
the law of the jurisdiction in which the Mortgaged Property is
located; and each Mortgage is a valid, subsisting and enforceable
lien on such Mortgaged Property, including all improvements on the
Mortgaged Property securing all advances made through the Closing
Date, subject only to (a) the permitted prior encumbrance under the
terms of the Mortgage Note, (b) the lien of current real property
taxes and assessments not yet due and payable, (c) covenants,
conditions and restrictions, rights of way, easements and other
matters of the public record as of the date of recording acceptable
to mortgage lending institutions generally and which do not adversely
affect the use, value or marketability of the Mortgaged Properties,
and (d) other matters to which like properties are commonly subject
which do not materially interfere with or adversely affect the
benefits of the security intended to be provided by the Mortgage or
the use, enjoyment, value or marketability of the related Mortgaged
Property;
(x) The Seller has not received notice of: (1) any
proceeding for the total or partial condemnation of any Mortgaged
Property, (2) any subsequent, intervening mortgage, lien, attachment,
lis pendens or other encumbrance affecting any Mortgaged Property or
(3) or any default under any mortgage, lien or other encumbrance
senior to each Mortgage;
(xi) To the best of Seller's knowledge, no Mortgagor in
respect of a Mortgage Loan is deceased; there is no proceeding
pending for relief by or against any such Mortgagor under the Federal
Bankruptcy Code or any state insolvency law; and there are no
circumstances or conditions with respect to a Mortgaged Property or
any such Mortgagor that can reasonably be expected to cause the
Mortgage Loan to become delinquent or to affect adversely the value
or marketability of the Mortgaged Property;
(xii) Where required or customary in the jurisdiction in
which the Mortgaged Property is located, the original lender has
filed for record a request for notice of any action by a senior
lienholder under a senior lien, and the original lender has notified
any senior lienholder in writing of the existence of the Mortgage
Loan and requested notification of any action to be taken against the
Mortgagor by the senior lienholder;
(xiii) To the best of the Seller's knowledge, all taxes,
ground rents, water charges, sewer rents, assessments, insurance
premiums, leasehold payments, including assessments payable in future
installments or other outstanding charges affecting the Mortgaged
Property are current;
(xiv) The appraisal made in connection with each Mortgage
Loan was performed by a qualified appraiser in accordance with the
requirements of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 applicable to federally related mortgage
loans;
(xv) The Seller has not been advised, has received no notice
or report and has no knowledge that any hazardous or toxic materials
or wastes or products regulated by any law or ordinance or asbestos
or asbestos products or materials or polychlorinated biphenyls or
urea formaldehyde insulation has been used or employed in the
construction, use or maintenance of any Mortgaged Property or have
ever been stored, treated at or disposed of on any Mortgaged
Property, or that there has occurred or that any person or entity has
alleged that there has occurred, upon any Mortgaged Property any
spillage, leakage, discharge or release into the air, soil or
groundwater of any hazardous material or regulated wastes;
(xvi) As of the date of origination of each Mortgage Loan,
all buildings upon the related Mortgaged Property are insured by a
generally acceptable insurer against loss by fire, hazards of
extended coverage and such other hazards as are customary in the area
where the Mortgaged Property is located, pursuant to insurance
policies conforming to the requirements of Fannie Mae and Freddie
Mac. All such insurance policies contain a standard mortgagee clause
naming the Seller, its successors and assigns as mortgagee and all
premiums thereon have been paid. If upon origination of a Mortgage
Loan, the related Mortgaged Property was in an area identified on a
Flood Hazard Map or Flood Insurance Rate Map issued by the Federal
Emergency management Agency as having special flood hazards (and such
flood insurance has been made available) a flood insurance policy
meeting the requirements of the current guidelines of the Federal
Insurance Administration is in effect which policy conforms to the
requirements of Fannie Mae and Freddie Mac. Each Mortgage obligates
the Mortgagor thereunder to maintain all such insurance at the
Mortgagor's cost and expense, and on the Mortgagor's failure to do
so, authorizes the holder of the Mortgage to maintain such insurance
at Mortgagor's cost and expense and to seek reimbursement therefor
from the Mortgagor;
(xvii) To the best of the Seller's knowledge, all
improvements which were considered in determining the appraised value
of a Mortgaged Property lay wholly within the boundaries and building
restriction lines of the Mortgaged Property, and no improvements on
adjoining properties encroach upon the Mortgaged Property;
(xviii) If a Mortgage is a deed of trust, a trustee, duly
qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in the applicable
Mortgage, and no fees or expenses are or will become payable by
Purchaser to the trustee under the deed of trust, except in
connection with a trustee's sale after default by a Mortgagor;
(xix) Each Mortgage Note and Mortgage contains a provision
(a "due-on-sale clause") for the acceleration of the payment of the
unpaid principal balance of the Mortgage Loan in the event the
related Mortgaged Property is sold without the prior consent of the
mortgagee thereunder, unless prohibited by the law of the
jurisdiction in which the Mortgaged Property is located;
(xx) No Mortgage Loan contains a provision pursuant to which
monthly payments are paid or partially paid with funds deposited in
any separate account established by the Seller, the Mortgagor, or
anyone on behalf of the Mortgagor, or are paid by any source other
than the Mortgagor; no Mortgage Loan contains other similar
provisions which may constitute a "buydown" provision; no Mortgage
Loan is a graduated payment mortgage loan and no Mortgage Loan has a
shared appreciation or other contingent interest feature; and no
Mortgage Loan was made in connection with the construction or
rehabilitation of a Mortgaged Property or facilitating the trade-in
or exchange of a Mortgaged Property;
(xxi) The Mortgaged Properties consist of real property with
a detached single family residence erected thereon, or a two-to-four
family dwelling, which may be a mobile home or a manufactured home
treated as real property, or an individual condominium unit or an
individual unit in a planned unit development none of which is a
cooperative apartment and is lawfully occupied under applicable law;
and all inspections, licenses and certificates required to be made or
issued with respect to all occupied portions of the Mortgaged
Property and, with respect to the use and occupancy of the same,
including but not limited to certificates of occupancy, have been
made or obtained from the appropriate authorities;
(xxii) No Mortgage Loan is a "home equity line of credit";
(xxiii) To the best of the Seller's knowledge, each
Mortgaged Property is free of material damage and is in good repair;
(xxiv) To the best of the Seller's knowledge, there is no
proceeding pending or threatened for the total or partial
condemnation of any Mortgaged Property, nor is such a proceeding
currently occurring, and such property is undamaged by waste, fire,
earthquake or earth movement, windstorm, flood, tornado or other
casualty, so as to affect adversely the value of the Mortgaged
Property as security for the Mortgage Loan or the use for which the
premises were intended;
(xxv) To the best of the Seller's knowledge, all parties
which have had any interest in the Mortgage Loan, whether as
originator, mortgagee, assignee, pledgee, servicer 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, or (B) qualified to do business in such state, or (C) federal
savings and loan associations or national banks having principal
offices in such state, or (D) not doing business in such state so as
to require qualification or licensing;
(xxvi) Each Mortgage Loan is a "qualified mortgage loan" for
purposes of Section 860G(a)(3) of the Code;
(xxvii) No Mortgage Loan shall have been made which was not
for the benefit of the related Mortgagor;
(xxviii) As of the Closing Date, the Mortgage File relating
to each Mortgage Loan contains each of the documents and instruments
specified to be included therein;
(xxix) Each Mortgage Note in respect of a Mortgage Loan
provides for level monthly payments sufficient to fully amortize the
principal balance of such Mortgage Note on its maturity date, other
than [ ]% of the Mortgage Loans (by Cut-Off Date Pool Principal
Balance) which are Balloon Loans. No Mortgage Loan provides for
negative amortization;
(xxx) With respect to each Mortgage Loan, either (i) a
lenders title insurance policy, issued in standard American Land
Title Association or California Land Title Association form, or other
form acceptable in a particular jurisdiction, by a title insurance
company authorized to transact business in the state in which the
related Mortgaged Property is situated in an amount at least equal to
the original principal balance of such Mortgage Loan insuring the
mortgagees interest under the related Mortgage Loan as the holder of
a valid first or second mortgage lien of record on the real property
described in the Mortgage, was valid and in full force and effect on
the date of the origination of such Mortgage Loan and as of the
Closing Date or (ii) an attorneys opinion of title was prepared in
connection with the origination of such Mortgage Loan;
(xxxi) No more than [ ]% of the Mortgage Loans (by the
Cut-Off Date Pool Principal Balance) are secured by Mortgaged
Properties located within any single zip code area;
(xxxii) No more than [ ]% of the Mortgage Loans (by the
Cut-Off Date Pool Principal Balance) is subject to the Home Ownership
and Equity Protection Act of 1994;
(xxxiii) The Mortgage Loans were not selected by the Seller
for inclusion in the Trust on any basis intended to adversely affect
the Trust or the Certificate Insurer;
(xxxiv) Each Mortgage Loan was purchased by the Seller and
underwritten pursuant to terms consistent with the guidelines set
forth in the Prospectus Supplement;
(xxxv) (a) No more than [ ]% of the Mortgage Loans (by
Cut-Off Date Pool Principal Balance), are secured by real property
improved by two- to four-family dwellings, (b) no more than [ ]% of
the Mortgage Loans (by the Cut-Off Date Pool Principal Balance) are
secured by condominiums and (c) at least [ ]% of the Mortgage Loans
(by Cut-Off Date Pool Principal Balance), are secured by real
property with a one-family residence erected thereon;
(xxxvi) No Mortgage Loan had a Combined Loan-to-Value Ratio
at the time of origination of more than [ ]%;
(xxxvii) No more than [ ]% of the Mortgage Loans (by Cut-Off
Date Pool Principal Balance), are secured by Mortgaged Properties
that are non-owner occupied properties;
(xxxviii) Each Mortgage Loan was originated on or after
February 1994;
(xxxix) As of the Closing Date, the Seller has not received
a notice of default of a First Lien which has not been cured;
(xl) The Seller has not transferred the Mortgage
Loans to the Purchaser with any intent to hinder, delay or defraud
any of its creditors;
(xli) No Mortgagor has requested relief under the
Soldiers' and Sailors' Civil Relief Act of 1940, as amended;
(xlii) To the best of the Seller's knowledge, there do not
exist any circumstances or conditions with respect to the Mortgage
Loan, the Mortgaged Property, the Mortgagor or the Mortgagors credit
standing that can be reasonably expected to materially adversely
affect the value or marketability of the Mortgage Loan;
(xliii) The Seller is in possession of a complete Mortgage
File, except those documents delivered as directed by the Seller, and
there are no custodial agreements in effect adversely affecting the
right or ability of the Seller to make the document deliveries
required hereby;
(xliv) No more than [ ]% of the Mortgage Loans (by the
Cut-Off Date Pool Principal Balance) are subject to a ground lease;
(xlv) The transfer, assignment and conveyance of the
Mortgage Notes and the Mortgages by the Seller pursuant to this
Agreement are not subject to the bulk transfer laws or any similar
statutory provisions in effect in any applicable jurisdiction;
(xlvi) No First Lien provides for negative amortization;
(xlvii) As of the Closing Date, the Seller has obtained a
blanket insurance policy providing for extended coverage for losses
experience on the Mortgage Loans typically covered by standard hazard
insurance policies;
(xlviii) The Seller has instructed the Master Servicer to
perform any and all acts required to be performed to preserve the
rights and remedies of the Trustee in any insurance policies
applicable to the Mortgage Loans including, without limitation, any
necessary notifications of insurers, assignments of policies or
interests therein, and establishments of co-insured, joint loss payee
and mortgagee rights in favor of the Trustee;
(xlix) None of the Mortgage Loans are retail installment
contracts for goods or services or are home improvement loans for
goods or services, which would be either "consumer credit contracts"
or "purchase money loans" as such terms are defined in 16 C.F.R.
Section 433.1;
(l) To the best of the Seller's knowledge, no Mortgaged
Property was, as of the Cut-Off Date, located within a one-mile
radius of any site listed in the National Priorities List as defined
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, or on any similar state list of
hazardous waste sites which are known to contain any hazardous
substance or hazardous waste;
(li) To the best knowledge of the Seller, no
improvement located on or being part of the Mortgaged Property is in
violation of any applicable zoning law or regulation;
(lii) This Agreement is and shall remain at all times prior
to the termination hereof an official record of the Seller as
referred to in Section 13(e) of the Federal Deposit Insurance Act, as
amended by 12 U.S.C. Section 1823(e); and
(liii) Within 60 days of the Closing Date, no more than [ ]%
of the Mortgage Loans (by Cut-Off Date Pool Principal Balance) shall
have lost note affidavits in lieu of original Mortgage Notes.
(liv) Each Mortgage Loan included in the sample report that
has been required by the Certificate Insurer shall not have a
re-appraisal variance greater than [ ]%, unless explained in a
satisfactory manner by the Seller.
With respect to the representations and warranties set forth in this
Section that are made to the best of the Seller's knowledge or as to which the
Seller has no knowledge, if it is discovered by the Seller, the Master
Servicer, the Certificate Insurer or the Trustee that the substance of such
representation and warranty is inaccurate 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 substance of such
representation and warranty being inaccurate at the time the representation or
warranty was made, such inaccuracy shall be deemed a breach of the applicable
representation or warranty and the Seller shall cure such breach, repurchase
the related Mortgage Loan at the Purchase Price or substitute an Eligible
Substitute Mortgage Loan therefor pursuant to Section 2.06 hereof.
(b) It is understood and agreed that the representations and
warranties set forth in this Section shall survive the conveyance of the
Mortgage Loans and the delivery of the respective Mortgage Files to the
Trustee and the termination of the rights and obligations of the Master
Servicer pursuant to Section 7.04 or 8.01. Upon discovery by the Seller, the
Master Servicer, the Certificate Insurer or the Trustee of a breach of any of
the foregoing representations and warranties, without regard to any limitation
set forth therein concerning the knowledge of the Seller as to the facts
stated therein, which materially and adversely affects the value of the
related Mortgage Loan or the interests of the Trust, the Certificateholders or
the Certificate Insurer in such Mortgage Loan, the party discovering such
breach shall give prompt written notice to the other parties and the
Certificate Insurer. Within 90 days (or 60 days with respect to clause (liii))
of its discovery or its receipt of notice of breach, the Seller shall use all
reasonable efforts to cure such breach in all material respects or shall
purchase such Mortgage Loan from the Trust or substitute an Eligible
Substitute Mortgage Loan as provided in Section 2.06 for such Mortgage Loan.
Any such purchase by the Seller shall be at the Purchase Price and in each
case shall be accomplished in the manner set forth in Section 2.02. It is
understood and agreed that the obligation of the Seller to cure, substitute or
purchase any Mortgage Loan as to which such a breach has occurred and is
continuing shall constitute the sole remedies against the Seller respecting
such breach available to Certificateholders or the Trustee on behalf of
Certificateholders. An Opinion of Counsel to the effect set forth in Section
2.06(d) shall be delivered to the Trustee in connection with any such
repurchase.
Section 2.05 Representations and Warranties of the Seller. (a) The
Seller represents and warrants to the Trust and the Trustee on behalf of the
Certificateholders as follows:
(i) This Agreement constitutes a legal, valid and binding
obligation of the Seller, enforceable against the Seller in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting the
enforcement of creditors' rights in general and except as such
enforceability may be limited by general principles of equity
(whether considered in a proceeding at law or in equity);
(ii) Immediately prior to the sale and assignment by the
Seller to the Trustee on behalf of the Trust of each Mortgage Loan,
the Seller had good and equitable title to each Mortgage Loan
(insofar as such title was conveyed to it by the Seller) subject to
no prior lien, claim, participation interest, mortgage, security
interest, pledge, charge or other encumbrance or other interest of
any nature;
(iii) As of the Closing Date, the Seller has transferred all
right, title and interest in the Mortgage Loans to the Trustee on
behalf of the Trust;
(iv) The Seller has not transferred the Mortgage Loans to
the Trustee on behalf of the Trust with any intent to hinder, delay
or defraud any of its creditors; and
(v) The Seller has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
Delaware, with full corporate power and authority to own its assets
and conduct its business as presently being conducted.
Section 2.06 Substitution of Mortgage Loans. (a) On a Determination
Date within two years following the Closing Date and which is on or before the
date on which the Seller would otherwise be required to repurchase a Mortgage
Loan under Section 2.02 or 2.04, the Seller may deliver to the Trustee one or
more Eligible Substitute Mortgage Loans in substitution for any one or more of
the Defective Mortgage Loans which the Seller would otherwise be required to
repurchase pursuant to Sections 2.02 or 2.04. In connection with any such
substitution, the Seller shall calculate the Substitution Adjustment, if any,
and shall deposit such amount to the Collection Account on or before the
Business Day prior to the Distribution Date in the month succeeding the
calendar month during which the related Mortgage Loan became required to be
purchased or replaced hereunder.
(b) The Seller shall notify the Master Servicer, the Seller and the
Trustee in writing not less than five Business Days before the related
Determination Date which is on or before the date on which the Seller would
otherwise be required to repurchase such Mortgage Loan pursuant to Section
2.02 or 2.04 of its intention to effect a substitution under this Section
2.06. On such Determination Date (the "Substitution Date"), the Seller shall
deliver to the Trustee (1) the Eligible Substitute Mortgage Loans to be
substituted for the Defective Mortgage Loans, (2) a list of the Defective
Mortgage Loans to be substituted for by such Eligible Substitute Mortgage
Loans, (3) an Officer's Certificate (A) stating that no failure by the Master
Servicer described in Section 8.01 shall have occurred and be continuing, (B)
stating that the aggregate Principal Balance of all Eligible Substitute
Mortgage Loans (determined with respect to each Eligible Substitute Mortgage
Loan as of the Determination Date on which it was substituted) including the
principal balance of Eligible Substitute Mortgage Loans being substituted on
such Determination Date does not exceed an amount equal to 5% of the Pool
Principal Balance as of the Closing Date, (C) stating that all conditions
precedent to such substitution specified in subsection (a) have been satisfied
and attaching as an exhibit a supplemental Mortgage Loan schedule (the
"Supplemental Mortgage Loan Schedule") setting forth the same type of
information as appears on the Mortgage Loan Schedule and representing as to
the accuracy thereof and (D) confirming that the representations and
warranties contained in Section 2.04 are true and correct in all material
respects with respect to the Eligible Substitute Mortgage Loans on and as of
such Determination Date, provided that remedies for the inaccuracy of such
representations are limited as set forth in Sections 2.02, 2.04 and this
Section 2.06, (4) an Opinion of Counsel to the effect set forth in Clause (d)
below and (5) a certificate stating that cash in the amount of the related
Substitution Adjustment, if any, has been deposited to the Collection Account.
Upon receipt of the foregoing, the Trustee shall release such Defective
Mortgage Loans to the Seller without recourse, representation or warranty.
(c) Concurrently with the satisfaction of the conditions set forth in
Sections 2.06(a) and (b) above and the transfer of such Eligible Substitute
Mortgage Loans to the Trustee on behalf of the Trust pursuant to Section
2.06(a), Exhibit C to this Agreement shall be deemed to be amended to exclude
all Mortgage Loans being replaced by such Eligible Substitute Mortgage Loans
and to include the information set forth on the Supplemental Mortgage Loan
Schedule with respect to such Eligible Substitute Mortgage Loans, and all
references in this Agreement to Mortgage Loans shall include such Eligible
Substitute Mortgage Loans and be deemed to be made on or after the related
Substitution Date, as the case may be, as to such Eligible Substitute Mortgage
Loans.
(d) In connection with any Mortgage Loan that the Seller is required
to purchase or replace, the Seller shall deliver to the Trustee and the
Certificate Insurer an Opinion of Counsel to the effect that such purchase or
substitution will not cause (x) any federal tax to be imposed on the Trust,
including, without limitation, any Federal tax imposed on "prohibited
transactions" under Section 860F(a)(1) of the Code or on "contributions after
the start-up day" under Section 860G(d)(1) of the Code or (y) the Trust to
fail to qualify as a REMIC at any time that any Certificate is outstanding. In
the event that such opinion indicates that a repurchase or substitution will
result in the imposition of a prohibited transaction tax, give rise to net
taxable income or be deemed a contribution to the REMIC after the Start-up
Day, the Seller shall not be required to repurchase or replace any such
Mortgage Loan unless and until the Master Servicer has determined there is an
actual or imminent default with respect thereto or that such defect or breach
adversely affects the enforceability of such Mortgage Loan.
Section 2.07 Execution and Authentication of Certificates. The
Trustee on behalf of the Trust shall cause to be executed, authenticated and
delivered on the Closing Date to or upon the order of the Seller, in exchange
for the Mortgage Loans, concurrently with the sale, assignment and conveyance
to the Trustee of the Mortgage Loans, each Class of Regular Certificates in
authorized denominations and the Class R Certificates, together evidencing the
ownership of the entire Trust.
Section 2.08 Designation of Interests in the REMIC. Each Class of
Class A Certificates is hereby designated as a "regular interest" in the REMIC
and the Class R Certificates are hereby designated as the single "residual
interest" in the REMIC.
Section 2.09 Designation of Start-up Day. The Closing Date is hereby
designated as the "start-up day" of the REMIC within the meaning of Section
860G(a)(9) of the Code.
Section 2.10 REMIC Certificate Maturity Date. Solely for purposes of
satisfying Section 1.860G-1(a)(4)(iii) of the Treasury Regulations, the
"latest possible maturity date" of the REMIC is the Distribution Date in
January 2031.
Section 2.11 Tax Returns and Reports to Certificateholders. (a) For
federal income tax purposes, the Trust shall have a December 31 fiscal year
and shall maintain its books on the accrual method of accounting.
(b) The Trustee shall prepare, or cause to be prepared, execute and
deliver to the Master Servicer or Certificateholders, as applicable, any
income tax information returns for each taxable year with respect to the Trust
containing such information at the times and in the manner as may be required
by the Code or state or local tax laws, regulations, or rules, and shall
furnish or cause to be furnished to the Trust and the Certificateholders the
schedules, statements or information at such times and in such manner as may
be required thereby. Within thirty (30) days of the Closing Date, the Trustee
shall furnish or cause to be furnished to the Internal Revenue Service, on
Form 8811 or as otherwise required by the Code, the name, title, address and
telephone number of the person that Holders of the Certificates may contact
for tax information relating thereto, together with such additional
information at the time or times and in the manner required by the Code. Such
federal, state or local income tax or information returns shall be signed by
the Trustee or such other Person as may be required to sign such returns by
the Code or state or local tax laws, regulations or rules.
(c) In the first federal income tax return of the Trust for its short
taxable year ending [ ], a REMIC election shall be made with respect to the
Trust for such taxable year and all succeeding taxable years.
(d) The Trustee will maintain or cause to be maintained such records
relating to the Trust, including, but not limited to, the income, expenses,
assets and liabilities of the Trust, and the fair market value and adjusted
basis of the Trust property and assets determined at such intervals as may be
required by the Code, as may be necessary to prepare the foregoing returns,
schedules, statements or information.
(e) Each of the Master Servicer and the Seller, upon request, shall
promptly furnish the Trustee with all such information in its control as may
be required in connection with the Trustee's REMIC reporting obligations
pursuant to this Agreement.
Section 2.12 Tax Matters Person. The tax matters person with respect
to the REMIC shall be the Holder of the Tax Matters Person Residual Interest
(the "Tax Matters Person"). The Holder of the Tax Matters Person Residual
Interests shall have the same duties with respect to the Trust as those of a
"tax matters partner" under Subchapter C of Chapter 63 of Subtitle F of the
Code. Each holder of a Class R Certificate shall be deemed to have agreed, by
acceptance thereof, to be bound by this Section. The Trustee shall hold the
Tax Matters Person Residual Interest.
Section 2.13 REMIC Related Covenants. For as long as the REMIC shall
exist, the Trustee shall act in accordance herewith to assure continuing
treatment of the Trust as a REMIC and avoid the imposition of tax on the
Trust. In particular:
(a) The Trustee shall not create, or permit the creation of, any
"interests" within the meaning of Code Section 860D(a)(2) other than the
interests represented by the Regular Certificates and the Class R
Certificates.
(b) Except as otherwise provided in the Code, the Seller shall not
grant and the Trustee shall not accept property unless (i) substantially all
of the property held in the REMIC constitutes either "qualified mortgages" or
"permitted investments" as defined in Code Sections 860G(a)(3) and (5),
respectively and (ii) no property shall be contributed to the REMIC after the
Start-up Day unless such grant would not subject the REMIC to the 100% tax on
contributions to the REMIC after the Start-up Day imposed by Code Section
860G(d).
(c) The Trustee shall not accept on behalf of the REMIC any fee or
other compensation for services (other than as otherwise provided herein) and
shall not accept on behalf of the REMIC any income from assets other than
those permitted to be held by a REMIC.
(d) The Trustee shall not sell or permit the sale of all or any
portion of the Mortgage Loans (other than in accordance with Section 2.02 or
2.04), unless such sale is pursuant to a "qualified liquidation" as defined in
Code Section 860F(a)(4)(A) and in accordance with Article X.
(e) The Trustee shall maintain books with respect to the REMIC on a
calendar year basis and report income on an accrual basis.
(f) The Master Servicer shall furnish to the Trustee the information
necessary for the Trustee to prepare and file with the Internal Revenue
Service Form 1066 for the REMIC and to prepare and furnish to the Holders of
the Class R Certificates Form 1066Q for the REMIC and, based on information
received from the Master Servicer, the Trustee will respond promptly to
written requests made not more frequently than quarterly by any Holder of a
Class R Certificate for the following information:
(i) The original projected principal and interest cash flows
on the Closing Date on each class of regular and residual interests
created hereunder and on the Mortgage Loans, based on [ ]% of the
Prepayment Assumption;
(ii) The projected remaining principal and interest cash
flows as of the end of any calendar quarter with respect to each
class of regular and residual interests created hereunder and the
Mortgage Loans, based on [ ]% of the Prepayment Assumption;
(iii) The CPR and any interest rate assumptions used in
determining the projected principal and interest cash flows described
above;
(iv) 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 each class
of 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;
(v) 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 respect to such regular interests or bad debt
deductions claimed with respect to the Mortgage Loans;
(vi) The amount and timing of any non-interest expenses
of the REMIC; and
(vii) 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;
provided, that the information to be provided with respect to the foregoing
clauses (i) through (vi) shall be based on projections, assumptions and facts
as they shall have existed on the Closing Date.
In the event that any tax is imposed on "prohibited transactions" of
the Trust 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 Start-up Day 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 Master
Servicer, if such tax arises out of or results from a breach by the Servicer
of any of its obligations under this Agreement or (iii) otherwise by the
Holders of the Class R Certificates in proportion to their Percentage
Interests. To the extent any 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 Distribution
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).
The Trustee shall not engage in a "prohibited transaction" (as
defined in Code Section 860F(a)(2)), except that, with the prior written
consent of the Seller, the Trustee may engage in the activities otherwise
prohibited by the foregoing clauses (b), (c) and (d), provided that the Seller
shall have delivered to the Trustee and the Certificate Insurer an Opinion of
Counsel to the effect that such transaction will not result in the imposition
of a contribution or prohibited transaction tax on the Trust and will not
disqualify the REMIC from treatment as a REMIC; and provided that the Seller
shall have delivered to the Trustee an Officer's Certificate to the effect
that such action will not adversely affect the rights of the holders of the
Certificates or the Certificate Insurer and that such action will not
adversely impact the rating of the Certificates.
(g) The Trustee shall pay out of its own funds, without any right of
reimbursement, any and all routine tax related expenses of the Trust
(including, but not limited to, tax return preparation and filing expenses),
other than the expense of obtaining any Opinion of Counsel required pursuant
to Sections 2.06(d), 2.13(f), 9.02(b) and 10.02 and other than taxes except as
specified herein. The Trustee not in its individual capacity but solely as
Trustee shall represent the Trust in any administrative or judicial proceeding
relating to an examination or audit by any governmental taxing authority with
respect thereto. The expenses of any such contest, audit, controversy or
proceeding, including but not limited to the fees and expenses of the Trustee,
its attorneys, its accountants and its financial advisors, except any such
expenses caused by the Trustee's negligence or willful misconduct, shall be
the obligations of the Trust created hereunder.
ARTICLE III.
Administration and Servicing
of Mortgage Loans
Section 3.01 The Master Servicer. (a) It is intended that the Trust
formed hereunder shall constitute, and that the affairs of the Trust shall be
conducted so as to qualify the Trust as a, "real estate mortgage investment
conduit" ("REMIC") as defined in and in accordance with the REMIC Provisions.
In furtherance of such intentions, the Master Servicer covenants and agrees
that it shall not knowingly or intentionally take any action or omit to take
any action that would cause the termination of the status of the Trust as a
REMIC.
(b) The Master Servicer, as independent contract servicer, shall
service and administer the Mortgage Loans and shall have full power and
authority, acting alone, to do any and all things in connection with such
servicing and administration which the Master Servicer may deem necessary or
desirable and consistent with the terms of this Agreement. The Master Servicer
may enter into Subservicing Agreements for any servicing and administration of
Mortgage Loans with Mortgage Lenders Network USA, Inc. or any other
institution which (i) is in compliance with the laws of each state necessary
to enable it to perform its obligations under such Subservicing Agreement,
(ii) is acceptable to the Certificate Insurer and (iii) (x) has been
designated an approved Seller-Servicer by Freddie Mac or Fannie Mae for first
and second mortgage loans or (y) is an affiliate of the Master Servicer. The
Master Servicer shall give written notice to the Certificate Insurer, the
Trustee and the Rating Agencies of the appointment of any Subservicer. Any
such Subservicing Agreement shall be consistent with and not violate the
provisions of this Agreement and shall be in form and substance acceptable to
the Certificate Insurer. The Master Servicer shall be entitled to terminate
any Subservicing Agreement in accordance with the terms and conditions of such
Subservicing Agreement and either itself directly service the related Mortgage
Loans or enter into a Subservicing Agreement with a successor subservicer
which qualifies hereunder.
(c) Notwithstanding any Subservicing Agreement or any of the
provisions of this Agreement relating to agreements or arrangements between
the Master Servicer and a Subservicer or reference to actions taken through a
Subservicer or otherwise, the Master Servicer shall remain obligated and
primarily liable 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 Master Servicer
alone were servicing and administering the Mortgage Loans. For purposes of
this Agreement, the Master Servicer shall be deemed to have received payments
on Mortgage Loans when the Subservicer has received such payments. The Master
Servicer shall be entitled to enter into any agreement with a Subservicer for
indemnification of the Master Servicer by such Subservicer, and nothing
contained in this Agreement shall be deemed to limit or modify such
indemnification.
(d) Any Subservicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a
Subservicer in its capacity as such and not as an originator shall be deemed
to be between the Subservicer and the Master Servicer alone, and the Trustee
and Certificateholders shall not be deemed parties thereto and shall have no
claims, rights, obligations, duties or liabilities with respect to the
Subservicer except as set forth in Section 3.01(e). The Master Servicer shall
be solely liable for all fees owed by it to any Subservicer irrespective of
whether the Master Servicer's compensation pursuant to this Agreement is
sufficient to pay such fees. For purposes of this Agreement, as of the Closing
Date, each of the parties hereto acknowledge that Mortgage Lenders Network
USA, Inc. shall act initially as a Subservicer.
(e) In the event the Master Servicer shall for any reason no longer
be the Master Servicer (including by reason of an Event of Default), the
Trustee or its designee approved by the Certificate Insurer shall thereupon
assume all of the rights and obligations of the Master Servicer under each
Subservicing Agreement that the Master Servicer may have entered into, unless
the Trustee or designee approved by the Certificate Insurer elects to
terminate any Subservicing Agreement. Any fee payable in connection with such
a termination will be payable by the outgoing Master Servicer. If the Trustee
does not terminate a Subservicing Agreement, the Trustee, its designee or the
successor servicer for the Trustee shall be deemed to have assumed all of the
Master Servicer's interest therein and to have replaced the Master 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 Master Servicer shall not thereby be relieved of any liability or
obligations under the Subservicing Agreements with regard to events that
occurred prior to the date the Master Servicer ceased to be the Master
Servicer hereunder. The Master Servicer, at its expense and without right of
reimbursement therefor, shall, upon the request of the Trustee, deliver to the
assuming party all documents and records and afford the assuming party
reasonable access (to the extent practicable) to the computer systems,
electronic files and personnel as they relate to each Subservicing Agreement
and the Mortgage 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.
(f) Consistent with the terms of this Agreement, the Master Servicer
may waive, modify or vary any term of any Mortgage Loan or consent to the
postponement of strict compliance with any such term or in any manner grant
indulgence to any Mortgagor if in the Master Servicer's good faith
determination such waiver, modification, postponement or indulgence is not
materially adverse to the interests of the Certificateholders and the
Certificate Insurer, provided, however, that (unless (x) the Mortgagor is in
default with respect to the Mortgage Loan, or such default is, in the judgment
of the Master Servicer, imminent and (y) such waiver, modification,
postponement or indulgence would not cause the Trust to be disqualified as a
REMIC or otherwise cause a tax to be imposed on the Trust) the Master Servicer
may not permit any modification with respect to any Mortgage Loan that would
change the Loan Rate, defer or forgive the payment of any principal or
interest (unless in connection with the liquidation of the related Mortgage
Loan) or extend the final maturity date on the Mortgage Loan beyond the final
maturity date of the Mortgage Loan as of the Transfer Date. No costs incurred
by the Master Servicer or any Subservicer in respect of Servicing Advances
shall, for the purposes of distributions to Certificateholders, be added to
the amount owing under the related Mortgage Loan. Without limiting the
generality of the foregoing, the Master Servicer shall continue, and 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 Master Servicer, the Trustee shall furnish the
Master Servicer with limited powers of attorney and other documents necessary
or appropriate to enable the Master Servicer to carry out its servicing and
administrative duties under this Agreement.
Notwithstanding anything to the contrary contained herein, the Master
Servicer, in servicing and administering the Mortgage Loans, shall employ or
cause to be employed procedures (including collection, foreclosure and REO
Property management procedures) and exercise the same care that it customarily
employs and exercises in servicing and administering mortgage loans for its
own account, in accordance with accepted mortgage servicing practices of
prudent lending institutions servicing mortgage loans similar to the Mortgage
Loans and giving due consideration to the Certificate Insurer's and the
Certificateholders' reliance on the Master Servicer.
(g) On and after such time as the Trustee receives the written
resignation of, or notice of the removal of, the Master Servicer from its
rights and obligations under this Agreement, and with respect to resignation
pursuant to Section 7.04, after receipt by the Trustee and the Certificate
Insurer of the Opinion of Counsel required pursuant to Section 7.04, the
Trustee or its designee approved by the Certificate Insurer shall assume all
of the rights and obligations of the Master Servicer, subject to Section 8.02.
The Master Servicer shall, upon request of the Trustee but at the expense of
the Master Servicer, deliver to the Trustee all documents and records relating
to the Mortgage Loans and an accounting of amounts collected and held by the
Master Servicer and otherwise use its best efforts to effect the orderly and
efficient transfer of servicing rights and obligations to the assuming party
which may include reasonable on site access to the computer systems,
electronic files and personnel of the Master Servicer during normal business
hours.
(h) The Master Servicer shall deliver a list of Servicing Officers to
the Trustee and the Certificate Insurer on or before the Closing Date and
shall revise such list from time to time, as appropriate, and shall deliver
all revisions promptly to the Trustee and the Certificate Insurer.
(i) Consistent with the terms of this Agreement, the Master Servicer
may consent to the placing of a lien senior to that of the Mortgage on the
related Mortgaged Property; provided that such senior lien secures a mortgage
loan that refinances a First Lien and the combined loan-to-value ratio of the
related Mortgage Loan immediately following the refinancing (based on the
outstanding principal balance of the Mortgage Loan and the original principal
balance of such refinanced mortgage loan) is not greater than the Combined
Loan-to-Value Ratio of such Mortgage Loan as of the related Cut-Off Date.
Section 3.02 Collection of Certain Mortgage Loan Payments. (a) The
Master Servicer shall make reasonable 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, follow such
collection procedures as it follows with respect to mortgage loans in its
servicing portfolio comparable to the Mortgage Loans. Consistent with the
foregoing, and without limiting the generality of the foregoing, the Master
Servicer may in its discretion (i) waive any prepayment penalty or late
payment charge or any assumption fees or other fees which may be collected in
the ordinary course of servicing such Mortgage Loan and (ii) arrange with a
Mortgagor a schedule for the payment of interest due and unpaid; provided that
such arrangement is consistent with the Master Servicer's policies with
respect to the mortgage loans it owns or services; provided, further, that
notwithstanding such arrangement such Mortgage Loans will be included in the
monthly information delivered by the Master Servicer to the Trustee pursuant
to Section 5.03.
(b) The Master Servicer shall establish and maintain a separate trust
account (the "Collection Account") titled "[ ], as Trustee, of [ ] Home Equity
Loan Trust [ ], Collection Account." The Collection Account shall be an
Eligible Account with an independent financial institution. No later than
12:00 noon New York time two Business Days prior to each Distribution Date
(or, if a Deposit Event has occurred, within two Business Days following
receipt thereof), the Master Servicer shall deposit into the Collection
Account the following payments and collections received or made by it with
respect to each Mortgage Loan (without duplication):
(i) all payments received on or after the Cut-Off Date on
account of principal on the Mortgage Loans and all Principal
Prepayments and Curtailments collected on and after the Cut-Off Date;
(ii) all payments received or advanced on or after the
Cut-Off Date on account of interest on the Mortgage Loans;
(iii) all Net Liquidation Proceeds net of related
Foreclosure Profits;
(iv) all Insurance Proceeds;
(v) any amounts payable in connection with the repurchase of
any Mortgage Loan and the amount of any Substitution Adjustment
pursuant to Sections 2.02, 2.04 and 2.06;
(vi) all Released Mortgaged Property Proceeds; and
(vii) any amount required to be deposited in the Collection
Account pursuant to Sections 3.07, 3.21 or 5.05(e);
provided, however, that with respect to each Due Period, the Master
Servicer shall be permitted to retain (x) from payments in respect of interest
on the Mortgage Loans, the Servicing Fee for such Due Period and (y) from
payments from Mortgagors, Liquidation Proceeds, Insurance Proceeds and
Released Mortgaged Property Proceeds, Net Simple Interest Excess, any
unreimbursed Servicing Advances and Monthly Advances related thereto in
accordance with Section 3.03 hereof. The foregoing requirements respecting
deposits to the Collection Account are exclusive, it being understood that,
without limiting the generality of the foregoing, the Master Servicer need not
deposit in the Collection Account amounts representing Foreclosure Profits,
fees (including annual fees) or late charge penalties payable by Mortgagors or
amounts received by the Master Servicer for the accounts of Mortgagors for
application toward the payment of taxes, insurance premiums, assessments and
similar items.
(c) All funds in the Collection Account shall be invested as provided
in Section 5.05.
Section 3.03 Withdrawals from the Collection Account. The Trustee
shall withdraw or cause to be withdrawn funds from the Collection Account for
the following purposes:
(i) two Business Days prior to each Distribution Date, to
deposit the portion of Available Funds then in the Collection Account
to the Distribution Account;
(ii) to reimburse the Master Servicer for any accrued unpaid
Servicing Fees and for unreimbursed Monthly Advances and Servicing
Advances to the extent not otherwise retained. The Master 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, Insurance
Proceeds and such other amounts as may be collected by the Master
Servicer from the related Mortgagor or otherwise relating to the
Mortgage Loan in respect of which such reimbursed amounts are owed.
The Master Servicer's right to reimbursement for unreimbursed Monthly
Advances shall be limited to late collections of interest on any
Mortgage Loan and to Liquidation Proceeds and Insurance Proceeds on
related Mortgage Loans;
(iii) to withdraw any amount received from a Mortgagor that
is recoverable and sought to be recovered as a voidable preference by
a trustee in bankruptcy pursuant to the United States Bankruptcy Code
in accordance with a final, nonappealable order of a court having
competent jurisdiction;
(iv) subject to Section 5.05 hereof, to make investments in
Eligible Investments and to pay to the Master Servicer interest
earned in respect of Eligible Investments or on funds deposited in
the Collection Account;
(v) to withdraw any funds deposited in the Collection
Account that were not required to be deposited therein or were
deposited therein in error and to pay such funds to the appropriate
Person after written notice of such error is received and verified by
the Trustee;
(vi) to pay the Master Servicer servicing compensation
pursuant to Section 3.09 to the extent not retained or paid pursuant
to Sections 3.02(b) and 3.21;
(vii) to reimburse the Master Servicer for Nonrecoverable
Advances that are not, with respect to aggregate Servicing Advances
on any single Mortgage Loan or REO Property, in excess of the
Principal Balance thereof and expenses incurred pursuant to Section
7.03;
(viii) to withdraw funds necessary for the conservation,
operation, management, maintenance and disposition of REO Property
pursuant to Section 3.07 to the extent not advanced by the Master
Servicer; and
(ix) to clear and terminate the Collection Account upon the
termination of this Agreement and to pay any amounts remaining
therein to the Class R Certificateholders.
Section 3.04 Maintenance of Hazard Insurance; Property Protection
Expenses. The Master Servicer shall cause to be maintained for each Mortgage
Loan a blanket policy providing fire and hazard insurance naming the Master
Servicer as loss payee thereunder providing coverage in an amount which is at
least equal to the lesser of (i) the maximum insurable value of the
improvements securing each Mortgage Loan from time to time, (ii) the combined
principal balance owing on each Mortgage Loan and any mortgage loan senior to
such Mortgage Loan and (iii) the minimum amount required to compensate for
damage or loss on a replacement cost basis. The Master 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 lesser 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 Mortgage Loan and any mortgage loan senior to
such Mortgage 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 plus accrued interest and the
good-faith estimate of the Master Servicer of related Servicing Advances to be
incurred in connection therewith. Amounts collected by the Master Servicer
under any such policies in connection with the Mortgage Loans, together with
the deductible amounts which are applicable pursuant to the terms of such
policy, shall be deposited in the Collection Account to the extent called for
by Section 3.02. In cases in which any Mortgaged Property is located in a
federally designated flood area, the hazard insurance to be maintained for the
related Mortgage Loan shall include flood insurance to the extent such flood
insurance is available and the Master Servicer has determined such insurance
to be necessary in accordance with accepted second mortgage loan servicing
standards. The Master Servicer shall be under no obligation to require that
any Mortgagor maintain earthquake or other additional insurance and shall be
under no obligation itself to maintain any such additional insurance on
property acquired in respect of a Mortgage Loan except as specified in Section
2.04(a)(xvi), other than pursuant to such applicable laws and regulations as
shall at any time be in force and as shall require such additional insurance.
Section 3.05 Maintenance of Mortgage Impairment Insurance. In the
event that the Master Servicer shall obtain and maintain a blanket policy
consistent with prudent industry standards with an insurer either (A) having a
General Policy rating of A.VIII or better in Best's Key Rating Guide, or (B)
approved by the Certificate Insurer, such approval not to be unreasonably
withheld, insuring against fire and hazards of extended coverage on all of the
Mortgage Loans, then, to the extent such policy names the Master Servicer or
its designee as loss payee and provides coverage in an amount equal to the
aggregate unpaid principal balance on the Mortgage Loans without co-insurance,
and otherwise complies with the requirements of Section 3.04, the Master
Servicer shall be deemed conclusively to have satisfied its obligations with
respect to fire and hazard insurance coverage under Section 3.04, it being
understood and agreed that such blanket policy may contain a deductible
clause, in which case the Master Servicer shall, in the event that there shall
not have been maintained on the related Mortgaged Property a policy complying
with Section 3.04, 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 3.04 and the amount paid under such blanket policy. Upon the
request of the Certificate Insurer or the Trustee, the Master Servicer shall
cause to be delivered to the Certificate Insurer or the Trustee, as the case
may be, a certified true copy of such policy. In connection with its
activities as administrator and servicer of the Mortgage Loans, the Master
Servicer agrees to prepare and present, on behalf of itself, the Trustee, the
Certificate Insurer and Certificateholders, claims under any such policy in a
timely fashion in accordance with the terms of such policy.
Section 3.06 Fidelity Bond. The Master Servicer shall maintain with a
responsible company, and at its own expense, a blanket fidelity bond and an
errors and omissions insurance policy, in a minimum amount acceptable to
FANNIE MAE or FREDDIE MAC 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 Master Servicer against losses, including losses resulting from forgery,
theft, embezzlement, errors and omissions and negligent acts of such Servicer
Employees. Such fidelity bond shall also protect and insure the Master
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 3.06 requiring such fidelity
bond and errors and omissions insurance shall diminish or relieve the Master
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 Master Servicer shall cause to be delivered to the Trustee, the
Certificate Insurer and such Certificateholder a certified true copy of such
fidelity bond and insurance policy.
Section 3.07 Management and Realization Upon Defaulted Mortgage
Loans. The Master Servicer shall manage, conserve, protect and operate each
REO Property for the Certificateholders solely for the purpose of its prudent
and prompt disposition and sale. The Master Servicer shall, either itself or
through an agent selected by the Master Servicer, manage, conserve, protect
and operate the REO Property in the same manner that it manages, conserves,
protects and operates other foreclosed property for its own account, and in
the same manner that similar property in the same locality as the REO Property
is managed. The Master Servicer shall attempt to sell the same (and may
temporarily rent the same) on such terms and conditions as the Master Servicer
deems to be in the best interest of the Certificateholders and the Certificate
Insurer.
If a Deposit Event has occurred, the Master Servicer shall cause to
be deposited, within two Business Days of receipt thereof or if a Deposit
Event has not occurred, the Master Servicer shall cause to be deposited two
Business Days prior to the related Distribution Date, in the Collection
Account, all revenues received with respect to the related REO Property and
shall retain, or cause the Trustee to withdraw therefrom, funds necessary for
the proper operation, management and maintenance of the REO Property and the
fees of any managing agent acting on behalf of the Master Servicer.
The disposition of REO Property shall be carried out by the Master
Servicer for cash at such price, and upon such terms and conditions, as the
Master Servicer deems to be in the best interest of the Certificateholders
and, as soon as practicable thereafter, the expenses of such sale shall be
paid. The cash proceeds of sale of the REO Property shall be promptly
deposited in the Collection Account in accordance with Section 3.02, net of
Foreclosure Profits and of any related unreimbursed Servicing Advances,
accrued and unpaid Servicing Fees and unreimbursed Monthly Advances payable to
the Master Servicer in accordance with Section 3.03, for distribution to the
Certificateholders in accordance with Section 5.01.
The decision of the Master Servicer to foreclose on a defaulted
Mortgage Loan shall be subject to a determination by the Master Servicer that
the proceeds of such foreclosure would exceed the costs and expenses of
bringing such a proceeding and if such determination cannot be made, the
Master Servicer shall deal with such Mortgage Loan in a manner consistent with
the servicing standard in Section 3.01 hereof.
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
shall be issued to the Trustee or its nominee on behalf of Certificateholders
and the Certificate Insurer.
In the event any Mortgaged Property is acquired as aforesaid or
otherwise in connection with a default or imminent default on a Mortgage Loan,
the Master Servicer shall (i) dispose of such Mortgaged Property within three
years after its acquisition or (ii) prior to the expiration of any extension
to such three-year grace period which is requested on behalf of the Trust by
the Master Servicer (at the expense of the Trust) more than 60 days prior to
the end of such three-year grace period and granted by the Internal Revenue
Service, unless the Master Servicer shall have received an Opinion of Counsel,
with a copy to the Certificate Insurer and the Trustee, to the effect that the
holding of such Mortgaged Property subsequent to three years after its
acquisition will not result in the imposition of taxes on "prohibited
transactions" as defined in Section 860F of the Code or cause the Trust to
fail to qualify as a REMIC at any time that any Regular Certificates are
outstanding. Notwithstanding any other provision of this Agreement, (i) no
Mortgaged Property acquired by the Master Servicer pursuant to this Section
shall be rented (or allowed to continue to be rented) or otherwise used for
the production of income by or on behalf of the Trust and (ii) no construction
shall take place on such Mortgaged Property in such a manner or pursuant to
any terms, in either case, that would cause such Mortgaged Property to fail to
qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code or result in the receipt by the Trust of any "net income from
foreclosure property" which is subject to taxation within the meaning of
Sections 860G(c) and 857(b)(4)(B) of the Code. If a period greater than three
years is permitted under this Agreement and is necessary to sell any REO
Property, the Master Servicer shall give appropriate notice to the Trustee,
the Certificate Insurer and the Certificateholders and shall report monthly to
the Trustee as to the progress being made in selling such REO Property.
If the Master Servicer has actual knowledge that a Mortgaged Property
which the Master Servicer is acquiring in foreclosure or by deed in lieu of
foreclosure is located within a one-mile radius of any site with environmental
or hazardous waste risks known to the Master Servicer, the Master Servicer
will notify the Trustee and the Certificate Insurer prior to acquiring the
Mortgaged Property. Nothing in this Section 3.07 shall affect the Master
Servicer's right to deem certain advances proposed to be made Nonrecoverable
Advances. For the purpose of this Section 3.07, actual knowledge of the Master
Servicer means actual knowledge of a Responsible Officer of the Master
Servicer involved in the servicing of the relevant Mortgage Loan. Actual
knowledge of the Master Servicer does not include knowledge imputable by
virtue of the availability of or accessibility to information relating to
environmental or hazardous waste sites or the locations thereof.
Section 3.08 Trustee to Cooperate. Upon any Principal Prepayment in
full, the Master Servicer is authorized to execute, pursuant to the
authorization contained in Section 3.01(f), an instrument of satisfaction
regarding the related Mortgage, which instrument of satisfaction shall be
recorded by the Master Servicer if required by applicable law and be delivered
to the Person entitled thereto. It is understood and agreed that no expenses
incurred in connection with such instrument of satisfaction or transfer shall
be reimbursed from amounts deposited in the Collection Account. If the Trustee
is holding the Mortgage Files, from time to time and as appropriate for the
servicing or foreclosure of any Mortgage Loan, the Trustee shall, upon request
of the Master Servicer and delivery to the Trustee of a Request for Release,
in the form attached hereto as Exhibit G, signed by a Servicing Officer,
release the related Mortgage File to the Master Servicer, and the Trustee
shall execute such documents, in the forms provided by the Master Servicer, as
shall be necessary for the prosecution of any such proceedings or the taking
of other servicing actions. Such Request for Release shall obligate the Master
Servicer to return the Mortgage File to the Trustee when the need therefor by
the Master 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 that hereinabove specified, the Request for Release shall
be released by the Trustee to the Master Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
Mortgage Loan that is in default following recordation of the related
Assignment of Mortgage in accordance with the provisions hereof, the Trustee
shall, if so requested in writing by the Master Servicer, execute an
appropriate assignment in the form provided to the Trustee by the Master
Servicer to assign such Mortgage Loan for the purpose of collection to the
Master Servicer (any such assignment shall unambiguously indicate that the
assignment is for the purpose of collection only) and, upon such assignment,
such assignee for collection will thereupon bring all required actions in its
own name and otherwise enforce the terms of the Mortgage Loan and deposit or
credit the Net Liquidation Proceeds, exclusive of Foreclosure Profits,
received with respect thereto in the Collection Account. In the event that all
delinquent payments due under any such Mortgage Loan are paid by the Mortgagor
and any other defaults are cured then the assignee for collection shall
promptly reassign such Mortgage Loan to the Trustee and return it to the place
where the related Mortgage File was being maintained.
Section 3.09 Servicing Compensation; Payment of Certain Expenses by
Master Servicer. Subject to Section 3.21, the Master Servicer shall be
entitled to retain the Servicing Fee in accordance with Section 3.02 as
compensation for its services in connection with servicing the Mortgage Loans.
Moreover, additional servicing compensation in the form of prepayment
penalties, late payment charges, bad check charges or assumption fees, any Net
Simple Interest Excess for the related Due Period or other receipts not
required to be deposited in the Collection Account, including, without
limitation, Foreclosure Profits and, subject to Section 5.05(e), investment
income on the Collection Account shall be retained by the Master Servicer. The
Master Servicer shall be required to pay all expenses incurred by it in
connection with its activities hereunder (including payment of all other fees
and expenses not expressly stated hereunder to be for the account of the Trust
or the Certificateholders) and shall not be entitled to reimbursement therefor
except as specifically provided herein.
Section 3.10 Annual Statement as to Compliance. (a) The Master
Servicer will deliver to the Trustee, the Certificate Insurer and the Rating
Agencies, on or before the last day of the fifth month following the end of
the Master Servicer's fiscal year ended December 31, beginning in 1999 (for
the fiscal year ending December [ ]), an Officer's Certificate stating that
(i) to the best knowledge of such person, the Master Servicer has fully
complied in all material respects with the provisions of Article III and V, if
applicable, (ii) a review of the activities of the Master Servicer during the
preceding fiscal year (or such shorter period as is applicable in the case of
the first report) and of its performance under this Agreement has been made
under such officer's supervision and (iii) to the best of such officer's
knowledge, based on such review, the Master Servicer has fulfilled all its
material obligations under this Agreement throughout such fiscal 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
Master Servicer shall promptly notify the Seller, the Trustee, the Certificate
Insurer and the Rating Agencies upon any change in the basis on which its
fiscal year is determined.
(b) The Master Servicer shall deliver to the Trustee, the Seller, the
Certificate Insurer and each of the Rating Agencies, promptly after having
obtained knowledge thereof, but in no event later than five Business Days
thereafter, written notice by means of an Officer's Certificate of any event
which, with the giving of notice or the lapse of time or both, would become an
Event of Default.
Section 3.11 Annual Servicing Report. On or before the last day of
the fifth month following the end of the Master Servicer's fiscal year,
beginning in 1999 (for the fiscal year ending [ ]), the Master Servicer, at
its expense, shall cause a firm of independent public accountants to furnish a
letter or letters to the Seller, the Trustee, the Certificate Insurer and the
Rating Agencies to the effect that such firm has, with respect to the Master
Servicer's overall servicing operations, examined such operations in
accordance with the requirements of the Uniform Single Attestation Program for
Mortgage Bankers, and stating such firm's conclusions relating thereto.
Section 3.12 Access to Certain Documentation and Information
Regarding the Mortgage Loans. The Master Servicer shall provide to the
Trustee, the Certificate Insurer and Certificateholders which are federally
insured savings and loan associations, the Office of Thrift Supervision, the
FDIC and the supervisory agents and examiners of the Office of Thrift
Supervision access to the documentation regarding the Mortgage Loans required
by applicable regulations of the Office of Thrift Supervision and the FDIC
(acting as operator of the SAIF or the BIF), such access being afforded
without charge but only upon reasonable request and during normal business
hours at the offices of the Master Servicer. Nothing in this Section shall
derogate from the obligation of the Master Servicer to observe any applicable
law prohibiting disclosure of information regarding the Mortgagors and the
failure of the Master Servicer to provide access as provided in this Section
as a result of such obligation shall not constitute a breach of this Section.
Section 3.13 Reserved.
Section 3.14 Reserved.
Section 3.15 Reports of Foreclosures and Abandonments of Mortgaged
Properties, Returns Relating to Mortgage Interest Received from Individuals
and Returns Relating to Cancellation of Indebtedness. The Master Servicer
shall make reports of foreclosures and abandonments of any Mortgaged Property
for each year beginning in [ ]. The Master Servicer shall file reports
relating to each instance occurring during the previous calendar year in which
the Master Servicer (i) on behalf of the Trust acquires an interest in any
Mortgaged Property through foreclosure or other comparable conversion in full
or partial satisfaction of a Mortgage Loan or (ii) knows or has reason to know
that any Mortgaged Property has been abandoned. The reports from the Master
Servicer shall be in form and substance sufficient to meet the reporting
requirements imposed by Sections 6050J, 6050H and 6050P of the Code.
Section 3.16 Advances by the Master Servicer. (a) Not later than the
close of business on the second Business Day prior to each Distribution Date,
the Master Servicer shall remit to the Trustee for deposit in the Distribution
Account an amount to be distributed on such Distribution Date pursuant to
Section 5.01, equal to the interest accrued on each Mortgage Loan (which, for
purposes of Simple Interest Qualifying Loans shall be 30 days' interest at the
related Loan Rate) through the related Due Date, but not received as of the
close of business on the last day of the related Due Period (net of the
Servicing Fee); such amount being defined herein as the "Monthly Advance". The
Master Servicer may fund all or a portion of the Monthly Advance with respect
to the Mortgage Loans by instructing the Trustee on the related Determination
Date to use funds deposited in the Collection Account which are not part of
Available Funds for the related Distribution Date; provided that if such funds
are so used the Master Servicer on notice to the Trustee shall replace such
funds on or before any subsequent Determination Date on which such funds are
required to be part of the Available Funds.
(b) Notwithstanding anything herein to the contrary, no Servicing
Advance or Monthly Advance shall be required to be made hereunder if the
Master Servicer determines in its good faith business judgment, and provides
the Trustee with an Officer's Certificate to the effect, that such Servicing
Advance or Monthly Advance would, if made, constitute a Nonrecoverable
Advance.
Section 3.17 Superior Liens. To the extent not previously filed by
the related original lenders, the Master Servicer shall file (or cause to be
filed) a request for notice of any action by a superior lienholder under a
First Lien for the protection of the Trustee's interest, where permitted by
local law and whenever applicable state law does not require that a junior
lienholder be named as a party defendant in foreclosure proceedings in order
to foreclose such junior lienholder's equity of redemption.
If the Master Servicer is notified that any superior lienholder has
accelerated or intends to accelerate the obligations secured by the First
Lien, or has declared or intends to declare a default under the mortgage or
the promissory note secured thereby, or has filed or intends to file an
election to have the Mortgaged Property sold or foreclosed, the Master
Servicer shall take, on behalf of the Trust, whatever actions are necessary to
protect the interests of the Certificateholders and the Certificate Insurer,
and/or to preserve the security of the related Mortgage Loan, subject to the
application of the REMIC Provisions in accordance with the terms of this
Agreement. The Master Servicer shall immediately notify the Trustee and the
Certificate Insurer in writing of any such action or circumstances. The Master
Servicer shall advance the necessary funds to cure the default or reinstate
the superior lien, if such advance is in the best interests of the
Certificateholders. Such advance shall be a Servicing Advance. Any action or
inaction on the part of the Master Servicer in accordance with such written
instructions shall be deemed to be in the best interests of the
Certificateholders. The Master Servicer shall not make such an advance except
to the extent that it determines in its reasonable good faith judgment that
the advance would be recoverable from Liquidation Proceeds on the related
Mortgage Loan and in no event in an amount that is greater than the Principal
Balance of the related Mortgage Loan, except with consent of the Certificate
Insurer, which consent shall not be unreasonably withheld. The Master Servicer
shall thereafter take such action as is necessary to recover the amount so
advanced.
Notwithstanding the foregoing, the Master Servicer may change, modify
or amend any or all of the foregoing procedures if such change, modification
or amendment is applicable to the Mortgage Loans and all other mortgage loans
serviced by the Master Servicer and is otherwise in accordance with Section
3.01.
Section 3.18 Assumption Agreements. When a Mortgaged Property has
been or is about to be conveyed by the Mortgagor, the Master Servicer shall,
to the extent it has knowledge of such conveyance or prospective conveyance,
exercise its right to accelerate the maturity of the related Mortgage Loan
under any "due-on-sale" clause contained in the related Mortgage or Mortgage
Note; provided, however, that the Master Servicer shall not exercise any such
right if the "due-on-sale" clause, in the reasonable belief of the Master
Servicer, is not enforceable under applicable law. The Master Servicer shall
to the extent it has knowledge of such conveyance or prospective conveyance,
be authorized to 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 shall become liable under the Mortgage Note and, unless
prohibited by applicable law, the Mortgagor shall remain liable thereon. The
Master Servicer, in accordance with accepted mortgage loan servicing standards
for mortgage loans similar to the Mortgage Loans, is also authorized to enter
into a substitution of liability whereby such person is substituted as
Mortgagor and becomes liable under the Mortgage Note. The Master Servicer
shall notify the Trustee and the Certificate Insurer that any such
substitution or assumption agreement has been completed by forwarding to the
Trustee the original of such substitution or assumption agreement, which
original 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 assumption or substitution agreement entered into pursuant
to this Section, the Master Servicer shall not change the Loan Rate or the
Monthly Payment, defer or forgive the payment of principal or interest, reduce
the outstanding principal amount or extend the final maturity date on such
Mortgage Loan. Any fee collected by the Master Servicer for consenting to such
conveyance or entering into such modification shall be retained by or paid to
the Master Servicer as additional servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of
this Agreement, the Master 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 Mortgage Loan by operation of law or any assumption which the
Master Servicer may be restricted by law from preventing, for any reason
whatsoever.
Section 3.19 Payment of Taxes, Insurance and Other Charges. With
respect to each Mortgage Loan, the Master Servicer shall not be required to
maintain records relating to payment of taxes or insurance (including hazard
insurance).
Section 3.20 Optional Purchase of Defaulted Mortgage Loans. The
Master Servicer, in its sole discretion, shall have the right, but not an
obligation to elect (by written notice sent to the Trustee) to purchase for
its own account from the Trust any Mortgage Loan which is 90 days or more past
due in the manner and at the price specified in Section 2.02. The Master
Servicer shall not purchase an aggregate amount of defaulted Mortgage Loans in
excess of [ ]% of the Cut-Off Date Pool Principal Balance. The Purchase Price
for any Mortgage Loan purchased hereunder shall be deposited in the Collection
Account. The Trustee, upon written notice of the receipt of such deposit,
shall release or cause to be released to the purchaser of such Mortgage Loan
the related Mortgage File and shall execute and deliver such instruments of
transfer or assignment prepared by the purchaser of such Mortgage Loan, in
each case without recourse, as shall be necessary to vest in the purchaser of
such Mortgage Loan any Mortgage Loan released pursuant hereto and the
purchaser of such Mortgage Loan shall succeed to all the Trust's right, title
and interest in and to such Mortgage Loan and all security and documents
related thereto. Such assignment shall be an assignment outright and not for
security. The purchaser of such Mortgage Loan shall thereupon own such
Mortgage Loan, and all security and documents, free of any further obligation
to the Trustee or the Certificateholders with respect thereto.
