<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 2000
Registration No. 333-93255
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CHEC FUNDING, LLC
(Exact name of Registrant as specified in its charter)
on behalf of itself and trusts with respect to which
it is the settlor, sponsor or depositor
Delaware 75-2851805
-------- -----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
--------------------------------------
CHEC FUNDING, LLC
2728 N. Harwood Street
Dallas, Texas 75201
(214) 981-5000
(Address, including zip code, and telephone number,
including area code, of Registrant's
principal executive offices)
----------------------------
Bruce Winn
Director and Vice President
Corporation Service Company
1013 Centre Street
Wilmington, DE 19805
(800) 927-9800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copy to:
Reed D. Auerbach
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
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, 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, 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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
AGGREGATE MAXIMUM
TITLE OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED (1) REGISTERED (2) PER UNIT (2) PRICE REGISTRATION FEE (3)
<S> <C> <C> <C> <C>
Notes and Certificates $3,000,000,000 100% $3,000,000,000 $791,736
</TABLE>
(1) The securities are also being registered for the purpose of market making.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) A fee of $264 has previously been paid.
<PAGE>
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.
INTRODUCTORY NOTE
This Registration Statement contains (i) a form of Prospectus
relating to the offering of a series of Asset Backed Notes and/or Asset
Backed Certificates by various Centex Home Equity Loan Trusts created from
time to time by CHEC Funding, LLC and (ii) two forms of Prospectus Supplement
relating to the offering by Centex Home Equity Loan Trusts of the particular
series of Asset Backed Certificates or of Asset Backed Notes and Asset Backed
Certificates described therein. Each form of Prospectus Supplement relates
only to the securities described therein and is a form which, among others,
may be used by CHEC Funding, LLC to offer Asset Backed Notes and/or Asset
Backed Certificates under this Registration Statement.
In addition, if and to the extent required by applicable law, each
Prospectus and the related Prospectus Supplement will also be used after the
completion of the related offering in connection with certain offers and
sales related to market-making transactions in the offered securities. In
order to register under Rule 415 those securities which may be offered and
sold in market-making transactions, the appropriate box on the cover page of
the Registration Statement has been checked and the undertakings required by
Item 512(a) of Regulation S-X have been included in Item 17 of Part 17.
Information contained in this prospectus 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 Law
of any State.
<PAGE>
SUBJECT TO COMPLETION DATED JANUARY 27, 2000
(To Prospectus dated _________________________ , ____)
$-----------------
CENTEX HOME EQUITY LOAN TRUST ____-_
Centex Home Equity Loan Asset-Backed Notes, Series ____-_
Centex Credit Corporation
d/b/a Centex Home Equity Corporation
Seller and Servicer
[Centex Logo]
CHEC Funding, LLC
Depositor
<TABLE>
<CAPTION>
NOTE PROCEEDS
PRINCIPAL NOTE PRICE TO UNDERWRITING TO THE
BALANCE RATE PUBLIC DISCOUNT DEPOSITOR
--------- ---- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes $ Fixed * % % %
Class A-2 Notes $ Fixed * % % %
Class A-3 Notes $ Variable ** % % %
</TABLE>
- ------------------
* subject to an interest rate cap
** subject to an available funds cap
[begin sidebar]
- --------------------------------------------------------------------------------
The notes represent non-recourse obligations of the trust only and do not
represent an interest in or obligation of [the Trust owners]. Centex Home Equity
Corporation, the indenture trustee, the owner trustee or any of their
affiliates.
- --------------------------------------------------------------------------------
[end sidebar]
The trust:
- - is a Delaware business trust formed pursuant to a trust agreement between
________ and ____________
- - will issue three classes of notes, which are offered by this prospectus
supplement; and
- - will issue a transferor interest, which is not offered by this propsectus
supplement.
The notes:
- - are principally secured by the assets of the trust, which consist of one
group of closed-end, fixed-rate home equity loans, one group of closed end,
adjustable-rate home equity loans with conforming balances and one group of
closed-end, adjustable-rate home equity loans with non-conforming balances;
- - currently have no trading market; and
- - are not insured or guaranteed by any governmental agency.
Credit enhancement will be provided in the form of overcollateralization,
limited crosscollateralization and irrevocable and unconditional financial
guaranty insurance policies issued by _____________________.
REVIEW THE INFORMATION IN "RISK FACTORS" BEGINNING ON PAGE S-__ OF THIS
PROSPECTUS SUPPLEMENT AND PAGE __ OF THE PROSPECTUS.
After the initial distribution of the notes, this prospectus and prospectus
supplement may be used in market making transactions in the notes. In connection
with any market making transactions, certain information in this prospectus
supplement will be updated from time to time.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE NOTES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The underwriters named below will purchase the notes from the depositor. See
"Underwriting" in this prospectus supplement. The notes will be issued in
book-entry form only on or about __________ ___, ____.
[UNDERWRITER LOGO]
________________ ____, ________
<PAGE>
For 90 days following the date of this prospectus supplement, all dealers
selling the notes 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 notes 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 notes in any state where the offer is not permitted.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
---------------------
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<S> <C>
Summary..............................................S-3
Risk Factors.........................................S-11
The Note Insurer.....................................S-23
Description of the Home Equity Loans.................S-23
Prepayment and Yield Considerations..................S-46
The Trust............................................S-55
Description of the Notes.............................S-56
Description of the Agreements........................S-69
Use of Proceeds......................................S-76
Certain Federal Income Tax Considerations............S-76
Certain State Tax Considerations.....................S-78
Erisa Considerations.................................S-78
Legal Investment Considerations......................S-79
Underwriting.........................................S-80
Experts..............................................S-80
Legal Matters........................................S-81
Ratings..............................................S-81
Index of Defined Terms...............................S-82
Annex I; Global Clearance, Settlement and Tax
Documentation Procedures...........................S-83
PROSPECTUS
----------
<CAPTION>
CAPTION PAGE
- ------- ----
<S> <C>
Prospectus Supplement................................5
Reports to Holders...................................5
Available Information................................6
Incorporation of Certain Documents
by Reference.......................................6
Introduction.........................................7
The Depositor........................................8
The Seller and the Servicer..........................8
Description of the Securities.......................15
The Trust Funds.....................................23
Accounts............................................26
Enhancement.........................................28
The Agreements......................................30
Certain Matters Regarding the Servicer..............37
Certain Legal Aspects of the Home
Equity Loans......................................45
Use of Proceeds.....................................52
Federal Income Tax Consequences.....................53
State Tax Consequences..............................75
ERISA Considerations................................75
Legal Investment....................................79
Plan of Distribution................................80
Legal Matters.......................................80
</TABLE>
<PAGE>
SUMMARY
- - This summary highlights selected information from this prospectus
supplement 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 notes, you should read carefully this entire
prospectus supplement and accompanying prospectus.
- - This summary provides an overview to aid your understanding and is
qualified by the full description of this information in this prospectus
supplement and the accompanying prospectus.
- - You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption "Index of Defined
Terms" beginning on page S-___ in this prospectus supplement.
ISSUER
- - Centex Home Equity Loan Trust ____-_.
DEPOSITOR
- - CHEC Funding, LLC, a Delaware limited liability company and wholly owned
subsidiary of Centex Credit Corporation d/b/a Centex Home Equity
Corporation.
SELLER AND SERVICER
- - __________________________
THE TRANSFEROR
- - The holder of the transferor interest, which initially will be the
depositor or an affiliate of the depositor.
OWNER TRUSTEE
- - _______________________
INDENTURE TRUSTEE
- - _______________________
NOTE INSURER
- - ____________________.
CLOSING DATE
- ------- --, -----.
CUT-OFF DATE
- - For each home equity loan, the later of (1) the opening of business on
______ __, ____ and (2) the date of its origination but in no event later
than the closing date.
- - All statistical information relating to the home equity loans presented in
this prospectus supplement is given as of the statistical calculation date.
STATISTICAL CALCULATION DATE
- --------- ---, -----
DISTRIBUTION DATE
The ___ day of each month, or if the ___ day is not a business day, then the
next succeeding business day. The first distribution date will be ________ __,
____.
RECORD DATE
With respect to any distribution date and the fixed rate notes, the close of
business on the last business day of the month immediately preceding the
calendar month in which the distribution date occurs. With respect to any
distribution date and the variable rate notes, the close of business on the last
business day immediately preceding the distribution date. If definitive notes
are issued, the record date will in all cases be the close of business on the
last business day of the month immediately preceding the calendar month in which
the distribution date occurs.
BUSINESS DAY
A business day is any day other than a Saturday or Sunday, or any other day that
banking institutions in the following cities are authorized or required by law
or executive order to be
S-3
<PAGE>
closed: New York, Dallas; [where the corporate trust offices of the owner
trustee or indenture trustee are located]; or [where the note insurer is
located].
REMITTANCE PERIOD
For purposes of calculating amounts payable on any distribution date, the
applicable Remittance Period is the calendar month immediately preceding the
calendar month in which the distribution date occurs.
THE NOTES
GENERAL
On the closing date, the trust will issue the notes and the transferor interest.
Only the notes are being offered under this prospectus supplement. We have
included information with respect to the transferor interest solely to provide
you with a better understanding of the notes.
GROUP I NOTES
The Group I notes will be the Class A-1 notes. Distributions on the Group I
notes will be primarily derived from payments on the home equity loans in Group
I.
GROUP II NOTES
The Group II notes will be the Class A-2 notes. Distributions on the Group II
notes will be primarily derived from payments on the home equity loans in Group
II.
GROUP III NOTES
The Group III notes will be the Class A-3 notes. Distributions on the Group III
notes will be derived principally from payments on the home equity loans in
Group III.
FIXED RATE NOTES
The Class A-1 notes and the Class A-2 notes.
VARIABLE RATE NOTES
The Class A-3 notes.
DENOMINATIONS
The notes will be offered for purchase in denominations of $1,000 and multiples
of $1 above $1,000.
BOOK-ENTRY REGISTRATION
We will issue the notes 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 notes are in book-entry form they will be registered in the
name of the nominee of depository in the United States.
THE STATED MATURITY
The final scheduled distribution date for each class of notes is
_____________________.
TRANSFEROR INTEREST
Payments on the transferor interest are subordinated to payments on the notes,
as more fully described in this prospectus supplement. The transferor interest
will be held by the transferor.
DISTRIBUTIONS TO NOTEHOLDERS
GENERAL
You will be entitled to receive payments of interest on each distribution date.
We may reduce the amount of interest that you are entitled to receive on any
distribution date as a result of the application of the Soldiers' and Sailors'
Civil Relief Act of 1940. The amount of principal you will be entitled to
receive will vary depending on a number of factors, including the payments
received on the home equity loans. If you hold a note on the applicable record
date, you will be entitled to receive payments on the related distribution date.
FIXED RATE NOTE INTEREST
- - The interest rate on any distribution date with respect to the Class A-1
notes will be __% (or ___% for each distribution date after the first
distribution date on which the servicer has the option to purchase the home
equity loans), subject to an interest rate cap.
S-4
<PAGE>
- - The interest rate on any distribution date with respect to the Class A-2
notes will be __% (or ___% for each distribution date after the first
distribution date on which the servicer has the option to purchase the home
equity loans), subject to an interest rate cap.
The interest period with respect to each distribution date for a fixed rate note
is the calendar month preceding the month of the distribution date. For example,
if the distribution date occurs on _________, the interest period would be the
month of _________. Each calendar month will be deemed to have 30 days and each
year will be deemed to have 360 days. Therefore, if you are a holder of a fixed
rate note you would use the following formula to calculate your interest payment
on any distribution date:
30 x IR x PB = your interest payment
---
360
IR = the applicable per annum fixed interest rate, subject to (1) an
interest rate cap and (2) an increase if the servicer does not exercise its
option to terminate the trust by purchasing all of the home equity loans.
PB = the principal balance of your fixed rate note immediately prior to any
distributions on the distribution date. If you are a holder of a fixed rate
note, we will increase the interest payment we owe to you for a
distribution date by any unpaid amounts we owe to you from prior
distribution dates, plus accrued interest at the applicable note rate.
If you are a holder of a fixed rate note, you will not receive additional funds
on future distribution dates to compensate you for any reduction in the amount
of interest paid to you on a prior distribution date because of an interest rate
cap.
VARIABLE RATE NOTE INTEREST
- - The interest rate on any distribution date with respect to the Class A-3
notes will equal one-month LIBOR plus __% (or one-month LIBOR plus __% for
each distribution date after the first distribution date on which the
servicer has the option to purchase the home equity loans), subject to an
available funds cap.
The interest period with respect to each distribution date and the variable rate
notes is the period from and including the previous distribution date (or the
closing date in the case of the first distribution date) to and including the
day preceding the related distribution date. Interest on the variable rate notes
will accrue during the related interest period on the basis of the actual number
of days elapsed in the related interest period and a year consisting of 360
days. Therefore if you are a holder of a variable rate note, you would use the
following formula to calculate your interest payment on any distribution date:
N x IR x PB = your interest payment
---
360
N = number of days in the interest period
IR = the per annum floating interest rate for the interest period,
subject to both (1) an available funds cap and (2) an increase if the
servicer does not exercise its option to terminate the trust by purchasing
all of the home equity loans.
PB = the principal balance of your variable rate note immediately prior to
any distributions on the distribution date.
If you are a holder of a variable rate note, we will increase the interest
payment we owe to you for a distribution date by any unpaid amounts we owe to
you from prior distribution dates, plus accrued interest at the applicable note
rate.
Additionally, we will pay to you the amount by which we reduce the interest
payment we owe to you as a holder of a variable rate note because of the
available funds cap on future distribution dates, on a subordinated basis, to
the extent that money is available to make these payments.
PRINCIPAL PAYMENTS
On each distribution date, you will generally be entitled to a principal amount
equal to principal collections with respect to the group of home equity loans
associated with your notes plus amounts necessary to reach the required level of
overcollateralization for that distribution date.
S-5
<PAGE>
Amounts available to make this payment will be principal collections as well as
excess interest with respect to your home equity loans.
TRUST PROPERTY
The trust property includes:
- - a pool of closed-end fixed rate home equity loans, a pool of closed end,
adjustable-rate home equity loans with principal balances that may not
conform to Freddie Mac and Fannie Mae guidelines and a pool of closed-end
adjustable rate home equity loans with principal balances that may not
conform to Freddie Mac and Fannie Mae guidelines, in each case secured
primarily by first and second deeds of trust or mortgages on one-to
four-family residential properties transferred to the trust on the closing
date;
- - payments on the home equity loans received on and after the cut-off date;
- - property that secured a home equity loan which has been acquired by
foreclosure or deed in lieu of foreclosure;
- - amounts on deposit in the accounts specified in this prospectus supplement;
- - rights under any hazard insurance policies, if any, covering the mortgaged
properties; and
- - proceeds of the foregoing.
Each class of notes will also have the benefit of a separate note insurance
policy issued by ___________________
THE HOME EQUITY LOANS
GENERAL
We will divide the home equity loans into three groups. Each of the home equity
loan groups will constitute a separate sub-trust. The Group I and Group II home
equity loan groups will contain home equity loans that bear interest at fixed
rates. The Group III home equity loan group will contain home equity loans that
bear interest at variable rates [that adjust semi-annually based on six-month
LIBOR and the applicable gross margin (subject to the limitations described in
this prospectus supplement). The initial rate adjustment date for those home
equity loans that bear interest at an adjustable rate is either (a) six months
after the date of origination of the related home equity loan or (b) two years
after the date of origination of the related home equity loan.
All of the home equity loans in the trust have been originated by the seller, an
affiliate of the seller or a broker for simultaneous assignment to the seller.
The home equity loans are secured primarily by first and second lien mortgages
or deeds of trust primarily on one-to-four family residential properties and
manufactured housing treated as real property under applicable state law. None
of the home equity loans is insured by a primary mortgage insurance policy.
The home equity loans are not and will not be guaranteed by the depositor, the
seller, the servicer, the note insurer, the transferor, the owner trustee, the
indenture trustee or any of their affiliates.
The statistical information presented in this prospectus supplement is with
respect to _________ home equity loans, of which ________ are fixed-rate home
equity loans and _______ are adjustable-rate home equity loans as of the
statistical calculation date. Prior to the closing date additional home equity
loans will be added to each home equity loan group and some home equity loans
may be removed from each home equity loan group, subject to the consent of the
note insurer. As a result, the characteristics of the home equity loans in each
home equity loan group as of the cut-off date will differ from the
characteristics presented in this prospectus supplement as of the statistical
calculation date. The depositor does not expect a material change in the
aggregate characteristics of any home equity loan group.
The home equity loans are secured by mortgaged properties located in ___ states
and the District of Columbia.
GROUP I HOME EQUITY LOANS
The home equity loans in Group I will have the following characteristics as of
the statistical calculation date:
- - number of home equity loans: ________
S-6
<PAGE>
- - aggregate principal balance: $__________
- - average principal balance: $___________
- - maximum principal balance: $_________
- - minimum principal balance: $_________
- - last maturity date: __________________
- - interest rates range: ___% to ____%
- - weighted average interest rate: ______% (approximate)
- - weighted average remaining term to stated maturity, based on principal
balance: _____ months (approximate)
- - remaining term to stated maturity range: ___ months to _____ months
- - weighted average combined loan-to-value ratio: ______% (approximate)
- - no original combined loan-to-value ratio exceeded _____%
- - balloon loans: _____% (approximate)
- - secured by first lien on the mortgaged property: ______%
- - secured by second lien on the mortgaged property: ______%
GROUP II HOME EQUITY LOANS
The home equity loans in Group II will have the following characteristics as of
the statistical calculation date:
- - all home equity loans in Group II:
- - number of home equity loans: ______
- - aggregate principal balance: $_________
- - average principal balance: $__________
- - maximum principal balance: $__________
- - minimum principal balance: $__________
- - last maturity date: _______________
- - interest rates range: ______% to _____%
- - weighted average interest rate: ______% (approximate)
- - weighted average remaining term to stated maturity, based on principal
balance: _____ months (approximate)
- - remaining term to stated maturity range: ___ months to ____ months
- - weighted average combined loan-to-value ratio: _____% (approximate)
- - no original combined loan-to-value ratio exceeded _____%
- - balloon loans: _____% (approximate)
- - secured by first lien on the mortgaged property: _____%
- - secured by second lien on the mortgage property: _____%
GROUP III HOME EQUITY LOANS
The home equity loans in Group III will have the following characteristics as of
the statistical calculation date:
- - all home equity loans in Group III:
- - number of home equity loans: ______
- - aggregate principal balance: $_________
- - average principal balance: $__________
- - maximum principal balance: $__________
- - minimum principal balance: $__________
- - last maturity date: _______________
- - weighted average interest rate: ______% (approximate)
- - interest rates range: ______% to _____%
- - weighted average remaining term to stated maturity, based on principal
balance: _____ months (approximate)
- - remaining term to stated maturity range: ___ months to ____ months
- - weighted average loan-to-value ratio: _____% (approximate)
- - no original loan-to-value ratio exceeded _____%
- - weighted average gross margin: _____% (approximate)
- - weighted average maximum interest rate: _______% (approximate)
- - maximum interest rate range: __% to __%
- - weighted average minimum interest rate: ______% (approximate)
- - minimum interest rate range: __% to __%
- - Six-Month number of home equity loans: ____Adjustable Rate Loans:
- - weighted average remaining period until interest rate adjustment:
approximately __ months
- - initial payment adjustment: effective for the seventh monthly payment
period
- - initial interest rate adjustment cap: ____%
- - semi-annual interest rate adjustment cap: ____%
S-7
<PAGE>
- - lifetime interest rate cap: _____%
- - 2/28 Adjustable Rate Loans:
- - number of home equity loans: ________
- - weighted average remaining period until next interest rate adjustment:
approximately ___ months
- - initial payment adjustment: effective for the 25th monthly payment
period
- - initial interest rate adjustment cap: ____%
- - semi-annual interest rate adjustment cap: ____%
- - lifetime interest rate cap: _____%
DELINQUENCY ADVANCES AND COMPENSATING INTEREST
Each month the servicer will determine the amount of any unpaid interest due on
the home equity loans. If the servicer believes that unpaid interest can be
recovered, then the servicer will either:
- - advance the unpaid interest to the trust out of its own funds; or
- - advance the unpaid interest to the trust out of collections on the home
equity loans that are not required to be distributed on the related
distribution date.
The servicer will reimburse the trust for amounts advanced from trust
collections prior to the date on which these amounts are required to be a part
of any amounts distributable to you.
The servicer will provide to the trust the amount of any shortfall in the
anticipated collection of interest on a home equity loan that is caused by a
full prepayment of a home equity loan or a prepayment of at least six times a
mortgagor's monthly payment up to the amount of the aggregate servicing fee due
on the related distribution date. The servicer is entitled to be reimbursed by
the trust for any delinquency advances from the related home equity loan. The
servicer is also entitled to be reimbursed by the trust for any delinquency
advances, as well as unreimbursed payments of compensating interest, from all
the home equity loans [in the related group] to the extent funds are available
after making other required distributions on the related distribution date.
SERVICING ADVANCES
Unless the servicer determines that any proposed advance is not recoverable from
the related home equity loan, the servicer will pay all "out of pocket" costs
and expenses incurred in the performance of its servicing obligations,
including, but not limited to:
- - expenditures in connection with a foreclosed home equity loan prior to
its liquidation;
- - the cost of any enforcement or judicial proceedings, including
foreclosures; and
- - the cost of the management and liquidation of property acquired in
satisfaction of the related home equity loan.
The servicer is entitled to be reimbursed by the trust for any servicing
advances from the related home equity loan group [and also from all the home
equity loans to the extent funds are available after making other required
distributions on the related distribution date.]
CREDIT ENHANCEMENT
NOTE INSURANCE POLICIES
___________________ will issue three note guaranty insurance policies for the
benefit of each class of notes.
The note insurance policies will unconditionally and irrevocably guarantee the
timely payment of interest on and the ultimate payment of the principal amount
of each class of notes.
On each distribution date, the owner trustee will, for each class of notes,
calculate to what extent the funds available to make the payments of principal
and interest are insufficient to (1) pay current interest on the notes or (2)
reduce the principal balance of the related notes to an amount equal to the
principal balance of the home equity loans in the related home equity loan
group. If an insufficiency exists, then the owner trustee will make a draw on
the related note insurance policy. In addition, each note insurance policy will
guarantee the full payment of the principal balance on each class of notes on
the final scheduled distribution date.
S-8
<PAGE>
The note insurance policies do not cover any shortfalls related to the Soldiers'
and Sailors' Civil Relief Act of 1940, as amended, or as a result of the
application of any interest rate cap or available funds cap.
If for any reason the note insurer does not make the payments required in the
related note insurance policy, you will have to rely solely on the home equity
loans for your payments of interest and principal and you may suffer a loss.
OVERCOLLATERALIZATION
Overcollateralization is calculated as the amount by which the aggregate
principal balance of the home equity loans in the related home equity loan group
exceeds the principal balance of the class of notes related to the home equity
loan group. The notes will not have the benefit of any overcollateralization on
the date the notes are issued. Following the date the notes are issued, excess
interest collections, if any, will be applied as accelerated payments of
principal to the related class of notes until the overcollateralization level
for the home equity loan group equals the required overcollateralization amount
for the home equity loan group.
If there are not sufficient excess interest collections with respect to a
particular home equity loan group, the related overcollateralization amount will
not be increased to or maintained at the required level. In addition, realized
losses on the home equity loans in a particular home equity loan group will
reduce the amount of overcollateralization with respect to the related class of
notes. If realized losses on the home equity loans in a particular home equity
loan group result in the overcollateralization amount for the home equity loan
group becoming negative, to the extent that excess amounts are not available
from that home equity loan group or from the other home equity loan groups, a
draw will be made on the related note insurance policy. The required
overcollateralization amount for each home equity loan group may be reduced or
eliminated by the note insurer without your consent.
CROSSCOLLATERALIZATION
Each home equity loan group provides for limited crosscollateralization of the
notes related to the other home equity loan groups. Excess amounts generated by
one home equity loan group will be available to fund:
- - shortfalls in the payment of interest on the notes related to the other
home equity loan groups as a result of defaults;
- - principal losses on the home equity loans in another home equity loan
group to the extent not covered by excess interest or
overcollateralization in the other home equity loan group; and
- - the reimbursement of the note insurer [and the owner trustee] for amounts
owed with respect to the other home equity loan groups.
OPTIONAL TERMINATION BY THE SERVICER
The servicer may, at its option, terminate the trust on the first distribution
date on which the aggregate outstanding principal balance of the home equity
loans in all groups is equal to or less than 10% of the aggregate outstanding
principal balance of the home equity loans on the cut-off date.
OPTIONAL PURCHASE OF DEFAULTED HOME EQUITY LOANS
The servicer has the option, but is not obligated, to purchase from the trust
any home equity loan that becomes delinquent for two consecutive monthly
installments, subject to the limitations described in the sale and servicing
agreement.
CERTAIN FEDERAL TAX CONSIDERATIONS
In the opinion of Stroock & Stroock & Lavan LLP, counsel to the seller and the
issuer, for federal income tax purposes, the notes will be treated as debt and
the "trust fund" (as defined in the prospectus) will not be an association,
publicly traded partnership or taxable mortgage pool taxable as a corporation.
By your purchase of a note, you will be agreeing to treat the notes as debt for
federal income tax purposes.
ERISA CONSIDERATIONS
Subject to the considerations and conditions described under "ERISA
CONSIDERATIONS" in the prospectus and in this prospectus
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supplement, we expect that the notes may be purchased by a pension or other
employee benefit plan or arrangement subject to the Employee Retirement Income
Security Act of 1974, as amended, and/or Section 4975 of the Internal Revenue
Code of 1986, as amended, pursuant to certain prohibited transaction class
exemptions which are based on the identity of the fiduciary of the plan
purchasing the notes.
LEGAL INVESTMENT CONSIDERATIONS
The notes will not constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984. Accordingly, many
institutions with legal authority to invest in comparably rated securities may
not be legally authorized to invest in the notes.
NOTE RATINGS
It is a condition to the issuance of the notes that they receive ratings of
"AAA" by Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. and "Aaa" by Moody's Investors Service, Inc.
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RISK FACTORS
You should consider the following risk factors together with all the
information contained in this prospectus supplement and the related prospectus
in deciding whether to purchase any of the notes.
HOME EQUITY LOANS ARE
ONLY SOURCE OF REPAYMENT The notes will be payable solely from the assets of
the trust fund and from the credit enhancement
described in this prospectus supplement. You will
have no recourse to the depositor, the seller, the
servicer or any other person for any default on the
notes or any failure to receive distributions on the
notes. In addition, certain home equity loans and/or
any balance remaining immediately after making all
payments due on the notes and other payments
specified in this prospectus supplement, will be
promptly released or remitted to the holder of the
tranferor interest or any other designated person and
will no longer be available for making payments to
holders. Consequently, you must rely solely upon
payments with respect to the home equity loans and
the other assets constituting the trust fund for the
notes, including amounts available as credit
enhancement, which include bond insurance,
overcollateralization and crosscollateralization, for
the payment of principal of and interest on the
notes.
You will be required under the indenture to proceed
only against the home equity loans and other assets
constituting the trust fund in the case of a default
with respect to the notes and may not proceed against
any assets of the depositor, the seller, the servicer
or any other person. There is no assurance that the
market value of the home equity loans or any other
assets will at any time be equal to or greater than
the aggregate principal amount of the notes then
outstanding plus accrued interest. In addition, upon
an event of default under the indenture and a sale of
the assets in the trust fund, the trustee, the
servicer, the credit enhancer, and any other service
provider specified in the prospectus supplement will
be entitled to receive the proceeds of the sale to
the extent of unpaid fees and other amounts owed to
them prior to distributions on the notes. Proceeds of
a sale of the assets may be insufficient to pay in
full the principal of and interest on the notes, and
you may suffer a loss on your investment.
PERFORMANCE MAY BE AFFECTED
BY THE SERVICER'S LIMITED Although the seller began originating home equity
EXPERIENCE loans in 1994, prior to October 1997 the seller sold
substantially all of its home equity loans in whole
loan transactions, and did not continue to service
those home equity loans. As a result, the servicer
has approximately two years of historical loss data
relating to its home equity loan portfolio that you
may refer to for purposes of examining the loss
experience of home equity loans similar to the home
equity loans being sold to the trust. Moreover, the
servicing of home equity loans of the type included
in the trust (as compared to the servicing of
conforming or prime home equity loans) requires
special skill and diligence. The servicing of these
types of home equity loans generally requires more
attention to each account, earlier and more frequent
contact with borrowers in default and
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commencing the foreclosure process at an earlier
stage of default. The servicer has limited experience
servicing home equity loans similar to the home
equity loans being sold to the trust. The servicer
will directly service all of the home equity loans in
the trust. The servicer's relative lack of experience
in servicing home equity loans may result in greater
losses on the home equity loans and result in
accelerated prepayments on your notes. You will bear
any reinvestment risk resulting from any accelerated
prepayments.
THE BORROWERS HAVE LESS THAN
PERFECT CREDIT The seller's underwriting standards generally are
less stringent than those of Fannie Mae or Freddie
Mac with respect to a borrower's credit history,
collateral and in other respects. The home equity
loans originated or acquired by the seller or its
affiliates have been made to borrowers that typically
have limited access to traditional mortgage financing
for a variety of reasons, including, impaired past
credit experience, limited credit history,
insufficient home equity value, or a high level of
debt-to-income ratios. As a result of this approach
to underwriting, the home equity loans may experience
higher rates of delinquencies, defaults and
foreclosures than home equity loans underwritten in
accordance with Fannie Mae or Freddie Mac's
guidelines.
NEWLY ORIGINATED HOME EQUITY
LOANS MAY DEFAULT Approximately __% of the Group I home equity loans,
___% of the Group II home equity loans and _____% of
the Group III home equity loans were originated
within twelve months prior to the statistical
calculation date. The weighted average remaining term
to stated maturity of each of the Group I, Group II
and Group III home equity loans as of the statistical
calculation date is approximately_____ months, ____
months and _____ months, respectively. Although
little data is available, defaults on home equity
loans, including home equity loans similar to the
home equity loans in the trust, are generally
expected to occur with greater frequency in the early
years of the terms of home equity loans.
GEOGRAPHIC CONCENTRATION MAY
AFFECT PERFORMANCE OF THE Approximately _____%, _____% and _____% of the Group
HOME EQUITY LOANS I home equity loans are located in [Texas, Florida
and Tennessee], respectively, approximately _____% ,
_____% , _____% , _____% , _____% and _____% of the
Group II home equity loans are located in
[California, Washington, Ohio, New York, Texas and
North Carolina], respectively and approximately ___%
and ___% of the Group III home equity loans are
located in ______ and ______, respectively. To the
extent that the related regions have experienced or
may experience in the future weaker economic
conditions or greater rates of decline in real estate
values than the United States generally, a
concentration of the home equity loans may be
expected to have an unduly large impact on the
performance of the home equity loan pool as a whole.
The seller and the depositor can neither quantify the
impact of any recent property value declines on the
home equity loans nor predict whether, to
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what extent or for how long declines may continue.
BORROWERS UNDER BALLOON LOANS
MAY BE UNABLE TO MAKE Balloon loans require the borrower to make a large
FINAL PAYMENT OF lump sum payment of principal at the end of the loan
PRINCIPAL term. If the borrower is unable to pay this lump sum
or refinance this amount, you will suffer a loss if
the collateral for the loan and the other forms of
credit enhancement are insufficient to cover the
loss, and if the note insurer fails to perform its
obligations under the applicable note insurance
policy. Approximately __% of the Group I home equity
loans, __% of the Group II home equity loans and __%
of the Group III home equity loans, in each case as
of the statistical calculation date, are balloon
loans.
CREDIT ENHANCEMENT PROVIDES LIMITED
PROTECTION AGAINST LOSSES Although credit enhancement is intended to reduce the
impact of delinquent payments or losses on the
payment of the notes, the amount of credit
enhancement will be limited and will decline and
under certain circumstances could be depleted prior
to the payment in full of the notes. As a result, you
may suffer losses on your investment.
CERTAIN FACTORS MAY CAUSE PROPERTY
VALUES TO BE INSUFFICIENT TO COVER
HISTORICAL LOSSES ON THE HOME
EQUITY LOANS There are several factors that could adversely affect
the value of the mortgaged properties so that the
outstanding balance of the related home equity loan,
together with any senior financing on the mortgaged
properties, would equal or exceed the value of the
mortgaged properties. Among the factors that could
adversely affect the value of the mortgaged
properties are an overall decline in the residential
real estate market in the areas in which the
mortgaged properties are located or a decline in the
general condition of the mortgaged properties as a
result of failure of borrowers to maintain adequately
the mortgaged properties or of natural disasters that
are not necessarily covered by insurance, such as
earthquakes and floods. Any decline in value of the
mortgaged property could extinguish the value of a
junior interest in a mortgaged property before having
any effect on the related senior interest. If a
decline occurs, the actual rates of delinquencies,
foreclosure and losses on the junior home equity
loans could be higher than those currently
experienced in the mortgage and home improvement
lending industry in general.
HOME EQUITY LOANS TRANSFERRED TO THE
TRUST MAY HAVE CHARACTERISTICS THAT
DIFFER FROM THOSE OF THE
HOME EQUITY LOANS PRESENTED
IN THIS PROSPECTUS WHICH MAY
REDUCE YOUR YIELD TO
MATURITY Following the transfer of the home equity loans to
the trust on the closing date, the characteristics of
the home equity loans may differ from the information
presented in this prospectus supplement. The
characteristics that may differ include, among
others, the composition of the home equity loans and
of the borrowers of home equity loans, the credit
quality of the home equity loans, the distribution by
interest rate, the distribution by principal balance,
the distribution by loan-to-value ratio and the
distribution by
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remaining term to stated maturity. You should
consider potential variances when making your
investment decision concerning the notes.
EVENTS OF DEFAULT UNDER THE
INDENTURE MAY HAVE A
SIGNIFICANT IMPACT ON THE
WEIGHTED AVERAGE LIFE OF
THE NOTES So long as the note insurer is not in default with
respect to its obligations under the note insurance
policies, neither the indenture trustee nor the
noteholders may declare an event of default under the
indenture or accelerate the maturity of the notes
without the consent of the note insurer. Upon the
occurrence of an event of default under the indenture
(so long as the note insurer is not in default with
respect to its obligations under the note insurance
policies), the note insurer will have the right, but
not the obligation, to cause the liquidation, in
whole or in part, of the home equity loan pool, which
will result in redemption, in whole or in part, of
the notes. The note insurer's decisions with respect
to defaults under the indenture may have a
significant impact on the weighted average life of
your notes.
THE RATE OF RETURN OF PRINCIPAL IS
UNCERTAIN DUE TO PREPAYMENTS
ON HOME EQUITY LOANS OVERVIEW. Generally, if prevailing interest rates
fall significantly below the interest rates on the
home equity loans, the home equity loans are likely
to be subject to higher prepayment rates than if
prevailing rates remain at or above the interest
rates on the home equity loans. Conversely, if
prevailing interest rates rise significantly above
the interest rates on the home equity loans, the rate
of prepayments is likely to decrease. The average
life of your notes and, if purchased at other than
par, the yields realized by you will be sensitive to
levels of payment (including prepayments relating to
the home equity loans) on the home equity loans.
In general, the yield on a note that is purchased at
a premium to the outstanding principal amount of the
note may be adversely affected by a higher than
anticipated level of prepayments of the home equity
loans. Conversely, the yield on a note that is
purchased at a discount to the outstanding principal
amount of the note may be adversely affected by a
lower than anticipated level of prepayments.
NO PREPAYMENT PENALTIES. Approximately _____% of the
Group I home equity loans, ___% of the Group II home
equity loans and _____% of the Group III home equity
loans, in each case as of the statistical calculation
date, may be prepaid in whole or in part at any time
without penalty. Home equity loans may not be viewed
by borrowers as permanent financing. Accordingly, the
home equity loans in the trust may experience a
higher rate of prepayment than traditional home
equity loans. The trust's prepayment experience may
be affected by a wide variety of factors, including
general economic conditions, interest rates, the
availability of alternative financing and homeowner
mobility.
DUE-ON-SALE CLAUSES. All of the home equity loans
will contain due-on-sale provisions and the servicer
is required by the sale and servicing agreement to
enforce these provisions unless the enforcement is
not permitted by applicable law or the servicer, in a
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manner consistent with reasonable commercial
practice, permits the purchaser of the related
mortgaged property to assume the home equity loan. To
the extent permitted by applicable law, any
assumption will not release the original borrower
from its obligation under any home equity loan.
2/28 ADJUSTABLE RATE LOANS. Approximately _____% of
the Group III home equity loans as of the statistical
calculation date, have a two year fixed rate term
followed by a 28 year adjustable rate term. As with
all home equity loans, the rate of prepayments on
these 2/28 adjustable rate loans which are in the
initial fixed rate period is sensitive to prevailing
interest rates. The prepayment behavior of the 2/28
adjustable rate loans may differ from that of the
other home equity loans. As a 2/28 adjustable rate
loan approaches its initial adjustment date, the
borrower may become more likely to refinance the loan
to avoid an increase in the coupon rate, even if
fixed rate loans are only available at rates that are
slightly lower or higher than the coupon rate before
adjustment. The existence of the applicable periodic
rate cap, lifetime cap and lifetime floor also may
affect the likelihood of prepayments resulting from
refinancings.
DIFFERENT SOURCES OF PAYMENT
ON EACH CLASS OF NOTES MAY
RESULT IN A DIFFERENT RATE
OF RETURN OF PRINCIPAL ON
EACH CLASS OF NOTES The rate of prepayment, including loss experience, on
a home equity loan pool is affected by the individual
characteristics of the home equity loans. Because
payment of principal and interest on each class of
notes is made from the cash generated by a different
group of home equity loans, the rate of prepayment
of each class of notes will differ.
THE RATE OF RETURN OF PRINCIPAL
MAY BE AFFECTED BY CERTAIN
STRUCTURAL FEATURES OPTIONAL TERMINATION OF THE TRUST. The yield to
maturity on your notes may be affected by the
exercise by the servicer of its right to terminate
the trust prior to the date that the home equity
loans have fully amortized.
PAYMENT ON EACH CLASS OF NOTES OUT OF A DIFFERENT
POOL OF HOME EQUITY LOANS. The rate of prepayments
may be affected by the characteristics of the home
equity loans. As a result, the yield to maturity of
each class of notes may differ because their source
of payment is derived from separate home equity loan
groups, which may perform in a different manner from
other groups.
REPURCHASE OF HOME EQUITY LOANS DUE TO BREACH OF
REPRESENTATIONS AND WARRANTIES. Prepayments of the
home equity loans may also result from repurchase of
home equity loans due to material breaches of the
seller's representations and warranties.
EFFECT OF HOME EQUITY
LOAN YIELD ON NOTE RATE OF
CLASS A-3 NOTES;
BASIS RISK Approximately _____% of the Group III home equity
loans as of the
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statistical calculation date, adjust semi-annually
based upon six-month LIBOR. We refer to these loans
in this prospectus supplement as the six-month
adjustable rate loans. Approximately _____% of the
Group III home equity loans as of the statistical
calculation date, are 2/28 adjustable rate loans.
These home equity loans provide for a fixed interest
rate for a period of approximately two years
following origination and after that time provide for
interest rate and payment adjustments in a manner
similar to the six-month adjustable rate loans.
The interest rate for the Class A-3 notes is
determined in accordance with and adjusts monthly
based upon one-month LIBOR, and is subject to the
Class A-3 available funds caps. One-month LIBOR and
six-month LIBOR may respond to different economic and
market factors, and there is not necessarily a
correlation between them. Thus, it is possible, for
example, that one-month LIBOR may rise during periods
in which six-month LIBOR is stable or is falling or
that, even if both one-month LIBOR and six-month
LIBOR rise during the same period, one-month LIBOR
may rise more rapidly than six-month LIBOR.
Furthermore, even if one-month LIBOR and six-month
LIBOR were at the same level, the Class A-3 available
funds caps may still limit the amount of interest
that would otherwise be distributable on the Class
A-3 notes. The operation of the Class A-3 available
funds caps may cause the note rate of the Class A-3
notes to be reduced for extended periods in a rising
interest rate environment. Although we intend that we
will pay to you on future distribution dates the
amount by which, because of the applicable available
funds cap, we reduce a A-3 noteholder's interest
payment, we cannot assure you that excess funds will
be available to make these payments.
In addition, Group III home equity loans are subject
to periodic adjustment caps and maximum rate caps,
and the weighted average margin is subject to change
based upon prepayment experience, which also may
result in the Class A-3 available funds cap limiting
increases in the note rate for the class. Finally,
the Group III home equity loans accrue interest on
the basis of a 360-day year assumed to consist of
twelve 30-day months, while calculations of interest
on the Class A-3 notes will be made on the basis of
the actual number of days elapsed in the related
interest period and a year of 360 days. This may
result in the Class A-3 available funds cap limiting
the note rate for the Class A-3 notes in interest
periods that have more than 30 days related to the
loan group. Consequently, the interest that becomes
due on the Group III home equity loans (net of the
sum of the amounts payable to each of the servicer,
the owner trustee, the indenture trustee and the note
insurer) may not equal the amount of interest that
would accrue at one-month LIBOR plus the applicable
margin on the Class A-3 notes with respect to any
distribution date.
If you are a holder of a Class A-3 notes and the note
rate is capped in any period by the applicable
available funds cap you may suffer a temporary or
permanent decline in the market value of your notes.
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YIELD CONSIDERATIONS RELATING
TO EXCESS CASH If the notes related to a home equity loan group are
overcollateralized by the home equity loan group
below the required amount, excess interest, if any,
generated by the home equity loan group will be
distributable on the related notes as a payment of
principal. If purchased at a premium or a discount,
the yield to maturity on your note will be affected
by the rate at which excess interest is distributed
as a payment of principal. If the actual rate of
excess interest distribution is slower than the rate
anticipated by an investor who purchases a related
note at a discount, the actual yield to the investor
will be lower than the investor's anticipated yield.
If the actual rate of excess interest distribution is
faster than the rate anticipated by an investor who
purchases a related note at a premium, the actual
yield to the investor will be lower than the
investor's anticipated yield. The amount of excess
interest available for distribution with respect to a
home equity loan group on any distribution date will
be affected by:
- the actual amount of interest received, collected
or recovered with respect to the home equity loans
in the related home equity loan group during the
calendar month prior to the related distribution
date;
- changes in the weighted average of the coupon rates
of the home equity loans in the related home equity
loan group resulting from prepayments and
liquidations of home equity loans; and
- in the case of Group III home equity loans,
adjustments in the interest rates on these loans
and adjustments in the note rates on the Class A-3
notes.
The amount of excess interest distributed as
principal on the notes related to a home equity loan
group will be based on the required amount of
overcollateralization. The required level of
overcollateralization may increase or decrease during
the period that the related class of notes remain
outstanding. Any increase in the
overcollateralization for the notes related to a home
equity loan group may result in an accelerated rate
of amortization of the related notes until the
overcollateralization for the notes equals the
required amount of overcollateralization. Any
decrease in the required amount of
overcollateralization will result in a decelerated
rate of amortization of the related notes until the
overcollateralization for the notes is reduced to the
required amount of overcollateralization for the
notes.
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LIQUIDATION OF HOME EQUITY
LOANS COULD CAUSE PAYMENT
DELAYS AND/OR LOSSES OVERVIEW. Even assuming that the mortgaged properties
provide adequate security for the related home equity
loans, substantial delays in receiving proceeds could
be encountered by the trust in connection with the
liquidation of defaulted home equity loans. As a
result, shortfalls in distributions on the notes
could occur if the note insurer were unable to
perform its obligations under the note insurance
policies. Further, liquidation expenses (including
legal fees, real estate taxes, and maintenance and
preservation expenses) will reduce the proceeds
payable on the notes and consequently reduce the
security for the home equity loans. In the event any
of the mortgaged properties fail to provide adequate
security for the related home equity loans,
noteholders could experience a loss if the note
insurer were unable to perform its obligations under
the note insurance policies.
SECOND LIENS. As of the statistical calculation date,
approximately _____% of the aggregate principal
balance of the Group I home equity loans, ___% with
respect to the Group II home equity loans and ___%
with respect to the Group III home equity loans are
secured by first liens on the related properties, and
approximately _____% of the aggregate principal
balance of the Group I home equity loans, ___% with
respect to the Group II home equity loans and ___%
with respect to the Group III home equity loans are
secured by second liens on the related properties.
With respect to home equity loans that are junior in
priority to liens having a first priority with
respect to the related mortgaged property, the
servicer has the power, in some cases, to consent to
a new mortgage lien on the mortgaged property having
priority over the home equity loan in connection with
the refinancing of the first lien. Home equity loans
secured by second mortgages are entitled to proceeds
that remain from the sale of the related mortgaged
property after any related senior home equity loan
and prior statutory liens have been satisfied. In the
event that the proceeds are insufficient to satisfy
the loans and prior liens in the aggregate and the
note insurer is unable to perform its obligations
under the note insurance policy, the trust and,
accordingly, you, bear (1) the risk of delay in
distributions while a deficiency judgment, if any,
against the borrower is sought and (2) the risk of
loss if the deficiency judgment cannot be obtained or
is not realized upon.
THERE COULD BE DELAYS IN DISTRIBUTIONS
ON YOUR NOTES IF THE TRANSFER OF
HOME EQUITY LOANS TO THE TRUST
IS NOT CONSIDERED A SALE IN
THE EVENT OF BANKRUPTCY The sale of the home equity loans from the seller or
an affiliate of the seller to the depositor and the
depositor to the trust will be treated by the seller,
the seller's affiliate, the depositor and the trust
as a sale of the home equity loans. In the event of
an insolvency of the seller, its affiliate or the
depositor, it is possible that a receiver or
conservator for, or a creditor of, the seller, the
seller's affiliate or depositor, may argue that the
transaction between the seller, the seller's
affiliate, the depositor and the trust, with respect
to the home equity loans was a pledge of the home
equity loans in connection
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with a borrowing rather than a true sale. This
attempt, even if unsuccessful, could result in delays
in distributions on the notes.
PREPAYMENT INTEREST SHORTFALLS
MAY RESULT IN LOSS OF
INTEREST When a full principal prepayment is made on a home
equity loan or a prepayment of at least six times a
mortgagor's monthly payment, the mortgagor is charged
interest only up to the date of the prepayment,
instead of for a full month which may result in a
prepayment interest shortfall. The servicer is
obligated to pay those shortfalls in interest
collections payable on the notes that are
attributable to prepayment interest shortfalls, but
only to the extent of the aggregate servicing fee due
on the related distribution date. Neither the
servicing fee nor the note insurance policy will be
available to cover any shortfalls in interest
collections on the home equity loans that are
attributable to the Soldiers' and Sailors' Civil
Relief Act of 1940. Prepayment interest shortfalls,
after application of the servicing fee as described
above, will be covered by the related note insurance
policy.
THE INTEREST PERIOD ON THE CLASS A-1
AND CLASS A-2 NOTES WILL REDUCE
EFFECTIVE YIELD ON THE CLASS
A-1 AND CLASS A-2 NOTES Interest payable on the Class A-1 and Class A-2 notes
on a distribution date will include all interest
accrued during the prior calendar month. As a result,
the effective yield to holders will be reduced from
the yield that would otherwise be obtainable if
interest payable on the Class A-1 and Class A-2 notes
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.
VIOLATIONS OF CONSUMER PROTECTION
AND OTHER LAWS MAY RESULT IN
LOSSES ON THE HOME EQUITY
LOANS Applicable state laws generally regulate interest
rates and other charges and require certain
disclosures. In addition, other state laws, public
policy and general principles of equity relating to
the protection of consumers, unfair and deceptive
practices and debt collection practices may apply to
the origination, servicing and collection of the home
equity loans. Depending on the provisions of the
applicable law and the specific facts and
circumstances involved, violations of these laws,
policies and principles may limit the ability of the
servicer to collect all or part of the principal of
or interest on the home equity loans, may entitle the
borrower to a refund of amounts previously paid and,
in addition, could subject the owner of the home
equity loan to damages and administrative
enforcement.
The home equity loans are also subject to federal
laws, including:
(1) the federal Truth in Lending Act and
Regulation Z under the act, which require certain
disclosures to the borrowers regarding the terms of
the home equity loans;
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(2) the Equal Credit Opportunity Act and
Regulation B under the act, which prohibit
discrimination on the basis of age, race, color, sex,
religion, marital status, national origin, receipt of
public assistance or the exercise of any right under
the Consumer Credit Protection Act, in the extension
of credit;
(3) the Americans with Disabilities Act, which,
among other things, prohibits discrimination on the
basis of disability in the full and equal enjoyment
of the goods, services, facilities, privileges,
advantages or accommodations of any place of public
accommodation; and
(4) the Fair Credit Reporting Act, which
regulates the use and reporting of information
related to the borrower's credit experience.
Violations of certain provisions of these federal
laws may limit the ability of the servicer to collect
all or part of the principal of or interest on the
home equity loans and in addition could subject the
trust fund to damages and administrative enforcement.
Approximately __% of the aggregate principal balance
of the home equity loans are subject to the Home
Ownership and Equity Protection Act of 1994, 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 these 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 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 home equity loan. If
the trust fund includes home equity 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 this 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 home equity loan in
question.
Numerous other federal and state statutory
provisions, including the federal bankruptcy laws,
the Soldiers' and Sailors' Civil Relief Act of 1940
and state debtor relief laws, may also adversely
affect the servicer's ability to collect the
principal of or interest on the home equity loans and
also would affect your interests in the home equity
loans if any of these laws result in the home equity
loans being uncollectible.
POTENTIAL LIABILITY FOR ENVIRONMENTAL
CONDITIONS COULD RESULT IN A
LOSS ON YOUR INVESTMENT IN THE
NOTES Real property pledged as security to a lender may be
subject to certain environmental risks. Under the
laws of certain states, contamination of a property
may give rise to a lien on the property
S-20
<PAGE>
to assure the costs of clean-up. In several states, a
lien of this type has priority over the lien of an
existing mortgage or owner's interest against the
property. In addition, under the laws of some states
and under the federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, a
lender may be liable, as an "owner" or "operator,"
for costs of addressing releases or threatened
releases of hazardous substances that require remedy
at a property, if agents or employees of the lender
have become sufficiently involved in the operations
of the borrower, regardless of whether or not the
environmental damage or threat was caused by a prior
owner. A lender also risks this liability on
foreclosure of the mortgaged property. If any of
these laws results in a lien or other charge against
the mortgaged properties of a sufficiently large
percentage of the home equity loans, you may suffer a
loss on your investment.
REDUCTION IN THE RATINGS ON THE
NOTES COULD HAVE AN ADVERSE
EFFECT ON THE VALUE OF
YOUR NOTES The rating of the notes will depend primarily on an
assessment of the claims-paying ability of the note
insurer and on an assessment by the rating agencies
of the home equity loans. Any reduction in a rating
assigned to the claims-paying ability of the note
insurer below the rating initially given to the notes
may result in a reduction in the rating of the notes.
The rating by the rating agencies of the notes is not
a recommendation for you to purchase, hold or sell
the notes, since the rating does not comment as to
the market price or suitability of an investment in
the notes for a particular investor. There is no
assurance that the ratings will remain in place for
any given period of time or that the ratings will not
be lowered or withdrawn by the rating agencies. In
general, the ratings address credit risk and do not
address the likelihood of prepayments on home equity
loans, the likelihood of the payment of any interest
payable to you on a subordinated basis due to the
application of any available funds cap described
under the section "DESCRIPTION OF THE NOTES--Note
Rate" or the possibility that you might realize a
lower than anticipated yield. The ratings of the
notes also do not address the possibility of the
imposition of United States withholding tax with
respect to non-U.S. persons.
None of the seller, the servicer or depositor is
required to maintain the rating of the notes. Any
downgrade in the ratings assigned to your notes will
result in a decline in the market value of your
notes.
S-21
<PAGE>
LACK OF SECONDARY MARKET LIMITS
LIQUIDITY WITH RESPECT TO YOUR
INVESTMENT There will be no market for the notes prior to
issuance, and there can be no assurance that a
secondary market will develop or, if it does develop,
that it will provide you with liquidity with respect
to your investment or will continue for the life of
the notes. Further, if the notes are not listed on an
exchange or quoted in the automated quotation system
of a registered securities association, you may
experience limited liquidity with regard to your
notes.
BOOK-ENTRY REGISTRATION MAY LIMIT
LIQUIDITY IN THE SECONDARY
MARKET AND DELAY RECEIPT OF
PAYMENT ON YOUR NOTES Because transfers and pledges of the notes may be
effected only through book entries at a clearing
agency through clearing agency participants, the
liquidity of the secondary market for notes may be
reduced and the ability to pledge notes may be
limited due to lack of a physical note. In certain
cases, you may experience delay in the receipt of
payments of principal and interest because these
payments will be forwarded by the trustee to the
clearing agency who will then forward payment to the
clearing agency participants who will then forward
payment to you. In the event of the insolvency of the
clearing agency or of a clearing agency participant
in whose name securities are recorded, your ability
to obtain timely payment and ultimate payment of
principal and interest on the notes may be impaired.
COMPUTER PROBLEMS IN THE YEAR
2000 MAY RESULT IN LOSSES As is the case with most companies using computers in
their operations, the servicer is faced with the task
of completing its compliance goals in connection with
the year 2000 issue during the next year. 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. Any occurrence could
result in a major computer system failure or
miscalculations. The servicer is presently engaged in
various procedures to ensure that their computer
systems and software will be year 2000 compliant.
With regard to the servicing systems used by the
servicer, the servicer has received written
verification from its software provider that the
software systems used by the servicer are year 2000
compliant. The software provider indicated that it
has obtained statements from its third party
hardware, software and service providers confirming
that the goods and services they provide the software
provider are year 2000 compliant. In addition, the
servicer's software provider has provided the
servicer with a written assurance that the provider
has put into place contingency plans to address all
of its internal business critical areas, including
any non-conformity with respect to year 2000 of the
provider's systems.
However, in the event that 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 under
the sale and servicing agreement could be materially
adversely affected.
S-22
<PAGE>
THE NOTE INSURER
[To be inserted.]
DESCRIPTION OF THE HOME EQUITY LOANS
OVERVIEW
This subsection describes characteristics of the home equity loans.
Unless otherwise noted, all statistical percentages in this prospectus
supplement are measured by the aggregate principal balance of the related home
equity loans as of the statistical calculation date. Prior to the closing date,
additional home equity loans will be added to each home equity loan group and
other home equity loans may be removed from a home equity loan group, subject to
the consent of the note insurer. As a result, the characteristics of the home
equity loans in each home equity loan group as of the cut-off date will differ
from the characteristics presented in this prospectus supplement as of the
statistical calculation date. The depositor does not expect any material change
in the aggregate characteristics of any home equity loan group.
Each home equity loan in the trust will be assigned to one of three
home equity loan groups, labeled Group I, Group II and Group III, respectively .
[Each home equity loan group will constitute a separate sub-trust.] The Group I
home equity loans and the Group II home equity loans will bear interest at fixed
interest rates. The Group III home equity loans will bear interest at adjustable
rates. Distributions on the Group I notes will be based primarily on amounts
available for distribution in respect of the Group I home equity loans.
Distributions on the Group II notes will be based primarily on amounts available
for distribution in respect of the Group II home equity loans. Distributions on
the Group III notes will be based primarily on amounts available for
distribution in respect of the Group III home equity loans.
The home equity loans to be transferred by the seller and one or more
of its affiliates to the depositor and from the depositor to the trust on the
closing date will consist of __home equity loans, of which __ are fixed rate
home equity loans and ___ are adjustable rate home equity loans, evidenced by
promissory notes secured by mortgaged properties subject to first and second
lien deeds of trust, security deeds or mortgages on properties which are located
in __ states and the District of Columbia. The mortgaged properties consist
primarily of one-to-four family residential properties and manufactured housing
treated as real property under applicable state law. They may be owner-occupied
and non-owner occupied investment properties, which include second and vacation
homes. All of the home equity loans were originated no earlier than
____________, ____.
The aggregate outstanding statistical calculation date loan balance of
the Group I home equity loans is $________ or approximately __% of the
statistical calculation date loan balance of the home equity loans. The
aggregate outstanding statistical calculation date loan balance of the Group II
home equity loans is $________ or approximately __% of the statistical
calculation date loan balance of the home equity loans. The aggregate
outstanding statistical calculation date loan balance of the Group III home
equity loans is $________ or approximately __% of the statistical calculation
date loan balance of the home equity loans.
Home equity loans representing approximately __% of the statistical
calculation date loan balance of the Group I home equity loans are secured by
mortgaged properties consisting of first liens on the related properties, and
the remaining approximately __% of the statistical calculation date loan balance
of the Group I home equity loans are secured by mortgaged properties consisting
of second liens on the related properties. No Original Combined Loan-to-Value
Ratio (as defined below) relating to any Group I home equity loans exceeded
___%. Home equity loans representing approximately __% of the statistical
calculation date loan balance of the Group II home equity loans are secured by
mortgaged properties consisting of first liens on the related properties, and
the remaining approximately __% of the statistical calculation date loan balance
of the Group II home equity loans are secured by mortgaged properties consisting
of second liens on the related properties. No Original Combined Loan-to-Value
Ratio relating to any Group II home equity loans exceeded ___%. Home equity
loans representing approximately __% of the statistical calculation date loan
balance of the Group III home equity loans are secured by mortgaged properties
consisting of first liens on the related properties, and the
S-23
<PAGE>
remaining approximately __% of the statistical calculation date loan
balance of the Group III home equity loans are secured by mortgaged properties
consisting of second liens on the related properties. No Original Combined
Loan-to-Value Ratio relating to any Group III home equity loans exceeded ___%.
None of the home equity loans are insured by pool mortgage insurance policies or
primary mortgage insurance policies.
All of the home equity loans in the trust have been or will be
originated by the seller, an affiliate of the seller or a broker for
simultaneous assignment to the seller.
The Original Loan-to-Value Ratios and Original Combined Loan-to-Value
Ratios shown below were calculated based upon the lesser of the appraised values
of the mortgaged properties at the time of origination or the sales price of the
related mortgaged property if the mortgaged property was sold within the 12
month period preceding the time of loan origination. In a limited number of
circumstances, and within the seller's underwriting guidelines, the seller may
discount the appraised value (or, if applicable, the sales price) of mortgaged
properties (when calculating maximum Loan-to-Value Ratios) where the mortgaged
properties are unique, have a high value or where the comparables are not within
Freddie Mac or Fannie Mae guidelines. The purpose for making these reductions is
to value the mortgaged properties more conservatively than would otherwise be
the case if the appraisal were accepted as written.
The "Original Combined Loan-to-Value Ratio" of a home equity loan is
the ratio, expressed as a percentage, equal to the sum of any outstanding senior
lien mortgage balance plus the original balance of the home equity loan divided
by the lesser of the appraised value of the mortgaged property at the time of
origination or the sales price of the mortgaged property if the mortgaged
property was sold within the 12 month period preceding the time of loan
origination. In the instance where more than one appraisal was performed on the
subject property, the lesser of the two values was used to determine the
Original Loan-to-Value Ratio and the Original Combined Loan-to-Value Ratio.
WE REFER YOU TO "RISK FACTORS--THE BORROWERS HAVE LESS THAN PERFECT
CREDIT" IN THIS PROSPECTUS SUPPLEMENT FOR MORE DETAIL.
No assurance can be given that values of the mortgaged properties have
remained or will remain at their levels on the dates of origination of the
related home equity loans. If the residential real estate market has experienced
or should experience an overall decline in property values, causing the
outstanding balances of the home equity loans, together with the outstanding
balances of any first mortgage, to become equal to or greater than the value of
the mortgaged properties, the actual rates of delinquencies, foreclosures and
losses could be higher than those now generally experienced in the mortgage
lending industry.
GROUP I HOME EQUITY LOANS
The average statistical calculation date loan balance of the Group I
home equity loans was $___________. The minimum and maximum statistical
calculation date loan balances of the Group I home equity loans were $__________
and $___________, respectively. As of the statistical calculation date, the
weighted average coupon rate of the Group I home equity loans was approximately
______%; the coupon rates of the Group I home equity loans ranged from _____% to
_____%; the weighted average Original Combined Loan-to-Value Ratio of the Group
I home equity loans was approximately ____%; the weighted average remaining term
to maturity of the Group I home equity loans was approximately ____ months; the
original terms to maturity of the Group I home equity loans ranged from ___
months to ____ months; and the remaining terms to maturity of the Group I home
equity loans ranged from ___ months to ____ months. Approximately _____% of the
statistical calculation date loan balance of the Group I home equity loans was
secured by first liens on the related mortgage properties and approximately
____% of the statistical calculation date loan balance of the Group I home
equity loans was secured by second liens on the related mortgage properties.
With respect to each Group I home equity loan secured by a first lien, the
original principal balance was no more than $________ for single-family
properties and $__________ for two-to-four family properties. No Group I home
equity loan secured by a second lien on the related mortgage property had an
original principal balance of more than
S-24
<PAGE>
$________. With respect to each Group I home equity loan secured by a
second lien as of its origination date, the sum of the principal balance of the
second lien loan and the related senior lien principal balance is not more than
$___________ for single-family properties and $__________ for two-to-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 $_________ for
single-family properties and $____________ for two- to four-family properties).
Group I home equity loans containing "balloon" payments represented
approximately ____% of the statistical calculation date loan balance of the
Group I home equity loans. No Group I home equity loan will mature later than
____________. As of the statistical calculation date, approximately _____% of
the Group I home equity loans were 30-59 days past due. However, investors in
the notes should be aware that approximately ____% of the Group I home equity
loans by statistical calculation date loan balance had a first monthly payment
due on or after ____________, ____ and it was not possible for the Group I home
equity loans to be more than ___ days past due as of the statistical calculation
date. As of the statistical calculation date, no Group I home equity loan was
___ or more days past due.
Set forth below is approximate statistical information as of the
statistical calculation date regarding the Group I home equity loans. The sum of
the percentage columns in the following tables may not equal 100% due to
rounding.
S-25
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
OF GROUP I HOME EQUITY LOANS(1)
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
NUMBER OF CALCULATION CALCULATION DATE
STATE HOME EQUITY LOANS DATE LOAN BALANCE LOAN BALANCE
- ----- ----------------- ----------------- ------------
<S> <C> <C> <C>
Arizona...................... $ %
Arkansas.....................
California...................
Colorado.....................
Connecticut..................
Delaware.....................
District of Columbia.........
Florida......................
Georgia......................
Idaho........................
Illinois.....................
Indiana......................
Iowa.........................
Kansas.......................
Kentucky.....................
Louisiana....................
Maine........................
Maryland.....................
Massachusetts................
Michigan.....................
Minnesota....................
Mississippi..................
Missouri.....................
Montana......................
Nebraska.....................
Nevada.......................
New Hampshire................
New Jersey...................
New Mexico...................
New York.....................
North Carolina...............
North Dakota.................
Ohio.........................
Oklahoma.....................
Oregon.......................
Pennsylvania.................
Rhode Island.................
South Carolina...............
South Dakota.................
Tennessee....................
Texas........................
Utah.........................
Vermont......................
Virginia.....................
Washington...................
West Virginia................
Wisconsin....................
Wyoming......................
------------- ------------- --------------------
Total..................... $ %
============= ============== ====================
</TABLE>
- --------------------
(1) Determined by property address designated as such in the related mortgage.
S-26
<PAGE>
ORIGINAL COMBINED LOAN-TO-VALUE RATIO
OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE LOAN CALCULATION DATE
RANGE OF ORIGINAL COMBINED LOAN-TO-VALUE RATIONS (%) HOME EQUITY LOANS BALANCE LOAN BALANCE
- ---------------------------------------------------- ----------------- ------- ------------
<S> <C> <C> <C>
Less than or equal to 50.00......................... $ %
50.01 - 55.00.......................................
55.01 - 60.00.......................................
60.01 - 65.00.......................................
65.01 - 70.00.......................................
70.01 - 75.00.......................................
75.01 - 80.00.......................................
80.01 - 85.00.......................................
85.01 - 90.00.......................................
90.01 - 95.00.......................................
95.01 - 100.00......................................
------------- ------------- ---------
Total.................................... $ %
============= ============= =========
</TABLE>
S-27
<PAGE>
COUPON RATES OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
RANGE OF ORIGINAL COUPON RATES (%) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ---------------------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
7.001 - 7.500....................................... $ %
7.501 - 8.000.......................................
8.001 - 8.500.......................................
8.501 - 9.000.......................................
9.001 - 9.500.......................................
9.501 - 10.000......................................
10.001 - 10.500.....................................
10.501 - 11.000.....................................
11.001 - 11.500.....................................
11.501 - 12.000.....................................
12.001 - 12.500.....................................
12.501 - 13.000.....................................
13.001 - 13.500.....................................
13.501 - 14.000.....................................
14.001 - 14.500.....................................
14.501 - 15.000.....................................
15.001 - 15.500.....................................
15.501 - 16.000.....................................
16.001 - 16.500.....................................
16.501 - 17.000.....................................
17.001 - 17.500.....................................
17.501 - 18.000.....................................
------------- -------------- --------------
Total.................................... $ %
============= ============== ==============
</TABLE>
STATISTICAL CALCULATION DATE LOAN BALANCES OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
RANGE OF STATISTICAL CALCULATION DATE LOAN BALANCES HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- --------------------------------------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
$ 0.01 - 50,000.00........................ $ %
50,000.01 - 100,000.00.........................
100,000.01 - 150,000.00.........................
150,000.01 - 200,000.00.........................
200,000.01 - 250,000.00.........................
------------- ------------- ---------------
Total.................................... $ %
============= ============== ===============
</TABLE>
TYPES OF MORTGAGED PROPERTIES OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
PROPERTY TYPE HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Single Family....................................... $ %
PUD.................................................
2-4 Family..........................................
Townhouses..........................................
Manufactured Housing................................
Condominiums........................................
------------- ------------- ---------------
Total.................................... $ %
============= ============== ===============
</TABLE>
S-28
<PAGE>
ORIGINAL TERM TO MATURITY OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
ORIGINAL TERM TO MATURITY (MONTHS) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ---------------------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
60 - 119............................................ $ %
120 - 179...........................................
180 - 239...........................................
240 - 299...........................................
300 - 360...........................................
------------- -------------- -------------
Total.................................... $ %
============= ============== =============
</TABLE>
REMAINING TERM TO MATURITY OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
REMAINING TERM TO MATURITY (MONTHS) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Less than or equal to 60............................ $ %
61 - 120............................................
121 - 180...........................................
181 - 240...........................................
240 - 300...........................................
301 - 360...........................................
------------- ------------- --------------
Total.................................... $ %
============= ============== ==============
</TABLE>
SEASONING OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
SEASONING (MONTHS) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------ ----------------- ------------ ------------
<S> <C> <C> <C>
0.................................................. $ %
1 - 6..............................................
7 - 2
------------- ------------- -------------
Total................................... $ %
============= ============== =============
</TABLE>
OCCUPANCY STATUS OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
OCCUPANCY STATUS HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ---------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Owner Occupied (Primary)............................ $ %
Investment Property.................................
Second Home.........................................
------------- ------------- --------------
Total.................................... $ %
============= ============== ==============
</TABLE>
LIEN POSITION OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
LIEN POSITION HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------- ----------------- ------------ ------------
<S> <C> <C> <C>
First.............................................. $ %
Second.............................................
------------- ------------- --------------
Total................................... $ %
============= ============== ==============
</TABLE>
S-29
<PAGE>
DOCUMENTATION TYPE OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF INITIAL DATE CALCULATION DATE
DOCUMENTATION TYPE(1) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
--------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Full Documentation............................... $ %
Stated Income....................................
Limited Documentation............................
------------- ------------- --------------
Total................................. $ %
============= ============== ==============
</TABLE>
- ------------------
(1) We refer you to "THE SELLER AND THE SERVICER--Underwriting Guidelines
Applicable to the Home Equity Loans" in the prospectus for a description of the
seller's documentation programs.
CREDIT GRADE OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
NUMBER OF INITIAL CALCULATION DATE CALCULATION DATE
CREDIT GRADE BALANCE(1) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
A1.................................................. $ %
A2..................................................
A+..................................................
B...................................................
C1..................................................
C2..................................................
D...................................................
------------- ------------- --------------
Total.................................... $ %
============= ============== ==============
</TABLE>
- ------------------
(1) We refer you to "THE SELLER AND THE SERVICER--Underwriting Criteria of the
Seller" in the prospectus for a description of the seller's credit grades
and underwriting criteria.
SECOND MORTGAGE RATIO OF GROUP I HOME EQUITY LOANS(1)
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
NUMBER OF INITIAL CALCULATION DATE CALCULATION DATE
RANGE OF SECOND MORTGAGE RATIOS (%) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
0.01 - 10.00........................................ $ %
10.01 - 20.00.......................................
20.01 - 30.00.......................................
30.01 - 40.00.......................................
40.01 - 50.00.......................................
50.01 - 60.00.......................................
60.01 - 70.00.......................................
70.01 - 80.00.......................................
80.01 - 90.00.......................................
90.01 - 100.00......................................
------------- ------------- --------------
Total.................................... $ %
============= ============== ==============
</TABLE>
- ------------------
(1) Applies only to home equity loans in the second lien position. The Second
Mortgage Ratios shown above are equal to, with respect to each home equity
loan in the second lien position, the original principal balance of the
home equity loan at the date of origination divided by the sum of (a) the
original principal balance of the home equity loan at the date of
origination and (b) the remaining principal balance of the senior lien on
the related mortgaged property at the date of origination of the home
equity loan.
S-30
<PAGE>
GROUP II HOME EQUITY LOANS
The average statistical calculation date loan balance of the Group II
home equity loans was $___________. The minimum and maximum statistical
calculation date loan balances of the Group II home equity loans were
$__________ and $___________, respectively. As of the statistical calculation
date, the weighted average coupon rate of the Group II home equity loans was
approximately ______%; the coupon rates of the Group II home equity loans ranged
from _____% to _____%; the weighted average Original Combined Loan-to-Value
Ratio of the Group II home equity loans was approximately ____%; the weighted
average remaining term to maturity of the Group II home equity loans was
approximately ____ months; the original terms to maturity of the Group II home
equity loans ranged from ___ months to ____ months; and the remaining terms to
maturity of the Group II home equity loans ranged from ___ months to ____
months. Approximately _____% of the statistical calculation date loan balance of
the Group II home equity loans was secured by first liens on the related
mortgage properties and approximately ____% of the statistical calculation date
loan balance of the Group II home equity loans was secured by second liens on
the related mortgage properties. With respect to each Group II home equity loan
secured by a first lien, the original principal balance was no more than
$________ for single-family properties and $__________ for two-to-four family
properties. No Group II home equity loan secured by a second lien on the related
mortgage property had an original principal balance of more than $________. With
respect to each Group II home equity loan secured by a second lien as of its
origination date, the sum of the principal balance of the second lien loan and
the related senior lien principal balance is not more than $___________ for
single-family properties and $__________ for two-to-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 $_________ for single-family
properties and $____________ for two- to four-family properties). Group II home
equity loans containing "balloon" payments represented approximately ____% of
the statistical calculation date loan balance of the Group II home equity loans.
No Group II home equity loan will mature later than ____________. As of the
statistical calculation date, approximately _____% of the Group II home equity
loans were 30-59 days past due. However, investors in the notes should be aware
that approximately ____% of the Group II home equity loans by statistical
calculation date loan balance had a first monthly payment due on or after
____________, ____ and it was not possible for the Group II home equity loans to
be more than ___ days past due as of the statistical calculation date. As of the
statistical calculation date, no Group II home equity loan was ___ or more days
past due.
Set forth below is approximate statistical information as of the
statistical calculation date regarding the Group II home equity loans. The sum
of the percentage columns in the following tables may not equal 100% due to
rounding.
S-31
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
OF GROUP II HOME EQUITY LOANS(2)
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
NUMBER OF CALCULATION CALCULATION DATE
STATE HOME EQUITY LOANS DATE LOAN BALANCE LOAN BALANCE
- ----- ----------------- ----------------- ------------
<S> <C> <C> <C>
Arizona...................... $ %
Arkansas.....................
California...................
Colorado.....................
Connecticut..................
Delaware.....................
District of Columbia.........
Florida......................
Georgia......................
Idaho........................
Illinois.....................
Indiana......................
Iowa.........................
Kansas.......................
Kentucky.....................
Louisiana....................
Maine........................
Maryland.....................
Massachusetts................
Michigan.....................
Minnesota....................
Mississippi..................
Missouri.....................
Montana......................
Nebraska.....................
Nevada.......................
New Hampshire................
New Jersey...................
New Mexico...................
New York.....................
North Carolina...............
North Dakota.................
Ohio.........................
Oklahoma.....................
Oregon.......................
Pennsylvania.................
Rhode Island.................
South Carolina...............
South Dakota.................
Tennessee....................
Texas........................
Utah.........................
Vermont......................
Virginia.....................
Washington...................
West Virginia................
Wisconsin....................
Wyoming......................
------------- ------------- --------------------
Total..................... $ %
============= ============== ====================
</TABLE>
- --------------------
(2) Determined by property address designated as such in the related mortgage.
S-32
<PAGE>
ORIGINAL COMBINED LOAN-TO-VALUE RATIO
OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE LOAN CALCULATION DATE
RANGE OF ORIGINAL COMBINED LOAN-TO-VALUE RATIONS (%) HOME EQUITY LOANS BALANCE LOAN BALANCE
- ---------------------------------------------------- ----------------- ------- ------------
<S> <C> <C> <C>
Less than or equal to 50.00......................... $ %
50.01 - 55.00.......................................
55.01 - 60.00.......................................
60.01 - 65.00.......................................
65.01 - 70.00.......................................
70.01 - 75.00.......................................
75.01 - 80.00.......................................
80.01 - 85.00.......................................
85.01 - 90.00.......................................
90.01 - 95.00.......................................
95.01 - 100.00......................................
------------- ------------- ---------
Total.................................... $ %
============= ============= =========
</TABLE>
S-33
<PAGE>
COUPON RATES OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
RANGE OF ORIGINAL COUPON RATES (%) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ---------------------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
7.001 - 7.500....................................... $ %
7.501 - 8.000.......................................
8.001 - 8.500.......................................
8.501 - 9.000.......................................
9.001 - 9.500.......................................
9.501 - 10.000......................................
10.001 - 10.500.....................................
10.501 - 11.000.....................................
11.001 - 11.500.....................................
11.501 - 12.000.....................................
12.001 - 12.500.....................................
12.501 - 13.000.....................................
13.001 - 13.500.....................................
13.501 - 14.000.....................................
14.001 - 14.500.....................................
14.501 - 15.000.....................................
15.001 - 15.500.....................................
15.501 - 16.000.....................................
16.001 - 16.500.....................................
16.501 - 17.000.....................................
17.001 - 17.500.....................................
17.501 - 18.000.....................................
------------- -------------- --------------
Total.................................... $ %
============= ============== ==============
</TABLE>
STATISTICAL CALCULATION DATE LOAN BALANCES OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
RANGE OF STATISTICAL CALCULATION DATE LOAN BALANCES HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- --------------------------------------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
$ 0.01 - 50,000.00........................ $ %
50,000.01 - 100,000.00.........................
100,000.01 - 150,000.00.........................
150,000.01 - 200,000.00.........................
200,000.01 - 250,000.00.........................
------------- ------------- ---------------
Total.................................... $ %
============= ============== ===============
</TABLE>
TYPES OF MORTGAGED PROPERTIES OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
PROPERTY TYPE HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------- ----------------- ------------ -----------------
<S> <C> <C> <C>
Single Family....................................... $ %
PUD.................................................
2-4 Family..........................................
Townhouses..........................................
Manufactured Housing................................
Condominiums........................................
------------- ------------- ---------------
Total.................................... $ %
============= ============== ===============
</TABLE>
S-34
<PAGE>
ORIGINAL TERM TO MATURITY OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
ORIGINAL TERM TO MATURITY (MONTHS) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ---------------------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
60 - 119............................................ $ %
120 - 179...........................................
180 - 239...........................................
240 - 299...........................................
300 - 360...........................................
------------- ------------- -------------
Total.................................... $ %
============= ============== =============
</TABLE>
REMAINING TERM TO MATURITY OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
REMAINING TERM TO MATURITY (MONTHS) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Less than or equal to 60............................ $ %
61 - 120............................................
121 - 180...........................................
181 - 240...........................................
240 - 300...........................................
301 - 360...........................................
------------- ------------- --------------
Total.................................... $ %
============= ============== ==============
</TABLE>
SEASONING OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
SEASONING (MONTHS) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------ ----------------- ------------ ------------
<S> <C> <C> <C>
0.................................................. $ %
1 - 6..............................................
7 - 2
------------- ------------- -------------
Total................................... $ %
============= ============== =============
</TABLE>
OCCUPANCY STATUS OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
OCCUPANCY STATUS HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ---------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Owner Occupied (Primary)............................ $ %
Investment Property.................................
Second Home.........................................
------------- ------------- --------------
Total.................................... $ %
============= ============== ==============
</TABLE>
LIEN POSITION OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE CALCULATION DATE
LIEN POSITION HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------- ----------------- ------------ ------------
<S> <C> <C> <C>
First.............................................. $ %
Second.............................................
------------- ------------- -------------
Total................................... $ %
============= ============== ==============
</TABLE>
S-35
<PAGE>
DOCUMENTATION TYPE OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF INITIAL DATE CALCULATION DATE
DOCUMENTATION TYPE(1) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
--------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
Full Documentation............................... $ %
Stated Income....................................
Limited Documentation............................
------------- ------------- --------------
Total................................. $ %
============= ============== ==============
</TABLE>
- ------------------
(1) We refer you to "THE SELLER AND THE SERVICER--Underwriting Guidelines
Applicable to the Home Equity Loans" in the prospectus for a description of the
seller's documentation programs.
CREDIT GRADE OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
NUMBER OF INITIAL CALCULATION DATE CALCULATION DATE
CREDIT GRADE BALANCE(1) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
A1.................................................. $ %
A2..................................................
A+..................................................
B...................................................
C1..................................................
C2..................................................
D...................................................
------------- ------------- --------------
Total.................................... $ %
============= ============== ==============
</TABLE>
- ------------------
(1) We refer you to "THE SELLER AND THE SERVICER--Underwriting Criteria of the
Seller" in the prospectus for a description of the seller's credit grades
and underwriting criteria.
SECOND MORTGAGE RATIO OF GROUP II HOME EQUITY LOANS(1)
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
NUMBER OF INITIAL CALCULATION DATE CALCULATION DATE
RANGE OF SECOND MORTGAGE RATIOS (%) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------- ----------------- ------------ ------------
<S> <C> <C> <C>
0.01 - 10.00........................................ $ %
10.01 - 20.00.......................................
20.01 - 30.00.......................................
30.01 - 40.00.......................................
40.01 - 50.00.......................................
50.01 - 60.00.......................................
60.01 - 70.00.......................................
70.01 - 80.00.......................................
80.01 - 90.00.......................................
90.01 - 100.00......................................
------------- ------------- --------------
Total.................................... $ %
============= ============== ==============
</TABLE>
- ------------------
(1) Applies only to home equity loans in the second lien position. The Second
Mortgage Ratios shown above are equal to, with respect to each home equity
loan in the second lien position, the original principal balance of the
home equity loan at the date of origination divided by the sum of (a) the
original principal balance of the home equity loan at the date of
origination and (b) the remaining principal balance of the senior lien on
the related mortgaged property at the date of origination of the home
equity loan.
S-36
<PAGE>
GROUP III HOME EQUITY LOANS
The average statistical calculation date loan balance of the Group III
home equity loans was approximately $___________. The minimum and maximum
statistical calculation date Loan Balance of the Group III home equity loans as
of the statistical calculation date were $___________ and $___________,
respectively. As of the statistical calculation date, the weighted average
Original Loan-to-Value Ratio of the Group III home equity loans was
approximately ____%; the weighted average remaining term to maturity of the
Group III home equity loans was approximately ____ months; the original terms to
maturity of the Group III home equity loans ranged from ____ months to ____
months; and the remaining terms to maturity of the Group III home equity loans
ranged from ____ months to ____ months. As of the statistical calculation date,
all of the Group III home equity loans were secured by first liens on the
related properties. No Group III home equity loan will mature later than _______
__, ____. As of the statistical calculation date, approximately ____% of the
Group III home equity loans were __ -__9 days past due. However, investors in
the notes should be aware that approximately ____% of the Group III home equity
loans by statistical calculation date loan balance had a first monthly payment
due on or after ____ __, ____ and it was not possible for the Group III home
equity loans to be more than __ days past due as of the statistical calculation
date. As of the statistical calculation date, no Group III home equity loan was
__ or more days past due.
As of the statistical calculation date, approximately ____% of the
Group III home equity loans the first adjustment date is six months after the
date of origination of the related home equity loan ("Six-Month Adjustable Rate
Loans") and approximately ____% of the statistical calculation date Loan Balance
of the Group III home equity loans the first adjustment date is two years after
the date of origination of the related home equity loan ("2/28 Adjustable Rate
Loan") and, in each case commencing on the first adjustment date the coupon rate
adjusts semiannually thereafter based upon six-month LIBOR subject to the
limitations described below. As of the statistical calculation date, the
weighted average remaining period to the next interest rate adjustment date for
the Six-Month Adjustable Rate Loans was approximately __ months; the weighted
average remaining period to the next interest rate adjustment date for the 2/28
Adjustable Rate Loans was approximately ___ months; each Six-Month Adjustable
Rate Loan will have an initial payment adjustment effective for the seventh
monthly payment period with respect to the loan, an initial interest rate
adjustment cap of ____%, a semi-annual interest rate adjustment cap of ____%, in
each case, above the then current interest rate for the Six-Month Adjustable
Rate Loan and a lifetime interest rate adjustment cap of ____% above the initial
rate of the loan; each 2/28 Adjustable Rate Loan will have an initial payment
adjustment effective for the 25th monthly payment period with respect to the
loan, an initial interest rate adjustment cap of ____%, a semi-annual interest
rate adjustment cap of ____%, in each case, above the then current interest rate
for the 2/28 Adjustable Rate Loan and a lifetime interest rate adjustment cap of
____% above the initial rate of the loan. As of the statistical calculation
date, the weighted average coupon rate of the Group III home equity loans was
approximately ____% per annum. The coupon rates borne by the Group III home
equity loans as of the statistical calculation date ranged from ____% per annum
to ____% per annum. The Group III home equity loans had a weighted average gross
margin as of the statistical calculation date of approximately ____%. As of the
statistical calculation date, the gross margins for the Group III home equity
loans ranged from ____% to ____%. As of the statistical calculation date, the
maximum rates at which interest may accrue on the Group III home equity loans
(the "Maximum Rates") ranged from ____% per annum to ____% per annum. The Group
III home equity loans had a weighted average Maximum Rate as of the statistical
calculation date of approximately ____% per annum. As of the statistical
calculation date, the minimum rates at which interest may accrue on the Group
III home equity loans (the "Minimum Rates") ranged from ____% per annum to ____%
per annum. As of the statistical calculation date, the weighted average Minimum
Rate on the Group III home equity loans was approximately ____% per annum.
Set forth below is approximate statistical information as of the
statistical calculation date regarding the Group III home equity loans. The sum
of the percentage columns in the following tables may not equal 100% due to
rounding.
S-37
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
OF GROUP III HOME EQUITY LOANS(1)
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
NUMBER OF CALCULATION DATE CALCULATION DATE
STATE HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----- ----------------- ------------ ------------
<S> <C> <C> <C>
Arizona........................................ $ %
Arkansas.......................................
California.....................................
Colorado.......................................
Connecticut....................................
Delaware.......................................
Florida........................................
Georgia........................................
Idaho..........................................
Illinois.......................................
Indiana........................................
Iowa...........................................
Kansas.........................................
Kentucky.......................................
Louisiana......................................
Maine..........................................
Maryland.......................................
Massachusetts..................................
Michigan.......................................
Minnesota......................................
Mississippi....................................
Missouri.......................................
Montana........................................
Nebraska.......................................
Nevada.........................................
New Hampshire..................................
New Jersey.....................................
New Mexico.....................................
New York.......................................
North Carolina.................................
Ohio...........................................
Oklahoma.......................................
Oregon.........................................
Pennsylvania...................................
Rhode Island...................................
South Carolina.................................
Tennessee......................................
Texas..........................................
Utah...........................................
Vermont........................................
Virginia.......................................
Washington.....................................
West Virginia..................................
Wisconsin......................................
Wyoming........................................
------------- ------------- -------
Total.......................................... $ 100.00%
============= ============== =======
</TABLE>
- ------------------
(1) Determined by property address designated in the related mortgage.
S-38
<PAGE>
ORIGINAL LOAN-TO-VALUE RATIOS
OF GROUP III HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
NUMBER OF CALCULATION DATE CALCULATION DATE
RANGE OF ORIGINAL LOAN-TO-VALUE RATIOS (%) HOME EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------------------ ----------------- ------------ ------------
<S> <C> <C> <C>
Less than or equal to 50.00.................... $ %
50.01 - 55.00..................................
55.01 - 60.00..................................
60.01 - 65.00..................................
65.01 - 70.00..................................
70.01 - 75.00..................................
75.01 - 80.00..................................
80.01 - 85.00..................................
85.01 - 90.00..................................
90.01 - 95.00..................................
95.01 - 100.00.................................
------------- -------------- -------
Total.......................................... $ 100.00%
============= ============== =======
</TABLE>
STATISTICAL CALCULATION DATE LOAN BALANCES OF GROUP III HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
RANGE OF STATISTICAL CALCULATION DATE LOAN NUMBER OF STATISTICAL STATISTICAL
- ------------------------------------------ HOME EQUITY CALCULATION DATE CALCULATION DATE
BALANCES LOAN BALANCES LOAN BALANCE LOAN BALANCE
- -------- ------------- ------------ ------------
<S> <C> <C> <C>
$ 0.01 - 50,000.00.......................... $ %
50,000.01 - 100,000.00.........................
100,000.01 - 150,000.00........................
150,000.01 - 200,000.00........................
200,000.01 - 250,000.00........................
250,000.01 - 300,000.00........................
300,000.01 - 350,000.00........................
350,000.01 - 400,000.00........................
------------- ------------- -------
Total.......................................... $ 100.00%
============= ============== =======
</TABLE>
TYPES OF MORTGAGED PROPERTIES OF GROUP III HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF STATISTICAL
NUMBER OF HOME CALCULATION DATE CALCULATION DATE
PROPERTY TYPE EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------- ------------ ------------ ------------
<S> <C> <C> <C>
Single Family.................................. $ %
PUD............................................
2-4 Family.....................................
Townhouses.....................................
Condominiums...................................
Manufactured Housing...........................
------------- -------------- -------
Total.......................................... $ 100.00%
============= ============== =======
</TABLE>
S-39
<PAGE>
ORIGINAL TERM TO MATURITY OF GROUP III HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL
STATISTICAL CALCULATION
ORIGINAL TERM TO NUMBER OF HOME CALCULATION DATE DATE
DATE MATURITY (MONTHS) EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ---------------------- ------------ ------------ ------------
<S> <C> <C> <C>
120............................................. $ %
180.............................................
240.............................................
360.............................................
------------- -------------- -------
Total........................................... $ 100.00%
============= ============== =======
</TABLE>
SEASONING OF GROUP III HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL
STATISTICAL CALCULATION
NUMBER OF HOME CALCULATION DATE DATE
SEASONING (MONTHS) EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------ ------------ ------------ ------------
<S> <C> <C> <C>
0............................................... $ %
1 - 6...........................................
7 - 12..........................................
13 and over.....................................
------------- -------------- -------
Total........................................... $ 100.00%
============= ============== =======
</TABLE>
REMAINING TERM TO MATURITY OF GROUP III HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL
STATISTICAL CALCULATION
NUMBER OF HOME CALCULATION DATE DATE
REMAINING TERM TO MATURITY (MONTHS) EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
61 - 120........................................ $ %
121 - 180.......................................
181 - 240.......................................
301 - 360.......................................
------------- -------------- -------
Total........................................... $ 100.00%
============= ============== =======
</TABLE>
OCCUPANCY STATUS OF GROUP III HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL
STATISTICAL CALCULATION
NUMBER OF HOME CALCULATION DATE DATE
OCCUPANCY STATUS EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ---------------- ------------ ------------ ------------
<S> <C> <C> <C>
Owner Occupied (Primary)........................ $ %
Investment Property.............................
Second Home.....................................
------------- -------------- -------
Total........................................... $ 100.00%
============= ============== =======
</TABLE>
S-40
<PAGE>
DOCUMENTATION TYPE OF GROUP III HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL
STATISTICAL CALCULATION
NUMBER OF HOME CALCULATION DATE DATE
DOCUMENTATION TYPE (1) EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ---------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Full Documentation............................. $ %
Stated Income..................................
Limited Documentation..........................
------------- -------------- -------
Total.......................................... $ 100.00%
============= ============== =======
</TABLE>
- ------------------
(1) We refer you to "THE SELLER AND THE SERVICER--Underwriting Guidelines
Applicable to the Home Equity Loans" in the prospectus for a description of
the seller's documentation programs.
CREDIT GRADE OF GROUP III HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL
STATISTICAL CALCULATION
NUMBER OF HOME CALCULATION DATE DATE
CREDIT GRADE (1) EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ---------------- ------------ ------------ ------------
<S> <C> <C> <C>
A+.............................................. $ %
A1..............................................
A2.............................................
B..............................................
C1.............................................
C2.............................................
D..............................................
------------- -------------- -------
Total.......................................... $ 100.00%
============= ============== =======
</TABLE>
- ------------------
(1) We refer you to "THE SELLER AND THE SERVICER--Underwriting Criteria of the
Seller" in the prospectus for a description of the seller's credit grades
and underwriting criteria.
S-41
<PAGE>
CURRENT COUPON RATES OF GROUP III HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL
NUMBER OF STATISTICAL CALCULATION
HOME EQUITY CALCULATION DATE DATE
RANGE OF CURRENT COUPON RATES (%) LOAN BALANCES LOAN BALANCE LOAN BALANCE
- --------------------------------- ------------- ------------ ------------
<S> <C> <C> <C>
6.501 - 7.000................................... $ %
7.501 - 8.000...................................
8.001 - 8.500...................................
8.501 - 9.000...................................
9.001 - 9.500...................................
9.501 - 10.000..................................
10.001 - 10.500.................................
10.501 - 11.000.................................
11.001 - 11.500.................................
11.501 - 12.000.................................
12.001 - 12.500.................................
12.501 - 13.000.................................
13.001 - 13.500.................................
13.501 - 14.000.................................
14.001 - 14.500.................................
14.501 - 15.000.................................
15.001 - 15.500.................................
------------- -------------- -------
Total........................................... $ 100.00%
============= ============== =======
</TABLE>
GROSS MARGINS OF GROUP III HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL
STATISTICAL CALCULATION
NUMBER OF HOME CALCULATION DATE DATE
RANGE OF GROSS COUPON RATES (%) EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
2.001 - 4.000................................... $ %
4.001 - 6.000...................................
6.001 - 8.000...................................
8.001 - 10.000..................................
10.001 - 12.000.................................
------------- -------------- -------
Total........................................... $ 100.00%
============= ============== =======
</TABLE>
S-42
<PAGE>
MAXIMUM RATES OF GROUP III HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL
STATISTICAL CALCULATION
NUMBER OF HOME CALCULATION DATE DATE
RANGE OF MAXIMUM RATES (%) EQUITY LOANS LOAN BALANCES LOAN BALANCE
- -------------------------- ------------ ------------- ------------
<S> <C> <C> <C>
13.501 - 14.000................................. $ %
14.501 - 15.000.................................
15.001 - 15.500.................................
15.501 - 16.000.................................
16.001 - 16.500.................................
16.501 - 17.000.................................
17.001 - 17.500.................................
17.501 - 18.000.................................
18.001 - 18.500.................................
18.501 - 19.000.................................
19.001 - 19.500.................................
19.501 - 20.000.................................
20.001 - 20.500.................................
20.501 - 21.000.................................
21.001 - 21.500.................................
21.501 - 22.000.................................
22.001 - 22.500.................................
------------- -------------- -------
Total........................................... $ 100.00%
============= ============== =======
</TABLE>
NEXT INTEREST ADJUSTMENT DATE OF GROUP III HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL
STATISTICAL CALCULATION
NUMBER OF HOME CALCULATION DATE DATE
NEXT INTEREST ADJUSTMENT DATE EQUITY LOANS LOAN BALANCE LOAN BALANCE
- ----------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
October 1999.................................... $ %
November 1999...................................
December 1999...................................
January 2000....................................
February 2000...................................
June 2000 ......................................
July 2000.......................................
February 2001...................................
April 2001......................................
May 2001........................................
June 2001.......................................
July 2001.......................................
August 2001.....................................
------------- -------------- -------
Total........................................... $ 100.00%
============= ============== =======
</TABLE>
S-43
<PAGE>
DELINQUENCY AND LOSS EXPERIENCE
The following table sets forth the seller's delinquency experience with
respect to home equity loans as of the last day of each of the months indicated.
No home equity loan is considered delinquent for purposes of the table until a
payment is one calendar month past due on a contractual basis. It should be
noted that the seller commenced its servicing activities of home equity loans in
October 1997. Accordingly, the seller does not have significant historical
delinquency, bankruptcy, foreclosure or default experience that may be referred
to for examining the delinquency experience of home equity loans. The
delinquency and loss percentages may be affected by the size and relative lack
of seasoning of the servicing portfolio which increased from approximately
$___________ at ______ __, ____ to approximately $___________ at ________ __,
____. The seller believes that as the existing loan portfolio becomes more
seasoned, the rate of delinquencies, loan losses, foreclosures and REO
Properties will increase. Accordingly, the information in the table below is for
illustrative purposes only and is not intended to indicate or predict the
expected delinquency experience on past, current or future pools of home equity
loans for which the seller is the servicer.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AS OF _______ ___, ____ AS OF _____ ___, ____
-------------------------- ----------------------------
NUMBER DOLLAR NUMBER DOLLAR
OF LOANS AMOUNT ($) OF LOANS AMOUNT ($)
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Portfolio(1)...............................
Delinquency Percentage
30-59 days.......................... % % % %
60-89 days..........................
90 days and over....................
Total delinquency(2)....................... ____ ____ ____ ____
Percentage of REO Properties............... % % % %
</TABLE>
- ------------------
(1) Portfolio includes all loans originated after October 1997 other than
some home equity loan products originated for whole loan sales or
retention by the seller or one of its affiliates.
(2) Excludes REO Properties.
S-44
<PAGE>
The following table sets forth the seller's loss experience with respect to home
equity loans for the periods indicated.
LOSS EXPERIENCE
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR ENDING
JUNE 30, 1999 MARCH 31, 1999
------------- -------------------
DOLLAR DOLLAR
AMOUNT ($) AMOUNT ($)
---------- ----------
<S> <C> <C>
Average Portfolio(1)..........................................
Gross Losses(2)...............................................
Recoveries(3).................................................
Net Losses(4).................................................
Net Losses as a Percentage of Average Portfolio(5)............ % %
</TABLE>
- ------------------
(1) "Average Portfolio" during the period is the arithmetic average of the
principal balances of the loans outstanding on the last day of each month
during the period. Portfolio includes all loans originated after October
1997 other than some home equity loan products originated for whole loan
sales or retention by the seller or one of its affiliates.
(2) "Gross Losses" for each respective period are actual losses incurred on
liquidated properties or losses from the write-off of loans where the
properties were not liquidated. Losses include all principal, foreclosure
costs and all accrued interest.
(3) "Recoveries" are recoveries from deficiency judgments.
(4) "Net Losses" means "Gross Losses" minus "Recoveries".
(5) For the 3 months ending _____ __, ____, "Net Losses as a Percentage of
Average Portfolio" was annualized by multiplying "Net Losses" by 4 before
calculating the percentage of "Average Portfolio".
S-45
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The rate of principal payments on each class of notes, the aggregate
amount of distributions on the notes and the yield to maturity of the notes will
be related to the rate and timing of payments of principal on the notes. The
rate of principal payments on the home equity loans will in turn be affected by
the amortization schedules of the home equity loans, by the rate of principal
prepayments, including prepayments resulting from refinancing, liquidation of
the home equity loans due to defaults, casualties, or condemnations, optional
purchases by the servicer of delinquent home equity loans or of all remaining
home equity loans in connection with the termination of the trust, and realized
losses on the home equity loans. Certain of the home equity loans may be prepaid
by the mortgagors at any time without penalty, while certain of the home equity
loans are subject to penalties for prepayments.
PREPAYMENTS
Prepayments will result in distributions on the notes of principal
amounts which would otherwise be distributed over the remaining terms of the
home equity loans. Since the rate of payment of principal of the home equity
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 a note may vary from the anticipated yield will depend
upon the degree to which a note is purchased at a discount or premium, and the
degree to which the timing of payments on the notes is sensitive to prepayments,
liquidations and purchases of the home equity loans.
The rate of prepayment on the home equity loans cannot be predicted.
Approximately ____% of the Group I home equity loans, approximately ___% of the
Group II home equity loans and approximately ____% of the Group III home equity
loans may be prepaid in whole or in part at any time without penalty. Generally,
home equity loans are not viewed by borrowers as permanent financing.
Accordingly, the home equity loans may experience a higher rate of prepayment
than traditional home equity loans. The prepayment experience of the trust with
respect to the home equity 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 home
equity loans. All of the home equity loans will contain "due-on-sale"
provisions, and the servicer is required by the sale and servicing agreement
either to enforce the provisions to the extent permitted by applicable law or in
a manner consistent with reasonable commercial practice, to permit the purchaser
of the related mortgaged property to assume the home equity loan. The
enforcement of a "due-on-sale" provision will have the same effect as a
prepayment of the related home equity loan. The rate of prepayment of the home
equity loans may also be affected by the extent to which the home equity loans
provide for the payment of a penalty in connection with a prepayment as well as
the amount of the penalty.
WE REFER YOU TO "CERTAIN LEGAL ASPECTS OF THE HOME EQUITY
LOANS--DUE-ON-SALE CLAUSES IN HOME EQUITY LOANS" IN THe PROSPECTUS FOR MORE
DETAIL.
As with fixed rate obligations generally, the rate of prepayment on a
pool of home equity loans with fixed rates such as the Group I and Group II home
equity loans is affected by prevailing market rates for home equity loans of a
comparable term and risk level. When the market interest rate is below the
mortgage coupon, mortgagors may have an increased incentive to refinance their
home equity loans. Depending on prevailing market rates, the future outlook for
market rates and economic conditions generally, 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. As is the case
with conventional fixed-rate home equity loans, adjustable-rate home equity
loans such as the Group III home equity loans may be subject to a greater rate
of principal prepayments in a declining interest rate environment. For example,
if prevailing interest rates fall significantly, adjustable-rate home equity
loans could be subject to higher prepayment rates than if prevailing interest
rates remain constant because the availability of fixed-rate home equity loans
at competitive rates may encourage
S-46
<PAGE>
mortgagors to refinance their adjustable-rate home equity loans to
"lock in" a lower fixed interest rate. The prepayment behavior of the 2/28
Adjustable Rate Loans may differ from that of the other home equity loans. As a
2/28 Adjustable Rate Loan approaches its initial adjustment date, the borrower
may become more likely to refinance the loan to avoid an increase in the coupon
rate, even if fixed-rate loans are only available at rates that are slightly
lower or higher than the coupon rate before adjustment. The existence of an
applicable periodic rate cap, lifetime cap and lifetime floor also may affect
the likelihood of prepayments resulting from refinancings. However, no assurance
can be given as to the level of prepayments that the home equity loans will
experience.
Distribution of excess spread for the home equity loans in the
applicable home equity loan group will be distributed in reduction of the
outstanding principal balance of the related class of notes on each distribution
date to the extent that the then required overcollateralization amount for the
home equity loans in that home equity loan group exceeds the actual
overcollateralization amount for that home equity loan group. If purchased at a
premium or a discount, the yield to maturity on a note will be affected by the
rate at which excess spread for the home equity loans in the related home equity
loan group is distributed in reduction of the related note principal balance. If
the actual rate of distribution of excess spread is slower than the rate
anticipated by an investor who purchases a note at a discount, the actual yield
to the investor will be lower than the investor's anticipated yield. If the
actual rate of distribution of excess spread is faster than the rate anticipated
by an investor who purchases a note at a premium, the actual yield to the
investor will be lower than the investor's anticipated yield. The amount of
excess spread available for distribution on any distribution date will be
affected by the actual amount of interest received, advanced, collected or
recovered in respect of the home equity loans during the related Remittance
Period and the amount will be influenced by changes in the weighted average of
the coupon rates of the home equity loans resulting from prepayments and
liquidations. The amount of excess spread distributions applied in reduction of
the outstanding principal balance of the applicable notes on each distribution
date will be based on the then required overcollateralization amount for the
related home equity loan group, which may increase or decrease during the period
any class of notes remains outstanding. Any increase in the required
overcollateralization amount for a home equity loan group may result in an
accelerated rate of amortization of the related class of notes until the
overcollateralization amount for the related home equity loan group equals the
required overcollateralization amount for the related home equity loan group.
Similarly, any decrease in the required overcollateralization amount for the
related home equity loan group will result in a decelerated rate of amortization
of the related class of notes until the overcollateralization amount for the
related home equity loan group is reduced to the required overcollateralization
amount.
WE REFER YOU TO "DESCRIPTION OF THE NOTES--CREDIT ENHANCEMENT" IN THIS
PROSPECTUS SUPPLEMENT FOR MORE DETAIL.
PAYMENT DELAY FEATURE OF THE FIXED RATE NOTES
The effective yield to the Class A-1 and Class A-2 noteholders will be
lower than the yield otherwise produced by the applicable note rate and the
purchase price of the notes because distributions will not be payable to the
noteholders until the distribution date following the interest period for the
fixed rate notes, which is the calendar month preceding the distribution date.
No additional distribution of interest or earnings are payable with respect to
the payment delay.
WEIGHTED AVERAGE LIVES
Generally, greater than anticipated prepayments of principal will
increase the yield on notes purchased at a price less than par and will decrease
the yield on notes purchased at a price greater than par. The effect on an
investor's yield due to principal prepayments on the home equity loans in the
related home equity loan group 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 notes will not be entirely offset by a subsequent like
reduction (or increase) in the rate of principal payments. The weighted average
life of the notes will also be affected by the amount and timing of
delinquencies and defaults on the home equity loans in the related home equity
loan group and the recoveries, if any, on defaulted home equity loans in the
related home equity loan group and foreclosed properties.
S-47
<PAGE>
The "weighted average life" of a note 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 the note is repaid. The weighted average life of any
class of the notes will be influenced by, among other factors, the rate at which
principal payments are made on the home equity loans including home equity loans
that are balloon loans, for which principal amortization over the life of the
loan is slower (requiring a large lump sum principal payment at maturity.)
Prepayments of home equity loans are commonly measured relative to a
prepayment standard or model. The model used with respect to the Group I and
Group II notes is the prepayment assumption (the "Prepayment Assumption"). A
100% Prepayment Assumption assumes constant prepayment rates ("CPR") of 4% per
annum of the then outstanding principal balance of the Group I and Group II home
equity loans in the first month of the life of the home equity loans and an
additional 1.455% (precisely 16/11%) 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 home equity loans, a 100% Prepayment Assumption assumes a
CPR of 20% per annum of the outstanding principal balance of the Group I and
Group II home equity loans each month. The model used with respect to the Group
III notes is CPR, which is a prepayment assumption that represents a constant
assumed rate of prepayment each month relative to the then outstanding principal
balance of a pool of home equity loans for the life of the home equity loans.
Neither model purports to be a historical description of prepayment experience
or a prediction of the anticipated rate of prepayment of any pool of home equity
loans, including the home equity loans to be included in the trust.
Since the following tables were prepared on the basis of the
assumptions in the following paragraph, there are discrepancies between
characteristics of the actual home equity loans and the characteristics of the
home equity loans assumed in preparing the tables. Any discrepancy may have an
effect upon the percentages of the class principal balances outstanding and
weighted average lives of the notes set forth in the tables. In addition, since
the actual home equity loans in the trust have characteristics which differ from
those assumed in preparing the tables set forth below, the distributions of
principal on the notes may be made earlier or later than as indicated in the
tables.
The information in the decrement tables has been prepared on the basis
of the following assumed characteristics of the home equity loans and the
following additional assumptions (collectively, the "Structuring Assumptions"):
- the home equity loans consist of pools of loans with the amortization
characteristics set forth below,
- the closing date for issuance of the notes is ________ ___, _____,
- distributions on the notes are made on the ___ 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 in this prospectus supplement,
- the scheduled monthly payments of principal and interest on the home
equity loans will be timely delivered on the first day of each month
(with no defaults, delinquencies, modifications, waivers or
amendments),
- the home equity loans prepay at the specified percentages of the
Prepayment Assumption in the case of the Group I and Group II home
equity loans, or at the specified percentages of CPR, in the case of
the Group III home equity loans,
- all prepayments are prepayments in full received on the last day of
each month and include 30 days' interest,
- the optional termination is not exercised (except as noted in footnote
2 on the following tables),
- the notes of each Class have the note rates and initial outstanding
principal balances set forth in this prospectus supplement,
- the overcollateralization levels are set initially as specified in the
sale and servicing agreement, and thereafter decrease in accordance
with the provisions of the sale and servicing agreement,
- the coupon rate for each Group III home equity loan is adjusted on its
next adjustment date and on subsequent adjustment dates which occur on
six month intervals following the initial
S-48
<PAGE>
adjustment date to equal the sum of the applicable gross margin
and six-month LIBOR (the sum being subject to the applicable
periodic rate adjustment caps and floors and lifetime rate caps
and floors), and
- six-month LIBOR remains constant at ____% per annum and one-month
LIBOR remains constant at ____% per annum.
S-49
<PAGE>
GROUP I
<TABLE>
<CAPTION>
REMAINING ORIGINAL
TERM TO TERM TO
POOL LOAN COUPON MATURITY MATURITY
NUMBER BALANCE RATE (%) (MONTHS) (MONTHS)
- ------ ------- -------- -------- --------
<S> <C> <C> <C> <C>
1......................................... $
2.........................................
3.........................................
4.........................................
====================
$
====================
</TABLE>
GROUP II
<TABLE>
<CAPTION>
REMAINING ORIGINAL
TERM TO TERM TO
POOL LOAN COUPON MATURITY MATURITY
NUMBER BALANCE RATE (%) (MONTHS) (MONTHS)
- ------ ------- -------- -------- --------
<S> <C> <C> <C> <C>
1......................................... $
2.........................................
3.........................................
4.........................................
====================
$
====================
</TABLE>
GROUP III
HOME EQUITY LOANS
- -----------------
<TABLE>
<CAPTION>
NUMBER
OF
MONTHS INITIAL
TO NEXT INTEREST INTEREST REMAINING ORIGINAL
COUPON RATE RATE TERM TO TERM TO
POOL LOAN COUPON CHANGE GROSS ADJUSTMENT ADJUSTMENT MAXIMUM MINIMUM MATURITY MATURITY
NUMBER BALANCE RATE (%) DATE MARGIN(%) CAP (%) CAP (%) RATE (%) RATE (%) (MONTHS) (MONTHS)
- -------- --------- --------- --------- --------- ----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $
2
3
4
5
6
7
8
===========
$
===========
</TABLE>
DECREMENT TABLES
The following tables indicate, based on the Structuring Assumptions,
the percentages of the initial outstanding principal balance of the notes that
would be outstanding after each of the dates shown, based on the indicated
percentages of the Prepayment Assumption, in the case of the Group I notes and
the Group II notes and at the indicated percentages of CPR, in the case of the
Group III notes, and the corresponding weighted average lives of the Classes. It
is not likely that each of
- all of the home equity loans will have the characteristics assumed,
S-50
<PAGE>
- the home equity loans will prepay at the specified percentages of the
Prepayment Assumption or CPR or at any other constant percentage or
- the level of one-month LIBOR will remain constant at the level assumed
or at any other level.
Moreover, the diverse remaining terms to maturity of the home equity loans could
produce slower or faster principal distributions than indicated in the tables at
the specified percentages of the Prepayment Assumption or CPR even if the
weighted average remaining term to maturity of the home equity loans is
consistent with the remaining terms to maturity of the home equity loans
specified in the Structuring Assumptions.
S-51
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL OUTSTANDING (TO MATURITY)
<TABLE>
<CAPTION>
GROUP I PREPAYMENT
ASSUMPTION
- ---------------------- Class A-1
DISTRIBUTION DATE % % % % % % %
- ---------------------- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage...............................
[November25, 2000]...............................
[November 25, 2001]..............................
[November 25, 2002]..............................
[November 25, 2003]..............................
[November 25, 2004]..............................
[November 25, 2005]..............................
[November 25, 2006]..............................
[November 25, 2007]..............................
[November 25, 2008]..............................
[November 25, 2009]..............................
[November 25, 2010]..............................
[November 25, 2011]..............................
[November 25, 2012]..............................
[November 25, 2013]..............................
[November 25, 2014]..............................
[November 25, 2015]..............................
[November 25, 2016]..............................
[November 25, 2017]..............................
[November 25, 2018]..............................
[November 25, 2019]..............................
[November 25, 2020]..............................
[November 25, 2021]..............................
[November 25, 2022]..............................
[November 25, 2023]..............................
[November 25, 2024]..............................
[November 25, 2025]..............................
[November 25, 2026]..............................
[November 25, 2027]..............................
[November 25, 2028]..............................
Weighted Average Life * (1)......................
Weighted Average Life * (2)......................
</TABLE>
- -------------------
* The weighted average life of a note is determined by (1) multiplying the
amount of each distribution in reduction of the outstanding principal
balance of the applicable class of notes by the number of years from the
date of issuance of the note to the related distribution date, (2) adding
the results, and (3) dividing the sum by the original principal balance of
the applicable class of notes.
(1) To maturity.
(2) To optional termination. The optional termination of the trust is
dependent on the aggregate principal balance of the home equity loans in the
trust being reduced to less than 10% of the principal balance of the home equity
loans on the cut-off date. These tables have been prepared based on the
assumptions described above (including the assumptions regarding the
characteristics and performance of the home equity loans, which differ from the
actual characteristics and performance of these loans) and should be read in
conjunction with these assumptions.
S-52
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL OUTSTANDING (TO MATURITY)
<TABLE>
<CAPTION>
GROUP II PREPAYMENT
ASSUMPTION
- ---------------------- Class A-2
DISTRIBUTION DATE % % % % % % %
- ---------------------- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage...............................
[November 25, 2000]..............................
[November 25, 2001]..............................
[November 25, 2002]..............................
[November 25, 2003]..............................
[November 25, 2004]..............................
[November 25, 2005]..............................
[November 25, 2006]..............................
[November 25, 2007]..............................
[November 25, 2008]..............................
[November 25, 2009]..............................
[November 25, 2010]..............................
[November 25, 2011]..............................
[November 25, 2012]..............................
[November 25, 2013]..............................
[November 25, 2014]..............................
[November 25, 2015]..............................
[November 25, 2016]..............................
[November 25, 2017]..............................
[November 25, 2018]..............................
[November 25, 2019]..............................
[November 25, 2020]..............................
[November 25, 2021]..............................
[November 25, 2022]..............................
[November 25, 2023]..............................
[November 25, 2024]..............................
[November 25, 2025]..............................
[November 25, 2026]..............................
[November 25, 2027]..............................
[November 25, 2028]..............................
Weighted Average Life * (1)......................
Weighted Average Life * (2)......................
</TABLE>
- -------------------
* The weighted average life of a note is determined by (1) multiplying the
amount of each distribution in reduction of the outstanding principal
balance of the applicable class of notes by the number of years from the
date of issuance of the note to the related distribution date, (2) adding
the results, and (3) dividing the sum by the original principal balance of
the applicable class of notes.
(1) To maturity.
(2) To optional termination. The optional termination of the trust is
dependent on the aggregate principal balance of the home equity loans in the
trust being reduced to less than 10% of the principal balance of the home equity
loans on the cut-off date. These tables have been prepared based on the
assumptions described above (including the assumptions regarding the
characteristics and performance of the home equity loans, which differ from the
actual characteristics and performance of these loans) and should be read in
conjunction with these assumptions.
S-53
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL OUTSTANDING (TO MATURITY)
<TABLE>
<CAPTION>
GROUP III % OF CPR Class A-3
- ------------------ --------------------------------------------------------------------------------------
PAYMENT DATE % % % % % % % % % % % % %
- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage........
[November 25, 2000].......
[November 25, 2001].......
[November 25, 2002].......
[November 25, 2003].......
[November 25, 2004].......
[November 25, 2005].......
[November 25, 2006].......
[November 25, 2007].......
[November 25, 2008].......
[November 25, 2009].......
[November 25, 2010].......
[November 25, 2011].......
[November 25, 2012].......
[November 25, 2013].......
[November 25, 2014].......
[November 25, 2015].......
[November 25, 2016].......
[November 25, 2017].......
[November 25, 2018].......
[November 25, 2019].......
[November 25, 2020].......
[November 25, 2021].......
[November 25, 2022].......
[November 25, 2023].......
[November 25, 2024].......
[November 25, 2025].......
[November 25, 2026].......
[November 25, 2027].......
[November 25, 2028].......
Weighted Average Life *(1)
Weighted Average Life *(2)
</TABLE>
- ------------------
* The weighted average life of a note is determined by (1) multiplying the
amount of each distribution in reduction of the related outstanding
principal balance of the applicable class of notes by the number of years
from the date of issuance of the note to the related distribution date, (2)
adding the results, and (3) dividing the sum by the original principal
balance of the applicable class of notes.
(1) To maturity.
(2) To optional termination. The optional termination of the trust is
dependent on the aggregate principal balance of the home equity loans in the
trust being reduced to less than 10% of the principal balance of the home equity
loans on the cut-off date.
These tables have been prepared based on the assumptions described above
(including the assumptions regarding the characteristics and performance of the
home equity loans, which differ from the actual characteristics and performance
of these loans) and should be read in conjunction with these assumptions.
S-54
<PAGE>
THE TRUST
GENERAL
The trust is a business trust to be formed under the laws of the State
of Delaware pursuant to a trust agreement for the purpose of the transactions
described in this prospectus supplement. Prior to formation, the trust will have
no assets or obligations or any operating history. The trust will not acquire
any assets other than the home equity loans and related rights and proceeds to
the home equity loans, and it is not anticipated that the trust will have any
need for additional capital resources. Because the trust will have no operating
history upon its establishment and will not engage in any business other than
the duties discussed below, no historical or pro forma financial statements, or
ratios of earnings to fixed charges with respect to the trust have been included
in this prospectus supplement. The trust will not engage in any activities other
than:
- acquiring, holding and collecting payments on the home equity loans;
- issuing the notes and the transferor interest;
- making payments on the notes and the transferor interest; and
- engaging in other activities to accomplish these activities.
The assets of the trust will consist primarily of three groups of home
equity loans. The Group I home equity loans are closed-end, fixed-rate home
equity loans with principal balances that conform to the limits of Fannie Mae
and Freddie Mac, the Group II home equity loans are closed-end, fixed-rate home
equity loans with principal balances that may not conform to these limits and
the Group III home equity loans are closed-end, adjustable-rate home equity
loans with principal balances that may or may not conform to these limits. All
of the home equity loans will be secured by first- or second-lien mortgages on
primarily one- to four-family residential properties and manufactured housing
treated as real property under applicable law.
WE REFER YOU TO "DESCRIPTION OF THE HOME EQUITY LOANS" IN THIS
PROSPECTUS SUPPLEMENT FOR GREATER DETAIL.
The assets of the trust include all:
- the home equity loans described above, together with the related home
equity loan documents and the seller's interest in any mortgaged
property securing a home equity loan, and all payments on the home
equity loans and proceeds of the voluntary or involuntary conversion
of the foregoing;
- amounts as may be held by the indenture trustee in the distribution
account and any other accounts held by the indenture trustee for the
benefit of the noteholders, together with investment earnings on these
amounts;
- amounts that may be held by the servicer in the Principal and Interest
Account (as defined in the prospectus), if any, including investment
earnings on these amounts, whether in the form of cash, instruments,
securities or properties; and
- proceeds of all of the above, including proceeds of any mortgage
insurance, hazard insurance, or title insurance policy relating to the
home equity loans, cash proceeds, accounts, accounts receivable,
notes, drafts, acceptances, chattel paper, checks, deposit accounts,
rights to payment of any kind, and other forms of obligations and
receivables which at the time constitute any part of or are including
in the proceeds of any of the above.
S-55
<PAGE>
On the closing date, the seller and certain of its affiliates will sell
home equity loans to the depositor, who in turn will transfer the home equity
loans to the trust.
The assets of the trust will be pledged to the indenture trustee
pursuant to the indenture. The servicer is obligated to service the home equity
loans pursuant to the sale and servicing agreement.
Pursuant to the sale and servicing agreement the indenture trustee will
receive specified investment earnings on amounts on deposit in the distribution
account as additional compensation and the servicer will receive any investment
earnings on amounts on deposit in the Principal and Interest Account.
The depositor will cause the note insurer to deliver three irrevocable
and unconditional note insurance policies, each with respect to one of the three
classes of notes to the indenture trustee for the benefit of the noteholders.