Section 3.21 Compensating Interest. Not later than the close of
business on the second Business Day prior to each Distribution Date, the
Master Servicer shall remit to the Collection Account an amount equal to the
lesser of (A) the aggregate of the Prepayment Interest Shortfalls for the
related Distribution Date resulting from Principal Prepayments during the
related Due Period and (B) its aggregate Servicing Fees received in the
related Due Period. In addition, not later than the close of business on the
second Business Day prior to each Distribution Date, the Master Servicer shall
remit to the Collection Account an amount equal to the lesser of (A) the
aggregate of the Net Simple Interest Shortfalls for the related Distribution
Date and (B) its aggregate Servicing Fees received in the related Due Period
remaining after application thereof to Prepayment Interest Shortfalls. The
Master Servicer shall not have the right to reimbursement for any amounts
deposited to the Collection Account pursuant to this Section.
ARTICLE IV.
The Certificate Insurance Policy
Section 4.01 The Certificate Insurance Policy. As soon as possible,
and in no event later than 3:00 p.m., New York time, on the third Business Day
immediately preceding each Distribution Date, the Trustee shall determine the
amount of Available Funds (net of any Insured Payments) for such Distribution
Date minus the amount of any Premium Amount and Trustee Fee to be paid on such
Distribution Date.
If for any Distribution Date a Deficiency Amount exists, the Trustee
shall complete a notice in the form set forth as Exhibit A to the Certificate
Insurance Policy (the "Notice") and shall submit such Notice to the Fiscal
Agent no later than 12:00 noon, New York time, on the second Business Day
preceding such Distribution Date. The Notice shall constitute a claim for an
Insured Payment pursuant to the Certificate Insurance Policy for an amount
equal to the Deficiency Amount. Upon receipt of the Insured Payment, at or
prior to the latest time payments of the Insured Payment are to be made by the
Certificate Insurer pursuant to the Certificate Insurance Policy, on behalf of
the Class A Certificateholders, the Trustee shall deposit such Insured
Payments in the Distribution Account and shall distribute such Insured
Payments only in accordance with Section 5.01(a)(ii) and (iii).
The Trustee shall receive, as attorney-in-fact of each Holder of a
Class A Certificate, any Insured Payment from the Certificate Insurer and
disburse the same to each Holder of a Class A Certificate in accordance with
the provisions of Article V. Insured Payments disbursed by the Trustee from
proceeds of the Certificate Insurance Policy shall not be considered payment
by the Trust nor shall such payments discharge the obligation of the Trust
with respect to such Class A Certificate, and the Certificate Insurer shall
become the owner of such unpaid amounts due from the Trust in respect of such
Insured Payments as the deemed assignee of such Holder and shall be entitled
to be reimbursed therefore in accordance with Section 5.01. The Trustee hereby
agrees on behalf of each Holder of a Class A Certificate for the benefit of
the Certificate Insurer that it and they recognize that to the extent the
Certificate Insurer makes Insured Payments, either directly or indirectly (as
by paying through the Trustee), to the Class A Certificateholders, the
Certificate Insurer will be entitled to be reimbursed therefore in accordance
with Section 5.01.
Section 4.02 [Reserved]
Section 4.03 Claims Upon the Certificate Insurance Policy. The
Trustee shall comply with the provisions of the Certificate Insurance Policy
with respect to claims upon the Certificate Insurance Policy.
The Trustee shall keep a complete and accurate record of the amount
of interest and principal paid in respect of any Class A Certificate from
moneys received under the 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 written notice to
the Trustee.
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 the Bankruptcy Code (a "Preference Claim") of any distribution
made with respect to the Class A Certificates. Each Certificateholder of Class
A Certificates, by its purchase of Class A Certificates, the Master Servicer,
the Seller and the Trustee hereby 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.
ARTICLE V.
Payments and Statements to Certificateholders;
Rights of Certificateholders
Section 5.01 Distributions. (a) On each Distribution Date, the
Trustee shall withdraw from the Distribution Account the Available Funds and
investment earnings on amounts on deposit in the Distribution Account, if any,
and make distributions thereof as described below and to the extent of the
Available Funds in the following order of priority:
(i) to the Trustee, the Trustee Fee for such Distribution
Date and to the Certificate Insurer, the Premium Amount owing to the
Certificate Insurer under the Insurance Agreement;
(ii) concurrently to the holders of the Class A-1
Certificates, Class A-2 Certificates, Class A-3 Certificates, Class
A-4 Certificates, Class A-5 Certificates, Class A-6 Certificates and
Class A-7 Certificates for such Distribution Date an amount equal to
the related Class Interest Distribution for the Class A-1
Certificates, Class A-2 Certificates, Class A-3 Certificates, Class
A-4 Certificates, Class A-5 Certificates, Class A-6 Certificates and
Class A-7 Certificates for the related Distribution Date;
(iii) to the holders of the Class A Certificates then
entitled to distributions of principal as set forth below, an amount
equal to the Class A Principal Distribution Amount (other than the
portion thereof representing Distributable Excess Spread) for such
Distribution Date in the following order of priority;
(a) to the Class A-7 Certificateholders, the
Class A-7 Principal Distribution Amount; and
(b) the balance of the Class A Principal
Distribution Amount for such Distribution Date,
sequentially, to the holders of the Class A-1 Certificates,
Class A-2 Certificates, Class A-3 Certificates, Class A-4
Certificates, Class A-5 Certificates, Class A-6 Certificates
and Class A-7 Certificates, in that order, until the Class
Principal Balance of each such Class of Class A Certificates
has been reduced to zero;
(iv) to the Certificate Insurer, the Reimbursement Amount
owing to the Certificate Insurer hereunder;
(v) sequentially, to the holders of the Class A-1
Certificates, Class A-2 Certificates, Class A-3 Certificates, Class
A-4 Certificates, Class A-5 Certificates, Class A-6 Certificates and
Class A-7 Certificates, in that order, until the respective Class
Principal Balance of each such Class is reduced to zero, to the
extent of Available Funds remaining, the Distributable Excess Spread
for such Distribution Date;
(vi) to the Master Servicer, the amount of any accrued
and unpaid Servicing Fee;
(vii) to the Master Servicer, the amount of Nonrecoverable
Advances not previously reimbursed;
(viii) to the Certificate Insurer, any other amounts owing
to the Certificate Insurer under the Insurance Agreement; and
(ix) to the Class R Certificateholders, the balance.
Notwithstanding the foregoing on any Distribution Date during the
continuance of a Certificate Insurer Default, all distributions pursuant to
clause (iii) above shall be made pro rata on such Classes of Certificates,
based on their respective Class Principal Balances on such Distribution Date.
(b) Method of Distribution. The Trustee shall make distributions in
respect of a Distribution Date to each Certificateholder of record on the
related Record Date (other than as provided in Section 10.01 respecting the
final distribution), in the case of Certificateholders of the Regular
Certificates, by check or money order mailed to such Certificateholder at the
address appearing in the Certificate Register, or, upon written request by a
Certificateholder of a Regular Certificate delivered to the Trustee at least
five Business Days prior to such Record Date, by wire transfer to an account
with a banking or financial institution in the United States (but only if such
Certificateholder is the Depository or such Certificateholder owns of record
one or more Certificates of a Class aggregating at least $1,000,000 Original
Class Certificate Principal Balance) and, in the case of Class R
Certificateholders, by wire transfer to an account with a banking or financial
institution in the United States. Distributions among Certificateholders shall
be made in proportion to the Percentage Interests evidenced by the
Certificates held by such Certificateholders.
(c) Distributions on Book-Entry Certificates. Each distribution with
respect to a Book-Entry Certificate shall be paid to the Depository, which
shall credit the amount of such distribution to the accounts of its Depository
Participants in accordance with its normal procedures. Each Depository
Participant shall be responsible for disbursing such distribution to the
Certificate Owners that it represents and to each indirect participating
brokerage firm (a "brokerage firm" or "indirect participating firm") for which
it acts as agent. Each brokerage firm shall be responsible for disbursing
funds to the Certificate Owners that it represents. All such credits and
disbursements with respect to a Book-Entry Certificate are to be made by the
Depository and the Depository Participants in accordance with the provisions
of the Certificates. None of the Trustee, the Paying Agent, the Certificate
Registrar, the Seller, the Master Servicer, the Certificate Insurer or the
Seller shall have any responsibility therefor except as otherwise provided by
applicable law.
(d) Distribution of Insured Payments. With respect to any
Distribution Date, in the event of an Insured Payment, the Trustee shall make
such payments from the amount drawn under the Certificate Insurance Policy
pursuant to Section 4.01 for such Distribution Date in accordance with Section
5.01(a)(ii) and (iii). The Certificate Insurer shall be deemed to be the
assignee of the Holders of the Class A Certificates to the extent of any
amount of Insured Payments disbursed by the Trustee from proceeds of the
Certificate Insurance Policy and to such extent, shall be the subrogee of each
such Holder of the Class A Certificates; provided, however, that any such
right of subrogation inuring to the Certificate Insurer hereunder or otherwise
shall be and is subordinated to the rights under this Agreement of the Holders
of the Class A Certificates and in accordance with Section 5.01(a).
Section 5.02 Reserved.
Section 5.03 Statements. (a) Not later than 12:00 noon, New York
time, on each Determination Date, the Master Servicer shall deliver to the
Trustee a monthly report (the "Monthly Report") in a form and format mutually
agreeable to the Master Servicer and the Trustee containing the information
set forth in Exhibit D hereto as to each Mortgage Loan as of the end of the
preceding Due Period and such other information as the Trustee shall
reasonably require, including, without limitation, all information necessary
to enable the Trustee to make the payments required by Section 5.01(a). Each
Monthly Report shall be an Officer's Certificate. On the Business Day
preceding the Distribution Date, the Trustee shall deliver to the Master
Servicer, the Certificate Insurer and the Seller, by telecopy, with a hard
copy thereof to be delivered on such Distribution Date, a statement (the
"Trustee's Remittance Report") (based solely on the information contained on
the Monthly Report) containing the information set forth below with respect to
such Distribution Date:
(i) The Available Funds, each Class' Certificate Rate and
the amount of the Insured Payment, if any, for the related
Distribution Date;
(ii) The Class Principal Balance of each Class, the Pool
Principal Balance as reported in the prior Trustee's Remittance
Report or, in the case of the first Determination Date, the Class
Principal Balance of each Class and the Cut-Off Date Pool Principal
Balance;
(iii) The aggregate amount of collections received on the
Mortgage Loans on or prior to such Determination Date in respect of
the preceding Due Period, separately stating the amounts received in
respect of principal and interest;
(iv) The number and Principal Balances of all Mortgage Loans
that were the subject of Principal Prepayments during the related Due
Period;
(v) The amount of all Curtailments that were received
during the Due Period;
(vi) The principal portion of all Monthly Payments received
during the Due Period;
(vii) The interest portion of all Monthly Payments received
on the Mortgage Loans during the Due Period;
(viii) The amount required to be paid by the Seller
(reported separately) pursuant to Sections 2.02, 2.04 or 2.06;
(ix) The amount of the Monthly Advances and the Compensating
Interest payment to be made with respect to such Distribution Date;
(x) The Class A Principal Distribution Amount for the
related Distribution Date, the portion thereof to be distributed on
each Class of Certificates then entitled to distributions of
principal and the Class Interest Distribution for the related
Distribution Date to be distributed on each Class of Certificates;
(xi) The amount, if any, of the Outstanding Class Interest
Carryover Shortfall for each Class after giving effect to the
distributions on the related Distribution Date;
(xii) The amount to be distributed to the Class R
Certificateholders for the related Distribution Date;
(xiii) The Aggregate Class Principal Balance after giving
effect to the distributions to be made on the related Distribution
Date;
(xiv) The weighted average remaining term to maturity of the
Mortgage Loans and the weighted average Loan Rate;
(xv) (a) The Servicing Fee to be paid to the Master Servicer
and (b) the amounts paid to the Certificate Insurer, separately
stated, and the Reimbursement Amount to be paid to the Certificate
Insurer pursuant to Section 5.01(a)(iv) and other amounts due and
owing to the Certificate Insurer under the Insurance Agreement and to
be paid pursuant to Section 5.01(a)(viii);
(xvi) The amount of all payments or reimbursements to the
Master Servicer pursuant to Section 3.03;
(xvii) The Overcollateralization Amount, the
Overcollateralization Release Amount, the Targeted
Overcollateralization Amount and the Distributable Excess Spread
for such Distribution Date;
(xviii) The number of Mortgage Loans outstanding at the
beginning and at the end of the related Due Period;
(xix) The Pool Principal Balance as of the end of the Due
Period related to such Distribution Date;
(xx) The number and aggregate Principal Balances of Mortgage
Loans (w) as to which the Monthly Payment is delinquent for 30-59
days, 60-89 days and 90 or more days, respectively, (x) that have
become REO Properties, in each case as of the end of the preceding
Due Period, (y) that are in foreclosure and (z) the Mortgagor of
which is the subject of any bankruptcy or insolvency proceeding;
(xxi) The unpaid principal amount of all Mortgage Loans that
became Liquidated Mortgage Loans during such Due Period;
(xxii) The Net Liquidation Proceeds received during such Due
Period;
(xxiii) The book value (within the meaning of 12 C.F.R. ss.
571.13 or comparable provision) of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xxiv) Whether a Trigger Event has occurred or is
continuing;
(xxv) Such other information as is required by the Code and
regulations thereunder to be made available to Holders of the Regular
Certificates;
(xxvi) The aggregate Premium Amount to be paid to the
Certificate Insurer pursuant to Section 5.01(a)(i);
(xxvii) For so long as the Master Servicer is the Seller,
the Rating Agencies ratings of the long-term unsecured debt of the
Seller; and
(xxviii) Cumulative Liquidation Loan Losses and the 90 Day+
Rolling Average as of such Distribution Date; and
(xxix) the number and aggregate Principal Balance of all
Mortgage Loans purchased by the Master Servicer pursuant to Section
3.20 for (i) the related Due Period and (ii) for all Due Periods
since the Cut-Off Date.
The Trustee shall forward such report concurrently with each
distribution to the Certificateholders, the Rating Agencies, the Certificate
Insurer, Bloomberg (at 499 Park Avenue, New York, New York 10022, Attention:
Mike Geller) and Intex Solutions (at 35 Highland Circle, Needham,
Massachusetts 02144, Attention: Harold Brennman) on the related Distribution
Date. The Trustee may fully rely upon and shall have no liability with respect
to information provided by the Master Servicer.
To the extent that there are inconsistencies between the telecopy of
the Trustee's Remittance Report and the hard copy thereof, the Master Servicer
may rely upon the latter.
In the case of information furnished pursuant to subclauses (vii),
(x) and (xi) above, the amounts shall be expressed in a separate section of
the report as a dollar amount for each Class for each $1,000 original dollar
amount as of the Cut-Off Date.
(b) Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each Person who at any time during the
calendar year was a Certificateholder of a Regular Certificate, if requested
in writing by such Person, such information as is reasonably necessary to
provide to such Person a statement containing the information set forth in
subclause (xxv) above, aggregated for such calendar year or applicable portion
thereof during which such Person was a Certificateholder. Such obligation of
the Trustee shall be deemed to have been satisfied to the extent that
substantially comparable information shall be prepared and furnished by the
Trustee to Certificateholders pursuant to any requirements of the Code as are
in force from time to time.
(c) On each Distribution Date, the Trustee shall forward to the Class
R Certificateholders a copy of the reports forwarded to the Regular
Certificateholders in respect of such Distribution Date with such other
information as the Trustee deems necessary or appropriate.
(d) Within a reasonable period of time after the end of each calendar
year, the Trustee shall deliver to each Person who at any time during the
calendar year was a Class R Certificateholder, 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 Class R Certificateholder. Such obligation of
the Trustee shall be deemed to have been satisfied to the extent that
substantially comparable information shall be prepared and furnished to
Certificateholders by the Trustee pursuant to any requirements of the Code as
from time to time in force.
(e) The Master Servicer and the Trustee shall furnish to the
Certificate Insurer during the term of this Agreement, such periodic, special
or other reports or information, whether or not provided for herein, as shall
be necessary, reasonable or appropriate with respect to the Certificate
Insurer as the case may be, 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 (if requested in writing) as
the Certificate Insurer as the case may be, may reasonably require; provided
that the Master Servicer and the Trustee shall be entitled to be reimbursed by
the Certificate Insurer, for their respective fees and actual expenses
associated with providing such reports, if such reports are not generally
produced in the ordinary course of their respective businesses or readily
obtainable.
(f) Reports and computer tapes furnished by the Master Servicer
pursuant to this Agreement shall be deemed confidential and of a proprietary
nature, and shall not be copied or distributed except to the extent provided
in this Agreement and to the extent required by law or to the Rating Agencies,
the Seller, the Certificate Insurer, and to the extent the Seller instructs
the Trustee in writing to furnish information regarding the Trust or the
Mortgage Loans to third-party information providers. No Person entitled to
receive copies of such reports or tapes or lists of Certificateholders shall
use the information therein for the purpose of soliciting the customers of the
Seller or for any other purpose except as set forth in this Agreement.
Section 5.04 Distribution Account. The Trustee shall establish with [
] a separate trust account (the "Distribution Account") titled "[ ], as
Trustee, of [ ] Home Equity Loan Trust [ ] Distribution Account." The
Distribution Account shall be an Eligible Account. The Trustee shall deposit
amounts representing payments on and any collections in respect of the
Mortgage Loans received by it, if any, immediately following receipt thereof,
including, without limitation, all amounts withdrawn from the Collection
Account pursuant to Section 3.03 for deposit to the Distribution Account.
Amounts on deposit in the Distribution Account may be invested in Eligible
Investments pursuant to Section 5.05.
Section 5.05 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 held by or in the
name of the Trustee shall be invested and reinvested by the Trustee, as
directed in writing by the Master Servicer, in one or more Eligible
Investments bearing interest or sold at a discount; such direction to be
signed by a Servicing Officer. If an Event of Default shall have occurred and
be continuing or if the Master Servicer does not provide investment
directions, the Trustee shall invest all Accounts in Eligible Investments
described in paragraphs (v) or (vi) of the definition of Eligible Investments.
No such investment in any Account shall mature later than the Business Day
immediately preceding the next Distribution Date.
(b) If any amounts are needed for disbursement from any 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. No liquidation of
amounts of investments in an Account will be required prior to maturity unless
the proceeds are needed for disbursements.
(c) The Trustee shall not in any way be held liable for the selection
of Eligible Investments to be purchased or sold pursuant to this Section or by
reason of any investment loss or charge or any insufficiency in any Account
held by or in the name of the Trustee resulting from any investment loss on
any Eligible Investment included therein unless the Trustee's failure to
perform in accordance with this Section is the cause of such loss or charge
except to the extent that the Trustee is the obligor and has defaulted
thereon. The Trustee shall have no liability in respect of losses incurred as
a result of the liquidation of any Eligible Investment prior to its stated
maturity or the failure of the Master Servicer to provide timely written
investment direction.
(d) The Trustee shall invest and reinvest funds in the Accounts held
by or in the name of the Trustee, to the fullest extent practicable, in such
manner as the Master Servicer shall from time to time direct as set forth in
Section 5.05(a), but only in one or more Eligible Investments.
(e) So long as no Event of Default shall have occurred and be
continuing, all net income and gain realized from investment of, and all
realized earnings on, funds deposited in the Collection Account and the
Distribution Account shall be for the benefit of the Master Servicer as
servicing compensation (in addition to the Servicing Fee), and shall be
subject to withdrawal on or before the first Business Day of the month
following the month in which such income or gain is received. The Master
Servicer shall deposit in the Collection Account and the Distribution Account
the amount of any loss incurred in respect of any Eligible Investment held
therein which is in excess of the income and gain thereon immediately upon
realization of such loss from its own funds, without any right to
reimbursement therefor.
ARTICLE VI.
The Certificates
Section 6.01 The Certificates. Each of the Regular Certificates and
Class R Certificates shall be substantially in the forms set forth in Exhibits
A and B hereto, respectively, and shall, on original issue, be executed,
authenticated and delivered by the Trustee to or upon the order of the Seller
concurrently with the sale and assignment to the Trustee of the Trust. Each
Class of Regular Certificates shall be initially evidenced by one or more
certificates representing a fraction of the Original Class Certificate
Principal Balance and shall be held in minimum dollar denominations of $1,000
and dollar multiples in excess thereof, except that one Class of each Class of
the Regular Certificate may be in a different denomination so that the sum of
the denominations of all outstanding Regular Certificates shall equal the
Original Class Certificate Principal Balance.
The Certificates shall be executed on behalf of the Trust by manual
or facsimile signature on behalf of the Trustee by a Responsible Officer.
Certificates bearing the manual or facsimile signatures of individuals who
were, at the time when such signatures were affixed, authorized to sign on
behalf of the Trustee shall bind the Trust, notwithstanding that such
individuals or any of them have ceased to be so authorized prior to the
authentication and delivery of such Certificates or did not hold such offices
at the date of such Certificate. No Certificate shall be entitled to any
benefit under this Agreement or be valid for any purpose, unless such
Certificate shall have been manually authenticated by an authorized officer of
the Trustee substantially in the form provided for herein, and such
authentication upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication.
Subject to Section 6.02(c), the Regular Certificates shall be Book-Entry
Certificates. The Class R Certificates shall not be Book-Entry Certificates.
Section 6.02 Registration of Transfer and Exchange of Certificates.
(a) The Certificate Registrar shall cause to be kept at the Corporate Trust
Office a Certificate Register in which, subject to such reasonable regulations
as it may prescribe, the Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges of Certificates as
herein provided. The Trustee shall initially serve as Certificate Registrar
for the purpose of registering Certificates and transfers and exchanges of
Certificates as herein provided.
Upon surrender for registration of transfer of any Certificate at any
office or agency of the Certificate Registrar maintained for such purpose
pursuant to the foregoing paragraph and, in the case of a Class R Certificate,
upon satisfaction of the conditions set forth below, the Trustee on behalf of
the Trust shall execute, authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Certificates of the same
aggregate Percentage Interest.
At the option of the Certificateholders, Certificates may be
exchanged for other Certificates in authorized denominations and the same
aggregate Percentage Interests, upon surrender of the Certificates to be
exchanged at any such office or agency. Whenever any Certificates are so
surrendered for exchange, the Trustee shall execute on behalf of the Trust and
authenticate and deliver the Certificates which the Certificateholder making
the exchange is entitled to receive. Every Certificate presented or
surrendered for registration of transfer or exchange shall (if so required by
the Trustee or the Certificate Registrar) be duly endorsed by, or be
accompanied by a written instrument of transfer satisfactory to the Trustee
and the Certificate Registrar duly executed by, the Holder thereof or his
attorney duly authorized in writing.
(b) Except as provided in paragraph (c) below, the Book-Entry
Certificates shall at all times remain registered in the name of the
Depository or its nominee and at all times: (i) registration of such
Certificates may not be transferred by the Trustee except to another
Depository or its nominee; (ii) the Depository shall maintain book-entry
records with respect to the Certificate Owners and with respect to ownership
and transfers of such Certificates; (iii) ownership and transfers of
registration of such Certificates on the books of the Depository shall be
governed by applicable rules established by the Depository; (iv) the
Depository may collect its usual and customary fees, charges and expenses from
its Depository Participants; (v) the Trustee shall deal with the Depository as
representative of the Certificate Owners of the Certificates for purposes of
exercising the rights of Holders under this Agreement, and requests and
directions for and votes of such representative shall not be deemed to be
inconsistent if they are made with respect to different Certificate Owners;
and (vi) the Trustee may rely and shall be fully protected in relying upon
information furnished by the Depository with respect to its Depository
Participants and furnished by the Depository Participants with respect to
indirect participating firms and Persons shown on the books of such indirect
participating firms as direct or indirect Certificate Owners; and (vii) the
direct and indirect participants of the Depository shall have no rights under
this Agreement under or with respect to any of the Certificates held on their
behalf by the Depository, and the Depository may be treated by the Trustee and
its agents, employees, officers and directors as the absolute owner of the
Certificates for all purposes whatsoever.
All transfers by Certificate Owners of Book-Entry Certificates shall
be made in accordance with the procedures established by the Depository
Participant or brokerage firm representing such Certificate Owners. Each
Depository Participant shall only transfer Book-Entry Certificates of
Certificate Owners that it represents or of brokerage firms for which it acts
as agent in accordance with the Depository's normal procedures. The parties
hereto are hereby authorized to execute a Letter of Representations with the
Depository or take such other action as may be necessary or desirable to
register a Book-Entry Certificate to the Depository. In the event of any
conflict between the terms of any such Letter of Representation and this
Agreement the terms of this Agreement shall control.
(c) If (i) (x) the Depository or the Seller advises the Trustee in
writing that the Depository is no longer willing or able to discharge properly
its responsibilities as Depository and (y) the Trustee or the Seller is unable
to locate a qualified successor, (ii) the Seller, at its sole option, with the
consent of the Trustee, elects to terminate the book-entry system through the
Depository or (iii) after the occurrence of an Event of Default, the
Certificate Owners of each Class of Regular Certificates representing
Percentage Interests aggregating not less than 51% advises the Trustee and
Depository through the Financial Intermediaries and the Depository
Participants in writing that the continuation of a book-entry system through
the Depository to the exclusion of definitive, fully registered certificates
(the "Definitive Certificates") to Certificate Owners is no longer in the best
interests of the Certificate Owners, upon surrender to the Certificate
Registrar of each Class of Regular Certificates by the Depository, accompanied
by registration instructions from the Depository for registration, the Trustee
shall, at the Seller's expense, in the case of (ii) above, or the Seller's
expense, in the case of (i) and (iii) above, execute on behalf of the Trust
and authenticate the Definitive Certificates. Neither the Seller nor the
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 Certificates, the Trustee, the Certificate
Registrar, the Master Servicer, any Paying Agent and the Seller shall
recognize the Holders of the Definitive Certificates as Certificateholders
hereunder.
(d) Except with respect to the initial transfer of the Class R
Certificates to the Seller, no transfer, sale, pledge or other disposition of
any Class R Certificate shall be made unless such disposition is exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and any applicable state securities laws or is made in accordance
with the 1933 Act and laws. In the event of any such transfer, other than the
transfer of the Tax Matters Person Residual Interest to the Trustee (i) unless
such transfer is made in reliance upon Rule 144A (as evidenced by the
investment letter delivered to the Trustee, in substantially the form attached
hereto as Exhibit H) under the 1933 Act, the Trustee and the Seller shall
require a written Opinion of Counsel (which may be in-house counsel)
acceptable to and in form reasonably satisfactory to the Trustee and the
Seller that such transfer may be made pursuant to an exemption, describing the
applicable exemption and the basis therefor, from the 1933 Act or is being
made pursuant to the 1933 Act, which Opinion of Counsel shall not be an
expense of the Trustee or the Seller or (ii) the Trustee shall require the
transferor to execute a transferor certificate (in substantially the form
attached hereto as Exhibit E) and the transferee to execute an investment
letter (in substantially the form attached hereto as Exhibit H) acceptable to
and in form reasonably satisfactory to the Seller and the Trustee certifying
to the Seller and the Trustee the facts surrounding such transfer, which
investment letter shall not be an expense of the Trustee or the Seller. The
Holder of a Class R Certificate desiring to effect such transfer shall, and
does hereby agree to, indemnify the Trustee and the Seller against any
liability that may result if the transfer is not so exempt or is not made in
accordance with such federal and state laws.
No transfer of a Class R Certificate (each, an "ERISA-Restricted
Certificate") shall be made unless the Trustee shall have received either (i)
a representation from the transferee of such Certificate, acceptable to and in
form satisfactory to the Trustee and the Seller, (such requirement is
satisfied by the Trustee's receipt of a representation letter from the
transferee substantially in the form of Exhibit E hereto, as appropriate), to
the effect that such transferee is not an employee benefit plan or arrangement
subject to Section 406 of ERISA or a plan subject to Section 4975 of the Code,
nor a person acting on behalf of any such plan or arrangement nor using the
assets of any such plan or arrangement to effect such transfer or (ii) if the
purchaser is an insurance company, a representation that the purchaser is an
insurance company which is purchasing such Certificates with funds contained
in an "insurance company general account" (as such term is defined in Section
V(e) of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60") and that
the purchase and holding of such Certificates are covered under PTCE 95-60 or
(iii) in the case of any such ERISA-Restricted Certificate presented for
registration in the name of an employee benefit plan subject to ERISA or a
plan or arrangement subject to Section 4975 of the Code (or comparable
provisions of any subsequent enactments), or a trustee of any such plan or any
other person acting on behalf of any such plan or arrangement or using such
plan's or arrangement's assets, an Opinion of Counsel in form satisfactory to
the Trustee which Opinion of Counsel shall not be an expense of either the
Trustee or the Trust, addressed to the Trustee, to the effect that the
purchase or holding of such ERISA-Restricted Certificate will not result in
the assets of the Trust being deemed to be "plan assets" and subject to the
prohibited transaction provisions of ERISA and the Code and will not subject
the Trustee to any obligation in addition to those expressly undertaken in
this Agreement or to any liability. For purposes of clause (i) of the
preceding sentence, such representation shall be deemed to have been made to
the Trustee by the transferee's acceptance of an ERISA-Restricted Certificate
(or the acceptance by a Certificate Owner of the beneficial interest in any
such Class of ERISA-Restricted Certificates) unless the Trustee shall have
received from the transferee an alternative representation acceptable in form
and substance to the Seller. Notwithstanding anything else to the contrary
herein, any purported transfer of an ERISA-Restricted Certificate to or on
behalf of an employee benefit plan subject to Section 406 of ERISA or a plan
subject to Section 4975 of the Code without the delivery to the Trustee of an
Opinion of Counsel in form satisfactory to the Trustee as described above
shall be void and of no effect; provided, however, that the restriction set
forth in this sentence shall not be applicable if there has been delivered to
the Trustee an Opinion of Counsel in form satisfactory to the Trustee to the
effect that the purchase or holding of an ERISA-Restricted Certificate will
not result in the assets of the Trust Fund being deemed to be "plan assets"
and subject to the prohibited transaction provisions of ERISA and the Code and
will not subject the Trustee to any obligation in addition to those expressly
undertaken in this Agreement. The Trustee shall be under no liability to any
Person for any registration of transfer of any ERISA-Restricted Certificate
that is in fact not permitted by this Section 6.02(d) 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 by the Trustee in accordance with the
foregoing requirements. The Trustee shall be entitled, but not obligated, to
recover from any Holder of any ERISA-Restricted Certificate that was in fact
an employee benefit plan subject to Section 406 of ERISA or a plan subject to
Section 4975 of the Code or a Person acting on behalf of any such plan at the
time it became a Holder or, at such subsequent time as it became such a plan
or Person acting on behalf of such a plan, all payments made on such
ERISA-Restricted 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 that is not such a plan or Person
acting on behalf of a plan.
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 Seller or its designee as its
attorney-in-fact to negotiate the terms of any mandatory sale under clause (v)
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 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 shall
promptly notify the Trustee of any change or impending change in its
status as a Permitted Transferee.
(ii) No Person shall acquire an Ownership Interest in a
Class R Certificate unless such Ownership Interest is a pro rata
undivided interest.
(iii) In connection with any proposed transfer of any
Ownership Interest in a Class R Certificate, the Trustee shall as a
condition to registration of the transfer, require delivery to it, in
form satisfactory to it, of each of the following:
A. an affidavit in the form of Exhibit I hereto
from the proposed transferee to the effect that such
transferee is a Permitted Transferee and 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 who is not a Permitted
Transferee; and
B. a covenant of the proposed transferee to
the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions
applicable to the Class R Certificates.
(iv) Any attempted or purported transfer of any Ownership
Interest in a Class R Certificate in violation of the provisions of
this Section shall be absolutely null and void and shall vest no
rights in the purported transferee. If any purported transferee
shall, in violation of the provisions of this Section, become a
Holder of a Class R Certificate, then the prior Holder of such Class
R Certificate that is a Permitted Transferee shall, upon discovery
that the registration of transfer of such Class R Certificate was not
in fact permitted by this Section, be restored to all rights as
Holder thereof retroactive to the date of registration of transfer of
such Class R Certificate. 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 or for making any
distributions due on such Class R 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 Trustee received the
documents specified in clause (iii). The Trustee shall be entitled to
recover from any Holder of a Class R Certificate that was in fact not
a Permitted Transferee at the time such distributions were made all
distributions made on such Class R Certificate. Any such
distributions so recovered by the Trustee shall be distributed and
delivered by the Trustee to the prior Holder of such Class R
Certificate that is a Permitted Transferee.
(v) If any Person other than a Permitted Transferee acquires
any Ownership Interest in a Class R Certificate in violation of the
restrictions in this Section, then the Trustee shall have the right
but not the obligation, without notice to the Holder of such Class R
Certificate or any other Person having an Ownership Interest therein,
to notify the Seller to arrange for the sale of such Class R
Certificate. The proceeds of such sale, net of commissions (which may
include commissions payable to the Seller or its affiliates in
connection with such sale), expenses and taxes due, if any, will be
remitted by the Trustee to the previous Holder of such Class R
Certificate that is a Permitted Transferee, except that in the event
that the Trustee determines that the Holder of such Class R
Certificate may be liable for any amount due under this Section or
any other provisions of this Agreement, the Trustee may withhold a
corresponding amount from such remittance as security for such claim.
The terms and conditions of any sale under this clause (v) shall be
determined in the sole discretion of the Trustee 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.
(vi) If any Person other than a Permitted Transferee
acquires any Ownership Interest in a Class R Certificate in violation
of the restrictions in this Section, then the Trustee will provide to
the Internal Revenue Service, and to the persons specified in
Sections 860E(e)(3) and (6) of the Code, information needed to
compute the tax imposed under Section 860E(e)(5) of the Code on
transfers of residual interests to disqualified organizations.
The foregoing provisions of this Section shall cease to apply to transfers
occurring on or after the date on which there shall have been delivered to the
Trustee, in form satisfactory to the Trustee, (i) written notification from
each Rating Agency that the removal of the restrictions on transfer set forth
in this Section will not cause such Rating Agency to downgrade its rating of
the Certificates and (ii) an Opinion of Counsel to the effect that such
removal will not cause the Trust to fail to qualify as a REMIC. The Trustee
shall be the initial holder of the Tax Matter Person Residual Interest.
(e) No service charge shall be made for any registration of transfer
or exchange of Certificates of any Class, but 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
Certificates.
All Certificates surrendered for registration of transfer or exchange
shall be cancelled by the Certificate Registrar and disposed of pursuant to
its standard procedures.
Section 6.03 Mutilated, Destroyed, Lost or Stolen Certificates. If
(i) any mutilated Certificate is surrendered to the Certificate Registrar or
the Certificate Registrar receives evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (ii) there is delivered to
the Trustee and the Certificate Registrar such security or indemnity as may be
required by them to save each of them harmless, then, in the absence of notice
to the Trustee or the Certificate Registrar that such Certificate has been
acquired by a bona fide purchaser, the Trustee shall execute on behalf of the
Trust, 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 Percentage Interest. Upon the issuance of any new Certificate under
this Section, the 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 relation thereto and any other expenses (including the fees and
expenses of the Trustee and the Certificate Registrar) in connection
therewith. Any duplicate Certificate issued pursuant to this Section, shall
constitute complete and indefeasible evidence of ownership in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
Section 6.04 Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Master Servicer, the Seller, the
Trustee, the Certificate Registrar, the Certificate Insurer, any Paying Agent
and any agent of the Master Servicer, the Seller, the Certificate Registrar,
any Paying Agent, the Certificate Insurer or the Trustee may (subject to
Section 5.01(b)) treat the Person, including a Depository, in whose name any
Certificate is registered as the owner of such Certificate for the purpose of
receiving distributions pursuant to Section 5.01 and for all other purposes
whatsoever, and none of the Master Servicer, the Trust, the Trustee, the
Certificate Insurer, the Seller, the Certificate Registrar, the Paying Agent
nor any agent of any of them shall be affected by notice to the contrary.
Section 6.05 Appointment of Paying Agent. (a) The Paying Agent shall
make distributions to Certificateholders from the Distribution Account
pursuant to Section 5.01 and shall report the amounts of such distributions to
the Trustee. The duties of the Paying Agent may include the obligation (i) to
withdraw funds from the Distribution Account pursuant to Section 5.01 and for
the purpose of making the distributions referred to in Section 5.01 and (ii)
to distribute statements and provide information to Certificateholders as
required hereunder. The Paying Agent hereunder shall at all times be a
corporation duly incorporated and validly existing under the laws of the
United States of America or any state thereof, authorized under such laws to
exercise corporate trust powers and subject to supervision or examination by
federal or state authorities. The Paying Agent shall initially be the Trustee.
The Trustee may appoint a successor to act as Paying Agent, which appointment
shall be reasonably satisfactory to the Seller and the Certificate Insurer.
There will be no Paying Agent on the Closing Date.
(b) The Trustee shall cause the Paying Agent (if other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee that such Paying Agent shall hold
all sums, if any, held by it for payment to the Certificateholders in trust
for the benefit of the Certificateholders entitled thereto until such sums
shall be paid to such Certificateholders and shall agree that it shall comply
with all requirements of the Code regarding the withholding of payments in
respect of Federal income taxes due from Certificate Owners and otherwise
comply with the provisions of this Agreement applicable to it.
ARTICLE VII.
The Seller and the Master Servicer
Section 7.01 Liability of the Seller and the Master Servicer. The
Seller and the Master Servicer shall be liable in accordance herewith only to
the extent of the obligations specifically imposed upon and undertaken by the
Seller or the Master Servicer, as the case may be, herein. The Seller shall be
liable in accordance herewith only to the extent of the obligations
specifically imposed upon and undertaken herein by the Seller.
Section 7.02 Merger or Consolidation of, or Assumption of the
Obligations of, the Seller or the Master Servicer. Any Person into which the
Seller or the Master Servicer may be merged or consolidated, or any Person
resulting from any merger, conversion or consolidation to which the Seller or
the Master Servicer shall be a party, or any Person succeeding to the business
of the Seller or the Master Servicer, shall be the successor of the Seller or
the Master Servicer, as the case may be, hereunder, without the execution or
filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding; provided, however,
that the successor Master Servicer shall satisfy all the requirements of
Section 8.02 with respect to the qualifications of a successor Master
Servicer.
Section 7.03 Limitation on Liability of the Master Servicer and
Others. Neither the Master Servicer nor any of the directors or officers or
employees or agents of the Master Servicer shall be under any liability to the
Trust or the Certificateholders for any action taken or for refraining from
the taking of any action by the Master Servicer in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Master Servicer or any such Person against any liability
which would otherwise be imposed by reason of its willful misfeasance, bad
faith or negligence in the performance of duties of the Master Servicer or by
reason of its reckless disregard of its obligations and duties of the Master
Servicer hereunder; provided, further, that this provision shall not be
construed to entitle the Master Servicer to indemnity in the event that
amounts advanced by the Master Servicer to retire any senior lien exceed Net
Liquidation Proceeds realized with respect to the related Mortgage Loan. The
preceding sentence shall not limit the obligations of the Master Servicer
pursuant to Section 9.05. The Master Servicer and any director or officer or
employee or agent of the Master Servicer may rely in good faith on any
document of any kind prima facie properly executed and submitted by any Person
respecting any matters arising hereunder. The Master Servicer and any director
or officer or employee or agent of the Master Servicer shall be indemnified by
the Trust and held harmless against any loss, liability or expense incurred in
connection with any legal action relating to this Agreement or the
Certificates, other than any loss, liability or expense related to any
specific Mortgage Loan or Mortgage 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 its willful misfeasance, bad
faith or negligence in the performance of duties hereunder or by reason of its
reckless disregard of obligations and duties hereunder; and such amounts shall
be payable only pursuant to Section 3.03(vii). The Master Servicer may
undertake any such action which it may deem necessary or desirable in respect
of this Agreement, and the rights and duties of the parties hereto and the
interests of the Certificateholders hereunder. In such event, the reasonable
legal expenses and costs of such action and any liability resulting therefrom
shall be expenses, costs and liabilities of the Trust and the Master Servicer
shall be entitled to be reimbursed therefor only pursuant to Section
5.01(a)(vii). The Master Servicer's right to indemnity or reimbursement
pursuant to this Section shall survive any resignation or termination of the
Master Servicer pursuant to Section 7.04 or 8.01 with respect to any losses,
expenses, costs or liabilities arising prior to such resignation or
termination (or arising from events that occurred prior to such resignation or
termination). This paragraph shall apply to the Master Servicer solely in its
capacity as Master Servicer hereunder and in no other capacities.
Section 7.04 Master Servicer Not to Resign. Subject to the provisions
of Section 7.02, the Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (i) upon determination that the performance
of its obligations or duties hereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with
any other activities carried on by it or its subsidiaries or Affiliates, the
other activities of the Master Servicer so causing such a conflict being of a
type and nature carried on by the Master Servicer or its subsidiaries or
Affiliates at the date of this Agreement or (ii) upon satisfaction of the
following conditions: (a) the Master Servicer has proposed a successor
servicer to the Trustee in writing and such proposed successor servicer is
reasonably acceptable to the Trustee; (b) each Rating Agency shall have
delivered a letter to the Trustee prior to the appointment of the successor
servicer stating that the proposed appointment of such successor servicer as
Master Servicer hereunder will not result in the reduction or withdrawal of
the then current rating of the Regular Certificates; and (c) such proposed
successor servicer is reasonably acceptable to the Rating Agencies and the
Certificate Insurer, as evidenced by a letter to the Trustee; provided,
however, that no such resignation by the Master Servicer shall become
effective until such successor servicer or, in the case of (i) above, the
Trustee shall have assumed the Master Servicer's responsibilities and
obligations hereunder or the Trustee shall have designated a successor
servicer in accordance with Section 8.02. Any such resignation shall not
relieve the Master Servicer of responsibility for any of the obligations
specified in Sections 8.01 and 8.02 as obligations that survive the
resignation or termination of the Master Servicer. Any such determination
permitting the resignation of the Master Servicer pursuant to clause (i) above
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Trustee and the Certificate Insurer.
Section 7.05 Delegation of Duties. In the ordinary course of
business, the Master Servicer at any time may delegate any of its duties
hereunder to any Person, including any of its Affiliates, who agrees to
conduct such duties in accordance with standards comparable to those set forth
in Section 3.01. Such delegation shall not relieve the Master Servicer of its
liabilities and responsibilities with respect to such duties and shall not
constitute a resignation within the meaning of Section 7.04. The Master
Servicer shall provide the Trustee and the Certificate Insurer with written
notice prior to the delegation of any of its duties to any Person other than
to Mortgage Lenders Network USA, Inc. or any of the Master Servicer's
Affiliates or their respective successors and assigns.
Section 7.06 Indemnification of the Trust by the Master Servicer. The
Master Servicer shall indemnify and hold harmless the Trust and the Trustee
and its officers, directors, agents and employees from and against any loss,
liability, expense, damage or injury suffered or sustained by reason of the
Master Servicer's willful misfeasance, bad faith or negligence in the
performance of its activities in servicing or administering the Mortgage Loans
pursuant to this Agreement, including, but not limited to, any judgment,
award, settlement, reasonable fees of counsel of its selection and other costs
or expenses incurred in connection with the defense of any actual or
threatened action, proceeding or claim related to the Master Servicer's
misfeasance, bad faith or negligence. Any such indemnification shall not be
payable from the assets of the Trust. The provisions of this indemnity shall
run directly to and be enforceable by an injured party subject to the
limitations hereof. The provisions of this Section 7.06 shall survive
termination of the Agreement or the earlier of the resignation or removal of
the Trustee.
Notwithstanding anything to the contrary contained herein, the Seller
(i) agrees to be liable directly to the injured party for the entire amount
and (ii) shall indemnify and hold harmless the Master Servicer, the Trust and
the Trustee from and against any loss, liability, expense, damage, claim or
injury (including, without limitation, any prohibited transactions tax imposed
on the Trust, but excluding any loss, liability, expense, damage, claim or
injury attributable to a holder of a Class A Certificate in the capacity as an
investor in such Certificates as a result of defaults on the Mortgage Loans)
arising out of or based on the retention of the Mortgage Loans and Mortgage
Files pursuant to this Agreement by reason of any acts, omissions or alleged
acts or omissions arising out of activities of the Trust or the Trustee, or
the actions of the Master Servicer including, in either case, but not limited
to, amounts payable to the Master Servicer pursuant to Section 7.03, any
judgment, award, settlement, reasonable attorneys' fees and other costs or
expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim; provided that the Seller shall not indemnify any
such party (but shall indemnify any other injured party) if such loss,
liability, expense, damage or injury is due to such party's willful
malfeasance, bad faith or negligence or by reason of such party's reckless
disregard of its obligations hereunder. The provisions of this indemnity shall
run directly to and be enforceable by an injured party subject to the
limitations hereof. The provisions of this Section shall survive the
termination of this Agreement or the resignation or removal of the Trustee
hereunder.
Section 7.07 Inspection. The Master Servicer shall (and shall require
any Subservicer in the related Subservicing Agreement to) afford the
Certificate Insurer, upon reasonable notice, during normal business hours,
access to all records maintained by the Master Servicer in respect of its
rights and obligations hereunder and access to officers of the Master Servicer
and each Subservicer responsible for such obligations. Upon request, the
Master Servicer shall furnish to the Certificate Insurer the Master Servicer's
most recent publicly available financial statements and each Subservicer's
most recent financial statements (annual or quarterly statements, as the case
may be) and such other information relating to their capacity to perform their
obligations under this Agreement as the Master Servicer or such Subservicer
possesses.
ARTICLE VIII.
Default
Section 8.01 Events of Default. (a) If any one of the following
events ("Events of Default") shall occur and be continuing:
(i) (A) The failure by the Master Servicer to make any
Monthly Advance (other than a Nonrecoverable Advance); or (B) any
other failure by the Master Servicer to deposit in the Collection
Account or the Distribution Account any deposit required to be made
under the terms of this Agreement which continues unremedied for a
period of two Business Days after the date upon which written notice
of such failure shall have been given to the Master Servicer by the
Trustee or to the Master Servicer and the Trustee by the Certificate
Insurer or any holder of a Regular Certificate evidencing an
aggregate undivided interest in the Trust of a Percentage Interest of
at least 25%; or
(ii) The failure by the Master Servicer to make any required
Servicing Advance which failure continues unremedied for a period of
30 days, or the failure by the Master Servicer duly to observe or
perform, in any material respect, any other covenants, obligations or
agreements of the Master Servicer as set forth in this Agreement,
which failure continues unremedied for a period of 30 days, after the
date on which written notice of such failure, requiring the same to
be remedied, shall have been given to the Master Servicer by the
Trustee or to the Master Servicer and the Trustee by the Certificate
Insurer or any holder of a Regular Certificate evidencing an
aggregate undivided interest in the Trust of a Percentage Interest of
at least 25%; or
(iii) The entry against the Master Servicer of a decree or
order by a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a trustee,
conservator, receiver or liquidator in any insolvency,
conservatorship, receivership, readjustment of debt, marshalling of
assets and liabilities or similar proceedings, or for the winding up
or liquidation of its affairs, and the continuance of any such decree
or order unstayed and in effect for a period of 60 consecutive days;
(iv) The Master Servicer shall voluntarily go into
liquidation, consent to the appointment of a conservator or receiver
or liquidator or similar person in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings of
or relating to the Master Servicer or of or relating to all or
substantially all of its property, or a decree or order of a court or
agency or supervisory authority having jurisdiction in the premises
for the appointment of a conservator, receiver, liquidator or similar
person 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
Master Servicer and such decree or order shall have remained in force
undischarged, unbonded or unstayed for a period of 60 days; or the
Master Servicer shall admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of
any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations; or
(v) So long as the Seller is the Master Servicer, any
failure of the Seller, to repurchase, or substitute an Eligible
Substitute Mortgage Loan for, any Mortgage Loan as required by
Sections 2.02, 2.04 and 2.06; and
(vi) The occurrence of a Trigger Event.
(b) Then, and in each and every such case, so long as an Event of
Default shall not have been remedied within the applicable grace period, (x)
with respect solely to clause (i) (A) above, if such Monthly Advance is not
made by 4:00 P.M., New York time, on the second Business Day following written
notice to the Master Servicer of such event given to the Master Servicer by
the Trustee, the Trustee shall terminate by written notice to the Master
Servicer all of the rights and obligations of the Master Servicer under this
Agreement and the Trustee, or a successor servicer appointed in accordance
with Section 8.02, shall immediately make such Monthly Advance and assume,
pursuant to Section 8.02, the duties of a successor Master Servicer and (y) in
the case of (i) (B), (ii), (iii), (iv) and (v) above, the Trustee shall, at
the direction of the Certificate Insurer or the Holders of each Class of
Regular Certificates evidencing Percentage Interests aggregating not less than
51% (with the consent of the Certificate Insurer so long as no Certificate
Insurer Default exists), by notice then given in writing to the Master
Servicer, terminate all of the rights and obligations of the Master Servicer
as servicer under this Agreement. Within 30 days after notification of the
occurrence of clause (vi) above, the Certificate Insurer may require that an
audit of the Master Servicer's servicing practices be performed, at the
expense of the Certificate Insurer, by a Person selected by the Certificate
Insurer. The Person conducting the audit shall promptly provide the
Certificate Insurer and the Master Servicer with the written results of such
audit. After review of the results of such audit and consultation with the
Master Servicer regarding such results, the Trustee at the direction of the
Certificate Insurer may declare an Event of Default and may terminate all of
the rights and obligations of the Master Servicer hereunder by giving written
notice of such action to the Seller, the Master Servicer and the Trustee. The
Certificate Insurer agrees that, in making its decision to remove the Master
Servicer under clause (vi) above, it shall consider, among other factors,
whether the Master Servicer's servicing practices have been in compliance with
the servicing standards set forth herein. Any notice given pursuant to this
Section to the Master Servicer shall also be given to each Rating Agency and
the Seller. On or after the receipt by the Master Servicer of such written
notice, all authority and power of the Master Servicer under this Agreement,
whether with respect to the Certificates or the Mortgage Loans or otherwise,
shall pass to and be vested in the Trustee pursuant to and under this Section;
and, without limitation, the Trustee is hereby authorized and empowered to
execute and deliver, on behalf of the Master Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, whether to complete the transfer and
endorsement of each Mortgage Loan and related documents or otherwise. The
Master Servicer agrees to cooperate with the Trustee in effecting the
termination of the responsibilities and rights of the Master Servicer
hereunder, including, without limitation, the transfer to the Trustee for the
administration by it of all cash amounts that shall at the time be held by the
Master Servicer and to be deposited by it in the Collection Account, or that
have been deposited by the Master Servicer in the Collection Account or
thereafter received by the Master Servicer with respect to the Mortgage Loans.
All reasonable costs and expenses (including attorneys' fees) incurred in
connection with transferring the Mortgage Files to the successor Master
Servicer and amending this Agreement to reflect such succession as Master
Servicer pursuant to this Section shall be paid by the predecessor Master
Servicer (or if the predecessor Master Servicer is the Trustee, the initial
Master Servicer) upon presentation of reasonable documentation of such costs
and expenses.
(c) Holders of Regular Certificates evidencing Percentage Interests
aggregating not less than 51% (with the consent of the Certificate Insurer, a
copy of which consent shall be delivered to the Trustee) shall have the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee, provided, that:
(1) such direction shall not be in conflict with
any rule of law or with this Agreement;
(2) the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent
with such direction; and
(3) the Trustee shall have the right to decline to
follow any such direction if the Trustee in
good faith shall, by a Responsible Officer or
Officers of the Trustee, determine that the
proceeding so directed would involve the
Trustee in personal liability.
Section 8.02 Trustee to Act; Appointment of Successor. (a) On and
after the time the Master Servicer receives a notice of termination pursuant
to Section 8.01 or on or after any resignation pursuant to Section 7.04 (i)
provided, that in the case of Section 7.04(i) the Opinion of Counsel required
by that Section shall have been received, the Trustee shall be the successor
in all respects to the Master Servicer in its capacity as Master 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 Master Servicer by the terms and provisions hereof
arising on and after its succession. As compensation therefor, the Trustee
shall be entitled to such compensation as the Master Servicer would have been
entitled to hereunder if no such notice of termination had been given.
Notwithstanding the above, (i) if the Trustee is unwilling to act as successor
Master Servicer or (ii) if the Trustee is legally unable so to act, the
Trustee shall appoint or petition a court of competent jurisdiction to
appoint, any established housing and home finance institution, bank or other
mortgage loan or home equity loan Master Servicer having a net worth of not
less than $50,000,000 as the successor to the Master Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities
of the Master Servicer hereunder; provided that any such successor Master
Servicer shall be acceptable to the Certificate Insurer, as evidenced by the
Certificate Insurer's prior written consent which consent shall not be
unreasonably withheld and provided, further, that the appointment of any such
successor Master Servicer will not result in the qualification, reduction or
withdrawal of the ratings assigned to the Certificates by the Rating Agencies.
Pending appointment of a successor to the Master Servicer hereunder, unless
the Trustee is prohibited by law from so acting, the Trustee shall act in such
capacity as hereinabove provided. In connection with such appointment and
assumption, the successor shall be entitled to receive compensation out of
payments on Mortgage Loans in an amount equal to the compensation which the
Master Servicer would otherwise have received pursuant to Section 3.09 (or
such lesser compensation as the Trustee and such successor shall agree). The
appointment of a successor Master Servicer shall not affect any liability of
the predecessor Master Servicer which may have arisen under this Agreement
prior to its termination as Master Servicer to pay any deductible under an
insurance policy pursuant to Section 3.05 or to indemnify the Trustee pursuant
to Section 7.06), nor shall any successor Master Servicer be liable for any
acts or omissions of the predecessor Master Servicer or for any breach by such
Master Servicer of any of its representations or warranties contained herein
or in any related document or agreement. The Trustee and such successor shall
take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
(b) Any successor, including the Trustee, to the Master Servicer as
Master Servicer shall during the term of its service as Master Servicer (i)
continue to service and administer the Mortgage Loans for the benefit of
Certificateholders and the Certificate Insurer, (ii) maintain in force a
policy or policies of insurance covering errors and omissions in the
performance of its obligations as Master Servicer hereunder and a fidelity
bond in respect of its officers, employees and agents to the same extent as
the Master Servicer is so required pursuant to Section 3.06.
Section 8.03 Waiver of Defaults. The Majority Certificateholders with
the consent of the Certificate Insurer (a copy of which shall be delivered to
the Trustee) or the Certificate Insurer may, on behalf of all
Certificateholders, waive any events permitting removal of the Master Servicer
as Master Servicer pursuant to this Article VIII, 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 the Rating Agencies.
Section 8.04 Notification to Certificateholders. Upon any termination
or appointment of a successor to the Master Servicer pursuant to this Article
VIII or Section 7.04, the Trustee shall give prompt written notice thereof to
the Certificateholders at their respective addresses appearing in the
Certificate Register, the Certificate Insurer and each Rating Agency.
Section 8.05 Rights of the Certificate Insurer to Exercise Rights of
Class A Certificateholders. By accepting its Certificate, each Class A
Certificateholder agrees that unless a Certificate Insurer Default exists, the
Certificate Insurer shall be deemed to be the Certificateholders for all
purposes (other than with respect to payment on the Certificates) and shall
have the right to exercise all rights of the Class A Certificateholders under
this Agreement and under each Class of Class A Certificates without any
further consent of the Class A Certificateholders, including, without
limitation:
(i) the right to require the Seller to repurchase Mortgage
Loans pursuant to Section 2.02 or 2.04;
(ii) the right to give notices of breach or to terminate the
rights and obligations of the Master Servicer as servicer pursuant to
Section 8.01 and to consent to or direct waivers of Master Servicer
defaults pursuant to Section 8.03;
(iii) the right to direct actions of the Trustee pursuant to
Section 8.01;
(iv) [reserved];
(v) the right to direct the Trustee to
investigate certain matters pursuant to Section 9.02;
(vi) the right to remove the Trustee pursuant to
Section 9.07;
(vii) the right to direct foreclosures upon the failure of
the Master Servicer to do so in accordance with this Agreement; and
(viii) any rights or remedies expressly given the Majority
Certificateholders.
In addition, each Certificateholder agrees that unless a Certificate Insurer
Default exists, the rights specifically enumerated in this Agreement may be
exercised by the Certificateholders only with the prior written consent of the
Certificate Insurer.
Section 8.06 Trustee to Act Solely with Consent of the Certificate
Insurer. Unless a Certificate Insurer Default exists, the Trustee shall not,
without the Certificate Insurer's consent or unless directed by the
Certificate Insurer:
(i) terminate the rights and obligations of the Master
Servicer as Master Servicer pursuant to Section 8.01;
(ii) agree to any amendment pursuant to Article XI,
provided, however, that such consent shall not be unreasonably
withheld; or
(iii) undertake any litigation.
The Certificate Insurer may, in writing delivered to the Trustee and
in its sole discretion renounce all or any of its rights under Section 8.05,
8.06 or 8.07 or any requirement for the Certificate Insurer's consent for any
period of time.
Section 8.07 Mortgage Loans, Trust and Accounts Held for Benefit of
the Certificate Insurer. The Trustee shall hold the Trust and the Mortgage
Files (as set forth in Section 2.01) 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.
The Master 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.
Section 8.08 Certificate Insurer Default. Notwithstanding anything
elsewhere in this Agreement or in the Certificates to the contrary, if a
Certificate Insurer Default exists, or if and to the extent the Certificate
Insurer has delivered its written renunciation of its rights, the provisions
of this Article VIII and all other provisions of this Agreement which (a)
permit the Certificate Insurer to exercise rights of the Certificateholders,
(b) restrict the ability of the Certificateholders, the Master Servicer or the
Trustee to act without the consent or approval of the Certificate Insurer, (c)
provide that a particular act or thing must be acceptable to the Certificate
Insurer, (d) permit the Certificate Insurer to direct (or otherwise to
require) the actions of the Trustee, the Master Servicer or the
Certificateholders, (e) provide that any action or omission taken with the
consent, approval or authorization of the Certificate Insurer shall be
authorized hereunder or shall not subject the party taking or omitting to take
such action to any liability hereunder or (f) which have a similar effect,
shall be of no further force and effect and the Trustee shall administer the
Trust and perform its obligations hereunder solely for the benefit of the
Holders of the Certificates. Nothing in the foregoing sentence, nor any action
taken pursuant thereto or in compliance therewith, shall be deemed to have
released the Certificate Insurer from any obligation or liability it may have
to any party or to the Certificateholders hereunder, under any other
agreement, instrument or document (including, without limitation, the
Certificate Insurance Policy) or under applicable law.
ARTICLE IX.
The Trustee
Section 9.01 Duties of Trustee. The Trustee, prior to the occurrence
of an Event of Default and after the curing or waiver 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 (which has not been cured or waived) of which a Responsible
Officer of the Trustee at the Corporate Trust Office has actual knowledge, the
Trustee shall exercise such of the rights and powers vested in it by this
Agreement, 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, unless it is acting as successor Master Servicer in
which case it shall use, when acting in such capacity, the same degree of care
and skill required of the Master Servicer hereunder.
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 to the requirements of this Agreement; provided, however,
that the Trustee shall not be responsible for the accuracy or content of any
such resolution, certificate, statement, opinion, report, document, order or
other instrument. If any such instrument is found not be in the form specified
in this Agreement, on its face, 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 reasonable satisfaction, the Trustee will provide
notice thereof to the Certificate Insurer and will, at the expense of the
Seller, which expense shall be reasonable given the scope and nature of the
action required, take such further action as directed by the Certificate
Insurer.
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 misconduct; provided, however, that:
(i) prior to the occurrence of an Event of Default of which
a Responsible Officer of the Trustee shall have actual knowledge, and
after the curing or waiver 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 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 of the
Trustee, unless it shall be proved that the Trustee was negligent in
ascertaining or investigating the facts related thereto;
(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 the Holders of Regular Certificates evidencing Percentage
Interests aggregating not less than 51% (with the consent of the
Certificate Insurer, so long as no Certificate Insurer Default exists
(a copy of which consent shall be delivered to the Trustee)) relating
to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising or omitting to
exercise any trust or power conferred upon the Trustee, under this
Agreement; and
(iv) the Trustee shall not be charged with knowledge of any
failure by the Master Servicer to comply with the obligations of the
Master Servicer referred to in clauses (i) and (ii) of Section
8.01(a) or of an Event of Default under Sections 8.01(v) or (vi), of
an Assignment Event or of a Deposit Event unless a Responsible
Officer of the Trustee at the Corporate Trust Office obtains actual
knowledge of such failure or event or the Trustee receives written
notice of such failure or event from the Master Servicer, the
Certificate Insurer or the Holders of Regular Certificates evidencing
Percentage Interests aggregating not less than 51%.
The Trustee shall not be required 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 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 Master 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 Master Servicer
in accordance with the terms of this Agreement.
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 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 from funds available in the
Collection Account or any other source or (B) to confirm or verify the
contents of any reports or certificates of the Master 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.
Section 9.02 Certain Matters Affecting the Trustee.
(a) Except as otherwise provided in Section 9.01:
(i) the Trustee may request and conclusively rely upon, and
shall be fully protected in acting or refraining from acting upon,
any resolution, Officer's Certificate, certificate of auditors or any
other certificate, statement, instrument, opinion, report, notice,
request, consent, order, appraisal, bond or other paper or document
reasonably 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 of its selection
and any written advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection in respect of
any action taken or suffered or omitted by it hereunder in good faith
and in accordance with such advice or Opinion of Counsel;
(iii) the 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 hereunder or in relation
hereto, at the request, order or direction of any of the
Certificateholders or the Certificate Insurer, pursuant to the
provisions of this Agreement, unless such Certificateholders or the
Certificate Insurer shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby; 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 for
other than its negligence or willful misconduct in the performance of
any such act; nothing contained herein shall, however, relieve the
Trustee of the obligations, upon the occurrence of an Event of
Default (which has not been cured or waived) of which a Responsible
Officer at the Corporate Trust Office has actual knowledge, 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 their
exercise (unless it is acting as Master Servicer) 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 and after
the curing or waiver 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 documents, unless requested
in writing to do so by the Certificate Insurer or Holders of
Certificates evidencing Percentage Interests aggregating not less
than 51% (with the consent of the Certificate Insurer, so long as no
Certificate Insurer Default exists (a copy of which consent shall be
delivered to the Trustee)); 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 cost, expense or liability as a condition to such proceeding.
Nothing in this clause (v) shall derogate from the obligation of the
Master Servicer to observe any applicable law prohibiting disclosure
of information regarding the Mortgagors;
(vi) the Trustee shall not be accountable, shall have no
liability and makes no representation as to any acts or omissions
hereunder of the Master Servicer until such time as the Trustee may
be required to act as Master Servicer pursuant to Section 8.02;
(vii) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents, attorneys, nominees or a custodian;
(viii) 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 herein; and
(ix) 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 for other than its negligence
or willful misconduct in the performance of such act.
(b) It is intended that the Trust formed hereunder shall constitute,
and that the affairs of the Trust shall be conducted so as to qualify the
Trust 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 Trust, using a calendar year as the
taxable year for the Trust;
(ii) make, or cause to be made, an election, on behalf of
the Trust, to be treated as a REMIC on the federal tax return of the
REMIC for their first taxable year;
(iii) prepare and forward, or cause to be prepared and
forwarded, to the Master Servicer, the Seller, the Certificateholders
and 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 Trust are within
its control, conduct such affairs of the Trust at all times that any
Certificates are outstanding so as to maintain the status of the
Trust 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 [ ]% of 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 Trust;
(vi) pay the amount of any and all federal, state and local
taxes and 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 6.02, imposed
on the Trust 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 Section
9.05;
(vii) ensure that any such returns or reports filed on
behalf of the Trust by the Trustee are properly executed by the
appropriate person;
(viii) represent the Trust 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, enter into settlement agreements with any
government taxing agency, extend any statute of limitations relating
to any item of the Trust and otherwise act on behalf of the Trust in
relation to any tax matter involving the Trust;
(ix) as provided in Section 2.12, make available information
necessary for the computation of any tax imposed (1) on transferors
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 Master Servicer
in the foregoing matters and that it will sign, as Trustee, any and
all Tax Returns required to be filed by the Trust. Notwithstanding
the foregoing, at such time as the Trustee becomes the successor
Master 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 Master 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, 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) Following the Closing Date, and except as otherwise
provided in this Agreement, the Trustee shall not knowingly accept
any contribution of assets to the Trust unless it shall have been
provided with an Opinion of Counsel at the expense of the party
delivering such assets acceptable to it and the Certificate Insurer
to the effect that the inclusion of such assets in the Trust will not
cause the Trust to fail to qualify as a REMIC at any time that any
Certificates are outstanding or subject the Trust to any tax under
the REMIC Provisions or other applicable provisions of federal, state
and local law or ordinances; and
(xii) The Trustee agrees to indemnify the Trust, the
Certificate Insurer and the Master Servicer for any taxes and costs,
including, without limitation, any reasonable attorneys' fees imposed
on or incurred by the Trust, the Certificate Insurer or the Master
Servicer, as a result of a negligent or willful breach of the
Trustee's covenants set forth in this Section.
Section 9.03 Trustee Not Liable for Certificates or Mortgage Loans.
The recitals contained herein and in the Certificates (other than the
authentication of the Trustee on the Certificates) shall be taken as the
statements of the Seller, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representations as to the
validity or sufficiency of this Agreement or of the Certificates (other than
the signature and authentication of the Trustee on the Certificates) or of any
Mortgage Loan or related document. The Trustee shall not be accountable for
the use or application by the Master Servicer or for the use or application of
any funds paid to the Master Servicer in respect of the Mortgage Loans or
deposited in or withdrawn from the Collection Account by the Master Servicer.
The Trustee shall at no time have any responsibility or liability for or with
respect to the legality, validity and enforceability of any Mortgage or any
Mortgage Loan, or the perfection and priority of any Mortgage or the
maintenance of any such perfection and priority, or for or with respect to the
sufficiency of the Trust or its ability to generate the payments to be
distributed to Certificateholders under this Agreement, including, without
limitation: the existence, condition and ownership of any Mortgaged Property;
the existence and enforceability of any hazard insurance thereon (other than
the Trustee acting as Master Servicer if the Trustee shall assume the duties
of the Master Servicer pursuant to Section 8.02); the validity of the
assignment of any Mortgage Loan to the Trustee or of any intervening
assignment; the completeness of any Mortgage Loan; the performance or
enforcement of any Mortgage Loan (other than the Trustee acting as Master
Servicer if the Trustee shall assume the duties of the Master Servicer
pursuant to Section 8.02); the compliance by the Seller or the Master Servicer
with any warranty or representation made under this Agreement or in any
related document or the accuracy of any such warranty or representation prior
to the Trustee's receipt of notice or other discovery of any non-compliance
therewith or any breach thereof; any investment of monies by or at the
direction of the Master Servicer or any loss resulting therefrom, it being
understood that the Trustee shall remain responsible for any Trust property
that it may hold in its individual capacity; the acts or omissions of any of
the Master Servicer (other than the Trustee as Master Servicer if the Trustee
shall assume the duties of the Master Servicer pursuant to Section 8.02), any
Master Servicer or any Mortgagor; any action of the Master Servicer (other
than if the Trustee shall assume the duties of the Master Servicer pursuant to
Section 8.02), or any Master Servicer taken in the name of the Trustee; the
failure of the Master Servicer or any Master Servicer to act or perform any
duties required of it as a third-party independent contractor of the Trustee
hereunder; or any action by the Trustee taken at the instruction of the Master
Servicer (other than if the Trustee shall assume the duties of the Master
Servicer pursuant to Section 8.02); provided, however, that the foregoing
shall not relieve the Trustee of its obligation to perform its duties under
this Agreement, including, without limitation, the Trustee's duty to review
the Mortgage File pursuant to Section 2.01. The 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 (unless the Trustee
shall have become the successor Master Servicer).
Section 9.04 Trustee May Own Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of
Certificates with the same rights as it would have if it were not Trustee and
may transact any banking and trust business with the Seller, the Certificate
Insurer, or the Master Servicer.
Section 9.05 Master Servicer to Pay Trustee Fees and Expenses. The
Master Servicer shall pay to the Trustee the Trustee Fee as agreed between the
Master Servicer and the Trustee and the Master Servicer shall pay or
reimburse, the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Agreement (including the reasonable compensation
and the expenses and disbursements of its counsel and of all persons not
regularly in its employ) except any such expense, disbursement or advance as
may arise from its negligence or bad faith or which is the responsibility of
Certificateholders hereunder. Without prejudice to any other rights available
to the Trustee under applicable law, when the Trustee incurs expenses or
renders services in connection with an Event of Default described in Sections
8.01(a)(iii) or 8.01(a)(iv) such expenses (including the fees and expenses of
its counsel) and the compensation for such services are intended to constitute
expenses of administration under any bankruptcy law or law relating to
creditors' rights generally. In addition, the Master Servicer covenants and
agrees to indemnify the Trustee and its officers, directors, employees and
agents from, and hold it harmless against, any and all claims, demands,
losses, penalties, liabilities, damages, injuries or expenses including,
without limitation, reasonable attorney's fees and expenses ("Losses") arising
out of the acceptance or administration of its trusts hereunder, including,
without limitation, Losses resulting from any error in any tax or information
return prepared from information provided by the Master Servicer. This Section
shall survive termination of this Agreement or the resignation or removal of
any Trustee hereunder.
If and so long as the successor Master Servicer is the Trustee, all
references in this Section 9.05 to the Master Servicer shall be deemed to
refer to [ ] or any successor Master Servicer thereto other than the Trustee.
Section 9.06 Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times be a corporation duly incorporated and validly
existing under the laws of the United States of America or any state thereof,
authorized under such laws to exercise corporate trust powers, have a combined
capital and surplus of at least $50,000,000 and a minimum long-term debt
rating of "Baa3" by Moody's and "BBB" by S&P, and be subject to supervision or
examination by federal or state authority. If such corporation 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, 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. The principal office of the Trustee (other
than the initial Trustee) shall be in a state with respect to which an Opinion
of Counsel has been delivered to such Trustee at the time such Trustee is
appointed Trustee to the effect that the Trust will not be a taxable entity
under the laws of such state. 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 9.07.
Section 9.07 Resignation or Removal of Trustee. The Trustee may at
any time resign and be discharged from the trusts hereby created by giving
written notice thereof to the Seller, the Master Servicer, the Certificate
Insurer and each Rating Agency. Upon receiving such notice of resignation, the
Seller shall promptly appoint a successor Trustee (approved in writing by the
Certificate Insurer, so long as such approval shall not be unreasonably
withheld) by written instrument, copies of which instrument shall be delivered
to the resigning Trustee and the successor Trustee; provided, however, that
any such successor Trustee shall be subject to the prior written approval of
the Master Servicer. If no successor Trustee shall have been so appointed and
having 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.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 9.06 and shall fail to resign after written
request therefor by the Seller with the consent of the Certificate Insurer (so
long as no Certificate Insurer Default exists) or the Certificate Insurer, or
if at any time the Trustee shall be legally unable to act, or shall be
adjudged a 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 Seller, the Master
Servicer or the Certificate Insurer may remove the Trustee. If the Seller, the
Master Servicer or the Certificate Insurer removes the Trustee under the
authority of the immediately preceding sentence, the Seller or the Master
Servicer shall promptly appoint a successor Trustee (approved in writing by
the Certificate Insurer, so long as such approval is not unreasonably
withheld) by written instrument, copies of which instrument shall be delivered
to the resigning Trustee and the successor Trustee. If the Master Servicer
fails to appoint a successor Trustee within 30 days after the giving of such
notice of removal to the Trustee, the Trustee being removed may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor Trustee as
provided in Section 9.08.
Notwithstanding anything to the contrary contained herein, so long as
no Certificate Insurer Default exists, the Trustee may not be removed by the
Seller or the Certificateholders without the prior written consent of the
Certificate Insurer, which consent shall not be unreasonably withheld.
Section 9.08 Successor Trustee. Any successor Trustee appointed as
provided in Section 9.07 shall execute, acknowledge and deliver to the Seller,
the Master Servicer and to its predecessor Trustee and the Certificate Insurer
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 like effect as if originally named as Trustee. The
Seller, the Master Servicer, the Certificate Insurer and the predecessor
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 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 9.06.
Upon acceptance of appointment by a successor Trustee as provided in
this Section, the Master 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 each Rating Agency. If the Master Servicer
fails to mail such notice within 30 days after acceptance of appointment by
the successor Trustee, the successor Trustee shall cause such notice to be
mailed at the expense of the Master Servicer.
Notwithstanding anything to the contrary contained herein, so long as
no Certificate Insurer Default exists, the appointment of any successor
Trustee pursuant to any provision of this Agreement will be subject to the
prior written consent of the Certificate Insurer, which consent shall not be
unreasonably withheld.
Section 9.09 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 Person resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person succeeding
to substantially all of the corporate trust business of the Trustee, shall be
the successor of the Trustee hereunder, provided such corporation shall be
eligible under the provisions of Section 9.06, without the execution or filing
of any paper or any further act on the part of any of the parties hereto.
Section 9.10 Appointment of Co-Trustee or Separate 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 Trust or any Mortgaged Property may at the time be located, the
Seller 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 and the Certificate Insurer 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, and to vest in such Person or Persons, in such capacity
and for the benefit of the Certificateholders, such title to the Trust, or any
part thereof, and, subject to the other provisions of this Section, such
powers, duties, obligations, rights and trusts as the Master Servicer and the
Trustee may consider necessary or desirable. Any such co-trustee or separate
trustee shall be subject to the written approval of the Master Servicer and
the Certificate Insurer. If the Master Servicer shall not have joined in such
appointment within 15 days after the receipt by it of a request so to do, or,
in the 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 9.06 and no notice to Certificateholders
of the appointment of any co-trustee or separate trustee shall be required
under Section 9.08. The Master Servicer shall be responsible for the fees of
any co-trustee or separate trustee appointed hereunder.
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 Trustee shall be conferred or imposed upon and
exercised or performed by the 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 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
(whether as Trustee hereunder or as successor to the Master 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 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 Trustee;
(ii) no trustee hereunder shall be held personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Master Servicer and the Trustee acting jointly
with the consent of the Certificate Insurer, so long as no
Certificate Insurer Default exists, may at any time accept the
resignation of or remove any separate trustee or co-trustee except
that following the occurrence of an Event of Default, the Trustee
acting alone may accept the resignation or remove any separate
trustee or co-trustee.
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 and a copy thereof given to the Seller, the Certificate Insurer and
the Master Servicer.
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. 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.
Section 9.11 Limitation of Liability. The Certificates are executed
by the Trustee, not in its individual capacity but solely as Trustee of the
Trust, in the exercise of the powers and authority conferred and vested in it
by this Agreement. Each of the undertakings and agreements made on the part of
the Trustee in the Certificates is made and intended not as a personal
undertaking or agreement by the Trustee but is made and intended for the
purpose of binding only the Trust.
Section 9.12 Trustee May Enforce Claims Without Possession of
Certificates; Inspection. (a) All rights of action and claims under this
Agreement or the Certificates may be prosecuted and enforced by the Trustee
without the possession of any of the Certificates or the production thereof in
any proceeding relating thereto, and such proceeding instituted by the Trustee
shall be brought in its own name or in its capacity as Trustee. Any recovery
of judgment shall, after provision for the payment of the reasonable
compensation, expenses and disbursements of the Trustee, its agents and
counsel, be for the ratable benefit of the Certificateholders and the
Certificate Insurer in respect of which such judgment has been recovered.
(b) The Trustee shall afford the Seller, the Master Servicer, the
Certificate Insurer and each Certificateholder upon reasonable notice during
normal business hours, access to all records maintained by the Trustee in
respect of its duties hereunder and access to officers of the Trustee
responsible for performing such duties. Upon request, the Trustee shall
furnish the Seller, the Master Servicer, the Certificate Insurer and any
requesting Certificateholder with its most recent financial statements. The
Trustee shall cooperate fully with the Seller, the Master Servicer, the
Certificate Insurer and such Certificateholder and shall make available to the
Seller, the Master Servicer, the Seller, the Certificate Insurer and such
Certificateholder for review and copying, at such party's sole cost and
expense, such books, documents or records as may be requested with respect to
the Trustee's duties hereunder. The Seller, the Master Servicer, the
Certificate Insurer and the Certificateholders shall not have any
responsibility or liability for any action or failure to act by the Trustee
and are not obligated to supervise the performance of the Trustee under this
Agreement or otherwise.
Section 9.13 Suits for Enforcement. In case an Event of Default or
other default by the Master Servicer, the Certificate Insurer or the Seller
hereunder shall occur and be continuing, the Trustee, in its discretion, may
proceed to protect and enforce its rights and the rights of the
Certificateholders or, if such default is not a Certificate Insurer Default,
the Certificate Insurer under this Agreement by a suit, action or proceeding
in equity or at law or otherwise, whether for the specific performance of any
covenant or agreement contained in this Agreement or in aid of the execution
of any power granted in this Agreement or for the enforcement of any other
legal, equitable or other remedy, as the Trustee, being advised by counsel,
shall deem most effectual to protect and enforce any of the rights of the
Trustee, the Certificate Insurer and the Certificateholders.
Section 9.14 Reports to the Commission. (a) The Trustee shall, on
behalf of the Trust, cause to be filed with the Commission any periodic
reports required to be filed under the provisions of the Exchange Act, and the
rules and regulations of the Commission thereunder. Upon the request of the
Trustee, each of the Seller and the Master Servicer shall cooperate with the
Trustee in the preparation of any such report and shall provide to the Trustee
in a timely manner all such information or documentation as is in the
possession of such Person and that the Trustee may reasonably request in
connection with the performance of its duties and obligations under this
Section.
(b) The Trustee shall file with the Commission a Form 15 with respect
to the Trust as soon as practicable following the first date on which the
conditions to filing thereof have been satisfied. Following the filing of such
Form 15, the Trustee will submit a certificate addressed to an officer of the
Seller certifying that all filings under the Exchange Act have been made and
shall attach a copy of acceptance slips for such filings. On the Closing Date,
the Seller shall provide the Trustee with a letter at closing, substantially
in the form attached hereto as Exhibit K, instructing the Trustee, as filing
agent, to comply with the reporting obligations for the Trust under the
Exchange Act.
ARTICLE X.
Termination
Section 10.01 Termination. (a) The respective obligations and
responsibilities of the Seller, the Master Servicer and the Trustee created
hereby (other than the obligation of the Trustee to make certain payments to
Certificateholders after the final Distribution Date and the obligation of the
Master Servicer to send certain notices as hereinafter set forth and all other
obligations which pursuant to this Agreement survive the termination hereof)
shall terminate upon notice to the Trustee by the Master Servicer of the later
of (A) payment in full of all amounts owing to the Certificate Insurer, unless
the Certificate Insurer shall otherwise consent and (B) the earliest of (i)
the Distribution Date on which the Aggregate Class Principal Balance has been
reduced to zero, (ii) the final payment or other liquidation of the last
Mortgage Loan in the Trust, (iii) the optional purchase by the Class R
Certificateholder of the Mortgage Loans as described below and (iv) the
Distribution Date in [ ]. Notwithstanding the foregoing, in no event shall the
trust created hereby continue beyond 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, living on the
date hereof.
The Class R Certificateholder may, at its option, terminate this
Agreement on any date on which the Pool Principal Balance is less than [ ]% of
the Cut-Off Date Pool Principal Balance, by purchasing, on the next succeeding
Distribution Date, all of the outstanding Mortgage Loans and REO Properties at
a price equal to the sum of the outstanding Pool Principal Balance and accrued
and unpaid interest thereon at the weighted average of the Loan Rates through
the end of the Due Period preceding the final Distribution Date together with
all amounts due and owing the Certificate Insurer (the "Termination Price").
The Certificate Insurer may exercise the Class R Certificateholder's right to
terminate the Agreement and purchase the outstanding Mortgage Loans at the
Termination Price if the Class R Certificateholder opts not to exercise such
right.
In connection with any such purchase pursuant to the preceding
paragraph, the Class R Certificateholder shall deposit in the Distribution
Account all amounts then on deposit in the Collection Account, which deposit
shall be deemed to have occurred immediately preceding such purchase.
Any such purchase shall be accomplished by deposit into the
Distribution Account on the Determination Date before such Distribution Date
of the Termination Price.
(b) Notice of any termination, specifying the Distribution Date
(which shall be a date that would otherwise be a Distribution Date) upon which
the Certificateholders may surrender their Certificates to the Trustee for
payment of the final distribution and cancellation, shall be given promptly by
the Trustee to the Certificate Insurer and by letter to Regular
Certificateholders mailed not earlier than the 15th day and not later than the
25th day of the month next preceding the month of such final distribution
specifying (i) the Distribution Date upon which final distribution of the
Regular Certificates will be made upon presentation and surrender of Regular
Certificates at the office or agency of the Trustee therein designated, (ii)
the amount of any such final distribution and (iii) that the Record Date
otherwise applicable to such Distribution Date is not applicable,
distributions being made only upon presentation and surrender of the Regular
Certificates at the office or agency of the Trustee therein specified.
(c) Upon presentation and surrender of the Regular Certificates, the
Trustee shall cause to be distributed to the holders of Regular Certificates
on the Distribution Date for such final distribution, in proportion to the
Percentage Interests of their respective Regular Certificates and to the
extent that funds are available for such purpose, an amount equal to the
amount required to be distributed to holders of Regular Certificates pursuant
to Section 5.01 for such Distribution Date. On the final Distribution Date,
the Trustee will withdraw from the Distribution Account and remit to the
Certificate Insurer the lesser of (x) the amount available for distribution on
such final Distribution Date, net of any portion thereof necessary to pay
holders of Class A Certificates pursuant to Section 5.01(a) and any amounts
owing to the Trustee in respect of the Trustee Fee and due and unpaid Monthly
Advances and Servicing Fees, and (y) the unpaid amounts due and owing to the
Certificate Insurer pursuant to Section 5.01(a).
(d) In the event that all of the Regular Certificateholders shall not
surrender their Regular Certificates for final payment and cancellation on or
before such final Distribution Date, the Trustee shall promptly following such
date cause all funds in the Distribution Account not distributed in final
distribution to Regular Certificateholders to be withdrawn therefrom and
credited to the remaining Regular Certificateholders by depositing such funds
in a separate escrow account for the benefit of such Regular
Certificateholders and the Master Servicer (if the Master Servicer has
exercised its right to purchase the Mortgage Loans) or the Trustee (in any
other case) shall give a second written notice to the remaining Regular
Certificateholders to surrender their Regular Certificates for cancellation
and receive the final distribution with respect thereto. If within nine months
after the second notice all the Certificates shall not have been surrendered
for cancellation, the Class R Certificateholder 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 to the Class R Certificateholder
for payment.
Section 10.02 Additional Termination Requirements. (a) In the event
that the Class R Certificateholder exercises its purchase option as provided
in Section 10.01, the Trust shall be terminated in accordance with the
following additional requirements, unless the Trustee shall have been
furnished with an Opinion of Counsel to the effect that the failure of the
Trust to comply with the requirements of this Section will not (i) result in
the imposition of taxes on "prohibited transactions" of the Trust as defined
in Section 860F of the Code or (ii) cause the Trust to fail to qualify as a
REMIC at any time that any Regular Certificates are outstanding:
(i) Within 90 days prior to the final Distribution Date, the
Master Servicer shall adopt and the Trustee shall sign a plan of
complete liquidation for the REMIC 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 and at or prior to the final Distribution Date,
the Trustee shall sell all of the assets of the Trust to the Master
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 to (A) the Trustee, as holder of the Regular
Interests, the unpaid principal balance thereof plus accrued interest
thereon, (B) each Class of Regular Certificates the related Class
Principal Balance, plus one month's interest thereon at the
applicable Certificate Rate, (C) to the Certificate Insurer, all
amounts owing to the Certificate Insurer under this Agreement or
under the Insurance Agreement and (D) to the Class R
Certificateholders, all cash on hand after such payment to the
Regular Interest Regular Certificateholders (other than cash retained
to meet claims) and the Trust shall terminate at such time.
(b) By their acceptance of the Regular Certificates, the Holders
thereof hereby agree to appoint the Trustee as their attorney in fact to: (i)
sign 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 therewith as may be reasonably required
to carry out such plan of complete liquidation all in accordance with the
terms hereof.
ARTICLE XI.
Miscellaneous Provisions
Section 11.01 Amendment. This Agreement may be amended from time to
time by the Seller, the Master Servicer and the Trustee, in each case without
the consent of any of the Certificateholders, but only with the consent of the
Certificate Insurer (a copy of which shall be delivered to the Trustee), (i)
to cure any ambiguity, (ii) to correct any defective provisions or to correct
or supplement any provisions herein that may be inconsistent with any other
provisions herein, (iii) to add to the duties of the Master Servicer, (iv) to
add any other provisions with respect to matters or questions arising under
this Agreement or the Certificate Insurance Policy which shall not be
inconsistent with the provisions of this Agreement, (v) to add or amend any
provisions of this Agreement as required by any Rating Agency or any other
nationally recognized statistical rating agency in order to maintain or
improve any rating of each Class of Regular Certificates (it being understood
that, after obtaining the ratings in effect on the Closing Date, neither the
Trustee, the Seller nor the Master Servicer is obligated to obtain, maintain
or improve any such rating) or (vi) to add or amend any provisions of this
Agreement to such extent as shall be necessary to maintain the qualification
of the Trust as a REMIC; provided, however, that (x) as evidenced by an
Opinion of Counsel (a copy of which shall be delivered to the Trustee) (at the
expense of the requesting party) in each case such action shall not, adversely
affect in any material respect the interest of any Certificateholder, (y) in
each case, such action is necessary or desirable to maintain the qualification
of the Trust as a REMIC or shall not adversely affect such qualification and
(z) if the opinion called for in clause (x) cannot be delivered with regard to
an amendment pursuant to clause (vi) above, such amendment is necessary to
maintain the qualification of the Trust as a REMIC; and provided, further,
that the amendment shall not be deemed to adversely affect in any material
respect the interests of the Certificateholders and no Opinion of Counsel to
that effect shall be required if the Person requesting the amendment obtains a
letter from each Rating Agency stating that the amendment would not result in
the downgrading or withdrawal of the respective ratings then assigned to the
Regular Certificates.
This Agreement also may be amended from time to time by the Seller,
the Trustee and the Master Servicer and the Master Servicer and the
Certificate Insurer may from time to time consent to the amendment of the
Certificate Insurance Policy, in each case with the consent of the Holders of
each Class of Regular Certificates which is affected by such amendment,
evidencing Percentage Interests aggregating not less than 51% in Percentage
Interests of such Class or in the case of an amendment which affects all
classes, evidencing Percentage Interests aggregating not less than 51% of all
Classes, and in the case of an amendment to this Agreement, with the consent
of the Certificate Insurer, (a copy of which shall be delivered to the
Trustee) 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 Certificateholders; provided, however, that no such
amendment shall (i) reduce in any manner the amount of, or delay the timing
of, payments on the Certificates or distributions or payments under the
Certificate Insurance Policy which are required to be made on any Certificate
without the consent of the Holder of such Certificate or (ii) reduce the
aforesaid percentage required to consent to any such amendment, without the
consent of the Holders of all Certificates then outstanding.
Prior to the solicitation of consent of Certificateholders in
connection with any such amendment, the party seeking such amendment shall
furnish the Trustee with an Opinion of Counsel stating whether such amendment
would adversely affect the qualification of the Trust as a REMIC and notice of
the conclusion expressed in such Opinion of Counsel shall be included with any
such solicitation. An amendment made with the consent of all
Certificateholders and executed in accordance with this Section shall be
permitted or authorized by this Agreement notwithstanding that such Opinion of
Counsel may conclude that such amendment would adversely affect the
qualification of the Trust as a REMIC.
Prior to the execution of any such amendment, the Trustee shall
furnish written notification prepared by the Master Servicer of the substance
of such amendment to each Rating Agency. In addition, promptly after the
execution of any such amendment made with the consent of the
Certificateholders, the Trustee shall furnish written notification prepared by
the Master Servicer of the substance of such amendment to each
Certificateholder and the fully executed original counterparts of the
instruments effecting such amendment to the Certificate Insurer.
It shall not be necessary for the consent of Certificateholders under
this Section 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 of evidencing the
authorization of the execution thereof by Certificateholders shall be subject
to such reasonable requirements as the Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, the
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 Trustee may, but shall not be obligated to, enter into any
such amendment which affects the Trustee's own rights, duties or immunities
under this Agreement.
Section 11.02 Recordation of Agreement. This Agreement is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Trustee, but only upon written direction of Holders of Certificates evidencing
Percentage Interests aggregating at least 51% or the Certificate Insurer
accompanied by an Opinion of Counsel to the effect that such recordation
materially and beneficially affects the interests of Certificateholders or the
Certificate Insurer. The Certificateholders or the Certificate Insurer
requesting such recordation shall bear all costs and expenses of such
recordation. The Trustee shall have no obligation to ascertain whether such
recordation so affects the interests of the Certificateholders.
Section 11.03 Limitation on Rights of Certificateholders. The death
or incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the
Trust, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
No Certificateholder shall have any right to vote (except as provided
in Sections 8.01, 9.01, 9.02 and 11.01) or in any manner otherwise control the
operation and management of the Trust, 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.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this
Agreement, unless such Holder previously shall have given to the Trustee a
written notice of default and of the continuance thereof, as hereinbefore
provided, and unless also the Holders of Regular Certificates evidencing
Percentage Interests aggregating not less than 51% shall have made written
request upon the Trustee to institute such action, suit or proceeding in its
own name as Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee, for 60 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding; it
being understood and intended, and being expressly covenanted by each
Certificateholder with every other Certificateholder and the Trustee, that no
one or more Holders of Certificates shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provisions of
this Agreement to affect, disturb or prejudice the rights of the Holders of
any other of the Certificates, or to obtain or seek to obtain priority over or
preference to any other such Holder, or to enforce any right under this
Agreement, except in the manner herein provided and for the equal, ratable and
common benefit of all Certificateholders. For the protection and enforcement
of the provisions of this Section, each and every Certificateholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
Section 11.04 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.
Section 11.05 Notices. (a) 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 certified mail, return receipt requested,
to (a) in the case of the Seller, 200 Vesey Street, Three World Financial
Center, New York, New York 10285, Attention: Martin P. Harding, (b) in the
case of the Seller and Master Servicer, 15 Westminster Street, Providence,
Rhode Island 02903, Attention: Paul Manglesdorff III, with a copy to 100
Federal Street, Boston, Massachusetts 02110, Mailstop 01-25-01, Attention:
Gary A. Spiess, General Counsel, (c) in the case of the Trustee, to the
Corporate Trust Office, (d) in the case of Moody's, Home Mortgage Loan
Monitoring Group, 4th Floor, 99 Church Street, New York, New York 10007, (e)
in the case of S&P, 26 Broadway, 15th Floor, New York, New York 10004,
Attention: Residential Mortgage Group, and (f) in the case of the Certificate
Insurer, 113 King Street, Armonk, New York 10504, Attention: Insured Portfolio
Management -- Structured Finance (IPM-SF), ([ ] Home Equity Loan Trust [ ]),
Telecopy No.: (914) 765-3164, Confirmation: (914) 273-4545 (in each case in
which notice or other communication to the Certificate Insurer refers to an
Event of Default, a claim on the Certificate Insurance Policy or with respect
to which failure on the part of the Certificate Insurer to respond shall be
deemed to constitute consent or acceptance, then a copy of such notice or
other communication shall be marked to indicate "URGENT MATERIAL ENCLOSED")
or, as to each party, at such other address as shall be designated by such
party in a written notice to each other party. Any notice required or
permitted to be mailed to a Certificateholder shall be given by first class
mail, postage prepaid, at the address of such Holder 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. Any notice or other document
required to be delivered or mailed by the Trustee to any Rating Agency shall
be given on a best efforts basis and only as a matter of courtesy and
accommodation and the Trustee shall have no liability for failure to deliver
such notice or document to any Rating Agency.
(b) Notice to the Rating Agencies. The Trustee and the Master
Servicer shall each be obligated to use its best efforts promptly to provide
notice, at the expense of the Master Servicer, to the Rating Agencies with
respect to each of the following of which a Responsible Officer of the Trustee
or Master Servicer, as the case may be, has actual knowledge:
(i) Any material change or amendment to this Agreement;
(ii) The occurrence of any Event of Default that has not
been cured or waived;
(iii) The resignation or termination of the Master Servicer
or the Trustee;
(iv) The final payment to Holders of the Certificates of
any Class;
(v) Any change in the location of any Account; and
(vi) Any event that would result in the inability of the
Master Servicer to make Monthly Advances.
(c) In addition, (i) the Trustee shall promptly furnish to each
Rating Agency copies of the following:
(A) Each annual report to Certificateholders
described in Section 5.03;
and
(B) Each Monthly Report described in Section 5.03;
and
(ii) The Master Servicer shall promptly furnish to each
Rating Agency copies of the following:
(A) Each annual statement as to compliance
described in Section 3.10;
(B) Each annual independent public accountants'
servicing report described in Section 3.11; and
(C) Each notice delivered pursuant to Section
8.01(b) which relates to the fact that the Master
Servicer has not made a Monthly Advance.
Any such notice pursuant to this Section shall be in writing and
shall be deemed to have been duly given if personally delivered or mailed by
first class mail, postage prepaid, or by express delivery service to the
addresses specified above for each such Rating Agency.
Section 11.06 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement or of the
Certificates or the rights of the Holders thereof.
Section 11.07 Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 7.02, 7.04 and 7.05 (or
3.01), this Agreement may not be assigned by the Seller or the Master Servicer
without the prior written consent of the Certificate Insurer and Holders of
the Certificates evidencing Percentage Interests aggregating not less than
66-2/3%.
Section 11.08 Certificates Nonassessable and Fully Paid. The parties
agree that the Certificateholders shall not be personally liable for
obligations of the Trust, that the beneficial ownership interests represented
by the Certificates shall be nonassessable for any losses or expenses of the
Trust or for any reason whatsoever, and that the Certificates upon execution,
authentication and delivery thereof by the Trustee pursuant to Section 6.01
and 6.02 are and shall be deemed fully paid.
Section 11.09 Third-Party Beneficiaries. This Agreement will inure to
the benefit of and be binding upon the parties hereto, the Certificateholders,
the Certificate Owners, the Certificate Insurer and their respective
successors and permitted assigns. Except as otherwise provided in this
Agreement, no other person will have any right or obligation hereunder.
Section 11.10 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.
Section 11.11 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.
<PAGE>
IN WITNESS WHEREOF, the Seller, the Master Servicer and the
Trustee have caused this Agreement to be duly executed by their respective
officers all as of the day and year first above written.
KEYBANK NATIONAL ASSOCIATION,
as Seller
By____________________________
Name: Samir A. Tabet
Title: Senior Vice President
[ ]
as Seller and Master Servicer
By______________________________
Name:
Title:
[ ],
as Trustee
By_______________________________
Name:
Title:
<PAGE>
State of New York )
) ss.:
County of New York )
On the [ ]th day of [ ] before me, a notary public in and
for the State of New York, personally appeared Samir A. Tabet, known to me
who, being by me duly sworn, did depose and say that he is the Senior Vice
President of KeyBank National Association, a Delaware corporation, one of the
parties that executed the foregoing instrument; that it was signed by order of
the Board of Directors of said corporation; and that he signed his name
thereto by like order.
----------------------
Notary Public
[Notarial Seal]
<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 who, being by me duly sworn, did depose and say that he is the
_________________ of [ ], a national banking association, one of the parties
that executed the foregoing instrument; that it was signed by order of the
Board of Directors of said company; and that he signed his name thereto by
like order.
------------------------------
Notary Public
[Notarial Seal]
<PAGE>
State of New York )
) ss.:
County of New York )
On the [ ]th day of [ ] before me, a notary public in and
for the State of New York, personally appeared ______________, known to me
who, being by me duly sworn, did depose and say that he is the
_________________ of [ ], a New York banking corporation, one of the parties
that executed the foregoing instrument; that it was signed by order of the
Board of Directors of said company; and that he signed his name thereto by
like order.
--------------------------
Notary Public
[Notarial Seal]
<PAGE>
Exhibit 4.2
SALE AND SERVICING AGREEMENT
Dated as of [ ]
among
KEYBANK NATIONAL ASSOCIATION
(Seller)
[ ]HOME EQUITY LOAN TRUST [ ]
(Trust)
[ ]
(Servicer)
and
[ ]
(Indenture Trustee)
[ ]Home Equity Loan Trust [ ]
<PAGE>
Table of Contents
Page
ARTICLE I.
DEFINITIONS
Section 1.01 Definitions..........................................2
Section 1.02 Other Definitional Provisions.......................21
Section 1.03 Interest Calculations...............................22
ARTICLE II.
CONVEYANCE OF THE MORTGAGE LOANS
Section 2.01 Conveyance of the Mortgage Loans....................23
Section 2.02 Acceptance by Indenture Trustee.....................27
Section 2.03 Representations and Warranties Regarding the
Seller and the Servicer.............................27
Section 2.04 Representations and Warranties of the Seller
Regarding the Mortgage Loans........................30
Section 2.05 Representations and Warranties of the Seller........37
Section 2.06 Substitution of Mortgage Loans......................38
Section 2.07 Tax Treatment.......................................39
ARTICLE III.
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
Section 3.01 The Servicer........................................41
Section 3.02 Collection of Certain Mortgage Loan Payments........43
Section 3.03 Withdrawals from the Collection Account.............45
Section 3.04 Maintenance of Hazard Insurance; Property
Protection Expenses.................................46
Section 3.05 Maintenance of Mortgage Impairment Insurance Policy.47
Section 3.06 Fidelity Bond.......................................47
Section 3.07 Management and Realization Upon Defaulted
Mortgage Loans......................................47
Section 3.08 Indenture Trustee to Cooperate......................48
Section 3.09 Servicing Compensation; Payment of Certain
Expenses by Servicer................................49
Section 3.10 Annual Statement as to Compliance...................49
Section 3.11 Annual Servicing Report.............................51
Section 3.12 Access to Certain Documentation and Information
Regarding the Mortgage Loans........................51
Section 3.13 Maintenance of Certain Servicing Insurance Policies.51
Section 3.14 Reports to the Securities and Exchange Commission...51
Section 3.15 Reports of Foreclosures and Abandonments of
Mortgaged Properties, Returns Relating
to Mortgage Interest Received from Individuals
and Returns Relating to.............................51
Section 3.16 Advances by the Servicer............................52
Section 3.17 Superior Liens......................................52
Section 3.18 Assumption Agreements...............................53
Section 3.19 Payment of Taxes, Insurance and Other Charges.......53
Section 3.20 Optional Purchase of Defaulted Mortgage Loans.......54
ARTICLE IV.
INSURER; INTEREST RATE CAP AGREEMENT; SUPPLEMENTAL
INTEREST PAYMENTS; SUPPORT AGREEMENT
Section 4.01 Claims upon the Insurance Policy....................55
Section 4.02 Effect of Payments by the Insurer; Subrogation......56
Section 4.03 Interest Rate Cap Agreement; Supplemental
Interest Payments; Establishment of and
Deposit in the Cap Payment Reserve Account..........56
Section 4.04 Payments Under the Support Agreement................58
Section 4.05 Replacement Insurance Policy........................58
ARTICLE V.
PRIORITY OF DISTRIBUTIONS; STATEMENTS TO NOTEHOLDERS;
RIGHTS OF NOTEHOLDERS
Section 5.01 Distributions.......................................59
Section 5.02 Calculation of the Class A Note Rate................60
Section 5.03 Statements to Noteholders...........................60
Section 5.04 [Reserved]..........................................63
Section 5.05 Distribution Account. The Distribution Account
shall be an Eligible................................63
Section 5.06 Investment of Accounts..............................64
Section 5.07 Compensating Interest...............................65
ARTICLE VI.
THE SELLER AND THE SERVICER
Section 6.01 Liability of the Seller and the Servicer............66
Section 6.02 Merger or Consolidation of, or Assumption of
the Obligations of, the Seller or the
Servicer............................................66
Section 6.03 Limitation on Liability of the Servicer and Others..66
Section 6.04 Servicer Not to Resign..............................67
Section 6.05 Delegation of Duties................................67
Section 6.06 Indemnification of the Trust by the Servicer........67
ARTICLE VII.
SERVICING TERMINATION
Section 7.01 Events of Servicing Termination.....................69
Section 7.02 Indenture Trustee to Act; Appointment of Successor..71
Section 7.03 Waiver of Defaults..................................72
Section 7.04 Notification to Class A Noteholders.................72
ARTICLE VIII.
TERMINATION
Section 8.01 Termination.........................................73
ARTICLE IX.
MISCELLANEOUS PROVISIONS
Section 9.01 Amendment...........................................75
Section 9.02 Recordation of Agreement............................76
Section 9.03 Duration of Agreement...............................76
Section 9.04 Governing Law.......................................76
Section 9.05 Notices.............................................76
Section 9.06 Severability of Provisions..........................77
Section 9.07 No Partnership......................................77
Section 9.08 Counterparts........................................77
Section 9.09 Successors and Assigns..............................77
Section 9.10 Headings............................................77
Section 9.11 Indenture Trustee...................................78
Section 9.12 Reports to Rating Agencies..........................78
Section 9.13 Inconsistencies Among Transaction Documents.........78
Section 9.14 Rights of the Insurer to Exercise Rights of
Noteholders.........................................78
EXHIBITS
EXHIBIT A Mortgage Loan Schedule
EXHIBIT B List of Servicing Officers
EXHIBIT C Form of Monthly Statement to Noteholders
EXHIBIT D Form of Servicing Certificate
EXHIBIT E Letter of Seller to Indenture Trustee Re: Exchange Act Reports
EXHIBIT F Form of Liquidation Report
EXHIBIT G Form of Class A Notes
EXHIBIT H Form of Mortgage Note
EXHIBIT I Form of Mortgage
EXHIBIT J Form of Request for Release
EXHIBIT K Specimen of the Insurance Policy
EXHIBIT L Custodial Fee Letter
<PAGE>
This Sale and Servicing Agreement (the "Agreement") is entered into
effective as of [ ], among [ ]HOME EQUITY LOAN TRUST [ ], a Delaware business
trust (the "Trust"), [the KEYBANK NATIONAL ASSOCIATION, a national banking
association [headquartered in Cleveland, Ohio], as seller (the "Seller"), [the
Servicer], a New Jersey corporation, as Servicer (the "Servicer"), and
[Indenture Trustee], an [ ] banking corporation, as Indenture Trustee on
behalf of the Class A Noteholders (in such capacity, the "Indenture Trustee").
PRELIMINARY STATEMENT
WHEREAS, the Trust desires to purchase from the Seller a pool of
Mortgage Loans which were originated by the Seller in the ordinary course of
business of the Seller;
WHEREAS, the Seller, concurrently with the execution of this
Agreement, purchased the Mortgage Loans from the Seller pursuant to the
Mortgage Loan Purchase Agreement (the "Mortgage Loan Purchase Agreement");
WHEREAS, the Servicer is willing to service such Mortgage 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:
<PAGE>
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.
Account: Any of the Distribution Account, the Collection Account or
the Cap Payment Reserve Account.
Affiliate: With respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of
a Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise and "controlling" and "controlled" shall
have meanings correlative to the foregoing.
Agreement: This Sale and Servicing Agreement and all amendments
hereof and supplements hereto.
Appraised Value: Generally, in the case of a purchase money Mortgage
Loan, the lesser of the applicable sales price and the appraised value of the
related Mortgaged Property, based upon the appraisal made by or for the
originator at the time of origination of the related Mortgage Loan; in all
other cases, the appraised value of the Mortgaged Property based upon the
appraisal made by or for the originator at the time of the origination of the
related Mortgage Loan.
Assignment of Mortgage: With respect to any Mortgage, an assignment,
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the sale of the Mortgage to the Indenture Trustee, which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering the Mortgage Loans secured by
Mortgaged Properties located in the same jurisdiction.
Available Funds: As to any Payment Date, the sum of (A) the sum of
all amounts described in clauses (i) through (vii) inclusive, of Section
3.02(b) received by the Servicer (including any amounts paid by the Servicer
and the Seller, and excluding (a) any amounts not required to be deposited in
the Collection Account pursuant to Section 3.02(b), and (b) any amounts paid
to the Servicer or withdrawn by the Servicer pursuant to Sections 3.03(ii),
(iii), (iv), (v), (vi) and (vii) in respect of the Mortgage Loans as of the
related Determination Date) during the related Due Period and deposited into
the Collection Account as of the Determination Date, (B) Insured Payments, if
any, (C) the amount of any Supplemental Interest Payment for such Payment
Date, pursuant to Section 4.03(c) hereof; and (D) any Termination Price with
respect to the Mortgage Loans deposited to the Distribution Account pursuant
to Section 8.01(b). No amount included in this definition by virtue of being
described by any component of the definition thereof shall be included twice
by virtue of also being described by any other component or otherwise.
Balloon Loan: Any Mortgage Loan that provided on the date of
origination for scheduled monthly payments in level amounts substantially
lower than the amount of the final scheduled payment.
Base O/C Amount: With respect to any Payment Date, an amount equal to
the product of (x) the Base O/C Percentage and (y) the Cut-Off Date Pool
Principal Balance.
Base O/C Percentage: [ ]%.
BIF: The Bank Insurance Fund, as from time to time constituted,
created under the Financial Institutions Reform, Recovery and Enhancement Act
of 1989, or if at any time after the execution of this instrument the Bank
Insurance Fund is not existing and performing duties now assigned to it, the
body performing such duties on such date.
Book-Entry Note: Any Class A Note registered in the name of the
Depository or its nominee, ownership of which is reflected on the books of the
Depository or on the books of a Person maintaining an account with such
Depository (directly or as an indirect participant in accordance with the
rules of such Depository).
Business Day: Any day other than (i) a Saturday or Sunday, or (ii) a
day on which the Insurer or banking institutions in the States of New York,
New Jersey or the state in which the corporate trust office of the Indenture
Trustee is located are required or authorized by law to be closed.
Cap Contract Obligation: The obligation to pay or cause to be paid,
with respect to any Payment Date, an amount equal to the amounts payable
pursuant to the Interest Rate Cap Agreement.
Cap Contract Payments: All amounts required to be paid by [ ].
pursuant to the Interest Rate Cap Agreement.
Cap Contract Payment Reserve Amount: As defined in Section 4.03(c).
Cap Payment Reserve Account: As defined in Section 4.03(c) hereof.
Cap Rate: As defined in the Interest Rate Cap Agreement.
Civil Relief Act Interest Shortfalls: As to any Payment Date, any
shortfalls in Interest Collections on the Mortgage Loans during the prior Due
Period that are attributable to the application of the Soldiers' and Sailors'
Civil Relief Act of 1940, as amended.
Class A Monthly Principal Distributable Amount: With respect to any
Payment Date, to the extent of funds available therefor as described herein,
the amount equal to the sum of the following amounts (without duplication)
with respect to the immediately preceding Due Period: (i) that portion of all
Monthly Payments allocable to principal on the Mortgage Loans, including all
full and partial principal prepayments, received by the Servicer during such
Due Period, (ii) the Principal Balance as of the end of the immediately
preceding Due Period of each Mortgage Loan that became a Liquidated Mortgage
Loan for the first time during the related Due Period, (iii) the portion of
the Purchase Price allocable to principal of all repurchased Defective
Mortgage Loans with respect to such Due Period, (iv) any Substitution
Adjustments received on or prior to the previous Determination Date and not
yet distributed, and (v) the Distributable Excess Spread, if any, for such
Payment Date.
Class A Note: Any Class A Note executed by the Trust and
authenticated by the Indenture Trustee substantially in the form set forth in
Exhibit G hereto.
Class A Note Owner: The Person who is the beneficial owner of a
Book-Entry Note.
Class A Note Principal Balance: With respect to any date of
determination, (a) the Original Class A Note Principal Balance less (b) the
aggregate of amounts distributed as principal to the Class A Noteholders on
previous Payment Dates.
Class A Note Rate: For any Payment Date, the lesser of (a) the sum of
(i) LIBOR, as of the second LIBOR Business Day prior to the immediately
preceding Payment Date (or as of the fourth LIBOR Business Day prior to the
Closing Date, in the case of the first Payment Date) plus (ii) [ ]% per annum,
for any Payment Date on or prior to the Optional Termination Date, or [ ]% per
annum for any Payment Date after the Optional Termination Date, and (b) [ ]%
per annum.
Class A Noteholder or Holder: The Person in whose name a Class A Note
is registered in the Note Register, except that, solely for the purpose of
giving any consent, direction, waiver or request pursuant to this Agreement,
(x) any Class A Note registered in the name of the Seller or any Person
actually known to a Responsible Officer to be an Affiliate of the Seller (y)
any Class A Note for which the Seller or any Person actually known to a
Responsible Officer to be an Affiliate of the Seller is the Class A Note Owner
shall be deemed not to be outstanding (unless to the actual knowledge of a
Responsible Officer (i) the Seller, or such Affiliate, is acting as trustee or
nominee for a Person who is not an Affiliate of the Seller and who makes the
voting decision with respect to such Class A Note or (ii) the Seller, or such
Affiliate, is the Class A Note Owner of all the Class A Notes) and the
Percentage Interest evidenced thereby shall not be taken into account in
determining whether the requisite amount of Percentage Interests necessary to
effect any such consent, direction, waiver or request has been obtained and
(z) the Insurer shall be deemed to be the owner of 100% of the Class A Notes
so long as no Insurer Default is then continuing.
Class A Principal Distribution: With respect to any Payment Date
(other than the Final Payment Date), the excess of (A) the Class A Monthly
Principal Distributable Amount for such Payment Date over (B) the related O/C
Reduction Amount for such Payment Date; provided, however, that the Class A
Principal Distribution shall not exceed the Class A Note Principal Balance.
The "Class A Principal Distribution" on the Final Payment Date for the Class A
Notes will equal the Class A Note Principal Balance as of such Payment Date.
Closing Date: [ ].
Code: The Internal Revenue Code of 1986, as amended from time to
time, and Treasury Regulations promulgated thereunder.
Collection Account: The custodial account or accounts created and
maintained for the benefit of the Class A Noteholders, the Ownership Interest
and the Insurer pursuant to Section 3.02(b). The Collection Account shall be
an Eligible Account.
Combined Loan-to-Value Ratio or CLTV: With respect to any Mortgage
Loan, the sum of the original principal balance of such Mortgage Loan and the
outstanding principal balance of the First Lien, if any, as of the date of
origination of the Mortgage Loan, divided by the Appraised Value.
Compensating Interest: As to any Payment Date, the amount calculated
pursuant to Section 5.07.
Conforming Original Principal Balance: With respect to a Mortgage
Loan secured by a first lien, an original principal balance that is no more
than $240,000 for single-family properties, $307,100 for two-family
properties, $371,200 for three-family properties and $461,350 for four-family
properties. With respect to a Mortgage Loan secured by a second lien, (a) an
original principal balance not in excess of $120,000, and (b) a sum of the
original principal balance of such second lien loan and the related senior
lien balance not in excess of $240,000 for single-family properties, $307,100
for two-family properties, $371,200 for three-family properties and $461,350
for four-family properties (unless the related senior lien loan, at the time
of origination of the second lien loan, had a principal balance greater than
$240,000 for single-family properties, $307,100 for two-family properties,
$371,200 for three-family properties and $461,350 for four-family properties,
in which case this clause (b) should not be taken into account when
determining the Conforming Original Principal Balance of the related second
lien loan).
Corporate Trust Office: The principal office of the Indenture Trustee
at which at any particular time its corporate business shall be administered,
which office on the Closing Date is located at [ ], Attention: Indenture Trust
Administration.
Curtailment: 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 not
intended to satisfy the Mortgage Loan in full, nor is intended to cure a
delinquency or to be applied for subsequent Monthly Payments as and when the
same come due pursuant to directions from the Mortgagor to such effect.
Custodial Fee: The fees and expenses as set forth in the fee letter
between [ ] and [ ], as of [ ], attached as Exhibit L hereto.
Cut-Off Date: As to a Mortgage Loan, the close of business on [ ].
Cut-Off Date Principal Balance: With respect to any Mortgage Loan,
the unpaid principal balance thereof as of the Cut-Off Date (or as of the
applicable date of substitution with respect to an Eligible Substitute
Mortgage Loan pursuant to Section 2.02 or 2.06).
Cut-Off Date Pool Principal Balance: $[ ].
Defective Mortgage Loan: Any Mortgage Loan subject to repurchase or
substitution by the Seller pursuant to Section 2.02 or 2.04 or purchase by the
Servicer pursuant to Section 3.20.
Definitive Notes: As defined in the Indenture.
Delinquency Amount: The product of the Delinquency Percentage and the
Pool Principal Balance as of the end of the related Due Period.
Delinquency Percentage: Means the rolling three month average of the
percentage equivalent of a fraction, the numerator of which is (x) the sum of
the aggregate principal balances of all mortgage loans which are (i) 90 or
more days delinquent, (ii) mortgage loans in bankruptcy and 90 or more days
delinquent under the note, (iii) mortgage loans in foreclosure plus (iv)
mortgage loans relating to REO Properties and the denominator of which is (y)
the Pool Principal Balance.
Seller: KeyBank National Association, a national banking association
headquartered in Cleveland, Ohio.
Depository: The initial Depository shall be The Depository Trust
Company, the nominee of which is Cede & Co., as the registered Holder of Class
A Notes evidencing $[ ] in initial aggregate principal amount of the Class A
Notes. The Depository shall at all times be a "clearing corporation" as
defined in Section 8-102(a)(5) of the UCC of the State of New York.
Depository Participant: A broker, dealer, bank or other financial
institution or other Person for whom from time to time the Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Determination Date: With respect to any Payment Date, the eighteenth
day of the month in which such Payment Date occurs (or if such day is not a
Business Day, the Business Day immediately succeeding such eighteenth day).
Distributable Excess Spread: As to any Payment Date, the lesser of
(i) the Excess Spread for such Payment Date and (ii) the excess, if any, of
the Specified O/C Amount for such Payment Date over the O/C Amount on such
date before giving effect to the application of Distributable Excess Spread on
such Payment Date.
Distribution Account: The account established by the Indenture
Trustee pursuant to Section 5.05. The Distribution Account shall be an
Eligible Account.
Due Date: With respect to any Mortgage Loan and any Monthly Payment,
the date on which such Monthly Payment is due from the related Mortgagor.
Due Period: As to any Determination Date or Payment Date, the
calendar month immediately preceding such Determination Date or Payment Date.
Eligible Account: A segregated account that is (i) maintained with a
depository institution whose debt obligations at the time of any deposit
therein have the highest short-term debt rating by the Rating Agencies and
whose accounts are fully insured by either the SAIF or the BIF of the Federal
Deposit Insurance Corporation established by such fund with a minimum
long-term unsecured debt rating of "A2" by Moody's and "A" by Standard &
Poor's, and which is any of (A) a federal savings and loan association duly
organized, validly existing and in good standing under the federal banking
laws, (B) an institution duly organized, validly existing and in good standing
under the applicable banking laws of any state, (C) a national banking
association duly organized, validly existing and good standing under the
federal banking laws, (D) a principal subsidiary of a bank holding company,
and in each case of (A)-(D) above, approved in writing by the Insurer; (ii) a
segregated trust account maintained with the corporate trust department of a
federal or state chartered depository institution or trust company, having
capital and surplus of not less than $50,000,000, acting in its fiduciary
capacity; or (iii) otherwise acceptable to each Rating Agency and the Insurer
as evidenced by a letter from each Rating Agency and the Insurer to the Owner
Trustee and the Indenture Trustee, without reduction or withdrawal of the then
current ratings of the Class A Notes, without regard to the Insurance Policy.
Eligible Investments: One or more of the following (excluding any
callable investments purchased at a premium):
(i) direct obligations of, or obligations fully guaranteed
as to timely payment of principal and interest by, the United States
or any agency or instrumentality thereof, provided that such
obligations are backed by the full faith and credit of the United
States;
(ii) repurchase agreements on obligations specified in
clause (i) maturing not more than three months from the date of
acquisition thereof, provided that the short-term unsecured debt
obligations of the party agreeing to repurchase such obligations are
at the time rated by a Rating Agency in its highest short-term rating
category (which is "A-1+" for Standard & Poor's and "P-1" for
Moody's);
(iii) certificates of deposit, time deposits and bankers'
acceptances (which, if Moody's is a Rating Agency, shall each have an
original maturity of not more than 90 days and, in the case of
bankers' acceptances, shall in no event have an original maturity of
more than 365 days) of any U.S. depository institution or trust
company incorporated under the laws of the United States or any state
thereof and subject to supervision and examination by federal and/or
state banking authorities, provided that the unsecured short-term
debt obligations of such depository institution or trust company at
the date of acquisition thereof have been rated by either Moody's or
Standard & Poor's in its highest unsecured short-term debt rating
category;
(iv) commercial paper (having original maturities of not
more than 90 days) of any corporation incorporated under the laws of
the United States or any state thereof which on the date of
acquisition has been rated by Standard & Poor's or Moody's in their
highest short-term rating categories;
(v) short term investment funds ("STIFS") sponsored by any
trust company or national banking association incorporated under the
laws of the United States or any state thereof which on the date of
acquisition has been rated by Standard & Poor's or Moody's in their
respective highest rating category of long term unsecured debt;
(vi) interests in any money market fund which at the date of
acquisition of the interests in such fund and throughout the time as
the interest is held in such fund has a rating of "Aaa" by Moody's or
either "AAAm" or "AAAm-G" by Standard & Poor's; and
(vii) other obligations or securities that are acceptable to
each Rating Agency and the Insurer as an Eligible Investment
hereunder and will not result in a reduction in the then current
rating of the Class A Notes, as evidenced by a letter to such effect
from such Rating Agency and the Insurer and with respect to which the
Servicer has received confirmation that, for tax purposes, the
investment complies with each proviso set forth below in the last
clause of this definition;
provided that no instrument described hereunder 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 and the interest and principal
payments with respect to such instrument provided a yield to maturity at par
greater than 120% 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 its stated maturity.
Eligible Substitute Mortgage Loan: A Mortgage Loan substituted by the
Seller for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance) that is no greater than the Principal Balance of
the Defective Mortgage Loan and no more than 5% less than the Principal
Balance of the Defective Mortgage Loan; (ii) have an original principal
balance that is a Conforming Original Principal Balance; (iii) have a Loan
Rate not less than the Loan Rate of the Defective Mortgage Loan and not more
than 1% in excess of the Loan Rate of such Defective Mortgage Loan; (iv) have
a remaining term to maturity not more than six months earlier and not later
than the remaining term to maturity of the Defective Mortgage Loan; (v) be of
the same type of Mortgaged Property as the Defective Mortgage Loan or a
detached single family residence; (vi) have a Mortgage of the same or higher
level of priority as the Mortgage relating to the Defective Mortgage Loan at
the time such Mortgage was transferred to the Trust; (vii) comply with each
representation and warranty set forth in Section 2.04 (deemed to be made as of
the date of substitution); and (viii) have an original Combined Loan-to-Value
Ratio not greater than that of the Defective Mortgage Loan. More than one
Eligible Substitute Mortgage Loan may be substituted for a Defective Mortgage
Loan if such Eligible Substitute Mortgage Loans meet the foregoing attributes
in the aggregate and such substitution is approved in writing in advance by
the Insurer.
ERISA: Employee Retirement Income Security Act of 1974, as amended.
Event of Servicing Termination: As defined in Section 7.01.
Excess O/C Amount: As to any Payment Date, the amount by which (i)
the O/C Amount for such Payment Date exceeds (ii) the Specified O/C Amount for
such Payment Date.
Excess Spread: With respect to any Payment Date, the positive excess,
if any, of (a) Available Funds for such Payment Date over (b) the aggregate of
amounts required to be distributed pursuant to subclauses (i) through (iv) of
Section 5.01(a) herein on such Payment Date.
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
Fidelity Bond: As defined in Section 3.06.
Final Payment Date: The Payment Date in [ ].
First Lien: With respect to any Mortgage Loan that is a second
priority lien, the mortgage loan or mortgage loans relating to the
corresponding Mortgaged Property having a first priority lien to such Mortgage
Loan.
Fiscal Agent: As defined in the Insurance Policy.
Foreclosure Profit: With respect to a Liquidated Mortgage Loan, the
amount, if any, by which (i) the aggregate of its Net Liquidation Proceeds
exceeds (ii) the related Principal Balance (plus accrued and unpaid interest
thereon at the applicable Loan Rate from the date interest was last paid
through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Mortgage Loan immediately prior to the final recovery of its
Liquidation Proceeds.
Grant: As defined in the Indenture.
Guaranteed Principal Distribution Amount: (i) With respect to any
Payment Date other than the Final Payment Date, the amount, if any, by which
the Class A Note Principal Balance exceeds the Pool Principal Balance as of
the end of the related Due Period (after giving effect to all payments of
principal on the Class A Notes on such Payment Date pursuant to Section 5.01
hereof). With respect to the Final Payment Date, the outstanding Class A Note
Principal Balance (after giving effect to all payments of principal on the
Class A Notes on such Final Payment Date pursuant to Section 5.01(a) hereof).
Indenture: The Indenture, dated as of [ ], between the Issuer and the
Indenture Trustee.
Indenture Trustee: [ ], an [ ] banking corporation, as
Indenture Trustee under the Indenture or any successor indenture trustee under
the Indenture appointed in accordance with such agreement.
Indenture Trustee Fee: With respect to any Payment Date, the greater
of (i) 1/12 of the sum of (a) the product of (1) the Indenture Trustee Fee
Rate and (2) the Pool Principal Balance of the Mortgage Loans as of the end of
the second preceding Due Period (or in the case of the first Payment Date, as
of the Cut Off Date) and (b) any Custodial Fees to the extent not paid by the
Servicer, or (ii) $[ ].
Indenture Trustee Fee Rate: The per annum rate at which the Indenture
Trustee Fee is calculated, which is an amount equal to [ ]% per annum.
Indenture Trustee's Statement to Noteholders: As defined in Section
5.03.
Insurance and Reimbursement Agreement: The Insurance and
Reimbursement Agreement dated as of [ ] among the Indenture Trustee, the
Seller, the Servicer, [ ] and the Insurer, including any amendments and
supplements thereto in accordance with the terms thereof.
Insurance Policy: The Financial Guaranty Insurance Policy (No. 28822)
with respect to the Class A Notes and the Senior Interest Participation and
all endorsements thereto, if any, dated the Closing Date, issued by the
Insurer for the benefit of the Holders of the Class A Notes and the Senior
Interest Participation, a copy of which is attached hereto as Exhibit K.
Insurance Proceeds: Proceeds paid by any insurer (other than the
Insurer) pursuant to any insurance policy covering a Mortgage Loan or
Mortgaged Property, or amounts required to be paid by the Servicer pursuant to
Section 3.05, net of any component thereof (i) covering any expenses incurred
by or on behalf of the Servicer in connection with obtaining such proceeds,
(ii) applied to the restoration or repair of the related Mortgaged Property,
(iii) released to the Mortgagor in accordance with the Servicer's normal
servicing procedures, or (iv) required to be paid to any holder of a mortgage
senior to such Mortgage Loan.
Insured Payment: With respect to any Payment Date, an amount equal to
the sum of the (i) the Guaranteed Principal Distribution Amount and (ii) the
amount, if any, by which the aggregate of the Interest Distributions with
respect to the Class A Notes and the Senior Interest Participation for such
Payment Date exceeds the amount on deposit in the Distribution Account
available to be distributed therefor on such Payment Date.
Insurer: [ ], a stock insurance company organized and created under
the laws of the State of New York, or any successor thereto.