WE REFER YOU TO "THE SELLER AND SERVICER" AND "THE AGREEMENTS" IN
THE PROSPECTUS AND "DESCRIPTION OF THE AGREEMENTS--SERVICING FEE" AND
"--RIGHTS UPON A SERVICING TERMINATION EVENT" IN THIS PROSPECTUS SUPPLEMENT
FOR ADDITIONAL INFORMATION ON THE SERVICER AND SERVICING COMPENSATION.
The trust's principal offices are located in _____________, in care of
______________________, as owner trustee, at the address set forth in the
following section.
THE OWNER TRUSTEE
_____________________ will act as the owner trustee under the trust
agreement. ___________________ is a [_______ banking corporation] and its
principal offices are located at ____________________________.
WE REFER YOU TO "DESCRIPTION OF THE AGREEMENTS--CERTAIN
MATTERS REGARDING THE INDENTURE TRUSTEE AND THE OWNER TRUSTEE" AND "--DUTIES OF
THE OWNER TRUSTEE AND INDENTURE TRUSTEE" IN THIS PROSPECTUS SUPPLEMENT FOR
ADDITIONAL INFORMATION ON THE OWNER TRUSTEE.
DESCRIPTION OF THE NOTES
The trust will issue the notes pursuant to an indenture. The trust will
also issue a transferor interest pursuant to the trust agreement; however, they
are not being offered by us under this prospectus supplement. The indenture, the
trust agreement and the sale and servicing agreement are collectively referred
to as the "Agreements" in this prospectus supplement. The forms of the
Agreements have been filed as exhibits to the registration statement of which
this prospectus supplement and the prospectus are a part. The following
summaries describe the material provisions of the Agreements. Wherever
particular sections or defined terms of the Agreements are referred to, these
sections or defined terms are incorporated into this prospectus supplement by
reference.
GENERAL
The notes will be issued in denominations of $1,000 and multiples of $1
in excess of $1,000 and will evidence specified undivided interests in the
trust. Definitive notes will be transferable and exchangeable at the corporate
trust office of the indenture trustee, which will initially act as note
registrar. No service charge will be made for any registration of exchange or
transfer of notes, but the indenture trustee may require payment of a sum
sufficient to cover any tax or other governmental charge.
S-56
<PAGE>
As of the closing date, each class of notes will have the original note
balance set forth on the cover page of this prospectus supplement. The principal
amount of each class of notes on any distribution date is equal to the
applicable class principal balance on the closing date minus the aggregate of
amounts actually distributed as principal to noteholders. Only the notes are
being offered under this prospectus supplement. The transferor interest is not
being offered and will be held by the transferor. Initially the transferor will
be the depositor.
The Class A-1, or Group I notes, will receive distributions primarily
based upon collections on the Group I home equity loans. The Class A-2, or Group
II notes, will receive distributions primarily based on collections on the Group
II home equity loans. The Class A-3, or Group III notes, will receive
distributions primarily based on the Group III home equity loans. Some limited
cross-collateralization for realized losses exists with respect to excess
collections between the three home equity loan groups.
WE REFER YOU TO "--PRIORITY OF DISTRIBUTIONS" AND "--CREDIT
ENHANCEMENT; CROSSCOLLATERALIZATION" IN THE PROSPECTUS SUPPLEMENT FOR
ADDITIONAL DETAIL.
Each class of the notes represents the right to receive payments of
interest at the applicable note rate for the applicable class, and payments of
principal as described below.
The person in whose name a note is registered is referred to in this
prospectus supplement as a "noteholder."
BOOK-ENTRY NOTES
The notes initially will be in book-entry form. Persons acquiring
beneficial ownership interests in the notes, will hold the notes through the
DTCC in the United States, or Cedelbank or Euroclear in Europe, if they are
participants of the systems, or indirectly through organizations that are
participants in the systems. The book-entry notes will be issued in one or more
notes per class, representing the aggregate principal balance of each class of
notes, and will initially be registered in the name of Cede & Co. the nominee of
DTCC. Cedelbank and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in Cedelbank's and
Euroclear's names on the books of their respective depositaries which in turn
will hold positions in customers' securities accounts in the depositaries names
on the books of DTCC. The European depositories will be Citibank N.A., who will
act as depositary for Cedelbank and Morgan Guaranty Trust Company of New York,
who will act as depositary for Euroclear. Investors may hold beneficial
interests in the book-entry notes in minimum denominations representing
principal balances of $1,000 and in integral multiples of $1 in excess of
$1,000. Except as described below, no person acquiring book-entry notes will be
entitled to receive a physical, definitive note. Unless and until definitive
notes are issued, it is anticipated that the only noteholder of the notes will
be Cede & Co. as nominee of DTCC. Beneficial owners will not be noteholders as
that term is used in the sale and servicing agreement. Beneficial owners are
permitted to exercise their rights only indirectly through DTCC and its
participants (including Cedelbank and Euroclear).
Under a book-entry format, beneficial owners of the book entry notes
may experience some delay in their receipt of payments, since the payments will
be forwarded by the indenture trustee to Cede & Co. Distributions with respect
to notes held through Cedelbank or Euroclear will be credited to the cash
accounts of Cedelbank participants or Euroclear participants in accordance with
the relevant system's rules and procedures, to the extent received by the
relevant depositary. Because DTCC can only act on behalf of financial
intermediaries, the ability of a beneficial owner to pledge book-entry notes to
persons or entities that do not participate in the depositary system, or
otherwise take actions in respect of the book-entry notes, may be limited due to
the lack of physical notes for the book-entry notes.
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DTCC has advised the indenture trustee that, unless and until
definitive notes are issued, DTCC will take any action permitted to be taken by
the holders of the book-entry notes under the sale and servicing agreement only
at the direction of one or more financial intermediaries to whose DTCC accounts
the book-entry notes are credited, to the extent that actions are taken on
behalf of financial intermediaries whose holdings include those book-entry
notes. Cedelbank or the Euroclear operator, as the case may be, will take any
other action permitted to be taken by a noteholder under the sale and servicing
agreement on behalf of a Cedelbank participant or Euroclear participant only in
accordance with its relevant rules and procedures and subject to the ability of
the relevant European depository to effect actions on its behalf through DTCC.
DTCC may take actions, at the direction of the related participants, with
respect to some notes which conflict with actions taken with respect to other
notes.
Definitive notes will be issued to beneficial owners of the book-entry
notes, or their nominees, rather than to DTCC, only if:
- DTCC or the issuer advises the indenture trustee in writing that DTCC
is no longer willing, qualified or able to discharge properly its
responsibilities as nominee and depository with respect to the
book-entry notes and DTCC or the issuer is unable to locate a
qualified successor,
- the issuer, at its sole option, elects to terminate a book-entry
system through DTCC or
- after the occurrence of an Event of Default (as defined in the
indenture), beneficial owners having percentage interests aggregating
at least a majority of the aggregate outstanding principal balance of
the book-entry notes advise DTCC in writing that the continuation of a
book-entry system through DTCC (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 sentence, DTCC will be required to notify the indenture trustee and
all beneficial owners of the occurrence of that event and the availability
through DTCC of definitive notes. Upon surrender by DTCC of the global note or
notes representing the book-entry notes and instructions for re-registration,
the issuer will execute and the indenture trustee will authenticate the
definitive notes, and thereafter the indenture trustee will recognize the
holders of the definitive notes as noteholders under the indenture.
DTCC management is aware that some computer applications, systems, and
the like for processing data that are dependent upon calendar dates, including
dates before, on, and after January 1, 2000, may encounter Year 2000 problems.
DTCC has informed its participants and other members of the financial community
that it has developed and is implementing a program so that its systems, as the
same relate to the timely payment of distributions to securityholders,
book-entry deliveries, and settlement of trades within DTCC, continue to
function appropriately. This program includes a technical assessment and a
remediation plan, each of which is complete. Additionally, DTCC's plan includes
a testing phase, which is expected to be completed within appropriate time
frames.
However, DTCC's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third party vendors from whom DTCC licenses software and
hardware, and third party vendors on whom DTCC relies for information or the
provision of services, including telecommunication and electrical utility
service providers, among others. DTCC has informed the financial community that
it is contacting, and will continue to contact, third party vendors from whom
DTCC acquires services to impress upon them the importance of these services
being Year 2000 compliant and to determine the extent of their efforts for Year
2000 remediation (and, as appropriate, testing) of their services. In addition,
DTCC is in the process of developing contingency plans as it deems appropriate.
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According to DTCC, the foregoing information with respect to DTCC has
been provided to the financial community for informational purposes only and is
not intended to serve as a representation, warranty, or contract modification of
any kind.
PAYMENTS ON THE NOTES
Beginning with the first distribution date (which will occur on
__________, ____), payments on the notes will be remitted by the indenture
trustee to the persons in whose names the notes are registered on the record
date, based solely upon the information provided to the indenture trustee by the
servicer on the business day immediately preceding each distribution date.
Payments will be made by check mailed to the address of the noteholder as it
appears on the note register maintained by the indenture trustee as note
registrar in amounts calculated as described below. If a noteholder owning a
note having an aggregate original principal balance of not less than $1,000,000
notifies the indenture trustee at least one business day prior to the record
date, distributions will be made in immediately available funds by wire transfer
or otherwise, to the account of the noteholder at an appropriate institution.
Beneficial owners of the notes may experience some delay in receipt of their
payments due to the operations of DTCC. However, the final distribution with
respect to the notes will be made upon presentation and surrender of the note by
the noteholder at the office or the agency of the indenture trustee specified in
the notice to noteholders of the final distribution.
Each noteholder of record of a class of notes will be entitled to
receive the noteholder's percentage interest in the amounts due the class on
each distribution date. The percentage interest of a note as of any date of
determination will be equal to the percentage obtained by dividing the principal
balance of the note as of the closing date by the class principal balance for
the related class of notes as of the closing date.
GLOSSARY
The following terms are defined below to help facilitate a better
understanding of the priority and amount of distributions payable to you on a
distribution date.
"AVAILABLE FUNDS CAP" means, with respect to any Interest Period and
the related distribution date, a rate per annum equal to the fraction, expressed
as a percentage, the numerator of which is the product of (a) the weighted
average of the Net Coupon Rates (minus the Minimum Spread) on the applicable
group of home equity loans as of the beginning of the related Remittance Period
and (b) the aggregate outstanding principal balance of the applicable group of
home equity loans as of the beginning of the related Remittance Period, and the
denominator of which is the aggregate outstanding principal balance of the
relevant class of notes (before giving effect to payments of principal on the
distribution date) (adjusted to an effective rate reflecting accrued interest
calculated on the basis of a 360-day year and the actual number of days
elapsed).
"CROSSCOLLATERALIZATION PAYMENT" means, on any distribution date, a
payment of available funds with respect to one group to cover shortfalls in
available funds with respect to another group needed to pay the following
amounts, in the following order:
- first, concurrently, to the indenture trustee, any unpaid indenture
trustee fee, to the owner trustee any unpaid owner trustee fee, to the
indenture trustee, any unpaid Transition Expenses and, so long as no
payment default under the note insurance policy has occurred and is
continuing, to the note insurer, any amount owed as premium under the
note insurer agreement;
- second, to the related class of notes any unpaid Interest
Distribution;
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- third, to the note insurer, any unpaid amounts owed for reimbursement
of draws under the applicable note insurance policy, plus interest on
the unpaid amounts; and
- fourth, to the related class of notes, any amount by which realized
losses with respect to the home equity loan group exceed Excess Spread
plus overcollateralization with respect to the related class of notes.
"DISTRIBUTABLE EXCESS SPREAD" means the amount, if any, required to be
distributed on any distribution date to satisfy the required level of
overcollateralization for the home equity loan group for the related
distribution date.
"EXCESS OVERCOLLATERALIZATION AMOUNT" means, for any distribution date
and class of notes, the amount, if any, by which the overcollateralization
amount for a home equity loan group exceeds the related required
overcollateralization amount for the distribution date, after giving effect to
all payments with respect to the related Monthly Principal Distributable Amount
on the related distribution date.
"EXCESS SPREAD" means, as of any distribution date with respect to a
group of home equity loans, the excess, if any, of (x) related available funds
for the distribution date over (y) the portion of available funds required to be
distributed on the related distribution date pursuant to subclauses (1) through
(4) as set forth under the heading "-Priority of Distributions" below.
"FIXED INTEREST RATE CAP" means, as of any distribution date, a rate
per annum equal to the weighted average of the Net Coupon Rates of the
applicable group of home equity loans as of the beginning of the related
Remittance Period.
"INTEREST CARRYOVER SHORTFALL" means, as of any distribution date, for
any class of notes, the sum of (a) the excess of the sum of (A) the related
Monthly Interest Distributable Amount for the class of notes for the preceding
distribution date and (B) any outstanding Interest Carryover Shortfall with
respect to the notes on the preceding distribution date, over the amount in
respect of interest that is actually distributed to these notes on the preceding
distribution date plus (b) interest on the excess, to the extent permitted by
law, at the related note rate for the related Interest Period.
"INTEREST DISTRIBUTION" means, as of any distribution date, for any
class of notes the sum of (a) the Monthly Interest Distributable Amount for a
class of notes and (b) any applicable Interest Carryover Shortfall for the class
of notes.
"INTEREST INDEX CARRYOVER" means, as of any distribution date for any
Class A-3 notes, the sum of (A) the excess of (1) the amount of interest the
applicable class of notes would otherwise be entitled to receive on the
distribution date had the rate not been limited by the Available Funds Cap over
(2) the amount of interest payable on the applicable class of notes at the
Available Funds Cap for the distribution date and (B) the Interest Index
Carryover for all previous distribution dates not previously paid to the
applicable class of noteholders (including any interest accrued at the
applicable note rate).
"INTEREST PERIOD" as of any distribution date, means:
- for each of the Class A-1 notes and the Class A-2 notes, the calendar
month preceding the month of the distribution date; and
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- for the Class A-3 notes, the period from and including the
previous distribution date (or the closing date in the case of
the first distribution date) to and including the day preceding
the relevant distribution date.
"LIBOR BUSINESS DAY" means any day other than (1) a Saturday or a
Sunday or (2) 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.
"MINIMUM SPREAD" means a percentage per annum equal to 0% for
distribution dates which occur prior to _________ and 0.50% for distribution
dates which occur from ______ on.
"MONTHLY INTEREST DISTRIBUTABLE AMOUNT" means, as of any distribution
date, interest at the related note rate that accrued during the related Interest
Period on the related note balance, immediately prior to the distribution date.
"MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT" means, as of any distribution
date with respect to a class of notes and to the extent of available funds, an
amount equal to the sum of the following amounts (without duplication) with
respect to the immediately preceding Remittance Period:
- all collections allocable to principal with respect to the
applicable group of home equity loans, whether through prepayment
or liquidation of mortgage properties, repurchased home equity
loans, or otherwise; and
- the Distributable Excess Spread.
"NET COUPON RATE" means, as of any distribution date with respect to a
home equity loan, the rate per annum equal to the Coupon Rate for that home
equity loan minus the sum of all amounts payable prior to the Interest
Distribution related to that home equity loan on the related distribution date,
expressed as a percentage of the aggregate principal balance of the applicable
group of home equity loans, as of the beginning of the related Remittance
Period.
"ONE-MONTH LIBOR" means, with respect any Interest Period, an amount
established by the indenture trustee equal to the rate for United States dollar
deposits for one month which appears on the display designated as page 3750 on
the Telerate Service or a successor page as of 11:00 A.M., London time, on the
second LIBOR Business Day prior to the first day of the related Interest Period.
If the rate does not appear on that page, the rate will be determined on the
basis of the rates at which deposits in U.S. Dollars are offered by three major
banks in the London interbank market, selected by the servicer, as of 11:00
A.M., London time, on the determination date to prime banks in the London
interbank market for a period of one month in amounts approximately equal to the
principal amount of the notes then outstanding. The indenture trustee will
request the principal London office of each of the reference banks to provide a
quotation of its rate. If at least two quotations are provided, the rate will be
the arithmetic mean of the quotations. If on the related date fewer than two
quotations are provided as requested, the rate will be the arithmetic mean of
the rates quoted by two or more major banks in New York City, selected by the
servicer after consultation with the indenture trustee, as of 11:00 A.M., New
York City time, on the date for loans in U.S. Dollars to leading European banks
for a period of one month in amounts approximately equal to the principal amount
of the notes then outstanding. If no quotations can be obtained, the rate will
be one-month LIBOR for the prior distribution date.
"OVERCOLLATERALIZATION REDUCTION AMOUNT" means, as of any distribution
date, the lesser of the Monthly Principal Distributable Amount and the Excess
Overcollateralization Amount.
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"PRINCIPAL DISTRIBUTION" means, as of any distribution date with
respect to a class of notes, the related Monthly Principal Distributable Amount
for the distribution date minus the related Overcollateralization Reduction
Amount for the distribution date.
"REMITTANCE PERIOD" means, for purposes of calculating amounts payable
on any distribution date, the applicable Remittance Period is the calendar month
immediately preceding the calendar month in which the distribution date occurs.
"TRANSITION EXPENSES" means expenses incurred by the indenture trustee
in connection with the transfer of servicing upon the termination of the
servicer on the occurrence of an [Event of Servicing Termination]; provided that
the amount shall not exceed $________ in any one calendar year, and no more than
$_______ in the aggregate.
PRIORITY OF DISTRIBUTIONS
On each distribution date, the indenture trustee or the payment agent
will withdraw from the distribution account amounts with respect to each home
equity loan group for distribution to the related group of notes.
The Class A-1 notes will be entitled to distributions only to the
extent of amounts deposited in the distribution account with respect to the
Group I home equity loans; the Class A-2 notes will be entitled to distributions
only to the extent of amounts deposited in the distribution account with respect
to the Group II home equity loans; and the Class A-3 notes will be entitled to
distributions only to the extent of amounts deposited in the distribution
account with resect to the Group III home equity loans. Amounts paid under the
note insurance policies will only be available for distribution to noteholders.
These amounts shall be paid in the following order of priority, in each case to
the extent of funds remaining:
(1) concurrently, to the indenture trustee, the indenture trustee fee
plus Transition Expenses, to the owner trustee, the owner trustee
fee, and to the note insurer, so long as no payment default under
the note insurance policy has occurred or is continuing, the
premium owed to the note insurer under the note insurance
agreement, in each case with respect to the related group;
(2) concurrently, to the holders of the related notes, an amount equal
to the related Interest Distribution for these notes for the
distribution date;
(3) to the holders of the related notes, the Principal Distribution
for the distribution date, other than the portion constituting
Distributable Excess Spread;
(4) to the note insurer, the amount owing to the note insurer under
the insurance agreement for reimbursement for prior draws made on
the note insurance policy for the group, including interest on
that amount;
(5) to the holders of the related notes the Distributable Excess
Spread for the group for the distribution date;
(6) to the note insurer, so long as no payment default under the note
insurance agreement has occurred and is continuing, any other
amounts owed to the note insurer with respect to the group under
the note insurance agreement;
(7) to the noteholders of the other groups, any
Crosscollateralization Payment;
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(8) to holders of Class A-3 notes, the Interest Index Carryover;
(9) to the indenture trustee, reimbursement for all reimbursable
expenses incurred in connection with its duties and obligations,
under the sale and servicing agreement, to the extent not
reimbursed as Transition Expenses pursuant to clause (1) above;
(10) to the servicer, any unreimbursed Delinquency Advances (as defined
in the prospectus), unreimbursed Servicing Advances (as defined in
the prospectus) and unreimbursed Compensating Interest (as defined
in the prospectus); and
(11) to the transferor interest, the balance.
If only one group is eligible for a Crosscollateralization Payment, and
the cash available from the other two groups equals or exceeds the amount of the
shortfall with respect to the eligible group, the two groups shall contribute
pro rata, based on the ratio of the amount of cash available from each group
after payment of items (1) through (6) to total cash available from both groups.
If the amount of the shortfall with respect to the eligible group exceeds the
available cash from both contributing groups, then the two contributing groups
shall contribute all available cash after payment of items (1) through (6) under
"Priority of Distributions" above. If two groups are eligible for a
Crosscollateralization Payment then the two eligible groups shall share pro rata
based on the ratio of the shortfall with respect to each group to the aggregate
shortfall for both groups.
INTEREST
The note rate for the Class A-1 notes will equal the lesser of ____%
per annum for any distribution date on or prior to the first distribution date
that the aggregate outstanding principal balance of the home equity loans in all
groups is equal to or less than 10% of the aggregate outstanding principal
balance of the home equity loans on the cut-off date, or ____% per annum for any
distribution date after the related distribution date, subject to the Fixed
Interest Rate Cap.
The note rate for the Class A-2 notes will equal the lesser of ____%
per annum for any distribution date on or prior to the first distribution date
that the aggregate outstanding principal balance of the home equity loans in all
groups is equal to or less than 10% of the aggregate outstanding principal
balance of the home equity loans on the cut-off date, or ____% per annum for any
distribution date after the related distribution date, subject to the Fixed
Interest Rate Cap.
The note rate for the Class A-3 notes, will equal the lesser of (a) the
sum of (1) One-Month LIBOR, as of the second LIBOR Business Day prior to the
immediately preceding distribution date (or as of two LIBOR Business Days prior
to the closing date, in the case of the first distribution date) plus (2) the
related note margin, and (b) the Available Funds Cap. The note margin with
respect to:
The Class A-3 notes is equal to ____% per annum for any distribution
date on or prior to the first distribution date that the aggregate
outstanding principal balance of the home equity loans in all
groups is equal to or less than 10% of the aggregate outstanding
principal balance of the home equity loans on the cut-off date, or
____% per annum for any distribution date after the related
distribution date.
Interest on the Class A-1 notes and the Class A-2 notes will accrue
during the relevant Interest Period on the basis of a 360-day year consisting of
twelve 30-day months. Interest on the Class A-3 notes will accrue during the
related Interest Period on the basis of a 360-day year and the actual number of
days elapsed.
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Interest on the Class A-1 notes and Class A-2 Notes are subject to the
Fixed Interest Rate Cap. If the Class A-1 note rate or Class A-2 note rate on a
particular distribution date is limited by the Fixed Interest Rate Cap, the
Class A-1 or Class A-2 noteholders, as applicable, will not be entitled to
receive any interest carryover on subsequent distribution dates.
Interest on the Class A-3 notes is subject to the Available Funds Cap.
To the extent that an Interest Distribution on any distribution date is limited
by the Available Funds Cap, the Class A-3 noteholders will be entitled to
receive Interest Index Carryover payments on subsequent distribution dates on a
subordinated basis.
The note insurance policies will not cover any Interest Index
Carryover, and the ratings on the applicable class of notes by the rating
agencies will not address the likelihood of receipt by noteholders of any
amounts in respect of Interest Index Carryovers. Payment of the Interest Index
Carryover will be subject to availability of funds in accordance with the
priority of payments set forth above.
PRINCIPAL
On each distribution date, to the extent of available funds, in
accordance with the priorities described above under "--Priority of
Distributions," principal will be distributed to the noteholders of each class
in an amount equal to the lesser of (A) the related note principal balance and
(B) the related Principal Distribution (net of Distributable Excess Spread paid
to the note insurer) for the distribution date.
Overcollateralization on any distribution date and for a home equity
loan group must meet a specified required overcollateralization amount for that
home equity loan group. Excess overcollateralization above the amount specified
with respect to a class of notes may occur on a distribution date either because
amortization of the notes exceeds that of the home equity loans of the related
group or because the required overcollateralization amount has been reduced. If
this occurs, the Principal Distribution payable will be reduced by the amount
necessary to ensure that overcollateralization is reduced to the required
amount.
On the final scheduled distribution date for a class of notes, the
unpaid principal balance will be due and payable. If available funds on the
final scheduled distribution date are not sufficient to pay the unpaid principal
balance of the related class of notes in full, the trustee will make a draw on
the note insurance policy for that amount.
CREDIT ENHANCEMENT
THE NOTE INSURANCE POLICIES. The note insurer has issued three note
insurance policies, each of which guaranties payments on one class of notes.
This section describes the terms of each note insurance policy. The following
information has been supplied by the note insurer for inclusion in this
prospectus supplement. Accordingly, no representation is made by the depositor,
the underwriters, the seller, or any of their affiliates, as to the accuracy or
completeness of this information.
The note insurer, in consideration of the payment of the premium and
subject to the terms of the note insurance policy, unconditionally and
irrevocably guarantees to any Owner that an amount equal to each full and
complete Insured Payment will be received by the indenture trustee, or its
successor, as trustee for the Owners, on behalf of the Owners from the note
insurer, for distribution by the indenture trustee to each Owner of each Owner's
proportionate share of the Insured Payment. The note insurer's obligations under
the note insurance policy with respect to a particular Insured Payment shall be
discharged to the extent funds equal to the applicable Insured Payment are
received by the indenture trustee, whether or not these funds are properly
applied by the indenture trustee. Insured Payments shall be made only at the
time set forth in the note insurance
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policy and no accelerated Insured Payments shall be made regardless of any
acceleration of the notes, unless the accelerated Insured Payments are made at
the sole option of the note insurer.
Notwithstanding the foregoing paragraph, the note insurance policy does
not cover shortfalls, if ( any, attributable to the liability of the trust or
the indenture trustee for withholding taxes, if any, including interest and
penalties in respect of any liability so attributable.
The note insurer will pay any Insured Payment that is a Preference
Amount on the day following receipt on a business day by the fiscal agent of:
(1) a certified copy of requiring the return of a preference payment,
(2) an opinion of counsel satisfactory to the note insurer that the
order is final and not subject to appeal,
(3) an assignment in any form as is reasonably required by the note
insurer all rights and claims of the Owner relating to or arising
under the notes against the debtor that made the preference payment or
otherwise with respect to the preference payment, and
(4) appropriate instruments to effect the appointment of the note
insurer as agent for the Owner in any legal proceeding related to the
preference payment, these instruments being in a form satisfactory to
the note insurer,
provided that if these documents are received after 12:00 noon, New York City
time, on the applicable business day, they will be deemed to be received on the
following business day. These payments shall be disbursed to the receiver or
trustee in bankruptcy named in the final order of the court exercising
jurisdiction on behalf of the Owner and not to any Owner directly unless the
Owner has returned principal or interest paid on the notes to the receiver or
trustee in bankruptcy, in which case the payment shall be disbursed to the
applicable Owner. Subject to the terms of the sale and servicing agreement, the
note insurer shall be subrogated to the rights of each Owner to receive payments
under the notes to the extent of any payment by the note insurer under the note
insurance policy.
As used in this prospectus supplement, the following terms shall have
the following meanings:
"Deficiency Amount" means for any distribution date the sum of:
(A) the excess, if any, of
(1) accrued and unpaid interest due on the notes over
(2) the amount of available funds, including any
cros-collateralization payment and excluding any payments
under the note insurance policy available to be distributed
therefor on the applicable distribution date and
(B) the Guaranteed Principal Amount.
However, the Deficiency Amount does not include any shortfalls in interest with
respect to the applicable home equity group resulting from application of the
Soldiers' and Sailors' Civil Relief Act of 1940, any Interest Index Carryover,
or any reduction in interest paid to any owner resulting from application of the
Fixed Interest Cap or the Available Funds Cap.
"Final Payment Date" means the distribution date in ______________.
"Guaranteed Principal Amount" means (a) for any distribution date,
other than the Final Payment date, and each class of notes the amount, if any,
by which the related note principal balance exceeds the related group
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balance at the end of the related Remittance Period, after giving effect to
all payments of principal on the applicable notes on the related distribution
date, including the related Distributable Excess Spread and any
Crosscollateralization Payment, and (b) on the Final Payment date, the related
outstanding note principal balance, after giving effect to all other payments of
principal on the applicable notes on the related distribution date, including
the related Distributable Excess Spread and any Crosscollateralization Payment.
"Insured Payment" means (1) as of any distribution date, any Deficiency
Amount and (2) any Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly confirmed
in writing by telecopy, substantially in the form of Exhibit A attached to the
note insurance policy, the original of which is subsequently delivered by
registered or certified mail, from the indenture trustee specifying the Insured
Payment which shall be due and owing on the applicable distribution date.
"Owner" means each securityholder who, on the applicable distribution
date, is entitled under the terms of the notes to payment under those notes.
"Preference Amount" means any amount previously distributed to an Owner
on the notes that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy with respect to the seller, the depositor
or the trust pursuant to the United States Bankruptcy Code (11 U.S.C.), as
amended from time to time in accordance with a final nonappealable order of a
court having competent jurisdiction.
So long as no insurer default is continuing, the note insurer will be
entitled to exercise the rights of the noteholders. An insurer default will
occur in the event the note insurer fails to make a payment required under the
note insurance policy or if certain events of bankruptcy or insolvency occur
with respect to the note insurer.
Capitalized terms used in the note insurance policy and not otherwise
defined in the note insurance policy shall have the respective meanings set
forth in the sale and servicing agreement as of the date of execution of the
note insurance policy, without giving effect to any subsequent amendment or
modification to the sale and servicing agreement unless the amendment or
modification has been approved in writing by the note insurer.
Any notice under the note insurance policy or service of process on the
fiscal agent or the note insurer may be made at the address listed below for the
fiscal agent or the note insurer or any other address as the note insurer shall
specify in writing to the indenture trustee.
The notice address of the fiscal agent is
____________________________________, Attention: ____________________, or any
other address as the fiscal agent shall specify to the indenture trustee in
writing.
The note insurance policy is being issued under and pursuant to, and
shall be construed under, the laws of the State of New York, without giving
effect to the conflict of laws principles of the State of New York.
The insurance provided by the note insurance policy is not covered by
the Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The note insurance policy is not cancelable for any reason. The premium
on the note insurance policy is not refundable for any reason including payment,
or provision being made for payment, prior to the maturity of the notes.
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OVERCOLLATERALIZATION PROVISIONS.. The sale and servicing agreement
provides for the maintenance of overcollateralization at a specified required
level for each home equity loan group. To the extent that overcollateralization
with respect to a class of notes on any distribution date exceeds this level,
the amount distributable as principal will be adjusted to slow the amortization
of the notes relative to that of the home equity loans, freeing up cash to make
other payments, including crosscollateralization payments with respect to other
home equity loan groups. See "Principal" above and "Crosscollateralization"
below.
To the extent that overcollateralization on a distribution date falls
below the required level for a home equity loan group, either because the
required level of overcollateralization has increased or because of losses
realized with respect to the related group of home equity loans, available
excess spread with respect to the home equity loans will be applied to
accelerate the amortization of the related notes so as to increase the level of
overcollateralization. Crosscollateralization payments will not be available for
this purpose.
To the extent that aggregate outstanding principal with respect to a
class of notes falls below the outstanding principal balance of the related home
equity loan group, amounts may be available in the form of a
Crosscollateralization Payment. See "Crosscollateralization" below. In addition,
draws on the related note insurance policy will be available, to the extent that
a class of notes remains undercollateralized after all excess spread has been
applied and all available crosscollateralization payments have been made.
CROSSCOLLATERALIZATION PROVISIONS. Excess cash with respect to a group
of home equity loans will be available to cover certain shortfalls with respect
to the notes relating to the other groups. The crosscollateralization payments
are available to make payments to other parties as well as to the noteholders.
Available crosscollateralization payments will be applied in the following
order:
- first, concurrently, to the indenture trustee, any unpaid
indenture trustee fee, to the owner trustee, any unpaid owner
trustee fee, to the indenture trustee, any unpaid Transition
Expenses and, so long as no payment default under the note
insurance agreement has occurred and is continuing, to the note
insurer, any amount owed as premium under the note insurance
agreement;
- second, to the related class of notes, any unpaid Interest
Distribution;
- third, to the note insurer, any unpaid amounts owed for
reimbursement of draws under the applicable note insurance
policy, plus interest on these unpaid amounts; and
- fourth, to the related class of notes, any amount by which
realized losses with respect to the home equity loan group exceed
excess spread plus overcollateralization with respect to the
related class of notes.
If only one group is eligible for a Crosscollateralization Payment, and
the cash available from the other two groups equals or exceeds the amount of the
shortfall with respect to the eligible group, the two groups shall contribute
pro rata, based on the ratio of the amount of cash available from each group
after payment of items (1) through (8) to total cash available from both groups.
If the amount of the shortfall with respect to the eligible group exceeds the
available cash from both contributing groups, then the two contributing groups
shall contribute all available cash after payment of items (1) through (8). If
two groups are eligible for a Crosscollateralization Payment then the two
eligible groups shall share pro rata based on the ratio of the shortfall with
respect to each group to the aggregate shortfall for both groups.
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FINAL SCHEDULED DISTRIBUTION DATE
The final scheduled distribution date or final payment date for each
class of notes is the distribution date in _________, ____, which is the
distribution date in the month immediately following the last scheduled due date
for the home equity loan in the related home equity loan group with the latest
stated maturity date. It is expected that the actual last distribution date for
the notes will occur significantly earlier than the final scheduled distribution
date specified above. See "PREPAYMENT AND YIELD CONSIDERATIONS" above.
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DESCRIPTION OF THE AGREEMENTS
The following summary describes the material terms of the sale and
servicing agreement, the trust agreement and the indenture. Whenever particular
defined terms in the indenture are referred to, these defined terms are
incorporated by reference into this prospectus supplement. See "THE AGREEMENTS"
in the prospectus.
REPORTS TO NOTEHOLDERS
Concurrently with each payment to the noteholders, the servicer will
forward to the indenture trustee for mailing to each noteholder and the note
insurer a statement setting forth among other items with respect to each
distribution date and each class of notes:
(1) the aggregate amount of the distribution to the noteholders on the
related 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 related Interest
Carryover Shortfall, and the amount of any related Interest Carryover Shortfall
remaining;
(3) the aggregate amount of any related Interest Carryover Shortfall,
and the amount of any related Interest Carryover Shortfall remaining;
(4) the amount of the distribution set forth in paragraph (1) above in
respect of principal and the amount thereof in respect of the Principal
Shortfall Amount (as defined in the indenture), and any remaining Principal
Shortfall Amount;
(5) the amount of Excess Spread for each group and the amount applied
as a distribution of Distributable Excess Spread on the notes;
(6) the Guaranteed Principal Amount for each group for the distribution
date;
(7) the amount paid under the note insurance policy for the
distribution date in respect of the Interest Distribution to each class of
notes;
(8) the servicing fee;
(9) the home equity loan pool balance and each home equity loan group
balance as of the close of business on the last day of the preceding Remittance
Period;
(10) the note principal balance for each class of notes after giving
effect payments allocated to principal above;
(11) the amount of overcollateralization for each group as of the close
of business on the distribution date, after giving effect to distributions of
principal on the distribution date;
(12) the number and aggregate principal balances of the home equity
loans in each group as to which the minimum monthly payment is delinquent for 30
to 59 days, 60 to 89 days and 90 or more days, respectively, as of the end of
the preceding Remittance Period;
(13) the book value of any real estate which is acquired by the trust
through foreclosure or grant of deed in lieu of foreclosure;
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(14) the aggregate amount of prepayments received on the home equity
loans during the previous Remittance Period and specifying the amount for each
group;
(15) the weighted average loan rate on the home equity loans as of the
first day of the month prior to the distribution date and specifying this rate
for each group;
(16) the note rate for each class of notes for the distribution date;
and
(17) the required overcollateralization for each group for the
distribution date.
In the case of information furnished pursuant to clauses (2), (3) and
(4) above, the amounts shall be expressed as a dollar amount per note with a
$1,000 denomination.
Within sixty days after the end of each calendar year, the servicer
will be required to forward to the indenture trustee a statement containing the
information set forth in clauses (2), (3) and (4) above aggregated for the
applicable calendar year.
SERVICING FEE
As to each home equity loan, the servicer will retain a servicing fee
equal to [0.50%] per annum, payable monthly at one-twelfth of the annual rate of
the then outstanding principal balance of the home equity loan serviced as of
the first day of each Remittance Period. If a successor servicer is appointed in
accordance with the sale and servicing agreement, the servicing fee shall be an
amount agreed upon by the indenture trustee, the note insurer and the successor
servicer but in no event in an amount greater than the amount paid to the
predecessor servicer. The servicer will also be able to retain late fees,
prepayment charges, assumption fees, release fees, bad check charges and any
other servicing related charges.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
Notwithstanding the provisions of the prospectus, so long as an Event
of Servicing Termination remains unremedied, at the direction of the note
insurer or at the direction of noteholders representing at least 51% of the
aggregate note principal balance with the consent of the note insurer, the
indenture trustee must terminate all of the rights and obligations of the
servicer under the sale and servicing agreement, at which point the indenture
trustee will succeed to all the responsibilities, duties and liabilities of the
servicer under the sale and servicing agreement and will be entitled to similar
compensation arrangements. In the event that the indenture trustee would be
obligated to succeed to the duties and obligations of the servicer but is
unwilling or unable do so, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a housing and home finance institution or
other home equity loan or home equity loan servicer with all licenses and
permits required to perform its obligations under the sale and servicing
agreement and having a net worth of at least $50,000,000 and acceptable to the
note insurer to act as successor to the servicer under the sale and servicing
agreement. Pending an appointment, the indenture trustee will be obligated to
act in this capacity unless prohibited by law.
EVENTS OF DEFAULT UNDER THE INDENTURE
Notwithstanding the provisions of the prospectus, "Events of Default"
under the indenture include:
- a default in the payment of any interest with respect to any
class of notes when the same becomes due and continuance of this
default for a period of five days or a default in the
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payment in full of the note principal balance with respect to
any class of notes at the final scheduled distribution date;
- failure on the part of the trust to perform in any material
respect any other covenant or agreement under the indenture, or
the breach of a representation or warranty by the trust, which
continues for a period of thirty days after notice of the breach
is given; and
- certain events of bankruptcy, insolvency, receivership or
liquidation of the trust.
REMEDIES ON EVENT OF DEFAULT UNDER THE INDENTURE
Notwithstanding the provisions of the prospectus, if an Event of
Default under the indenture has occurred and is continuing, the indenture
trustee must at the direction of the note insurer or upon the direction of
noteholders representing at least a majority of the aggregate outstanding note
principal balance of the notes with the prior written consent of the note
insurer, declare the principal amount of the notes due and payable immediately.
This declaration may be rescinded by the note insurer or noteholders
representing at least a majority of the aggregate outstanding note principal
balance of the notes with the written consent of the note insurer.
Upon acceleration of payment of the notes described above, the
indenture trustee will, at the direction of the note insurer or upon the
direction of noteholders representing at least a majority of the aggregate
outstanding note principal balance of the notes with the prior written consent
of the note insurer, elect not to liquidate the assets of the trust provided
that the assets are generating sufficient cash to pay scheduled interest and
principal as it becomes due and payable to the noteholders.
However, the indenture trustee may not sell or otherwise liquidate the
assets of the trust following an Event of Default unless:
- 100% of the noteholders and the note insurer consent to a sale,
- the proceeds of the sale or liquidation are sufficient to pay all
amounts due to the noteholders, and the note insurer, or
- the indenture trustee determines that the assets of the trust
would not be sufficient on an ongoing basis to make all scheduled
payments on the notes and obtains the consent of the note insurer
and the holders of 66 and 2/3% of the aggregate outstanding
principal balance of the notes to sell or liquidate the trust's
assets.
CERTAIN MATTERS REGARDING THE INDENTURE TRUSTEE AND THE OWNER TRUSTEE
Neither the indenture trustee nor any director, officer or employee of
the indenture trustee will be under any liability to the trust or the
noteholders for taking any action or for refraining from the taking of any
action in good faith pursuant to the indenture, or for errors in judgment;
provided, that neither the indenture trustee nor any director, officer or
employee of the indenture trustee will be protected against any liability that
would otherwise be imposed on it by reason of willful malfeasance, bad faith or
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under the indenture. Subject to certain
limitations set forth in the indenture, the indenture trustee and any director,
officer, employee or agent of the indenture trustee will be indemnified by the
servicer and held harmless against any loss, liability or expense incurred in
connection with any of its duties under the Agreements other than any loss,
liability or expense incurred by reason of its own willful malfeasance, bad
faith or negligence in the performance of its duties under the indenture, or by
reason of its reckless disregard of its obligations and duties under
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the indenture. All persons into which the indenture trustee may be merged
or with which it may be consolidated, or any person resulting from a merger or
consolidation, will be the successor to the indenture trustee under the
indenture.
The owner trustee, the indenture trustee and any of their respective
affiliates may hold notes in their own names or as pledgees. For the purpose of
meeting the legal requirements of certain jurisdictions, the owner trustee and
the indenture trustee acting jointly, or in some instances, the owner trustee or
the indenture trustee acting alone, with the consent of the note insurer (which
consent will not be unreasonably withheld), will have the power to appoint
co-trustees or separate trustees of all or any part of the trust. In the event
of an appointment, all rights, powers, duties and obligations conferred or
imposed upon the owner trustee by the sale and servicing agreement and the trust
agreement and the indenture trustee by the indenture will be conferred or
imposed upon the owner trustee and the indenture trustee, respectively, and in
each case a separate trustee or co-trustee jointly, or, in any jurisdiction in
which the owner trustee or indenture trustee will be incompetent or unqualified
to perform certain acts, singly upon the separate trustee or co-trustee who will
exercise and perform the rights, powers, duties and obligations solely at the
direction of the owner trustee or the indenture trustee, respectively.
The owner trustee may resign at any time, in which event the indenture
trustee will be obligated to appoint a successor to the owner trustee acceptable
to the note insurer. The indenture trustee may also remove the owner trustee if
it ceases to be eligible to continue as owner trustee under the trust agreement
or becomes legally unable to act or becomes insolvent. Any resignation or
removal of the owner trustee and appointment of a successor to the owner trustee
will not become effective until acceptance of the appointment by the successor.
DUTIES OF THE OWNER TRUSTEE AND INDENTURE TRUSTEE
The owner trustee will make no representations as to the validity or
sufficiency of the trust agreement, the notes, or of any home equity loans or
related documents, and will not be accountable for the use or application by the
seller or the servicer or any of its affiliates of any funds paid to any of them
with respect to the notes, or the home equity loans, or the investment of any
monies by the servicer before the monies are deposited into the collection
account or the distribution account. The owner trustee will be required to
perform only those duties specifically required of it under the trust agreement.
Generally, those duties will be limited to the receipt of the various
certificates, reports or other instruments required to be furnished to the owner
trustee under the trust agreement, in which case it will only be required to
examine them to determine whether they conform to the requirements of the trust
agreement.
The indenture trustee will make no representations as to the validity
or sufficiency of the indenture or the notes, other than their execution and
authentication, or of any home equity loans or related documents, and will not
be accountable for the use or application by the seller, the servicer or any of
its affiliates of any funds paid to any of them with respect to the notes or the
home equity loans, or the use or investment of any monies by the servicer before
the monies are deposited into the collection account or the distribution
account. So long as no Event of Default or [Event of Servicing Termination] has
occurred and is continuing, the indenture trustee will be required to perform
only those duties specifically required of it under the indenture. Generally,
those duties will be limited to the receipt of the various certificates, reports
or other instruments required to be furnished to the indenture trustee under the
indenture, in which case it will only be required to examine them to determine
whether they conform to the requirements of the indenture. The indenture trustee
will not be charged with knowledge of a failure by the servicer to perform its
duties under the trust agreement or sale and servicing agreement which
constitutes an [Event of Servicing Termination] unless the indenture trustee
obtains actual knowledge of the failure as specified in the indenture.
AMENDMENT
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The sale and servicing agreement may be amended by the parties to that
agreement with the consent of the note insurer, but without the consent of the
noteholders, to cure any ambiguity, correct or supplement any provisions which
may be inconsistent with any other provisions of the sale and servicing
agreement, add to the duties of the seller or the servicer, add or amend any
provisions of the sale and servicing agreement required by the rating agencies
in order to maintain or improve any rating on the notes (it being understood
that, after obtaining the ratings in effect on the closing date, none of the
seller, the depositor, the indenture trustee, the owner trustee or the servicer
is obligated to obtain, maintain, or improve any rating) or add any other
provisions with respect to matters or questions arising under the sale and
servicing agreement that are not inconsistent with the provisions of' the sale
and servicing agreement However, the sale and servicing agreement may only be
amended in this manner if either an opinion of counsel is delivered that states
that this action will not materially and adversely affect the interests of any
noteholder or the note insurer or the person requesting the amendment obtains a
letter from the rating agencies stating that the amendment would not result in a
downgrade of the then current rating of the notes, without regard to the note
insurance policy. The sale and servicing agreement may also be amended by the
seller, the depositor, the servicer, the owner trustee and the indenture
trustee, with the consent of the note insurer and noteholders holding at least
51% of the related aggregate note principal balance of the affected notes in
order to add any provisions, change or eliminate any of the provisions of the
sale and servicing agreement or modify the rights of the noteholders. No
amendment, however, may reduce the amount or delay the timing of collections of
payments on the notes or under the note insurance policy without the consent of
the holder of the applicable note and the note insurer or reduce percentage of
noteholders required to consent to the amendment, without the consent of the
holders of all notes then outstanding.
The indenture provides that, with the consent of the note insurer and
prior notice to the rating agencies and at the request of the trust pursuant to
the indenture, the trust and the indenture trustee may, without noteholder
consent, enter into one or more supplemental indentures which will conform to
the provisions of the Trust Indenture Act of 1939, as amended (the "TIA"), for
any of the following purposes:
(a) to correct or amplify the description of any property at any time
subject to the lien of the indenture, or better to assure, convey and
confirm unto the indenture trustee any property subject or required to
be subjected to the lien of the indenture, or to subject to the lien of
the indenture additional property;
(b) to evidence the succession, in compliance with the applicable
provisions of the indenture, of another entity to the trust, and
assumption by any successor of the covenants of the trust contained in
the notes or the indenture;
(c) to add to the covenants of the trust for the benefit of the holders
of the notes, or to surrender any right or power conferred upon the
trust in the indenture;
(d) to convey, transfer, assign, mortgage or pledge any property to or
with the indenture trustee;
(e) to cure any ambiguity, to correct or supplement any provision in
the indenture or in any supplemental indenture that may be inconsistent
with any other provision in the indenture or in any supplemental
indenture;
(f) to evidence and provide for the acceptance of the appointment under
the indenture by a successor trustee with respect to the notes and to
add to or change any of the provisions of the indenture as will be
necessary to facilitate the administration of the trusts under the
indenture by more than one trustee, pursuant to the requirements of the
indenture; or
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(g) to modify, eliminate or add to the provisions of the indenture to
any extent as will be necessary to effect the qualification of the
indenture under the TIA or under any similar federal statute enacted
after the date of the indenture and to add to the indenture any other
provisions as may be expressly required by the TIA.
No supplemental indentures will, however, be entered into unless the
indenture trustee has received an opinion of counsel to the effect that entering
into the supplemental indenture will not have any material adverse tax
consequences to the trust or the noteholders.
In addition, the indenture provides that, with the consent of the
rating agencies and the note insurer, and at the request of the trust pursuant
to the indenture, the trust and indenture trustee may, without noteholder
consent, enter into one or more supplemental indentures that conform to the TIA
to add provisions to, change or eliminate provisions of the indenture, or modify
the rights of the noteholders, if an opinion of counsel states that the action
will not have a material adverse tax consequence to the trust or the
noteholders. The opinion must also state that this action will not materially
and adversely affect the interests of the noteholders or the note insurer,
unless 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 notes, without regard to the note insurance policy.
The indenture also provides that the trust and the indenture trustee,
when authorized by a written request of the trust, also may, with prior notice
to the note insurer and each rating agency and with the consent of the note
insurer and the holders of at least a majority of the aggregate principal
balance of the notes affected enter into a supplemental indenture to add, change
or eliminate any provisions of the indenture or modify the rights of the
noteholders. However, without the consent of the holder of each affected
noteholder and an opinion of counsel that the contemplated action will not cause
the trust to be subject to any entity level tax, no supplemental indenture may:
(a) change the date of payment, reduce the amount of or the interest
rate on any installment of interest or principal, change the provisions
of the indenture relating to the application of collections on, or the
proceeds of the sale of, the corpus of the trust to payment of
principal of or interest on the notes, change any place, coin or
currency of any payment on any note, or impair the right to institute
suit for the enforcement of the provisions of the indenture requiring
the application of funds to the payment of any amount due on the notes
on or after the due date;
(b) reduce the percentage of the note principal balances of the notes,
the consent of the holders required for any supplemental indenture, or
the consent of the holders required for any waiver of compliance with
certain provisions of the indenture or certain defaults and their
consequences under the indenture;
(c) modify or alter the provisions of the proviso to the definition of
the term "Outstanding" in the indenture or modify or alter the
exception in the definition of the term "Holder";
(d) reduce the percentage of the aggregate outstanding principal
balance of the notes required to direct the indenture trustee to direct
the trust to sell or liquidate the corpus of the trust pursuant to the
indenture;
(e) modify any of the amendment provisions of the indenture other than
to increase any percentage specified in the indenture or to provide
that certain additional provisions of the indenture or the other
Agreements cannot be modified or waived without the consent of the
holder of each affected note;
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(f) modify any of the provisions of the indenture in so as to affect
the calculation of the amount of any payment of interest or principal
due on any note on any distribution date (including the calculation of
any of the individual components of the calculation); or
(g) permit the creation of any lien ranking prior to or on a parity
with the lien of the indenture with respect to any part of the trust
estate or, except as otherwise permitted or contemplated in the
indenture, terminate the lien of the indenture on any pledged property
or deprive the holder of any note of the security provided by the lien
of the indenture.
TERMINATION; RETIREMENT OF THE NOTES
The trust will terminate on the distribution date following the later of
(A) payment in full of all amounts owing to the note insurer, unless the note
insurer shall otherwise consent and (B) the earliest of (1) the final payment
(or other liquidation) of the last home equity loan in the trust or the
disposition of all property acquired upon foreclosure or by deed in lieu of
foreclosure of any home equity loan, (2) the optional transfer to the servicer
of all of the home equity loans, as described below and (3) the stated final
maturity date.
The servicer may, at its option, terminate the trust on the first
distribution date on which the aggregate outstanding principal balance of the
home equity loans in all groups is equal to or less than 10% of the aggregate
outstanding principal balance of the home equity loans on the cut-off date. In
order to terminate the trust, the servicer must pay an amount equal to the sum
of the aggregate outstanding principal balance of the home equity loans plus
accrued and unpaid interest at the weighted average Coupon Rate with respect to
the home equity loans as of the end of the related Remittance Period, together
with all amounts due to the note insurer.
In no event will the trust created by the trust agreement continue for
more than 21 years after the death of certain individuals named in the sale and
servicing agreement. Written notice of termination of the trust will be given to
each noteholder, and the final payment will be made only upon surrender and
cancellation of the notes at an office or agency appointed by the indenture
trustee which will be specified in the notice of termination.
NO PETITION
The indenture trustee and the noteholders by their acceptance of a note
will covenant that they will not institute or join in instituting against the
trust, the seller, the servicer or the depositor, any bankruptcy,
reorganization, insolvency, liquidation or similar proceeding in connection with
any obligations regarding the notes, the indenture or the transactions
contemplated by the Agreements.
THE INDENTURE TRUSTEE
____________, a banking corporation organized under the laws of the State
of __________, will be named indenture trustee pursuant to the sale and
servicing agreement and the indenture.
The indenture trustee may own notes and have normal banking relationships
with the servicer, the seller and the note insurer and/or their affiliates.
The indenture trustee may resign at any time, in which event the trust
will be obligated to appoint a successor indenture trustee, subject to the
consent of the note insurer. The note insurer may remove the indenture trustee
if the indenture trustee ceases to be eligible under the indenture or if the
indenture trustee becomes insolvent. Upon becoming aware of the insolvency of
the indenture trustee, the trust will be obligated to appoint a successor
indenture trustee approved by the note insurer. Any resignation or removal of
the
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indenture trustee and appointment of a successor indenture trustee will not
become effective until acceptance of the appointment by the successor indenture
trustee.
No noteholder will have the right under the indenture to institute any
proceeding with respect to the indenture unless the note insurer has consented
in writing to the institution of the proceeding, the noteholder previously has
given to the indenture trustee written notice of default under the indenture and
noteholders representing at least 51% of the aggregate outstanding principal
balance of the notes have made written requests to the indenture trustee to
institute the proceeding in its own name as indenture trustee and have offered
to the indenture trustee reasonable indemnity, but the indenture trustee has
neglected or refused to institute any proceeding for sixty days. The indenture
trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the indenture or to make any investigation of matters arising
under the indenture or to institute, conduct or defend any litigation under or
related to the indenture at the request, order or direction of any of the
noteholders, unless the noteholders have offered the indenture trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred and the note insurer has consented to the action.
THE PAYING AGENT
The paying agent shall initially be the indenture trustee or together
with any successor indenture trustee. The paying agent shall have the revocable
power to withdraw funds from the distribution account to make payments to the
holders of the notes and the senior interest participations.
THE PURCHASE AGREEMENT
On the closing date, the home equity loans will be purchased by the
depositor from the seller and certain of its affiliates pursuant to the purchase
agreement. Pursuant to the sale and servicing agreement, the home equity loans
will be immediately transferred by the depositor to the trust, and the depositor
will assign its rights in, to and under the purchase agreement to the trust.
In the purchase agreement, the seller and certain of its affiliates will
make representations and warranties similar to those made by it in the sale and
servicing agreement. In the event of a breach of any representations and
warranties that has a material adverse effect on the interests of the
noteholders or the note insurer, the seller or the appropriate affiliate will be
required to repurchase or substitute the home equity loans as described in the
prospectus under "THE AGREEMENTS."
The seller and affiliates have also agreed to indemnify the depositor and
the trust from and against certain losses, liabilities and expenses including
reasonable attorneys' fees suffered or sustained pursuant to the purchase
agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the notes will be applied
by the depositor towards the purchase of home equity loans from the seller and
certain of its affiliates.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following section in conjunction with the section in the prospectus
captioned "FEDERAL INCOME TAX CONSEQUENCES" discusses the material federal
income tax consequences of the purchase, ownership and disposition of the notes.
This section must be considered only in connection with "FEDERAL INCOME TAX
CONSEQUENCES" in the prospectus. The discussion in this prospectus supplement
and in the prospectus is based upon laws, regulations, rulings and decisions now
in effect, all of which are subject to
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change. The discussion below and in the prospectus does not purport to deal
with all federal tax consequences applicable to all categories of investors,
some of which may be subject to special rules. Investors should consult their
own tax advisors in determining the federal, state, local and any other tax
consequences to them of the purchase, ownership and disposition of the notes. No
portion of this section of the prospectus supplement or "FEDERAL INCOME TAX
CONSEQUENCES" in the prospectus constitutes an opinion of counsel, other than
the opinion set forth in the second paragraph of this section and in clause (1)
of "FEDERAL INCOME TAX CONSEQUENCES--Opinions" in the prospectus.
Stroock & Stroock & Lavan LLP, special tax counsel to the seller and
the issuer, is of the opinion that, for federal income tax purposes, assuming
that all of the provisions of the Agreements are complied with, the notes will
be considered indebtedness and the Trust Fund (as defined in the prospectus)
will not be an association, publicly traded partnership, or taxable mortgage
taxable as a corporation. This opinion is an expression of opinion only, is not
a guarantee of a particular tax result and is not binding on the Internal
Revenue Service ("IRS") or any third party.
The Trust Fund will agree, and the noteholders will agree by their
purchase of the notes, to treat the notes as debt for federal income tax
purposes. Consequently, unless the IRS were to successfully assert that the
notes did not represent debt for federal income tax purposes, the noteholders
will be subject to taxation as described in "FEDERAL INCOME TAX CONSEQUENCES
Taxation of Debt Securities (Including Regular Interest Securities)" in the
prospectus.
The Class A-3 notes provide for stated interest at a floating rate
based upon one-month LIBOR, but are subject to certain restrictions on the
maximum level of the floating rate. Under Treasury regulations governing
"original issue discount" ("OID"), stated interest payable at a variable rate is
not taxed as OID or contingent interest if the variable rate is a qualified
floating rate. The tax treatment of interest that is not based on a qualified
floating rate is not certain and the regulations do not address the tax
treatment of debt instruments bearing contingent interest except in
circumstances not relevant to this discussion. While (because of the imposition
of an interest rate cap) the tax treatment of interest on the notes is not
entirely clear under the regulations, the trust intends to treat the stated
interest as a "qualified floating rate" for OID purposes and thus the stated
interest should not be taxable to the Class A-3 noteholders as OID (assuming
that the Class A-3 notes are not issued with OID which is greater than de
minimis) or as contingent interest.
If the trust has a single owner for tax purposes it will be treated as
division of its owner and as division of its owner will be disregarded as an
entity separate from its owner for federal tax purposes. However, in the event
that contrary to the opinion of special tax counsel, the IRS successfully
asserts that one or more classes of notes did not represent debt for federal tax
purposes and instead were treated as equity, this could have certain adverse tax
consequences to foreign holders as descried in "FEDERAL INCOME TAX CONSEQUENCES
- - Tax Consequences to Holders of the Notes Issued By A Partnership Or Division -
Possible Alternative Treatment of the Notes" in the prospectus. If the trust has
more than one owner for tax purposes, the seller intends to treat the trust as a
partnership for federal income tax purposes and will not take any actions with
respect to federal income tax reporting requirements that are inconsistent with
the trust and the noteholders' agreement to treat the notes as debt for tax
purposes.
WE REFER YOU TO "FEDERAL INCOME TAX CONSEQUENCES" IN THE PROSPECTUS FOR
MORE DETAIL.
S-77
<PAGE>
CERTAIN STATE TAX CONSIDERATIONS
Because the income tax laws of the states vary, it is impractical to
predict the income tax consequences to the noteholders in all of the state
taxing jurisdictions in which they are subject to tax. Noteholders are urged to
consult their own tax advisors with respect to state and local income and
franchise taxes.
ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan or other retirement arrangement
subject to Title I of ERISA should consider the fiduciary standards under ERISA
in the context of the plan's particular circumstances before authorizing an
investment of a portion of the plan's assets in the notes. Accordingly, among
other factors, the fiduciary should consider
(1) whether the investment is for the exclusive benefit of plan
participants and their beneficiaries;
(2) whether the investment satisfies the diversification requirements
of Section 404 of ERISA;
(3) whether the investment is in accordance with the documents and
instruments governing the plan;
(4) whether the investment is prudent, considering the nature of the
investment; and
(5) whether the investment constitutes an unauthorized delegation of
fiduciary authority.
Fiduciaries of employee benefit plans and certain other
retirement plans and arrangements that are subject to Title I of ERISA and/or
Section 4975 of the Code (defined in the prospectus), including individual
retirement accounts and annuities, Keogh plans and entities in which these
plans, accounts, annuities or arrangements are invested (including insurance
company general accounts) (any of the foregoing, a "Plan"), persons acting on
behalf of a Plan, or persons using the assets of a Plan, should review carefully
with their legal advisors whether the purchase or holding of the notes could
either give rise to a transaction that is prohibited under ERISA or the Code or
cause the Trust Fund to be treated as plan assets for purposes of regulations of
the Department of Labor set forth in 29 C.F.R. ss.2510.3-101 (the "Plan Asset
Regulations"). Prospective investors should be aware that, although certain
exceptions from the application of the prohibited transaction rules and the Plan
Asset Regulations exist, it is not anticipated that any exception will apply
with respect to the acquisition of a note.
Under the Plan Asset Regulations, if the notes are treated as
having substantial equity features, the purchaser of a note of could be treated
as having acquired a direct interest in the assets securing the notes. In that
event, the purchase, holding, or resale of the applicable notes and the
operation and management of the Trust Fund could result in transactions that are
prohibited under ERISA or the Code. Consequently, if a Plan investor purchases
the notes, the Trust Fund could be deemed assets of the Plan for purposes of the
fiduciary responsibility provisions of ERISA and the Code. 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 that
Plan. Therefore, the owner trustee could be deemed an ERISA fiduciary of Plans
that invest in the notes and could be subject to the general fiduciary
requirements of ERISA in exercising its authority with respect to the management
of the Trust Fund. Regardless whether the notes are treated as debt or equity
for purposes of ERISA, the acquisition or holding of notes by or on behalf of a
Plan could still be considered to give rise to a prohibited transaction if the
trust, the owner trustee, or any of their respective affiliates is or becomes a
party in interest or a disqualified person with respect to the Plan or in the
event that a subsequent transfer of a note is between a Plan and a "party in
interest" (as defined in Section 3(14) of ERISA) or "disqualified person" (as
defined in Section 4975 of the Code) with respect to the Plan.
S-78
<PAGE>
Regardless whether the notes are treated as debt or equity for
purposes of ERISA, the acquisition or holding of notes by or on behalf of a Plan
could still be considered to give rise to a prohibited transaction if the trust,
the owner trustee, the indenture trustee or any of their respective affiliates
is or becomes a party in interest or a disqualified person with respect to the
Plan or in the event that a subsequent transfer of a note is between a Plan and
a party in interest or disqualified person with respect to the Plan. However,
one or more exemptions may be available with respect to certain prohibited
transaction rules of ERISA that might apply in connection with the initial
purchase, holding and resale of the notes, depending in part upon the type of
Plan fiduciary making the decision to acquire notes and the circumstances under
which the decision is made. These exemptions include, but are not limited to,
(1) PTCE 96-23, regarding investments determined by in-house asset
managers,
(2) PTCE 95-60, regarding investments by insurance company general
accounts,
(3) PTCE 91-38, regarding investments by bank collective investment
funds,
(4) PTCE 90-1, regarding investments by insurance company pooled
separate accounts; or
(5) PTCE 84-14, regarding transactions negotiated by qualified
professional asset managers.
Before purchasing any notes, a Plan subject to the fiduciary responsibility
provisions of ERISA or described in Section 4975(e)(1) of the Code (and not
exempt under Section 4975(g) of the Code) should consult with its counsel to
determine whether the conditions of any exemption would be met. A purchaser of a
note should be aware, however, that even if the conditions specified in one or
more exemptions are met, the scope of the relief provided by an exemption might
not cover all acts that might be construed as prohibited transactions. A
purchaser of a note will be required to represent that either: (1) it is not,
and is not purchasing a note for, on behalf of or with the assets of, an
employee benefit plan or other retirement arrangement which is subject to Title
I of ERISA and/or Section 4975 of the Code, or (2) PTCE 95-60, PTCE 96-23, PTCE
91-38, PTCE 90-1, PTCE 84-14 or some other prohibited transaction exemption is
applicable to the purchase and holding of a note by the acquirer.
ANY PLAN FIDUCIARY CONSIDERING THE PURCHASE OF ANY NOTES SHOULD CONSULT WITH ITS
COUNSEL WITH RESPECT TO THE POTENTIAL APPLICABILITY OF THE FIDUCIARY
RESPONSIBILITY AND PROHIBITED TRANSACTION PROVISION OF THE CODE TO THE
INVESTMENT.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the notes will be rated [in
the highest rating category of] the rating agencies, the notes will not
constitute "mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA"). Accordingly, many institutions with
legal authority to invest in comparably rated securities may not be legally
authorized to invest in the notes.
WE REFER YOU TO "LEGAL INVESTMENT" IN THE PROSPECTUS FOR MORE DETAIL.
S-79
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated ___________ __, ____ (the "Underwriting Agreement"), among the
underwriter and the underwriters named below the underwriter has agreed to sell
to the underwriters and the underwriters have agreed to purchase from the
underwriter the principal amount of the notes set forth opposite their
respective names. The notes will be offered by the underwriters when as and if
issued and sold by the underwriter to the underwriters, subject to the
underwriters' right to reject any subscription, in whole or in part.
<TABLE>
<CAPTION>
Principal Amount Principal Amount Principal Amount
of Class A-1 of Class A-2 of Class A-3
Underwriter NOTES NOTES NOTES
---------------- ---------------- ----------------
<S> <C> <C> <C>
[----------- $ $ $
------------ $ $ $
-----------] $ $ $
</TABLE>
The underwriters have informed the underwriter that they propose to
offer the notes for sale 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 the related sale. The underwriters may effect the transactions by
selling the notes to or through dealers, and the dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the underwriters. In connection with the sale of the notes, the
underwriters may be deemed to have received compensation from the underwriter in
the form of underwriting compensation. The underwriters and any dealers that
participate with the underwriters in the distribution of the notes may be deemed
to be underwriters and any commissions received by them and any profit on the
resale of the notes by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended (the "Securities Act").
No note will have an established trading market when issued. The
underwriters may, from time to time, act as a broker or purchase and sell notes
in the secondary market, but the underwriters are under no obligation to do so
and there can be no assurance that there will be a secondary market for the
notes or liquidity in the secondary market if one does develop.
From time to time the underwriters or their affiliates may perform
investment banking and advisory services for, and may provide general financing
and banking services to, affiliates of the underwriter.
The Underwriting Agreement provides that the underwriter will indemnify
the underwriters against described civil liabilities, including liabilities
under the Act.
EXPERTS
The consolidated balance sheets of __________________ and _____________
as of _____________ and ________________ and the related consolidated statements
of income, changes in shareholder's equity, and cash flows for each of the three
years in the period ended _______________, incorporated by reference in this
prospectus supplement have been incorporated in this prospectus supplement in
reliance on the report of _____________________, independent accountants, given
on the authority of that firm as experts in accounting and auditing.
S-80
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the notes will be passed upon for
the underwriter by _________ and for the seller and the issuer by Stroock &
Stroock & Lavan LLP, New York, New York.
RATINGS
It is a condition to the issuance of the notes that they receive
ratings of "AAA" by S&P and "Aaa" by Moody's.
A securities rating addresses the likelihood of the receipt by
noteholders of distributions on the home equity loans. The rating takes into
consideration the characteristics of the home equity loans and the structural,
legal and tax aspects associated with the notes. The ratings on the notes do
not, however, constitute statements regarding the likelihood or frequency of
prepayments on the home equity loans, the likelihood of payment of any Interest
Index Carryover or the possibility that noteholders might realize a lower than
anticipated yield.
The ratings assigned to the notes will depend primarily upon the
creditworthiness of the note insurer. Any reduction in a rating assigned to the
claims-paying ability of the note insurer below the ratings initially assigned
to the notes may result in a reduction of one or more of the ratings assigned to
the notes.
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.
S-81
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERMS PAGE
- ----- ----
<S> <C>
2/28 Adjustable Rate Loan.................................................................................S-37
Available Funds Cap.......................................................................................S-59
Crosscollateralization Payment............................................................................S-59
Deficiency Amount.........................................................................................S-65
Distributable Excess Spread...............................................................................S-60
Events of Default.........................................................................................S-70
Excess Overcollateralization Amount.......................................................................S-60
Excess Spread.............................................................................................S-60
Final Payment Date........................................................................................S-65
Fixed Interest Rate Cap...................................................................................S-60
Guaranteed Principal Amount...............................................................................S-65
Insured Payment...........................................................................................S-66
Interest Carryover Shortfall..............................................................................S-60
Interest Distribution.....................................................................................S-60
Interest Index Carryover..................................................................................S-60
Interest Period...........................................................................................S-60
LIBOR Business Day........................................................................................S-61
Minimum Rates.............................................................................................S-37
Minimum Spread............................................................................................S-61
Monthly Interest Distributable Amount.....................................................................S-61
Monthly Principal Distributable Amount....................................................................S-61
Net Coupon Rate...........................................................................................S-61
noteholder................................................................................................S-57
Notice....................................................................................................S-66
OID.......................................................................................................S-77
One-Month LIBOR...........................................................................................S-61
Original Combined Loan-to-Value Ratio.....................................................................S-24
Overcollateralization Reduction Amount....................................................................S-61
Owner.....................................................................................................S-66
Plan......................................................................................................S-78
Plan Asset Regulations....................................................................................S-78
Preference Amount.........................................................................................S-66
Prepayment Assumption.....................................................................................S-48
Principal Distribution....................................................................................S-62
Remittance Period.........................................................................................S-62
Securities Act............................................................................................S-81
Structuring Assumptions...................................................................................S-48
TIA.......................................................................................................S-73
Transition Expenses.......................................................................................S-62
weighted average life.....................................................................................S-48
</TABLE>
S-82
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except under limited circumstances, the global notes will be available
only in book-entry form. Investors in the global notes may hold the global notes
through any of DTCC, Cedelbank or Euroclear. The global notes will be tradable
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 notes through
Cedelbank 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 notes through
DTCC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations and prior home equity loan asset-backed notes issues.
Secondary cross-market trading between Cedelbank or Euroclear and DTCC
participants holding notes will be effected on a delivery-against-payment basis
through the respective depositaries of Cedelbank and Euroclear and as DTCC
participants.
Non-U.S. holders (as described below) of global notes will be subject
to U.S. withholding taxes unless the holders meet established requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All global notes will be held in book-entry form by DTCC in the name of
Cede & Co. as nominee of DTCC. Investors' interests in the global notes will be
represented through financial institutions acting on their behalf as direct and
indirect participants in DTCC. As a result, Cedelbank and Euroclear will hold
positions on behalf of their participants through their respective depositaries,
which in turn will hold the positions in accounts as DTCC participants.
Investors electing to hold their global notes through DTCC will follow
the settlement practices applicable to prior home equity loan asset-backed notes
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 notes through Cedelbank 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 notes 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.
S-83
<PAGE>
TRADING BETWEEN DTCC PARTICIPANTS Secondary market trading between DTCC
participants will be settled using the procedures applicable to prior home
equity loan asset-backed notes issues in same-day funds.
TRADING BETWEEN CEDELBANK AND/OR EUROCLEAR PARTICIPANTS. Secondary
market trading between Cedelbank participants or Euroclear participants will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
TRADING BETWEEN DTCC SELLER AND CEDELBANK OR EUROCLEAR PURCHASER. When
global notes are to be transferred from the account of a DTCC participant to the
account of a Cedelbank participant or a Euroclear participant, the purchaser
will send instructions to Cedelbank or Euroclear through a Cedelbank participant
or Euroclear participant at least one business day prior to settlement.
Cedelbank or Euroclear will instruct their depositary to receive the global
notes against payment. Payment will include interest accrued on the global notes
from and including the last coupon distribution date to and excluding the
settlement date, on the basis of either the actual number of days in the related
interest period and a year assumed to consist of 360 days or a 360-day year of
twelve 30-day months as applicable to the related class of global notes. 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 DTCC participant's account against
delivery of the global notes. After settlement has been completed, the global
notes will be credited to the respective clearing system and by the clearing
system, in accordance with its usual procedures, to the Cedelbank 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 notes 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 Cedelbank or
Euroclear cash debt will be valued instead as of the actual settlement date.
Cedelbank 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 Cedelbank or Euroclear. Under
this approach, they may take on credit exposure to Cedelbank or Euroclear until
the global notes are credited to their accounts one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of
credit to them, Cedelbank 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, Cedelbank participants or Euroclear
participants purchasing global notes would incur overdraft charges for one day,
assuming they cleared the overdraft when the global notes were credited to their
accounts. However, interest on the global notes would accrue from the value
date. Therefore, in many cases the investment income on the global notes earned
during that one-day period may substantially reduce or offset the amount of the
overdraft charges, although this result will depend on each Cedelbank
participant's or Euroclear participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTCC participants can employ their usual procedures for sending global notes to
the respective European depositary for the benefit of Cedelbank participants or
Euroclear participants. The sale proceeds will be available to the DTCC seller
on the settlement date. Thus, to the DTCC participants a cross-market
transaction will settle no differently than a trade between two DTCC
participants.
TRADING BETWEEN CEDELBANK OR EUROCLEAR SELLER AND DTCC PURCHASER. Due
to time zone differences in their favor, Cedelbank participants and Euroclear
participants may employ their customary procedures for transactions in which
global notes are to be transferred by the respective clearing system, through
the respective depositary, to a DTCC participant. The seller will send
instructions to Cedelbank or Euroclear through a Cedelbank participant or
Euroclear participant at least one business day prior to settlement. In these
cases
S-84
<PAGE>
Cedelbank or Euroclear will instruct the respective depositary, as
appropriate, to deliver the global notes to the DTCC participant's account
against payment. Payment will include interest accrued on the global notes from
and including the last coupon payment to and excluding the settlement date on
the basis of either the actual number of days in the related interest period and
a year assumed to consist of 360 days or a 360-day year of twelve 30-day months
as applicable to the related class of global notes. 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 Cedelbank participant or Euroclear participant the following day,
and receipt of the cash proceeds in the Cedelbank 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 Cedelbank
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
Cedelbank participant's or Euroclear participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use Cedelbank or Euroclear and that purchase
global notes from DTCC participants for delivery to Cedelbank 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 Cedelbank or Euroclear for one day
(until the purchase side of the day trade is reflected in their
Cedelbank or Euroclear accounts) in accordance with the clearing
system's customary procedures;
(b) borrowing the global notes in the U.S. from a DTCC
participant no later than one day prior to settlement, which would give
the global notes sufficient time to be reflected in their Cedelbank 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 DTCC
participant is at least one day prior to the value date for the sale to
the Cedelbank participant or Euroclear participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of global notes holding securities through Cedelbank
or Euroclear (or through DTCC 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 (as defined below), unless (1) 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 the
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (2) the beneficial owner takes one of
the following steps to obtain an exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (AS DEFINED BELOW) (FORM W-8).
Beneficial owners of global notes 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 the 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
S-85
<PAGE>
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 beneficial owners of global
notes 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 beneficial owner 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 beneficial owner of a
global note 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.
Any of the following qualify as a U.S. person for purposes of this
section:
(1) a citizen or resident of the United States,
(2) a corporation or partnership 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 regulations),
(3) an estate the income of which is includable in gross income for
United States tax purposes, regardless of its source, or
(4) 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 authority to control all substantial
decisions of the trust.
Notwithstanding clause (4), to the extent provided in the regulations, some
trusts in existence on August 20, 1996, and treated as United States persons
prior to the date, that elect to continue to be treated as United States persons
shall also be a U.S. person. Entities not considered U.S. persons shall be
considered non-U.S. persons.
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 notes or with
the application of Treasury regulations relating to tax documentation
requirements that are generally effective with respect to payments made after
___________________. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the global notes.
S-86
<PAGE>
SUBJECT TO COMPLETION, DATED _______________, ____
PROSPECTUS SUPPLEMENT
(To Prospectus dated _______________, ____)
$___________
(APPROXIMATE)
CENTEX HOME EQUITY LOAN TRUST ____-_
Centex Home Equity Loan Asset-Backed Certificates, Series ____-_
CENTEX CREDIT CORPORATION
D/B/A CENTEX HOME EQUITY CORPORATION
Originator and Servicer
[CENTEX LOGO] CHEC FUNDING, LLC
Depositor
[BEGIN SIDEBAR]
Consider carefully the risk factors beginning on page S-__ in this prospectus
supplement and page __ in the prospectus.
The Class A certificates will represent interests in the trust only and will not
be guaranteed by or represent interests in or obligations of Centex Home Equity
Corporation or any of its affiliates.
This prospectus supplement may be used to offer and sell the certificates only
if accompanied by the prospectus.
[END SIDEBAR]
The Trust will issue pursuant to this Prospectus Supplement and the accompanying
Prospectus:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINAL
SCHEDULED
CLASS A PRINCIPAL DISTRIBUTION
CERTIFICATES BALANCE CERTIFICATE RATE DATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A-1
- --------------------------------------------------------------------------------
Class A-2
- --------------------------------------------------------------------------------
Class A-3
- --------------------------------------------------------------------------------
Class A-4
- --------------------------------------------------------------------------------
Class A-5
- --------------------------------------------------------------------------------
Class A-6
- --------------------------------------------------------------------------------
Class A-7
- --------------------------------------------------------------------------------
</TABLE>
- - Principal balances subject to variance of plus or minus _%.
THE CERTIFICATES
- - Interest and principal on the certificates are scheduled to be paid monthly
on the ____ day of the month or, if the ____ is not a business day, on the
next business day. The first scheduled distribution date is __________ __,
____.
- - Distributions on the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5
and Class A-6 certificates will be primarily based on a group of closed-end
fixed rate home equity loans. Distributions on the Class A-7 certificates
will be primarily based on a group of closed-end adjustable rate home
equity loans.
- - The Class A certificates currently have no trading market.
- - The Class A certificates will have the benefit of two irrevocable and
unconditional financial guaranty insurance policies issued by
________________, as certificate insurer, guaranteeing timely payment of
interest and ultimate payment of principal to the holders of the Class A
certificates.
[CERTIFICATE INSURER (LOGO)]
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The underwriters listed below will offer the Class A certificates from time to
time in negotiated transactions or otherwise at varying prices to be determined
at the time of sale. Proceeds to the depositor with respect to the Class A
certificates are expected to be approximately $____________, excluding accrued
interest, and before deducting issuance expenses payable by the depositor,
estimated to be $___________ . We expect that delivery of the Class A
certificates will be made in book-entry form through the facilities of The
Depository Trust Company, Cedelbank and the Euroclear System on or about
_____________, _____.
[UNDERWRITER LOGO] [UNDERWRITER LOGO]
----------, -----
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS
We provide information to you about the certificates in two separate
documents that provide progressively more detail:
- - the accompanying Prospectus, which provides general information, some of
which may not apply to your certificates; and
- - this Prospectus Supplement, which describes the specific terms of your
certificates.
YOU SHOULD RELY PRIMARILY ON THE DESCRIPTION OF YOUR CERTIFICATES IN
THIS PROSPECTUS SUPPLEMENT.
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 Class A certificates in any state where the offer is not
permitted.
Dealers will deliver a Prospectus Supplement and Prospectus when acting as
underwriters of the Class A certificates. In addition, all dealers selling the
Class A certificates will be required to deliver a Prospectus Supplement and
Prospectus until __________, _____.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
CAPTION PAGE
<S> <C>
Summary.........................................S-3
Risk Factors...................................S-11
Description of the Home Equity Loans...........S-20
Prepayment and Yield Considerations............S-39
Formation of the Trust and Trust Property......S-51
Description of the Certificates................S-51
The Policies and the Certificate Insurer.......S-64
Use of Proceeds................................S-67
Certain Federal Income Tax Considerations......S-67
Certain State Tax Considerations...............S-69
ERISA Considerations...........................S-69
Legal Investment Considerations................S-71
Underwriting...................................S-71
Experts........................................S-72
Legal Matters..................................S-72
Ratings........................................S-72
Index of Defined Terms.........................S-73
Annex I.........................................I-1
<CAPTION>
PROSPECTUS
CAPTION PAGE
<S> <C>
Prospectus Supplement...........................5
Reports to Holders..............................5
Available Information...........................6
Incorporation of Certain Documents
by Reference.................................6
Introduction....................................7
The Depositor...................................8
The Seller and the Servicer.....................8
Description of the Securities..................15
The Trust Funds................................23
Accounts.......................................26
Enhancement....................................28
The Agreements.................................30
Certain Matters Regarding the Servicer.........37
Certain Legal Aspects of the Home
Equity Loans................................45
Use of Proceeds................................52
Federal Income Tax Consequences................53
State Tax Consequences.........................78
ERISA Considerations...........................78
Legal Investment...............................81
Plan of Distribution...........................81
Legal Matters..................................82
Index of Defined Terms.........................83
</TABLE>
S-2
<PAGE>
SUMMARY
- - This summary highlights selected information from this Prospectus
Supplement 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 Class A certificates, you should read carefully this
entire Prospectus Supplement and accompanying Prospectus.
- - This summary provides an overview to aid your understanding and is
qualified by the full description of this information in this Prospectus
Supplement and the accompanying Prospectus.
- - You can find a listing of the pages where capitalized terms used in this
Prospectus Supplement are defined under the caption "Index of Defined
Terms" beginning on page S-___ in this Prospectus Supplement.
ISSUER
- - Centex Home Equity Loan Trust ____-_.
DEPOSITOR
- - CHEC Funding, LLC, a Delaware limited liability company and wholly owned
subsidiary of Centex Credit Corporation d/b/a Centex Home Equity
Corporation.
ORIGINATOR
- - Centex Credit Corporation d/b/a Centex Home Equity Corporation.
SELLERS
- - Centex Credit Corporation d/b/a Centex Home Equity Corporation.
- - ____________________
SERVICER
- - ____________________
CERTIFICATE INSURER
- - ____________________
TRUSTEE
- - ____________________
STATISTICAL CALCULATION DATE
- - The close of business on _________ __, ____.
- - All statistical information relating to the home equity loans presented in
this Prospectus Supplement is given as of the statistical calculation date.
CUT-OFF DATE
- - The opening of business on __________ __, ____.
- - The cut-off date is the date on and after which the issuer will be entitled
to receive all collections and proceeds of the home equity loans.
CLOSING DATE
- ----------- --, ----.
DISTRIBUTION DATE
The __ day of each month, or if the __ day is not a business day, then the next
succeeding business day. The first distribution date will be __________ __,
____.
RECORD DATE
- - For any distribution date and each class of fixed rate certificates, the
last business day of the month immediately preceding the calendar month in
which the distribution date occurs.
- - With respect to any distribution date and the variable rate certificates,
the last business day immediately preceding the distribution date or, if
definitive certificates are issued, the last business day of the
S-3
<PAGE>
month immediately preceding the calendar month in which the distribution
date occurs.
THE CERTIFICATES
On the closing date, the trust will issue the Class A certificates, the Class
X-IO certificates and the Class R certificates. The Class A certificates are
senior certificates and the Class X-IO and the Class R certificates are
subordinate certificates.
CLASS A CERTIFICATES
The Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6 and Class
A-7 certificates.
CLASS R CERTIFICATES
The Class R-1 and Class R-2 certificates.
OFFERED CERTIFICATES
The Class A certificates.
NON-OFFERED CERTIFICATES
The Class X-IO certificates and Class R certificates are not being offered to
the public. We have included information with respect to the Class X-IO and
Class R certificates in this Prospectus Supplement solely to provide you a
better understanding of the Class A certificates.
GROUP I CERTIFICATES
The Group I certificates will be the Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5 and Class A-6 certificates. Distributions on the Group I certificates
will be primarily derived from payments on the home equity loans in Group I.
GROUP II CERTIFICATES
The Group II certificates will be the Class A-7 certificates. Distributions on
the Group II certificates will be primarily derived from payments on the home
equity loans in Group II.
FIXED RATE CERTIFICATES
The Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6
certificates.
VARIABLE RATE CERTIFICATES
The Class A-7 certificates.
DENOMINATIONS
The Class A certificates will be offered for purchase in denominations of $1,000
and multiples of $1 above $1,000.
BOOK-ENTRY REGISTRATION
We will issue the Class A 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 Class A certificates are book-entry they will
be registered in the name of the nominee of the depository in the United States.
FINAL SCHEDULED DISTRIBUTION DATE
The final scheduled distribution date for each class of Class A certificates is
as set forth on the cover page of this Prospectus Supplement.
DISTRIBUTIONS TO CLASS A CERTIFICATEHOLDERS
You will be entitled to receive payments of interest on each distribution date.
We may reduce the amount of interest that you are entitled to receive on any
distribution date as a result of the application of the Soldiers' and Sailors'
Civil Relief Act of 1940.
- - The amount of principal you will be entitled to receive will vary depending
on a number of factors, including the payments received on the home equity
loans.
- - If you hold a Class A certificate on the applicable record date, you will
be entitled to receive payments on the related distribution date.
INTEREST
FIXED RATE CERTIFICATE INTEREST
The interest rate on any distribution date for a fixed rate certificate will be
the interest rate set forth on the cover page of this Prospectus Supplement.
S-4
<PAGE>
The interest period with respect to each distribution date and a fixed rate
certificate is the calendar month preceding the month of the distribution date.
For example, if the distribution date occurs on February 25, 2000, the interest
period would be the month of January 2000. Each calendar month will be deemed to
have 30 days and each year will be deemed to have 360 days. Therefore, if you
are a holder of a fixed rate certificate you would use the following formula to
calculate your interest payment on any distribution date:
30 x IR x PB = your interest payment
- ---
360
IR = the applicable per annum fixed interest rate, subject to (1) in the case
of the Class A-5 and Class A-6 Certificates, an interest rate cap and (2)
in the case of the Class A-5 certificates, an increase of ___% per annum if
the servicer does not exercise its option to terminate the trust by
purchasing all of the home equity loans.
PB = the principal balance of your fixed rate certificate immediately prior to
any distributions on the distribution date.
The interest rate cap is the weighted average coupon of the Group I home equity
loans related to the applicable distribution date.
If you are a holder of a fixed rate certificate, we will increase the interest
payment we owe to you for a distribution date by any unpaid amounts we owe to
you from prior distribution dates, plus accrued interest at the applicable
certificate rate.
If you are a holder of a Class A-5 or Class A-6 certificate, you will not
receive additional funds on future distribution dates to compensate you for any
reduction in the amount of interest paid to you on a prior distribution date
because of the effect of the interest rate cap.
VARIABLE RATE CERTIFICATE INTEREST
The interest rate on any distribution date with respect to the variable rate
certificates will be the interest rate set forth on the cover page of this
Prospectus Supplement.
The interest period with respect to each distribution date and the variable rate
certificates is the period from and including the previous distribution date (or
the closing date in the case of the first distribution date) to and including
the day preceding the related distribution date. Interest on the variable rate
certificates will accrue during the related interest period on the basis of the
actual number of days elapsed in the related interest period and a year
consisting of 360 days. Therefore if you are a holder of a variable rate
certificate, you would use the following formula to calculate your interest
payment on any distribution date:
N x IR x PB = your interest payment
- ---
360
N = number of days in the interest period
IR = the per annum floating interest rate for the interest period, subject to
both (1) an available funds cap and (2) a doubling of the applicable margin
if the servicer does not exercise its option to terminate the trust by
purchasing all of the home equity loans.
PB = the principal balance of your variable rate certificate immediately prior
to any distributions on the distribution date.
If you are a holder of a variable rate certificate, we will increase the
interest payment we owe to you for a distribution date by any unpaid amounts we
owe to you from prior distribution dates, plus accrued interest at the
applicable certificate rate.
Additionally, we will pay to you, on future distribution dates, the amount by
which we reduce the interest payment we owe to you because of the effect of the
available funds cap. Payment of these amounts will be made on a subordinated
basis, to the extent that money is available to make these payments.
PRINCIPAL
On each distribution date, the amount available for distributions of principal
for each home equity loan group will include principal collections, plus any
excess interest collections required to be distributed to satisfy the required
S-5
<PAGE>
level of overcollateralization less any decrease in the required level of
overcollateralization of the related home equity loan group.
GROUP I CERTIFICATES
On each distribution date principal will be distributed to the Group I
certificates in the following order of priority:
- - first, to the Class A-6 certificates, for each distribution date on or
after the distribution date in January, 2003 in an amount up to a specified
amount; and
- - second, to the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5
certificates, in that order, so that each class does not receive any
principal payments until the principal balance of the prior class has been
reduced to zero.
The Class A-6 certificate is a "lock-out" certificate. If you are a holder of a
Class A-6 certificate generally you will not be entitled to receive payments of
principal until the distribution date in _____________, ____. From that point
on, you will be entitled to receive an increasing percentage of your class'
proportionate share of principal payable to the Group I Certificates based on a
schedule.
GROUP II CERTIFICATES
On each distribution date we will distribute principal to the Group II
certificates as follows:
- - to the Class A-7 certificates, until the principal balance of the Class A-7
certificates has been reduced to zero.
TRUST PROPERTY
The trust property is held by the trustee for the benefit of the
certificateholders and the certificate insurer. The trust property includes:
- - a pool of closed-end fixed rate home equity loans secured by first and
second deeds of trust or mortgages on one-to-four family residential
properties transferred to the trust on the closing date; and
- - a pool of closed-end adjustable rate home equity loans secured by first
deeds of trust or mortgages on one-to four-family residential properties
transferred to the trust on the closing date;
- - payments on the home equity loans received on and after the cut-off date;
- - property that secured a home equity loan which has been acquired by
foreclosure or deed in lieu of foreclosure;
- - amounts on deposit in the accounts specified in this Prospectus Supplement;
- - rights under any hazard insurance policies, if any, covering the mortgaged
properties; and
- - proceeds of the foregoing.
The Group I certificates and the Group II certificates will also each have the
benefit of a separate financial guaranty insurance policy issued by
________________________.
THE HOME EQUITY LOANS
We will divide the home equity loans into two groups. Each of the home equity
loan groups will constitute a separate sub-trust. The Group I home equity loan
group will contain home equity loans that bear interest at fixed rates. The
Group II home equity loan group will contain home equity loans that bear
interest at rates that adjust semi-annually based on six-month LIBOR and the
applicable gross margin (subject to the limitations described in this Prospectus
Supplement). The initial rate adjustment date for those home equity loans that
bear interest at an adjustable rate is either six months or two years after the
date of origination of the related home equity loan.
All of the home equity loans in the trust have been originated by CHEC, an
affiliate of CHEC or a broker for simultaneous assignment to CHEC.
The home equity loans are not and will not be guaranteed by the depositor, the
sellers, the servicer, the certificate insurer, the trustee or any of their
affiliates. None of the home equity
S-6
<PAGE>
loans is insured by a primary mortgage insurance policy.
The statistical information presented in this Prospectus Supplement is with
respect to _____ home equity loans, of which _____ are fixed-rate home equity
loans and ___ are adjustable-rate home equity loans, as of the statistical
calculation date. Prior to the closing date, additional home equity loans will
be added to each home equity loan group and some home equity loans may be
removed from each home equity loan group, subject to the consent of the
certificate insurer.
As a result, the characteristics of the home equity loans in each home equity
loan group as of the cut-off date will differ from the characteristics presented
in this Prospectus Supplement as of the statistical calculation date. The
depositor does not expect a material change in the weighted average
characteristics of either home equity loan group.
The home equity loans are secured by mortgaged properties located in __ states
and the District of Columbia.
GROUP I HOME EQUITY LOANS
The home equity loans in Group I will have the following characteristics as of
the statistical calculation date:
- - number of home equity loans: _____
- - aggregate principal balance: $_____________
- - average principal balance: $__________
- - maximum principal balance: $__________
- - minimum principal balance: $_______
- - last maturity date: __/__/__
- - interest rates range: ____% to _____%
- - weighted average interest rate: _____% (approximate)
- - weighted average remaining term to stated maturity, based on principal
balance: ___ months (approximate)
- - remaining term to stated maturity range: __ months to ___ months
- - weighted average combined loan-to-value ratio: _____% (approximate)
- - no original combined loan-to-value ratio exceeded _____%
- - balloon loans: ____% (approximate)
- - secured by first lien on the mortgaged property: _____%
- - secured by second lien on the mortgaged property: ____%
GROUP II HOME EQUITY LOANS
The home equity loans in Group II will have the following characteristics as of
the statistical calculation date:
- - number of home equity loans: ___
- - aggregate principal balance: $____________
- - average principal balance: $_________
- - maximum principal balance: $__________
- - minimum principal balance: $_________
- - last maturity date: __/__/__
- - weighted average interest rate: _____% (approximate)
- - interest rates range: ____% to _____%
- - weighted average remaining term to stated maturity, based on principal
balance: ___ months (approximate)
- - remaining term to stated maturity range: __ months to ___ months
- - weighted average loan-to-value ratio: _____% (approximate)
- - no original loan-to-value ratio exceeded _____%
- - weighted average gross margin: ____% (approximate)
- - gross margins range: ____% to _____%
- - weighted average maximum interest rate: _____% (approximate)
- - maximum interest rate range: _____% to _____%
- - weighted average minimum interest rate: _____% (approximate)
- - minimum interest rate range: ____% to _____%
- - Six-Month Adjustable Rate Loans:
- - number of home equity loans: ___
- - weighted average remaining period until interest rate adjustment:
approximately __ months (approximate)
- - initial payment adjustment: effective for the seventh monthly payment
period
S-7
<PAGE>
- - initial interest rate adjustment cap: ____%
- - semi-annual interest rate adjustment cap: ____%
- - lifetime interest rate cap: _____%
- - 2/28 Adjustable Rate Loans:
- - number of home equity loans: ___
- - weighted average remaining period until next interest rate adjustment
(approximate): ___ months
- - initial payment adjustment: effective for the 25th monthly payment period
- - initial interest rate adjustment cap: ____%
- - semi-annual interest rate adjustment cap: ____%
- - lifetime interest rate cap: _____%
DELINQUENCY ADVANCES AND COMPENSATING INTEREST
Each month the servicer will determine the amount of any unpaid interest due on
the home equity loans. If the servicer believes that unpaid interest can be
recovered, then the servicer will either:
- - advance the unpaid interest to the trust out of its own funds; or
- - advance the unpaid interest to the trust out of collections on the home
equity loans that are not required to be distributed on the related
distribution date.
The servicer will reimburse the trust for amounts advanced from trust
collections prior to the date on which these amounts are required to be a part
of any amounts distributable to you.
The servicer will provide to the trust the amount of any shortfall in the
anticipated collection of interest on a home equity loan that is caused by a
full prepayment of a home equity loan up to the amount of the aggregate
servicing fee for the related period.
The servicer is entitled to be reimbursed by the trust for any delinquency
advances from the related home equity loan and, if the delinquency advance is a
non-recoverable advance, from collections on all the home equity loans of the
related home equity loan group prior to any distributions to you. The servicer
is also entitled to be reimbursed by the trust for any delinquency advances, as
well as unreimbursed payments of compensating interest, from all the home equity
loans to the extent funds are available after making other required
distributions on the related distribution date.
SERVICING ADVANCES
Unless the servicer determines that any proposed advance is not recoverable from
the related home equity loan, the servicer will pay all "out of pocket" costs
and expenses incurred in the performance of its servicing obligations,
including, but not limited to:
- - expenditures in connection with a foreclosed home equity loan prior to the
liquidation of that home equity loan;
- - the cost of any enforcement or judicial proceedings, including
foreclosures; and
- - the cost of the management and liquidation of property acquired in
satisfaction of the related home equity loan.
The servicer is entitled to be reimbursed by the trust for any servicing
advances from the related home equity loan and also from all the home equity
loans to the extent funds are available after making other required
distributions on the related distribution date.
CREDIT ENHANCEMENT
CERTIFICATE INSURANCE POLICIES
___________________ will issue two certificate guaranty insurance policies for
the benefit of the related Class A certificates
The policies will unconditionally and irrevocably guarantee the timely payment
of interest on and the ultimate payment of the principal amount of each class of
Class A certificates.
On each distribution date, the trustee will calculate to what extent the funds
available to make the payments of principal and interest are insufficient to (1)
pay current interest on the
S-8
<PAGE>
Class A certificates or (2) reduce the principal balance of the related Class A
certificates to an amount equal to the principal balance of the home equity
loans in the related home equity loan group. If an insufficiency exists, then
the trustee will make a draw on the related policy. In addition, each policy
will guarantee the full payment of the principal balance of each class of Class
A certificates on the distribution date in ______________.
The policies do not guarantee:
- - any shortfalls related to the Soldiers' and Sailors Civil Relief Act of
1940, as amended.
- - amy shortfalls resulting from the application of any interest rate cap or
available funds cap.
- - that the principal balance of the Class A-1, Class A-2, Class A-3 or Class
A-4 certificates will be paid in full on their final scheduled distribution
dates.
If for any reason the certificate insurer does not make the payments required in
the related policy, you will have to rely on the home equity loans for your
payments of interest and principal and you may suffer a loss.
OVERCOLLATERALIZATION
Overcollateralization is calculated as the amount by which the aggregate
principal balance of the home equity loans in the related home equity loan group
exceeds the principal balance of the Class A certificates related to the home
equity loan group. The Group I certificates and the Group II certificates will
not have the benefit of any overcollateralization on the closing date. Following
the closing date, excess interest collections, if any, will be applied as
accelerated payments of principal to the class or classes of certificates then
entitled to receive distributions of principal until the overcollateralization
level for a home equity loan group equals a specified required
overcollateralization level.
If there are not sufficient excess interest collections, the required
overcollateralization level will not be reached or maintained. In addition,
realized losses on the home equity loans will reduce the amount of
overcollateralization. If realized losses on the home equity loans result in the
overcollateralization amount for a home equity loan group becoming negative, to
the extent that excess amounts are not available from the related home equity
loan group or the other home equity loan group, a draw will be made on the
related policy. The required overcollateralization level for each home equity
loan group may be increased, reduced or eliminated by the certificate insurer
without your consent.
CROSSCOLLATERALIZATION
Each home equity loan group provides for limited crosscollateralization of the
Class A certificates related to the other home equity loan group. Excess amounts
generated by one home equity loan group will be available to fund shortfalls in:
- - the payment of the trustee fee and the insurance premium owed to the
certificate insurer with respect to the other home equity loan group;
- - the payment of interest and principal on the Class A certificates related
to the other home equity loan group;
- - the reimbursement of the certificate insurer for amounts owed in respect of
the other home equity loan group; and
- - the required overcollateralization level of the other home equity loan
group.
OPTIONAL TERMINATION BY THE SERVICER
The servicer may, at its option, terminate the trust on any date on which the
aggregate outstanding principal balance of the Class A certificates is less than
10% of the initial aggregate principal balance of the Class A certificates on
the closing date.
S-9
<PAGE>
OPTIONAL PURCHASE OF DEFAULTED HOME EQUITY LOANS
The servicer has the option, but is not obligated, to purchase from the trust
any home equity loan that becomes delinquent for two consecutive monthly
installments, subject to the limitations described in the pooling and servicing
agreement.
CERTAIN FEDERAL TAX CONSIDERATIONS
In the opinion of Stroock & Stroock & Lavan LLP, counsel to the sellers and the
trust, for federal income tax purposes, the trust will include two real estate
mortgage investment conduits or "REMICs", subject to the considerations
discussed under "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" in this Prospectus
Supplement. The Class A certificates will constitute "regular interests" in a
REMIC and will be treated as debt instruments of the REMIC for federal income
tax purposes with payment terms equivalent to the terms of the certificates.
ERISA CONSIDERATIONS
Subject to the considerations and conditions described under "ERISA
CONSIDERATIONS" in this Prospectus Supplement, we expect that the Class A
certificates may be purchased by a pension or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended.
LEGAL INVESTMENT CONSIDERATIONS
The Class A certificates will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984. Accordingly,
many institutions with legal authority to invest in comparably rated securities
may not be legally authorized to invest in the Class A certificates.
CERTIFICATE RATING
It is a condition to the issuance of the Class A certificates that they receive
ratings of "AAA" by Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. and "Aaa" by Moody's Investors Service, Inc.
S-10
<PAGE>
RISK FACTORS
You should consider the following risk factors together with all the
information contained in this Prospectus Supplement and the related Prospectus
in deciding whether to purchase any of the certificates.
PERFORMANCE MAY BE AFFECTED
BY THE SERVICER'S LIMITED Although CHEC began originating home equity
EXPERIENCE loans in 1994, prior to October 1997 CHEC sold
substantially all of its home equity loans in
whole loan transactions on a servicing released
basis. Consequently, the servicer has
approximately two years of historical loss data
relating to its home equity loan portfolio that
you may refer to for purposes of examining the
loss experience of home equity loans similar to
the home equity loans being sold to the trust.
Moreover, the servicing of home equity loans of
the type included in the trust (as compared to
the servicing of conforming or prime home equity
loans) requires special skill and diligence. The
servicing of these types of home equity loans
generally requires more attention to each
account, earlier and more frequent contact with
borrowers in default and commencing the
foreclosure process at an earlier stage of
default. The servicer has limited experience
servicing home equity loans similar to the home
equity loans being sold to the trust. The
servicer will directly service all of the home
equity loans in the trust. The servicer's
relative lack of experience in servicing home
equity loans may result in greater losses on the
home equity loans and result in accelerated
prepayments on your certificates. You will bear
any reinvestment risk resulting from any
accelerated prepayments.
THE BORROWERS HAVE LESS THAN
PERFECT CREDIT CHEC underwriting standards generally are less
stringent than those of Fannie Mae or Freddie
Mac with respect to a borrower's credit history,
collateral and in other respects. The home
equity loans originated or acquired by CHEC or
its affiliates have been made to borrowers that
typically have limited access to traditional
mortgage financing for a variety of reasons,
including impaired past credit experience,
limited credit history, insufficient home equity
value, or a high level of debt-to-income ratios.
As a result of this approach to underwriting,
the home equity loans may experience higher
rates of delinquencies, defaults and
foreclosures than home equity loans underwritten
in accordance with Fannie Mae or Freddie Mac's
guidelines.
NEWLY ORIGINATED HOME EQUITY
LOANS MAY DEFAULT Approximately ____% the Group I home equity
loans and approximately _____% of the Group II
home equity loans were originated within twelve
months prior to the statistical calculation
date. The weighted average remaining term to
stated maturity of the Group I and Group II home
equity loans as of the statistical calculation
date is approximately
S-11
<PAGE>
___ months and ___ months, respectively.
Although little data is available, defaults on
home equity loans, including home equity loans
similar to the home equity loans expected to be
included in the trust, are generally expected to
occur with greater frequency in the early years
of the terms of home equity loans.
THE RATE OF RETURN OF PRINCIPAL
IS UNCERTAIN DUE TO OVERVIEW. Generally, if prevailing interest
PREPAYMENTS rates fall significantly below the coupon rates
on the home equity loans, the home equity loans
are likely to be subject to higher prepayment
rates than if prevailing rates remain at or
above the coupon rates on the home equity loans.
Conversely, if prevailing interest rates rise
significantly above the coupon rates on the home
equity loans, the rate of prepayments is likely
to decrease. The average life of your
certificates and, if purchased at other than
par, the yields realized by you will be
sensitive to levels of payment (including
prepayments relating to the home equity loans)
on the home equity loans.
In general, if you purchase a Class A
certificate at a premium to the outstanding
principal amount of the certificate the yield on
your certificate may be adversely affected by a
higher than anticipated level of prepayments of
the home equity loans. Conversely, if you
purchase a Class A certificate at a discount to
the outstanding principal amount of the
certificate, the yield on your certificate may
be adversely affected by a lower than
anticipated level of prepayments.
MANY OF THE HOME EQUITY LOANS HAVE NO PREPAYMENT
PENALTIES. Approximately _____% of the Group I
home equity loans and approximately _____% of
the Group II home equity loans, in each case as
of the statistical calculation date, may be
prepaid in whole or in part at any time without
penalty. Home equity loans may not be viewed by
borrowers as permanent financing. Accordingly,
the home equity loans in the trust may
experience a higher rate of prepayment than
traditional mortgage loans. The trust's
prepayment experience may be affected by a wide
variety of factors, including general economic
conditions, interest rates, the availability of
alternative financing and homeowner mobility.
DUE-ON-SALE CLAUSES. All of the home equity
loans contain due-on-sale provisions and the
servicer is required by the pooling and
servicing agreement to enforce these provisions
unless the enforcement is not permitted by
applicable law or the servicer, in a manner
consistent with reasonable commercial practice,
permits the purchaser of the related mortgaged
property to assume the home equity loan. To the
extent permitted by applicable law, any
assumption will not release the original
borrower from its obligation under any
S-12
<PAGE>
home equity loan.
2/28 ADJUSTABLE RATE LOANS. Approximately _____%
of the Group II home equity loans, as of the
statistical calculation date, have a two year
fixed rate term followed by a 28 year adjustable
rate term. As with all home equity loans, the
rate of prepayments on these 2/28 adjustable
rate loans which are in the initial fixed rate
period is sensitive to prevailing interest
rates. The prepayment behavior of the 2/28
adjustable rate loans may differ from that of
the other home equity loans. As a 2/28
adjustable rate loan approaches its initial
adjustment date, the borrower may become more
likely to refinance the loan to avoid an
increase in the coupon rate, even if fixed rate
loans are only available at rates that are
slightly lower or higher than the coupon rate
before adjustment. The existence of the
applicable periodic rate cap, lifetime cap and
lifetime floor also may affect the likelihood of
prepayments resulting from refinancings.
EFFECT OF HOME EQUITY LOAN YIELD
ON CERTIFICATE RATE OF CLASS Approximately _____% of the Group II home equity
A-7 CERTIFICATES; BASIS RISK loans, as of the statistical calculation date,
adjust semi-annually based upon the London
interbank offered rate for six-month United
States dollar deposits. We refer to these loans
in this Prospectus Supplement as the six-month
adjustable rate loans. Approximately _____% of
the Group II home equity loans, as of the
statistical calculation date, are 2/28
adjustable rate loans. These home equity loans
provide for a fixed interest rate for a period
of approximately two years following origination
and thereafter provide for interest rate and
payment adjustments in a manner similar to the
six-month adjustable rate loans.
The interest rate for the Class A-7 certificates
is determined in accordance with and adjusts
monthly based upon one-month LIBOR, and is
subject to the Class A-7 available funds cap.
One-month LIBOR and six-month LIBOR may respond
to different economic and market factors, and
there is not necessarily a correlation between
them. Thus, it is possible, for example, that
one-month LIBOR may rise during periods in which
six-month LIBOR is stable or is falling or that,
even if both one-month LIBOR and six-month LIBOR
rise during the same period, one-month LIBOR may
rise more rapidly than six-month LIBOR.
Furthermore, even if one-month LIBOR and
six-month LIBOR were at the same level, the
Class A-7 available funds cap may still limit
the amount of interest that would otherwise be
distributable on the Class A-7 certificates. The
operation of the Class A-7 available funds cap
may cause the certificate rate of the Class A-7
certificates to be reduced for extended periods
in a rising interest rate environment. Although
we intend that we will pay to you on future
distribution dates the amount by which we reduce
a Class A-7 certificateholder's interest payment
S-13
<PAGE>
because of the Class A-7 available funds cap, we
cannot assure you that excess funds will be
available to make these payments.
In addition, Group II home equity loans are
subject to periodic adjustment caps and maximum
rate caps, and the weighted average margin is
subject to change based upon prepayment
experience, which also may result in the Class
A-7 available funds cap limiting increases in
the certificate rate for the class. Finally, the
Group II home equity loans accrue interest on
the basis of a 360-day year assumed to consist
of twelve 30-day months, while calculations of
interest on the Class A-7 certificates will be
made on the basis of the actual number of days
elapsed in the related interest period and a
year of 360 days. This may result in the Class
A-7 available funds cap limiting the certificate
rate for the Class A-7 certificates to less than
LIBOR plus the applicable margin in interest
periods that have more than 30 days related to
the loan group.
If you are a holder of a Class A-7 certificate
and the certificate rate is limited in any
period by the Class A-7 available funds cap you
may suffer a temporary or permanent decline in
the market value of your certificates.
EFFECT OF PREPAYMENTS OF
GROUP I HOME EQUITY LOANS The Class A-5 and A-6 certificates are subject
ON CERTIFICATE RATES OF to an interest rate cap based on the weighted
CLASSES A-5 AND A-6; average net coupon rate of the home equity loan
INTEREST RATE RISK group as of the time that interest on the
certificates is due. If there is a sufficiently
high prepayment rate with respect to home equity
loans bearing a higher coupon than the weighted
average coupon of the pool as a whole, the
interest rate payable on the Class A-5 and A-6
certificates may become subject to the interest
rate cap.
If you are a Class A-5 or Class A-6
certificateholder and the stated fixed rate
payable on your certificates is reduced as a
result of the interest rate cap, you may suffer
a decline in the market value of your
certificates.
S-14
<PAGE>
THE CERTIFICATE INSURANCE
POLICIES DO NOT COVER Payments of interest on the Class A Certificates
SHORTFALLS IN INTEREST are subject to an available funds cap or
PAYMENTS RESULTING FROM interest rate cap, depending on the class of
APPLICATION OF AN certificates. The insurance policies guarantee
AVAILABLE FUNDS OR INTEREST payments of interest on the Class A certificates
RATE CAP, OR CERTAIN OTHER only up to the amount of any available funds or
REDUCTIONS IN AVAILABLE or interest rate cap. In addition, the
INTEREST DISTRIBUTIONS certificate insurance policies do not cover
REQUIRED BY LAW reductions in available interest distributions
required by the Soldiers' and Sailors' Relief
Act of 1940, as amended. As a result, you may
realize a lower than anticipated yield on your
investments.
YIELD CONSIDERATIONS RELATING
TO EXCESS CASH If the Class A certificates related to a home
equity loan group are overcollateralized by the
home equity loan group below the required
amount, excess interest, if any, will be
distributable on the related Class A
certificates as a payment of principal. If
purchased at a premium or a discount, the yield
to maturity on your certificate will be affected
by the rate at which excess interest is
distributed as a payment of principal. If the
actual rate of excess interest distribution is
slower than the rate anticipated by an investor
who purchases a related Class A certificate at a
discount, the actual yield to the investor will
be lower than the investor's anticipated yield.
If the actual rate of excess interest
distribution is faster than the rate anticipated
by an investor who purchases a related Class A
certificate at a premium, the actual yield to
the investor will be lower than the investor's
anticipated yield. The amount of excess interest
available for distribution with respect to a
home equity loan group on any distribution date
will be affected by:
- the actual amount of interest received,
collected or recovered in respect of the
home equity loans during the calendar month
prior to the related distribution date;
- changes in the weighted average of the
coupon rates of the home equity loans
resulting from prepayments and liquidations
of home equity loans;
- adjustments in the interest rates on the
Group II home equity loans; and
- adjustments in the certificate rate on the
Class A-7 certificates.
The amount of excess interest distributed as
principal on the Class A certificates related to
a home equity loan group will be based on the
required amount of overcollateralization.
S-15
<PAGE>
The required level of overcollateralization may
increase or decrease during the period that the
related classes of Class A certificates remain
outstanding. Any increase in the required level
of overcollateralization for the Class A
certificates related to a home equity loan group
may result in an accelerated rate of
amortization of the related Class A certificates
until the overcollateralization for the Class A
certificates equals the required amount of
overcollateralization. Any decrease in the
required amount of overcollateralization will
result in a decelerated rate of amortization of
the related Class A certificates until the
overcollateralization for the Class A
certificates is reduced to the required amount
of overcollateralization for the Class A
certificates.
LIQUIDATION OF HOME EQUITY LOANS
COULD CAUSE PAYMENT DELAYS OVERVIEW. Even assuming that the mortgaged
AND/OR LOSSES properties provide adequate security for the
related home equity loans, substantial delays in
receiving proceeds could be encountered by the
trust in connection with the liquidation of
defaulted home equity loans. As a result,
shortfalls in distributions on Class A
certificates could occur if the certificate
insurer were unable to perform its obligations
under the policies. Further, liquidation
expenses (including legal fees, real estate
taxes, and maintenance and preservation
expenses) will reduce the proceeds payable on
the Class A certificates and thereby reduce the
security for the home equity loans. In the event
any of the mortgaged properties fail to provide
adequate security for the related home equity
loans, holders of Class A certificates could
experience a loss if the certificate insurer
were unable to perform its obligations under the
policies.
SECOND LIENS. As of the statistical calculation
date, approximately _____% of the aggregate
principal balance of the Group I home equity
loans are secured by first liens on the related
properties, and approximately ____% of the
aggregate principal balance of the Group I home
equity loans are secured by second liens on the
related properties. With respect to home equity
loans that are junior in priority to liens
having a first priority with respect to the
related mortgaged property, the servicer has the
power, in some cases, to consent to a new
mortgage lien on the mortgaged property having
priority over the home equity loan in connection
with the refinancing of the first lien. Home
equity loans secured by second mortgages are
entitled to proceeds that remain from the sale
of the related mortgaged property after any
related senior home equity loan and prior
statutory liens have been satisfied. In the
event that the proceeds are insufficient to
satisfy the loans and prior liens in the
aggregate and the certificate insurer is unable
to perform its obligations under the policy, the
trust and, accordingly, you, bear (1) the risk
of delay in distributions while a deficiency
judgment, if any, against the borrower is sought
and (2) the risk of loss if the deficiency
S-16
<PAGE>
judgment cannot be obtained or is not realized
upon, which may result in the acceleration of
payments of principal to you and affect the
yield and weighted average life of your
certificates.
HOME EQUITY LOANS TRANSFERRED TO
THE TRUST MAY HAVE Following the transfer of the home equity loans
CHARACTERISTICS THAT DIFFER to the trust on the closing date, the
THAT DIFFER FROM THOSE OF characteristics of the home equity loans may
THE HOME EQUITY LOANS differ from the information presented in this
PRESENTED IN THIS Prospectus Supplement. The characteristics that
PROSPECTUS SUPPLEMENT WHICH may differ include, among others, the
MAY REDUCE YOUR YIELD TO composition of the home equity loans and of the
MATURITY borrowers of the home equity loans, the credit
quality of the home equity loans, the
distribution by interest rate, the distribution
by principal balance, the distribution by
loan-to-value ratio and the distribution by
remaining term to stated maturity. You should
consider potential variances when making your
investment decision concerning the Class A
certificates. In addition, as a result of the
changes in the home equity loans included in the
trust, the principal balance of each class of
certificates is subject to a variance of plus or
minus _%.
THERE COULD BE DELAYS IN
DISTRIBUTIONS ON YOUR The sale of the home equity loans from the
CERTIFICATES IF THE TRANSFER sellers to the depositor and the depositor to
OF HOME EQUITY LOANS TO THE the trust will be treated by the sellers, the
TRUST IS NOT CONSIDERED A depositor and the trust as a sale of the home
SALE IN THE EVENT OF equity loans. In the event of an insolvency of
BANKRUPTCY either seller, it is possible that a receiver or
conservator for, or a creditor of, either seller
or the depositor, may argue that the transaction
between each seller, the depositor and the
trust, with respect to the home equity loans was
a pledge of the home equity loans in connection
with a borrowing rather than a true sale. This
attempt, even if unsuccessful, could result in
delays in distributions on the Class A
certificates.
PREPAYMENT INTEREST SHORTFALLS
MAY RESULT IN LOSS OF When a full principal prepayment is made on a
INTEREST home equity loan, the mortgagor is charged
interest only up to the date of the prepayment
instead of for a full month, which may result in
a prepayment interest shortfall. The servicer is
obligated to pay those shortfalls in interest
collections payable on the Class A certificates
that are attributable to prepayment interest
shortfalls, but only to the extent of the
aggregate servicing fee for the related due
period. Neither the servicing fee nor the policy
will be available to cover any shortfalls in
interest collections on the home equity loans
that are attributable to the Soldiers' and
Sailors' Civil Relief Act of 1940. Prepayment
interest shortfalls, after application of the
servicing fee as described above, will be
covered by the related policy.
S-17
<PAGE>
GEOGRAPHIC CONCENTRATION MAY Approximately _____%, ____% and ____% of the
AFFECT PERFORMANCE Group I home equity loans are located in _____,
_____ and _________, respectively, and
approximately ____%, ____%, ____%, ____% and
____% of the Group II home equity loans are
located in ________, _______, _________, ______
and _______, respectively. To the extent that
the related regions have experienced or may
experience in the future weaker economic
conditions or greater rates of decline in real
estate values than the United States generally,
a concentration of the home equity loans may be
expected to exacerbate the foregoing risks. The
sellers and the depositor can neither quantify
the impact of any recent property value declines
on the home equity loans nor predict whether, to
what extent or for how long declines may
continue.
Properties in California may be more susceptible
than homes located in other parts of the country
to certain types of uninsured hazards, such as
earthquakes, as well as floods, wildfires,
mudslides and other natural disasters.
VIOLATIONS OF CONSUMER
PROTECTION REDUCTION IN Approximately _____% of the aggregate principal
LAWS MAY RESULT IN LOSSES balance of the home equity loans are subject to
the Home Ownership and Equity Protection Act of
1994.
WE REFER YOU TO "RISK FACTORS--CONSUMER
PROTECTION LAWS MAy AFFECT HOME EQUITY LOANS"
AND "CERTAIN LEGAL ASPECTS OF LOANS" IN THE
PROSPECTUS FOR MORE DETAILS
REDUCTION IN CERTIFICATE
RATING COULD HAVE AN ADVERSE The rating of the Class A certificates will
EFFECT ON THE VALUE OF YOUR depend primarily on an assessment of the
CERTIFICATES claims-paying ability of the certificate insurer
and on an assessment by the rating agencies of
the home equity loans. Any reduction in a rating
assigned to the claims-paying ability of the
certificate insurer below the rating initially
given to the Class A certificates may result in
a reduction in the rating of the Class A
certificates.
The rating by the rating agencies of the Class A
certificates is not a recommendation for you to
purchase, hold or sell the Class A certificates,
inasmuch as the rating does not comment as to
the market price or suitability for a particular
investor. There is no assurance that the ratings
will remain in place for any given period of
time or that the ratings will not be lowered or
withdrawn by the rating agencies. In general,
the ratings address credit risk and do not
address the likelihood of prepayments on home
equity loans, the likelihood of the payment of
any interest payable to Class A-7
certificateholders on a subordinated basis due
to the
S-18
<PAGE>
application of any available funds cap described
under the section "DESCRIPTION OF THE
CERTIFICATES--Certificate Rate" or the
possibility that Class A certificateholders
might realize a lower than anticipated yield.
The ratings of the Class A certificates also do
not address the possibility of the imposition of
United States withholding tax with respect to
non-U.S. persons.
Any downgrade in the rating of the certificate
insurer will likely result in the downgrade of
the rating of the Class A certificates. None of
the sellers, the servicer or depositor is
required to maintain the rating of the Class A
certificates. Any downgrade in the ratings
assigned to your certificates will result in a
decline in the market value of your
certificates.