Insurer Default: (i) Any failure and continuance of such failure of
the Insurer to make a payment required under the Insurance Policy in
accordance with its terms; (ii) the entry by a court having jurisdiction in
the premises of (A) a decree or order for relief in respect of the Insurer in
an involuntary case or proceeding under any applicable United States federal
or state bankruptcy, insolvency, rehabilitation, reorganization or other
similar law, or (B) a decree or order adjudging the Insurer as bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
rehabilitation, arrangement, adjustment or composition of or in respect of the
Insurer under any applicable United States federal or state law, or appointing
a custodian, receiver, liquidator, rehabilitator, assignee, trustee,
sequestrator or other similar official of the Insurer or of any substantial
part of its property, or ordering the winding-up or liquidation of its
affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in each case in effect for a period of
60 consecutive days; or (iii) the commencement by the Insurer of a voluntary
case or proceeding under any applicable United States federal or state
bankruptcy, insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated as bankrupt or insolvent, or the consent
by the Insurer to the entry of a decree or order for relief in respect of the
Insurer in an involuntary case or proceeding under any applicable United
States federal or state bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Insurer, or the filing by the Insurer of a petition or
answer or consent seeking reorganization or relief under any applicable United
States federal or state law, or the consent by the Insurer to the filing of
such petition or to the appointment of or the taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Insurer or of any substantial part of its property, or the
making by the Insurer of an assignment for the benefit of its creditors, or
the failure by the Insurer to pay debts generally as they become due, or the
admission by the Insurer in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the Insurer
in furtherance of any such action.
Interest Carryover Shortfall: With respect to any Payment Date, the
Class A Notes and the Senior Interest Participation, the amount by which the
related Interest Distribution for such Class A Notes or Senior Interest
Participation, as applicable, for the preceding Payment Date exceeded the
amount of interest that was actually distributed to such Class A Notes or
Senior Interest Participation, as applicable, on such preceding Payment Date.
Interest Distribution: With respect to any Payment Date, the Class A
Notes and the Senior Interest Participation, the sum of (a) the related
Monthly Interest Distributable Amount for such Class A Notes or Senior
Interest Participation, as applicable, for such Payment Date, and (b) any
related Outstanding Interest Carryover Shortfall for such Class A Notes or
Senior Interest Participation, as applicable, for such Payment Date.
Interest Period: With respect to each Payment Date and the Class A
Notes, the period from the Payment Date in the month preceding the month of
such Payment Date (or, in the case of the first Payment Date, from the Closing
Date) through the day before such Payment Date. With respect to each Payment
Date and the Senior Interest Participation, the period from the first day of
the calendar month preceding the month of such Payment Date through the last
day of such calendar month.
Interest Rate Cap Agreement: The rate cap transaction entered into
between [ ].
Issuer: [ ]Home Equity Loan Trust [ ].
Key Bank USA: Key Bank USA, National Association, a national banking
association.
LIBOR: As to any date, the rate for United States dollar deposits for
one month which appears on the Telerate Screen Page 3750 as of 11:00 A.M.,
London time on such date. If such rate does not appear on such page (or such
other page as may replace that page on that service, or if such service is no
longer offered, such other service for displaying LIBOR or comparable rates as
may be reasonably selected by the Seller after consultation with the Indenture
Trustee), the rate will be the Reference Bank Rate. If no such quotations can
be obtained and no Reference Bank Rate is available, LIBOR will be LIBOR
applicable to the preceding Payment Date.
LIBOR Business Day: Any day other than (i) a Saturday or a Sunday or
(ii) a day on which banking institutions in the State of New York or in the
city of London, England are required or authorized by law to be closed.
Liquidated Mortgage Loan: As to any Payment Date, any Mortgage Loan
in respect of which the Servicer has determined, in accordance with the
servicing procedures specified herein, as of the end of the preceding Due
Period, that all Liquidation Proceeds which it expects to recover with respect
to the disposition of such Mortgage Loan or the related REO Property have been
recovered.
Liquidation Proceeds: With respect to a Mortgage Loan, the proceeds
(including Insurance Proceeds but not including amounts drawn under the
Insurance Policy) received in connection with the liquidation of any Mortgage
Loan or related REO Property, whether through trustee's sale, foreclosure sale
or otherwise (including rental income).
Liquidation Report: With respect to each Liquidated Mortgage Loan,
the report prepared by the Servicer in the form attached hereto as Exhibit F.
Loan Rate: With respect to any Mortgage Loan as of any day, the per
annum fixed interest rate applicable under the related Mortgage Note.
Majority Class A Noteholder: The Holder or Holders of Class A Notes
representing at least 51% of the aggregate Class A Note Principal Balance.
Monthly Advance: An advance made by the Servicer pursuant to Section
3.16.
Monthly Interest Distributable Amount: As to any Payment Date and (i)
the Class A Notes, interest at the Class A Note Rate that accrued during the
related Interest Period on the Class A Note Principal Balance thereof
immediately prior to such Payment Date; and (ii) the Senior Interest
Participation, interest at the Senior Interest Participation Rate that accrued
during the related Interest Period on the Notional Principal Balance thereof
immediately prior to such Payment Date.
Monthly Payment: With respect to a Mortgage Loan, the scheduled
monthly payment of principal and/or interest required to be made by a
Mortgagor on such Mortgage Loan.
Moody's: Moody's Investors Service, Inc., or any successor thereto.
Mortgage: The mortgage, deed of trust or other instrument creating a
first or second lien on an estate in fee simple interest in real property
securing a Mortgage Loan.
Mortgage File: The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement.
Mortgage Loans: The mortgage loans that are transferred and assigned
to the Trust pursuant to Sections 2.01 and 2.06, together with the Related
Documents, exclusive of Mortgage Loans that are transferred to the Seller,
from time to time pursuant to Sections 2.02 and 2.06, or to the Servicer
pursuant to Section 3.20, as from time to time are held as a part of the
Trust, such mortgage loans originally so held being identified in the Mortgage
Loan Schedule delivered on the Closing Date.
Mortgage Loan Purchase Agreement: The mortgage loan purchase
agreement, dated as of [ ], between the [the trust], as purchaser, and
[KeyBank National Association ], as seller, relating to the sale of the
Mortgage Loans from [ ]to the Seller.
Mortgage Loan Schedule: With respect to any date, the schedule of
Mortgage Loans constituting assets of the Trust. The Mortgage Loan Schedule is
the schedule set forth herein as Exhibit A, which schedule sets forth as to
each Mortgage Loan: (i) the Cut-Off Date Principal Balance, (ii) the account
number, (iii) the original principal amount, (iv) the CLTV as of the date of
the origination of the related Mortgage Loan, (v) the Due Date, (vi) the Loan
Rate as of the Cut-Off Date, (vii) the first date on which a Monthly Payment
is or was due under the Mortgage Note, (viii) the original stated maturity
date of the Mortgage Note and if the Mortgage Loan is a Balloon Loan, the
amortization terms, (ix) the remaining number of months to maturity as of the
Cut-Off Date, (x) the state in which the related Mortgaged Property is
situated, (xi) the type of property and (xii) the lien status. The Mortgage
Loan Schedule will be amended from time to time to reflect the substitution of
an Eligible Substitute Mortgage Loan for a Defective Mortgage Loan from time
to time hereunder.
Mortgage Note: With respect to a Mortgage Loan, the promissory note
pursuant to which the related Mortgagor agrees to pay the indebtedness
evidenced thereby which is secured by the related Mortgage.
Mortgaged Property: The underlying property, including any real
property and improvements thereon, securing a Mortgage Loan.
Mortgagee: With respect to any Mortgage Loan as of any date of
determination, the holder of the related Mortgage Note and any related
Mortgage as of such date.
Mortgagor: With respect to any Mortgage Loan, the obligor or obligors
under the related Mortgage Note.
Net Liquidation Proceeds: With respect to any Liquidated Mortgage
Loan, Liquidation Proceeds net of unreimbursed Servicing Fees, Servicing
Advances and Monthly Advances with respect thereto.
Net Loan Rate: With respect to any Mortgage Loan, the Loan Rate less
the Servicing Fee Rate.
Nonrecoverable Advances: With respect to any Mortgage Loan, (i) any
Servicing Advance or Monthly Advance previously made and not reimbursed
pursuant to Section 3.03(ii) or (ii) a Servicing Advance or Monthly Advance
proposed to be made in respect of a Mortgage Loan or REO Property which, in
the good faith business judgment of the Servicer, as evidenced by an Officer's
Certificate delivered to the Insurer, the Seller and the Indenture Trustee
promptly following such determination, would not be ultimately recoverable
pursuant to Sections 3.03(ii) or 3.03(vii).
Note Register and Note Registrar: As defined in the Indenture.
Notional Principal Balance: With respect to the Senior Interest
Participation and any date of determination after the first Payment Date, an
amount equal to the Pool Principal Balance as of the end of the second
preceding Due Period. Prior to or on the first Payment Date, the Cut-Off Date
Pool Principal Balance.
O/C Amount: As to any Payment Date, the excess, if any, of (a) the
Pool Principal Balance as of the close of business on the last day of the
related Due Period over (b) the Class A Note Principal Balance (after giving
effect to amounts available in respect of the Class A Monthly Principal
Distributable Amount for such Payment Date).
O/C Reduction Amount: As to any Payment Date, an amount equal to the
lesser of (i) the Excess O/C Amount for such Payment Date and (ii) the
Principal Remittance Amount for such Payment Date.
Officer's Certificate: A certificate signed by the President, an
Executive Vice President, a Senior Vice President, a Vice President, an
Assistant Vice President, the Treasurer, Assistant Treasurer, Controller or
Assistant Controller of the Servicer, the Seller, as the case may be, and
delivered to the Indenture Trustee and the Insurer.
Opinion of Counsel: A written opinion of counsel reasonably
acceptable to the Indenture Trustee, who may be in-house counsel for the
Servicer (or its affiliate) or the Seller (or its affiliate)(except that any
opinion pursuant to Section 2.01 or 6.04 or relating to taxation or otherwise
as required by the Insurer must be an opinion of independent outside counsel)
and who, in the case of opinions delivered to the Insurer and the Rating
Agency, is reasonably acceptable to each of them.
Original Class A Note Principal Balance: $[ ].
Optional Termination Date: Any Payment Date on or after the Pool
Principal Balance has been reduced to an amount less than or equal to [5]% of
the Cut-Off Date Pool Principal Balance.
Outstanding Interest Carryover Shortfall: With respect to any Payment
Date, the Class A Notes and the Senior Interest Participation, the amount of
related Interest Carryover Shortfall for such Payment Date and Class A Notes
or Senior Interest Participation, as applicable, plus one month's interest
thereon, at the Class A Note Rate or Senior Interest Participation Rate, as
applicable, to the extent permitted by law.
Owner Trustee: [ ], as owner trustee under the Trust
Agreement, and any successor owner trustee under the Trust Agreement appointed
in accordance with the terms thereof.
Owner Trustee Fee: A monthly fee equal to 1/12 of $[ ].
Ownership Interest: The Transferor Interest and the Senior Interest
Participation issued together pursuant to the Trust Agreement.
Paying Agent: Any paying agent appointed pursuant to the Indenture.
Payment Date: The twenty-fifth day of each month or, if such day is
not a Business Day, then the next Business Day, beginning in [ ].
Percentage Interest: As to the Class A Notes and any date of
determination, the percentage obtained by dividing the principal denomination
of such Class A Note by the aggregate of the principal denominations of all
Class A Notes.
Person: Any individual, corporation, partnership, joint venture,
limited partnership, limited liability company, association, joint-stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
Pool Factor: With respect to the Class A Notes and to any Payment
Date, the percentage, carried to seven places, obtained by dividing the Class
A Note Principal Balance for such Payment Date by the Original Class A Note
Principal Balance.
Pool Principal Balance: With respect to any date of determination,
the aggregate of the Principal Balance of all Mortgage Loans as of such date.
Preference Event: As defined in Section 4.01(c).
Premium Amount: The premium payable to the Insurer pursuant to the
Insurance Agreement.
Prepayment Interest Shortfall: With respect to any Payment Date, for
each Mortgage Loan that was the subject during the related Due Period of a
Principal Prepayment in full an amount equal to the excess, if any, of (i) 30
days' interest on the Principal Balance of such Mortgage Loan at the Net Loan
Rate (or at such lower rate as may be in effect for such Mortgage Loan
pursuant to application of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended) over (ii) the amount of interest actually remitted by the
Mortgagor in connection with such Principal Prepayment less the Servicing Fee
for such Mortgage Loan in such month.
Principal Balance: As to any Mortgage Loan and any day, other than a
Liquidated Mortgage Loan, the Cut-Off Date Principal Balance, minus all
collections credited against the Principal Balance of any such Mortgage Loan
in accordance with the related Mortgage Note. For purposes of this definition,
a Liquidated Mortgage Loan shall be deemed to have a Principal Balance equal
to the Principal Balance of the related Mortgage Loan immediately prior to the
final recovery of related Liquidation Proceeds and a Principal Balance of zero
as of the end of the Due Period in which such Mortgage Loan becomes a
Liquidated Mortgage Loan.
Principal Prepayment: 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 intended to satisfy a
Mortgage Loan in full.
Principal Remittance Amount: With respect to any Payment Date, the
amount equal to the sum of the following amounts (without duplication) with
respect to the immediately preceding Due Period: (i) that portion of all
Monthly Payments allocable to principal on Mortgage Loans, including all full
and partial principal prepayments received during the related Due Period, (ii)
the Net Liquidation Proceeds allocable to principal actually collected by the
Servicer during the related Due Period, (iii) the portion of the Purchase
Price allocable to principal of all Defective Mortgage Loans that were
repurchased during the related Due Period and (iv) any Substitution
Adjustments for Mortgage Loans, deposited to the Distribution Account pursuant
to Section 2.06 on or prior to the related Determination Date and not
previously distributed.
Prospectus: The base prospectus of the Seller dated [ ].
Prospectus Supplement: The prospectus supplement dated [ ], relating
to the offering of the Class A Notes.
Purchase Price: As to any Mortgage Loan repurchased on any date
pursuant to Section 2.02, 2.04 or 3.20 an amount equal to the sum of (i) the
unpaid Principal Balance thereof, (ii) the greater of (a) all unpaid accrued
interest thereon to the end of the Due Period preceding the Payment Date on
which such Purchase Price is included in Available Funds and (b) 30 days'
interest thereon, computed at the applicable Loan Rate; provided, however,
that if at the time of repurchase the Seller is the Servicer, the amount
described in clause (ii) shall be computed at the Net Loan Rate, (iii) (x) if
the Servicer is not the Seller, any unreimbursed Servicing Advances with
respect to such Mortgage Loan and (y) expenses reasonably incurred or to be
incurred by the Servicer or the Indenture Trustee in respect of the breach or
defect giving rise to the purchase obligation and (iv) the amount of any
penalties, fines, forfeitures, legal fees and related costs, judgments and any
other costs, fees and expenses incurred by or imposed on the Seller, the
Indenture Trustee, the Insurer or the Trust or with respect to which any of
them are liable arising from a breach by the Seller of its representations and
warranties in Section 2.04.
Purchaser: The Seller in its capacity as purchaser under the Mortgage
Loan Purchase Agreement.
Rating Agency: Any statistical credit rating agency, or its
successor, that rated the Class A Notes and the Senior Interest Participation
at the request of the Seller at the time of the initial issuance of the Class
A Notes. If such agency or a successor is no longer in existence, "Rating
Agency" shall be such statistical credit rating agency, or other comparable
Person, designated by the Seller and the Insurer, notice of which designation
shall be given to the Indenture Trustee. References herein to the highest
short term unsecured rating category of a Rating Agency shall mean A-1+ or
better in the case of Standard & Poor's and P-1 or better in the case of
Moody's and in the case of any other Rating Agency shall mean the ratings such
other Rating Agency deems equivalent to the foregoing ratings. References
herein to the highest long-term rating category of a Rating Agency shall mean
"AAA" in the case of Standard & Poor's and "Aaa" in the case of Moody's and in
the case of any other Rating Agency, the rating such other Rating Agency deems
equivalent to the foregoing ratings.
Ratings: The ratings initially assigned to the Class A Notes and the
Senior Interest Participation by the Rating Agencies, as evidenced by letters
from the Rating Agencies.
Record Date: With respect to (i) the Senior Interest Participation,
the last Business Day of the month immediately preceding the month in which
the related Payment Date occurs and (ii) the Class A Notes, the Business Day
immediately preceding such Payment Date; provided, however, that if any Class
A Notes becomes a Definitive Note, the record date for such Class A Notes will
be the last Business Day of the month immediately preceding the month in which
the related Payment Date occurs.
Reference Bank Rate: As to any Interest Period as follows: the
arithmetic mean (rounded upwards, if necessary, to the nearest one sixteenth
of a percent) of the offered rates for United States dollar deposits for one
month which are offered by the Reference Banks as of 11:00 A.M., London time,
on the second LIBOR Business Day prior to the first day of such Interest
Period to prime banks in the London interbank market for a period of one month
in amounts approximately equal to the outstanding Class A Note Principal
Balance; provided that at least two such Reference Banks provide such rate. If
fewer than two offered rates appear, the Reference Bank Rate will be the
arithmetic mean of the rates quoted by two or more major banks in New York
City, selected by the Seller after consultation with the Indenture Trustee, as
of 11:00 A.M., New York City time, on such date for loans in U.S. Dollars to
leading European banks for a period of one month in amounts approximately
equal to the outstanding Class A Note Principal Balance. If no such quotations
can be obtained, the Reference Bank Rate shall be the Reference Bank Rate
applicable to the preceding Interest Period.
Reference Banks: Three major banks that are engaged in the London
interbank market, selected by the Seller after consultation with the Indenture
Trustee.
Related Documents: As defined in Section 2.01.
Released Mortgaged Property Proceeds: 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 (i) applicable law, (ii)
mortgage servicing standards employed by the Servicer in servicing mortgage
loans for its own account and (iii) the Sale and Servicing Agreement.
REO Property: A Mortgaged Property that is acquired by the Trust in
foreclosure or by deed in lieu of foreclosure.
Responsible Officer: With respect to the Indenture Trustee, any
officer assigned to the corporate trust group (or any successor thereto),
including any vice president, assistant vice president, trust officer,
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 having direct responsibility for the administration of this
Agreement. When used with respect to the Seller or Servicer, the President or
any Vice President, Assistant Vice President, Treasurer, Assistant Treasurer
or any Secretary or Assistant Secretary.
SAIF: The Savings Association Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and
performing duties now assigned to it, the body performing such duties on such
date.
Securities Act: The Securities Act of 1933, as amended.
Seller: KeyBank National Association, as Seller under the Mortgage
Loan Purchase Agreement.
Senior Interest Participation: The Senior Interest Participation
issued pursuant to the Trust Agreement.
Senior Interest Participation Rate: [ ]% per annum, for each Payment
Date from and including the first Payment Date, to and including the Payment
Date in [ ], [ ]% per annum, for each Payment Date from and including the
Payment Date in [ ]to and including the Payment Date in [ ], and [ ]% per
annum, for each Payment Date thereafter.
Servicer: [ ]as Servicer, or any successor hereunder appointed in
accordance with the terms hereof.
Servicing Advances: All reasonable and customary unanticipated "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 (i) the
preservation, restoration and protection of the Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of the REO Property, including reasonable fees paid
to any independent contractor in connection therewith, (iv) compliance with
the obligations under Sections 3.04, 3.07 or 3.19 hereunder, and (v) in
connection with the liquidation of a Mortgage Loan, expenditures relating to
the purchase or maintenance of the First Lien pursuant to Section 3.17, all of
which reasonable and customary unanticipated out-of-pocket costs and expenses
are reimbursable to the Servicer to the extent provided in Sections 3.03(ii),
3.03(vii) and 3.07.
Servicing Certificate: A certificate completed and executed by a
Servicing Officer on behalf of the Servicer.
Servicing Fee: With respect to any Payment Date, the product of (i)
the Servicing Fee Rate and (ii) the aggregate Principal Balance of the
Mortgage Loans as of the end of the second preceding Due Period (or at the
Cut-Off Date with respect to the first Payment Date).
Servicing Fee Rate: [ ]% per annum (or if [ ]is no longer the
Servicer, [ ]% per annum).
Servicing Officer: Any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name and specimen signature appear on a list of servicing officers furnished
to the Indenture Trustee (with a copy to the Insurer) by the Servicer on the
Closing Date, as such list may be amended from time to time, initially set
forth in Exhibit B hereto.
Specified O/C Amount: With respect to any Payment Date prior to the
Step Down Date the greater of (i) the Base O/C Amount and (ii) [ ]% of the
Delinquency Amount and, with respect to any Payment Date occurring on or after
the Step Down Date, the greatest of:
(i) two times the product of the Base O/C Percentage and the
Pool Principal Balance as of the close of business on the last day of
the related Due Period;
(ii) [ ]% of the Delinquency Amount; and
(iii) the sum of (a) the product of (x) [ ]% and (y) the
Cut-Off Date Pool Principal Balance and (b) the
aggregate Principal Balance of the three largest
Mortgage Loans as of the end of the related Due
Period;
provided, however, that with respect to any Payment Date occurring on or after
the Step Down Date, if the Delinquency Percentage exceeds [ ]%, the Specified
O/C Amount shall not be less than the Specified O/C Amount as of the
immediately preceding Payment Date; and provided, further, that the Insurer
may reduce the Specified O/C Amount so long as such reduction will not result
in a downgrade, qualification or withdrawal of the then current ratings of the
Class A Notes, without regard to the Insurance Policy, as evidenced in writing
by each Rating Agency.
Standard & Poor's: Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc., or any successor thereto.
Step Down Date: The later to occur of (A) the first Payment Date on
which the Pool Principal Balance is less than the product of [ ]% and the
Cut-Off Date Pool Principal Balance and (B) the [ ] Payment Date.
Subservicer: Any Person with whom the Servicer has entered into a
Subservicing Agreement and who satisfies the requirements set forth in Section
3.01(a) in respect of the qualification of a Subservicer.
Subservicing Agreement: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of certain Mortgage
Loans as provided in Section 3.01, a copy of which shall be delivered, along
with any modifications thereto, to the Indenture Trustee and the Insurer.
Substitution Adjustment: As to any date on which a substitution
occurs pursuant to Section 2.06, the sum of (a) the excess of (i) the
aggregate Principal Balances of all Defective Mortgage Loans to be replaced by
Eligible Substitute Mortgage Loans (after application of principal payments
received on or before the date of substitution of any Eligible Substitute
Mortgage Loans as of the date of substitution) over (ii) the Principal Balance
of such Eligible Substitute Mortgage Loans and (b) the greater of (x) accrued
and unpaid interest (accruing at the Loan Rate for such Defective Mortgage
Loan) on such excess through the Due Period relating to the Payment Date for
which such Substitution Adjustment will be included as part of Available Funds
and (y) 30 days' interest on such excess calculated on a 360-day year in each
case at the Loan Rate (or Net Loan Rate if the Seller is the Servicer) and (c)
if the Servicer is not the Seller, the amount of any unreimbursed Servicing
Advances made by the Servicer with respect to such Defective Mortgage Loan and
(d) the amounts referred to in clauses (iii)(y) and (iv) of the definition of
Purchase Price in respect of such Defective Mortgage Loan.
Supplemental Interest Payment: With respect to any Payment Date, the
lesser of (x) the Cap Contract Payment for such Payment Date and (y) the
excess of (a) all amounts in respect of interest accrued on the Class A Notes
at the Class A Note Rate, and on the Senior Interest Participation at the
Senior Interest Participation Rate for such Payment Date over (b) interest
accrued on the Mortgage Loans during the related Due Period, less the sum of
(i) the Servicing Fee for such Payment Date, (ii) the Indenture Trustee Fee
for such Payment Date, (iii) the Owner Trustee Fee for such Payment Date, and
(iv) the monthly premium owed to the Insurer for such Payment Date.
Supplemental Mortgage Loan Schedule: As defined in Section 2.06(b).
Support Agreement: The Agreement between the Seller and [ ] dated as
of [ ], pursuant to which [ ] ensures performance by the Servicer of the
obligation to deposit certain amounts in the Collection Account pursuant to
Section 4.04.
Telerate Screen Page 3750: The display designated as page 3750 on the
Telerate Service (or such other page as may replace page 3750 on that service
for the purpose of displaying London interbank offered rates of major banks).
Termination Price: As defined in Section 8.01(b).
Transaction Documents: This Agreement, the Mortgage Loan Purchase
Agreement, the Insurance Agreement, the Administration Agreement, the Trust
Agreement and the Indenture.
Transferor: [ ], or any such permitted holder of the Transferor
Interest and the Senior Interest Participation.
Transferor Interest: The Transferor Interest issued pursuant to the
Trust Agreement.
Trigger Event: As defined in Section 6.01 of the Insurance and
Reimbursement Agreement.
Trust: The trust created by the Trust Agreement, the corpus of which
consists of the Mortgage Loans and Mortgage Files, such other assets as shall
from time to time be identified as deposited in the Collection Account and the
Distribution Account in accordance with this Agreement, property that secured
a Mortgage Loan and that has become REO Property, the interest of the Seller
in certain hazard insurance policies (including any Insurance Proceeds)
maintained by the Mortgagors or the Servicer in respect of the Mortgage Loans,
the Insurance Policy, and Seller's rights under the Mortgage Loan Purchase
Agreement and the Support Agreement, and all proceeds of each of the
foregoing.
Trust Agreement: The Trust Agreement dated as of [ ], among [ ], as
Seller, the Seller and the Owner Trustee.
UCC: The Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
Underwriters: [ ], [ ], and [ ], as underwriters of the
[ ]Home Equity Loan Asset-Backed Notes, Series [ ].
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,
as applicable.
(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 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.
Section 1.03 Interest Calculations.
All calculations of interest that are made in respect of the
Principal Balance of a simple interest Mortgage Loan shall be made on the
basis of a 365-day year and the actual number of days elapsed. The Monthly
Interest Distributable Amount in respect of the Class A Notes, and the Premium
Amount shall be calculated on the basis of a 360-day year and the actual
number of days elapsed. The Senior Interest Participation Rate shall be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
The calculation of the Servicing Fee, the Indenture Trustee Fee and the Owner
Trustee Fee shall be made on the basis of a 360-day year consisting of twelve
30-day months. All dollar amounts calculated hereunder shall be rounded to the
nearest penny with one-half of one penny being rounded down.
<PAGE>
ARTICLE II.
CONVEYANCE OF THE MORTGAGE LOANS
Section 2.01 Conveyance of the Mortgage Loans.
(a) The Seller, concurrently with the execution and delivery of this
Agreement, does hereby transfer, assign, set over and otherwise convey to the
Trust without recourse (subject to Sections 2.02 and 2.04) all of its right,
title and interest in and to (i) each Mortgage Loan and the related Mortgage
File, including its Cut-Off Date Principal Balance and all collections in
respect of interest and principal received after the Cut-Off Date; (ii)
property that secured a Mortgage Loan that is acquired by foreclosure or deed
in lieu of foreclosure; (iii) its rights under the insurance policies in
respect of the Mortgage Loans (including any Insurance Proceeds); (iv) amounts
on deposit in the Collection Account and the Distribution Account; (v) its
rights under the Mortgage Loan Purchase Agreement (excluding its rights to
indemnification under the indemnification provisions thereof) and the Support
Agreement; (vi) all other assets included or to be included in the Trust for
the benefit of the Class A Noteholders, the Transferor in respect of the
Senior Interest Participation and the Insurer and (vii) any and all proceeds
of the foregoing. In addition, on or prior to the Closing Date, the Seller
shall cause the Insurer to deliver the Insurance Policy to the Indenture
Trustee for the benefit of the Class A Noteholders and the Senior Interest
Participation.
In connection with such transfer, assignment, sale and conveyance by
the Seller, the Seller shall deliver to, and deposit with, the Indenture
Trustee (or its designee), on or before the Closing Date, the following
documents or instruments with respect to each Mortgage Loan (the "Related
Documents") and the Mortgage Loan Schedule in computer readable format:
(i) the original Mortgage Note, endorsed in blank, with all
intervening endorsements showing a complete chain of title from the
originator of such Mortgage Loan to the Seller;
(ii)the original Mortgage, with evidence of recording
thereon, provided that if the original Mortgage has been delivered
for recording to the appropriate public recording office of the
jurisdiction in which the Mortgaged Property is located but has not
yet been returned to the Seller by such recording office, the Seller
shall deliver to the Indenture Trustee a certified true copy of such
original Mortgage so certified by the Seller, together with a
certificate of the Seller certifying that such original Mortgage has
been so delivered to such recording office; in all such instances,
the Seller shall deliver or cause to be delivered the original
recorded Mortgage to the Indenture Trustee promptly upon receipt of
the original recorded Mortgage;
(iii) the original Assignment of Mortgage, from the Seller
to "[ ], as Indenture Trustee for [ ]Home Equity
Loan Trust [ ]", which assignment shall be in form and
substance acceptable for recording;
(iv)the original attorney's opinion of title or the original
policy of title insurance, provided that if any such original policy
of title insurance has not yet been received by the Seller, the
Seller may have delivered to the Indenture Trustee a copy of such
policy or a title insurance binder or commitment for the issuance of
such policy;
(v) originals of all intervening assignments of Mortgage,
with evidence of recording thereon, showing a complete chain of title
from the originator to the Seller, provided that if any such original
intervening assignment of Mortgage has been delivered for recording
to the appropriate public recording office of the jurisdiction in
which the Mortgaged Property is located but has not yet been returned
to the Seller by such recording office, the Seller shall have
delivered to the Indenture Trustee a certified true copy of such
original assignment of Mortgage so certified by the Seller, together
with a certificate of the Seller certifying that such original
assignment of Mortgage has been so delivered to such recording
office; in all such instances, the Seller shall deliver or cause to
be delivered any such original assignments to the Indenture Trustee
promptly upon receipt thereof; and
(vi)originals of all assumption and modification agreements,
if any.
The Seller hereby confirms to the Owner Trustee, the Indenture
Trustee and the Insurer that it has made the appropriate entries in its
general accounting records, to indicate that such Mortgage Loans have been
transferred to the Trust and constitute part of the Trust in accordance with
the terms of the Trust. The Servicer hereby confirms to the Owner Trustee, the
Indenture Trustee and the Insurer that it has clearly and unambiguously made
appropriate entries in its general accounting records indicating that such
Mortgage Loans constitute part of the Trust and are serviced by it on behalf
of the Trust in accordance with the terms hereof.
Within 30 days of the Closing Date, the Seller, at its expense, shall
send or cause to be sent for recording the Assignments of Mortgage in favor of
the Indenture Trustee in the appropriate real property or other records (which
may be a blanket assignment if permitted by applicable law), except as to
those non-recordation states referred to in the third succeeding sentence. The
Indenture Trustee shall be required to retain a copy of each Assignment of
Mortgage submitted for recording. In the event that any such Assignment of
Mortgage is lost or returned unrecorded because of a defect therein, the
Seller, at its own expense, shall promptly prepare a substitute Assignment of
Mortgage or cure such defect, as the case may be, and thereafter the Seller
shall be required to submit each such Assignment of Mortgage for recording.
With respect to any non-recordation state, the Seller may provide to the
Indenture Trustee and the Insurer (and to each Rating Agency, in the case of
any state in which 10% or more by Principal Balance as of the Cut-Off Date of
the Mortgaged Properties are located), an Opinion of Counsel in a form
reasonably acceptable to the Indenture Trustee and the Insurer (and, where
applicable, to each Rating Agency), to the effect that, as to any Mortgage
Loan with respect to which the related Mortgaged Property is located in such
state, recordation of an Assignment of Mortgage in such state is not necessary
to transfer title to the related Mortgage Note to the Trust or to pledge to
the Indenture Trustee the Trust's rights under such Mortgage Note in respect
of which the Mortgaged Property is located in such state; provided, however,
if the Servicer is terminated pursuant to Section 7.01, any Assignments of
Mortgage that have not been previously recorded in favor of the Indenture
Trustee shall be submitted for recordation at the expense of the Seller within
30 days of such termination. Any failure of the Seller to comply with this
Section shall result in the obligation of the Seller to purchase such Mortgage
Loans pursuant to the provisions of Section 2.02 or substitute for the related
Mortgage Loans pursuant to the provisions of Section 2.06.
It is the express intent of the parties hereto that the conveyance of
the Mortgage Loans and the other property described above by the Seller to the
Trust, as provided in this Agreement, be, and be construed as, a sale of all
of the Seller's right, title and interest in the Mortgage Loans and the other
property described above by the Seller to the Trust. It is, further, not the
intention of the parties that such conveyance be deemed a pledge of the
Mortgage Loans and the other property described above by the Seller to the
Trust to secure a debt or other obligation of the Seller. However, in the
event, that notwithstanding the intent of the parties, the Mortgage Loans and
the other property described above are held to be property of the Seller, or
if for any reason this Agreement is held or deemed to create a security
interest in the Mortgage Loans and the other property described above, then,
(a) this Agreement shall also be deemed to be a security agreement within the
meaning of Articles 8 and 9 of the Uniform Commercial Code in effect in the
applicable state; and (b) the Seller hereby grants to the Trust a security
interest in and to all of the Seller's right, title, and interest, whether now
owned or hereafter acquired, in and to:
(I) All accounts, contract rights, general
intangibles, chattel paper, instruments, documents, money,
deposit accounts, certificates of deposit, goods, letters of
credit, advices of credit, certificated securities and
uncertificated securities consisting of, arising from or
relating to any of the property described in (A) through (F)
below: (A) each Mortgage Loan, including (a) the Mortgage
File, including the Mortgage Note and the related Mortgage
and (b) its Principal Balance and all collections in respect
thereof received after the Cut-Off Date, identified on the
Mortgage Loan Schedule, including all Eligible Substitute
Mortgage Loans; (B) its rights under the Mortgage Loan
Purchase Agreement and the Support Agreement; (C) property
that secured a Mortgage Loan that is acquired by foreclosure
or deed in lieu of foreclosure; (D) its rights under the
insurance policies in respect of the Mortgage Loans
(including any Insurance Proceeds); (E) amounts on deposit
in the Collection Account and the Distribution Account; and
(F) all other assets included or to be included in the Trust
for the benefit of the Class A Noteholders, the Transferor
in respect of the Senior Interest Participation and the
Insurer; and
(II) All proceeds of the collateral
described in (I);
(b) The possession by the Indenture Trustee or its designee, of
Mortgage Files, including the Mortgage Notes and the Mortgages and such other
goods, letters of credit, advices of credit, instruments, money, documents,
chattel paper or certificated securities shall be deemed to be "possession by
the secured party," or possession by a purchaser or a person designated by him
or her, for purposes of perfecting the security interest pursuant to the UCC
(including, without limitation, Sections 9-305, 8-313 or 8-321 thereof) as in
force in the relevant jurisdiction; and notifications to persons holding such
property, and acknowledgments, receipts or confirmations from persons holding
such property, shall be deemed to be notifications to, or acknowledgments,
receipts or confirmations from, financial intermediaries, bailees or agents
(as applicable) of the Indenture Trustee or its designee for the purpose of
perfecting such security interest under applicable law. The Seller, the
Servicer and the Indenture Trustee, shall, to the extent consistent with this
Agreement, take such actions as may be necessary to ensure that, if this
Agreement were deemed to create a security interest in the Mortgage Loans and
the proceeds thereof, such security interest would be deemed to be a perfected
security interest of first priority under applicable law and will be
maintained as such throughout the term of the Agreement. In connection
herewith, the Trust shall have all of the rights and remedies of a secured
party and creditor under the Uniform Commercial Code as in force in the
relevant jurisdiction.
(c) The Indenture Trustee agrees to execute and deliver on the
Closing Date an acknowledgment of receipt of, for each Mortgage Loan, the
items required to be delivered by the Seller pursuant to Section 2.01(a) (i)
through (vi). The Indenture Trustee agrees, for the benefit of Class A
Noteholders, the Transferor in respect of the Senior Interest Participation
and the Insurer, within 30 days after execution and delivery of this
Agreement, to review the Mortgage Files to ascertain that all required
documents set forth in paragraphs (i) through (vi) of Section 2.01(a) have
been executed and received, and that such documents relate to the Mortgage
Loans identified on the Mortgage Loan Schedule and that the Mortgage Notes
have been endorsed as set forth in Section 2.01(a), and in so doing the
Indenture Trustee may rely on the purported due execution and genuineness of
any signature thereon. If within such 30-day period the Indenture Trustee
finds any document constituting a part of a Mortgage File not to have been
executed or received or to be unrelated to the Mortgage Loans identified in
said Mortgage Loan Schedule or, if in the course of its review, the Indenture
Trustee determines that such Mortgage File is otherwise defective in any
material respect, the Indenture Trustee shall promptly upon the conclusion of
such review notify the Seller and the Insurer, and the Seller shall have a
period of 90 days after such notice within which to correct or cure any such
defect; provided, however, that if such defect shall not have been corrected
or cured within such 90-day period due primarily to the failure of the related
office of real property or other records to return any document constituting a
part of a Mortgage File, the Seller shall so notify the Indenture Trustee and
the Insurer in writing and the period during which such defect may be
corrected or cured shall be extended until such time as any such documents are
returned from such related office (in no event, however, will such period
extend beyond one (1) year from the date of discovery of such defect);
provided that prior to any such extension the Seller shall deliver to the
Indenture Trustee a true copy of such document certified by the Seller to be a
true and correct copy, the original of which has been transmitted for
recordation.
The Indenture Trustee shall have no responsibility for reviewing any
Mortgage File except as expressly provided in this Section 2.01. In
reviewing any Mortgage File pursuant to this Section, the Indenture Trustee
shall have no responsibility for determining whether any document is valid
and binding, whether the text of any assignment or endorsement is in proper
or recordable form (except, if applicable, to determine if the Indenture
Trustee is the assignee or endorsee), 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,
whether any Person executing any document is authorized to do so or whether
any signature thereon is genuine, but shall only be required to determine
whether a document has been executed, that it appears to be what it purports
to be, and, where applicable, that it purports to be recorded.
Section 2.02 Acceptance by Indenture Trustee.
(a) The Indenture Trustee hereby acknowledges its receipt of the
Insurance Policy and the sale and assignment of the Mortgage Loans, and,
subject to the review and period for delivery provided for in Section 2.01,
the Mortgage Files, and declares that the Indenture Trustee will hold such
documents and all amounts received by it under the Indenture in trust, upon
the terms herein set forth, for the use and benefit of all present and future
Class A Noteholders and the Transferor in respect of the Senior Interest
Participation and the Insurer.
(b) If the Seller is given notice under Section 2.01(c) and if the
Seller does not correct or cure such omission or defect within the 90-day
period specified in Section 2.01(c), the Seller shall purchase such Mortgage
Loan from the Trust or substitute an Eligible Substitute Mortgage Loan for
such Mortgage Loan on the Determination Date in the month following the month
in which such 90-day period expired at the Purchase Price of such Mortgage
Loan or, in the case of a substitution, in accordance with Section 2.06. The
Purchase Price and any Substitution Adjustments for the purchased Mortgage
Loan shall be deposited in the Collection Account on the Determination Date
immediately following such 90-day period; provided that the Indenture Trustee
shall remit to the Seller or the Insurer, as applicable, the portion of the
amount, if any, of the Purchase Price referred to in clause (iv) of the
definition thereof to the extent such amount is incurred by or imposed on the
Seller or the Insurer and, upon receipt by the Indenture Trustee of written
notification of such deposit signed by an officer of the Seller, the Indenture
Trustee shall release to the Seller the related Mortgage File and the
Indenture Trustee shall execute and deliver such instruments of transfer or
assignment, prepared by and at the expense of the Seller, in each case without
recourse, representation or warranty as shall be necessary to vest in the
Seller or its designee any Mortgage Loan released pursuant hereto. It is
understood and agreed that the obligation of the Seller to purchase any
Mortgage Loan or substitute an Eligible Substitute Mortgage Loan for such
Mortgage Loan as to which a material defect in or omission of a constituent
document exists shall constitute the sole remedy against the Seller respecting
such defect or omission available to the Insurer, the Noteholders, the
Indenture Trustee, the Owner Trustee or the Transferor.
The Servicer, promptly following the transfer of (i) a Defective
Mortgage Loan from or (ii) an Eligible Substitute Mortgage Loan to the Trust
pursuant to this Section and Section 2.06, as the case may be, shall amend the
Mortgage Loan Schedule and make appropriate entries in its general account
records to reflect such transfer and the addition of any Eligible Substitute
Mortgage Loan, if applicable.
Section 2.03 Representations and Warranties Regarding the Seller and
the Servicer. The Seller and Servicer each represent and warrant each as to
itself that, as of the Closing Date:
(i) Each of the Seller and the Servicer is duly organized,
validly existing and in good standing under the laws of its state of
incorporation and has the power and authority to own its assets and
to transact the business in which it is currently engaged. Each of
the Seller and the Servicer is duly qualified to do business and is
in good standing in each jurisdiction in which the character of the
business transacted by it or properties owned or leased by it
requires such qualification and in which the failure so to qualify
would have a material adverse effect on (a) its business, properties,
assets or condition (financial or other), (b) its performance of its
obligations under this Agreement, (c) the value or marketability of
the Mortgage Loans or (d) the ability to foreclose on the related
Mortgaged Properties;
(ii)Each of the Seller and the Servicer has the power and
authority to make, execute, deliver and perform this Agreement and to
consummate all of the transactions contemplated under this Agreement,
and has taken all necessary action to authorize the execution,
delivery and performance of this Agreement. When executed and
delivered, this Agreement will constitute its legal, valid and
binding obligation enforceable in accordance with its terms, except
as enforcement of such terms may be limited by bankruptcy,
insolvency, reorganization, receivership, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by the
availability of equitable remedies;
(iii) Each of the Seller and the Servicer holds all
necessary licenses, certificates and permits from all government
authorities necessary for conducting its business as it is presently
conducted. It is not required to obtain the consent of any other
party or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau
or agency in connection with the execution, delivery, performance,
validity or enforceability of this Agreement, except for such
consents, licenses, approvals or authorizations, or registrations or
declarations, as shall have been obtained or filed, as the case may
be, prior to the Closing Date;
(iv)The execution, delivery and performance of this
Agreement by it will not conflict with or result in a breach of, or
constitute a default under, any provision of any existing law or
regulation or any order or decree of any court applicable to the
Seller or the Servicer or any of its properties or any provision of
its Articles of Incorporation or Bylaws, or constitute a material
breach of, or result in the creation or imposition of any lien,
charge or encumbrance upon any of its properties pursuant to, any
mortgage, indenture, contract or other agreement to which it is a
party or by which it may be bound;
(v) No certificate of an officer, statement furnished in
writing or report delivered pursuant to the terms hereof by the
Seller or the Servicer contains any untrue statement of a material
fact or omits to state any material fact necessary to make the
certificate, statement or report not misleading;
(vi)The transactions contemplated by this Agreement are in
the ordinary course of the Seller's and the Servicer's business;
(vii) Neither the Seller nor the Servicer is insolvent, nor
will the Seller or the Servicer be made insolvent by the transfer of
the Mortgage Loans, nor is the Seller or the Servicer aware of any
pending insolvency;
(viii) Neither the Seller nor the Servicer is in violation
of, and the execution and delivery of this Agreement by it 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 Seller's and the Servicer's
condition (financial or otherwise) or operations or any of the
Seller's and the Servicer's properties or materially and adversely
affect the performance of any of its duties hereunder;
(ix)There are no actions or proceedings against, or
investigations of it, pending or, to its knowledge, threatened,
before any court, administrative agency or other tribunal (A) that,
if determined adversely, would prohibit the Seller or the Servicer
from entering into this Agreement, (B) seeking to prevent the
consummation of any of the transactions contemplated by this
Agreement or (C) that, if determined adversely, would prohibit or
materially and adversely affect the Seller's and the Servicer's
performance of any of their respective obligations under, or the
validity or enforceability of, this Agreement;
(x) The Servicer represents and warrants that the collection
practices used by the Servicer with respect to the Mortgage Loans
have been, in all material respects, legal, proper, prudent and
customary in the home equity mortgage servicing business;
(xi)The Servicer represents and warrants that it believes
that the Servicing Fee Rate provides a reasonable level of base
compensation to the Servicer for servicing the Mortgage Loans on the
terms set forth herein;
(xii) The Seller represents and warrants that it did not
sell the Mortgage Loans to the Seller as Purchaser under the Mortgage
Loan Purchase Agreement with any intent to hinder, delay or defraud
any of its creditors; and the Seller will not be rendered insolvent
as a result of the sale of the Mortgage Loans to the Seller as
Purchaser under the Mortgage Loan Purchase Agreement;
(xiii) The Seller represents and warrants that it acquired
title to the Mortgage Loans in good faith, without notice of any
adverse claim; and
(xiv) The Seller represents and warrants that the transfer,
assignment and conveyance of the Mortgage Notes and the Mortgages by
the Seller pursuant to the Mortgage Loan Purchase Agreement and this
Agreement are not subject to the bulk transfer laws or any similar
statutory provisions in effect in any applicable jurisdiction.
(xv)The senior, long-term unsecured debt of [ ] is currently
rated at least "A" by Standard & Poor's and "A1" by Moody's and it
has no knowledge of any proposed downgrade of such ratings or any
reason therefor.
(b) The representations and warranties set forth in this Section 2.03
shall survive the sale and assignment of the Mortgage Loans to the Trust. Upon
discovery of a breach of any representations and warranties which materially
and adversely affects the interests of the Indenture Trustee, the Class A
Noteholders or the Insurer, the Person discovering such breach shall give
prompt written notice to the other parties and to the Insurer. Within 60 days
of its discovery or its receipt of notice of breach, or, with the prior
written consent of a Responsible Officer of the Indenture Trustee and the
Insurer, such longer period specified in such consent, the Seller or the
Servicer, as appropriate, shall cure such breach in all material respects.
Section 2.04 Representations and Warranties of the Seller Regarding
the Mortgage Loans. (a) The Seller hereby represents and warrants to the
Trust, Indenture Trustee, on behalf of the Class A Noteholders and the Insurer
as follows as of the Closing Date, unless otherwise specifically set forth
herein:
(i) The information with respect to each Mortgage Loan set
forth in the Mortgage Loan Schedule is complete, true and correct in
all material respects as of the Cut-Off Date;
(ii)As of the Closing Date, for each Mortgage Loan, the
related Mortgage File contains each of the documents and instruments
specified to be included therein;
(iii) Each Mortgaged Property is improved by a residential
dwelling, which does not include cooperatives or mobile homes and
does not constitute other than real property under state law;
(iv)Each Mortgage Loan is being serviced by the Servicer or
one or more Subservicers;
(v) Each Mortgage Loan is a closed-end home equity loan and
all amounts due under the related Mortgage Note have been advanced.
As of the Cut-Off Date, Mortgage Loans constituting not more than
approximately [ ]% of the Cut-Off Date Pool Principal Balance are
Balloon Loans. Each Balloon Loan has an original term to maturity of
15 years and an amortization schedule based on 30 years. Each other
Mortgage Note provides for Monthly Payments which, if timely paid on
the Due Date therefor, are sufficient to fully amortize the principal
balance of such Mortgage Note on or before its maturity date;
(vi)The Mortgage Note related to each Mortgage Loan bears a
fixed Loan Rate and there is only one original of each Mortgage Note;
(vii) No Mortgage Loan is a construction loan;
(viii) Each Mortgage is a valid and subsisting first or
second lien of record on the Mortgaged Property subject, in the case
of any second Mortgage Loan, only to a First Lien on such Mortgaged
Property and subject in all cases to the exceptions to title set
forth in the title insurance policy with respect to the related
Mortgage Loan, which exceptions are generally acceptable to second
mortgage lending companies, and such other exceptions to which
similar properties are commonly subject and which do not
individually, or in the aggregate, materially and adversely affect
the benefits of the security intended to be provided by such
Mortgage;
(ix)Except with respect to liens released immediately prior
to the transfer herein contemplated, each Mortgage Note and related
Mortgage have not been assigned or pledged and immediately prior to
the transfer and assignment herein contemplated, the Seller held
good, marketable and indefeasible title to, and was the sole owner
and holder of, each Mortgage Loan subject to no liens, charges,
mortgages, claims, participation interests, equities, pledges or
security interests of any nature, encumbrances or rights of others
(collectively, a "Lien"); the Seller has full right and authority
under all governmental and regulatory bodies having jurisdiction over
the Seller, subject to no interest or participation of, or agreement
with, any party, to sell and assign the same pursuant to this
Agreement; and immediately upon the transfer and assignment herein
contemplated, the Seller shall have transferred all of its right,
title and interest in and to each Mortgage Loan to the Purchaser (or
its assignee) and the Purchaser (or its assignee) will hold good,
marketable and indefeasible title, to, and be the sole owner of, each
Mortgage Loan subject to no Liens;
(x) None of the Mortgage Loans was 30 or more days delinquent
as of the Cut-Off Date;
(xi)To the best of its knowledge, there is no delinquent
tax, fee or assessment lien on any Mortgaged Property, and each
Mortgaged Property is free of material damage and is in good repair;
(xii) No Mortgage Loan is subject to any right of
rescission, set-off, counterclaim or defense, including the defense
of usury, nor will the operation of any of the terms of any Mortgage
Note or Mortgage, or the exercise of any right thereunder, render
either the Mortgage Note 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;
(xiii) There is no mechanics' lien or claim for work, labor
or material affecting any Mortgaged Property which is or may be a
lien prior to, or equal or coordinate with, the lien of the related
Mortgage, and no rights are outstanding that under law could give
rise to such a lien except those which are insured against by the
title insurance policy referred to in paragraph (xv) below;
(xiv) Each Mortgage Loan at the time it was made complied
with, and each Mortgage Loan at all times was serviced in compliance
with, in each case, in all material respects, applicable state and
federal laws and regulations, including, without limitation, usury,
equal credit opportunity, consumer credit, truth-in-lending and
disclosure laws;
(xv)With respect to each Mortgage Loan, a lender's title
insurance policy, issued in standard American Land Title Association
or California Land Title Association form, or other form acceptable
in a particular jurisdiction, by a title insurance company authorized
to transact business in the state in which the related Mortgaged
Property is situated, together with a condominium endorsement, if
applicable, in an amount at least equal to the original principal
balance of such Mortgage Loan insuring the Seller and its successor's
and assignees' interest under the related Mortgage Loan as the holder
of a valid first or second mortgage lien of record on the real
property described in the Mortgage, subject only to the exceptions of
the character referred to in paragraph (viii) above, was valid and in
full force and effect on the date of the origination of such Mortgage
Loan and as of the Closing Date;
(xvi) The improvements upon each Mortgaged Property are
covered by a valid and existing hazard insurance policy with a
generally acceptable carrier that provides for fire and extended
coverage representing coverage described in Sections 3.04 and 3.05;
(xvii) A flood insurance policy is in effect with respect to
each Mortgaged Property with a generally acceptable carrier in an
amount representing coverage described in Sections 3.04 or 3.05, if
and to the extent required by Sections 3.04 or 3.05;
(xviii) Each Mortgage and Mortgage Note is the legal, valid
and binding obligation of the related Mortgagor and is enforceable in
accordance with its terms, except only as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity (whether considered in
a proceeding or action in equity or at law), and all parties to each
Mortgage Loan and the Mortgagee had full legal capacity to execute
all Mortgage Loan documents and to convey the estate therein
purported to be conveyed. The Mortgagor is a natural person who is a
party to the Mortgage Note and the Mortgage in an individual
capacity, and not in the capacity of a trustee or otherwise;
(xix) The Seller has directed the Servicer to perform any
and all acts required to be performed to preserve the rights and
remedies of the Indenture Trustee in any insurance policies
applicable to the Mortgage Loans including, without limitation, any
necessary notifications of insurers, assignments of policies or
interests therein, and establishments of co-insured, joint loss payee
and mortgagee rights in favor of the Indenture Trustee;
(xx)As of the Cut-Off Date, no more than [ ]% of the
Mortgage Loans (by the Cut-Off Date Pool Principal Balance) are
secured by Mortgaged Properties located within any single zip code
area. As of the Cut-Off Date, at least [ ]% of the Cut-Off Date Pool
Principal Balance is secured by Mortgaged Properties that are
owner-occupied residences, based on representations by the related
Mortgagors;
(xxi) The terms of the Mortgage Note and the Mortgage have
not been impaired, altered or modified in any material respect,
except by a written instrument which has been recorded or is in the
process of being recorded, if necessary, to protect the interests of
the Trust, the Indenture Trustee on behalf of the Class A
Noteholders, the Transferor in respect of the Senior Interest
Participation and the Insurer and which has been or will be delivered
to the Indenture Trustee. The substance of any such alteration or
modification is reflected on the related Mortgage Loan Schedule and
was approved, if required, by the related primary mortgage guaranty
insurer, if any. Each original 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 Seller, or
are in the process of being recorded;
(xxii) No instrument of release or waiver has been executed
in connection with the Mortgage Loan, and no Mortgagor has been
released, in whole or in part;
(xxiii) Other than delinquencies as described in paragraph
(x) above, there are no defaults in complying with the terms of the
Mortgage, and either (1) any taxes, governmental assessments,
insurance premiums, water, sewer and municipal charges or ground
rents which previously became due and owing have been paid, or (2) an
escrow of funds has been established in an amount sufficient to pay
for every such item which remains unpaid and which has been assessed
but is not yet due and payable. Except for payments in the nature of
escrow payments, including without limitation, taxes and insurance
payments, the Seller 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 Note, except for interest accruing from the
date of the Mortgage Note or date of disbursement of the Mortgage
proceeds, whichever is later, to the day which precedes by one month
the Due Date of the first installment of principal and interest;
(xxiv) There is no proceeding pending or threatened for the
total or partial condemnation of any Mortgaged Property, nor is such
a proceeding currently occurring;
(xxv) To the best of the Seller's knowledge, all of the
improvements which were included for the purpose of determining the
appraised value of the Mortgaged Property lie wholly within the
boundaries and building restriction lines of such property, and no
improvements on adjoining properties encroach upon the Mortgaged
Property;
(xxvi) To the best of the Seller's knowledge, 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 and, with respect to the
use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have
been made or obtained from the appropriate authorities and the
Mortgaged Property is lawfully occupied under applicable law;
(xxvii) The proceeds of each Mortgage Loan have been fully
disbursed, and there is no obligation on the part of the mortgagee to
make future advances thereunder. 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 closing or
recording the Mortgage Loans were paid;
(xxviii) Each Mortgage Note is not and has not been secured
by any collateral, pledged account or other security except the lien
of the corresponding Mortgage;
(xxix) No Mortgage Loan was originated under a buydown plan
and, as of the Cut-Off Date, no more than [ ]% of the Mortgage Loans
(by Cut-Off Date Pool Principal Balance) are subject to the Home
Ownership and Equity Protection Act of 1994;
(xxx) There is no obligation on the part of the Seller or
any other party to make payments in addition to those made by the
Mortgagor;
(xxxi) With respect to each Mortgage constituting a deed of
trust, a trustee, duly qualified under applicable law to serve as
such, has been properly designated and currently so serves and is
named in such Mortgage, and no fees or expenses are or will become
payable by the Trust, the Indenture Trustee, the Class A Noteholders
or the Transferor in respect of the Senior Interest Participation to
the trustee under the deed of trust, except in connection with a
trustee's sale after default by the Mortgagor;
(xxxii) No Mortgage Loan has a shared appreciation feature,
or other contingent interest feature;
(xxxiii) The related First Lien, if any, requires equal
monthly payments, unless such First Lien is a graduated payment
mortgage loan or a balloon loan, or if it bears an adjustable
interest rate, the monthly payments for the related First Lien may be
adjusted no more frequently than monthly;
(xxxiv) Either (i) no consent for the Mortgage Loan is
required by the holder of the related First Lien or (ii) such consent
has been obtained and is contained in the Mortgage File;
(xxxv) To the best of the Seller's knowledge, no Mortgaged
Property was, as of the Cut-Off Date, located within a one-mile
radius of any site listed in the National Priorities List as defined
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, or on any similar state list of
hazardous waste sites which are known to contain any hazardous
substance or hazardous waste;
(xxxvi) The maturity date of the Mortgage Loan is prior to
the maturity date of the related First Lien, if any, if such First
Lien provides for a balloon payment. No Mortgage Loan provides for
negative amortization;
(xxxvii) All parties which have had any interest in the
Mortgage Loan, whether as originator, mortgagee, assignee, pledgee,
servicer or otherwise, are (or, during the period in which they held
and disposed of such interest, were) (1) in compliance with any and
all applicable licensing requirements of the laws of the state
wherein the Mortgaged Property is located, and (2)(A) organized under
the laws of such state, or (B) qualified to do business in such
state, or (C) federal savings and loan associations or national banks
having principal offices in such state, or (D) not doing business in
such state so as to require qualification or licensing;
(xxxviii) The Mortgage contains a customary provision for
the acceleration of the payment of the unpaid principal balance of
the Mortgage Loan in the event the related security for the Mortgage
Loan is sold without the prior consent of the mortgagee thereunder;
(xxxix) Any future advances made prior to the Cut-Off Date
have been consolidated with the outstanding principal amount secured
by the Mortgage, and the secured principal amount, as consolidated,
bears a single interest rate and single repayment term reflected on
the related Mortgage Loan Schedule. The consolidated principal amount
does not exceed the original principal amount of the Mortgage Loan.
The Mortgage Note does not permit or obligate the Seller to make
future advances to the Mortgagor at the option of the Mortgagor;
(xl)The Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder thereof
adequate for the realization against the Mortgaged Property of the
benefits of the security, including, (i) in the case of a Mortgage
designated as a deed of trust, by trustee's sale, and (ii) otherwise
by judicial or non-judicial foreclosure. There is no homestead or
other exemption available to the Mortgagor which would materially
interfere with the right to sell the Mortgaged Property at a
trustee's sale or the right to foreclose the Mortgage;
(xli) There is no default, breach, violation or event of
acceleration existing under any Mortgage or the related Mortgage Note
and no event which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration; and the Seller has not
waived any default, breach, violation or event of acceleration;
(xlii) All parties to the Mortgage Note and the Mortgage had
legal capacity to execute the Mortgage Note and the Mortgage and each
Mortgage Note and Mortgage have been duly and properly executed by
such parties;
(xliii) All amounts received after the Cut-Off Date with
respect to the Mortgage Loans to which the Seller is not entitled
have been deposited into the Collection Account and are, as of the
Closing Date, in the Collection Account;
(xliv) All of the Mortgage Loans were originated in
accordance with the underwriting criteria set forth in the
Prospectus Supplement;
(xlv) Each Mortgage Loan conforms, and all such Mortgage
Loans in the aggregate conform in all material respects to the
description thereof set forth in the Prospectus Supplement; each
Mortgage Note and Mortgage is in substantially one of the forms
attached as Exhibit H and Exhibit I hereto;
(xlvi) The Mortgage Loans were not selected by the Seller
for inclusion in the Trust on any basis intended to adversely affect
the Trust or the Insurer;
(xlvii) A full appraisal on forms approved by FNMA or FHLMC
was performed in connection with the origination of each Mortgage
Loan. Each appraisal meets guidelines that would be generally
acceptable to prudent mortgage lenders that regularly originate or
purchase mortgage loans comparable to the Mortgage Loans for sale to
prudent investors in the secondary market that invest in mortgage
loans such as the Mortgage Loans;
(xlviii) Each hazard insurance policy required to be
maintained under Section 3.04 with respect to the Mortgage Loan is a
valid, binding, enforceable and subsisting insurance policy of its
respective kind and is in full force and effect;
(xlix) Each Mortgage Loan was originated by the Seller;
(l) Each Mortgaged Property is located in the state
identified on the related Mortgage Loan Schedule and consists of a
single parcel of real property with a one-family residence erected
thereon, or an attached or detached or semi-detached two- to
four-family dwelling, or an individual condominium unit in a low-rise
condominium, or an individual unit in a planned unit development.
With respect to the Mortgage Loans, as of the Cut-Off Date (a) no
more than [ ]% of the Mortgage Loans (by Cut-Off Date Pool Principal
Balance), are secured by real property improved by two- to
four-family dwellings, (b) no more than [ ]% of the Mortgage Loans
(by Cut-Off Date Pool Principal Balance), are secured by real
property improved by individual condominium units and units in a
planned unit development, (c) at least [ ]% of the Mortgage Loans (by
Cut-Off Date Pool Principal Balance), are secured by real property
with a detached one-family residence erected thereon and (d) no more
than [ ]% of the Mortgage Loans (by Cut-Off Date Pool Principal
Balance), are secured by real property with an attached one-family
residence erected thereon;
(li)As of the Cut-Off Date, no Mortgage Loan had a Combined
Loan-to-Value Ratio at the time of origination of more than
[ ]%;
(lii) As of the Cut-Off Date, no more than [ ]% of the
Mortgage Loans (by Cut-Off Date Pool Principal Balance), are secured
by Mortgaged Properties that are non-owner occupied properties. The
Mortgaged Property is lawfully occupied under applicable law;
(liii) As of the Cut-Off Date, each Mortgage Loan was
originated after [ ];
(liv) As of the Closing Date, the Seller has not
received a notice of default of a First Lien which has not been cured;
(lv)None of the Mortgage Loans are subject to a bankruptcy
proceeding; and
(lvi) Each Mortgage Loan, at the time it was originated, had
a Conforming Original Principal Balance.
(lvii) Each of the documents and instruments included in a
Mortgage File is duly executed and in due and proper form and each
such document or instrument is in a form generally acceptable to
prudent institutional mortgage lenders that regularly originate or
purchase mortgage loans similar to the Mortgage Loans.
With respect to the representations and warranties set forth in this
Section that are made to the best of the Seller's knowledge or as to which the
Seller has no knowledge, if it is discovered by the Seller, the Owner Trustee,
the Servicer, the Insurer or the Indenture Trustee that the substance of such
representation and warranty is inaccurate 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 substance of such
representation and warranty being inaccurate at the time the representation or
warranty was made, such inaccuracy shall be deemed a breach of the applicable
representation or warranty and with respect to any breach of such
representation or warranty or of any other representation or warranty, the
Seller shall cure, repurchase or substitute in accordance with this Agreement.