COMPUTER PROBLEMS IN THE
YEAR 2000 MAY RESULT The year 2000 issue is the result of prior
IN LOSSES 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. Any occurrence could
result in a major computer system failure or
miscalculations. The servicer is presently
engaged in various procedures to ensure that
their computer systems and software will be year
2000 compliant. With regard to the servicing
systems used by the servicer, the servicer has
received written verification from its software
provider that the software systems used by the
servicer are year 2000 compliant. The software
provider indicated that it has obtained
statements from its third party hardware,
software and service providers confirming that
the goods and services they provide the software
provider are year 2000 compliant. In addition,
the servicer's software provider has provided
the servicer with a written assurance that the
provider has put into place contingency plans to
address all of its internal business critical
areas, including any non-conformity with respect
to year 2000 of the provider's systems.
However, in the event that 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 under the pooling and servicing
agreement could be materially adversely
affected.
S-19
<PAGE>
DESCRIPTION OF THE HOME EQUITY LOANS
OVERVIEW
The statistical information presented in this Prospectus Supplement
concerning the pool of home equity loans (the "Home Equity Loans") is based on
the pool of Home Equity Loans CHEC Funding, LLC (the "Depositor") expects to
transfer to Centex Home Equity Loan Trust ____-_ (the "Trust") on the date of
issuance of the Class A Certificates (the "Closing Date"). The statistical
information concerning the Home Equity Loans is as of the close of business on
_________ __, ____ (the "Statistical Calculation Date").
This subsection describes characteristics of the Home Equity Loans.
Unless otherwise noted, all statistical percentages in this Prospectus
Supplement are measured by the aggregate principal balance of the related Home
Equity Loans as of the Statistical Calculation Date (the "Statistical
Calculation Date Loan Balance"). Prior to the Closing Date, additional Home
Equity Loans will be added to each Home Equity Loan Group and other Home Equity
Loans may be removed from a Home Equity Loan Group, subject to the consent of
the Certificate Insurer. As a result, the characteristics of the Home Equity
Loans in each Home Equity Loan Group as of the Cut-Off Date will differ from the
characteristics presented in this Prospectus Supplement as of the Statistical
Calculation Date. The Depositor does not expect any material change in the
weighted average characteristics of any Home Equity Loan Group.
Each Home Equity Loan in the Trust will be assigned to one of two home
equity loan groups ("Group I" and "Group II," respectively, and each a "Home
Equity Loan Group"). Each Home Equity Loan Group will constitute a separate
sub-trust. The Home Equity Loans in Group I (the "Group I Home Equity Loans")
will bear interest at fixed interest rates. The Home Equity Loans in Group I are
referred to as the "Group I Home Equity Loans." The Home Equity Loans in Group
II (the "Group II Home Equity Loans") will bear interest at adjustable rates.
The Home Equity Loans in Group II are referred to as the "Group II Home Equity
Loans." Distributions on the Group I Certificates will be based primarily on
amounts available for distribution in respect of the Group I Home Equity Loans.
Distributions on the Group II Certificates will be based primarily on amounts
available for distribution in respect of the Group II Home Equity Loans.
The Home Equity Loans to be transferred by Centex Credit Corporation
d/b/a Centex Home Equity Corporation ("CHEC") and CHEC Conduit Funding, LLC
(together, the "Sellers") to the Depositor and from the Depositor to the Trust
on the Closing Date are fixed and adjustable rate home equity loans evidenced by
promissory notes (the "Notes") secured by first and second lien deeds of trust,
security deeds or mortgages on properties (the "Mortgaged Properties"). The
Mortgaged Properties securing the Home Equity Loans consist primarily of one-to
four-family residential properties and manufactured housing treated as real
property under applicable state law. The Mortgaged Properties may be
owner-occupied and non-owner occupied investment properties (which include
second and vacation homes). None of the Home Equity Loans are insured by pool
mortgage insurance policies or primary mortgage insurance policies. All of the
Home Equity Loans in the Trust have been or will be originated by CHEC, an
affiliate of CHEC or a broker for simultaneous assignment to CHEC. As of the
Statistical Calculation Date, these Home Equity Loans will have the following
general characteristics:
- - _____ total home equity loans
- - _____ fixed rate home equity loans
- - ___ floating rate home equity loans
- - all of the home equity loans were originated no earlier than _______
__, ____
- - location in __ states and the District of Columbia
- - Group I Home Equity Loans:
S-20
<PAGE>
- $_____________ aggregate outstanding loan balance
- ____% of total loan balance of all Home Equity Loans
- - Group II Home Equity Loans:
- $____________ aggregate outstanding loan balance
- ____% of total loan balance of all Home Equity Loans
The Original Combined Loan-to-Value Ratios with respect to the Home
Equity Loans were calculated based upon the lesser of the appraised values of
the Mortgaged Properties at the time of origination or the sales price of the
related Mortgaged Property if the Mortgaged Property was sold within the 12
month period preceding the time of loan origination (the "Appraised Values").
Where more than one appraisal was performed on the subject property, the lesser
of the two values was used to determine the Original Loan-to-Value Ratio and the
Original Combined Loan-to-Value Ratio.
In a limited number of circumstances, and within CHEC underwriting
guidelines, CHEC may discount the Appraised Value of Mortgaged Properties (when
calculating maximum Loan-to-Value Ratios) where the Mortgaged Properties are
unique, have a high value or where the comparables are not within Fannie Mae
guidelines. The purpose for making these reductions is to value the Mortgaged
Properties more conservatively than would otherwise be the case if the appraisal
were accepted as written.
The "Original Combined Loan-to-Value Ratio" of a Home Equity Loan is
the ratio, expressed as a percentage, equal to the sum of any outstanding senior
lien mortgage balance plus the original balance of the Home Equity Loan divided
by the Appraised Value of the related Mortgaged Property.
WE REFER YOU TO "RISK FACTORS--THE BORROWERS HAVE LESS THAN PERFECT
CREDIT" IN THIS PROSPECTUS SUPPLEMENT FOR MORe DETAIL.
No assurance can be given that values of the Mortgaged Properties have
remained or will remain at their levels on the dates of origination of the
related Home Equity Loans. If the residential real estate market has experienced
or should experience an overall decline in property values, causing the
outstanding balances of the Home Equity Loans, together with the outstanding
balances of any first mortgage, to become equal to or greater than the value of
the Mortgaged Properties, the actual rates of delinquencies, foreclosures and
losses could be higher than those now generally experienced in the mortgage
lending industry.
S-21
<PAGE>
GROUP I HOME EQUITY LOANS
The following summary information with respect to the Group I Home
Equity Loans is as of the Statistical Calculation Date:
<TABLE>
<CAPTION>
SUMMARY STATISTICS RANGE (IF APPROPRIATE)
<S> <C> <C>
Avg. Outstanding Principal Balances (the "Loan Balances") $_________ $________ to $__________
Wtd. Avg. Coupon Rate (the "Coupon Rate") _____% ____% to _____%
Wtd. Avg. Combined Loan-to-Value Ratio (approximate) _____% ____% to _____%
Wtd. Avg. Remaining Term to Maturity (approximate) ___ months __ to ___ months
Wtd. Avg. Original Term to Maturity (approximate) ___ months __ to ___ months
Maximum Seasoning __ months
Ratio of First to Second Liens _____% / ____%
Maximum Original Principal Balance of Loans
Secured by First Liens
SINGLE-FAMILY PROPERTIES $
TWO-TO FOUR-FAMILY PROPERTIES $
Maximum Original Principal Balance of Loans
Secured by Second Liens
SINGLE-FAMILY PROPERTIES $
TWO-TO FOUR-FAMILY PROPERTIES $
Balloon Payments (as a percent of
the aggregate outstanding loan balance) ___%
Latest Maturity Date __/__/__
30 to 59 day Delinquencies (as a percent of
the aggregate outstanding loan balance)(1) ___%
</TABLE>
(1) Approximately ____% of the outstanding loan balance of the Group I Home
Equity Loans had first monthly payments duer after ____________, ____, so that
it was not possible for theses loans to be __ days past due as of the
Statistical Calculation Date.
The tables set forth below contain approximate statistical information
as of the Statistical Calculation Date regarding the Group I Home Equity Loans.
The sum of the percentage columns in the following tables may not equal 100% due
to rounding.
S-22
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
OF GROUP I HOME EQUITY LOANS(1)
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF DATE LOAN DATE LOAN
STATE HOME EQUITY LOANS BALANCE BALANCE
- ----- ----------------- ------- -------
<S> <C> <C> <C>
Arizona...................... $ %
Arkansas.....................
California...................
Colorado.....................
Connecticut..................
Delaware.....................
District of Columbia.........
Florida......................
Georgia......................
Idaho........................
Illinois.....................
Indiana......................
Iowa.........................
Kansas.......................
Kentucky.....................
Louisiana....................
Maine........................
Maryland.....................
Massachusetts................
Michigan.....................
Minnesota....................
Mississippi..................
Missouri.....................
Montana......................
Nebraska.....................
Nevada.......................
New Hampshire................
New Jersey...................
New Mexico...................
New York.....................
North Carolina...............
North Dakota.................
Ohio.........................
Oklahoma.....................
Oregon.......................
Pennsylvania.................
Rhode Island.................
South Carolina...............
South Dakota.................
Tennessee....................
Texas........................
Utah.........................
Vermont......................
Virginia.....................
Washington...................
West Virginia................
Wisconsin....................
Wyoming......................
------------- -------------- --------------------
Total..................... $ %
============= ============== ====================
</TABLE>
- --------------------------
(1)Determined by property address designated as such in the related Mortgage.
S-23
<PAGE>
ORIGINAL COMBINED LOAN-TO-VALUE RATIO
OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE LOAN CALCULATION
RANGE OF ORIGINAL COMBINED LOAN-TO-VALUE RATIONS (%) HOME EQUITY LOANS BALANCE DATE LOAN BALANCE
- ---------------------------------------------------- ----------------- ------- -----------------
<S> <C> <C> <C>
Less than or equal to 50.00......................... $ %
50.01 - 55.00.......................................
55.01 - 60.00.......................................
60.01 - 65.00.......................................
65.01 - 70.00.......................................
70.01 - 75.00.......................................
75.01 - 80.00.......................................
80.01 - 85.00.......................................
85.01 - 90.00.......................................
90.01 - 95.00.......................................
95.01 - 100.00......................................
------------- ------------- ---------
Total.................................... $ %
============= ============= =========
</TABLE>
S-24
<PAGE>
COUPON RATES OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE LOAN CALCULATION
RANGE OF ORIGINAL COUPON RATES (%) HOME EQUITY LOANS BALANCE DATE LOAN BALANCE
- ---------------------------------- ----------------- ------- -----------------
<S> <C> <C> <C>
7.001 - 7.500....................................... $ %
7.501 - 8.000.......................................
8.001 - 8.500.......................................
8.501 - 9.000.......................................
9.001 - 9.500.......................................
9.501 - 10.000......................................
10.001 - 10.500.....................................
10.501 - 11.000.....................................
11.001 - 11.500.....................................
11.501 - 12.000.....................................
12.001 - 12.500.....................................
12.501 - 13.000.....................................
13.001 - 13.500.....................................
13.501 - 14.000.....................................
14.001 - 14.500.....................................
14.501 - 15.000.....................................
15.001 - 15.500.....................................
15.501 - 16.000.....................................
16.001 - 16.500.....................................
16.501 - 17.000.....................................
17.001 - 17.500.....................................
17.501 - 18.000.....................................
------------- --------------
Total.................................... $ %
============= ============== ==============
</TABLE>
STATISTICAL CALCULATION DATE LOAN BALANCES OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF DATE LOAN DATE LOAN
RANGE OF STATISTICAL CALCULATION DATE LOAN BALANCES HOME EQUITY LOANS BALANCE BALANCE
- --------------------------------------------------- ----------------- ------- -------
<S> <C> <C> <C>
$ 0.01 - 50,000.00.......................... $ %
50,000.01 - 100,000.00.........................
100,000.01 - 150,000.00.........................
150,000.01 - 200,000.00.........................
200,000.01 - 250,000.00.........................
------------- -------------
Total.................................... $ %
============= ============== ===========
</TABLE>
TYPES OF MORTGAGED PROPERTIES OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF DATE LOAN DATE LOAN
PROPERTY TYPE HOME EQUITY LOANS BALANCE BALANCE
- ------------- ----------------- ------- -------
<S> <C> <C> <C>
Single Family....................................... $ %
PUD.................................................
2-4 Family..........................................
Townhouses..........................................
Manufactured Housing................................
Condominiums........................................
------------- ------------- -------
Total.................................... $ %
============= ============== =======
</TABLE>
S-25
<PAGE>
ORIGINAL TERM TO MATURITY OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF DATE LOAN DATE LOAN
ORIGINAL TERM TO MATURITY (MONTHS) HOME EQUITY LOANS BALANCE BALANCE
- ---------------------------------- ----------------- ------- -------
<S> <C> <C> <C>
60 - 119............................................ $ %
120 - 179...........................................
180 - 239...........................................
240 - 299...........................................
300 - 360...........................................
------------- ------------- ------------
Total.................................... $ %
============= ============== ============
</TABLE>
REMAINING TERM TO MATURITY OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF DATE LOAN DATE LOAN
REMAINING TERM TO MATURITY (MONTHS) HOME EQUITY LOANS BALANCE BALANCE
- ----------------------------------- ----------------- ------- -------
<S> <C> <C>
Less than or equal to 60............................ $ %
61 - 120............................................
121 - 180...........................................
181 - 240...........................................
240 - 300...........................................
301 - 360...........................................
------------- ------------- -------------
Total.................................... $ %
============= ============== =============
</TABLE>
SEASONING OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF DATE LOAN DATE LOAN
SEASONING (MONTHS) HOME EQUITY LOANS BALANCE BALANCE
- ------------------ ----------------- ------- -------
<C> <C> <C>
0.................................................. $ %
1 - 6..............................................
7 - 2..............................................
------------- ------------- ------------
Total................................... $ %
============= ============== ============
</TABLE>
OCCUPANCY STATUS OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF DATE LOAN DATE LOAN
OCCUPANCY STATUS HOME EQUITY LOANS BALANCE BALANCE
- ---------------- ----------------- ------- -------
<S> <C> <C> <C>
Owner Occupied (Primary)............................ $ %
Investment Property.................................
Second Home.........................................
------------- ------------- -------------
Total.................................... $ %
============= ============== =============
</TABLE>
LIEN POSITION OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF DATE LOAN DATE LOAN
LIEN POSITION HOME EQUITY LOANS BALANCE BALANCE
- ------------- ----------------- ------- -------
<S> <C> <C> <C>
First.............................................. $ %
Second.............................................
------------- ------------- -------------
Total................................... $ %
============= ============== =============
</TABLE>
S-26
<PAGE>
DOCUMENTATION TYPE OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF DATE LOAN DATE LOAN
DOCUMENTATION TYPE(1) HOME EQUITY LOANS BALANCE BALANCE
- --------------------- ----------------- ------- -------
<S> <C> <C> <C>
Full Documentation................................. $ %
Stated Income......................................
Limited Documentation..............................
------------- ------------- -------------
Total................................... $ %
============= ============== =============
</TABLE>
- ------------------
(1) We refer you to "THE SELLER AND THE SERVICER--Underwriting Guidelines
Applicable to the Home Equity Loans" in the Prospectus for a description of the
CHEC's documentation programs.
CREDIT GRADE OF GROUP I HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF DATE LOAN DATE LOAN
CREDIT GRADE BALANCE(1) HOME EQUITY LOANS BALANCE BALANCE
- ----------------------- ----------------- ------- -------
<S> <C> <C> <C>
A1.................................................. $ %
A2..................................................
A+..................................................
B...................................................
C1..................................................
C2..................................................
D...................................................
------------- ------------- -------------
Total.................................... $ %
============= ============== =============
</TABLE>
- ------------------
(1) We refer you to "THE SELLER AND THE SERVICER--Underwriting Criteria of the
Seller" in the Prospectus for a description of CHEC's credit grades and
underwriting criteria.
SECOND MORTGAGE RATIO OF GROUP I HOME EQUITY LOANS(1)
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF DATE LOAN DATE LOAN
RANGE OF SECOND MORTGAGE RATIOS (%) HOME EQUITY LOANS BALANCE BALANCE
- ----------------------------------- ----------------- ------- -------
<S> <C> <C> <C>
less than 10.00..................................... $ %
10.01 - 20.00.......................................
20.01 - 30.00.......................................
30.01 - 40.00.......................................
40.01 - 50.00.......................................
50.01 - 60.00.......................................
60.01 - 70.00.......................................
70.01 - 80.00.......................................
80.01 - 90.00.......................................
90.01 - 100.00......................................
------------- ------------- -------------
Total.................................... $ %
============= ============== =============
</TABLE>
- ------------------
(1) Applies only to Home Equity Loans in the second lien position. The Second
Mortgage Ratios shown above are equal to, with respect to each Home Equity
Loan in the second lien position, the original principal balance of the
Home Equity Loan at the date of origination divided by the sum of (a) the
original principal balance of the Home Equity Loan at the date of
origination and (b) the remaining principal balance of the senior lien on
the related Mortgaged Property at the date of origination of the Home
Equity Loan.
S-27
<PAGE>
GROUP II HOME EQUITY LOANS
The following summary information with respect to the Group II Home
Equity Loans is as of the Statistical Calculation Date:
<TABLE>
<CAPTION>
SUMMARY STATISTICS RANGE (IF APPROPRIATE)
<S> <C> <C>
Avg. Outstanding Principal Balances $_________ $_________ to $___________
Wtd. Avg. Coupon Rate (approximate)(1) _____% ____% to _____%
Wtd. Avg. Gross Margin (approximate)(1) ____% ____% to _____%
Wtd. Avg. Maximum Rates (approximate)(1) _____% _____% to _____%
Wtd. Avg. Minimum Rates (approximate)(1) _____% ____% to %
Wtd. Avg. Provided Combined Loan-to-Value Ratio
(approximate) _____% _____% to _____%
Wtd. Avg. Remaining Term to Maturity (approximate) ___ months __ to ___ months
Wtd. Avg. Original Term to Maturity (approximate) ___ months __ to ___ months
Maximum Seasoning __ months
Ratio of First to Second Liens _______% / _____%
Maximum Original Principal Balance of Loans
Secured by First Liens
SINCLE-FAMILY PROPERTIES $
TWO-TO FOUR-FAMILY PROPERTIES $
Maximum Original Principal Balance of Loans
Secured by Second Liens
SINGLE-FAMILY PROPERTIES $
TWO-TO FOUR-FAMILY PROPERTIES $
Balloon Payments (as a percent of
the aggregate outstanding loan balance) %
Latest Maturity Date __/__/__
30 to 59 day Delinquencies (as a percent of
the aggregate outstanding loan balance)(2) %
Six-Month Adjustable Rate Loans (3)
PERCENTAGE OF AGGREGATE OUTSTANDING
PRINCIPAL GROUP II LOAN BALANCE %
WTD. AVG. REMAINING PERIOD T-
COUPON RATE ADJUSTMENT (APPROXIMATE) __ months
WTD. AVG. INITIAL INTEREST RATE ADJUSTMENT CAP
(APPROXIMATE)(4) %
WTD. AVG. SEMI-ANNUAL INTEREST RATE ADJUSTMENT CAP
(APPROXIMATE)(4) %
WTD. AVG. LIFETIME INTEREST RATE ADJUSTMENT CAP
(APPROXIMATE)(5) %
</TABLE>
S-28
<PAGE>
<TABLE>
<CAPTION>
SUMMARY STATISTICS RANGE (IF APPROPRIATE)
<S> <C> <C>
2/28 Adjustable Rate Loans (6)
WTD. AVG. REMAINING PERIOD TO
COUPON RATE ADJUSTMENT (APPROXIMATE) __ months
INITIAL INTEREST RATE ADJUSTMENT CAP (4) %
SEMI-ANNUAL INTEREST RATE ADJUSTMENT CAP (4) %
LIFETIME INTEREST RATE ADJUSTMENT CAP (5) %
</TABLE>
(1) The "Maximum Rates" or "Minimum Rates" are the highest and lowest rates,
respectively, at which interest may accrue on the Group II Home Equity Loans.
(2) Approximately ____% of the outstanding loan balance of the Group II Home
Equity Loans had first monthly payments due after ____________, ____, and it was
not possible for these loans to be __ days past due as of the Statistical
Calculation Date.
(3) "Six-Month Adjustable Rate Loans" have their first adjustment date six
months following their date of origination, and adjusts semiannually thereafter,
based on six-month LIBOR plus a margin, subject to certain limitations.
(4) Above the then current coupon rate.
(5) Above the initial coupon rate.
(7) "2/28 Adjustable Rate Loans" have their first adjustment date two years
after the date of origination, and adjusts semiannually thereafter, based on
six-month LIBOR plus a margin, subject to certain limitations.
Set forth below is approximate statistical information as of the Statistical
Calculation Date regarding the Group II Home Equity Loans. The sum of the
percentage columns in the following tables may not equal 100% due to rounding.
S-29
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
OF GROUP II HOME EQUITY LOANS(1)
<TABLE>
<CAPTION>
% OF
STATISTICAL
STATISTICAL CALCULATION
NUMBER OF CALCULATION DATE LOAN
STATE HOME EQUITY LOANS DATE LOAN BALANCE BALANCE
- ----- ----------------- ----------------- -------
<S> <C> <C> <C>
Arizona........................................ $ %
Arkansas.......................................
California.....................................
Colorado.......................................
Connecticut....................................
Delaware.......................................
Florida........................................
Georgia........................................
Idaho..........................................
Illinois.......................................
Indiana........................................
Iowa...........................................
Kansas.........................................
Kentucky.......................................
Louisiana......................................
Maine..........................................
Maryland.......................................
Massachusetts..................................
Michigan.......................................
Minnesota......................................
Mississippi....................................
Missouri.......................................
Montana........................................
Nebraska.......................................
Nevada.........................................
New Hampshire..................................
New Jersey.....................................
New Mexico.....................................
New York.......................................
North Carolina.................................
Ohio...........................................
Oklahoma.......................................
Oregon.........................................
Pennsylvania...................................
Rhode Island...................................
South Carolina.................................
Tennessee......................................
Texas..........................................
Utah...........................................
Vermont........................................
Virginia.......................................
Washington.....................................
West Virginia..................................
Wisconsin......................................
Wyoming........................................
------------- ------------- ------
Total.......................................... $ 100.00%
============= ============== ======
</TABLE>
- ------------------
(1)Determined by property address designated in the related Mortgage.
S-30
<PAGE>
ORIGINAL COMBINED LOAN-TO-VALUE RATIOS
OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
STATISTICAL % OF
CALCULATION STATISTICAL
NUMBER OF DATE LOAN CALCULATION
RANGE OF ORIGINAL COMBINED LOAN-TO-VALUE RATIOS (%) HOME EQUITY LOANS BALANCE DATE LOAN BALANCE
- --------------------------------------------------- ----------------- ------- -----------------
<S> <C> <C> <C>
Less than or equal to 50.00.................... $ %
50.01 - 55.00..................................
55.01 - 60.00..................................
60.01 - 65.00..................................
65.01 - 70.00..................................
70.01 - 75.00..................................
75.01 - 80.00..................................
80.01 - 85.00..................................
85.01 - 90.00..................................
90.01 - 95.00..................................
95.01 - 100.00.................................
------------- -------------- ------
Total.......................................... $ 100.00%
============= ============== ======
</TABLE>
STATISTICAL CALCULATION DATE LOAN BALANCES OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
NUMBER OF STATISTICAL STATISTICAL
HOME EQUITY CALCULATION CALCULATION
RANGE OF STATISTICAL CALCULATION DATE LOAN BALANCES LOAN BALANCES DATE LOAN BALANCE DATE LOAN BALANCE
- --------------------------------------------------- ------------- ----------------- -----------------
<S> <C> <C> <C>
$ 0.01 - 50,000.00.......................... $ %
50,000.01 - 100,000.00.........................
100,000.01 - 150,000.00........................
150,000.01 - 200,000.00........................
200,000.01 - 250,000.00........................
250,000.01 - 300,000.00........................
300,000.01 - 350,000.00........................
350,000.01 - 400,000.00........................
------------- -------------- ------
Total.......................................... $ 100.00%
============= ============== ======
</TABLE>
TYPES OF MORTGAGED PROPERTIES OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
NUMBER OF HOME CALCULATION CALCULATION
PROPERTY TYPE EQUITY LOANS DATE LOAN BALANCE DATE LOAN BALANCE
- ------------- ------------ ----------------- -----------------
<S> <C> <C> <C>
Single Family.................................. $ %
PUD............................................
2-4 Family.....................................
Townhouses.....................................
Condominiums...................................
Manufactured Housing...........................
------------- -------------- ------
Total.......................................... $ 100.00%
============= ============== ======
</TABLE>
S-31
<PAGE>
ORIGINAL TERM TO MATURITY OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
ORIGINAL TERM TO NUMBER OF HOME DATE LOAN DATE LOAN
DATE MATURITY (MONTHS) EQUITY LOANS BALANCE BALANCE
- ---------------------- ------------ ------- -------
<S> <C> <C> <C>
120............................................. $ %
180.............................................
240.............................................
360.............................................
------------- -------------- ------
Total........................................... $ 100.00%
============= ============== ======
</TABLE>
SEASONING OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF HOME DATE LOAN DATE LOAN
SEASONING (MONTHS) EQUITY LOANS BALANCE BALANCE
- ------------------ ------------ ------- -------
<S> <C> <C> <C>
0............................................... $ %
1 - 6...........................................
7 - 12..........................................
13 and over.....................................
------------- -------------- ------
Total.................................. $ 100.00%
============= ============== ======
</TABLE>
REMAINING TERM TO MATURITY OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF HOME DATE LOAN DATE LOAN
REMAINING TERM TO MATURITY (MONTHS) EQUITY LOANS BALANCE BALANCE
- ----------------------------------- ------------ ------- -------
<S> <C> <C> <C>
61 - 120........................................ $ %
121 - 180.......................................
181 - 240.......................................
301 - 360.......................................
------------- -------------- ------
Total........................................... $ 100.00%
============= ============== ======
</TABLE>
OCCUPANCY STATUS OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF HOME DATE LOAN DATE LOAN
OCCUPANCY STATUS EQUITY LOANS BALANCE BALANCE
- ---------------- ------------ ------- -------
<S> <C> <C> <C>
Owner Occupied (Primary)........................ $ %
Investment Property.............................
Second Home.....................................
------------- -------------- ------
Total........................................... $ 100.00%
============= ============== ======
</TABLE>
S-32
<PAGE>
DOCUMENTATION TYPE OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF HOME DATE LOAN DATE LOAN
DOCUMENTATION TYPE (1) EQUITY LOANS BALANCE BALANCE
- ---------------------- ------------ ------- -------
<S> <C> <C> <C>
Full Documentation............................. $ %
Stated Income..................................
Limited Documentation..........................
------------- -------------- ------
Total.......................................... $ 100.00%
============= ============== ======
</TABLE>
- ------------------
(1) We refer you to "THE SELLER AND THE SERVICER--Underwriting Guidelines
Applicable to the Home Equity Loans" in the Prospectus for a description of
CHEC's documentation programs.
CREDIT GRADE OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF HOME DATE LOAN DATE LOAN
CREDIT GRADE (1) EQUITY LOANS BALANCE BALANCE
- ---------------- ------------ ------- -------
<S> <C> <C> <C>
A+.............................................. $ %
A1..............................................
A2.............................................
B..............................................
C1.............................................
C2.............................................
D..............................................
------------- -------------- ------
Total.......................................... $ 100.00%
============= ============== ======
</TABLE>
- ------------------
(1) We refer you to "THE SELLER AND THE SERVICER--Underwriting Criteria of the
Seller" in the Prospectus for a description of CHEC's credit grades and
underwriting criteria.
S-33
<PAGE>
CURRENT COUPON RATES OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
NUMBER OF CALCULATION CALCULATION
HOME EQUITY DATE LOAN DATE LOAN
RANGE OF CURRENT COUPON RATES (%) LOAN BALANCES BALANCE BALANCE
- --------------------------------- ------------- ------- -------
<S> <C> <C> <C>
6.501 - 7.000................................... $ %
7.501 - 8.000...................................
8.001 - 8.500...................................
8.501 - 9.000...................................
9.001 - 9.500...................................
9.501 - 10.000..................................
10.001 - 10.500.................................
10.501 - 11.000.................................
11.001 - 11.500.................................
11.501 - 12.000.................................
12.001 - 12.500.................................
12.501 - 13.000.................................
13.001 - 13.500.................................
13.501 - 14.000.................................
14.001 - 14.500.................................
14.501 - 15.000.................................
15.001 - 15.500.................................
------------- -------------- ------
Total........................................... $ 100.00%
============= ============== ======
</TABLE>
GROSS MARGINS OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF HOME DATE LOAN DATE LOAN
RANGE OF GROSS COUPON RATES (%) EQUITY LOANS BALANCE BALANCE
- ------------------------------- ------------ ------- -------
<S> <C> <C> <C>
2.001 - 4.000................................... $ %
4.001 - 6.000...................................
6.001 - 8.000...................................
8.001 - 10.000..................................
10.001 - 12.000.................................
------------- -------------- ------
Total........................................... $ 100.00%
============= ============== ======
</TABLE>
S-34
<PAGE>
MAXIMUM RATES OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF HOME DATE LOAN DATE LOAN
RANGE OF MAXIMUM RATES (%) EQUITY LOANS BALANCES BALANCE
- -------------------------- ------------ -------- -------
<S> <C> <C> <C>
13.501 - 14.000................................. $ %
14.501 - 15.000.................................
15.001 - 15.500.................................
15.501 - 16.000.................................
16.001 - 16.500.................................
16.501 - 17.000.................................
17.001 - 17.500.................................
17.501 - 18.000.................................
18.001 - 18.500.................................
18.501 - 19.000.................................
19.001 - 19.500.................................
19.501 - 20.000.................................
20.001 - 20.500.................................
20.501 - 21.000.................................
21.001 - 21.500.................................
21.501 - 22.000.................................
22.001 - 22.500.................................
------------- -------------- ------
Total........................................... $ 100.00%
============= ============== ======
</TABLE>
NEXT INTEREST ADJUSTMENT DATE OF GROUP II HOME EQUITY LOANS
<TABLE>
<CAPTION>
% OF
STATISTICAL STATISTICAL
CALCULATION CALCULATION
NUMBER OF HOME DATE LOAN DATE LOAN
NEXT INTEREST ADJUSTMENT DATE EQUITY LOANS BALANCE BALANCE
- ----------------------------- ------------ ------- -------
<S> <C> <C> <C>
October 1999.................................... $ %
November 1999...................................
December 1999...................................
January 2000....................................
February 2000...................................
June 2000 ......................................
July 2000.......................................
February 2001...................................
April 2001......................................
May 2001........................................
June 2001.......................................
July 2001.......................................
August 2001.....................................
------------- -------------- ------
Total........................................... $ 100.00%
============= ============== ======
</TABLE>
S-35
<PAGE>
DELINQUENCY AND LOSS EXPERIENCE
The following table sets forth the CHEC's delinquency experience with
respect to home equity loans similar in type to the Home Equity Loans as of the
last day of each of the months indicated. No home equity loan is considered
delinquent for purposes of the table until a payment is one calendar month past
due on a contractual basis. It should be noted that CHEC commenced its servicing
activities of home equity loans similar to the Home Equity Loans in October
1997. Accordingly, CHEC does not have significant historical delinquency,
bankruptcy, foreclosure or default experience that may be referred to for
examining the delinquency experience of home equity loans similar to the Home
Equity Loans. The delinquency and loss percentages may be affected by the size
and relative lack of seasoning of the servicing portfolio which increased from
approximately $_________ at September 30, ____ to approximately $____________ at
September 30, ____. CHEC believes that as the existing loan portfolio becomes
more seasoned, the rate of delinquencies, loan losses, foreclosures and REO
Properties will increase. Accordingly, the information in the table below is for
illustrative purposes only and is not intended to indicate or predict the
expected delinquency experience on past, current or future pools of home equity
loans for which CHEC is the servicer.
S-36
<PAGE>
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AS OF _________, ____ AS OF ________,____
--------------------- -------------------
BY NUMBER BY DOLLAR BY NUMBER BY DOLLAR
OF LOANS AMOUNT ($) OF LOANS AMOUNT ($)
<S> <C> <C> <C> <C>
Portfolio(1)...............................
Delinquency Percentage
30-59 days.......................... % % % %
60-89 days..........................
90 days and over....................
----- ----- ----- -----
Total Delinquency Percentage(2)............ % % % %
----- ----- ----- -----
Percentage of REO Properties............... % % % %
----- ----- ----- -----
</TABLE>
- ------------------
(1) Portfolio includes all loans originated after ____________ other than some
mortgage loan products originated for whole loan sales or retention by CHEC
or one of its affiliates.
(2) Excludes REO Properties.
S-37
<PAGE>
The following table sets forth the CHEC's loss experience with respect to home
equity loans similar in type to the Home Equity Loans for the periods indicated.
LOSS EXPERIENCE
<TABLE>
<CAPTION>
QUARTER ENDED FISCAL YEAR ENDING
-------- --, ---- ------ --, ----
DOLLAR DOLLAR
AMOUNT ($) AMOUNT ($)
---------- ----------
<S> <C> <C>
Average Portfolio(1)..........................................
Gross Losses(2)...............................................
Recoveries(3).................................................
Net Losses(4).................................................
Net Losses as a Percentage of Average Portfolio(5)............ % %
</TABLE>
- ------------------
(1) "Average Portfolio" during the period is the arithmetic average of the
principal balances of the loans outstanding on the last day of each month
during the period. Portfolio includes all loans originated after October
1997 other than some mortgage loan products originated for whole loan sales
or retention by CHEC or one of its affiliates.
(2) "Gross Losses" for each respective period are actual losses incurred on
liquidated properties or losses from the write-off of loans where the
properties were not liquidated. Losses include all principal, foreclosure
costs and all accrued interest.
(3) "Recoveries" are recoveries from deficiency judgments. (4) "Net Losses"
means "Gross Losses" minus "Recoveries".
(5) For the 6 months ending _________ __, ____, "Net Losses as a Percentage of
Average Portfolio" was annualized by multiplying "Net Losses" by 2 before
calculating the percentage of "Average Portfolio".
S-38
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on each Class of Class A Certificates,
the aggregate amount of distributions on the Class A Certificates and the yield
to maturity of the Class A Certificates will be related to the rate and timing
of payments of principal on the Home Equity Loans. The rate of principal
payments on the Home Equity Loans will in turn be affected by the amortization
schedules of the Home Equity Loans, by the rate of principal prepayments
(including for this purpose prepayments resulting from refinancing or
liquidations of the Home Equity Loans due to defaults, casualties, condemnations
and repurchases by CHEC ("Prepayments") and realized losses on the Home Equity
Loans. Certain of the Home Equity Loans may be prepaid by the mortgagors at any
time without penalty. Certain of the Home Equity Loans are subject to penalties
for prepayments.
PREPAYMENTS
Prepayments, liquidations and purchases of the Home Equity Loans
(including any optional purchase by the Servicer of a delinquent Home Equity
Loan and any prepayments resulting from the Servicer's exercise of its cleanup
call option in connection with the termination of the Trust) will result in
distributions on the Class A Certificates of principal amounts which would
otherwise be distributed over the remaining terms of the Home Equity Loans.
Since the rate of payment of principal of the Home Equity 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 a Class A 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 on the Certificate is sensitive to
prepayments, liquidations and purchases of the Home Equity Loans.
The rate of prepayment on the Home Equity Loans cannot be predicted. As
of the Statistical Calculation Date, approximately _____% of the Group I Home
Equity Loans and approximately _____% of the Group II Home Equity Loans may be
prepaid in whole or in part at any time without penalty. Generally, home equity
loans are not viewed by borrowers as permanent financing. Accordingly, the Home
Equity Loans may experience a higher rate of prepayment than traditional
mortgage loans. The prepayment experience of the Trust with respect to the Home
Equity 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 home equity loans. All of
the Home Equity Loans will contain "due-on-sale" provisions, and the Servicer is
required by the Agreement to enforce the provisions, unless the enforcement is
not permitted by applicable law or the Servicer, in a manner consistent with
reasonable commercial practice, permits the purchaser of the related Mortgaged
Property to assume the Home Equity Loan. The enforcement of a "due-on-sale"
provision will have the same effect as a prepayment of the related Home Equity
Loan. The rate of prepayment of the Home Equity Loans may also be affected by
the extent to which the Home Equity Loans provide for the payment of a penalty
in connection with a prepayment and the amount of the penalties.
WE REFER YOU TO "CERTAIN LEGAL ASPECTS OF THE HOME EQUITY
LOANS--DUE-ON-SALE CLAUSES IN HOME EQUITY LOANS" IN THE PROSPECTUS FOR MORE
DETAIL.
As with fixed rate obligations generally, the rate of prepayment on a
pool of home equity loans with fixed rates, including the Group I Home Equity
Loans, is affected by prevailing market rates for home equity loans of a
comparable term and risk level. When the market interest rate is below the
mortgage coupon, mortgagors may have an increased incentive to refinance their
home equity loans. Depending on prevailing market rates, the future outlook for
market rates and economic conditions generally, 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. The prepayment
behavior of the 2/28 Adjustable Rate Loans may differ from that of the other
Home Equity Loans. As a 2/28 Adjustable Rate Loan approaches its initial
adjustment date, the borrower may become more likely to refinance the loan to
avoid an increase in the Coupon Rate, even if fixed-rate loans are only
available at rates that are slightly lower or higher than the Coupon Rate before
adjustment. The existence of the applicable periodic rate cap, lifetime cap and
lifetime floor also may affect the
S-39
<PAGE>
likelihood of prepayments resulting from refinancings. As is the case with
conventional fixed-rate home equity loans, adjustable-rate home equity loans may
be subject to a greater rate of principal prepayments in a declining interest
rate environment. For example, if prevailing interest rates fall significantly,
adjustable-rate home equity loans could be subject to higher prepayment rates
than if prevailing interest rates remain constant because the availability of
fixed-rate home equity loans at competitive rates may encourage mortgagors to
refinance their adjustable-rate home equity loans to "lock in" a lower fixed
interest rate. However, no assurance can be given as to the level of prepayments
that the Home Equity Loans will experience.
Net Monthly Excess Cash Flow (as defined in "DESCRIPTION OF
CERTIFICATES--Glossary" below) for the Home Equity Loans in the applicable Home
Equity Loan Group will be distributed in reduction of the Class Principal
Balance of the related class or classes of Class A Certificates then entitled to
distributions of principal on each Distribution Date to the extent that the then
required overcollateralization amount for the Home Equity Loans in the Home
Equity Loan Group exceeds the actual overcollateralization amount for the Home
Equity Loan Group. If purchased at a premium or a discount, the yield to
maturity on a Class A Certificate will be affected by the rate at which the Net
Monthly Excess Cash Flow for the Home Equity Loans in the related Home Equity
Loan Group is distributed in reduction of the applicable Class Principal
Balance. If the actual rate of the Net Monthly Excess Cash Flow distribution is
slower than the rate anticipated by an investor who purchases a Class A
Certificate at a discount, the actual yield to the investor will be lower than
the investor's anticipated yield. If the actual rate of the Net Monthly Excess
Cash Flow distribution is faster than the rate anticipated by an investor who
purchases a Class A Certificate at a premium, the actual yield to the investor
will be lower than the investor's anticipated yield. The amount of Net Monthly
Excess Cash Flow available for distribution on any Distribution Date will be
affected by the actual amount of interest received, advanced, collected or
recovered in respect of the Home Equity Loans during the related Due Period and
the amount will be influenced by changes in the weighted average of the Coupon
Rates of the Home Equity Loans resulting from prepayments and liquidations. The
amount of Net Monthly Excess Cash Flow distributions applied in reduction of the
Class Principal Balance of the applicable Class A Certificates on each
Distribution Date will be based on the then required overcollateralization
amount for the related Home Equity Loan Group, which may increase or decrease
during the period any class of Class A Certificates which remains outstanding.
Any increase in the required overcollateralization amount for a Home Equity Loan
Group may result in an accelerated rate of amortization of the related Class A
Certificates until the overcollateralization amount for the related Home Equity
Loan Group equals the required overcollateralization amount for the related Home
Equity Loan Group and any decrease in the required overcollateralization amount
for the related Home Equity Loan Group will result in a decelerated rate of
amortization of the related Class A Certificates until the overcollateralization
amount for the related Home Equity Loan Group is reduced to the required
overcollateralization amount.
WE REFER YOU TO "DESCRIPTION OF THE CERTIFICATES--CREDIT ENHANCEMENT"
IN THIS PROSPECTUS SUPPLEMENT FOR MORE DETAIL.
PAYMENT DELAY FEATURE OF THE FIXED RATE CERTIFICATES
The effective yield to the Class A-1 Certificateholders, the Class A-2
Certificateholders, the Class A-3 Certificateholders, the Class A-4
Certificateholders, the Class A-5 Certificateholders and the Class A-6
Certificateholders will be lower than the yield otherwise produced by the
applicable Certificate Rate and the purchase price of the Certificates because
distributions will not be payable to the Certificateholders until the
Distribution Date following the month of accrual (without any additional
distribution of interest or earnings on the Certificates in respect of the
delay).
PRINCIPAL PAYMENT FEATURES OF THE CLASS A-6 CERTIFICATES
Investors in the Class A-6 Certificates should be aware that because
the Class A-6 Certificates do not receive any portion of principal payments
prior to the Distribution Date occurring in ____________, thereafter, they will
receivean increasing percentage of their pro rata share of prinicpal payable to
the Group I Certificates based on a schedule. This percentage will, after
_____________, exceed ___% of their pro rata share of principal. As a result,
the weighted average life of the Class A-6 Certificates may be longer or shorter
than
S-40
<PAGE>
would otherwise be the case, and the effect on the market value of the Class A-6
Certificates of changes in market interest rates or market yields for similar
securities may be greater or lesser than for other classes of Class A
Certificates entitled to the distributions.
WEIGHTED AVERAGE LIVES
Generally, greater than anticipated prepayments of principal will
increase the yield on Class A Certificates purchased at a price less than par
and will decrease the yield on Class A Certificates purchased at a price greater
than par. The effect on an investor's yield due to principal prepayments on the
Home Equity Loans in the related Home Equity Loan Group 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 like reduction (or increase) in the rate of principal
payments. The weighted average life of the Class A Certificates will also be
affected by the amount and timing of delinquencies and defaults on the Home
Equity Loans in the related Home Equity Loan Group and the recoveries, if any,
on defaulted Home Equity Loans in the related Home Equity Loan Group 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 the Certificate is repaid. The weighted
average life of any class of the Class A Certificates will be influenced by,
among other factors, the rate at which principal payments are made on the Home
Equity Loans, including final payments made upon the maturity of Home Equity
Loans for which the related monthly payments are insufficient to fully amortize
the Home Equity Loans ("Balloon Loans").
Prepayments of home equity loans are commonly measured relative to a
prepayment standard or model. The model used with respect to the Group I
Certificates is the prepayment assumption (the "Prepayment Assumption"). A 100%
Prepayment Assumption assumes constant prepayment rates ("CPR") of 4% per annum
of the then outstanding principal balance of the Group I Home Equity Loans in
the first month of the life of the Home Equity Loans and an additional 1.455%
(precisely 16/11%) 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 Home Equity Loans, a 100% Prepayment Assumption assumes a CPR of 20% per
annum of the outstanding principal balance of the Group I Home Equity Loans each
month. The model used with respect to the Group II Certificates is CPR, which is
a prepayment assumption that represents a constant assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of home
equity loans for the life of the home equity loans. Neither model purports to be
a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of home equity loans, including the
Home Equity Loans to be included in the Trust.
Since the following tables were prepared on the basis of the
assumptions in the following paragraph, there are discrepancies between
characteristics of the actual Home Equity Loans and the characteristics of the
Home Equity Loans assumed in preparing the tables. Any discrepancy may have an
effect upon the percentages of the Class Principal Balances outstanding and
weighted average lives of the Class A Certificates set forth in the tables. In
addition, since the actual Home Equity Loans in the Trust have characteristics
which differ from those assumed in preparing the tables set forth below, the
distributions of principal on the Class A Certificates may be made earlier or
later than as indicated in the tables.
The information in the decrement tables has been prepared on the basis
of the following assumed characteristics of the Home Equity Loans and the
following additional assumptions (collectively, the "Structuring Assumptions"):
- the Home Equity Loans consist of pools of loans with the
amortization characteristics set forth below,
- the Closing Date for the Class A Certificates is __________ __,
____,
S-41
<PAGE>
- distributions on the Class A Certificates are made on the __ 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 in this
Prospectus Supplement, the scheduled monthly payments of principal
and interest on the Home Equity Loans will be timely delivered on
the first day of each month (with no defaults, delinquencies,
modifications, waivers or amendments),
- certain assumed Home Equity Loans identified in the tables below
will receive no payments in the first month,
- the Home Equity Loans prepay at the specified percentages of the
Prepayment Assumption in the case of the Group I Home Equity
Loans, or at the specified percentages of CPR, in the case of the
Group II Home Equity Loans,
- all prepayments are prepayments in full received on the last day
of each month and include 30 days' interest thereon,
- the optional termination is not exercised (except as noted in
footnote 2 on the following tables),
- the Class A Certificates of each Class have the respective
Certificate Rates and initial Class Principal Balances as set
forth in this Prospectus Supplement (with the Certificate Rate for
the Class A-7 Certificates being equal to the sum of One-Month
LIBOR and 0.35% per annum),
- the overcollateralization levels are set initially as specified in
the Agreement, and thereafter decrease in accordance with the
provisions of the Agreement (as defined in this Prospectus
Supplement),
- the Coupon Rate for each Group II Home Equity Loan is adjusted on
its next adjustment date and on subsequent adjustment dates which
occur on six month intervals following the initial adjustment date
to equal the sum of the applicable gross margin and Six-Month
LIBOR (the sum being subject to the applicable periodic rate
adjustment caps and floors and lifetime rate caps and floors), and
- Six-Month LIBOR remains constant at _______% per annum and
One-Month LIBOR remains constant at ______% per annum.
S-42
<PAGE>
GROUP I
<TABLE>
<CAPTION>
REMAINING ORIGINAL AMORTIZED
TERM TO TERM TO REMAINING
POOL LOAN COUPON MATURITY MATURITY TERM DELAY
NUMBER BALANCE RATE (%) (MONTHS) (MONTHS) (MONTHS) (MONTHS)
- ------ ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1.............................. $
2..............................
3..............................
4..............................
5..............................
6..............................
7..............................
8..............................
9..............................
10.............................
11.............................
</TABLE>
GROUP II
<TABLE>
<CAPTION>
NUMBER
OF
MONTHS INITIAL
TO NEXT INTEREST INTEREST
COUPON GROSS RATE RATE MAXIMUM
POOL LOAN COUPON CHANGE MARGIN ADJUSTMENT ADJUSTMENT RATE
NUMBER BALANCE RATE (%) DATE (%) CAP (%) CAP (%) (%)
- ------ ------- -------- ---- --- ------- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1 $
2
3
4
5
6
7
</TABLE>
<TABLE>
<CAPTION>
INTEREST
REMAINING ORIGINAL RATE
TERM TO TERM TO CHARGE
POOL MINIMUM MATURITY MATURITY FREQUENCY DELAY
NUMBER RATE (%) (MONTHS) (MONTHS) INDEX (MONTHS) (MONTHS)
- ------ -------- -------- -------- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1 22
2 23
3 24
4 5
5 6
6 25
7 7
</TABLE>
DECREMENT TABLES
The following tables indicate, based on the Structuring Assumptions,
the percentages of the initial Class Principal Balance of the Class A
Certificates that would be outstanding after each of the dates shown, based on
the indicated percentages of the Prepayment Assumption, in the case of the Group
I Certificates and at the indicated percentages of CPR, in the case of the Group
II Certificates, and the corresponding weighted average lives of the Classes. It
is not likely that
- all of the Home Equity Loans will have the characteristics
assumed,
- the Home Equity Loans will prepay at the specified percentages of
the Prepayment Assumption or CPR or at any other constant
percentage, or
- the level of One-Month LIBOR will remain constant at the level
assumed or at any other level.
Moreover, the diverse remaining terms to maturity of the Home Equity Loans could
produce slower or faster principal distributions than indicated in the tables at
the specified percentages of the Prepayment Assumption or CPR even if the
weighted average remaining term to maturity of the Home Equity Loans is
consistent with the remaining terms to maturity of the Home Equity Loans
specified in the Structuring Assumptions.
S-43
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL OUTSTANDING (TO MATURITY)
<TABLE>
<CAPTION>
CLASS A-1
GROUP I PREPAYMENT
ASSUMPTION
DISTRIBUTION DATE 50% 75% 100% 120% 150% 200% 250%
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............................... 100% 100% 100% 100% 100% 100% 100%
[December 25, 2000]..............................
[December 25, 2001]..............................
[December 25, 2002]..............................
[December 25, 2003]..............................
[December 25, 2004]..............................
[December 25, 2005]..............................
[December 25, 2006]..............................
[December 25, 2007]..............................
[December 25, 2008]..............................
[December 25, 2009]..............................
[December 25, 2010]..............................
[December 25, 2011]..............................
[December 25, 2012]..............................
[December 25, 2013]..............................
[December 25, 2014]..............................
[December 25, 2015]..............................
[December 25, 2016]..............................
[December 25, 2017]..............................
[December 25, 2018]..............................
[December 25, 2019]..............................
[December 25, 2020]..............................
[December 25, 2021]..............................
[December 25, 2022]..............................
[December 25, 2023]..............................
[December 25, 2024]..............................
[December 25, 2025]..............................
[December 25, 2026]..............................
[December 25, 2027]..............................
[December 25, 2028]..............................
Weighted Average Life * (1)......................
Weighted Average Life * (2)......................
</TABLE>
- ------------------
* The weighted average life of a Class A Certificate is determined by (1)
multiplying the amount of each distribution in reduction of the related
Class Principal Balance by the number of years from the date of issuance of
the Class A Certificate to the related Distribution Date, (2) adding the
results, and (3) dividing the sum by the original Class Principal Balance
of the Class A Certificate.
(1) To maturity.
(2) To optional termination. The optional termination of the Trust is dependent
on the aggregate outstanding principal balance of the Class A Certificates
being reduced to less than 10% of the aggregate outstanding principal
balance of the Class A Certificates on the Closing Date.
S-44
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL OUTSTANDING (TO MATURITY)
<TABLE>
<CAPTION>
CLASS A-2
GROUP I PREPAYMENT
ASSUMPTION
DISTRIBUTION DATE 50% 75% 100% 120% 150% 200% 250%
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............................... 100% 100% 100% 100% 100% 100% 100%
[December 25, 2000]..............................
[December 25, 2001]..............................
[December 25, 2002]..............................
[December 25, 2003]..............................
[December 25, 2004]..............................
[December 25, 2005]..............................
[December 25, 2006]..............................
[December 25, 2007]..............................
[December 25, 2008]..............................
[December 25, 2009]..............................
[December 25, 2010]..............................
[December 25, 2011]..............................
[December 25, 2012]..............................
[December 25, 2013]..............................
[December 25, 2014]..............................
[December 25, 2015]..............................
[December 25, 2016]..............................
[December 25, 2017]..............................
[December 25, 2018]..............................
[December 25, 2019]..............................
[December 25, 2020]..............................
[December 25, 2021]..............................
[December 25, 2022]..............................
[December 25, 2023]..............................
[December 25, 2024]..............................
[December 25, 2025]..............................
[December 25, 2026]..............................
[December 25, 2027]..............................
[December 25, 2028]..............................
Weighted Average Life * (1)......................
Weighted Average Life * (2)......................
</TABLE>
- ------------------
* The weighted average life of a Class A Certificate is determined by (1)
multiplying the amount of each distribution in reduction of the related
Class Principal Balance by the number of years from the date of issuance of
the Class A Certificate to the related Distribution Date, (2) adding the
results, and (3) dividing the sum by the original Class Principal Balance
of the Class A Certificate.
(1) To maturity.
(2) To optional termination. The optional termination of the Trust is dependent
on the aggregate outstanding principal balance of the Class A Certificates
being reduced to less than 10% of the aggregate outstanding principal
balance of the Class A Certificates on the Closing Date.
S-45
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL OUTSTANDING (TO MATURITY)
<TABLE>
<CAPTION>
CLASS A-3
GROUP I PREPAYMENT
ASSUMPTION
DISTRIBUTION DATE 50% 75% 100% 120% 150% 200% 250%
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............................... 100% 100% 100% 100% 100% 100% 100%
[December 25, 2000]..............................
[December 25, 2001]..............................
[December 25, 2002]..............................
[December 25, 2003]..............................
[December 25, 2004]..............................
[December 25, 2005]..............................
[December 25, 2006]..............................
[December 25, 2007]..............................
[December 25, 2008]..............................
[December 25, 2009]..............................
[December 25, 2010]..............................
[December 25, 2011]..............................
[December 25, 2012]..............................
[December 25, 2013]..............................
[December 25, 2014]..............................
[December 25, 2015]..............................
[December 25, 2016]..............................
[December 25, 2017]..............................
[December 25, 2018]..............................
[December 25, 2019]..............................
[December 25, 2020]..............................
[December 25, 2021]..............................
[December 25, 2022]..............................
[December 25, 2023]..............................
[December 25, 2024]..............................
[December 25, 2025]..............................
[December 25, 2026]..............................
[December 25, 2027]..............................
[December 25, 2028]..............................
Weighted Average Life * (1)......................
Weighted Average Life * (2)......................
</TABLE>
- ------------------
* The weighted average life of a Class A Certificate is determined by (1)
multiplying the amount of each distribution in reduction of the related
Class Principal Balance by the number of years from the date of issuance of
the Class A Certificate to the related Distribution Date, (2) adding the
results, and (3) dividing the sum by the original Class Principal Balance
of the Class A Certificate.
(1) To maturity.
(2) To optional termination. The optional termination of the Trust is dependent
on the aggregate outstanding principal balance of the Class A Certificatest
being reduced to less than 10% of the aggregate outstanding principal
balance of the Class A Certificates on the Closing Date.
S-46
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL OUTSTANDING (TO MATURITY)
<TABLE>
<CAPTION>
CLASS A-4
GROUP I PREPAYMENT
ASSUMPTION
DISTRIBUTION DATE 50% 75% 100% 120% 150% 200% 250%
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............................... 100% 100% 100% 100% 100% 100% 100%
[December 25, 2000]..............................
[December 25, 2001]..............................
[December 25, 2002]..............................
[December 25, 2003]..............................
[December 25, 2004]..............................
[December 25, 2005]..............................
[December 25, 2006]..............................
[December 25, 2007]..............................
[December 25, 2008]..............................
[December 25, 2009]..............................
[December 25, 2010]..............................
[December 25, 2011]..............................
[December 25, 2012]..............................
[December 25, 2013]..............................
[December 25, 2014]..............................
[December 25, 2015]..............................
[December 25, 2016]..............................
[December 25, 2017]..............................
[December 25, 2018]..............................
[December 25, 2019]..............................
[December 25, 2020]..............................
[December 25, 2021]..............................
[December 25, 2022]..............................
[December 25, 2023]..............................
[December 25, 2024]..............................
[December 25, 2025]..............................
[December 25, 2026]..............................
[December 25, 2027]..............................
[December 25, 2028]..............................
Weighted Average Life * (1)......................
Weighted Average Life * (2)......................
</TABLE>
- ------------------
* The weighted average life of a Class A Certificate is determined by (1)
multiplying the amount of each distribution in reduction of the related
Class Principal Balance by the number of years from the date of issuance of
the Class A Certificate to the related Distribution Date, (2) adding the
results, and (3) dividing the sum by the original Class Principal Balance
of the Class A Certificate.
(1) To maturity.
(2) To optional termination. The optional termination of the Trust is dependent
on the aggregate outstanding principal balance of the Class A Certificates
being reduced to less than 10% of the aggregate outstanding principal
balance of the Class A Certificates on the Closing Date.
S-47
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL OUTSTANDING (TO MATURITY)
<TABLE>
<CAPTION>
CLASS A-5
GROUP I PREPAYMENT
ASSUMPTION
DISTRIBUTION DATE 50% 75% 100% 120% 150% 200% 250%
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............................... 100% 100% 100% 100% 100% 100% 100%
[December 25, 2000]..............................
[December 25, 2001]..............................
[December 25, 2002]..............................
[December 25, 2003]..............................
[December 25, 2004]..............................
[December 25, 2005]..............................
[December 25, 2006]..............................
[December 25, 2007]..............................
[December 25, 2008]..............................
[December 25, 2009]..............................
[December 25, 2010]..............................
[December 25, 2011]..............................
[December 25, 2012]..............................
[December 25, 2013]..............................
[December 25, 2014]..............................
[December 25, 2015]..............................
[December 25, 2016]..............................
[December 25, 2017]..............................
[December 25, 2018]..............................
[December 25, 2019]..............................
[December 25, 2020]..............................
[December 25, 2021]..............................
[December 25, 2022...............................
[December 25, 2023]..............................
[December 25, 2024]..............................
[December 25, 2025]..............................
[December 25, 2026]..............................
[December 25, 2027]..............................
[December 25, 2028]..............................
Weighted Average Life * (1)......................
Weighted Average Life * (2)......................
</TABLE>
- ------------------
* The weighted average life of a Class A Certificate is determined by (1)
multiplying the amount of each distribution in reduction of the related
Class Principal Balance by the number of years from the date of issuance of
the Class A Certificate to the related Distribution Date, (2) adding the
results, and (3) dividing the sum by the original Class Principal Balance
of the Class A Certificate.
(1) To maturity.
(2) To optional termination. The optional termination of the Trust is dependent
on the aggregate outstanding principal balance of the Class A Certificates being
reduced to less than 10% of the aggregate outstanding principal balance of the
Class A Certificates on the Closing Date.
S-48
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL OUTSTANDING (TO MATURITY)
<TABLE>
<CAPTION>
CLASS A-6
GROUP I PREPAYMENT
ASSUMPTION
DISTRIBUTION DATE 50% 75% 100% 120% 150% 200% 250%
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............................... 100% 100% 100% 100% 100% 100% 100%
[December 25, 2000]..............................
[December 25, 2001]..............................
[December 25, 2002]..............................
[December 25, 2003]..............................
[December 25, 2004]..............................
[December 25, 2005]..............................
[December 25, 2006]..............................
[December 25, 2007]..............................
[December 25, 2008]..............................
[December 25, 2009]..............................
[December 25, 2010]..............................
[December 25, 2011]..............................
[December 25, 2012]..............................
[December 25, 2013]..............................
[December 25, 2014]..............................
[December 25, 2015]..............................
[December 25, 2016]..............................
[December 25, 2017]..............................
[December 25, 2018]..............................
[December 25, 2019]..............................
[December 25, 2020]..............................
[December 25, 2021]..............................
[December 25, 2022]..............................
[December 25, 2023]..............................
[December 25, 2024]..............................
[December 25, 2025]..............................
[December 25, 2026]..............................
[December 25, 2027]..............................
[December 25, 2028]..............................
Weighted Average Life * (1)......................
Weighted Average Life * (2)......................
</TABLE>
- ------------------
* The weighted average life of a Class A Certificate is determined by (1)
multiplying the amount of each distribution in reduction of the related
Class Principal Balance by the number of years from the date of issuance of
the Class A Certificate to the related Distribution Date, (2) adding the
results, and (3) dividing the sum by the original Class Principal Balance
of the Class A Certificate.
(1) To maturity.
(2) To optional termination. The optional termination of the Trust is dependent
on the aggregate outstanding principal balance of the Class A Certificates being
reduced to less than 10% of the aggregate outstanding principal balance of the
Class A Certificates on the Closing Date.
S-49
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL OUTSTANDING (TO MATURITY)
<TABLE>
<CAPTION>
CLASS A-7
GROUP II % OF CPR
DISTRIBUTION DATE 11.0% 16.5% 22.0% 28.0% 33.0% 44.0% 55.0%
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage............................... 100% 100% 100% 100% 100% 100% 100%
[December 25, 2000]..............................
[December 25, 2001]..............................
[December 25, 2002]..............................
[December 25, 2003]..............................
[December 25, 2004]..............................
[December 25, 2005]..............................
[December 25, 2006]..............................
[December 25, 2007]..............................
[December 25, 2008]..............................
[December 25, 2009]..............................
[December 25, 2010]..............................
[December 25, 2011]..............................
[December 25, 2012]..............................
[December 25, 2013]..............................
[December 25, 2014]..............................
[December 25, 2015]..............................
[December 25, 2016]..............................
[December 25, 2017]..............................
[December 25, 2018]..............................
[December 25, 2019...............................
[December 25, 2020]..............................
[December 25, 2021]..............................
[December 25, 2022]..............................
[December 25, 2023]..............................
[December 25, 2024]..............................
[December 25, 2025]..............................
[December 25, 2026]..............................
[December 25, 2027]..............................
[December 25, 2028]..............................
Weighted Average Life * (1)......................
Weighted Average Life * (2)......................
</TABLE>
- ------------------
* The weighted average life of a Class A Certificate is determined by (1)
multiplying the amount of each distribution in reduction of the related
Class Principal Balance by the number of years from the date of issuance of
the Class A Certificate to the related Distribution Date, (2) adding the
results, and (3) dividing the sum by the original Class Principal Balance
of the Class A Certificate.
(1) To maturity.
(2) To optional termination. The optional termination of the Trust is dependent
on the aggregate outstanding principal balance of the Class A Certificates
being reduced to less than 10% of the aggregate outstanding principal
balance of the Class A Certificates on the Closing Date.
The above tables have been prepared based on the assumptions described above
(including the assumptions regarding the characteristics and performance of the
Home Equity Loans, which differ from the actual characteristics and performance
of the Home Equity Loans) and should be read in conjunction with those
assumptions.
S-50
<PAGE>
FORMATION OF THE TRUST AND TRUST PROPERTY
The Trust will be created and established pursuant to the Pooling and
Servicing Agreement (the "Agreement") dated as of _________ __, ____ among the
Depositor, CHEC and ___________, as sellers, CHEC as servicer (in this capacity,
the "Servicer") and ____________ as trustee (the "Trustee"). On the Closing
Date, the Sellers will transfer without recourse the Home Equity Loans to the
Depositor and the Depositor will convey without recourse the Home Equity Loans
to the Trust and the Trust will issue the Class A Certificates, the Class X-IO
Certificates and the Class R Certificates at the direction of the Depositor.
The property of the Trust will include all
(a) the Home Equity Loans together with the related Home Equity Loan
documents and the each Seller's interest in any Mortgaged Property
which secures a Home Equity Loan and all payments on each Home
Equity Loan on or after the opening of business on _________ __,
____ (the "Cut-Off Date") and proceeds of the conversion,
voluntary or involuntary, of the foregoing,
(b) the amounts as may be held by the Trustee in the Certificate
Account and any other accounts held by the Trustee for the Trust
together with investment earnings on the amounts and the amounts
as may be held by the Servicer in the Principal and Interest
Account, if any, inclusive of investment earnings on those amounts
whether in the form of cash, instruments, securities or other
properties and
(c) proceeds of all the foregoing (including, but not by way of
limitation, all proceeds of any mortgage insurance, hazard
insurance and title insurance policy relating to the Home Equity
Loans, cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, checks, deposit accounts,
rights to payment of any and every kind, and other forms of
obligations and receivables which at any time constitute all or
part of or are included in the proceeds of any of the foregoing)
to pay the Certificates as specified in the Agreement
(collectively, the "Trust Estate").
As described in the Agreement, the Trustee and the Servicer shall each receive
specified investment earnings on amounts on deposit in the Certificate Account
as additional compensation and the Servicer shall receive any investment
earnings on amounts on deposit in the Principal and Interest Account. In
addition to the foregoing, the Depositor shall cause the Certificate Insurer to
deliver two irrevocable and unconditional certificate guaranty insurance
policies, one with respect to the Group I Certificates and one with respect to
the Group II Certificates, (the "Policies") to the Trustee for the benefit of
the Owners of the Class A Certificates.
The Class A Certificates will not represent an interest in or an
obligation of, nor will the Home Equity Loans be guaranteed by, the Depositor,
the Sellers, the Servicer, the Trustee or any of their affiliates. Specified
distributions due to the Owners of the Class A Certificates are insured by the
Certificate Insurer.
Prior to its formation the Trust will have had no assets or
obligations. Upon formation, the Trust will not engage in any business activity
other than acquiring, holding and collecting payments on the Home Equity Loans,
issuing the Certificates and distributing payments on the Certificates. The
Trust will not acquire any receivables or assets other than the Home Equity
Loans and their proceeds and rights appurtenant to them. To the extent that
borrowers make scheduled payments under the Home Equity Loans, the Trust will
have sufficient liquidity to make distributions on the Certificates. As the
Trust does not have any operating history and will not engage in any business
activity other than issuing the Certificates and making distributions on the
Certificates, there has not been included any historical or pro forma ratio of
earnings to fixed charges with respect to the Trust.
DESCRIPTION OF THE CERTIFICATES
Pursuant to the Agreement the Trust will issue on the Closing Date the
Centex Home Equity Loan Asset-Backed Certificates, Series ____-_, Class A-1
Certificates, Class A-2 Certificates, Class A-3 Certificates,
S-51
<PAGE>
Class A-4 Certificates, Class A-5 Certificates, Class A-6 Certificates and Class
A-7 Certificates, (collectively referred to as the "Offered Certificates"). The
Trust will also issue on the Closing Date Class X-IO Certificates (the "Class
X-IO Certificates") and two residual classes of certificates (together, the
"Class R Certificates," and together with the Class X-IO Certificates, the
"Non-Offered Certificates" and together with the Class A Certificates, the
"Certificates"). Only the Class A Certificates are being offered pursuant to
this Prospectus Supplement. The Class A-1 Certificates, Class A-2 Certificates,
Class A-3 Certificates, Class A-4 Certificates, Class A-5 Certificates and Class
A-6 Certificates are sometimes referred to as the "Fixed Rate Certificates" or
the "Group I Certificates" The Class A-7 Certificates are sometimes referred to
as the "Variable Rate Certificates" or the "Group II Certificates". The form of
the 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 important provisions of the 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 Agreement. Wherever particular
sections or defined terms of the Agreement are referred to, the sections or
defined terms are incorporated in this Prospectus Supplement by reference.
The Class A Certificates will be issued in denominations of $1,000 and multiples
of $1 in excess of $1,000 and will evidence specified undivided interests in the
Trust. Definitive Certificates (as defined below) will be transferable and
exchangeable at the corporate trust office of the Trustee, which will initially
act as Certificate Registrar.
WE REFER YOU TO "--BOOK-ENTRY CERTIFICATES" BELOW FOR MORE DETAIL.
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 Group I Certificates will receive distributions primarily based
upon collections on the Home Equity Loans in Group I. The Group II Certificates
will receive distributions primarily based upon collections on the Home Equity
Loans in Group II.
The principal amount of a Class of Class A Certificates (each, a "Class
Principal Balance") on any Distribution Date is equal to the applicable Class
Principal Balance on the Closing Date minus the aggregate of amounts actually
distributed as principal to the holders of the class of Class A Certificates;
provided, however, that for purposes of the Certificate Insurer's rights as
subrogee, the Class Principal Balance shall not be reduced by principal amounts
paid under the Policies. On any date, the "Aggregate Class A Principal Balance"
is the aggregate of the Class Principal Balances of all Class A Certificates on
the date.
Each Class of Class A Certificates represents the right to receive
payments of interest at the for the Class and payments of principal as described
below.
The Person in whose name a Certificate is registered in the Certificate
Register is referred to in this Prospectus Supplement as a "Certificateholder."
BOOK-ENTRY CERTIFICATES
The Class A Certificates initially will be book-entry Certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership interests in
the Class A Certificates ("Certificateowners") will hold the Certificates
through the Depository Trust and Clearing Company ("DTCC"), in the United
States, or Cedelbank ("Cedel") or the Euroclear System ("Euroclear"), in Europe,
if the Certificateowners are participants of the systems, or indirectly through
organizations that are participants in the systems. The Book-Entry Certificates
will be issued in one or more certificates per class, representing the aggregate
principal balance of each class of Class A Certificates, and will initially be
registered in the name of Cede & Co. ("Cede"), the nominee of DTCC. 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 positions in customers'
securities accounts in the depositaries names on the books of DTCC. Citibank
N.A.
S-52
<PAGE>
("Citibank") will act as depositary for Cedel and Morgan Guaranty Trust Company
of New York ("Morgan") will act as depositary for Euroclear (Citibank and
Morgan, in these capacities, individually the "Relevant Depositary" and,
collectively, the "European Depositaries"). Investors may hold beneficial
interests in the Book-Entry Certificates in minimum denominations representing
Certificate Principal Balances of $1,000 and in integral multiples of $1 in
excess of $1,000. Except as described below, no person acquiring a Book-Entry
Certificate will be entitled to receive a physical certificate representing the
Certificate (a "Definitive Certificate"). Unless and until Definitive
Certificates are issued, it is anticipated that the only "Certificateholder" of
the Class A Certificates will be Cede, as nominee of DTCC. Certificateowners
will not be Certificateholders as that term is used in the Agreement.
Certificateowners are permitted to exercise their rights only indirectly through
DTCC and its Participants (including Cedel and Euroclear).
DTCC has advised the Depositor that management of DTCC is aware that
some computer applications, systems, and the like for processing data
("Systems") that are dependent upon calendar dates, including dates before, on,
and after January 1, 2000, may encounter "Year 2000 problems." DTCC has informed
its participants and other members of the financial community (the "Industry")
that it has developed and is implementing a program so that its Systems, as the
same relate to the timely payment of distributions (including principal and
income payments) to security holders, book-entry deliveries, and settlement of
trades within DTCC ("Depositary Services"), continue to function appropriately.
This program includes a technical assessment and a remediation plan, each of
which is complete. Additionally, DTCC's plan includes a testing phase, which is
expected to be completed within appropriate time frames.
However, DTCC's ability to perform properly its service is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as DTCC's direct and indirect participants and third party
vendors from whom DTCC licenses software and hardware, and third party vendors
on whom DTCC relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. DTCC
has informed the Industry that it is contacting (and will continue to contact)
third party vendors from whom DTCC acquires services to: (1) impress upon them
the importance of the services being Year 2000 compliant; and (2) determine the
extent of their efforts for Year 2000 remediation (and, as appropriate, testing)
of their services. In addition, DTCC is in the process of developing contingency
plans as it deems appropriate.
According to DTCC, the information set forth in the preceding two
paragraphs about DTCC has been provided to the Industry by DTCC for information
purposes only and is not intended to serve as a representation, warranty or
contract modification of any kind.
DISTRIBUTION DATES
On the __ day of each month, or if the __ day is not a Business Day,
then the next succeeding Business Day (each, a "Distribution Date"), the Class A
Certificateholders for each Home Equity Loan Group will be entitled to receive
the Class A Distribution Amount for the related Home Equity Loan Group from
amounts then on deposit in the certificate account established and maintained by
the Trustee in accordance with the Agreement (the "Certificate Account").
Distributions will be made in immediately available funds to Certificateholders
of Class A Certificates by wire transfer or otherwise, to the account of the
Certificateholder at a domestic bank or other entity having appropriate
facilities therefor, if the Certificateholder has so notified the Trustee at
least five Business Days prior to the Record Date, or by check mailed to the
address of the person entitled to the distributions as it appears on the
register (the "Certificate Register") maintained by the Trustee as registrar
(the "Certificate Registrar"). Certificate Owners may experience some delay in
the receipt of their payments due to the operations of DTCC.
"Business Day" means any day other than (1) a Saturday or Sunday or (2)
a day on which banking institutions in New York, New York, Dallas, Texas or the
city in which the corporate trust office of the Trustee is located or the city
in which the Certificate Insurer is located are authorized or obligated by law
or executive order to be closed.
S-53
<PAGE>
"Record Date" means (1) with respect to any Distribution Date and each
class of Fixed Rate Certificates, the last Business Day of the month immediately
preceding the calendar month in which the Distribution Date occurs and (2) with
respect to any Distribution Date and the Variable Rate Certificates, the last
Business Day immediately preceding the Distribution Date, or if Definitive
Certificates have been issued, the last Business Day of the month immediately
preceding the calendar month in which the Distribution Date occurs.
WE REFER YOU TO "--BOOK-ENTRY CERTIFICATES" FOR MORE DETAIL.
The Agreement will provide that a Certificateholder, upon receiving the
final distribution on a Certificate, will be required to send the Certificate to
the Trustee. The Agreement additionally will provide that, in any event, any
Certificate as to which the final distribution on that Certificate has been made
shall be deemed cancelled for all purposes of the Agreement and the Policies.
Each Certificateholder of record of a class of Class A Certificates
will be entitled to receive the Certificateholder's Percentage Interest in the
amounts due the Class on each Distribution Date. The "Percentage Interest" of a
Class A Certificate as of any date of determination will be equal to the
percentage obtained by dividing the principal balance of the Class A Certificate
as of the Closing Date by the Class Principal Balance for the related class of
Class A Certificates as of the Closing Date.
GLOSSARY
"AVAILABLE FUNDS" as to each Home Equity Loan Group and Distribution
Date is the amount on deposit in the Certificate Account with respect to the
related Home Equity Loan Group on the Distribution Date, disregarding the
amounts of any Insured Payments to be made on the Distribution Date.
"AVAILABLE FUNDS SHORTFALL" as to each Home Equity Loan Group and
Distribution Date, is the excess, if any, of (x) the aggregate of the amounts
required to be distributed pursuant to clauses 2 and 3 below under
"-Distributions" over (y) the Available Funds for these payments for the Home
Equity Loan Group and Distribution Date.
The "CARRY-FORWARD AMOUNT" with respect to any class of Class A
Certificates is the amount as of any Distribution Date, equal to the sum of (1)
the amount, if any, by which (x) the Current Interest for the Class for the
immediately preceding Distribution Date exceeded (y) the amount of the actual
distribution in respect to interest on the class of Class A Certificates made to
the Certificateholders of the class of Class A Certificates on the immediately
preceding Distribution Date and (2) interest on the excess for the related
Interest Period at the related Certificate Rate for the class of Class A
Certificates.
"CERTIFICATE INSURER DEFAULT" is defined under the Agreement as the
occurrence and continuance of (x) the failure by the Certificate Insurer to make
a required payment under either Policy or (y) specified events of bankruptcy or
insolvency of the Certificate Insurer.
The "CLASS A DISTRIBUTION AMOUNT" for each Home Equity Loan Group and
Distribution Date shall be the sum of (x) Current Interest for the Class A
Certificates related to the Home Equity Loan Group and (y) the Class A Principal
Distribution Amount for the Home Equity Loan Group.
The "CLASS A PRINCIPAL DISTRIBUTION AMOUNT" with respect to the Class A
Certificates of the related Home Equity Loan Group and Distribution Date shall
be the lesser of:
(a) the related Available Funds remaining after distributions
pursuant to clauses 1 and 2 under "--Distributions" below; and
(b) the excess, if any, of
S-54
<PAGE>
(1) the sum of (without duplication):
(A) the principal portion of all scheduled monthly
payments on the Home Equity Loans related to the Home
Equity Loan Group actually received by the Servicer
during the related Due Period and any Prepayments on
the Home Equity Loans made by the mortgagors of Home
Equity Loans in the related Home Equity Loan Group
and actually received by the Servicer during the
related Due Period in each case to the extent the
amounts are received by the Trustee on or prior to
the Monthly Remittance Date;
(B) the outstanding principal balance of each Home Equity
Loan in the related Home Equity Loan Group that was
purchased or repurchased by CHEC on or prior to the
related Monthly Remittance Date in each case to the
extent the amounts are received by the Trustee on or
prior to the Monthly Remittance Date;
(C) any Substitution Amounts (as defined in the
Prospectus) relating to principal, delivered by CHEC
on the related Monthly Remittance Date in connection
with a substitution of a Home Equity Loan in the
related Home Equity Loan Group, in each case to the
extent the amounts are received by the Trustee on or
prior to the Monthly Remittance Date;
(D) all Net Liquidation Proceeds (as defined in the
Prospectus) actually collected by or on behalf of the
Servicer with respect to the Home Equity Loans in the
related Home Equity Loan Group during the related Due
Period (to the extent the Net Liquidation Proceeds
relate to principal) in each case to the extent the
amounts are received by the Trustee on or prior to
the Monthly Remittance Date;
(E) the amount of any Collateralization Deficit with
respect to the related Home Equity Loan Group for the
Distribution Date; and
(F) the principal portion of the proceeds received by the
Trustee with respect to the related Home Equity Loan
Group upon termination of the Trust (to the extent
the proceeds relate to principal); over
(2) the amount of any Overcollateralization Release Amount with
respect to the related Home Equity Loan Group for the
Distribution Date;
provided, however, on the occuring in ______________, the related Class A
Principal Distribution Amount payable to any outstanding class of Class A
Certificates shall be no less than the Class Principal Balance for each class of
Class A Certificates.
The "CLASS A-6 CALCULATION PERCENTAGE" for any Distribution Date will
be the fraction, expressed as a percentage, the numerator of which is the Class
Principal Balance of the Class A-6 Certificates and the denominator of which is
the total of the Class Principal Balances of all of the Group I Certificates, in
each case before giving effect to distributions of principal on that
Distribution Date.
The "CLASS A-6 LOCKOUT DISTRIBUTION AMOUNT" for any Distribution Date
will be an amount equal to the product of (1) the applicable Class A-6 Lockout
Percentage for the Distribution Date, (2) the Class A-6 Calculation Percentage
and (3) the Class A Principal Distribution Amount with respect to the Group I
Certificates for the Distribution Date. In no event shall the Class A-6 Lockout
Distribution Amount exceed the outstanding Class Principal Balance of the Class
A-6 Certificates or the Class A Principal Distribution Amount applicable to the
Group I Certificates for the Distribution Date.
The "CLASS A-6 LOCKOUT PERCENTAGE" for each Distribution Date will be
as follows:
<TABLE>
<CAPTION>
Distribution Date Lockout Percentage
S-55
<PAGE>
<S> <C>
[January 2000 through December 2002] %
[January 2003 through December 2004] %
[January 2005 through December 2005] %
[January 2006 through December 2006] %
[January 2007 and thereafter] %
</TABLE>
"CURRENT INTEREST" with respect to each class of Class A Certificates
means, with respect to any Distribution Date: (1) the aggregate amount of
interest accrued at the related Certificate Rate on the Class Principal Balance
of the related Class A Certificates plus (2) the Carry-Forward Amount, if any,
with respect to the Class of Class A Certificates; provided, however, that with
respect to each class of Class A Certificates, the amount described in clause
(1) above will be reduced by the Class' pro rata share of any shortfalls with
respect to the related Home Equity Loan Group resulting from the application of
the Soldiers' and Sailors' Civil Relief Act of 1940 ("Civil Relief Act Interest
Shortfalls") during the related Due Period.
The Class A-5 Certificate Rate and Class A-6 Certificate Rate are each
subject to the Group I Net WAC Cap, and the Class A-7 Certificate Rate is
subject to the Class A-7 Available Funds Cap. For a description of the
calculation of the Class A-1 Certificate Rate, the Class A-2 Certificate Rate,
the Class A-3 Certificate Rate, the Class A-4 Certificate Rate, the Class A-5
Certificate Rate, Class A-6 Certificate Rate, Class A-7 Certificate Rate, the
Group I Net WAC Cap and the Class A-7 Available Funds Cap see "--Certificate
Rate."
"DUE PERIOD" with respect to any Distribution Date is the calendar
month preceding the calendar month in which the Distribution Date occurs.
"EXTRA PRINCIPAL DISTRIBUTION AMOUNT" means as to either the Group I or
Group II Certificates and any Distribution Date, the lesser of (1) the related
Target Deficiency and (2) the related Net Monthly Excess Cashflow Amount.
"MONTHLY REMITTANCE DATE" means the __ day of each month, or if the __
day is not a Business Day, the preceding Business Day. On each Monthly
Remittance Date, the Servicer will be required to transfer funds on deposit in
the Principal and Interest Account to the Certificate Account.
"NET MONTHLY EXCESS CASHFLOW" with respect to each Home Equity Loan
Group and Distribution Date, means the Available Funds remaining for each Home
Equity Loan Group, if any, after the application of clauses 1 through 6 below
under "--Distributions" for the Distribution Date.
"OVERCOLLATERALIZATION AMOUNT" means, with respect to each Home Equity
Loan Group and Distribution Date, the excess, if any, of (x) the aggregate Loan
Balance of the Home Equity Loans in the Home Equity Loan Group as of the close
of business on the last day of the preceding Due Period over (y) the aggregate
outstanding Class Principal Balances of the related Class A Certificates as of
the Distribution Date (after taking into account the payment of the Class A
Principal Distribution Amount related to the Home Equity Loan Group on the
Distribution Date).
"OVERCOLLATERALIZATION RELEASE AMOUNT" means as to either the Group I
or Group II Certificates and any Distribution Date, the lesser of (1) the
related Class A Principal Distribution Amount for the related Distribution Date
and (2) the excess, if any, of (A) the related Overcollateralization Amount over
(B) the related Target Overcollateralization Amount.
"TARGET DEFICIENCY" means as to either the Group I or Group II
Certificates and any Distribution Date, the excess, if any, of (1) the related
Target Overcollateralization Amount for the related Distribution Date over (2)
the related Overcollateralization Amount for the related Distribution Date after
giving effect to the distribution of the related Class A Principal Distribution
Amount on the related Distribution Date; provided, however, that in no event
will the Target Deficiency be less than zero.
S-56
<PAGE>
"TARGET OVERCOLLATERALIZATION AMOUNT" is the required level of the
Overcollateralization Amount for each Home Equity Loan Group with respect to a
Distribution Date.
"TRANSITION EXPENSES" means expenses incurred by the Trustee in
connection with the transfer of servicing upon the termination of the Servicer
for a Servicer Termination Event; provided that the amount shall not exceed
$50,000 in any one calendar year (and no more than $100,000 in the aggregate).
DISTRIBUTIONS
The Trustee will be required to deposit into the Certificate Account:
- the proceeds of any liquidation of the assets of the Trust, and
- all collections on the Home Equity Loans received during the
related Due Period and remitted by the Servicer to the Trustee
- and all other remittances made to the Trustee by or on behalf of
the Seller or the Servicer.
The Agreement establishes a certificate rate on each class of Class A
Certificates (each, a "Certificate Rate") as set forth in this Prospectus
Supplement under "--Certificate Rate." The "Expense Fee" for any Distribution
Date will equal the sum of the Trustee Fee and the amounts payable to the
Certificate Insurer as premium on the Policies (the "Premium Amount") on the
Distribution Date.
On each Distribution Date, the Trustee will make the following
disbursements and transfers from monies then on deposit in the Certificate
Account with respect to the related Home Equity Loan Group (and, in certain
limited circumstances described below, from the other Home Equity Loan Group)
and apply the amounts in the following order of priority, in each case, to the
extent of funds remaining:
1. Concurrently, to the Trustee and the Certificate Insurer,
the Trustee Fee and any Transition Expenses for the related Home Equity
Group and provided that no Certificate Insurer Default as defined in
clause (x) of the definition thereof has occurred and is continuing,
the Premium Amount for the related classes of Class A Certificates for
the Distribution Date to the Certificate Insurer.
2. To the related classes of Class A Certificates, the related
Current Interest for the class on a pro rata basis based on each Class
A Certificate's Current Interest without priority among the Class A
Certificates for the Distribution Date.
3. To the related classes of Class A Certificates, an amount
up to the related Class A Principal Distribution Amount in the
following order of priority:
A. With respect to the Home Equity Loan Group relating
to the Group I Certificates, the Class A Principal
Distribution Amount applicable to the Group I
Certificates shall be distributed as follows:
- To the Certificateholders of the Class A-6
Certificates, an amount equal to the Class A-6
Lockout Distribution Amount and
- The remainder as follows: first, to the Class
A-1 Certificateholders until the Class Principal
Balance of the Class A-1 Certificates is reduced
to zero; second, to the Class A-2
Certificateholders until the Class Principal
Balance of the Class A-2 Certificates is reduced
to zero; third, to the Class A-3
Certificateholders until the Class Principal
Balance of the Class A-3 Certificates is reduced
to zero; fourth, to the Class A-4
Certificateholders until the Class Principal
Balance of the Class A-4 Certificates is reduced
to zero; fifth, to the Class A-5
Certificateholders until the Class Principal
Balance of the Class A-5 Certificates
S-57
<PAGE>
is reduced to zero; and sixth, to the Class A-6
Certificateholders until the Principal Balance
of the Class A-6 Certificates is reduced to
zero;
provided, however, during the continuance of a
Certificate Insurer Default, if there is a
Collateralization Deficit with respect to the Group I
Certificates, then the Class A Principal Distribution
Amount applicable to the Group I Certificates shall
be distributed pro rata to the Certificateholders of
the Group I Certificates.
B. With respect to the Home Equity Loan Group relating
to the Group II Certificates, the Class A Principal
Distribution Amount applicable to the Group II
Certificates shall be distributed to the
Certificateholders of the Class A-7 Certificates,
until the Class Principal Balance of the Class A-7
Certificates is reduced to zero.
4. Concurrently, to the Trustee and the Certificate Insurer,
any unpaid Trustee Fee and any unpaid Transition Expenses for the
unrelated Home Equity Group and provided that no Certificate Insurer
Default as defined in clause (x) of the definition thereof has occurred
and is continuing, any unpaid Premium Amount for the unrelated class or
classes of Class A Certificates for the Distribution Date to the
Certificate Insurer.
5. To the classes of Class A Certificates with respect to the
unrelated Home Equity Loan Group, the amount of the Available Funds
Shortfall with respect to the other Home Equity Loan Group.
6. To the Certificate Insurer, in the following order of
priority, the sum of:
- Any Reimbursement Amount (as defined in the
Agreement) owed to the Certificate Insurer with
respect to the related classes of Class A
Certificates; provided that if a Certificate
Insurer Default as defined in clause (x) of the
definition thereof has occurred and is
continuing, then the priority of this
allocations shall follow immediately after
clause 7 below and
- Any unpaid Reimbursement Amount owed to the
Certificate Insurer with respect to the
unrelated classes of Class A Certificates;
provided that if a Certificate Insurer Default
as defined in clause (x) of the definition
thereof has occurred and is continuing, then the
priority of this allocations shall follow
immediately after clause 8 below.
7. To the classes of Class A Certificates with respect to the
related Home Equity Loan Group, an amount up to the Extra Principal
Distribution Amount for the related Home Equity Loan Group, until the
related Target Overcollateralization Amount is reached, these amounts
to be applied in the same order of priority as the Class A Principal
Distribution Amount for the Home Equity Loan Group pursuant to clause 3
above.
8. To the classes of Class A Certificates with respect to the
unrelated Home Equity Loan Group, any Target Deficiency for the Home
Equity Loan Group remaining after the distributions above and with
respect to the unrelated Home Equity Loan Group.
9. To the Class A-_ Certificates to make a payment to the
extent of any unpaid Class A-7 Certificateholders' Interest Index
Carryover.
10. To the Trustee as reimbursement for all reimbursable
expenses incurred in connection with its duties and obligations under
the Agreement to the extent not paid as Transition Expenses pursuant to
clauses 1 or 4 above.
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11. To the Servicer to the extent of any unreimbursed
Delinquency Advances (as defined in the Prospectus), unreimbursed
Servicing Advances (as defined in the Prospectus) and unreimbursed
Compensating Interest (as defined in the Prospectus).
12. To the Non-Offered Certificates, the remainder.
The Premium Amount as of each Distribution Date and each Home Equity
Loan Group will be as defined in the Agreement.
CERTIFICATE RATE
With respect to any Distribution Date and the Class A-1 Certificates,
the "Certificate Rate" will equal ____% per annum.
With respect to any Distribution Date and the Class A-2 Certificates,
the "Certificate Rate" will equal ____% per annum.
With respect to any Distribution Date and the Class A-3 Certificates,
the "Certificate Rate" will equal ____% per annum.
With respect to any Distribution Date and the Class A-4 Certificates,
the "Certificate Rate" will equal ____% per annum.
With respect to any Distribution Date and the Class A-5 Certificates,
the "Certificate Rate" will equal the lesser of (A) ____% per annum (or ____%
per annum for each Interest Period occurring after the Servicer first fails to
exercise its clean-up call option) and (B) the Group I Net WAC Cap for the
Distribution Date.
With respect to any Distribution Date and the Class A-6 Certificates,
the "Certificate Rate" will equal the lesser of (A) ____% per annum and (B) the
Group I Net WAC Cap for the Distribution Date.
With respect to any Distribution Date and the Class A-7 Certificates,
the "Certificate Rate" will equal the lesser of (A) the Class A-7 Formula Rate
and (B) the Class A-7 Available Funds Cap for the Distribution Date.
The "Class A-7 Formula Rate" for any Distribution Date is the sum of
(1) One-Month LIBOR and (2) ____% per annum (or ____% per annum for each
Interest Period occurring after the date on which the Servicer has failed to
exercise its right to terminate the Agreement by purchasing all outstanding Home
Equity Loans).
The "Class A-7 Available Funds Cap" with respect to any Interest Period
and the related Distribution Date will be a rate per annum equal to the
fraction, expressed as a percentage, the numerator of which is the product of
(a) the weighted average of the Net Coupon Rates (minus the Minimum Spread) on
the Group II Home Equity Loans as of the beginning of the related Due Period and
(b) the aggregate Loan Balance of the Group II Home Equity Loans as of the
beginning of the related Due Period, and the denominator of which is the
outstanding Class Principal Balance of the Class A-7 Certificates (before giving
effect to payments of principal on the Distribution Date) (adjusted to an
effective rate reflecting accrued interest calculated on the basis of a 360-day
year and the actual number of days elapsed).
The "Minimum Spread" shall be a percentage per annum equal to 0% for
Distribution Dates which occur prior to ___________ and 0.50% for Distribution
Dates which occur in __________ or thereafter.
The "Net Coupon Rate" of any Group I Home Equity Loan or Group II Home
Equity Loan will be the rate per annum equal to the Coupon Rate of the Home
Equity Loan minus the sum of (1) the rate at which the Servicing Fee accrues,
(2) the rate at which the Trustee Fee accrues and (3) the applicable Premium
Amount
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(expressed as a per annum percentage of the aggregate principal balance of the
Group I or Group II Home Equity Loans, as applicable).
The "Group I Net WAC Cap" with respect to any Distribution Date will be
a rate per annum equal to the weighted average of the Net Coupon Rates on the
Group I Home Equity Loans as of the beginning of the related Due Period.
If on any Distribution Date the Certificate Rate for the Class A-5
Certificates or the Class A-6 Certificates is based on the Group I Net WAC Cap,
the related Certificateholders will not be entitled to receive any interest
carryover on subsequent Distribution Dates.
If on any Distribution Date the Certificate Rate for the Class A-7
Certificates is based on the Class A-7 Available Funds Cap, the Class A-7
Certificateholders will be entitled to receive on subsequent Distribution Dates
the Class A-7 Certificateholders' Interest Index Carryover as described above.
The "Class A-7 Certificateholders' Interest Index Carryover" is equal
to the sum of (A) the excess of (1) the amount of interest the Class A-7
Certificates would otherwise be entitled to receive on the Distribution Date had
the rate been calculated at the Class A-7 Formula Rate for the Distribution Date
over (2) the amount of interest payable on the Class A-7 Certificates at the
Class A-7 Available Funds Cap for the Distribution Date and (B) the Class A-7
Certificateholders' Interest Index Carryover for all previous Distribution Dates
not previously paid to Class A-7 Certificateholders (including any interest
accrued on that amount at the Class A-7 Formula Rate).
The Policies will not cover any Class A-7 Certificateholders' Interest
Index Carryover, and the ratings on the Class A-7 Certificates by Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ("S&P") and together with Moody's
the "Rating Agencies") will not address the likelihood of receipt by the Class
A-7 Certificateholders of any amounts in respect of Class A-7
Certificateholders' Interest Index Carryover. Payment of the Class A-7
Certificateholders' Interest Index Carryover will be subject to availability of
funds therefor in accordance with the priority of payments set forth under
"--Distributions" above.
"Interest Period" means, with respect to each Distribution Date and the
Fixed Rate Certificates, 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 on the Fixed Rate Certificates in respect of any
Distribution Date will accrue during the related Interest Period on the basis of
a 360-day year consisting of twelve 30-day months.
"Interest Period" means, with respect to each Distribution Date and the
Variable Rate Certificates, the period from and including the preceding
Distribution Date (or the Closing Date in the case of the first Distribution
Date) to and including the day preceding the related Distribution Date. Interest
will accrue on the Variable Rate Certificates during the related Interest Period
on the basis of the actual number of days in the related Interest Period and a
year of 360 days.
CALCULATION OF ONE-MONTH LIBOR
On each LIBOR Determination Date (as defined below), the Trustee will
determine One-Month LIBOR for the next Interest Period for the Class A-7
Certificates.
"One-Month LIBOR" means, as of any LIBOR Determination Date, the London
interbank offered rate for one-month United States dollar deposits which appears
in the Telerate Page 3750 as of 11:00 a.m., London time, on this date. If the
rate does not appear on Telerate Page 3750, the rate for that day will be
determined on the basis of the rates at which deposits in United States dollars
are offered by the Reference Banks at approximately 11:00 a.m. (London time), on
that day to prime banks in the London interbank market. The Trustee will request
the principal London office of each of the Reference Banks to provide a
quotation of its rate. If at least two quotations are provided, the rate for
that day will be the arithmetic mean of the quotations
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(rounded upwards if necessary to the nearest whole multiple of 1/16%). If fewer
than two quotations are provided as requested, the rate for that day will be the
arithmetic mean of the rates quoted by major banks in New York City, selected by
the Servicer, at approximately 11:00 a.m. (New York City time) on that day for
loans in United States dollars to leading European banks.
"LIBOR Determination Date" means, with respect to any Interest Period,
the second London business day preceding the commencement of the Interest Period
(or in the case of the first Distribution Date, __________ __, ____). For
purposes of determining One-Month LIBOR, a "London business day" is any day on
which dealings in deposits of United States dollars are transacted in the London
interbank market.
"Telerate Page 3750" means the display page currently so designated on
the Bridge Telerate Service (or another page that replaces this page on the
service for the purpose of displaying comparable rates or prices) and "Reference
Banks" means leading banks selected by CHEC and engaged in transactions in
Eurodollar deposits in the international Eurocurrency market.
CREDIT ENHANCEMENT
THE POLICIES.
FOR AN EXPLANATION OF THE POLICIES, WE REFER YOU TO "THE POLICIES AND
THE CERTIFICATE INSURER" IN THIS PROSPECTUS SUPPLEMENT.
OVERCOLLATERALIZATION RESULTING FROM CASH FLOW STRUCTURE. The Agreement
requires that, on each Distribution Date, Net Monthly Excess Cashflow with
respect to a Home Equity Loan Group be applied on the Distribution Date as an
accelerated payment of principal on the related class or classes of Class A
Certificates, but only to the limited extent hereafter described.
The application of Net Monthly Excess Cashflow for the payment of
principal has the effect of accelerating the amortization of the related Class A
Certificates relative to the amortization of the Home Equity Loans in the
related Home Equity Loan Group. The Net Monthly Excess Cashflow with respect to
a Home Equity Loan Group may, to the extent available therefor, be used to make
any required accelerated payments of principal on the unrelated class or classes
of Class A Certificates. To the extent that any Net Monthly Excess Cashflow is
not so used, the Agreement provides that it will be used:
(1) with respect to the Net Monthly Excess Cashflow for the Group
II Home Equity Loans, to pay the Certificateholders of the
Class A-7 Certificates any Class A-7 Certificateholders'
Interest Index Carryover,
(2) with respect to the Net Monthly Excess Cashflows for both Home
Equity Loan Groups, to reimburse the Servicer and the Trustee
with respect to any amounts owing to them, and
(3) with respect to the Net Monthly Excess Cashflow for both Home
Equity Loan Groups, to pay the Class X-IO and the Class R
Certificateholders, as specified in the Agreement.
Pursuant to the Agreement, each Home Equity Loan Group's Net Monthly
Excess Cashflow will be applied as an accelerated payment of principal on the
Class A Certificates until the related Overcollateralization Amount has
increased to the related Target Overcollateralization Amount.
The Agreement generally provides that the related Target
Overcollateralization Amount may, over time, decrease or increase, subject to
floors, caps and triggers including triggers that allow the related Target
Overcollateralization Amount to decrease or "step down" based on the performance
on the Home Equity Loans in the related Home Equity Loan Group with respect to
the tests specified in the Agreement based on delinquency rates and cumulative
losses. In addition, Net Monthly Excess Cashflow for each Home Equity Loan Group
will be applied to the payment in reduction of principal of the related Class A
Certificates during the
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period that the Home Equity Loans in the Home Equity Loan Group are unable to
meet the tests specified in the Agreement based on delinquency rates and
cumulative losses.
In the event that the Target Overcollateralization Amount with respect
to a Home Equity Loan Group is permitted to decrease or "step down" on a
Distribution Date in the future, the Agreement provides that a portion of the
principal which would otherwise be distributed to the Certificateholders of the
related Class A Certificates on the Distribution Date shall be distributed to
the Class X-IO Certificateholders or as otherwise provided in the Agreement (to
the extent available therefor) over the period specified in the Agreement. This
has the effect of decelerating the amortization of Class A Certificates relative
to the amortization of the Home Equity Loans and of reducing the related
Overcollateralization Amount.
If, on any Distribution Date, the Overcollateralization Amount is, or,
after taking into account all other distributions to be made on the Distribution
Date, would be, greater than the related Target Overcollateralization Amount,
then any amounts relating to principal which would otherwise be distributed to
the Certificateholders of the related class or classes of Class A Certificates
on the Distribution Date shall instead be distributed to the Certificateholders
of the Class X-IO Certificates or as otherwise provided in the Agreement (to the
extent available therefor) in an amount equal to the Overcollateralization
Release Amount.
The Agreement provides generally that, on any Distribution Date all
amounts collected on account of principal (other than any amount applied to the
payment of an Overcollateralization Release Amount) during the prior Due Period
will be distributed to the Certificateholders of the related Class A
Certificates on the Distribution Date. If any Home Equity Loan became a
Liquidated Loan during the prior Due Period, the Net Liquidation Proceeds
related to that Home Equity Loan and allocated to principal may be less than the
principal balance of the related Home Equity Loan. The amount of any
insufficiency is referred to as a "Realized Loss." In addition, the Agreement
provides that the Loan Balance of any Home Equity Loan which becomes a
Liquidated Loan shall thereafter equal zero. The Agreement does not contain any
requirement that the amount of any Realized Loss be distributed to the
Certificateholders of the related Class A Certificates on the Distribution Date
which immediately follows the event of loss, i.e., the Agreement does not
require the current recovery of losses.
However, the occurrence of a Realized Loss will reduce the
Overcollateralization Amount with respect to a Home Equity Loan Group, which to
the extent that the reduction causes the Overcollateralization Amount to be less
than the Target Overcollateralization Amount applicable to the related
Distribution Date, will require the payment of an Extra Principal Distribution
Amount on the Distribution Date (or, if insufficient funds are available on the
Distribution Date, on subsequent Distribution Dates, until the
Overcollateralization Amount equals the Target Overcollateralization Amount).
The effect of the foregoing is to allocate losses to the Certificateholders of
the Class X-IO and Class R Certificates, as specified in the Agreement, by
reducing, or eliminating entirely, payments of Net Monthly Excess Cashflow which
the Certificateholders would otherwise receive.
A "Liquidated Loan" is a Home Equity Loan with respect to which a
determination has been made by the Servicer that all recoveries have been
recovered or that the Servicer reasonably believes that the cost of obtaining
any additional recoveries from that loan would exceed the amount of the
recoveries.
OVERCOLLATERALIZATION AND THE POLICIES. The Agreement defines a
"Collateralization Deficit" with respect to a Home Equity Loan Group and
Distribution Date to be the amount, if any, by which (x) the aggregate Class
Principal Balance of the related Class A Certificates with respect to the
Distribution Date, after taking into account all distributions to be made on the
Distribution Date (except for any Insured Payment or any payment in respect of
the Collateralization Deficit), exceeds (y) the aggregate Loan Balances of the
Home Equity Loans in the Home Equity Loan Group as of the close of business on
the last day of the related Due Period.
The Agreement requires the Trustee to make a claim for an Insured
Payment under the related Policy not later than the third Business Day prior to
any Distribution Date as to which the Trustee has determined that a
Collateralization Deficit will occur after giving effect to all other payments
of principal on the Distribution Date (except
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for any Insured Payment) for the purpose of applying the proceeds of the Insured
Payment as a payment of principal to the Certificateholders of the related Class
A Certificates on the Distribution Date.
Each Policy is thus similar to the subordination provisions described
above insofar as the Policy guarantees ultimate, rather than current, payment of
the amounts of any Realized Losses to the Certificateholders of the Class A
Certificates.
Investors in the Class A Certificates should realize that, under
extreme loss or delinquency scenarios applicable to the related Home Equity Loan
Group, they may temporarily receive no distributions of principal when they
would otherwise be entitled to distributions under the principal allocation
provisions described in this Prospectus Supplement. Nevertheless, the exposure
to risk of loss of principal of the Certificateholders of the Class A
Certificates depends in part on the ability of the Certificate Insurer to
satisfy its obligations under the Policies. In that respect and to the extent
that the Certificate Insurer satisfies the obligations, the Certificateholders
of the Class A Certificates are insulated from principal losses on the
Certificates.
CROSSCOLLATERALIZATION PROVISIONS. Certain Total Available Funds (as
defined below) with respect to each Home Equity Loan Group will be available to
cover certain shortfalls and to create overcollateralization with respect to the
Class A Certificates relating to the other Home Equity Loan Group as described
above under "Description of the Certificates--Distributions."
FINAL SCHEDULED DISTRIBUTION DATE
The final scheduled Distribution Date (the "Final Scheduled
Distribution Date") for each class of Class A Certificates is specified on the
cover page of this Prospectus Supplement.
The Final Scheduled Distribution Date for each of the Class A-1, Class
A-2, Class A-3 and Class A-4 Certificates is the Distribution Date occurring two
months after the date on which the Certificate Principal Balance for the related
class would be reduced to zero assuming that no prepayments are received on the
related Home Equity Loans, no excess cashflow is applied to create
overcollateralization and that scheduled monthly payments of principal of and
interest on each of the Home Equity Loans are timely received. The Final
Scheduled Distribution date for each of the Class A-5, Class A-6 and Class A-7
Certificates is the Distribution Date occurring ______ months after the maturity
date of latest possible maturing Home Equity Loan.
It is expected that the actual last Distribution Date for each class of
Class A Certificates will occur significantly earlier than the Final Scheduled
Distribution Date. The Policies do not guarantee that the Class Principal
Balances of the Class A-1, Class A-2, Class A-3 or Class A-4 Certificates will
be paid in full by their respective Final Scheduled Distribution Dates.
WE REFER YOU TO "PREPAYMENT AND YIELD CONSIDERATIONS" FOR MORE DETAIL.
SERVICING FEE
As to each Home Equity Loan, the Servicer will retain a fee (the
"Servicing Fee") equal to 0.50% per annum, payable monthly at one-twelfth of the
annual rate of the then outstanding principal balance of the Home Equity Loan
serviced as of the first day of each Due Period. If a successor Servicer is
appointed in accordance with the Agreement, the Servicing Fee shall be an amount
agreed upon by the Trustee, the Certificate Insurer, and the successor Servicer
but in no event in an amount greater than the amount paid to the predecessor
Servicer. The Servicer will also be able to retain late fees, prepayment
charges, assumption fees, release fees, bad check charges and any other
servicing related charges.
THE TRUSTEE
_______________ has been named Trustee pursuant to the Agreement.
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The Trustee may have normal banking relationships with the Depositor,
the Sellers and the Servicer.
As to each Home Equity Loan the Trustee will receive a fee (the
"Trustee Fee") set forth in the Agreement.
The Trustee may resign at any time, in which event the Depositor will
be obligated to appoint a successor Trustee, as approved by the Certificate
Insurer and the Servicer. The Depositor and the Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue under the Agreement or
if the Trustee becomes insolvent. Upon becoming aware of these circumstances,
the Depositor will be obligated to appoint a successor Trustee, as approved by
the Certificate Insurer and the Servicer (Servicer approval not to be
unreasonably withheld). 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 Agreement to
institute any proceeding with respect to the Agreement unless the holder
previously has received the Certificate Insurer's prior written consent (unless
a Certificate Insurer Default as defined in clause (x) of the definition thereof
has occurred and is continuing) and 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, have made written requests upon
the Trustee to institute a proceeding in its own name as Trustee under the
Agreement and have offered to the Trustee reasonable indemnity and the Trustee
for 60 days has neglected or refused to institute any proceeding. The Trustee
will be under no obligation to exercise any of the trusts or powers vested in it
by the Agreement or to make any investigation of matters arising under the
Agreement or to institute, conduct or defend any litigation under the Agreement
or in relation to the Agreement at the request, order or direction of any of the
Certificateholders, unless the Certificateholders have offered to the Trustee
reasonable security or indemnity against the cost, expenses and liabilities
which may be incurred in this Prospectus Supplement or thereby.
The Trustee will make the monthly statement to Certificateholders (and,
at its option, any additional files containing the same information in an
alternative format) available each month to Certificateholders, and the other
parties to the Agreement via the Trustee's and its fax-on-demand service. The
Trustee's fax-on-demand service may be accessed by calling ______________.
Parties that are unable to use the above distribution options are entitled to
have a paper copy mailed to them via first class mail by calling the customer
service desk. The Trustee shall have the right to change the way monthly
statements are distributed in order to make distribution more convenient and/or
more accessible to the above parties and the Trustee shall provide timely and
adequate notification to all above parties regarding any changes.
THE POLICIES AND THE CERTIFICATE INSURER
THE POLICIES
The following information has been supplied by _____________________
(the "Certificate Insurer") for inclusion in this Prospectus Supplement. The
Certificate Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus Supplement or any information or disclosure
contained in this Prospectus Supplement, or omitted from this Prospectus
Supplement, other than with respect to the accuracy of the information regarding
the Certificate Guaranty Insurance Policies (the "Policies") and the Certificate
Insurer set forth under the heading "The Policies and the Certificate Insurer."
Additionally, the Certificate Insurer makes no representation regarding the
Certificates or the advisability of investing in the Certificates.
The Certificate Insurer, in consideration of the payment of a premium
and subject to the terms of the Policies, thereby unconditionally and
irrevocably guarantees to any Certificateholder that an amount equal to each
full and complete Insured Payment will be received from the Certificate Insurer
by the Trustee, or its successors, as trustee for the Certificateholders, on
behalf of the Certificateholders for distribution by the Trustee to each
Certificateholder of each Certificateholder's proportionate share of the Insured
Payment.
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The Certificate Insurer's obligations under the Policies with respect
to a particular Insured Payment will be discharged to the extent funds equal to
the applicable Insured Payment are received by the Trustee, whether or not those
funds are properly applied by the Trustee. Insured Payments shall be made only
at the time set forth in the Policies and no accelerated Insured Payments will
be made regardless of any acceleration of the Class A Certificates, unless
acceleration is at the sole option of the Certificate Insurer.
Notwithstanding the foregoing paragraph, the Policies do not cover
shortfalls, if any, attributable to the liability of the Trust, any REMIC or the
Trustee for withholding taxes, if any (including interest and penalties in
respect of any liability for withholding taxes). The Policies do not cover, and
Insured Payments shall not include, any Civil Relief Act Interest Shortfalls,
any Class A-7 Certificateholders' Interest Index Carryover, any reduction in
interest on the Class A-5 or Class A-6 Certificates due to the application of
the Group I Net WAC Cap or any reduction in interest on the Class A-7
Certificates due to the Class A-7 Available Funds Cap.
The Certificate Insurer will pay any Insured Payment that is a
Preference Amount on the business day following receipt on a business day by the
Certificate Insurer's fiscal agent of:
- a certified copy of the order requiring the return of a
preference payment,
- an opinion of counsel satisfactory to the Certificate Insurer
that the order is final and not subject to appeal,
- an assignment in a form reasonably required by the Certificate
Insurer, irrevocably assigning to the Certificate Insurer all
rights and claims of the Certificateholder relating to or
arising under the Class A Certificates against the debtor
which made the preference payment or otherwise with respect to
the preference payment and
- appropriate instruments to effect the appointment of the
Certificate Insurer as agent for the Certificateholder in any
legal proceeding related to the preference payment, the
instruments being in a form satisfactory to the Certificate
Insurer,
provided that if the documents are received after 12:00 p.m., New York time, on
that business day, they will be deemed to be received on the following business
day. Payments by the Certificate Insurer will be disbursed to the receiver or
trustee in bankruptcy named in the final order of the court exercising
jurisdiction on behalf of the Certificateholder and not to any Certificateholder
directly unless the Certificateholder has returned principal or interest paid on
the Class A Certificates to the receiver or trustee in bankruptcy, in which case
that payment will be disbursed to the Certificateholder.
The Certificate Insurer will pay any other amount payable under a
Policy no later than 12:00 p.m., New York time, on the later of the Distribution
Date on which the related Deficiency Amount is due or the third business day
following receipt in _________, _______ on a business day by _______________ and
____________., as fiscal agent for the Certificate Insurer, or any successor
fiscal agent appointed by the Certificate Insurer of a notice from the Trustee
specifying the Insured Payment which is due and owing on the applicable
Distribution Date; provided that if the notice is received after 12:00 p.m., New
York time, on that business day, it will be deemed to be received on the
following business day. If any Notice received by the Certificate Insurer's
fiscal agent is not in proper form or is otherwise insufficient for the purpose
of making a claim under a Policy, it will be deemed not to have been received by
the Certificate Insurer's fiscal agent for purposes of this paragraph, and the
Certificate Insurer or the fiscal agent, as the case may be, will promptly so
advise the Trustee and the Trustee may submit an amended notice.
Insured Payments due under a Policy unless otherwise stated in the
Policy will be disbursed by the Certificate Insurer's fiscal agent to the
Trustee, on behalf of the Certificateholders by wire transfer of immediately
available funds in the amount of the Insured Payment less, in respect of Insured
Payments related to Preference Amounts, any amount held by the Trustee for the
payment of the Insured Payment and legally available therefor.
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The fiscal agent is the agent of the Certificate Insurer only and the
fiscal agent will in no event be liable to Certificateholders for any acts of
the fiscal agent or any failure of the Certificate Insurer to deposit, or cause
to be deposited, sufficient funds to make payments due under the related Policy.
As used in the Policies, the following terms shall have the following
meanings:
"Class Principal Balance" means "Certificate Principal Balance" as
defined in the Agreement.
"Deficiency Amount" means, as of any Distribution Date, the excess, if
any, of (a) the sum of (1) the Current Interest for the related Class A
Certificates for the Distribution Date and (2) the Group I Guaranteed Principal
Amount or the Group II Guaranteed Principal Amount, as applicable, for the
Distribution Date over (b) the related Total Available Funds for the related
Distribution Date (net of the Premium Amount with respect to the related Class A
Certificates, the Trustee Fee and Transition Expenses of the related Home Equity
Loan Group and after giving effect to the cross-collateralization provisions of
the Agreement).
"Group I Guaranteed Principal Amount" means (a) with respect to any
Distribution Date other than the Distribution Date in __________ the
Collateralization Deficit with respect to Group I for the Distribution Date and
(b) with respect to the Distribution Date in _____________, the Class Principal
Balance of the Group I Certificates after giving effect to distributions on the
Group I Certificates on the Distribution Date (including Insured Payments
distributed in respect of clause (a) above but excluding any other Insured
Payment).
"Group II Guaranteed Principal Amount" means (a) with respect to any
Distribution Date other than the Distribution Date in February 2031, the
Collateralization Deficit with respect to Group II for the Distribution Date and
(b) with respect to the Distribution Date in February 2031, the Class Principal
Balance of the Group II Certificates after giving effect to distributions on the
Group II Certificates on the Distribution Date (including Insured Payments
distributed in respect of clause (a) above but excluding any other Insured
Payment).
"Insured Payment" means (a) as of any Distribution Date, any Deficiency
Amount and (b) any Preference Amount.
"Preference Amount" means any amount previously distributed to an Owner
on the Class A Certificates that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time in accordance with a
final nonappealable order of a court having competent jurisdiction.
"Total Available Funds" means, as to each Distribution Date and a Home
Equity Loan Group, the sum of (x) the amount on deposit in the Certificate
Account with respect to the Home Equity Loan Group and (y) any amounts on
deposit in the Certificate Account with respect to the other Home Equity Loan
Group to be applied to an Available Funds Shortfall with respect to the related
classes of Class A Certificates pursuant to clause 5 under "--Distributions" on
the Distribution Date (disregarding the amount of any Insured Payment to be made
on the Distribution Date).
Capitalized terms used in the Policies and not otherwise defined in the
Policies shall have the meanings set forth in the Agreement as of the date of
execution of the Policies, without giving effect to any subsequent amendment to
or modification of the Agreement unless the amendment or modification has been
approved in writing by the Certificate Insurer.
The Policies are not cancelable for any reason. The premium on each
Policy is not refundable for any reason including payment, or provision being
made for payment, prior to maturity of the related Class A Certificates.
EACH POLICY IS BEING ISSUED UNDER AND PURSUANT TO, AND WILL BE
CONSTRUED UNDER, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES OF THE STATE OF NEW YORK.
S-66
<PAGE>
The insurance provided by each Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
THE CERTIFICATE INSURER
[To be inserted].
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will
be applied by the Depositor towards the purchase of the Home Equity Loans from
the Sellers.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following section in conjunction with the section in the Prospectus
captioned "FEDERAL INCOME TAX CONSEQUENCES" discusses the material federal
income tax consequences of the purchase, ownership and disposition of the Class
A Certificates. This section must be considered only in connection with "FEDERAL
INCOME TAX CONSEQUENCES" in the Prospectus. The discussion in this Prospectus
Supplement and in the Prospectus is based upon laws, regulations, rulings and
decisions now in effect, all of which are subject to change. The discussion
below and in the Prospectus does not purport to deal with all federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. Investors should consult their own tax advisors in
determining the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the Class A Certificates. No portion
of the "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" or "FEDERAL INCOME TAX
CONSEQUENCES" sections of the Prospectus Supplement or Prospectus constitutes an
opinion of counsel, other than the opinion set forth in the second paragraph of
"--REMIC Elections" below and in clause (2) of "FEDERAL INCOME TAX
CONSEQUENCES--OPINIONS" in the Prospectus.
REMIC ELECTIONS
Two separate elections will be made to treat the assets of the Trust as
real estate mortgage investment conduits ("REMICs") for federal income tax
purposes, creating a two-tiered REMIC structure. The Class A and Class X-IO
Certificates will be designated as regular interests in a REMIC (the "Regular
Certificates" or the "REMIC Regular Certificates"), and the Class R-1 and Class
R-2 Certificates each will be designated as the residual interest in a REMIC
(the "Residual Certificates" or the "REMIC Residual Certificates"). In addition,
as described below, the Class A-7 Certificates will represent an undivided
beneficial ownership interest in an interest rate cap.
Qualification as a REMIC requires ongoing compliance with relevant
conditions. Stroock & Stroock & Lavan LLP, special tax counsel to the Sellers
and the Depositor, is of the opinion that, for federal income tax purposes,
assuming (1) the appropriate REMIC elections are made, and (2) compliance with
all of the provisions of the Agreement, the REMICs formed pursuant to the
Agreement will each constitute a REMIC, the Class A and Class X-IO Certificates
will be considered "regular interests" in a REMIC, and the Residual Certificates
will be considered the sole class of "residual interests" in each REMIC.
Because the REMIC Regular Certificates will be considered REMIC regular
interests, they generally will be taxable as debt obligations under the Internal
Revenue Code of 1986, as amended (the "Code"), and interest paid or accrued on
the Regular Certificates, including original issue discount with respect to any
Regular Certificates issued with original issue discount, will be taxable to
Certificateholders in accordance with the accrual method of accounting. Some or
all of the Classes of Offered Certificates may be subject to the original issue
discount provisions. WE REFER YOU TO "FEDERAL INCOME TAX CONSEQUENCES" IN THE
PROSPECTUS FOR MORE DETAIL.
S-67
<PAGE>
In addition, Classes of Offered Certificates may be treated as issued
with a premium. WE REFER YOU TO "FEDERAL INCOME TAX CONSEQUENCES" IN THE
PROSPECTUS FOR MORE DETAIL.
The prepayment assumption that will be used in determining the rate of
accrual of original issue discount is ___% Prepayment Assumption with respect to
the Group I Home Equity Loans and __% CPR with respect to the Group II Home
Equity Loans. See "Prepayment and Yield Considerations" in this Prospectus
Supplement for a description of the prepayment assumption model. However, no
representation is made as to the rate at which prepayments actually will occur.
The Class A Certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code for domestic building and loan associations, and
"real estate assets" for real estate investment trusts (REITs), subject to the
limitations described in "FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus.
Similarly, interest on the Class A Certificates will be considered "interest on
obligations secured by mortgages on real property" for REITs, subject to the
limitations described in "Federal Income Tax Consequences" in the Prospectus.
CLASS A-7 CERTIFICATES
The Agreement provides for a reserve fund (the "Supplemental Interest
Reserve Fund"), which is held by the Trustee on behalf of the holders of the
Class A-7 Certificates. To the extent amounts on deposit are sufficient, holders
of the Class A-7 Certificates will be entitled to receive payments from the fund
equal to any Current WAC Excess and any Class A-7 Certificateholders' Interest
Index Carryover. The "Current WAC Express" is the portion of the Current
Interest being distributed on any particular Distribution Date with respect to
the Class A-7 Certificates equal to the amount of interest accrued on those
Certificates at a rate equal to the excess of the Certificate Rate over the
Group II Net WAC Cap. The "Group II Net WAC Cap" with respect to any
Distribution Date will be the rate per annum equal to the weighted average Net
Coupon Rates of the Group II Home Equity Loans as of the beginning of the
related Due Period minus the Minimum Spread. The amount required to be deposited
in the fund on any Distribution Date (the "Supplemental Interest Reserve Fund
Deposit") will equal any Current WAC Excess or Class A-7 Certificateholders'
Interest Index Carryover for the related Distribution Date, or, if no Current
WAC Excess or Class A-7 Certificateholders' Interest Index Carryover is payable
on that Distribution Date, an amount that when added to other amounts already on
deposit in the fund, the aggregate amount on deposit in the fund is equal to
$_______. Any investment earnings on amounts on deposit in the fund will be paid
to (and for the benefit of) the holders of the Class X-IO Certificates and will
not be available to pay any Current WAC Excess or Class A-7 Certificateholders'
Index Carryover. The Supplemental Interest Reserve Fund will not be included as
an asset of any REMIC created pursuant to the Agreement.
The Class A-7 Certificates, except to the extent of any Current WAC
Excess and any Class A-7 Certificateholders' Interest Index Carryover, will be
treated as regular interests in a REMIC under section 860G of the Code (the
"Class A-7 Regular Interests"). Accordingly, the portion of the Class A-7
Certificates representing the Class A-7 Regular Interests will be treated as (i)
assets described in section 7701(a)(19)(C) or the Code, and (ii) "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 portion of the Class A-7
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 portion of the Class A-7 Certificates is treated as real estate
assets. WE REFER YOU TO "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THE
PROSPECTUS.
The right to receive any Current WAC Excess and any Class A-7
Certificateholders' Interest Index Carryover will not be (i) a regular interest
in a REMIC under section 860G of the Code, (ii) an asset described in section
7701(a)(19)(C) of the Code, or (iii) a "real estate asset" within the meaning of
section 856(c)(4)(A) of the Code. Further, neither the Current WAC Excess nor
the Class A-7 Certificateholders' Interest Index Carryover will be considered
interest on obligations secured by mortgages on real property within the meaning
of section 856(c)(3)(B) of the Code.
S-68
<PAGE>
Each holder of a Class A-7 Certificate is deemed to own an undivided
beneficial ownership interest in two assets: (i) the Class A-7 Regular Interests
and (ii) an interest rate cap contract (a "Cap Agreement") under which the
Current WAC Excess and Class A-7 Certificateholders' Interest Index Carryover is
paid. The Cap Agreement with respect to the Class A-7 Certificates is not
included in any REMIC. The treatment of amounts received by a Class A-7
Certificateholder under the Certificateholder's right to receive the Current WAC
Excess and the Class A-7 Certificateholders' Interest Index Carryover will
depend upon the portion of the Certificateholder's purchase price allocable
thereto. Under the REMIC regulations, each Class A-7 Certificateholder must
allocate its purchase price for the Class A-7 Certificates between its undivided
interest in the Class A-7 Regular Interests and its undivided interest in the
Cap Agreement in accordance with the relative fair market values of each
property right. No representation is or will be made as to the relative fair
market values. Generally, payments made to the Class A-7 Certificates under the
Cap Agreement will be included in income based on, and the purchase price
allocated to the Cap Agreement may be amortized in accordance with, the
regulations relating to notional principal contracts.
CERTAIN STATE TAX CONSIDERATIONS
Because the income tax laws of the states vary, it is impractical to
predict the income tax consequences to the Certificateholders in all of the
state taxing jurisdictions in which they are subject to tax. Certificateholders
are urged to consult their own tax advisors with respect to state and local
income and franchise taxes.
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing, retirement or other employee
benefit plan subject to Title I of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), should consider the fiduciary standards under
ERISA in the context of the plan's particular circumstances before authorizing
an investment of a portion of the plan's assets in the Class A Certificates.
Accordingly, pursuant to Section 404 of ERISA, the fiduciary should consider
among other factors:
(1) whether the investment is for the exclusive benefit of plan
participants and their beneficiaries;
(2) whether the investment satisfies the applicable
diversification requirements;
(3) whether the investment is in accordance with the documents and
instruments governing the plan; and
(4) whether the investment is prudent, considering the nature of
the investment. Fiduciaries of plans also should consider
ERISA's prohibition on improper delegation of control over, or
responsibility for, plan assets.
In addition, benefit plans subject to ERISA, as well as individual
retirement accounts or types of Keogh plans not subject to ERISA but subject to
Section 4975 of the Code and any entity whose source of funds for the purchase
of Class A Certificates includes plan assets by reason of a plan or account
investing in the entity (each, a "Plan"), are prohibited from engaging in a
broad range of transactions involving Plan assets and persons having specified
relationships to a Plan ("parties in interest" and "disqualified persons").
These transactions are treated as "prohibited transactions" under Sections 406
and 407 of ERISA and excise taxes are imposed upon these persons by Section 4975
of the Code.
An investment in Class A Certificates by a Plan might result in the
assets of the Trust being deemed to constitute Plan assets, which in turn might
mean that aspects of the investment, including the operation of the Trust, might
be prohibited transactions under ERISA and the Code. Neither ERISA nor the Code
defines the term "plan assets." Under Section 2510.3-101 of the United States
Department of Labor ("DOL") regulations (the "Regulation"), a Plan's assets may
include an interest in the underlying assets of an entity (including a trust),
including the prohibited transaction provisions of ERISA and the Code, if the
Plan acquires an "equity interest" in the entity, unless exceptions apply. The
Depositor believes that the Class A Certificates will give Certificateholders an
equity interest in the Trust for purposes of the Regulation and can give no
assurance that the Class A Certificates will qualify for any of the exceptions
under the Regulation. As a result, the assets of the Trust may be considered the
assets of any Plan which acquires a Class A Certificate.
S-69
<PAGE>
The U.S. Department of Labor has granted to _______________ an
administrative exemption (Prohibited Transaction Exemption ("PTE") __-__, as
amended, Exemption Application No. _____-____, __ Fed. Reg. _____
(______________)) (the "Exemption") from the prohibited transaction rules of
ERISA which may be applicable to the initial purchase, the holding and the
subsequent resale in the secondary market by Plans of pass-through certificates
representing a beneficial undivided ownership interest in the assets of a trust
that consist of receivables, loans and other obligations that meet the
conditions and requirements of the Exemption which may be applicable to the
Class A Certificates if _____________________. or any of its affiliates is
either the sole underwriter or manager or co-manager of the underwriting
syndicate, or a selling or placement agent. The conditions which must be
satisfied for the Exemption to apply to the purchase, holding and transfer of
the Class A Certificates include the following:
(1) The acquisition of the Class A Certificates by a Plan is on
terms (included the price for the Class A Certificates) that
are at least as favorable to the Plan as they would be in an
arm's length transaction with an unrelated party.
(2) The rights and interest evidenced by a class of Class A
Certificates acquired by the Plan are not subordinated to the
rights and interest evidenced by any other Certificates of the
Trust.
(3) The Class A Certificates acquired by the Plan have received a
rating at the time of the acquisition that is in one of the
three highest generic rating categories from any of Moody's,
Duff & Phelps Credit Rating Co., S&P or Fitch IBCA, Inc.
("Authorized Rating Agencies") and the investment pool
consists only of assets of the type enumerated in the
Exemption, and which have been included in other investment
pools; certificates evidencing interests in the other
investment pools have been rated in one of the three highest
generic rating categories by an Authorized Rating Agency for
at least one year prior to a Plan's acquisition of
certificates; and certificates evidencing interests in the
other investment pool have been purchased by investors other
than Plans for at least one year prior to a Plan's acquisition
of the Class A Certificates.
(4) The sum of all payments made to the Underwriters in connection
with the distribution of the Class A Certificates represents
not more than reasonable compensation for distributing the
Class A Certificates. The sum of all payments made to and
retained by the Depositor pursuant to the sale of the Home
Equity Loans to the Trust represents not more than the fair
market value for the Home Equity Loans. The sum of all
payments made to and retained by the Servicer or any other
servicer represents not more than reasonable compensation for
the services under the Agreement and reimbursement of the
servicer's reasonable expenses in connection with the
Servicer's services under the Agreement.
(5) The Trustee must not be an affiliate of any member of the
Restricted Group as defined blow.
In addition, it is a condition that the Plan investing in the Class A
Certificates be an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D under the Securities Act of 1933, as amended.
The Exemption does not apply to Plans sponsored by the Sellers, the
Depositor, the Certificate Insurer, the Underwriters, the Trustee, the Servicer
or any Mortgagor with respect to Home Equity Loans included in the Trust
constituting more than 5% of the aggregate unamortized principal balance of the
assets in the Trust or any affiliate of the parties (the "Restricted Group"). No
exemption is provided from the restrictions of ERISA for the acquisition or
holding of Class A Certificates on behalf of an "Excluded Plan" by any person
who is a fiduciary with respect to the assets of the Excluded Plan. For purposes
of the Class A Certificates, an Excluded Plan is a Plan sponsored by any member
of the Restricted Group. In addition, no Plan's investment in any class of Class
A Certificates may exceed 25% of all of the Certificates of the Class
outstanding at the time of the Plan's acquisition and after the Plan's
acquisition of the class of Class A Certificates, no more than 25% of the assets
over which the fiduciary has investment authority may be invested in securities
of a trust containing assets which are sold or serviced by the same entity.
Finally, in the case of initial issuance (but not secondary market
S-70
<PAGE>
transactions), at least 50% of each class of Class A Certificates, and at least
50% of the aggregate interest in the Trust, must be acquired by persons
independent of the Restricted Group.
The Depositor believes that the Exemption will apply to the
acquisition, holding and resale of the Class A Certificates by a Plan and that
all conditions of the Exemption other than those within the control of the
investors have been or will be met.
WE REFER YOU TO "ERISA CONSIDERATIONS" IN THE PROSPECTUS FOR MORE
DETAIL.
Before purchasing a Class A Certificate, a fiduciary of a Plan should
itself confirm (a) that the Class A Certificates constitute "certificates" for
purposes of the Exemption and (b) that the specific conditions set forth in the
Exemption and the other requirements set forth in the Exemption will be
satisfied.
Any Plan fiduciary considering whether to purchase a Class A
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to the investment.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the Class A Certificates
will be rated in the highest rating category of the Rating Agencies, the Class A
Certificates will not constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"). Accordingly,
many institutions with legal authority to invest in comparably rated securities
may not be legally authorized to invest in the Class A Certificates.
WE REFER YOU TO "LEGAL INVESTMENT" IN THE PROSPECTUS FOR MORE DETAIL.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated ________ __, ____ (the "Underwriting Agreement"), among the
Depositor and the Underwriters named below (the "Underwriters") the Depositor
has agreed to sell to the Underwriters and the Underwriters have agreed to
purchase from the Depositor the principal amount of the Class A Certificates set
forth opposite their respective names. The Class A Certificates will be offered
by the Underwriters when as and if issued and sold by the Depositor to the
Underwriters, subject to the Underwriters' right to reject any subscription, in
whole or in part.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
OF CLASS OF CLASS OF CLASS OF CLASS OF CLASS OF CLASS OF CLASS
A-1 A-2 A-3 A-4 A-5 A-6 A-7
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $ $
$ $ $ $ $ $ $
</TABLE>
The Underwriters have informed the Depositor that they propose to offer
the Class A Certificates for sale 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 the related sale. The Underwriters may effect the transactions by
selling the Class A Certificates to or through dealers, and the dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriters. In connection with the sale of the Class A
Certificates, the Underwriters may be deemed to have received compensation from
the Depositor in the form of underwriting compensation. The Underwriters and any
dealers that participate with the Underwriters in the distribution of the Class
A Certificates may be deemed to be underwriters and any commissions received by
them and any profit on the resale of the Class A Certificates by them may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933, as amended (the "Securities Act").
S-71
<PAGE>
No Class A Certificate will have an established trading market when
issued. The Underwriters may, from time to time, act as a broker or purchase and
sell Class A Certificates in the secondary market, but the Underwriters are
under no obligation to do so and there can be no assurance that there will be a
secondary market for the Class A Certificates or liquidity in the secondary
market if one does develop.
From time to time the Underwriters or their affiliates may perform
investment banking and advisory services for, and may provide general financing
and banking services to, affiliates of the Depositor.
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriters against described civil liabilities, including liabilities
under the Act.
EXPERTS
The consolidated balance sheets of _______________ and ____________ as
of __________ __, ____ and __________ __, ____ and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ended ______________ __, ____, incorporated by
reference in this Prospectus Supplement have been incorporated in this
Prospectus Supplement in reliance on the report of ____________________,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters with respect to the Class A Certificates will be
passed upon for the Depositor, the Sellers and the Servicer by Stroock & Stroock
& Lavan LLP, New York, New York. Certain legal matters with respect to the Class
A Certificates will be passed upon for the Underwriters by __________________.
RATINGS
It is a condition to the issuance of the Class A Certificates that they
receive ratings of "AAA" by S&P and "Aaa" by Moody's.
A securities rating addresses the likelihood of the receipt by Class A
Certificateholders of distributions on the Home Equity Loans. The rating takes
into consideration the characteristics of the Home Equity Loans and the
structural, legal and tax aspects associated with the Class A Certificates. The
ratings on the Class A Certificates do not, however, constitute statements
regarding the likelihood or frequency of prepayments on the Home Equity Loans,
the likelihood of payment of any Class A-7 Certificateholders' Interest Index
Carryover or the possibility that Class A Certificateholders might realize a
lower than anticipated yield.
The ratings assigned to the Class A Certificates will depend primarily
upon the creditworthiness of the Certificate Insurer. Any reduction in a rating
assigned to the financial strength of the Certificate Insurer below the ratings
initially assigned to the Class A Certificates may result in a reduction of one
or more of the ratings assigned to the Class A 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.
S-72
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERMS PAGE
<S> <C>
2/28 Adjustable Rate Loans................................................................................S-29
accredited investor.......................................................................................S-70
Aggregate Class A Principal Balance.......................................................................S-52
Agreement.................................................................................................S-51
Appraised Values..........................................................................................S-21
Authorized Rating Agencies................................................................................S-70
Available Funds...........................................................................................S-54
Available Funds Shortfall.................................................................................S-54
Average Portfolio.........................................................................................S-38
Balloon Loans.............................................................................................S-41
Book-Entry Certificates...................................................................................S-52
Business Day..............................................................................................S-53
Cap Agreement.............................................................................................S-69
Carry-Forward Amount......................................................................................S-54
Cede......................................................................................................S-52
Cedel.....................................................................................................S-52
Certificate Account.......................................................................................S-53
Certificate Insurer.......................................................................................S-64
Certificate Insurer Default...............................................................................S-54
Certificate Rate..........................................................................................S-59
Certificate Register......................................................................................S-53
Certificate Registrar.....................................................................................S-53
Certificateholder.........................................................................................S-53
Certificateowners.........................................................................................S-52
Certificates..............................................................................................S-71
CHEC......................................................................................................S-20
Citibank..................................................................................................S-52
Civil Relief Act Interest Shortfalls......................................................................S-56
Class A Distribution Amount...............................................................................S-54
Class A Principal Distribution Amount.....................................................................S-54
Class A-1 Certificates....................................................................................S-51
Class A-2 Certificates....................................................................................S-51
Class A-3 Certificates....................................................................................S-51
Class A-4 Certificates....................................................................................S-52
Class A-5 Certificates....................................................................................S-52
Class A-6 Calculation Percentage..........................................................................S-55
Class A-6 Certificates....................................................................................S-52
Class A-6 Lockout Distribution Amount.....................................................................S-55
Class A-6 Lockout Percentage..............................................................................S-55
Class A-7 Available Funds Cap.............................................................................S-59
Class A-7 Certificateholders' Interest Index Carryover....................................................S-60
Class A-7 Certificates....................................................................................S-52
Class A-7 Formula Rate....................................................................................S-59
Class A-7 Regular Interests...............................................................................S-68
Class Principal Balance...................................................................................S-66
Class R Certificates......................................................................................S-52
Class X-IO Certificates...................................................................................S-52
Closing Date..............................................................................................S-20
Code......................................................................................................S-67
Collateralization Deficit.................................................................................S-62
S-73
<PAGE>
Coupon Rate...............................................................................................S-22
CPR.......................................................................................................S-41
Current Interest..........................................................................................S-56
Current WAC Express.......................................................................................S-68
Cut-Off Date..............................................................................................S-51
Deficiency Amount.........................................................................................S-66
Definitive Certificate....................................................................................S-53
Depositary Services.......................................................................................S-53
Depositor.................................................................................................S-20
disqualified persons......................................................................................S-69
Distribution Date.........................................................................................S-53
DOL.......................................................................................................S-69
DTCC......................................................................................................S-52
Due Period................................................................................................S-56
equity interest...........................................................................................S-69
ERISA.....................................................................................................S-69
Euroclear.................................................................................................S-52
European Depositaries.....................................................................................S-53
Excluded Plan.............................................................................................S-70
Exemption.................................................................................................S-70
Expense Fee...............................................................................................S-57
Extra Principal Distribution Amount.......................................................................S-56
Final Scheduled Distribution Date.........................................................................S-63
Fixed Rate Certificates...................................................................................S-52
Gross Losses..............................................................................................S-38
Group I Certificates......................................................................................S-52
Group I Guaranteed Principal Amount.......................................................................S-66
Group I Home Equity Loans.................................................................................S-20
Group I Net WAC Cap.......................................................................................S-60
Group II Certificates.....................................................................................S-52
Group II Guaranteed Principal Amount......................................................................S-66
Group II Home Equity Loans................................................................................S-20
Group II Net WAC Cap......................................................................................S-68
Home Equity Loan Group....................................................................................S-20
Home Equity Loans.........................................................................................S-20
Industry..................................................................................................S-53
Insured Payment...........................................................................................S-66
Interest Period...........................................................................................S-60
LIBOR Determination Date..................................................................................S-61
Liquidated Loan...........................................................................................S-62
Loan Balances.............................................................................................S-22
London Business Day.......................................................................................S-61
Maximum Rates.............................................................................................S-29
Minimum Rates.............................................................................................S-29
Minimum Spread............................................................................................S-59
Monthly Remittance Date...................................................................................S-56
Moody's...................................................................................................S-60
Morgan....................................................................................................S-53
Mortgaged Properties......................................................................................S-20
Net Coupon Rate...........................................................................................S-59
Net Losses................................................................................................S-38
Net Monthly Excess Cashflow...............................................................................S-56
Non-Offered Certificates..................................................................................S-52
Notes.....................................................................................................S-20
S-74
<PAGE>
Offered Certificates......................................................................................S-52
One-Month LIBOR...........................................................................................S-60
Original Combined Loan-to-Value Ratio.....................................................................S-21
Overcollateralization Amount..............................................................................S-56
Overcollateralization Release Amount......................................................................S-56
Parties in Interest.......................................................................................S-69
Percentage Interest.......................................................................................S-54
Plan......................................................................................................S-69
Policies..................................................................................................S-51
Preference Amount.........................................................................................S-66
Premium Amount............................................................................................S-57
Prepayment Assumption.....................................................................................S-41
Prepayments...............................................................................................S-39
prohibited transactions...................................................................................S-69
PTE.......................................................................................................S-70
Rating Agencies...........................................................................................S-60
Realized Loss.............................................................................................S-62
Record Date...............................................................................................S-54
Recoveries................................................................................................S-38
Reference Banks...........................................................................................S-61
Regular Certificates......................................................................................S-67
Regulation................................................................................................S-69
Relevant Depositary.......................................................................................S-53
REMIC Regular Certificates................................................................................S-67
REMIC Residual Certificates...............................................................................S-67
REMICs....................................................................................................S-10
Residual Certificates.....................................................................................S-67
Restricted Group..........................................................................................S-70
S&P.......................................................................................................S-60
Securities Act............................................................................................S-71
Sellers...................................................................................................S-20
Servicer..................................................................................................S-51
Servicing Fee.............................................................................................S-63
Six-Month Adjustable Rate Loans...........................................................................S-29
SMMEA.....................................................................................................S-71
Statistical Calculation Date..............................................................................S-20
Statistical Calculation Date Loan Balance.................................................................S-20
Structuring Assumptions...................................................................................S-41
Supplemental Interest Reserve Fund........................................................................S-68
Supplemental Interest Reserve Fund Deposit................................................................S-68
Systems...................................................................................................S-53
Target Deficiency.........................................................................................S-56
Target Overcollateralization Amount.......................................................................S-57
Telerate Page 3750........................................................................................S-61
Total Available Funds.....................................................................................S-66
Transition Expenses.......................................................................................S-57
Trust.....................................................................................................S-20
Trust Estate..............................................................................................S-51
Trustee...................................................................................................S-51
Trustee Fee...............................................................................................S-64
Underwriters..............................................................................................S-71
Underwriting Agreement....................................................................................S-71
Variable Rate Certificates................................................................................S-52
Weighted Average Life.....................................................................................S-41
</TABLE>
S-75
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except under limited circumstances, the globally offered Centex Home
Equity Loan Asset-Backed Certificates, Series 1999-4 (the "Global Securities")
will be available only in book-entry form. Investors in the Global Securities
may hold the Global Securities through any of DTCC, 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 DTCC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior Home Equity Loan Asset-Backed
Certificates issues.
Secondary cross-market trading between Cedel or Euroclear and DTCC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear and as DTCC
Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless the holders meet established
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 DTCC in the
name of Cede & Co. as nominee of DTCC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTCC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold the positions in accounts as
DTCC Participants.
Investors electing to hold their Global Securities through DTCC will
follow the settlement practices applicable to prior Home Equity Loan
Asset-Backed 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 sellers'
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTCC Participants. Secondary market trading between
DTCC Participants will be settled using the procedures applicable to prior Home
Equity Loan Asset-Backed Certificates issues in same-day funds.
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<PAGE>
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 DTCC Seller and Cedel or Euroclear Purchaser. When
Global Securities are to be transferred from the account of a DTCC 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 the 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 DTCC 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 the 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,
DTCC 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 DTCC Seller on the settlement date. Thus, to the DTCC Participants a
cross-market transaction will settle no differently than a trade between two
DTCC Participants.
Trading between Cedel or Euroclear Seller and DTCC 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 DTCC 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 DTCC 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 the
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
I-2
<PAGE>
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 DTCC 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 DTCC
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 DTCC
Participant is at least one day prior to the value date for the sale to
the Cedel Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
Cedel or Euroclear (or through DTCC 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 (as defined below), unless (1) 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 the
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (2) the beneficial owner takes one of
the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (as defined below) (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 the 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
I-3
<PAGE>
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
(1) a citizen or resident of the United States,
(2) a corporation or partnership 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 regulations),
(3) an estate the income of which is includible in gross income
for United States tax purposes, regardless of its source, or
(4) 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 authority to control all
substantial decisions of the trust.
Notwithstanding clause (4), to the extent provided in the regulations,
some trusts in existence on August 20, 1996, and treated as United States
persons prior to the date, that elect to continue to be treated as United States
persons shall also be a U.S. Person. Entities not considered U.S. Persons shall
be considered non-U.S. Persons.
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 or
with the application of Treasury regulations relating to tax documentation
requirements that are generally effective with respect to payments made after
December 31, 1999. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Global
Securities.
I-4
<PAGE>
The information in this Prospectus is not complete and may be
changed. We may not sell these securities until the Registration Statement
filed with the Securities and Exchange Commission 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 jurisdiction where the offer or sale
is not permitted.
<PAGE>
PROSPECTUS
ASSET-BACKED CERTIFICATES
ASSET-BACKED NOTES
(ISSUABLE IN SERIES)
-------------------------------------
CHEC FUNDING, LLC
(DEPOSITOR)
CENTEX CREDIT CORPORATION
D/B/A
CENTEX HOME EQUITY CORPORATION
(SELLER AND SERVICER)
-------------------------------------
OFFERED SECURITIES
Asset-Backed Certificates and Asset-Backed Notes will be sold from time to time
pursuant to a prospectus supplement in amounts, at prices and on terms to be
determined at the time of sale. Each series will include one or more classes of
certificates or one or more classes of notes with differing payment terms,
priority of payments, and maturities.
A series of certificates will evidence undivided interests in a trust fund
created in connection with the issuance of the series. A series of notes will be
issued pursuant to an indenture and secured by the trust fund. In each case, the
certificates and notes will be payable only from the assets of the trust fund.
Separate trust funds may be established for one or several classes of a series
of notes or certificates, with each class or group of classes being entitled to
payment only from the assets of their individual trust fund.
Crosscollateralization among trust funds may be permitted.
Credit enhancement will be provided for all offered securities.
TRUST FUND
Each trust fund will include the following assets, among others:
- - closed-end home equity loans secured by first or second mortgages on one-
to four- family residential or mixed properties
- - amounts received or due on the home equity loans
- - the mortgaged properties securing the home equity loans and certain
proceeds of liquidation of these properties
- - funds on deposit in one or more prefunding , capitalized interest, or other
accounts
- - reserve funds, letters of credit, surety bonds, insurance policies and/or
other forms of credit enhancement
Prefunding accounts may be established to purchase additional home equity loans
during a specified prefunding period.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED WHETHER
THIS PROSPECTUS AND THE PROSPECTUS SUPPLEMENT ARE
TRUTHFUL AND COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
-------- ---, ----
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND IN
THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the offered securities in two separate
documents that provide progressively more detail:
- - this prospectus, which provides general information, some of which may not
be applicable to your series of notes or certificates; and
- - the accompanying prospectus supplement, which describes the specific terms
of your series of notes or certificates.
IF THE DESCRIPTION OF YOUR NOTES OR CERTIFICATES IN THE ACCOMPANYING PROSPECTUS
SUPPLEMENT DIFFERS FOR THE RELATED DESCRIPTION IN THIS PROSPECTUS, YOU SHOULD
RELY ON THE INFORMATION IN THAT PROSPECTUS SUPPLEMENT.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. See "Additional Information," "Reports to Securityholders" and
"Incorporation of Certain Information by Reference" in this prospectus. You can
request information incorporated by reference from Centex Credit Corporation
d/b/a Centex Home Equity Corporation by calling us at (214) 981-5000 or writing
to us at Centex Credit Corporation, 2728 N. Harwood Street, Dallas, Texas,
75201. We have not authorized anyone to provide you with different information.
We are not offering the notes or certificates in any state where the offer is
not permitted.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement....................................5
Reports to Holders.......................................5
Available Information....................................6
Incorporation of Certain Documents by Reference..........6
Introduction.............................................7
The Depositor............................................8
The Seller and the Servicer..............................8
General...............................................8
Underwriting Guidelines Applicable to the Home
Equity Loans.........................................8
Underwriting Criteria of the Seller..................11
Servicing............................................14
Description of the Securities...........................15
General..............................................15
Book-Entry Securities................................17
Valuation of the Home Equity Loans...................20
Payments of Interest.................................21
Payments of Principal................................21
Final Scheduled Distribution Date....................21
Special Redemption...................................22
Weighted Average Life of the Securities..............22
The Trust Funds.........................................23
General..............................................23
The Home Equity Loans................................24
Additional Information...............................25
Accounts................................................26
Certificate and Distribution Accounts................26
Prefunding and Capitalized Interest Accounts.........26
Eligible Investments.................................27
Revolving Period and Amortization Period;
Retained Interest...................................28
Enhancement.............................................28
The Agreements..........................................30
General..............................................30
Repurchase and Substitution of Non-Conforming
Home Equity Loans...................................30
Assignment of Home Equity Loans......................32
Servicing and Sub-Servicing..........................33
Deposits to Principal and Interest Account and
Certificate Account.................................34
Advances; Compensating Interest......................35
Optional Repurchase of Defaulted Home Equity
Loans...............................................36
Realization Upon Defaulted Home Equity Loans.........36
Hazard Insurance.....................................36
General Servicing Standard...........................37
Sub-Servicing Arrangements...........................37
Certain Matters Regarding the Servicer..................37
Removal and Resignation of Servicer..................38
The Trustee..........................................39
Reporting Requirements...............................39
Removal of Trustee for Cause.........................41
Governing Law........................................41
Amendments...........................................41
Termination of the Trust.............................42
Optional Termination.................................42
REMIC Administrator..................................44
Certain Legal Aspects of the Home Equity Loans..........45
Home Equity Loans....................................45
Foreclosure..........................................45
Rights of Redemption.................................47
Junior Home Equity Loans; Rights of Senior Home
Equity Loans........................................48
Anti-Deficiency Legislation and Other Limitations
on Lenders..........................................48
Due-on-Sale Clauses in Home Equity Loans.............49
Enforceability of Prepayment and Late Payment Fees...50
Equitable Limitations on Remedies....................50
Applicability of Usury Laws..........................51
Environmental Legislation............................51
Soldiers' and Sailors' Civil Relief Act of 1940......51
Use of Proceeds.........................................52
Federal Income Tax Consequences.........................53
General..............................................53
Opinions.............................................53
Taxation of Debt Securities (Including Regular
Interest Securities)................................54
Taxation of the REMIC and its Holders................60
REMIC Expenses; Single Class REMICs..................60
Taxation of the REMIC................................61
Taxation of Holders of Residual Interest Securities..62
Administrative Matters...............................65
Tax Status as a Grantor Trust........................65
Miscellaneous Tax Aspects............................68
Tax Treatment of Foreign Investors...................69
Tax Characterization of the Trust as a Partnership
or Division.........................................70
Tax Consequences to Holders of the Notes Issued
by a Partnership or Division.......................70
Tax Consequences to Holders of the Certificates
Issued by a Partnership............................71
State Tax Consequences..................................75
ERISA Considerations....................................75
Legal Investment........................................79
Plan of Distribution....................................80
Legal Matters...........................................80
</TABLE>
4
<PAGE>
PROSPECTUS SUPPLEMENT
The prospectus supplement relating to a series of securities to be
offered under this prospectus will, among other things, set forth with respect
to the series of securities:
- the aggregate principal amount, interest rate, and authorized
denominations of each class;
- the type of securities to be issued with respect to each class;
- certain information concerning the home equity loans;
- the terms of any credit enhancement with respect to the series;
- the terms of any insurance related to the home equity loans;
- information concerning any other assets in the related trust
fund, including any reserve fund;
- the final scheduled distribution date of each class of the
securities;
- the method to be used to calculate the amount of interest and
principal required to be applied to the securities of each class
of the series on each distribution date, the timing, order of
priority and allocation of interest and principal among the
classes;
- the distribution dates on which payments of principal and
interest on the securities, along with other amounts specified in
the prospectus supplement, are made;
- any assumed reinvestment rate with respect to funds held in any
fund or account for the series;
- the amount, if any, deposited in a Prefunding Account available
to purchase additional home equity loans, the length of the
prefunding period and the criteria for determining which
additional home equity loans may become part of the trust fund;
- additional information with respect to the plan of distribution
of the securities; and
- whether one or more REMIC elections will be made with respect to
some or all of the trust fund for the series and if so, the
designation of the offered securities as regular interests or
residual interests in a REMIC.
REPORTS TO HOLDERS
Depending on whether a series of certificates or a series of notes is
being issued, the agreements governing the transaction will include:
- a pooling and servicing agreement or a trust agreement for a
transaction involving the issuance of certificates; or
- a sale and servicing agreement and an indenture for a transaction
involving the issuance of notes.
The agreements require periodic and annual reports concerning the
related trust fund for a series of securities to be forwarded to holders.
Unless otherwise specified in the related prospectus supplement, these reports
will not be examined and reported on by an independent public accountant. If
specified in the prospectus supplement for a series of securities, the series
or one or more classes of the series will be issued in book-entry form. In
this case, owners of the notes or certificates will not be considered
"holders" under the agreements and will not receive any reports directly.
Instead, reports will be furnished to owners through the participants and
5
<PAGE>
indirect participants of the applicable book-entry system. References in this
prospectus to the rights of "holders" will refer to the rights of owners as
they may be exercised indirectly through these participants.
WE REFER YOU TO "THE AGREEMENTS--REPORTS TO HOLDERS" FOR MORE DETAIL.
AVAILABLE INFORMATION
The seller has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933, as amended, with
respect to the securities. This prospectus, which forms a part of the
registration statement, and the prospectus supplement relating to each series of
securities contain summaries of the material terms of the documents referred to
in the prospectus supplement and this prospectus, but do not contain all of the
information set forth in the registration statement pursuant to the Rules and
Regulations of the Commission. For further information, we refer investors to
the registration statement and the related exhibits. The registration statement
and exhibits can be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its Regional
Office located as follows, Midwest Regional Office, 500 West Madison Street,
Chicago, Illinois 60661; and Northeast Regional Office, Seven World Trade
Center, New York, New York 10048. The Commission maintains an internet web site
that contains reports, proxy and information statements and other information
regarding the registrants that file electronically with the Commission,
including the seller. The address of the internet web site is
(http://www.sec.gov).
Each trust fund will be required to file certain reports with the
Commission pursuant to the requirements of the Securities Exchange Act of 1934,
as amended. The depositor and the seller intend to cause each trust fund to
suspend filing reports if and when these reports are no longer required under
the Exchange Act.
No person has been authorized to give any information or to make any
representation other than those contained in this prospectus and any prospectus
supplement. Investors should not rely on any information or representations not
contained in this prospectus or any prospectus supplement. This prospectus and
any prospectus supplement do not constitute an offer to sell or a solicitation
of an offer to buy any securities other than the securities offered under this
prospectus and the applicable prospectus supplement, and is not an offer of the
securities to any person in any state or other jurisdiction in which an offer
would be unlawful. The delivery of this prospectus does not imply that
information contained in the prospectus is correct as of any time subsequent to
its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed with the Commission by or on behalf of
the trust fund referred to in the accompanying prospectus supplement 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 fund will 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 in this prospectus should be deemed to be modified
or superseded for all purposes of this prospectus to the extent that a statement
contained in this prospectus (or in the accompanying prospectus supplement) or
in any other subsequently filed document which also is or is deemed to be
incorporated by reference modifies or replaces the statement. Any statement
modified or superseded in this manner should not be deemed, except as modified
or superseded, to constitute a part of this prospectus.
The seller on behalf of any trust fund will provide without charge to
each person to whom this prospectus is delivered, on written or oral request,
a copy of any or all of the documents referred to above that have been or may
be incorporated by reference in this prospectus (not including exhibits to the
information that is incorporated by reference unless these exhibits are
specifically incorporated by reference into the information incorporated this
prospectus).
6
<PAGE>
INTRODUCTION
This prospectus provides for the issuance of series of certificates or
notes consisting of one or more classes, one or more of which may be classes of:
- Compound Interest Securities
- Planned Amortization Class Securities
- Variable Interest Securities
- Zero Coupon Securities
- Principal Only Securities
- Interest Only Securities
Certain classes of securities may be subordinated to other classes,
both as to payment priority and as to allocation of losses with respect to the
home equity loans. In addition, Residual Interest Securities representing a
residual interest in the trust fund may be provided for. Each class may differ
in, among other things, payment terms and priorities, final scheduled
distribution dates and distribution dates with respect to distributions of
interest and principal.
The certificates will represent interests in, and the notes will be
secured by, all or a portion of the assets in the trust fund with respect to the
series issued. Where one or more classes of securities are backed by only a
portion of the assets in the trust fund, it will, unless crosscollateralization
is permitted pursuant to the prospectus supplement, only be entitled to payment
out of the assets of its portion of the trust fund.
This prospectus provides for various features, including a Prefunding
Account to be used to purchase assets after the closing date for a specified
prefunding period, revolving and amortizing periods, and optional termination of
the trust. Credit enhancement is available in a number of forms, which are
discussed in this prospectus.
7
<PAGE>
THE DEPOSITOR
Unless otherwise specified in the prospectus supplement, CHEC Funding,
LLC will act as depositor. It was formed in the State of Delaware on December 7,
1999, and is a wholly-owned subsidiary of the seller. The depositor maintains
its principal offices at 2728 N. Harwood Street, Dallas, Texas, 75201. Its
telephone number is (214) 981-5000.
The depositor does not have, nor is it expected in the future to have,
any significant assets.
THE SELLER AND THE SERVICER
GENERAL
The seller and servicer, Centex Credit Corporation d/b/a Centex Home
Equity Corporation, a Nevada corporation, is a sub-prime mortgage lender formed
in 1994 that engages in originating primarily non-conforming home equity loans,
directly through four major origination sources. The seller was originally named
Nova Credit Corporation and was headquartered in Denver, Colorado. In the first
calendar quarter of 1997, the seller's operations were moved to Dallas, Texas
and the seller underwent a reorganization and the hiring of a new management
team. In April of 1997, the seller's name was changed to Centex Credit
Corporation d/b/a Centex Home Equity Corporation. The seller is a wholly-owned
subsidiary of Centex Financial Services, Inc., a financial services subsidiary
of Centex Corporation, headquartered in Dallas, Texas. Centex Corporation is a
publicly traded, diversified company with a market capitalization of
approximately $1.5 billion and is primarily engaged in the home building,
financial services, contracting and construction services industries. The seller
is also affiliated with CTX Mortgage Company, a Nevada corporation, which
originates home equity loans conforming to Fannie Mae and/or Freddie Mac
guidelines. Since inception, the seller has focused on lending to individuals
who have substantial equity in their homes but have impaired or limited credit
histories. The seller's home equity loans to these borrowers are made for many
purposes such as debt consolidation, refinancing, home improvement or
educational expenses. Substantially all of the seller's home equity loans are
secured by first or second mortgage liens on one-to four-family residences, and
have amortization schedules ranging from five years to 30 years.
The seller is currently licensed to do business in 47 states plus the
District of Columbia and employs approximately 1,075 people located in 130
offices in 37 states. The seller originates home equity loans through its retail
branch network of 66 branch offices located in 29 states. In addition, the
seller originates home equity loans through a broker referral network from six
division offices with a total of 22 regions. A third production source for the
seller is referral of home equity loans from its affiliate conforming mortgage
company, CTX Mortgage Company. The final source of origination of home equity
loans is the seller's direct sales unit which sources loans through
telemarketing and direct mail efforts. All home equity loans are originated in
the name of Centex Home Equity Corporation, in the name of an affiliate of
Centex Home Equity Corporation or in the name of a broker for simultaneous
assignment to Centex Home Equity Corporation. The seller's strategy is to
utilize these origination channels to generate growth in the volume of the home
equity loans originated while diversifying sources of the home equity loans and
maintaining emphasis on its underwriting standards.
The seller has centralized its underwriting, servicing and quality
control functions in its Dallas headquarters.
The seller's headquarters are located at 2728 North Harwood Street,
Dallas, Texas, 75201 and its telephone number is (214) 981-5000.
UNDERWRITING GUIDELINES APPLICABLE TO THE HOME EQUITY LOANS
THE PRE-UNDERWRITING PROCESS. The seller's home equity loan
application process is conducted by the seller's branch officers and approved
mortgage brokers who compile information necessary for the seller's
underwriting department to evaluate the home equity loan. The approval process
is generally coordinated over
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the telephone with applications and credit reports obtained by branch
processors or brokers and usually sent by facsimile transmission to the
processing department at one of the seller's offices. Branch personnel
communicate with the seller's centralized underwriting staff, located in
Dallas, Texas, which consists of approximately 24 underwriters. The seller
also employs 24 other underwriters in six divisional offices, which have loan
approval authority on a limited basis. Branch operation personnel review the
applicant's credit history, based on the information contained in the
application as well as reports available from credit reporting bureaus, to see
if the credit history is acceptable given the seller's underwriting
guidelines. A credit report from one approved repository is required for
pre-approval and at least two reports are required prior to underwriting
review. These credit reports are the primary means utilized to verify each
borrower's mortgage and other debt payment histories. Based on this review,
the proposed terms of the home equity loan are then communicated to the branch
officer or broker responsible for the application who in turn discusses the
proposal with the home equity loan applicant. If the applicant accepts the
proposed terms, a branch officer or broker will gather additional information
necessary for the underwriting, closing, and funding of the loan.
THE STANDARD NON-CONFORMING PROGRAM. The home equity loans were
originated under the seller's Standard Non-Conforming Program. The Standard
Non-Conforming Program is applicable to residential loans which, for credit
reasons, do not conform to "traditional lenders" underwriting guidelines
comparable to those employed by savings and loans and commercial banks. The
seller began underwriting home equity loans in accordance with the Standard
Non-Conforming Program in May 1997.
The seller's underwriting standards under the Standard Non-Conforming
Program are primarily intended to assess creditworthiness of the mortgagor, the
value of the mortgaged property and to evaluate the adequacy of the property as
collateral for the home equity loan. While the seller's primary consideration in
underwriting a home equity loan is the borrower's employment stability and
debt-to-income ratio, the condition and value of the mortgaged property relative
to the amount of the home equity loan is another critical factor. In addition,
it also considers, among other things, a mortgagor's credit history and
repayment ability, as well as the type and use of the mortgaged property.
The seller currently employs approximately 48 underwriters and has its
underwriting functions primarily centralized in its Dallas, Texas headquarters.
The seller does not delegate underwriting authority to any broker or
correspondent. The seller's underwriting department functions independently of
its mortgage origination departments. Underwriters are compensated on a salary
basis, and are not compensated on commission.
The seller's policy is that every home equity loan is reviewed and
approved by an underwriter with assigned approval authorities. Home equity loans
exceeding those authorities require a second approval, generally from a manager
of underwriting or an underwriting supervisor.
The seller has established classifications with respect to the credit
profile of the applicant, and each loan is placed into one of seven ratings "A+"
through "D". Terms of loans made by the seller as well as maximum loan-to-value
ratios and debt-to-income ratios vary depending on the classification of the
applicant. Home equity loan applicants with less favorable credit ratings are
generally offered home equity loans with higher interest rates and lower
loan-to-value ratios than applicants with more favorable credit ratings.
The home equity loans underwritten under the seller's Standard
Non-Conforming Programs are adjustable and fixed rate loans. Except for
balloon loans, the fixed rate home equity loans originated by the seller have
amortization schedules ranging from 5 years to 30 years, and generally require
equal monthly payments which are due as of a scheduled day of each month which
is fixed at the time of origination. The fixed rate balloon loans, originated
by the seller, generally provide for scheduled amortization over 30 years,
with a maturity date and a balloon payment at the end of the fifteenth year.
The seller originates adjustable rate loan products called six-month ARMs or
2/28 ARMs, depending on whether the loan bears interest at rates which adjust
based on six-month LIBOR, with the initial rate adjustment date being either
six months after the date of origination of the loan or 24 months after the
date of origination of the loan. The six-month ARMs amortize over 15 to 30
years, adjust every six months and allow for a maximum periodic rate
adjustment of 1.00%. The maximum adjustment over the life of a six-month ARM
is capped at 7.00% above the initial interest rate of the
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loan and the minimum interest rate is generally equal to the initial interest
rate. The 2/28 ARMs amortize over 30 years, have an initial interest rate
adjustment date which is 24 months after the date of origination and allow for
a maximum rate adjustment on the initial interest rate adjustment date of
2.00%. After the initial rate adjustment date, the 2/28 ARMs adjust every six
months, allow for a maximum periodic interest rate adjustment of 1.00%, have a
lifetime cap on interest rate adjustments of 7.00% above the initial interest
rate of the loan and allow for a minimum rate generally equal to the initial
interest rate of the loan. The seller does not currently originate ARMs with a
balloon feature. The principal amounts of the home equity loans originated by
the seller generally range from a minimum of $5,000 to a maximum of $500,000.
The collateral securing loans originated by the seller are generally one- to
four-family residences, including condominiums, cooperatives, townhomes and
manufactured housing treated as real property under applicable state law.
These properties may or may not be occupied by the owner. It is the seller's
policy not to accept commercial properties, mixed-use properties or unimproved
land as collateral. Rural property requires a 5% reduction in loan-to-value
ratio. Second mortgages require a 5% reduction in loan-to-value ratio on owner
occupied property. The seller generally does not originate second lien home
equity loans where any senior mortgage lien allows for open-end advances or
negative amortization, is a private party mortgage or has shared appreciation
provisions.
The home equity loans underwritten under the Standard Non-Conforming
Program are underwritten pursuant to the "Full Documentation" residential loan
program, the "Limited Documentation" residential loan program or the "Stated
Income" residential loan program. Under each of these programs, the seller
reviews the home equity loan applicant's source of income, calculates the amount
of income from sources indicated on the loan application or similar
documentation, reviews the credit history of the applicant, calculates the
debt-to-income ratio to determine the applicant's ability to repay the home
equity loan, reviews the type and use of the property being financed and reviews
the property for compliance with the seller's standards. In determining an
applicant's ability to repay a six-month ARM, the seller uses a qualifying rate
equal to six-month LIBOR plus a margin. In determining an applicant's ability to
pay 2/28 ARM, the seller uses a qualifying rate equal to the initial interest
rate on the home equity loans, that is, six-month LIBOR plus a margin less up to
2.50%. It is the policy of the seller for its underwriting process to consist of
a thorough credit review and a thorough appraisal review on each home equity
loan by its underwriting department. In addition, the Seller performs a separate
appraisal review by the seller's appraisal review department on home equity
loans with a loan-to-value ratio of 85% or greater. Finally, the seller performs
a full compliance review is performed, to ensure that all documents have been
properly prepared, all applicable disclosures given in a timely fashion, and
that there has been proper compliance with all federal and state regulations.
Appraisals are performed by third party, independent, fee-based, state-licensed
appraisers generally approved by the seller's staff appraiser and generally
conforming to current Fannie Mae and/or Freddie Mac secondary market
requirements for residential property appraisals. Each appraisal includes, among
other things, an inspection of the interior and exterior of the subject property
and data from sales within the same general location as the subject property
where available.
The seller's underwriting criteria require it to determine the income
of each borrower and the source of funds (if applicable). Under the Full
Documentation Program, it is the policy of the seller that home equity loans to
borrowers who are salaried employees be supported by current employment
information in addition to employment history. This information for salaried
borrowers is verified based on any of the following: written confirmation from
employers, one or more pay-stubs, recent W-2 tax forms or recent tax returns. In
addition, a telephone confirmation of employment is made. Under the Limited
Documentation Program, self-employed borrowers are qualified based upon monthly
income stated on the home equity loan application. Current tax return or six
months of current bank statements and a signed profit and loss statement are
obtained to verify existence of business and acceptable cash flow. Under the
Stated Income Program, borrowers are qualified based upon monthly income as
stated on the home equity loan application and telephone confirmation of
employment. Self-employed borrowers under the Stated Income Program are required
to submit a business license, current bank statements, and verification with
directory assistance to ensure existence of the business.
Verification of the source of funds (if any) required by the applicant
is generally required under purchase money programs in the form of a standard
verification of deposit, current bank statement or other acceptable
documentation. Twelve months of mortgage payments or rental history must be
verified by lender or landlord. If appropriate compensating factors exist, the
seller may waive certain documentation requirements for individual borrowers.
All documentation should be no more than 60 days old at underwriting and no more
than
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90 days old at the time of the funding of the related loan. Upon completion of
a home equity loan's underwriting and processing, the closing of the loan is
scheduled with a closing attorney or agent approved by the seller. The closing
attorney or agent is responsible for completing the loan closing transaction
in accordance with applicable law and the seller's operating procedures. Title
insurance that insures the seller's interest as mortgagee and evidence of
adequate homeowner's insurance naming the seller and its assignees as an
additional insured party are required on all loans.
CREDIT INSURANCE. The seller is currently underwriting some, but not
all, of its home equity loans with truncated decreasing credit insurance that
is underwritten by an unrelated third party. One type of credit insurance is
credit life insurance which provides for the payment of indebtedness upon the
death of the insured. This type of insurance may be underwritten as either
joint insurance (covering both borrower and co-borrower) or single insurance
(covering the primary borrower only). The maximum coverage amount of the
credit life insurance is $100,000 and is based upon a net payoff basis. The
term of the coverage is limited to five years. A second type of credit
insurance is involuntary unemployment insurance. This type of insurance pays
to the creditor the scheduled monthly payment obligation of an insured debtor
in cases where the debtor has become unemployed involuntarily. The maximum
monthly benefit is $750 with the term of the insurance being limited to five
years.
LAND HOME LOANS. Centex Finance Company, a Nevada corporation and an
affiliate of the seller, originates land home loans. A land home loan is a loan
that is secured by a multi-section manufactured home and the related real
estate. Centex Finance Company is in the first lien position on all of the land
home loans. All of the Centex Finance Company land home loans are underwritten
pursuant to Centex Finance Company guidelines which are separate from, and
different than, the underwriting guidelines used for the home equity loans
originated by seller. Critical aspects of Centex Finance Company underwriting
requirements include:
- the manufactured home must be used as the borrower's primary
or secondary residence, and must meet minimum down payment or
equity requirements;
- all manufactured homes securing the land home loans are
considered to be real property and title insurance policies are
acquired on all land home loans;
- loan-to-value ratios with regard to the land home loans
are calculated by dividing the amount financed by either the
total sales price of the real estate and the manufactured home
together or the total sales price of the manufactured home and
improvements plus an independent fee appraisal performed by a
company-approved appraiser of the underlying real estate in cases
where the borrower has previously owned the underlying real
property;
- the maximum amount financed is limited to the value of the
real estate (as determined by the lesser of the sales price of
the land and an independent fee appraisal performed by a company
approved appraiser at the time of origination) plus the sales
price of the manufactured home (which is limited to 30% over the
wholesale cost of the home) plus site improvements such as
utilities hook up, septic and driveway (which is limited to 25%
of the wholesale cost of the home);
- land home loans are underwritten using a system that
manually evaluates the borrower's credit history and employment
stability and significantly relies on FICO scores; and
- the borrower's income is verified and debt ratios are
carefully evaluated.
The general criteria used by the seller's underwriting staff in classifying loan
applicants are set forth below.
UNDERWRITING CRITERIA OF THE SELLER
"A+" RISK. Under the "A+" risk category, the prospective borrower must
have repaid installment or revolving consumer debt according to its terms with
no 30-day late payments within the last 12 months and within the prior 12 month
period no 30-day late payments are permitted on an existing mortgage. No
Collection
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Accounts, unpaid charge-offs, judgments or a derogatory public record is
permitted within the past two years (except medical collections under
$500.00). No bankruptcy or foreclosure may have occurred during the preceding
seven years commencing from the date of discharge or the date the foreclosure
was filed. No state or federal tax liens (paid or unpaid) and no delinquent
property taxes are permitted in the last two years. A maximum loan-to-value
ratio of 90% for home equity loans originated under the Full Documentation
Program (85% for Limited Documentation Program or 80% if the home equity loan
is originated under the Stated Income Program) is permitted for a home equity
loan of less than $500,000 on an owner-occupied property. A maximum
loan-to-value ratio of 85% for a home equity loan originated under the Full
Documentation Program (75% for Limited Documentation Program or 70% if the
home equity loan is originated under the Stated Income Program) is permitted
for a home equity loan of less than $500,000 on non-owner occupied property.
The maximum debt service-to-income ratio is 45%.
"A-1" RISK. Under the "A-1" risk category, the prospective borrower
must have generally repaid installment or revolving debt according to its terms
with no 60-day late payments within the last 12 months. A maximum of one 30-day
late payment is acceptable in the last 12 months on an existing mortgage.
Consecutive 30-day delinquencies may be considered as a single late. This is
limited to 30-days late only. Minor derogatory items are allowed as to
non-mortgage credit. No Collection Accounts, charge-offs or judgments over $500
within the last two years are allowed. No bankruptcy or notice of default
filings by the borrower may have occurred during the preceding five years. A
maximum loan-to-value ratio of up to 90% (85% for the Limited Documentation
Program or 80% for home equity loans originated under the Stated Income Program)
is permitted for a home equity loan on a one-to-four family owner-occupied
property. A maximum loan-to-value ratio of up to 85% (75% for the Limited
Documentation Program or 70% for home equity loan originating under the Stated
Income Program) is permitted for a home equity loan on a non-owner occupied
property. The debt service-to-income ratio generally is 50% or less based on the
relevant qualifying rate for the home equity loan. The maximum loan amount is
$500,000 for a one-to-four family property under the Full Documentation Program.
The maximum loan amount is $350,000 for a home equity loan on a one-to-four
family property under the Limited Documentation Program or Stated Income
Program. Exceptions to the maximum loan amount for a single-family, owner
occupied property are considered by the seller on a limited basis.
"A-2" RISK. Under the "A-2" risk category, the prospective borrower
must have generally repaid installment or revolving debt according to its terms
with no 90-day late payments within the last 12 months. A maximum of two 30-day
late payments and no 60-day late payments within the last 12 months is
acceptable on an existing home equity loan. Minor derogatory items are allowed
as to non-mortgage credit. No unpaid Collection Accounts, charge-offs or
judgments over $1,000 within the last two years are allowed. No bankruptcy or
notice of default filings by the borrower may have occurred during the preceding
three years. A maximum loan-to-value ratio of up to 90% (80% for Limited
Documentation Program or 80% for home equity loans originated under the Stated
Income Program) is permitted for a home equity loan on a one-to-four family
owner occupied property. A maximum loan-to-value ratio of up to 80% (75% for
Limited Documentation Program or 65% for home equity loans originated under the
Stated Income Program) is permitted for a home equity loan on a non-owner
occupied property. The debt service-to-income ratio generally is 50% or less
based on the relevant qualifying rate of the home equity loan. The maximum loan
amount is $500,000 for a one-to-four family property under the Full
Documentation Program. The maximum loan amount is $350,000 for a home equity
loan on a one-to-four family property under the Limited Documentation Program or
Stated Income Program. Exceptions to the maximum loan amount for a
single-family, owner occupied property are considered by the seller on a limited
basis.
"B" RISK. Under the "B" risk category the prospective borrower must
have generally repaid consumer debt according to its terms with no 120-day
late payments within the last 12 months. A maximum of three 30-day late
payments within the last 12 months is acceptable on an existing home equity
loan on the subject property. As to non-mortgage credit, some prior defaults
may have occurred. Isolated and insignificant collections and/or charge-offs
and judgments within the last 24 months less than $2,500 are permitted and are
not required to be paid from the proceeds of the home equity loan. No
bankruptcy or foreclosure by the borrower may have occurred during the
preceding 24 months. A maximum loan-to-value ratio of 85% (80% for Limited
Documentation Program or 75% for Stated Income Program) is permitted for a
home equity loan on a one-to-four family owner occupied property. A maximum
loan-to-value ratio of 75% (70% for Limited
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Documentation Program or 65% for home equity loans originated under the Stated
Income Program) is permitted for a home equity loan on a non-owner occupied
property. The debt service-to-income ratio generally is 50% or less based on
the relevant qualifying rate for the home equity loan. The maximum loan amount
is $500,000 for a one-to-four family property under the Full Documentation
Program. The maximum loan amount is $250,000 for home equity loans originated
under the Limited Documentation Program or Stated Income Program.
"C-1" RISK. Under the "C-1" risk category, the prospective borrower may
have experienced significant credit problems in the past. Installment debt may
have been up to 120 days delinquent within the last twelve months. A maximum of
four 30-day late payments and one 60-day late payment within the last 12 months
is acceptable on an existing home equity loan. The existing home equity
obligation can be up to 60 days past due at the funding of the loan. As to
non-mortgage credit, significant prior defaults may have occurred. There may be
open collections or charge-offs not to exceed $2,500 and up to $5,000 in
isolated circumstances. However, Collection Accounts, unpaid charge-offs or
judgments are not required to be paid from the proceeds of the home equity loan.
No bankruptcy or notice of default filings by the borrower may have occurred
during the preceding 12 months. A maximum loan-to-value ratio of 80% (75% on the
Limited Documentation Program or 70% for home equity loans originated under the
Stated Income Program) is permitted for a home equity loan on a one-to-four
family owner-occupied property. A maximum loan-to-value ratio of 70% (65% on
Limited Documentation Program) is permitted for a home equity loan on a
non-owner-occupied property. The debt service-to-income ratio is generally 50%
or less based on the relevant qualifying rate for the home equity loan. The
maximum loan amount is $350,000 for a home equity loan on a one-to-four family
owner-occupied or non-owner occupied property. The maximum loan amount is
$250,000 on the Limited Documentation Program.
"C-2" RISK. Under the "C-2" risk category, the prospective borrower may
have experienced significant credit problems in the past. Installment debt may
have been up to 120 days delinquent within the last twelve months. A maximum of
two 60-day late payments or one 90-day late payment within 12 months is
acceptable on an existing home equity loan on the subject property. The existing
home equity obligation can be up to 90 days past due at the funding of the loan.
As to non-mortgage credit, significant prior defaults may have occurred. There
may be open collections or charge-offs not to exceed $5,000 and Collection
Accounts, unpaid charge-offs or judgments are not required to be paid from the
proceeds of the home equity loan. No bankruptcy or notice of default filings by
the borrower may have occurred during the preceding 6 months. A maximum
loan-to-value ratio of 75% is permitted for a home equity loan on a one-to-four
family owner-occupied property. A maximum loan-to-value ratio of 65% is
permitted for a home equity loan on a non-owner-occupied property. The debt
service-to-income ratio is generally 50% or less based on the relevant
qualifying rate for the home equity loan. The maximum loan amount is $350,000.
"D" RISK. Under the "D" risk category, the prospective borrower may
have experienced significant credit problems in the past. As to non-mortgage
credit, significant prior defaults may have occurred. The borrower is sporadic
in some or all areas with a disregard for timely payment or credit standing.
With respect to an existing home equity loan on the subject property, the home
equity loan may be no more than one time 120 days late and may be in
foreclosure proceedings. The existing home equity loan is not required to be
current at the time the application is submitted. The borrower may have open
collections, charge-offs and judgments, which are generally paid through the
loan proceeds if amount exceeds $5,000. Bankruptcy or notice of default
filings by the borrower may be present at the time of the loan. A maximum
loan-to-value ratio of 70% is permitted for a home equity loan on a
one-to-four family owner-occupied property. A maximum loan to value ratio of
50% is permitted for a home equity loan on non-owner occupied one-to-four
family property. The maximum loan amount is $350,000. The debt
service-to-income ratio generally is 50% or less based on the relevant
qualifying rate for the home equity loan.
EXCEPTIONS. As described above, the seller uses the foregoing
categories and characteristics as underwriting guidelines only. On a
case-by-case basis, it may determine that the prospective borrower warrants a
risk category upgrade, a debt service-to-income ratio exception, a pricing
exception, a loan-to-value exception or an exception from certain requirements
of a particular risk category. An upgrade or exception may generally be
allowed if the application reflects certain compensating factors, among
others:
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- reduced loan-to-value ratio;
- good property maintenance;
- mortgage history consistent with the risk category upgrade;
- stable employment;
- disposable income; and
- the length of residence in the subject property.
Accordingly, the seller may classify certain home equity loan applications in a
more favorable risk category than other home equity loan applications that, in
the absence of these compensating factors, would satisfy only the criteria of a
less favorable risk category.
SERVICING
The servicer has been servicing loans since March 1997, when it assumed
the default management cycle of loans previously handled by CTX Mortgage
Company, which is primarily a conforming seller/servicer. The servicer or one of
its affiliates originates all of the loans it services. Servicing encompasses,
among other activities, the following processes: billing and collection of
payments when due, movement and reporting of cash to the payment clearing bank
accounts, customer help, reconveyance, recovery of delinquent installments,
instituting foreclosure, and liquidation of the underlying collateral. As of
November 30, 1999, the servicer was servicing a portfolio of approximately $1.8
billion.
The servicer services all loans in its Dallas, Texas headquarters
facility using a mid-range AS-400 based servicing platform, known as LSAMS, for
which the servicer purchased a separate user license in August of 1997. The
LSAMS system is also employed by other large, nonconforming servicers in the
subprime industry. The company has purchased an additional servicing system from
London Bridge Corporation, known as FORTRACS, an event-tracking system with
separate modules for foreclosure, bankruptcy, and REO property. FORTRACS has
generally increased the servicer's ability to track and monitor loans in the
default process.
The servicer's operating and compliance policies and procedures are
published and updated to comply with state and federal, legal and regulatory
requirements.
The servicer's default management policy has been designed to identify
collection problems so as to facilitate a prompt response to the delinquent
borrower's situation. Early identification of a significant collection problem
is especially critical in the subprime mortgage environment.
Borrowers are mailed a monthly billing statement approximately two
weeks prior to their due date. Collection activity on an account begins as
soon as five (5) days after the scheduled due date if a payment is not made. A
"First Notice" is generated by LSAMS and mailed to the mortgagor generally on
the 8th day after the due date. Loans on which one of the initial three
payments on a new loan have not been received will generally be called on the
third day of default to ensure that all terms of the new loan are understood
by the borrower(s) and to determine if any serious problems exist which will
affect prompt repayment of the loan.
The collection strategy is to determine the facts surrounding the
delinquency, obtain customer agreement for the solution, and to attempt to
preclude future delinquency on the part of the borrower. Generally, when a
promise for payment is obtained from the borrower by the collector, LSAMS will
target the loan in the "queue" for the date of the promised payment. If the
payment is made, the account is removed from the collection queue. If the
arrangement for payment was not kept, the loan is placed back in the call
route for the collector to contact and follow up on the previous arrangements
for payment. If the payment is received per the arrangements and no future
promise or target dates are noted on LSAMS, the loan will be removed from the
collection cycle unless the account becomes delinquent in the future.
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Generally, when a loan appears in the LSAMS default management auto
queue, the collector will telephone the borrower(s) to discuss the past due
payment situation. Standard collection form letters, approved by the servicer's
legal department, are generally utilized in conjunction with telephone calling,
in order to reach the delinquent borrower(s). Documentation of collection
activity is critically important in the default management process. Collectors
have access on LSAMS to borrower demographics, telephone numbers, loan payment
history, and all previous collection notes, to assist in the collection of a
past due account. The policy of the servicer is that managers in the collection
department are required to monitor collectors' work on LSAMS and to offer
guidance and training to their employees.
It is the policy of the servicer to send out a notice of demand at the
61st day of delinquencies. This may be done sooner if the circumstances of a
particular account indicate that legal action appears likely. This letter will
give the customer 30 days' notice of the servicer's intent to initiate
foreclosure action on the loan. If an alternative to foreclosure is appropriate,
a recommended course of action will be prescribed by senior servicing
management. Servicing and collection practices regarding the liquidation of
properties (e.g., foreclosure) and the rights of the borrower vary from state to
state.
Prior to any foreclosure action, and intermittently updated throughout
the process, the servicer performs an in-depth market value analysis on all
defaulted loans. This analysis includes a current appraisal or broker price
opinion conducted by an independent vendor from the servicer's approved network
of appraisers or real estate brokers. In addition, all property evaluations are
reviewed by an internal staff appraiser in order to ensure that the most
accurate value is known. It is this value which will determine its strategy for
bidding, repairs, and sale of the property.
If the servicer acquires title to a property at a foreclosure sale or
through other means, the REO property department immediately begins working on
the file by obtaining at least two local real estate brokers to inspect the
property and provide an estimate of repairs needed and a recommended list price.
Repairs are performed if it is determined that they will increase the net
liquidation proceeds and speed of disposal.
If the property is not vacated when it is acquired, a local attorney
will be hired to commence eviction proceedings. Once it has listed a foreclosed
property, the REO property department will follow up closely with the listing
agent to ensure that the collateral is secure and that it is being aggressively
marketed.
The servicer outsources the tracking and follow up on homeowner's
insurance and property taxes. Expiration lists on homeowner insurance are
provided on a biweekly basis to the servicer by the service provider. When
insurance policies lapse, a letter is mailed to the borrower, advising that
coverage has lapsed and in the absence of a new policy, that the servicer will
obtain a force-placed insurance policy at the borrower's expense. The servicer
has a master policy with the force-placed provider which protects against errors
and omissions with a blanket policy covering the servicer's balance on the loan.
Despite the description of the seller's servicing procedures
described above, the servicer will be required to service the home equity
loans in accordance with the servicing standards and other terms set forth in
the relevant agreements.
DESCRIPTION OF THE SECURITIES
GENERAL
Each series of notes will be issued pursuant to an indenture between
the related trust fund and the entity named in the related prospectus
supplement as indenture trustee with respect to the series. A form of
indenture has been filed as an exhibit to the registration statement of which
this prospectus forms a part. Certificates will be issued in series pursuant
to a pooling and servicing agreement or a trust agreement among the depositor,
the seller, the servicer and the entity named in the prospectus supplement as
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. For purposes of this
prospectus, the term "trustee" will be used to refer to the trustee with
respect to a series of certificates or the indenture trustee with respect to a
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series of notes. The term "agreement" or "agreements" will refer to the
relevant agreement or agreements in the context in which the term appears.
The following summaries describe the material provisions in the
agreements common to each series of securities. The summaries do not purport to
be complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the agreements and the prospectus supplement relating to
each series of securities. Where particular provisions or terms used in the
agreements are referred to, the actual provisions (including definitions of
terms) are incorporated in this prospectus by reference as part of the summaries
contained in this prospectus.
Each series of securities will consist of one or more classes of
securities, one or more of which may be:
- Compound Interest Securities, with respect to which, for a
certain specified period of time, instead of requiring payment of
interest, all or a portion of the accrued interest is
capitalized, that is, added to the principal balance on each
distribution date. At the end of this period, interest payments
will be made on a principal balance that includes the capitalized
interest;
- Variable Interest Securities, with respect to which interest
accrues at a rate that is adjusted, based upon a predetermined
index, at fixed periodic intervals, as set forth in the related
prospectus supplement;
- Planned Amortization Class (PAC) Securities, with respect
to which payments of principal are made in accordance with a
schedule specified in the related prospectus supplement, based on
certain assumptions stated in the prospectus supplement;
- Zero Coupon Securities, which are entitled to receive
payments of principal only;
- Principal Only Securities, which are entitled solely or
primarily to distributions of principal and identified as set
forth in the prospectus supplement; or
- Interest Only Securities, which are solely or primarily
entitled to distributions of interest as set forth in the related
prospectus supplement.
A series may also include one or more classes of subordinated
securities. The right to receive principal and/or interest on a subordinated
security is subordinated to the rights of more senior classes to distribution of
interest and/or principal, and the subordinated securities may also be allocated
losses and shortfalls prior to senior classes. Residual Interest Securities may
also be issued to represent a retained interest in the residual value of the
trust fund.
The securities of each series will be issued only in fully registered
form, without coupons, in the authorized denominations for each class specified
in the related prospectus supplement. Upon satisfaction of the conditions, if
any, applicable to a class of a series, as described in the related prospectus
supplement, the transfer of the securities may be registered and the securities
may be exchanged at the office of the trustee specified in the prospectus
supplement without the payment of any service charge other than any tax or
governmental charge payable in connection with the registration of transfer or
exchange. If specified in the related prospectus supplement, one or more classes
of a series may be available in book-entry form only.
Payments of principal of and interest on a series of securities will
be made on the distribution dates specified in the related prospectus
supplement (which may be different for each class for the payment of principal
and interest) by check mailed to holders of the securities of the series
registered as holders at the close of business on the record date applicable
to the relevant distribution date, as specified in the related prospectus
supplement, at their addresses appearing on the security register. However,
payments may be made by wire transfer (which, unless otherwise specified in
the related prospectus supplement, will be at the expense of the holder
requesting payment by wire transfer) in certain circumstances described in the
related prospectus supplement. In addition, final payments of principal in
retirement of each security will be made only upon
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presentation and surrender of the 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 the security before the distribution
date on which the final principal payment on any security is expected to be
made to the holder of the security.
Payments of principal of and interest on the securities will be made by
the trustee, or a paying agent on behalf of the trustee, as specified in the
related prospectus supplement. All payments with respect to the home equity
loans for a series, together with reinvestment income on these payments, amounts
withdrawn from any reserve fund, and amounts available pursuant to any other
credit enhancement will be deposited into the Collection Account or the
Certificate Account as specified in the related agreement. If provided in the
related prospectus supplement, these amounts may be net of certain amounts
payable to the servicer and any other person specified in the prospectus
supplement. These amounts may then be deposited into the Distribution Account
and will be available to make payments on the securities of the series on the
next applicable distribution date. See "THE TRUST FUNDS--Collection, Certificate
and Distribution Accounts."
BOOK-ENTRY SECURITIES
If specified in the related prospectus supplement, one or more classes
of securities may be issued in book-entry form. Persons acquiring beneficial
ownership interests in the book-entry securities will hold their securities
through DTCC in the United States, or Cedelbank or the Euroclear System in
Europe if they are participants of those systems, or indirectly through
organizations which are participants in any of those systems. The book-entry
securities will be issued in one or more certificates which equal the aggregate
principal balance of the applicable class or classes of securities and will
initially be registered in the name of Cede & Co., the nominee of DTCC.
Cedelbank and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in Cedelbank's and
Euroclear's names on the books of their respective depositories which in turn
will hold positions in customers' securities accounts in the depositories' names
on the books of DTCC. Citibank N.A. will act as depository for Cedelbank and The
Chase Manhattan Bank will act as depository for Euroclear. Except as described
below, no person acquiring a book-entry security will be entitled to receive a
physical definitive certificate representing its security.
Unless and until definitive securities are issued, it is anticipated
that the only certificateholder or noteholder, as applicable, will be Cede &
Co., as nominee of DTCC. Beneficial owners are only permitted to exercise their
rights indirectly through DTCC or, in Europe, Cedelbank and Euroclear, and their
participants.
The beneficial owner's ownership of a book-entry security 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
this purpose. In turn, the financial intermediary's ownership of the book-entry
security will be recorded on the records of DTCC (or of a participating firm
that acts as agent for the financial intermediary, whose interest will in turn
he recorded on the records of DTCC, if the beneficial owner's financial
intermediary is not a DTCC participant and on the records of Cedelbank or
Euroclear, as appropriate).
Beneficial owners will receive all distributions of principal of, and
interest on, the book-entry securities from the trustee through DTCC and DTCC
participants. While the book-entry securities are outstanding (except under
the circumstances described below), under the rules, regulations and
procedures creating and affecting DTCC and its operations, DTCC is required to
make book-entry transfers among participants on whose behalf it acts with
respect to the securities and is required to receive and transmit
distributions of principal of, and interest on, the securities. Participants
and indirect participants with whom beneficial owners have accounts with
respect to securities are similarly required to make book-entry transfers and
receive and transmit distributions on behalf of their respective beneficial
owners. Accordingly, although beneficial owners will not possess certificates
or notes, the DTCC rules provide a mechanism by which beneficial owners will
receive distributions and will be able to transfer their interest.
Beneficial owners will not receive or be entitled to receive
certificates representing their respective interests in the securities, except
under the limited circumstances described below. Unless and until definitive
securities are issued, beneficial owners who are not participants may transfer
ownership of securities only through participants and indirect participants by
instructing participants and indirect participants to transfer
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securities, by book-entry transfer, through DTCC for the account of the
purchasers of these securities, which must be maintained with their
participants. Under the DTCC rules and in accordance with DTCC's normal
procedures, transfers of ownership of securities will be executed through DTCC
and the accounts of the respective participants at DTCC 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 beneficial owners.
Because of time zone differences, credits of securities received in
Cedelbank 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 DTCC settlement date. These credits or any transactions in
securities settled during subsequent securities settlement processing will be
reported to the relevant Euroclear or Cedelbank participants on that business
day. Cash received in Cedelbank or Euroclear as a result of sales of securities
by or through a Cedelbank participant or Euroclear participant to a DTCC
participant will be received with value on the DTCC settlement date but will be
available in the relevant Cedelbank or Euroclear cash account only as of the
business day following settlement in DTCC.
Transfers between participants will occur in accordance with DTCC
rules. Transfers between Cedelbank 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 DTCC, on the one hand, and directly or indirectly through Cedelbank
participants or Euroclear participants, on the other, will be effected in DTCC
in accordance with DTCC rules on behalf of the relevant European international
clearing system by the relevant European depository; however, these cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in that 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 European depository to take action to effect final settlement on its
behalf by delivering or receiving securities in DTCC, and making or receiving
payment in accordance with normal procedures for same day funds settlement
applicable to DTCC. Cedelbank participants and Euroclear participants may not
deliver instructions directly to the European depositories.
DTCC, which is a New York-chartered limited purpose trust company,
performs services for its participants, some of which (and/or their
representatives) own DTCC. In accordance with its normal procedures, DTCC is
expected to record the positions held by each DTCC participant in the
book-entry securities, whether held for its own account or as a nominee for
another person. In general, beneficial ownership of book-entry securities will
be subject to the rules, regulations and procedures governing DTCC and DTCC
participants as in effect from time to time.
Cedelbank is incorporated under the laws of Luxembourg as a
professional depository. Cedelbank holds securities for its participating
organizations and facilitates the clearance and settlement of securities
transactions between Cedelbank participants through electronic book-entry
changes in accounts of Cedelbank participants, thus eliminating the need for
physical movement of certificates. Transactions may be settled in Cedelbank in
any of 28 currencies, including United States dollars. Cedelbank provides to
its Cedelbank participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Cedelbank interfaces with domestic
markets in several countries. As a professional depository, Cedelbank is
subject to regulation by the Luxembourg Monetary Institute. Cedelbank
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 Cedelbank is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Cedelbank
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, thus
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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 DTCC described above. The
Brussels, Belgium office of Morgan Guaranty Trust Company of New York
functions as Euroclear operator, under contract with Euroclear Clearance
Systems S.C., a Belgian cooperative corporation. 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
Euroclear Clearance Systems. The Euroclear Clearance Systems establish 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.
Because the Euroclear operator is the Belgian branch of a New York
banking corporation which is a member bank of the Federal Reserve System, 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. These 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 these
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 securities will be made on each
distribution date by the trustee to DTCC. DTCC will be responsible for crediting
the amount of these payments to the accounts of the applicable DTCC participants
in accordance with DTCC's normal procedures. Each DTCC participant will be
responsible for disbursing these payments to the beneficial owners 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 that it represents.
Under a book-entry format, beneficial owners may experience some delay
in their receipt of payments, since these payments will be forwarded by the
trustee to Cede & Co. Distributions with respect to securities held through
Cedelbank or Euroclear will be credited to the cash accounts of Cedelbank
participants or Euroclear participants in accordance with the relevant system's
rules and procedures, to the extent received by the relevant European
depository. These distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations. Because DTCC can only act
on behalf of financial intermediaries, the ability of a beneficial owner to
pledge book-entry securities to persons or entities that do not participate in
the Depository system, or otherwise take actions in respect of the book-entry
securities, may be limited due to the lack of physical certificates for
book-entry securities. In addition, issuance of the book-entry securities in
book-entry form may reduce the liquidity of the securities in the secondary
market since certain potential investors may be unwilling to purchase securities
for which they cannot obtain physical certificates.
Monthly and annual reports on the applicable trust fund will be
provided to Cede & Co., as nominee of DTCC, 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 Depository, and to the
financial intermediaries to whose DTCC accounts the book-entry securities of
the beneficial owners are credited.
DTCC has advised the trustee that, unless and until definitive
securities are issued, DTCC will take any action permitted to be taken by the
holders of the book-entry securities under the relevant agreement only at the
direction of one or more financial intermediaries to whose DTCC accounts the
book-entry securities are credited, to the extent that these actions are taken
on behalf of financial intermediaries whose holdings include
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the book-entry securities. Cedelbank or the Euroclear operator, as the case
may be, will take any other action permitted to be taken by a holder under the
relevant operating agreement on behalf of a Cedelbank participant or Euroclear
participant only in accordance with its relevant rules and procedures and
subject to the ability of the relevant European depository to effect these
actions on its behalf through DTCC. DTCC may take actions, at the direction of
the related participants, with respect to some securities which conflict with
actions taken with respect to other securities.
Definitive securities will be issued to beneficial owners, or their
nominees, rather than to DTCC, only if:
- DTCC or the seller advises the trustee in writing that DTCC
is no longer willing, qualified or able to discharge properly its
responsibilities as nominee and depository with respect to the
book-entry securities and the seller or the trustee is unable to
locate a qualified successor;
- the seller, at its sole option, elects to terminate a
book-entry system through DTCC; or
- after the occurrence of an event of default, beneficial
owners owning a majority in principal amount of the applicable
securities advise the trustee and DTCC through the financial
intermediaries and the DTCC participants in writing that the
continuation of a book-entry system through DTCC (or its
successor) is no longer in the best interests of beneficial
owners.
WE REFER YOU TO "THE AGREEMENTS--SERVICER TERMINATION EVENTS; EVENT OF
DEFAULT" FOR A DISCUSSION OF WHAT CONSTITUTES AN EVENT OF DEFAULT.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the trustee will be required to notify all applicable
beneficial owners of the occurrence of the event and the availability through
DTCC of definitive securities. Upon surrender by DTCC of the global certificate
or certificates representing the book-entry securities and instructions for
re-registration, the trustee will issue definitive securities, and thereafter
the trustee will recognize the holders of the definitive securities as
certificateholders or noteholders, as applicable, under the applicable
agreement.
Although DTCC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of securities among participants
of DTCC, Cedelbank and Euroclear, they are under no obligation to perform or
continue to perform these procedures, and these procedures may be discontinued
at any time.
Neither the depositor, the seller, the servicer the owner trustee (if
applicable), the trustee or any of their affiliates 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 securities held by Cede & Co.,
as nominee for DTCC, or for maintaining, supervising or reviewing any records
relating to these beneficial ownership interests.
VALUATION OF THE HOME EQUITY LOANS
If specified in the related prospectus supplement for a series of
notes, each home equity loan included in the related trust fund for a series
will be assigned an initial "asset value." Generally, the related agreement will
specify that at any time the asset value of the home equity loans will be equal
to the product of the asset value percentage as set forth in the indenture and
the lesser of:
- the stream of remaining regularly scheduled payments on the home
equity loans, net, of certain amounts payable as expenses,
together with income earned on each 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 the series over
periods equal to the interval between payments on the notes; and
- the then principal balance of the home equity loans.
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Generally, the related agreement will specify that, the initial asset
value of the home equity loans 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 the relevant rating agency or a rate insured by means of a
surety bond, guaranteed investment contract, or other arrangement satisfactory
to the rating agency. If the assumed reinvestment rate is insured in this
manner, the related prospectus supplement will set forth the terms of the
relevant insurance arrangement.
PAYMENTS OF INTEREST
The securities of each class by their terms entitled to receive
interest will bear interest (which is generally calculated, on the basis of a
360 day year of twelve 30-day months) from the date and at the rate per annum
specified, or calculated in the method described, in the related prospectus
supplement. Interest on these securities will be payable on the distribution
date specified in the related prospectus supplement. If so specified in the
related prospectus supplement, the distribution date for the payment of interest
of a class may be different from, or occur more or less frequently than, the
distribution date for the payment of principal with respect to the class. The
rate of interest on securities of a series may be variable or may change with
changes in the annual percentage rates of the home equity loans included in the
related trust fund and/or as prepayments occur with respect to these home equity
loans. Principal Only Securities may not be entitled to receive any interest
distributions or may be entitled to receive only nominal interest distributions.
Any interest on Zero Coupon Securities that is not paid on the related
distribution date will accrue and be added to principal on the related
distribution date.
Interest payable on the securities on a distribution date will include
all interest accrued during the period specified in the related prospectus
supplement. In the event interest accrues during the calendar month preceding a
distribution date, the effective yield to holders will be reduced from the yield
that would otherwise be obtainable if interest payable on the securities were to
accrue through the day immediately preceding the distribution date.
PAYMENTS OF PRINCIPAL
On each distribution date, principal payments will be made to the
holders of securities on which principal is then payable, to the extent set
forth in the related prospectus supplement. These payments will be made in an
aggregate amount determined as specified in the related prospectus supplement
and will be allocated among the relevant classes in the manner, at the times and
in the priority set forth in the prospectus supplement. The holders of one or
more classes of securities may have the right to request that principal
distributions allocable to the applicable class of securities be distributed
directly to the holder. If the requests of holders exceed the amount of
principal to be distributed, the requests generally will be filled in the order
in which they were received. If the amount of principal to be distributed
exceeds the amount of requests, the trustee will select random lots of $1,000
each to receive the relevant principal distribution. Thus, some holders of the
applicable class of securities may receive no principal distributions or a
disproportionate amount of principal distributions. If specified in the related
prospectus supplement, the distribution date for the payment of principal of a
class may be different from, or occur more or less frequently than, the
distribution date for the payment of interest for the class.
FINAL SCHEDULED DISTRIBUTION DATE
The final scheduled distribution date with respect to each class of
notes is the date no later than the date on which principal will be fully paid.
The prospectus supplement may use the term "final payment date" or "final
maturity date" to refer to the final scheduled distribution date with respect to
a class of notes. With respect to each class of certificates, the final
scheduled distribution date will be the date on which the entire aggregate
principal balance is expected to be reduced to zero, in each case calculated on
the basis of the assumptions applicable to the relevant series described in the
related prospectus supplement. The final scheduled distribution date for each
class of a series will be specified in the related prospectus supplement. Since
payments on the home equity loans will be used to make distributions in
reduction of the outstanding principal amount of the
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securities, it is likely that the actual final distribution date of a class
will occur earlier, and may occur substantially earlier, than its final
scheduled distribution date. Furthermore, with respect to a series of
certificates, as a result of delinquencies, defaults and liquidations of the
home equity loans in the trust fund, the actual final distribution date of any
certificate may occur later than its final scheduled distribution date. No
assurance can be given as to the actual prepayment experience with respect to
a series. See "--Weighted Average Life of the Securities" below.
SPECIAL REDEMPTION
If so specified in the prospectus supplement relating to a series of
securities having other than monthly distribution dates, one or more classes of
securities of the series may be subject to special redemption, in whole or in
part, on a special redemption date specified in the related prospectus
supplement if, as a consequence of prepayments on the home equity loans relating
to the securities or low yields then available for reinvestment, the entity
specified in the related prospectus supplement determines, based on assumptions
specified in the applicable agreement, that the amount available for the payment
of interest that will have accrued on the securities through the designated
interest accrual date specified in the related prospectus supplement is less
than the amount of interest that will have accrued on the securities. In this
event and as further described in the related prospectus supplement, the trustee
will redeem a principal amount of outstanding securities of the series as will
cause the amount available for payment of interest to equal the amount of
interest that will have accrued through the designated interest accrual date for
the series outstanding immediately after the special redemption has occurred.
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
the security will be repaid to the investor. Generally, the weighted average
life of a class of securities will be influenced by the rate at which the
amount financed under the home equity loans included in the trust fund for a
series is paid, which may be in the form of scheduled amortization or
prepayments.
Prepayments on loans and other receivables can be measured relative to
a prepayment standard or model. The prospectus supplement for a series of
securities will describe the prepayment standard or model, if any, used and may
contain tables setting forth the 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 for the
series, in each case based on the assumptions stated in the prospectus
supplement, including assumptions that prepayments on the home equity loans
included in the related trust fund are made at rates corresponding to various
percentages of the prepayment standard or model specified in the prospectus
supplement.
There is, however, no assurance that prepayment of the home equity
loans included in the related trust fund will conform to any level of any
prepayment standard or model specified in the related prospectus supplement. The
rate of principal prepayments on pools of loans may be influenced by a variety
of factors, including job related factors such as transfers, layoffs or
promotions and personal factors such as divorce, disability or prolonged
illness. Economic conditions, either generally or within a particular geographic
area or industry, also may affect the rate of principal prepayments. Demographic
and social factors may influence the rate of principal prepayments in that some
borrowers have greater financial flexibility to move or refinance than do other
borrowers. The deductibility of mortgage interest payments, and servicing
decisions also affect the rate of principal prepayments. As a result, there can
be no assurance as to the rate or timing of principal prepayments of the home
equity loans either from time to time or over the lives of the home equity
loans.
The rate of prepayments of conventional housing loans and other
receivables has fluctuated significantly in recent years. In general, however,
if prevailing interest rates fall significantly below the interest rates on the
home equity loans for a series, the loans are likely to prepay at rates higher
than if prevailing interest rates remain at or above the interest rates borne by
the loans. In this regard, it should be noted that the home equity loans for a
series may have different interest rates. In addition, the weighted average life
of the securities
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may be affected by the varying maturities of the home equity loans. If any
home equity loans for a series have actual terms-to-stated maturity of less
than those assumed in calculating the final scheduled distribution date of the
related securities, one or more classes of the series may be fully paid prior
to their respective final scheduled distribution date, even in the absence of
prepayments and a reinvestment return higher than the assumed reinvestment
rate for the series.
THE TRUST FUNDS
GENERAL
The notes of each series will be secured by the pledge of the assets of
the related trust fund, and the certificates of each series will represent
interests in the assets of the related trust fund. The trust fund of each series
will include:
- the home equity loans;
- amounts available from the reinvestment of payments on the
home equity loans at the Assumed Reinvestment Rate, if any,
specified in the related prospectus supplement;
- any credit enhancement or the rights to any credit
enhancement;
- any mortgaged property that secured a home equity loan but
which is acquired by foreclosure or deed in lieu of foreclosure
or repossession so as to become an REO property; and
- the amount, if any, initially deposited in the Prefunding
Account, Capitalized Interest Account, Collection Account,
Certificate Account or Distribution Account for a series as
specified in the related prospectus supplement.
The securities will be non-recourse obligations of the related trust
fund. The assets of the trust fund specified in the related prospectus
supplement for a series or class of securities, will serve as collateral only
for that series or class of securities unless the related prospectus supplement
specifies that the assets will serve as collateral for another series or class.
Holders of a series or class of notes, as applicable, may only proceed against
the collateral securing their series or class of notes in the case of a default
with respect to their series or class of notes and may not proceed against any
assets of the depositor, seller or the related trust fund not pledged to secure
their notes.
The home equity loans for a series will be transferred by the seller to
the depositor and from the depositor to the trust fund. Home equity loans
relating to a series will be master serviced by the servicer pursuant to a
pooling and servicing agreement, with respect to a series consisting of only
certificates or a sale and servicing agreement between the depositor, the
seller, the trust fund and the servicer, with respect to a series that includes
notes.
If specified in the related prospectus supplement, a trust fund
relating to a series of securities may be a business trust formed under the laws
of the state specified in the related prospectus supplement pursuant to a trust
agreement between the seller and the trustee of the trust fund specified in the
related prospectus supplement.
With respect to each trust fund, prior to the initial offering of the
related series of securities, the trust fund will have no assets or liabilities.
No trust fund is expected to engage in any activities other than acquiring,
managing and holding the related home equity loans and other assets contemplated
in this prospectus and in the related prospectus supplement and proceeds of the
assets, issuing securities, making payments and distributions on the securities
and certain related activities. No trust fund is expected to have any source of
capital other than its assets and any related credit enhancement.
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An agreement may provide that additional home equity loans may be added to the
trust fund if:
- the home equity loans were originated by the seller in the
ordinary course of its business;
- the inclusion of the home equity loans will maintain or increase
the level of overcollateralization; and
- the inclusion of the home equity loans will not result in the
withdrawal or downgrading of the ratings then assigned to the
series.
In addition, an agreement may provide that home equity loans may be removed from
a trust fund from time to time if the actual level of overcollateralization
exceeds the amount of overcollateralization required to be maintained and
removal will not result in the withdrawal or downgrading of the ratings then
assigned to the securities of the related series.
THE HOME EQUITY LOANS
The home equity loans for a series may consist, in whole or in part, of
closed-end home equity loans secured by first or second mortgages primarily on
mortgaged properties, which may be subordinated to other mortgages on the same
mortgaged property. The home equity loans may have fixed interest rates or
adjustable interest rates and may provide for other payment characteristics as
described below.
The full principal amount of a home equity loan is advanced at
origination of the loan and generally is repayable in equal (or substantially
equal) installments of an amount sufficient to fully amortize the loan at its
stated maturity. As more fully described in the related prospectus supplement,
interest on each home equity loan is calculated on the basis of the
outstanding principal balance of the loan multiplied by the applicable home
equity loan interest rate and, in the case of simple interest loans, further
multiplied by a fraction, the numerator of which is the number of days in the
period elapsed since the preceding payment of interest was made and the
denominator is the number of days in the annual period for which interest
accrues on the loan. Interest on home equity loans also may be calculated on
an actuarial basis, in which case each monthly payment consists of a
decreasing amount of interest and an increasing amount of principal, and the
payment either earlier or later then the due date for each payment will not
affect the relative applications of principal and interest. The home equity
loans for a series may include home equity loans that do not amortize their
entire principal balance by their stated maturity in accordance with their
terms, and require a balloon payment of the remaining principal balance at
maturity, as specified in the related prospectus supplement. The original
terms to stated maturity of home equity loans will generally not exceed 360
months.
The mortgaged properties will include single family property, which
consists of one- to four-family attached or detached residential housing,
including condominium units and cooperative dwellings, and may include
mixed-use property. A condominium unit is an individual housing unit in a
multi-unit building, buildings, or group of buildings (whether or not attached
to each other), with respect to which the owner has exclusive ownership and
possession, and also includes the owner's individual interest in all common
areas of the building or buildings. By contrast, a cooperative dwelling is an
individual housing unit owned by a corporation owned by tenant-stockholders
who, through the ownership of stock, shares or membership securities in the
corporation, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific units and which is described in Section
216 of the tax code. Mixed-use properties may consist of structures of no more
than three stories, which include one to four residential dwelling units and
space used for retail, professional or other commercial uses. These uses,
which may not involve more than 50% of the space in the structure, may include
doctor, dentist or law offices, real estate agencies, boutiques, newsstands,
convenience stores or other similar types of uses intended to cater to
individual customers as specified in the related prospectus supplement. The
properties may be located in suburban or metropolitan districts. Any
non-residential use must be in compliance with local zoning laws and
regulations. The mortgaged properties may consist of detached individual
dwellings, individual condominiums, townhouses, duplexes, row houses,
individual units in planned unit developments and other attached dwelling
units. The mortgaged properties also may include module or manufactured homes
which are treated as real estate under local law. Except for
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condominium units and cooperative dwellings, each single family property must
be located on land owned in fee simple by the borrower or on land leased by
the borrower for a term at least as long as the term of the related home
equity 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. Mortgages
on cooperative dwellings consist of a lien on the shares issued by the
cooperative dwelling and the proprietary lease or occupancy agreement relating
to the cooperative dwelling.
The aggregate principal balance of home equity loans secured by
mortgaged properties that are owner-occupied will be disclosed in the related
prospectus supplement. The sole basis for determining that a given percentage of
the home equity loans are secured by single family property that is
owner-occupied will be either (1) the making of an oral representation by the
mortgagor at origination of the home equity loan either that the underlying
mortgaged property will be used by the mortgagor for a period of at least six
months every year or that the mortgagor intends to use the mortgaged property as
a primary residence, or (2) a finding that the address of the underlying
mortgaged property is the mortgagor's mailing address as reflected in the
servicer's or the applicable sub-servicer's records. The mortgaged properties
also may include non-owner occupied investment properties and vacation and
second homes.
ADDITIONAL INFORMATION
The related prospectus supplement for each series will provide
information with respect to the home equity loans that are home equity loans as
of the cut-off date, including, among other things, and to the extent relevant:
- the aggregate unpaid principal balance of the home equity loans;
- the range and weighted average home equity loan interest
rate on the home equity loans, and, in the case of adjustable
rate home equity loans, the range and weighted average of the
current home equity loan interest rates and any lifetime rate
caps;
- the range and average outstanding principal balance of the
home equity loans;
- the weighted average original and remaining term-to-stated
maturity of the home equity loans and the range of original and
remaining terms-to-stated maturity, if applicable;
- the range and weighted average of "combined loan-to-value
ratios" (defined below) for the home equity loans;
- the percentage (by outstanding principal balance as of the
cut-off date) of home equity loans that accrue interest at
adjustable or fixed interest rates;
- any special hazard insurance policy or bankruptcy bond or
other enhancement relating to the home equity loans;
- the geographic distribution of the mortgaged properties
securing the home equity loans;
- the percentage of home equity loans (by principal balance
as of the cut-off date) that are secured by single family
mortgaged properties, shares relating to cooperative dwellings,
condominium units, investment property and vacation or second
homes;
- the lien priority of the home equity loans; and
- the delinquency status and year of origination of the
home equity loans.
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The related prospectus supplement will also specify any other
limitations on the types or characteristics of home equity loans for a series.
No more than 5% of the aggregate home equity loans as they will be constituted
on the closing date will deviate in any respect from the home equity loan pool
characteristics that are described in the prospectus supplement.
The "combined loan-to-value ratio" with respect to a home equity loan
is the percentage equivalent of a fraction, the numerator of which is the sum of
(1) the original principal amount of the home equity loan at its date of
origination and (2) the outstanding principal amount of any senior loan on the
mortgaged property at the time of origination of the home equity loan, and the
denominator of which is the "appraised value" (defined below) of the mortgaged
property at the date of origination.
"Appraised value" means, with respect to property securing a home
equity loan, the lesser of the appraised valued determined in an appraisal
obtained at origination of the home equity loan or sales price of the property
at that time.
If information of the nature described above respecting the home equity
loans is not known to the seller at the time the securities are initially
offered, approximate or more general information of the nature described above
will be provided in the prospectus supplement and additional information will be
set forth in a Current Report on Form 8-K to be available to investors on the
date of issuance of the related series and to be filed with the SEC within 15
days after the initial issuance of the securities.
ACCOUNTS
CERTIFICATE AND DISTRIBUTION ACCOUNTS
A separate Certificate Account will be established for each series of
securities for receipt of all amounts received on or with respect to the home
equity loans. Certain amounts on deposit in the Certificate Account and certain
amounts available pursuant to any credit enhancement, as provided in the related
prospectus supplement, will be deposited into one or more Distribution Accounts.
Funds in the Certificate and Distribution Accounts generally will be invested in
eligible investments maturing, with certain exceptions, not later, in the case
of funds in the Certificate Account, 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, than the day preceding
the next distribution date for the related series of securities. With respect to
an issuance of notes, the term "Collection Account" may be used in place of
"Certificate Account."
WE REFER YOU TO "--ELIGIBLE INVESTMENTS" BELOW FOR MORE DETAIL.
PREFUNDING AND CAPITALIZED INTEREST ACCOUNTS
If specified in the related prospectus supplement, a trust fund will
include one or more Prefunding Accounts, that are segregated trust accounts
established and maintained with the trustee for the related series. If so
specified, on the closing date for the series, a prefunded amount representing a
portion of the proceeds of the sale of the securities limited to fifty percent
of the aggregate principal amount of the series may be deposited in the
Prefunding Account and may be used to purchase additional home equity loans
during a prefunding period limited to no more than six months specified in the
related prospectus supplement. Pending the purchase of additional home equity
loans, funds deposited in the Prefunding Account will be invested in eligible
investments. If any prefunded amount remains on deposit in the Prefunding
Account at the end of the prefunding period, this amount will be applied in the
manner specified in the related prospectus supplement to prepay the notes or the
certificates of the applicable series.
Each additional home equity loan must satisfy the eligibility
criteria specified in the related prospectus supplement and related
agreements. This eligibility criteria will be determined in consultation with
the relevant rating agencies, and any credit enhancer prior to the issuance of
the related series and are designed to ensure that if the additional home
equity loans were included as part of the initial home equity loans, the
credit quality of the assets as a whole would continue to be consistent with
the initial rating on the securities. The eligibility
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criteria will apply to the aggregate pool of home equity loans, including the
original and the additional home equity loans, and must include a minimum
weighted average interest rate, a maximum weighted average remaining term to
maturity and a maximum weighted average Combined Loan-to-Value Ratio.
Depending on the composition of the original home equity loans and the type of
credit enhancement, additional eligibility criteria such as a minimum interest
rate, a maximum principal balance, a limitation on geographic concentration
and a limit on certain types of home equity loans such as balloon loans or
loans secured by other than primary residences. The seller will certify to the
trustee that all conditions precedent to the transfer of the additional home
equity loans, including the satisfaction of the eligibility criteria to the
trust fund, have been satisfied. It is a condition to the transfer of any
additional home equity loans to the trust fund that no rating agency, after
receiving prior notice of the proposed transfer of the additional home equity
loans to the trust fund, advises the seller or the trustee or any credit
enhancer that the conveyance of the additional home equity loans will result
in a qualification, modification or withdrawal of its then current rating of
any class of notes or certificates of the series. Following the transfer of
additional home equity loans to the trust fund, the aggregate characteristics
of the home equity loans then held in the trust fund may vary from those of
the initial home equity loans. As a result, the additional home equity loans
may adversely affect the performance of the related securities.
If a Prefunding Account is established, one or more Capitalized
Interest Accounts, which must be segregated trust accounts, may be established
and maintained with the trustee for the related series. On the relevant
closing date, a portion of the proceeds of the sale of the securities will be
deposited in the Capitalized Interest Account and used to pay interest accrued
on the securities and, if specified in the related prospectus supplement,
certain fees or expenses (such as trustee fees and credit enhancement fees)
that are not covered by interest generated by the home equity loans in the
trust fund during the prefunding period and available to pay these amounts. If
specified in the related prospectus supplement, amounts on deposit in the
Capitalized Interest Account may be released to the seller prior to the end of
the prefunding period subject to the satisfaction of certain tests specified
in the related prospectus supplement. Any amounts on deposit in the
Capitalized Interest Account at the end of the prefunding period will be
distributed to the person specified in the related prospectus supplement.
ELIGIBLE INVESTMENTS
Each agreement generally will define eligible investments to include the
following:
- 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, if these
obligations are backed by the full faith and credit of the United
States;
- purchase agreements on obligations specified in clause (1) above
maturing not more than three months from the date of acquisition,
if the short-term unsecured debt obligations of the party agreeing
to repurchase these obligations are at the time rated by each
rating agency in its highest short-term rating category;
- certificates of deposit, time deposits and bankers' acceptances of
any U.S. depository institution or trust company incorporated
under federal or state laws of the United States and subject to
supervision and examination by federal and/or state banking
authorities, if the unsecured short-term debt obligations of the
depository institution or trust company at the date of acquisition
have been rated by each rating agency in its highest unsecured
short-term debt rating category;
- commercial paper (having original maturities of not more than 90
days) of any corporation incorporated under federal or state laws
of the United States which, on the date of acquisition, has been
rated by each rating agency in its highest short-term rating
category;
- short-term investment funds sponsored by any trust company or
national banking association incorporated under federal or state
laws of the United States which, on the date of acquisition, have
been rated by each rating agency in its highest rating category
for long-term unsecured debt; and
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- interests in any money market fund which at the date of
acquisition and throughout the time as the interest is held in the
fund have a rating of "Aaa" by Moody's, either "AAAm" or "AAAm-G"
by Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, Inc., to the extent Moody's or Standard & Poor's rates
the relevant series, or equivalent ratings of any other rating
agency that rates the series. However, no interest may evidence
the right to receive either only interest with respect to the
obligations underlying the interest or both principal and interest
payments derived from obligations underlying the interest and the
interest and principal payments with respect to the instrument
provided a yield to maturity at par greater than 120% of the yield
to maturity at par of the underlying obligations. In addition, no
interest may be purchased at a price greater than par if the
instrument may be prepaid or called at a price less than its
purchase price prior to its stated maturity.
To the extent any investment would require registration of the trust
fund as an investment company, that investment will not constitute an eligible
investment.
REVOLVING PERIOD AND AMORTIZATION PERIOD; RETAINED INTEREST
If the related prospectus supplement so provides, there may be a
revolving period commencing on the date of issuance of a class or classes of
notes or certificates of a series and ending on the date set forth in the
related prospectus supplement during which limited or no principal payments will
be made to one or more classes of notes or certificates of the related series
identified in the prospectus supplement. Some or all collections of principal
otherwise allocated to these classes of notes or certificates may be:
- utilized during the revolving period to acquire additional home
equity loans which satisfy the criteria specified above and the
criteria set forth in the related prospectus supplement;
- held in an account and invested in eligible investments for later
distribution to securityholders;
- applied to those notes or certificates, if any, specified in the
related prospectus supplement that are in amortization; or
- otherwise applied as specified in the related prospectus
supplement.
An amortization period is a period during which an amount of principal
is payable to holders of a series which, during the revolving period, were not
entitled to payments or principal. If specified in the related prospectus
supplement, during an amortization period all or a portion of principal
collections on the home equity loans may be applied as specified above for a
revolving period and, to the extent not so applied, will be distributed to the
classes of notes or certificates specified in the related prospectus supplement
as then being entitled to payments of principal. In addition, if specified in
the related prospectus supplement, amounts deposited in certain accounts for the
benefit of one or more classes of notes or certificates may be released from
time to time or on a specified date and applied as a payment of principal on
those classes of notes or certificates. The related prospectus supplement will
set forth the circumstances which will result in the commencement of an
amortization period.
Each series which has a revolving period may also issue to the
depositor or one of its affiliates a Retained Interest Security, which is an
undivided beneficial interest in the series not represented by the other
securities issued by the depositor. As further described in the related
prospectus supplement, the value of the Retained Interest Security will
fluctuate as the outstanding amount of notes and certificates of the related
series is reduced.
ENHANCEMENT
The amounts and types of credit enhancement arrangements and the
provider of the credit enhancement, if applicable, with respect to a series or
any class of securities will be set forth in the related prospectus supplement.
If specified in the applicable prospectus supplement, credit enhancement for any
series
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of securities may cover one or more classes of notes or certificates, and
accordingly may be exhausted for the benefit of a particular class of notes or
certificates and afterwards be unavailable to other classes of notes or
certificates. Further information regarding any provider of credit
enhancement, including financial information when material, will be included
in the related prospectus supplement.
To the extent provided in the related prospectus supplement, credit
enhancement may include one or more of the following:
- a financial guaranty insurance policy, which will be issued
by a monoline insurance company and which, subject to the terms
of the policy, will guarantee timely payment of interest on, and
ultimate (as opposed to timely) payment of principal of, the
applicable class or classes of securities;
- overcollateralization, which will equal the excess of the
aggregate principal balance of the home equity loans over the
aggregate principal balance of the securities.
Overcollateralization may be created by the initial or subsequent
deposit of home equity loans or may build over time from the
application of certain excess cash amounts generated by the home
equity loans to accelerate the amortization of the applicable
class or classes of securities;
- a letter of credit, which will be issued by a bank or other
financial institution in a maximum amount which may be
permanently reduced as draws are made or may be replenished as
previous draws are repaid from certain excess cash amounts
generated by the home equity loans. Draws may be made to cover
shortfalls generally in collections, with respect to particular
types of shortfalls such as those due to particular types of
losses or with respect to specific situations such as shortfalls
in amounts necessary to pay current interest;
- a cash reserve fund which may be partially or fully funded
on the date of issuance or may be funded over time from certain
excess cash amounts generated by the home equity loans.
Withdrawals may be made in circumstances similar to those for
which draws may be made on a letter of credit;
- insurance policies, such as mortgage insurance, hazard
insurance and other insurance policies, which may insure a
portion of the home equity loans against credit losses,
bankruptcy losses, fraud losses or special hazard losses not
covered by typical homeowners insurance policies;
- subordinated securities, which will be subordinated in the
right to receive distributions to one or more other classes of
more senior securities of the same series, some or all of which
may themselves be subordinated to other classes in the series.
Subordination may be with respect to distributions of interest,
principal or both. In addition, all or portions of certain types
of losses on the home equity loans may be allocated to one or
more classes of subordinate securities prior to their allocation
to other classes to more senior securities in the applicable
series; or
- derivative products, which may include a swap to convert
floating or fixed rate payments, as applicable, on the home
equity loans into fixed or floating rate payments, as applicable,
on the securities or a cap or floor agreement intended to provide
protection against changes in floating rates of interest payable
on the home equity loans and/or the securities.
The presence of credit enhancement is intended to increase the
likelihood of receipt by the certificateholders and the noteholders of the full
amount of principal and interest due on their securities and to decrease the
likelihood that the certificateholders and the noteholders will experience
losses, or may be structured to provide protection against changes in interest
rates or against other risks, such as basis risk and liquidity risk, to the
extent and under the conditions specified in the related prospectus supplement.
Forms of credit enhancement may provide for one or more classes of securities to
be paid in foreign currencies. The credit enhancement for a class of securities
generally will not provide protection against all risks of loss and may not
guarantee repayment of all principal and interest on the securities. If losses
occur which exceed the amount covered by any credit enhancement or which are not
covered by any credit enhancement, securityholders will
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bear their allocable share of deficiencies. In addition, if a form of credit
enhancement covers more than one class of securities of a series,
securityholders of one class will be subject to the risk that the credit
enhancement will be exhausted by the claims of securityholders of other
classes.
THE AGREEMENTS
The following summaries describe the material provisions of the
agreements common to each series of securities. The summaries do not purport to
be complete and are subject to, and qualified in their entirety by reference to
the provisions of the agreements. Where particular provisions or terms used in
the agreements are referred to, these provisions or terms are as specified in
the related agreements.
GENERAL
At the time of issuance of the securities of a series, the seller will
transfer, convey and assign to the depositor and the depositor will transfer,
convey and assign to the trust fund all right, title and interest of the seller
and the depositor in the home equity loans and other property to be transferred
to the depositor and trust fund for a series. The assignment will include all
principal and interest due or received on or with respect to the home equity
loans after the cut-off date to the extent specified in the related prospectus
supplement (except for any retained interests). The trustee will, concurrently
with the assignment, execute and deliver the securities.
REPURCHASE AND SUBSTITUTION OF NON-CONFORMING HOME EQUITY LOANS
Pursuant to the related pooling and servicing agreement or sale and
servicing agreement, upon the discovery by the depositor, the seller, the credit
enhancer, if any, the servicer, any sub-servicer, any holder, the custodian (as
defined below) or the trustee that the representations and warranties are untrue
in any material respect as of the closing date with the result that the
interests of the holders or of the credit enhancer are materially and adversely
affected, the party discovering the breach is required to give prompt written
notice to the other parties.
Upon the earlier of the seller's discovery or receipt of notice of
breach of a representation or warranty made by it with respect to a home equity
loan from any of the other parties or the time that an existing untrue statement
results in a situation that materially and adversely affects the interests of
the holders or the credit enhancer, if any, in the home equity loan, the seller
will be required promptly to cure the breach in all material respects or the
seller will, on or prior to the second Monthly Remittance Date (defined below)
immediately succeeding the discovery, receipt of notice or applicable time:
- substitute each home equity loan which has given rise to
the requirement for action by the seller with a "Qualified
Replacement Mortgage" (as defined in the related pooling and
servicing agreement or sale and servicing agreement) and deliver
an amount equal to the excess, if any, of the outstanding
principal balance of the home equity loan being replaced over the
outstanding principal balance of the replacement home equity loan
plus accrued and unpaid interest and plus the amount of any
Delinquency Advance (defined below) and Servicing Advance (the
"Substitution Amount"), to the trustee (to be deemed part of the
collections remitted by the servicer on the applicable Monthly
Remittance Date); or
- purchase the home equity loan from the trust at a purchase
price equal to the applicable Loan Purchase Price (defined
below).
Despite any contradictory provision of the related pooling and
servicing agreement or sale and servicing agreement, no repurchase or
substitution of any home equity loan not in default or as to which no default is
reasonably foreseeable, may be repurchased or substituted unless the seller
obtains for the trustee and any credit enhancer, an opinion of counsel
experienced in ERISA and federal income tax matters and acceptable to the
trustee and the credit enhancer stating that a repurchase or substitution of
this kind would not constitute a "prohibited transaction" (within the meaning of
ERISA and the federal income tax code) for the REMIC or otherwise subject the
REMIC to tax and would not jeopardize the status of the REMIC as such (a "REMIC
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Opinion"), addressed to the trustee and any credit enhancer and acceptable to
the trustee and any credit enhancer. The seller will also deliver an Officer's
Certificate to the trustee and any credit enhancer concurrently with the
delivery of a Qualified Replacement Mortgage stating that the home equity loan
meets the requirements of a Qualified Replacement Mortgage and that all other
conditions to substitution of the Qualified Replacement Mortgage have been
satisfied.
Any home equity loan as to which repurchase or substitution was
delayed pursuant to the related pooling and servicing agreement or sale and
servicing agreement will be repurchased or substituted for (subject to
compliance with the provisions of the related pooling and servicing agreement
or sale and servicing agreement) upon the earlier of the occurrence of a
default or reasonably foreseeable default with respect to the home equity loan
and receipt by the trustee and the credit enhancer, if any, of a REMIC
Opinion. In connection with any breach of a representation, warranty or
covenant or defect in documentation giving rise to a repurchase or
substitution obligation, the seller agrees that it will, at its expense,
furnish the trustee and the credit enhancer, if any, either a REMIC Opinion or
an opinion of counsel rendered by independent counsel that the effects
described in a REMIC Opinion will not occur as a result of the repurchase or
substitution. The obligation of the seller to so substitute or repurchase any
home equity loan as to which a representation of warranty is untrue in any
material respect and has not been remedied constitutes the sole remedy
available to the holders and the trustee.
"Loan Purchase Price" means an amount equal to the aggregate principal
balance of a home equity loan as of the date of purchase (assuming that the
Monthly Remittance Amount remitted by the servicer on the applicable Monthly
Remittance Date has already been remitted), plus all accrued and unpaid interest
on the home equity loan at the coupon rate to but not including the Monthly
Remittance Date in the Remittance Period (defined below) of the purchase
together with (without duplication) the aggregate amount of (1) all unreimbursed
Delinquency Advances and Servicing Advances already made with respect to the
home equity loan, (2) all Delinquency Advances which the servicer has so far
failed to remit with respect to the home equity loan and (3) all reimbursed
Delinquency Advances and Servicing Advances to the extent that the reimbursement
is not made from the mortgagor.
"Monthly Remittance Amount" means as of any Monthly Remittance Date:
- all interest due during the related Remittance Period with
respect to the home equity loans;
- all Compensating Interest paid by the servicer on the Monthly
Remittance Date;
- the portion of the Loan Purchase Prices and Substitution Amount
relating to interest on the home equity loans by the seller or
the servicer on or prior to the Monthly Remittance Date;
- the interest portion of all Net Liquidation Proceeds actually
collected by the servicer with respect to the home equity loans
during the related Remittance Period;
- the principal actually collected by the servicer with respect to
home equity loans during the related Remittance Period;
- the outstanding principal balance of each home equity loan that
was purchased from the trustee on or prior to the Monthly
Remittance Date, to the extent the outstanding principal balance
was actually deposited in the Principal and Interest Account;
- any Substitution Amounts relating to principal delivered by the
seller in connection with a substitution of a home equity loan to
the extent these Substitution Amounts were actually deposited in
the Principal and Interest Account on or prior to the Monthly
Remittance Date;
- the principal portion of all Net Liquidation Proceeds actually
collected by the servicer with respect to the home equity loans
during the related Remittance Period (to the extent the Net
Liquidation Proceeds related to principal); and
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- investment losses required to be deposited on the Monthly
Remittance Date.
"Monthly Remittance Date" means the date specified in the related
prospectus supplement on which funds on deposit in the Principal and Interest
Account are remitted to the Certificate Account.
"Remittance Period" means with respect to any Monthly Remittance Date,
the calendar month preceding the Monthly Remittance Date. The term "Due Period"
may be used in place of the term "Remittance Period."
See "Advances; Compensating Interest" for a definition of what
constitutes a "Delinquency Advance" and a "Servicing Advance."
WE REFER YOU TO "FEDERAL INCOME TAX CONSEQUENCES" FOR A MORE DETAILED
DISCUSSION OF ERISA AND FEDERAL INCOME TAX IMPLICATIONS.
ASSIGNMENT OF HOME EQUITY LOANS
Pursuant to the related pooling and servicing agreement or related sale
and servicing agreement, the seller will transfer, assign, set over and
otherwise convey without recourse to the depositor and the depositor will
transfer, assign, set over and otherwise convey without recourse to the trustee
in trust for the benefit of the holders all right, title and interest of the
seller in and to each home equity loan and all its right, title and interest in
and to principal received and interest due on each home equity loan on and after
the cut-off date. However, the seller will reserve and retain all its right,
title and interest in and to principal received (including prepayments of the
home equity loans) and interest due on each home equity loan prior to the
cut-off date. As a protective measure only, the seller will also grant to the
depositor and the depositor will also grant to the trustee a security interest
in the trust fund in case the transfer of the home equity loans is considered by
a court of law or equity to be a loan and not a sale.
In connection with the transfer and assignment of the home equity
loans, the seller will be required to:
(i) deliver without recourse to the trustee or the custodian,
which may be an affiliate or agent of the trustee, on behalf of the
trustee on the date the home equity loans are assigned to the trust
fund, identified in a schedule of home equity loans in the relevant
agreement:
- the original notes, endorsed in blank or to the order
of the trustee;
- the original title insurance policy or a copy certified
by the issuer of the title insurance policy or, if not
available, the original title insurance commitment or a
copy certified as a true copy by the closing agent or
the seller, or, if not available in the applicable
state, the relevant attorney's opinion of title;
- subject to the next paragraph, originals or copies of
all intervening assignments, if any, certified as true
copies by the closing agent or the seller, showing a
complete chain of title from origination to the
trustee, including warehousing assignments, if
recorded;
- originals of all assumption and modification
agreements, if any;
- either the original mortgage, with evidence of
recording (if the original mortgage has been returned
to the seller from the applicable recording office), a
copy of the mortgage (if the original mortgage has not
been returned to the seller) certified as a true copy
by the closing attorney or officer of the seller or a
copy of the mortgage certified by the public recording
office in those instances where the original recorded
mortgage has been lost or retained by the recording
office; and
- the original assignments of mortgages in recordable
form;
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(ii) cause, within 60 days following the date, the home equity
loans to be assigned to the trust fund, assignments of the mortgages to
the trustee to be submitted for recording in the appropriate
jurisdictions, if the seller has not received the original recording
information. Alternatively, (except as provided in the related pooling
and servicing agreement or sale and servicing agreement) the seller may
furnish to the trustee, any credit enhancer and the rating agencies, by
the date that the home equity loans are assigned to the trust fund, at
the seller's expense, an opinion of counsel with respect to the
relevant jurisdiction that recording is not required to perfect the
trustee's interests in the related home equity loans (in form
satisfactory to the trustee, any credit enhancer and the rating
agencies); and
(iii) deliver the title insurance policy, the original
mortgages and the recorded assignments, together with originals or
duly certified copies of any and all prior assignments (other than
unrecorded warehouse assignments), to the custodian on behalf of the
trustee within 15 days of receipt by the seller, (unless original
recording information has not been made available to the seller, in
which case, the seller has one year after the date the home equity
loans are assigned to the trust fund).
The trustee will agree, for the benefit of the holders, to cause the
custodian to review each file with respect to the home equity loans within 45
days after the date that the home equity loans are assigned to the trust fund
(or the date of receipt of any documents delivered to the trustee after the
closing date), to ascertain that all required documents (or certified copies of
documents) have been executed and received.
If the custodian on behalf of the trustee during this 45-day period
finds any document constituting a part of a file which is not properly executed,
has not been received, or is unrelated to the home equity loans or that any home
equity loan does not conform in a material respect to the description as set
forth in the schedule of home equity loans in the relevant agreement, the
custodian will promptly notify the trustee, the depositor, the seller, the
holders and the credit enhancer, if any. The seller will agree in the related
pooling and servicing agreement or sale and servicing agreement to use
reasonable efforts to remedy a material defect in a document constituting part
of a file of which it is notified by the custodian on behalf of the trustee.
If, however, within 90 days after notice to it with respect to the
defect the seller has not remedied the defect and the defect materially and
adversely affects the interest in the related home equity loan of the holders or
any credit enhancer, the seller will be required on the next succeeding Monthly
Remittance Date to (or will cause an affiliate of the seller to) (1) substitute
in lieu of the home equity loan a Qualified Replacement Mortgage and deliver the
Substitution Amount to the trustee (to be deemed part of the collections
remitted by the servicer on the Monthly Remittance Date) or (2) purchase the
home equity loan at a purchase price equal to the applicable Loan Purchase
Price, which will be delivered to the trust along with the Monthly Remittance
Amount remitted by the servicer on the Monthly Remittance Date. However, this
substitution or purchase must occur within 90 days of the notice of defect if
the defect would prevent the home equity loan from being a Qualified Replacement
Mortgage, and no substitution or purchase of a home equity loan that is not in
default or as to which no default is reasonably foreseeable will be made unless
the seller obtains for the trustee and any credit enhancer a REMIC Opinion,
addressed to and acceptable to the trustee and any credit enhancer.
In addition, the custodian on behalf of the trustee has agreed to
undertake a review during the 12th month after the closing date a final
certification indicating the current status of the exceptions previously
indicated on the pool certification with respect to the applicable agreement.
After delivery of the final certification, the custodian, on behalf of the
trustee and the servicer will provide to the credit enhancer, if any, at least
monthly, updated certifications indicating the then current status of
exceptions, until all exceptions have been eliminated.
SERVICING AND SUB-SERVICING
Unless otherwise set forth in the related prospectus supplement, the
seller will also serve as the servicer of each home equity loan. The servicer
will be entitled to a periodic servicing fee as compensation in an amount
specified in the prospectus supplement. The servicer may not assign its
obligations under the related pooling and servicing agreement or sale and
servicing agreement, unless it first obtains the written consent of the trustee
and any credit enhancer (which may not be unreasonably withheld by them); and
the assignee meets the eligibility
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requirements for a successor servicer set forth in the related pooling and
servicing agreement or sale and servicing agreement.