It is understood and agreed that the representations and warranties
set forth in this Section shall survive delivery of the respective Mortgage
Files to the Indenture Trustee and the termination of the rights and
obligations of the Servicer pursuant to Section 6.04 or 7.01 herein. Upon
discovery by the Seller, the Servicer, the Insurer, the Indenture Trustee or
the Owner Trustee of a breach of any of the foregoing representations and
warranties, without regard to any limitation set forth therein concerning the
knowledge of the Seller as to the facts stated therein, which materially and
adversely affects the value of the related Mortgage Loan or the interests of
the Trust, the Class A Noteholders, the Transferor in respect of the Senior
Interest Participation or the Insurer in the related Mortgage Loan, the party
discovering such breach shall give prompt written notice to the other parties
and the Insurer. Within 60 days of its discovery or its receipt of notice of
breach, the Seller shall use all reasonable efforts to cure such breach in all
material respects and if such breach is not cured by the end of such 60-day
period, the Seller shall purchase such Mortgage Loan from the Trust or
substitute an Eligible Substitute Mortgage Loan, as provided in Section 2.06
below, for such Mortgage Loan. Any such purchase by the Seller shall be at the
Purchase Price and in each case shall be accomplished in the manner set forth
in Section 2.02 herein. It is understood and agreed that the obligation of the
Seller to cure, substitute or purchase any Mortgage Loan as to which a breach
has occurred and is continuing shall constitute the sole remedy against the
Seller respecting such breach available to Class A Noteholders, the Senior
Interest Participation, the Owner Trustee, the Insurer and the Indenture
Trustee on behalf of Class A Noteholders and the Transferor in respect of the
Ownership Interest.
Section 2.05 Representations and Warranties of the Seller. The Seller
represents and warrants to the Trust and the Indenture Trustee on behalf of
the Class A Noteholders and the Insurer as follows:
(i) This Agreement constitutes a legal, valid and binding
obligation of the Seller, enforceable against the Seller in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting the
enforcement of creditors' rights in general and except as such
enforceability may be limited by general principles of equity
(whether considered in a proceeding at law or in equity);
(ii)Immediately prior to the transfer by the Seller to the
Trust of each Mortgage Loan, the Seller had good and equitable title
to each Mortgage Loan (insofar as such title was conveyed to it by
the Seller) subject to no prior lien, claim, participation interest,
mortgage, security interest, pledge, charge or other encumbrance or
other interest of any nature;
(iii) As of the Closing Date, the Seller has transferred all
right, title and interest in the Mortgage Loans to the Trust;
(iv)The Seller has not transferred the Mortgage Loans to
the Trust with any intent to hinder, delay or defraud any of its
creditors; and
(v) The Seller has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
Delaware, with full corporate power and authority to own its assets
and conduct its business as presently being conducted.
Section 2.06 Substitution of Mortgage Loans. (a) On a Determination
Date which is on or before the date on which the Seller would otherwise be
required to repurchase a Mortgage Loan under Section 2.02 or 2.04, the Seller
may deliver to the Indenture Trustee one or more Eligible Substitute Mortgage
Loans in substitution for any one or more of the Defective Mortgage Loans
which the Seller would otherwise be required to repurchase pursuant to
Sections 2.02 or 2.04. In connection with any such substitution, the Seller
shall calculate the Substitution Adjustment, if any, and shall deposit such
amount to the Collection Account by 12:00 p.m. New York City time on the third
Business Day prior to the Payment Date in the month succeeding the calendar
month in which the related cure period expired.
(b) The Seller shall notify the Servicer, the Insurer and the
Indenture Trustee in writing not less than five Business Days before the
related Determination Date which is on or before the date on which the Seller
would otherwise be required to repurchase such Mortgage Loan pursuant to
Section 2.02 or 2.04 of its intention to effect a substitution under this
Section 2.06. On such Determination Date (the "Substitution Date"), the Seller
shall deliver to the Insurer and the Indenture Trustee (1) the Eligible
Substitute Mortgage Loans to be substituted for the Defective Mortgage Loans,
(2) a list of the Defective Mortgage Loans to be substituted for by such
Eligible Substitute Mortgage Loans, (3) an Officer's Certificate (A) stating
that no Event of Servicing Termination shall have occurred and be continuing,
(B) stating that the aggregate Principal Balance of all Eligible Substitute
Mortgage Loans (determined with respect to each Eligible Substitute Mortgage
Loan as of the Determination Date on which it was substituted) including the
principal balance of Eligible Substitute Mortgage Loans being substituted on
such Determination Date does not exceed an amount equal to 5% of the Cut-Off
Date Pool Principal Balance, (C) stating that all conditions precedent to such
substitution specified in subsection (a) have been satisfied and attaching as
an exhibit a supplemental Mortgage Loan schedule (the "Supplemental Mortgage
Loan Schedule") setting forth the same type of information as appears on the
Mortgage Loan Schedule and representing as to the accuracy thereof and (D)
confirming that the representations and warranties contained in Section 2.04
are true and correct in all material respects with respect to the Eligible
Substitute Mortgage Loans on and as of such Determination Date, provided that
remedies for the inaccuracy of such representations are limited as set forth
in Sections 2.02, 2.04 and this Section 2.06 and (4) a certificate stating
that cash in the amount of the related Substitution Adjustment, if any, has
been deposited to the Collection Account; provided that the Indenture Trustee
shall remit to the Seller or the Insurer, as applicable, the portion of the
amount, if any, of the Substitution Adjustment referred to in clause (d) of
the definition thereof to the extent such amount is incurred by or imposed on
the Seller or the Insurer. Upon receipt of the foregoing, the Indenture
Trustee shall release such Defective Mortgage Loans to the Seller without
recourse, representation or warranty.
(c) Concurrently with the satisfaction of the conditions set forth in
Sections 2.06(a) and (b) above and the transfer of such Eligible Substitute
Mortgage Loans to the Indenture Trustee on behalf of the Trust pursuant to
Section 2.06(a), Exhibit A to this Agreement shall be deemed to be amended to
exclude all Mortgage Loans being replaced by such Eligible Substitute Mortgage
Loans and to include the information set forth on the Supplemental Mortgage
Loan Schedule with respect to such Eligible Substitute Mortgage Loans, and all
references in this Agreement to Mortgage Loans shall include such Eligible
Substitute Mortgage Loans and be deemed to be made on or after the related
substitution date, as the case may be, as to such Eligible Substitute Mortgage
Loans.
(d) As to any Eligible Substitute Mortgage Loan or Loans, the Seller
shall cause to be delivered to the Indenture Trustee with respect to such
Eligible Substitute Mortgage Loan or Loans such documents and agreements as
are required to be held by the Indenture Trustee in accordance with Section
2.01. For any Due Period during which the Seller purchases one or more
Defective Mortgage Loans, the Servicer shall determine the amount that shall
be deposited by the Seller in the Collection Account at the time of
substitution. Any amounts received in respect of the Eligible Substitute
Mortgage Loan or Loans during the Due Period in which the circumstances giving
rise to such substitution occur shall not be a part of the Trust and shall not
be deposited by the Servicer in the Collection Account. All amounts received
by the Servicer during the Due Period in which the circumstances giving rise
to such substitution occur in respect of any Defective Mortgage Loan so
removed by the Indenture Trustee shall be deposited by the Servicer in the
Collection Account. Upon such substitution, the Eligible Substitute Mortgage
Loan or Loans shall be subject to the terms of this Agreement in all respects,
and the Seller shall be deemed to have made with respect to such Eligible
Substitute Mortgage Loan or Loans, as of the date of substitution, the
covenants, representations and warranties set forth in Section 2.04. The
procedures applied by the Seller in selecting each Eligible Substitute
Mortgage Loan shall not be materially adverse to the interests of the
Indenture Trustee, the Class A Noteholders, the Transferor in respect of the
Senior Interest Participation or the Insurer.
Section 2.07 Tax Treatment. It is the intention of the Seller and the
Class A Noteholders that the Class A Notes will be indebtedness for federal,
state and local income and franchise tax purposes and for purposes of any
other tax imposed on or measured by income. The terms of this Agreement shall
be interpreted to further the intent of the parties hereto. The Seller, the
Indenture Trustee and each Class A Noteholder (or Class A Note Owner) by
acceptance of its Class A Note (or, in the case of a Class A Note Owner, by
virtue of such Class A Note Owner's acquisition of a beneficial interest
therein) agrees to treat the Class A Note (or beneficial interest therein),
for purposes of federal, state and local income or franchise taxes and any
other tax imposed on or measured by income, as indebtedness secured by the
Trust Estate and to report the transactions contemplated by this Agreement on
all applicable tax returns in a manner consistent with such treatment. Each
Class A Noteholder agrees that it will cause any Class A Note Owner acquiring
an interest in a Class A Note through it to comply with this Agreement as to
treatment of the Class A Notes as indebtedness for federal, state and local
income and franchise tax purposes and for purposes of any other tax imposed on
or measured by income. The Indenture Trustee will prepare and file all tax
reports required hereunder on behalf of the Trust.
<PAGE>
ARTICLE III.
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
Section 3.01 The Servicer.
(a) The Servicer, as independent contract servicer, shall service and
administer the Mortgage Loans and shall have full power and authority, acting
alone, to do any and all things in connection with such servicing and
administration which the Servicer may deem necessary or desirable and
consistent with the terms of this Agreement. The Servicer may enter into
Subservicing Agreements for any servicing and administration of Mortgage Loans
with any institution which (i) is in compliance with the laws of each state
necessary to enable it to perform its obligations under such Subservicing
Agreement, (ii) (x) has been designated an approved Seller-Servicer by the
Federal Home Loan Mortgage Corporation ("FHLMC") or the Federal National
Mortgage Association ("FNMA") for first and second mortgage loans or (y) is an
affiliate of the Servicer or (z) is otherwise approved by the Insurer. The
Servicer shall give written notice to the Insurer, and the Indenture Trustee
prior to the appointment of any Subservicer. Any such Subservicing Agreement
shall be consistent with and not violate the provisions of this Agreement and
shall be in form and substance acceptable to the Insurer and the Indenture
Trustee. The Servicer shall be entitled to terminate any Subservicing
Agreement in accordance with the terms and conditions of such Subservicing
Agreement and either itself directly service the related Mortgage Loans or
enter into a Subservicing Agreement with a successor subservicer which
qualifies hereunder.
(b) Notwithstanding any Subservicing Agreement or 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 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. 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) Any Subservicing Agreement that may be entered into and any
transactions or services relating to the Mortgage 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 the Indenture
Trustee, the Owner Trustee and Class A Noteholders and the Transferor in
respect of the Ownership Interest shall not be deemed parties thereto and
shall have no claims, rights, obligations, duties or liabilities with respect
to the Subservicer except as set forth in Section 3.01(d) herein. The Servicer
shall be solely liable for all fees owed by it to any Subservicer irrespective
of whether the Servicer's compensation pursuant to this Agreement is
sufficient to pay such fees.
(d) In the event the Servicer shall for any reason no longer be the
Servicer (including by reason of an Event of Servicing Termination), the
Indenture Trustee or its designee approved by the Insurer 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
Indenture Trustee or designee approved by the Insurer elects to terminate any
Subservicing Agreement in accordance with the terms of such Subservicing
Agreement. Each Subservicing Agreement shall include the provision that such
agreement may be immediately terminated by the Insurer or the Indenture
Trustee in the event that the Servicer shall, for any reason, no longer be the
Servicer (including termination due to an Event of Servicing Termination). In
no event shall any Subservicing Agreement require the Insurer or the Indenture
Trustee as Successor Servicer to pay compensation to a Subservicer or order
the termination of such Subservicer. Any fee payable or expense incurred in
connection with such a termination will be payable by the outgoing Servicer.
If the Indenture Trustee does not terminate a Subservicing Agreement, the
Indenture Trustee, its designee or the successor servicer for the Indenture
Trustee 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 with regard to
events that occurred prior to the date the Servicer ceased to be the Servicer
hereunder. The Servicer, at its expense and without right of reimbursement
therefor, shall, upon the request of the Indenture Trustee, deliver to the
assuming party all documents and records relating to each Subservicing
Agreement and the Mortgage 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.
(e) Consistent with the terms of this Agreement, the Servicer may
waive, modify or vary any term of any Mortgage Loan or consent to the
postponement of strict compliance with any such term or in any manner grant
indulgence to any Mortgagor if in the Servicer's determination such waiver,
modification, postponement or indulgence is not materially adverse to the
interests of the Class A Noteholders, the Transferor in respect of the
Ownership Interest and the Insurer, provided, however, that (unless (x) the
Mortgagor is in default with respect to the Mortgage Loan, or such default is,
in the judgment of the Servicer, imminent, (y) with respect to any
modification lowering the Loan Rate or effecting the forgiveness of any amount
owed under the Mortgage Note, or extending the final maturity date on such
Mortgage Loan, the Insurer has consented to such modification and (z) such
waiver, modification, postponement or indulgence would not cause a tax to be
imposed on the Trust) the Servicer may not permit any modification with
respect to any Mortgage Loan that would change the Loan Rate, defer or forgive
the payment of any principal or interest (unless in connection with the
liquidation of the related Mortgage Loan) or extend the final maturity date on
the Mortgage Loan. No costs incurred by the Servicer or any Subservicer in
respect of Servicing Advances shall, for the purposes of distributions to
Class A Noteholders, be added to the amount owing under the related Mortgage
Loan. Without limiting the generality of the foregoing, the Servicer shall
continue, and is hereby authorized and empowered to execute and deliver on
behalf of the Indenture Trustee and each Class A Noteholder, 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
and requested in writing, the Indenture Trustee shall furnish the Servicer
and, if directed by the Servicer, any Subservicer with any powers of attorney
and other documents necessary or appropriate to enable the Servicer and any
such Subservicer to carry out its servicing and administrative duties under
this Agreement.
Notwithstanding anything to the contrary contained herein, the
Servicer, in servicing and administering the Mortgage Loans, shall employ or
cause to be employed procedures (including collection, foreclosure and REO
management procedures) and exercise the same care that it customarily employs
and exercises in servicing and administering mortgage loans for its own
account, in accordance with accepted mortgage servicing practices of prudent
lending institutions servicing mortgage loans similar to the Mortgage Loans
and giving due consideration to the Insurer's and the Trust's reliance on the
Servicer.
(f) On and after such time as the Indenture 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 6.04 herein, after receipt by the Indenture Trustee and the Insurer of
the Opinion of Counsel required pursuant to Section 6.04, the Indenture
Trustee, if it so elects, and with the consent of the Insurer, shall assume
all of the rights and obligations of the Servicer, subject to Section 7.02
herein. The Servicer shall, upon request of the Indenture Trustee, but at the
expense of the Servicer, deliver to the Indenture 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.
(g) The Servicer shall deliver a list of Servicing Officers to the
Indenture Trustee and the Insurer on or before the Closing Date and shall
revise such list from time to time, as appropriate, and shall deliver all
revisions promptly to the Indenture Trustee and the Insurer.
(h) Consistent with the terms of this Agreement, the Servicer may
consent to the placing of a lien senior to that of the Mortgage on the related
Mortgaged Property; provided that such senior lien secures a mortgage loan
that refinances a First Lien and the combined loan-to-value ratio of the
related Mortgage Loan immediately following the refinancing (based on the
outstanding principal balance of the Mortgage Loan and the original principal
balance of such refinanced mortgage loan) is not greater than the Combined
Loan-to-Value Ratio of such Mortgage Loan as of the related Cut-Off Date.
Section 3.02 Collection of Certain Mortgage Loan Payments.
(a) The Servicer shall make reasonable 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,
follow such collection procedures as it follows with respect to mortgage loans
in its servicing portfolio comparable to the Mortgage Loans. Consistent with
the foregoing, and without limiting the generality of the foregoing, the
Servicer may in its discretion (i) waive any prepayment penalty or late
payment charge or any assumption fees or other fees which may be collected in
the ordinary course of servicing such Mortgage Loan and (ii) arrange with a
Mortgagor a schedule for the payment of interest due and unpaid; provided that
such arrangement is consistent with the Servicer's policies with respect to
the mortgage loans it owns or services; provided, further, that
notwithstanding such arrangement such Mortgage Loans will be included in the
monthly information delivered by the Servicer to the Indenture Trustee
pursuant to Section 5.03 herein.
(b) The Servicer shall establish and maintain with [indenture
trustee], a separate trust account (the "Collection Account") entitled "[ ],
as Indenture Trustee, in trust for the registered holders of [ ] Home Equity
Loan Asset- Backed Notes and as Paying Agent for the Transferor in respect of
the Ownership Interest, as their interests may appear, Series [ ] Collection
Account." The Collection Account shall be an Eligible Account. The Servicer
shall on the Closing Date deposit any amounts representing payments on and any
collections in respect of the Mortgage Loans received after the Cut-Off Date
and prior to the Closing Date, and thereafter, subject to Section 3.02(d),
deposit within two Business Days following receipt thereof, the following
payments and collections received or made by it (without duplication) to the
Collection Account:
(i) all payments received after the Cut-Off Date on account
of principal on the Mortgage Loans and all Principal Prepayments and
Curtailments collected after the Cut-Off Date;
(ii)all payments received after the Cut-Off Date on account
of interest on the Mortgage Loans;
(iii) all Net Liquidation Proceeds net of related
Foreclosure Profits;
(iv)all Insurance Proceeds;
(v) any amounts payable in connection with the repurchase of
any Mortgage Loan and the amount of any Substitution Adjustment
pursuant to Sections 2.02, 2.04 and 2.06;
(vi)all Released Mortgaged Property Proceeds; and
(vii) any amount required to be deposited therein pursuant
to Sections 3.02(c), 3.05, 3.07, 3.16, 3.20, 5.06(e) and 5.07 herein;
provided, however, that with respect to each Due Period, the Servicer shall be
permitted to retain (x) from payments in respect of interest on the Mortgage
Loans, the Servicing Fee for such Due Period and (y) from payments from
Mortgagors, Liquidation Proceeds, Insurance Proceeds and Released Mortgaged
Property Proceeds, any unreimbursed Servicing Advances and Monthly Advances
related thereto. The foregoing requirements respecting deposits to the
Collection Account are exclusive, it being understood that, without limiting
the generality of the foregoing, the Servicer need not deposit in the
Collection Account amounts representing Foreclosure Profits, fees (including
annual fees) or late charge penalties payable by Mortgagors or amounts
received by the Servicer for the accounts of Mortgagors for application toward
the payment of taxes, insurance premiums, assessments and similar items.
(c) All funds in the Collection Account shall be held (i) uninvested
or (ii) invested at the direction of the Servicer in Eligible Investments. Any
investments of funds in the Collection Account shall mature or be withdrawable
at par on or prior to three Business Days preceding the immediately succeeding
Payment Date. Any investment earnings on funds held in the Collection Account
shall be for the account of the Servicer and may be withdrawn from the
Collection Account by the Servicer at any time. Any investment losses on funds
held in the Collection Account shall be for such account of the Servicer and
promptly upon the realization of such loss shall be contributed by the
Servicer to the Collection Account. Any references herein to amounts on
deposit in the Collection Account shall refer to amounts net of such
investment earnings.
(d) Notwithstanding anything contained in Section 3.02(b) to the
contrary, the Servicer shall be permitted to remit the collections specified
in Section 3.02(b), net of any amount permitted to be retained by the Servicer
as set forth in the proviso to such Section, to the Collection Account in
immediately available funds no later than 12:00 p.m. New York City time on the
third Business Day prior to each Payment Date but only for so long as (a) (i)
the Servicer shall be[ ], (ii) [ ]has a rating with respect to short-term
deposit obligations of at least "A-1" by S&P and "P-1" by Moody's, (iii) no
Event of Servicing Termination shall have occurred and be continuing, and (iv)
the Support Agreement shall be entered into and in effect.
If the Servicer shall fail to make the deposit pursuant to this
Section 3.02(d), the Indenture Trustee shall immediately notify, but in any
event no later than 12:00 p.m. New York City time on the third Business Day
prior to the Payment Date, by facsimile or telephone, [ ] and the Insurer of
such failure by the Servicer.
Section 3.03 Withdrawals from the Collection Account. The Indenture
Trustee shall withdraw or cause to be withdrawn funds from the Collection
Account for the following purposes:
(i) on each Payment Date, to deposit the portion of the
Available Funds then in the Collection Account to the Distribution
Account;
(ii)to reimburse the Servicer for any accrued and unpaid
Servicing Fees and for unreimbursed Monthly Advances and Servicing
Advances. The Servicer's right to reimbursement for such unpaid
Servicing Fees and unreimbursed Servicing Advances shall be limited
to late collections on the related Mortgage Loan, including
Liquidation Proceeds, Insurance Proceeds and such other amounts as
may be collected by the Servicer from the related Mortgagor or
otherwise relating to the Mortgage Loan in respect of which such
reimbursed amounts are owed. The Servicer's right to reimbursement
for unreimbursed Monthly Advances shall be limited to late
collections of interest on the related Mortgage Loan and to
Liquidation Proceeds and Insurance Proceeds on related Mortgage
Loans;
(iii) to withdraw any amount received from a Mortgagor that
is recoverable and sought to be recovered as a voidable preference by
a trustee in bankruptcy pursuant to the United States Bankruptcy Code
in accordance with a final, nonappealable order of a court having
competent jurisdiction;
(iv)subject to Section 5.06 hereof, to make investments in
Eligible Investments and to pay to the Servicer interest earned in
respect of Eligible Investments or on funds deposited in the
Collection Account;
(v) to withdraw any funds deposited in the Collection
Account that were not required to be deposited therein or were
deposited therein in error and to pay such funds to the appropriate
Person;
(vi)to pay the Servicer the servicing compensation for the
related Due Period that it is entitled to receive pursuant to Section
3.09 herein to the extent not retained or paid pursuant to Section
3.02(b) or Section 3.02(d) hereof;
(vii) to reimburse the Servicer for Nonrecoverable Advances
that are not, with respect to the aggregate Servicing Advances on any
single Mortgage Loan or REO Property, in excess of the Principal
Balance thereof;
(viii) to withdraw funds necessary for the conservation and
disposition of REO Property pursuant to Section 3.07 to the extent
not advanced by the Servicer; and
(ix)to clear and terminate the Collection Account upon the
termination of this Agreement and to pay any amounts remaining
therein to the holder of the Transferor Interest.
Section 3.04 Maintenance of Hazard Insurance; Property Protection
Expenses. The Servicer shall cause to be maintained for each Mortgage Loan
fire and hazard insurance naming the Servicer or its designee as loss payee
thereunder providing extended coverage in an amount which is at least equal to
the lesser of (i) the maximum insurable value of the improvements securing
such Mortgage Loan from time to time, (ii) the combined principal balance
owing on such Mortgage Loan and any mortgage loan senior to such Mortgage Loan
and (iii) the minimum amount required to compensate for damage or loss on a
replacement lost basis. The Servicer shall also maintain on property acquired
upon foreclosure, or by deed in lieu of foreclosure, fire and hazard insurance
with extended coverage in an amount which is at least equal to the lesser 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
Mortgage Loan and any mortgage loan senior to such Mortgage Loan at the time
of such foreclosure, or deed in lieu of foreclosure plus accrued interest and
the good-faith estimate of the Servicer of related Servicing Advances to be
incurred in connection therewith. Amounts collected by the Servicer under any
such policies shall be deposited in the Collection Account to the extent
called for by Section 3.02. In cases in which any Mortgaged Property is
located in an area identified in a federally designated flood area, the hazard
insurance to be maintained for the related Mortgage Loan shall include flood
insurance to the extent such flood insurance is available and the Servicer has
determined such insurance to be necessary in accordance with accepted mortgage
servicing practices of prudent lending institutions. All such flood insurance
shall be in amounts not less than the lesser of (A) the amount in clause (i)
above, (B) the amount in clause (ii) above and (C) the maximum amount of
insurance available under the National Flood Insurance Act of 1968, as
amended. The Servicer shall be under no obligation to require that any
Mortgagor maintain earthquake or other additional insurance and shall be under
no obligation itself to maintain any such additional insurance on property
acquired in respect of a Mortgage Loan, other than pursuant to such applicable
laws and regulations as shall at any time be in force and as shall require
such additional insurance.
Section 3.05 Maintenance of Mortgage Impairment Insurance Policy. In
the event that the Servicer shall obtain and maintain a blanket insurance
policy consistent with prudent industry standards, insuring against fire and
hazards of extended coverage on all of the Mortgage Loans, then, to the extent
such insurance policy names the Servicer or its designee as loss payee and
provides coverage in an amount equal to the aggregate unpaid principal balance
on the Mortgage Loans without coinsurance, and otherwise complies with the
requirements of Section 3.04, the Servicer shall be deemed conclusively to
have satisfied its obligations with respect to fire and hazard insurance
coverage under Section 3.04, it being understood and agreed that such blanket
insurance policy may contain a deductible clause, in which case the Servicer
shall, in the event that there shall not have been maintained on the related
Mortgaged Property an insurance policy complying with Section 3.04, and there
shall have been a loss which would have been covered by such insurance policy,
deposit in the Collection Account the difference, if any, between the amount
that would have been payable under an insurance policy complying with Section
3.04 and the amount paid under such blanket insurance policy. Upon the request
of the Insurer or the Indenture Trustee, the Servicer shall cause to be
delivered to the Insurer or the Indenture Trustee, as the case may be, a
certified true copy of such insurance policy. In connection with its
activities as administrator and servicer of the Mortgage Loans, the Servicer
agrees to prepare and present, on behalf of itself, the Indenture Trustee, the
Insurer and the Trust, claims under any such insurance policy in a timely
fashion in accordance with the terms of such insurance policy.
Section 3.06 Fidelity Bond. The Servicer shall maintain with a
responsible company, and at its own expense, a blanket fidelity bond and an
errors and omissions insurance policy, in a minimum amount acceptable to FNMA
or FHLMC 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 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 Indenture Trustee, the Insurer or
any Class A Noteholder, the Servicer shall cause to be delivered to the
Indenture Trustee, such Class A Noteholder or the Insurer a certified true
copy of such fidelity bond and insurance policy.
Section 3.07 Management and Realization Upon Defaulted Mortgage
Loans. The Servicer shall manage, conserve, protect and operate each REO
Property for the Trust 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 REO
Property in the same manner that it manages, conserves, protects and operates
other foreclosed property for its own account, and in the same manner that
similar property in the same locality as the REO Property is managed. The
Servicer shall attempt to sell the same (and may temporarily rent the same) on
such terms and conditions as the Servicer deems to be in the best interest of
the Insurer and the Trust.
The Servicer shall cause to be deposited, within the time period
specified in Section 3.02(b) or 3.02(d), as applicable, in the Collection
Account, all revenues received with respect to the related REO Property and
shall retain, or cause the Indenture Trustee to withdraw therefrom, funds
necessary for the proper operation, management and maintenance of the REO
Property and the fees of any managing agent acting on behalf of the Servicer.
The disposition of REO Property shall be carried out by the Servicer
for cash at such price, and upon such terms and conditions, as the Servicer
deems to be in the best interest of the Trust and, as soon as practicable
thereafter, the expenses of such sale shall be paid. The cash proceeds of sale
of the REO Property shall be promptly deposited in the Collection Account,
pursuant to Section 3.02(b) or 3.02(d), as applicable, net of Foreclosure
Profits and of any related unreimbursed Servicing Advances, accrued and unpaid
Servicing Fees and unreimbursed Monthly Advances payable to the Servicer in
accordance with Section 3.03, for distribution to the Class A Noteholders and
the Transferor in respect of the Senior Interest Participation in accordance
with Section 5.01 herein.
The Servicer shall foreclose upon or otherwise comparably convert to
ownership Mortgaged Properties securing such of the Mortgage Loans as come
into and continue in default either when no satisfactory arrangements can be
made for collection of delinquent payments pursuant to Section 3.01, subject
to the provisions contained in the second succeeding paragraph of this Section
3.07.
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
shall be issued to the Indenture Trustee or its nominee on behalf of the Trust
and the Insurer.
If the Servicer has actual knowledge that a Mortgaged Property which
the Servicer is contemplating acquiring in foreclosure or by deed in lieu of
foreclosure is located within a 1 mile radius of any site with environmental
or hazardous waste risks, the Servicer will notify the Insurer prior to
acquiring the Mortgaged Property and shall not take any action without prior
written approval of the Insurer.
On each Payment Date, the Servicer shall provide to the Insurer the
Liquidation Report with respect to each Mortgage Loan that became a Liquidated
Mortgage Loan during the preceding Due Period.
Section 3.08 Indenture Trustee to Cooperate. Upon any principal
prepayment in full, the Servicer is authorized to execute, pursuant to the
authorization contained in Section 3.01(e), if the related Assignment of
Mortgage has been recorded as required hereunder, an instrument of
satisfaction regarding the related Mortgage, which instrument of satisfaction
shall be recorded by the Servicer if required by applicable law and be
delivered to the Person entitled thereto. It is understood and agreed that no
expenses incurred in connection with such instrument of satisfaction or
transfer shall be reimbursed from amounts deposited in the Collection Account.
If the Indenture Trustee is holding the Mortgage Files, from time to time and
as appropriate for the servicing or foreclosure of any Mortgage Loan, the
Indenture Trustee shall, upon request of the Servicer and delivery to the
Indenture Trustee of a Request for Release, in the form attached hereto as
Exhibit J, signed by a Servicing Officer, release the related Mortgage File to
the Servicer, and the Indenture Trustee shall execute such documents, at the
expense of and in the forms provided by the Servicer, as shall be necessary
for the prosecution of any such proceedings or the taking of other servicing
actions. Such Request for Release shall obligate the Servicer to return the
Mortgage File to the Indenture 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 that
hereinabove specified, a copy of the Request for Release shall be released by
the Indenture Trustee to the Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
Mortgage Loan that is in default following recordation of the related
Assignment of Mortgage in accordance with the provisions hereof, the Indenture
Trustee shall, if so requested in writing by the Servicer execute an
appropriate assignment in the form provided to the Indenture Trustee by the
Servicer to assign such Mortgage Loan for the purpose of collection to the
Servicer (any such assignment shall unambiguously indicate that the assignment
is for the purpose of collection only) and, upon such assignment, such
assignee for collection will thereupon bring all required actions in its own
name and otherwise enforce the terms of the Mortgage Loan and deposit or
credit the Net Liquidation Proceeds, exclusive of Foreclosure Profits,
received with respect thereto in the Collection Account. In the event that all
delinquent payments due under any such Mortgage Loan are paid by the Mortgagor
and any other defaults are cured then the assignee for collection shall
promptly reassign such Mortgage Loan to the Indenture Trustee and return it to
the place where the related Mortgage File was being maintained.
Section 3.09 Servicing Compensation; Payment of Certain Expenses by
Servicer. Subject to Section 5.07 herein the Servicer shall be entitled to
retain the Servicing Fee in accordance with Section 3.02 as compensation for
its services in connection with servicing the Mortgage Loans. Moreover,
additional servicing compensation in the form of prepayment penalties or late
payment charges or other receipts not required to be deposited in the
Collection Account, including, without limitation, Foreclosure Profits and,
subject to Section 3.02(b) above, investment income on the Collection Account
or the Distribution Account shall be retained by the Servicer. The Servicer
shall be required to pay all expenses incurred by it in connection with its
activities hereunder (including payment of all other fees and expenses not
expressly stated hereunder to be for the account of the Trust) and shall not
be entitled to reimbursement therefor except as specifically provided herein.
Section 3.10 Annual Statement as to Compliance.
(a) The Servicer will deliver to the Indenture Trustee, the Insurer,
the Seller and the Rating Agencies, on or before the last day of the fifth
month following the end of the Servicer's fiscal year, beginning in 2000, an
Officer's Certificate stating that (i) a review of the activities of the
Servicer during the preceding fiscal year (or such shorter period as is
applicable in the case of the first report) 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 material obligations under this Agreement throughout such fiscal 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 Servicer shall promptly notify the Insurer, the Seller, the
Indenture Trustee and the Rating Agencies in writing upon any change in the
basis on which its fiscal year is determined.
(b) The Servicer shall deliver to the Indenture Trustee, the Insurer,
the Seller, the Seller and each of the Rating Agencies, promptly after having
obtained knowledge thereof, but in no event later than five Business Days
thereafter, written notice by means of an Officer's Certificate of any event
which, with the giving of notice or the lapse of time or both, would become an
Event of Servicing Termination.Annual Servicing Report. On or before the last
day of the fifth month following the end of the Servicer's fiscal year,
beginning in [ ], the Servicer, at its expense, shall cause a firm of
independent public accountants reasonably acceptable to the Seller, the Trust
and the Insurer to furnish a letter or letters to the Insurer, the Seller, the
Indenture Trustee the Trust and the Rating Agencies to the effect that such
firm has, with respect to the Servicer's overall servicing operations,
examined such operations in accordance with the requirements of the Uniform
Single Attestation Program for Mortgage Bankers, and stating such firm's
conclusions relating thereto. In the event such firm requires the Indenture
Trustee or the Trust to agree to the procedures performed by such firm, the
Servicer shall direct the Indenture Trustee or the Trust in writing to so
agree; it being understood and agreed that the Indenture Trustee or the Trust
will deliver such letter of agreement in conclusive reliance upon the
direction of the Servicer, and the Indenture Trustee or the Trust will make no
independent inquiry or investigation as to, and shall have no obligation or
liability in respect of, the sufficiency, validity or correctness of such
procedures.
Section 3.11 Access to Certain Documentation and Information
Regarding the Mortgage Loans. The Servicer shall provide to the Indenture
Trustee, the Insurer, Class A Noteholders which are federally insured savings
and loan associations, the Office of Thrift Supervision, the FDIC and the
supervisory agents and examiners of the Office of Thrift Supervision access to
the documentation regarding the Mortgage Loans required by applicable
regulations of the Office of Thrift Supervision and the FDIC (acting as
operator of the SAIF or the BIF), such access being afforded without charge
but only upon reasonable request and during normal business hours at the
offices of the Servicer. Nothing in this Section 3.12 shall derogate from the
obligation of the Servicer to observe any applicable law prohibiting
disclosure of information regarding the Mortgagors and the failure of the
Servicer to provide access as provided in this Section 3.12 as a result of
such obligation shall not constitute a breach of this Section 3.12.
Section 3.12 Maintenance of Certain Servicing Insurance Policies. The
Servicer shall during the term of its service as servicer maintain in force an
insurance policy or policies of insurance covering errors and omissions in the
performance of its obligations as servicer hereunder. Such insurance policy or
policies shall, together, comply with the requirements from time to time of
FNMA for Persons performing servicing for mortgage loans purchased by FNMA.
Section 3.13 Reports to the Securities and Exchange Commission. The
Indenture Trustee shall, on behalf of the Trust, cause to be filed with the
Securities and Exchange Commission any periodic reports 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 Seller and
the Servicer 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 within their control as the Indenture
Trustee may reasonably request in connection with the performance of its
duties and obligations under this Section 3.14.
Section 3.14 Reports of Foreclosures and Abandonments of Mortgaged
Properties, Returns Relating to Mortgage Interest Received from Individuals
and Returns Relating to Cancellation of Indebtedness. The Servicer shall make
reports of foreclosures and abandonments of any Mortgaged Property for each
year beginning in [ ]. The Servicer shall file reports relating to each
instance occurring during the previous calendar year in which the Servicer (i)
on behalf of the Indenture Trustee acquires an interest in any Mortgaged
Property through foreclosure or other comparable conversion in full or partial
satisfaction of a Mortgage Loan or (ii) knows or has reason to know that any
Mortgaged Property has been abandoned. The reports from the Servicer shall be
in form and substance sufficient to meet the reporting requirements imposed by
Sections 6050J, 6050H and 6050P of the Code.
Section 3.15 Advances by the Servicer. (a) Not later than 12:00 p.m.
New York City time on the third Business Day prior to each Payment Date, the
Servicer shall remit to the Indenture Trustee for deposit in the Distribution
Account an amount to be distributed on such Payment Date pursuant to Section
5.01 herein, equal to the interest due on each Mortgage Loan through the
related Due Date for such Mortgage Loan, but not received by the Servicer as
of the close of business on the last day of the related Due Period (net of the
Servicing Fee); such amount being defined herein as the "Monthly Advance." The
Servicer may fund all or a portion of the Monthly Advance with respect to the
Mortgage Loans by instructing the Indenture Trustee on such Determination Date
to use funds deposited in the Collection Account which are not part of
Available Funds for the related Payment Date; provided that if such funds are
so used the Servicer shall replace such funds on or before any subsequent
Determination Date on which such funds are required to be part of the
Available Funds.
(b) Notwithstanding anything herein to the contrary, no Servicing
Advance or Monthly Advance shall be required to be made hereunder if the
Servicer determines, and provides the Indenture Trustee with a Servicing
Certificate to the effect, that such Servicing Advance or Monthly Advance
would, if made, constitute a Nonrecoverable Advance.
Section 3.16 Superior Liens. The Servicer shall file (or cause to be
filed) a request for notice of any action by a superior lienholder under a
First Lien for the protection of the Indenture Trustee's interest, where
permitted by local law and whenever applicable state law does not require that
a junior lienholder be named as a party defendant in foreclosure proceedings
in order to foreclose such junior lienholder's equity of redemption.
If the Servicer is notified that any superior lienholder has
accelerated or intends to accelerate the obligations secured by the First
Lien, or has declared or intends to declare a default under the mortgage or
the promissory note secured thereby, or has filed or intends to file an
election to have the Mortgaged Property sold or foreclosed, the Servicer shall
take, on behalf of the Trust, whatever actions are necessary to protect the
interests of the Trust and the Insurer, and/or to preserve the security of the
related Mortgage Loan. The Servicer shall immediately notify the Indenture
Trustee and the Insurer in writing of any such action or circumstances. The
Servicer shall advance the necessary funds to cure the default or reinstate
the superior lien, if such advance is in the best interests of the Insurer and
the Trust which the Servicer may establish by seeking approval from the
Insurer as evidenced by written instruction from the Insurer. Any action or
inaction on the part of the Servicer in accordance with such written
instructions shall be deemed to be in the best interests of the Insurer and
the Trust. If no written response is received within five (5) Business Days of
receipt by the Insurer of such request for approval, the Servicer may advance
or not advance in accordance with the second preceding sentence without
liability to the Trust or the Insurer. The Servicer shall not make such an
advance except to the extent that it determines in its reasonable good faith
judgment that the advance would be recoverable from Liquidation Proceeds on
the related Mortgage Loan and in no event in an amount that is greater than
the Principal Balance of the related Mortgage Loan, except with the consent of
the Insurer, which consent shall not be unreasonably withheld. The Servicer
shall thereafter take such action as is necessary to recover the amount so
advanced.
Notwithstanding the foregoing, the Servicer may change, modify or
amend any or all of the foregoing procedures if such change, modification or
amendment is applicable to the Mortgage Loans and all other mortgage loans
serviced by the Servicer and is otherwise in accordance with Section 3.01.
Section 3.17 Assumption Agreements. 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 right to accelerate the maturity of the related Mortgage 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 shall 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 shall
become liable under the Mortgage Note and, unless prohibited by applicable
law, the Mortgagor shall remain liable thereon. The Servicer, in accordance
with accepted mortgage loan servicing standards for mortgage loans similar to
the Mortgage Loans, is also authorized to enter into a substitution of
liability whereby such person is substituted as mortgagor and becomes liable
under the Mortgage Note. The Servicer shall notify the Indenture Trustee and
the Insurer in writing that any such substitution or assumption agreement has
been completed, and forward to the Indenture Trustee the original of such
substitution or assumption agreement, which original shall be added by the
Indenture 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
assumption or substitution agreement entered into pursuant to this Section
3.18, the Servicer shall not change the Loan Rate or the Monthly Payment,
defer or forgive the payment of principal or interest, reduce the outstanding
principal amount or extend the final maturity date on such Mortgage Loan.
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 Mortgage Loan by operation of law or any assumption which the Servicer
may be restricted by law from preventing, for any reason whatsoever.
Section 3.18 Payment of Taxes, Insurance and Other Charges. With
respect to each Mortgage Loan, the Servicer shall maintain accurate records
reflecting fire and hazard 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 fire and hazard
insurance coverage and shall obtain, from time to time, all bills for the
payment of such charges (including renewal premiums) and shall effect payment
thereof prior to the applicable penalty or termination date and at a time
appropriate for securing maximum discounts allowable, employing for such
purpose deposits of the Mortgagor in 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.
Section 3.19 Optional Purchase of Defaulted Mortgage Loans. The
Servicer, in its sole discretion, shall have the right to elect (by written
notice sent to the Indenture Trustee and the Insurer) to purchase for its own
account from the Trust any Mortgage Loan which is 90 days or more delinquent
in the manner and at the price specified in Section 2.02. The Purchase Price
for any Mortgage Loan purchased hereunder shall be deposited in the Collection
Account pursuant to Section 3.02(b) or 3.02(d), as applicable, provided that
the Indenture Trustee shall remit to the Seller or the Insurer, as applicable,
the portion of the amount, if any, of the Purchase Price referred to in clause
(iv) of the definition thereof to the extent such amount is incurred by or
imposed on the Seller or the Insurer. The Indenture Trustee, upon receipt of
such deposit, shall release or cause to be released to the purchaser of such
Mortgage Loan the related Mortgage File and shall execute and deliver such
instruments of transfer or assignment prepared by the purchaser of such
Mortgage Loan, in each case without recourse, as shall be necessary to vest in
the purchaser of such Mortgage Loan any Mortgage Loan released pursuant hereto
and the purchaser of such Mortgage Loan shall succeed to all the Trust's
right, title and interest in and to such Mortgage Loan and all security and
documents related thereto. Such assignment shall be an assignment outright and
not for security. The purchaser of such Mortgage Loan shall thereupon own such
Mortgage Loan, and all security and documents, free of any further obligation
to the Indenture Trustee, the Insurer or the Noteholders or the holders of the
Senior Interest Participation with respect thereto.
Notwithstanding the foregoing, unless the Insurer consents, the
Servicer may only exercise its option pursuant to this Section 3.20 with
respect to the Mortgage Loan or Mortgage Loans that have been delinquent for
the longest period at the time of such repurchase. Any request by the Servicer
to the Insurer for consent to repurchase Mortgage Loans that are not the most
delinquent shall be accompanied by a description of the Mortgage Loans that
have been delinquent longer than the Mortgage Loan or Mortgage Loans which the
Servicer proposes to repurchase.
<PAGE>
ARTICLE IV.
INSURER; INTEREST RATE CAP AGREEMENT;
SUPPLEMENTAL INTEREST PAYMENTS; SUPPORT AGREEMENT
Section 4.01 Claims upon the Insurance Policy. (a) As soon as
possible, and in no event later than 10:00 a.m. New York City time on the
second Business Day immediately preceding the Payment Date, the Indenture
Trustee shall furnish the Insurer, the Fiscal Agent and the Servicer with a
completed notice in the form set forth as Exhibit A to the Insurance Policy
(the "Notice for Payment") in the event that the Insured Payment for such
Payment Date is equal to an amount greater than zero. The Notice for Payment
shall specify the amount of Insured Payment and shall constitute a claim for
an Insured Payment pursuant to the Insurance Policy. Upon receipt of an
Insured Payment on behalf of the Holders of the Class A Notes and the Senior
Interest Participation under the Insurance Policy, the Indenture Trustee shall
deposit such Insured Payment in the Distribution Account and shall distribute
such Insured Payments pursuant to Section 5.01.
(b) The Indenture Trustee shall keep a complete and accurate record
of the amount of interest and principal paid in respect of the Class A Notes
and the amount of interest paid in respect of the Senior Interest
Participation from moneys received under the Insurance Policy. The Insurer
shall have the right to inspect such records at reasonable times during normal
business hours upon four Business Day's prior written notice to the Indenture
Trustee.
(c) If a payment to the Class A Noteholders or the Senior Interest
Participation which is guaranteed pursuant to the Insurance Policy is voided
(a "Preference Event") under any applicable bankruptcy, insolvency,
receivership or similar law in an Insolvency Proceeding (as defined in the
Insurance Policy), and, as a result of such a Preference Event, the Indenture
Trustee is required to return such voided payment, or any portion of such
voided payment, made in respect of the Class A Notes or the Senior Interest
Participation (an "Avoided Payment"), the Indenture Trustee shall furnish to
the Insurer (w) a certified copy of a final order of a court exercising
jurisdiction in such Insolvency Proceeding to the effect that the Indenture
Trustee is required to return any such payment or portion thereof during the
term of the Insurance Policy because such payment was voided under applicable
law, with respect to which order the appeal period has expired without an
appeal having been filed (the "Final Order"), (x) an Opinion of Counsel
satisfactory to the Insurer that such order is final and not subject to
appeal, (y) an assignment, in form reasonably satisfactory to the Insurer,
irrevocably assigning to the Insurer all rights and claims of the Indenture
Trustee relating to or arising under such Avoided Payment and (z) a Notice for
Payment appropriately completed and executed by the Indenture Trustee. Such
payment shall be disbursed to the receiver, conservator, debtor-in-possession
or trustee in bankruptcy named in the Final Order and not to the Indenture
Trustee directly (unless a Class A Noteholder or holders of the Senior
Interest Participation has previously paid such amount to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Final
Order in which case such payment shall be disbursed to the Beneficiary for
distribution to such Class A Noteholder or holders of the Senior Interest
Participation upon proof of such payment reasonably satisfactory to Insurer).
The Indenture Trustee is not permitted to make a claim on the Trust or on any
Class A Noteholder or holders of the Senior Interest Participation for
payments made to any Class A Noteholder or holders of the Senior Interest
Participation which are characterized as preference payments by any bankruptcy
court having jurisdiction over any bankrupt Mortgagor unless ordered to do so
by such bankruptcy court.
(d) Any amounts received by the Indenture Trustee pursuant to the
Insurance Policy in respect of the Class A Notes or the Senior Interest
Participation shall be deposited to the Distribution Account.
Section 4.02 Effect of Payments by the Insurer; Subrogation. Anything
herein to the contrary notwithstanding, any payment with respect to principal
of or interest on any of the Class A Notes or any interest payments on the
Senior Interest Participation which are made with moneys received pursuant to
the terms of the Insurance Policy shall not be considered payment of such
Class A Notes or the Senior Interest Participation, as applicable, from the
Trust and shall not result in the payment of or the provision for the payment
of the principal of or interest on such Class A Notes or interest on the
Senior Interest Participation, as applicable, within the meaning of Section
5.01 herein. The Seller, the Servicer and the Indenture Trustee acknowledge,
and each Holder by its acceptance of a Class A Note and the holder of the
Senior Interest Participation agrees, that without the need for any further
action on the part of the Insurer, the Seller, the Servicer, the Indenture
Trustee or the Note Registrar (a) to the extent the Insurer makes payments,
directly or indirectly, on account of principal of or interest on any Class A
Notes to the Holders of such Class A Notes, or on account of interest to the
holder of the Senior Interest Participation, the Insurer will be fully
subrogated to the rights of such Holders to receive such principal and
interest, as applicable, from the Trust and (b) the Insurer shall be paid such
principal and interest but only from the sources and in the manner provided
herein and in the Insurance Agreement for the payment of such principal and
interest.
The Indenture Trustee and the Servicer shall cooperate in all
respects with any reasonable request by the Insurer for action to preserve or
enforce the Insurer's rights or interests under this Agreement without
limiting the rights or affecting the interests of the Holders of the Class A
Notes and the holder Senior Interest Participation, as otherwise set forth
herein.
Section 4.03 Interest Rate Cap Agreement; Supplemental Interest
Payments; Establishment of and Deposit in the Cap Payment Reserve Account. (a)
To induce the Seller, the Trust and the Insurer to enter into the transactions
contemplated hereby, [ ]hereby agrees, for the sole and exclusive benefit of
the Indenture Trustee, in trust and for the benefit of the Class A
Noteholders, the Transferor in respect of the Senior Interest Participation
and the Insurer, to pay, or cause to be paid, the Cap Contract Obligations to
the Indenture Trustee for the benefit of the Class A Noteholders, the
Transferor in respect of the Senior Interest Participation and the Insurer.
Such Cap Contract Obligations shall be non-recourse to [ ], or any of its
affiliates, and the source of funds for the payment of such Cap Contract
Obligations shall be limited to the extent of amounts paid under the Interest
Rate Cap Agreement.
(b) [ ] acknowledges that the consummation of the transactions
contemplated by this Agreement and the Indenture are in the best interests of
[ ]. In order to facilitate the consummation of the transactions contemplated
by this Agreement and the Indenture, [ ] hereby agrees to secure the Cap
Contract Obligations of [ ], and [ ] hereby pledges to the Indenture Trustee,
in trust and for the benefit of the Class A Noteholders, the Transferor in
respect of the Senior Interest Participation and the Insurer, as their
interests may appear, a security interest in all of [Cap party's] right, title
and interest in, to and under the Interest Rate Cap Agreement, including,
without limitation, all right to receive amounts payable thereunder and all
proceeds thereof and in the Cap Payment Reserve Account, all funds on deposit
in the Cap Payment Reserve Account, all investments made from time to time
with the funds so deposited therein, and all proceeds of such investments.
[Cap party] agrees to promptly, from time to time, at its sole expense,
execute and deliver all instruments and documents, and take all action, that
may be reasonably necessary or desirable, in order to perfect and protect the
security interest granted to the Indenture Trustee, in trust and for the
benefit of the Class A Noteholders, the Transferor in respect of the Senior
Interest Participation and the Insurer, pursuant to this Section 4.03, or to
enable the Indenture Trustee and the Insurer to exercise and enforce its
rights and remedies with respect to the Interest Rate Cap Agreement and the
assets of the Cap Payment Reserve Account. [Cap party] hereby authorizes the
Indenture Trustee and the Insurer to file one or more financing or
continuation statements, and amendments thereto, relating to all or any part
of its rights to, in and under the Interest Rate Cap Agreement and the funds
in the Cap Payment Reserve Account.
(c) [Cap party] shall give [Cap provider], as cap provider, an
irrevocable instruction to transfer to the Indenture Trustee, on the fourth
Business Day prior to each Payment Date, for deposit in the Distribution
Account, all Cap Contract Payments with respect to such Payment Date. On each
such date on which a Cap Contract Payment is transferred to the Indenture
Trustee for deposit into the Distribution Account, the Indenture Trustee shall
deposit such Cap Contract Payment in the Distribution Account and (i) retain
in the Distribution Account a portion of such Cap Contract Payment in an
amount equal to any Supplemental Interest Payment for such Payment Date, which
shall be included in Available Funds for such Payment Date, and (ii) transfer
from the Distribution Account an amount equal to the excess, if any, of (A)
the amount of such Cap Contract Payment over (B) the amount of such
Supplemental Interest Payment (any such excess, the "Cap Contract Payment
Reserve Amount"), to the Cap Payment Reserve Account. The "Cap Payment Reserve
Account" shall be a separate trust account, established and maintained by the
Indenture Trustee at [ ], entitled "[ ], as Indenture Trustee, in trust for
the registered holders of [ ]Home Equity Loan Asset-Backed Notes, Series [ ],
the holder of the Senior Interest Participation and the Insurer, as each of
their interests shall appear, Cap Payment Reserve Account." The Cap Payment
Reserve Account shall be an Eligible Account and shall constitute an asset of
the Trust. Cap Contract Payment Reserve Amounts on deposit in the Cap Payment
Reserve Account shall be applied by the Indenture Trustee in accordance with
the provisions of Section 2.05(c) of the Insurance Agreement. In the event
that the Insurer is in default of its obligations under the Insurance Policy,
such Cap Contract Payment Reserve Amounts shall be available to supplement
Available Funds to the extent that payments would have been made by the
Insurer under the Insurance Policy in the absence of such default; provided
that such amounts shall first be applied to pay the Insurer amounts owing to
the Insurer pursuant to the Insurance Agreement; and provided further that,
except during the continuance of such default by the Insurer, amounts on
deposit in the Cap Payment Reserve Account shall not be available to the Class
A Noteholders or the Ownership Interest.
Section 4.04 Payments Under the Support Agreement. In the event that
the Servicer does not, on or before 12:00 p.m. New York City time on the third
Business Day preceding a Payment Date, remit to the Indenture Trustee for
deposit in the Collection Account or the Distribution Account, as applicable,
the respective amounts required to be remitted by it pursuant to Section
3.02(b) and 3.16, the Indenture Trustee, no later than 2:00 p.m. on such day,
shall make a written demand pursuant to the Support Agreement upon [ ] for any
and all amounts (including any Monthly Advances) required to be deposited in
the Collection Account or the Distribution Account, as applicable, by it
pursuant thereto.
[ ] shall be subrogated to the rights of Class A Noteholders and the
holder of the Senior Interest Participation with respect to the collections
that the Servicer failed to deposit to the extent of payments under the
Support Agreement. Each of the Seller, the Insurer, the Servicer, the Trust
and the Indenture Trustee agrees to such subrogation and, further, agrees to
execute such instruments and to take such actions as, in the sole judgment of
[ ], as evidenced in writing to the Seller, the Insurer, the Servicer, the
Trust and the Indenture Trustee, are necessary to evidence such subrogation.
Section 4.05 Replacement Insurance Policy. In the event of a default
by the Insurer under the Insurance Policy or if the claims paying ability
rating of the Insurer is downgraded and such downgrade results in a
downgrading of the then current rating of the Class A Notes (in each case, a
"Replacement Event"), the Seller may, in accordance with and upon satisfaction
of the conditions set forth in the Insurance Policy and the Insurance and
Reimbursement Agreement and payment in full of all amounts owed to the
Insurer, but shall not be required to, substitute a new insurance policy or
insurance policies for the existing Insurance Policy, or may arrange for any
other form of credit enhancement; provided, however, that in each case the
Class A Notes shall be rated no lower than the rating assigned by each Rating
Agency to the Class A Notes immediately prior to such Replacement Event. It
shall be a condition to substitution of any new credit enhancement that there
be delivered to the Indenture Trustee (i) a legal opinion, acceptable in form
and substance to the Indenture Trustee, from counsel to the provider of such
new credit enhancement with respect to the enforceability thereof and such
other matters as the Indenture Trustee may require and (ii) an Opinion of
Counsel to the effect that such substitution would not have a materially
adverse tax effect on the Trust. Upon receipt of the items referred to above
and the taking of physical possession of the new credit enhancement, the
Indenture Trustee shall, within five Business Days following receipt of such
items and such taking of physical possession, deliver the replaced Insurance
Policy to the Insurer.
<PAGE>
ARTICLE V.
PRIORITY OF DISTRIBUTIONS; STATEMENTS TO
NOTEHOLDERS; RIGHTS OF NOTEHOLDERS
Section 5.01 Distributions.
(a) Distributions of Interest and Principal Proceeds. Pursuant to
Section 5.4(b) of the Indenture, on each Payment Date, the Indenture Trustee,
with respect to the Class A Notes, and the Paying Agent, with respect to the
Ownership Interest, shall distribute out of the Distribution Account, to the
extent of Available Funds (except that amounts paid under the Insurance Policy
shall only be available for distribution to Class A Noteholders and the
Transferor in respect of the Senior Interest Participation), the following
amounts and in the following order of priority to the following Persons (based
on the information set forth in the Servicing Certificate):
(i) to the Indenture Trustee, the Indenture Trustee Fee
for such Payment Date, to the Owner Trustee, the Owner Trustee Fee
for such Payment Date, and to the Insurer, the Premium Amount;
(ii)concurrently, to the holders of the Class A Notes and
the Transferor in respect of the Senior Interest Participation, an
amount equal to the related Interest Distribution for the Class A
Notes and the Senior Interest Participation for such Payment Date;
provided, that any shortfall in the amount required to be distributed
hereunder will be allocated between the Class A Notes and the Senior
Interest Participation, pro rata, based on amounts that would have
been distributed to such Class A Notes and Senior Interest
Participation in the absence of such shortfall;
(iii) to the holders of the Class A Notes, the Class A
Principal Distribution for such Payment Date (other than the portion
constituting Distributable Excess Spread);
(iv)to the Insurer, the amount owing to the Insurer under
the Insurance Agreement for reimbursement for prior draws made on the
Insurance Policy;
(v) to the holders of the Class A Notes, to the extent of
Available Funds remaining, the Distributable Excess Spread for such
Payment Date;
(vi)to the Servicer, the amount of any accrued and unpaid
Servicing Fee;
(vii) to the Servicer, the amount of Nonrecoverable Advances
not previously reimbursed and any amounts payable to the Servicer
pursuant to Section 7.03;
(viii) to the Insurer, any other amounts owing to the
Insurer under the Insurance Agreement; and
(ix)to the Transferor in respect of the Transferor Interest,
the balance.
(b) Method of Distribution. The Indenture Trustee shall make
distributions in respect of a Payment Date to each Class A Noteholder of
record on the related Record Date (other than as provided in Section 8.01
respecting the final distribution) by check or money order mailed to such
Class A Noteholder at the address appearing in the Note Register, or upon
written request by a Class A Noteholder delivered to the Indenture Trustee at
least five Business Days prior to such Record Date, by wire transfer (but only
if such Class A Noteholder is the Depository or such Class A Noteholder owns
of record one or more Class A Notes having principal denominations aggregating
at least $[1,000,000]), or by such other means of payment as such Class A
Noteholder and the Indenture Trustee shall agree. Distributions among Class A
Noteholders shall be made in proportion to the Percentage Interests evidenced
by the Class A Notes held by such Class A Noteholders. The Indenture Trustee,
acting in its capacity as Paying Agent, shall make distributions in respect of
a Payment Date to the Transferor of record on the related Record Date, in
respect of the Senior Interest Participation by wire transfer or by such other
means of payment as the Transferor and the Paying Agent shall agree.
(c) Distributions on Book-Entry Notes. Each distribution with respect
to a Book-Entry Note shall be paid to the Depository, which shall credit the
amount of such distribution to the accounts of its Depository Participants in
accordance with its normal procedures. Each Depository Participant shall be
responsible for disbursing such distribution to the Class A Note Owners that
it represents and to each indirect participating brokerage firm (a "brokerage
firm" or "indirect participating firm") for which it acts as agent. Each
brokerage firm shall be responsible for disbursing funds to the Class A Note
Owners that it represents. All such credits and disbursements with respect to
a Book-Entry Note are to be made by the Depository and the Depository
Participants in accordance with the provisions of the Class A Notes. None of
the Indenture Trustee, the Paying Agent, the Note Registrar, the Seller, the
Insurer, the Trust or the Servicer shall have any responsibility therefor
except as otherwise provided by applicable law.
Section 5.02 Calculation of the Class A Note Rate. With respect to
the Class A Notes, on the second LIBOR Business Day immediately preceding each
Payment Date (or as of the fourth LIBOR Business Day prior to the Closing
Date, in the case of the first Payment Date), the Indenture Trustee shall
determine LIBOR for the Interest Period commencing on such Payment Date and
inform the Servicer (at the facsimile number given to the Indenture Trustee in
writing) of such rates. On or prior to each Determination Date, the Indenture
Trustee shall determine the applicable Class A Note Rate for the related
Payment Date.
Section 5.03 Statements to Noteholders. (a) Not later than 12:00
noon, New York time, on each Determination Date, the Servicer shall deliver to
the Indenture Trustee, the Seller and the Underwriters a computer tape (or
such other report in a form and format mutually agreeable to the Servicer and
the Indenture Trustee) (the "Servicing Certificate") containing the
information set forth in Exhibit D hereto with respect to the Mortgage Loans
on an aggregate basis as of the end of the preceding Due Period and such other
information as the Indenture Trustee shall reasonably require. Not later than
12:00 noon, New York time, on the Business Day preceding the Payment Date, the
Indenture Trustee shall deliver to the Seller, the Servicer, the Transferor
and to the Insurer, by telecopy, with a hard copy thereof to be delivered on
such Payment Date, a statement (the "Indenture Trustee's Statement to
Noteholders") (based solely on the information contained on the computer tape
provided by the Servicer) containing the information set forth below with
respect to such Payment Date:
(i) The Available Funds, the Class A Note Rate and the
Senior Interest Participation Rate for the related Payment Date;
(ii)The Class A Note Principal Balance, the Notional
Principal Balance of the Senior Interest Participation, the Pool
Principal Balance as reported in the prior Indenture Trustee's
Statement to Noteholders or, in the case of the first Determination
Date, the Original Class A Note Principal Balance and the Cut-Off
Date Pool Principal Balance;
(iii) The aggregate amount of collections received on the
Mortgage Loans on or prior to such Determination Date in respect of
the preceding Due Period, separately stating the amounts received in
respect of principal and interest;
(iv)The number and Principal Balances of all Mortgage Loans
that were the subject of Principal Prepayments during the related Due
Period;
(v) The amount of all Curtailments that were received
during the Due Period;
(vi)The principal portion of all Monthly Payments received
during the Due Period;
(vii) The interest portion of all Monthly Payments received
on the Mortgage Loans during the Due Period;
(viii) The amount required to be paid by the Seller
(reported separately) pursuant to Sections 2.02, 2.04 or 2.06;
(ix)The amount of the Monthly Advances and the Compensating
Interest payment to be made with respect to such Payment Date;
(x) The Class A Principal Distribution to be distributed on
the Class A Notes, and the Interest Distribution for the related
Payment Date to be distributed on the Class A Notes and the Senior
Interest Participation;
(xi)The amount, if any, of the Outstanding Interest
Carryover Shortfall after giving effect to the distributions on the
related Payment Date;
(xii) The amount of the Insured Payments, if any, to be made
on the related Payment Date;
(xiii) The amount to be distributed to the Transferor in
respect of the Senior Interest Participation pursuant to 5.01(a)(ii)
and the Transferor Interest for the related Payment Date pursuant to
Section 5.01(a)(ix);
(xiv) The Class A Note Principal Balance after giving effect
to the distribution to be made on the related Payment Date;
(xv)The weighted average remaining term to maturity of
the Mortgage Loans and the weighted average Loan Rate;
(xvi) The Servicing Fee to be paid to the Servicer pursuant
to Section 5.01(a)(vi) and the amounts to be paid to the Insurer,
separately stated, pursuant to Sections 5.01(a)(iv) and
5.01(a)(viii);
(xvii) The Premium Amount to be paid to the Insurer pursuant
to Section 5.01;
(xviii) The amount of all payments or reimbursements to the
Servicer pursuant to Section 3.03;
(xix) The O/C Amount, the O/C Reduction Amount, the Excess
O/C Amount and the Specified O/C Amount for the Payment Date and the
Excess Spread for such Payment Date;
(xx)The amount of Distributable Excess Spread to be
distributed to the Class A Noteholders on such Payment Date pursuant
to Section 5.01(a)(v) on such Payment Date;
(xxi) The number of Mortgage Loans outstanding at the
beginning and at the end of the related Due Period;
(xxii) The Pool Principal Balance as of the end of the Due
Period related to such Payment Date;
(xxiii) The number and aggregate Principal Balances of
Mortgage Loans (w) as to which the Monthly Payment is delinquent for
30-59 days, 60-89 days and 90 or more days, respectively, (x) that
have become REO Properties, in each case as of the end of the
preceding Due Period, (y) that are in foreclosure and (z) the
Mortgagor of which is the subject of any bankruptcy or insolvency
proceeding;
(xxiv) The unpaid principal amount of all Mortgage Loans
that became Liquidated Mortgage Loans during such Due Period;
(xxv) The Net Liquidation Proceeds received during such
Due Period;
(xxvi) The cumulative losses on the Mortgage Loans;
(xxvii) The book value (within the meaning of 12 C.F.R. ss.