The securities will not represent an interest in or obligation of, and
the home equity loans are not guaranteed by, the depositor, the trustee, the
owner trustee (if applicable), the seller, the servicer, or any of their
affiliates, except as described in this prospectus.
The servicer (other than a successor servicer) will be required to
service the home equity loans in accordance with the related pooling and
servicing agreement or sale and servicing agreement and the terms of the home
equity loans.
The servicer may retain the applicable servicing fee from the interest
portion of each monthly payment. In addition, the servicer will be entitled to
retain additional servicing compensation in the form of prepayment charges,
release fees, bad check charges, assumption fees, late payment charges,
prepayment penalties, any other servicing-related fees or Net Liquidation
Proceeds (defined below) not required to be deposited in the Principal and
Interest Account pursuant to the related pooling and servicing agreement or sale
and servicing agreement, and similar items.
The servicer will be required to make reasonable efforts to collect all
payments called for under the terms and provisions of the home equity loans,
and, to the extent the procedures are consistent with the related pooling and
servicing agreement or sale and servicing agreement and the terms and provisions
of any applicable insurance policy, to follow collection procedures for all home
equity loans at least as rigorous as those described in Fannie Mae's Servicing
Guide. The servicer may in its discretion waive or permit to be waived (if the
waiver or permission is occasioned by the default or reasonable foreseeable
default of a home equity loan or is consistent with the continued treatment of
the homes equity loan as a Qualified Mortgage (as defined in the related pooling
and servicing agreement or sale and servicing agreement)) any late payment
charge, prepayment charge, assumption fee or any penalty interest in connection
with the prepayment of a home equity loan or any other fee or charge which the
servicer would be entitled to retain as additional servicing compensation. In
the event the servicer consents to the deferment of the due dates for payments
due on a home equity loan, the servicer must nevertheless pay any required
Delinquency Advances with respect to the interest payments extended by the
servicer as if the interest portion of the installment had not been deferred.
DEPOSITS TO PRINCIPAL AND INTEREST ACCOUNT AND CERTIFICATE ACCOUNT
Pursuant to the related pooling and servicing agreement or sale and
servicing agreement, the servicer will be required to create, or cause to be
created, a Principal and Interest Account in the name of the trustee, as a trust
account in the trust department of one or more depository institutions, which
may be affiliates of the servicer. All funds in the Principal and Interest
Account are required to be held uninvested or invested in eligible investments,
defined in the related pooling and servicing agreement or sale and servicing
agreement. Any investment of funds in the Principal and Interest Account must
mature or be withdrawable at par on or prior to the next Monthly Remittance
Date. Any investment earnings and losses on funds held in the Principal and
Interest Account are for the account of the servicer, and net losses must be
promptly replenished by the servicer.
Within two business days of receipt, the servicer will be required to
deposit, or cause to be deposited, to the Principal and Interest Account, all
principal received and interest due on the home equity loans on and after the
related cut-off date, including any prepayments of the home equity loans, the
proceeds of any liquidation of a home equity loan net of expenses and
unreimbursed Delinquency Advances ("Net Liquidation Proceeds") and, any income
from REO properties acquired on foreclosure or otherwise with respect to a
defaulted home equity loan and Delinquency Advances, but net of the following
daily collections ("Daily Collections"):
- Net Liquidation Proceeds to the extent that Net Liquidation
Proceeds exceed the sum of (a) the loan balance of the related
home equity loan immediately prior to liquidation, (b) accrued
and unpaid interest on the home equity loan (net of the servicing
fee) to the date of liquidation, (c) any
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realized losses during the related Remittance Period, and (d)
other reimbursements to the servicer (i.e., unreimbursed
servicing advances);
- principal (including prepayments of the home equity loans)
collected and interest due on the home equity loans prior to the
cut-off date;
- reimbursements for Delinquency Advances and Servicing Advances to
the extent provided below; and
- reimbursement for amounts deposited in the Principal and Interest
Account representing payments of principal and/or interest on a
home equity loan by a mortgagor which are subsequently returned
by a depository institution as unpaid.
The servicer may make withdrawals for its own account from the
Principal and Interest Account for the following purposes:
(i) on each Monthly Remittance Date, to pay itself the
servicing fee to the extent not otherwise retained;
(ii) to withdraw net investment earnings on amounts on deposit
in the Principal and Interest Account;
(iii) to withdraw amounts that have been deposited to the
Principal and Interest Account in error;
(iv) to reimburse itself for unrecoverable Delinquency
Advances and Servicing Advances (in each case, solely from amounts
recovered on the related home equity loan) and for any excess interest
collected from a mortgagor; and
(v) to clear and terminate the Principal and Interest Account
following the termination of the trust.
The servicer will remit to the trustee for deposit in the Certificate
Account the Daily Collections, Loan Purchase Price and Substitution Amounts
allocable to a Remittance Period not later than the related Monthly Remittance
Date.
ADVANCES; COMPENSATING INTEREST
DELINQUENCY ADVANCES. On each Monthly Remittance Date, the servicer
will be required to advance to the trustee for deposit to the Certificate
Account out of the servicer's own funds or from collections on any home equity
loans that are not required to be distributed on the distribution date occurring
during the month in which the advance is made (but which will be reimbursed by
the servicer on or before any subsequent Monthly Remittance Date on which the
collection used to make the advance are required to be part of the monthly
remittance amount) any delinquent payment of interest with respect to each
delinquent home equity loan, which was not received on or prior to the related
Monthly Remittance Date and was not already advanced by the servicer. Advances
out of the servicer's own funds are called "Delinquency Advances." The servicer
may reimburse itself on any business day (as defined in the related pooling and
servicing agreement or sale and servicing agreement) for any Delinquency
Advances paid from the servicer's own funds, from amounts recovered on the
related home equity loan or from the Certificate Account as provided in the
related pooling and servicing agreement or sale and servicing agreement.
In the event that the servicer determines in its reasonable business
judgment in accordance with the servicing standards of the related pooling and
servicing agreement or the sale and servicing agreement that any proposed
Delinquency Advance if made would not be recoverable, the servicer will not be
required to make a Delinquency Advance with respect to the home equity loan. To
the extent that the servicer previously has made
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Delinquency Advances with respect to a home equity loan that the servicer
subsequently determines to be nonrecoverable, the servicer will be entitled to
reimbursement for the Delinquency Advance.
SERVICING ADVANCES. Except to the extent that the servicer determines
they will not be recoverable, the servicer will be required to pay all "out of
pocket" costs and expenses incurred in the performance of its servicing
obligations, including:
- expenditures in connection with a foreclosed home equity loan
prior to its liquidation, including expenditures for real estate
property taxes, hazard insurance premiums, property restoration
or preservation;
- the cost of any enforcement or judicial proceedings, including
foreclosures; and
- the cost of the management and liquidation of REO property
(including broker's fees).
These costs and expenses are "Servicing Advances." The servicer may
recover a Servicing Advance to the extent permitted by the home equity loans or,
if not recovered from the mortgagor on whose behalf the Servicing Advance was
made, from liquidation proceeds realized upon the liquidation of the related
home equity loan or from certain amounts on deposit in the Certificate Account
as provided in the related pooling and servicing agreement or the sale and
servicing agreement. Except as provided above, the servicer may not recover
Servicing Advances from the principal and interest payments on any other home
equity loan.
COMPENSATING INTEREST. A full month's interest at the coupon rate will
be due on the outstanding loan balance of each home equity loan as of the
beginning of each Remittance Period. If a prepayment in full of a home equity
loan or a partial prepayment of at least six times a mortgagor's monthly payment
occurs during any calendar month, the servicer must deposit any difference
between the interest collected from the mortgagor in connection with the payoff
and the full month's interest at the coupon rate on the home equity loan that
would be due on the related due date for the home equity loan (the "Compensating
Interest") (but not in excess of the aggregate servicing fee for the related
Remittance Period), to the Principal and Interest Account on the next succeeding
Monthly Remittance Date. This Compensating Interest will be included in the
monthly remittance amount to be made available to the trustee on the next
Monthly Remittance Date.
OPTIONAL REPURCHASE OF DEFAULTED HOME EQUITY LOANS
Subject to certain limitations contained in the related pooling and
servicing agreement or sale and servicing agreement, the servicer will have the
right and the option, but not the obligation, to purchase for its own account
any home equity loan which becomes delinquent for the number of consecutive
monthly installments set forth in the related prospectus supplement or any home
equity loan as to which enforcement proceedings have been brought by the
servicer. However, the servicer may not purchase a home equity loan unless it
has delivered a REMIC Opinion to any credit enhancer and the trustee, at its own
expense. The purchase price for this home equity loan will be equal to the Loan
Purchase Price, which must be deposited in the Principal and Interest Account on
the next Montly Remittance Date.
REALIZATION UPON DEFAULTED HOME EQUITY LOANS
The servicer is required to have liquidated any home equity loan
relating to an REO property that has not been liquidated within 35 months of
effecting ownership at a price that the servicer deems necessary to comply with
this requirement, or within a period of time that, in the opinion of counsel
nationally recognized in federal income tax matters, is permitted under the
Code.
HAZARD INSURANCE
The servicer will be required to have hazard insurance maintained with
respect to mortgaged property and to advance sums on account of the premiums if
not paid by the mortgagor if permitted by the terms of the home equity loan.
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GENERAL SERVICING STANDARD
The servicer will have the right under the related pooling and
servicing agreement or sale and servicing agreement (upon receiving the prior
written consent of the credit enhancer, if any) to accept applications of
mortgagors for consent to partial releases of mortgages, alterations and
removal, demolition or division of mortgaged properties. No application for
approval may be considered by the servicer unless:
- the provisions of the related mortgage have been complied with;
- the loan-to-value ratio and debt-to-income ratio after any
release does not exceed the loan-to-value ratio and
debt-to-income ratio of the home equity loan on the cut-off date
or any later date that the home equity loan was acquired by the
trust;
- any increase in the loan-to-value ratio does not exceed 5% unless
approved in writing by the credit enhancer, if any; and
- the lien priority of the related mortgaged property is not
affected.
The servicer may not agree to any modification, waiver or amendment of
any provision of any home equity loan unless, in the servicer's good faith
judgment, the modification, waiver or amendment would minimize the loss that
might otherwise be experienced with respect to the home equity loan and only in
the event of a payment default with respect to the home equity loan or if a
payment default with respect to the home equity loan is reasonably foreseeable
by the servicer. However, no modification, waiver or amendment may extend the
maturity date of the home equity loan beyond the last scheduled distribution
date of the home equity loans in the trust fund. Despite any conflicting
provisions in the related pooling and servicing agreement or sale and servicing
agreement, the servicer will be permitted to modify, waive or amend any
provision of a home equity loan if required by statute or a court of competent
jurisdiction to do so.
SUB-SERVICING ARRANGEMENTS
The servicer, with the prior written consent of any credit enhancer,
may under the related pooling and servicing agreement or sale and servicing
agreement enter into sub-servicing agreements with qualified sub-servicers for
any servicing and administration of home equity loans. A qualified sub-servicer
must be in compliance with the laws of each state necessary to enable it to
perform its obligations under the sub-servicing agreement, have experience
servicing home equity loans that are similar to the home equity loans and have
equity of not less than $5,000,000 (as determined in accordance with generally
accepted accounting principles).
The servicer will be required to provide notice of the appointment of
any sub-servicer to the trustee, securityholders, any credit enhancer and each
rating agency and to obtain confirmation from each rating agency that the
appointment of a sub-servicer will not result in any withdrawal or downgrade of
the then-current ratings on the securities (without giving effect to any credit
enhancement provided by the credit enhancer). A sub-servicing agreement will not
relieve the servicer of its obligations under the related pooling and servicing
agreement or sale and servicing agreement, and the servicer's obligations will
be the same as if it alone were servicing and administering the home equity
loans. The servicer will be entitled to enter into any agreement with a
sub-servicer for indemnification of the servicer by the sub-servicer and nothing
contained in the sub-servicing agreement will limit or modify the terms of the
related pooling and servicing agreement or sale and servicing agreement.
CERTAIN MATTERS REGARDING THE SERVICER
The servicer has agreed to indemnify and hold the trustee and any
credit enhancer harmless against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments, and any other costs, fees
and expenses that the trustee and any credit enhancer may sustain in any way
related to the failure of the servicer to perform its duties and service the
home equity loans in compliance with the terms of the related
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pooling and servicing agreement or the sale and servicing agreement, except to
the extent limited in the related pooling and servicing agreement or the sale
and servicing agreement. The servicer must immediately notify the trustee and
any credit enhancer if a claim is made by a third party with respect to the
related pooling and servicing agreement or the sale and servicing agreement,
and the servicer must assume the defense of any claim and pay all expenses in
connection with the claim, including reasonable counsel fees. It must also
promptly pay, discharge and satisfy any judgment or decree that may be entered
against the servicer, the trustee and/or any credit enhancer with respect to
the claim. The trustee must reimburse the servicer from amounts otherwise
distributable on Residual Interest Securities for the related series for all
amounts advanced by it pursuant to the preceding sentence, except when a final
nonappealable adjudication determines that the claim relates directly to the
failure of the servicer to perform its duties in compliance with the related
pooling and servicing agreement or the sale and servicing agreement. The
indemnification provisions will survive the termination of the related pooling
and servicing agreement or the sale and servicing agreement and the payment of
the outstanding securities.
The servicer will be required to deliver to the trustee, the credit
enhancer, if any, and the rating agencies on or before July 31 of each year:
- an officers' certificate stating, as to each signatory, that (1)
a review of the activities of the servicer during the preceding
calendar year and of performance under the related pooling and
servicing agreement or the sale and servicing agreement has been
made under the officers' supervision, and (2) to the best of the
officers' knowledge, based on their review, the servicer has
fulfilled all its obligations under the related pooling and
servicing agreement or the sale and servicing agreement for the
year, or, if there has been a default in the fulfillment of all
the servicer's obligations, specifying each default known to the
officers and the nature and status of each default including the
steps being taken by the servicer to remedy the default; and
- a letter or letters of a firm of independent, nationally
recognized certified public accountants reasonably acceptable to
the credit enhancer, if any, stating that it has examined the
servicer's overall servicing operations in accordance with the
requirements of the Uniform Single Attestation Program for
Mortgage Bankers, and stating its conclusions relating to its
examination.
REMOVAL AND RESIGNATION OF SERVICER
The credit enhancer, if any, or the holders (with the consent of the
credit enhancer, if any) will have the right, pursuant to the related pooling
and servicing agreement or the sale and servicing agreement, to remove the
servicer upon the occurrence of certain Servicer Termination Events including:
- certain acts of bankruptcy or insolvency on the part of the
servicer;
- certain failures on the part of the servicer to perform its
obligations under the related pooling and servicing agreement or
the sale and servicing agreement (including certain performance
tests related to the delinquency rate and cumulative losses of
the home equity loans);
- failure to cure material breaches of the servicer's
representations in the related pooling and servicing agreement or
sale and servicing agreement; or
- certain other events specified in the related pooling and
servicing agreement or sale and servicing agreement.
The servicer is not permitted to resign from the obligations and
duties imposed on it under the related pooling and servicing agreement or the
sale and servicing agreement except upon determination that its duties 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, as long as the
activities in question are of a type and nature carried on by the servicer on
the date of the related pooling and servicing agreement or sale and servicing
agreement. Any determination permitting the resignation of the servicer must
be evidenced by an opinion of counsel confirming these matters, which must be
delivered, and reasonably acceptable, to the trustee and any credit enhancer.
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Upon removal or resignation of the servicer, the trustee may solicit
bids for a successor servicer as described in the related pooling and servicing
agreement or the sale and servicing agreement. Until a successor servicer is
appointed pursuant to the terms of the related pooling and servicing agreement
or sale and servicing agreement, the servicer must serve in the capacity of
successor servicer. The credit enhancer, if any, may appoint any successor
servicer other than the trustee. If an credit enhancer does not appoint a
successor servicer, the trustee, if it is unable to obtain a qualifying bid and
is prevented by law from acting as servicer, will be required to appoint or
petition a court of competent jurisdiction to appoint any housing and home
finance institution, bank or mortgage servicing institution designated as an
approved seller-servicer by Freddie Mac or Fannie Mae that has net equity of not
less than $5,000,000, and is acceptable to any credit enhancer, as the successor
to the servicer in the assumption of all or any part of the responsibilities,
duties or liabilities of the servicer.
No removal or resignation of the servicer will become effective until
the trustee or another successor servicer shall have assumed the servicer's
responsibilities and obligations in accordance with the related pooling and
servicing agreement or sale and servicing agreement.
THE TRUSTEE
Unless otherwise specified in the related prospectus supplement,
Norwest Bank Minnesota, National Association, which has its principal corporate
trust office at Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479,
will be named as trustee under the related pooling and servicing agreement or
sale and servicing agreement.
REPORTING REQUIREMENTS
On each distribution date the trustee will be required to report in
writing (based on information provided to the trustee by the servicer) to each
holder, each rating agency and the credit enhancer, if any:
- the amount of the principal and interest distribution with
respect to each class of securities (based on a security in the
original principal amount of $1,000);
- the amount of the distribution allocable to principal on the home
equity loans, separately identifying the aggregate amount of any
prepayments in full or partial prepayments or other recoveries of
principal included in the principal amount paid on the home
equity loans (based on a security in the original principal
amount of $1,000) and any Subordination Increase Amount (as
defined in the related pooling and servicing agreement or sale
and servicing agreement);
- the amount of the distribution allocable to interest on the home
equity loans (based on a security in the original principal
amount of $1,000);
- if the distribution (net of any payment by any credit enhancer)
to the holders of any class of securities on the distribution
date was less than the amounts distributable to these holders on
the distribution date, the related Carry-Forward Amount (as
defined in the related pooling and servicing agreement or sale
and servicing agreement) resulting from the shortfall;
- the amount of any payment by any credit enhancer included in the
amounts distributed to the holders of class of securities on the
distribution date;
- the outstanding principal balance of each class of securities
(based on a security in the original principal amount of $1,000)
which will be outstanding after giving effect to any payment of
principal on the distribution date;
- the amount of any Subordinated Amount, Specified Subordinated
Amount or Subordination Deficit (each as defined in the relevant
sale and servicing agreement or pooling and servicing agreement),
remaining after giving effect to all distributions and transfers
on the distribution date;
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- the aggregate loan balance of all home equity loans and the
aggregate loan balance of the home equity loans in each home
equity loan pool, in each case after giving effect to any payment
of principal on the distribution date;
- the total of any Substitution Amount or Loan Purchase Price
amounts included in the distribution;
- the weighted average coupon rate of the home equity loans in each
home equity loan group (if applicable) and in the aggregate;
- other information that the credit enhancer or any beneficial
owner of securities may reasonably request with respect to
delinquent home equity loans;
- the largest home equity loan balance in each home equity loan
group (if applicable) and with respect to all home equity loans;
- the Pass-Through Rate (as defined in the relevant agreement) on
any securities subject to an available funds or weighted average
coupon limitation;
- during any funding period, the loan balance of any home equity
loans added to the trust during the related Remittance Period;
- during any prefunding period, the remaining amounts in the
Prefunding Accounts as of the last day of the Remittance Period;
and
- any other information specified in the related prospectus
supplement and/or related pooling and servicing agreement or sale
and servicing agreement.
Certain obligations of the trustee to provide information to the
holders are conditioned upon the trustee's having received the information from
the servicer.
In addition, on each distribution date the trustee will be required to
distribute to each holder, the credit enhancer, if any, and the rating agencies,
together with the information described above, the following information
prepared by the servicer and furnished to the trustee:
- the number and aggregate principal balances of home equity loans
(1) 30-59 days delinquent, 60-89 days delinquent, or 90 or more
days delinquent, as of the close of business on the last day of
the Remittance Period immediately preceding the distribution
date, (2) the number and aggregate loan balances of all home
equity loans, as of the close of business on the last day of the
Remittance Period immediately preceding the distribution date,
and (3) the percentage that each of the amounts specified in
clause (1) represent as a percentage of the amount specified in
clause (2);
- the status and the number and dollar amounts of all home equity
loans in foreclosure proceedings as of the close of business on
the last day of the Remittance Period immediately preceding the
distribution date;
- the number of mortgagors and the loan balances of the related
mortgages involved in bankruptcy proceedings as of the close of
business on the last day of the Remittance Period immediately
preceding the distribution date;
- home equity loans that are "balloon" loans as of the close of
business on the last day of the Remittance Period immediately
preceding the distribution date;
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- the existence and status of any mortgaged properties as to which
title has been taken in the name of, or on behalf of the trustee,
as of the close of business of the last day of the Remittance
Period immediately preceding the distribution date;
- the book value of any REO properties as of the close of business
on the last day of the Remittance Period immediately preceding
the distribution date;
- the realized losses incurred on home equity loans for the
Remittance Period and the cumulative realized losses incurred on
the home equity loans from the closing date to and including the
Remittance Period immediately preceding the distribution date;
and
- the amount of net liquidation proceeds realized on the home
equity loans during the Remittance Period immediately preceding
the distribution date.
REMOVAL OF TRUSTEE FOR CAUSE
The trustee may be removed upon the occurrence of any one of the
following events, whatever the reason for the event and whether it is voluntary
or involuntary or is 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:
- failure by the trustee to make distributions of available
amounts;
- breaches of covenants and representations by the trustee;
- certain acts of bankruptcy or insolvency on the part of the
trustee; or
- failure to meet the standards of trustee eligibility as set forth
in the related pooling and servicing agreement or sale and
servicing agreement.
If any of these events occurs and is continuing, then the credit
enhancer, if any, or with the prior written consent of any credit enhancer
(which may not be unreasonably withheld), the depositor and the holders or, if
there are no securities then outstanding, by the Residual Interest Securities
may appoint a successor trustee.
GOVERNING LAW
The agreements and each security will be construed in accordance with
and governed by the laws of the State of New York applicable to agreements made
and to be performed in New York.
AMENDMENTS
The trustee, the depositor, the seller and the servicer, with the
consent of the trustee and the credit enhancer, if any, may, at any time and
from time to time and without notice to or the consent of the holders, amend the
pooling and servicing agreement or sale and servicing agreement in order to:
- if accompanied by a REMIC Opinion, remove the restriction against
the transfer of a Residual Interest Security to a "disqualified
organization" (as defined in the Code);
- comply with the requirements of the Code including any amendments
necessary to maintain REMIC status;
- cure any ambiguity;
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- correct or supplement any provision in the pooling and servicing
agreement or the sale and servicing agreement that is
inconsistent with any other provisions in the pooling and
servicing agreement or sale and servicing agreement, as
applicable; or
- for any other purpose, if the seller delivers an opinion of
counsel acceptable to the trustee that the amendment will not
adversely affect in any material respect the interest of the
holders and will not result in a withdrawal or reduction of the
rating of the securities of a series without regard to any
financial guaranty insurance policy.
In no event my the amendment change in any manner the amount of, or
delay the timing of, payments required to be distributed to any holder without
the consent of that holder, change the percentages required to consent to any
amendment, without the consent of the holders of all outstanding securities of
the class or classes affected or affect the terms or provisions of any financial
guaranty insurance policy.
The trustee will be required to furnish written notification of the
substance of any amendment to each holder in the manner set forth in the related
pooling and servicing agreement or sale and servicing agreement.
TERMINATION OF THE TRUST
Unless otherwise specified in the related prospectus supplement, the
related pooling and servicing agreement or sale and servicing agreement will
provide that the trust will terminate upon the payment to the holders from
amounts (other than those available under any financial guaranty insurance
policy) of all amounts required to be paid to the holders upon the later to
occur of:
- the final payment or other liquidation of the last home equity
loan (or any advance made with respect to the home equity loan);
- the disposition of all property acquired in respect of any home
equity loan remaining in the trust fund; and
- any time that a purchase by the servicer or any credit enhancer
as an optional termination of the trust is effected as described
below under "--Optional Termination."
To effect an optional termination, the holders must furnish the trustee
with an opinion of counsel experienced in federal income tax matters acceptable
to the credit enhancer, if any, and the trustee to the effect that the optional
termination constitutes a "qualified liquidation" under the Code.
OPTIONAL TERMINATION
BY SERVICER OR CREDIT ENHANCER. At its option, the servicer (or, if
specified in the related prospectus supplement, the credit enhancer, if any,
if the servicer fails to exercise its option) may effect an optional
termination of the trust (which may also be referred to as a clean up call) to
the extent specified in the related prospectus supplement either (1) on any
distribution date that the aggregate outstanding principal balance of the
securities is 10% or less or less than the initial aggregate outstanding
principal balance of the securities or (2) on any monthly remittance date when
the aggregate outstanding loan balance of the home equity loans is 10% or less
than the sum of the loan balances of all the home equity loans in the trust as
of the date the home equity loans were transferred to the trust. The servicer
may effect an optional termination of the trust by purchasing from the trust
fund all (but not fewer than all) remaining home equity loans, in whole only,
and other property acquired by foreclosure, deed in lieu of foreclosure, or
otherwise then constituting the trust fund, and pay to the holders the portion
of the purchase price allocable to each class of securities, which will equal
an amount up to the sum of (a) 100% of the then outstanding principal balance
of the securities, plus (b) one month's interest on the then outstanding
principal balance of the securities at the then applicable Pass-Through Rate
for each class, plus any previously accrued but unpaid interest on the
securities in accordance with the payment priorities described under
"Description of the Certificates--Distributions" in the related prospectus
supplement and effect early retirement of the securities.
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TERMINATION UPON LOSS OF REMIC STATUS. Following a final determination
by the Internal Revenue Service or by a court of competent jurisdiction, from
which no appeal is taken within the permitted appeal period, or if any appeal is
taken, following a final determination with respect to the appeal from which no
further appeal can be taken, to the effect that the REMIC does not and will no
longer qualify as a "REMIC" pursuant to Section 860D of the Code the credit
enhancer, if any, or the holders with the consent of the credit enhancer, if
any, may within 30 calendar days following the final determination, direct the
trustee on behalf of the trust fund to adopt a plan of complete liquidation, as
contemplated by Section 860F(a)(4) of the Code.
EVENTS OF DEFAULT; TERMINATION UNDER INDENTURE. Events of Default under
the indenture for each series of notes include:
- a default for 30 days or more in the payment of any principal of
or interest on any note;
- failure to perform any other covenant of the trust fund in the
indenture which continues for a period of 60 days after notice is
given in accordance with the procedures described in the related
prospectus supplement;
- any representation or warranty made with respect to or affecting
the series by the seller or the trust fund in the indenture or in
any certificate or other writing delivered pursuant to or in
connection with the indenture having been incorrect in any
material respect as of the time made, and the breach is not cured
within 60 days after notice is given in accordance with the
procedures described in the related prospectus supplement;
- certain events of bankruptcy, insolvency, receivership or
liquidation of the seller or the trust fund; or
- any other event of default provided with respect to the notes.
If an Event of Default with respect to any outstanding notes occurs and
is continuing, either the trustee or the holders of a majority of the then
aggregate outstanding amount of the notes with, if specified in the related
prospectus supplement, the consent of the credit enhancer, may declare the
principal amount (or, if the notes are Zero Coupon Securities, the portion of
the principal amount specified in the terms of that series, as provided in the
related prospectus supplement) of all the notes to be due and payable
immediately. This declaration may, under certain circumstances, be rescinded and
annulled by the holders of a majority in aggregate outstanding amount of the
notes.
If, following an Event of Default with respect to any series of notes,
the notes have been declared to be due and payable, the trustee may, in its
discretion, elect to maintain possession of the collateral securing the notes
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 of and interest on the notes as they would
have become due if there had not been any acceleration of payment. 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 for 30 days or more, unless:
- the holders of 100% of the then aggregate outstanding amount of
the notes consent to the sale;
- the proceeds of the sale or liquidation are sufficient to pay in
full the principal of and accrued interest due and unpaid on the
outstanding notes at the date of the sale; or
- the trustee determines that the collateral would not be
sufficient on an ongoing basis to make all payments on the notes
as those payments would have become due if the notes had not been
accelerated, and the trustee obtains the consent of the holders
of 66 2/3% of the then aggregate outstanding amount of the notes.
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In the event that the trustee liquidates the collateral in connection
with an Event of Default involving a default for 30 days or more in the payment
of principal of or interest on the notes, the indenture provides that the
trustee will have a prior lien on the proceeds of any liquidation for unpaid
fees and expenses. As a result, upon the occurrence of the Event of Default, the
amount available for distribution to the noteholders may be less than would
otherwise be the case. However, the trustee may not institute a proceeding for
the enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the indenture for the benefit of the noteholders
after the occurrence of the Event of Default.
In the event that the principal of the notes of a series is declared
due and payable as described above, 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 of their notes less the amount of the discount which is
unamortized.
Subject to the provisions of the indenture relating to the duties of
the trustee, even if an event of default has occurred and is continuing with
respect to a series of notes, the trustee will be under no obligation to
exercise any of the rights or powers under the indenture at the request or
direction of any of the holders of notes of the series, unless the holders have
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
the request or direction of the holders. Subject to these provisions for
indemnification and certain other limitations contained in the indenture, the
holders of a majority of the then aggregate outstanding amount of the notes of
the series will 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. The
holders of a majority of the then aggregate outstanding amount of the notes may,
in certain cases, waive any default with respect to the notes, 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 affected.
The indenture will be discharged with respect to a series of notes
(except with respect to certain continuing rights specified in the indenture)
upon the delivery to the trustee for cancellation of all the notes of the series
or, with certain limitations, upon deposit with the trustee of funds sufficient
for the payment in full of all of the notes of the series.
In addition to this discharge, with certain limitations, the indenture
will provide that, if specified with respect to the notes of any series, the
related trust fund will be discharged from any and all obligations with respect
to the notes of the series (except for certain obligations relating to temporary
notes and exchange of notes, to register the transfer of or exchange notes of
the series, to replace stolen, lost or mutilated notes of the series, to
maintain paying agencies and to hold monies for payment in trust) upon the
deposit with the trustee, in trust, of money and/or direct obligations of or
obligations guaranteed by the United States of America which, through the
payment of interest and principal in 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 final scheduled distribution date for the notes and
any installment of interest on the notes in accordance with the terms of the
indenture and the notes. In the event of any resulting defeasance and discharge
of the notes, holders of notes would be able to look only to this money and/or
direct obligations for all further payment of principal and interest, if any, on
their notes.
REMIC ADMINISTRATOR
For any series with respect to which a REMIC election is made,
preparation of certain reports and certain other administrative duties with
respect to the trust fund may be performed by a REMIC administrator, who may be
the seller or an affiliate of the seller.
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CERTAIN LEGAL ASPECTS OF THE HOME EQUITY LOANS
The following discussion contains summaries of certain legal aspects of
home equity loans which are general in nature. Because certain of these legal
aspects are governed by applicable state law (which may differ substantially
from state to state), the summaries do not purport to be complete or to reflect
the laws of any particular state, or to encompass the laws of all states in
which the properties securing the home equity loans are situated.
HOME EQUITY LOANS
The home equity loans for a series will be secured by either mortgages,
deeds of trust, deeds to secure debt or similar security instruments, depending
upon the prevailing practice in the state in which the property subject to a
home equity loan is located. The filing of a mortgage, deed of trust, deed to
secure debt or similar security instrument creates a lien or title interest upon
the real property covered and represents the security for the repayment of an
obligation that is customarily evidenced by a promissory note. The priority of
the liens is important because, among other things, the foreclosure of a senior
lien will extinguish a junior lien, and because the holder of a senior lien
generally will have a right to receive insurance, condemnation or other proceeds
before the holder of a junior lien.
Priority between mortgages and deeds of trust (or other instruments of
record) generally depends in the first instance on the order of filing with the
appropriate government records office. Priority also may be affected by the
express terms of the mortgage or the deed of trust and any subordination
agreement among the lenders.
Although priority among liens on the same property generally depends in
the first instance on the order of filing, there are a number of ways in which a
lien that is a senior lien when it is filed can become subordinate to a lien
filed at a later date. A deed of trust or mortgage generally is not prior to any
liens for real estate taxes and assessments, certain federal liens (including
certain federal criminal liens, environmental liens and tax liens), certain
mechanics and materialmen's liens, and other liens given priority by applicable
law.
There are two parties to a mortgage, the mortgagor, who is the
borrower/property owner or the land trustee (as described below), and the
mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. In the case of a land
trust, there are three parties because title to the property is held by a land
trustee under a land trust agreement of which the borrower/property owner is the
beneficiary; at origination of a home equity loan, the borrower executes a
separate undertaking to make payments on the mortgage note. Under a deed of
trust or similar security instrument, the homeowner or borrower, called the
"grantor," grants the security property to a third-party grantee, called the
"trustee," for the benefit of the lender, called the "beneficiary." The deed of
trust gives the trustee the authority, if the borrower defaults and upon the
instructions of the beneficiary, to sell the security property in a
"foreclosure" or "trustee's sale" and to apply the sale proceeds to the secured
debt. The mortgagee's authority under a mortgage and the trustee's authority
under a deed of trust are governed by the law of the state in which the real
property is located, the express provisions of the mortgage or deed of trust,
and, in some cases, particularly in deed of trust transactions, the directions
of the beneficiary.
FORECLOSURE
Foreclosure of a mortgage is generally accomplished by judicial
action, and foreclosure of a deed of trust may be accomplished by judicial
action. Generally, the action is initiated by the service of legal pleadings
upon all parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
effecting service on 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 or pursuant to
a power of sale provided in the mortgage. Foreclosure of a mortgage by
advertisement is essentially similar to foreclosure of a deed of trust by
nonjudicial power of sale.
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If a borrower defaults under a loan secured by a deed of trust, the
lender generally may bring suit against the borrower. The lender generally also
may attempt to collect the loan by causing the deed of trust to be enforced
against the property it encumbers. Enforcement of a deed of trust is
accomplished in most cases by a trustee's sale in which the trustee, upon
default of the grantor, and subject to the expiration of applicable cure
periods, sells the security property at a public sale under the terms of the
loan documents and subject to the applicable procedural provisions of state law.
In certain states, the lender must exhaust the security through foreclosure
(either judicially or non-judicially) prior to other efforts to collect the
balance of the promissory note. Whether a lender may thereafter collect on the
unpaid balance of the loan is governed by the anti-deficiency statute in the
applicable state governing the collectibility of deficiency balances.
The trustee's sale generally must be conducted by public auction in the
county or city in which all or some part of the security property is located. At
the sale, the trustee generally requires a bidder to deposit with the trustee a
set amount or a percentage of the full amount of the bidder's final bid in cash
(or an equivalent satisfactory to the trustee) prior to and as a condition to
recognizing the bid, and may conditionally accept and hold these amounts for the
duration of the sale. The beneficiary of the deed of trust generally need not
bid cash at the sale, but may instead make a "credit bid" up to the extent of
the total amount due under the deed of trust, including costs and expenses
actually incurred in enforcing the deed of trust, as well as the trustee's fees
and expenses. The trustee will sell the security property to the highest proper
bidder at the sale.
A sale conducted in accordance with the terms of the power of sale
contained in the deed of trust generally is presumed to be conducted regularly
and fairly, and, on a conveyance of the property by trustee's deed, confers
absolute legal title to the property to the purchaser, free of all junior deeds
of trust and free of all other liens and claims subordinate to the deed of trust
under which the sale is made. The purchaser's title, however, is subject to all
senior liens and other senior claims. Thus, if the deed of trust being enforced
is a junior deed of trust, the trustee will convey title to the property to the
purchaser subject to the first deed of trust and any other prior liens and
claims. A trustee's sale or judicial foreclosure under a junior deed of trust
generally has no effect on the first deed of trust, with the possible exception
of the right of a senior beneficiary to accelerate its indebtedness under a
default clause or a "due-on-sale" clause contained in the senior deed of trust.
WE REFER YOU TO "--DUE-ON-SALE CLAUSES IN HOME EQUITY LOANS" BELOW FOR
MORE DETAIL.
Because a potential buyer at the sale may find it difficult to
determine the exact status of title and other facts about the security property,
and because the physical condition of the security property may have
deteriorated, it generally is more common for the lender, rather than an
unrelated third party, to purchase the security property at a trustee's sale or
judicial foreclosure sale. The lender (or other purchaser at the judicial
foreclosure or trustee's sale) will be subject to the burdens of ownership,
including the obligations to service any senior mortgage or deed of trust, to
obtain hazard insurance and to make any repairs at its own expense necessary to
render the security property suitable for resale. The lender commonly will
attempt to resell the security property and obtain the services of a real estate
broker and agree to pay the broker a commission in connection with the resale.
Depending upon market conditions, the ultimate proceeds of the resale of the
security property may not be high enough to equal the lender's investment.
The proceeds received by the trustee from the sale generally are
applied first to the costs, fees and expenses of sale and then in satisfaction
of the indebtedness secured by the deed of trust under which the sale was
conducted. Any remaining proceeds generally are payable to the holders of junior
deeds of trust and other liens and claims in order of their priority. Any
balance remaining generally is payable to the grantor. Following the sale, if
there are insufficient proceeds to repay the secured debt, the beneficiary under
the foreclosed lien generally may obtain a deficiency judgment against the
grantor. See "--Deficiency Judgments" below.
Some courts have been faced with the issue of whether federal or state
constitutional due process requires that borrowers under deeds of trust receive
notices in addition to the statutorily prescribed minimum. For the most part,
the courts in these cases have upheld the notice provisions and procedures
described above.
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
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equitable powers. Generally, a mortgagor is bound by the terms of the related
mortgage note and the mortgage as made and cannot be relieved from his default
if the mortgagee has exercised his rights in a commercially reasonable manner.
However, since a foreclosure action is 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
excusable 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 the default was not willful.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes requiring
up to several years to complete. Moreover, a non-collusive, regularly conducted
foreclosure sale may be challenged as a fraudulent conveyance, regardless of the
parties' intent, if a court determines that the sale was for less than fair
consideration and the sale occurred while the mortgagor was insolvent and within
one year (or within the state statute of limitations if the trustee in
bankruptcy elects to proceed under state fraudulent conveyance law) of the
filing of bankruptcy. Similarly, a suit against the debtor on the related
mortgage note may take several years and, generally, is a remedy alternative to
foreclosure, the mortgagee being precluded from pursuing both at the same time.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the trustee is a
public sale. However, because of the difficulty potential third party purchasers
at the sale have in determining the exact status of title and because the
physical condition of the property may have deteriorated during the foreclosure
proceedings, it is relatively uncommon for a third party to purchase the
property at a foreclosure sale. Rather, it is more 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 a deficiency judgment can
be obtained. Afterward, 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 any repairs at its own expense necessary to render the property suitable
for sale. The lender will commonly obtain the services of a real estate broker
and pay the broker's commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Any loss may be
reduced by the receipt of any mortgage guaranty insurance proceeds.
RIGHTS OF REDEMPTION
In some states, after foreclosure of a mortgage, the 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 statutory or
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, expenses of foreclosure and reasonable
expenses incurred in maintaining the property. 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
will defeat the title of any purchaser at a foreclosure sale, or of any
purchaser from the lender subsequent to foreclosure. 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 many states, there is no right to redeem property after a trustee's
sale under a deed of trust, unless a deficiency judgment is sought by the
lender.
When the lender under a junior mortgage or deed of trust cures the
default and reinstates or redeems the senior mortgage or deed of trust, the
amount paid by the lender for the cure generally becomes a part of the
indebtedness secured by the junior deed of trust.
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JUNIOR HOME EQUITY LOANS; RIGHTS OF SENIOR HOME EQUITY LOANS
The home equity loans comprising or underlying the home equity loans
included in the trust fund for a series will be secured by mortgages or deeds of
trust which may be junior to one or more other mortgages or deeds of trust held
by other lenders or institutional investors. The rights of the trust fund (and
therefore the holders), as mortgagee under a junior mortgage, are subordinate to
those of the mortgagee under the senior mortgage, including the prior rights of
the senior mortgagee to receive hazard insurance and condemnation proceeds and
to cause the property securing the home equity loan to be sold upon default of
the mortgagor, thus 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 home equity loan in full and, in some
states, may cure the default and bring the senior home equity loan current, in
either event adding the amounts expended to the balance due on the junior home
equity loan. In some states, absent a provision in the mortgage or deed of
trust, no notice of default is required to be given to a junior mortgagee. In
addition, as described above, the rights of the trust fund may be or become
subject to liens for real estate taxes and other obligations. Although the
seller generally does not cure defaults under a senior deed of trust or other
lien, it is the seller's standard practice to protect its interest by monitoring
any sale of which it is aware and bidding for property if it determines that it
is in the seller's best interests to do so.
The standard form of the mortgage or deed of trust used by most
institutional lenders, like that used by the seller, confers on the mortgagee or
beneficiary the right both to receive all proceeds collected under any hazard
insurance policy required to be maintained by the borrower and all awards made
in connection with condemnation proceedings. The lender generally has the right,
subject to the specific provisions of the mortgage or deed of trust securing its
home equity loan, to apply any proceeds and awards to repair of any damage to
the security property or to payment of any indebtedness secured by the mortgage
or deed of trust, in any order that the mortgagee or beneficiary 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 or deeds of trust. If
available, proceeds in excess of the amount of senior mortgage indebtedness, in
most cases, will be applied to the junior indebtedness.
Another provision typically found in the form of the mortgage or deed
of trust used by institutional lenders obligates the grantor or 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 or beneficiary under the mortgage.
Upon a failure of the grantor or mortgagor to perform any of these obligations,
the mortgagee or beneficiary is given the right to perform the obligation
itself, at its election, with the mortgagor or grantor agreeing to reimburse the
mortgagee or beneficiary for any sums expended by the mortgagee or beneficiary
on behalf of the mortgagor or grantor. The mortgage or deed of trust typically
provides that all sums so expended by the mortgagee or beneficiary become part
of the indebtedness secured by the mortgage or deed of trust.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions which limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage.
In some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or sale
under a deed of trust. A deficiency judgment is a personal judgment against the
former borrower equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. However, some states calculate the deficiency as the difference between
the outstanding indebtedness and the greater of the fair market value of the
property and the sales price of the property. Other states 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,
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the lender has the option of bringing a personal action against the borrower
on the debt without first exhausting its security; however, in some of these
states, the lender, following judgment on its personal action, may be deemed
to have elected a remedy and may be precluded from exercising remedies with
respect to the security. Consequently, the practical effect of the election
requirement, when applicable, is that lenders will usually proceed first
against the security rather than bringing a personal action against the
borrower. Finally, other statutory provisions limit any deficiency judgment
against the former borrower following a foreclosure sale to the excess of the
outstanding debt over the fair market value of the property at the time of the
public sale. The purpose of these statutes is generally to prevent a
beneficiary or a mortgagee from obtaining a large deficiency judgment against
the former borrower as a result of low or no bids at the foreclosure sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws, the
Federal Soldiers' and Sailors' Civil Relief Act and state laws affording relief
to debtors, may interfere with or affect the ability of the secured lender to
realize upon collateral and/or enforce a deficiency judgment. For example, with
respect to federal bankruptcy law, the filing of a petition acts as a stay
against the enforcement of remedies for collection of a debt. Foreclosure is
permitted during the pendency of this proceeding only with court permission
Moreover, a court with federal bankruptcy jurisdiction may permit a debtor
through a Chapter 13 rehabilitative plan under the federal bankruptcy code 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 its security (as long as 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 home equity loan may be modified if the borrower has filed a
petition under Chapter 13. These courts have suggested that 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 home equity loan. Federal bankruptcy law and limited
case law indicate that the foregoing modifications cannot be applied to the
terms of a home equity 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 federal bankruptcy code, the lender is
precluded from foreclosing without authorization from the bankruptcy court. The
lender's lien may be transferred to other collateral and/or be limited in amount
to the value of the lender's interest in the collateral as of the date of the
bankruptcy. The loan term may be extended, the interest rate may be adjusted to
market rates and the priority of the loan may be subordinated to bankruptcy
court-approved financing. The bankruptcy court can, in effect, invalidate
due-on-sale clauses through confirmed Chapter 11 plans of reorganization.
The federal 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 home equity loan. In addition, substantive
requirements are imposed upon lenders in connection with the origination and
the servicing of home equity 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
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 most cases, this liability will
affect assignees of the loans.
DUE-ON-SALE CLAUSES IN HOME EQUITY LOANS
Due-on-sale clauses permit the lender to accelerate the maturity of
the home equity 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
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litigation in many states, and in some cases, typically involving single
family residential mortgage transactions, their enforceability has been
limited or denied. In any event, the Garn-St Germain Depository Institutions
Act of 1982 (the "Garn-St Germain Act") preempts state constitutional,
statutory and case law that prohibits the enforcement of due-on-sale clauses
and permits lenders to enforce these clauses in accordance with their terms,
subject to certain exceptions. As a result, due-on-sale clauses have become
generally enforceable except in those states whose legislatures exercised
their authority to regulate the enforceability of due-on-sale clauses with
respect to home equity that were 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 that were 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 (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 the 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
generally designed to relieve the borrower from the legal effect of his
defaults under the loan documents. Examples of judicial remedies that have
been fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes of the borrower's
default and the likelihood that the borrower will be able to reinstate the
loan. In some cases, courts have substituted their judgment for the lender's
judgment and have required that lenders reinstate loans or recast payment
schedules in order to accommodate borrowers who are suffering from temporary
financial disability. In other cases, courts have limited the right of a
lender to realize upon its 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 home equity loans may be prepaid in
full or in part without penalty. 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 home equity loans having higher
mortgage rates, may increase the likelihood of refinancing or other early
retirements of these home equity loans.
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APPLICABILITY OF USURY LAWS
Many states have usury laws which limit the interest and other amounts
that may be charged under certain loans. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, enacted in March 1980 ("Title
V"), provides that state usury limitations will not apply to certain types of
residential first home equity loans originated by certain lenders after March
31, 1980. Similar federal statutes were in effect with respect to home equity
loans made during the first three months of 1980. 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 the 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 home equity loans covered by Title V. State laws apply to residential
second mortgages; however, some state usury limitations do not apply to
residential second mortgages.
ENVIRONMENTAL LEGISLATION
A federal statute, the Comprehensive Environmental Response,
Compensation, and Liability Act, and a growing number of state laws impose a
statutory lien for associated costs on property that is the subject of a cleanup
action on account of hazardous wastes or hazardous substances released or
disposed of on the property. A lien of this type generally will have priority
over all subsequent liens on the property and, in certain of these states, will
have priority over prior recorded liens, including the lien of a mortgage or
deed of trust. The priority of the environmental lien under federal law depends
on the time of perfection of the federal lien compared to the time of perfection
of any competing liens under applicable state law. In addition, under federal
environmental legislation and possibly under state law in a number of states, a
secured party that takes a deed in lieu of foreclosure or acquires a property at
a foreclosure sale may be liable for the costs of cleaning up a contaminated
site. Although these costs could be substantial, they would probably not be
imposed on a secured lender (such as the applicable trust fund) if it promptly
marketed the foreclosed property for resale. In the event that a trust fund
acquired title to a property securing a home equity loan and cleanup costs were
incurred in respect of the property, the holders of the securities might incur a
delay in the payment if the costs were required to be paid by the trust fund.
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:
- are entitled to have interest rates reduced and capped at 6% per
annum, on obligations (including home equity loans) incurred
prior to the commencement of military service for the duration of
military service;
- may be entitled to a stay of proceedings on any kind of
foreclosure or repossession action in the case of defaults on
obligations entered into prior to military service for the
duration of military service; and
- may have the maturity of 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, these benefits are subject to challenge by creditors. If, in
the opinion of the court, the ability of a person to comply with these
obligations has not been materially impaired by military service, the court
may apply equitable principles accordingly. If a borrower's obligation to
repay amounts otherwise due on a home equity loan included in a trust fund for
a series is relieved pursuant to the Soldiers' and Sailors' Civil Relief Act
of 1940, none of the trust fund, the servicer, the seller, the trustee or the
owner trustee (if applicable) will be required to advance these amounts, and
any resulting loss may reduce the amounts available to be paid to the holders
of the securities of the series. Any shortfalls in interest collections on
home equity loans included in a
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trust fund for a series resulting from application of the Soldiers' and
Sailors' Civil Relief Act of 1940 will be allocated to each class of
securities of the series that is entitled to receive interest in respect of
the home equity loans in proportion to the interest that each class of
securities would have otherwise been entitled to receive in respect of the
home equity loans had the interest shortfall not occurred, unless the related
prospectus supplement allocates these shortfalls to particular classes.
USE OF PROCEEDS
The depositor will apply all or substantially all of the net proceeds
from the sale of each series of securities for one or more of the following
purposes:
- to establish any reserve fund, Prefunding Account or Capitalized
Interest Account;
- to pay costs of structuring and issuing the securities, including
the costs of obtaining credit enhancement; and
- to acquire the home equity loans from the seller, who in turn
will use the proceeds for general corporate purposes.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
This section sets forth certain federal income tax opinions of Stroock
& Stroock & Lavan LLP, special counsel to the seller ("Federal Tax Counsel") and
a summary, based on the advice of Federal Tax Counsel, of the material federal
income tax consequences of the purchase, ownership and disposition of
securities. The summary focuses primarily upon investors who will hold
securities as "capital assets" (generally, property held for investment) within
the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended
(the "Code"), but much of the discussion is applicable to other investors as
well. Because tax consequences may vary based on the status or tax attributes of
the owner of a security, 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. For
purposes of this tax discussion (except with respect to information reporting,
or where the context indicates otherwise), any reference to the "holder" means
the beneficial owner of a security.
The summary is based upon the provisions of and the regulations
promulgated under 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 a change could apply retroactively.
The federal income tax consequences to holders will vary depending on
whether:
- the securities of a series are classified as indebtedness for
federal income tax purposes;
- an election is made to treat the trust fund (or certain assets of
the trust fund) relating to a particular series of securities as
a real estate mortgage investment conduit (REMIC) under the Code;
- the securities represent an ownership interest for federal income
tax purposes in some or all of the assets included in the trust
fund for a series; or
- for federal income tax purposes the trust fund relating to a
particular series of securities is classified as a partnership or
is disregarded as an entity separate from its owner.
The prospectus supplement for each series of securities will specify
how the securities will be treated for federal income tax purposes and will
discuss whether a REMIC election, if any, will be made with respect to the
series.
OPINIONS
Federal Tax Counsel is of the opinion that:
(i) if a prospectus supplement indicates that one or more
classes of non-REMIC securities of the related series are to be treated
as indebtedness for federal income tax purposes, assuming that all of
the provisions of the applicable agreement are complied with, the
securities so designated will be considered indebtedness for federal
income tax purposes and, for federal income tax purposes, the related
trust fund will not be an association, publicly traded partnership, or
taxable mortgage pool taxable as a corporation;
(ii) if a prospectus supplement indicates that one or more
REMIC elections will be made with respect to the related trust fund,
assuming that these elections are timely made and all of the provisions
of the applicable agreement are complied with:
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- each segregated pool of assets specified as a REMIC in the
agreement will constitute a REMIC for federal income tax
purposes;
- the class or classes of securities of the related series which
are designated as "regular interests" in the prospectus
supplement will be considered "regular interests" in a REMIC for
federal income tax purposes; and
- the class of securities of the related series which is designated
as the "residual interest" in the prospectus supplement will be
considered the sole class of "residual interests" in the
applicable REMIC for federal income tax purposes; and
(iii) if a prospectus supplement indicates that a trust fund
will be treated as a grantor trust for federal income tax purposes,
assuming compliance with all of the provisions of the applicable
agreement, the trust fund will be a grantor trust under Subpart E, Part
I of Subchapter J of the Code and will not be an association taxable as
a corporation, and a holder of the related certificates will be treated
for federal income tax purposes as the owner of an undivided interest
in the home equity loans included in the trust fund.
Each opinion is an expression of an opinion only, is not a guarantee of
results and is not binding on the Internal Revenue Service ("IRS") or any
third-party.
TAXATION OF DEBT SECURITIES (INCLUDING REGULAR INTEREST SECURITIES)
INTEREST AND ACQUISITION DISCOUNT. Securities representing regular
interest in a REMIC ("Regular Interest Securities") 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 ("OID")) 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 are referred to in this section collectively as
"Debt Securities."
Debt Securities that are Compound Interest Securities will, and certain
of the other Debt Securities may, be issued with 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 under these provisions
of the Code (the "OID Regulations"). A holder should be aware, however, that the
OID Regulations do not adequately address certain issues relevant to prepayable
securities, such as the Debt Securities.
In general, OID, if any, 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 the OID in gross income as ordinary interest income
as it accrues under a prescribed method which takes into account an economic
accrual of the discount. 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 that class will be
treated as the fair market value of the class on the closing date. 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 the distributions constitute "qualified stated interest."
Under the OID Regulations, interest payments will not be qualified
stated interest unless the interest payments are "unconditionally payable."
The OID Regulations state that interest is unconditionally payable if
reasonable legal remedies exist to compel timely payment or the debt
instrument otherwise provides terms and conditions that make the likelihood of
late payment of interest (other than late payment that occurs within a
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reasonable grace period) or nonpayment of interest a remote contingency. It is
unclear whether the terms and conditions of the debt instruments underlying
the Debt Securities or of the Debt Securities themselves are determinative of
whether the likelihood of late payment or non-payment is a remote contingency.
Accordingly, Federal Tax Counsel is unable to opine whether the interest with
respect to a Debt Security is qualified stated interest, and consequently
whether a Debt Security has OID as a result of the failure of the interest to
be treated as qualified stated interest.
Certain Debt Securities will provide for distributions of interest
based on a period that is the same length as the interval between distribution
dates but ends prior to each distribution date. Any interest that accrues prior
to the closing date may be treated under the OID Regulations either as part of
the issue price and the stated redemption price at maturity of the Debt
Securities or as not included in the issue price or stated redemption price. The
OID Regulations provide a special application of the de minimis rule for debt
instruments with long first accrual periods where the interest payable for the
first period is at a rate which is effectively less than that which applies in
all other periods. In these cases, for the sole purpose of determining whether
OID is de minimis, the OID Regulations provide that the stated redemption price
is equal to the instrument's issue price plus the greater of the amount of
foregone interest or the excess (if any) of the instrument's stated principal
amount over its issue price. The term "interest period" may also be used to
refer to the "accrual period" with respect to interest on a class of notes or
certificates.
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. 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 (i.e., rounding down partial 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 generally must report de minimis OID pro rata as
principal payments are received, and the 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. See "--Election to Treat All Interest as Original Issue
Discount."
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 home equity loans, the amount of
OID includible in income of a holder for an accrual period (generally 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 of 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, such as certain classes of the Debt Securities, that is subject to
acceleration due to prepayments on other debt obligations securing these debt
instruments (a "Pay-Through Security"), is computed by taking into account the
anticipated rate of prepayments assumed in pricing the debt instrument (the
"Prepayment Assumption"). The amount of OID that will accrue during an accrual
period on a Pay-Through Security is the excess (if any) of the sum of (a) the
present value of all payments remaining to be made on the Pay-Through Security
as of the close of the accrual period and (b) the payments during the accrual
period of amounts included in the stated redemption price of the Pay-Through
Security, over the adjusted issue price of the Pay-Through 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: (1) the original yield to
maturity of the Pay-Through Security (determined on the basis of compounding
at the end of each accrual period and properly adjusted for the length of the
accrual period), (2) events which have occurred before the end of the accrual
period and (3) 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
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OID required to be included in income by a holder to take into account
prepayments with respect to the home equity 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 a Pay-Through
Security to take into account prepayments with respect to the home equity
loans at a rate that is slower than the Prepayment Assumption. Although OID
will be reported to holders of Pay-Through Securities based on the Prepayment
Assumption, no representation is made to holders that home equity 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 home equity loans,
although the OID Regulations do not provide for these adjustments. If the IRS
were to require that OID be accrued without these adjustments, the rate of
accrual of OID for a class of Regular Interest Securities could increase.
Certain classes of Regular Interest Securities may represent more than
one class of REMIC regular interests. Unless the applicable prospectus
supplement specifies otherwise, 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 a 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 OID by
comparable economic accruals of portions of excess.
EFFECTS OF DEFAULTS AND DELINQUENCIES. Holders will be required to
report income with respect to its securities under an accrual method without
giving effect to delays and reductions in distributions attributable to a
default or delinquency on the home equity loans, except possibly to the extent
that it can be established that these amounts are uncollectible. As a result,
the amount of income (including OID) reported by a holder 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 reduced as a result of a home equity loan
default. However, the timing and character of these 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 on Debt Securities 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 home equity loans underlying Pass-Through Securities ("Interest
Weighted Securities"). The trust fund 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 the 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 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 this premium
amount, if any. Under this approach, a holder would be entitled to amortize the
premium only if it has in effect an election under Section 171 of the Code with
respect to all taxable debt instruments held by the holder, as described below.
VARIABLE RATE DEBT SECURITIES. Under the OID Regulations, Debt
Securities paying interest at a variable rate (a "Variable Rate Debt Security")
are subject to special rules. A Variable Rate Debt Security will qualify as a
"variable rate debt instrument" if:
- its issue price does not exceed the total noncontingent principal
payments due under the Variable Rate Debt Security by more than a
specified de minimis amount;
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- it provides for stated interest, paid or compounded at least
annually, at (a) one or more qualified floating rates, (b) a
single fixed rate and one or more qualified floating rates, (c) a
single objective rate or (d) a single fixed rate and a single
objective rate that is a qualified inverse floating rate; and
- it does not provide for any principal payments that are
contingent, as defined in the OID Regulations, except the de
minimis amount specified above.
A "qualified floating rate" is any variable rate where the rate
variations can reasonably be expected to measure contemporaneous variations in
the cost of newly borrowed funds in the currency in which the Variable Rate Debt
Security is denominated. A multiple of a qualified floating rate will generally
not itself constitute a qualified floating rate for purposes of the OID
Regulations. However, a variable rate equal to (1) the product of a qualified
floating rate and a fixed multiple that is greater than 0.65 but not more than
1.35 or (2) the product of a qualified floating rate and a fixed multiple that
is greater than 0.65 but not more than 1.35, increased or decreased by a fixed
rate will constitute a qualified floating rate for purposes of the OID
Regulations.
In addition, under the OID Regulations, two or more qualified floating
rates that can reasonably be expected to have approximately the same values
throughout the term of the Variable Rate Debt Security will be treated as a
single qualified floating rate (a "Presumed Single Qualified Floating Rate").
Two or more qualified floating rates with values within 25 basis points of each
other as determined on the Variable Rate Debt Security's issue date will be
conclusively presumed to be a Presumed Single Qualified Floating Rate.
Nevertheless, a variable rate that would otherwise constitute a qualified
floating rate but which is subject to one or more restrictions such as a cap or
floor, will not be a qualified floating rate for purposes of the OID Regulations
unless the restriction is fixed throughout the term of the Variable Rate Debt
Security or the restriction will not significantly affect the yield of the
Variable Rate Debt Security.
An "objective rate" is a rate that is not itself a qualified floating
rate but which is determined using a single fixed formula and which is based
upon objective financial or economic information. The OID Regulations also
provide that other variable rates may be treated as objective rates if so
designated by the IRS in the future. Nevertheless, a variable rate of interest
on a Variable Rate Debt Security will not constitute an objective rate if it is
reasonably expected that the average value of the variable rate during the first
half of the Variable Rate Debt Security's term will be either significantly less
than or significantly greater than the average value of the rate during the
final half of the Variable Rate Debt Security's term. Further, an objective rate
does not include a rate that is based on information that is within the control
of or unique to the circumstances of the issuer or a party related to the
issuer. An objective rate will qualify as a "qualified inverse floating rate" if
the objective rate is equal to a fixed rate minus a qualified floating rate and
variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the qualified floating rate.
The OID Regulations also provide that if a Variable Rate Debt Security
provides for stated interest at a fixed rate for an initial period of less than
one year followed by a variable rate that is either a qualified floating rate or
an objective rate and if the variable rate on the Variable Rate Debt Security's
issue date is intended to approximate the fixed rate, then the fixed rate and
the variable rate together will constitute either a single qualified floating
rate or objective rate, as the case may be (a "Presumed Single Variable Rate").
If the value of the variable rate and the initial fixed rate are within 25 basis
points of each other as determined on the Variable Rate Debt Security's issue
date, the variable rate will be conclusively presumed to approximate the fixed
rate.
For Variable Rate Debt Securities that qualify as a "variable rate debt
instrument" under the OID Regulations and provide for interest at either a
single qualified floating rate, a single objective rate, a Presumed Single
Qualified Floating Rate or a Presumed Single Variable Rate throughout the term
(a "Single Variable Rate Debt Security"), OID is computed as described above
based on the following:
- stated interest on the Single Variable Rate Debt Security which
is unconditionally payable in cash or property (other than debt
instruments of the issuer) at least annually will constitute
qualified stated interest;
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- by assuming that the variable rate on the Single Variable Debt
Security is a fixed rate equal to: (a) in the case of a Single
Variable Rate Debt Security with a qualified floating rate or a
qualified inverse floating rate, the value, as of the issue date,
of the qualified floating rate or the qualified inverse floating
rate or (b) in the case of a Single Variable Rate Debt Security
with an objective rate (other than a qualified inverse floating
rate), a fixed rate which reflects the reasonably expected yield
for the Single Variable Debt Security; and
- the qualified stated interest allocable to an accrual period is
increased (or decreased) if the interest actually paid during an
accrual period exceeds (or is less than) the interest assumed to
be paid under the assumed fixed rate described above.
In general, any Variable Rate Debt Security other than a Single
Variable Rate Debt Security (a "Multiple Variable Rate Debt Security") that
qualifies as a "variable rate debt instrument" will be converted into an
"equivalent" fixed rate debt instrument for purposes of determining the amount
and accrual of OID and qualified stated interest on the Multiple Variable Rate
Debt Security. The OID Regulations generally require that the Multiple Variable
Rate Debt Security be converted into an "equivalent" fixed rate debt instrument
by substituting any qualified floating rate or qualified inverse floating rate
provided for under the terms of the Multiple Variable Rate Debt Security with a
fixed rate equal to the value of the qualified floating rate or qualified
inverse floating rate, as the case may be, as of the Multiple Variable Rate Debt
Security's issue date. Any objective rate (other than a qualified inverse
floating rate) provided for under the terms of the Multiple Variable Rate Debt
Security is converted into a fixed rate that reflects the yield that is
reasonably expected for the Multiple Variable Rate Debt Security.
In the case of a Multiple Variable Rate Debt Security that qualifies as
a "variable rate debt instrument" and provides for stated interest at a fixed
rate in addition to either one or more qualified floating rates or a qualified
inverse floating rate, the fixed rate is initially converted into a qualified
floating rate (or a qualified inverse floating rate, if the Multiple Variable
Rate Debt Security provides for a qualified inverse floating rate). Under these
circumstances, the qualified floating rate or qualified inverse floating rate
that replaces the fixed rate must be such that the fair market value of the
Multiple Variable Rate Debt Security as of the Multiple Variable Rate Debt
Security's issue date is approximately the same as the fair market value of an
otherwise identical debt instrument that provides for either the qualified
floating rate or qualified inverse floating rate rather than the fixed rate.
Subsequent to converting the fixed rate into either a qualified floating rate or
a qualified inverse floating rate, the Multiple Variable Rate Debt Security is
then converted into an "equivalent" fixed rate debt instrument in the manner
described above.
Once the Multiple Variable Rate Debt Security is converted into an
"equivalent" fixed rate debt instrument pursuant to the foregoing rules, the
amount of OID and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the OID rules to the
"equivalent" fixed rate debt instrument in the manner described above. A holder
of the Multiple Variable Rate Debt Security will account for this OID and
qualified stated interest as if the holder held the "equivalent" fixed rate debt
instrument. Each accrual period appropriate adjustments will be made to the
amount of qualified stated interest or OID assumed to have been accrued or paid
with respect to the "equivalent" fixed rate debt instrument in the event that
these amounts differ from the accrual amount of interest accrued or paid on the
Multiple Variable Rate Debt Security during the accrual period.
If a Variable Rate Debt Security does not qualify as a "variable rate
debt instrument" under the OID Regulations, then the Variable Rate Debt Security
would be treated as a contingent payment debt obligation. It is not clear under
current law how a Variable Rate Debt Security would be taxed if the Debt
Security were treated as a contingent payment debt obligation.
The IRS has issued final regulations (the "Contingent Regulations")
governing the calculation of OID on instruments having contingent interest
payments. The Contingent Regulations specifically do not apply however to debt
instruments to which Code Section 1272(a)(6) is applicable, such as a
Pay-Through Security. Additionally, the OID Regulations do not contain
provisions specifically interpreting Code Section 1272(a)(6). Until the Treasury
issues guidelines to the contrary, the trustee intends to base its computation
of OID on Pay-
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Through Securities as described in this prospectus. However, because no
regulatory guidance exists under Code Section 1272(a)(6), there can be no
assurance that this methodology represents the correct manner of calculating
OID.
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"
(generally, 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. This market discount would
accrue in a manner to be provided in Treasury regulations but, until the
regulations are issued, the market discount would in general accrue either (1)
on the basis of a constant yield (in the case of a Pay-Through Security, taking
into account a prepayment assumption) or (2) in the ratio of (a) in the case of
securities (or in the case of a Pass-Through Security, as set forth below, the
home equity loans underlying the Security) not 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, in the case of a Pass-Through Security, as described below, the
home equity loans underlying the 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, in the case of a Pass-Through Security, the home
equity loans), the excess of interest paid or accrued to purchase or carry a
security (or, in the case of a Pass-Through Security, as described below, the
underlying home equity loans) with market discount over interest received on the
security is allowed as a current deduction only to the extent the excess is
greater than the market discount that accrued during the taxable year in which
the interest expense was incurred. In general, the deferred portion of any
interest expense will be deductible when the market discount is included in
income, including upon the sale, disposition, or repayment of the Debt Security
(or in the case of a Pass-Through Security, an underlying home equity loan). A
holder may elect to include market discount in income currently as it accrues,
on all market discount obligations acquired by the holder during the taxable
year the election is made and thereafter, in which case the interest deferral
rule will not apply.
PREMIUM. A holder who purchases a Debt Security (other than an Interest
Weighted Security to the extent described above) 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 the 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 Tax Reform Act of 1986 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 the class. 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 certificates 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
afterwards 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.
Current treasury regulations (the "Amortizable Bond Premium
Regulations") dealing with amortizable bond premium specifically do not apply
to prepayable debt instruments subject to Code Section 1272(a)(6) such as the
Pay-Through 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 the Amortizable Bond Premium 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 in 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
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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 the 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 with respect to all debt instruments
having amortizable bond premium that holder owns or acquires. The election to
accrue interest, discount and premium on a constant yield method with respect
to a Debt Security is irrevocable.
SALE OR EXCHANGE. A holder's tax basis in its Debt Security is the
price the holder pays for a Debt Security, plus amounts of OID 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 Debt Security, measured by
the difference between the amount realized and the Debt Security's basis as so
adjusted, will generally be capital gain or loss, assuming that the Debt
Security is held as a capital asset. In the case of a Debt 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 Debt 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 (1) 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 with respect to the Regular Interest Security.
TAXATION OF THE REMIC AND ITS HOLDERS
STATUS OF REGULAR INTEREST SECURITIES. Regular Interest Securities and
securities representing a residual interest in a REMIC (both types of securities
collectively referred to as "REMIC Securities") will be "real estate assets" for
purposes of Section 856(c)(4)(A) of the Code and assets described in Section
7701(a)(19)(C) of the Code (assets qualifying under one or both of those
sections, applying each section separately, "qualifying assets" to the extent
that the REMIC's assets are qualifying assets). However, if at least 95 percent
of the REMIC's assets are qualifying assets, then 100 percent of the REMIC
Securities will be qualifying assets. Similarly, income on the REMIC Securities
will be treated as "interest on obligations secured by mortgages on real
property" within the meaning of Section 856(c)(3)(B) of the Code, subject to the
limitations of the preceding two sentences. In addition to home equity loans,
the REMIC's assets will include payments on home equity loans held pending
distribution to holders of REMIC Securities, amounts in reserve accounts (if
any), other credit enhancements (if any) and possibly buydown funds ("Buydown
Funds"). The home equity loans generally will be qualifying assets under both of
the foregoing sections of the Code. However, home equity loans that are not
secured by residential real property or real property used primarily for church
purposes may not constitute qualifying assets under Section 7701(a)(19)(C)(v) of
the Code. In addition, to the extent that the principal amount of a home equity
loan exceeds the value of the property securing the home equity loan, it is
unclear and Federal Tax Counsel is unable to opine whether the home equity loans
will be qualifying assets. The regulations under Sections 860A through 860G of
the Code (the "REMIC Regulations") treat credit enhancements as part of the
mortgage or pool of mortgages to which they relate, and therefore credit
enhancements generally should be qualifying assets. Regulations issued in
conjunction with the REMIC Regulations provide that amounts paid on loans and
held pending distribution to holders of Regular Interest Securities ("cash flow
investments") will be treated as qualifying assets. It is unclear whether
reserve funds or Buydown Funds would also constitute qualifying assets under
either of those provisions.
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 including real estate investment trusts), these expenses will be
deductible only to the extent that these expenses, plus other "miscellaneous
itemized deductions" of the holder, exceed 2% of the holder's adjusted gross
income and the holder may not be able to deduct these fees and
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expenses to any extent in computing its 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 will be reduced by the lesser of (1) 3% of the excess of
adjusted gross income over the applicable amount, or (2) 80% of the amount of
itemized deductions otherwise allowable for the taxable year. For taxable
years beginning after December 31, 1997, in the case of a partnership that has
100 or more partners and elects to be treated as an "electing large
partnership," 70% of the partnership's miscellaneous itemized deductions will
be disallowed, although the remaining deductions will generally be allowed at
the partnership level and will not be subject to the 2% floor that would
otherwise be applicable to individual partners. The reduction or disallowance
of this deduction may have a significant impact on the yield of the Regular
Interest Security to this type of holder. In general terms, a single class
REMIC is one that either (1) 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 (2) is similar to such a trust and which is structured
with the principal purpose of avoiding the single class REMIC rules. Unless
otherwise stated in the applicable 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 above, the regular interests are generally
taxable as debt of the REMIC.
TIERED REMIC STRUCTURES. For certain series of securities, two or more
separate elections may be made to treat designated portions of the related trust
fund as REMICs ("Tiered REMICs") for federal income tax purposes. Solely for
purposes of determining whether the REMIC certificates will be "real estate
assets" within the meaning of Section 856(c)(4)(A) of the Code, and "loans
secured by an interest in real property" under Section 7701(a)(19)(C) of the
Code, and whether the income on these certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
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 (1) the gross income produced
by the REMIC's assets, including stated interest and any OID or market discount
on loans and other assets, and (2) deductions, including stated interest and OID
accrued on Regular Interest Securities, amortization of any premium with respect
to home equity 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 home equity loans or other administrative
expenses of the REMIC for a given taxable year, to the extent that these
expenses, when aggregated with the holder's other miscellaneous itemized
deductions for that year, do not exceed 2% of the holder's adjusted gross
income and the holder may not be able to deduct these fees and expenses to any
extent in computing its alternative minimum tax liability. For taxable years
beginning after December 31, 1997, in the case of a partnership that has 100
or more partners and elects to be treated as an "electing large partnership,"
70% of the partnership's miscellaneous itemized deductions will be disallowed,
although the remaining deductions will generally be allowed at the partnership
level and will not be subject to the 2% floor that would otherwise be
applicable to individual partners.
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 Startup Day (generally, the day that the interests are
issued). This 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. Subject to possible application of the de minimis
rules, the method of accrual by the REMIC of OID income on
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these 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 this discount in income, but without
regard to the de minimis rules.
WE REFER YOU TO "TAXATION OF DEBT SECURITIES (INCLUDING REGULAR
INTEREST SECURITIES)" ABOVE FOR MORE DETAIL.
A REMIC that acquires loans at a market discount must include the
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 (presumably 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 this 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:
- subject to limited exceptions, the sale or other disposition of any
qualified mortgage transferred to the REMIC;
- subject to a limited exception, the sale or other disposition of a
cash flow investment;
- the receipt of any income from assets not permitted to be held by
the REMIC pursuant to the Code; or
- 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, subject to a number of exceptions, a tax is imposed at the rate of
100% on amounts contributed to a REMIC after the Startup Day. The holders of
Residual Interest Securities will generally be responsible for the payment of
any of these taxes imposed on the REMIC. To the extent not paid by these holders
or otherwise, however, these taxes will be paid out of the trust fund and will
be allocated pro rata to all outstanding classes of securities of the REMIC.
TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES
The holder of 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 the 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 the quarter, and by allocating that amount among the holders (on
that day) of the Residual Interest Securities in proportion to their
respective holdings on that 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 this income or
loss. The reporting of taxable income without corresponding distributions
could occur, for example, in certain REMIC issues in which the home equity
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 Interest Securities 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
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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 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 corporate
bond or stripped 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 the 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 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 the 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 fund, or certain cooperatives were
to own a Residual Interest Security, a portion of dividends (or
WE REFER YOU TO "TAX TREATMENT OF FOREIGN INVESTORS" FOR MORE DETAIL.
The Small Business Job Protection Act of 1996 eliminated the special
rule permitting Section 593 institutions ("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 held by thrift institutions 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
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minimum taxable income for the 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 income for a tax year cannot
be less than 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 the
rules apply only to tax years beginning after August 20, 1996.
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 (1) 120% of the long term applicable federal rate on the Startup Date
multiplied by (2) the adjusted issue price of the Residual Interest Security at
the beginning of the quarterly period. The adjusted issue price of a Residual
Interest Security 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 Security), 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 Interest Securities may be disregarded.
WE REFER YOU TO "--RESTRICTIONS ON OWNERSHIP AND TRANSFER OF RESIDUAL
INTEREST SECURITIES" AND "TAX TREATMENT OF FOREIGN INVESTORS" BELOW FOR MORE
DETAIL.
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 REMIC residual interest 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 the 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 has 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 an interest in a pass-through entity), 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.
For taxable years beginning after December 31, 1997, all partners of certain
electing partnerships having 100 or more partners ("electing large
partnerships") will be treated as disqualified organizations for purposes of
the tax imposed on pass-through entities if these electing large partnerships
hold residual interests in a REMIC. However, the electing large partnership
would be entitled to exclude the excess inclusion income from gross income for
purposes of determining the taxable income of the partners.
The REMIC Regulations provide that a transfer of a "noneconomic
residual interest" will be disregarded for all federal income tax purposes
unless impeding the assessment or collection of tax was not a significant
purpose of the transfer. A residual interest will be treated as a "noneconomic
residual interest" unless, at the time of the transfer:
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- the present value of the expected future distributions on the
residual interest at least equals the product of (x) the present
value of all anticipated excess inclusions with respect to the
residual interest and (y) the highest corporate tax rate,
currently 35 percent; and
- the transferor reasonably expects that for each anticipated
excess inclusion, the transferee will receive distributions from
the REMIC, at or after the time at which taxes on this excess
inclusion accrue, sufficient to pay these taxes.
A significant purpose to impede the assessment or collection of tax
exists if the transferor, at the time of the transfer, either knew or should
have known (had "improper knowledge") that the transferee would be unwilling or
unable to pay taxes due on its share of the taxable income of the REMIC. A
transferor will be presumed not to have improper knowledge if:
- the transferor conducts, at the time of the transfer, a
reasonable investigation of the financial condition of the
transferee and, as a result of the investigation, the transferor
finds that the transferee has historically paid its debts as they
came due and finds no significant evidence to indicate that the
transferee will not continue to pay its debts as they come due in
the future; and
- the transferee represents to the transferor that the transferee
understands that it might incur tax liabilities in excess of any
cash received with respect to the residual interest and intends
to pay the taxes associated with owning the residual interest as
they come due.
A different formulation of this rule applies to transfers of Residual
Interest Security by or to foreign transferees.
WE REFER YOU TO "TAX TREATMENT OF FOREIGN INVESTORS" FOR MORE DETAIL.
MARK TO MARKET RULES. Treasury regulations provide that any REMIC
Residual Interest acquired after January 3, 1995 is not a security and cannot be
marked to market under Section 475.
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 further described below, each holder of a security issued
by a grantor trust (a "Pass-Through Security") must report on its federal income
tax return the gross income from the portion of the home equity loans that is
allocable to its Pass-Through Security and may deduct the portion of the
expenses incurred or accrued by the trust fund that is allocable to its
Pass-Through Security, at the same time and to the same extent as these items
would be reported by the holder if it had purchased and held directly this
interest in the home equity loans and received or accrued directly its share of
the payments on the home equity loans and incurred or accrued directly its share
of expenses incurred or accrued by the trust fund when those amounts are
received, incurred or accrued by the trust fund.
A holder of a Pass-Through Security that is an individual, estate, or
trust will be allowed deductions for these expenses only to the extent that the
sum of those expenses and the holder's other miscellaneous itemized deductions
exceeds 2% of the holder's adjusted gross income. Further, the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds a prescribed amount will be reduced by the
lesser of (1) 3% of the excess of adjusted gross income over the prescribed
amount, or (2) 80% of the amount of itemized deductions otherwise allowable for
the taxable year. For taxable years beginning after December 31, 1997, in the
case of a partnership that has 100 or more partners and elects to
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be treated as an "electing large partnership," 70% of the partnership's
miscellaneous itemized deductions will be disallowed, although the remaining
deductions will generally be allowed at the partnership level and will not be
subject to the 2% floor that would otherwise be applicable to individual
partners. Moreover, a holder of a Pass-Through Security that is not a
corporation cannot deduct these expenses for purposes of the alternative
minimum tax (if applicable). These deductions will include servicing,
guarantee and administrative fees paid to the servicer of the home equity
loans. As a result, the trust fund will report additional taxable income to
holders of Pass-Through Securities in an amount equal to their allocable share
of these deductions, and certain holders of Pass-Through Securities may have
taxable income in excess of the cash received.
STATUS OF THE PASS-THROUGH SECURITIES. The Pass-Through Securities will
be "real estate assets" for purposes of Section 856(c)(4)(A) 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 (assets qualifying under one or both of those
sections, applying each section separately, "qualifying assets") to the extent
that the trust fund's assets are qualifying assets. The Pass-Through Securities
may not be qualifying assets under any of the foregoing sections of the Code to
the extent that the trust fund's assets include Buydown Funds, reserve funds, or
payments on mortgages held pending distribution to certificateholders. Further,
the Pass-Through Securities may not be "real estate assets" to the extent loans
held by the trust are not secured by real property, and may not be "loans
secured by an interest in real property" to the extent loans held by the trust
are not secured by residential real property or real property used primarily for
church purposes. In addition, to the extent that the principal amount of a loan
exceeds the value of the property securing the loan, it is unclear and Federal
Tax Counsel is unable to opine whether the loans will be qualifying assets.
TAXATION OF PASS-THROUGH SECURITIES UNDER STRIPPED BOND RULES. The
federal income tax treatment of the Pass-Through securities will depend on
whether they are securities ("Stripped Securities") subject to the "stripped
bond" rules of section 1286 of the Code. The Pass-Through Securities will be
Stripped Securities if stripped interest-only certificates are issued. In
addition, whether or not stripped interest-only certificates are issued, the IRS
may contend that the stripped bond rules apply on the ground that the servicer's
servicing fee, or other amounts, if any, paid to (or retained by) the servicer
or its affiliates, as specified in the applicable prospectus supplement,
represent greater than an arm's length consideration for servicing the home
equity loans and should be characterized for federal income tax purposes as an
ownership interest in the home equity loans. The IRS has taken the position in
Revenue Ruling 91-46 that a retained interest in excess of reasonable
compensation for servicing is treated as a "stripped coupon" under the rules of
Code Section 1286.
If interest retained for the servicer's servicing fee or other
interest is treated as a "stripped coupon," the Pass-Through Securities will
either be subject to the OID rules or the market discount rules. A holder of a
Pass-Through Security will account for any discount on the Pass-Through
Security as market discount rather than OID if either (1) the amount of OID
with respect to the Pass-Through Security was treated as zero under the OID de
minimis rule when the Pass-Through Security was stripped or (2) no more than
100 basis points (including any amount of servicing in excess of reasonable
servicing) is stripped off from the home equity loans. If neither of the above
exceptions applies, the OID rules will apply to the Pass-Through Securities.
If the OID rules apply, the holder of a Pass-Through Security
(whether a cash or accrual method taxpayer) will be required to report
interest income from the Pass-Through Security in each taxable year equal to
the income that accrues on the Pass-Through Security in that year calculated
under a constant yield method based on the yield of the Pass-Through Security
(or, possibly, the yield of each mortgage underlying the Pass-Through
Security) to the holder. This yield would be computed at the rate (assuming
monthly compounding) that, if used in discounting the holder's share of the
payments on the mortgages, would cause the present value of those payments to
equal the price at which the holder purchased the Pass-Through Security. With
respect to certain categories of debt instruments including "any pool of debt
instruments the yield on which may be affected by reason of prepayments (or to
the extent provided in regulations, by reason of other events)," Section
1272(a)(6) of the Code requires that OID be accrued based on a prepayment
assumption determined in a manner prescribed by forthcoming regulations. If
required to report interest income on the Pass-Through Securities to the IRS
under the stripped bond rules, it is anticipated that the trustee will
calculate the yield of the Pass-Through Securities based on a representative
initial offering price of the Pass-Through Securities and a reasonable assumed
rate of prepayment of the home equity loans (although the yield may differ
from the yield to
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any particular holder that would be used in calculating the interest income of
the holder). The prospectus supplement for each series of Pass-Through
Securities will describe the prepayment assumption that will be used for this
purpose, but no representation is made that the home equity loans will prepay
at that rate or at any other rate.
If a home equity loan is prepaid in full, the holder of a Pass-Through
Security acquired at a discount or premium generally will recognize ordinary
income or loss equal to the difference between the portion of the prepaid
principal amount of the home equity loan that is allocable to the Pass-Through
Security and the portion of the adjusted basis of the Pass-Through Security (see
"Sales of Pass-Through Securities" below) that is allocable to the home equity
loan. It is not clear whether any other adjustments would be required to reflect
differences between the prepayment rate that was assumed in calculating yield
and the actual rate of prepayments.
TAXATION OF PASS-THROUGH SECURITIES IF STRIPPED BOND RULES DO NOT
APPLY. If the stripped bond rules do not apply to a Pass-Through Security, then
the holder will be required to include in income its share of the interest
payments on the home equity loans in accordance with its tax accounting method.
In addition, if the holder purchased the Pass-Through Security at a discount or
premium, the holder will be required to account for this discount or premium in
the manner described below. The treatment of any discount will depend on whether
the discount is OID as defined in the Code and, in the case of discount other
than OID, whether this other discount exceeds a de minimis amount. In the case
of OID, the holder (whether a cash or accrual method taxpayer) will be required
to report as additional interest income in each month the portion of this
discount that accrues in that month, calculated based on a constant yield
method. In general it is not anticipated that the amount of OID to be accrued in
each month, if any, will be significant relative to the interest paid currently
on the home equity loans. However, OID could arise with respect to a home equity
loan ("ARM") that provides for interest at a rate equal to the sum of an index
of market interest rates and a fixed number. The OID for ARMs generally will be
determined under the principles discussed in "Taxation of Debt Securities
(Including Regular Interest Securities)--Variable Rate Debt Securities."
The Taxpayer Relief Act of 1997 amended the OID provisions of the Code
to provide that for "any pool of debt instruments, the yield on which may be
affected by reason of prepayments," OID is to be accrued based on a prepayment
assumption determined in a manner prescribed by forthcoming regulations. The
prospectus supplement for each series of Pass-Through Securities will describe
the prepayment assumption that will be used for this purpose, but no
representation is made regarding the actual rate at which prepayments will
occur.
If discount other than OID exceeds a de minimis amount (described
below), the holder will also generally be required to include in income in each
month the amount of the discount accrued through this month and not previously
included in income, but limited, with respect to the portion of the discount
allocable to any home equity loan, to the amount of principal on the home equity
loan received by the trust fund in that month. Because the home equity loans
will provide for monthly principal payments, this discount may be required to be
included in income at a rate that is not significantly slower than the rate at
which the discount accrues (and therefore at a rate not significantly slower
than the rate at which the discount would be included in income if it were OID).
The holder may elect to accrue the discount under a constant yield method based
on the yield of the Pass-Through Security to the holder (or possibly based on
the yields of each home equity loan). In the absence of such an election, it may
be necessary to accrue the discount under a more rapid straight-line method.
Under the de minimis rule, market discount with respect to a Pass-Through
Security will be considered to be zero if it is less than the product of (1)
0.25% of the principal amount of the home equity loans allocable to the
Pass-Through Security and (2) the weighted average life (in complete years) of
the home equity loans remaining at the time of purchase of the Pass-Through
Security.
If a holder purchases a Pass-Through Security at a premium, the holder
may elect under Section 171 of the Code to amortize the portion of the premium
that is allocable to a home equity loan under a constant yield method based on
the yield of the home equity loan to the holder, provided that the home equity
loan was originated after September 27, 1985. Premium allocable to a home equity
loan originated on or before that date
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should be allocated among the principal payments on the home equity loan and
allowed as an ordinary deduction as principal payments are made or, perhaps,
upon termination.
It is not clear whether the foregoing adjustments for market discount
or premium would be made based on the scheduled payments on the home equity
loans or taking account of a reasonable prepayment assumption, and Federal Tax
Counsel is unable to opine on this issue.
If a home equity loan is prepaid in full, the holder of a Pass-Through
Security acquired at a discount or premium will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the home equity loan that is allocable to the Pass-Through Security and the
portion of the adjusted basis of the Pass-Through Security (see "Sales of
Pass-Through Securities" below) that is allocable to the home equity loan.
Adjustments might be required to reflect differences between the prepayment rate
that was assumed in accounting for discount or premium and the actual rate of
prepayments.
MISCELLANEOUS TAX ASPECTS
BACKUP WITHHOLDING. 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 securities to or through brokers that represent interest or OID on the
securities. This withholding generally applies if the holder of a security:
- fails to furnish the trustee with its taxpayer identification
number ("TIN");
- furnishes the trustee an incorrect TIN;
- fails to report properly interest, dividends or other "reportable
payments" as defined in the Code; or
- under certain circumstances, fails to provide the trustee or the
holder's securities broker with a certified statement, signed
under penalty of perjury, that the TIN provided is its correct
number and that the holder is not subject to backup withholding.
Backup withholding will not apply, however, with respect to certain
payments made to holders, including payments to certain exempt recipients (such
as exempt organizations) and to certain foreign investors, that is, investors
that for United States federal income tax purposes are treated as:
- corporations or partnerships created outside of the United States;
- individuals that are not citizens or residents of the United States;
or
- foreign estates or trusts within the meaning of Internal Revenue
Code section 7701.
Holders should consult their tax advisers as to their qualification for
exemption from backup withholding and the procedure for obtaining the exemption.
Treasury regulations (the "Final Withholding Regulations"), which are
generally effective with respect to payments made after December 31, 2000,
consolidate and modify the current certification requirements and means by which
a holder may claim exemption from United States federal income tax withholding
and provide certain presumptions regarding the status of holders when payments
to the holders cannot be reliably associated with appropriate documentation
provided to the payor. All holders should consult their tax advisers regarding
the application of the Final Withholding Regulations.
The trustee will report to the holders and to the 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.
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TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion below with respect to trust funds which
are treated as partnerships for federal income tax purposes 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 foreign investor, the 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 a controlled foreign corporation to which the
issuer is a related person) and will be exempt from federal income tax.
See "--Tax Consequences to holders of the Certificates Issued by a
Partnership--Tax Consequences to Foreign Certificateholders." Upon receipt of
appropriate ownership statements, the issuer normally will be relieved of
obligations to withhold tax from these 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 the 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
foreign investors. Holders of Pass-Through Securities however, may be subject to
withholding to the extent that the home equity loans were originated on or
before July 18, 1984.
Interest and OID of a foreign investor are not subject to withholding
if they are effectively connected with a United States business conducted by the
holder and the holder timely provides an IRS Form 4224. They will, however,
generally be subject to the regular United States income tax.
The Final Withholding Regulations consolidate and modify the current
certification requirements and means by which a non-United States person may
claim exemption from United States federal income tax withholding. All foreign
investors should consult their tax advisors regarding the application of the
Final Withholding Regulations, which are generally effective with respect to
payments made after December 31, 2000.
Payments to holders of Residual Interest Securities who are foreign
investors will generally be treated as interest for purposes of the 30% (or
lower treaty rate) United States withholding tax. Holders should assume that
this 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 these amounts to be taken into account at an earlier time in
order to prevent the avoidance of tax. These 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 foreign
investor 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
residual interest holder 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 foreign investor transfers a
Residual Interest Security to a United States person (that is, a person that
is not a foreign investor), 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.
WE REFER YOU TO "TAXATION OF HOLDERS OF RESIDUAL INTEREST
SECURITIES--EXCESS INCLUSIONS" FOR MORE DETAIL.
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Subject to the discussion in the previous paragraph, any capital gain
realized on the sale, redemption, retirement or other taxable disposition of a
security by a foreign person will be exempt from United States federal income
and withholding tax, provided that (1) this gain is not effectively connected
with the conduct of a trade or business in the United States by the foreign
person and (2) 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.
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP OR DIVISION
If a trust fund is intended to be a partnership for federal income tax
purposes the applicable agreements will provide that the nature of the income of
the trust fund will exempt it from the rule that certain publicly traded
partnerships are taxable as corporations or the issuance of the certificates
will be structured as a private placement under an IRS safe harbor, so that the
trust fund will not be characterized as a publicly traded partnership taxable as
a corporation, and that no action will be taken that is inconsistent with the
treatment of the trust fund as a partnership (such as election to treat the
trust fund as a corporation for federal income tax purposes). If, however, the
trust fund has a single owner for federal income tax purposes, it will be
treated as a division of its owner and as such will be disregarded as an entity
separate from its owner for federal income tax purposes, assuming no election
will be made to treat the trust fund as a corporation for federal income tax
purposes.
Certain entities classified as "taxable mortgage pools" are subject to
corporate level tax on their net income. A "taxable mortgage pool" is generally
defined as an entity that meets the following requirements:
(1) the entity is not a REMIC (or, after September 1,
1997, a FASIT);
(2) substantially all of the assets of the entity are debt
obligations, and more than 50 percent of these debt obligations
consists of real estate mortgages (or interests in real estate
mortgages);
(3) the entity is the obligor under debt obligations with two
or more maturities; and
(4) payments on the debt obligations on which the entity is
the obligor bear a relationship to the payments on the debt obligations
which the entity holds as assets.
With respect to requirement (3), the Code authorizes the IRS to
provide by regulations that equity interests may be treated as debt for
purposes of determining whether there are two or more maturities. If the trust
fund were treated as a taxable mortgage pool, it would be ineligible to file
consolidated returns with any other corporation and could be liable for
corporate tax. Treasury regulations do not provide for the recharacterization
of equity as debt for purposes of determining whether an entity has issued
debt with two maturities, except in the case of transactions structured to
avoid the taxable mortgage pool rules. Federal Tax Counsel will deliver its
opinion for a trust fund which is intended to be a partnership for federal
income tax purposes, as specified in the related prospectus supplement,
generally to the effect that the trust fund will not be a taxable mortgage
pool. This opinion will be based on the assumption that the terms of the
agreements and related documents will be complied with, and on Federal Tax
Counsel's conclusion that either the number of classes of debt obligations
issued be the trust fund, or the nature of the assets held by the trust fund
will exempt the trust fund from treatment as a taxable mortgage pool.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP OR DIVISION
TREATMENT OF THE NOTES AS INDEBTEDNESS. The trust fund will agree,
and the noteholders will agree by their purchase of notes, to treat the notes
as debt for federal income tax purposes. Except as otherwise provided in the
related prospectus supplement, Federal Tax Counsel will advise the seller that
the notes will be classified as debt for federal income tax purposes.
Consequently, holders of notes will be subject to taxation as described in
"Taxation of Debt Securities (Including Regular Interest Securities)" above
for Debt securities which are not Regular Interest securities.
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POSSIBLE ALTERNATIVE TREATMENT OF THE NOTES. If, contrary to the
opinion of Federal 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 fund. If so treated, the trust
fund would likely 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 certain holders. For
example, income to foreign investors generally would be subject to U.S. federal
income tax and U.S. federal income tax return filing and withholding
requirements, income to certain tax-exempt entities would be "unrelated business
taxable income," and individual holders might be subject to certain limitations
on their ability to deduct their share of the trust fund's expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A PARTNERSHIP
TREATMENT OF THE TRUST FUND AS A PARTNERSHIP. In the case of a trust
fund intended to qualify as a partnership for federal income tax purposes, the
trust fund and the seller will agree, and the certificateholders will agree by
their purchase of certificates, to treat the trust fund 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 fund, the partners of the partnership being the
certificateholders, and the notes, if any, being debt of the partnership, or if
there is a single certificateholder for federal income tax purposes, to
disregard the trust fund as an entity separate from the certificateholder.
However, the proper characterization of the arrangement involving the
certificates, the notes, the trust fund and the servicer is not clear because
there is no authority on transactions closely comparable to that contemplated in
this prospectus.
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 fund. Generally, provided
the certificates are issued at or close to face value, any 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, described below. The following discussion assumes that the
certificates represent equity interests in a partnership. The following
discussion also assumes that all payments on the certificates are denominated
in U.S. dollars, none of the certificates have interest rates which would
qualify as contingent interest under the OID regulations, 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 these certificates will be disclosed in the
applicable prospectus supplement.
PARTNERSHIP TAXATION. As a partnership, the trust fund will not be
subject to federal income tax. Rather, each certificateholder will be required
to separately take into account its allocated share of income, gains, losses,
deductions and credits of the trust fund. The trust fund's income will consist
primarily of interest and finance charges earned on the home equity loans
(including appropriate adjustments for market discount, OID and bond premium)
and any gain upon collection or disposition of home equity loans. The trust
fund's deductions will consist primarily of interest and OID accruing with
respect to the notes, servicing and other fees, and losses or deductions upon
collection or disposition of home equity loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the trust agreement and related documents). The trust agreement will
provide, in general, that the certificateholders will be allocated taxable
income of the trust fund for each month equal to the sum of:
(1) the interest that accrues on the certificates in
accordance with their terms for that month, including interest accruing
at the Pass-Through Rate for that month and interest on amounts
previously due on the certificates but not yet distributed;
(1) any trust fund income attributable to discount on the home
equity loans that corresponds to any excess of the principal amount of
the certificates over their initial issue price;
(2) prepayment premium payable to the certificateholders for
the applicable month; and
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(3) any other amounts of income payable to the
certificateholders for the applicable month.
This allocation will be reduced by any amortization by the trust fund
of premium on home equity loans that corresponds to any excess of the issue
price of certificates over their principal amount. All remaining taxable income
of the trust fund will be allocated to the seller. Based on the economic
arrangement of the parties, this approach for allocating trust fund 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 above even though the trust
fund might not have sufficient cash to make current cash distributions of this
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 fund income even if they have not received cash from
the trust fund to pay these 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 fund.
If notes are also issued, 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 such a
holder under the Code.
An individual taxpayer's share of expenses of the trust fund (including
fees to the servicer but not interest expense) would be miscellaneous itemized
deductions. These 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 fund.
The trust fund intends to make all tax calculations relating to income
and allocations to certificateholders on an aggregate basis. If the IRS were to
require that these calculations be made separately for each home equity loan,
the trust fund 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 home equity loans will
not have been issued with OID and, therefore, the trust should not have OID
income. However, the purchase price paid by the trust fund for the home equity
loans may be greater or less than the remaining principal balance of the home
equity loans at the time of purchase. If so, the home equity loan will have been
acquired at a premium or discount, as the case may be. (As indicated above, the
trust fund will make this calculation on an aggregate basis, but might be
required to recompute it on a home equity loan by home equity loan basis.)
If the trust fund acquires the home equity loans at a market discount
or premium, the trust fund will elect to include this discount in income
currently as it accrues over the life of the home equity loans or to offset the
premium against interest income on the home equity loans. As indicated above, a
portion of the market discount income or premium deduction may be allocated to
certificateholders.
SECTION 708 TERMINATION. Under Section 708 of the Code, the trust fund
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in the trust fund are sold or exchanged within
a 12-month period. If a termination occurs, the trust fund will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the trust fund as a new partnership. The trust
fund will not comply with certain technical requirements that might apply when a
constructive termination occurs. As a result, the trust fund may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the trust fund might not be able to
comply due to lack of data.
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
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share of trust fund income (includible in income) and decreased by any
distributions received with respect to the related 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 fund. A holder acquiring certificates at different
prices may be required to maintain a single aggregate adjusted tax basis in
those certificates, and, upon sale or other disposition of some of the
certificates, allocate a portion of the 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 home equity loans would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The trust fund does not expect to have any
other assets that would give rise to special reporting requirements. Thus, to
avoid those special reporting requirements, the trust fund 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 above) over the life of the certificates that exceeds the aggregate
cash distributions with respect to those certificates, this excess will
generally give rise to a capital loss upon the retirement of the certificates.
ALLOCATIONS BETWEEN SELLERS AND TRANSFEREES. In general, the trust
fund'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 the applicable 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 fund might be reallocated among the certificateholders. The trust
fund'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 (loss), the purchasing certificateholder will have a
higher (lower) basis in the certificates than the selling certificateholder had.
The tax basis of the trust fund's assets will not be adjusted to reflect that
higher (or lower) basis unless the trust fund 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 fund currently does not
intend to make an election. As a result, certificateholders might be allocated a
greater or lesser amount of trust fund 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 fund. These books will be maintained
for financial reporting and tax purposes on an accrual basis and the fiscal year
of the trust fund will be the calendar year. The trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
trust fund and will report each certificateholder's allocable share of items of
trust fund income and expense to holders and the IRS on Schedule K-1. The trust
fund will provide the Schedule K-1 information to nominees that fail to provide
the trust fund with the information statement described below and these nominees
will be required to forward the 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 fund or be subject to penalties unless
the holder notifies the IRS of all the 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 fund
with a statement containing certain information on the nominee, the beneficial
owners and the certificates so held. This information includes (1) the name,
address and taxpayer identification number of the nominee and (2) as to each
beneficial owner:
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- the name, address and identification number of the relevant
person;
- whether this 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
- certain information on certificates that were held, bought
or sold on behalf of this person throughout the year.
In addition, brokers and financial institutions that hold certificates
through a nominee are required to furnish directly to the trust fund 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
information statement to the trust fund. The information referred to above for
any calendar year must be furnished to the trust fund on or before the following
January 31. Nominees, brokers and financial institutions that fail to provide
the trust fund with the information described above may be subject to penalties.
The seller will be designated as the tax matters partner in the related
trust agreement and, as such, 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 fund by the appropriate taxing authorities
could result in an adjustment of the returns of the certificateholders, and,
under certain circumstances, a certificateholder may be precluded from
separately litigating a proposed adjustment to the items of the trust fund. 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 fund.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. It is not clear
whether the trust fund would be considered to be engaged in a trade or
business in the United States for purposes of federal withholding taxes with
respect to foreign investors because there is no clear authority dealing with
that issue under facts substantially similar to those described in this
prospectus. Although it is not expected that the trust fund would be engaged
in a trade or business in the United States for these purposes, the trust fund
will withhold as if it were so engaged in order to protect the trust fund from
possible adverse consequences of a failure to withhold. The trust fund expects
to withhold pursuant to Section 1446 of the Code on the portion of its taxable
income that is allocable to certificateholders that are foreign investors, as
if the 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 fund to
change its withholding procedures.
Each certificateholder that is a foreign investor 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 fund's income.
A foreign holder generally would be entitled to file with the IRS a claim for
refund with respect to taxes withheld by the trust fund taking the position that
no taxes were due because the trust fund was not engaged in a U.S. trade or
business. However, interest payments made (or accrued) to a certificateholder
who is a foreign investor generally will be considered guaranteed payments to
the extent the payments are determined without regard to the income of the trust
fund. If these interest payments are properly characterized as guaranteed
payments, then the interest probably 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%, unless reduced or
eliminated pursuant to an applicable treaty. In this case, a foreign investor
would only be entitled to claim a refund for that portion of the taxes, if any,
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 and, if necessary, adequately demonstrates
this status.
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STATE TAX CONSEQUENCES
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, potential
investors should consult their own tax advisors with respect to the various
state and local tax consequences of an investment in the securities.
ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan subject to Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), should
consider the fiduciary standards under ERISA in the context of the plan's
particular circumstances before authorizing an investment of a portion of the
plan's assets in the securities. Accordingly, among other factors, the fiduciary
should consider:
(1) whether the investment is for the exclusive benefit of plan
participants and their beneficiaries;
(2) whether the investment satisfies the diversification
requirements of Section 404 of ERISA;
(3) whether the investment is in accordance with the documents and
instruments governing the plan; and
(4) whether the investment is prudent, considering the nature of the
investment.
Fiduciaries of these plans also should consider ERISA's prohibition on
improper delegation of control over, or responsibility for, plan assets.
In addition, fiduciaries of employee benefit plans subject to Title I
of ERISA, as well as certain plans or other retirement arrangements not subject
to ERISA, but which are subject to Section 4975 of the Code (such as individual
retirement accounts and Keogh plans covering only a sole proprietor or
partners), or any entity (including an insurance company general account) whose
underlying assets include plan assets by reason of a plan or account investing
in this type of entity (collectively, "Plans(s)") are prohibited from engaging
in a broad range of transactions involving Plan assets and persons having
certain specified relationships to a Plan ("parties in interest" and
"disqualified persons"). These transactions are treated as "prohibited
transactions" under Sections 406 and 407 of ERISA and excise taxes are imposed
upon these persons by Section 4975 of the Code. The seller, the related trustee
and any underwriter of the offered securities and certain of their affiliates
might be considered "parties in interest" or "disqualified persons" with respect
to a Plan. If so, the acquisition, holding or transfer of securities by, or on
behalf of, the Plan could be considered to give rise to a "prohibited
transaction" within the meaning of ERISA and the Code unless a regulatory
exception or administrative exemption is available. In addition, the Department
of Labor ("DOL") has issued a regulation (29 C.F.R. Section 2510.3-101) (the
"Plan Assets Regulation") concerning the definition of what constitutes the
assets of a Plan, which 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 "equity" investment will be deemed for purposes of
ERISA to be assets of the investing Plan unless certain exceptions apply. If an
investing Plan's assets were deemed to include an interest in the trust fund and
not merely an interest in the securities, transactions occurring in connection
with the servicing, management and operation of the trust fund between the
seller, the related trustee, the servicer (or any other servicer), any insurer
or any of their respective affiliates might constitute prohibited transactions,
and the assets of the trust fund would become subject to the fiduciary
investment standards of ERISA, unless a regulatory exception or administrative
exemption applies.
With respect to offered securities which are certificates, the DOL
has issued to a number of underwriters of pass-through certificates, similar
to the certificates, administrative exemptions (collectively, the
"Exemption"), which generally exempt from the application of the prohibited
transaction provisions of Section
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406(a), Section 406(b)(1) and Section 406(b)(2) of ERISA, and the excise taxes
imposed pursuant to Section 4975(a) and (b) of the Code, the initial purchase,
holding and subsequent resale of mortgage-backed or asset-backed pass-through
certificates representing a beneficial undivided interest in certain fixed
pools of assets held in a trust (as defined in paragraph III. B of Section III
of the Exemption), along with certain transactions relating to the servicing
and operation of the asset pools, provided that certain conditions set forth
in the Exemption are satisfied. Paragraph III. B of Section III of the
Exemption provides in part that a trust means an investment pool the corpus of
which is held in trust and consists solely of:
(1) secured consumer receivables;
(2) secured credit instruments;
(3) obligations secured by residential or commercial real
property;
(4) obligations secured by motor vehicles or equipment or
qualified motor vehicle leases;
(5) guaranteed governmental mortgage pool certificates; or
(6) an undivided fractional interest in any of the
obligations listed in clauses (1) to (5) above.
If the general conditions of Section II of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a) and 407(a) of ERISA (as well as the excise taxes imposed by Section
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of
the Code) in connection with the direct or indirect sale, exchange or transfer
of certificates by Plans in the initial issue of certificates, the holding of
certificates by Plans or the direct or indirect acquisition or disposition in
the secondary market of certificates by Plans. However, no exemption is provided
from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for
the acquisition or holding of a certificate on behalf of an 'Excluded Plan' by
any person who has discretionary authority or renders investment advice with
respect to the assets of the Excluded Plan. For purposes of the certificates, an
Excluded Plan is a Plan sponsored by the following (the "Restricted Group"):
(1) an underwriter which has been granted an Exemption, or
certain specified entities affiliated or associated with such an
underwriter ("Underwriter");
(2) the seller;
(3) the servicer (or any other servicer);
(4) the related trustee;
(5) any obligor with respect to home equity loans constituting
more than 5 percent of the aggregate unamortized principal balance of
the home equity loans as of the date of initial issuance;
(6) any insurer; and
(7) any affiliate or successor of a person described in (1)
to (6) above.
If the specific conditions of paragraph I.B of Section I of the
Exemption are also satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes
imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c)(I)(E) of the Code in connection with (1) the direct or indirect sale,
exchange or transfer of certificates in the initial issuance of certificates
between the seller or Underwriter and a Plan when the person who has
discretionary authority or renders investment advice with respect to the
investment of Plan assets in certificates is (a) an obligor with respect to 5
percent or less of the fair market value of the home equity loans or (b) an
affiliate of such a person,
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(2) the direct or indirect acquisition or disposition in the secondary market
of certificates by Plans and (3) the holding of certificates by Plans.
If the specified conditions of paragraph I.C of Section I of the
Exemption are satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the
taxes imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c) of the Code for transactions in connection with the servicing,
management and operation of the trust fund and the assets of the trust fund.
The Exemption may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if the restrictions are deemed to otherwise apply merely because a person is
deemed to be a "party in interest" or a "disqualified person" with respect to an
investing Plan by virtue of providing services to the Plan (or by virtue of
having certain specified relationships to such a person) solely as a result of
the Plan's ownership of certificates.
The Exemption sets forth the following seven general conditions which
must be satisfied for a transaction to be eligible for exemptive relief:
(1) The acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction
with an unrelated party;
(2) The rights and interests evidenced by the certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other securities issued by the trust fund;
(3) The certificates acquired by the Plan have received a
rating at the time of acquisition that is one of the three highest
generic rating categories from a national credit rating agency, which
consists of Standard & Poor's, Moody's, Duff & Phelps or Fitch;
(4) The trustee is not an affiliate of any other member of
the Restricted Group (as defined above);
(5) The sum of all payments made to and retained by the
Underwriter in connection with the distribution of certificates
represents not more than reasonable compensation for underwriting the
certificates. The sum of all payments made and retained by the seller
pursuant to the assignment of the loans to the trust fund represents
not more than the fair market value of these loans. The sum of all
payments made to and retained by the servicer or any other servicer
represents not more than reasonable compensation for that person's
services under the pooling and servicing agreement and reimbursement of
that person's reasonable expenses in connection with that person's
services under the pooling and servicing agreement; and
(6) 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 seller assumes that only Plans which are
accredited investors under the federal securities laws will be
permitted to purchase the certificates.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of
assets of the type that have been included in other investment
pools;
(ii) certificates in other investment pools must have been
rated in one of the three highest rating categories of one of
the national credit rating agencies for at least one year
prior to the Plan's acquisition of certificates; and
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(iii) certificates evidencing interests in other
investment pools must have been purchased by investors other
than Plans for at least one year prior to any Plan's
acquisition of certificates.
On July 21, 1997, the DOL published in the Federal Register a final
amendment to the Exemption which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using Prefunding
Accounts for trusts issuing pass-through certificates. With respect to the
certificates, the amendment generally allows a portion of the mortgages or
receivables ("Loans") supporting payments to certificateholders and having a
principal amount equal to no more than 25% of the total principal amount of the
certificates to be transferred to the trust within a 90-day or three-month
prefunding period following the closing date ("Prefunding Period"), instead of
requiring that all these Loans be either identified or transferred on or before
the closing date. The relief is effective for transactions occurring on or after
May 23, 1997, provided that the following conditions are met:
(1) The ratio of the amount allocated to the Prefunding Account to the
total principal amount of the certificates being offered ("Prefunding Limit")
must not exceed twenty-five percent (25%).
(2) All Loans transferred after the closing date ("Additional Loans")
must meet the same terms and conditions for eligibility as the original Loans
used to create the trust fund, which terms and conditions have been approved by
each rating agency.
(3) The transfer of Additional Loans to the trust fund during the
prefunding period must not result in the certificates receiving a lower credit
rating from any rating agency upon termination of the prefunding period than the
ratings that were obtained at the time of the initial issuance of the
certificates by the trust fund.
(4) Solely as a result of the use of prefunding, the weighted average
annual percentage interest rate (the "average interest rate") for all of the
Loans in the trust fund at the end of the prefunding period must not be more
than 100 basis points lower than the average interest rate for the Loans which
were transferred to the trust fund on the closing date.
(5) Either: (a) the characteristics of the Additional Loans must be
monitored by an insurer or other credit support provider which is independent of
the seller; or (b) an independent accountant retained by the seller must provide
the seller with a letter (with copies provided to each rating agency, the
Underwriter and the trustee) stating whether or not the characteristics of the
Additional Loans conform to the characteristics described in the prospectus,
prospectus supplement and/or Private Placement Memorandum ("Offering Documents")
and/or pooling and servicing agreement. In preparing the letter, the independent
accountant must use the same type of procedures as were applicable to the Loans
which were transferred as of the closing date.
(6) The prefunding period must end no later than three months or 90
days after the closing date or earlier, in certain circumstances, if the amount
on deposit in the Prefunding Account is reduced below the minimum level
specified in the pooling and servicing agreement or an event of default occurs
under the pooling and servicing agreement.
(7) Amounts transferred to any Prefunding Account and/or Capitalized
Interest Account used in connection with the prefunding may be invested only in
investments which are permitted by each rating agency and (a) are 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 these obligations are backed by the full faith
and credit of the United States); or (b) have been rated (or the obligor has
been rated) in one of the three highest generic rating categories by each rating
agency ("Permitted Investments").
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(8) The Offering Documents must describe:
- any Prefunding Account and/or Capitalized Interest Account used
in connection with a Prefunding Account;
- the duration of the prefunding period;
- the percentage and/or dollar amount of the Prefunding Limit for
the trust fund; and
- that the amounts remaining in the Prefunding Account at the end
of the prefunding period will be remitted to certificateholders
as repayments of principal.
(9) The pooling and servicing agreement must describe the Permitted
Investments for the Prefunding Account and Capitalized Interest Account and, if
not disclosed in the Offering Documents, the terms and conditions for
eligibility of the Additional Loans.
The Exemption may apply to a Plan's purchase, holding and transfer of
certificates and the operation, management and servicing of the trust fund and
the assets of the trust fund as specified in the related prospectus supplement.
In addition, in the event the Exemption is not available, certain exemptions
from the prohibited transaction rules may be applicable depending on the type
and circumstances of the plan fiduciary making the decision to acquire a
certificate. Included among these exemptions are: Prohibited Transaction Class
Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38 regarding investments by bank collective
investment funds PTCE 95-60, regarding investments by insurance company general
accounts; PTCE 96-23, regarding transactions affected by in-house asset
managers; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers."
Certain transactions involving the purchase of securities which are
notes might be deemed to constitute prohibited transactions under ERISA and the
Code if the assets of the trust fund were deemed to be assets of a Plan. Under
the Plan Assets Regulation, the assets of the trust fund would be treated as
plan assets of a Plan for the purposes of ERISA and the Code only if the Plan
acquires an "Equity Interest" in the trust fund 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. The seller believes that the notes should be
treated as indebtedness without substantial equity features for purposes of the
Plan Assets Regulation. In addition, even in the event that the notes are deemed
to be an Equity Interest in the trust fund, the Exemption may be applicable to
both a Plan's purchase, holding and transfer of notes (which in this situation
are considered certificates for purposes of the Exemption) and the operation,
management and servicing of the trust fund and the assets of the trust fund, if
so specified in the related prospectus supplement.
Without regard to whether the notes are characterized as Equity
Interests, the acquisition, transfer or holding of notes by or on behalf of a
Plan could be considered to give rise to a prohibited transaction if the trust
fund, the related trustee or any of their respective affiliates is or becomes a
party in interest or a disqualified person with respect to the Plan or in the
event that a note is purchased in the secondary market and the purchase
constitutes a sale or exchange between a Plan and a party in interest or
disqualified person with respect to the Plan. In this case, PTCE 90-1, PTCE
91-38, PTCE 95-60, PTCE 96-23 and PTCE 84-14 may be applicable depending on the
type and circumstances of the plan fiduciary making the decision to acquire a
note.
Any Plan fiduciary considering the purchase of securities should
consult with its counsel with respect to the potential applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to its investment.
LEGAL INVESTMENT
The securities will not constitute "mortgage-related securities" within
the meaning of the Secondary Mortgage Market Enhancement Act of 1984 unless the
related prospectus supplement specifies that the
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securities will constitute "mortgage related securities." Accordingly,
investors whose investment authority is subject to legal restrictions should
consult their own legal advisors to determine whether and the extent to which
the securities constitute legal investments for them.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to each trust fund, the depositor will agree to sell to each of the
underwriters named in the agreement and in the related prospectus supplement,
and each of these underwriters will severally agree to purchase from the
depositor, the principal amount of each class of securities of the related
series set forth in the underwriting agreement and in the related prospectus
supplement.
In each underwriting agreement, the several underwriters will agree,
subject to the terms and conditions set forth in the agreement, to purchase all
of the securities described in the underwriting agreement that are offered
pursuant to the related prospectus supplement if any of the securities are
purchased. In the event of a default by any underwriter, each underwriting
agreement will provide that, in certain circumstances, purchase commitments of
the nondefaulting underwriters may be increased, or the underwriting agreement
may be terminated.
Each prospectus supplement will either (1) set forth the price at which
each class of securities being offered will be offered to the public and any
concessions that may be offered to certain dealers participating in the offering
of the securities or (2) specify that the related securities are to be resold by
the underwriters in negotiated transactions at varying prices to be determined
at the time of each sale. After the initial public offering of any securities,
the public offering price and the concessions may be changed.
Each underwriting agreement will provide that the depositor will
indemnify underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
Under each underwriting agreement, the closing of the sale of any class
of securities subject to the underwriting agreement will be conditioned on the
closing of the sale of all other classes subject to the underwriting agreement.
The place and time of delivery for the securities with respect to which
this prospectus is delivered will be set forth in the related prospectus
supplement.
LEGAL MATTERS
Unless otherwise specified in the related prospectus supplement,
certain legal matters in connection with the securities will be passed upon for
the seller by Stroock & Stroock & Lavan LLP, New York, New York.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized list of the estimated expenses to be incurred in
connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration Fee $ 791,736
Printing and Engraving Expenses 400,000
Trustee's Fees and Expenses 160,000
Legal Fees and Expenses 1,000,000
Accountant's Fees and Expenses 120,000
Rating Agency Fees 120,000
Miscellaneous 18,264
Total $2,610,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
CHEC Funding, LLC
Indemnification. Under the Delaware Limited Liability Company Act,subject to
such standards and restrictions, if any, as are set forth in its limited
liability company agreement, a limited liability company may, and shall have the
power to, indemnify and hold harmless any memeber or manager or other person
from and against any and all claims and demands whatsover.
Section 20 of the Limited Liability Company Agreement provides for the
indemnification of any person who is or was a member, special member,
independent manager, officer, employee or agent of CHEC Funding, LLC or any
employee, representative, agent or affiliate of CHEC Funding, LLC, the member or
the special member with respect to actions taken or omitted by such person in
good faith on behalf of CHEC Funding, LLC and in a manner reasonably believed to
be within the scope of the authority conferred on such person. Reference is made
to the Limited Liability Company Agreement filed as an exhibit to this
Registration Statement for the complete text of Section 20 of the Limited
Liability Company Agreement.
The Registrant or one of its affiliates maintains liability insurance policies
such that each of the directors and officers of the Registrant is insured
against certain liabilities which they might incur in their capacity as a
director or officer.
The Underwriting Agreement filed as Exhibit 1.1 hereto provides for
indemnification by the Underwriters of the Registrant and its directors,
officers and controlling persons for certain liabilities arising under the
Securities Act of 1933 or otherwise.
The general effect of any statute, charter provision, by-law, contract or other
arrangement under which any controlling person, director or officer of the
Registrant is insured or indemnified against liability
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when acting on behalf of the Registrant is to reduce the deterrent effect for
such indemnified individuals for violating the Securities Act of 1933.
The Registrant is aware that the Securities and Exchange Commission takes the
position that indemnification of directors and officers is against public policy
and is therefore unenforceable.
ITEM 16. EXHIBITS
1.1 Form of Underwriting Agreement.**
2.1 Limited Liability Company Agreement of CHEC Funding, LLC**
4.1 Form of Trust Agreement**
4.2 Form of Indenture**
4.3 Form of Pooling and Servicing Agreement, among CHEC Funding, LLC, as
depositor, Centex Credit Corporation, as seller and servicer and the
Trustee**
4.4 Form of Sale and Servicing Agreement, among CHEC Funding, LLC, as
depositor, Centex Credit Corporation, as seller and servicer and the
Trust**
5.1 Opinion of Stroock & Stroock & Lavan LLP as to legality**
8.1 Opinion of Stroock & Stroock & Lavan LLP with respect to federal income
tax matters. (contained in Exhibit 5.1)**
23.1 Consent of Stroock & Stroock & Lavan LLP (contained in Exhibit 5.1)**
24.1 Powers of Attorney (included as part of signature page)*
25.1 Statement of Eligibility and Qualification of Indenture Trustee (Form
T-1)***
* Filed previously.
** Filed herewith.
*** To be filed subsequently.
ITEM 17. UNDERTAKINGS
(a) Undertakings pursuant to Rule 415.
The undersigned Registrant hereby undertakes:
(1) To file, during any period 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 end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
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(2) 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 the 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) Undertaking as to documents subsequently filed that are
incorporated by reference.
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.
(c) Undertaking as to equity offerings of nonreporting registrants.
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.
(d) Undertaking as to request for acceleration of effective date.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) Undertaking as to registration statement permitted by Rule 430A
under the Securities Act of 1933.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it
was declared effective.
II-3
<PAGE>
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE
offering thereof.
(f) Undertaking as to trust indentures under the Trust Indenture Act of
1939 for delayed offerings.
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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, CHEC
Funding, LLC certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3, it believes that the securities
rating requirement for use of Form S-3 will be met by the time of sale of the
securities and it has duly caused this Amendment No. 1 to Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the State of Delaware, on this 27th day of January 2000.
CHEC Funding, LLC
(Registrant)
By Centex Credit Corporation
d/b/a Centex Home
Equity Corporation
By: /s/ Anthony H. Barone
----------------------------
Name: Anthony H. Barone
Title: President and CEO
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- -----
<S> <C> <C>
/s/ Anthony H. Barone President of Centex Credit January 27, 2000
- --------------------- Corporation d/b/a Centex Home
Equity Corporation (Principal
Executive Officer)
/s/ Bill Cukr Vice President of Centex Credit January 27, 2000
- ------------- Corporation d/b/a Centex Home
Equity Corporation (Principal
Financial Officer and Principal
Accounting Officer)
/s/ Anthony H. Barone Director January 27, 2000
- ---------------------
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
1.1 Form of Underwriting Agreement.**
2.1 Limited Liability Company Agreement of CHEC Funding, LLC**
4.1 Form of Trust Agreement**
4.2 Form of Indenture**
4.3 Form of Pooling and Servicing Agreement, among CHEC Funding, LLC, as
depositor, Centex Credit Corporation, as seller and servicer and the
Trustee**
4.4 Form of Sale and Servicing Agreement, among CHEC Funding, LLC, as
depositor, Centex Credit Corporation, as seller and servicer and the
Trust**
5.1 Opinion of Stroock & Stroock & Lavan LLP as to legality**
8.1 Opinion of Stroock & Stroock & Lavan LLP with respect to federal income
tax matters. (contained in Exhibit 5.1)**
23.1 Consent of Stroock & Stroock & Lavan LLP (contained in Exhibit 5.1)**
24.1 Powers of Attorney (included as part of signature page)*
25.1 Statement of Eligibility and Qualification of Indenture Trustee (Form
T-1)***
* Filed previously.
** Filed herewith.
*** To be filed subsequently.
II-6
<PAGE>
Exhibit 1.1
$____________
CENTEX HOME EQUITY LOAN TRUST 2000-__
Home Equity Loan Asset-Backed Certificates
Series 2000-__
UNDERWRITING AGREEMENT
___________ __, 2000
- --------------------
as Representative of the Underwriters
- --------------------
- --------------------
Ladies and Gentlemen:
The Seller CHEC Funding LLC (the "Depositor"), a Delaware limited
liability company, has authorized the issuance and sale of Home Equity Loan
Asset-Backed Certificates, Series 2000-__, Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6 and Class A-7 (collectively, the "Class A
Certificates"). Also issued are the Class X-IO Certificates and the Class R
Certificates (collectively, the "Non-Offered Certificates"). The Class A
Certificates and the Non-Offered Certificates are collectively referred to as
the "Certificates."
Only the Class A Certificates are being purchased by the Underwriters
named in Schedule A hereto, and _____________ ("________") and ________________
(collectively, the "Underwriters") are purchasing, severally, only the Class A
Certificates set forth opposite their names in Schedule A, except that the
amounts purchased by the Underwriters may change in accordance with Section 10
of this Agreement. Salomon is acting as representative of the Underwriters and
in such capacity is hereinafter referred to as the "Representative."
The Certificates will be issued under a pooling and servicing agreement
(the "Pooling and Servicing Agreement"), to be dated as of __________ __, 2000
among the Depositor, Centex Credit Corporation d/b/a Centex Home Equity
Corporation ("the Seller"), as the servicer and a seller (in such capacity, the
"Servicer" or a "Seller," as the case may be), and _______________________, as
the Trustee (in such capacity, the "Trustee"). Capitalized but undefined terms
shall have the meanings set forth in the Pooling and Servicing Agreement.
The Certificates will evidence fractional undivided interests in the
Trust (the "Trust") formed pursuant to the Pooling and Servicing Agreement. The
assets of the Trust will initially include, among other things, two pools of
home equity loans, one comprised of first and second lien, closed-end fixed-rate
home equity loans and one comprised of first lien closed-end adjustable-rate
home equity loans, having a Cut-Off Date as of the opening of business on
_________________ (the "Home Equity Loans"), and such amounts as may be held by
the Trustee in any accounts held by the Trustee for the Trust. The Home Equity
Loans are secured primarily by first and second deeds of trust or mortgages on
one- to four-family residential properties. A form of the Pooling and Servicing
Agreement has been filed as an exhibit to the Registration Statement.
The Certificates are more fully described in a Registration Statement
which the Depositor has furnished to the Underwriters. The Class A Certificates
will be entitled to the benefits of two certificate guaranty insurance policies
(the "Policies") issued by ________________ ("_____"). The Depositor and the
Seller will enter into an Insurance Agreement (the "Insurance Agreement") dated
as of _____________ among the Depositor, the Seller, the Trustee and
____________________. the Seller will also enter into an Indemnification
Agreement (the "Indemnification Agreement") dated as of _______________ among
the Underwriters, the Seller and ____________________, governing the liability
of the several parties with respect to the losses resulting from material
misstatements or omissions contained in the Prospectus Supplement.
Pursuant to the Pooling and Servicing Agreement, each Seller will
transfer to the Depositor and the Depositor will transfer to the Trust all of
its right, title and interest in and to the unpaid principal balances of the
<PAGE>
Home Equity Loans as of the Cut-Off Date and interest due on and after the
Cut-Off Date and the collateral securing each Home Equity Loan.
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The
Depositor represents and warrants to, and agrees with the Underwriters that as
of the date hereof and as of the Closing Date:
(a) A Registration Statement on Form S-3 (No. 333-93255), has (i) been
prepared by the Depositor in conformity with the requirements of the Securities
Act of 1933, as amended (the "Securities Act") and the rules and regulations
(the "Rules and Regulations") of the United States Securities and Exchange
Commission (the "Commission") thereunder, (ii) been filed with the Commission
under the Securities Act and (iii) become effective and is still effective as of
the date hereof under the Securities Act. Copies of such Registration Statement
have been delivered by the Depositor to the Underwriters. As used in this
Agreement, "Effective Time" means the date and the time as of which such
Registration Statement, or the most recent post-effective amendment thereto, if
any, was declared effective by the Commission; "Effective Date" means the date
of the Effective Time; "Registration Statement" means such registration
statement, at the Effective Time, including any documents incorporated by
reference therein at such time; "Basic Prospectus" means such final prospectus
dated __________ __; 2000; and "Prospectus Supplement" means the final
prospectus supplement relating to the Class A Certificates, to be filed with the
Commission pursuant to paragraphs (2), (3) or (5) of Rule 424(b) of the Rules
and Regulations. "Prospectus" means the Basic Prospectus together with the
Prospectus Supplement. Reference made herein to the Prospectus shall be deemed
to refer to and include any documents incorporated by reference therein pursuant
to Item 12 of Form S-3 under the Securities Act, as of the date of the
Prospectus and any reference to any amendment or supplement to the Prospectus
shall be deemed to refer to and include any document filed under the Securities
Exchange Act of 1934 (the "Exchange Act") after the date of the Prospectus, and
incorporated by reference in the Prospectus and any reference to any amendment
to the Registration Statement shall be deemed to include any report of the
Depositor filed with the Commission pursuant to Section 13(a) or 15(d) of the
Exchange Act after the Effective Time that is incorporated by reference in the
Registration Statement. The Commission has not issued any order preventing or
suspending the use of the Prospectus or the effectiveness of the Registration
Statement and no proceedings for such purpose are pending or, to the Depositor's
knowledge, threatened by the Commission. There are no contracts or documents of
the Depositor which are required to be filed as exhibits to the Registration
Statement pursuant to the Securities Act or the Rules and Regulations which have
not been so filed or incorporated by reference therein on or prior to the
Effective Date of the Registration Statement other than such documents or
materials, if any, as any Underwriter delivers to the Depositor pursuant to
Section 8(d) hereof for filing on Form 8-K. The conditions for use of Form S-3,
as set forth in the General Instructions thereto, have been satisfied. To the
extent that any Underwriter has provided to the Depositor Computational
Materials that such Underwriter has provided to a prospective investor, the
Depositor will file or cause to be filed with the Commission a report on Form
8-K containing such Computational Materials, as soon as reasonably practicable
after the date of this Agreement, but in any event, not later than 11:00 a.m.
New York time the date on which the Prospectus is made available to the
Underwriter and is filed with the Commission pursuant to Rule 424 of the Rules
and Regulations.
(b) The Registration Statement and the Prospectus conform, and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, when they become effective or are filed with the
Commission, as the case may be, in all respects to the requirements of the
Securities Act and the Rules and Regulations. The Registration Statement, as of
the Effective Date thereof and of any amendment thereto, did not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
The Prospectus as of its date, and as amended or supplemented as of the Closing
Date does not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
provided that no representation or warranty is made as to (i) information
contained in or omitted from the Registration Statement or the Prospectus in
reliance upon and in conformity with written information furnished to the
Depositor in writing by any Underwriter through the Representative expressly for
use therein, it being understood that such information is limited to the
information set forth in the last paragraph of the cover page and in the first
two paragraphs under the caption "Underwriting" in the Prospectus Supplement
(the
<PAGE>
"Underwriters' Information") or (ii) other than with respect to any Pool
Information, any information contained in any Collateral Term Sheet,
Structural Term Sheet, Series Term Sheet or Computational Materials (each as
defined in Section 5(b) below) in each case to the extent not included in the
Prospectus.
(c) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may be,
conformed in all material respects to the equirements of the Securities Act
or the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder; and any further documents so filed and incorporated by
reference in the Prospectus, when such documents become effective or are
filed with the Commission, as the case may be, will conform in all material
respects to the requirements of the Securities Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission thereunder.
(d) The Depositor is a Delaware limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all licenses necessary to carry on its business as now being
conducted. The Depositor has all power and authority necessary to own or hold
its properties, to conduct the business in which it is engaged and to enter into
and perform its obligations under this Agreement, the Pooling and Servicing
Agreement and the Insurance Agreement (the "Agreements") and to cause the
Certificates to be issued.
(e) There are no actions, proceedings or investigations pending with
respect to which the Depositor has received service of process before or
threatened by any court, administrative agency or other tribunal to which the
Depositor is a party or of which any of its properties is the subject (a) which
if determined adversely to the Depositor would have a material adverse effect on
the business or financial condition of the Depositor, (b) asserting the
invalidity of any of the Agreements or the Certificates, (c) seeking to prevent
the issuance of the Certificates or the consummation by the Depositor of any of
the transactions contemplated by any of the Agreements or (d) which might
materially and adversely affect the performance by the Depositor of its
obligations under, or the validity or enforceability of any of the Agreements or
the Certificates.
(f) This Agreement has been, and the other Agreements when executed and
delivered as contemplated hereby and thereby will have been, duly authorized,
executed and delivered by the Depositor, and this Agreement constitutes, and the
other Agreements when executed and delivered as contemplated herein will
constitute, legal, valid and binding instruments enforceable against the
Depositor in accordance with their respective terms, subject as to
enforceability to (x) applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws affecting creditors' rights generally, (y)
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law), and (z) with respect to rights of indemnity
under this Agreement and the Insurance Agreement, limitations of public policy
under applicable securities laws.
(g) The execution, delivery and performance of the Agreements by the
Depositor and the consummation of the transactions contemplated hereby and
thereby, and the issuance and delivery of the Certificates do not and will
not conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the
Depositor is a party, by which the Depositor is bound or to which any of the
properties or assets of the Depositor or any of its subsidiaries is subject,
which breach or violation would have a material adverse effect on the
business, operations or financial condition of the Depositor or its ability
to perform its obligations under any of the Agreements, nor will such actions
result in any violation of the provisions of the Certificate of Formation or
the Amended and Restated Limited Liability Company Agreement of the Depositor
or any statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Depositor or any of its
properties or assets, which breach or violation would have a material adverse
effect on the business, operations or financial condition of the Depositor or
its ability to perform its obligations under any of the Agreements.
(h) The direction by the Depositor to the Trustee to execute,
authenticate, issue and deliver the Certificates has been or will have been duly
authorized by the Depositor, and, assuming the Trustee has been duly authorized
<PAGE>
to undertake such actions, when executed, authenticated, issued and delivered
by the Trustee, in accordance with the Pooling and Servicing Agreement, the
Certificates will be validly issued and outstanding and the holders of the
Certificates will be entitled to the rights and benefits of the Certificates
as provided by the Pooling and Servicing Agreement.
(i) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States is required for the issuance of the Certificates and the sale of the
Class A Certificates to the Underwriters, or the consummation by the Depositor
of the other transactions contemplated by the Agreements except such consents,
approvals, authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the purchase and
distribution of the Class A Certificates by the Underwriters or as have been
obtained.
(j) At the time of execution and delivery of the Pooling and Servicing
Agreement, the Depositor will: (i) have equitable title to the interest in the
Home Equity Loans conveyed by The Sellers, free and clear of any lien, mortgage,
pledge, charge, encumbrance, adverse claim or other security interest
(collectively, "Liens"); (ii) not have assigned to any person (other than the
Trustee) any of its right, title or interest in the Home Equity Loans in the
Pooling and Servicing Agreement; and (iii) have the power and authority to sell
its interest in the Home Equity Loans to the Trustee and to sell the Class A
Certificates to the Underwriters. Upon execution and delivery of the Pooling and
Servicing Agreement by the Trustee, the Trustee will have acquired beneficial
ownership of all of the Depositor's title and interest in and to the Home Equity
Loans. Upon delivery to the Underwriters of the Class A Certificates, the
Underwriters will have good title to the Class A Certificates free of any Liens.
(k) As of the Cut-off Date, each of the Home Equity Loans will meet the
eligibility criteria described in the Prospectus and will conform to the
descriptions thereof contained in the Prospectus.
(l) Neither the Depositor nor the Trust is an "investment company"
within the meaning of such term under the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations of the Commission thereunder.
(m) At the Closing Date, the Class A Certificates and the Pooling and
Servicing Agreement will conform in all material respects to the descriptions
thereof contained in the Prospectus.
(n) Any taxes, fees and other governmental charges in connection with
the execution, delivery and issuance of the Agreements and the Certificates have
been paid or will be paid at or prior to the Closing Date.
(o) Since the respective dates as of which information is given in the
Prospectus, there has not been any material adverse change in the general
affairs, management, financial condition, or results of operations of the
Depositor or either Seller, otherwise than as set forth or contemplated in the
Prospectus as supplemented or amended as of the Closing Date.
(p) Any certificate signed by an officer of the Depositor and delivered
to the Representative or counsel for the Representative in connection with an
offering of the Class A Certificates shall be deemed, and shall state that it
is, a representation and warranty as to the matters covered thereby to each
person to whom the representations and warranties in this Section 1 are made.
SECTION 2. PURCHASE AND SALE. The commitment of the Underwriters to
purchase the Class A Certificates pursuant to this Agreement shall be deemed to
have been made on the basis of the representations and warranties herein
contained and shall be subject to the terms and conditions herein set forth. The
Depositor agrees to instruct the Trustee to issue the Certificates and agrees to
sell to the Underwriters, and the Underwriters agree (except as provided in
Sections 10 and 11 hereof) severally and not jointly to purchase from the
Depositor, the aggregate initial principal amounts or percentage interests of
the Class A Certificates of each Class, as set forth opposite their names on
Schedule A, at the purchase price or prices (plus accrued interest, as
appropriate) as set forth on Schedule A.
<PAGE>
SECTION 3. DELIVERY AND PAYMENT. Delivery of and payment for the Class
A Certificates shall be made at the offices of Stroock & Stroock & Lavan LLP,
180 Maiden Lane, New York, New York 10038, or at such other place as shall be
agreed upon by the Representative and the Depositor at 10:00 a.m. New York City
time on __________ __, 2000 or at such other time or date as shall be agreed
upon in writing by the Representative and the Depositor (such date being
referred to as the "Closing Date"). Payment shall be made to the Depositor by
wire transfer of same day funds payable to the account of the Depositor.
Delivery of the Class A Certificates shall be made to the Representative for the
accounts of the Underwriters against payment of the purchase price thereof. The
Class A Certificates so delivered will be initially represented by one or more
certificates registered in the name of Cede & Co., the nominee of The Depository
Trust Company ("DTC"). The interests of the beneficial owners of the Class A
Certificates will be represented by book entries on the records of DTC and
participating members thereof. Definitive Certificates will be available only
under the limited circumstances specified in the Pooling and Servicing
Agreement. The Class A Certificates will be made available for examination by
the Underwriters no later than 2:00 p.m. New York City time on the Business Day
immediately prior to the Closing Date.
SECTION 4. OFFERING BY THE UNDERWRITERS. It is understood that, subject
to the terms and conditions hereof, the Underwriters propose to offer the Class
A Certificates for sale to the public as set forth in the Prospectus.
SECTION 5. AGREEMENTS. The Depositor agrees as follows:
(i) To prepare the Prospectus in a form approved by the
Underwriters and to file such Prospectus pursuant to Rule 424(b) under the
Securities Act not later than the Commission's close of business on the second
Business Day following the availability of the Prospectus to the Underwriters;
to make no further amendment or any supplement to the Registration Statement or
to the Prospectus prior to the Closing Date except as permitted herein; to
advise the Underwriters, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or becomes
effective prior to the termination of the offering of the Class A Certificates
or any supplement to the Prospectus or any amended Prospectus has been filed and
to furnish the Underwriters or their counsel with copies thereof without charge;
to file promptly all reports and any definitive proxy or information statements
required to be filed by the Depositor with the Commission pursuant to Section
13(a), 13(c), 14 or l5(d) of the Exchange Act subsequent to the date of the
Prospectus and, for so long as the delivery of a prospectus is required in
connection with the offering or sale of the Class A Certificates; to promptly
advise the Underwriters of its receipt of notice of the issuance by the
Commission of any stop order or the institution of or, to the knowledge of the
Depositor, the threatening of any proceeding for such purpose, or of: (i) any
order preventing or suspending the use of the Prospectus; (ii) the suspension of
the qualification of the Class A Certificates for offering or sale in any
jurisdiction; (iii) the initiation of or threat of any proceeding for any such
purpose; or (iv) any request by the Commission for the amending or supplementing
of the Registration Statement or the Prospectus or for additional information.
In the event of the issuance of any stop order or of any order preventing or
suspending the use of the Prospectus or suspending any such qualification, the
Depositor promptly shall use its best efforts to obtain the withdrawal of such
order by the Commission.
(ii) To furnish promptly to the Underwriters and to counsel
for the Underwriters a signed copy of the Registration Statement as originally
filed with the Commission, and of each amendment thereto filed with the
Commission, including all consents and exhibits filed therewith.
(iii) To deliver promptly to the Underwriters without
charge such number of the following documents as the Underwriters shall
reasonably request: (i) conformed copies of the Registration Statement as
originally filed with the Commission and each amendment thereto (in each case
including exhibits); (ii) the Prospectus and any amended or supplemented
Prospectus; and (iii) any document incorporated by reference in the
Prospectus (including exhibits thereto). If the delivery of a prospectus is
required at any time prior to the expiration of nine months after the Closing
Date in connection with the offering or sale of the Class A Certificates, and
if at such time any events shall have occurred as a result of which the
Prospectus as then amended or supplemented would include any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the
<PAGE>
circumstances under which they were made when such Prospectus is delivered,
not misleading, or, if for any other reason it shall be necessary during such
same period to amend or supplement the Prospectus or to file under the
Exchange Act any document incorporated by reference in the Prospectus in
order to comply with the Securities Act or the Exchange Act, the Depositor
shall notify the Underwriters and, upon any Underwriters' request, shall file
such document and prepare and furnish without charge to the Underwriters and
to any dealer in securities as many copies as the Underwriters may from time
to time reasonably request of an amended Prospectus or a supplement to the
Prospectus which corrects such statement or omission or effects such
compliance, and in case the Underwriters are required to deliver a Prospectus
in connection with sales of any of the Class A Certificates at any time nine
months or more after the Effective Time, upon the request of the Underwriters
but at their expense, the Depositor shall prepare and deliver to the
Underwriters as many copies as the Underwriters may reasonably request of an
amended or supplemented Prospectus complying with Section 10(a)(3) of the
Securities Act.
(iv) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the Prospectus
that may, in the judgment of the Depositor or the Underwriters, be required by
the Securities Act or requested by the Commission. Neither the Underwriters'
consent to nor their distribution of any amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 6.
(v) To furnish the Underwriters and counsel for the
Underwriters, prior to filing with the Commission, and to obtain the consent of
the Underwriters for the filing of the following documents relating to the
Certificates: (i) any Post-Effective Amendment to the Registration Statement or
supplement to the Prospectus, or document incorporated by reference in the
Prospectus, or (ii) Prospectus pursuant to Rule 424 of the Rules and
Regulations.
(vi) To use reasonable commercial efforts, in cooperation with
the Underwriters, to qualify the Class A Certificates for offering and sale
under the applicable securities laws of such states and other jurisdictions of
the United States or elsewhere as the Underwriters may designate, and maintain
or cause to be maintained such qualifications in effect for as long as may be
required for the distribution of the Class A Certificates. The Depositor will
file or cause the filing of such statements and reports as may be required by
the laws of each jurisdiction in which the Class A Certificates have been so
qualified; provided, however, that the Depositor shall not be required to
qualify to do business in any jurisdiction where it is not now so qualified or
to take any action which would subject it to general or unlimited service of
process in any jurisdiction where it is now so subject.
(vii) Not to permit, unless the Underwriters shall otherwise
have given their written consent, any collateralized mortgage obligations or
other similar securities representing interests in or secured by other non-prime
mortgage-related assets originated or owned by either Seller to be publicly
offered or sold, nor to permit either Seller to enter into any contractual
arrangements that contemplate the public offering or sale of such securities,
until the earlier to occur of the termination of the syndicate or the Closing
Date.
(viii) To cause, so long as the Class A Certificates shall
be outstanding, the Trustee, pursuant to the Pooling and Servicing Agreement,
to deliver to the Underwriters as soon as such statements are furnished to
the Trustee: (i) the annual statement as to compliance delivered to the
Trustee pursuant to Section 8.16 of the Pooling and Servicing Agreement; (ii)
the annual statement of a firm of independent public accountants furnished to
the Trustee pursuant to Section 8.17 of the Pooling and Servicing Agreement;
(iii) the monthly servicing report furnished to the Trustee pursuant to
Section 7.08 of the Pooling and Servicing Agreement; and (iv) the monthly
reports furnished to the Certificateholders pursuant to Section 7.09 of the
Pooling and Servicing Agreement.
(a) Each Underwriter represents, warrants, covenants and agrees with
the Depositor that:
(i) It either (A) has not provided any potential investor with
a Collateral Term Sheet (that is required to be filed with the Commission within
two Business Days of first use under the terms of the Public Securities
Association Letter as described below), or (B) has, prior to its first delivery
of such Collateral
<PAGE>
Term Sheet to a potential investor, delivered such Collateral Term Sheet to
the Depositor or its counsel and has substantially contemporaneously with its
first delivery of such Collateral Term Sheet to a potential investor,
delivered such Collateral Term Sheet to the Seller or its counsel, which
Collateral Term Sheet, if any is attached hereto as Exhibit A.
(ii) It either (A) has not provided any potential investor
with a Structural Term Sheet, Series Term Sheets or Computational Materials, or
(B) has, prior to its first delivery of any such Structural Term Sheet, Series
Term Sheets or Computational Materials to a potential investor, delivered such
Structural Term Sheet, Series Term Sheets or Computational Materials to the
Depositor or its counsel and has promptly provided any such Structural Term
Sheet, Series Term Sheets or Computational Materials to the Depositor or its
counsel, which Structural Term Sheet, Series Term Sheets and Computational
Materials, if any, are attached hereto as Exhibit B.
(iii) Each Collateral Term Sheet bears a legend indicating
that the information contained therein will be superseded by the description of
the collateral contained in the Prospectus Supplement and, except in the case of
the initial Collateral Term Sheet, that such information supersedes the
information in all prior Collateral Term Sheets.
(iv) Each Structural Term Sheet, Series Term Sheet and all
Computational Materials bear a legend substantially in the form which has been
agreed to by the Underwriters and the Depositor.
(v) It (at its own expense) agrees to obtain and provide to
the Depositor and the Seller one or more accountants' letters in form and
substance reasonably satisfactory to the Underwriters, the Depositor and the
Seller relating to the Collateral Term Sheets, Structural Term Sheets, Series
Term Sheets and Computational Materials, which accountants' letters shall be
addressed to the Depositor and the Seller.
(vi) It has not, and will not, without the prior written
consent of the Depositor, provide any Collateral Term Sheets, Structural Term
Sheets, Series Term Sheets or Computational Materials to any investor after the
date of this Agreement and prior to the delivery of the Prospectus to such
investor.
For purposes of this Agreement, Series Term Sheets, Collateral Term
Sheets and Structural Term Sheets shall have the respective meanings assigned
to them (a) in the case of Series Term Sheets, in the no-action letter
addressed to Greenwood Trust Company, Discover Card Master Trust I dated
April 5, 1996, and (b) in the case of Collateral Term Sheets and Structural
Term Sheets, in the February 13, 1995 letter of Cleary, Gottlieb, Steen &
Hamilton on behalf of the Public Securities Association (which letter, and
the SEC staff's response thereto, are publicly available February 17, 1995).
The term "Collateral Term Sheet" as used herein includes any subsequent
Collateral Term Sheet that reflects a substantive change in the information
presented. Computational Materials has the meaning assigned to it in the
no-action letter dated May 20, 1994 issued by the Division of Corporation
Finance of the Commission to Kidder, Peabody Acceptance Corporation I,
Kidder, Peabody & Co. Incorporated, and Kidder Structured Asset Corporation,
the no-action letter dated May 27, 1994 issued by the Division of Corporation
Finance of the Commission to the Public Securities Association and the
no-action letter of February 17, 1995 issued by the Commission to the Public
Securities Association.
SECTION 6. CONDITIONS TO THE UNDERWRITERS' OBLIGATION. The obligations
of the Underwriters hereunder to purchase the Class A Certificates pursuant to
this Agreement are subject to (i) the accuracy on and as of the Closing Date of
the representations and warranties on the part of the Depositor herein
contained; (ii) the performance by the Depositor of all of its obligations
hereunder; and (iii) the following additional conditions as of the Closing Date:
(a) Each of the obligations of the Depositor required to be performed
by it on or prior to the Closing Date pursuant to the terms of the Agreements
shall have been duly performed and complied with and all of the representations
and warranties of the Depositor under any of the Agreements shall be true and
correct as of the Closing Date and no event shall have occurred which, with
notice or the passage of time, would
<PAGE>
constitute a default under any of the Agreements, and the Underwriters shall
have received certificates to the effect of the foregoing, each signed by an
authorized officer of the Depositor.
(b) Prior to the Closing Date, (i) the Underwriters shall have received
confirmation of the effectiveness of the Registration Statement and (ii) no stop
order suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or, to the
knowledge of the Depositor, shall be contemplated by the Commission. Any request
of the Commission for inclusion of additional information in the Registration
Statement or the Prospectus shall have been complied with.
(c) The Representative shall have received a letter dated on or before
the date on which the Prospectus Supplement is dated and printed, in form and
substance acceptable to the Underwriters and their counsel, prepared by
________________ (a) regarding certain numerical information contained or
incorporated by reference in the Prospectus Supplement and (b) relating to
certain agreed upon procedures as requested by the Underwriters relating to the
Home Equity Loans.
(d) The Home Equity Loans shall be acceptable to ____________________,
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. ("Standard & Poor's"),
in their sole discretion.
(e) The Representative shall have received the following additional
closing documents, in form and substance satisfactory to the Representative and
its counsel:
(i) the Agreements and all documents required thereunder, duly
executed and delivered by each of the parties thereto other than the
Underwriters and their affiliates;
(ii) an officer's certificate of an officer of the Seller, an
officer's certificate of an officer of the Seller LLC and an officer's
certificate of an officer of the Depositor, in each case dated as of the Closing
Date and reasonably satisfactory in form and substance to the Underwriters and
counsel for the Underwriters with resolutions of the applicable board of
directors and a copy of the charter and by-laws of the Seller and the Depositor,
as applicable, and a copy of the certificate of formation and membership
agreement of the Seller LLC, in each case attached thereto;
(iii) an opinion of ________________, ________________ of the
Seller or such other counsel reasonably acceptable to the Underwriters and
counsel for the Underwriters, dated the Closing Date, reasonably satisfactory in
form and substance to the Underwriters and counsel for the Underwriters as to
various matters relating to each Seller and the Depositor;
(iv) opinions of ______________________, counsel to the Seller
and the Depositor or such other counsel reasonably acceptable to the
Underwriters and counsel for the Underwriters, dated the Closing Date,
reasonably satisfactory in form and substance to the Underwriters and counsel
for the Underwriters as to various corporate matters;
(v) an opinion of Stroock & Stroock & Lavan LLP, special
counsel to the Seller, and the Depositor, or such other counsel reasonably
acceptable to the Underwriters and counsel for the Underwriters, dated the
Closing Date, reasonably satisfactory in form and substance to the Underwriters
and counsel for the Underwriters as to various corporate matters;
(vi) an opinion of _______________, counsel for the
Underwriters, dated the Closing Date, reasonably satisfactory in form and
substance to the Underwriters;
(vii) opinions of counsel for the Depositor, in forms
reasonably acceptable to the Underwriters, their counsel, Standard & Poor's and
Moody's as to such matters as shall be required for the assignment of a rating
to the Class A Certificates of "AAA" by Standard & Poor's, and "Aaa" by Moody's;
<PAGE>
(viii) an opinion of _________________, counsel for the
Seller, dated the Closing Date, reasonably satisfactory in form and substance to
the Underwriters;
(ix) a letter from Moody's that it has assigned a rating of
"Aaa" to the Class A Certificates;
(x) a letter from Standard & Poor's that it has assigned a
rating of "AAA" to the Class A Certificates;
(xi) an opinion of counsel for the Trustee dated the Closing
Date, in form and substance reasonably acceptable to the Underwriters, their
counsel, Moody's and Standard & Poor's;
(xii) an officer's certificate of an officer of the Trustee,
dated as of the Closing Date, reasonably satisfactory in form and substance to
the Underwriters and counsel for the Underwriters;
(xiii) an opinion or opinions of counsel for
____________________ dated the Closing Date, in each case in form and substance
reasonably acceptable to the Underwriters, their counsel, Moody's and Standard &
Poor's; and
(xiv) an officer's certificate of an Authorized Officer of
__________________, dated as of the Closing Date reasonably satisfactory in form
and substance to the Underwriters and counsel for the Underwriters.
(f) The Policies shall have been duly executed, delivered and issued
with respect to the Class A Certificates and shall conform in all material
respects to the description thereof in the Prospectus Supplement as of the date
thereof.
(g) All proceedings in connection with the transactions contemplated by
this Agreement and all documents incident hereto shall be reasonably
satisfactory in form and substance to the Representative and its counsel.
(h) The Seller and the Depositor shall have furnished the
Representative with such other certificates of its officers or others and such
other documents or opinions as the Representative or its counsel may reasonably
request.
(i) Subsequent to the execution and delivery of this Agreement none of
the following shall have occurred: (i) trading in securities generally on the
New York Stock Exchange, the American Stock Exchange or the over-the-counter
market shall have been suspended or minimum prices shall have been established
on either of such exchanges or such market by the Commission, by such exchange
or by any other regulatory body or governmental authority having jurisdiction;
(ii) a banking moratorium shall have been declared by Federal or New York state
authorities; (iii) the United States shall have become engaged in material
hostilities, there shall have been an escalation of such hostilities involving
the United States or there shall have been a declaration of war by the United
States; or (iv) there shall have occurred such a material adverse change in
general economic, political or financial conditions (or the effect of
international conditions on the financial markets of the United States shall be
such) which is material and adverse, and in the case of any of the events
specified in clauses (i), through (iv), such event makes it in the reasonable
judgment of the Representative, impractical to market the Certificates.
(j) If any condition specified in this Section 6 shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Underwriters by notice to the Depositor at any time at or prior to the
Closing Date, and such termination shall be without liability of any party to
any other party except as provided in Sections 7 and 8.
SECTION 7. PAYMENT OF EXPENSES. The Depositor agrees to pay:
(a) the costs incident to the authorization, issuance, sale and
delivery of the Certificates and any taxes payable in connection therewith; (b)
the costs incident to the preparation, printing and filing under the Securities
<PAGE>
Act of the Registration Statement and any amendments and exhibits thereto; (c)
the costs of producing and distributing the Registration Statement as originally
filed and each amendment thereto and any post-effective amendments thereof
(including, in each case, exhibits), any preliminary prospectus, the Prospectus
and any amendment or supplement to the Prospectus or any document incorporated
by reference therein, all as provided in this Agreement; (d) the costs of
reproducing and distributing this Agreement; (e) the fees and expenses of
Stroock & Stroock & Lavan LLP in qualifying the Certificates under the
securities laws of the several jurisdictions as provided in Section 5(a)(vi)
hereof and of preparing, printing and distributing a Blue Sky Memorandum and a
Legal Investment Survey; (f) any fees charged by securities rating services for
rating the Class A Certificates; (g) the cost of the accountant's comfort letter
relating to the Prospectus; and (h) all other costs and expenses incidental to
the performance of the obligations of the Depositor and the Seller (including
costs and expenses of counsel to the Depositor and the Seller); provided that,
except as provided in this Section 7, the Underwriters shall pay their own costs
and expenses, including the costs and expenses of their counsel, any transfer
taxes on the Class A Certificates which they may sell and the expenses of
advertising any offering of the Class A Certificates made by the Underwriters,
and the Underwriters shall pay the cost of any accountant's comfort letters
relating to any Computational Materials (as defined herein).
If this Agreement is terminated because of a breach by the Depositor of
any covenant or agreement hereunder including in accordance with Section 6 or
the failure of any closing condition set forth in Section 6 (other than the
closing condition set forth in Section 6(i)) to be met, the Depositor shall
cause the Underwriters to be reimbursed for all reasonable out of pocket
expenses, including fees and disbursements of _________________, counsel for the
Underwriters.
SECTION 8. INDEMNIFICATION AND CONTRIBUTION. The Depositor indemnifies
and holds harmless each Underwriter, each Underwriter's respective officers and
directors and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
as follows:
(i) against any and all losses, claims, expenses, damages
or liabilities, joint or several, to which such Underwriter or such
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, expenses, damages or liabilities (or actions
in respect thereof including, but not limited to, any loss, claim, expense,
damage or liability related to purchases and sales of the Class A
Certificates) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, or arise
out of, or are based upon, the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements made therein not misleading; and will reimburse each Underwriter
and each such controlling person for any legal or other expenses reasonably
incurred by such Underwriter or such controlling person in connection with
investigating or defending any such loss, claim, expense, damage, liability
or action as such expenses are incurred; PROVIDED, HOWEVER, that the
Depositor will not be liable in any such case to the extent that any such
loss, claim, expense, damage or liability arises out of or is based upon an
untrue statement or omission, or alleged untrue statement or omission, made
in any of such documents (x) in reliance upon and in conformity with any
Underwriters' Information or (y) in any Collateral Term Sheet, Structural
Term Sheet, Series Term Sheet or Computational Materials, except in the case
of this clause (y) to the extent that any untrue statement or omission or
alleged untrue statement or alleged omission therein results (or is alleged
to have resulted) from an error or material omission in the information
concerning the characteristics of the Home Equity Loans furnished by the
Seller, as applicable, to the Underwriters for use in the preparation of any
Collateral Term Sheet, Structural Term Sheet, Series Term Sheet and/or
Computational Materials (any such information, the "Pool Information"), which
error was not superseded or corrected by the delivery to the Underwriters of
corrected written or electronic information, or for which the Depositor did
not provide written notice of such error to the Underwriters prior to the
confirmation of the sale of the applicable Certificates (any such uncorrected
Pool Information, a "Pool Error");
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, to the extent of the aggregate amount paid in settlement of
any litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever based upon any
<PAGE>
such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of the
Depositor; and
(iii) against any and all expense whatsoever (including the
fees and disbursements of counsel chosen by any such Underwriter), reasonably
incurred in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under clause (i) or clause (ii) above.
This indemnity agreement will be in addition to any liability which the
Depositor may otherwise have.
(a) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless each of the Depositor, each of its directors, each of its
officers who have signed the Registration Statement and each person, if any,
who controls the Depositor within the meaning of Section 15 the Securities
Act or Section 20 the Exchange Act, against any and all losses, claims,
expenses, damages or liabilities to which the Depositor or any such director,
officer or controlling person may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (i) Derived
Information provided by such Underwriter (except to the extent resulting from
an uncorrected Pool Error) and (ii) the Registration Statement, the
Prospectus or any amendment or supplement thereto, or arise out of, or are
based upon, the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements made
therein not misleading, in each case to the extent, but with respect to
clause (b)(ii) above, only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with any Underwriters' Information; and will reimburse
any legal or other expenses reasonably incurred by the Depositor or any such
director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(b) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action described therein, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
the indemnifying party from any liability that it may have to any indemnified
party otherwise than under this Agreement. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and, to the extent that it may wish to do so, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party under this
Section 8, such indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and in respect of which
indemnity could have been sought hereunder by such indemnified party unless such
settlement includes an unconditional release of such indemnified party from all
liability on any claims that are the subject matter of such action.
(c) If the indemnification provided for in Section 8(a) or 8(b)(ii)
is unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a) or (b)
above (i) in such proportion as is appropriate to reflect the relative
benefits received by the Depositor on the one hand and the Underwriters on
the other from the offering of the Class A Certificates or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Depositor on the one hand and the Underwriters on the
<PAGE>
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities as well as any other relevant
equitable considerations. If the indemnification provided for in Section
8(b)(i) is unavailable or insufficient to hold harmless the indemnified party
under Section 8(b)(i), then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in Section (b)(i) in such
proportion as appropriate to reflect the relative fault of the Depositor on
one hand and the Underwriters on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities as
well as any other relevant equitable considerations. The relative benefits
received by the Depositor on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses) received by the Depositor bear to
the total underwriting discounts and commissions received by the
Underwriters. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Depositor or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to above in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount of underwriting discounts and
commissions received by such Underwriter. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this
subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(d) For purposes hereof, as to each Underwriter, the term "Derived
Information" means such information, if any, in the Series Term Sheets,
Collateral Term Sheets, Structural Term Sheets and/or Computational Materials
that is not contained or corrected in either (i) the Prospectus taking into
account information incorporated therein by reference (other than information
incorporated by reference from the Series Term Sheets, Collateral Term Sheets,
Structural Term Sheets and/or Computational Materials) or (ii) any Pool
Information.
(e) Each Underwriter agrees to deliver to the Depositor any Collateral
Term Sheets, Structural Term Sheets, Computational Materials and Series Term
Sheets which it has prepared in connection with the Class A Certificates prior
to the dissemination of such materials to any potential investor.
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or contained in certificates of officers of the Depositor or the
Seller submitted pursuant hereto shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of the Underwriters
or controlling persons thereof, or by or on behalf of the Depositor, and shall
survive delivery of any Class A Certificates to the Underwriters.
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or more
of the Underwriters participating in the public offering of the Class A
Certificates shall fail at the Closing Date to purchase the Class A Certificates
which it is (or they are) obligated to purchase hereunder (the "Defaulted
Certificates"), then the non-defaulting Underwriters shall have the right,
within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Certificates in such amounts as may be agreed
upon and upon the terms herein set forth. If, however, the Underwriters have not
completed such arrangements within such 24-hour period, then
(i) if the aggregate principal amount of Defaulted
Certificates does not exceed 10% of the aggregate principal amount of the Class
A Certificates to be purchased pursuant to this Agreement, the non-defaulting
Underwriters named in this Agreement shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all such non-defaulting
Underwriters, or
<PAGE>
(ii) if the aggregate principal amount of Defaulted
Certificates exceeds 10% of the aggregate principal amount of the Class A
Certificates to be purchased pursuant to this Agreement, this Agreement shall
terminate, without any liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section 10 shall relieve any
defaulting Underwriter from the liability with respect to any default of such
Underwriter under this Agreement.
In the event of a default by any Underwriter as set forth in this
Section 10, each of the Underwriters and the Depositor shall have the right to
postpone the Closing Date for a period not exceeding five Business Days in order
that any required changes in the Registration Statement or Prospectus or in any
other documents or arrangements may be effected.
SECTION 11. TERMINATION OF AGREEMENT. The Underwriters may terminate
this Agreement immediately upon notice to the Depositor, at any time at or prior
to the Closing Date if the events set forth in Section 6(i) of this Agreement
shall occur and be continuing, or if any other closing condition set forth in
Section 6 shall not have been fulfilled when required to be fulfilled. In the
event of any such termination, the provisions of Section 7, the indemnity and
contribution agreements set forth in Section 8, and the provisions of Sections
9, 14 and 16 shall remain in effect.
SECTION 12. NOTICES. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to ____________________; and
(b) if to the Depositor or the Seller, shall be delivered or sent by
mail, telex or facsimile transmission to care of CHEC Funding LLC, 2728 North
Harwood Street, Dallas, Texas 75201-1516, Attention: Jeffrey Upperman.
SECTION 13. PERSONS ENTITLED TO THE BENEFIT OF THIS AGREEMENT. This
Agreement shall inure to the benefit of and be binding upon the Underwriters,
the Seller, and the Depositor, and their respective successors. This
Agreement and the terms and provisions hereof are for the sole benefit of
only those persons, except that the representations, warranties, indemnities
and agreements contained in this Agreement shall also be deemed to be for the
benefit of the person or persons, if any, who control any of the Underwriters
within the meaning of Section 15 of the Securities Act, and for the benefit
of each Underwriter's respective officers and directors and for the benefit
of directors of the Depositor, officers of the Depositor who have signed the
Registration Statement and any person controlling the Depositor within the
meaning of Section 15 of the Securities Act. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section 13, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
SECTION 14. SURVIVAL. The respective indemnities, representations,
warranties and agreements of the Depositor and the Underwriters contained in
this Agreement, or made by or on behalf of them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Certificates and
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any of them or any person controlling any of them.
SECTION 15. DEFINITION OF THE TERM "BUSINESS DAY." For purposes of this
Agreement, "Business Day" means any day on which the New York Stock Exchange,
Inc. is open for trading.
SECTION 16. GOVERNING LAW: SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to the principles of
conflicts of law thereof.
<PAGE>
The parties hereto hereby submit to the jurisdiction of the United
States District Court for the Southern District of New York and any court in the
State of New York located in the City and County of New York, and appellate
court from any thereof, in any action, suit or proceeding brought against it or
in connection with this Agreement or any of the related documents or the
transactions contemplated hereunder or for recognition or enforcement of any
judgment, and the parties hereto hereby agree that all claims in respect of any
such action or proceeding may be heard or determined in New York State court or,
to the extent permitted by law, in such federal court.
The parties hereto hereby irrevocably waive, to the fullest extent
permitted by law, any and all rights to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby.
SECTION 17. COUNTERPARTS. This Agreement may be executed in
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
SECTION 18. HEADINGS. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
SECTION 19. OBLIGATIONS OF THE SELLER. the Seller agrees with the
Underwriters, for the sole and exclusive benefit of each such Underwriter,
each such Underwriter's officers and directors and each person controlling
such Underwriter within the meaning of the Securities Act, and not for the
benefit of any assignee thereof or any other person or persons dealing with
such Underwriter as follows: in consideration of and as an inducement to
their agreement to purchase the Class A Certificates from the Depositor, to
indemnify and hold harmless each Underwriter against any failure by the
Depositor to perform its obligations to the Underwriters hereunder,
including, without limitation, any failure by the Depositor to honor any
obligation to any Underwriter pursuant to Section 8 hereof. In the case of
any claim against the Seller by any Underwriter, any officer or director of
any Underwriter or any person controlling any Underwriter, it shall not be
necessary for such claimant to first pursue any remedy from or exhaust any
procedures against the Depositor.
If the foregoing correctly sets forth the agreement between the
Depositor and the Underwriters, please indicate your acceptance in the space
provided for the purpose below.
Very truly yours,
CHEC FUNDING, LLC
By: _______________________________
Name:
Title:
SOLELY WITH RESPECT TO SECTION 19
CENTEX CREDIT CORPORATION d/b/a
CENTEX HOME EQUITY
CORPORATION`
By: _______________________________
Name:
Title:
CONFIRMED AND ACCEPTED, as of the date first above written:
- --------------------------
Acting on its own behalf and as
Representative of the Underwriters
referred to in the foregoing Agreement
By: ___________________________________
Name:
Title:
SCHEDULE A
<PAGE>
Class A-1 Certificates
<TABLE>
<CAPTION>
Underwriting
Underwriters Discount Principal Amount
- ------------ -------- ----------------
<S> <C> <C>
% $
% $
Class A-2 Certificates
<CAPTION>
Underwriting
Underwriters Discount Principal Amount
- ------------ -------- ----------------
<S> <C> <C>
% $
% $
Class A-3 Certificates
<CAPTION>
Underwriting
Underwriters Discount Principal Amount
- ------------ -------- ----------------
<S> <C> <C>
% $
% $
Class A-4 Certificates
<CAPTION>
Underwriting
Underwriters Discount Principal Amount
- ------------ -------- ----------------
<S> <C> <C>
% $
% $
Class A-5 Certificates
<CAPTION>
Underwriting
Underwriters Discount Principal Amount
- ------------ -------- ----------------
<S> <C> <C>
% $
% $
Class A-6 Certificates
<CAPTION>
Underwriting
Underwriters Discount Principal Amount
- ------------ -------- ----------------
<S> <C> <C>
% $
% $
Class A-7 Certificates
<CAPTION>
Underwriting
Underwriters Discount Principal Amount
- ------------ -------- ----------------
<S> <C> <C>
<PAGE>
% $
</TABLE>
<PAGE>
EXHIBIT 2.1
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
OF
CHEC FUNDING, LLC.
This Amended and Restated Limited Liability Company Agreement (together
with the schedules attached hereto, this "Agreement") of CHEC Funding, LLC (the
"Company"), dated as of January 25, 2000 (the "Effective Date"), is entered into
by Centex Credit Corporation, a Nevada corporation d/b/a Centex Home Equity
Corporation ("CHEC"). Capitalized terms used and not otherwise defined herein
have the meanings set forth in SCHEDULE A hereto, or, if not defined in
SCHEDULE A, such terms have the meanings set forth in the Basic Documents (as
defined in SCHEDULE A hereto).
RECITALS
1. The Company was formed as a Delaware limited liability company on
December 7th, 1999 (the "Formation Date") by filing the Certificate of
Formation with the Delaware Secretary of State. CHEC was admitted to the
Company as the initial member, effective as of the Formation Date pursuant to
that certain Limited Liability Company Agreement of the Company, dated as of
the Formation Date (the "Limited Liability Company Agreement").
2. CHEC now desires to amend and restate the Limited Liability Company Agreement
in its entirety.
NOW, THEREFORE, CHEC, by execution of this Agreement, hereby continues
the Company as a limited liability company in accordance with the Act and this
Agreement and amends and relates the Limited Liability Company Agreement as
follows:
Section 1. FORMATION; AMENDMENT AND RESTATEMENT; NAME.
(a) The Company was formed as a Delaware limited liability company as
of the Formation Date by filing the Certificate of Formation.
(b) This Agreement supersedes and amends and restates the limited
Liability Company Agreement in its entirety. The Limited Liability Company
Agreement shall have no further force or effect.
(c) The name of the limited liability company heretofore formed and
continued hereby is CHEC Funding, LLC and the business of the Company shall be
conducted solely under such name or any other name, to the extent permitted by
law.
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Section 2. PRINCIPAL BUSINESS OFFICE.
The principal business office of the Company shall be located at 2728
N. Harwood, Dallas, Texas 75201 or such other location as may hereafter be
determined by the Member.
Section 3. REGISTERED OFFICE.
The address of the registered office of the Company in the State of
Delaware is c/o Corporation Service Company, 1013 Centre Road, Wilmington,
Delaware 19805.
Section 4. REGISTERED AGENT.
The name and address of the registered agent of the Company for service
of process on the Company in the State of Delaware is Corporation Services
Company, 1013 Centre Road, Wilmington, Delaware 19805.
Section 5. MEMBER.
(a) The mailing address of the member is set forth on SCHEDULE B hereto.
(b) Subject to Section 9(b), the Member may act by written consent.
(c) The member shall be the only member of the Company that has a limited
liability company interest in the Company which represents an interest in the
profits, losses, and capital of the Company and the right to receive
distributions of Company assets. The Member owns a 100% interest in the profits,
losses and capital of the Company. Except for the rights specifically granted
herein to the Special member, the Member shall be the only member of the Company
with any voting rights. The Special Member shall have no interest in the
profits, losses and capital of the Company and shall have no right to receive
any distributions of Company assets. The Special Member shall be admitted as a
member of the Company within the meaning of the Act upon execution and delivery
of this Agreement or a counterpart signature page to this Agreement. Pursuant to
Section 18-301 of the Act, the Special Member shall not be required to make any
capital contribution to the Company and shall not receive a limited liability
company interest in the Company. Upon the occurrence of an event that causes the
Member to cease to be a member of the Company, the Special member shall, to the
fullest extent permitted by law, continue the business of the Company without
dissolution. Notwithstanding the last sentence of Section 18-402 of the Act and
except as expressly provided in this Agreement, the Special Member may not bind
the Company.
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Section 6. CERTIFICATES.
Kathleen B. McCamey is hereby designated as an "authorized person"
within the meaning of the Act, and has executed, delivered and filed the
Certificate of Formation of the Company with the Secretary of State of the State
of Delaware. Upon the filing of the Certificate of Formation with the Secretary
of State of the State of Delaware, his powers as an "authorized person" ceased
and the Member thereupon became the designated "authorized person" and shall
continue as the designated "authorized person" within the meaning of the Act.
The Member shall execute, deliver and file any other certificates (and any
amendments and/or restatements thereof) necessary for the Company to qualify to
do business in the State of Texas and in any other jurisdiction in which the
Company may wish to conduct business. The existence of the Company as a separate
legal entity shall continue until cancellation of the Certificate of Formation
as provided in the Act.
Section 7. PURPOSES. The purpose to be conducted or promoted by the
Company is to engage solely in the following activities:
(a) to acquire, own, hold, sell, transfer, pledge or otherwise dispose of:
(1) interests in (A) loan agreements, promissory notes or
evidences of indebtedness (the "Mortgage Loans") secured by
mortgages, deeds of trust, pledge agreements or other security
devices creating first, second and/or more subordinate liens
on one-to-four-family residential properties, detached or
semi-detached one-to-four-family dwelling units, townhouses,
rowhouses, individual condominium units, individual units in
planned unit developments, and certain other dwelling units
(the "Single Family Properties") or mixed use properties which
consist of structures of not more than three stories which
include one-to-four-family residential dwelling units and
space used for retail, professional or other commercial uses
(together with the Single Family Properties, the
"Properties"), (B) closed-end and/or revolving home equity
loans (the "Home Equity Loans") secured by first, second
and/or subordinate liens on Single Family Properties, (C) home
improvement sale contracts and installment loan agreements
(the "Home Improvement Contracts") that are either unsecured
or secured by first, second and/or more subordinate liens on
Single Family Properties or by purchase money security
interests in the home improvements financed thereby, and (D)
manufactured housing installment sales contracts and
installment loan agreements (the "Manufactured Housing
Contracts") and together with the Home Equity Loans, Home
Improvement Contracts and the Mortgage Loans, the "Loans")
secured by first, second, and/or more subordinate liens or by
mortgages on real estate on which the manufactured homes are
located; such Loans may include cooperative apartment loans
secured by shares issued by private, nonprofit, cooperative
housing corporations ("Cooperatives") and the related
proprietary leases or occupancy agreements granting exclusive
rights to occupy specific dwelling units in such Cooperative
buildings;
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(2) mortgage-backed securities insured and/or guaranteed
as to timely payment, of interest and/or principal by the
Government national Mortgage Association, Federal National
Mortgage Association or Federal Home Loan Mortgage
Corporation, and privately issued mortgage-backed securities;
and
(3) mortgage pass-through certificates and other
collateralized mortgage obligations issued by a financial
institution or other entity engaged generally in the business
of mortgage lending, a public agency or instrumentality of a
state, local or federal government, or a limited purpose
corporation engaged in the business of establishing trusts and
acquiring and selling residential loans to such trusts and
selling beneficial interests in such trusts.
(b) To act as settler or depositor of one or more trusts (each a "Trust")
formed under a trust agreement, pooling and servicing agreement or
other agreement (the "Agreements") to be entered into by, among others,
the Company, the trustee named therein (the "Trustee") and any entity
acting as servicer of the Receivables, to issue one or more series (any
of which series may be issued in one or more classes) of trust
certificates ("Certificates") representing interests in Loans and/or to
issue pursuant to an indenture or other agreement one or more series
(any of which series may be issued in one or more classes) of bonds,
notes or other evidences of indebtedness ("Debt Obligations")
collateralized by Loans and/or other property and to enter into any
other agreement in connection with the authorization, issuance, sale
and delivery of Certificates and/or Debt Obligations ("Securities"),
including arrangements for support for any series of Securities by
various forms or credit enhancement.
(c) To hold, pledge, finance, transfer or otherwise deal with Securities,
including Securities representing a senior interest in Loans ("Senior
Interests"), representing a subordinated interest in Loans
("Subordinated Interests") or a residual interest in Loans ("Residual
Interests").
(d) To loan or invest or otherwise apply proceeds from Loans, funds
received in respect of Securities, Senior Interests, Subordinated
Interests or Residual Interests and any other income, as determined by
the Company's Member. Sale and repurchase of Acquired Assets in
accordance with the terms thereof.
(e) To negotiate, authorize, execute, deliver, assume the obligations
under, and perform, any agreement or instrument or document relating to
the activities set forth in clauses (a) through (d) above.
(f) To engage in any activity and to exercise any powers permitted to
limited liabilities companies under the laws of the State of Delaware
that are related or incidental to the foregoing and necessary,
convenient or advisable to accomplish the foregoing. The Company shall
not engage in any business or activity other than in connection with or
relating to the activities described above.
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<PAGE>
Section 8. RESERVED.
Section 9. MANAGEMENT.
(a) Subject to Section 9(b), the management of the Company is fully vested in
the Member, and except as otherwise provided in this Agreement, such Member
shall have full power and authority to manage the business and affairs of the
Company in accordance with Section 7.
(b) LIMITATIONS ON THE COMPANY'S ACTIVITIES.
(i) This section 9(b) is being adopted in order to comply with
certain provisions required in order to qualify the Company as
a "special purpose entity."
(ii) RESERVED.
(iii) The Member shall not, so long as any Obligation is
outstanding, amend, alter, change or repeal the definition of
"Independent Manager" or Sections 7, 9, 10, 16, 20, 21, 22,
23, 24, 25, 26, 29, or 31 or SCHEDULE A of this Agreement
without the written consent of the Independent Manager.
Subject to this Section 9(b), the Member reserves the right to
amend, alter, change or repeal any provisions contained in
this Agreement in accordance with Section 31.
(iv) RESERVED.
(v) The Member shall cause the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory) and franchises; PROVIDED, HOWEVER, that the
Company shall not be required to preserve any such right or franchise if the
Member shall determine that the preservation thereof is no longer desirable for
the conduct of its business and that the loss thereof is not disadvantageous in
any material respect to the Company. The Member also shall cause the Company to:
(A) maintain its own books and records and bank
accounts separate from those of any other Person
or its Member;
(B) at all times hold itself out to the public
and all other Persons as a legal entity separate
from the Member and any other Person;
(C) file its own tax returns, if any, as may be
required under applicable law, to the extent
(1) NOT part of a consolidated group filing
a consolidated return or returns or (2) not
treated as a division for tax purposes of
another taxpayer, and pay any taxes so
required to be paid under applicable law;
(D) not commingle its assets with assets of any other
Person;
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<PAGE>
(E) conduct its business in its own name and
strictly comply with all organizational
formalities to maintain its separate
existence;
(F) maintain separate financial statements;
(G) pay its liabilities only out of its funds;
(H) transact all business with its Affiliates
and the Member on an arm's length basis and
pursuant to written, enforceable agreements;
(I) pay the salaries of its own employees, if any;
(J) not hold out its credit or assets as being
available to satisfy the obligations of others;
(K) allocate fairly and reasonably any overhead for
shared office space;
(L) use separate stationary, invoices and checks;
(M) except as contemplated by the Basic Documents,
not pledge its assets for the benefit of any
other Person;
(N) correct any known misunderstanding regarding
its separate identity and refrain from
engaging in any activity that compromises
the separate legal identity of the Company;
(O) maintain adequate capital in light of its
contemplated business purpose, transaction and
liabilities;
(P) cause the managers, officers, agents and
other representatives of the Company, if
any, to act at all times with respect to the
Company consistently and in furtherance of
the foregoing and in the best interests of
the Company; and
(Q) not acquire or assume any obligation or liability
of any of its members.
Failure by the Company or the Member or the Independent Manager, on
behalf of the Company, to comply with any of the foregoing (A) through (Q) or
any other covenant set forth in this Agreement shall not affect the status of
the Company as a separate legal entity or the limited liability of the Member,
the Special Member or the Independent Manager.
(vi) RESERVED.
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<PAGE>
(vii) So long as any Obligations are outstanding or any
amounts are owed by the Company under any Basic
Document, the Member shall not cause or permit the
Company to:
(A) except as contemplated by the Basic Documents,
guarantee any obligation of any Person,
including any Affiliate;
(B) engage, directly or indirectly, in any
business other than the actions required or
permitted to be performed under Section 7;
(C) except as contemplated by the Basic
Documents or as permitted under Section 7,
incur, create, assume or guarantee any
indebtedness;
(D) except as contemplated by the Basic Documents or
as permitted under Section 7, make or permit to
remain outstanding any loan or advance to, or
own or acquire any stock or securities of, any
Person;
(E) form, acquire or hold any subsidiary (whether
corporate, partnership, limited liability
company or other); and
(F) sell, pledge, transfer, assign or otherwise
convey the interest of the Member of the Company.
(viii) NEGATIVE COVENANTS. Without the consent of the
Independent Manager, neither the Company, the Member,
nor any other Person on behalf of the Company shall
have the authority to:
(A) do any act in contravention of this Agreement;
(B) do any act which would make it impossible to
carry on the ordinary business of the
Company, except as otherwise provided in
this Agreement;
(C) confess a judgment against the Company;
(D) possess Company Property, or assign rights in
specific Company Property, for other than
Company purpose;
(E) knowingly perform any act that would subject
(1) the Member to liabilities of the Company
in any jurisdiction or (2) the Company to
taxation as a corporation under relevant
provisions of the Code;
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<PAGE>
(F) except as otherwise provided for herein or
as contemplated by the Basic Documents,
sell, pledge, transfer, assign or otherwise
convey the Company Property;
(G) take any Material Action, notwithstanding
any other provision of this Agreement and
any provision of law that otherwise so
empowers the Company or the Member;
(H) amend, alter, change or repeal its Certificate
of Formation or any provision therein; and
(I) to the fullest extent permitted by law,
engage in any dissolution, liquidation,
consolidation, merger, asset sale, transfer
of ownership interests or sale or disposal
of all or substantially all of the Company's
assets, other than (i) in the ordinary
course of business; and (ii) as permitted or
contemplated pursuant to any provision of
the Basic Documents.
Section 10. INDEPENDENT MANAGER.
As long as any Obligation is outstanding, the Member shall cause the
Company at all times to have a least one (1) Independent Manager who will be
appointed by the Member. All right, power and authority of the Independent
Manager shall be limited to the extent necessary to exercise those rights and
perform those duties specifically set forth in this Agreement. To the fullest
extent permitted by law, including Section 18-1101(c) of the Act, the
Independent Manager shall consider only the interests of the Company, including
its respective creditors, in acting or otherwise voting on the matters referred
to in Section 9(b). Except as provided in the preceding sentence, in exercising
its rights and performing its duties under this Agreement, the Independent
Manager shall have fiduciary duty of loyalty and care similar to that of a
director of a business corporation organized under the General Corporation Law
of the State of Delaware. No Independent Manager shall at any time serve as
trustee in bankruptcy for any Affiliate of the Company. No resignation or
removal of the Independent Manager, and no appointment of a successor
Independent Manager, shall be effective until the successor Independent Manager
shall have accepted his or her appointment by a written instrument, which may be
a counterpart signature page to this Agreement. In the event of death,
incapacity or other termination of the Independent Manager, the Company shall
appoint a successor Independent Manager within ten (10) days. At such time as
all Obligations of the Company have been paid in full, any provision of Section
9(b) or otherwise herein requiring the consent of the Independent Manager shall
no longer be effective.
Section 11. OFFICERS.
The Member may, from time to time as it deems advisable, appoint
Officers of the Company and assign in writing titles (including, without
limitation, president, vice president, secretary, and treasurer) to any such
person. Unless the Member decides otherwise, if the title is
8
<PAGE>
one commonly used for officers of a business corporation formed under the
Delaware General Corporation Law, the assignment of such title shall
constitute the delegation to such person of the authorities and duties that
are normally associated with that office. Any delegation pursuant to this
Section 11 may be revoked at any time by the Member. The Officers listed on
SCHEDULE C hereto continue to be the Officers of the Company as elected
pursuant to that certain Written Consent in Lieu of Organizational Meeting of
the Sole Member, dated October 25, 1999, executed by CHEC. The Member may
revise SCHEDULE C in its sole discretion at any time.
Section 12. LIMITED LIABILITY.
Except as otherwise expressly provided by the Act, the debts,
obligations and liabilities of the Company, whether arising in contract, tort or
otherwise, shall be the debts, obligations and liabilities solely of the
Company, and neither the Member, the Special Member nor the Independent Manager
shall be obligated personally for any such debt, obligation or liability of the
Company solely by reason of being a Member, Special Member or Independent
Manager of the Company.
Section 13. CAPITAL CONTRIBUTIONS.
The Member shall contribute to the Company property of an agreed value
as listed on SCHEDULE B hereto.
Section 14. ADDITIONAL CONTRIBUTIONS.
The Member is not required to make any additional capital contribution
to the Company. However, the Member may make additional capital contributions to
the Company at any time upon the written consent of such Member. To the extent
that the Member makes an additional capital contribution to the Company, the
Member shall revise SCHEDULE B of this Agreement. The provisions of this
Agreement, including this Section 14, are intended solely to benefit the Member
and, to the fullest extent permitted by law, shall not be construed as
conferring any benefit upon any creditor of the Company (and no such creditor of
the Company shall be a third-party beneficiary of this Agreement) and the Member
shall not have any duty or obligation to any creditor of the Company to make any
contribution to the Company or to issue any call for capital pursuant to this
Agreement.
Section 15. ALLOCATION OF PROFITS AND LOSSES.
The Company's profits and losses shall be allocated to the Member. The
Special Member shall not be allocated any profits or losses.
Section 16. DISTRIBUTIONS.
Distributions shall be made to the Member at the times and in the
aggregate amounts determined by the Member. Notwithstanding any provision to the
contrary contained in this Agreement, the Company shall not be required to make
a distribution to the Member on account
9
<PAGE>
of its interest in the Company if such distribution would violate Section
18-607 of the Act or any other applicable law or any Basic Document.
Section 17. BOOKS AND RECORDS.
The Member shall keep or cause to be kept complete and accurate books
of account and records with respect to the Company's business. The books of the
Company shall at all times be maintained by the Member. The Company shall not
have the right to keep confidential from the Member any information that any
manager of the Company would otherwise be permitted to keep confidential from
the Member pursuant to Section 18-305(c) of the Act. The Company's books of
account shall be kept using the method of accounting determined by the Member.
The Company's independent auditor, if any, shall be an independent public
accounting firm selected by the Member. The books and records and bank accounts
of the Company may be kept inside or outside of the State of Texas, at such
place or places as may be designated from time to time by the Member, subject to
any statutory limitations set forth in the Act.
Section 18. REPORTS.
(a) Within sixty (60) days after the end of each fiscal quarter, the
Company shall cause to be prepared an unaudited report setting forth
as of the end of such fiscal quarter:
(i) unless such quarter is the last fiscal quarter, a
balance sheet of the Company; and
(ii) unless such quarter is the last fiscal quarter, an
income statement of the Company for such fiscal
quarter.
(b) The Company shall use diligent efforts to cause to be prepared and
mailed to the Member, within on hundred twenty (120) days after the end
of each fiscal year, an audited or unaudited report setting forth as of
the end of such fiscal year:
(i) a statement of financial condition of the Company;
(ii) an income statement of the Company for such fiscal
year; and
(iii) a statement of the Member's capital account.
The Company shall, after the end of each fiscal year, use reasonable efforts to
cause the Company's independent accountants, if any, to prepare and transmit to
the Member as promptly as possible any such tax information as may be reasonably
necessary to enable the Member to prepare its federal, state and local income
tax returns relating to such fiscal year.
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<PAGE>
Section 19. OTHER BUSINESS.
The Member and any Affiliate of the Member may engage in or possess an
interest in other business ventures (unconnected with the Company) of every kind
and description, independently or with others. The Company shall not have any
rights in or to such independent ventures or the income or profits therefrom by
virtue of this Agreement. Notwithstanding the foregoing, the Member shall
account to the Company, and hold in trust for it, any property, profit or
benefit received by the Member in the conduct or winding up of the Company's
business or from use or appropriation by the Member of any Company Property,
including, without limitation, any information developed exclusively for the
Company and opportunities offered exclusively to the Company.
Section 20. EXCULPATION AND INDEMNIFICATION.
(a) Neither CHEC, the Member, the Special member, the Independent Manager,
any Officer, nor any employee or agent of the Company and no employee,
representative, agent or Affiliate of CHEC, the Member or Special
member (collectively, the "Covered Persons") shall be liable to the
Company or any other Person who has an interest in or claim against the
Company for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Covered Person in good faith on
behalf of the Company and in a manner reasonably believed to be within
the scope of the authority conferred on such Covered Person by this
Agreement, except that a Covered Person shall be liable for any such
loss, damage or claim incurred by reason of such Covered person's gross
negligence or willful misconduct.
(b) To the fullest extent permitted by applicable law, a Covered Person
shall be entitled to indemnification from the Company for any loss,
damage or claim incurred by such Covered Person by reason of any act
or omission performed or omitted by such Covered Person in good
faith on behalf of the Company and in a manner reasonably believed
to be within the scope of the authority conferred on such Covered
Person by this Agreement, except that no Covered Person shall be
entitled to be indemnified in respect of any loss, damage or claim
incurred by such Covered Person by reason of such Covered Person's
gross negligence or willful misconduct with respect to such acts or
omissions; PROVIDED, HOWEVER, that any indemnity under this Section
20 by the Company shall be provided out of and to the extent of the
Company assets only, and the Member and the Special Member shall not
have personal liability on account thereof; and PROVIDED FURTHER,
that so long as any Obligation is outstanding, no indemnity payment
from funds of the Company (as distinct from funds from other
sources, such as insurance) of any indemnity under this Section 20
shall be payable from amounts allocable to any other Person pursuant
to the Basic Documents.
(c) To the fullest extent permitted by applicable law, expenses (including
legal fees) incurred by a Covered Person defending any claim, demand,
action, suit or proceeding shall, from time to time, be advanced by the
Company prior to the final disposition of such claim, demand, action,
suit or proceeding upon receipt by the Company of an undertaking by or
11
<PAGE>
on behalf of such Covered Person to repay such amount if it shall be
determined that the Covered person is not entitled to be indemnified as
authorized in this Section 20.
(d) A covered Person shall be fully protected in relying in good faith upon
the records of the Company and upon such information, opinions, reports
or statements presented to the Company by any Person as to matters the
Covered Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with
reasonable care by or on behalf of the Company, including information,
opinions, reports or statements as to the value and amount of the
assets, liabilities, or any other facts pertinent to the existence and
amount of assets from which distributions to the member might properly
be paid.
(e) To the extent that, at law or in equity, a Covered person has duties
(including fiduciary duties) and liabilities relating thereto to the
Company or to any other Covered Person, a Covered Person acting under
this Agreement shall not be liable to the Company or to any other
Covered Person for its good faith reliance on the provisions of this
Agreement or any approval or authorization granted by the Company or
any other Covered person. The provisions of this Agreement, to the
extent that they restrict the duties and liabilities of a Covered
Person otherwise existing at law or in equity, are agreed by the Member
and the Special member to replace such other duties and liabilities of
such Covered Person.
(f) The foregoing provisions of this Section 20 shall survive any
termination of the Company or this Agreement.
Section 21. PROHIBITION OF THE SALE; TRANSFER OR MORTGAGE OF MEMBER INTERESTS.
(a) Except as provided in Section 9(b)(vii)(F), no Member or beneficial
owner of any Member Interest shall sell, assign, transfer, mortgage,
charge or otherwise encumber, or suffer any third party to sell,
assign, transfer, mortgage, charge or otherwise encumber, or contract
to do or permit any of the foregoing, whether voluntarily or by
operation of law (collectively called a "Transfer"), its Member
Interest or any beneficial interest therein and any attempt to do so
will be void.
(b) In the event that a Member shall at any time transfer or attempt to
transfer any of its Member Interest and any rights hereby granted, the
Special Member or the Independent Manager shall, in addition to all
rights and remedies at law and inequity, be entitled to a decree or
order restraining and enjoining such Transfer and the offending Member
shall not plead in defense thereto that there would be an adequate
remedy at law; it being hereby expressly acknowledged and agreed that
damages at law will be an inadequate remedy for a breach or threatened
breach of the violation of the provisions concerning transfer set forth
in this Agreement.
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<PAGE>
(c) The Special member shall not have any right to assign or transfer its
limited liability company interest, if any, or rights as Special
member. Such limited liability company interest, if any, and rights of
the Special Member shall belong solely to and be exercised solely by
the Person who is the Independent Manager from time to time.
Section 22. RESIGNATION.
So long as any Obligation is outstanding, the Member may not resign,
except as permitted under the Basic Documents. If the Member is permitted to
resign pursuant to this Section 22, an additional member of the Company shall be
admitted to the Company, subject to Section 23, upon its execution of an
instrument signifying its agreement to be bound by the terms and conditions of
this Agreement, which instrument may be a counterpart signature page to this
Agreement. Such admission shall be deemed effective immediately prior to the
resignation and immediately following such admission, the resigning Member shall
cease to be a member of the Company.
Section 23. ADMISSION OF ADDITIONAL MEMBERS.
One or more additional members of the Company may be admitted to the
Company with the written consent of the Member; PROVIDED, HOWEVER, that,
notwithstanding the foregoing, so long as any Obligation remains outstanding, no
additional Member may be admitted to the Company.
Section 24. DISSOLUTION.
(a) Subject to Section 9(b), the Company shall be dissolved, and its
affairs shall be wound up upon the first to occur of the following: (i)
the entry of a decree of judicial dissolution under Section 18-802 of
the Act, (ii) the written consent of the Member, or (iii) at any time
there are no members of the Company unless the Company is continued
without dissolution in accordance with this Agreement or the Act. Upon
the occurrence of any event that causes the last remaining member of
the Company to cease to be a member of the Company, to the fullest
extent permitted by law, the personal representative of such member is
hereby authorized to, and shall, within 90 days after the occurrence of
the event that terminated the continued membership of such member in
the Company, agree in writing (i) to continue the Company and (ii) to
the admission of the personal representative or its nominee or
designee, as the case may be, as a substitute member of the Company,
effective as of the occurrence of the event that terminated the
continued membership of the last remaining member in the Company.
(b) Notwithstanding any other provision of this Agreement, the Bankruptcy
of the Member shall not cause the Member to cease to be a member of the
Company and upon the occurrence of such an event, the business of the
Company shall continue without dissolution.
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(c) In the event of dissolution, the Company shall conduct only such
activities as are necessary to wind up its affairs (including the sale
of the assets of the Company in an orderly manner), and the assets of
the Company shall be applied in the manner, and in the order of
priority, set forth in Section 18-804 of the Act.
(d) The Company shall terminate when (i) all of the assets of the Company,
after payment of or due provision for all debts, liabilities and
obligations of the Company, shall have been distributed to the Member
in the manner provided for in this Agreement and (ii) the Certificate
of Formation shall have been canceled in the manner required by the
Act.
Section 25. WAIVER OF PARTITION; NATURE OF INTEREST.
Except as otherwise expressly provided in this Agreement, to the
fullest extent permitted by law, the Member hereby irrevocably waives any right
or power that the Member might have to cause the Company or any of its assets to
be partitioned, to cause the appointment of a receiver for all or any portion of
the assets of the Company, to compel any sale of all or any portion of the
assets of the Company pursuant to any applicable law or to file a complaint or
to institute any proceeding at law or in equity to cause the dissolution,
liquidation, winding up or termination of the Company. The Member shall not have
any interest in any specific assets of the Company, and the Member shall not
have the status of a creditor with respect to any distribution pursuant to
Section 16 hereof. The interest of the Member in the Company is personal
property.
Section 26. BENEFITS OF AGREEMENT; NO THIRD-PARTY RIGHTS.
None of the provisions of this Agreement shall be for the benefit of or
enforceable by any creditor of the Company or by any creditor of the Member.
Nothing in this Agreement shall be deemed to create any right in any Person
(other than Covered Persons) not a party hereto, and this Agreement shall not be
construed in any respect to be a contract in whole or in part for the benefit of
any third Person.
Section 27. SEVERABILITY OF PROVISIONS.
Each provision of this Agreement shall be considered severable and if
for any reason any provision or provisions herein are determined to be invalid,
unenforceable or illegal under any existing or future law, such invalidity,
unenforceability or illegality shall not impair the operation of or affect those
portions of this Agreement which are valid, enforceable and legal.
Section 28. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof.
14
<PAGE>
Section 29. BINDING AGREEMENT.
Notwithstanding any other provision of this Agreement, the Member
agrees that this Agreement, including, without limitation, Sections 7, 9, 10,
20, 21, 22, 23, 24, 26, 29 and 31, constitutes a legal, valid and binding
agreement of the Member, and is enforceable against the Member by the
Independent Manager and the Special Member in accordance with its terms. In
addition, the Independent Manager shall be an intended beneficiary of this
Agreement.
Section 30. GOVERNING LAW.
This Agreement shall be governed by and construed under the laws of the
State of Delaware (without regard to conflict of laws principles), all rights
and remedies being governed by said laws.
Section 31. AMENDMENTS.
Subject to Section 9(b), this Agreement may not be modified, altered,
supplemented or amended except pursuant to a written agreement executed and
delivered by the Member. Notwithstanding anything to the contrary in this
Agreement, so long as any Obligation is outstanding, this Agreement may not be
modified, altered, supplemented or amended except: (i) to cure any ambiguity or
(ii) to convert or supplement any provision in a manner consistent with the
intent of this Agreement and the other Basic Documents.
Section 32. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original of this Agreement and all of which together
shall constitute one and the same instrument.
Section 33. NOTICES.
Any notices required to be delivered hereunder shall be in writing and
personally delivered, mailed or sent by telecopy, electronic mail or other
similar form of rapid transmission, and shall be deemed to have been duly given
upon receipt (a) in the case of the Company, to the Company at its address in
Section 2, (b) in the case of the Member, to the Member at its address as listed
on SCHEDULE B hereto and (c) in the case of either of the foregoing, at such
other address as may be designated by written notice to the other party.
Section 34. EFFECTIVENESS.
This Agreement shall be effective as of the date first set forth above.
15
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, has duly executed this Amended and Restated Limited Liability Company
Agreement as of the 25th day of January, 2000.
CENTEX CREDIT CORPORATION d/b/a
CENTEX HOME EQUITY CORPORATION,
as SOLE MEMBER
By /s/ Anthony H. Barone
------------------------------
Name: Anthony H. Barone
Title: President
Agreed to and consented to by:
SPECIAL MEMBER AND
INDEPENDENT MANAGER:
By: /s/ Dwight Jenkins
------------------
Name: Dwight Jenkins
16
<PAGE>
SCHEDULE A
Definitions
A. DEFINITIONS
When used in this Agreement, the following terms not otherwise defined
herein have the following meanings:
"ACQUIRED ASSETS" shall have the meaning set forth in Section 7(b).
"ACT" means the Delaware Limited Liability Company Act (6 DEL. C.
Section 18-101 ET SEQ.), as amended from time to time.
"AFFILIATE" means, with respect any Person, any other Person directly
or indirectly Controlling or Controlled by or under direct or indirect common
Control with such Person.
"AGREEMENT" shall have the meaning set forth in the preamble.
"BANKRUPTCY" means, with respect to any Person, if such Person
(i) makes an assignment for the benefit of creditors, (ii) files a voluntary
petition in bankruptcy, (iii) is adjudged a bankrupt or insolvent, or has
entered against it an order for relief, in any bankruptcy or insolvency
proceeding, (iv) files a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation, (v) files an answer or
other pleading admitting or failing to contest the material allegations of a
petition filed against it in any proceeding of this nature, (vi) seeks, consents
to or acquiesces in the appointment of a trustee, receiver or liquidator of the
Person or of all or any substantial part of its properties, or (vii) if 120 days
after the commencement of any proceeding against the Person seeking
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation, if the proceeding has
not been dismissed, or if within 90 days after the appointment without such
Person's consent or acquiescence of a trustee, receiver or liquidator of such
Person or of all or any substantial part of its properties, the appointment is
not vacated or stayed, or within 90 days after the expiration of any such stay,
the appointment is not vacated. The foregoing definition of "Bankruptcy" is
intended to replace and shall supersede and replace the definition of
"Bankruptcy" set forth in Section 18-101(1) and 18-304 of the Act.
"CERTIFICATE OF FORMATION" means the Certificate of Formation of the
Company filed with the Secretary of State of the State of Delaware on
December 7th, 1999, as amended or amended and restated from time to time.
"CODE" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time, or any successor statute thereto.
17
<PAGE>
"COMPANY" shall have the meaning set forth in the preamble.
"COMPANY PROPERTY" means all real, personal and mixed properties, cash,
assets, interests and rights of any type owned by the Company, including all
assets acquired with Company funds or in exchange for Company Property.
"CONTROL" (including the terms "CONTROLLING" and "CONTROLLED") means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities or general partnership or managing member
interests, by contract or otherwise.
"COVERED PERSONS" has the meaning set forth in Section 20(a).
"CHEC" shall have the meaning set forth in the preamble.
"EFFECTIVE DATE" shall have the meaning set forth in the preamble.
"FORMATION DATE" shall have the meaning set forth in the recitals.
"INDEPENDENT MANAGER" means a natural person who is an individual with
at least three (3) years' prior experience in transactions involving the
securitization of financial assets, and prior experience as an independent
manager or independent director for an entity (other than the Company) whose
charter documents require the consent of all independent managers or directors,
as applicable, before such entity could file a bankruptcy proceeding or consent
to the institution of bankruptcy proceedings against it and (i) s not a
stockholder (whether direct, indirect or beneficial) of CHEC or any of its
Affiliates (PROVIDED that indirect stock ownership of CHEC or any of its
Affiliates by any person through a mutual fund or similar diversified investment
pool shall not disqualify such person from being an "Independent Manager" unless
such person maintains direct or indirect control of the investment decisions of
such mutual fund or similar diversified investment pool); (ii) is not a
customer, creditor, supplier, service provider or other person who derives more
than 10% of its purchases or revenues from its activities with CHEC or any of
its Affiliates; (iii) is not (and has not been during the five (5) years
preceding this Agreement) an officer or employee of CHEC or any of its
Affiliates, (iv) is not (and has not been during the five (5) years preceding
this Agreement) a director, partner, associate, attorney or counsel of CHEC or
any of its Affiliates, other than the Company and other than as independent
manager or independent director of another "special purpose entity" Affiliate of
CHEC (CHEC and its Affiliates, other than the Company, being hereafter referred
to as the "PARENT GROUP"); (v) is not a person or other entity controlling or
under common control with a person referred to in clauses (i), (ii), (iii) and
(iv); (vi) is not a member of the immediate family of any person referred to in
clause (i), (ii), (iii) and (iv); and (vii) is not a trustee, conservator or
receiver for any member of the Parent Group.
"LIMITED LIABILITY COMPANY AGREEMENT" shall have the meaning set forth
in the recitals.
18
<PAGE>
"MATERIAL ACTION" means to consolidate or merge the Company with or
into any Person, or sell all or substantially all of the assets of the Company
(other than in the ordinary course of business or as contemplated by the Basic
Documents), or to institute proceedings to have the Company be adjudicated
bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency
proceedings against the Company or file a petition seeking, or consent to,
reorganization or relief with respect to the Company under any applicable
federal or state law relating to bankruptcy, or consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or for a substantial part of its property, or make any
assignment for the benefit of creditors of the Company, or admit in writing the
Company's inability to pay its debts generally as they become due, or, to the
fullest extent permitted by law, take action in furtherance of any such action,
or dissolve or liquidate the Company.
"MEMBER" means CHEC, and includes any Person (other than the Special
Member) admitted as an additional member of the Company or a substitute member
of the Company pursuant to the provisions of this Agreement.
"MEMBER INTEREST" means with respect to any member, (a) that member's
status as a member; (b) that member's right to receive distributions from the
Company; (c) all other rights, benefits and privileges enjoyed by that member
(under the Act, this Agreement, or otherwise) in its capacity as a member,
including that member's rights to vote, consent and approve and otherwise to
participate in the management of the Company; and (d) all obligations, duties
and liabilities imposed on that member (under that Act, this Agreement or
otherwise) in its capacity as a member, including any obligations to make
capital contributions.
"MORTGAGE COLLATERAL" shall have the meaning set forth in Section 7(a).
"OBLIGATIONS" shall mean the indebtedness, liabilities and obligations
of the Company under or in connection with this Agreement, the other Basic
Documents or any related document in effect as of any date of determination.
"OFFICER" means an officer of the Company described in Section 11.
"PARENT GROUP" shall have the meaning set forth in the definition of
"Independent Manager."
"PERSON" means any individual, corporation, partnership, joint venture,
limited liability company, limited liability partnership, association, joint
stock company, trust, unincorporated organization, or other organization,
whether or not a legal entity, and any governmental authority.
"SPECIAL MEMBER" shall mean the Independent Manager in its capacity as
both a "member" and a "manager" of the Company within the meaning of the Act.
19
<PAGE>
"TRANSFER" shall have the meaning set forth in Section 21(a).
A. RULES OF CONSTRUCTION.
Definitions in this Agreement apply equally to both the singular and
plural forms of the defined terms. The words "include" and "including" shall be
deemed to be followed by the phrase "without limitation." The terms "herein",
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Section, paragraph or
subdivision. The Section titles appear as a matter of convenience only and shall
not affect the interpretation of this Agreement. All Section, paragraph, clause,
Exhibit or Schedule references not attributed to a particular document shall be
references to such parts of this Agreement.
20
<PAGE>
SCHEDULE B
MEMBER
<TABLE>
<CAPTION>
Agreed Value of Membership
Name Mailing Address Capital Contribution Interest
---- --------------- -------------------- --------
<S> <C> <C> <C>
Centex Credit 2828 N. Harwood $1,000,000 100%
Corporation, d/b/a Dallas, Texas 75201
Centex Home Equity
Corporation
</TABLE>
21
<PAGE>
SCHEDULE C
OFFICERS
<TABLE>
<CAPTION>
Name Office
---- ------
<S> <C>
Anthony H. Barone President
Jeff Upperman Vice President
Raymond G. Smerge Secretary
Vicki A. Roberts Treasurer
Richard C. Harvey Assistant Vice President
Janet L. Erickson Assistant Vice President
Anne Duffield Vice President & General Counsel
James H. Graass Assistant Secretary
Kathy McCamey Assistant Secretary
</TABLE>
22
<PAGE>
EXHIBIT 4.1
================================================================================
TRUST AGREEMENT
among
CENTEX CREDIT CORPORATION d/b/a
CENTEX HOME EQUITY CORPORATION,
as Seller,
CHEC FUNDING, LLC,
as Depositor,
and
___________________________,
as Owner Trustee
Dated as of _________ __, 2000
CENTEX HOME EQUITY LOAN TRUST 2000-__
Home Equity Loan Asset-Backed Notes, Series 2000-__
================================================================================
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
Section 1.1 Capitalized Terms.......................................................................1
Section 1.2 Other Definitional Provisions...........................................................5
ARTICLE II
ORGANIZATION
Section 2.1 Name....................................................................................7
Section 2.2 Office..................................................................................7
Section 2.3 Purposes and Powers.....................................................................7
Section 2.4 Appointment of Owner Trustee............................................................8
Section 2.5 Initial Capital Contribution of Owner Trust Estate......................................8
Section 2.6 Declaration of Trust....................................................................8
Section 2.7 Title to Trust Property.................................................................8
Section 2.8 Situs of Trust..........................................................................8
Section 2.9 Representations and Warranties of the Depositor.........................................9
Section 2.10 Federal Income Tax Allocations........................................................10
ARTICLE III
SUB-TRUSTS
Section 3.1 Series Trust...........................................................................11
Section 3.2 Establishment of Sub-Trust.............................................................11
Section 3.3 Assets of Sub-Trust....................................................................11
Section 3.4 Liabilities of Sub-Trust...............................................................11
ARTICLE IV
TRANSFEROR INTEREST AND TRANSFERS OF THE TRANSFEROR INTEREST
Section 4.1 Initial Ownership......................................................................13
Section 4.2 The Transferor Interest................................................................13
Section 4.3 [Reserved].............................................................................13
Section 4.4 Registration of Transfer and Exchange of Transferor Interest...........................13
Section 4.5 [Reserved].............................................................................13
Section 4.6 Persons Deemed Transferors.............................................................13
Section 4.7 [Reserved].............................................................................13
Section 4.8 Maintenance of Office or Agency........................................................13
Section 4.9 Appointment of Paying Agent............................................................14
Section 4.10 [Reserved]............................................................................14
Section 4.11 [Reserved]............................................................................14
i
<PAGE>
Section 4.12 [Reserved]............................................................................14
Section 4.13 Restrictions on Transfers of Transferor Interest......................................14
ARTICLE V
ACTIONS BY OWNER TRUSTEE
Section 5.1 Prior Notice to the Transferor and the Insurer with Respect to Certain Matters.........18
Section 5.2 [Reserved].............................................................................19
Section 5.3 Action by Transferor with Respect to Bankruptcy........................................19
Section 5.4 Restrictions on Transferor's Power.....................................................20
ARTICLE VI
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 6.1 Establishment of Eligible Accounts.....................................................21
Section 6.2 Application Of Trust Funds.............................................................21
Section 6.3 Method of Payment......................................................................21
Section 6.4 [Reserved].............................................................................21
Section 6.5 Accounting and Reports to the Transferor, the Internal Revenue Service and Others......21
Section 6.6 Signature on Returns...................................................................22
ARTICLE VII
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 7.1 General Authority......................................................................23
Section 7.2 General Duties.........................................................................23
Section 7.3 Action upon Instruction................................................................23
Section 7.4 No Duties Except as Specified in this Agreement, the Transaction Documents or in
Instructions.........................................................................24
Section 7.5 No Action Except Under Specified Documents or Instructions.............................25
Section 7.6 Restrictions...........................................................................25
ARTICLE VIII
CONCERNING THE OWNER TRUSTEE
Section 8.1 Acceptance of Trusts and Duties........................................................26
Section 8.2 Furnishing of Documents................................................................27
Section 8.3 Representations and Warranties.........................................................27
Section 8.4 Reliance; Advice of Counsel............................................................28
Section 8.5 Not Acting in Individual Capacity......................................................28
Section 8.6 Owner Trustee Not Liable for the Transferor Interest or the Home Equity Loans..........29
Section 8.7 Owner Trustee May Own the Transferor Interest and the Notes............................29
Section 8.8 Licenses...............................................................................29
ii
<PAGE>
ARTICLE IX
COMPENSATION OF OWNER TRUSTEE
Section 9.1 Owner Trustee's Fees and Expenses......................................................30
Section 9.2 Indemnification........................................................................30
Section 9.3 Payments to the Owner Trustee..........................................................30
ARTICLE X
TERMINATION OF TRUST AGREEMENT
Section 10.1 Termination of Trust Agreement........................................................31
ARTICLE XI
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 11.1 Eligibility Requirements for Owner Trustee............................................33
Section 11.2 Resignation or Removal of Owner Trustee...............................................33
Section 11.3 Successor Owner Trustee...............................................................34
Section 11.4 Merger or Consolidation of Owner Trustee..............................................34
Section 11.5 Appointment of Co-Owner Trustee or Separate Owner Trustee.............................34
ARTICLE XII
MISCELLANEOUS
Section 12.1 Supplements and Amendments............................................................37
Section 12.2 No Legal Title to Owner Trust Estate in Transferor....................................38
Section 12.3 Limitations on Rights of Others.......................................................38
Section 12.4 Notices...............................................................................38
Section 12.5 Severability..........................................................................38
Section 12.6 Separate Counterparts.................................................................39
Section 12.7 Successors and Assigns................................................................39
Section 12.8 No Petition...........................................................................39
Section 12.9 [Reserved]............................................................................39
Section 12.10 No Recourse..........................................................................39
Section 12.11 Headings.............................................................................39
Section 12.12 GOVERNING LAW........................................................................39
Section 12.13 [Reserved]...........................................................................39
Section 12.14 Inconsistencies with Sale and Servicing Agreement....................................39
Section 12.15 Third Party Beneficiary..............................................................40
EXHIBIT A Certificate of Trust.........................................................................A-1
EXHIBIT B Form of Transfer Certificate.................................................................B-1
EXHIBIT C Form of Transferor Certificate...............................................................C-1
</TABLE>
iii
<PAGE>
TRUST AGREEMENT, dated as of _________ __, 2000, among CHEC FUNDING,
LLC, a Delaware limited liability, as depositor (the "Depositor"), CENTEX
CREDIT CORPORATION d/b/a CENTEX HOME EQUITY CORPORATION, a corporation
organized under the laws of the State of Nevada, as seller (the "Seller"), and
________________________, a _________ banking corporation, as owner trustee
(the "Owner Trustee") amending and restating that certain trust agreement (the
"Original Trust Agreement) dated as of _________ __, 2000 between the Depositor
and Owner Trustee.
WHEREAS, the Original Trust Agreement was entered into as of
_________ __, 2000; and
WHEREAS, the Original Trust Agreement is hereby amended and restated
in its entirety effective as of _________ __, 2000 in order to make such
changes and modifications as are set forth herein.
NOW THEREFORE, the parties hereto hereby agree as follows:
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 5.1.
"BENEFIT PLAN" shall have the meaning assigned to such term in Section
4.13.
"BUSINESS TRUST STATUTE" shall mean Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code Section 3801 ET SEQ., as the same may be amended
from time to time.
"CERTIFICATE" shall mean the Transferor 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 __________________________, as
Certificate Registrar hereunder.
1
<PAGE>
"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: _______________; or at such other
address in the State of Delaware as the Owner Trustee may designate by notice
to the Transferor and the Issuer, 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 Issuer; 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: _______________, or at such other address as the Indenture Trustee
may designate by notice to the Transferor and the Issuer, 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 Issuer.
"DEPOSITOR" shall mean CHEC Funding, LLC, or its successors.
"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 9.2.
"GROUP" With respect to the Notes, Group I, Group II or Group III, as
the context requires. With respect to the Home Equity Loans, Loan Group I, Loan
Group II or Loan Group III, as the context requires.
"GROUP I" means the Class A-1 Notes.
"GROUP II" means the Class A-2 Notes.
"GROUP III" means the Class A-3 Notes.
"GROUP I HOME EQUITY LOANS" shall mean a pool of closed-end,
fixed-rate home equity loans with conforming balances, as identified in the
applicable schedule of Home Equity Loans.
"GROUP II HOME EQUITY LOANS" shall mean a pool of closed-end,
fixed-rate home equity loans with primarily non-conforming balances, as
identified in the applicable schedule of Home Equity Loans.
"GROUP III HOME EQUITY LOANS" shall mean a pool of closed-end,
adjustable- rate home equity loans with both conforming and non-conforming
balances, as identified in the applicable schedule of Home Equity Loans.
2
<PAGE>
"HOME EQUITY LOANS" shall mean the Group I Home Equity Loans, the
Group II Home Equity Loans and the Group III Home Equity Loans.
"INDENTURE" shall mean the Indenture, dated as of _________ __, 2000,
by and between the Issuer and the Indenture Trustee, or any successor trustee
under the Indenture.
"INDENTURE TRUSTEE" shall mean _______________________, as Indenture
Trustee under the Indenture, or any successor trustee under the Indenture.
"INSURANCE AGREEMENT" shall mean the Insurance and Reimbursement
Agreement dated as of _________ __, 2000 among the Indenture Trustee, the
Seller, the Servicer, the Depositor, the Insurer and _____________________,
including any amendments and supplements thereto.
"INSURER" shall mean ____________________________, or its successors.
"ISSUER" shall mean Centex Home Equity Loan Trust 2000-__, the
Delaware business trust created pursuant to this Agreement.
"LOAN GROUP" shall mean either Loan Group I, Loan Group II or Loan
Group III.
"LOAN GROUP I" shall mean the Group I Home Equity Loans.
"LOAN GROUP II" shall mean the Group II Home Equity Loans.
"LOAN GROUP III" shall mean the Group III Home Equity Loans.
"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.
"ORIGINAL TRUST AGREEMENT" shall mean the Trust Agreement dated as of
_________ __, 2000 between CHEC Funding, LLC and ________________________, a
_________ banking corporation.
"OWNER TRUST ESTATE" shall mean the contribution of $100 referred to
in Section 2.5 and the Trust Estate.
3
<PAGE>
"OWNER TRUSTEE" shall mean ________________________, a _________
banking corporation, not in its individual capacity but solely as owner trustee
under this Agreement, and any successor owner trustee hereunder.
"PROSPECTIVE TRANSFEROR" shall mean any prospective purchaser or
prospective transferee of the Transferor 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
Depositor, the Seller, the Owner Trustee, the Insurer and the Issuer 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 Issuer, the Seller, the
Depositor, the Indenture Trustee and the Servicer.
"SECRETARY OF STATE" shall mean the Secretary of State of the State of
Delaware.
"SELLER" shall mean Centex Credit Corporation d/b/a Centex Home Equity
Corporation, or its successors.
"SERVICER" shall mean Centex Credit Corporation d/b/a Centex Home
Equity Corporation, or any successor servicer appointed pursuant to the Sale
and Servicing Agreement.
"SUB-TRUST" shall have the meaning specified in Section 3.1 and
includes Sub-Trust 1, Sub-Trust 2 or Sub-Trust 3, each of which constitute a
separate series of interests in the Trust Estate pursuant to Section 3806(b)(2)
of the Business Trust Statute.
"SUB-TRUST 1" shall mean the portion of the Trust Estate assigned to
Loan Group I.
"SUB-TRUST 2" shall mean the portion of the Trust Estate assigned to
Loan Group II.
"SUB-TRUST 3" shall mean the portion of the Trust Estate assigned to
Loan Group III.
"TRANSACTION DOCUMENTS" shall have the meaning set forth in the Sale
and Servicing Agreement.
"TRANSFEROR" shall mean the owner of the Transferor Interest.
4
<PAGE>
"TRANSFEROR INTEREST" shall have the meaning specified in Section 4.2.
"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 the trust established by the Original Trust
Agreement and continued hereby.
"TRUST ESTATE" shall mean the assets subject to the Sale and Servicing
Agreement, this Trust Agreement and the Indenture, assigned to the Indenture
Trustee in each case in respect of the related Sub-Trust and the related Loan
Group, which assets consist of: (i) each Home Equity Loan in the related Loan
Group together with the related Mortgage File, including its Cut-Off Date
Principal Balance and all collections in respect thereof received after the
Cut-Off Date; (ii) property that secured a Home Equity Loan in the related Loan
Group that is acquired by foreclosure or deed in lieu of foreclosure; (iii) the
Seller's rights under any insurance policies relating to Home Equity Loans in
the related Loan Group; (iv) (a) the related Sub-Trust's interest in the
Principal and Interest Account and the Distribution Account, and (b) amounts on
deposit in the related sub-account of each of the Principal and Interest
Account and Distribution Account; (v) the Cross-Collateralization Reserve
Account for the related Loan Group and amounts on deposit therein (vi) any
Collateralization Payment made from another Loan Group; (vii) the Depositor's
rights under the Mortgage Loan Purchase Agreement in respect of the related
Loan Group; (vii) the Depositor's rights under the Sale and Servicing Agreement
(excluding the Depositor's rights to any indemnification thereunder); (viii)
any proceeds of any of the foregoing and (ix) all other assets included or to
be included in the Trust in respect of the related Sub-Trust for the benefit of
the related 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
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
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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.
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ARTICLE II
ORGANIZATION
Section 2.1 NAME. The Trust created under the Original Trust Agreement
shall be known as "Centex Home Equity Loan Trust 2000-__," 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 _________ 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 Transferor Interest pursuant to this Agreement and to sell
such Notes and Transferor Interest;
(ii) with the proceeds of the sale of the Notes and
the Transferor Interest, to fund start-up and transactional expenses of
the Trust and to pay the balance to the Depositor, or at the direction
of the Depositor, 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.
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Section 2.4 APPOINTMENT OF OWNER TRUSTEE. The Depositor hereby confirms
the appointment of 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.
Pursuant to the Original Trust Agreement, the Depositor has sold, assigned,
transferred and set over to the Owner Trustee as of the date thereof, the sum of
$100. The Owner Trustee hereby acknowledges receipt in trust from the Depositor,
as of the date thereof, of the foregoing contribution, which shall constitute
the initial Owner Trust Estate and shall be deposited in the Distribution
Account. The Depositor shall pay organizational expenses of the Trust as they
may arise or shall, upon the request of the Owner Trustee, promptly reimburse
the Owner Trustee for any such expenses paid by the Owner Trustee.
Section 2.6 DECLARATION OF TRUST. The Owner Trustee hereby declares
that it will hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the 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 Sub-Trusts
related to each Loan Group and the Transferor being the owner of the Transferor
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, the Sub-Trusts and each Loan Group 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
[Illinois]. The Trust shall not have any employees; provided, however, that
nothing herein shall restrict or prohibit the Owner Trustee
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from having employees within or without the State of Delaware. Payments will
be received by the Trust only in Delaware or [Illinois], and payments will be
made by the Trust only from Delaware or [Illinois]. The only office of the
Trust will be at the Corporate Trust Office in Delaware.
Section 2.9 REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR.
The Depositor hereby represents and warrants to the Owner Trustee and
the Insurer that:
(a) The Depositor is a Delaware limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all licenses necessary to carry on its business as now being
conducted. The Depositor 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 Depositor and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary action of the Depositor; this Agreement evidences the valid,
binding and enforceable obligation of the Depositor; and all requisite action
has been taken by the Depositor to make this Agreement valid, binding and
enforceable upon the Depositor 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
Certificate of Formation or the Limited Liability Company Agreement of the
Depositor, (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 Depositor, or its property is subject, or (iii)
the violation of any law, rule, regulation, order, judgment or decree to which
the Depositor or its respective property is subject.
(c) The Depositor is not in default with respect to any order
or decree of any court or any order, regulation or demand of any federal, state,
municipal or other governmental agency, which default might have consequences
that would materially and adversely affect the condition (financial or
otherwise) or operations of the Depositor or its properties or might have
consequences that would materially and adversely affect its performance
hereunder.
(d) To the Depositor'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 Depositor 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
Depositor of its obligations under, or the validity or enforceability of, this
Agreement.
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Section 2.10 FEDERAL INCOME TAX ALLOCATIONS. Net income of each
Sub-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.
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ARTICLE III
SUB-TRUSTS
Section 3.1 SERIES TRUST. The assets of the Trust shall be divided into
designated series as provided in Section 3806(b)(2) of the Business Trust
Statute (each series a "Sub-Trust"). Accordingly, it is the intent of the
parties hereto that Articles II, IV and X of this Trust Agreement shall apply
also with respect to each such Sub-Trust as if each such Sub-Trust were a
separate business trust under the Business Trust Statute, and each reference to
the term "Trust" in such Articles shall be deemed to be a reference to each such
Sub-Trust to the extent necessary to give effect to the foregoing intent. The
use of the terms "Trust" or "Sub-Trust" in this Agreement shall in no event
alter the intent of the parties hereto that the Trust receive the full benefit
of the limitation on interseries liability as set forth in Section 3804 of the
Business Trust Statute.
Section 3.2 ESTABLISHMENT OF SUB-TRUST.
The Owner Trustee hereby establishes and designates
three initial Sub-Trusts, as follows: Sub-Trust 1, Sub-Trust 2 and
Sub-Trust 3. The provisions of this Article III shall be applicable to
the designated Sub-Trusts.
Section 3.3 ASSETS OF SUB-TRUST. All consideration received by the
Trust Estate for the issuance or sale of the Notes relating to a particular Loan
Group and Sub-Trust, together with the entire Trust Estate in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong solely to that Sub-Trust for all purposes, subject only to
the rights of creditors of such Sub-Trust and except as may otherwise be
provided in the Sale and Servicing Agreement or required by applicable tax laws,
and shall be so recorded upon the books of account of the Trust. Separate and
distinct records shall be maintained for each Sub-Trust and the assets
associated with a Sub-Trust shall be held and accounted for separately from the
other assets of the Trust Estate, and any other Sub-Trust. In the event that
there is any Trust Estate, or any income, earnings, profits, and proceeds
thereof, or funds or payments which are not readily identifiable as belonging to
any particular Sub-Trust, the Owner Trustee shall allocate them to the
Transferor Interest. Each such allocation by the Owner Trustee shall be
conclusive and binding upon all Noteholders and the Transferor for all purposes.
Section 3.4 LIABILITIES OF SUB-TRUST.
(a) The Trust Estate belonging to each particular Sub-Trust
shall be charged with the liabilities of the Trust in respect of that Sub-Trust
and only that Sub-Trust and all expenses, costs, charges and reserves
attributable to that Sub-Trust, and any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily identifiable as belonging
to any particular Sub-Trust shall be allocated and charged by the Owner Trustee
to the Transferor. Each allocation of liabilities, expenses, costs, charges and
reserves by the Owner Trustee shall be conclusive and binding upon all
Noteholders and the Transferor for all purposes. The Owner
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Trustee shall have full discretion, to the extent not inconsistent with
applicable law, to determine which items shall be treated as income and which
items as capital, and each such determination and allocation shall be
conclusive and binding upon the Noteholders and the Transferor. Every written
agreement, instrument or other undertaking made or issued by or on behalf of
a particular Sub-Trust shall include a recitation limiting the obligation or
claim represented thereby to that Sub-Trust and its assets.
(b) Without limitation of the foregoing provisions of this Article, but
subject to the right of the Owner Trustee in its discretion to allocate general
liabilities, expenses, costs, charges or reserves as herein provided, the debts,
liabilities, obligations and expenses incurred, contracted for or otherwise
existing with respect to a particular Sub-Trust shall be enforceable against the
assets of such Sub-Trust only, and not against the assets (i) of the Trust
generally or (ii) of any other Sub-Trust. Notice of this limitation on
interseries liabilities shall be set forth in the Certificate of Trust of the
Trust (whether originally or by amendment) as filed or to be filed in the Office
of the Secretary of State of the State of Delaware pursuant to the Business
Trust Statute, and upon the giving of such notice in the Certificate of Trust,
the statutory provisions of Section 3804 of the Business Trust Statute relating
to limitations on interseries liabilities (and the statutory effect under
Section 3804 of setting forth such notice in the Certificate of Trust) shall
become applicable to the Trust and each Sub-Trust. Every note, bond, contract,
instrument, certificate or other undertaking made or issued by or on behalf of a
particular Sub-Trust shall include a recitation limiting the obligation
represented thereby to that Sub-Trust and its assets in accordance with Section
3804(a) of the Business Trust Statute.
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ARTICLE IV
TRANSFEROR INTEREST AND TRANSFERS OF THE TRANSFEROR INTEREST
Section 4.1 INITIAL OWNERSHIP. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.5 and until the issuance of
the Transferor Interest (as defined below), the Transferor shall be the sole
owner of the Trust.
Section 4.2 THE TRANSFEROR INTEREST. The Transferor Interest shall be
issued as a single certificate, substantially in the form of Exhibit C hereto,
upon the order of the Depositor to the Owner Trustee concurrently with the sale
and assignment to the Trust of the Home Equity Loans. The Transferor Interest
shall represent the entire beneficial ownership interest in the assets of the
Trust and the Trust Estate, subject to the debt represented by the Notes (the
"Transferor Interest"). The initial Transferor Interest and each Transferor
Interest issued in exchange or upon transfer therefor shall be manually executed
by an Authorized Officer of the Owner Trustee.
A transferee of the Transferor Interest shall become the Transferor,
and shall be entitled to the rights and be subject to the obligations of the
Transferor hereunder, upon such transferee's acceptance of the Transferor
Interest duly registered in such transferee's name pursuant to Section 4.4
below.
Section 4.3 [Reserved].
Section 4.4 REGISTRATION OF TRANSFER AND EXCHANGE OF TRANSFEROR
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 4.8, a
Certificate Register in which, subject to such reasonable regulations as it may
prescribe, the Certificate Register shall provide for the registration of the
Transferor Interest and of transfer and exchange of the Transferor Interest as
herein provided. The Certificate Registrar, subject to Section 4.13 hereof, on
behalf of the Trust, shall note on the Certificate Register any transfer of the
Transferor Interest.
Section 4.5 [Reserved].
Section 4.6 PERSONS DEEMED TRANSFERORS. Prior to due presentation of
the Transferor Interest for registration of transfer, the Depositor, the Seller,
the Owner Trustee, the Indenture Trustee, the Insurer and the Certificate
Registrar may treat the Person in whose name the Transferor Interest shall be
registered in the Certificate Register as the owner thereof for the purpose of
receiving distributions pursuant to Section 6.2 hereof and for all other
purposes whatsoever, and none of the Seller, the Owner Trustee, the Indenture
Trustee, the Insurer, the Custodian, the Administrator or the Certificate
Registrar shall be bound by any notice to the contrary.
Section 4.7 [Reserved].
Section 4.8 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
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Trustee) where the Transferor Interest may be surrendered for registration of
transfer or exchange pursuant to Section 4.4 and where notices and demands to
or upon the Certificate Registrar in respect of the Transferor Interest and
the Transaction Documents may be served. The Indenture Trustee shall give
prompt written notice to the Seller, the Insurer, the Owner Trustee, the
Custodian, the Administrator and the Transferor of any change in the location
of the Certificate Register or any such office or agency.
Section 4.9 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 6.2 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 4.10 [Reserved].
Section 4.11 [Reserved].
Section 4.12 [Reserved].
Section 4.13 RESTRICTIONS ON TRANSFERS OF TRANSFEROR INTEREST. The
Transferor Interest shall not be sold, pledged, transferred or assigned, except
as provided below.
(a) The Transferor 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 Transferor 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:
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(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
Transferor Interest may be relying on the exemption from the
registration requirements of the Securities Act provided by Rule 144A
and is acquiring such Transferor 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 Transferor
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 Transferor
Interest bears a legend to the following effect:
THIS TRANSFEROR 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 TRANSFEROR 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, CHAMPION
MORTGAGE CO., INC.) 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 TRANSFEROR
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INTEREST UNDER THE ACT OR ANY STATE SECURITIES LAWS."
(iv) Such Person shall comply with the provisions of
SECTION 4.13(b), as applicable, relating to the ERISA restrictions with
respect to the acceptance or acquisition of such Transferor 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 Transferor 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 Transferor 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 Transferor 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 Transferor 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 Transferor Interest.
(e) The Transferor 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 Transferor 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
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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.
Transfer of the Transferor 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 Issuer, the Owner Trustee, the Servicer or the
Seller, to the effect such transfer will not cause the Issuer to be treated for
federal income tax purposes as an association, a taxable mortgage pool or a
publicly traded partnership taxable as a corporation.
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ARTICLE V
ACTIONS BY OWNER TRUSTEE
Section 5.1 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 Home
Equity 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 Home Equity 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
interests 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 X hereof, the dissolution,
termination or liquidation of the Trust, in whole or in part;
(i) the merger or consolidation of the Trust with or into any
other entity, or, except as contemplated by the Sale and Servicing Agreement,
the conveyance or transfer of all or substantially all of the Trust's assets to
any other entity;
(j) the causing of the Trust to incur, assume or guaranty any
indebtedness other than the Notes, as set forth in this Agreement;
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(k) doing any act that conflicts with any other Transaction
Document;
(l) doing any act which would make it impossible to carry on
the ordinary business of the Trust;
(m) confessing a judgment against the Trust;
(n) possessing Trust assets, or assigning the Trust's right to
property, for other than a Trust purpose; or
(o) changing 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 Depositor or 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 5.2 [Reserved].
Section 5.3 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
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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 5.3 shall survive for one year and one day following
the termination of this Agreement.
Section 5.4 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.
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ARTICLE VI
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
Section 6.1 ESTABLISHMENT OF ELIGIBLE ACCOUNTS. 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 6.2 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 6.2. 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 6.3 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 6.4 [Reserved].
Section 6.5 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 (and each Loan Group's and Sub-Trust's) characterization for tax
purposes as a security arrangement for the issuance of non-recourse debt, no
federal income tax
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return shall be filed on behalf of the Trust unless either (a) the Trust, the
Sub-Trusts, the Transferor, the Owner Trustee or the Transferor receives 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 (or a related Loan Group or Sub-Trust)
is required to file such a return. In the event that the Trust (or a related
Loan Group or Sub-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 Home Equity Loans. The Owner
Trustee shall prepare or shall cause to be prepared any tax returns required
to be filed by the Trust or the Sub-Trusts 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 or the Sub-Trusts
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 6.6 SIGNATURE ON RETURNS.
The Owner Trustee shall sign on behalf of the Trust or the Sub-Trusts
the tax returns of the Trust or the Sub-Trusts, if any, unless applicable law
requires a Transferor to sign such documents, in which case such documents shall
be signed by the Transferor.
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ARTICLE VII
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 7.1 GENERAL AUTHORITY. The Owner Trustee is authorized and
directed to execute and deliver or cause to be executed and delivered the Notes,
the Transferor 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 IV, 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-1
Notes in an aggregate principal amount equal to $___________, the Class A-2
Notes in the aggregate principal amount of $______________ and the Class A-3
Notes in the aggregate principal amount of $_____________. 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 7.2 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 or CHEC Funding, LLC
("CHEC") 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, including discretionary duties, and the Owner Trustee shall not be
held liable for the default or failure of the Administrator or CHEC to carry out
their respective obligations under the Administration Agreement.
Section 7.3 ACTION UPON INSTRUCTION.
(a) Subject to Article V 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 V.
(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
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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 7.4 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 7.3; 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.
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Section 7.5 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 7.3 above.
Section 7.6 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 7.6 .
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ARTICLE VIII
CONCERNING THE OWNER TRUSTEE
Section 8.1 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 8.3 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 Depositor or 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 Transferor 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
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Servicing Agreement, the Administrator or CHEC 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 Depositor, the Insurer, the Seller or any Owner to the extent such action or
direction is permitted by the Transaction Documents.
Section 8.2 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 8.3 REPRESENTATIONS AND WARRANTIES.
________________________ hereby represents and warrants to the
Depositor, 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 ________. 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;
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(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 8.4 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 8.5 NOT ACTING IN INDIVIDUAL CAPACITY. Except as provided
in this Article VIII, in accepting the trusts hereby created,
________________________ acts solely as Owner Trustee hereunder and not in
its individual capacity and all Persons having any claim against the Owner
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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 8.6 OWNER TRUSTEE NOT LIABLE FOR THE TRANSFEROR INTEREST
OR THE HOME EQUITY LOANS. The recitals contained herein and in the Transferor
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 Transferor Interest (other than the signature
of the Owner Trustee on the Certificate and as specified in Section 8.3
hereof) or the Notes, or of any Home Equity 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
Depositor, 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
Depositor, the Seller, the Indenture Trustee, the Administrator or the
Servicer or any subservicer taken in the name of the Owner Trustee.
Section 8.7 OWNER TRUSTEE MAY OWN THE TRANSFEROR INTEREST AND THE
NOTES. The Owner Trustee in its individual or any other capacity may become
the owner or pledgee of the Transferor Interest or the Notes and may deal
with the Depositor, 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 8.8 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.
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ARTICLE IX
COMPENSATION OF OWNER TRUSTEE
Section 9.1 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 9.2 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 8.1 hereof. The
indemnities contained in this Section 9.2 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 9.2, 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 9.3 PAYMENTS TO THE OWNER TRUSTEE. Any amounts paid to
the Owner Trustee pursuant to this Article IX shall be deemed not to be a
part of the Owner Trust Estate immediately after such payment.
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ARTICLE X
TERMINATION OF TRUST AGREEMENT
Section 10.1 TERMINATION OF TRUST AGREEMENT.
(a) This Agreement (other than Article IX) 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 Transferor 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 10.1(a) and (b) above, none
of the Depositor, the Seller, the Administrator, the Custodian, the Indenture
Trustee 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 Transferor 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 Transferor 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 Transferor 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 Transferor 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
Transferor 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 Transferor Interest for
cancellation and receive the final distribution with respect thereto. If
31
<PAGE>
within one year after the second notice the Transferor 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 Transferor
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.
32
<PAGE>
ARTICLE XI
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 11.1 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 Ratings Services, a division of The
McGraw-Hill Companies, Inc., and Moody's Investors Service, Inc. 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 11.1, the
Owner Trustee shall resign immediately in the manner and with the effect
specified in Section 11.2.
Section 11.2 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 Issuer, 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 11.1 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 11.2
shall not become effective until acceptance of appointment by the successor
Owner Trustee pursuant to Section 11.3, written approval by the Insurer and
payment of all fees and expenses owed to the outgoing Owner
33
<PAGE>
Trustee. The Indenture Trustee shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
Section 11.3 SUCCESSOR OWNER TRUSTEE. Any successor Owner Trustee
appointed pursuant to Section 11.2 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 11.3 unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 11.1 above.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section 11.3, 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 11.4 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 11.1 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 Depositor, the Rating Agencies and the Insurer.
Section 11.5 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
34
<PAGE>
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 11.5 shall be required to meet
the terms of eligibility as a successor Owner Trustee pursuant to Section
11.1 above and no notice of the appointment of any co-owner trustee or
separate trustee shall be required pursuant to Section 11.3 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 XI. 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
35
<PAGE>
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.
36
<PAGE>
ARTICLE XII
MISCELLANEOUS
Section 12.1 SUPPLEMENTS AND AMENDMENTS. This Agreement may be amended
by the Depositor, 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 either (i) an Opinion of
Counsel is obtained to such effect, or (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, the Indenture Trustee, the Noteholders affected thereby evidencing more
than 50% of the Percentage Interests of each Class of Notes affected thereby,
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 Home Equity 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 Depositor
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 Depositor.
Before 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 12.1 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.
37
<PAGE>
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 12.2 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 Transferor Interest therein only in accordance with Articles VI and X
herein. No transfer, by operation of law or otherwise, of any right, title, or
interest of the Transferor to and in its Transferor 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 12.3 LIMITATIONS ON RIGHTS OF OTHERS. The provisions of this
Agreement are solely for the benefit of the Owner Trustee, the Seller, [the
Depositor], the Issuer, 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 12.4 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 Depositor, CHEC Funding, LLC, 2728 North Harwood, Dallas, Texas
75201; (iii) if to the Insurer, Attention: ___________________; (iv) if to the
Indenture Trustee, its Corporate Trust Office; (v) if to the Transferor,
_____________________________________; (vi) if to the Seller, Centex Credit
Corporation d/b/a Centex Home Equity Corporation, Attention: ____________; or,
as to each such party, at such other address as shall be designated by such
party in a written notice to each other party.
(b) Any notice required or permitted to be given to 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 12.5 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
38
<PAGE>
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
Section 12.6 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 12.7 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 Depositor,], 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 12.8 NO PETITION. The Owner Trustee, by entering into this
Agreement, the Transferor, by accepting the Transferor 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 Transferor Interest and the Notes, this Agreement or any of the
Transaction Documents.
Section 12.9 [Reserved].
Section 12.10 NO RECOURSE. The Transferor by accepting the Transferor
Interest acknowledges that the Transferor's Transferor 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 Transferor
Interest or the Transaction Documents.
Section 12.11 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 12.12 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 12.13 [Reserved]
Section 12.14 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.