571.13 or comparable provision) of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure; and
(xxviii) The Delinquency Percentage in respect of such
Payment Date.
In the case of information furnished pursuant to clauses (ii), (x)
and (xiv) above, the amounts shall be expressed, in a separate section of the
report, as a dollar amount for each Class A Note for each $1,000 original
dollar amount as of the Cut-Off Date.
In addition, the Indenture Trustee shall forward the Indenture
Trustee's Statement to Noteholders to each Class A Noteholder, the Rating
Agencies, Bloomberg (at 499 Park Avenue, New York, New York 10022, Attention:
[ ]) and Intex Solutions (at 35 Highland Circle, Needham, Massachusetts 02144,
Attention: [ ]) on the related Payment Date. The Indenture Trustee may fully
and conclusively rely upon and shall have no liability with respect to
information provided by the Servicer.
To the extent that there are inconsistencies between the telecopy of
the Indenture Trustee's Statement to Noteholders and the hard copy thereof,
the Servicer may rely upon the latter.
(b) The Indenture Trustee shall prepare or cause to be prepared (in a
manner consistent with the treatment of the Class A Notes as indebtedness of
the Trust, or as may be otherwise required by Section 3.15 herein) Internal
Revenue Service Form 1099 (or any successor form) and any other tax forms
required to be filed or furnished to Class A Noteholders in respect of
distributions by the Indenture Trustee (or the Paying Agent) on the Class A
Notes and shall file and distribute such forms as required by law.
(c) The Servicer and the Indenture Trustee shall furnish to each
Class A Noteholder and to the Insurer (if requested in writing), during the
term of this Agreement, such periodic, special or other reports or
information, whether or not provided for herein, as shall be necessary,
reasonable or appropriate with respect to the Class A Noteholder or the
Insurer, as the case may be, 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 (if requested in writing) as
the Class A Noteholder or the Insurer, as the case may be, may reasonably
require; provided that the Servicer and the Indenture Trustee shall be
entitled to be reimbursed by such Class A Noteholder or the Insurer, as the
case may be, for their respective fees and actual expenses associated with
providing such reports, if such reports are not generally produced in the
ordinary course of their respective businesses or readily obtainable.
(d) Reports and computer tapes furnished by the Servicer pursuant to
this Agreement shall be deemed confidential and of a proprietary nature, and
shall not be copied or distributed except to the extent provided in this
Agreement and to the extent required by law or to the Rating Agencies, the
Seller, the Insurer's reinsurers, parent, regulators, liquidity providers and
auditors and to the extent the Seller instructs the Indenture Trustee in
writing to furnish information regarding the Trust or the Mortgage Loans to
third-party information providers. No Person entitled to receive copies of
such reports or tapes or lists of Class A Noteholders shall use the
information therein for the purpose of soliciting the customers of the Seller
or for any other purpose except as set forth in this Agreement.
Section 5.04 [Reserved].
Section 5.05 Distribution Account. The Indenture Trustee shall
establish an account (the "Distribution Account") titled "[ ], as Indenture
Trustee, in trust for the registered holders of [ ]Home Equity Loan
Asset-Backed Notes and the Insurer, and as Paying Agent for the Transferor in
respect of the Ownership Interest, as their interests may appear, Series [ ]
Distribution Account." The Distribution Account shall be an Eligible Account.
The Indenture Trustee shall deposit any amounts representing payments on and
any collections in respect of the Mortgage Loans received by it immediately
following receipt thereof to the Distribution Account including, without
limitation, all amounts (i) withdrawn by the Servicer from the Collection
Account pursuant to Section 3.03 herein for deposit to the Distribution
Account, and (ii) drawn under the Insurance Policy in respect of an Insured
Payment. Amounts on deposit in the Distribution Account may be invested in
Eligible Investments pursuant to Section 5.06 below.
Section 5.06 Investment of Accounts.
(a) So long as no Event of Servicing Termination shall have occurred
and be continuing, and consistent with any requirements of the Code, all or a
portion of any Account held by the Indenture Trustee shall be invested and
reinvested by the Indenture Trustee, as directed in writing by the Servicer,
in one or more Eligible Investments bearing interest or sold at a discount. If
an Event of Servicing Termination shall have occurred and be continuing or if
the Servicer does not provide investment directions, the Indenture Trustee
shall invest all Accounts in Eligible Investments described in paragraph (vi)
of the definition of Eligible Investments. No such investment in any Account
shall mature later than the Business Day immediately preceding the next
Payment Date (except that (i) if such Eligible Investment is (a) an investment
described in item (vi) of Eligible Investments or (b) an obligation of the
Indenture Trustee, then such Eligible Investment shall mature not later than
such Payment Date and (ii) any other date as may be approved by the Rating
Agencies and the Insurer).
(b) If any amounts are needed for disbursement from any Account held
by the Indenture Trustee and sufficient uninvested funds are not available to
make such disbursement, the Indenture Trustee shall cause to be sold or
otherwise converted to cash a sufficient amount of the investments in such
Account.
(c) The Indenture Trustee shall not in any way be held liable for the
selection of Eligible Investments or by reason of any investment loss or
charge or any insufficiency in any Account held by the Indenture Trustee
resulting from any investment loss on any Eligible Investment included therein
unless the Indenture Trustee's failure to perform in accordance with this
Section is the cause of such loss or charge (except to the extent that the
Indenture Trustee is the obligor and has defaulted thereon or as provided in
subsection (b) of this Section). The Indenture Trustee shall have no liability
in respect of losses incurred as a result of the liquidation of any Eligible
Investment prior to its stated maturity or the failure of the Servicer to
provide timely written investment direction. In the absence of written
investment direction, the Indenture Trustee shall invest funds in the Accounts
in the Eligible Investment described in clause (vi) of the definition thereof.
(d) The Indenture Trustee shall invest and reinvest funds in the
Accounts held by the Indenture Trustee, to the fullest extent practicable, in
such manner as the Servicer shall from time to time direct as set forth in
Section 5.06(a), but only in one or more Eligible Investments.
(e) So long as no Event of Servicing Termination shall have occurred
and be continuing, all net income and gain realized from investment of, and
all earnings on, funds deposited in the Collection Account and the
Distribution Account shall be for the benefit of the Servicer as servicing
compensation (in addition to the Servicing Fee), and shall be subject to
withdrawal on or before the first Business Day of the month following the
month in which such income or gain is received. The Servicer shall deposit in
the Collection Account or the Distribution Account, as the case may be, the
amount of any loss incurred in respect of any Eligible Investment held therein
which is in excess of the income and gain thereon immediately upon realization
of such loss from its own funds, without any right to reimbursement therefore.
Section 5.07 Compensating Interest. Not later than 12:00 p.m., New
York City time on the third Business Day prior to each Payment Date, the
Servicer shall remit to the Indenture Trustee for deposit to the Collection
Account, an amount equal to the lesser of (A) the aggregate of the Prepayment
Interest Shortfalls for the related Payment Date resulting from Principal
Prepayments during the related Due Period and (B) its aggregate Servicing Fees
received in the related Due Period. The Servicer shall not have the right to
reimbursement for any amount deposited to the Collection Account pursuant to
this Section 5.07.
<PAGE>
ARTICLE VI.
THE SELLER AND THE SERVICER
Section 6.01 Liability of the Seller and the Servicer. The Seller and
the Servicer shall be liable in accordance herewith only to the extent of the
obligations specifically imposed upon and undertaken by the Seller or
Servicer, as the case may be, herein. The Seller shall be liable in accordance
herewith only to the extent of the obligations specifically imposed upon and
undertaken by the Seller.
Section 6.02 Merger or Consolidation of, or Assumption of the
Obligations of, the Seller or the Servicer. Any corporation into which the
Seller or the Servicer may be merged or consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Seller or
the Servicer shall be a party, or any corporation succeeding to the business
of the Seller or the Servicer shall be the successor of the Seller or the
Servicer, as the case may be, hereunder, without the execution or filing of
any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding; provided, however, that the
successor Servicer shall satisfy all the requirements of Section 7.02 with
respect to the qualifications of a successor Servicer, and shall be approved
by the Insurer [(which approval shall not be unreasonably withheld)].
Section 6.03 Limitation on Liability of the Servicer and Others.
Neither the Servicer nor any of the directors or officers or employees or
agents of the Servicer shall be under any liability to the Trust or the Class
A Noteholders for any action taken or for refraining from the taking of any
action by the Servicer in good faith pursuant to this Agreement, or for errors
in judgment; provided, however, that this provision shall not protect the
Servicer or any such Person against any liability which would otherwise be
imposed by reason of its willful misfeasance, bad faith or negligence in the
performance of duties of the Servicer or by reason of its reckless disregard
of its obligations and duties of the Servicer hereunder; provided, further,
that this provision shall not be construed to entitle the Servicer to
indemnity in the event that amounts advanced by the Servicer to retire any
senior lien exceed Net Liquidation Proceeds realized with respect to the
related Mortgage Loan. The Servicer and any director or officer or employee or
agent of the Servicer may rely in good faith on any document of any kind prima
facie properly executed and submitted by any Person respecting any matters
arising hereunder. The Servicer and any director or officer or employee or
agent of the Servicer shall be indemnified by the Trust and held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to this Agreement or the Notes, other than any loss, liability
or expense related to any specific Mortgage Loan or Mortgage 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
its willful misfeasance, bad faith or negligence in the performance of duties
hereunder or by reason of its reckless disregard of obligations and duties
hereunder; and such amounts shall be payable only pursuant to Section
5.01(a)(vii). The Servicer may with the consent of the Insurer (which consent
shall not be unreasonably withheld) undertake any such action which it may
deem necessary or desirable in respect of this Agreement, and the rights and
duties of the parties hereto and the interests of the Class A Noteholders
hereunder. In such event, the reasonable legal expenses and costs of such
action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust and the Servicer shall be entitled to be reimbursed
therefor only pursuant to Section 5.01(a)(vii). The Servicer's right to
indemnity or reimbursement pursuant to this Section 6.03 shall survive any
resignation or termination of the Servicer pursuant to Section 6.04 or 7.01
below with respect to any losses, expenses, costs or liabilities arising prior
to such resignation or termination (or arising from events that occurred prior
to such resignation or termination). This paragraph shall apply to the
Servicer solely in its capacity as Servicer hereunder and in no other
capacities.
Section 6.04 Servicer Not to Resign. Subject to the provisions of
Section 6.02 above, the Servicer shall not resign from the obligations and
duties hereby imposed on it except (i) upon determination that the performance
of its obligations or duties hereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with
any other activities carried on by it or its subsidiaries or Affiliates, the
other activities of the Servicer so causing such a conflict being of a type
and nature carried on by the Servicer or its subsidiaries or Affiliates at the
date of this Agreement or (ii) upon satisfaction of the following conditions:
(a) the Servicer has proposed a successor servicer to the Indenture Trustee in
writing and such proposed successor servicer is reasonably acceptable to the
Indenture Trustee; (b) each Rating Agency shall have delivered a letter to the
Indenture Trustee prior to the appointment of the successor servicer stating
that the proposed appointment of such successor servicer as Servicer hereunder
will not result in the reduction or withdrawal of the then current rating of
the Class A Notes; and (c) such proposed successor servicer is reasonably
acceptable to the Insurer, as evidenced by a letter to the Indenture Trustee;
provided, however, that no such resignation by the Servicer shall become
effective until such successor servicer or, in the case of (i) above, the
Indenture Trustee shall have assumed the Servicer's responsibilities and
obligations hereunder or the Indenture Trustee shall have designated a
successor servicer in accordance with Section 7.02 below. Any such resignation
shall not relieve the Servicer of responsibility for any of the obligations
specified in Sections 7.01 and 7.02 below as obligations that survive the
resignation or termination of the Servicer. Any such determination permitting
the resignation of the Servicer pursuant to clause (i) above shall be
evidenced by an Opinion of Counsel to such effect delivered to the Indenture
Trustee and the Insurer.
Section 6.05 Delegation of Duties. In the ordinary course of
business, the Servicer at any time may delegate any of its duties hereunder to
any Person, including any of its Affiliates, who agrees to conduct such duties
in accordance with standards comparable to those set forth in Section 3.01
herein. Such delegation shall not relieve the Servicer of its liabilities and
responsibilities with respect to such duties and shall not constitute a
resignation within the meaning of Section 6.04 above. The Servicer shall
provide the Insurer and the Indenture Trustee with written notice prior to the
delegation of any of its duties to any Person other than any of the Servicer's
Affiliates or their respective successors and assigns, and the Insurer shall
have consented to the appointment of any Subservicer (which consent shall not
have been unreasonably withheld).
Section 6.06 Indemnification of the Trust by the Servicer. The
Servicer shall indemnify and hold harmless the Owner Trustee, the Trust and
the Indenture Trustee and its officers, directors, agents and employees from
and against any loss, liability, expense, damage or injury suffered or
sustained by reason of the Servicer's willful misfeasance, bad faith or
negligence in the performance of its activities in servicing or administering
the Mortgage Loans pursuant to this Agreement, including, but not limited to,
any judgment, award, settlement, reasonable fees of, counsel of its selection
and other costs or expenses incurred in connection with the defense of any
actual or threatened action, proceeding or claim related to the Servicer's
misfeasance, bad faith or negligence. Any such indemnification shall not be
payable from the assets of the Trust. The provisions of this indemnity shall
run directly to and be enforceable by an injured party subject to the
limitations hereof. The provisions of this Section 6.06 shall survive
termination of the Agreement or the earlier of the resignation or removal of
the Owner Trustee or the Indenture Trustee, as the case may be. In addition,
the Servicer agrees to indemnify the Indenture Trustee pursuant to Section 6.7
of the Indenture.
<PAGE>
ARTICLE VII.
SERVICING TERMINATION
Section 7.01 Events of Servicing Termination.
If any one of the following events ("Events of Servicing
Termination") shall occur and be continuing:
(i) (A) the failure by the Servicer to make any required
Monthly Advance when due; or (B) any other failure by the Servicer to
deposit in the Collection Account or the Distribution Account any
deposit required to be made under the terms of this Agreement which
continues unremedied for a period of two Business Days after the date
upon which written notice of such failure shall have been given to
the Servicer by the Indenture Trustee or to the Servicer and the
Indenture Trustee by the Insurer or by the Holders of Class A Notes
representing not less than 25% of the aggregate Class A Note
Principal Balance; or
(ii)the failure by the Servicer to make any required
Servicing Advance which failure continues unremedied for a period of
30 days, or, except as otherwise described in subclause (vi) below,
the 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 adversely
affects the interests of the Class A Noteholders or the Insurer and
continues unremedied for a period of 30 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 Indenture Trustee or to
the Servicer and the Indenture Trustee by the Insurer or by the
Holders of Class A Notes representing not less than 25% of the
aggregate Class A Note Principal Balance; or
(iii) the entry against the Servicer of a decree or order by
a court or agency or supervisory authority having jurisdiction in the
premises for the appointment of a trustee, conservator, receiver or
liquidator in any insolvency, conservatorship, receivership,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and
in effect for a period of 60 consecutive days; or
(iv)the Servicer shall voluntarily go into liquidation,
consent to the appointment of a conservator or receiver or liquidator
or similar person 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 its property, or a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises for the
appointment of a conservator, receiver, liquidator or similar person
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, unbonded or unstayed for a period of 60 days; or the
Servicer shall admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of
any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations; or
(v) so long as the Seller is the Servicer, any failure of
the Seller to repurchase or substitute Eligible Substitute Mortgage
Loans for Defective Mortgage Loans as required pursuant to the
Mortgage Loan Purchase Agreement or this Agreement; or
(vi)Any breach by the Servicer of a representation or
warranty made in Section 2.03 herein, which breach materially and
adversely affects the interests of the Class A Noteholders or the
Insurer and continues unremedied for a period of 30 days after the
giving of written notice of such failure to the Servicer by the
Indenture Trustee, or to the Servicer and the Indenture Trustee by
the Insurer or Holders of Class A Notes evidencing Percentage
Interests aggregating not less than 25% of the aggregate Class A Note
Principal Balance [(or such longer period[, with the consent of the
Insurer (which consent shall not be unreasonably withheld),] as may
be reasonably necessary to remedy such breach, provided that the
Servicer has commenced and diligently pursues such remedy to
completion)]; or
(vii) any insufficiency in the Available Funds, excluding
any payment made under the Insurance Policy occurs on a Payment Date
resulting in the need for an Insured Payment;
then, and in each and every such case, so long as an Event of
Servicing Termination shall not have been remedied within the
applicable grace period, (x) subject to the succeeding paragraph,
with respect solely to clause (i)(A) above, if such Monthly Advance
is not made by 4:00 P.M., New York time, on the second Business Day
following written notice to the Servicer of such event the Indenture
Trustee shall terminate all of the rights and obligations of the
Servicer under this Agreement and the Indenture Trustee, or any other
successor servicer appointed in accordance with Section 7.02 below,
shall immediately make such Monthly Advance and assume, pursuant to
Section 7.02, the duties of a successor Servicer and (y) in the case
of (i)(B), (ii), (iii), (iv), (v), (vi) and (vii) above, the
Indenture Trustee shall, at the direction of the Insurer or the
Holders of Class A Notes representing not less than 51% of the Class
A Note Principal Balance (with the consent of the Insurer, so long as
no Insurer Default exists), by notice then given in writing to the
Servicer (and to the Indenture Trustee if given by Holders of Class A
Notes), terminate all of the rights and obligations of the Servicer
as servicer under this Agreement. Any such notice to the Servicer
shall also be given to each Rating Agency, [ ], the Seller, the Trust
and the Insurer. On or after the receipt by the Servicer of such
written notice, all authority and power of the Servicer under this
Agreement, whether with respect to the Class A Notes or the Mortgage
Loans or otherwise, shall pass to and be vested in the Indenture
Trustee pursuant to and under this Section 7.01; and, without
limitation, the Indenture Trustee 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 to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of each
Mortgage Loan and related documents or otherwise. The Servicer agrees
to cooperate with the Indenture Trustee in effecting the termination
of the responsibilities and rights of the Servicer hereunder,
including, without limitation, the transfer to the Indenture Trustee
for the administration by it of all cash amounts that shall at the
time be held by the Servicer and to be deposited by it in the
Collection Account, or that have been deposited by the Servicer in
the Collection Account or thereafter received by the Servicer with
respect to the Mortgage Loans. All reasonable costs and expenses
(including attorneys' fees) incurred in connection with transferring
the Mortgage Files to the successor Servicer and amending this
Agreement to reflect such succession as Servicer pursuant to this
Section 7.01 shall be paid by the predecessor Servicer (or if the
predecessor Servicer is the Indenture Trustee, the initial Servicer)
upon presentation of reasonable documentation of such costs and
expenses.
In addition, upon the occurrence of any Trigger Event, as provided in
the Insurance and Reimbursement Agreement, and upon the direction of
the Insurer in connection therewith, the Indenture Trustee shall
terminate the rights and responsibilities of the Servicer hereunder
and shall appoint a successor Servicer in accordance with the
provisions of Section 7.02.
Section 7.02 Indenture Trustee to Act; Appointment of Successor.
(a) On and after the time the Servicer receives a notice of
termination pursuant to Section 7.01 or resigns pursuant to 6.04 herein, the
Indenture Trustee or a previously agreed upon successor Servicer 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. As
compensation therefor, the Indenture Trustee shall be entitled to such
compensation as the Servicer would have been entitled to hereunder if no such
notice of termination had been given. Notwithstanding the above, (i) if the
Indenture Trustee is unwilling to act as successor Servicer, or (ii) if the
Indenture Trustee is legally unable so to act, the Indenture Trustee shall
appoint or petition a court of competent jurisdiction to appoint, any
established housing and home finance institution, bank or other mortgage loan
or home equity loan servicer having a net worth of not less than $50,000,000
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;
provided that any such successor Servicer shall be acceptable to the Insurer,
as evidenced by the Insurer's prior written consent [(which consent shall not
be unreasonably withheld)]; and provided, further, that the appointment of any
such successor Servicer will not result in the qualification, reduction or
withdrawal of the ratings assigned to the Class A Notes by the Rating
Agencies. Pending appointment of a successor to the Servicer hereunder, unless
the Indenture Trustee is prohibited by law from so acting, the Indenture
Trustee shall act in such capacity as hereinabove provided. Notwithstanding
anything herein or in the Indenture to the contrary, in no event shall the
Indenture Trustee be held liable for any Servicing Fee or for any differential
in the amount necessary to induce any successor servicer to act as successor
servicer under this Agreement and the transactions set forth or provided for
therein. In connection with such appointment and assumption, the successor
shall be entitled to receive compensation out of payments on Mortgage Loans in
an amount equal to the compensation which the Servicer would otherwise have
received pursuant to Section 3.09 herein (or such lesser compensation as the
Indenture Trustee and such successor shall agree). The appointment of a
successor Servicer shall not affect any liability of the predecessor Servicer
which may have arisen under this Agreement prior to its termination as
Servicer to pay any deductible under an insurance policy pursuant to Section
3.05 herein or to indemnify the Trust and the Indenture Trustee pursuant to
Section 6.06), nor shall any successor Servicer be liable for any acts or
omissions of the predecessor Servicer or for any breach by such Servicer of
any of its representations or warranties contained herein or in any related
document or agreement. The Indenture Trustee and such successor shall take
such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
(b) Any successor, including the Indenture Trustee, to the Servicer
as servicer shall during the term of its service as servicer (i) continue to
service and administer the Mortgage Loans for the benefit of the Trust, and
(ii) maintain in force an insurance policy or policies of insurance covering
errors and omissions in the performance of its obligations as Servicer
hereunder and a fidelity bond in respect of its officers, employees and agents
to the same extent as the Servicer is so required pursuant to Section 3.06
herein. No successor servicer shall have the right to retain and commingle
payments on, and collections in respect of, the Mortgage Loans with its own
funds pursuant to Section 3.02(d) unless (i) consented to in writing by the
Insurer and (ii) such commingling will not result in a downgrade,
qualification or withdrawal of the then current ratings of the Class A Notes,
without regard to the Insurance Policy, as evidenced in writing by each Rating
Agency.
Section 7.03 Waiver of Defaults. The Insurer or the Majority
Noteholders with the consent of the Insurer (which consent shall not be
unreasonably withheld) may, on behalf of all Class A Noteholders, waive any
events permitting removal of the Servicer as servicer pursuant to this Article
VIII, provided, however, that the Insurer and the Majority Noteholders may not
waive a default in making a required distribution on a Class A Note without
the consent of the Holder of such Class A Note. Upon any waiver of a past
default, such default shall cease to exist and any Event of Servicing
Termination 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 Indenture
Trustee to the Rating Agencies.
Section 7.04 Notification to Class A Noteholders. Upon any
termination or appointment of a successor to the Servicer pursuant to this
Article VII or Section 6.04 above, the Indenture Trustee shall give prompt
written notice thereof to the Class A Noteholders at their respective
addresses appearing in the Class A Note Register, the Insurer and each Rating
Agency.
<PAGE>
ARTICLE VIII.
TERMINATION
Section 8.01 Termination.
(a) The respective obligations and responsibilities of the Seller,
the Servicer, the Trust and the Indenture Trustee created hereby (other than
the obligation of the Indenture Trustee to make certain payments to Class A
Noteholders after the Final Payment Date and the obligation of the Servicer to
send certain notices as hereinafter set forth) shall terminate upon notice to
the Indenture Trustee of the later of (A) payment in full of all amounts owing
to the Insurer unless the Insurer shall otherwise consent and (B) the earliest
of (i) the final payment or other liquidation of the last Mortgage Loan
remaining in the Trust; (ii) the optional purchase by the Servicer of the
Mortgage Loans as described below and (iii) the Payment Date in [ ].
Notwithstanding the forgoing, in no event shall the trust created hereby
continue beyond the expiration of 21 years from the date of the last survivor
of the descendants of Joseph P. Kennedy, the late ambassador of the United
States to the Court of St. James, living on the date hereof.
(b) The Servicer may, at its option, terminate this Agreement on any
Payment Date on or after the Payment Date on which the aggregate Pool
Principal Balance is less than or equal to [five percent (5%)] of the Cut-Off
Date Pool Principal Balance by purchasing, on the next succeeding Payment
Date, all of the outstanding Mortgage Loans and REO Properties at a price
equal to the sum of the outstanding Pool Principal Balance and accrued and
unpaid interest thereon at the weighted average of the Loan Rates through the
end of the Due Period preceding the final Payment Date together with all
amounts due and owing to the Insurer (the "Termination Price").
In connection with any such purchase pursuant to the preceding
paragraph, the Servicer shall deposit in the Distribution Account all amounts
then on deposit in the Collection Account (less amounts permitted to be
withdrawn by the Servicer pursuant to Section 3.03), which deposit shall be
deemed to have occurred immediately preceding such purchase.
Any such purchase shall be accomplished by deposit into the
Distribution Account on the Determination Date before such Payment Date of the
Termination Price.
(c) Notice of any termination, specifying the Payment Date (which
shall be a date that would otherwise be a Payment Date) upon which the Class A
Noteholders may surrender their Class A Notes to the Indenture Trustee for
payment of the final distribution and cancellation, shall be given promptly by
the Indenture Trustee (upon receipt of written directions from the Servicer,
if the Servicer is exercising its right to transfer of the Mortgage Loans,
given not later than the first day of the month preceding the month of such
final distribution) to the Insurer and to the Servicer by letter to the Class
A Noteholders mailed not earlier than the 15th day and not later than the 25th
day of the month next preceding the month of such final distribution
specifying (i) the Payment Date upon which final distribution of the Class A
Notes will be made upon presentation and surrender of Class A Notes at the
office or agency of the Indenture Trustee therein designated, (ii) the amount
of any such final distribution and (iii) that the Record Date otherwise
applicable to such Payment Date is not applicable, distributions being made
only upon presentation and surrender of the Class A Notes at the office or
agency of the Indenture Trustee therein specified.
(d) Upon presentation and surrender of the Class A Notes, the
Indenture Trustee shall cause to be distributed to the Holders of the Class A
Notes on the Payment Date for such final distribution, in proportion to the
Percentage Interests of their respective Class A Notes and to the extent that
funds are available for such purpose, an amount equal to the amount required
to be distributed to Class A Noteholders pursuant to Section 5.01 for such
Payment Date. On the final Payment Date prior to having made the distributions
called for above, the Indenture Trustee shall, based upon the information set
forth in the Servicing Certificate for such Payment Date, withdraw from the
Distribution Account and remit to the Insurer the lesser of (x) the amount
available for distribution on such final Payment Date, net of any portion
thereof necessary to pay the Class A Noteholders and the Transferor in respect
of the Senior Interest Participation pursuant to Section 5.01(a) and any
amounts owing to the Indenture Trustee in respect of the Indenture Trustee Fee
and (y) the unpaid amounts due and owing to the Insurer pursuant to the
Insurance Agreement.
(e) In the event that all of the Class A Noteholders shall not
surrender their Class A Notes for final payment and cancellation on or before
such final Payment Date, the Indenture Trustee shall promptly following such
date cause all funds in the Distribution Account not distributed in final
distribution to Class A Noteholders and the holder of the Transferor Interest
in respect of the Senior Interest Participation, to be withdrawn therefrom and
credited to the remaining Class A Noteholders and the holder of the Transferor
Interest in respect of the Senior Interest Participation, as applicable, by
depositing such funds in a separate escrow account for the benefit of such
Class A Noteholders and holder of the Transferor Interest in respect of the
Senior Interest Participation, and the Servicer (if the Servicer has exercised
its right to purchase the Mortgage Loans) or the Indenture Trustee (in any
other case) shall give a second written notice to the remaining Class A
Noteholders to surrender their Class A Notes for cancellation and receive the
final distribution with respect thereto. If within nine months after the
second notice all the Class A Notes shall not have been surrendered for
cancellation, the Transferor Interest will be entitled to all unclaimed funds
and other assets which remain subject hereto and the Indenture Trustee upon
transfer of such funds shall be discharged of any responsibility for such
funds and the Noteholders shall look to the holder of the Transferor Interest
for payment.
(f) Upon payment of all amounts owed under the Insurance Policy and
cancellation of the Class A Notes, the Indenture Trustee shall provide the
Insurer notice of cancellation of the Class A Notes and surrender the
Insurance Policy to the Insurer.
<PAGE>
ARTICLE IX.
MISCELLANEOUS PROVISIONS
Section 9.01 Amendment.
(a) This Agreement may be amended from time to time by the Seller,
the Servicer, the Trust and the Indenture Trustee by written agreement,
without the consent of any of the Class A Noteholders, but only with the
consent of the Insurer (which consent shall not be unreasonably withheld) (i)
to cure any ambiguity, (ii) to correct any defective provisions or to correct
or supplement any provisions herein that may be inconsistent with any other
provisions herein, (iii) to add to the duties of the Servicer, (iv) to add any
other provisions with respect to matters or questions arising under this
Agreement or the Insurance Policy, as the case may be, which shall not be
inconsistent with the provisions of this Agreement, (v) to add or amend any
provisions of this Agreement as required by any Rating Agency or any other
nationally recognized statistical rating agency in order to maintain or
improve any rating of the Class A Notes (it being understood that, after
obtaining the ratings in effect on the Closing Date, neither the Indenture
Trustee, the Seller nor the Servicer is obligated to obtain, maintain or
improve any such rating), or (vi) to amend the definition of Specified O/C
Amount; provided, however, that as evidenced by an Opinion of Counsel (at the
expense of the party requesting such amendment) in each case such action shall
not, (1) have any material adverse tax consequence with respect to such Class
A Noteholder, the Insurer or the Trust or (2) adversely affect in any material
respect the interest of any Class A Noteholder or the Insurer, provided,
further, that the amendment shall not be deemed to adversely affect in any
material respect the interests of the Class A Noteholder or the Insurer, and
no Opinion of Counsel to that effect shall be required by this clause (2) if
the Person requesting the amendment obtains a letter from the Rating Agency
stating that the amendment would not result in the downgrading or withdrawal
of the respective ratings then assigned to the Class A Notes without regard to
the Insurance Policy.
(b) This Agreement also may be amended from time to time by the
Seller, the Servicer, the Trust and the Indenture Trustee, with the consent of
the Holders of Class A Notes representing not less than 51% of the Class A
Note Principal Balance, and with the consent of the Insurer (which consent
shall not be unreasonably withheld), 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 Class A Noteholders
or the Transferor in respect of the Ownership Interest; provided, however,
that no such amendment shall (i) reduce in any manner the amount of, or delay
the timing of, payments on the Class A Notes or Senior Interest Participation
or distributions or payments under the Insurance Policy which are required to
be made on the Class A Notes or Senior Interest Participation without the
consent of the Holder of such Class A Notes or Senior Interest Participation
or (ii) reduce the aforesaid percentage required to consent to any such
amendment, without the consent of the Holders of all Class A Notes then
outstanding.
Prior to the execution of any such amendments, the Indenture Trustee
shall furnish written notification of the substance of such amendment to each
Rating Agency. In addition, promptly after the execution of any such amendment
made with the consent of the Class A Noteholders, the Indenture Trustee shall
furnish written notification of the substance of such amendment to each Class
A Noteholder and fully executed original counterparts of the instruments
effecting such amendment to the Insurer.
(c) It shall not be necessary for the consent of Class A Noteholders
under this Section 9.01 to approve the particular form of any proposed
amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Class A Noteholders shall be subject
to such reasonable requirements as the Indenture Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, each of
the Indenture Trustee and the Owner Trustee shall be entitled to receive and
conclusively rely upon an Opinion of Counsel stating that the execution of
such amendment is authorized or permitted by this Agreement and all conditions
precedent to the execution of such amendment have been met. The Indenture
Trustee may, but shall not be obligated to, enter into any such amendment
which affects the Indenture Trustee's own rights, duties, indemnities or
immunities under this Agreement.
Section 9.02 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 by the Servicer
at the Class A Noteholders' expense on direction of the Indenture Trustee or
the Majority Class A Noteholders, but only when accompanied by an opinion of
counsel to the effect that such recordation materially and beneficially
affects the interests of the Class A Noteholders or is necessary for the
administration or servicing of the Mortgage Loans.
Section 9.03 Duration of Agreement.
This Agreement shall continue in existence and effect until
terminated as herein provided.
Section 9.04 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 9.05 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 Seller, the Trust or the Servicer, [ ], (ii) in the
case of the Indenture Trustee, at the Corporate Trust Office, (iii) in the
case of the Insurer, [ ], Attention: [ ], (iv) in the case of Moody's, 99
Church Street, 6th Floor, New York, New York 10007 Attention: Residential
Mortgage Monitoring, (v) in the case of Standard & Poor's, 26 Broadway, New
York, New York 10004, (vi) in the case of the Seller, KeyTower, 127 Public
Square, Cleveland, Ohio 44114-1306, Attention:[ ], (vii) in the case of
KeyCorp, Key Tower127 Public Square, Cleveland, Ohio 44114-1306, Attention: [
] and (viii) in the case of the Class A Noteholders, as set forth in the 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 Class A Noteholders shall be effective upon mailing or personal
delivery.
Section 9.06 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 9.07 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 9.08 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 9.09 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Seller, the Trust, the Indenture Trustee and the Class A
Noteholders and their respective successors and permitted assigns. The Insurer
is an express third party beneficiary of this Agreement.
Section 9.10 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 9.11 Indenture Trustee.
All privileges, rights and immunities given to the Indenture Trustee
in the Indenture are hereby extended to and applicable to the Indenture
Trustee's obligations hereunder.
Section 9.12 Reports to Rating Agencies.
The Indenture Trustee shall provide to each Rating Agency copies of
statements, reports and notices, to the extent received or prepared by the
Servicer hereunder, as follows:
(i) copies of amendments to this Agreement;
(ii)notice of any substitution or repurchase of any Mortgage
Loans;
(iii) notice of any termination, replacement, succession,
merger or consolidation of either the Servicer or the Trust;
(iv)notice of final payment on the Class A Notes;
(v) notice of any Event of Servicing Termination;
(vi)copies of the annual independent auditor's report
delivered pursuant to Section 3.11 herein, and copies of any
compliance reports delivered by the Servicer hereunder including
Section 3.10 herein; and
(vii) copies of any Servicing Certificate pursuant to
Section 5.03 herein.
Section 9.13 Inconsistencies Among Transaction Documents.
In the event certain provisions of a Transaction Document conflict
with the provisions of this Sale and Servicing Agreement, the parties hereto
agree that the provisions of this Sale and Servicing Agreement shall be
controlling.
Section 9.14 Rights of the Insurer to Exercise Rights of Noteholders.
By accepting its Class A Note, each Class A Noteholder agrees that
unless an Insurer Default exists, the Insurer shall have the right to exercise
all rights of the Class A Noteholders as specified under this Agreement
without any further consent of the Class A Noteholders. Any right conferred to
the Insurer hereunder shall be suspended and shall run to the benefit of the
Class A Noteholders during any period in which there exists an Insurer
Default.
<PAGE>
IN WITNESS WHEREOF, the following 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.
[ ]HOME
EQUITY LOAN TRUST [ ],
By: [ ], not in its
individual capacity but solely as Owner
Trustee
By:______________________________
Name:
Title:
[ ],
as Seller and Servicer
By:_______________________________
Name:
Title:
KEYBANK NATIONAL ASSOCIATION,
as Seller
By:________________________________
Name:
Title:
[ ],
as Indenture Trustee
By:________________________________
Name:
Title:
Accepted and Agreed to by:
[ ],
not as a party but solely in respect of its
obligations under Section 4.03 of this
Sale and Servicing Agreement.
By:_________________________________________
Name:
Title:
<PAGE>
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, on [ ], 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 [ ] HOME EQUITY LOAN TRUST [ ], as the Trust, 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.
--------------------------------
Notary Public, State of ________
<PAGE>
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, on [ ], 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 [ ], as the Seller and the
Servicer, 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.
-------------------------------
Notary Public, State of ________
<PAGE>
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, on [ ], 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 KEYBANK NATIONAL ASSOCIATION, as
the Seller, 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.
--------------------------------
Notary Public, State of ________
<PAGE>
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, on [ ], the undersigned authority, a Notary Public, 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 [ ], as Indenture Trustee, and
that he executed the same as the act of such corporation for the purposes and
consideration therein expressed, and in the capacity therein stated.
--------------------------------
Notary Public, State of ________
<PAGE>
THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, on [ ] the undersigned authority, a Notary
Public, 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 [ ],
and that he executed the same as the act of such corporation for the purposes
and consideration therein expressed, and in the capacity therein stated.
_______________________________
Notary Public, State of ________
<PAGE>
Exhibit 4.3
===============================================================================
TRUST AGREEMENT
among
KEYBANK NATIONAL ASSOCIATION
as Seller,
and
[ ],
as Owner Trustee
Dated as of [ ]
[ ] HOME EQUITY LOAN TRUST [ ]
Home Equity Loan Asset-Backed Notes, Series [ ]
===============================================================================
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Page
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.1 Capitalized Terms......................................................................1
Section 1.2 Other Definitional Provisions..........................................................4
ARTICLE II
ORGANIZATION
Section 2.1 Name...................................................................................6
Section 2.2 Office.................................................................................6
Section 2.3 Purposes and Powers....................................................................6
Section 2.4 Appointment of Owner Trustee...........................................................7
Section 2.5 Initial Capital Contribution of Owner Trust Estate.....................................7
Section 2.6 Declaration of Trust...................................................................7
Section 2.7 Title to Trust Property................................................................7
Section 2.8 Situs of Trust.........................................................................7
Section 2.9 Representations and Warranties of the Seller...........................................8
Section 2.10 Federal Income Tax Allocations.........................................................9
ARTICLE III
OWNERSHIP INTEREST AND TRANSFERS OF THE OWNERSHIP INTEREST
Section 3.1 Initial Ownership.....................................................................10
Section 3.2 The Ownership Interest................................................................10
Section 3.3 [Reserved]............................................................................10
Section 3.4 Registration of Transfer and Exchange of
Ownership Interest....................................................................10
Section 3.5 [Reserved]............................................................................10
Section 3.6 Persons Deemed Transferors............................................................11
Section 3.7 [Reserved]............................................................................11
Section 3.8 Maintenance of Office or Agency.......................................................11
Section 3.9 Appointment of Paying Agent...........................................................11
Section 3.10 [Reserved]............................................................................11
Section 3.11 [Reserved]............................................................................11
Section 3.12 [Reserved]............................................................................11
Section 3.13 Restrictions on Transfers of Ownership Interest.......................................12
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
Section 4.1 Prior Notice to the Transferor and the Insurer
with Respect to Certain Matters.......................................................15
Section 4.2 [Reserved]............................................................................17
Section 4.3 Action by Transferor with Respect to Bankruptcy.......................................17
Section 4.4 Restrictions on Transferor's Power....................................................17
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
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 [Reserved]............................................................................19
Section 5.5 Accounting and Reports to the Transferor, the Internal Revenue Service and
Others................................................................................19
Section 5.6 Signature on Returns..................................................................20
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 6.1 General Authority.....................................................................21
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 Transaction Documents or in Instructions..........................................22
Section 6.5 No Action Except Under Specified Documents or Instructions............................23
Section 6.6 Restrictions..........................................................................23
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
Section 7.1 Acceptance of Trusts and Duties.......................................................24
Section 7.2 Furnishing of Documents...............................................................25
Section 7.3 Representations and Warranties........................................................25
Section 7.4 Reliance; Advice of Counsel...........................................................26
Section 7.5 Not Acting in Individual Capacity.....................................................26
Section 7.6 Owner Trustee Not Liable for the Ownership Interest or the Mortgage Loans.............27
Section 7.7 Owner Trustee May Own the Ownership Interest and the Notes............................27
Section 7.8 Licenses..............................................................................27
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE
Section 8.1 Owner Trustee's Fees and Expenses.....................................................28
Section 8.2 Indemnification.......................................................................28
Section 8.3 Payments to the Owner Trustee.........................................................28
ARTICLE IX
TERMINATION OF TRUST AGREEMENT
Section 9.1 Termination of Trust Agreement........................................................29
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 10.1 Eligibility Requirements for Owner Trustee............................................31
Section 10.2 Resignation or Removal of Owner Trustee...............................................31
Section 10.3 Successor Owner Trustee...............................................................32
Section 10.4 Merger or Consolidation of Owner Trustee..............................................32
Section 10.5 Appointment of Co-Owner Trustee or Separate Owner Trustee.............................32
ARTICLE XI
MISCELLANEOUS
Section 11.1 Supplements and Amendments............................................................35
Section 11.2 No Legal Title to Owner Trust Estate in Transferor....................................36
Section 11.3 Limitations on Rights of Others.......................................................36
Section 11.4 Notices...............................................................................36
Section 11.5 Severability..........................................................................37
Section 11.6 Separate Counterparts.................................................................37
Section 11.7 Successors and Assigns................................................................37
Section 11.8 No Petition...........................................................................37
Section 11.9 [Reserved]............................................................................37
Section 11.10 No Recourse...........................................................................37
Section 11.11 Headings..............................................................................37
Section 11.12 GOVERNING LAW.........................................................................37
Section 11.13 Inconsistencies with Sale and Servicing Agreement.....................................39
Section 11.14 Third Party Beneficiary...............................................................39
EXHIBIT A Certificate of Trust..........................................................................A-1
EXHIBIT B Form of Transfer Certificate..................................................................B-1
</TABLE>
<PAGE>
TRUST AGREEMENT, dated as of [ ], among LEHMAN, KEYBANK NATIONAL
ASSOCIATION, a national banking association headquartered in Cleveland, Ohio,
as seller (the "Seller") and [the Owner Trustee], a Delaware banking
corporation, as owner trustee (the "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.
"Bankruptcy Action" shall have the meaning assigned to such term in
Section 4.1.
"Benefit Plan" shall have the meaning assigned to such term in
Section 3.13.
"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" shall mean the Ownership Interest.
"Certificate of Trust" shall mean the Certificate of Trust in the
form of Exhibit A to be filed for the Trust pursuant to Section 3810(a) of the
Business Trust Statute.
"Certificate Register" shall mean a register kept by the Certificate
Registrar in which, subject to such reasonable regulations as it may
prescribe, the Certificate Registrar shall provide for the registration of the
Certificate and the registration of transfers of the Certificate. The location
of the Certificate Registrar shall be the same as that of the Corporate Trust
Office of the Indenture Trustee.
"Certificate Registrar" shall mean the [indenture trustee] as
Certificate Registrar hereunder.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Corporate Trust Office" shall mean, (i) with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee, which
office at date of execution of this Agreement, is 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 Transferor and
the Trust, 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 Transferor and the Trust); or (ii)
with respect to the Indenture Trustee, the principal corporate trust office of
the Indenture Trustee, which office at date of execution of this Agreement, is
located at [ ], Attention: Indenture Trust Administration, or at such other
address as the Indenture Trustee may designate by notice to the Transferor and
the Trust, or the principal corporate trust office of any successor Indenture
Trustee (the address (which shall be in the State of [ ]) of which the
successor indenture trustee will notify the Transferor and the Trust.
"Distribution Account" shall have the meaning assigned to such term
in the Sale and Servicing Agreement.
"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.
"Indenture" shall mean the Indenture, dated as of [________________],
by and between the Trust and the Indenture Trustee.
"Indenture Trustee" shall mean [ _______________ ], as Indenture
Trustee under the Indenture.
"Initial Note Principal Balance" shall mean with respect to the Class
A Notes, $[___________].
"Insurance Agreement" shall mean the Insurance and Reimbursement
Agreement dated as of [ ] among the Indenture Trustee, the Seller, the
Servicer and the Insurer, including any amendments and supplements thereto.
"Non-permitted Foreign Owner" shall have the meaning set forth in
Exhibit B hereto.
"Non-U.S. Person" shall mean any Person other than (i) a citizen or
resident of the United States, (ii) an entity treated for United States
federal income tax purposes as a corporation or partnership created or
organized in or under the laws of the United States or any state thereof,
including the District of Columbia, (iii) an estate that is subject to U.S.
federal income tax regardless of the source of its income, (iv) 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, or (v) certain
trusts in existence on August 20, 1996 and treated as United States persons on
such date that elect to continue to be so treated.
"Owner Trust Estate" shall mean the contribution of $1 referred to
in Section 2.5 and the Trust Estate.
"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.
"Ownership Interest" shall have the meaning specified in Section 3.2.
"Prospective Transferor" shall mean any prospective purchaser or
prospective transferee of the Ownership Interest.
"Rating Agency Condition" shall mean, with respect to certain actions
requiring Rating Agency consent, 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
Seller, the Owner Trustee, the Insurer and the Trust in writing that such
action will not result in a reduction or withdrawal of the then current rating
of the Notes, without regard to the Insurance Policy.
"Record Date" shall mean the last Business Day preceding the related
Payment Date; provided, however, that following the date on which Definitive
Notes are available pursuant to Section 2.2 of the Indenture, the Record Date
shall be the last day of the calendar month preceding the month in which the
related Payment Date occurs.
"Sale and Servicing Agreement" shall mean the Sale and Servicing
Agreement dated as of the date hereof, among the Trust, the Seller, the
Indenture Trustee and the Servicer.
"Secretary of State" shall mean the Secretary of State of the State
of Delaware.
"Seller" shall mean [______________] or its successors.
"Senior Interest Participation" shall have the meaning specified in
Section 3.2.
"Servicer" shall mean [____________________], or any successor
servicer appointed pursuant to the Sale and Servicing Agreement.
"Transaction Documents" shall mean each of the Indenture, the Sale
and Servicing Agreement, the Insurance Agreement and this Agreement.
"Transferor" shall mean the owner of the Ownership Interest.
"Transferor Interest" shall have the meaning specified in Section 3.2.
"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 [__________________] Home Equity Loan Trust
[___________________], the Delaware business trust created pursuant to this
Agreement.
"Trust Estate" shall mean the assets subject to the Sale and
Servicing Agreement, the Mortgage Loan Purchase Agreement, the Trust Agreement
and this Indenture, assigned to the Indenture Trustee, which assets consist
of: (i) each Mortgage Loan and the related Mortgage File, including its
Principal Balance and all collections in respect thereof received after the
Cut-Off Date; (ii) property that secured a Mortgage Loan that is acquired by
foreclosure or deed in lieu of foreclosure; (iii) the Seller's rights under
any insurance policies relating to the Mortgage Loans (including any Insurance
Proceeds); (iv) amounts on deposit in the Collection Account and Distribution
Account; (v) the Seller's obligation to pay, or cause to be paid, the Cap
Contract Obligations to the Indenture Trustee, per Section 4.03 (a) of the
Sale and Servicing Agreement, and the security interest granted by [ ] to
secure such obligation; (vi) the Seller's rights under the Purchase Agreement;
(vii) the Seller's rights under the Support Agreement and (viii) any proceeds
of any of the foregoing and (ix) all other assets included or to be included
in the Trust for the benefit of Noteholders and the Insurer. In addition, on
or prior to the Closing Date, the Seller shall cause the Insurer to deliver
the Insurance Policy to the Indenture Trustee for the benefit of the
Noteholders and the Seller shall deliver the Support Agreement to the
Indenture Trustee for the benefit of the Noteholder, the Transferor and the
Insurer.
"Underwriter" shall mean [_________________________________].
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 "[ ]
Home Equity Loan Trust [ ]," in which name the Owner Trustee may conduct the
business of the Trust and make and execute contracts and other instruments on
behalf of the Trust and the Trust may 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 the
State of Delaware as the Owner Trustee may designate by written notice to the
Transferor.
Section 2.3 Purposes and Powers.
(a) The purpose of the Trust is to engage in the following
activities:
(i) to issue the Notes pursuant to the Indenture and the
Ownership Interest pursuant to this Agreement and to sell such Notes
and Ownership Interest;
(ii) with the proceeds of the sale of the Notes and the
Ownership Interest, to fund start-up and transactional expenses of
the Trust and to pay the balance to the Seller, or at the direction
of the Seller, to pay the Seller, as its interests may appear
pursuant to the Sale and Servicing Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and
convey the Trust Estate pursuant to the Indenture and to hold, manage
and distribute to the Transferor pursuant to the terms of the Sale
and Servicing Agreement any portion of the Trust Estate released from
the lien of, and remitted to the Trust pursuant to, the Indenture;
(iv) to enter into and perform its obligations under the
Transaction Documents to which it is to be a party;
(v) 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; and
(vi) subject to compliance with the Transaction 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 Noteholders and the Transferor.
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 Transaction Documents.
Section 2.4 Appointment of Owner Trustee. The Seller 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
Seller hereby sells, assigns, transfers, conveys and sets over to the Trust,
as of the date hereof, the sum of $1. The Owner Trustee hereby acknowledges
receipt in trust from the Seller, as of the date hereof, of the foregoing
contribution, which shall constitute the initial Owner Trust Estate and shall
be deposited in the Distribution Account. The Seller 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 Transferor, subject
to the obligations of the Trust under the Transaction Documents. It is the
intention of the parties hereto that the Trust constitute a business trust
under 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, the Trust
shall be treated as a security arrangement, with the assets of the Trust being
the Trust Estate and the Transferor being the owner of the Ownership Interest.
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, if any, 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. The Owner
Trustee has filed the Certificate of Trust with the Secretary of State of the
State of Delaware.
Section 2.7 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, a co-owner trustee
and/or a separate trustee, as the case may be.
(b) The Transferor 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 Transferor 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 2.8 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 [ ]. The Trust shall not have any employees; provided,
however, that nothing herein shall 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 [ ], and payments will be made by
the Trust only from Delaware or [ ]. The only office of the Trust will be at
the Corporate Trust Office in Delaware.
Section 2.9 Representations and Warranties of the Seller.
The Seller hereby represents and warrants to the Owner Trustee and
the Insurer that:
(a) The Seller is a national banking association headquartered
in Cleveland, Ohio and has all licenses necessary to carry on its business as
now being conducted. The Seller has the 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 Seller and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary action of the Seller; this Agreement
evidences the valid, binding and enforceable obligation of the Seller; and all
requisite action has been taken by the Seller to make this Agreement valid,
binding and enforceable upon the Seller in accordance with its terms, subject
to the effect of bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally or the
application of equitable principles in any proceeding, whether at law or in
equity.
(b) The consummation of the transactions contemplated by this
Agreement will not result in (i) the breach of any terms or provisions of the
Articles of Incorporation or Bylaws of the Seller, (ii) the breach of any term
or provision of, or conflict with or constitute a default under or result in
the acceleration of any obligation under, any material agreement, indenture or
loan or credit agreement or other material instrument to which the Seller, or
its property is subject, or (iii) the violation of any law, rule, regulation,
order, judgment or decree to which the Seller or its respective property is
subject.
(c) The Seller 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 other governmental agency, which default might have consequences
that would materially and adversely affect the condition (financial or
otherwise) or operations of the Seller or its properties or might have
consequences that would materially and adversely affect its performance
hereunder.
(d) To the Seller's best knowledge, there are no proceedings or
investigations pending or threatened before any court, regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Seller or its properties: (A) asserting the invalidity
of this Agreement, (B) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or (C) seeking any determination
or ruling that might materially and adversely affect the performance by the
Seller of its obligations under, or the validity or enforceability of, this
Agreement.
Section 2.10 Federal Income Tax Allocations. Net income of the Trust
for any month, as determined for Federal income tax purposes (and each item of
income, gain, loss and deduction entering into the computation thereof), shall
be allocated to the Transferor.
ARTICLE III
OWNERSHIP INTEREST AND TRANSFERS OF THE OWNERSHIP INTEREST
Section 3.1 Initial Ownership. Upon the formation of the Trust by the
contribution by the Seller pursuant to Section 2.5 and until the issuance of
the Ownership Interest, the Transferor shall be the sole owner of the Trust.
Section 3.2 The Ownership Interest. The Ownership Interest (as
defined below) shall be issued as a single certificate, substantially in the
form of Exhibit __ hereto, upon the order of the Seller to the Owner Trustee
concurrently with the sale and assignment to the Trust of the Mortgage Loans.
The Ownership Interest shall represent the Transferor Interest and the Senior
Interest Participation which is the entire beneficial ownership interest in
the assets of the Trust subject to the debt represented by the Notes (the
"Ownership Interest"). The initial Ownership Interest and each Ownership
Interest issued in exchange or upon transfer therefor shall be manually
executed by an Authorized Officer of the Owner Trustee.
The Transferor Interest shall represent the entire beneficial
ownership interest in the assets of the Trust Estate, subject to the debt
represented by the Notes other than that portion represented by the Senior
Interest Participation (as defined below) (the "Transferor Interest").
The Senior Interest Participation, in accordance with the Sale and
Servicing Agreement, will entitle the Transferor, to the extent funds are
available, to an interest only participation interest in equal priority to
payments of interest on the Notes. The Senior Interest Participation will bear
interest on the notional principal amount thereof (the "Senior Interest
Participation").
A transferee of the Ownership Interest shall become the Transferor,
and shall be entitled to the rights and subject to the obligations of the
Transferor hereunder, upon such transferee's acceptance of the Ownership
Interest duly registered in such transferee's name pursuant to Section 3.4
below.
Section 3.3 [Reserved].
Section 3.4 Registration of Transfer and Exchange of Ownership
Interest. The Owner Trustee hereby appoints [ ] as Certificate Registrar under
this Agreement. 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 Certificate Register shall provide for the registration of the Ownership
Interest and of transfer and exchange of the Ownership Interest as herein
provided. The Certificate Registrar, subject to Section 3.13 hereof, on behalf
of the Trust shall note on the Certificate Register the transfer of the
Ownership Interest.
Section 3.5 [Reserved].
Section 3.6 Persons Deemed Transferors. Prior to due presentation of
the Ownership Interest for registration of transfer, the Seller, the Owner
Trustee, the Indenture Trustee, the Insurer and the Certificate Registrar may
treat the Person in whose name the Ownership Interest shall be registered in
the Certificate Register as the owner thereof for the purpose of receiving
distributions pursuant to Section 5.2 hereof and for all other purposes
whatsoever, and none of the Seller, the Owner Trustee, the Indenture Trustee,
the Insurer or the Certificate Registrar shall be bound by any notice to the
contrary.
Section 3.7 [Reserved]
Section 3.8 Maintenance of Office or Agency. The Indenture Trustee
shall maintain an office or offices or agency or agencies (initially, the
Corporate Trust Office of the Indenture Trustee) where the Ownership Interest
may be surrendered for registration of transfer or exchange pursuant to
Section 3.4 and where notices and demands to or upon the Certificate Registrar
in respect of the Ownership Interest and the Transaction Documents may be
served. The Indenture Trustee shall give prompt written notice to the Seller,
the Insurer, the Owner Trustee and the Transferor 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 Indenture Trustee as Paying Agent under this Agreement. The
Paying Agent shall make distributions to the Transferor from the Distribution
Account pursuant to Section 5.2 hereof and Section 5.01 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 Distribution Account for the purpose of making the
distributions referred to above. In the event that the Indenture Trustee shall
no longer be the Paying Agent hereunder, the Owner Trustee shall appoint a
successor to act as Paying Agent (which shall at all times be a corporation
duly incorporated and validly existing under the laws of the United States of
America or any state thereof, authorized under such laws to exercise corporate
trust powers and subject to supervision or examination by federal or state
authorities). 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 Transferor in trust for the
benefit of the Transferor until such sums shall be paid to the Transferor. 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. Any reference in this Agreement to the
Paying Agent shall include any co-paying agent unless the context requires
otherwise.
Section 3.10 [Reserved].
Section 3.11 [Reserved].
Section 3.12 [Reserved].
Section 3.13 Restrictions on Transfers of Ownership Interest. The
Ownership Interest shall not be sold, pledged, transferred or assigned, except
as provided below.
(a) The Ownership Interest may not be acquired by or for the
account of (i) an employee benefit plan (as defined in 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 described in
Section 4975(e)(1) of the Code, or (iii) any entity, including an insurance
company separate account or general account, whose underlying assets include
plan assets by reason of a plan's investment in the entity (each, a "Benefit
Plan"). Each Prospective owner of the Ownership Interest, other than the
Seller or an affiliate of the Seller, 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 aware that the seller of such
Ownership Interest may be relying on the exemption from the
registration requirements of the Securities Act provided by Rule 144A
and is acquiring such Ownership Interest for its own account or for
the account of one or more qualified institutional buyers for whom it
is authorized to act, (B) an "accredited investor" as defined in Rule
501(a) under the Securities Act , or (C) 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 1940 Act, as amended
(including, but not limited to, the Seller or the Transferor).
(ii) Such Person understands that such Ownership Interest
has 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," (B) "an accredited investor" or (C) a Person
involved in the organization or operation of the Trust or an
affiliate of such Person, in each case in a transaction meeting the
requirements of Rule 144A under the Securities Act or that is
otherwise exempt from registration under the Securities Act and in
accordance with any applicable securities laws of any state of the
United States.
(iii) Such Person understands that each Ownership Interest
bears a legend to the following effect:
THIS OWNERSHIP INTEREST HAS NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS. THIS OWNERSHIP
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, (II) AN ACCREDITED INVESTOR
AS DEFINED IN RULE 501(a) UNDER THE ACT, OR (III) 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, [ ]) 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 OWNERSHIP INTEREST UNDER THE ACT OR ANY STATE
SECURITIES LAWS."
(iv) Such Person shall comply with the provisions of Section
3.13(b), as applicable, relating to the ERISA restrictions with
respect to the acceptance or acquisition of such Ownership Interest .
(b) Each Prospective Transferor, other than the Transferor or an
affiliate of the Transferor, shall either:
(i) represent and warrant, in writing, to the Owner Trustee
and the Certificate Registrar and any of their respective successors,
in accordance with Exhibit B hereto, that the Prospective Transferor
is not (A) an "employee benefit plan" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or (B) a "plan" within the meaning of Section
4975(e)(1) of the Code (any such plan or employee benefit plan, a
"Plan") or (C) any entity, including an insurance company separate
account or general account, whose underlying assets include plan
assets by reason of a plan's investment in the entity and is not
directly or indirectly purchasing such Ownership Interest on behalf
of, as investment manager of, as named fiduciary of, as trustee of,
or with assets of a Plan; or
(ii) furnish to the Owner Trustee and the Certificate
Registrar and any of their respective successors an opinion of
counsel acceptable to such persons that (A) the proposed issuance or
transfer of such Ownership Interest to such Prospective Transferor
will not cause any assets of the Trust to be deemed assets of a Plan,
and (B) the proposed holding or transfer of such Ownership Interest
will not cause the Owner Trustee or the Certificate Registrar or any
of their respective successors to be a fiduciary of a Plan within the
meaning of Section 3(21) of ERISA and will not give rise to a
transaction described in Section 406 of ERISA or Section 4975(c)(1)
of the Code for which a statutory or administrative exemption is
unavailable.
(c) The Ownership Interest shall bear an additional legend
referring to the foregoing restrictions contained in paragraph (b) above.
(d) The Prospective Transferor, other than the Transferor or an
affiliate of the Transferor, shall obtain an Opinion of Counsel to the effect
that, as a matter of federal income tax law, such Prospective Transferor is
permitted to accept the transfer of the Ownership Interest.
(e) The Ownership Interest may not be pledged or transferred
without delivery to the Certificate Registrar of an Opinion of Counsel to the
effect that such transfer would not jeopardize the tax treatment of the Trust,
would not subject the Trust to an entity-level tax, and would not jeopardize
the status of the Notes as debt for all purposes.
(f) No pledge or transfer of the Ownership Interest shall be
effective unless such purchase or transfer is (i) to a single beneficial owner
and (ii) accompanied by an opinion of counsel satisfactory to the Owner
Trustee, which Opinion of Counsel shall not be an expense of the Trust, the
Certificate Registrar, the Servicer or the Seller, to the effect such pledge
or transfer will not cause the Trust to be treated for federal income tax
purposes as a taxable mortgage pool, association or a publicly traded
partnership taxable as a corporation.
(g) Transfer of the Ownership Interest shall be made only if
accompanied by an opinion of counsel satisfactory to the Owner Trustee, which
opinion of counsel shall not be an expense of the Trust, the Owner Trustee,
the Servicer or the Seller, to the effect such transfer will not cause the
Trust to be treated for federal income tax purposes as an association, a
taxable mortgage pool or a publicly traded partnership taxable as a
corporation.