39
<PAGE>
Section 12.15 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 12.14 however shall be
construed to mitigate in any way, the fiduciary responsibilities of the Owner
Trustee to the beneficiaries of the Trust.
40
<PAGE>
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:
CHEC FUNDING, LLC,
as Depositor
By:__________________________________
Name:
Title:
CENTEX CREDIT CORPORATION D/B/A CENTEX
HOME EQUITY CORPORATION, as Seller
By:__________________________________
Name:
Title:
41
<PAGE>
CERTIFICATE OF TRUST
OF
CENTEX HOME EQUITY LOAN TRUST 2000-__
This Certificate of Trust of Centex Home Equity Loan Trust 2000-__ (the
"Trust"), is being duly executed and filed by ________________________, a
_________ banking corporation, as trustee, to form a business trust under the
Delaware Business Trust Act (12 DEL. CODE, Section 3801 ET Seq.)(the "Act").
(1) NAME The name of the business trust formed hereby is Centex Home
Equity Loan Trust 2000-__.
(2) DELAWARE TRUSTEE. The name and business address of the trustee of
the Trust in the State of Delaware is ________________________,
______________________________, Attention: _____________________________.
(3) SERIES. Pursuant to Section 3806(b)(2) of the Act, the Trust shall
issue one or more series of beneficial interests having the rights and
preferences set forth in the governing instrument of the Trust, as the same may
be amended from time to time (each a "Series" or "Sub-Trust").
(4) NOTICE OF LIMITATION OF LIABILITIES OF EACH SERIES. Pursuant to
Section 3804(a) of the Act, there shall be a limitation on liabilities of each
Series such that (a) the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular Series shall
be enforceable against the assets of such Series only, and not against the
assets of the Trust generally or the assets of any other Series thereof and (b)
none of the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to the Trust generally or any other
Series thereof shall be enforceable against the assets of such Series.
(5) EFFECTIVE DATE. This Certificate of Trust shall be effective
_________ __, 2000
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
_________ __, 2000
By: ________________________________
Name:
Title:
1
<PAGE>
EXHIBIT B
TRANSFER CERTIFICATE
- ----------------------------
Attention: [____________________]
Re: Amended and Restated Trust Agreement, dated as of _________ __,
2000, among Centex Credit Corporation d/b/a Centex Home Equity
Corporation, as Seller, CHEC Funding, LLC, as Depositor, and
________________________, as Owner Trustee; Centex Home Equity
Loan Trust 2000-__, Home Equity Loan Asset-Backed Notes, Series
2000-__
---------------------------------------------------------------
Ladies and Gentlemen:
The undersigned (the "Transferee") has agreed to purchase from (the
"Transferor") the Transferor 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
B-1
<PAGE>
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
Transferor 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 Transferor
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 Transferor Interest with a view to or
for the resale, distribution, subdivision or
fractionalization thereof which would require registration
of the Transferor Interest under the Securities Act.
B. "Accredited Investors" should complete this Section
B-2
<PAGE>
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 Transferor 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 Transferor 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 Owner
Trustee and Certificate Registrar of counsel satisfactory to
the Owner Trustee and Certificate Registrar 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.
B-3
<PAGE>
Very truly yours,
[NAME OF PURCHASER]
By:
--------------------------
Title:
-----------------------
Dated:
THE FOREGOING IS ACKNOWLEDGED THIS ____ DAY OF __________, 2000.
[NAME OF SELLER]
By:
--------------------------
Title:
-----------------------
B-4
<PAGE>
EXHIBIT C
FORM OF TRANSFEROR CERTIFICATE
C-1
<PAGE>
Exhibit 4.2
INDENTURE
between
CENTEX HOME EQUITY LOAN TRUST 2000-__
as Issuer
and
-------------------------------------,
as Indenture Trustee
Dated as of ___________, 2000
CENTEX HOME EQUITY LOAN TRUST 2000-__
Home Equity Loan Asset-Backed Notes,
Series 2000-__
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
PAGE
ARTICLE I
DEFINITIONS
<S> <C>
SECTION 1.1 Definitions............................................................. 1
SECTION 1.2 Incorporation by Reference of Trust Indenture Act ...................... 9
SECTION 1.3 Rules of Construction................................................... 9
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 1.2 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 ................................................ 15
SECTION 2.10 Book-Entry Notes ...................................................... 15
SECTION 2.11 Notices to Clearing Agency ............................................ 16
SECTION 2.12 Definitive Notes ...................................................... 16
SECTION 2.13 Tax Treatment ......................................................... 16
SECTION 2.14 ERISA Representation .................................................. 17
ARTICLE III
COVENANTS
SECTION 3.1 Payment of Principal and Interest ...................................... 18
SECTION 3.2 Maintenance of Office or Agency ........................................ 18
SECTION 3.3 Money for Payments To Be Held in Trust.................................. 18
SECTION 3.4 Existence .............................................................. 19
SECTION 3.5 Protection of Trust Estates ............................................ 20
SECTION 3.6 Annual Opinions as to the Trust Estate.................................. 20
SECTION 3.7 Performance of Obligations; Servicing of Home Equity Loans.............. 21
SECTION 3.8 Negative Covenants ..................................................... 22
SECTION 3.9 Annual Statement as to Compliance....................................... 23
SECTION 3.10 Covenants of the Issuer ............................................... 24
SECTION 3.11 Servicer's Obligations ................................................ 24
SECTION 3.12 Restricted Payments ................................................... 24
SECTION 3.13 Treatment of Notes as Debt for All Purposes............................ 24
SECTION 3.14 Notice of Events of Default ........................................... 24
SECTION 3.15 Further Instruments and Acts .......................................... 24
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SECTION 3.16 Issuer May Consolidate, etc ........................................... 25
SECTION 3.17 Successor or Transferee ............................................... 26
SECTION 3.18 No Other Business ..................................................... 27
SECTION 3.19 No Borrowing .......................................................... 27
SECTION 3.20 Guarantees, Loans, Advances and Other Liabilities...................... 27
SECTION 3.21 Capital Expenditures .................................................. 27
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction and Discharge of Indenture................................. 28
SECTION 4.2 Application of Trust Money ............................................. 29
SECTION 4.3 Subrogation and Cooperation ............................................ 29
SECTION 4.4 Repayment of Moneys Held by Paying Agent................................ 30
ARTICLE V
REMEDIES
SECTION 5.1 Events of Default ...................................................... 31
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment...................... 32
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Indenture
Trustee........................................................... 32
SECTION 5.4 Remedies; Priorities ................................................... 35
SECTION 5.5 Optional Preservation of the Collateral................................. 36
SECTION 5.6 Limitation of Suits .................................................... 37
SECTION 5.7 Unconditional Rights of Noteholders To Receive Principal and Interest... 37
SECTION 5.8 Restoration of Rights and Remedies...................................... 38
SECTION 5.9 Rights and Remedies Cumulative ......................................... 38
SECTION 5.10 Delay or Omission Not a Waiver ........................................ 38
SECTION 5.11 Control by Noteholders ................................................ 38
SECTION 5.12 Waiver of Past Defaults ............................................... 39
SECTION 5.13 Undertaking for Costs ................................................. 39
SECTION 5.14 Waiver of Stay or Extension Laws....................................... 40
SECTION 5.15 Action on Notes ....................................................... 40
SECTION 5.16 Performance and Enforcement of Certain Obligations..................... 40
ARTICLE VI
THE INDENTURE TRUSTEE
SECTION 6.1 Duties of Indenture Trustee ............................................ 41
SECTION 6.2 Rights of Indenture Trustee ............................................ 42
SECTION 6.3 Individual Rights of Indenture Trustee ................................. 44
SECTION 6.4 Indenture Trustee's Disclaimer ......................................... 44
SECTION 6.5 Notice of Defaults ..................................................... 44
SECTION 6.6 Reports by Indenture Trustee to Holders ................................ 45
SECTION 6.7 Compensation and Indemnity ............................................. 45
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SECTION 6.8 Replacement of Indenture Trustee ....................................... 45
SECTION 6.9 Successor Indenture Trustee by Merger................................... 46
SECTION 6.10 Appointment of Co-Indenture Trustee or Separate Indenture Trustee ..... 47
SECTION 6.11 Eligibility; Disqualification ......................................... 48
SECTION 6.12 Preferential Collection of Claims Against Issuer ...................... 48
SECTION 6.13 Representations and Warranties ........................................ 48
SECTION 6.14 Directions to Indenture Trustee ....................................... 49
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.1 Issuer To Furnish Indenture Trustee Names and Addresses of Noteholders . 50
SECTION 7.2 Preservation of Information; Communications to Noteholders ............. 50
SECTION 7.3 Reports by Issuer ...................................................... 50
SECTION 7.4 Reports by Indenture Trustee ........................................... 51
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 8.1 Collection of Money .................................................... 52
SECTION 8.2 Accounts; Distributions ................................................ 52
SECTION 8.3 [Reserved] ............................................................. 53
SECTION 8.4 Servicer's Monthly Statements .......................................... 53
SECTION 8.5 [Reserved] ............................................................. 53
SECTION 8.6 Opinion of Counsel ..................................................... 53
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1 Supplemental Indentures Without Consent of Noteholders ................. 54
SECTION 9.2 Supplemental Indentures with Consent of Noteholders .................... 55
SECTION 9.3 Execution of Supplemental Indentures ................................... 56
SECTION 9.4 Effect of Supplemental Indenture ....................................... 56
SECTION 9.5 Conformity with Trust Indenture Act .................................... 57
SECTION 1.2 Reference in Notes to Supplemental Indentures .......................... 57
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.1 Redemption............................................................. 58
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Compliance Certificates and Opinions, etc ............................. 59
SECTION 11.2 Form of Documents Delivered to Indenture Trustee ...................... 60
SECTION 11.3 Acts of Noteholders ................................................... 61
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SECTION 11.4 Notices ............................................................... 61
SECTION 11.5 Notices to Noteholders; Waiver ........................................ 62
SECTION 11.6 Rights of the Insurer to Exercise Rights of Noteholders ............... 63
SECTION 11.7 Conflict with Trust Indenture Act ..................................... 63
SECTION 11.8 Effect of Headings and Table of Contents .............................. 63
SECTION 11.9 Successors and Assigns ................................................ 63
SECTION 11.10 Separability ......................................................... 63
SECTION 11.11 Benefits of Indenture ................................................ 63
SECTION 11.12 Legal Holidays ....................................................... 64
SECTION 11.13 Governing Law ........................................................ 64
SECTION 11.14 Counterparts ......................................................... 64
SECTION 11.15 Recording of Indenture ............................................... 64
SECTION 11.16 Trust Obligation ..................................................... 64
SECTION 11.17 No Petition .......................................................... 65
SECTION 11.18 Inspection ........................................................... 65
SECTION 11.19 Inconsistencies With the Sale and Servicing Agreement ................ 65
SECTION 11.20 Third-Party Beneficiaries ............................................ 65
</TABLE>
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EXHIBITS
SCHEDULE A-I - Schedule of Home Equity Loans for Sub-Trust 1
SCHEDULE A-II Schedule of Home Equity Loans for Sub-Trust 2
SCHEDULE A-III Schedule of Home Equity Loans for Sub-Trust 3
EXHIBIT A - Form of Notes
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INDENTURE dated as of ___________, 2000 between CENTEX HOME EQUITY LOAN
TRUST 2000-__, 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-1 Noteholders and the Insurer, all of the Issuer's right, title and
interest in and to: (i) the Trust Estate relating to Group 1; (ii) all right,
title and interest of the Issuer in the Sale and Servicing Agreement, with
respect to the Group 1 Home Equity Loans (including the Issuer's right to cause
the Seller to repurchase Group 1 Home Equity 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, each with respect to Group 1; (iv) all funds on deposit from time to
time in (a) the Principal and Interest Account relating to Group 1, (b) the
Cross-Collateralization Reserve Account relating to Group 1, and (c) the
Distribution Account relating to Group 1; (v) all other property of the Trust
relating to Group 1 from time to time; and (vi) any and all proceeds of the
foregoing (collectively with respect to Group 1, 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-1
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.
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-2 Noteholders and the Insurer, all of the Issuer's right, title and
interest in and to: (i) the Trust Estate relating to Group 2; (ii) all right,
title and interest of the Issuer in the Sale and Servicing Agreement, with
respect to the Group 2 Home Equity Loans (including the Issuer's right to cause
the Seller to repurchase Group 2 Home Equity 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,
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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, each with respect to
Group 2; (iv) all funds on deposit from time to time in (a) the Principal and
Interest Account relating to Group 2, (b) the Cross-Collateralization Reserve
Account relating to Group 2, and (c) the Distribution Account relating to
Group 2; (v) all other property of the Trust relating to Group 2 from time to
time; and (vi) any and all proceeds of the foregoing (collectively with
respect to Group 2, 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-2
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.
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-3 Noteholders and the Insurer, all of the Issuer's right, title and
interest in and to: (i) the Trust Estate relating to Group 3; (ii) all right,
title and interest of the Issuer in the Sale and Servicing Agreement, with
respect to the Group 3 Home Equity Loans (including the Issuer's right to cause
the Seller to repurchase Group 3 Home Equity 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, each with respect to Group 3; (iv) all funds on deposit from time to
time in (a) the Principal and Interest Account relating to Group 3, (b) the
Cross-Collateralization Reserve Account relating to Group 3, and (c) the
Distribution Account relating to Group 3; (v) all other property of the Trust
relating to Group 3 from time to time; and (vi) any and all proceeds of the
foregoing (collectively with respect to Group 3, 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-3
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 Grants shall inure to the benefit of the Insurer in
respect of draws made on the applicable Insurance Policy for each Loan Group and
amounts owing from time to time pursuant to the Insurance Agreement, and such
Grants 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.
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The Indenture Trustee, as Indenture Trustee on behalf of the holders of
each Group of Notes, acknowledges the foregoing Grants, 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 related 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
Illinois.
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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 _____________, 2000, among the Administrator, the Issuer, the Indenture
Trustee and Champion Mortgage Co., Inc.
"ADMINISTRATOR" means ______________________, an ________ 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.
"AMENDED AND RESTATED TRUST AGREEMENT" means Amended and Restated Trust
Agreement dated as of _____________, 2000 among Centex, as Seller, the Depositor
and the Owner Trustee, amending and restating the Trust Agreement dated as of
____________, 2000.
"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 Centex who is authorized to act for the
Administrator or Centex in matters relating to the Issuer and to be acted upon
by the Administrator or Centex 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 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).
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"BUSINESS DAY" has the meaning assigned thereto in the Sale and
Servicing Agreement.
"CENTEX" means Centex Credit Corporation d/b/a Centex Home Equity
Corporation, a Nevada corporation.
"CERTIFICATE OF TRUST" means the certificate of trust of the Issuer
substantially in the form of EXHIBIT C to the Trust Agreement.
"CLASS A-1 NOTES" means any Note, designated as a Class A-1 Note,
executed by the Issuer and authenticated by the Indenture Trustee substantially
in the form of Exhibit A hereto.
"CLASS A-2 NOTES" means any Note, designated as a Class A-2 Note,
executed by the Issuer and authenticated by the Indenture Trustee substantially
in the form of Exhibit A hereto.
"CLASS A-3 NOTES" means any Note, designated as a Class A-3 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 ____________, 2000.
"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
___________________________________________,
_________________________________________________________, 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.
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"DEPOSITOR" shall mean CHEC Funding, LLC, a [Nevada] limited liability
company, in its capacity as depositor 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 Notes, without regard to the applicable Insurance Policy.
"DISTRIBUTION ACCOUNT" means the Distribution Account (as defined in
the Sale and Servicing Agreement), established by the Indenture Trustee.
"DISTRIBUTION 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
____________.
"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 DISTRIBUTION DATE" means, with respect to any Note, the
Distribution 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 a Group or 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
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of the Collateral or such Group 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.
"GROUP" means any of Group 1, Group 2 or Group 3 as the context
requires.
"GROUP 1" means the Class A-1 Notes and/or Loan Group 1 as the context
requires.
"GROUP 2" means the Class A-2 Notes and/or Loan Group 2 as the context
requires.
"GROUP 3" means the Class A-3 Notes and/or Loan Group 3 as the context
requires.
"HOLDER" or "NOTEHOLDER" means the Person in whose name a Note is
registered on the Note Register.
"INDENTURE TRUST ESTATE" or "TRUST ESTATE" means, with respect to each
Group, 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 related Noteholders and the Insurer (including, without
limitation, all Collateral Granted to the Indenture Trustee relating to such
Group pursuant to the Granting Clause), including all proceeds thereof.
"INDENTURE TRUSTEE" means ______________________________, a ________
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 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.
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"INTEREST PERIOD" shall have the meaning assigned thereto in the Sale
and Servicing Agreement.
"ISSUER" means Centex Home Equity Loan Trust 2000-__ 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.
"LOAN GROUP" means any of Loan Group 1, Loan Group 2 or Loan Group 3.
"LOAN GROUP 1" means the pool of Home Equity Loans identified in the
Schedule of Home Equity Loans for Sub-Trust 1.
"LOAN GROUP 2" means the pool of Home Equity Loans identified in the
Schedule of Home Equity Loans for Sub-Trust 2.
"LOAN GROUP 3" means the pool of Home Equity Loans identified in the
Schedule of Home Equity Loans for Sub-Trust 3.
"MOODY'S" shall mean Moody's Investors Service, Inc., or any successor
thereto.
"NOTE" means any of the Class A-1 Notes, the Class A-2 Notes or the
Class A-3 Notes.
["NOTE DEPOSITORY AGREEMENT" means the agreement dated ____________,
2000, 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 RATE" with respect to each Class of Notes, shall have the meaning
assigned thereto in the Sale and Servicing Agreement.
"NOTE REGISTER" and "NOTE REGISTRAR" have the respective meanings
specified in Article II.
"NOTEHOLDER" means a Holder of a Note.
"OBLIGATIONS" shall mean the Home Equity Loans.
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"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 Distribution 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
Depositor, 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.
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"OUTSTANDING AMOUNT" means, with respect to a Group, the aggregate
principal amount of all Notes of such Group Outstanding at the date of
determination.
"OWNER TRUSTEE" means ____________________________, not in its
individual capacity but solely as Owner Trustee under the Original Trust
Agreement amended and restated by the Amended and Restated 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.
"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 applicable Insurance Policy.
"RATING AGENCY" means either of (i) Standard & Poor's or (ii) Moody's.
If no such organization or successor is any longer in existence, "Rating Agency"
shall be a nationally recognized statistical rating organization or other
comparable person designated by the 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 Distribution 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.
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"REMITTANCE PERIOD" means, as to any Determination Date or Distribution
Date, the calendar month immediately preceding such Determination Date or
Distribution 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 _____________, 2000, among the Issuer, the Transferor, the
Depositor, the Servicer and the Indenture Trustee.
"SCHEDULE OF HOME EQUITY LOANS" shall have the meaning assigned thereto
in the Sale and Servicing Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERVICER" shall mean Centex 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.
"SUB-TRUST" shall have the meaning specified in Section 3.1 of the
Trust Agreement and Sub-Trust 1, Sub-Trust 2 or Sub-Trust 3, as applicable each
of which constitute a separate interest in the Trust Estate pursuant to Section
3806(b)(2) of the Business Trust Statute.
"SUB-TRUST 1" shall mean the portion of the Trust Estate assigned to
Loan Group 1.
"SUB-TRUST 2" shall mean the portion of the Trust Estate assigned to
Loan Group 2.
"SUB-TRUST 3" shall mean the portion of the Trust Estate assigned to
Loan Group 3.
"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" shall have the meaning assigned thereto in the Sale and
Servicing Agreement.
"TRUST ESTATE" shall mean, with respect to a Sub-Trust and a Loan
Group, the assets subject to the Sale and Servicing Agreement, the Trust
Agreement and this Indenture, assigned to the Indenture Trustee in respect of
such Sub-Trust and Loan Group, which assets consist of: (i) each Home Equity
Loan in the related Loan Group and the related Mortgage File, including its
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Cut-Off Date Principal Balance and all collections in respect thereof received
after the Cut-Off Date; (ii) property that secured a Mortgage Loan in the
related Loan Group that is acquired by foreclosure or deed in lieu of
foreclosure; (iii) the Seller's rights under any insurance policies relating to
Home Equity Loans in the related Loan Group; (iv)(a) the related Sub-Trust's
interest in the principal and interest and the Distribution Account and (b)
amounts on deposit in the related sub-account of each of the Principal and
Interest Account and the Distribution Account; (v) the Cross-Collateralization
Reserve Account for the related Loan Group and amounts on deposit in the
Cross-Collateralization Reserve Account for the related Loan Group and any
Cross- Collateralization Payments made from another Loan Group; (vi) the
Depositor's rights under the Sale and Servicing Agreement (excluding the
Depositor's rights to indemnification under the indemnification provisions
thereof); (vii) any proceeds of any of the foregoing and (viii) all other assets
included or to be included in the Trust in respect of the related Sub-Trust for
the benefit of the related Noteholders and the Insurer. In addition, on or prior
to the Closing Date, the Seller shall cause the Insurer to deliver the Insurance
Policies to the Indenture Trustee for the benefit of the Noteholders.
"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:
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(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular; and
(vi) any agreement, instrument or statute defined or referred
to herein or in any instrument or certificate delivered in connection
herewith means such agreement, instrument or statute as from time to
time amended, modified or supplemented (as provided in such agreements)
and includes (in the case of agreements or instruments) references to
all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and
assigns.
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ARTICLE II
THE NOTES
SECTION 2.1 FORM. The Notes shall be designated as the "CENTEX HOME
EQUITY LOAN TRUST 2000-__, Home Equity Loan Asset-Backed Notes, Series 2000-__.
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. 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.
The Indenture Trustee shall upon receipt of an Issuer Order,
authenticate and deliver the Class A-1 Notes, Class A-2 Notes and the Class A-3
Notes for original issue in the principal amount equal to $_________,
$___________ and $__________, respectively. The aggregate principal amount of
each of the Notes outstanding at any time may not exceed such respective 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
__________________, 2000. All other Notes that are authenticated after the
Closing Date for any other purpose under the Indenture shall be dated the date
of their authentication. The Notes shall be issuable as registered Notes in the
minimum denomination of $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
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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.
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No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.4 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
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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 Note shall accrue interest at the applicable Note Rate and
such interest shall be payable on each Distribution Date, 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
Distribution Date shall be paid to the Person in whose name such Note (or one or
more Predecessor Notes) is registered on the Record Date in the manner set forth
in Section 5.01(c) of the Sale and Servicing Agreement.
(b) The principal of each Note shall be payable in installments on each
Distribution Date as provided in the form of the Notes set forth in Exhibit A.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable, if not previously paid, on the earliest of (i) the
Final Distribution 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
Distribution Date on which the Issuer expects that the final installment of
principal of and interest on such Note will be paid. Such notice shall be mailed
or transmitted by facsimile prior to such Final Distribution Date and shall
specify that such final installment will be payable only upon presentation and
surrender of such Note and shall specify the place where such Note may be
presented and surrendered for payment of such installment. Notices in connection
with redemptions of Notes shall be mailed to Noteholders as provided in Section
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].
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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
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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-1 Notes will qualify as indebtedness secured by the Collateral relating
to Group 1, the Class A-2 Notes will qualify as indebtedness secured by the
Collateral relating to Group 2 and the Class A-3 Notes will qualify as
indebtedness secured by the Collateral relating to Group 3. 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.
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SECTION 2.14 ERISA REPRESENTATION. Each Noteholder, by its acceptance
of a Note, and each Note Owner, by its acceptance of an interest in a Book Entry
Note, will be deemed to have represented, by acquiring the Note, that either (x)
it is not an "employee benefit plan" within the meaning of Section 3(3) of ERISA
or a "plan" within the meaning of Section 4975(e)(1) of the Internal Revenue
Code of 1986, as amended, or an entity whose underlying assets include plan
assets by virtue of a plan's investment in the entity, and is not purchasing the
Note directly or indirectly for, or on behalf of such a plan or entity, or (y)
the acquisition or holding of the Note by the acquirer qualifies for exemptive
relief under Prohibited Class Exemption ("PTCE") 96-23, PTCE 95-60, PTCE 91-38,
PTCE 90-1, PTCE 84-14 or some other applicable exemption.
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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 Distribution 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 Estates, 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
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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
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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 ESTATES. 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 each Trust Estate; or
(v) preserve and defend title to each 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 _______________ 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 _________________ of the following calendar year.
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SECTION 3.7 PERFORMANCE OF OBLIGATIONS; SERVICING OF HOME EQUITY 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 any 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
Centex 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 each 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, and the Sale and Servicing Agreement and (ii) recording or causing to
be recorded all Mortgages, Assignments of Mortgage, all intervening Assignments
of Mortgage and all assumption and modification agreements required to be
recorded by the terms of the Sale and Servicing Agreement in accordance with and
within the time periods provided for in this Indenture and/or the Sale and
Servicing Agreement, as applicable. Except as otherwise expressly provided
therein, the Issuer shall not waive, amend, modify, supplement or terminate any
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 Depositor, 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 Home Equity 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 Home
Equity 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
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Home Equity 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 any 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 any 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;
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(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 any 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
each 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
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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 Depositor or 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 the
performance or observance
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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 applicable 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;
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(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 applicable 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 Home
Equity 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
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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).
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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 Distribution 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) and (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 Distribution 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;
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(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
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 an Insurance Policy on account of
principal of or interest on Home Equity Loans, the Insurer will be fully
subrogated to the rights of the Noteholders to receive such principal of and
interest on the Home Equity 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 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
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 Agreement and to
enforce any judgment obtained and collect from the Issuer monies
adjudged due;
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(ii) sell any 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.
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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 any Note on the
Final Distribution 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
any 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 any 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 any Trust Estate, or the making by the Issuer of any general
assignment for the benefit of creditors, or
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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, 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 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:
(i) 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
(ii) 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
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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 an 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
any 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
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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.
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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
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
Collateral;
(iii) exercise any remedies of a secured party under the UCC
and take any other appropriate action to protect and enforce the rights
and remedies of the Indenture Trustee or the related Noteholders or the
Insurer; and
(iv) sell the Collateral or any portion thereof or rights or
interest therein in a commercially reasonable manner, at one or more
public or private sales called and conducted in any manner permitted by
law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate any Collateral 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 Agreement or (C)
the Indenture Trustee determines that the Collateral in the aggregate 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 Estates for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, the Indenture Trustee, shall pay out the money or property in
the following order, appropriately allocated between each Group on the basis of
the Collateral securing each Group:
FIRST: to the Indenture Trustee for the Indenture Trustee Fee
or Transition Expenses then due and any costs or expenses incurred by
it in connection with the
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enforcement of the remedies provided for in this Article V and to the
Owner Trustee for the Owner Trustee Fee then due, each with respect to
each Group;
SECOND: any amounts payable to the Servicer pursuant to
Section 5.01 of the Sale and Servicing Agreement (so long as not
Insurer Default as defined in clause (i) of the definition thereof has
occurred and is continuing) and any premium owing to the Insurer each
with respect to each Group;
THIRD: to the Noteholders for amounts due and unpaid on the
related Notes for each Group for interest PRO RATA, according to the
amounts due and payable on such Notes;
FOURTH: to the Noteholders for each Group for amounts due and
unpaid on the related Notes for principal, PRO RATA, among the Holders
of such Notes according to the amounts due and payable until the Note
Principal Balance of such Class of Notes is reduced to zero;
FIFTH: to the Insurer, (so long as no Insurer Default as
defined in clause (i) of the definition thereof has occurred and is
continuing) any other amounts owed to the Insurer under the Insurance
Agreement with respect to each Group;
SIXTH: to the Noteholders an amount in respect of any
Cross-Collateralization Payment to which a Group of Notes is entitled
and to the applicable Cross-Collateralization Reserve Account, the
amount of any Cross-Collateralization Reserve Deposit, and for the
benefit of the other Loan Group, the amount of any
Cross-Collateralization Payment, if applicable;
SEVENTH: to the Class A-3 Noteholders, any Interest Index
Carryover; and
EIGHTH: to the Owner Trustee for any amounts to be distributed
to the holder of the Ownership Interest.
The Indenture Trustee may fix a record date and Distribution 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 Distribution
Date and the amount to be paid.
SECTION 5.5 OPTIONAL PRESERVATION OF THE COLLATERAL. 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 Collateral for all Groups. 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 Home Equity Loans), and the Indenture
Trustee shall take such desire into account when determining whether or not
to maintain possession of the Collateral for all Groups. In determining
whether to maintain possession of the Collateral for
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the Groups, 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 such Collateral 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
related Collateral 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
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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 of a Group, if only one Class
is affected thereby, or not less than a majority of the sum of the
Outstanding Amounts of each Class of Notes affected thereby, 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 Collateral 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 Collateral for the
Groups pursuant to such Section 5.5, then any direction to the Indenture Trustee
by Holders of Notes representing less than 100% of the Outstanding Amounts of
the Notes, to sell or liquidate the Collateral shall be of no force and effect;
and
(d) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee that is not inconsistent with such direction.
Notwithstanding the rights of the Noteholders set forth in this Section
5.11, subject to Section 6.1 hereof, the Indenture Trustee need not take any
action that it determines might
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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
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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.
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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.
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(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 or the
Issuer 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 a 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
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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
a majority of the Outstanding Amount of the Notes; 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.
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(j) The Indenture Trustee shall have no liability in connection with
the malfeasance or nonfeasance by the Issuer, the Servicer, the Depositor, the
Custodian, the Trust or the Administrator (in the case of the Custodian or
Administrator, to the extent that the Indenture Trustee is not acting in the
capacity of Custodian or Administrator). The Indenture Trustee shall have no
liability in connection with compliance by the Issuer, the Servicer, the
Administrator, the Custodian or the Trust (in the case of the Custodian or
Administrator, to the extent that the Indenture Trustee is not acting in the
capacity of Custodian or Administrator) with statutory or regulatory
requirements related to the Collateral or any Trust Estate. The Indenture
Trustee shall not make or be deemed to have made any representations or
warranties with respect to the Collateral or any Trust Estate or the validity or
sufficiency of any assignment of the Collateral or any Trust Estate to the
Indenture Trustee.
(k) In the event that the Indenture Trustee is also acting as Paying
Agent or Note 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 Note 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.
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SECTION 6.7 COMPENSATION AND INDEMNITY. As compensation for its
services hereunder, the Indenture Trustee shall be entitled to receive, on each
Distribution Date, the Indenture Trustee's Fee and Transition Expenses 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 in addition to Transition Expenses, 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;
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(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
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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 Estates, 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 each 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.
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(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 Illinois, 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.
(d) To the Indenture Trustee's best knowledge, the Indenture Trustee
does not have notice of any adverse claim (as such terms are used in Section
8-302 of the UCC in effect in the State of Delaware) with respect to the Home
Equity Loans.
SECTION 6.14 DIRECTIONS TO INDENTURE TRUSTEE. The Indenture Trustee is
hereby directed:
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(a) to accept the pledge of the Home Equity 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.
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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
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(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 ________ __, 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.
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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 any 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, and the Insurer,
the Principal and Interest Account as provided in Article III of the Sale and
Servicing Agreement and the Distribution Account and the
Cross-Collateralization Reserve Accounts as provided 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 Home Equity 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 Principal
and Interest Account pursuant to Article III 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 Distribution 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 Distribution 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.
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SECTION 8.3 [Reserved].
SECTION 8.4 SERVICER'S MONTHLY STATEMENTS.
On each Distribution Date, the Indenture Trustee shall deliver the
Servicing Certificate (as defined in the Sale and Servicing Agreement) with
respect to such Distribution 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.
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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.
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(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 affected thereby or a majority of the sum of the Outstanding Amount of
Notes of each Class if all Notes are affected thereby, 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 related 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
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Documents cannot be modified or waived without the consent of the Holder of
each Outstanding Note affected thereby;
(f) modify any of the provisions of this Indenture in such manner as
to affect the calculation of the amount of any payment of interest or principal
due on any Note on any Distribution Date (including the calculation of any of
the individual components of such calculation); or
(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 related 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.
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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.
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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 the Clean-Up Call
Date, 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.
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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 Home Equity 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
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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 Note
Principal Balance of each of the Classes of 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 Note Principal
Balance of each of the Classes of 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 Note Principal Balance of each of the Classes of 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 Note Principal Balance of each of the Classes of 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 or the Issuer, stating that the information
with respect to such factual matters is in the possession of the Servicer 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.
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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:
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(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: Champion Home Equity Loan Trust
2000-__, in care of _________________________________, with copies to the
Administrator addressed to: __________________________________,
___________________________________________________________________ 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:
___________________________________________. 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 Moody's, at
the following address: Moody's Investors Service, Inc., 99 Church Street, 4th
Floor, New York, New York 10007 and (ii) in the case of Standard & Poor's, at
the following address: Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., 55 Water Street (41st Floor), New York, New York
10004; 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.
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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.
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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 VII, VIII and IX 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 Depositor, the Servicer or the Issuer, or
join in any institution against the Transferor (and any wholly-owned subsidiary
thereof), the Depositor, the SERVICER or the Issuer of, any bankruptcy,
reorganization,
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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 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.
65
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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.
CENTEX HOME EQUITY LOAN
TRUST 2000-__
By: _____________________________,
not in its individual capacity but
solely as Owner Trustee
By:___________________________
Name:
Title:
------------------------------
as Indenture Trustee
By: ______________________________
Name:
Title:
66
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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 CENTEX HOME EQUITY LOAN TRUST 2000-__, 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 _________, 2000.
-----------------------------------------------
Notary Public in and for the State of _________
(Seal)
My commission expires:
- ----------------------------
1
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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 ________ 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 _________, 2000.
----------------------------------------------
Notary Public in and for the State of ________
(Seal)
My commission expires:
2
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SCHEDULE A-I
HOME EQUITY LOAN SCHEDULE FOR SUBTRUST 1
3
<PAGE>
SCHEDULE A-II
HOME EQUITY LOAN SCHEDULE FOR SUB-TRUST 2
4
<PAGE>
SCHEDULE A-III
HOME EQUITY LOAN SCHEDULE FOR SUBTRUST 3
5
<PAGE>
EXHIBIT A
FORM OF NOTES
6
<PAGE>
Exhibit 4.3
POOLING AND SERVICING AGREEMENT
Relating to
CENTEX HOME EQUITY LOAN TRUST 2000-__
Among
CHEC FUNDING, LLC,
as Depositor,
CENTEX CREDIT CORPORATION D/B/A CENTEX HOME EQUITY CORPORATION,
as Seller,
CENTEX CREDIT CORPORATION D/B/A CENTEX HOME EQUITY CORPORATION,
as Servicer,
and
--------------------,
as Trustee
Dated as of ______________ 1, 2000
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
PAGE
ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION
<S> <C>
Section 1.01. Definitions.................................................................................2
Section 1.02. Use of Words and Phrases...................................................................28
Section 1.03. Captions; Table of Contents................................................................28
Section 1.04. Opinions...................................................................................29
ARTICLE II ESTABLISHMENT AND ORGANIZATION OF THE TRUST
Section 2.01. Establishment of the Trust.................................................................30
Section 2.02. Office.....................................................................................30
Section 2.03. Purposes and Powers........................................................................30
Section 2.04. Appointment of the Trustee; Declaration of Trust...........................................30
Section 2.05. Expenses of the Trust......................................................................30
Section 2.06. Ownership of the Trust.....................................................................31
Section 2.07. Situs of the Trust.........................................................................31
Section 2.08. Designation of Interests in REMICS.........................................................31
Section 2.09. Miscellaneous REMIC Provisions.............................................................34
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE DEPOSITOR, THE
SERVICER AND THE SELLER; COVENANT OF SELLER TO CONVEY HOME EQUITY LOANS
Section 3.01. Representations and Warranties of the Depositor............................................36
Section 3.02. Representations and Warranties of the Servicer.............................................38
Section 3.03. Representations and Warranties of the Sellers..............................................40
Section 3.04. Covenants of Sellers to Take Certain Actions with Respect to
the Home Equity Loans in Certain Situations..............................................43
Section 3.05. Sale Treatment of the Home Equity Loans and Qualified Replacement Mortgages................52
Section 3.06. Acceptance by Trustee; Certain Substitutions of Home Equity
Loans; Certification by Trustee............................................................56
Section 3.07. Reserved...................................................................................58
Section 3.08. Custodian..................................................................................58
Section 3.09. Cooperation Procedures.....................................................................58
ARTICLE IV ISSUANCE AND SALE OF CERTIFICATES
Section 4.01. Issuance of Certificates...................................................................60
Section 4.02. Sale of Certificates.......................................................................60
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ARTICLE V CERTIFICATES AND TRANSFER OF INTERESTS
Section 5.01. Terms......................................................................................61
Section 5.02. Forms......................................................................................61
Section 5.03. Execution, Authentication and Delivery.....................................................61
Section 5.04. Registration and Transfer of Certificates..................................................62
Section 5.05. Mutilated, Destroyed, Lost or Stolen Certificates..........................................64
Section 5.06. Persons Deemed Owners......................................................................65
Section 5.07. Cancellation...............................................................................65
Section 5.08. Limitation on Transfer of Ownership Rights.................................................65
Section 5.09. Assignment of Rights.......................................................................67
ARTICLE VI COVENANTS
Section 6.01. Distributions..............................................................................68
Section 6.02. Money for Distributions to be Held in Trust; Withholding...................................68
Section 6.03. Protection of Trust Estate.................................................................69
Section 6.04. Performance of Obligations.................................................................70
Section 6.05. Negative Covenants.........................................................................70
Section 6.06. No Other Powers............................................................................71
Section 6.07. Limitation of Suits........................................................................71
Section 6.08. Unconditional Rights of Owners to Receive Distributions....................................72
Section 6.09. Rights and Remedies Cumulative.............................................................72
Section 6.10. Delay or Omission Not Waiver...............................................................72
Section 6.11. Control by Owners..........................................................................72
Section 6.12. Indemnification by CHEC....................................................................73
ARTICLE VII ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 7.01. Collection of Money........................................................................74
Section 7.02. Establishment of Accounts..................................................................74
Section 7.03. Flow of Funds..............................................................................74
Section 7.04. Supplemental Interest Reserve Fund.........................................................78
Section 7.05. Investment of Accounts.....................................................................79
Section 7.06. Payment of Trust Expenses..................................................................79
Section 7.07. Eligible Investments.......................................................................79
Section 7.08. Accounting and Directions by Trustee.......................................................81
Section 7.09. Reports by Trustee to Owners and Certificate Insurer.......................................82
Section 7.10. Reports by Trustee.........................................................................85
ARTICLE VIII SERVICING AND ADMINISTRATION OF HOME EQUITY LOANS
Section 8.01. Servicer and Sub-Servicers.................................................................87
Section 8.02. Collection of Certain Home Equity Loan Payments............................................88
Section 8.03. Sub-Servicing Agreements Between Servicer and Sub-Servicers................................88
Section 8.04. Successor Sub-Servicers....................................................................89
</TABLE>
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<TABLE>
<S><C>
Section 8.05. Liability of Servicer; Indemnification.....................................................89
Section 8.06. No Contractual Relationship Between Sub-Servicer, Trustee or the Owners....................90
Section 8.07. Assumption or Termination of Sub-Servicing Agreement by Trustee............................90
Section 8.08. Principal and Interest Account.............................................................90
Section 8.09. Delinquency Advances and Servicing Advances................................................92
Section 8.10. Compensating Interest; Repurchase of Home Equity Loans.....................................93
Section 8.11. Maintenance of Insurance...................................................................94
Section 8.12. Due-on-Sale Clauses; Assumption and Substitution Agreements................................95
Section 8.13. Realization Upon Defaulted Home Equity Loans; Workout of Home Equity Loans.................96
Section 8.14. Trustee to Cooperate; Release of Files.....................................................97
Section 8.15. Servicing Compensation.....................................................................99
Section 8.16. Annual Statement as to Compliance..........................................................99
Section 8.17. Annual Independent Certified Public Accountants' Reports...................................99
Section 8.18. Access to Certain Documentation and Information Regarding the Home Equity Loans...........100
Section 8.19. Assignment of Agreement...................................................................100
Section 8.20. Removal of Servicer; Retention of Servicer; Resignation of Servicer.......................100
Section 8.21. Inspections by Certificate Insurer; Errors and Omissions Insurance........................105
Section 8.22. Additional Servicing Responsibilities for Second Mortgage Loans...........................105
Section 8.23. The Group II Home Equity Loans............................................................106
Section 8.24. Merger, Conversion, Consolidation or Succession to Business of Servicer...................106
Section 8.25. Notices of Material Events................................................................106
Section 8.26. Indemnification by the Servicer...........................................................107
Section 8.27. Reports on Foreclosure and Abandonment of Properties......................................107
ARTICLE IX TERMINATION OF TRUST
Section 9.01. Termination of Trust......................................................................108
Section 9.02. Termination Upon Option of the Servicer...................................................108
Section 9.03. Termination Upon Loss of REMIC Status.....................................................109
Section 9.04. Disposition of Proceeds...................................................................111
Section 9.05. Netting of Amounts........................................................................111
ARTICLE X THE TRUSTEE
Section 10.01. Certain Duties and Responsibilities.......................................................112
Section 10.02. Removal of Trustee for Cause..............................................................114
Section 10.03. Certain Rights of the Trustee.............................................................115
Section 10.04. Not Responsible for Recitals or Issuance of Certificates..................................117
Section 10.05. May Hold Certificates.....................................................................118
Section 10.06. Money Held in Trust.......................................................................118
Section 10.07. Compensation and Reimbursement............................................................118
Section 10.08. Corporate Trustee Required; Eligibility...................................................118
</TABLE>
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<TABLE>
<S> <C>
Section 10.09. Resignation and Removal; Appointment of Successor.........................................119
Section 10.10. Acceptance of Appointment by Successor Trustee............................................120
Section 10.11. Merger, Conversion, Consolidation or Succession to Business of the Trustee................121
Section 10.12. Reporting; Withholding....................................................................121
Section 10.13. Liability of the Trustee..................................................................122
Section 10.14. Appointment of Co-Trustee or Separate Trustee.............................................122
Section 10.15. Appointment of Custodians.................................................................124
ARTICLE XI MISCELLANEOUS
Section 11.01. Compliance Certificates and Opinions......................................................125
Section 11.02. Form of Documents Delivered to the Trustee................................................125
Section 11.03. Acts of Owners............................................................................126
Section 11.04. Notices, etc. to Trustee.................................................................127
Section 11.05. Notices and Reports to Owners; Waiver of Notices..........................................127
Section 11.06. Rules by Trustee..........................................................................127
Section 11.07. Successors and Assigns....................................................................128
Section 11.08. Severability..............................................................................128
Section 11.09. Benefits of Agreement.....................................................................128
Section 11.10. Legal Holidays............................................................................128
Section 11.11. Governing Law; Submission to Jurisdiction.................................................128
Section 11.12. Counterparts..............................................................................129
Section 11.13. Usury.....................................................................................129
Section 11.14. Amendment.................................................................................130
Section 11.15. Paying Agent; Appointment and Acceptance of Duties........................................130
Section 11.16. REMIC Status..............................................................................131
Section 11.17. Additional Limitation on Action and Imposition of Tax.....................................133
Section 11.18. Appointment of Tax Matters Person.........................................................134
Section 11.19. The Certificate Insurer...................................................................134
Section 11.20. Reserved..................................................................................134
Section 11.21. Third Party Rights........................................................................134
Section 11.22. Notices...................................................................................134
Section 11.23. Rule 144A Information.....................................................................136
ARTICLE XII CERTAIN MATTERS REGARDING THE CERTIFICATE INSURER
Section 12.01. Trust Estate and Accounts Held for Benefit of the Certificate Insurer.....................138
Section 12.02. Claims Upon the Policy; Policy Payments Account...........................................138
Section 12.03. Effect of Payments by the Certificate Insurer; Subrogation................................139
Section 12.04. Notices to the Certificate Insurer........................................................140
Section 12.05. Third-Party Beneficiary...................................................................140
Section 12.06. Rights to the Certificate Insurer To Exercise Rights of Owners............................140
SCHEDULE I-A SCHEDULE OF THE GROUP I HOME EQUITY LOANS
SCHEDULE I-B SCHEDULE OF THE GROUP II HOME EQUITY LOANS
</TABLE>
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<TABLE>
<S> <C>
SCHEDULE I-E INVESTMENT INSTRUCTIONS TO TRUSTEE
EXHIBIT A-1 FORM OF CLASS A-1 CERTIFICATE
EXHIBIT A-2 FORM OF CLASS A-2 CERTIFICATE
EXHIBIT A-3 FORM OF CLASS A-3 CERTIFICATE
EXHIBIT A-4 FORM OF CLASS A-4 CERTIFICATES
EXHIBIT A-5 FORM OF CLASS A-5 CERTIFICATES
EXHIBIT A-6 FORM OF CLASS A-6 CERTIFICATES
EXHIBIT A-7 FORM OF CLASS A-7 CERTIFICATES
EXHIBIT B FORM OF X-IO CERTIFICATE
EXHIBIT C FORM OF CLASS R CERTIFICATE
EXHIBIT D FORM OF CERTIFICATE RE: HOME EQUITY LOANS PREPAID
IN FULL AFTER CUT-OFF DATE
EXHIBIT E-1 FORM OF TRUSTEE'S RECEIPT
EXHIBIT E-2 FORM OF CUSTODIAN'S RECEIPT
EXHIBIT F FORM OF POOL CERTIFICATION
EXHIBIT G FORM OF DELIVERY ORDER
EXHIBIT H FORM OF CLASS R TAX MATTERS TRANSFER CERTIFICATE
EXHIBIT I-1 FORM OF CERTIFICATE REGARDING TRANSFER (ACCREDITED
INVESTOR)
EXHIBIT I-2 FORM OF CERTIFICATE OF TRANSFER (RULE 144A)
EXHIBIT J HOME EQUITY LOANS WITH DOCUMENT EXCEPTIONS
EXHIBIT K DEFINITION OF GROUP II TARGET OVERCOLLATERALIZATION
AMOUNT
EXHIBIT L DEFINITION OF GROUP I TARGET OVERCOLLATERALIZATION
AMOUNT
EXHIBIT M FORM OF LETTER REGARDING REPORTING OBLIGATIONS UNDER
THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>
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<PAGE>
POOLING AND SERVICING AGREEMENT, relating to CENTEX HOME EQUITY LOAN
TRUST 2000-__, dated as of ____________1, 2000 by and among CHEC Funding,
LLC, a Delaware limited liability company, in its capacity as the depositor
(the "Depositor"), __________, as Seller CENTEX CREDIT CORPORATION d/b/a
CENTEX HOME EQUITY CORPORATION, a Nevada corporation ("CHEC") in its
capacities as the seller (in such capacity, the "Seller") and as the servicer
(in such capacity, the "Servicer"), and, an ____________ banking corporation,
in its capacity as the trustee (the "Trustee").
WHEREAS, the Seller wishes to establish a trust and two subtrusts
and provide for the allocation and sale of the beneficial interests therein
and the maintenance and distribution of the trust estate;
WHEREAS, the Seller wish to sell to the Depositor, the Depositor
wishes to purchase from the Seller and to sell to the Trustee, and the
Trustee wishes to purchase, the Home Equity Loans;
WHEREAS, the Servicer has agreed to service the Home Equity Loans,
which constitute the principal assets of the trust estate;
WHEREAS, all things necessary to make the Certificates, when
executed and authenticated by the Trustee, valid instruments, and to make
this Agreement a valid agreement, in accordance with their and its terms,
have been done;
WHEREAS, _______________________ is willing to serve in the capacity
of Trustee hereunder; and
WHEREAS, [MBIA Insurance Corporation] (the "Certificate Insurer") is
intended to be a third party beneficiary of this Agreement and is hereby
recognized by the parties hereto to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Depositor, the Sellers, the Servicer, and
the Trustee hereby agree as follows:
CONVEYANCE
The Seller with respect to the Seller Home Equity Loans, each hereby
bargains, sells, conveys, assigns and transfers to the Depositor, in trust,
without recourse and for the exclusive benefit of the Owners of the
Certificates and the Certificate Insurer, all of its right, title and
interest in and to (a) any and all benefits accruing from the Home Equity
Loans which the Depositor is causing to be delivered to the Custodian on
behalf of the Trustee herewith, together with the related Home Equity Loan
documents and the Depositor's interest in any Property, and all payments
thereon and proceeds of the conversion, voluntary or involuntary, of the
foregoing; and (b) proceeds of all the foregoing (including, but not by way
of limitation, all proceeds of any mortgage insurance, flood insurance,
hazard insurance and title insurance policy relating to the Home Equity
Loans, cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances,
1
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chattel paper, checks, deposit accounts, rights to payment of any and every
kind, and other forms of obligations and receivables which at any time
constitute all or part of or are included in the proceeds of any of the
foregoing) to pay the Certificates as specified herein (the "Home Equity Loan
Assets").
The Depositor, concurrently with the execution and delivery hereof,
hereby sells, transfers, assigns, sets over and otherwise conveys to the
Trustee for the benefit of the Certificateholders and the Certificate
Insurer, without recourse, all the right, title and interest of the Depositor
in and to the Trust Estate.
In addition to the foregoing, the Depositor shall cause the
Certificate Insurer to deliver two Certificate Insurance Policies to the
Trustee for the benefit of the Owners of the Class A Certificates.
The Trustee acknowledges such sale, accepts the trusts hereunder in
accordance with the provisions hereof and the Trustee agrees to perform the
duties herein to the best of its ability to the end that the interests of the
Owners may be adequately and effectively protected.
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
Section 1.01. DEFINITIONS.
For all purposes of this Agreement, the following terms shall have
the meanings set forth below, unless the context clearly indicates otherwise:
"ACCOUNT": Any account established in accordance with Section 7.02,
8.04, 8.08 or 12.02 hereof.
"ADJUSTED CERTIFICATE RATE": As of any date of determination
thereof, a rate equal to the sum of (a) the Weighted Average Certificate Rate
and (b) any portion of the Premium Amount (calculated as a percentage of the
outstanding principal amount of Certificates) and the Trustee Fee (calculated
as a percentage of the outstanding Loan Balances as of the first day of the
related Remittance Period) in each case then accrued and outstanding.
"AFFILIATE": 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 specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"AGREEMENT": This Pooling and Servicing Agreement, as it may be
amended from time to time, including the Exhibits and Schedules hereto.
2
<PAGE>
"ANNUAL LOSS PERCENTAGE (ROLLING TWELVE MONTH)": As of any date of
determination thereof, a fraction, expressed as a percentage, the numerator
of which is the aggregate of the Realized Losses as of the last day of the
calendar month of each Remittance Period for the twelve immediately preceding
Remittance Periods and the denominator of which is the aggregate of the Loan
Balances as of the first day of the first such Remittance Period.
"APPRAISED VALUE": The appraised value of any Property based upon
the appraisal made at the time of the origination of the related Home Equity
Loan, or, in the case of a Home Equity Loan which is a purchase money
mortgage or with respect to which the Property was sold within 12 months
preceding the time of origination, the sales price of the Property, if such
sales price is less than such appraised value.
"AUTHORIZED OFFICER": With respect to any Person, any officer of
such Person who is authorized to act for such Person in matters relating to
this Agreement, and whose action is binding upon such Person; with respect to
the Depositor, the Sellers and the Servicer, initially including those
individuals whose names appear on the lists of Authorized Officers delivered
at the Closing; with respect to the Trustee, any officer assigned to the
Corporate Trust Office (or any successor thereto), including any Vice
President, Assistant Vice President, Trust Officer, any Assistant Secretary,
any trust officer or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers
and having direct responsibility for the administration of this Agreement.
"AVAILABLE FUNDS": As to each Home Equity Loan Group and
Distribution Date, is the amount on deposit in the Certificate Account with
respect to the related Home Equity Loan Group on the Distribution Date,
disregarding the amounts of any Insured Payments to be made on the
Distribution Date.
"AVAILABLE FUNDS SHORTFALL": As to each Home Equity Loan Group and
Distribution Date, an amount equal to the excess, if any, of (x) the
aggregate of the amounts required to be distributed pursuant to clauses (ii)
and (iii) of Section 7.03(b) over (y) the Available Funds for such payments
for such Home Equity Loan Group and Distribution Date.
"BUSINESS DAY": Any day other than a Saturday, Sunday or a day on
which commercial banking institutions in New York, New York, Dallas, Texas,
the city in which the Corporate Trust Office is located or, with respect to
the obligations of the Custodian hereunder, the State of California, are
authorized or obligated by law or executive order to be closed.
"CARRY-FORWARD AMOUNT": With respect to any Class of Class A
Certificates and any Distribution Date, an amount equal to the sum of (1) the
amount, if any, by which (x) the Current Interest for such Class for the
immediately preceding Distribution Date exceeded (y) the amount of the actual
distribution made to Owners of such Class with respect to interest on such
Class on the immediately preceding Distribution Date and (2) interest on such
excess for the related Interest Period at the related Certificate Rate for
the Class of Class A Certificates.
3
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"CERTIFICATE": Any one of the Class A Certificates, the Class X-IO
Certificates or the Class R Certificates, each representing the interests and
the rights described in this Agreement.
"CERTIFICATE ACCOUNT": The segregated certificate account
established in accordance with Section 7.02(a) hereof and maintained at the
Corporate Trust Office entitled "________________, as Trustee on behalf of
the Owners of the Centex Home Equity Loan Trust 2000-__, Centex Home Equity
Loan Asset-Backed Certificates." The Certificate Account shall be an Eligible
Account.
"CERTIFICATE INSURANCE POLICIES": The Certificate Guaranty Insurance
Policies (numbers: ________ and _____________) each dated ________, 2000 with
respect to the Class A Certificates and all endorsements thereto, issued by
the Certificate Insurer for the benefit of the Owners of the Class A
Certificates.
"CERTIFICATE INSURER": [MBIA Insurance Corporation], a stock
insurance company organized under the laws of the [State of New York] and any
successor thereto.
"CERTIFICATE INSURER DEFAULT": The existence and continuance of any
of the following:
(a) the Certificate Insurer fails to make a payment
required under either of the Certificate Insurance Policies in accordance
with their terms; or
(b) the Certificate Insurer shall have (i) filed a
petition or commenced any case or proceeding under any provision or chapter
of the United States Bankruptcy Code, the New York State Insurance Law or any
other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation, or reorganization, (ii) made a general
assignment for the benefit of its creditors or (iii) had an order for relief
entered against it under the United States Bankruptcy Code, the New York
State Insurance law or any other similar federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation, or reorganization that
is final and nonappealable; or
(c) a court of competent jurisdiction, the New York
Department of Insurance or any other competent regulatory authority shall
have entered a final and nonappealable order, judgment or decree (i)
appointing a custodian, trustee, agent or receiver for the Certificate
Insurer or for all or any material portion of its property or (ii)
authorizing the taking of possession by a custodian, trustee, agent, or
receiver of the Certificate Insurer of all or any material portion of its
property.
"CERTIFICATE PRINCIPAL BALANCE": As of the Startup Day as to each of
the following Classes of Class A Certificates, the Certificate Principal
Balances thereof, as follows:
Class A-1 Certificates - $
Class A-2 Certificates - $
Class A-3 Certificates - $
Class A-4 Certificates - $
Class A-5 Certificates - $
4
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Class A-6 Certificates - $
Class A-7 Certificates - $
As of any time of determination after the Startup Day, with respect to
a Class of Class A Certificates, the Certificate Principal Balance as of the
Startup Day less the aggregate of all amounts actually distributed to such Class
in reduction of such Class Certificate Principal Balance pursuant to Section
7.03 hereof on all prior Distribution Dates; PROVIDED, HOWEVER, that solely for
the purposes of determining the Certificate Insurer's rights, as subrogee, the
Certificate Principal Balance of a Class shall not be reduced by any principal
amounts paid to the Owners thereof from Insured Payments.
The Class X-IO Certificates and the Class R Certificates do not have a
Certificate Principal Balance.
"CERTIFICATE RATE": Any of the Class A-1 Certificate Rate, the Class
A-2 Certificate Rate, the Class A-3 Certificate Rate, the Class A-4 Certificate
Rate, the Class A-5 Certificate Rate, the Class A-6 Certificate Rate or the
Class A-7 Certificate Rate.
"CHEC": Centex Credit Corporation d/b/a Centex Home Equity Corporation.
"CIVIL RELIEF ACT INTEREST SHORTFALLS": With respect to any Remittance
Period, for any Home Equity Loans as to which there has been a reduction in the
amount of interest collectible thereon for the most recently ended Remittance
Period as a result of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, the amount, if any, by which (i) interest collectible on such Home
Equity Loans during the most recently ended Remittance Period is less than (ii)
interest accrued thereon for such Remittance Period pursuant to the Note at the
related Coupon Rate.
"CLASS": Any Class of the Class A Certificates or the Class X-IO
Certificates or the Class R Certificates.
"CLASS A CERTIFICATE": Any one of the Group I Certificates or Group II
Certificates.
"CLASS A-1 CERTIFICATE": Any one of the Certificates designated on the
face thereof as a Class A-l Certificate, substantially in the form annexed
hereto as Exhibit A-1 authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in REMIC I created hereunder for purposes of
the REMIC Provisions.
"CLASS A-2 CERTIFICATE": Any one of the Certificates designated on the
face thereof as a Class A-2 Certificate, substantially in the form annexed
hereto as Exhibit A-2 authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in REMIC I created hereunder for purposes of
the REMIC Provisions.
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"CLASS A-3 CERTIFICATE": Any one of the Certificates designated on the
face thereof as a Class A-3 Certificate, substantially in the form annexed
hereto as Exhibit A-3 authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in REMIC I created hereunder for purposes of
the REMIC Provisions.
"CLASS A-4 CERTIFICATE": Any one of the Certificates designated on the
face thereof as a Class A-4 Certificate, substantially in the form annexed
hereto as Exhibit A-4 authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in REMIC I created hereunder for purposes of
the REMIC Provisions.
"CLASS A-5 CERTIFICATE": Any one of the Certificates designated on the
face thereof as a Class A-5 Certificate, substantially in the form annexed
hereto as Exhibit A-5 authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in REMIC I created hereunder for purposes of
the REMIC Provisions.
"CLASS A-6 CERTIFICATE": Any one of the Certificates designated on the
face thereof as a Class A-6 Certificate, substantially in the form annexed
hereto as Exhibit A-6 authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in REMIC I created hereunder for purposes of
the REMIC Provisions.
"CLASS A-7 CERTIFICATE": Any one of the Certificates designated on the
face thereof as a Class A-7 Certificate, substantially in the form annexed
hereto as Exhibit A-7 authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein and each evidencing an interest
designated as a "regular interest" in REMIC I created hereunder for purposes of
the REMIC Provisions.
"CLASS A-1 CERTIFICATE RATE": With respect to any Distribution Date and
the Class A-1 Certificates,_____________% per annum.
"CLASS A-2 CERTIFICATE RATE": With respect to any Distribution Date and
the Class A-2 Certificates,_____________% per annum.
"CLASS A-3 CERTIFICATE RATE": With respect to any Distribution Date and
the Class A-3 Certificates,_____________% per annum.
"CLASS A-4 CERTIFICATE RATE": With respect to any Distribution Date and
the Class A-4 Certificates,_____________% per annum.
"CLASS A-5 CERTIFICATE RATE": With respect to any Distribution Date
and the Class A-5 Certificates, the lesser of (A) _______% per annum (or
____________% per annum for each Interest Period occurring after the Clean-Up
Call Date) and (B) the Group I Net WAC Cap for the Distribution Date.
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"CLASS A-6 CERTIFICATE RATE": With respect to any Distribution Date
and the Class A-6 Certificates, the lesser of (A) ______% per annum and (B)
the Group I Net WAC Cap for the Distribution Date.
"CLASS A-7 CERTIFICATE RATE": With respect to any Distribution Date and
the Class A-7 Certificates, the lesser of (A) the Class A-7 Formula Rate and (B)
the Class A-7 Available Funds Cap for the Distribution Date.
"CLASS A DISTRIBUTION AMOUNT": For each Home Equity Loan Group and
Distribution Date shall be the sum of (x) Current Interest for the Class A
Certificates related to the Home Equity Loan Group and (y) the Class A Principal
Distribution Amount for the Home Equity Loan Group and all other amounts
distributed in reduction of the Certificate Principal Balances of the related
Class A Certificates pursuant to Section 7.03(b) hereof.
"CLASS A PRINCIPAL DISTRIBUTION AMOUNT": With respect to the Class A
Certificates of the related Home Equity Loan Group and Distribution Date shall
be the lesser of:
(a) the related Available Funds, remaining after distributions
pursuant to clauses (i) and (ii) of Section 7.03(b); and
(b) the excess, if any, of
(1) the sum of (without duplication):
(A) the principal portion of all scheduled monthly
payments on the Home Equity Loans related to the Home Equity
Loan Group actually received by the Servicer during the
related Remittance Period and any Prepayments on the Home
Equity Loans made by the Mortgagors of Home Equity Loans in
the related Home Equity Loan Group and actually received by
the Servicer during the related Remittance Period in each case
to the extent the amounts are received by the Trustee on or
prior to the Monthly Remittance Date;
(B) the outstanding principal balance of each Home
Equity Loan in the related Home Equity Loan Group that was
repurchased by the Seller or purchased by the Servicer on or
prior to the related Monthly Remittance Date in each case to
the extent the amounts are received by the Trustee on or prior
to the Monthly Remittance Date;
(C) any Substitution Amounts relating to principal,
delivered by the Seller on the related Monthly Remittance Date
in connection with a substitution of a Home Equity Loan in the
related Home Equity Loan Group;
(D) all Net Liquidation Proceeds actually collected
by or on behalf of the Servicer with respect to the Home
Equity Loans in the related Home Equity Loan Group during the
related Remittance Period (to the extent the Net Liquidation
Proceeds relate to principal) in each case to the extent the
amounts are received by the Trustee on or prior to the Monthly
Remittance Date;
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(E) the amount of any Collateralization Deficit with
respect to the related Home Equity Loan Group for the
Distribution Date; and
(F) the principal portion of the proceeds received by
the Trustee with respect to the related Home Equity Loan Group
upon termination of the Trust (to the extent the proceeds
relate to principal); over
(2) the amount of any Overcollateralization Release Amount
with respect to the related Home Equity Loan Group for the Distribution
Date;
provided, however, on the Distribution Date occurring in February 2031,
the related Class A Principal Distribution Amount payable to any
outstanding Class shall be no less than the Certificate Principal
Balance for such Class of Class A Certificates.
"CLASS A-6 CALCULATION PERCENTAGE:" For any Distribution Date will be
the fraction, expressed as a percentage, the numerator of which is the
Certificate Principal Balance of the Class A-6 Certificates, and the denominator
of which is the total of the Certificate Principal Balances of the Group I
Certificates, in each case before giving effect to any distributions in
reduction of the Certificate Principal Balances of the Group I Certificates
pursuant to Section 7.03 hereof.
"CLASS A-6 LOCKOUT DISTRIBUTION AMOUNT": For any Distribution Date will
be an amount equal to the product of (1) the applicable Class A-6 Lockout
Percentage for the Distribution Date, (2) the Class A-6 Calculation Percentage
and (3) the Class A Principal Distribution Amount with respect to the Group I
Certificates for the Distribution Date. In no event shall the Class A-6 Lockout
Distribution Amount exceed the outstanding Certificate Principal Balance of the
Class A-6 Certificates or the Class A Principal Distribution Amount applicable
to the Group I Certificates for the Distribution Date.
"CLASS A-6 LOCKOUT PERCENTAGE": For each Distribution Date will be as
follows:
<TABLE>
<CAPTION>
Distribution Date Lockout Percentage
----------------- ------------------
<S> <C>
January 20___ through December 20___ %
January 20___ through December 20___ %
January 20___ through December 20___ %
January 20___ through December 20___ %
January 20___ and thereafter %
</TABLE>
"CLASS A-7 AVAILABLE FUNDS CAP" with respect to any Interest Period and
the related Distribution Date will be a rate per annum equal to the fraction,
expressed as a percentage, the numerator of which is the product of (a) the
weighted average of the Net Coupon Rates (minus the Minimum Spread) on the Group
II Home Equity Loans as of the beginning of the related Remittance Period and
(b) the aggregate Loan Balance of the Group II Home Equity Loans as of the
beginning of the related Remittance Period, and the denominator of which is the
outstanding Certificate Principal Balance of the Class A-7 Certificates (before
giving effect to payments of principal on the Distribution Date) (adjusted to an
effective rate, calculated by multiplying such
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<PAGE>
fraction by 30 and dividing by the actual number of days elapsed in the
related Interest Period, reflecting accrued interest calculated on the basis
of a 360-day year and the actual number of days elapsed).
"CLASS A-7 CERTIFICATEHOLDERS' INTEREST INDEX CARRYOVER": The sum of
(A) the excess of (1) the amount of interest the Class A-7 Certificates would
otherwise be entitled to receive on the Distribution Date had the rate been
calculated at the Class A-7 Formula Rate for the Distribution Date over (2) the
amount of interest payable on the Class A-7 Certificates at the Class A-7
Available Funds Cap for the Distribution Date and (B) the Class A-7
Certificateholders' Interest Index Carryover for all previous Distribution Dates
not previously paid to Class A-7 Certificateholders (including any interest
accrued thereon at the Class A-7 Formula Rate).
"CLASS A-7 FORMULA RATE": For any Distribution Date is the sum of (1)
One-Month LIBOR and (2)___% per annum (or__% per annum for each Interest Period
occurring after the Clean-Up Call Date).
"CLASS R CERTIFICATE": Any one of the Certificates designated on the
face thereof as a Class R Certificate, substantially in the form annexed hereto
as Exhibit C, authenticated and delivered by the Trustee, representing the right
to distributions as set forth herein. The Class R Certificate shall evidence (i)
an interest designated as the Class R-1 Certificate which is the "residual
interest" in REMIC I and (ii) an interest designated as the Class R-2
Certificate which is the residual interest in REMIC II for the purposes of the
REMIC Provisions. The Owner of the Class R Certificate shall be entitled to
separate such Certificate into its component Class R-1 and Class R-2 Certificate
parts, as further described in the Class R Certificate attached hereto as
Exhibit C.
"CLASS X-IO CERTIFICATE": Any one of the Certificates designated on the
face thereof as a Class X-IO Certificate, substantially in the form annexed
hereto as Exhibit B, authenticated and delivered by the Trustee, representing
the right to distributions as set forth herein, and evidencing an interest
designated as a "regular interest" in REMIC I created hereunder for the purposes
of the REMIC Provisions.
"CLASS X-IO DISTRIBUTION AMOUNT": With respect to any Distribution
Date, the lesser of (i) the aggregate Available Funds, if any, remaining after
the making of all applications, transfers and disbursements described in
Sections 7.03(b)(i) through 7.03(b)(viii) hereof and (ii) the sum of the amounts
described in footnotes (5) and (6) of Section 2.08(b) for the current and for
all prior Distribution Dates less amounts distributed with respect to the Class
X-IO Certificates on prior Distribution Dates.
"CLEAN-UP CALL DATE": The first Distribution Date on which the
aggregate Certificate Principal Balances of all Class A Certificates as of the
close of business on the last day of the immediately preceding Interest Period
has declined to [10%] or less of the aggregate Certificate Principal Balance of
the Class A Certificates as of the Startup Day.
"CLOSING": As defined in Section 4.02 hereof.
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<PAGE>
"CODE": The Internal Revenue Code of 1986, as amended.
"COLLATERALIZATION DEFICIT": With respect to either Home Equity Loan
Group and Distribution Date, the amount, if any, by which (x) the related
aggregate of the Certificate Principal Balances with respect to such Home Equity
Loan Group, after taking into account the payment of all distributions with
respect to such Home Equity Loan Group on such Distribution Date (without regard
to any Insured Payment to be made on such Distribution Date and except for any
distributions in respect of the Collateralization Deficit with respect to such
Home Equity Loan Group), exceeds (y) the aggregate Loan Balances of the Home
Equity Loans in such Home Equity Loan Group as of the close of business on the
last day of the related Remittance Period.
"COMPENSATING INTEREST": As defined in Section 8.10(a) hereof.
"CORPORATE TRUST OFFICE": The principal office of the Trustee
at________________________, Attn: ________________ (as of the Closing Date),
or at such other address as the Trustee may designate by notice to the
Depositor, the Seller, the Servicer, the Owners and the Certificate Insurer,
or the principal office of any successor Trustee hereunder.
"COUPON RATE": The rate of interest borne by each Note from time
to time.
"CRAM DOWN LOSS": With respect to a Home Equity Loan, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the Loan Balance of such Home Equity Loan, the amount of such
reduction. A "Cram Down Loss" shall be deemed to have occurred on the date of
issuance of such order.
"CUMULATIVE LOSS PERCENTAGE": As of any date of determination thereof,
the aggregate of all Realized Losses since the Startup Day as a percentage of
the original aggregate Loan Balance of the Home Equity Loans as of the Cut-Off
Date.
"CURRENT INTEREST": With respect to each Class of Class A Certificates
means, with respect to any Distribution Date: (1) the aggregate amount of
interest accrued at the related Certificate Rate on the Certificate Principal
Balance of the related Class A Certificates plus (2) the Carry-Forward Amount,
if any, with respect to the Class of Class A Certificates; provided, however,
that with respect to each Class of Class A Certificates, the amount described in
clause (1) above will be reduced by the Class' pro rata share of any Civil
Relief Act Interest Shortfalls (based on the amount of interest otherwise due to
such Class for such Interest Period) relating to such Home Equity Loan Group
during the related Remittance Period.
"CURRENT WAC EXCESS": With respect to any Distribution Date, the
portion of Current Interest being distributed with respect to the Class A-7
Certificates equal to interest accrued thereon at a rate equal to the excess of
the Class A-7 Certificate Rate over the Group II Net WAC Cap.
"CUSTODIAL AGREEMENT": The Custodial Agreement dated as of
____________________, 2000 between the Custodian, the Servicer and the Trustee.
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"CUSTODIAN": ____________________, as Custodian on behalf of the
Trustee pursuant to the Custodial Agreement and any successor Custodian.
"CUT-OFF DATE": The later of (i) the opening of business on
_____________________, 2000 and (ii) the date of origination with respect to a
Home Equity Loan, but in no event later than the Startup Day.
"DEFICIENCY AMOUNT": Means, as of any Distribution Date, the excess, if
any, of (a) the sum of (1) the related Current Interest for the related Class A
Certificates for the Distribution Date and (2) the Group I Guaranteed Principal
Amount or the Group II Guaranteed Principal Amount, as applicable, for the
Distribution Date over (b) the related Total Available Funds for such
Distribution Date (net of the Premium Amount, the Trustee Fee and Transition
Expenses of the related Home Equity Loan Group and after giving effect to the
cross-collateralization provisions of the Agreement).
"DELINQUENCY ADVANCE": As defined in Section 8.09(a) hereof.
"DELINQUENT": A Home Equity Loan is "Delinquent" if any payment due
thereon is not made by the Mortgagor by the close of business on the related Due
Date. A Home Equity Loan is "30 days Delinquent" if such payment has not been
received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days Delinquent," "90
days Delinquent" and so on.
"DELIVERY ORDER": The delivery order in the form set forth as Exhibit G
hereto and delivered by the Depositor to the Trustee on the Startup Day pursuant
to Section 4.01 hereof.
"DEPOSITOR": CHEC Funding, LLC, a Delaware limited liability company,
or any successor thereto.
"DEPOSITORY": The Depository Trust Company, 7 Hanover Square, New York,
New York, 10004, and any successor Depository.
"DESIGNATED DEPOSITORY INSTITUTION": With respect to the Principal and
Interest Account, a trust account maintained by the trust department of a
federal or state chartered depository institution acceptable to the Certificate
Insurer, acting in its fiduciary capacity, having combined capital and surplus
of at least [$100,000,000]; PROVIDED, HOWEVER, that if the Principal and
Interest Account is not maintained with the Trustee, (i) such institution shall
have a long-term debt rating of at least "A" by Standard & Poor's and "A2" by
Moody's and (ii) the Servicer shall provide the Trustee and the Certificate
Insurer with a statement, which the Trustee will send to the Owners, identifying
the location and account information of the Principal and Interest Account upon
a change in the location of such account.
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<PAGE>
"DETERMINATION DATE": The 15th day of each month, or if such day is not
a Business Day, on the preceding Business Day, commencing in
______________________,___________20____.
"DIRECT PARTICIPANT" or "DTC PARTICIPANT": Any broker-dealer, bank or
other financial institution for which the Depository holds Class A Certificates
from time to time as a securities depository.
"DISQUALIFIED ORGANIZATION": "Disqualified Organization" shall have the
meaning set forth from time to time in the definition thereof at Section
860E(e)(5) of the Code (or any successor statute thereto) and applicable to the
Trust.
"DISTRIBUTION DATE": Any date on which the Trustee is required to
make distributions to the Owners, which shall be the 25th day of each month
or if such day is not a Business Day, the next Business Day thereafter,
commencing in the month following the Startup Day. The first Distribution
Date will be ___________ 25, 2000.
"DUE DATE": With respect to any Home Equity Loan, the date on which the
Monthly Payment with respect to such Home Equity Loan is required to be paid
pursuant to the related Note exclusive of any days of grace.
"ELIGIBLE ACCOUNT": Either (A) a segregated trust account or accounts
maintained with an institution whose deposits are insured by the FDIC, the
unsecured and uncollateralized long term debt obligations of which institution
shall be rated AA- or higher by Standard & Poor's and, in the case of any
institution other than ______________________, Aa2 or higher by Moody's and in
the highest short term rating category by each of the Rating Agencies, and which
is (i) a federal savings and loan association duly organized, validly existing
and in good standing under the federal banking laws, (ii) an institution duly
organized, validly existing and in good standing under the applicable banking
laws of any state, (iii) a national banking association duly organized, validly
existing and in good standing under the federal banking laws, (iv) a principal
subsidiary of a bank holding company, or (v) approved in writing by the
Certificate Insurer and each of the Rating Agencies or (B) a segregated trust
account or accounts maintained with the trust department of a federal or state
chartered depository institution acceptable to each Rating Agency and the
Certificate Insurer, having capital and surplus of not less than [$100,000,000],
acting in its fiduciary capacity.
"ELIGIBLE INVESTMENTS": Those investments so designated pursuant to
Section 7.07 hereof.
"EXCHANGE ACT": The Securities and Exchange Act of 1934, as amended.
"EXTRA PRINCIPAL DISTRIBUTION AMOUNT": Means as to either the Group I
or Group II Certificates and any Distribution Date, the lesser of (1) the
related Target Deficiency and (2) the related Net Monthly Excess Cashflow
Amount.
"FDIC": The Federal Deposit Insurance Corporation, a corporate
instrumentality of the United States, or any successor thereto.
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<PAGE>
"FHLMC": The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970, as amended, or any successor thereof.
"FILE": The documents delivered to the Custodian on behalf of the
Trustee pursuant to Section 3.05(b) hereof pertaining to a particular Home
Equity Loan and any additional documents required to be added to the File
pursuant to this Agreement.
"FINAL CERTIFICATION": As defined in Section 3.06(c) hereof.
"FINAL DETERMINATION": As defined in Section 9.03(a) hereof.
"FINAL RECOVERY DETERMINATION": With respect to any defaulted Home
Equity Loan or REO Property (other than a Home Equity Loan purchased by the
Seller, the Depositor or the Servicer), a determination made by the Servicer
that all recoveries which the Servicer, in its reasonable business judgment
expects to be finally recoverable in respect thereof have been so recovered or
that the Servicer believes in its reasonable business judgment the cost of
obtaining any additional recoveries therefrom would exceed the amount of such
recoveries. The Servicer shall maintain records of each Final Recovery
Determination.
"FINAL SCHEDULED DISTRIBUTION DATE": As set out in Section 2.08(c)
hereof with respect to each Class A Certificate.
"FIRST MORTGAGE LOAN": A Home Equity Loan which constitutes a first
priority mortgage lien with respect to any Property.
"FIXED RATE CERTIFICATES": Any of the Class A-1 Certificates, Class A-2
Certificates, Class A-3 Certificates, Class A-4 Certificates, Class A-5
Certificates and Class A-6 Certificates.
"FNMA": The Federal National Mortgage Association, a
federally-chartered and privately-owned corporation existing under the Federal
National Mortgage Association Charter Act, as amended, or any successor thereof.
"FNMA GUIDE": FNMA's Servicing Guide, as the same may be amended by
FNMA from time to time.
"GROUP I": With respect to the Home Equity Loans, the pool of Home
Equity Loans identified in the related Schedule of Home Equity Loans as having
been assigned to Group I in Schedule I-A hereto, including any Qualified
Replacement Mortgage delivered in replacement thereof.
"GROUP I CERTIFICATES": Any of the Class A-1 Certificates, the Class
A-2 Certificates, the Class A-3 Certificates, the Class A-4 Certificates, the
Class A-5 Certificates and the Class A-6 Certificates.
"GROUP I GUARANTEED PRINCIPAL AMOUNT": Means (a) with respect to any
Distribution Date other than the Distribution Date in_______________,20____, the
Collateralization Deficit with
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respect to Group I for the Distribution Date and (b) with respect to the
Distribution Date in ____________ 20____, the Certificate Principal Balance
of the Group I Certificates after giving effect to distributions thereon on
the Distribution Date (including Insured Payments distributed in respect of
clause (a) above but excluding any other Insured Payment).
"GROUP I MONTHLY REMITTANCE AMOUNT": As of any Monthly Remittance Date,
the sum, without duplication, of (i) all interest received (including any
Delinquency Advances) during the related Remittance Period with respect to the
Home Equity Loans in Group I (net of the Group I Servicing Fees), (ii) all
Compensating Interest paid by the Servicer on such Monthly Remittance Date with
respect to Group I, (iii) the portions of the Loan Purchase Prices and the
Substitution Amount relating to interest on the Home Equity Loans in Group I
paid by the Seller or Servicer on or prior to such Monthly Remittance Date, (iv)
the interest portion of all Net Liquidation Proceeds actually collected by the
Servicer with respect to such Home Equity Loans in Group I during the related
Remittance Period, (v) the principal actually collected by the Servicer with
respect to Home Equity Loans in Group I during the related Remittance Period,
(vi) the outstanding principal balance of each such Home Equity Loan in Group I
that was purchased from the Trustee on or prior to such Monthly Remittance Date,
to the extent such outstanding principal balance was actually deposited in the
Principal and Interest Account, (vii) any Substitution Amounts relating to
principal delivered by the Seller in connection with a substitution of a Home
Equity Loan in Group I, to the extent such Substitution Amounts were actually
deposited in the Principal and Interest Account on or prior to such Monthly
Remittance Date, (viii) the principal portion of all Net Liquidation Proceeds
actually collected by the Servicer with respect to such Home Equity Loans in
Group I during the related Remittance Period (to the extent such Net Liquidation
Proceeds related to principal) and (ix) the amount of investment losses required
to be deposited pursuant to Section 8.08(b).
"GROUP I NET WAC CAP": With respect to any Distribution Date, a rate
per annum equal to the weighted average of the Net Coupon Rates on the Group I
Home Equity Loans as of the beginning of the related Remittance Period.
"GROUP II": With respect to the Home Equity Loans, the pool of Home
Equity Loans identified in the related Schedule of Home Equity Loans as having
been assigned to Group II in Schedule I-B hereto, including any Qualified
Replacement Mortgage delivered in replacement thereof.
"GROUP II CERTIFICATES": The Class A-7 Certificates.
"GROUP II GUARANTEED PRINCIPAL AMOUNT": Means (a) with respect to any
Distribution Date other than the Distribution Date in ___________ 20____, the
Collateralization Deficit with respect to Group II for the Distribution Date and
(b) with respect to the Distribution Date in __________ 20____, the Certificate
Principal Balance of the Group II Certificates after giving effect to
distributions thereon on the Distribution Date (including Insured Payments
distributed in respect of clause (a) above but excluding any other Insured
Payment).
"GROUP II MONTHLY REMITTANCE AMOUNT": As of any Monthly Remittance
Date, the sum, without duplication, of (i) all interest received (including any
Delinquency Advances) during the
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<PAGE>
related Remittance Period with respect to the Home Equity Loans in Group II
(net of the Group II Servicing Fee), (ii) all Compensating Interest paid by
the Servicer on such Monthly Remittance Date with respect to Group II, (iii)
the portion of the Loan Purchase Prices and Substitution Amount relating to
interest on the Home Equity Loans in Group II paid by the Seller or the
Servicer on or prior to such Monthly Remittance Date, (iv) the interest
portion of all Net Liquidation Proceeds actually collected by the Servicer
with respect to the Home Equity Loans in Group II during the related
Remittance Period, (v) the principal actually collected by the Servicer with
respect to Home Equity Loans in Group II during the related Remittance
Period, (vi) the outstanding principal balance of each such Home Equity Loan
in Group II that was purchased from the Trustee on or prior to such Monthly
Remittance Date, to the extent such outstanding principal balance was
actually deposited in the Principal and Interest Account, (vii) any
Substitution Amounts relating to principal delivered by the Seller in
connection with a substitution of a Home Equity Loan in Group II, to the
extent such Substitution Amounts were actually deposited in the Principal and
Interest Account on or prior to such Monthly Remittance Date, (viii) the
principal portion of all Net Liquidation Proceeds actually collected by the
Servicer with respect to such Home Equity Loans in Group II during the
related Remittance Period (to the extent such Net Liquidation Proceeds
related to principal) and (ix) the amount of investment losses required to be
deposited pursuant to Section 8.08(b).
"GROUP II NET WAC CAP": With respect to any Distribution Date will
be the rate per annum equal to the weighted average Net Coupon Rates of the
Group II Home Equity Loans as of the beginning of the related Remittance
Period minus the Minimum Spread.
"HIGHEST LAWFUL RATE": As defined in Section 11.13 hereof.
"HOME EQUITY LOAN ASSETS": has the meaning set forth under the
heading "CONVEYANCE" herein.
"HOME EQUITY LOAN GROUP" or "GROUP": Group I or Group II, as the
case may be. References herein to the related Class of Class A Certificates,
when used with respect to a Home Equity Loan Group, shall mean (A) in the
case of Group I, the Group I Certificates and (B) in the case of Group II,
the Group II Certificates.
"HOME EQUITY LOANS": The Home Equity Loans together with any
Qualified Replacement Mortgages substituted therefor in accordance with this
Agreement, as from time to time are held as a part of the Trust Estate. Where
applicable, the term "Home Equity Loan" includes (i) the terms "First
Mortgage Loan" and "Second Mortgage Loan", and (ii) any Home Equity Loan
which is Delinquent, relates to a foreclosure or relates to a Property which
is REO Property prior to such REO Property's disposition by the Trust. Any
home equity loan which, although intended by the parties hereto to have been,
and which purportedly was, transferred and assigned to the Trust by the
Depositor, in fact was not transferred and assigned to the Trust for any
reason whatsoever, including, without limitation, the incorrectness of the
statement set forth in Section 3.04(b)(x) hereof with respect to such home
equity loan, shall nevertheless be considered a "Home Equity Loan" for all
purposes of this Agreement.
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<PAGE>
"INDEMNIFICATION AGREEMENT": The Indemnification Agreement dated as
of__________________, 20_____among the Certificate Insurer, the Sellers and
the Underwriters.
"INDIRECT PARTICIPANT": Any financial institution for whom any
Direct Participant holds an interest in a Class A Certificate.
"INSURANCE AGREEMENT": The Insurance Agreement dated as of
______________ __, 2000 among the Depositor, the Sellers, the Servicer, the
Trustee and the Certificate Insurer, as it may be amended from time to time.
"INSURANCE POLICY": Any hazard, flood, title or primary mortgage
insurance policy relating to a Home Equity Loan plus any amount remitted
under Section 8.11 hereof.
"INSURED PAYMENT": Means (a) as of any Distribution Date, any
Deficiency Amount and (b) any Preference Amount.
"INTEREST PERIOD": With respect to each Distribution Date and (i)
the Fixed Rate Certificates, 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 with interest accruing such that interest on the basis of
a 360-day year consisting of twelve 30-day months; and (ii) the Variable Rate
Certificates, the period from and including the preceding Distribution Date
(or the Closing Date in the case of the first Distribution Date) to and
including the day preceding the related Distribution Date with interest
accruing on the basis of the actual number of days in the related Interest
Period and a year of 360 days.
"LATE PAYMENT RATE": As defined in the Insurance Agreement.
"LIBOR": With respect to any Interest Period for the Class A-7
Certificates, the rate determined by the Trustee on the related LIBOR
Determination Date on the basis of the offered rate for one-month U.S. dollar
deposits as such rate appears on Telerate Page 3750 as of 11:00 a.m. (London
time) on such date; provided that if such rate does not appear on Telerate
Page 3750, the rate for such date will be determined on the basis of the
rates at which one-month U.S. dollar deposits are offered by the Reference
Banks at approximately 11:00 a.m. (London time) on such date to prime banks
in the London interbank market. In such event, the Trustee will request the
principal London office of each of the Reference Banks to provide a quotation
of its rate. If at least two such quotations are provided, the rate for that
date will be the arithmetic mean of the quotations (rounded upwards if
necessary to the nearest whole multiple of ___%). If fewer than two quotations
are provided as requested, the rate for that date will be the arithmetic mean
of the rates quoted by major banks in New York City, selected by the
Servicer, at approximately 11:00 a.m. (New York City time) on such date for
one-month U.S. dollar loan to leading European banks.
"LIBOR DETERMINATION DATE": With respect to any Interest Period for
the Class A-7 Certificates, the second London Business Day preceding the
commencement of such Interest Period (or in the case of the initial Interest
Period, ______________ __, 20__).
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"LIQUIDATED LOAN": A Home Equity Loan as to which a Final Recovery
Determination has been made.
"LIQUIDATION PROCEEDS": With respect to any Liquidated Loan, all
amounts (including the proceeds of any Insurance Policy) recovered by the
Servicer in connection with such Liquidated Loan, whether through trustee's
sale, foreclosure sale or otherwise.
"LOAN BALANCE": With respect to each Home Equity Loan and as of any
date of determination, the actual outstanding principal balance thereof on
the Cut-Off Date or relevant Replacement Cut-Off Date with respect to the
Qualified Replacement Mortgages less any principal payments relating to such
Home Equity Loan included in previous Monthly Remittance Amounts, PROVIDED,
HOWEVER, that the Loan Balance for any Home Equity Loan that has become a
Liquidated Loan shall be zero as of the first day of the Remittance Period
following the Remittance Period in which such Home Equity Loan becomes a
Liquidated Loan, and at all times thereafter.
"LOAN PURCHASE PRICE": With respect to any Home Equity Loan
purchased from the Trust on or prior to a Monthly Remittance Date pursuant to
Section 3.04, 3.06(b) or 8.10(b) hereof, an amount equal to the outstanding
principal balance of such Home Equity Loan as of the date of purchase
(assuming that the Monthly Remittance Amount remitted by the Servicer on such
Monthly Remittance Date has already been remitted), plus all accrued and
unpaid interest on such Home Equity Loan at the Coupon Rate to but not
including the date of such purchase together with (without duplication) the
aggregate amounts of (i) all unreimbursed Delinquency Advances and Servicing
Advances theretofore made with respect to such Home Equity Loan, (ii) all
Delinquency Advances which the Servicer has theretofore failed to remit with
respect to such Home Equity Loan and (iii) all reimbursed Delinquency
Advances and Servicing Advances to the extent that reimbursement is not made
from the Mortgagor.
"LONDON BUSINESS DAY": Any day on which dealings in deposits of
United States dollars are transacted in the London interbank market.
"LOAN-TO-VALUE RATIO": As of any particular date (i) with respect to
any First Mortgage Loan, the percentage obtained by dividing the Appraised
Value into the original principal balance of the Note relating to such First
Mortgage Loan and (ii) with respect to any Second Mortgage Loan, the
percentage obtained by dividing the Appraised Value as of the date of
origination of such Second Mortgage Loan into an amount equal to the sum of
(a) the remaining principal balance of the Senior Lien relating to such First
Mortgage Loan as of the date of origination of the related Second Mortgage
Loan and (b) the original principal balance of the Note relating to such
Second Mortgage Loan.
"MANUFACTURED HOME": A unit of manufactured housing, including all
accessions thereto, securing the indebtedness of the Mortgagor under the
related Home Equity Loan treated as real estate under applicable state law.
"MAXIMUM RATE": With respect to any Home Equity Loan in Group II,
means the maximum rate at which interest may accrue on such Home Equity Loan.
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"MINIMUM SPREAD": A percentage per annum equal to ___% for
Distribution Dates which occur prior to___________________ 20__ and ___%
for Distribution Dates which occur in ___________ 20__ or thereafter.
"MONTHLY PAYMENT": With respect to any Home Equity Loan and any
Remittance Period, the payment of principal, if any, and interest due on the
Due Date in such Remittance Period pursuant to the related Note.
"MONTHLY REMITTANCE AMOUNT": The sum of the Group I Monthly
Remittance Amount and the Group II Monthly Remittance Amount.
"MONTHLY REMITTANCE DATE": The 18th day of each month, or if the
18th day is not a Business Day, the preceding Business Day.
"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 Note.
"MORTGAGOR": The obligor on a Note.
"NET COUPON RATE": With respect to any Home Equity Loan in Group I
or Group II, means a rate per annum equal to the Coupon Rate of such Home
Equity Loan minus the sum of (i) the rate at which the Servicing Fee accrues,
(ii) the rate at which the Trustee Fee accrues and (iii) the applicable
Premium Amount (expressed as a per annum percentage of the aggregate Loan
Balance of the Home Equity Loans in Group I or Group II, as applicable).
"NET LIQUIDATION PROCEEDS": As to any Liquidated Loan, Liquidation
Proceeds net of expenses incurred by the Servicer (including unreimbursed
Servicing Advances) in connection with the liquidation of such Home Equity
Loan and unreimbursed Delinquency Advances relating to such Home Equity Loan.
In no event shall Net Liquidation Proceeds with respect to any Liquidated
Loan be less than zero.
"NET MONTHLY EXCESS CASHFLOW": With respect to each Home Equity Loan
Group and Distribution Date, the Available Funds remaining for such Home
Equity Loan Group, if any, after the application of clauses (i) through (vi)
of Section 7.03(b).
"90-DAY DELINQUENT LOAN": With respect to any Determination Date,
all REO Properties and each Home Equity Loan, with respect to which any
portion of a Monthly Payment is, as of the last day of the prior Remittance
Period, three months (calculated from Due Date with respect to such Home
Equity Loan to Due Date) or more past due (without giving effect to any grace
period).
"90+ DELINQUENCY PERCENTAGE (ROLLING THREE MONTH)": With respect to
any Determination Date, the average of the percentage equivalents of the
fractions determined for each of the three immediately preceding Remittance
Periods (or such fewer number of Remittance Periods since the Cut-Off Date,
in the case of the first two Determination Dates) the
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<PAGE>
numerator of each of which is equal to the sum of (without duplication) (i)
the aggregate Loan Balance of 90-Day Delinquent Loans, and (ii) the aggregate
outstanding principal balance of Home Equity Loans in foreclosure and the
denominator of which is the Loan Balance of all of the Home Equity Loans as
of the end of such Remittance Period.
"NONRECOVERABLE ADVANCE" means with respect to any Home Equity Loan
for which a Final Recovery Determination has been made, any Delinquency
Advance previously made and not reimbursed from proceeds on the related Home
Equity Loan or under Section 7.03(b)(xi) hereof which the Servicer has
determined, in good faith business judgment, as evidenced by an Officer's
Certificate delivered to the Certificate Insurer and the Trustee no later
than the Business Day following such determination, would not be ultimately
recovered.
"NOTE": The note or other evidence of indebtedness evidencing the
indebtedness of a Mortgagor under a Home Equity Loan.
"OFFICER'S CERTIFICATE": A certificate signed by any Authorized
Officer of any Person delivering such certificate and delivered to the
Trustee and the Certificate Insurer.
"OPERATIVE DOCUMENTS": Collectively, this Agreement, the Certificate
Insurance Policies, the Certificates, the Custodial Agreement, the
Indemnification Agreement and the Insurance Agreement.
"OPINION OF COUNSEL": A written Opinion of Counsel acceptable, in
form and substance, to the Trustee and the Certificate Insurer and delivered
to the Trustee and the Certificate Insurer.
"ORIGINAL AGGREGATE LOAN BALANCE": The aggregate Loan Balances of
all Home Equity Loans as of the Cut-Off Date, which is
$__________________________.
"OUTSTANDING": With respect to all Certificates of a Class, as of
any date of determination, all such Certificates theretofore executed and
delivered hereunder except:
(i) Certificates theretofore cancelled by the Registrar or
delivered to the Registrar for cancellation;
(ii) Certificates or portions thereof for which full and final
payment of money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent in trust for the Owners of such
Certificates;
(iii) Certificates in exchange for or in lieu of which other
Certificates have been executed and delivered pursuant to this
Agreement, unless proof satisfactory to the Trustee is presented that
any such Certificates are held by a bona fide purchaser;
(iv) Certificates alleged to have been destroyed, lost or
stolen for which replacement Certificates have been issued as provided
for in Section 5.05 hereof; and
(v) Certificates as to which the Trustee has made the final
distribution thereon, whether or not such Certificate is ever returned
to the Trustee.
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"OVERCOLLATERALIZATION AMOUNT": With respect to each Home Equity
Loan Group and Distribution Date, the excess, if any, of (x) the aggregate
Loan Balance of the Home Equity Loans in the Home Equity Loan Group as of the
close of business on the last day of the preceding Remittance Period over (y)
the aggregate outstanding Certificate Principal Balances of the related Class
A Certificates as of the Distribution Date (after taking into account the
payment of the Class A Principal Distribution Amount related to the Home
Equity Loan Group on the Distribution Date).
"OVERCOLLATERALIZATION RELEASE AMOUNT": As to either the Group I or
Group II Certificates and any Distribution Date, the lesser of (1) the
related Class A Principal Distribution Amount for such Distribution Date and
(2) the excess, if any, of (A) the related Overcollateralization Amount over
(B) the related Target Overcollateralization Amount.
"OWNER": The Person in whose name a Certificate is registered in the
Register, and the Certificate Insurer, to the extent described in Section
12.06 hereof.
"PAYING AGENT": Initially, the Trustee, and thereafter, the Trustee
or any other Person that meets the eligibility standards for the Paying Agent
specified in Section 11.15 hereof and is authorized by the Trustee and the
Depositor to make payments on the Certificates on behalf of the Trustee.
"PERCENTAGE INTEREST": With respect to a Class of Class A
Certificates, a fraction, expressed as a decimal, the numerator of which is
the initial Class A Certificate Principal Balance represented by such Class A
Certificate and the denominator of which is the aggregate initial Class A
Certificate Principal Balance represented by all the Class A Certificates of
such Class. With respect to the Class X-IO or Class R Certificates, the
portion of the Class evidenced thereby, expressed as a percentage, as stated
on the face of such Certificate, all of which shall total [100%] with respect
to the related Class.
"PERSON": Any individual, corporation, limited partnership, limited
liability company, partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"POLICY PAYMENTS ACCOUNT": The policy payments account maintained by
the Trustee pursuant to Section 12.02(b) hereof. The Policy Payments Account
shall be an Eligible Account.
"PREFERENCE AMOUNT": Means any amount previously distributed to an
Owner on the Class A Certificates that is recoverable and sought to be
recovered as a voidable preference by a trustee in bankruptcy pursuant to the
United States Bankruptcy Code (11 U.S.C.), as amended from time to time in
accordance with a final nonappealable order of a court having competent
jurisdiction.
"PREMIUM AMOUNT": As defined in the Insurance Agreement.
"PREPAYMENT": Any payment of principal of a Home Equity Loan which
is received by the Servicer in advance of the scheduled due date for the
payment of such principal and which is not accompanied by an amount of
interest representing the full amount of scheduled interest due
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on any Due Date in any month or months subsequent to the month of prepayment,
Substitution Amounts, the portion of the purchase price of any Home Equity
Loan purchased from the Trust pursuant to Section 3.04, 3.06(b) or 8.10(b)
hereof representing principal and the proceeds of any Insurance Policy which
are to be applied as a payment of principal on the related Home Equity Loan
shall be deemed to be Prepayments for all purposes of this Agreement.
"PRESERVATION EXPENSES": Expenditures made by the Servicer in
connection with a foreclosed Home Equity Loan prior to the liquidation
thereof, including, without limitation, expenditures for real estate property
taxes, hazard insurance premiums, property restoration or preservation.
"PRINCIPAL AND INTEREST ACCOUNT": The principal and interest account
created by the Servicer pursuant to Section 8.08(a) hereof. The Principal and
Interest Account shall be an Eligible Account.
"PROHIBITED TRANSACTION": "Prohibited Transaction" shall have the
meaning set forth from time to time in the definition thereof at Section
860F(a)(2) of the Code (or any successor statute thereto) and applicable to
the Trust.
"PROPERTY": The underlying property securing a Home Equity Loan.
"PROSPECTUS": The Depositor's Prospectus dated ______________
_______, 2000 constituting part of the Registration Statement.
"PROSPECTUS SUPPLEMENT": The Centex Home Equity Loan Trust 2000-__
Prospectus Supplement dated ____________, 2000 to the Prospectus.
"PURCHASE OPTION PERIOD": As defined in Section 9.03(a) hereof.
"QUALIFIED LIQUIDATION": The meaning set forth from time to time in
the definition thereof at Section 860F(a)(4) of the Code (or any successor
statute thereto) and applicable to the Trust.
"QUALIFIED MORTGAGE": The meaning set forth from time to time in the
definition thereof at Section 860G(a)(3) of the Code (or any successor
statute thereto) and applicable to the Trust.
"QUALIFIED REPLACEMENT MORTGAGE": A Home Equity Loan substituted for
another pursuant to Section 3.04 and 3.06(b) hereof, which (i) has a Coupon
Rate at least equal to the Coupon Rate of the Home Equity Loan being
replaced; (ii) is of the same or better property type or is a single family
dwelling and the same or better occupancy status or is a primary residence as
the Home Equity Loan being replaced, (iii) shall mature no later than the
latest Final Scheduled Distribution Date with respect to the related Home
Equity Loan Group, (iv) has a Loan-to-Value Ratio as of the Replacement
Cut-Off Date no higher than the Loan-to-Value Ratio of the replaced Home
Equity Loan at such time, (v) shall be of the same or higher credit quality
classification (determined in accordance with the Seller's credit
underwriting guidelines set forth in the Seller's underwriting manual) as the
Home Equity Loan which such Qualified Replacement Mortgage replaces, (vi)
shall be a First Mortgage Loan if the Home Equity Loan which such Qualified
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Replacement Mortgage replaces was a First Mortgage Loan and shall be a First
Mortgage Loan or Second Mortgage Loan if the Home Equity Loan which such
Qualified Replacement Mortgage replaces was a Second Mortgage Loan, (vii) has
an outstanding principal balance as of the related Replacement Cut-Off Date
equal to or less than the outstanding principal balance of the replaced Home
Equity Loan as of such Replacement Cut-Off Date, (viii) shall not provide for
a "balloon" payment if the related Home Equity Loan did not provide for a
"balloon" payment (and if such related Home Equity Loan provided for a
"balloon" payment, such Qualified Replacement Mortgage shall have an original
maturity of not less than the original maturity of such related Home Equity
Loan), (ix) shall be a fixed rate Home Equity Loan if the Home Equity Loan
being replaced is in Group I or an adjustable rate Home Equity Loan if the
Home Equity Loan being replaced is in Group II, (x) satisfies the criteria
set forth from time to time in the definition thereof at Section 860G(a)(4)
of the Code (or any successor statute thereto) and applicable to the Trust,
(xi) satisfies the representations and warranties set forth in Section
3.04(b) hereof, (xii) shall not be 30 days or more delinquent and (xiii) if
such Home Equity Loan being replaced is in the Group II, shall adjust based
on the same index, have no lower margin, have the same interval between
adjustment dates and have a maximum Coupon Rate no lower than, and a minimum
Coupon Rate no lower than the Home Equity Loan being replaced. In the event
that one or more home equity loans are proposed to be substituted for one or
more Home Equity Loans, the Certificate Insurer may allow the foregoing tests
to be met on a weighted average basis or other aggregate basis acceptable to
the Certificate Insurer, as evidenced by a written approval delivered to the
Trustee by the Certificate Insurer, except that the requirements of clauses
(i), (iii), (iv), (ix), (x), (xi) and (xii) hereof must be satisfied as to
each Qualified Replacement Mortgage.
"RATING AGENCIES": Collectively, Moody's and Standard & Poor's.
"REALIZED LOSS": As to any Liquidated Loan (or, in the case of a
Cram Down Loss a Home Equity Loan that is not a Liquidated Loan), the amount
(not less than zero), if any, by which (A) the sum of (x) the Loan Balance
thereof as of the date of liquidation, (y) the amount of accrued but unpaid
interest thereon and (z) the amount of any Cram Down Loss with respect
thereto is in excess of (B) the Net Liquidation Proceeds, if any, realized
thereon applied in reduction of such Loan Balance.
"RECORD DATE": With respect to (i) any Distribution Date and each
Class of Fixed Rate Certificates, the last Business Day of the calendar month
immediately preceding the calendar month in which such Distribution Date
occurs and (ii) any Distribution Date and the Variable Rate Certificates, the
Business Day immediately preceding such Distribution Date, or if Definitive
Certificates have been issued, the last Business Day of the calendar month
immediately preceding the calendar month in which such Distribution Date
occurs.
"REFERENCE BANKS": Bankers Trust Company, Barclays Bank PLC, The
Bank of Tokyo and National Westminster Bank PLC, PROVIDED that if any of the
foregoing banks are not suitable to serve as a Reference Bank, then any
leading banks selected by CHEC which are engaged in transactions in
Eurodollar deposits in the international Eurocurrency market (i) with an
established place of business in London, (ii) which are not Affiliates of the
Seller, (iii) whose quotations appear on Telerate Page 3750 on the relevant
LIBOR Determination Date and (iv) which have been designated as such by the
Seller.
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"REGISTER": The register maintained by the Registrar in accordance
with Section 5.04 hereof, in which the names of the Owners are set forth.
"REGISTRAR": The Trustee, acting in its capacity as Registrar
appointed pursuant to Section 5.04 hereof, or any duly appointed and eligible
successor thereto.
"REGISTRATION STATEMENT": The Registration Statement filed by the
Depositor with the Securities and Exchange Commission (Registration Number
333-93255), including all amendments thereto and including the Prospectus and
Prospectus Supplement relating to the Class A Certificates.
"REIMBURSEMENT AMOUNT": With respect to each Home Equity Loan Group
and any Distribution Date, the sum of (x)(i) all Insured Payments previously
paid to the Trustee by the Certificate Insurer and not previously repaid to
the Certificate Insurer pursuant to Section 7.03(b) hereof plus (ii) interest
accrued on each such Insured Payment not previously repaid calculated at the
Late Payment Rate and (y)(i) any amounts then due and owing to the
Certificate Insurer under the Insurance Agreement (including, without
limitation, any unpaid Premium Amount relating to such Distribution Date or
an earlier Distribution Date) plus (ii) interest on such amounts at the Late
Payment Rate. The Certificate Insurer shall notify the Trustee, the Depositor
and the Seller in writing of the amount of any Reimbursement Amount.
"REMIC": A "real estate mortgage investment conduit" within the
meaning of Section 860D of the Code.
"REMIC I": The segregated group of assets consisting of the REMIC II
Regular Interests as defined in Section 2.08 and constituting a REMIC created
hereunder.
"REMIC II": The segregated pool of assets consisting of all the
assets of the Trust Estate other than the Supplemental Interest Reserve
Account and the REMIC I Regular Interests and constituting a REMIC created
hereunder. Expenses and fees of the Trust shall be paid from REMIC II.
"REMIC OPINION": As defined in Section 3.04 hereof.
"REMIC PROVISIONS": Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Section
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations and revenue rulings promulgated thereunder, as
the foregoing may be in effect from time to time.
"REMITTANCE PERIOD": With respect to each Monthly Remittance Date,
the calendar month immediately preceding such Monthly Remittance Date.
"REO PROPERTY": A Property acquired by the Servicer on behalf of the
Trust through foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted Home Equity Loan.
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"REPLACEMENT CUT-OFF DATE": With respect to any Qualified
Replacement Mortgage, the opening of business of the first day of the
calendar month in which such Qualified Replacement Mortgage is conveyed to
the Trust.
"REPRESENTATION LETTER": Letters to, or agreements with, the
Depository to effectuate a book entry system with respect to the Class A
Certificates registered in the Register under the nominee name of the
Depository.
"RESIDUAL NET MONTHLY EXCESS CASHFLOW": With respect to any
Distribution Date, the aggregate Available Funds, if any, remaining after the
making of all applications, transfers and disbursements described in Sections
7.03(b)(i) through 7.03(b)(xii) hereof. It is anticipated that there will not
be any Residual Net Monthly Excess Cashflow.
"SCHEDULE OF HOME EQUITY LOANS": The Seller's Schedule of Home
Equity Loans.
"SCHEDULED PRINCIPAL PAYMENT": As of any date of calculation, with
respect to a Home Equity Loan, the then stated scheduled monthly installment
of principal payable thereunder which, if timely paid, would result in the
full amortization of principal over the term thereof (or, in the case of a
"balloon" Note, the term to the nominal maturity date for amortization
purposes, without regard to the actual maturity date), without taking into
account any Prepayment made on such Home Equity Loan during the then-current
Remittance Period.
"SECOND MORTGAGE LOAN": A Home Equity Loan which constitutes a
second priority mortgage lien with respect to the related Property.
"SECURITIES ACT": The Securities Act of 1933, as amended.
"SELLER": Centex Credit Corporation d/b/a Centex Home Equity
Corporation, a Nevada corporation.
"SELLER HOME EQUITY LOANS": The home equity loans listed on the
Seller Schedule of Home Equity Loans.
"SELLER": The Seller.
"SENIOR LIEN": With respect to any Second Mortgage Loan, the home
equity loan relating to the corresponding Property having a first priority
lien.
"SERVICER": Centex Credit Corporation d/b/a Centex Home Equity
Corporation, a Nevada corporation, and its permitted successors and assigns.
"SERVICER LOSS TEST": The Servicer Loss Test for any period set out
below is satisfied, if the Cumulative Loss Percentage for such period does
not exceed the percentage set out for such period below (provided, that for
purposes of the Servicer Loss Test, Realized Losses attributable solely to
Cram Down Losses should be excluded from the calculation of Cumulative Loss
Percentage):
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<TABLE>
<CAPTION>
PERIOD CUMULATIVE LOSS PERCENTAGE
------ --------------------------
<S> <C>
January 20__ - December 20__ ____%
January 20__ - December 20__ ____%
January 20__ - December 20__ ____%
January 20__ - December 20__ ____%
January 20__ - December 20__ ____%
January 20__ and thereafter ____%
</TABLE>
"SERVICER TERMINATION EVENT": As defined in Section 8.20(a) hereof.
"SERVICER TERMINATION TEST": The Servicer Termination Test
is satisfied for any date of determination thereof, if (w) the
Servicer's Tangible Net Worth is at least the greater of (a) $
_________ and (b) the amount required pursuant to any credit
facility of the Servicer, (x) the 90+ Delinquency Percentage
(Rolling Three Month) is less than or equal to ___%, (y) the
Servicer Loss Test is satisfied and (z) the Annual Loss Percentage
(Rolling Twelve Month) for the twelve month period immediately
preceding the date of determination thereof is not greater than
____%.
"SERVICING ADVANCE": As defined in Section 8.09(b) and Section 8.13(a)
hereof.
"SERVICING FEE": With respect to any Home Equity Loan Group and a
Remittance Period, an amount retained by the Servicer as compensation for
servicing and administration duties relating to the Home Equity Loans in such
Home Equity Loan Group pursuant to Section 8.15 hereof and equal to one month's
interest at ____% per annum of the then outstanding principal balance of
such Home Equity Loans as of the first day of each Remittance Period payable on
a monthly basis; provided, however, that if a successor Servicer is appointed
pursuant to Section 8.20 hereof, the Servicing Fee shall be the amount as agreed
upon by the Trustee, the Certificate Insurer and the successor Servicer, and the
per annum rate at which the Servicing Fee is calculated shall not exceed
__% per annum.
"60-DAY DELINQUENT LOAN": With respect to any Determination Date, all
REO Properties and each Home Equity Loan, with respect to which any portion of a
Monthly Payment is, as of the last day of the prior Remittance Period, two
months (calculated from Due Date with respect to such Home Equity Loan to Due
Date) or more past due (without giving effect to any grace period).
"STANDARD & POOR'S": Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. or any successor thereto.
"STARTUP DAY": ________________, 20__.
"SUB-SERVICER": Any Person with whom the Servicer has entered into a
Sub-Servicing Agreement and who satisfies any requirements set forth in Section
8.03 hereof in respect of the qualification of a Sub-Servicer.
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"SUB-SERVICING AGREEMENT": The written contract between the Servicer
and any Sub-Servicer relating to servicing and/or administration of certain Home
Equity Loans as permitted by Section 8.03.
"SUBSTITUTION AMOUNT": With respect to the substitution of any
Qualified Replacement Mortgage for any Home Equity Loan, as of the related
Replacement Cut-Off Date, the excess, if any, of the outstanding principal
balance of such Home Equity Loan over the outstanding principal balance of the
Qualified Replacement Mortgage, together with the aggregate amount of all
Delinquency Advances and Servicing Advances made, and all accrued and unpaid
interest with respect to such Home Equity Loan.
"SUPPLEMENTAL INTEREST RESERVE FUND": The Supplemental Interest Reserve
Fund established and maintained as described in Section 7.02(a).
"TANGIBLE NET WORTH": Shall mean the difference between: (A) the
tangible assets of the Seller or Servicer, as applicable, and its Affiliates
calculated in accordance with GAAP, as reduced by adequate reserves in each case
where a reserve is appropriate; and (B) all indebtedness, including subordinated
debt, of the Seller or Servicer, as applicable, and its Affiliates; provided,
however, that (i) intangible assets such as patents, trademarks, trade names,
copyrights, licenses, good will, organization costs, advances or loans to, or
receivables from directors, officers, employees or affiliates, prepaid assets,
amounts relating to covenants not to compete, pension assets, deferred charges
or treasury stock of any securities unless the same are readily marketable in
the United States of America or are entitled to be used as a credit against
federal income tax liabilities, shall not be included in the calculation of (A)
above, (ii) securities included as tangible assets shall be valued at their
current market price or costs, whichever is lower and (iii) any write-up in book
value of any assets shall not be taken into account.
"TARGET DEFICIENCY": As to either the Group I or Group II Certificates
and any Distribution Date, the excess, if any, of (1) the related Target
Overcollateralization Amount for such Distribution Date over (2) the related
Overcollateralization Amount for such Distribution Date after giving effect to
the distribution of the related Class A Principal Distribution Amount on such
Distribution Date; provided, however, that in no event will the Target
Deficiency be less than zero.
"TARGET OVERCOLLATERALIZATION AMOUNT": The required level
of the Overcollateralization Amount for each Home Equity Loan Group
with respect to a Distribution Date. The Target
Overcollateralization Amount for Group I is set forth in Exhibit L
hereof. The Target Overcollateralization Amount for Group II is set
forth in Exhibit K hereof.
"TAX MATTERS PERSON": The Person designated pursuant to Section 11.18
hereof to act as the Tax Matters Person under the Code (or where the context
requires, the Trustee acting as agent for the Tax Matters Person).
"TELERATE PAGE 3750": The display designated as page "3750" on the
Bridge Telerate Service (or such other page as may replace page 3750 on that
report for the purpose of displaying London interbank offered rates of major
banks).
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"TERMINATION NOTICE": As defined in Section 9.03(a) hereof.
"TERMINATION PRICE": Means, with respect to Sections 9.02 and 9.03
hereof, and on any date of determination thereof, an amount equal to the sum of
(w) the greater of (i) [100%] of the aggregate outstanding principal balances of
the Home Equity Loans as of such date of determination less amounts remitted to
the Principal and Interest Account representing collections of principal on the
Home Equity Loans during the current Remittance Period, and (ii) the greater of
(A) the outstanding Certificate Principal Balance for the Class A Certificates
and (B) the fair market value of such Home Equity Loans (disregarding accrued
interest), (x) one month's interest on such amount (calculated at the Adjusted
Certificate Rate), (y) all Reimbursement Amounts and (z) the sum of the
aggregate amount of any unreimbursed Delinquency Advances, Servicing Advances,
Compensating Interest and any Delinquency Advances which the Servicer has
theretofore failed to remit.
"TOTAL AVAILABLE FUNDS": As to each Distribution Date and a Home Equity
Loan Group is the sum of (x) the amount on deposit in the Certificate Account
with respect to the Home Equity Loan Group and (y) any amounts on deposit in the
Certificate Account with respect to the other Home Equity Loan Group to be
applied to the related Classes of Class A Certificates pursuant to Section
7.03(b)(v) on the Distribution Date (disregarding the amount of any Insured
Payment to be made on the Distribution Date).
"TRANSITION EXPENSES": Expenses incurred by the Trustee in connection
with the transfer of servicing upon the termination of the Servicer for a
Servicer Termination Event; provided that the amount shall not exceed [$50,000]
in any one calendar year (and no more than [$100,000] in the aggregate).
"TRUST": Centex Home Equity Loan Trust 2000-__, the trust created under
this Agreement which shall be comprised of two sub-trusts; one for Group I and
any Trust assets allocable to such Group I and the other for Group II and any
Trust assets allocable to such Group II.
"TRUST ESTATE": (a) The Home Equity Loan Assets and (b) such amounts as
may be held by the Trustee in the Certificate Account, together with investment
earnings on such amounts and such amounts as may be held in the name of the
Trustee in the Principal and Interest Account, if any, inclusive of investment
earnings thereon, whether in the form of cash, instruments, securities or other
properties (including any Eligible Investments held by the Servicer).
"TRUSTEE": __________________________, a __________________ banking
[corporation/association], not in its individual capacity but solely as Trustee
under this Agreement, and any successor hereunder.
"TRUSTEE FEE": The fee payable monthly to the Trustee on
each Distribution Date in an amount equal to ___th of $_______ .
For purposes of determining the Trustee Fee related to a Home
Equity Loan or Home Equity Loan Group as of the first day of the
related Remittance Period, such fee will be allocated among all the
Home Equity Loans in proportion to their outstanding principal
balances.
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"TRUSTEE REIMBURSABLE EXPENSES": As of any Distribution Date, the sum
of (a) any Trustee Fee and Transition Expenses not paid pursuant to clauses (i)
or (iv) of Section 7.03(b) on such Distribution Date and (b) any amounts owed
pursuant to Sections 2.05, 6.12, 7.06, 8.20(o), 10.07, 10.13, 11.16(a)(v),
11.16(g) hereof, and, if the Trustee is acting as Custodian, any Custodial Fees
(including all attorney fees and expenses).
"UNDERWRITERS": ______________________________________.
"VARIABLE RATE CERTIFICATES": The Class A-7 Certificates.
"VOTING RIGHTS": The portion of the voting rights of all
of the Certificates which is allocated to any Certificate. As of
any date of determination, (a) _______% of all Voting Rights shall
be allocated to the Class X-IO Certificates (such Voting Rights to
be allocated among the holders of Certificates of such Class in
accordance with their respective Percentage Interests), (b) ______%
of all Voting Rights shall be allocated to the Class R Certificates
in the aggregate, or if separate Class R-1 and Class R-2
Certificates are issued, (_____% to each such Class (such Voting
Rights to be allocated among the holders of Certificates of each
such Class in accordance with their respective Percentage
Interests), and (c) the remaining Voting Rights shall be allocated
among Holders of the Classes of Class A Certificates in proportion
to the Certificate Principal Balances of their respective Class A
Certificates on such date.
"WEIGHTED AVERAGE CERTIFICATE RATE": As to the Class A
Certificates and any Distribution Date, the weighted average of the
Class A-l Certificate Rate, the Class A-2 Certificate Rate, the
Class A-3 Certificate Rate, the Class A-4 Certificate Rate, the
Class A-5 Certificate Rate, the Class A-6 Certificate Rate and the
Class A-7 Certificate Rate, weighted by, respectively, the Class
A-l Certificate Principal Balance, the Class A-2 Certificate
Principal Balance, the Class A-3 Certificate Principal Balance, the
Class A-4 Certificate Principal Balance, the Class A-5 Certificate
Principal Balance, the Class A-6 Certificate Principal Balance and
the Class A-7 Certificate Principal Balance as of such Distribution
Date prior to taking into account any distributions to be made on
such Distribution Date.
Section 1.02. USE OF WORDS AND PHRASES.
"Herein," "hereby," "hereunder," "hereof," "hereinbefore,"
"hereinafter" and other equivalent words refer to this Agreement as a whole and
not solely to the particular section of this Agreement in which any such word is
used. The definitions set forth in Section 1.01 hereof include both the singular
and the plural. Whenever used in this Agreement, any pronoun shall be deemed to
include both singular and plural and to cover all genders.
Section 1.03. CAPTIONS; TABLE OF CONTENTS.
The captions or headings in this Agreement and the Table of Contents
are for convenience only and in no way define, limit or describe the scope and
intent of any provisions of this Agreement.
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Section 1.04. OPINIONS.