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
Section 4.1 Prior Notice to the Transferor and the Insurer with
Respect to Certain Matters. With respect to the following matters, the Owner
Trustee shall not take action, and neither the Transferor nor the Insurer
shall direct the Owner Trustee to take any action, unless (i) the Insurer has
provided its written consent and (ii) at least 30 days before the taking of
such action, the Owner Trustee shall have notified the Transferor in writing
of the proposed action and neither the Transferor nor the Insurer shall have
notified the Owner Trustee in writing prior to the 30th day after such notice
is given that the Transferor has withheld consent or the Transferor or the
Insurer 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 Mortgage
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 Mortgage 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
Transaction Document in circumstances where the consent of any Noteholder or
the Insurer is required;
(d) the amendment or other change to this Agreement or any
Transaction Document in circumstances where the consent of any Noteholder or
the Insurer is not required and such amendment materially adversely affects
the interest of the Transferor;
(e) the appointment pursuant to the Indenture of a successor
Note Registrar, Paying Agent or Indenture Trustee, or the consent to the
assignment by the Note Registrar, Paying Agent or Indenture Trustee of its
obligations under the Indenture;
(f) the consent to the calling or waiver of any default of any
Transaction Document;
(g) the consent to the assignment by the Indenture Trustee or
the Seller of their respective obligations under any Transaction 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, except as contemplated by the Sale and Servicing Agreement, convey
or transfer all or substantially all of the Trust's assets to any other
entity;
(j) cause the Trust to incur, assume or guaranty any
indebtedness other than the Notes, as set forth in this Agreement;
(k) do any act that conflicts with any other Transaction
Document;
(l) 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; or
(o) change the Trust's purpose and powers from those set forth
in this 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 Person. The Trust shall maintain
appropriate minutes or other records of all appropriate actions and shall
maintain its office separate from the offices of the Seller, and any of their
respective affiliates. This Agreement and the Transaction Documents shall be
the only agreements among the parties hereto with respect to the creation,
operation and termination of the Trust. For accounting purposes, the Trust
shall be treated as an entity separate and distinct from the Transferor. The
pricing and other material terms of all transactions and agreements to which
the Trust is a party shall be intrinsically fair to all parties thereto.
The Owner Trustee shall not have the power, except upon the direction
of the Transferor and with the consent of the Insurer (which consent shall not
be unreasonably withheld), and to the extent otherwise consistent with the
Transaction Documents, to (i) remove or replace the Seller 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, or (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, the
Transferor shall not have the power to take, and shall not take, any
Bankruptcy Action with respect to the Trust or direct the Owner Trustee to
take any Bankruptcy Action with respect to the Trust.
Section 4.2 [Reserved].
Section 4.3 Action by Transferor 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 prior consent and approval of (i)
the Insurer; (ii) the Transferor; (iii) the Owner Trustee; and (iv) the
Indenture Trustee, and the delivery to the Owner Trustee by the Transferor of
a certificate certifying that such Transferor reasonably believes that the
Trust is insolvent. The terms of this Section 4.3 shall survive for one year
and one day following the termination of this Agreement.
Section 4.4 Restrictions on Transferor's Power. The Transferor 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 Transaction Documents or
would be contrary to Section 2.3 hereof, nor shall the Owner Trustee be
obligated to follow any such direction, if given.
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 5.1 Establishment of Trust Account. The Owner Trustee shall
cause the Indenture Trustee to establish and maintain with the Indenture
Trustee for the benefit of the Owner Trustee one or more Eligible Accounts in
accordance with the Indenture.
Section 5.2 Application Of Trust Funds.
(a) On each Payment Date, the Paying Agent shall make the
distributions and payments set forth in Section 5.01 of the Sale and Servicing
Agreement from amounts on deposit in the Distribution Account.
(b) On or before the third Business Day following each Payment
Date, the Paying Agent shall send to DTC the statement provided to the Paying
Agent by the Indenture Trustee pursuant to Section 5.03 of the Sale and
Servicing Agreement with respect to such Payment Date.
(c) In the event that any withholding tax is imposed on the
Trust's payment (or allocations of income) to the Transferor, such tax shall
reduce the amount otherwise distributable to the Transferor in accordance with
this Section 5.2. The Paying Agent is hereby authorized and directed to retain
from amounts otherwise distributable to the Transferor sufficient funds for
the payment of any tax that is legally owed by the Trust (but such
authorization shall not prevent the Paying Agent 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 the Transferor shall be treated as
cash distributed to the Transferor 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. Transferor), the Paying Agent may in its sole
discretion withhold such amounts in accordance with this paragraph (c). In the
event that the Transferor wishes to apply for a refund of any such withholding
tax, the Owner Trustee and the Paying Agent shall reasonably cooperate with
the Transferor in making such claim so long as the Transferor agrees to
reimburse the Owner Trustee and the Paying Agent for any out-of-pocket
expenses incurred.
Section 5.3 Method of Payment. Distributions required to be made to
the Transferor on any Payment Date shall be made to the Transferor of record
on the preceding Record Date in the manner set forth in Section 5.01 of the
Sale and Servicing Agreement.
Section 5.4 [Reserved].
Section 5.5 Accounting and Reports to the Transferor, the Internal
Revenue Service and Others. The Owner Trustee shall deliver to the Transferor
such information, reports or statements as may be required by the Code and
applicable Treasury Regulations and as may be required to enable the
Transferor to prepare its respective 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 (a) the Trust or
the Transferor shall receive an Opinion of Counsel based on a change in
applicable law occurring after the date hereof that the Code requires such a
filing or (b) the Internal Revenue Service shall determine that the Trust is
required to file such a return. In the event that the Trust is required to
file tax returns, 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 Mortgage Loans. 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 Transferor at least five days before such returns are due
to be filed. The Transferor, or any other such party required by law, shall
promptly sign such returns and deliver such returns after signature to the
Owner Trustee and such returns shall be filed by, or at the direction of, the
Owner Trustee with the appropriate tax authorities. In no event shall the
Transferor be liable for any liabilities, costs or expenses of the Trust
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 the Transferor's breach of its obligations
under this Agreement.
Section 5.6 Signature on Returns.
The Owner Trustee shall sign on behalf of the Trust the tax returns
of the Trust, if any, unless applicable law requires a Transferor to sign such
documents, in which case such documents shall be signed by the Transferor.
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 Ownership Interest and the Transaction 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 Transaction 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 Owner Trustee 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 the Class A Notes in an aggregate principal amount equal to $[ ]. 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
Transaction Documents.
Section 6.2 General Duties. It shall be the duty of the Owner Trustee
to discharge (or cause to be discharged) all of its responsibilities pursuant
to the terms of this Agreement and the Transaction Documents to which the
Trust is a party and to administer the Trust in the interest of the
Transferor, subject to the Transaction 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 Transaction Documents to the extent the Administrator has agreed
in the Administration Agreement to perform any act or to discharge any duty of
the Owner Trustee hereunder or under any Transaction Document, and the Owner
Trustee shall not be held liable for the default or failure of the
Administrator to carry out their respective obligations under the
Administration Agreement.
Section 6.3 Action upon Instruction.
(a) Subject to Article IV herein and in accordance with the
terms of the Transaction Documents, the Transferor 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 Transferor pursuant to
Article IV.
(b) Notwithstanding the foregoing, the Owner Trustee shall not
be required to take any action hereunder or under any Transaction 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 Transaction
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 Transaction Document, the Owner Trustee shall promptly
give notice (in such form as shall be appropriate under the circumstances) to
the Transferor and the Insurer (so long as no Insurer Default exists)
requesting instruction from the Transferor and the Insurer (so long as no
Insurer Default exists) 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 Transferor or the Insurer 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 Transaction Documents, as it shall deem to be in the
best interest of the Transferor, and shall have no liability to any Person for
such action or inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Transaction 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 provides no direction to 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
Transferor and the Insurer 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 from the Insurer, or if there is an Insurer
Default, the Transferor, 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 Transaction Documents, as it shall deem to be in the best interest of the
Transferor, 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
Transaction 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 or the Trust is a
party, except as expressly provided by the terms of this Agreement, any
Transaction 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 Transaction Document against the
Owner Trustee. The Owner Trustee shall have no responsibility for filing any
financing or continuation statement in any public office at anytime 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 Transaction
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 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
Transaction Documents and (iii) in accordance with any document or instruction
delivered to the Owner Trustee pursuant to Section 6.3 above.
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 hereof 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 Transferor shall not direct the Owner Trustee to take action
that would violate the provisions of this Section 6.6.
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
Transaction 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 Transaction Documents and this Agreement. The Owner Trustee shall
not be answerable or accountable hereunder or under any Transaction Document
under any circumstances, except (i) for its own willful misconduct, bad faith
or negligence or (ii) in the case of the inaccuracy of any representation or
warranty contained in Section 7.3 below expressly made by the Owner Trustee.
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 execution, delivery, authentication and performance by
the Owner Trustee of this Agreement will not require the authorization,
consent or approval of, the giving of notice to, the filing or registration
with, or the taking of any other action with respect to, any governmental
authority or agency;
(c) no provision of this Agreement or any Transaction 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 Transaction 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 Transaction 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 Seller 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 Transaction Documents, other than the
certificate of authentication on the Ownership Interest, and the Owner Trustee
shall in no event assume or incur any liability, duty, or obligation to any
Noteholder, to the Transferor or other than as expressly provided for herein
and in the Transaction Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Seller, the Indenture Trustee, or the Servicer under any of
the Transaction 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 Transaction Documents that are required to be performed by
the Indenture Trustee under the Indenture, the Servicer under the Sale and
Servicing Agreement, the Administrator or [ ] under the Administration
Agreement or the Certificate Registrar or any Paying Agent hereunder;
(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 under this Agreement or otherwise or in
relation to this Agreement or any Transaction Document, at the request, order
or direction of the Transferor, unless such Transferor has 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 Transaction 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; and.
(h) 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 Insurer, the Seller or any Owner to the extent such action or direction
is permitted by the Transaction Documents.
Section 7.2 Furnishing of Documents. The Owner Trustee shall furnish
(a) to the Transferor 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 Transaction Documents and (b) to Noteholders and the Insurer
promptly upon written request therefor, copies of the Sale and Servicing
Agreement and this Agreement.
Section 7.3 Representations and Warranties.
[Owner Trustee] hereby represents and warrants to the Seller,
for the benefit of the Transferor and the Insurer, that:
(a) It is a banking corporation duly organized and validly
existing in good standing under the laws of the State of Delaware. It has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement;
(b) 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;
(c) 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 Delaware 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
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;
(d) This Agreement has been duly authorized, executed and
delivered by the Owner Trustee and constitutes a valid, legal and binding
obligation of the Owner Trustee, enforceable against it in accordance with the
terms hereof, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the enforcement of creditors' rights
generally and to general principles of equity, regardless of whether such
enforcement is considered in a proceeding in equity or at law;
(e) The Owner Trustee 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, which default might have
consequences that would materially and adversely affect the condition
(financial or other) or operations of the Owner Trustee or its properties or
might have consequences that would materially adversely affect its performance
hereunder; and
(f) No litigation is pending or, to the best of the Owner
Trustee's knowledge, threatened against the Owner Trustee which would prohibit
its entering into this Agreement or performing its obligations under this
Agreement.
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
officer 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 Transaction 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 opinion or
advice of any such counsel, accountants or other such persons and not contrary
to this Agreement or any Transaction Document.
Section 7.5 Not Acting in Individual Capacity. Except as provided in
this Article VII, in accepting the trusts hereby created, [Owner Trustee] 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 Transaction Document shall
look only to the Owner Trust Estate for payment or satisfaction thereof.
Section 7.6 Owner Trustee Not Liable for the Ownership Interest
or the Mortgage Loans. The recitals contained herein and in the Ownership
Interest (other than the signature of the Owner Trustee on the Certificate)
shall be taken as the statements of the Seller, 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
Transaction Document or of the Ownership Interest (other than the signature of
the Owner Trustee on the Certificate and as specified in Section 7.3 hereof)
or the Notes, or of any Mortgage 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 Mortgage Loan, or the
perfection and priority of any security interest created by any Mortgage 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 the Transferor under this Agreement or to 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
Mortgage Loan on any computer or other record thereof; the validity of the
assignment of any Mortgage Loan to the Trust or of any intervening assignment;
the completeness of any Mortgage Loan; the performance or enforcement of any
Mortgage Loan; the compliance by the Seller or the Servicer with any warranty
or representation made under any Transaction Document or in any related
document or the accuracy of any such warranty or representation or any action
of the Seller, the Indenture Trustee, the Administrator or the Servicer or any
subservicer taken in the name of the Owner Trustee.
Section 7.7 Owner Trustee May Own the Ownership Interest and the
Notes. The Owner Trustee in its individual or any other capacity may become
the owner or pledgee of the Ownership Interest or the Notes and may deal with
the Seller, the Indenture Trustee, the Administrator 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 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 Transaction Documents and
the transactions contemplated hereby and thereby until such time as the Trust
shall terminate in accordance with the terms hereof.
ARTICLE VIII
COMPENSATION OF 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 Seller and the
Owner Trustee, and the Owner Trustee shall be entitled to be reimbursed by the
Seller 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.
Section 8.2 Indemnification. The Seller shall be liable as primary
obligor for, and shall indemnify the Owner Trustee and its 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 or any Indemnified
Party in any way relating to or arising out of this Agreement, the Transaction
Documents, the Owner Trust Estate, the administration of the Owner Trust
Estate or the action or inaction of the Owner Trustee hereunder, except only
that the Seller 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 hereof. The
indemnities contained in this Section 8.2 shall survive the resignation or
termination of the Owner Trustee or the termination of this Agreement. In the
event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section 8.2, the Owner Trustee's choice of legal counsel
shall be subject to the approval of the Seller, which approval shall not be
unreasonably withheld.
Section 8.3 Payments to the Owner Trustee. Any amounts paid to the
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 pursuant to the Business Trust Statute and be of no further force or
effect on the earlier of (i) the satisfaction and discharge of the Indenture
pursuant to Section 4.1 of the Indenture and the termination of the Sale and
Servicing Agreement and (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. The
bankruptcy, liquidation, dissolution, death or incapacity of the Transferor
shall not (x) operate to terminate this Agreement or the Trust, nor (y)
entitle such Transferor'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 Ownership Interest shall be subject to an early
redemption or termination at the option of the Servicer in the manner and
subject to the provisions of Section 8.01 of the Sale and Servicing Agreement.
(c) Except as provided in Sections 9.1(a) and (b) above, none of
the Seller, the Administrator, or the Transferor shall be entitled to revoke
or terminate the Trust.
(d) Notice of any termination of the Trust, specifying the
Payment Date upon which the Transferor shall surrender their Ownership
Interest to the Paying Agent for payment of the final distributions and
cancellation, shall be given by the Certificate Registrar to the Transferor,
the Insurer and the Rating Agencies mailed within five Business Days of
receipt by the Certificate Registrar of notice of such termination pursuant to
(a) or (b) above, which notice given by the Owner Trustee shall state (i) the
Payment Date upon or with respect to which final payment of the Certificate
Registrar shall be made upon presentation and surrender of the Ownership
Interest 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 Payment Date is not applicable, payments being made only upon
presentation and surrender of the Ownership Interest at the office of the
Paying Agent therein specified. The Certificate Registrar shall give such
notice to the Owner Trustee and the Paying Agent at the time such notice is
given to the Transferor. Upon presentation and surrender of the Ownership
Interest, the Paying Agent shall cause to be distributed to the Transferor
amounts distributable on such Payment Date pursuant to Section 5.01 of the
Sale and Servicing Agreement.
In the event that the Transferor shall not surrender its
Ownership Interest for cancellation within six months after the date specified
in the above mentioned written notice, the Certificate Registrar shall give a
second written notice to the Transferor to surrender the Ownership Interest
for cancellation and receive the final distribution with respect thereto. If
within one year after the second notice the Ownership Interest shall not have
been surrendered for cancellation, the Certificate Registrar may take
appropriate steps, or may appoint an agent to take appropriate steps, to
contact the remaining Transferor concerning surrender of the Ownership
Interest, 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 Paying Agent to
the Transferor.
(e) 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
Business Trust Statute.
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 the
Business Trust Statute; authorized to exercise corporate powers; having a
combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal or state authorities; and having (or
having a parent which has) a long-term rating of at least "A" (or its
equivalent) by each of Standard & Poor's, and Fitch and being acceptable to
the Insurer. 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, 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.
Section 10.2 Resignation or Removal of Owner Trustee. The Owner
Trustee may at any time resign and be discharged from the trusts hereby
created by giving written notice thereof to the Trust, the Indenture Trustee,
the Rating Agencies, the Insurer and the Seller. Upon receiving such notice of
resignation, the Indenture Trustee shall promptly appoint a successor Owner
Trustee with the consent of the Insurer, which consent shall not be
unreasonably withheld, by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Owner Trustee and one copy to
the successor Owner Trustee. If no successor 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 the Insurer may
petition any court of competent jurisdiction for the appointment of a
successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 above and shall fail to resign
after written request therefor by the Indenture Trustee, or if at any time the
Owner Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Indenture Trustee may, and, at the
direction of the Insurer, shall, remove the Owner Trustee. If the Indenture
Trustee shall remove the Owner Trustee under the authority of the immediately
preceding sentence, the Indenture Trustee shall promptly appoint a successor
Owner Trustee acceptable to the Insurer by written instrument in duplicate,
one copy of which instrument shall be delivered to the outgoing Owner Trustee
so removed and one copy to the successor Owner Trustee and payment of all fees
owed to the outgoing Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor 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 pursuant to Section 10.3, written approval by the Insurer and
payment of all fees and expenses owed to the outgoing Owner Trustee. The
Indenture Trustee shall provide notice of such resignation or removal of the
Owner Trustee to each of the Rating Agencies.
Section 10.3 Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to
the Indenture Trustee, the Insurer and to its predecessor Owner Trustee an
instrument accepting such appointment under this Agreement, and thereupon the
resignation or removal of the predecessor Owner Trustee shall become effective
and such successor Owner Trustee (if acceptable to the Insurer), 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. The
predecessor Owner Trustee shall upon payment of its fees and expenses deliver
to the successor Owner Trustee all documents and statements and monies held by
it under this Agreement; and the Indenture Trustee and the predecessor 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 all such rights, powers, duties, and obligations.
No successor Owner Trustee shall accept appointment as provided in
this Section 10.3 unless at the time of such acceptance such successor Owner
Trustee shall be eligible pursuant to Section 10.1 above.
Upon acceptance of appointment by a successor Owner Trustee pursuant
to this Section 10.3, the Indenture Trustee shall mail notice of the successor
of such Owner Trustee to the Transferor, the Noteholders, the Insurer and the
Rating Agencies. If the Indenture Trustee fails to mail such notice within 10
days after acceptance of appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Indenture Trustee.
Section 10.4 Merger or Consolidation of Owner Trustee. Any
corporation into which the Owner Trustee may be merged or converted or with
which either may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Owner Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Owner Trustee, shall be the successor of the Owner Trustee, as
the case may be, hereunder, provided such corporation shall be eligible
pursuant to Section 10.1 above, 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, shall mail notice of such merger or consolidation to the
Seller, the Rating Agencies and the Insurer.
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, the Owner Trustee (with the consent of the Insurer, which consent
shall not be unreasonably withheld) shall have the power and shall execute and
deliver all instruments to appoint one or more Persons to act as co-owner
trustee, jointly with the Owner Trustee, or separate owner trustee or separate
owner 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, such powers, duties,
obligations, rights and trusts as the Owner Trustee may consider necessary or
desirable. No co-owner trustee or separate trustee under this Section 10.5
shall be required to meet the terms of eligibility as a successor Owner
Trustee pursuant to Section 10.1 above and no notice of the appointment of any
co-owner trustee or separate trustee shall be required pursuant to Section
10.3 above.
The Owner Trustee hereby appoints the Indenture Trustee for the
purpose of establishing and maintaining the Distribution Account and making
the distributions therefrom to the Persons entitled thereto pursuant to
Section 5.01 of the Sale and Servicing Agreement.
Each separate 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 trustee or co-owner
trustee but solely at the direction of the Owner Trustee;
(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 Owner Trustee may at any time accept the
resignation of or remove any separate 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 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 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.
Any separate 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 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.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Supplements and Amendments. This Agreement may be
amended by the Seller and the Owner Trustee with prior written notice to the
Rating Agencies and the Indenture Trustee and with the consent of the Insurer
(which consent shall not be unreasonably withheld), but without the consent of
any of the Noteholders, the Transferor 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 Transferor; provided, however,
that such action shall not adversely affect in any material respect the
interests of any Noteholder, the Transferor or the Insurer. An amendment
described above shall be deemed not to adversely affect in any material
respect the interests of any Noteholder, the Transferor or the Insurer 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 Seller
and the Owner Trustee, with the prior written consent of the Rating Agencies,
the Insurer and the Indenture Trustee, the Noteholders evidencing more than
50% of the Percentage Interests in the Notes and the Transferor, 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 Transferor; 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 Mortgage
Loans or distributions that shall be required to be made for the benefit of
the Noteholders or the Transferor or (b) reduce the aforesaid Percentage
Interests required to consent to any such amendment, without the consent of
the holders of all the outstanding Notes. The Seller shall join in any such
amendment approved as provided in the preceding sentence so long as such
amendment is not adverse to the interests of the Seller.
Promptly after the execution of any such amendment, the Owner Trustee
shall furnish written notification of the substance of such amendment to the
Indenture Trustee, the Insurer and each of the Rating Agencies.
It shall not be necessary for the consent of the Transferor, the
Noteholders or the Indenture Trustee pursuant to this Section 11.1 to approve
the particular form of any proposed amendment, but it shall be sufficient if
such consent shall approve the substance thereof. The manner of obtaining such
consents (and any other consents of the Transferor provided for in this
Agreement or in any other Transaction Document) and of evidencing the
authorization of the execution thereof by the Transferor and the Noteholders
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 and that all conditions precedent to
such execution and delivery have been satisfied. 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 Transferor. The
Transferor shall not have legal title to any part of the Owner Trust Estate.
The Transferor shall be entitled to receive distributions with respect to
their undivided ownership interest therein only in accordance with Articles V
and IX herein. No transfer, by operation of law or otherwise, of any right,
title, or interest of the Transferor to and in its Ownership Interest 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 Seller, the
Trust, the Insurer, the Transferor and, to the extent expressly provided
herein, the Indenture Trustee, the Insurer 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; (ii) if to the Seller, KeyBank National Association, [ ]; (iii) if to
the Insurer, [ ]; (iv) if to the Indenture Trustee, its Corporate Trust
Office; (v) if to the Transferor, [ ]; (vi) if to the Seller, [ ]; 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 the
Transferor shall be given by first-class mail, postage prepaid, at the address
of such Transferor 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 Transferor receives such notice.
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
Seller, the Owner Trustee, the Insurer and its successors and the Transferor
and its successors and permitted assigns, all as herein provided. Any request,
notice, direction, consent, waiver or other instrument or action by the
Transferor shall bind the successors and assigns of the Transferor.
Section 11.8 No Petition. The Owner Trustee, by entering into this
Agreement, the Transferor, by accepting the Ownership Interest, 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 Transferor or the Trust, or join in any institution against the
Transferor, or the Trust of, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any United
States Federal or state bankruptcy or law in connection with any obligations
relating to the Ownership Interest and the Notes, this Agreement or any of the
Transaction Documents.
Section 11.9 [Reserved].
Section 11.10 No Recourse. The Transferor by accepting the Ownership
Interest acknowledges that the Transferor's Ownership Interest represents a
beneficial interest in the Trust only and does not represent an interest in or
an obligation of the Servicer, the Seller, the 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
Ownership Interest or the Transaction Documents.
Section 11.11 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 11.12 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 11.13
Inconsistencies with Sale and Servicing Agreement.
In the event certain provisions of this Agreement conflict with the
provisions of the Sale and Servicing Agreement, the parties hereto agree that
the provisions of the Sale and Servicing Agreement shall be controlling.
Section 11.14 Third Party Beneficiary.
The parties hereto acknowledge that the Insurer is an express third
party beneficiary hereof entitled to enforce the provisions hereof as if it
were actually a party hereto. Nothing in this Section 11.14 however shall be
construed to mitigate in any way, the fiduciary responsibilities of the Owner
Trustee to the beneficiaries of the Trust.
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.
[ ]
as Owner Trustee
By:___________________________________
Name:
Title:
KEYBANK NATIONAL ASSOCIATION
By:__________________________________
Name:
Title:
[ ],
as Seller
By:
Name:
Title:
<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST OF
[ ] HOME EQUITY LOAN TRUST [ ]
THIS Certificate of Trust of [__________] HOME EQUITY LOAN
TRUST [__________] (the "Trust"), is being duly executed and filed by
[ ], a Delaware banking corporation, as trustee, to form a business
trust under the Delaware Business Trust Act (12 Del. Code, ss. 3801 et
seq.)(the "Act").
1. Name. The name of the business trust formed hereby is
[__________] HOME EQUITY LOAN TRUST [__________].
2. Delaware Trustee. The name and business address of the trustee of
the Trust in the State of
Delaware is [____________________________]. Attention: Corporate
Trust Administration Department.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust in accordance with Section
3811(a) of the Act.
[____________________], not in its
individual capacity but solely as
Owner Trustee under a Trust
Agreement dated as of
[______________ ].
By:
--------------------------------------
Name:
Title:
<PAGE>
EXHIBIT B
TRANSFER CERTIFICATE
[Owner Trustee]
- ---------------------------
- ---------------------------
Attention: [____________________]
Re: Trust Agreement, dated as of [__________], among
[_________] Home Equity Loan Trust
[___________________], KeyBank National
Association and [__________________], as Owner
Trustee; [_______________] Home Equity Loan Trust
[______________________], Home Equity Loan
Asset-Backed Notes, Series [____________________]
Ladies and Gentlemen:
The undersigned (the "Transferee") has agreed to purchase from
________________________ (the "Transferor") the Ownership Interest:
A. Rule 144A "Qualified Institutional Buyers" should complete this
section
I. The Transferee is (check one):
____ (i) An insurance company, as defined in Section 2(13) of the
Securities Act of 1933, as amended (the "Securities Act"), (ii)
an investment company registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), (iii) a
business development company as defined in Section 2(a)(48) of
the Securities Act, (iv) a Small Business Investment Company
licensed by the U.S. Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of
1958, (v) a plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a
state or its political subdivisions, for the benefit of its
employees, (vi) an employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), (vii) a business development company as
defined in Section 202(a)(22) of the Investment Advisors Act of
1940, (viii) an organization described in Section 501(c)(3) of
the Internal Revenue Code, corporation (other than a bank as
defined in Section 3(a)(2) of the Securities Act or a savings
and loan association or other institution referenced in Section
3(a)(2) of the Securities Act or a foreign bank or savings and
loan association or equivalent institution), partnership, or
Massachusetts or similar business trust; or (ix) an investment
advisor registered under the Investment Advisors Act of 1940,
which, for each of (i) through (ix), owns and invests on a
discretionary basis at least $100 million in securities other
than securities of issuers affiliated with the Transferee,
securities issued or guaranteed by the United States or a
person controlled or supervised by and acting as an
instrumentality of the government of the United States pursuant
to authority granted by the Congress of the United States, bank
deposit notes and certificates of deposit, loan participations,
repurchase agreements, securities owned but subject to a
repurchase agreement, and currency, interest rate and commodity
swaps (collectively, "Excluded Securities");
____ a dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") that in
the aggregate owns and invests on a discretionary basis at
least $10 million of securities other than Excluded Securities
and securities constituting the whole or part of an unsold
allotment to, or subscription by, Transferee as a participant
in a public offering;
____ an investment company registered under the Investment Company
Act that is part of a family of investment companies (as
defined in Rule 144A of the Securities and Exchange Commission)
which own in the aggregate at least $100 million in securities
other than Excluded Securities and securities of issuers that
are part of such family of investment companies;
____ an entity, all of the equity owners of which are entities
described in this Paragraph A(I);
____ a bank as defined in Section 3(a)(2) of the Securities Act, any
savings and loan association or other institution as referenced
in Section 3(a)(5)(A) of the Securities Act, or any foreign
bank or savings and loan association or equivalent institution
that in the aggregate owns and invests on a discretionary basis
at least $100 million in securities other than Excluded
Securities and has an audited net worth of at least $25 million
as demonstrated in its latest annual financial statements, as
of a date not more than 16 months preceding the date of
transfer of the Ownership Interest to the Transferee in the
case of a U.S. Bank or savings and loan association, and not
more than 18 months preceding such date in the case of a
foreign bank or savings association or equivalent institution.
II. The Transferee is acquiring such Ownership Interest solely for
its own account, for the account of one or more others, all of which are
"Qualified Institutional Buyers" within the meaning of Rule 144A, or in its
capacity as a dealer registered pursuant to Section 15 of the Exchange Act
acting in a riskless principal transaction on behalf of a "Qualified
Institutional Buyer". The Transferee is not acquiring such Ownership Interest
with a view to or for the resale, distribution, subdivision or
fractionalization thereof which would require registration of the Ownership
Interest under the Securities Act.
B. "Accredited Investors" should complete this Section
I. The Transferee is (check one):
____ a bank within the meaning of Section 3(a)(2) of the Securities
Act;
____ a savings and loan association or other institution defined in
Section 3(a)(5) of the Securities Act;
____ a broker or dealer registered pursuant to the Exchange Act;
____ an insurance company within the meaning of Section 2(13) of the
Securities Act;
____ an investment company registered under the Investment Company
Act;
____ an employee benefit plan within the meaning of Title I of
ERISA, which has total assets in excess of $5,000,000;
____ another entity which is an "accredited investor" within the
meaning of paragraph (fill in) of subsection (a) of Rule 501 of
the Securities and Exchange Commission.
II. The Transferee is acquiring such Ownership Interest solely for
its own account, for investment, and not with a view to or for the resale,
distribution, subdivision or fractionalization thereof which would require
registration of the Ownership Interest under the Securities Act.
C. If the Transferee is unable to complete one of paragraph A(I) or
paragraph B(I) above, the Transferee must furnish an opinion in form and
substance satisfactory to the Trustee of counsel satisfactory to the Trustee
to the effect that such purchase will not violate any applicable federal or
state securities laws.
D. The Transferee represents that it is not (A) an "employee benefit
plan" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 19974, as amended ("ERISA"), or (B) a "plan" within the
meaning of Section 4975(e)(1) of the Code (any such plan or employee benefit
plan, a "Plan") or (C) any entity, including an insurance company separate
account or general account, whose underlying assets include plan assets by
reason of a plan's investment in the entity and is not directly or indirectly
purchasing such Trust Security on behalf of, as investment manager of, as
named fiduciary of, as trustee of, or with assets of a Plan.
(iii) the Transferee is an "accredited investor" as defined in Rule
501(a) of Regulation D pursuant to the Securities Act.
Very truly yours,
[NAME OF PURCHASER]
By:
----------------------------------
Title:
Dated:
THE FOREGOING IS ACKNOWLEDGED THIS ____ DAY OF __________, 199_.
[NAME OF SELLER]
By:
-------------------------------
Title:
------------------------
<PAGE>
INDENTURE
between
[ ] HOME EQUITY LOAN TRUST [ ]
as Issuer
and
[ ],
as Indenture Trustee
Dated as of [ ]
[ ]HOME EQUITY LOAN TRUST [ ]
Home Equity Loan Asset-Backed Notes,
Series [ ]
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
<S> <C> <C>
SECTION 1.1 Definitions...............................................................................2
SECTION 1.2 Incorporation by Reference of Trust Indenture Act.........................................9
SECTION 1.3 Rules of Construction....................................................................10
ARTICLE II
THE NOTES
SECTION 2.1 Form.....................................................................................11
SECTION 2.2 Execution, Authentication, Delivery and Dating...........................................11
SECTION 2.3 Registration; Registration of Transfer and Exchange......................................12
SECTION 2.4 Mutilated, Destroyed, Lost or Stolen Notes...............................................13
SECTION 2.5 Persons Deemed Owner.....................................................................13
SECTION 2.6 Payment of Principal and Interest; Defaulted Interest....................................14
SECTION 2.7 Cancellation.............................................................................14
SECTION 2.8 [Reserved]...............................................................................15
SECTION 2.9 Release of Trust Estate..................................................................17
SECTION 2.10 Book-Entry Notes.........................................................................17
SECTION 2.11 Notices to Clearing Agency...............................................................18
SECTION 2.12 Definitive Notes.........................................................................18
SECTION 2.13 Tax Treatment............................................................................19
ARTICLE III
COVENANTS
SECTION 3.1 Payment of Principal and Interest........................................................20
SECTION 3.2 Maintenance of Office or Agency..........................................................20
SECTION 3.3 Money for Payments To Be Held in Trust...................................................20
SECTION 3.4 Existence................................................................................21
SECTION 3.5 Protection of Trust Estate...............................................................22
SECTION 3.6 Annual Opinions as to the Trust Estate...................................................22
SECTION 3.7 Performance of Obligations; Servicing of Mortgage Loans..................................23
SECTION 3.8 Negative Covenants.......................................................................24
SECTION 3.9 Annual Statement as to Compliance........................................................25
SECTION 3.10 Covenants of the Issuer..................................................................25
SECTION 3.11 Servicer's Obligations...................................................................26
SECTION 3.12 Restricted Payments......................................................................26
SECTION 3.13 Treatment of Notes as Debt for All Purposes..............................................26
SECTION 3.14 Notice of Events of Default..............................................................26
SECTION 3.15 Further Instruments and Acts.............................................................26
SECTION 3.16 Issuer May Consolidate, etc..............................................................26
SECTION 3.17 Successor or Transferee..................................................................28
SECTION 3.18 No Other Business........................................................................28
SECTION 3.19 No Borrowing.............................................................................28
SECTION 3.20 Guarantees, Loans, Advances and Other Liabilities........................................29
SECTION 3.21 Capital Expenditures.....................................................................29
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction and Discharge of Indenture..................................................30
SECTION 4.2 Application of Trust Money...............................................................31
SECTION 4.3 Subrogation and Cooperation..............................................................31
SECTION 4.4 Repayment of Moneys Held by Paying Agent.................................................32
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default........................................................................33
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment.......................................34
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture Trustee................34
SECTION 5.4 Remedies; Priorities.....................................................................37
SECTION 5.5 Optional Preservation of the Trust Estate................................................38
SECTION 5.6 Limitation of Suits......................................................................39
SECTION 5.7 Unconditional Rights of Noteholders To Receive Principal and Interest....................39
SECTION 5.8 Restoration of Rights and Remedies.......................................................39
SECTION 5.9 Rights and Remedies Cumulative...........................................................40
SECTION 5.10 Delay or Omission Not a Waiver...........................................................40
SECTION 5.11 Control by Noteholders...................................................................40
SECTION 5.12 Waiver of Past Defaults..................................................................41
SECTION 5.13 Undertaking for Costs....................................................................41
SECTION 5.14 Waiver of Stay or Extension Laws.........................................................41
SECTION 5.15 Action on Notes..........................................................................41
SECTION 5.16 Performance and Enforcement of Certain Obligations.......................................42
ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.1 Duties of Indenture Trustee..............................................................43
SECTION 6.2 Rights of Indenture Trustee..............................................................44
SECTION 6.3 Individual Rights of Indenture Trustee...................................................46
SECTION 6.4 Indenture Trustee's Disclaimer...........................................................46
SECTION 6.5 Notice of Defaults.......................................................................46
SECTION 6.6 Reports by Indenture Trustee to Holders..................................................46
SECTION 6.7 Compensation and Indemnity...............................................................47
SECTION 6.8 Replacement of Indenture Trustee.........................................................47
SECTION 6.9 Successor Indenture Trustee by Merger....................................................48
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee........................49
SECTION 6.11 Eligibility; Disqualification............................................................50
SECTION 6.12 Preferential Collection of Claims Against Issuer.........................................50
SECTION 6.13 Representations and Warranties...........................................................50
SECTION 6.14 Directions to Indenture Trustee..........................................................50
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of Noteholders...................52
SECTION 7.2 Preservation of Information; Communications to Noteholders...............................52
SECTION 7.3 Reports by Issuer........................................................................52
SECTION 7.4 Reports by Indenture Trustee.............................................................53
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1 Collection of Money......................................................................54
SECTION 8.2 Accounts; Distributions..................................................................54
SECTION 8.3 [Reserved]...............................................................................55
SECTION 8.4 Servicer's Monthly Statements............................................................55
SECTION 8.5 [Reserved]...............................................................................55
SECTION 8.6 Opinion of Counsel.......................................................................55
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 Supplemental Indentures Without Consent of Noteholders...................................56
SECTION 9.2 Supplemental Indentures with Consent of Noteholders......................................57
SECTION 9.3 Execution of Supplemental Indentures.....................................................58
SECTION 9.4 Effect of Supplemental Indenture.........................................................58
SECTION 9.5 Conformity with Trust Indenture Act......................................................59
SECTION 9.6 Reference in Notes to Supplemental Indentures............................................59
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.1 Redemption...............................................................................60
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Compliance Certificates and Opinions, etc................................................61
SECTION 11.2 Form of Documents Delivered to Indenture Trustee.........................................62
SECTION 11.3 Acts of Noteholders......................................................................63
SECTION 11.4 Notices..................................................................................64
SECTION 11.5 Notices to Noteholders; Waiver...........................................................64
SECTION 11.6 Rights of the Insurer to Exercise Rights of Noteholders..................................65
SECTION 11.7 Conflict with Trust Indenture Act........................................................65
SECTION 11.8 Effect of Headings and Table of Contents.................................................65
SECTION 11.9 Successors and Assigns...................................................................65
SECTION 11.10 Separability.............................................................................66
SECTION 11.11 Benefits of Indenture....................................................................66
SECTION 11.12 Legal Holidays...........................................................................66
SECTION 11.13 GOVERNING LAW............................................................................66
SECTION 11.14 Counterparts.............................................................................66
SECTION 11.15 Recording of Indenture...................................................................66
SECTION 11.16 Trust Obligation.........................................................................66
SECTION 11.17 No Petition..............................................................................67
SECTION 11.18 Inspection...............................................................................67
SECTION 11.19 Inconsistencies With the Sale and Servicing Agreement....................................67
SECTION 11.20 Third-Party Beneficiaries................................................................67
</TABLE>
<PAGE>
EXHIBITS
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SCHEDULE A - Mortgage Loan Schedule
EXHIBIT A - Form of Notes
<PAGE>
INDENTURE dated as of [ ] between [ ] HOME EQUITY
LOAN TRUST [ ], a Delaware business trust (the "Issuer"), and
[ ], an [ ]banking corporation, as trustee and not in its
individual capacity (the "Indenture Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the holders of the Issuer's Home Equity Loan
Asset-Backed Notes (the "Notes") and the Insurer:
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 Class A Noteholders and the Insurer, all of the Issuer's right, title and
interest in and to: (i) the Trust Estate; (ii) all right, title and interest
of the Issuer in the Sale and Servicing Agreement, the Support Agreement and
the Mortgage Loan Purchase Agreement with respect to the Mortgage Loans
(including the Issuer's right to cause the Seller to repurchase Mortgage Loans
from the Issuer under certain circumstances described therein); (iii) all
present and future claims, demands, causes of action and choses 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 Collection Account and the Distribution
Account; (v) all other property of the Trust from time to time; and (vi) any
and all proceeds of the foregoing (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 Class A
Notes, equally and ratably without prejudice, priority or distinction, and to
secure compliance with the provisions of this Indenture, all as provided in
this Indenture.
The foregoing Grant shall inure to the benefit of the Insurer in respect
of draws made on the Insurance Policy and amounts owing from time to time
pursuant to the Insurance and Reimbursement Agreement, and such Grant shall
continue in full force and effect for the benefit of the Insurer until all
such amounts owing to it have been repaid in full.
The Indenture Trustee, as Indenture Trustee on behalf of the holders of
the Notes, acknowledges the foregoing Grant, accepts the trusts hereunder in
good faith and without notice of any adverse claim or liens 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 and the Insurer may be
adequately and effectively protected. The Indenture Trustee further agrees and
acknowledges that each item of Collateral that is physically delivered to the
Indenture Trustee will be held by the Indenture Trustee in [state].
ARTICLE I
DEFINITIONS
SECTION 1.1 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 11.3(a).
"Administration Agreement" means the Administration Agreement dated as of
[ ], among the Administrator, the Issuer, the Indenture Trustee and
[ ].
"Administrator" means [ ], [a state] banking corporation, 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 who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identified on the list of Authorized
Officers delivered by the Owner Trustee 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 or more senior officer of the Administrator or [ ] who is
authorized to act for the Administrator or [ ] in matters relating to the
Issuer and to be acted upon by the Administrator or [ ] 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).
"Book-Entry Notes" means any Class A Note registered in the name of the
Depository or its nominee, ownership of which is reflected on the books of the
Depository or on the books of a Person maintaining an account with such
Depository (directly or as an indirect participant in accordance with the
rules of such Depository).
"Business Day" has the meaning assigned thereto in the Sale and Servicing
Agreement.
"Certificate of Trust" means the certificate of trust of the Issuer
substantially in the form of Exhibit C to the Trust Agreement.
"Class A Note Rate" with respect to the Class A Notes shall have the
meaning assigned thereto in the Sale and Servicing Agreement.
"Class A Notes" means any Note, designated as a Class A Note, executed by
the Issuer and authenticated by the Indenture Trustee substantially in the
form of Exhibit A hereto.
"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.
"Commission" shall mean the Securities and Exchange Commission.
"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
at [ ], Attention: Indenture Trust Administration, or at such other address as
the Indenture Trustee may designate from time to time by notice to the
Noteholders, the Issuer and the Insurer 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, the Insurer, 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 Article II.
"Seller" shall mean KeyBank National Association, a national banking
association headquartered in Cleveland, Ohio, in its capacity as seller under
the Sale and Servicing Agreement, and its successor in interest.
"Depository Institution" means any depository institution or trust
company, including the Indenture Trustee, that (i) has short-term debt
obligations and long-term debt obligations at the time of any deposit therein
and throughout the time the interest is maintained that are rated at least
"P-1" and "A2," respectively, by Moody's and "A-1" and "A," respectively, by
Standard & Poor's, and that the deposits in such account are fully insured to
the maximum extent provided by either the BIF or the SAIF and which is any of
(a) a federal savings and loan association duly organized, validly existing
and in good standing under the applicable banking laws of any state, (b) an
institution duly organized, validly existing and in good standing under the
applicable banking laws of any state, (c) a national banking association duly
organized, validly existing and in good standing under the federal banking
laws or (d) a principal subsidiary of a bank holding company, and in each case
of (a)-(d), approved in writing by the Insurer. Such Depository Institution
shall have (x) a segregated trust account maintained with the corporate trust
department of a federal or state chartered depository or trust company, having
capital and surplus of not less than $50,000,000, acting in its fiduciary
capacity or (y) an account otherwise acceptable to each Rating Agency and the
Insurer as evidenced by a letter from each Rating Agency and the Insurer to
the Owner Trustee and the Indenture Trustee, without reduction or withdrawal
of the then current ratings of the Class A Notes, without regard to the
Insurance Policy.
"Distribution Account" means the Distribution Account (as defined in the
Sale and Servicing Agreement), established by the Indenture Trustee.
"Event of Default" has the meaning specified in Section 5.1.
"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.
"Final Payment Date" means, with respect to any Note, the Payment Date
occurring in [ ].
"Grant" means mortgage, pledge, bargain, 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 with respect to
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 Trust Estate" or "Trust Estate" means all money, instruments,
rights and other property that are subject or intended to be subject to the
lien and security interest of this Indenture for the benefit of the
Noteholders and the Insurer (including, without limitation, all Collateral
Granted to the Indenture Trustee pursuant to the Granting Clause), including
all proceeds thereof.
"Indenture Trustee" means [ ], an [ ] banking
corporation, as Indenture Trustee under this Indenture, or any successor
Indenture Trustee appointed pursuant to the terms of 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 Transferor 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 Transferor or any
Affiliate of any of the foregoing Persons and (c) is not connected with the
Issuer, any such other obligor, the Transferor 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 11.1 herein, 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 thereof.
"Insurance and Reimbursement Agreement" shall have the meaning assigned
thereto in the Sale and Servicing Agreement.
"Insurer" shall have the meaning assigned thereto in the Sale and
Servicing Agreement.
"Interest Period" shall have the meaning assigned thereto in the Sale and
Servicing Agreement.
"Issuer" means [ ]Home Equity Loan Trust [ ] until a successor replaces
it in accordance with the terms of the Transaction Documents and, thereafter,
means the successor.
"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.
"LIBOR" shall have the meaning assigned thereto in the Sale and Servicing
Agreement.
"LIBOR Business Day" shall have the meaning assigned thereto in the Sale
and Servicing Agreement.
"Moody's" shall mean Moody's Investors Service, Inc., or any successor
thereto.
"Mortgage Loan Schedule" means the listing of the Mortgage Loans set
forth in Schedule A, as supplemented as of any date on which a Defective
Mortgage Loan has been repurchased from the Trust or substituted with an
Eligible Substitute Mortgage Loan pursuant to the Sale and Servicing
Agreement.
"Note" means any of the Class A Notes.
"Note Depository Agreement" means the agreement dated [ ], among the
Issuer, the Indenture Trustee and The Depository Trust Company, as the initial
Clearing Agency, relating to the Book-Entry Notes.
"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 Article II.
"Noteholder" means a Holder of a Class A Note.
"Obligations" shall mean the Mortgage Loans.
"Officer's Certificate" means a certificate signed by any Authorized
Officer of the Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1 herein, 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.
"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 the Insurer, and which opinion or opinions shall be addressed to
the Indenture Trustee and the Insurer, as Indenture Trustee and the Insurer,
respectively, and shall comply with any applicable requirements of Section
11.1 herein and shall be in form and substance satisfactory to the Indenture
Trustee and the Insurer.
"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 canceled 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);
(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; and
(iv) Notes for which the Final Payment Date has occurred;
provided, however, 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 Transaction
Document, Notes owned by the Issuer, any other obligor upon the Notes, the
Seller, the Transferor 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
and provided further that for purposes of determining the Insurer's
subrogation rights, a Note shall be deemed Outstanding to the extent of any
payment made by the Insurer. 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 Transferor or any Affiliate of any of the
foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of all Notes
Outstanding at the date of determination.
"Owner Trustee" means Chase Manhattan Bank Delaware, not in its
individual capacity but solely as 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
of the Sale and Servicing Agreement and is authorized by the Issuer to make
payments to and distributions from the Distribution Account, including payment
of principal of or interest on the Notes on behalf of the Issuer.
"Payment Date" shall mean the twenty-fifth day of each month or, if such
day is not a Business Day, then the next Business Day, beginning in [ ].
"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 Article II 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 certain actions
requiring prior Rating Agency consent, 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 Transferor, the Servicer and the Insurer in writing that such action will
not result in a reduction or withdrawal of the then current rating of the
Notes without regard to the Insurance Policy.
"Rating Agency" means either of (i) [ ]or (ii) [ ]. 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 Seller and the Insurer, notice of which designation
shall have been given to the Indenture Trustee.
"Record Date" shall have the meaning assigned thereto in the Sale and
Servicing Agreement.
"Redemption Date" means, in the case of a redemption of the Notes
pursuant to Section 10.1, the Payment Date specified by the Indenture Trustee
pursuant to Section 10.1.
"Registered Holder" means the Person in whose name a Note is registered
on the Note Register on the applicable Record Date.
"Responsible Officer" shall have the meaning assigned thereto in the Sale
and Servicing Agreement.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement
dated as of [ ], among the Issuer, the Transferor, the Seller, the
Servicer and the Indenture Trustee.
"Securities Act" means the Securities Act of 1933, as amended.
"Servicer" shall mean [ ], in its capacity as servicer under the Sale and
Servicing Agreement, or any Successor Servicer appointed in accordance with
the terms of the Sale and Servicing Agreement.
"Standard & Poor's" means Standard & Poor's Ratings Services, a division
of The McGraw-Hill Companies, Inc.
"State" means any one of the 50 States of the United States of America or
the District of Columbia.
"Successor Servicer" has the meaning specified in Section 3.7(e) hereof.
"Transaction Documents" has the meaning set forth in the Sale and
Servicing Agreement.
"Transferor" shall have the meaning assigned thereto in the Sale and
Servicing Agreement.
"Trust" means the Issuer.
"Trust Estate" shall mean the assets subject to the Sale and Servicing
Agreement, the Mortgage Loan Purchase Agreement, the Trust Agreement and this
Indenture, assigned to the Indenture Trustee, which assets consist of: (i)
each Mortgage Loan and the related Mortgage File, including its Principal
Balance and all collections in respect thereof received after the Cut-Off
Date; (ii) property that secured a Mortgage Loan that is acquired by
foreclosure or deed in lieu of foreclosure; (iii) the Seller's rights under
any insurance policies relating to the Mortgage Loans (including any Insurance
Proceeds); (iv) amounts on deposit in the Collection Account and Distribution
Account; (v) the Seller's obligation to pay, or cause to be paid, the Cap
Contract Obligations to the Indenture Trustee, per Section 4.03 (a) of the
Sale and Servicing Agreement, and the security interest granted by [ ]to
secure such obligation; (vi) the Seller's rights under the Mortgage Loan
Purchase Agreement (excluding the Seller's rights to indemnification under the
indemnification provisions thereof); (vii) the Seller's rights under the
Support Agreement, (viii) any proceeds of any of the foregoing and (ix) all
other assets included or to be included in the Trust for the benefit of
Noteholders and the Insurer. In addition, on or prior to the Closing Date, the
Seller shall cause the Insurer to deliver the Insurance Policy to the
Indenture Trustee for the benefit of the Noteholders and the Transferor in
respect of the Senior Interest Participation and the Seller shall deliver the
Support Agreement to the Indenture Trustee for the benefit of the Noteholders,
Transferor and the Insurer.
"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.
SECTION 1.2 Incorporation by Reference of Trust Indenture Act. 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:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"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 1.3 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.
ARTICLE II
THE NOTES
SECTION 2.1 Form. The Notes shall be designated as the "[ ]HOME EQUITY
LOAN TRUST [ ], Home Equity Loan Asset-Backed Notes, Series [ ]". Each
Note shall be in substantially the form set forth in Exhibit A 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.
The terms of the Notes are set forth in Exhibit A hereto. The terms of
the Notes are part of the terms of this Indenture.
SECTION 2.2 Execution, Authentication, Delivery and Dating. The Notes
shall be executed on behalf of the Issuer by an Authorized Officer of the
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 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 2.8,
the Indenture Trustee shall upon receipt of an Issuer Order, authenticate and
deliver the Class A Notes for original issue in the principal amount equal to
$[ ]. The aggregate principal amount of the Class A Notes outstanding at any
time may not exceed such amount.
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 Class A Notes shall be issuable as registered Notes in the minimum
denomination of $[25,000] and 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 2.3 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 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 the 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 3.2 hereof, the
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
in any authorized denominations, of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes 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 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.
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 2.4 or Section 9.6 hereof not involving any
transfer.
SECTION 2.4 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 the Indenture 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, and an Authorized Officer of the Owner
Trustee 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; 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 2.4, 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 2.4 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 2.4 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 2.5 Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and
any agent of the Issuer or the Indenture Trustee 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
on, if any, such Note and for all other purposes whatsoever, whether or not
such Note be overdue, and none of the Issuer, the Indenture Trustee or any
agent of the Issuer or the Indenture Trustee shall be affected by notice to
the contrary.
SECTION 2.6 Payment of Principal and Interest; Defaulted Interest.
(a) Each Class A Note shall accrue interest at the Class A Note Rate and
such interest shall be payable on each Payment Date as specified in Exhibit A
hereto, subject to Section 3.1 hereof. 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 Payment Date shall be paid to the
Person in whose name such Note (or one or more Predecessor Notes) is
registered on the Record Date in the manner set forth in Section 5.01(c) of
the Sale and Servicing Agreement.
(b) The principal of each Class A Note shall be payable in installments
on each Payment 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 Class A Notes shall be due and payable, if not previously paid,
on the earliest of (i) the Final Payment 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, the Insurer 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 5.2 hereof. All principal payments on the Notes shall be
in the manner set forth in the Sale and Servicing Agreement. 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 Payment 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 final Payment 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 8.01 of the Sale and Servicing
Agreement.
SECTION 2.7 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 canceled 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 canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange
for any Notes canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled 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 2.8 [Reserved].
SECTION 2.9 Release of Trust Estate.
(a) Except as otherwise provided in subsections (b) and (c) of this
Section 2.9 and Section 11.1 hereof and the terms of the Transaction
Documents, the Indenture Trustee shall release property from the lien of this
Indenture only upon consent of the Insurer and 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, on behalf of the Issuer and with the consent of the
Insurer, shall be entitled to obtain a release from the lien of this Indenture
for any Mortgage Loan and the related Mortgaged Property at any time in
accordance with the provisions of Section 3.08 of the Sale and Servicing
Agreement.
(c) The Indenture Trustee shall, if requested by the Servicer,
temporarily release to the Servicer the Indenture Trustee's Mortgage Loan File
pursuant to the provisions of Section 3.08 of the Sale and Servicing Agreement
upon compliance by the Servicer of the provisions thereof provided that the
Indenture Trustee's Mortgage Loan File shall have been stamped to signify the
Issuer's pledge to the Indenture Trustee under the Indenture.
SECTION 2.10 Book-Entry Notes. The Notes, upon original issuance, 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 or
its custodian, 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 Note Owner thereof will receive
a definitive Note representing such Note Owner's interest in such Note, except
as provided in Section 2.12 below. Unless and until definitive, fully
registered Notes (the "Definitive Notes") have been issued to such Note Owners
pursuant to Section 2.12 below:
(i) the provisions of this Section 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 conflict
with any other provisions of this Indenture, the provisions of this
Section 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
below, 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 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 Clearing Agency or the Issuer
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 Clearing Agency or the Issuer is unable to locate a
qualified successor, (ii) the Issuer 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 tax purposes,
the Class A Notes will qualify as indebtedness secured by the Trust Estate.
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 as
indebtedness of the Issuer.
ARTICLE III
COVENANTS
SECTION 3.1 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
and this Indenture. Without limiting the foregoing, the Indenture Trustee
shall, pursuant to Section 5.01 of the Sale and Servicing Agreement,
distribute all amounts on deposit in the Distribution Account on each Payment
Date deposited therein pursuant to the Sale and Servicing Agreement, and held
therein for distribution to the Noteholders for the benefit of such
Noteholders and the Insurer. 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 Trust Estate, 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 3.1, the provisions of
this Section 3.1 shall control.
SECTION 3.2 Maintenance of Office or Agency. The Issuer will maintain in
[ ] 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 Indenture Trustee to serve as its agent for the
foregoing purposes and to serve as Paying Agent with respect to the Notes. 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 3.3 Money for Payments To Be Held in Trust. As provided in
Section 8.2(a) and (b), all payments of amounts due and payable with respect
to any Notes that are to be remitted from amounts withdrawn from the
Distribution Account pursuant to Section 8.2(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 Distribution Account for payments on the Notes shall be
paid over to the Issuer except as provided in this Section 3.3.
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 hereof. 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 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 3.3, that such
Paying Agent will:
(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 and the Insurer 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 terms 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.
Any termination and release of a Trust Estate shall be done in accordance
with the provisions of Section 8.01 of the Sale and Servicing Agreement.
SECTION 3.4 Existence.
(a) Subject to Section 3.4(b) below, 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 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 Trust Estate.
(b) Any successor to the Owner Trustee appointed pursuant to Section 10.2
of the Trust Agreement shall be the successor Owner Trustee 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, the Person succeeding to the 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
herein.
SECTION 3.5 Protection of Trust Estate. 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 a Grant of all or any
portion of the related Trust Estate;
(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 Trust Estate; or
(v) preserve and defend title to the Trust Estate and the rights of
the Indenture Trustee, the Insurer and the Noteholders in such Trust
Estate against the claims of all persons and parties.
SECTION 3.6 Annual Opinions as to the Trust Estate.
On or before February 25th 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 counsel, be required to maintain the lien
and security interest of this Indenture until February 25th of the following
calendar year.
SECTION 3.7 Performance of Obligations; Servicing of Mortgage 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 Trust Estate 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 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 Administrator and
[ ] to assist the Issuer in performing its duties under this Indenture.
(c) The Issuer will punctually perform and observe all of its obligations
and agreements contained in this Indenture, the Transaction Documents and in
the instruments and agreements included in the Trust Estate, 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,
the Mortgage Loan Purchase Agreement 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 and the Mortgage Loan Purchase 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 Transaction Document or any provision thereof without the
consent of the Indenture Trustee, the Insurer and the Holders of at least a
majority of the Outstanding Amount of the Notes.
(d) Subject to the terms of the Sale and Servicing Agreement, if the
Issuer shall have knowledge of the occurrence of an Event of Servicing
Termination under the Sale and Servicing Agreement, the Issuer shall promptly
notify the Indenture Trustee, the Seller, the Insurer, the Servicer and the
Rating Agencies thereof, and shall specify in such notice the action, if any,
the Servicer is taking with respect of such default. If such an Event of
Servicing Termination 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 Mortgage Loans, the Issuer shall take all reasonable steps
available to it to remedy or cause to be remedied such failure.
(e) Subject to the terms of the Sale and Servicing Agreement, as promptly
as possible after the giving of notice of termination to the Servicer of the
Servicer's rights and powers pursuant to Section 8.01 of the Sale and
Servicing Agreement, a successor servicer (the "Successor Servicer") shall be
appointed pursuant to Section 7.02 of the Sale and Servicing Agreement. If the
Indenture Trustee shall succeed to the Servicer's duties as servicer of the
Mortgage 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 hereof shall be inapplicable to the Indenture Trustee in its
duties as successor Servicer and the servicing of the Mortgage 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
Successor Servicer any one of its Affiliates acceptable to the Insurer,
provided that it shall be fully liable for the actions and omissions of such
Affiliate in such capacity as Successor Servicer.
(f) 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 and the Insurer (which consent shall
not be unreasonably withheld), amend, modify, waive, supplement, terminate or
surrender, or agree to any amendment, modification, supplement, termination,
waiver or surrender of, the terms of the Trust Estate (except to the extent
otherwise provided in the Sale and Servicing Agreement or the other
Transaction Documents), or waive timely performance or observance by the
Servicer or the Seller 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 or (B) reduce the aforesaid
percentage of the Notes that is required to consent to any such amendment,
without the consent of the Holders of all the outstanding Notes. If any such
amendment, modification, supplement or waiver shall be so consented to by the
Indenture Trustee and the Insurer, the Issuer agrees, promptly following a
request by the Indenture Trustee or the Insurer 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 or the Insurer may deem
necessary or appropriate in the circumstances.
SECTION 3.8 Negative Covenants. So long as any Notes are Outstanding, the
Issuer shall not, unless the Insurer otherwise consents in writing:
(i) except as expressly permitted by this Indenture or the Sale and
Servicing Agreement, sell, transfer, exchange or otherwise dispose of any
of the properties or assets of the Issuer, including those included in
the Trust Estate, unless directed to do so by the Indenture Trustee and
consented to by the Insurer;
(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 related Trust Estate;
(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 and the Ownership Interest
pursuant to the Trust Agreement, or amend the Trust Agreement as in
effect on the Closing Date other than in accordance with Section 11.1
thereof;
(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 Trust
Estate 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 Mortgagor) 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 Trust Estate;
(viii) [reserved]; 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) a taxable
mortgage pool pursuant to Section 7701(i) of the Code and the
corresponding regulations.
SECTION 3.9 Annual Statement as to Compliance. The Issuer will deliver to
the Indenture Trustee and the Insurer, within 120 days after the end of each
fiscal year of the Issuer (commencing with the 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 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 its obligations under the terms of 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
Ownership Interest and the Noteholders as contemplated by, and to the extent
funds are available for such purpose under, the Sale and Servicing Agreement
or the Trust 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 Transaction Documents.
SECTION 3.13 Treatment of Notes as Debt for All Purposes.
The Issuer shall treat the Notes as indebtedness for all purposes.
SECTION 3.14 Notice of Events of Default. The Issuer shall give the
Indenture Trustee, the Seller, the Insurer and the Rating Agencies prompt
written notice of each Event of Default hereunder, each default on the part of
the Servicer of its obligations under the Sale and Servicing Agreement and
each default on the part of the Seller of its obligations under the Sale and
Servicing Agreement.
SECTION 3.15 Further Instruments and Acts. Upon request of the Indenture
Trustee or the Insurer, 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.
SECTION 3.16 Issuer May Consolidate, etc.
(a) The Issuer shall not consolidate or merge with or into any other
Person, unless:
(i) the Person (if other than the Issuer) formed by or surviving
such consolidation or merger shall be a Person organized and existing
under the laws of the United States of America or any state or the
District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee, in
form reasonably satisfactory to the Indenture Trustee, the due and
punctual payment of the principal of and interest on all Notes and to the
Paying Agent, on behalf of the holder of the Transferor Interests and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein;
(ii) immediately after giving effect to such transaction, no Event
of Default shall have occurred and be continuing;
(iii) the Insurer shall have consented in writing thereto and each
Rating Agency shall have notified the Issuer that such transaction will
not cause a reduction or withdrawal by a Rating Agency of its then
current rating of the Notes, without regard to the Insurance Policy;
(iv) the Issuer shall have received an Opinion of Counsel (and shall
have delivered copies thereof to the Indenture Trustee and the Insurer)
to the effect that such transaction will not have any material adverse
tax consequence to the Issuer, any Noteholder or the Insurer;
(v) any action that is necessary to maintain the lien and security
interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee and
the Insurer an Officer's Certificate and an Opinion of Counsel each
stating that such consolidation or merger and such supplemental indenture
comply with this Article III and that all conditions precedent herein
provided for relating to such transaction have been complied with
(including any filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in any Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer, the conveyance or transfer of which
is hereby restricted, shall (A) be a United States citizen or a Person
organized and existing under the laws of the United States of America or
any state, (B) expressly assumes, by an indenture supplemental hereto,
executed and delivered to the Indenture Trustee and the Insurer, in form
satisfactory to the Indenture Trustee and the Insurer, the due and
punctual payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein, (C) expressly agrees by means of such supplemental
indenture that all right, title and interest so conveyed or transferred
shall be subject and subordinate to the rights of Holders of the Notes
and the Insurer, (D) unless otherwise provided in such supplemental
indenture, expressly agrees to indemnify, defend and hold harmless the
Issuer and the Insurer against and from any loss, liability or expense
arising under or related to this Indenture and the Notes and (E)
expressly agrees by means of such supplemental indenture that such Person
(or if a group of Persons, then one specified Person) shall make all
filings with the Commission (and any other appropriate Person) required
by the Exchange Act in connection with the Notes;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) the Insurer shall have consented thereto, and each Rating
Agency shall have notified the Issuer that such transaction will not
cause a reduction or withdrawal by a Rating Agency of its then current
rating of the Notes, without regard to the Insurance Policy;
(iv) the Issuer shall have received an Opinion of Counsel (and shall
have delivered copies thereof to the Indenture Trustee) to the effect
that such transaction will not have any material adverse tax consequence
to the Issuer, the Insurer or any Noteholder;
(v) any action that is necessary to maintain the lien and security
interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee and
the Insurer an Officer's Certificate and an Opinion of Counsel each
stating that such conveyance or transfer and such supplemental indenture
comply with this Article III and that all conditions precedent herein
provided for relating to such transaction have been complied with
(including any filing required by the Exchange Act).
SECTION 3.17 Successor or Transferee.
(a) Upon any consolidation or merger of the Issuer in accordance with
Section 3.16(a) above, the Person formed by or surviving such consolidation or
merger (if other than the Issuer) shall succeed to, and be substituted for,
and may exercise every right and power of, the Issuer under this Indenture
with the same effect as if such Person had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of the
Issuer pursuant to Section 3.16(b) above, the Issuer shall be released from
every covenant and agreement (except such obligations that survive such
transfer) of this Indenture to be observed or performed on the part of the
Issuer with respect to the Notes immediately upon the delivery of written
notice to the Indenture Trustee of such conveyance or transfer.
SECTION 3.18 No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning, selling and managing the
Mortgage Loans and the issuance of the Notes in the manner contemplated by
this Indenture and the Transaction Documents and all activities incidental
thereto.
SECTION 3.19 No Borrowing. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
SECTION 3.20 Guarantees, Loans, Advances and Other Liabilities. Except as
contemplated by this Indenture or the other Transaction Documents, the Issuer
shall not make any loan or advance or credit to, or guarantee (directly or
indirectly or by an instrument having the effect of assuring another's payment
or performance on any obligation or capability of so doing or otherwise),
endorse or otherwise become contingently liable, directly or indirectly, in
connection with the obligations, stocks or dividends of, or own, purchase,
repurchase or acquire (or agree contingently to do so) any stock, obligations,
assets or securities of, or any other interest in, or make any capital
contribution to, any other Person.
SECTION 3.21 Capital Expenditures. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction and Discharge of Indenture. Subject to and in
accordance with Section 8.01 of the Sale and Servicing Agreement, 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) Sections 3.3, 3.4, 3.5, 3.8 and 3.10 hereof, (v) the rights, obligations
and immunities of the Indenture Trustee hereunder (including the rights of the
Indenture Trustee under Section 6.7 hereof and the obligations of the
Indenture Trustee under Section 4.2 hereof) 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 2.4 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 3.3 above)
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. will become due and payable within one year prior to the Final
Payment Date, or.
c. 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,
and the Issuer, in the case of a., b. or c. 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 Final Payment Date or Redemption Date
(if Notes shall have been called for redemption pursuant to Section 10.1
hereof) and all amounts due and owing the Insurer and the Indenture Trustee
have been paid, as the case may be;
(B) the later of (a) twelve months after payment in full of all
outstanding obligations under the Notes, (b) the payment in full of all unpaid
fees and expenses of the Indenture Trustee hereunder and the other Transaction
Documents, (c) the payment of all amounts due and owing to the Insurer for
unpaid premiums and unreimbursed Insured Payments and all other amounts owing
to the Insurer, together with interest thereon as provided under the Insurance
and Reimbursement Agreement and (d) 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 and the Insurer 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
11.1(a) hereof and, subject to Section 11.2 hereof, 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.
SECTION 4.2 Application of Trust Money. All moneys deposited with the
Indenture Trustee pursuant to Sections 3.3 and 4.1 hereof shall be held in
trust and applied by it, in accordance with the provisions of the Sale and
Servicing Agreement, to the payment, either directly or through any Paying
Agent to the Holders of the particular Notes and the Insurer 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 4.3 Subrogation and Cooperation.
(a) The Issuer and the Indenture Trustee acknowledge that (i) to the
extent the Insurer makes payments under the Insurance Policy on account of
principal of or interest on the Mortgage Loans, the Insurer will be fully
subrogated to the rights of the Noteholders to receive such principal of and
interest on the Mortgage Loans of the related Trust Estate, and (ii) the
Insurer shall be paid such principal and interest only from the sources and in
the manner provided herein and in the Insurance and Reimbursement Agreement
for the payment of such principal and interest.
The Indenture Trustee shall cooperate in all respects with any reasonable
request or direction by the Insurer for action to preserve or enforce the
Insurer's rights or interest under this Indenture or the Insurance and
Reimbursement Agreement, consistent with this Indenture and without limiting
the rights of the Noteholders as otherwise set forth in the Indenture,
including without limitation upon the occurrence and continuance of an Insurer
Default, a request to take any one or more of the following actions:
(i) institute Proceedings for the collection of all amounts then
payable on the Notes or under this Indenture in respect to the Notes and
all amounts payable under the Insurance and Reimbursement Agreement and
to enforce any judgment obtained and collect from the Issuer monies
adjudged due;
(ii) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private sales called and
conducted in any manner permitted by law;
(iii) file or record all assignments that have not previously been
recorded;
(iv) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture; and
(v) 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 Insurer hereunder.
Following the payment in full of the Notes, the Insurer shall continue to
have all rights and privileges provided to it under this Section 4.3 and in
all other provisions of this Indenture, until all amounts owing to the Insurer
have been paid in full.
SECTION 4.4 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 3.3 above and thereupon such Paying Agent shall be
released from all further liability with respect to such moneys.
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default. "Event of Default," wherever used herein,
means with respect to the Notes 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 in full of the principal of the Class A Note
Principal Balance on the Final Payment Date; 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
5.1 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 Insurer or 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) [reserved]; or
(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 Trust Estate 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 Trust Estate, 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 Trust Estate, or the making by the Issuer of any
general 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, the Transferor and the
Insurer 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 clause (c) above,
its status and what action the Issuer is taking or proposes to take with
respect thereto.
SECTION 5.2 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 of the Insurer or upon the prior
written direction of the Holders of Notes representing not less than a
majority of the Outstanding Amount of the Notes, with the written consent of
the Insurer, 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 Insurer or the Holders of Notes representing a majority of the Outstanding
Amount of the related Notes, with the written consent of the Insurer, 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 below.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee.
(a) The Issuer covenants that if (i) default occurs 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 occurs 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 or the Insurer if the
Insurer has made a payment under the Insurance Policy, pay to the Indenture
Trustee or the Insurer, as applicable, 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, to the extent payment
at such rate of interest shall be legally enforceable, upon overdue
installments of interest at the rate borne by the Notes 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, the Insurer 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 Insurer,
institute a Proceeding for the collection of the sums so due and unpaid, and
may prosecute such Proceeding to judgment or final decree, 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, with the consent of the Insurer, and shall at the written
direction of the Insurer or of the Holders of a majority of the Outstanding
Amount of the Notes, with the consent of the Insurer, as more particularly
provided in Section 5.4 below, proceed to protect and enforce its rights and
the rights of the Noteholders and the Insurer, [by such appropriate
Proceedings as the Insurer 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 Trust Estate, 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 5.3, shall be entitled and empowered by
intervention in such Proceedings with the consent of or at the direction of
the Insurer 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
and the Insurer allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote on
behalf of the Holders of Notes and the Insurer 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, the Indenture Trustee and
the Insurer 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, the Insurer 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.
(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 or the Insurer 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 or the Insurer 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 5.4 Remedies; Priorities.
(a) If an Event of Default shall have occurred and be continuing of which
a Responsible Officer of the Indenture Trustee has actual knowledge, the
Indenture Trustee may with the consent of the Insurer, or, at the direction of
the Insurer, shall or, if an Insurer Default shall be continuing, at the
direction of a majority of the Holders of the Notes shall, do one or more of
the following (subject to Section 5.5 below):
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the
related Notes or under this Indenture with respect thereto, whether by
declaration or otherwise, and all amounts payable under the Insurance and
Reimbursement Agreement, 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 Trust Estate;
(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 related Noteholders or the
Insurer; and
(iv) sell the Trust Estate 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 Trust Estate following an Event of Default, unless (A) the
Indenture Trustee obtains the consent of the Insurer and the Holders of 100%
of the Outstanding Amount of the Notes, (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 and to reimburse the Insurer for any unreimbursed Insured Payments
and any other amounts due the Insurer under the Insurance and Reimbursement
Agreement or (C) the Indenture Trustee determines that the Trust Estate 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 the
Insurer and the 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 Trust Estate for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant
to this Article V, the Indenture Trustee and the Paying Agent in respect of
amounts due on the Senior Interest Participation 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: any amounts payable to the Servicer pursuant to Section 5.01
of the Sale and Servicing Agreement and any premium owing to the Insurer;
THIRD: to the Noteholders and owner of the Ownership Interest for
amounts due and unpaid on the Notes and, in respect of the Senior
Interest Participation, for interest pro rata, according to the amounts
due and payable on such Notes and in respect of the Senior Interest
Participation for interest;
FOURTH: to the Noteholders for amounts due and unpaid on the Notes
for principal, pro rata, among the Holders of the Notes according to the
amounts due and payable until the Class A Note Principal Balance is
reduced to zero;
FIFTH: to the Insurer, any other amounts owed to the Insurer under
the Insurance and Reimbursement Agreement; and
SIXTH: to the Owner Trustee, as applicable, for any amounts to be
distributed, to the holder of the Ownership Interest, in the manner set
forth in Section 5.01 of the Sale and Servicing Agreement.
The Indenture Trustee may fix a record date and payment date for any
payment to be made to the Noteholders pursuant to this Section 5.4. 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 5.5 Optional Preservation of the Trust Estate. If the Notes have
been declared to be due and payable under Section 5.2 above following an Event
of Default and such declaration and its consequences have not been rescinded
and annulled, the Indenture Trustee may with the consent of the Insurer, but
need not (but shall at the written direction of the Insurer), elect to
maintain possession of the Trust Estate. 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 (although the parties hereto
understand that there exists the possibility of a shortfall in collections of
the Mortgage Loans), and the Indenture Trustee shall take such desire into
account when determining whether or not to maintain possession of the Trust
Estate. In determining whether to maintain possession of the Trust Estate, 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 Trust
Estate for such purpose.
SECTION 5.6 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 the Insurer has otherwise consented in writing
thereto and:
(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;
(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 Noteholders 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 Noteholders
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.
SECTION 5.7 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 respective due date thereof expressed in such Note or in this
Indenture (or, in the case of redemption, on or after the Redemption Date) to
the extent funds are available therefor out of the Trust Estate 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 5.8 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 5.9 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee, the Insurer 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, the Insurer or any Noteholder 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, the Insurer or to the Noteholders may be
exercised from time to time, and as often as may be deemed expedient, by the
Indenture Trustee, the Insurer or by the Noteholders, as the case may be.
SECTION 5.11 Control by Noteholders. The Insurer (so long as no Insurer
Default exists) or if an Insurer Default exists the Holders of a majority of
the Outstanding Amount of the Notes with the consent of the Insurer, shall
have the right to direct the time, method and place of conducting any
Proceeding 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 5.4 above, any direction to
the Indenture Trustee to sell or liquidate the Trust Estate shall be in
writing by the Insurer (so long as no Insurer Default exists) or the Holders
of Notes representing not less than 100% of the Outstanding Amount of the
Notes with the consent of the Insurer;
(c) if the conditions set forth in Section 5.5 above have been satisfied
and the Indenture Trustee elects to retain the Trust Estate pursuant to such
Section 5.5, 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 Trust Estate 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 6.1 hereof, 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 5.2 above,
the Insurer (so long as no Insurer Default exists) or the Holders of Notes
representing not less than a majority of the Outstanding Amount of the Notes,
with the consent of the Insurer (so long as no Insurer Default exists), 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 Insurer, 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 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 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 Trust
Estate 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
5.4(b) above.
SECTION 5.16 Performance and Enforcement of Certain Obligations.
(a) Promptly following a request from the Insurer or the Indenture
Trustee, with the consent of the Insurer to do so, the Issuer shall take all
such lawful action as the Indenture Trustee or the Insurer, as applicable, may
request to compel or secure the performance and observance by the Seller 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 or the Insurer, as
applicable, including the transmission of notices of default on the part of
the Seller or the Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller 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, subject to the rights of the Insurer hereunder and under the Sale and
Servicing Agreement, may, and at the direction (which direction shall be in
writing or by telephone, confirmed in writing promptly thereafter) of the
Insurer or the Holders of a majority of the Outstanding Amount if there is an
Insurer Default shall, exercise all rights, remedies, powers, privileges and
claims of the Issuer against the Seller 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 Seller, 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.
ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.1 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 6.1;
(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 above or any direction
from the Insurer that the Insurer is entitled to give under the terms of
the Transaction Documents.
(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 6.1.
(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; and none of the provisions contained in this
Indenture shall in any event require the Indenture Trustee to perform, or be
responsible for the manner of performance of, any of the obligations of the
Servicer, the Issuer or Transferor under this Indenture except during such
time, if any, as the Indenture 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 Indenture.
(h) The Indenture Trustee shall challenge or cause to be challenged any
attempt at substantive consolidation of the assets and liabilities of the
Issuer with those of any Owner (as the term "Owner" is defined in the Trust
Agreement) in connection with any insolvency proceeding of the Issuer.
(i) 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 6.1 and to the provisions
of the TIA.
(j) Subject to the other provisions of this Indenture and without
limiting the generality of this Section 6.1, the Indenture Trustee shall have
no duty (A) to see to any recording, filing, or depositing of this Indenture
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 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 Estate other than from funds available in the
Distribution Account, (D) to confirm or verify the contents of any reports or
certificates of the Issuer, Insurer or Servicer delivered to the Indenture
Trustee pursuant to this Indenture believed by the Indenture Trustee to be
genuine and to have been signed or presented by the proper party or parties.
SECTION 6.2 Rights of Indenture Trustee.
(a) The Indenture Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting on any resolution, 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 person. The Indenture Trustee need not investigate any fact or matter
stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require and shall be entitled to receive 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.
(c) 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 and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of such agent,
attorney, nominee or custodian appointed by the Indenture Trustee with due
care.
(d) The Indenture Trustee shall not be liable for 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.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel selected by it with due care with respect to legal matters
relating to this Indenture, the Notes and the Transaction Documents to which
it is a party, 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.
(f) The Indenture Trustee shall be under no obligation to exercise any of
the trusts or powers vested in it by this Indenture or to institute, conduct
or defend any litigation hereunder or in relation hereto at the request, order
or direction of the Insurer or any of the Noteholders, pursuant to the
provisions of this Indenture, unless the Insurer or such Noteholders shall
have offered to the Indenture 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 Indenture Trustee of the
obligation, upon the occurrence of an Event of Default of which a Responsible
Officer of the Indenture Trustee shall have actual knowledge (which has not
been cured), to exercise such of the rights and powers vested in it by this
Indenture, and to 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.
(g) The Indenture 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
Insurer or the Majority Noteholders; provided, however, that if the payment
within a reasonable time to the Indenture 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 Indenture Trustee, not reasonably assured to the
Indenture Trustee by the security afforded to it by the terms of this
Indenture, the Indenture Trustee may require reasonable indemnity against such
cost, expense or liability as a condition to taking any such action. The
reasonable expense of every such examination shall be paid by the Issuer or,
if paid by the Indenture Trustee, shall be repaid by the Issuer upon demand.
(h) The right of the Indenture Trustee to perform any discretionary act
enumerated in this Indenture shall not be construed as a duty, and the
Indenture Trustee shall not be answerable for other than its negligence or
willful misconduct in the performance of such act.
(i) The Indenture Trustee shall not be required to give any bond or
surety in respect of the execution of the Trust Fund created hereby or the
powers granted hereunder.
(j) The Indenture Trustee shall have no liability in connection with the
malfeasance or nonfeasance by the Issuer, the Servicer or the Administrator.
The Indenture Trustee shall have no liability in connection with compliance by
the Issuer or the Servicer with statutory or regulatory requirements related
to the Collateral or the Trust Estate. The Indenture Trustee shall not make or
be deemed to have made any representations or warranties with respect to the
Collateral or the Trust Estate or the validity or sufficiency of any
assignment of the Collateral or the Trust Estate to the Indenture Trustee.
(k) In the event that the Indenture Trustee is also acting as Paying
Agent or Registrar hereunder, the rights, protection, immunities and
indemnities afforded to the Indenture Trustee pursuant to this Article VI
shall also be afforded to such Paying Agent or Registrar.
SECTION 6.3 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 Sections 6.11 and 6.12 below.
SECTION 6.4 Indenture Trustee's Disclaimer. The Indenture Trustee shall
not be (i) responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, (ii) shall not be accountable for the
Issuer's use of the proceeds from the Notes or (iii) 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 6.5 Notice of Defaults. If a Default occurs and is continuing and
if it is actually known to a Responsible Officer of the Indenture Trustee, the
Indenture Trustee shall give prompt notice thereof to the Insurer. The
Indenture Trustee shall not be charged with the knowledge of an Event of
Default unless a Responsible Officer has received written notice or has actual
knowledge thereof. The Indenture Trustee shall mail to each Noteholder, the
Servicer and the Seller notice of the Default within 30 days after it occurs
at the expense of the Issuer. Except in the case of a Default in payment of
principal of or interest on any Note, the Indenture Trustee may withhold the
notice to the Noteholders 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 6.6 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. In
addition, upon Issuer Request, the Indenture Trustee shall promptly furnish
such information reasonably requested by the Issuer that is reasonably
available to the Indenture Trustee to enable the Issuer to perform its federal
and state income tax reporting obligations.
SECTION 6.7 Compensation and Indemnity. As compensation for its services
hereunder, the Indenture Trustee shall be entitled to receive, on each Payment
Date, the Indenture Trustee's Fee pursuant to Section 5.01 of the Sale and
Servicing Agreement (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 Servicer 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. Such
indemnity shall not be an expense of the Trust. The Indenture Trustee shall
notify the Issuer and the Servicer promptly of any claim for which it may seek
indemnity. 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 to reimburse any expense or to indemnify against any loss,
liability or expense incurred by the Indenture Trustee through the Indenture
Trustee's own willful misconduct, negligence or bad faith. Anything in this
Indenture to the contrary notwithstanding, in no event shall the Indenture
Trustee be liable for special, indirect or consequential loss or damage of any
kind whatsoever (including but not limited to lost profits), even if the
Indenture Trustee has been advised of the likelihood of such loss or damage
and regardless of the form of action. This indemnity shall survive the
termination of this Indenture.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section 6.7 shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses or provides services after the occurrence of
a Default specified in Section 5.1(e) or (f) hereof with respect to the
Issuer, the expenses and fees for such services 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 6.8 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 acceptable to the Insurer pursuant to this Section. The
Indenture Trustee may resign at any time by so notifying the Issuer and the
Insurer. The Insurer or the Holders of a majority in Outstanding Amount of the
Notes (with the prior written consent of the Insurer) may remove the Indenture
Trustee by so notifying the Indenture Trustee and the Insurer (if given by
such Noteholders) and may appoint a successor Indenture Trustee acceptable to
the Insurer. The Issuer shall (with the prior written consent of the Insurer)
remove the Indenture Trustee if:
(a) the Indenture Trustee fails to comply with Section 6.11 below;
(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 with the consent of the
Insurer, which consent shall not be unreasonably withheld.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee, the Insurer 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.
If the Indenture Trustee fails to comply with Section 6.11 below, any
Noteholder may (with the consent of the Insurer) 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 6.8, the Issuer's obligations under Section 6.7 above shall continue
for the benefit of the retiring Indenture Trustee.
SECTION 6.9 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 below.
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 Trust Estate 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 and
the Insurer, such title to the Trust Estate, 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 below
and no notice to Noteholders of the appointment of any co-trustee or separate
trustee shall be required under Section 6.8 hereof.
(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 Trust Estate 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;
(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. The Indenture
Trustee shall remain primarily liable for all actions of a co-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 $50,000,000 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 Representations and Warranties. The Indenture Trustee hereby
represents and warrants that:
(a) The Indenture Trustee is duly organized, validly existing and in good
standing under the laws of State of [ ], 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.
(b) The Indenture Trustee has the power and authority to execute and
deliver this Indenture and to carry out its terms; and the execution, delivery
and performance of this Indenture have been duly authorized by the Indenture
Trustee by all necessary corporate action.
(c) The consummation of the transactions contemplated by this Indenture
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, the certificate of incorporation or
bylaws of the Indenture Trustee or any agreement or other instrument to which
the Indenture Trustee is a party or by which it is bound.
SECTION 6.14 Directions to Indenture Trustee. The Indenture Trustee is
hereby directed:
(a) to accept the pledge of the Mortgage Loans and hold the assets of the
Trust in trust for the Noteholders and the Insurer;
(b) to authenticate and deliver the Notes substantially in the form
prescribed by Exhibit A in accordance with the terms of this Indenture; and
(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.1 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
Noteholders as of such Record Date, (b) at such other times as the Indenture
Trustee and the Insurer 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 7.2 Preservation of Information; Communications to Noteholders.
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Noteholders contained
in the most recent list furnished to the Indenture Trustee as provided in
Section 7.1 above and the names and addresses of Noteholders 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 7.1 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 7.3 Reports by Issuer.
(a) 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 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 7.3(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 7.4 Reports by Indenture Trustee. If required by TIA Section
313(a), within 60 days after each August 1, beginning with [ ], the Indenture
Trustee shall mail to each Noteholder as required by TIA Section 313(c) and to
the Insurer 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.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1 Collection of Money. 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 Trust Estate, 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 herein.
SECTION 8.2 Accounts; Distributions.
(a) On or prior to the Closing Date, the Indenture Trustee shall
establish and maintain or cause to be established and maintained, in the name
of the Indenture Trustee for the benefit of the Noteholders, the Transferor
and the Insurer, the Distribution Account as provided in Article V of the Sale
and Servicing Agreement into which amounts shall be deposited in accordance
with the terms of the Sale and Servicing Agreement.
(b) The Indenture Trustee shall deposit any amounts representing payments
on and any collections in respect of the Mortgage Loans received by it, if
any, and any other amounts required by the terms of the Transaction Documents
to be deposited, immediately following receipt thereof, including, without
limitation, all amounts withdrawn by the Servicer from the Collection Account
pursuant to Section 3.03 of the Sale and Servicing Agreement for deposit to
the Distribution Account. Amounts on deposit in the Distribution Account may
be invested in Eligible Investments pursuant to Section 5.06 of the Sale and
Servicing Agreement.
(c) On each Payment Date and the Redemption Date, to the extent funds are
available in the Distribution Account, the Indenture Trustee shall make the
distributions and payments in the amounts and in the priority set forth in
Section 5.01 of the Sale and Servicing Agreement (except as otherwise provided
in Section 5.4(b) herein).
(d) On each Payment Date and the Redemption Date, to the extent of the
interest of the Indenture Trustee in the Distribution Account (as described in
Section 5.05 of the Sale and Servicing Agreement), the Indenture Trustee
hereby authorizes the Owner Trustee or the Paying Agent, as applicable, to
make the distributions from the Distribution Account as required pursuant to
Sections 5.01 and 5.02 of the Sale and Servicing Agreement.
SECTION 8.3 [Reserved].
SECTION 8.4 Servicer's Monthly Statements.
On each Payment Date, the Indenture Trustee shall deliver the Servicing
Certificate (as defined in the Sale and Servicing Agreement) with respect to
such Payment Date to DTC and the Rating Agencies.
SECTION 8.5 [Reserved].
SECTION 8.6 Opinion of Counsel. The Indenture Trustee shall receive at
least seven days notice when requested by the Issuer to take any action
pursuant to Section 2.9(a) herein, accompanied by copies of any instruments
involved, and the Indenture Trustee shall also require with a copy to the
Insurer, 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 or the Insurer 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 market value of a Trust Estate. 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.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 Supplemental Indentures Without Consent of Noteholders.
(a) 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 and only with the prior
written consent of the Insurer, 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
Noteholders or the Insurer, 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 Noteholders or the
Insurer;
(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 herein; 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 Noteholders but with prior
consent of the Rating Agencies and the Insurer, 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 Noteholders under this
Indenture; provided, however, that such action shall not, as evidenced by an
Opinion of Counsel or satisfaction of the Rating Agency Condition, adversely
affect in any material respect the interests of any Noteholder or the Insurer
or cause the Issuer to be subject to entity level tax.
SECTION 9.2 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 the Insurer, 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 amount required to be paid on the Notes following the
exercise of the option set forth in Section 8.01 of the Sale and Servicing
Agreement, change the provisions of this Indenture relating to the application
of collections on, or the proceeds of the sale of, the Trust Estate 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
therefor, as provided in Article V herein, 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
Trust Estate pursuant to Section 5.4 herein;
(e) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional provisions
of this Indenture or the Transaction 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 Payment Date (including the calculation of any of the
individual components of such calculation); 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 Trust Estate 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
provided further, that such action shall not, as evidenced by an Opinion of
Counsel, cause the Issuer to be subject to an entity level tax.
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.
In connection with requesting the consent of the Noteholders pursuant to
this Section 9.2, 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 at the
Issuer's expense. It shall not be necessary for any Act of Noteholders under
this Section 9.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.
SECTION 9.3 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 6.1 and 6.2 herein, 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 and all conditions
precedent to the execution of such supplemental indenture have been met. 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 9.4 Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture 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 9.5 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 9.6 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.
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.1 Redemption.
The Servicer may effect an early termination of the Notes pursuant to
Section 8.01 of the Sale and Servicing Agreement on or after any Payment Date
on which the Pool Principal Balance declines to [5%] or less of the aggregate
Cut-Off Date Principal Balance and the purchase price for the Mortgage Loans
together with all amounts due and owing to the Insurer for unpaid premiums and
unreimbursed Insured Payments and any other amounts then due and owing under
the Insurance and Reimbursement Agreement to the Insurer, together with
interest thereon as provided under the Insurance and Reimbursement Agreement,
have been paid, pursuant to the provisions of Section 8.01(b) of the Sale and
Servicing Agreement.
The Indenture Trustee shall furnish notice of any such redemption in
accordance with Section 8.01 of the Sale and Servicing Agreement.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Compliance Certificates and Opinions, etc.
(a) Upon any application or request by the Issuer made to the Indenture
Trustee to take any action under any provision of this Indenture, the Issuer
shall furnish to the Indenture Trustee and to the Insurer (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 11.1, 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) (i) 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
(except in the case of the release of Mortgage Loans in accordance with the
Sale and Servicing Agreement), the Issuer shall, in addition to any obligation
imposed in Section 11.1(a) herein 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.
(ii) 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 (i) 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 Collateral, other property or
securities to be so deposited and of all other such Collateral, other property
or 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 (i) above and this clause (ii),
is 10% or more of the aggregate Class A Note Principal Balance 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 either (A) $25,000 or (B) one percent of
the aggregate Class A Note Principal Balance of the Notes.
(iii) 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.
(iv) 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 (iii) 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 or 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 (iii) above and this clause (iv), equals 10%
or more of the aggregate Class A Note Principal Balance 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 $25,000 or less than one percent of the then
aggregate Class A Note Principal Balance of the Notes.
SECTION 11.2 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 Transferor or the Issuer, stating
that the information with respect to such factual matters is in the possession
of the Servicer, the Transferor or the Issuer, 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 hereof.
SECTION 11.3 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 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
6.1 hereof) conclusive in favor of the Indenture Trustee and the Issuer, if
made in the manner provided in this Section 11.3.
(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 11.4 Notices. 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: [ ]Home Equity Loan
Trust [ ], in care of [ ], Attention: Corporate Trust
Administration, with copies to the Administrator addressed to: [ ],
Attention: Indenture Trust Administration and to the Servicer addressed to:
[ ], 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.
(c) the Insurer, by the Issuer, the Indenture Trustee or by any
Noteholders shall be sufficient for every purpose hereunder to in writing and
mailed, first-class postage pre-paid, or personally delivered or telecopied
to: [ ], Attention: [ ]. The Insurer shall promptly
transmit any notice received by it from the Issuer, the Indenture Trustee or
the Noteholders to the Issuer or Indenture Trustee, as the case may be.
Notices required to be given to the Rating Agencies by 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
[ ], at the following address: [ ] and (ii) in the case
of [ ], at the following address: [ ]; or as to each of the
foregoing, at such other address as shall be designated by written notice to
the other parties.
SECTION 11.5 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.
SECTION 11.6 Rights of the Insurer to Exercise Rights of Noteholders.
By accepting its Note, each Noteholder agrees that unless an Insurer
Default exists, the Insurer shall have the right to exercise all rights of the
Noteholders as specified under this Agreement without any further consent of
the Noteholders. Any right conferred to the Insurer hereunder shall be
suspended and shall run to the benefit of the Noteholders during any period in
which there exists an Insurer Default, provided, however, that during an
Insurer Default, the consent of the Insurer must be obtained with respect to
any amendments that may materially adversely affect the Insurer.
SECTION 11.7 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 11.8 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 11.9 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 11.10 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 11.11 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, the Insurer, and
any other party secured hereunder, and any other Person with an ownership
interest in any part of the Trust Estate, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 11.12 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
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 11.13 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 11.14 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 11.15 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 11.16 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 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
Articles VI, VII and VIII of the Trust Agreement.
SECTION 11.17 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 Transferor (and any
wholly-owned subsidiary thereof), the Seller, the Servicer or the Issuer, or
join in any institution against the Transferor (and any wholly-owned
subsidiary thereof), the Seller, 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 Transaction Documents.
SECTION 11.18 Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee or the
Insurer, 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 and the Insurer (to the extent
described in the Insurance and Reimbursement Agreement) shall and shall cause
its representatives to hold in confidence all such information except to the
extent disclosure may be required by 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.
SECTION 11.19 Inconsistencies With the Sale and Servicing Agreement. In
the event certain provisions of this Agreement conflict with the provisions of
the Sale and Servicing Agreement, the parties hereto agree that the provisions
of the Sale and Servicing Agreement shall be controlling.
SECTION 11.20 Third-Party Beneficiaries. This Indenture will inure to the
benefit of and be binding upon the parties hereto, the Noteholders, the Note
Owners, the Insurer and their respective successors and permitted assigns.
Except as otherwise provided in this Indenture, no other person will have any
right or obligation hereunder.
<PAGE>
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.
[ ]HOME EQUITY LOAN
TRUST [ ]
By: [ ],
not in its individual capacity but
solely as Owner Trustee
By:_________________________________________
Name:
Title:
[ ],
as Indenture Trustee
By: ________________________________________________
Name:
Title:
<PAGE>
STATE OF
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 [
]HOME EQUITY LOAN 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 _________
(Seal)
My commission expires:
______________________
<PAGE>
STATE OF
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 [ ], [a state]
banking corporation, and that such person executed the same as the act of said
corporation for the purpose and consideration therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this day of [ ].
_______________________________________________
Notary Public in and for the State of _________
(Seal)
My commission expires:
<PAGE>
EXHIBIT 10.1
[_____________________],
as Purchaser
and
[_________________________].
as Seller
MORTGAGE LOAN PURCHASE AGREEMENT
Dated as of [_____________________]
[____________________] Home Equity Loan Asset-Backed Certificates
Series [___________________]
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Page
ARTICLE I.
DEFINITIONS
<S> <C> <C>
Section 1.01. Definitions............................................................................1
ARTICLE II.
SALE OF MORTGAGE LOANS; PAYMENT OF PURCHASE PRICE
Section 2.01. Sale of Initial Mortgage Loans.........................................................1
Section 2.02. Reserved...............................................................................1
Section 2.03. Obligations of Seller Upon Sale........................................................2
Section 2.04. Payment of Purchase Price for the Mortgage Loans.......................................3
ARTICLE III.
REPRESENTATIONS AND WARRANTIES; REMEDIES FOR BREACH
Section 3.01. Seller Representations and Warranties Relating to the Mortgage Loans...................4
Section 3.02. Seller Representations and Warranties - General........................................5
ARTICLE IV.
SELLER'S COVENANTS
Section 4.01. Covenants of the Seller................................................................7
ARTICLE V.
INDEMNIFICATION BY THE SELLER WITH RESPECT TO THE MORTGAGE LOANS
Section 5.01. Indemnification........................................................................7
ARTICLE VI.
TERMINATION
Section 6.01. Termination...........................................................................10
ARTICLE VII.
MISCELLANEOUS PROVISIONS
Section 7.01. Amendment.............................................................................11
Section 7.02. Governing Law.........................................................................11
Section 7.03. Notices...............................................................................11
Section 7.04. Severability of Provisions............................................................11
Section 7.05. Counterparts..........................................................................12
Section 7.06. Further Agreements....................................................................12
Section 7.07. Intention of the Parties..............................................................12
Section 7.08. Successors and Assigns: Assignment of Purchase Agreement..............................12
Section 7.09. Survival..............................................................................12
Schedule I Mortgage Loans I-1
</TABLE>
<PAGE>
MORTGAGE LOAN PURCHASE AGREEMENT, dated as of [___________________],
[__________] (the "Agreement"), between KeyBank National Association (the
"Seller") and [_____________________________________] (the "Purchaser").
W I T N E S S E T H
WHEREAS, the Seller is the owner of the notes or other evidence of
indebtedness (the "Mortgage Notes") so indicated on Schedule I hereto referred
to below, and Related Documents (as defined below) (collectively, the
"Mortgage Loans"); and
WHEREAS, the Seller, as of the date hereof, owns the mortgages (the
"Mortgages") on the properties (the "Mortgaged Properties") securing such
Mortgage Loans, including rights to (a) any property acquired by foreclosure
or deed in lieu of foreclosure or otherwise and (b) the proceeds of any
insurance policies covering the Mortgage Loans or the Mortgaged Properties or
the obligors on the Mortgage Loans; and
WHEREAS, the parties hereto desire that the Seller sell the Mortgage
Loans to the Purchaser pursuant to the terms of this Agreement; and
WHEREAS, pursuant to the terms of a Sale and Servicing Agreement
dated as of [ ___________ ] (the "Sale and Servicing Agreement") among the
Purchaser, as depositor, the Seller, as seller and as servicer, [
____________________________________ ], as indenture trustee (the "Indenture
Trustee") and the Trust (as defined below), the Purchaser will convey the
Mortgage Loans to [ __________________ ] Home Equity Loan Trust 1999-3 (the
"Trust").
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01. Definitions. All capitalized terms used but not defined
herein shall have the meanings assigned thereto in the Sale and Servicing
Agreement.
ARTICLE II.
SALE OF MORTGAGE LOANS; PAYMENT OF PURCHASE PRICE
Section 2.01. Sale of Initial Mortgage Loans. The Seller,
concurrently with the execution and delivery of this Agreement, does hereby
sell, assign, set over, and otherwise convey to the Purchaser, without
recourse, all of its right, title and interest in and to (i) each Initial
Mortgage Loan, including the related Cut-Off Date Principal Balance, all
interest accruing thereon after the Cut-Off Date and all collections in
respect of interest and principal received after the Cut-Off Date; (ii)
property which secured such Mortgage Loan and which has been acquired by
foreclosure or deed in lieu of foreclosure; (iii) its interest in any
insurance policies in respect of the Initial Mortgage Loans; and (iv) all
proceeds of any of the foregoing.
Section 2.02. Reserved.
Section 2.03. Obligations of Seller Upon Sale. In connection with any
transfer pursuant to Section 2.01 hereof, the Seller further agrees, at its
own expense, on or prior to the Closing Date, (a) to indicate in its books and
records that the Mortgage Loans have been sold to the Purchaser or to the
Owner Trustee as assignee of the Purchaser, as applicable, pursuant to this
Agreement and (b) to deliver to the Purchaser or at the direction of the
Purchaser, to the Indenture Trustee, as applicable, a computer file containing
a true and complete list of all such Mortgage Loans specifying for each such
Mortgage Loan, as of the Cut-Off Date, (i) its account number and (ii) the
Cut-Off Date Principal Balance. Such file, which forms a part of Exhibit A to
the Sale and Servicing Agreement, shall also be marked as Schedule I to this
Agreement and is hereby incorporated into and made a part of this Agreement.
In connection with any conveyance by the Seller, the Seller
shall on behalf of the Purchaser, on or before the Closing Date, deliver to
and deposit with the Purchaser or, at the direction of the Purchaser, to the
Owner Trustee or, at the direction of the Owner Trustee, to the Indenture
Trustee, the following documents or instruments with respect to each Mortgage
Loan (the "Related Documents"):
(i) the original Mortgage Note, endorsed in blank, with all
intervening endorsements showing a complete chain of title from the originator
of such Mortgage Loan to the Seller;
(ii) the original Mortgage, with evidence of recording thereon,
provided that if the original Mortgage has been delivered for recording to the
appropriate public recording office of the jurisdiction in which the Mortgaged
Property is located but has not yet been returned to the Seller by such
recording office, the Seller shall deliver to the Owner Trustee or, at the
direction of the Owner Trustee, to the Indenture Trustee, a certified true
copy of such original Mortgage so certified by the Seller, together with a
certificate of the Seller certifying that such original Mortgage has been so
delivered to such recording office; in all such instances, the Seller shall
deliver or cause to be delivered the original recorded Mortgage to the Owner
Trustee or, at the direction of the Owner Trustee, to the Indenture Trustee,
promptly upon receipt of the original recorded Mortgage;
(iii) the original Assignment of Mortgage, from the Seller to
"Harris Trust and Savings Bank as Indenture Trustee for Champion Home Equity
Loan Trust 1999-3," which assignment shall be in form and substance acceptable
for recording;
(iv) the original attorney's opinion of title or the original
policy of title insurance, provided that if any such original policy of title
insurance has not yet been received by the Seller, the Seller shall have
delivered to the Owner Trustee or, at the direction of the Owner Trustee, to
the Indenture Trustee, a copy of such policy or a title insurance binder or
commitment for the issuance of such policy;
(v) originals of all intervening assignments of Mortgage, with
evidence of recording thereon, showing a complete chain of title from the
originator to the Seller, provided that if any such original intervening
assignment of Mortgage has been delivered for recording to the appropriate
public recording office of the jurisdiction in which the Mortgaged Property is
located but has not yet been returned to the Seller by such recording office,
the Seller shall have delivered to the Owner Trustee or, at the direction of
the Owner Trustee, to the Indenture Trustee, a certified true copy of such
original assignment of Mortgage so certified by the Seller, together with a
certificate of the Seller certifying that such original assignment of Mortgage
has been so delivered to such recording office; in all such instances, the
Seller shall deliver or cause to be delivered any such original assignments to
the Owner Trustee or, at the direction of the Owner Trustee, to the Indenture
Trustee promptly upon receipt thereof; and
(vi) originals of all assumption and modification agreements, if
any.
The Seller hereby confirms to the Purchaser that it has made the
appropriate entries in its general accounting records, to indicate clearly and
unambiguously that such Mortgage Loans have been transferred to the Owner
Trustee and constitute part of the Trust in accordance with the terms of the
Sale and Servicing Agreement.
In all instances where the original recorded Mortgage is not
delivered as provided in clause (ii) above and instances where intervening
assignments with evidence of recording thereon called for by (v) above are
unavailable, the Seller will deliver or cause to be delivered the original
recorded Mortgage and intervening assignments with evidence of recording
thereon, as applicable, to the Purchaser or, at the direction of the
Purchaser, to the Owner Trustee or, at the direction of the Owner Trustee, to
the Indenture Trustee promptly upon receipt thereof.
The Purchaser hereby acknowledges its acceptance of all right, title
and interest to the Mortgage Loans and other property, now existing and
hereafter created, conveyed to it pursuant to Section 2.01 above.
The parties hereto intend that the transaction set forth herein be a
sale by the Seller to the Purchaser of all the Seller's right, title and
interest in and to the Mortgage Loans and other property described above. In
the event the transaction set forth herein is deemed not to be a sale, the
Seller hereby grants to the Purchaser a security interest in all of the
Seller's right, title and interest in, to and under the Mortgage Loans and
other property described above, whether now existing or hereafter created, to
secure all of the Seller's obligations hereunder; and this Agreement shall
constitute a security agreement under applicable law. The Seller and the
Purchaser shall, to the extent consistent with this Agreement, take such
actions as may be necessary to ensure that, if this Agreement were deemed to
create a security interest in the Mortgage Loans, such security interest would
be deemed to be a perfected security interest of first priority under
applicable law and will be maintained as such throughout the term of the Sale
and Servicing Agreement.
Section 2.04. Payment of Purchase Price for the Mortgage Loans. (a)
In consideration of the sale of the Mortgage Loans from the Seller to the
Purchaser on the Closing Date, the Purchaser agrees to pay to the Seller on
the Closing Date by transfer of immediately available funds, an amount equal
to the sum of $[ ] in respect of the Mortgage Loans (together with the Expense
Reimbursement Amount referred to below, the "Purchase Price"), which sum is
net of an expense reimbursement amount of $[ __________________ ] (the
"Expense Reimbursement Amount"), and to transfer to the Seller on the Closing
Date a certificate representing the Ownership Interest. The Expense
Reimbursement Amount shall reimburse the Purchaser for the Purchaser's
Securities and Exchange Commission registration statement fees, the
Purchaser's registration statement administration fees allocable to the Trust
and the gross underwriting fee. The Seller shall pay, and be billed directly
for, all expenses incurred by the Purchaser in connection with the issuance of
the Notes, including, without limitation, printing fees incurred in connection
with the prospectus relating to the Notes, blue sky registration fees and
expenses, fees and expenses of Purchaser's counsel, fees of the rating
agencies requested to rate the Notes, accountant's fees and expenses and the
fees and expenses of the Indenture Trustee, the fees and expenses of the
Document Custodian, the fees and expenses of the Clayton Group in connection
with file reunderwriting fees, the fees and expenses of Hanson Quality in
connection with appraisal reviews, the Premium Amount and other out-of-pocket
costs, if any. If the Purchaser shall determine that the Expense Reimbursement
Amount is not sufficient to reimburse the Purchaser for all expenses incurred
by it that are subject to reimbursement by the Seller hereunder as described
above, the Seller shall promptly reimburse the Purchaser for such additional
amounts upon notice by the Purchaser to the Seller.
(b) Within 30 days of the Closing Date, the Seller, at its own
expense, shall send or cause to be sent for recording each Assignment of
Mortgage (which may be a blanket assignment if permitted by applicable law) in
favor of the Indenture Trustee, as transferee of the Purchaser, pursuant to
the Sale and Servicing Agreement in the appropriate real property recording
office of the jurisdiction in which the related Mortgaged Property is located,
except as to those non-recordation states referred to below. With respect to
any Assignment of Mortgage as to which the related recording information is
unavailable within the applicable time period set forth above, such Assignment
of Mortgage shall be submitted for recording within 30 days after receipt of
such information but in no event later than one year from the date such
Assignment of Mortgage is otherwise required to be recorded pursuant to this
Section 2.04(b). The Indenture Trustee shall be required to retain a copy of
each Assignment of Mortgage submitted for recording. In the event that any
such Assignment of Mortgage is lost or returned unrecorded because of a defect
therein, the Seller shall promptly prepare a substitute Assignment of Mortgage
or cure such defect, as the case may be, and shall be required to submit each
such Assignment of Mortgage for recording. With respect to any
"non-recordation" state, the Seller may provide to the Indenture Trustee and
the Insurer (and to each Rating Agency, in the case of any state in which [ ]%
or more by Principal Balance as of the Cut-Off Date of the Mortgaged
Properties are located), an opinion of counsel in a form reasonably acceptable
to the Indenture Trustee and the Insurer (and, where applicable, to each
Rating Agency), to the effect that, as to any Mortgage Loan with respect to
which the related Mortgaged Property is located in such state, recordation of
an Assignment of Mortgage in such state is not necessary to transfer title to
the related Mortgage Note to the Trust or to pledge to the Indenture Trustee
the Seller's rights under such Mortgage Note in respect of which the Mortgaged
Property is located in such state. Any failure of the Seller to comply with
this Section shall result in the obligation of the Seller to repurchase or
substitute an Eligible Substitute Mortgage Loan for the related Mortgage Loan
pursuant to the provisions of the Sale and Servicing Agreement.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES; REMEDIES FOR BREACH
Section 3.01. Seller Representations and Warranties Relating to the
Mortgage Loans. The Seller represents and warrants to the Purchaser that with
respect to the Mortgage Loans as of the Closing Date, each of the
representations and warranties contained in Section 2.04(a) of the Sale and
Servicing Agreement, with the same force and effect as if fully set forth
herein, are true and correct as of the Closing Date.
With respect to the representations and warranties set forth in this
Section 3.01 that are made to the best of the Seller's knowledge or as to
which the Seller has no knowledge, if it is discovered by the Depositor, the
Seller, the Servicer, the Insurer or a Responsible Officer of the Indenture
Trustee, pursuant to the Sale and Servicing Agreement, that the substance of
such representation and warranty is inaccurate 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 substance
of such representation and warranty being inaccurate at the time the
representation or warranty was made, such inaccuracy shall be deemed a breach
of the applicable representation or warranty.
With respect to any breach of a representation or warranty set forth
in this Section 3.01, the Seller shall cure, repurchase or substitute the
related Mortgage Loan in accordance with the Sale and Servicing Agreement.
It is understood and agreed that the representations and warranties
set forth in this Section 3.01 shall survive delivery of the respective
Mortgage Files and the sale and assignment of the Mortgage Loans as
contemplated hereby.
Section 3.02. Seller Representations and Warranties - General.
The Seller hereby represents and warrants to the Purchaser that as of the
Closing Date or as of such date specifically provided herein:
(i) The Seller is a duly organized and validly existing
corporation, in good standing under the laws of its state of incorporation and
has the power and authority to own its assets and to transact the business in
which it is currently engaged. The Seller is duly qualified to do business and
is in good standing in each jurisdiction in which the character of the
business transacted by it or properties owned or leased by it requires such
qualification and in which the failure to so qualify would have a material
adverse effect on (a) its business, properties, assets or condition (financial
or other), (b) the performance of its obligations under this Agreement, (c)
the value or marketability of the Mortgage Loans, or (d) the ability to
foreclose on the related Mortgaged Properties;
(ii) The Seller has the power and authority to make, execute,
deliver and perform its obligations under this Agreement and to consummate all
of the transactions contemplated under this Agreement, and has taken all
necessary action to authorize the execution, delivery and performance of this
Agreement. When executed and delivered, this Agreement will constitute its
legal, valid and binding obligation enforceable in accordance with its terms,
except as enforcement of such terms may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by the availability of
equitable remedies;
(iii) The Seller holds all necessary licenses, certificates and
permits from all governmental authorities necessary for conducting its
business as it is presently conducted. It is not required to obtain the
consent of any other party or any consent, license, approval or authorization
from, or registration or declaration with, any governmental authority, bureau
or agency in connection with the execution, delivery, performance, validity or
enforceability of this Agreement, except for such consents, licenses,
approvals or authorizations, or registrations or declarations, as the case may
be, as shall have been obtained or filed, prior to the Closing Date;
(iv) The execution, delivery and performance of this Agreement
by it will not conflict with or result in a breach of, or constitute a default
under, any provision of any existing law or regulation or any order or decree
of any court applicable to the Seller or any of its properties or any
provision of its Articles of Incorporation or Bylaws, or constitute a material
breach of, or result in the creation or imposition of any lien, charge or
encumbrance upon any of its properties pursuant to, any mortgage, indenture,
contract or other agreement to which it is a party or by which it may be
bound;
(v) No certificate of an officer, statement furnished in writing
or report delivered pursuant to the terms hereof by the Seller contains any
untrue statement of a material fact or omits to state any material fact
necessary to make the certificate, statement or report, as applicable, not
misleading;
(vi) The transactions contemplated by this Agreement are in the
ordinary course of the Seller's business;
(vii) The Seller is not insolvent, nor will the Seller be made
insolvent by the transfer of the Mortgage Loans, nor is the Seller aware of
any pending insolvency;
(viii) The Seller is not in violation of, and the execution and
delivery of this Agreement by it 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 Seller's condition (financial or
otherwise) or operations or any of the Seller's properties or materially and
adversely affect the performance of any of its duties hereunder;
(ix) There are no actions or proceedings against, or
investigations of the Seller pending or, to its knowledge, threatened, before
any court, administrative agency or other tribunal (a) that, if determined
adversely, would prohibit the Seller from entering into this Agreement or the
Sale and Servicing Agreement, (b) seeking to prevent the consummation of any
of the transactions contemplated by this Agreement or (c) that, if determined
adversely, would prohibit or materially and adversely affect the Seller's
performance of any of its respective obligations under, or the validity or
enforceability of, this Agreement or the Sale and Servicing Agreement;
(x) The Seller represents and warrants that it did not sell the
Mortgage Loans to the Depositor, as Purchaser under this Agreement, with any
intent to hinder, delay or defraud any of its creditors; and the Seller will
not be rendered insolvent as a result of the sale of the Mortgage Loans to the
Depositor, as Purchaser under this Agreement;
(xi) The Seller represents and warrants that it acquired title
to the Mortgage Loans in good faith, without notice of any adverse claim
thereto; and
(xii) The Seller represents and warrants that the transfer,
assignment and conveyance of the Mortgage Notes and the Mortgages by the
Seller pursuant to this Agreement are not subject to the bulk transfer laws or
any similar statutory provisions in effect in any applicable jurisdiction.
ARTICLE IV.
SELLER'S COVENANTS
Section 4.01. Covenants of the Seller. The Seller hereby covenants
that except for the transfer hereunder, the Seller will not sell, pledge,
assign or transfer to any other Person, or grant, create, incur, assume or
suffer to exist any Lien on any Mortgage Loan, or any interest therein; the
Seller will notify the Purchaser, the Insurer and the Owner Trustee of the
existence of any Lien on any Mortgage Loan immediately upon discovery thereof;
and the Seller will defend the right, title and interest of the Trust and the
Indenture Trustee in, to and under the Mortgage Loans, against all claims of
third parties claiming through or under the Seller; provided, however, that
nothing in this Section 4.01 shall prevent or be deemed to prohibit the Seller
from suffering to exist upon any of the Mortgage Loans any Liens for municipal
or other local taxes or other governmental charges if such taxes or
governmental charges shall not at the time be due and payable or if the Seller
shall currently be contesting the validity thereof in good faith by
appropriate proceedings and shall have set aside on its books adequate
reserves with respect thereto.
ARTICLE V.
INDEMNIFICATION BY THE SELLER WITH RESPECT TO THE MORTGAGE LOANS
Section 5.01. Indemnification. (a) The Seller agrees to indemnify and
hold harmless the Purchaser, each of its directors, each of its officers who
have signed the Registration Statement, and each person or entity who controls
the Purchaser or any such person, within the meaning of Section 15 of the
Securities Act of 1933, as amended (the "Securities Act"), against any and all
losses, claims, damages or liabilities, joint and several, to which the
Purchaser, or any such person or entity may become subject, under the
Securities Act or otherwise, and will reimburse the Purchaser and each such
controlling person for any legal or other expenses incurred by the Purchaser
or such controlling person in connection with investigating or defending any
such loss, claims, damages or liabilities insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in (i) the Registration Statement, the Prospectus Supplement or
any amendment or supplement to the Prospectus Supplement approved in writing
by the Seller or (ii) Seller Collateral Information (as defined below) or the
omission or the alleged omission to state therein a material fact necessary in
order to make the statements in the Prospectus Supplement or any amendment or
supplement to the Prospectus Supplement approved in writing by the Seller, or
Seller Collateral Information, not misleading, but in the case of clause (i)
above only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission relates to the information contained
in the Prospectus Supplement under the captions: "Summary - The Mortgage
Loans," " - The Seller and Servicer," and "- The Transferor"; the last
sentence under "Summary - The Senior Interest Participations and Transferor
Interest," the last sentence under "Risk Factors - Borrowers Under Balloon
Loans May Be Unable to Pay Final Payment of Principal"; "Risk Factors -
Recently Originated Mortgage Loans More Likely to Experience Early Defaults";
the sentences in the first three bullet points regarding (i) a mortgagor's
ability to prepay its mortgage loan without penalty, (ii) the simple interest
method of computing interest, and (iii) due-on-sale provisions and the
Servicer's enforcement thereof under "Risk Factors - Prepayments Affect Timing
and Rate of Return on Your Investment"; the first sentence under "Risk Factors
- - Lien Priority Could Result in Payment Delay and Loss"; the first sentence
under "Risk Factors - Payments to and Rights of Investors Adversely Affected
by Insolvency of Champion" (as it relates to Champion's treatment of the sale
of the Mortgage Loans from Champion to the Depositor); the first and third
sentences of the first paragraph and the first three sentences of the second
paragraph under "Risk Factors - Interest Payments on Mortgage Loans May Be
Reduced"; the last sentence under "Risk Factors - Commingling Risk"; the last
sentence of the first paragraph under "Risk Factors - Noteholders Could Be
Adversely Affected in the Absence of Year 2000 Compliance"; the first two
sentences under "Risk Factors - Underwriting Standards"; "Risk Factors - Risk
of Losses as a Result of Geographic Concentration"; the sixth sentence in the
second paragraph and the first sentence in the fourth paragraph under
"Prepayment and Yield Considerations - Prepayments"; the last sentence in
"Prepayment and Yield Considerations- General; "The Seller and The Servicer";
"Champion's Home Equity Loan Program"; "Description Of The Mortgage Loans,"
(such information, the "Seller Information"). This indemnity agreement will be
in addition to any liability which the Seller may otherwise have to the
Purchaser or any affiliate thereof concerning the assets of the Trust. The
Seller shall not be liable to the Purchaser for Seller Collateral Information
with respect to any untrue statement or alleged untrue statement or omission
or alleged omission contained on any tape that is Seller Collateral
Information, (such tape (a "Pool Error")) if such Pool Error was corrected in
a tape subsequently provided to the Purchaser by the Seller prior to the date
of the Prospectus Supplement. "Seller Collateral Information" as used herein
means the information contained on any computer tape furnished to the
Underwriters by the Seller concerning the assets comprising the Trust.
(b) The Purchaser agrees to indemnify and hold harmless the
Seller and each person who controls the Seller within the meaning of Section
15 of the Securities Act against any and all losses, claims, damages or
liabilities, joint and several, to which the Seller, or any such person or
entity may become subject, under the Securities Act or otherwise, and will
reimburse the Seller for any legal or other expenses incurred by the Seller or
such controlling person in connection with investigating or defending any such
losses, claims, damages or liabilities insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of material fact
contained in the Registration Statement or any amendment or supplement thereto
or 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 or (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Prospectus Supplement or the Prospectus or any
amendment or supplement to the Prospectus Supplement or the Prospectus or the
omission or the alleged omission to state therein a material fact necessary in
order to make the statements in the Prospectus Supplement or the Prospectus or
any amendment or supplement to the Prospectus Supplement or the Prospectus, in
the light of the circumstances under which they were made, not misleading, but
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission relates to the information contained in the
Prospectus Supplement or the Prospectus, other than the Seller Information,
and except to the extent that any untrue statement or alleged untrue statement
or omission or alleged omission relates to any inaccuracy contained in or
omission from Seller Collateral Information with respect to which any Pool
Error was not corrected prior to the date of the Prospectus Supplement. This
indemnity agreement will be in addition to any liability which the Purchaser
may otherwise have.
(c) Promptly after receipt by any indemnified party under this
Article V 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 Article V, 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 Article V except to the extent that it
has been materially prejudiced by such failure to notify; 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 Article V.
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, the
indemnifying party shall not be liable to the indemnified party under this
Article V 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 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, that
the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related action(s) 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 local counsel) at any time for all such indemnified
parties, which firm shall be designated in writing by the Purchaser, if the
indemnified parties under this Article V consist of the Purchaser, or by the
Seller, if the indemnified parties under this Article V consist of the Seller.
Each indemnified party, as a condition of the indemnity
agreements contained in Section 5.01(a) and (b) above, 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 sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel for which indemnification
is required pursuant to this Article V, 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 30 days after
receipt by such indemnifying party of the aforesaid request 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) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this Article V
is for any reason held to be unenforceable although applicable in accordance
with its terms, the Seller, on the one hand, and the Purchaser, on the other,
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by said indemnity agreement incurred by
the Seller and the Purchaser in such proportions as shall be appropriate to
reflect the relative benefits received by the Seller on the one hand and the
Purchaser on the other from the sale of the Mortgage Loans such that the
Purchaser is responsible for that portion represented by the percentage that
the difference between the Purchase Price paid to the Seller and the proceeds
received by the Purchaser from the sale of the Notes bears to the Purchase
Price and the Seller shall be responsible for the balance; provided, however,
that 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. For
purposes of this Section, each person, if any, who controls the Purchaser
within the meaning of Section 15 of the Securities Act shall have the same
rights to contribution as the Purchaser and each director of the Seller, each
officer of the Seller, and each person, if any, who controls the Seller within
the meaning of Section 15 of the Securities Act shall have the same rights to
contribution as the Seller. Notwithstanding anything in this paragraph (d) to
the contrary, the Purchaser shall not be required to contribute an amount in
excess of the amount of the underwriting discount appearing on the cover page
of the Prospectus Supplement.
ARTICLE VI.
TERMINATION
Section 6.01. Termination. The respective obligations and
responsibilities of the Seller and the Purchaser created hereby shall
terminate, except for the Seller's indemnity obligations as provided herein,
upon the termination of the Trust as provided in Article VIII of the Sale and
Servicing Agreement.
ARTICLE VII.
MISCELLANEOUS PROVISIONS
Section 7.01. Amendment. This Agreement may be amended from time to
time by the Seller and the Purchaser, with the consent of the Insurer (which
consent shall not be unreasonably withheld), by written agreement signed by
the Seller and the Purchaser, with the consent of the Insurer (which consent
shall not be unreasonably withheld).
Section 7.02. Governing Law. This Agreement shall be governed by and
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.
Section 7.03. ______________ Notices. All demands, notices and
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered at or mailed by registered mail, postage
prepaid, addressed as follows:
if to the Seller:
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
or such other address as may hereafter be furnished to the Purchaser in
writing by the Seller.
if to the Purchaser:
[ ]
[ ]
[ ]
[ ]
[ ]
or such other address as may hereafter be furnished to the Seller in writing
by the Purchaser.
if to the Insurer: at the address designated in the Insurance
Agreement.
Section 7.04. Severability of Provisions. If any one or more of the
covenants, agreements, provisions of 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
of enforceability of the other provisions of this Agreement.
Section 7.05. 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 and such counterparts, together, shall constitute one and the same
agreement.
Section 7.06. Further Agreements. The Purchaser and the Seller each
agree to execute and deliver to the other such additional documents,
instruments or agreements as may be necessary or reasonable and appropriate to
effectuate the purposes of this Agreement or in connection with the issuance
of any Series of Notes secured by the Mortgage Loans.
Section 7.07. Intention of the Parties. It is the intention of the
parties that the Purchaser is purchasing, and the Seller is selling, the
Mortgage Loans rather than pledging the Mortgage Loans to secure a loan by the
Purchaser to the Seller. Accordingly, the parties hereto each intend to treat
the transaction for accounting purposes as a sale by the Seller, and a
purchase by the Purchaser, of the Mortgage Loans. The Purchaser will have the
right to review the Mortgage Loans and the related Mortgage Files to determine
the characteristics of the Mortgage Loans which will affect the Federal income
tax consequences of owning the Mortgage Loans and the Seller will cooperate
with all reasonable requests made by the Purchaser in the course of such
review. The Insurer shall be an intended third party beneficiary hereunder.
Section 7.08. Successors and Assigns: Assignment of Purchase
Agreement. This Agreement shall bind and inure to the benefit of and be
enforceable by the Seller, the Purchaser, the Insurer, the Owner Trustee and
the Indenture Trustee. The obligations of the Seller under this Agreement
cannot be assigned or delegated to a third party without the consent of the
Purchaser and the Insurer, which consent shall be at the Purchaser's and the
Insurer's sole discretion, except that the Purchaser acknowledges and agrees
that the Seller may with the consent of the Insurer assign its obligations
hereunder to any Person into which the Seller is merged or any corporation
resulting from any merger, conversion or consolidation to which the Seller is
a party or any Person succeeding to the business of the Seller. The parties
hereto acknowledge that the Purchaser is acquiring the Mortgage Loans for the
purpose of contributing them to a trust that will issue a Series of Notes
secured by such Mortgage Loans. As an inducement to the Purchaser to purchase
the Mortgage Loans, the Seller acknowledges and consents to the assignment by
the Purchaser to the Owner Trustee and the assignment by the Owner Trustee to
the Indenture Trustee of all of the Purchaser's rights against the Seller
pursuant to this Agreement insofar as such rights relate to Mortgage Loans
transferred to such Owner Trustee and to the enforcement or exercise of any
right or remedy against the Seller pursuant to this Agreement by the Owner
Trustee under the Sale and Servicing Agreement and the Indenture Trustee under
the Indenture. Such enforcement of a right or remedy by the Owner Trustee
shall have the same force and effect as if the right or remedy had been
enforced or exercised by the Purchaser directly.
Section 7.09. Survival. The representations and warranties set
forth in Sections 3.01 and 3.02 and the provisions of Article V hereof shall
survive the purchase of the Mortgage Loans hereunder.
<PAGE>
IN WITNESS WHEREOF, the Seller and the Purchaser have caused
their names to be signed to this Mortgage Loan Purchase Agreement by their
respective officers thereunto duly authorized as of the day and year first
above written.
[ ],
as Purchaser
By:
--------------------------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION,
as Seller
By:
-------------------------------------------
Name:
Title:
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On the ___ day of September 1999 before me, a Notary Public in and
for said State, 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
- -----------------------------------
<PAGE>
STATE OF )
)ss.:
COUNTY OF )
On the ___ day of September 1999 before me, a Notary Public in and
for said State, personally appeared ____________________, known to me to be a
[ ___________________ ] of [ ____________________ ] the company 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
- -----------------------------------
<PAGE>
SCHEDULE I
MORTGAGE LOANS