Each opinion with respect to the validity, binding nature and
enforceability of documents or Certificates may be qualified to the extent that
the same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the of creditors' rights generally
and by general principles of equity (whether considered in a proceeding or
action in equity or at law) and may state that no opinion is expressed on the
availability of the remedy of specific enforcement, injunctive relief or any
other equitable remedy. Any opinion required to be furnished by any Person
hereunder must be delivered by counsel upon whose opinion the addressee of such
opinion may reasonably rely, and such opinion may state that it is given in
reasonable reliance upon an opinion of another, a copy of which must be
attached, concerning the laws of a foreign jurisdiction. Any opinion delivered
hereunder shall be addressed to the Rating Agencies, the Certificate Insurer and
the Trustee.
END OF ARTICLE I
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ARTICLE II
ESTABLISHMENT AND ORGANIZATION OF THE TRUST
Section 2.01. ESTABLISHMENT OF THE TRUST.
The parties hereto do hereby create and establish, pursuant to the laws
of the State of New York and this Agreement, the Trust, which, for convenience,
shall be known as "Centex Home Equity Loan Trust 2000-__" and which shall
contain two subtrusts.
Section 2.02. OFFICE.
The office of the Trust shall be in care of the Trustee, addressed to
_________________, at its Corporate Trust Office.
Section 2.03. PURPOSES AND POWERS.
The purpose of the Trust is to engage in the following activities and
only such activities: (i) the issuance of the Certificates and the acquiring,
owning and holding of Home Equity Loans and the Trust Estate in connection
therewith; (ii) activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected therewith,
including the investment of moneys in accordance with this Agreement; and (iii)
such other activities as may be required in connection with conservation of the
Trust Estate and distributions to the Owners; PROVIDED, HOWEVER, that nothing
contained herein shall permit the Trustee to take any action which would
adversely affect the status of either REMIC I or REMIC II as a REMIC.
Section 2.04. APPOINTMENT OF THE TRUSTEE; DECLARATION OF TRUST.
The Depositor hereby appoints the Trustee as trustee of the Trust
effective as of the Startup Day, to have all the rights, powers and duties set
forth herein. The Trustee hereby acknowledges and accepts such appointment,
represents and warrants its eligibility as of the Startup Day to serve as
Trustee pursuant to Section 10.08 hereof and declares that it will hold the
Trust Estate in trust upon and subject to the conditions set forth herein for
the benefit of the Owners and the Certificate Insurer.
Section 2.05. EXPENSES OF THE TRUST.
All expenses of the Trust, including (i) the fees and reimbursable
expenses of the Trustee in connection with the performance of its duties
hereunder and (ii) to the extent not set forth herein, any other expenses of the
Trustee that have been reviewed and approved by the Seller, which review shall
not be required in connection with the enforcement of a remedy by the Trustee
resulting from a default under this Agreement shall be paid directly by the
Seller. Failure by the Seller to pay any such fees or other expenses shall not
relieve the Trustee of its obligations hereunder.
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Section 2.06. OWNERSHIP OF THE TRUST.
On the Startup Day the ownership interests in the Trust shall be
transferred as set forth in Section 4.02 hereof, such transfer to be evidenced
by sale of the Certificates as described therein. Thereafter, transfer of any
ownership interest shall be governed by Sections 5.04 and 5.08 hereof.
Section 2.07. SITUS OF THE TRUST.
It is the intention of the parties hereto that the Trust constitute a
trust under the laws of the State of New York. The Trust will be created in the
State of New York. The Trust's only office will be at the office of the Trustee
as set forth in Section 2.02 hereof.
Section 2.08. DESIGNATION OF INTERESTS IN REMICS.
(a) The Trustee shall elect that each of REMIC I and REMIC II
(which together constitute the Trust) shall be treated as a REMIC under Section
860D of the Code. Any inconsistencies or ambiguities in this Agreement or in the
administration of this Agreement shall be resolved in a manner that preserves
the validity of such REMIC elections. The assets of REMIC II shall include the
Home Equity Loans, the Accounts, any REO Property and any proceeds of the
foregoing. The REMIC II Regular Interests shall constitute the assets of REMIC
I.
(b) REMIC II will be evidenced by (x) the Class II-A-1, Class
II-A-2, Class II-A-3, Class II-A-4, Class II-A-5, Class II-A-6, Class II-A-7,
Class II-M-1 and Class II-M-2 Interests (the "REMIC II Regular Interests"),
which will be uncertificated and non-transferable and are hereby designated as
the "regular interests" in REMIC II and (y) the Class R-2 Certificates, which
are hereby designated as the single "residual interest" in REMIC II (the REMIC
II Regular Interests, together with the Class R-2 Certificates, the "REMIC II
Certificates"). The REMIC II Regular Interests shall be recorded on the records
of REMIC II as being issued to and held by the Trustee on behalf of REMIC I.
Any Net Monthly Excess Cashflow that is used to pay an Extra
Principal Distribution Amount pursuant to Section 7.03(b) (the "Turbo
Amount") and that is payable from interest on the Home Equity Loans will not
be paid as principal to the REMIC II Regular Interests, but instead a portion
of the interest payable with respect to the Class II-M-1 Interest which
equals ___% of the Turbo Amount that is applied to Group I Certificates will
be payable as a reduction of the principal balances of the Class II-A-1,
Class II-A-2, Class II-A-3, Class II-A-4, Class II-A-5 and Class II-A-6
Interests, in the same manner in which the Turbo Amount is allocated among
the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6
Certificates, respectively, and a portion of the interest payable with
respect to the Class II-M-2 Interest which equals_____ % of the Turbo Amount
that is applied to the Group II Certificates will be payable as a reduction
of the principal balances of the Class II-A-7 Interests (and will be accrued
and added to principal on the Class II-M-1 and Class II-M-2 Interests in the
same proportion as interest otherwise payable on such REMIC II Regular
Interests is used to reduce principal on other REMIC II Regular Interests as
just described). Principal payments on Group I shall be allocated ______% to the
Class II-M-1 Interest, and ___% to the Class II-A-1,
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Class II-A-2, Class II-A-3, Class II-A-4, Class II-A-5 and Class II-A-6
Interests until paid in full. The aggregate amount of principal allocated to
the Class II-A-1, Class II-A-2, Class II-A-3, Class II-A-4, Class II-A-5 and
Class II-A-6 Interests shall be apportioned among such REMIC II Regular
Interests in the same manner in which principal from Group I is payable with
respect to the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and
Class A-6 Certificates, respectively. Notwithstanding the above, principal
payments on Group I that are attributable to the Overcollateralization
Release Amount shall be allocated _____% to the Class II-M-1 Interest.
Principal payments on Group II shall be allocated ______% to the Class II-M-2
Interest and ______% to the Class II-A-7 Interests until paid in full.
Notwithstanding the above, the principal payments on Group II that are
attributable to the Overcollateralization Release Amount shall be allocated
_______ % to the Class II-M-2 Interest. Realized losses shall be applied such
that after all distributions have been made on such Distribution Date: (i)
the principal balances of the Class II-A-1, Class II-A-2, Class II-A-3, Class
II-A-4, Class II-A-5, Class II-A-6 and Class II-A-7 Interests are each
________% of the principal balances of the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6 and Class A-7 Certificates, respectively;
(ii) the principal balance of the Class II-M-1 Interest is equal to the
aggregate Loan Balance of Group I less the sum of the principal balances of
the Class II-A-1, Class II-A-2, Class II-A-3, Class II-A-4, Class II-A-5 and
Class II-A-6 Interests; and (iii) the principal balance of the Class II-M-2
Interest is equal to the aggregate Loan Balance of Group II less the
principal balance of the Class II-A-7 Interests. The REMIC II Certificates
will have the following designations and Certificate Rates, and distributions
of principal and interest thereon shall be allocated to the Certificates in
the following manner:
<TABLE>
<CAPTION>
REMIC II Allocation of Allocation of
Certificates Initial Balance Certificate Rate Principal Interest
------------ --------------- ---------------- --------- --------
<S> <C> <C> <C> <C>
II-A-1 $ (1) (3) (4)(5)
II-A-2 $ (1) (3) (4)(5)
II-A-3 $ (1) (3) (4)(5)
II-A-4 $ (1) (3) (4)(5)
II-A-5 $ (1) (3) (4)(5)
II-A-6 $ (1) (3) (4)(5)
II-A-7 $ (2) (3) (4)(6)
II-M-1 $ (1) (3) (4)(5)
II-M-2 $ (2) (3) (4)(6)
R-2 $ 0% N/A N/A(7)
---------------
</TABLE>
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<PAGE>
(1) The Certificate Rate on this REMIC II Regular Interest shall
at any time of determination equal the weighted average of the Net Coupon Rates
of the Home Equity Loans in Group I.
(2) The Certificate Rate on this REMIC II Regular Interest shall
at any time of determination equal the weighted average of the Net Coupon Rates
(each calculated without regard to the subtraction of the Minimum Spread) of the
Home Equity Loans in Group II.
(3) Principal will be allocated to and apportioned among the Class
A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6 and Class A-7
Certificates in the same proportion as principal from the Home Equity Loans is
payable with respect to such Certificates, except that a portion of such
principal in an amount equal to the Overcollateralization Release Amount shall
first be allocated to the Class X-IO Certificates, and all principal will be
allocated to the Class X-IO Certificates after the principal balances of the
Group I and Group II Certificates have been reduced to zero.
(4) Except as provided in footnotes (5) and (6), interest will be
allocated among the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class
A-6 and Class A-7 Certificates in the same proportion as interest is payable on
such Certificates.
(5) Any interest with respect to this REMIC II Certificate in
excess of the product of (i) 10,000 times the weighted average coupon of the
Class II-A-1, Class II-A-2, Class II-A-3, Class II-A-4, Class II-A-5, Class
II-A-6 and Class II-M-1 Interests where each of the Class II-A-1, Class II-A-2,
Class II-A-3, Class II-A-4, Class II-A-5, Class II-A-6 Interests is subject to a
cap and floor equal to the rate on each of Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5 and Class A-6 Certificates, respectively and the Class
II-M-1 Interest is subject to a cap equal to 0% and (ii) the principal balance
of this REMIC II Certificate, shall not be allocated to the Group I or Group II
Certificates but will be allocated to the Class X-IO Certificates. However, the
Class X-IO Certificates shall be subordinated to the extent provided in Section
7.03.
(6) Any interest with respect to this REMIC II Certificate in
excess of the product of (i) 10,000 times the weighted average coupon of the
Class II-A-7 and Class II-M-2 Interests, where the Class II-A-7 Interest is
subject to a cap and floor equal to the lesser of the rate on Class A-7
Certificate or the Group II Net WAC Cap, and the Class II-M-2 Interest is
subject to a cap equal to 0% and (ii) the principal balance of this REMIC II
Certificate, shall not be allocated to the Group I or Group II Certificates, but
will be allocated to the Class X-IO Certificates. However, the Class X-IO
Certificates shall be subordinated to the extent provided in Section 7.03.
(7) On each Distribution Date, available funds, if any, remaining
in REMIC II after payments of interest and principal and expenses of the Trust,
as designated above, will be distributed to the Class R-2 Certificate. The Class
II-A-1, Class II-A-2, Class II-A-3, Class II-A-4, Class II-A-5 and Class II-A-6
Certificates are the "Group I Marker Classes", and the Class II-A-7 Certificates
are the "Group II Marker Classes" (collectively, the "Marker Classes"). It is
expected that there will not be any significant distributions on the Class R-2
Certificates.
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(c) The Class A-1, Class A-2, Class A-3, Class A-4, Class A-5,
Class A-6, Class A-7 and Class X-IO Certificates are hereby designated as
"regular interests" with respect to REMIC I (the "REMIC I Regular Certificates")
and the Class R-1 Certificate is hereby designated as the single "residual
interest" with respect to REMIC I. On each Distribution Date, available funds,
if any, remaining in REMIC I after payments of interest and principal as
designated herein shall be distributed to the Class R-1 Certificates. The
beneficial ownership interest in the REMIC I created hereunder shall be
evidenced by the interests having the following characteristics and terms:
<TABLE>
<CAPTION>
Initial Certificate Final Scheduled
Class Designation Principal Balance Distribution Date
----------------- ------------------- --------------------------
<S> <C> <C>
Class A-1 $ _________, _______ 20___
Class A-2 $ _________, _______ 20___
Class A-3 $ _________, _______ 20___
Class A-4 $ _________, _______ 20___
Class A-5 $ _________, _______ 20___
Class A-6 $ _________, _______ 20___
Class A-7 $ _________, _______ 20___
Class X-IO (1) _________, _______ 20___
Class R-1 (1) _________, _______ 20___
</TABLE>
----------------
(1) The Class X-IO and Class R-1 Certificates do not have a Certificate
Principal Balance.
(d) For federal income tax purposes, the "latest possible maturity
date" for each of the REMIC I Regular Certificates and the REMIC II Regular
Interests is __________, 20___.
Section 2.09. MISCELLANEOUS REMIC PROVISIONS.
(a) The Startup Day is hereby designated as the "startup day" of each
REMIC created hereunder within the meaning of Section 860G(a)(9) of the Code.
(b) The Owner of the Tax Matters Person Residual Interest in each REMIC
created hereunder is hereby designated as "tax matters person" as defined in the
REMIC Provisions with respect to the REMIC.
(c) The Trust and each REMIC created hereunder shall, for federal
income tax purposes, maintain books on a calendar year basis and report income
on an accrual basis.
(d) The Trustee shall cause each REMIC created hereunder to elect to be
treated as a REMIC under Section 860D of the Code. Any inconsistencies or
ambiguities in this Agreement or in the administration of the Trust shall be
resolved in a manner that preserves the validity of such election to be treated
as a REMIC. The Trustee shall report all expenses of the Trust Estate to each
REMIC created hereunder.
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(e) For all federal tax law purposes, amounts transferred by the
Trustee to the Owners of the Class R Certificates shall be treated as
distributions by each respective REMIC created hereunder.
(f) The Trustee shall provide to the Internal Revenue Service and to
the person described in Section 860E(e)(3) and (6) of the Code the information
described in Treasury Regulation Section 1.860D-l(b)(5)(ii), or any successor
regulation thereto with respect to each REMIC created hereunder. Such
information will be provided in the manner described in Treasury Regulation
Section 1.860E-2(a)(5), or any successor regulation thereto.
END OF ARTICLE II
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<PAGE>
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE DEPOSITOR, THE
SERVICER AND THE SELLER; COVENANT OF SELLER TO CONVEY HOME
EQUITY LOANS
Section 3.01. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR.
The Depositor hereby represents, warrants and covenants to the Trustee
and the Certificate Insurer that as of the Startup Day:
(a) The Depositor is a limited liability company duly formed and
validly existing under the laws governing its creation and existence, is in
compliance with the laws of each state in which any Property or the Depositor is
located or doing business and is in good standing in each jurisdiction in which
the nature of its business, or the properties owned or leased by it make such
qualification necessary. The Depositor has all requisite authority to own and
operate its properties, to carry out its business as presently conducted and as
proposed to be conducted and to enter into and discharge its obligations under
this Agreement and the other Operative Documents to which it is a party.
(b) The execution and delivery of this Agreement and the other
Operative Documents to which it is a party by the Depositor and its performance
and compliance with the terms of this Agreement and the other Operative
Documents to which it is a party have been duly authorized by all necessary
corporate action on the part of the Depositor and will not violate the
Depositor's Certificate of Formation or Limited Liability Company Agreement or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or result in a breach of, any material
contract, agreement or other instrument to which the Depositor is a party or by
which the Depositor is bound or violate any statute or any order, rule or
regulation of any court, governmental agency or body or other tribunal having
jurisdiction over the Depositor or any of its properties.
(c) This Agreement and the other Operative Documents to which the
Depositor is a party, assuming due authorization, execution and delivery by the
other parties hereto and thereto, each constitutes a valid, legal and binding
obligation of the Depositor, enforceable against it in accordance with the terms
hereof and thereof, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Depositor is not in default with respect to any order or decree
of any court or any order, regulation or demand of any federal, state, municipal
or governmental agency, which default could materially and adversely affect the
condition (financial or other) or operations of the Depositor or its properties
or the consequences of which could materially and adversely affect its
performance hereunder and under the other Operative Documents to which the
Depositor is a party.
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(e) No litigation, proceeding or investigation is pending with respect
to which the Depositor has received service of process or, to the best of the
Depositor's knowledge, threatened against the Depositor which litigation,
proceeding or investigation might have consequences that would prohibit its
entering into this Agreement or any other Operative Documents to which it is a
party or that would materially and adversely affect the condition (financial or
otherwise) or operations of the Depositor or its properties or might have
consequences that would materially and adversely affect the validity or
enforceability of the Home Equity Loans or the Depositor's performance hereunder
and under the other Operative Documents to which the Depositor is a party.
(f) The statements contained in the Registration Statement which
describe the Depositor or matters or activities for which the Depositor is
responsible in accordance with the Operative Documents or which are attributed
to the Depositor therein are true and correct in all material respects, and the
Registration Statement does not contain any untrue statement of a material fact
with respect to the Depositor or omit to state a material fact required to be
stated therein or necessary in order to make the statements contained therein
with respect to the Depositor not misleading.
(g) Immediately prior to the sale and assignment by the Depositor to
the Trustee on behalf of the Trust of each Home Equity Loan, the Depositor had
good and equitable title to each Home Equity Loan (insofar as such title was
conveyed to it by the Sellers) subject to no prior lien, claim, participation
interest, mortgage, security interest, pledge, charge or other encumbrance or
other interest of any nature.
(h) As of the Startup Day, the Depositor has transferred all right,
title and interest in the Home Equity Loans to the Trustee on behalf of the
Trust.
(i) The Depositor has not transferred the Home Equity Loans to the
Trustee on behalf of the Trust with any intent to hinder, delay or defraud any
of its creditors.
(j) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such actions, approvals,
etc. under any state securities laws, real estate syndication or "Blue Sky"
statutes, as to which the Depositor makes no such representation or warranty),
that are necessary or advisable in connection with the purchase and sale of the
Certificates and the execution and delivery by the Depositor of the Operative
Documents to which it is a party, have been duly taken, given or obtained, as
the case may be, are in full force and effect on the date hereof, are not
subject to any pending proceedings or appeals (administrative, judicial or
otherwise) and either the time within which any appeal therefrom may be taken or
review thereof may be obtained has expired or no review thereof may be obtained
or appeal therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement and the other Operative Documents on
the part of the Depositor and the performance by the Depositor of its
obligations under this Agreement and such of the other Operative Documents to
which it is a party.
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<PAGE>
Section 3.02. REPRESENTATIONS AND WARRANTIES OF THE SERVICER.
The Servicer hereby represents, warrants and covenants to the
Depositor, the Trustee, the Certificate Insurer and the Owners that as of the
Startup Day:
(a) The Servicer is a corporation duly formed and validly existing
under the laws governing its creation and existence, is in compliance with the
laws of each state in which any Property is located to the extent necessary to
enable it to perform its obligations hereunder and is in good standing in each
jurisdiction in which the nature of its business, or the properties owned or
leased by it make such qualification necessary. The Servicer has all requisite
corporate power and authority to own and operate its or their properties, to
carry out its or their business as presently conducted and as proposed to be
conducted and to enter into and discharge its or their obligations under this
Agreement and the other Operative Documents to which the Servicer is a party.
(b) The execution and delivery of this Agreement and any other
Operative Document to which it is a party by the Servicer and its performance
and compliance with the terms hereof and thereof have been duly authorized by
all necessary action on the part of the Servicer and will not violate the
Servicer's Articles of Incorporation or By-laws or constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, or result in the breach of, any material contract, agreement or other
instrument to which the Servicer is a party or by which the Servicer is bound or
violate any statute or any order, rule or regulation of any court, governmental
agency or body or other tribunal having jurisdiction over the Servicer or any of
its properties.
(c) This Agreement and the Operative Documents to which the Servicer is
a party, assuming due authorization, execution and delivery by the other parties
hereto and thereto, each constitutes a valid, legal and binding obligation of
the Servicer, enforceable against it in accordance with the terms hereof and
thereof, except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Servicer 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 might have consequences that would materially and
adversely affect the condition (financial or otherwise) or operations of the
Servicer or its properties or might have consequences that would materially and
adversely affect its performance hereunder or under the other Operative
Documents to which the Servicer is a party.
(e) No litigation, proceeding or investigation is pending with respect
to which the Servicer has received service of process or, to the best of the
Servicer's knowledge, threatened against the Servicer which litigation,
proceeding or investigation might have consequences that would prohibit its
entering into this Agreement or any other Operative Document or that would
materially and adversely affect the condition (financial or otherwise) or
operations of the Servicer or its properties or might have consequences that
would materially and adversely affect the
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<PAGE>
validity or the enforceability of the Home Equity Loans or its performance
hereunder and the other Operative Documents to which the Servicer is a party.
(f) The statements contained in the Registration Statement which
describe the Servicer or matters or activities for which the Servicer is
responsible in accordance with the Operative Documents or which are attributed
to the Servicer therein are true and correct in all material respects, and the
Registration Statement does not contain any untrue statement of a material fact
with respect to the Servicer or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein with
respect to the Servicer not misleading.
(g) The Servicing Fee is a "current (normal) servicing fee rate" as
that term is used in Statement of Financial Accounting Standards No. 65 issued
by the Financial Accounting Standards Board. Neither the Servicer nor any
affiliate thereof will report on any financial statements any part of the
Servicing Fee as an adjustment to the sales price of the Home Equity Loans.
(h) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such actions, approvals,
etc. under any state securities laws, real estate syndication or "Blue Sky"
statutes, as to which the Servicer makes no such representation or warranty),
that are necessary or advisable in connection with the execution and delivery by
the Servicer of the Operative Documents to which it is a party, have been duly
taken, given or obtained, as the case may be, are in full force and effect on
the date hereof, are not subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time within which any
appeal therefrom may be taken or review thereof may be obtained has expired or
no review thereof may be obtained or appeal therefrom taken, and are adequate to
authorize the consummation of the transactions contemplated by this Agreement
and the other Operative Documents on the part of the Servicer and the
performance by the Servicer of its obligations under this Agreement and such of
the other Operative Documents to which it is a party.
(i) The collection practices used by the Servicer with respect to the
Home Equity Loans have been, in all material respects, legal, proper, prudent
and customary in the home equity mortgage servicing business.
(j) The transactions contemplated by this Agreement are in the ordinary
course of business of the Servicer.
(k) The Servicer is not in default under any agreement involving
financial obligations or on any outstanding obligation which would materially
adversely impact the financial condition or operations of the Servicer or legal
documents associated with the transaction contemplated by this Agreement.
(l) There are no Sub-Servicers as of the Startup Day.
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(m) The Servicer covenants that it will terminate any Sub-Servicer
within ninety (90) days after being directed by the Certificate Insurer to do
so.
(n) The Servicer represents and warrants that its computer and other
systems used in servicing the Home Equity Loans currently are capable of
operating in a manner so that on and after____________,_____ 20____ (i) the
Servicer can service the Home Equity Loans in accordance with the terms of
this Agreement and (ii) the Servicer can operate its business in the same
manner as it is operating on the date hereof.
It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive delivery of the Home Equity Loans to
the Trustee.
Upon discovery by any of the Depositor, the Seller, the Servicer, the
Custodian, any Sub-Servicer, the Certificate Insurer, any Owner or the Trustee
(each, for purposes of this paragraph, a party) of a breach of any of the
representations and warranties set forth in this Section 3.02 which materially
and adversely affects the interests of the Owners or of the Certificate Insurer,
the party discovering such breach shall give prompt written notice to the other
parties. As promptly as practicable, but in any event, within 60 days of its
discovery or its receipt of notice of breach, the Servicer shall cure such
breach in all material respects and, upon the Servicer's continued failure to
cure such breach, may thereafter be removed by the Certificate Insurer or by the
Trustee with the written consent of the Certificate Insurer pursuant to Section
8.20 hereof; PROVIDED, HOWEVER, that if the Servicer can establish to the
reasonable satisfaction of the Certificate Insurer that it is diligently
pursuing remedial action, then the cure period may be extended for an additional
90 days with the written approval of the Certificate Insurer.
Section 3.03. REPRESENTATIONS AND WARRANTIES OF THE SELLERS.
The Seller as applicable, hereby represents, warrants and covenants to
the Depositor, the Trustee, the Certificate Insurer and the Owners that as of
the Startup Day:
(a) The Seller is a corporation, duly formed and validly existing under
the laws governing its creation and existence, is in compliance with the laws of
each state in which any Property or the Seller is located or doing business and
is in good standing in each jurisdiction in which the nature of its business, or
the properties owned or leased by it make such qualification necessary. The
Seller, has all requisite authority to own and operate its properties, to carry
out its business as presently conducted and as proposed to be conducted and to
enter into and discharge its obligations under this Agreement and the other
Operative Documents to which it is a party.
(b) The execution and delivery of this Agreement and the other
Operative Documents to which it is a party and its performance and compliance
with the terms of this Agreement and the other Operative Documents to which it
is a party have been duly authorized by all necessary corporate action and will
not violate the its articles of incorporation or by-laws of the Seller, or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or result in a breach of, any material
contract, agreement or other instrument to which it is a party or by which it is
bound or violate any statute or any order, rule or regulation of
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any court, governmental agency or body or other tribunal having jurisdiction
over it or any of its properties.
(c) This Agreement and the other Operative Documents to which it is a
party, assuming due authorization, execution and delivery by the other parties
hereto and thereto, each constitutes a valid, legal and binding obligation of
the Seller enforceable against it in accordance with the terms hereof and
thereof, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) 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
governmental agency, which default could materially and adversely affect the
condition (financial or other) or operations of the Seller or its properties or
the consequences of which could materially and adversely affect its performance
hereunder and under the other Operative Documents to which it is a party.
(e) No litigation, proceeding or investigation is pending with respect
to which the Seller has received service of process or, to the best of its
knowledge, threatened against it which litigation, proceeding or investigation
might have consequences that would prohibit its entering into this Agreement or
any other Operative Documents to which it is a party or 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 the validity or enforceability of the Home Equity Loans or its
performance hereunder and under the other Operative Documents to which it is a
party.
(f) The statements contained in the Registration Statement which
describe the Seller or matters or activities for which it is responsible in
accordance with the Operative Documents or which are attributed to it therein
are true and correct in all material respects, and the Registration Statement
does not contain any untrue statement of a material fact with respect to the
Seller or omit to state a material fact required to be stated therein or
necessary in order to make the statements contained therein with respect to the
Seller not misleading.
(g) Reserved.
(h) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency (other than any such actions, approvals,
etc. under any state securities laws, real estate syndication or "Blue Sky"
statutes, as to which the Seller makes no such representation or warranty), that
are necessary or advisable in connection with the purchase and sale of the
Certificates and the execution and delivery by the Seller of the Operative
Documents to which it is a party, have been duly taken, given or obtained, as
the case may be, are in full force and effect on the date hereof, are not
subject to any pending proceedings or appeals (administrative, judicial or
otherwise) and either the time within which any appeal therefrom may be taken or
review thereof may be obtained has expired or no review thereof may be obtained
or appeal therefrom taken, and are
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adequate to authorize the consummation of the transactions contemplated by
this Agreement and the other Operative Documents on the part of the Seller
and the performance by the Seller of its obligations under this Agreement and
such of the other Operative Documents to which it is a party.
(i) The origination practices used by the Seller with respect to the
Home Equity Loans have been, in all material respects, legal, proper, prudent
and customary in the mortgage lending business.
(j) The transactions contemplated by this Agreement are in the ordinary
course of business of the Seller.
(k) Neither the Trustee nor the Seller has any obligation to register
the Trust and the Trust has no obligation to register as an investment company
under the Investment Company Act of 1940, as amended.
(l) The Seller is not insolvent, nor will it be made insolvent by the
transfer of the Home Equity Loans, nor is the Seller aware of any pending
insolvency.
(m) The Seller received fair consideration and reasonably equivalent
value in exchange for the sale of the interests in the Home Equity Loans.
(n) The Seller did not sell any interest in any Home Equity Loan with
any intent to hinder, delay or defraud any of its creditors.
(o) No material adverse change affecting any security for the Class A
Certificates has occurred prior to delivery of and payment for the Class A
Certificates.
(p) The Seller is not in default under any agreement involving
financial obligations or on any outstanding obligation which would materially
adversely impact the financial condition or operations of the Seller or legal
documents associated with the transaction contemplated by this Agreement.
(q) To the best of the knowledge of the Seller there has been no
material adverse change in any information submitted by the Seller in writing to
the Certificate Insurer with respect to the transactions contemplated by this
Agreement (unless such information was subsequently supplemented in writing to
the Certificate Insurer).
(r) The sale, transfer, assignment and conveyance of Home Equity Loans
by the Seller pursuant to this Agreement is not subject to and will not result
in any tax, fee or governmental charge payable by the Seller, the Depositor or
the Trustee to any federal, state or local government ("Transfer Taxes") other
than Transfer Taxes which have or will be paid as due by the Seller. The Seller
shall pay, and otherwise indemnify and hold the Certificate Insurer harmless, on
an after-tax basis, from and against any and all such Transfer Taxes (it being
understood that the Certificate Insurer shall have no obligation to pay such
Transfer Taxes).
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(s) 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 not misleading.
It is understood and agreed that the representations and warranties set
forth in this Section 3.03 shall survive delivery of the respective Home Equity
Loans to the Trustee.
Section 3.04. COVENANTS OF SELLER TO TAKE CERTAIN ACTIONS WITH
RESPECT TO THE HOME EQUITY LOANS IN CERTAIN SITUATIONS.
(a) Upon the discovery by the Depositor, the Seller, the Servicer, the
Certificate Insurer, any Sub-Servicer, any Owner, the Custodian or the Trustee
that the representations and warranties set forth in clause (b) below were
untrue in any material respect, without regard to any limitation set forth
therein concerning the knowledge of the Seller, or the Servicer as to the facts
stated therein as of the Startup Day (or in the case of a Qualified Replacement
Mortgage, as of the respective replacement date) with the result that the
interests of the Owners or of the Certificate Insurer in the related Home Equity
Loan are, or may be, materially and adversely affected, the party discovering
such breach shall give prompt written notice to the other parties. Upon the
earliest to occur of CHEC's discovery, its receipt of notice of breach from any
one of the other parties or such time as a situation resulting from an existing
statement which is untrue materially and adversely affects the interests of the
Owners or of the Certificate Insurer, without regard to any limitation set forth
therein concerning the knowledge of CHEC as to the facts stated therein, CHEC
hereby covenants and warrants that it shall promptly cure such breach in all
material respects or that it shall on or before the second Monthly Remittance
Date next succeeding such discovery, receipt of notice or such time (i)
substitute in lieu of each Home Equity Loan which has given rise to the
requirement for action by CHEC a Qualified Replacement Mortgage and deliver the
Substitution Amount to the Servicer for deposit in the Principal and Interest
Account or (ii) purchase such Home Equity Loan from the Trust at a purchase
price equal to the Loan Purchase Price thereof, which purchase price shall be
delivered to the Servicer for deposit in the Principal and Interest Account;
PROVIDED, HOWEVER, that if CHEC can establish to the reasonable satisfaction of
the Certificate Insurer that it is diligently pursuing remedial action, the
period of time in which CHEC must substitute a Qualified Replacement Mortgage or
purchase such Home Equity Loan may be extended with the written approval of the
Certificate Insurer. It is understood and agreed that the obligation of CHEC so
to substitute or purchase any Home Equity Loan as to which such a statement set
forth below is untrue in any material respect and has not been remedied shall
constitute the sole remedy respecting a discovery of any such statement which is
untrue in any material respect in this Section 3.04 available to the Owners and
the Trustee on behalf of the Owners. Notwithstanding any provision of this
Agreement to the contrary, with respect to any Home Equity Loan which is not in
default or as to which no default is imminent, no repurchase or substitution
pursuant to Section 3.04 or 3.06 shall be made unless CHEC obtains for the
Trustee and the Certificate Insurer at its expense an Opinion of Counsel
experienced in federal income tax matters to the effect that such a repurchase
or substitution would not constitute a Prohibited Transaction for the Trust or
either REMIC created hereunder or otherwise subject the Trust or either REMIC
created hereunder to tax and would not jeopardize the status of either REMIC
created hereunder as a
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REMIC (a "REMIC Opinion") addressed to the Trustee and the Certificate
Insurer and acceptable to the Certificate Insurer and the Trustee. CHEC shall
also deliver an Officer's Certificate to the Trustee and the Certificate
Insurer concurrently with the delivery of a Qualified Replacement Mortgage
pursuant to Sections 3.04 and 3.06(b) stating that such Home Equity Loan
meets the requirements of the definition of a Qualified Replacement Mortgage
and that all other conditions to the substitution thereof have been
satisfied. Any Home Equity Loan as to which repurchase or substitution was
delayed pursuant to this Section shall be repurchased or substituted for
(subject to compliance with Section 3.04 or 3.06(b), as the case may be) upon
the earlier of (a) the occurrence of a default or imminent default with
respect to such Home Equity Loan and (b) receipt by the Trustee and the
Certificate Insurer of a REMIC Opinion.
(b) The Seller, with respect to the Home Equity Loans, and the
Servicer, in consideration of its appointment hereunder, with respect to the
Home Equity Loans taken as a whole or by Group, hereby represents, warrants and
covenants to the Trustee, the Depositor, the Servicer, the Certificate Insurer
and the Owners that as of the Startup Day:
(i) The information with respect to each Home Equity Loan set
forth in the related Schedule of Home Equity Loans is true and correct
in all material respects as of the Cut-Off Date;
(ii) The Seller has transferred good and marketable title to
the Home Equity Loans (including the related Notes) and other items of
the Trust, and upon receipt of each Home Equity Loan and other items of
the Trust by the Trustee (including the related Note), the Trust will
have good and marketable title to such Home Equity Loan (including the
related Note) and such items of the Trust Estate, free and clear of any
lien, charge, mortgage, encumbrance or rights of others, except as set
forth in Section 3.04(b)(ix) and except for liens that will be
simultaneously released. All the original or certified documentation
set forth in Section 3.05 (including all material documents related
thereto) with respect to each Home Equity Loan has been delivered to
the Custodian on behalf of the Trustee on the Startup Day or as
otherwise provided in Section 3.05. To the Seller's or the Servicer's
best knowledge, no documentation contains any untrue statement of a
material fact or omits to state a fact necessary to make the statements
contained therein not misleading;
(iii) Each Home Equity Loan being transferred to the Trust is
a Qualified Mortgage and is a Mortgage;
(iv) Each Property is a fee simple estate in a single parcel
of real property improved by a single family residential dwelling
(except ________ Properties that are condominiums, townhouses,
manufactured housing, two-to-four family residential dwellings or
PUDs), and no more than _____% and _____%, respectively, of the
aggregate Loan Balance of the Home Equity Loans in Group I and Group II
are secured Properties that are Manufactured Homes, each of which is
considered to be real property under the applicable local law;
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(v) As of the Cut-Off Date or Replacement Cut-Off Date, as
applicable, no Home Equity Loan has a combined Loan-to-Value Ratio in
excess of [100%];
(vi) Each Home Equity Loan is being serviced by the Servicer
in accordance with the terms of this Agreement;
(vii) The Note related to each Home Equity Loan in Group I
bears a current Coupon Rate of at least ___% per annum and the Note
related to each Home Equity Loan in Group II bears a current Coupon
Rate of at least ___%;
(viii) Each Note with respect to the Home Equity Loans will
provide for a schedule of substantially level and equal Monthly
Payments (or periodic rate adjustments in the case of the Home Equity
Loans in Group II), which are sufficient to amortize fully the
principal balance of such Note on or before its maturity date, except
for ______ Home Equity Loans, representing approximately ___% of the
aggregate Loan Balance of the Home Equity Loans in Group I, which may
provide for a "balloon" payment due at the end of the 15th year, and
no Home Equity Loan is a graduated payment loan;
(ix) As of the Startup Day, each Mortgage is a valid and
enforceable first or second lien of record (or is in the process of
being recorded) on the Property subject in the case of any Second
Mortgage Loan only to a Senior Lien on such Property and subject in all
cases to the exceptions to title set forth in the title insurance
policy or attorney's opinion of title, with respect to the related Home
Equity Loan, which exceptions are generally acceptable to banking
institutions in connection with their regular mortgage lending
activities, 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;
(x) Immediately prior to the transfer and assignment of the
Home Equity Loans by the Seller to the Depositor and by the Depositor
to the Trustee herein contemplated, the Seller, and the Depositor, as
the case may be, each held good and indefeasible title to, and was the
sole owner of, each Home Equity Loan (including the related Note)
conveyed by the Seller subject to no liens, charges, mortgages,
encumbrances or rights of others except as set forth in clause (ix) or
other liens which will be released simultaneously with such transfer
and assignment; and immediately upon the transfer and assignment herein
contemplated, the Trustee will hold good and indefeasible title to, and
be the sole owner of, each Home Equity Loan subject to no liens,
charges, mortgages, encumbrances or rights of others except as set
forth in paragraph (ix) or other liens which will be released
simultaneously with such transfer and assignment;
(xi) As of the Cut-Off Date, approximately ____% of the
aggregate Loan Balance of the Home Equity Loans are more than ___ days
Delinquent (and none are more than ___ days Delinquent);
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(xii) To the best of the knowledge of the Seller or the
Servicer, as applicable, there is no delinquent tax or assessment lien
on any Property, and each Property is free of substantial damage and is
in good repair;
(xiii) To the best of the knowledge of the Seller or the
Servicer, as applicable, there is no valid and enforceable right of
offset, claim, defense or counterclaim to any Note or Mortgage,
including the obligation of the related Mortgagor to pay the unpaid
principal of or interest on such Note nor has any such claim, defense,
offset or counterclaim been asserted;
(xiv) To the best of the knowledge of the Seller or the
Servicer, as applicable, there is no mechanics' lien or claim for work,
labor or material affecting any Property which is or may be a lien
prior to, or equal with, the lien of the related Mortgage except those
which are insured against by any title insurance policy referred to in
paragraph (xvi) below;
(xv) Each Home Equity Loan at the time it was made complied in
all material respects with applicable state and federal laws and
regulations, including, without limitation, the federal
Truth-in-Lending Act (as amended by the Riegle Community Development
and Regulatory Improvement Act of 1994) and other consumer protection
laws, usury, equal credit opportunity, disclosure and recording laws;
(xvi) With respect to each Home Equity Loan either (a) if a
title insurance policy is not available in the applicable state, an
attorney's opinion of title has been obtained but no title policy has
been obtained, or (b) a lender's title insurance policy, issued in
standard American Land Title Association form by a title insurance
company authorized to transact business in the state in which the
related Property is situated, in an amount at least equal to the
original balance of such Home Equity Loan together, in the case of a
Second Mortgage Loan, with the then-original principal amount of the
mortgage note relating to the Senior Lien, insuring the mortgagee's
interest under the related Home Equity Loan as the holder of a valid
first or second mortgage lien of record on the real Property described
in the related Mortgage, as the case may be, subject only to exceptions
of the character referred to in paragraph (ix) above, was effective on
the date of the origination of such Home Equity Loan, and, as of the
Startup Day, such policy is valid and thereafter such policy shall
continue in full force and effect;
(xvii) The improvements upon each Property are covered by a
valid and existing hazard insurance policy with a carrier generally
acceptable to the Servicer that provides for fire and extended coverage
representing coverage not less than the least of (A) the outstanding
principal balance of the related Home Equity Loan (together, in the
case of a Second Mortgage Loan, with the outstanding principal balance
of the Senior Lien), (B) the minimum amount required to compensate for
damage or loss on a replacement cost basis or (C) the full insurable
value of the Property;
(xviii) If any Property is in an area identified in the
Federal Register by the Federal Emergency Management Agency as having
special flood hazards, a flood
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insurance policy in a form meeting the requirements of the current
guidelines of the Flood Insurance Administration is in effect with
respect to such Property with a carrier generally acceptable to the
Servicer in an amount representing coverage not less than the least
of (A) the outstanding principal balance of the related Home Equity
Loan (together, in the case of a Second Mortgage Loan, with the
outstanding principal balance of the Senior Lien), (B) the minimum
amount required to compensate for damage or loss on a replacement cost
basis or (C) the maximum amount of insurance that is available under
the Flood Disaster Protection Act of 1973;
(xix) Each Mortgage and Note are the legal, valid and binding
obligation of the maker thereof and are enforceable in accordance with
their 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 Home Equity Loan
had full legal capacity to execute all documents relating to such Home
Equity Loan and convey the estate therein purported to be conveyed;
(xx) The Seller or the Servicer, as applicable, has caused and
will cause to be performed any and all acts required to be performed to
preserve the rights and remedies of the Trustee in any Insurance
Policies applicable to any Home Equity Loans delivered by the Seller
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;
(xxi) As of the Startup Day, no more than ______% of the
aggregate Loan Balance of the Home Equity Loans in either Home Equity
Loan Group will be secured by Properties located within any single zip
code area;
(xxii) Each original Mortgage was recorded or is in the
process of being recorded, and all subsequent assignments of the
original Mortgage have been delivered for recordation or have been
recorded in the appropriate jurisdictions wherein such recordation is
necessary to perfect the lien thereof as against creditors of or
purchasers from the Seller (or, subject to Section 3.05 hereof, are in
the process of being recorded); each Mortgage and assignment of
Mortgage is in recordable form and is acceptable for recording under
the laws of the jurisdiction in which the property securing such
Mortgage is located;
(xxiii) The terms of each Note and each Mortgage have not been
impaired, waived, altered or modified in any respect, except by a
written instrument which has been recorded, if necessary, to protect
the interest of the Owners and the Certificate Insurer and which has
been delivered to the Trustee. The substance of any such waiver,
alteration or modification is reflected on the related Schedule of Home
Equity Loans;
(xxiv) The proceeds of each Home Equity Loan have been fully
disbursed, and there is no obligation on the part of the mortgagee to
make future advances thereunder.
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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 such Home Equity Loans were paid and the Mortgagor
is not entitled to any refund of any amounts paid or due under the
related Note or Mortgage;
(xxv) The related Note is not and has not been secured by any
collateral, pledged account or other security except the lien of the
corresponding Mortgage;
(xxvi) No Home Equity Loan has a shared appreciation feature,
or other contingent interest feature;
(xxvii) Each Property is located in the state identified in
the respective Schedule of Home Equity Loans and consists of one or
more parcels of real property with a residential dwelling erected
thereon;
(xxviii) Each Mortgage contains a provision for the
acceleration of the payment of the unpaid principal balance of the
related Home Equity Loan in the event the related Property is sold
without the prior consent of the mortgagee thereunder;
(xxix) Any advances made after the date of origination of a
Home Equity Loan but prior to the Cut-Off Date have been consolidated
with the outstanding principal amount secured by the related Mortgage,
and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the respective
Schedule of Home Equity Loans. The consolidated principal amount does
not exceed the original principal amount of the related Home Equity
Loan. No Note permits or obligates the Servicer to make future advances
to the related Mortgagor at the option of the Mortgagor;
(xxx) To the best of the knowledge of the Seller there is no
proceeding pending or threatened for the total or partial condemnation
of any Property, nor is such a proceeding currently occurring, and each
Property is undamaged by waste, fire, water, flood, earthquake, earth
movement or other casualty;
(xxxi) All of the improvements which were included for the
purposes of determining the Appraised Value of any Property lie wholly
within the boundaries and building restriction lines of such Property,
and no improvements on adjoining properties encroach upon such
Property, and are stated in the title insurance policy and
affirmatively insured;
(xxxii) To the best of the knowledge of the Seller or the
Servicer, as applicable, no improvement located on or being part of any
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 each Property and, with
respect to the use and occupancy of the same, including but not limited
to certificates of occupancy and fire
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underwriting certificates, have been made or obtained from the
appropriate authorities and such Property is lawfully occupied under
the applicable law;
(xxxiii) 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 Owners or the Trust to the trustee under the deed of trust, except
in connection with a trustee's sale after default by the related
Mortgagor;
(xxxiv) Each Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder thereof
adequate for the realization against the related Property of the
benefits of the security, including (A) in the case of a Mortgage
designated as a deed of trust, by trustee's sale and (B) otherwise by
judicial foreclosure. There is no homestead or other exemption other
than any applicable Mortgagor redemption rights available to the
related Mortgagor which would materially interfere with the right to
sell the related Property at a trustee's sale or the right to foreclose
the related Mortgage;
(xxxv) There is no default, breach, violation or event of
acceleration existing under any Mortgage or the related 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 none of the Servicer, nor the
Seller, has waived any default, breach, violation or event of
acceleration or advanced funds, directly or indirectly for the payment
of any amount required under any Home Equity Loan;
(xxxvi) No instrument of release or waiver has been executed
in connection with any Home Equity Loan, and no Mortgagor has been
released, in whole or in part, except in connection with an assumption
agreement which has been approved by the primary mortgage guaranty
insurer, if any, and which has been delivered to the Trustee;
(xxxvii) Reserved;
(xxxviii) Each Home Equity Loan was underwritten in accordance
with the credit underwriting guidelines of the Seller as set forth in
the Seller's Policies and Procedures Manual, as in effect on the date
hereof and such Manual conforms in all material respects to the
description thereof set forth in the Registration Statement;
(xxxix) Each Home Equity Loan was originated based upon a full
appraisal, which included an interior inspection of the subject
property;
(xl) The Home Equity Loans were not selected for inclusion in
the Trust on any basis intended to adversely affect the Trust or the
Certificate Insurer;
(xli) No more than ___% and ___% of the aggregate Loan Balance
of the Home Equity Loans in Group I and Group II, respectively, are
secured by Properties that are non-owner occupied Properties (I.E.,
investor-owned and vacation);
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(xlii) The Seller or the Servicer, as applicable, has no
actual knowledge that there exist any hazardous substances, hazardous
wastes or solid wastes, as such terms are defined in the Comprehensive
Environmental Response Compensation and Liability Act, the Resource
Conservation and Recovery Act of 1976, or other federal, state or local
environmental legislation on any Property, and no violations of any
local, state or federal environmental law, rule or regulation exist
with respect to any Property;
(xliii) The Seller (and the originator, if not the Seller) was
properly licensed or otherwise authorized, to the extent required by
applicable law, to originate or purchase each Home Equity Loan; and the
consummation of the transactions herein contemplated, including,
without limitation, the receipt of interest by the Owners and the
ownership of the Home Equity Loans by the Trustee as trustee of the
Trust will not involve the violation of such laws;
(xliv) With respect to each Property subject to a ground lease
(i) the current ground lessor has been identified and all ground rents
which have previously become due and owing have been paid; (ii) the
ground lease term extends, or is automatically renewable, for at least
five years beyond the maturity date of the related Home Equity Loan;
(iii) the ground lease has been duly executed and recorded; (iv) the
amount of the ground rent and any increases therein are clearly
identified in the lease and are for predetermined amounts at
predetermined times; (v) the ground rent payment is included in the
borrower's monthly payment as an expense item in determining the
qualification of the borrower for such Home Equity Loan; (vi) the Trust
has the right to cure defaults on the ground lease; and (vii) the terms
and conditions of the leasehold do not prevent the free and absolute
marketability of the Property. As of the Cut-Off Date, the Loan Balance
of the Home Equity Loans with related Properties subject to ground
leases does not exceed ___% of the Original Aggregate Loan Balance;
(xlv) As of the Startup Day, with respect to any Second
Mortgage Loan, none of the Seller nor the Servicer, has received a
notice of default of any Senior Lien secured by any Property which has
not been cured by a party other than the Seller;
(xlvi) No Home Equity Loan is subject to a rate reduction
pursuant to a buydown program;
(xlvii) Reserved;
(xlviii) The Coupon Rate on each Home Equity Loan is
calculated on the basis of a year of 360 days with twelve 30-day
months;
(xlix) Each Home Equity Loan was originated by the Seller, an
affiliate of the Seller or a broker for simultaneous assignment to the
Seller;
(l) Neither the operation of any of the terms of each Note and
each Mortgage nor the exercise of any right thereunder will render
either the Note or the Mortgage
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unenforceable, in whole or in part, nor subject it to any right of
rescission, claim set-off, counterclaim or defense, including, without
limitation, the defense of usury;
(li) Any adjustment to the Coupon Rate on a Home Equity Loan
in Group II has been legal, proper and in accordance with the terms of
the related Note;
(lii) No Home Equity Loan in Group II is subject to negative
amortization;
(liii) As of the Cut-Off Date, the FTC holder regulation
provided in 16 C.F.R. Part 433 applies to none of the Home Equity
Loans;
(liv) As of the Cut-Off Date, a portion of the Home Equity
Loans are "mortgages" as defined in 15 U.S.C. 1602(aa), and with
respect to each such Home Equity Loan, no Mortgagor has or will have a
claim or defense under such Home Equity Loan;
(lv) Reserved;
(lvi) The rights with respect to each Home Equity Loan are
assignable by the Seller without the consent of any Person other than
consents which will have been obtained on or before the Startup Day;
(lvii) The Seller has duly fulfilled all obligations to be
fulfilled on the lender's part under or in connection with the
origination, acquisition and assignment of the Home Equity Loans and
the related Mortgage and Note, and has done nothing to impair the
rights of the Trustee, the Certificate Insurer or the Owners in
payments with respect thereto;
(lviii) To the Seller's or the Servicer's, as applicable,
knowledge, the documents, instruments and agreements submitted by each
Mortgagor for loan underwriting were not falsified and contain no
untrue statement of a material fact and do not omit to state a material
fact required to be stated therein or necessary to make the information
and statements contained therein not misleading.
(lix) No Home Equity Loan matures later than ______________,
20____;
(lx) The first date on which the applicable Mortgagor must
make a payment on each Home Equity Loan is no later than ______ ____,
20 _______, except with respect to one Home Equity Loan, which
represents ____% of the Original Aggregate Loan Balance as of the
Cut-Off Date, that provides for a first payment on or after
______________ , 20________; and
(lxi) With respect to each Home Equity Loan that is a Second
Mortgage Loan:
(a) The related Senior Lien does not provide for
negative amortization.
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(b) None of the Servicer nor the Seller, has
received, or is aware of, a notice of default of any Senior
Lien which has not been cured.
(c) To the best of the knowledge of the Seller or the
Servicer, as applicable, no funds provided to the Mortgagor
from a Second Mortgage Loan were concurrently used as a down
payment for the Senior Lien.
(c) In the event that any such repurchase pursuant to this Section
results in a prohibited transaction tax as specified in the REMIC Opinion
delivered pursuant to Section 3.04(a), the Trustee shall immediately notify the
Seller in writing thereof and the Seller will, within 10 days of receiving
notice thereof from the Trustee, deposit the amount due from the Trust with the
Trustee for the payment thereof, including any interest and penalties, in
immediately available funds. In the event that any Qualified Replacement
Mortgage is delivered by the Seller to the Trust pursuant to Section 3.04 or
Section 3.06 hereof, the Seller shall be obligated to take the actions described
in Section 3.04(a) with respect to such Qualified Replacement Mortgage upon the
discovery by any of the Owners, the Seller, the Servicer, the Certificate
Insurer, any Sub-Servicer, the Custodian or the Trustee that the statements set
forth in subsection (b) above are untrue in any material respect, without regard
to any limitation set forth therein concerning the knowledge of the Seller as to
facts stated therein, on the date such Qualified Replacement Mortgage is
conveyed to the Trust such that the interests of the Owners or the Certificate
Insurer in the related Qualified Replacement Mortgage are, or may be, materially
and adversely affected; PROVIDED, HOWEVER, that for the purposes of this
subsection (c) the statements in subsection (b) above referring to items "as of
the Cut-Off Date" or "as of the Startup Day" shall be deemed to refer to such
items as of the date such Qualified Replacement Mortgage is conveyed to the
Trust. Notwithstanding the fact that a representation contained in subsection
(b) above may be limited to the Seller's knowledge, such limitation shall not
relieve the Seller of its repurchase obligation under this Section and Section
3.05 hereof.
(d) It is understood and agreed that the representations, warranties
and covenants set forth in this Section 3.04 shall survive delivery of the
respective Home Equity Loans (including Qualified Replacement Mortgage) to the
Trustee or the Custodian, on behalf of the Trustee.
(e) The Trustee shall have no duty to conduct any affirmative
investigation other than as specifically set forth in this Agreement as to the
occurrence of any condition requiring the repurchase or substitution of any Home
Equity Loan pursuant to this Article III or the eligibility of any Home Equity
Loan for the purpose of this Agreement.
Section 3.05. SALE TREATMENT OF THE HOME EQUITY LOANS AND QUALIFIED
REPLACEMENT MORTGAGES.
(a) The transfer by the Seller to the Depositor and by the Depositor to
the Trustee of the Home Equity Loans set forth on the applicable Schedule of
Home Equity Loans is absolute and is intended by the Owners and all parties
hereto to be treated as a sale by the Seller and the Depositor.
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In the event that any such conveyance is deemed to be a loan, the
parties intend that the Seller shall be deemed to have granted to the Depositor
and the Depositor shall be deemed to have granted to the Trustee a security
interest in the Trust Estate, and that this Agreement shall constitute a
security agreement under applicable law.
(b) In connection with the transfer and assignment of the Home Equity
Loans, CHEC agrees to:
(i) deliver without recourse to the Custodian, on behalf of
the Trustee, on the Startup Day with respect to each Home Equity Loan,
(A) the original Notes endorsed in blank or to the order of the Trustee
("Pay to the order of ____________, as Trustee for Centex Home Equity
Loan Trust 2000-__, without recourse") and signed by manual signature
of the Seller, (B) (1) if the original title insurance policy is not
available, the original title insurance commitment or a copy thereof
certified as a true copy by the closing agent or CHEC, and when
available, the original title insurance policy or a copy certified by
the issuer of the title insurance policy or (2) if title insurance is
not available in the applicable state, the attorney's opinion of title,
(C) originals or copies of all intervening assignments certified as
true copies by the closing agent or CHEC, showing a complete chain of
title from origination to the Trustee, if any, including warehousing
assignments, if recorded, (D) originals of all assumption and
modification agreements, if any, (E) either: (1) the original Mortgage,
with evidence of recording thereon (if such original Mortgage has been
returned to the Seller from the applicable recording office) or a copy
of the Mortgage certified as a true copy by the closing attorney or an
Authorized Officer of CHEC, or (2) a copy of the Mortgage certified by
the public recording office in those instances where the original
recorded Mortgage has been lost and (F) the original assignments of
Mortgages (as described in clause (b)(ii)) in recordable form and
acceptable for recording in the state or other jurisdiction where the
Property is located;
(ii) cause, within 60 days following the Startup Day with
respect to the Home Equity Loans, assignments of the Mortgages to
"_______________, as Trustee of Centex Home Equity Loan Trust
2000-__ under the Pooling and Servicing Agreement dated as of
_____________, 20___" to be submitted for recording in the appropriate
jurisdictions; PROVIDED, FURTHER, that CHEC shall not be required to
record an assignment of a Mortgage if the Seller furnishes to the
Trustee and the Certificate Insurer, on or before the Startup Day, at
CHEC's expense, an Opinion of Counsel with respect to the relevant
jurisdiction that such recording is not necessary to PERFECT the
Trustee's interest in the related Home Equity Loans (in form and
substance satisfactory to the Trustee, the Certificate Insurer and the
Rating Agencies); PROVIDED FURTHER, HOWEVER, notwithstanding the
delivery of any legal opinions, each assignment of Mortgage shall be
recorded by the Custodian on behalf of the Trustee at the expense of
CHEC upon the earliest to occur of: (i) reasonable direction by the
Certificate Insurer, (ii) the occurrence of a Servicer Termination
Event, (iii) if the Seller is not Servicer and with respect to any one
assignment of Mortgage, the occurrence of a bankruptcy, insolvency or
foreclosure relating to the Mortgagor under the related Mortgage, or
(iv) the occurrence of a bankruptcy, insolvency or foreclosure relating
to the Seller;
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(iii) deliver the title insurance policy or title searches,
the original Mortgages and such recorded assignments, together with
originals or duly certified copies of any and all prior assignments
(other than unrecorded warehouse assignments), to the Custodian, on
behalf of the Trustee, within 15 days of receipt thereof by CHEC, but
in any event, with respect to any Mortgage as to which original
recording information has been made available to the Seller, within one
year after the Startup Day; and
(iv) furnish to the Trustee, the Certificate Insurer and the
Rating Agencies at CHEC's expense, an Opinion of Counsel with respect
to the sale and perfection of the Home Equity Loans delivered to the
Trust in form and substance satisfactory to the Certificate Insurer.
In instances where the original recorded Mortgage cannot be delivered
by CHEC to the Custodian on behalf of the Trustee prior to or concurrently with
the execution and delivery of this Agreement due to a delay in connection with
recording, CHEC may in lieu of delivering such original recorded Mortgage,
deliver to the Custodian on behalf of the Trustee a copy thereof, provided that
CHEC certifies that the original Mortgage has been delivered to a title
insurance company for recordation after receipt of its policy of title insurance
or binder therefor. In all such instances, the Seller will deliver or cause to
be delivered the original recorded Mortgage to the Custodian on behalf of the
Trustee promptly upon receipt of the original recorded Mortgage but in no event
later than one year after the Startup Day.
CHEC hereby confirms to the Trustee that it has made the appropriate
entries in its general accounting records, to indicate that such Home Equity
Loans have been transferred to the Trustee and constitute part of the Trust in
accordance with the terms of the trust created hereunder.
Notwithstanding anything to the contrary contained in this Section
3.05, in those instances where the public recording office retains the original
Mortgage, the assignment of a Mortgage or the intervening assignments of the
Mortgage after it has been recorded, the Depositor and the Seller shall be
deemed to have satisfied its obligations hereunder upon delivery to the
Custodian, on behalf of the Trustee of a copy of such Mortgage, such assignment
or assignments of Mortgage certified by the public recording office to be a true
copy of the recorded original thereof.
Not later than ten days following the end of the 60-day period referred
in clause (b)(ii) above, CHEC shall deliver to the Custodian with a copy to the
Trustee, on behalf of the Trustee, a list of all Mortgages for which no Mortgage
assignment has yet been submitted for recording by CHEC, which list shall state
the reason why CHEC has not yet submitted such Mortgage assignments for
recording. With respect to any Mortgage assignment disclosed on such list as not
yet submitted for recording for a reason other than a lack of original recording
information, the Custodian, on behalf of the Trustee, shall make an immediate
demand on CHEC to prepare such Mortgage assignments, and shall inform the
Certificate Insurer, in writing, of its failure to prepare such Mortgage
assignments. Thereafter, the Custodian, on behalf of the Trustee, shall
cooperate in executing any documents prepared by the Certificate Insurer and
submitted to the Custodian, on behalf of the Trustee in connection with this
provision. Following the expiration
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of the 60-day period referred to in clause (b)(ii) above, CHEC shall promptly
prepare a Mortgage assignment for any Mortgage for which original recording
information is subsequently received by CHEC, and shall promptly deliver a
copy of such Mortgage assignment to the Custodian, on behalf of the Trustee.
CHEC agrees that it will follow its normal servicing procedures and attempt
to obtain the original recording information necessary to complete a Mortgage
assignment. In the event that CHEC is unable to obtain such recording
information with respect to any Mortgage prior to the end of the 18th
calendar month following the Startup Day and has not provided to the
Custodian, on behalf of the Trustee a Mortgage assignment with evidence of
recording thereon relating to the assignment of such Mortgage to the Trustee,
the Custodian, on behalf of the Trustee shall notify CHEC of its obligation
to provide a completed assignment (with evidence of recording thereon) on or
before the end of the 20th calendar month following the Startup Day. A copy
of such notice shall be sent by the Custodian, on behalf of the Trustee to
the Certificate Insurer and the Trustee. If no such completed assignment
(with evidence of recording thereon) is provided before the end of such 20th
calendar month, the related Home Equity Loan shall be deemed to have breached
the representation contained in clause (xxii) of Section 3.04(b) hereof;
PROVIDED, HOWEVER, that if as of the end of such 20th calendar month CHEC
demonstrates to the satisfaction of the Certificate Insurer that it is
exercising its best efforts to obtain such completed assignment and, during
each month thereafter until such completed assignment is delivered to the
Custodian, on behalf of the Trustee, CHEC continues to demonstrate to the
satisfaction of the Certificate Insurer that it is exercising its best
efforts to obtain such completed assignment, the related Home Equity Loan
will not be deemed to have breached such representation. The requirement to
deliver a completed assignment with evidence of recording thereon will be
deemed satisfied upon delivery of a copy of the completed assignment
certified by the applicable public recording office.
Copies of all Mortgage assignments received by the Custodian on behalf
of the Trustee shall be retained in the related File.
All recording required pursuant to this Section 3.05 shall be
accomplished at the expense of the Seller.
(c) In the case of Home Equity Loans which have been prepaid in full on
or after the Cut-Off Date and prior to the Startup Day, the Seller, in lieu of
the foregoing, will deliver within six (6) days after the Startup Day to the
Trustee a certification of an Authorized Officer in the form set forth in
Exhibit D.
(d) CHEC shall transfer, assign, set over and otherwise convey without
recourse, to the Trustee all right, title and interest of CHEC in and to any
Qualified Replacement Mortgage delivered to the Custodian, on behalf of the
Trustee on behalf of the Trust by the Seller pursuant to Section 3.04 or 3.06
hereof and all its right, title and interest to principal and interest due on
such Qualified Replacement Mortgage on and after the applicable Replacement
Cut-Off Date; PROVIDED, HOWEVER, that CHEC shall reserve and retain all right,
title and interest in and to payments of principal and interest due on such
Qualified Replacement Mortgage prior to the applicable Replacement Cut-Off Date.
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(e) As to each Home Equity Loan released from the Trust in connection
with a repurchase or the conveyance of a Qualified Replacement Mortgage
therefor, the Trustee will transfer, assign, set over and otherwise convey
without recourse or representation, on CHEC's order, all of its right, title and
interest in and to such released Home Equity Loan and all the Trust's right,
title and interest to principal and interest due on such released Home Equity
Loan after the applicable Replacement Cut-Off Date, as the case may be;
PROVIDED, HOWEVER, that the Trust shall reserve and or and retain all right,
title and interest in and to payments of principal and interest due on such
released Home Equity Loan prior to such repurchase or the applicable Replacement
Cut-Off Date, as the case may be.
(f) In connection with any transfer and assignment of a Qualified
Replacement Mortgage to the Trustee on behalf of the Trust, CHEC agrees to (i)
deliver or cause to be delivered without recourse to the Custodian, on behalf of
the Trustee on the date of delivery of such Qualified Replacement Mortgage the
original Note relating thereto, endorsed in blank or to the order of the
Trustee, (ii) cause promptly to be recorded an assignment in the appropriate
jurisdictions, (iii) deliver or cause to be delivered the original Qualified
Replacement Mortgage and such recorded assignment, together with original or
duly certified copies of any and all prior assignments, to the Custodian, on
behalf of the Trustee within 15 days of receipt thereof by CHEC (but in any
event within 120 days after the date of conveyance of such Qualified Replacement
Mortgage) and (iv) deliver the title insurance policy, or where no such policy
is required to be provided under Section 3.05(b)(i)(B), the other evidence of
title required in Section 3.05(b)(i)(B).
(g) As to each Home Equity Loan released from the Trust in connection
with a repurchase or the conveyance of a Qualified Replacement Mortgage the
Custodian, on behalf of the Trustee shall deliver on the date of such repurchase
or conveyance of such Qualified Replacement Mortgage and on the order of CHEC
(i) the original Note relating thereto, endorsed without recourse or
representation, in blank or to the order of, to CHEC, (ii) the original Mortgage
so released and all assignments relating thereto and (iii) such other documents
as constituted the File with respect thereto.
(h) If a Mortgage assignment is lost during the process of recording,
or is returned from the recorder's office unrecorded due to a defect therein,
CHEC shall prepare or cause to be prepared a substitute assignment or cure such
defect, as the case may be, and thereafter cause each such assignment to be duly
recorded.
Section 3.06. ACCEPTANCE BY TRUSTEE; CERTAIN SUBSTITUTIONS OF HOME
EQUITY LOANS; CERTIFICATION BY TRUSTEE.
(a) The Trustee agrees to execute and deliver and the Trustee on behalf
of the trust agrees to cause the Custodian to execute and deliver on the Startup
Day an acknowledgment of receipt of the items delivered by CHEC in the forms
attached as Exhibit E-1 and E-2 hereto, respectively, and declares through the
Custodian that it will hold such documents and any amendments, replacement or
supplements thereto, as well as any other assets included in the definition of
Trust Estate and delivered to the Custodian, on behalf of the Trustee, as
Trustee in trust upon and subject to the conditions set forth herein for the
benefit of the Owners and the
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Certificate Insurer. The Trustee agrees, for the benefit of the Owners and
the Certificate Insurer, to cause the Custodian to review such items within
45 days after the Startup Day (or, with respect to any document delivered
after the Startup Day, within 45 days of receipt and with respect to any
Qualified Replacement Mortgage, within 45 days after the assignment thereof)
and to deliver to the Depositor, the Seller, the Servicer, the Trustee and
the Certificate Insurer a certification in the form attached hereto as
Exhibit F (a "Pool Certification") to the effect that, as to each Home Equity
Loan listed in the Schedule of Home Equity Loans (other than any Home Equity
Loan paid in full or any Home Equity Loan specifically identified in such
Pool Certification as not covered by such Pool Certification), (i) all
documents required to be delivered to it pursuant to Section 3.05(b)(i) of
this Agreement have been executed and are in its possession and that the
Notes have been endorsed as set forth in Section 3.05(b)(i) hereof, (ii) such
documents have been reviewed by it and have not been mutilated, damaged or
torn and relate to such Home Equity Loan and (iii) based on its examination
and only as to the foregoing documents, the information set forth on the
Schedule of Home Equity Loans accurately reflects the information set forth
in the File. The Custodian, on behalf of the Trustee, shall have no
responsibility for reviewing any File except as expressly provided in this
subsection 3.06(a). Without limiting the effect of the preceding sentence, in
reviewing any File, the Custodian, on behalf of the Trustee, shall have no
responsibility for determining whether any document is valid and binding,
whether the text of any assignment is in proper form (except to determine if
the Trustee is the assignee), 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, 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. The Custodian, on behalf of the Trustee, shall be under no
duty or obligation to inspect, review or examine any such documents,
instruments, certificates or other papers to determine that they are genuine,
enforceable, or appropriate for the represented purpose or that they are
other than what they purport to be on their face, nor shall the Custodian, on
behalf of the Trustee, be under any duty to determine independently whether
there are any intervening assignments or assumption or modification
agreements with respect to any Home Equity Loan.
(b) If the Custodian, on behalf of the Trustee during such 45-day
period finds any document constituting a part of a File which is not executed,
has not been received, or is unrelated to the Home Equity Loans identified in
the Schedule of Home Equity Loans, or that any Home Equity Loan does not conform
to the description thereof as set forth in the Schedule of Home Equity Loans,
the Custodian, on behalf of the Trustee shall promptly so notify the Depositor,
CHEC, the Owners and the Certificate Insurer. In performing any such review, the
Custodian, on behalf of the Trustee may conclusively rely on CHEC as to the
purported genuineness of any such document and any signature thereon. It is
understood that the scope of the review of the items delivered by the Seller
pursuant to Section 3.05(b)(i) is limited solely to confirming that the
documents listed in Section 3.05(b)(i) have been executed and received, relate
to the Files identified in the Schedule of Home Equity Loans and conform to the
description thereof in the Schedule of Home Equity Loans. CHEC agrees to use
reasonable efforts to remedy a material defect in a document constituting part
of a File of which it is so notified by the Custodian, on behalf of the Trustee.
If, however, within 90 days after such notice to it respecting such defect CHEC
has not remedied the defect and the defect materially and
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adversely affects the interest in the related Home Equity Loan of the Owners
or the Certificate Insurer, CHEC will (or will cause an affiliate to) on the
next succeeding Monthly Remittance Date (i) substitute in lieu of such Home
Equity Loan a Qualified Replacement Mortgage and deliver the Substitution
Amount to the Servicer for deposit in the Principal and Interest Account or
(ii) purchase such Home Equity Loan at a purchase price equal to the Loan
Purchase Price thereof, which purchase price shall be delivered to the
Servicer for deposit in the Principal and Interest Account. In connection
with any proposed purchase or substitution of a Home Equity Loan, CHEC shall
cause at it's expense to be delivered to the Trustee and to the Certificate
Insurer an Opinion of Counsel experienced in federal income tax matters
stating whether or not such a proposed purchase or substitution would
constitute a Prohibited Transaction for the Trust or would jeopardize the
status of either REMIC I or REMIC II as a REMIC, and CHEC shall only be
required to take either such action to the extent such action would not
constitute a Prohibited Transaction for the Trust or would not jeopardize the
status of either REMIC I or REMIC II as a REMIC. Any required purchase or
substitution, if delayed by the absence of such opinion, shall nonetheless
occur upon the earlier of (i) the occurrence of a default or imminent default
with respect to the Home Equity Loan or (ii) the delivery of such opinion.
(c) In addition to the foregoing, the Custodian, on behalf of the
Trustee also agrees to make a review during the 12th month after the Startup Day
indicating the current status of the exceptions previously indicated on the Pool
Certification (the "Final Certification"). After delivery of the Final
Certification, the Custodian, on behalf of the Trustee and the Servicer shall
provide to the Certificate Insurer no less frequently than monthly updated
certifications indicating the then current status of exceptions, until all such
exceptions have been eliminated.
Section 3.07. Reserved.
Section 3.08. CUSTODIAN.
Notwithstanding anything to the contrary in this Agreement, the parties
hereto acknowledge that the functions of the Trustee with respect to the
custody, acceptance, inspection and release of the Files pursuant to Sections
3.05, 3.06, and 8.14 and the related Pool Certification and Final Certification
shall be performed by the Custodian on the Trustee's behalf pursuant to the
Custodial Agreement; provided, however, the Trustee shall remain primarily
liable for such obligations. The fees and expenses of the Custodian will be paid
by the Servicer.
If, pursuant to Section 4.12 of the Custodial Agreement, the Custodian
shall request written instructions from the Trustee, the Trustee hereby agrees
to promptly provide such instructions.
Section 3.09. COOPERATION PROCEDURES. CHEC shall, in connection with
the delivery of each Qualified Replacement Mortgage to the Custodian, on behalf
of the Trustee, provide the Trustee with information set forth in the Schedules
of Home Equity Loans with respect to such Qualified Replacement Mortgage.
(a) The Seller, the Depositor, the Servicer and the Trustee covenant to
provide each other with all data and information required to be provided by them
hereunder at the times
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required hereunder, and additionally covenant reasonably to cooperate with
each other in providing any additional information required to be obtained by
any of them in connection with their respective duties hereunder.
(b) The Servicer shall maintain such accurate and complete accounts,
records and computer systems pertaining to each File as shall enable it and the
Trustee to comply with this Agreement. In performing its recordkeeping duties
the Servicer shall act in accordance with the servicing standards set forth in
this Agreement. The Servicer shall conduct, or cause to be conducted, periodic
audits of its accounts, records and computer systems as set forth in Section
8.16 and 8.17 hereof. The Servicer shall promptly report in writing to the
Trustee any failure on its part to maintain its accounts, records and computer
systems herein provided and promptly take appropriate action to remedy any such
failure.
(c) CHEC further confirms to the Trustee that it has caused the
portions of the electronic ledger relating to the Home Equity Loans to be
clearly and unambiguously marked to indicate that such Home Equity Loans have
been sold, transferred, assigned and conveyed through the Depositor to the
Trustee and constitute part of the Trust Estate in accordance with the terms of
the trust created hereunder and that the Seller will treat the transaction
contemplated by such sale, transfer, assignment and conveyance as a sale for
accounting purposes.
END OF ARTICLE III
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ARTICLE IV
ISSUANCE AND SALE OF CERTIFICATES
Section 4.01. ISSUANCE OF CERTIFICATES.
On the Startup Day, upon the Trustee's receipt from the Depositor of an
executed Delivery Order in the form set forth as Exhibit G hereto, the Trustee
shall authenticate and deliver the Certificates on behalf of the Trust.
Section 4.02. SALE OF CERTIFICATES.
At 11:00 a.m. New York City time on the Startup Day, at the offices of
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038 (or at
such other location acceptable to the Seller), the Seller will sell and convey
the Home Equity Loans and the money, instruments and other property related
thereto to the Depositor and the Depositor will convey the Home Equity Loans and
the money, instruments and other property related thereto to the Trustee, and
the Depositor will cause the Certificate Insurance Policies to be delivered to
the Trustee and the Trustee will deliver (i) to the Underwriters (as designee of
the Depositor), the Class A Certificates with an aggregate Percentage Interest
in each Class equal to [100%] registered in the name of Cede & Co. or in such
other names as the Underwriters shall direct, against payment to the Depositor
of the purchase price thereof by wire transfer of immediately available funds to
the Trustee as designee of the Depositor and (ii) to the respective registered
owners thereof (as designees of the Depositor and the Seller), Class R
Certificates registered in the name of CHEC Residual Corporation, a Nevada
Corporation, and the Class X-IO Certificates, registered in the name of CHEC
Residual Corporation, a Nevada Corporation (all such events shall be referred to
herein as the "Closing").
END OF ARTICLE IV
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ARTICLE V
CERTIFICATES AND TRANSFER OF INTERESTS
Section 5.01. TERMS.
(a) The Certificates are pass-through securities having the rights
described therein and herein. Notwithstanding references herein or therein with
respect to the Certificates as to "principal" and "interest" thereof, no debt of
any Person is represented thereby, nor are the Certificates or the underlying
Notes guaranteed by any Person (except that the Notes may be recourse to the
Mortgagors thereof to the extent permitted by law and the terms of the related
Note and except for the rights of the Trustee on behalf of the Owners of the
Class A Certificates with respect to the Certificate Insurance Policies). The
Class A Certificates are payable solely from payments received on or with
respect to the Home Equity Loans (net of the Servicing Fees, Trustee Fees, and
Premium Amounts), moneys in the Principal and Interest Account, except as
otherwise provided herein, from earnings on moneys and the proceeds of property
held as a part of the Trust Estate and, upon the occurrence of certain events,
from Insured Payments. Each Certificate entitles the Owner thereof to receive
monthly on each Distribution Date, in order of priority of distributions with
respect to such Class of Certificates as set forth in Section 7.03, a specified
portion of such payments with respect to the Home Equity Loans, certain related
Insured Payments, PRO RATA in accordance with such Owner's Percentage Interest.
(b) Each Owner is required, and hereby agrees, to return to the
Trustee, any Certificate prior to the Trustee making the final distribution due
thereon. Any such Certificate as to which the Trustee has made the final
distribution thereon shall be deemed canceled and shall no longer be Outstanding
for any purpose of this Agreement.
Section 5.02. FORMS.
The Class A-1 Certificates, the Class A-2 Certificates, the Class A-3
Certificates, the Class A-4 Certificates, the Class A-5 Certificates, the Class
A-6, the Class A-7 Certificates, the Class X-IO Certificates and the Class R
Certificates shall be in substantially the forms set forth in Exhibits A-1, A-2,
A-3, A-4, A-5, A-6, A-7, B and C hereof, respectively.
Section 5.03. EXECUTION, AUTHENTICATION AND DELIVERY.
Each Certificate shall be executed on behalf of the Trust, by the
manual signature of one of the Trustee's Authorized Officers at the written
direction of the Servicer. In addition, each Certificate shall be authenticated
by the manual signature of one of the Trustee's Authorized Officers at the
written direction of the Servicer.
Certificates bearing the manual signature of individuals who were at
any time the proper officers of the Trustee shall, upon proper authentication by
the Trustee, bind the Trust, notwithstanding that such individuals or any of
them have ceased to hold such offices prior to the execution and delivery of
such Certificates or did not hold such offices at the date of authentication of
such Certificates.
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The initial Certificates shall be dated as of the Startup Day and
delivered at the Closing to the parties specified in Section 4.02 hereof.
Subsequently issued Certificates will be dated as of the issuance of the
Certificate.
No Certificate shall be valid until executed and authenticated as set
forth above.
Section 5.04. REGISTRATION AND TRANSFER OF CERTIFICATES.
(a) The Trustee shall cause to be kept a register (the "Register") in
which, subject to such reasonable regulations as it may prescribe, the Trustee
shall provide for the registration of Certificates and the registration of
transfer of Certificates. The Trustee is hereby initially appointed Registrar
for the purpose of registering Certificates and transfers of Certificates as
herein provided. The Certificate Insurer, the Owners and the Trustee shall have
the right to inspect the Register upon reasonable notice during the Trustee's
normal hours and to obtain copies thereof, and the Trustee shall have the right
to rely upon a certificate executed on behalf of the Registrar by an Authorized
Officer thereof as to the names and addresses of the Owners of the Certificates
and the principal amounts and numbers of such Certificates.
If a Person other than the Trustee is appointed as Registrar by the
Owners of a majority of the aggregate Voting Rights represented by the
Certificates then Outstanding with the consent of the Certificate Insurer, such
Owners shall give the Trustee, the Certificate Insurer and the Owners prompt
written notice of the appointment of such Registrar and of the location, and any
change in the location, of the Register. In connection with any such appointment
the reasonable fees of the Registrar shall be paid, as expenses of the Trust,
pursuant to Section 7.06 hereof.
(b) Subject to the provisions of Section 5.08 hereof, upon surrender
for registration of transfer of any Certificate at the office designated as the
location of the Register, upon the direction of the Registrar, the Trustee shall
execute, authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of a like Class and in the aggregate
outstanding principal amount or Percentage Interest of the Certificate so
surrendered.
(c) At the option of any Owner, Certificates of any Class owned by such
Owner may be exchanged for other Certificates authorized of like Class and tenor
and a like aggregate outstanding principal amount or Percentage Interest and
bearing numbers not contemporaneously outstanding, upon surrender of the
Certificates to be exchanged at the office designated as the location of the
Register. Whenever any Certificate is so surrendered for exchange, upon the
direction of the Registrar, the Trustee shall execute, authenticate and deliver
the Certificate or Certificates which the Owner making the exchange is entitled
to receive.
(d) All Certificates issued upon any registration of transfer or
exchange of Certificates shall be valid evidence of the same ownership interests
in the Trust and entitled to the same benefits under this Agreement as the
Certificates surrendered upon such registration of transfer or exchange.
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(e) Every Certificate presented or surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by
the Owner thereof or his attorney duly authorized in writing.
(f) No service charge shall be made to an Owner for any registration of
transfer or exchange of Certificates, but the Registrar or Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Certificates; any other expenses in connection with such transfer or exchange
shall be an expense of the Trust.
(g) It is intended that the Class A Certificates be registered so as to
participate in a global book-entry system with the Depository, as set forth
herein. Each Class of Class A Certificates shall, except as otherwise provided
in Subsection (h), be initially issued in the form of a single fully registered
Class A Certificate of such Class. Upon initial issuance, the ownership of each
such Class A Certificate shall be registered in the Register in the name of Cede
& Co., or any successor thereto, as nominee for the Depository.
On the Startup Day, the Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5, Class A-6 and Class A-7 Certificates shall be issued in denominations
of [$1,000] and integral multiples of [$1] in excess thereof.
The Depositor and the Trustee are hereby authorized to execute and
deliver the Representation Letter with the Depository in the form provided to
the Trustee by the Depositor.
With respect to the Class A Certificates registered in the Register in
the name of Cede & Co., as nominee of the Depository, the Depositor, the
Servicer, the Seller, the Certificate Insurer and the Trustee shall have no
responsibility or obligation to Direct or Indirect Participants or beneficial
owners for which the Depository holds Class A Certificates from time to time as
a Depository. Without limiting the immediately preceding sentence, the
Depositor, the Servicer, the Sellers, the Certificate Insurer and the Trustee
shall have no responsibility or obligation with respect to (i) the accuracy of
the records of the Depository, Cede & Co., or any Direct or Indirect Participant
with respect to the ownership interest in the Class A Certificates, (ii) the
delivery to any Direct or Indirect Participant or any other Person, other than a
registered Owner of a Class A Certificate as shown in the Register, of any
notice with respect to the Class A Certificates or (iii) the payment to any
Direct or Indirect Participant or any other Person, other than a registered
Owner of a Class A Certificate as shown in the Register, of any amount with
respect to any distribution of principal or interest on the Class A
Certificates. No Person other than a registered Owner of a Class A Certificate
as shown in the Register shall receive a certificate evidencing such Class A
Certificate.
Upon delivery by the Depository to the Trustee of written notice to the
effect that the Depository has determined to substitute a new nominee in place
of Cede & Co., and subject to the provisions hereof with respect to the payment
of interest by the mailing of checks or drafts to the registered Owners of Class
A Certificates appearing as registered Owners in the registration books
maintained by the Trustee at the close of business on a Record Date, the name
"Cede & Co." in this Agreement shall refer to such new nominee of the
Depository.
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(h) In the event that (i) the Depository or the Depositor advises the
Trustee in writing that the Depository is no longer willing or able to discharge
properly its responsibilities as nominee and depository with respect to the
Class A Certificates and any of CHEC or the Trustee is unable to locate a
qualified successor or (ii) the Depositor at its sole option elects to terminate
the book-entry system through the Depository, the Class A Certificates shall no
longer be restricted to being registered in the Register in the name of Cede &
Co. (or a successor nominee) as nominee of the Depository or (iii) after the
occurrence of a Servicer Termination Event, the beneficial owners of each Class
of Class A Certificates representing Percentage Interests aggregating not less
than ___% advises the Trustee and Depository through the Direct or Indirect
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 Owners is no longer in the best interests of the
Owners. In the case of (i) and (ii) above, CHEC may determine that the Class A
Certificates shall be registered in the name of and deposited with a successor
depository operating a global book-entry system, as may be acceptable to the
CHEC and at the expense of CHEC, or such depository's agent or designee but, if
CHEC does not select such alternative global book-entry system and in the case
of (iii) above, then the Class A Certificates may be registered in whatever name
or names registered Owners of Class A Certificates transferring Class A
Certificates shall designate, in accordance with the provisions hereof.
(i) Notwithstanding any other provision of this Agreement to the
contrary, so long as any Class A Certificate is registered in the name of Cede &
Co., as nominee of the Depository, all distributions of principal or interest on
such Class A Certificates and all notices with respect to such Class A
Certificates shall be made and given, respectively, in the manner provided in
the Representation Letter.
Section 5.05. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES.
If (i) any mutilated Certificate is surrendered to the Trustee, or the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate, and (ii) in the case of any mutilated Certificate, such
mutilated Certificate shall first be surrendered to the Trustee, and in the case
of any destroyed, lost or stolen Certificate, there shall be first delivered to
the Trustee such security or indemnity as may be reasonably required by it to
hold the Trustee and the Certificate Insurer harmless (PROVIDED, THAT with
respect to an Owner which is an institutional investor, a letter of indemnity
furnished by it shall be sufficient for this purpose), then, in the absence of
written notice to the Trustee or the Registrar that such Certificate has been
acquired by a bona fide purchaser, the Seller shall execute and the Trustee
shall authenticate and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
Class, tenor and aggregate principal amount, bearing a number not
contemporaneously outstanding.
Upon the issuance of any new Certificate under this Section, the
Registrar or Trustee may require the payment from the transferor or transferee
of the related Certificate of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto; any other expenses
in connection with such issuance shall be an expense of the Trust.
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Every new Certificate issued pursuant to this Section in exchange for
or in lieu of any mutilated, destroyed, lost or stolen Certificate shall
constitute evidence of a substitute interest in the Trust, and shall be entitled
to all the benefits of this Agreement equally and proportionately with any and
all other Certificates of the same Class duly issued hereunder and such
mutilated, destroyed, lost or stolen Certificate shall not be valid for any
purpose.
The provisions of this Section 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 Certificates.
Section 5.06. PERSONS DEEMED OWNERS.
Prior to due presentment for registration of transfer of any
Certificate, the Certificate Insurer, the Trustee and any agent of the Trustee
may treat the Person in whose name any Certificate is registered as the Owner of
such Certificate for the purpose of receiving distributions with respect to such
Certificate and for all other purposes whatsoever, and neither the Certificate
Insurer, the Trustee nor any agent of the Trustee shall be affected by notice to
the contrary.
Section 5.07. CANCELLATION.
All Certificates surrendered for registration of transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee and shall be promptly canceled by it. No Certificate shall be
authenticated in lieu of or in exchange for any Certificate canceled as provided
in this Section, except as expressly permitted by this Agreement. All canceled
Certificates may be held by the Trustee in accordance with its standard
retention policy in effect from time to time.
Section 5.08. LIMITATION ON TRANSFER OF OWNERSHIP RIGHTS.
(a) No sale or other transfer of record or beneficial ownership of a
Class R Certificate (whether pursuant to a purchase, a transfer resulting from a
default under a secured lending agreement or otherwise) shall be made to a
Disqualified Organization or an agent of a Disqualified Organization. The
transfer, sale or other disposition of a Class R Certificate (whether pursuant
to a purchase, a transfer resulting from a default under a secured lending
agreement or otherwise) to a Disqualified Organization shall be deemed to be of
no legal force or effect whatsoever and such transferee shall not be deemed to
be an Owner for any purpose hereunder, including, but not limited to, the
receipt of distributions on such Class R Certificate. Furthermore, in no event
shall the Trustee accept surrender for transfer, registration of transfer, or
register the transfer, of any Class R Certificate nor authenticate and make
available any new Class R Certificate unless the Trustee has received an
affidavit from the proposed transferee in the form attached hereto as Exhibit H.
Each holder of a Class R Certificate by his acceptance thereof, shall be deemed
for all purposes to have consented to the provisions of this Section 5.08(a).
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(b) No other sale or other transfer of record or beneficial ownership
of a Class X-IO or Class R Certificate shall be made unless such transfer is
exempt from the registration requirements of the Securities Act, and any
applicable state securities laws or is made in accordance with said Securities
Act and laws. In the event of any such a transfer: (i) in the case of transfers
for which an investment letter in the form of Exhibit I-1 is provided by the
transferee to the Trustee and the Certificate Insurer, the Trustee or the
Depositor shall require a written Opinion of Counsel acceptable to and in form
and substance satisfactory to the Depositor, the Trustee and the Certificate
Insurer to the effect that such transfer may be made pursuant to an exemption,
describing the applicable exemption and the basis therefor, from said Securities
Act and laws or is being made pursuant to said Securities Act and laws, which
Opinion of Counsel shall not be an expense of the Depositor, the Trustee, the
Trust Estate or the Certificate Insurer; and (ii) in the case of transfers for
which an investment letter in the form of Exhibit I-1 or I-2 is provided, the
investment letter shall not be an expense of the Depositor, the Trustee, the
Trust Estate or the Certificate Insurer. The Owner of a Class X-IO or Class R
Certificate desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trustee, the Certificate Insurer, the Depositor and the Sellers
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.
(c) No transfer of a Class X-IO or Class R Certificate shall be made
unless the Trustee shall have received either: (i) a representation letter from
the transferee of such Class X-IO or Class R Certificate, acceptable to and in
form and substance satisfactory to the Trustee and the Certificate Insurer
(which may be combined with the investment letter required by subsection (b)
above), to the effect that such transferee is not an employee benefit plan
subject to Section 406 of ERISA nor a plan or other arrangement subject to
Section 406 of ERISA nor a plan or other arrangement subject to Section 4975 of
the Code (collectively, a "Plan"), nor is acting on behalf of any Plan nor using
the assets of any Plan to effect such transfer or (ii) in the event that any
Class X-IO or Class R Certificate is purchased by a Plan, or by a person or
entity acting on behalf of any Plan or using the assets of any Plan to effect
such transfer (including the assets of any Plan held in an insurance company
separate or general account), an Opinion of Counsel, acceptable to and in form
and substance satisfactory to the Trustee and the Certificate Insurer, which
Opinion of Counsel shall not be at the expense of either the Trustee, the
Certificate Insurer or the Trust, to the effect that the purchase or holding of
any Class X-IO or Class R Certificates will not result in any non-exempt
prohibited transaction under ERISA and/or Section 4975 of the Code, and will not
subject the Trustee to any obligation or liability in addition to those
expressly undertaken under this Agreement. Notwithstanding anything else to the
contrary herein, any purported transfer of a Certificate to or on behalf of any
Plan without the delivery to the Trustee and the Certificate Insurer of an
Opinion of Counsel as described above shall be null and void and of no effect.
(d) Reserved.
(e) Reserved.
(f) Notwithstanding anything to the contrary contained in this Section
5.08, the Class R Certificates and Class X-IO Certificates may be transferred to
CHEC Residual Corporation, a
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Nevada corporation and wholly-owned subsidiary of the Seller, without regard
to Sections 5.08(b), (c) or (e) above.
Section 5.09. ASSIGNMENT OF RIGHTS.
Other than with respect to any Class R Certificates (unless the Trustee
shall have received a satisfactory Opinion of Counsel to the effect that such
action with respect to a Class R Certificate will not have an adverse effect on
the status of either REMIC I or REMIC II as a "REMIC") an Owner may pledge,
encumber, hypothecate or assign all or any part of its right to receive
distributions hereunder, but such pledge, encumbrance, hypothecation or
assignment shall not constitute a transfer of an ownership interest sufficient
to render the transferee an Owner of the Trust without compliance with the
provisions of Section 5.04 and Section 5.08 hereof.
END OF ARTICLE V
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ARTICLE VI
COVENANTS
Section 6.01. DISTRIBUTIONS.
On each Distribution Date, the Trustee will withdraw amounts from
the Certificate Account and make the distributions with respect to the
Certificates in accordance with the terms of the Certificates and this
Agreement. Such distributions shall be made (i) in the case of the Class A
Certificates registered in the name of the Depository, by wire transfer to
the Depository or (ii) in each other case, by check or draft mailed on each
Distribution Date or, if requested by any Owner (other than the Depository)
of (A) a Class A Certificate having an original principal balance of not less
than [$1,000,000]or (B) a Class X-IO or Class R Certificate having a
Percentage Interest of not less than ____% in writing not later than one
Business Day prior to the applicable Record Date (which request does not have
to be repeated unless it has been withdrawn), to such Owner by wire transfer
to an account within the United States designated no later than five Business
Days prior to the related Record Date, made on each Distribution Date, in
each case to each Owner of record on the immediately preceding Record Date.
Section 6.02. MONEY FOR DISTRIBUTIONS TO BE HELD IN TRUST; WITHHOLDING.
(a) All payments of amounts due and payable with respect to any
Certificate that are to be made from amounts withdrawn from the Certificate
Account or from Insured Payments shall be made by and on behalf of the Trustee
or by a Paying Agent, and no amounts so withdrawn from the Certificate Account
for payments of Certificates and no Insured Payment shall be paid over to the
Trustee except as provided in this Section.
(b) If CHEC has appointed a Paying Agent pursuant to Section 11.15
hereof, the Trustee will, on the Business Day immediately preceding each
Distribution Date, deposit with such Paying Agent in immediately available funds
an aggregate sum sufficient to pay the amounts then becoming due (to the extent
funds are then available for such purpose in the Certificate Account for the
Class to which such amounts are due) such sum to be held in trust for the
benefit of the Owners entitled thereto.
(c) CHEC may at any time direct any Paying Agent to pay to the Trustee
all sums held in trust by such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which the sums were held by such Paying
Agent; and upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
(d) CHEC shall require the Paying Agent, including the Trustee on
behalf of the Trust to comply with all requirements of the Code and applicable
state and local law with respect to the withholding from any distributions made
by it to any Owner of any applicable withholding taxes imposed thereon and with
respect to any applicable reporting requirements in connection therewith, and
the Trustee and Paying Agent agree to comply with such requirements.
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(e) Any money held by the Trustee or a Paying Agent in trust for the
payment of any amount due with respect to any Class A Certificate remaining
unclaimed by the Owner of such Certificate for the period then specified in the
escheat laws of the State of New York after such amount has become due and
payable shall be discharged from such trust and be paid first to the Certificate
Insurer on account of any Reimbursement Amount and second to the Depositor; and
the Owner of such Class A Certificate shall thereafter, as an unsecured general
creditor, look only to the Depositor and not to the Certificate Insurer for
payment thereof (but only to the extent of the amounts so paid to the Depositor)
and all liability of the Trustee or such Paying Agent with respect to such trust
money shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying
Agent before being required to make any such payment, may at the expense of the
Trust cause to be published once, in the eastern edition of THE WALL STREET
JOURNAL, notice that such money remains unclaimed and that, after a date
specified therein, which shall be not fewer than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be paid to
the Certificate Insurer on account of any Reimbursement Amount or to the
Depositor. The Trustee shall, at the written direction of CHEC, also adopt and
employ, at the expense of CHEC, any other reasonable means of notification of
such payment (including but not limited to mailing notice of such payment to
Owners whose right to or interest in moneys due and payable but not claimed is
determinable from the records of the Registrar, the Trustee or any Paying Agent,
at the last address of record for each such Owner).
Section 6.03. PROTECTION OF TRUST ESTATE.
(a) The Trustee will hold the Trust Estate in trust for the benefit of
the Owners and the Certificate Insurer and, upon written request of the
Certificate Insurer or, with the consent of the Certificate Insurer, at the
request of the Depositor, will from time to time execute and deliver all such
supplements and amendments hereto pursuant to Section 11.14 hereof and all
instruments of further assurance and other instruments, and will take such other
action upon such request from the Depositor (with the consent of the Certificate
Insurer) or the Certificate Insurer, to:
(i) more effectively hold in trust all or any portion of the
Trust Estate;
(ii) perfect, publish notice of, or protect the validity of
any grant made or to be made by this Agreement;
(iii) enforce any of the Home Equity Loans; or
(iv) preserve and defend title to the Trust Estate and the
rights of the Trustee, and the ownership interests of the Owners
represented thereby, in such Trust Estate against the claims of all
Persons and parties.
To the extent not covered by the indemnity or other security
contemplated by 10.01(e) and 10.01(g), the Trustee shall be reimbursed for any
costs or expenses associated with this section pursuant to Section 7.03(b)(x).
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(b) The Trustee shall have the power to enforce, and shall enforce the
obligations and rights of the other parties to this Agreement, and of the
Certificate Insurer or the Owners, by action, suit or proceeding at law or
equity, and shall also have the power to enjoin, by action or suit in equity,
any acts or occurrences which may be unlawful or in violation of the rights of
the Certificate Insurer or the Owners as such rights are set forth in this
Agreement; PROVIDED, HOWEVER, that nothing in this Section shall require any
action by the Trustee unless the Trustee shall first (i) have been furnished
indemnity satisfactory to it and (ii) when required by this Agreement, have been
requested by the Certificate Insurer or the Owners of a majority of the Voting
Rights represented by the Certificates then Outstanding with the consent of the
Certificate Insurer (unless a Certificate Insurer Default under clause (a) of
the definition thereof has occurred and is continuing); PROVIDED, FURTHER,
HOWEVER, that if there is a dispute with respect to payments under the
Certificate Insurance Policies the Trustee's first responsibility is to the
Owners.
(c) The Trustee shall execute any instrument required pursuant to this
Section so long as such instrument does not conflict with this Agreement or with
the Trustee's fiduciary duties, or adversely affect its rights, indemnities and
immunities hereunder.
Section 6.04. PERFORMANCE OF OBLIGATIONS.
The Trustee will not take any action that would release any Person from
any of such Person's covenants or obligations under any instrument or document
relating to the Certificates or which would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or document, except as
expressly provided in this Agreement or such other instrument or document.
The Trustee may contract with other Persons to assist it in performing
its duties hereunder pursuant to Section 10.03(g); provided, that the Trustee
shall remain liable for the performance of any such duties notwithstanding any
such contractual arrangement.
Section 6.05. NEGATIVE COVENANTS.
The Trustee will not:
(i) sell, transfer, exchange or otherwise dispose of any of
the Trust Estate except as expressly permitted by this Agreement;
(ii) claim any credit on or make any deduction from the
distributions payable in respect of, the Certificates (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Owner by reason of the payment
of any taxes levied or assessed upon any of the Trust Estate;
(iii) incur, assume or guaranty, on behalf of the Trust, any
indebtedness of any Person except pursuant to this Agreement;
(iv) dissolve or liquidate the Trust in whole or in part,
except pursuant to Article IX hereof; or
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(v) (A) permit the validity or effectiveness of this Agreement
to be impaired, or permit any Person to be released from any covenant
or obligation with respect to the Trust or to the Certificates under
this Agreement, except as may be expressly permitted hereby or (B)
permit any lien, charge, adverse claim, security interest, mortgage or
other encumbrance 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.
Section 6.06. NO OTHER POWERS.
The Trustee will not permit the Trust to engage in any business
activity or transaction other than those activities permitted by Section 2.03
hereof.
Section 6.07. LIMITATION OF SUITS.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Agreement or the Certificate Insurance Policies,
or for the appointment of a receiver or trustee of the Trust, or for any other
remedy with respect to an event of default hereunder, unless:
(1) such Owner has previously given written notice to the Seller
and the Trustee of such Owner's intention to institute such
proceeding;
(2) the Owners of not less than [25%] of the Voting Rights
represented by the Certificates then Outstanding shall have
made written request to the Trustee to institute such
proceeding in its own name as Trustee establishing the Trust;
(3) such Owner or Owners have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute such
proceeding;
(5) as long as any Class A Certificates are Outstanding or any
Reimbursement Amounts are owed to the Certificate Insurer, the
Certificate Insurer has consented in writing thereto (unless a
Certificate Insurer Default as defined in clause (a) of the
definition thereof has occurred and is continuing); and
(6) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Owners
of a majority of the Voting Rights represented by the
Certificates then Outstanding;
it being understood and intended that no one or more Owners shall have any right
in any manner whatever by virtue of, or by availing themselves of, any provision
of this Agreement to affect, disturb or prejudice the rights of any other Owner
of the same Class or to obtain or to seek to obtain priority or preference over
any other Owner of the same Class or to enforce any right under this Agreement,
except in the manner herein provided and for the equal and ratable benefit of
all the Owners of the same Class.
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In the event the Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of Owners, each representing less
than a majority of the applicable Class of Certificates and each conforming to
paragraphs (1)-(6) of this Section 6.07, the Certificate Insurer in its sole
discretion may determine what action, if any, shall be taken, notwithstanding
any other provision of this Agreement.
Section 6.08. UNCONDITIONAL RIGHTS OF OWNERS TO RECEIVE DISTRIBUTIONS.
Notwithstanding any other provision in this Agreement, the Owner of any
Certificate shall have the right, which is absolute and unconditional, to
receive distributions to the extent provided herein and therein with respect to
such Certificate or to institute suit for the enforcement of any such
distribution, and such right shall not be impaired without the consent of such
Owner.
Section 6.09. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided herein, no right or remedy herein
conferred upon or reserved to the Trustee, the Certificate Insurer or to the
Owners 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. Except as otherwise provided herein, 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 6.10. DELAY OR OMISSION NOT WAIVER.
No delay of the Trustee, the Certificate Insurer or any Owner of any
Certificate to exercise any right or remedy under this Agreement shall impair
any such right or remedy or constitute a waiver of such right or remedy. Every
right and remedy given by this Article VI or by law to the Trustee, the
Certificate Insurer or to the Owners may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee, the Certificate Insurer, or by
the Owners, as the case may be.
Section 6.11. CONTROL BY OWNERS.
The Certificate Insurer or the Owners of a majority of the Voting
Rights represented by the Certificates then Outstanding with the consent of the
Certificate Insurer may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee with respect to the
Certificates or exercising any trust or power conferred on the Trustee with
respect to the Certificates or the Trust Estate, including, but not limited to,
those powers set forth in Section 6.03 and Section 8.20 hereof, PROVIDED THAT:
(1) such direction shall not be in conflict with any rule of law
or with this Agreement;
(2) the Trustee shall have been provided with indemnity
satisfactory to it; and
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(3) the Trustee may take any other action deemed proper by the
Trustee, as the case may be, which is not inconsistent with
such direction (and which does not require Certificate Insurer
consent or direction pursuant to the terms of this Agreement);
PROVIDED, HOWEVER, that the Trustee need not take any action
which it determines might involve it in liability or may be
unjustly prejudicial to the Owners not so directing.
Section 6.12. INDEMNIFICATION BY CHEC.
CHEC agrees to indemnify and hold the Trustee, the Depositor, the
Certificate Insurer and each Owner harmless against any and all claims, losses,
penalties, fines, forfeitures, legal fees and related costs, judgments, and any
other costs, fees and expenses that the Trustee, the Depositor, the Certificate
Insurer and any Owner sustain in any way related to the failure of Seller to
perform its duties in compliance with the terms of this Agreement. CHEC shall
immediately notify the Trustee, the Depositor, the Certificate Insurer and each
Owner if a claim is made by a third party that the Servicer has failed to
perform its obligations to service and administer the Home Equity Loans in
compliance with the terms of this Agreement, and CHEC shall assume (with the
consent of the Trustee) the defense of any such claim and pay all expenses in
connection therewith, including reasonable counsel fees, and promptly pay,
discharge and satisfy any judgment or decree which may be entered against the
Depositor, the Servicer, the Sellers, the Trustee, the Certificate Insurer
and/or Owner in respect of such claim. The Trustee shall, in accordance with
instructions received from CHEC, reimburse CHEC only from amounts otherwise
distributable on the Class X-IO and the Class R Certificates for all amounts
advanced by it pursuant to the preceding sentence, except when a final
nonappealable adjudication determines that the claim relates directly to the
failure of CHEC to perform its duties in compliance with the terms of this
Agreement. The provisions of this Section 6.12 shall survive the termination of
this Agreement and the payment of the outstanding Certificates.
END OF ARTICLE VI
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ARTICLE VII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 7.01. COLLECTION OF MONEY.
Except as otherwise expressly provided herein, the Trustee shall demand
payment or delivery of all money and other property payable to or receivable by
the Trustee pursuant to this Agreement or the Certificate Insurance Policies,
including (a) all payments due on the Home Equity Loans in accordance with the
respective terms and conditions of such Home Equity Loans and required to be
paid over to the Trustee by the Servicer or by any Sub-Servicer and (b) Insured
Payments. The Trustee shall hold all such money and property received by it as
part of the Trust Estate and shall apply it as provided in this Agreement.
Section 7.02. ESTABLISHMENT OF ACCOUNTS.
(a) The Depositor shall cause the Certificate Account and the
Supplemental Interest Reserve Fund to be established on the Startup Day, and the
Trustee shall maintain each of the Certificate Account and the Supplemental
Interest Reserve Fund, at the Corporate Trust Office as an Eligible Account to
be held by the Trustee in the name of the Trust on behalf of (i) in the case of
the Certificate Account, the Owners of the Certificates and the Certificate
Insurer; and (ii) in the case of the Supplemental Interest Reserve Fund, the
Owners of the Class A-7 Certificates.
(b) On each Determination Date the Trustee shall determine (subject to
the terms of Section 10.03(j) hereof, based solely on information provided to it
in writing by the Servicer) with respect to the immediately following
Distribution Date, the amounts that are expected to be on deposit in the
Certificate Account as of such Distribution Date.
Section 7.03. FLOW OF FUNDS.
(a) (i) The Trustee shall deposit in the Certificate Account
without duplication, upon receipt, with respect to Group I, the proceeds of any
liquidation of the assets of the Trust insofar as such assets relate to Group I,
all remittances made to the Trustee pursuant to Sections 8.08(d)(i) and 8.09
with respect to Group I and the Group I Monthly Remittance Amount remitted by
the Servicer.
(ii) The Trustee shall deposit in the Certificate Account
without duplication, upon receipt, with respect to Group II, the
proceeds of any liquidation of the assets of the Trust insofar as such
assets relate to Group II, all remittances made to the Trustee pursuant
to Sections 8.08(d)(i) and 8.09 with respect to Group II and the Group
II Monthly Remittance Amount remitted by the Servicer.
(b) On each Distribution Date, the Trustee shall make the
following allocations, disbursements and transfers (based solely on
information provided by the Servicer in writing), for each Home Equity Loan
Group from amounts deposited in the Certificate Account pursuant to
subsection (a) for the related Home Equity Loan Group in the following order
of priority, and
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each such allocation, transfer and disbursement shall be treated as having
occurred only after all preceding allocations:
(i) concurrently, to the Trustee and the Certificate Insurer,
the Trustee Fee and any Transition Expenses for the related Home Equity
Group and provided that no Certificate Insurer Default as defined in
clause (a) of the definition thereof has occurred and is continuing,
the Premium Amount for the related Classes of Class A Certificates for
the Distribution Date to the Certificate Insurer.
(ii) to the related Classes of Class A Certificates, the
related Current Interest for the Class on a pro rata basis based on
each Class A Certificate's Current Interest without priority among the
Class A Certificates for the Distribution Date.
(iii) to the related Classes of Class A Certificates, an
amount up to the related Class A Principal Distribution Amount in the
following order of priority:
(a) With respect to the Home Equity Loan Group
relating to the Group I Certificates, the Class A Principal
Distribution Amount applicable to the Group I Certificates
shall be distributed as follows:
(1) to the Certificateholders of the Class
A-6 Certificates, an amount equal to the Class A-6
Lockout Distribution Amount until the Certificate
Principal Balance of the Class A-6 Certificates has
been reduced to zero; and
(2) The remainder as follows: first, to the
Class A-1 Certificateholders until the Certificate
Principal Balance of the Class A-1 Certificates is
reduced to zero; second, to the Class A-2
Certificateholders until the Certificate Principal
Balance of the Class A-2 Certificates is reduced to
zero; third, to the Class A-3 Certificateholders
until the Certificate Principal Balance of the Class
A-3 Certificates is reduced to zero; fourth, to the
Class A-4 Certificateholders until the Certificate
Principal Balance of the Class A-4 Certificates is
reduced to zero; fifth, to the Class A-5
Certificateholders until the Certificate Principal
Balance of the Class A-5 Certificates is reduced to
zero; and sixth to the Class A-6 Certificate holders
until the Certificate Principal Balance of the Class
A-6 Certificates has been reduced to zero;
provided, however, during the continuance of a Certificate
Insurer Default, if there is a Collateralization Deficit with
respect to the Group I Certificates, then the Class A
Principal Distribution Amount applicable to the Group I
Certificates shall be distributed pro rata to the
Certificateholders of the Group I Certificates.
(b) With respect to the Home Equity Loan Group
relating to the Group II Certificates, the Class A Principal
Distribution Amount applicable to the Group
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II Certificates shall be distributed to the Certificateholders
of the Class A-7 Certificates, until the Certificate Principal
Balance of the Class A-7 Certificates is reduced to zero.
(iv) Concurrently, to the Trustee and the Certificate Insurer,
any unpaid Trustee Fee and any unpaid Transition Expenses for the
unrelated Home Equity Group and provided that no Certificate Insurer
Default as defined in clause (a) of the definition thereof has occurred
and is continuing, any unpaid Premium Amount for the unrelated Class or
Classes of Class A Certificates for the Distribution Date to the
Certificate Insurer.
(v) To the Classes of Class A Certificates with respect to the
unrelated Home Equity Loan Group, the amount of the Available Funds
Shortfall with respect to the other Home Equity Loan Group.
(vi) To the Certificate Insurer, in the following order of
priority, the sum of:
(1) Any Reimbursement Amount owed to the Certificate
Insurer with respect to the related Classes of Class A
Certificates; provided that if a Certificate Insurer Default
as defined in clause (a) of the definition thereof has
occurred and is continuing, then the priority of this
allocations shall follow immediately after clause (vii) below;
and
(2) Any unpaid Reimbursement Amount owed to the
Certificate Insurer with respect to the unrelated Classes of
Class A Certificates; provided that if a Certificate Insurer
Default as defined in clause (a) of the definition thereof has
occurred and is continuing, then the priority of this
allocations shall follow immediately after clause (viii)
below.
(vii) To the Classes of Class A Certificates with respect to
the related Home Equity Loan Group, an amount up to the Extra Principal
Distribution Amount for the related Home Equity Loan Group, until the
related Target Overcollateralization Amount is reached, such amounts to
be applied in reduction of the related Certificate Principal Balances
in the same order of priority as the Class A Principal Distribution
Amount is to be so applied for such Home Equity Loan Group pursuant to
clause (iii) above.
(viii) To the Classes of Class A Certificates with respect to
the unrelated Home Equity Loan Group, an amount equal to any Target
Deficiency for such Home Equity Loan Group remaining after the
distributions above with respect to the unrelated Home Equity Loan
Group, such amounts to be applied in reduction of the related
Certificate Principal Balances in the same order of priority as the
Class A Principal Distribution Amount is to be so applied for such Home
Equity Loan Group pursuant to clause (iii) above.
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(ix) To the Class X-IO Certificate, the lesser of the Class
X-IO Distribution Amount and the Class A-7 Interest Index Carryover,
provided that, pursuant to Section 7.04 hereof, on any Distribution
Date as to which there is any unpaid Class A-7 Interest Index
Carryover, the Trustee will transfer, from amounts that would otherwise
be distributable to the Class X-IO Certificates pursuant to this
clause, the amount of any Class A-7 Interest Index Carryover into the
Supplemental Interest Reserve Fund, for immediate transfer pursuant to
this clause to the Class A-7 Certificates as payment of the Class A-7
Interest Index Carryover.
(x) To the Trustee as reimbursement for all Trustee
Reimbursable Expenses incurred in connection with its duties and
obligations under the Agreement, to the extent not paid as Transition
Expenses pursuant to clauses (i) or (iv) above.
(xi) To the Servicer to the extent of any unreimbursed
Delinquency Advances, unreimbursed Servicing Advances and unreimbursed
Compensating Interest.
(xii) To the Class X-IO Certificates, an amount equal to the
Class X-IO Distribution Amount less any amounts thereof applied
pursuant to clause (ix) above.
(xiii) To the Class R Certificates, the remainder.
(c) Reserved.
(d) Notwithstanding any of the foregoing provisions, the aggregate
amounts distributed on all Distribution Dates to the Owners of the related Class
A Certificates on account of principal pursuant to Section 7.03(b) shall not
exceed the original Certificate Principal Balance of the related Class A
Certificates.
(e) Upon receipt of Insured Payments from the Certificate Insurer on
behalf of Owners of the Class A Certificates, the Trustee shall deposit such
Insured Payments in the Policy Payments Account. On each Distribution Date,
pursuant to Section 12.02(b) hereof, such amounts will be transferred from the
Policy Payments Account to the Certificate Account and the Trustee shall
distribute such Insured Payments, or the proceeds thereof, to the Owners of such
Class A Certificates, first, to the payment of any unpaid Current Interest for
such Class or Classes of Class A Certificates on a pro rata basis, and second,
any Group I Guaranteed Principal Amount or Group II Guaranteed Principal Amount
of the related Class A Principal Distribution Amount on the related Distribution
Date, in the same order of priority as described in Section 7.03(b)(iii).
(f) The Trustee or Paying Agent shall (i) receive for each Owner of the
Class A Certificates any Insured Payment from the Certificate Insurer and (ii)
disburse the same to the Owners of the related Class A Certificates as set forth
in Section 7.03(e). Insured Payments disbursed by the Trustee or Paying Agent
from proceeds of the related 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 Certificates and the
Certificate Insurer shall be entitled to receive the Reimbursement Amount
pursuant to Section 7.03(b) hereof. Nothing
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contained in this paragraph shall be construed so as to impose duties or
obligations on the Trustee that are different from or in addition to those
expressly set forth in this Agreement.
The rights of the Owners to receive distributions from the proceeds of
the Trust Estate, and all ownership interests of the Owners in such
distributions, shall be as set forth in this Agreement. In this regard, all
rights of the Owners of the Class X-IO and Class R Certificates to receive
distributions in respect of the Class X-IO and Class R Certificates shall be
subject and subordinate to the preferential rights of the holders of the Class A
Certificates to receive distributions thereon and the ownership interests of
such Owners in such distributions, as described herein. In accordance with the
foregoing, the ownership interests of the Owners of the Class X-IO and Class R
Certificates in amounts deposited in the Accounts from time to time shall not
vest unless and until such amounts are distributed in respect of the Class X-IO
and Class R Certificates in accordance with the terms of this Agreement.
Notwithstanding anything contained in this Agreement to the contrary, and the
Owners of the Class X-IO and Class R Certificates shall not be required to
refund any amount properly distributed on the Class X-IO and Class R
Certificates pursuant to this Section 7.03.
Section 7.04. SUPPLEMENTAL INTEREST RESERVE FUND. On the Closing Date,
the holders of the Class X-IO Certificates will deposit, or cause to be
deposited, into the Supplemental Interest Reserve Fund, [$10,000]. On each
Distribution Date as to which there is Current WAC Excess or Class A-7 Interest
Index Carryover, the Trustee has been directed to, and shall therefore, deposit
into the Supplemental Interest Reserve Account an amount equal to the Current
WAC Excess of the Current Interest on the Class A-7 Certificates which is
payable pursuant to Section 7.03(b)(ii), and/or the Class A-7 Interest Index
Carryover pursuant to Section 7.03(b)(ix). If no current WAC Excess or Class A-7
Interest Index Carryover are payable on a Distribution Date, the Trustee shall
deposit into the Supplemental Reserve Account on behalf of the Class X-IO
Certificateholders an amount such that when added to other amounts already on
deposit in the fund, the aggregate amount on deposit therein is equal to
[$10,000]. For federal and state income tax purposes, the Class X-IO
Certificateholders will be deemed to be the owners of the Supplemental Interest
Reserve Fund and all amounts deposited into the Supplemental Interest Reserve
Fund (other than the initial [$10,000] deposit) shall be treated as amounts
distributed by REMIC II with respect to the Class X-IO Distribution Amount.
Amounts held in the Supplemental Interest Reserve Fund and not distributable to
the Class A-7 Certificateholders on any Distribution Date will be invested by
the Trustee in investments designated by the Class X-IO Certificateholders
having maturities on or prior to the next succeeding Distribution Date on which
such amounts will be distributable to the Class A-7 Certificateholders. Upon the
termination of the Trust, or the payment in full of the Class A-7 Certificates,
all amounts remaining on deposit in the Supplemental Interest Reserve Fund will
be released from the lien of the Trust and distributed to the Class X-IO
Certificateholders or their designees. The Supplemental Interest Reserve Fund
will be part of the Trust but not part of any REMIC Pool and any payments to the
Class A-7 Certificates of Current WAC Excess and Supplemental Interest Amounts
will not be payments with respect to a "regular interest" in a REMIC within the
meaning of Code Section 860G(a)(1).
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Section 7.05. INVESTMENT OF ACCOUNTS.
(a) Consistent with any requirements of the Code, all or a portion of
any Account held by the Trustee for the benefit of the Owners may (i) remain
uninvested or (ii) be invested and reinvested by the Trustee as directed in
writing by the Servicer in the name of the Trustee for the benefit of the Owners
and the Certificate Insurer in one or more Eligible Investments bearing interest
or sold at a discount. The bank serving as Trustee or any affiliate thereof may
be the obligor on any investment which otherwise qualifies as an Eligible
Investment. No investment in any Account shall mature later than the Business
Day immediately preceding the next Distribution Date. Amounts held in the
Certificate Account shall be invested in Eligible Investments, which Eligible
Investments shall mature no later than the Business Day preceding the
immediately following Distribution Date or, if such Eligible Investments are an
obligation of the Trustee or are money market funds for which the Trustee or any
affiliate is the manager or the adviser, such Eligible Investments shall mature
no later than the following 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
as directed in writing by the Servicer a sufficient amount of the investments in
such Account. No investments will be liquidated prior to maturity unless the
proceeds thereof are needed for disbursement.
(c) All income or other gain from investment in the Certificate Account
held by the Trustee shall be withdrawn by the Trustee and, remitted to the
Servicer (except with respect to all income or other gain from investment earned
on the Business Day immediately preceding a Distribution Date, which amounts
shall be retained by the Trustee). Any investment losses on amounts held in the
Certificate Account shall, promptly upon realization of such loss, be
contributed by the Servicer to the Trustee for deposit in the Certificate
Account.
Section 7.06. PAYMENT OF TRUST EXPENSES.
(a) The Trustee shall make demand on the Seller to pay and the Seller
shall pay the amount of the expenses of the Trust referred to in Section 2.05,
and the Seller shall promptly pay such expenses directly to the Persons to whom
such amounts are due, from amounts distributed pursuant to clause (x) of Section
7.03(b). With respect to the Certificate Account the Trustee shall receive all
income and other gains from investments as described in Section 7.05(c).
(b) The Seller shall pay directly on the Startup Day the reasonable
fees and expenses of counsel to the Trustee.
Section 7.07. ELIGIBLE INVESTMENTS.
The following are Eligible Investments:
(a) direct general obligations of, or obligations fully and
unconditionally guaranteed as to the timely payment of principal and interest
by, the United States or any agency or instrumentality thereof, provided such
obligations are backed by the full faith and credit of the United States, FHLMC
senior debt obligations, and FNMA senior debt obligations, but
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excluding any of such securities whose terms do not provide for payment of a
fixed dollar amount upon maturity or call for redemption;
(b) Federal Housing Administration debentures;
(c) FHLMC participation certificates which guaranty timely payment of
principal and interest and senior debt obligations;
(d) Consolidated senior debt obligations of any Federal Home Loan
Banks;
(e) FNMA mortgage-backed securities (other than stripped mortgage
securities) and senior debt obligations;
(f) Federal funds, certificates of deposit, time deposits, and bankers'
acceptances (having original maturities of not more than 365 days) of any
domestic bank, the short-term debt obligations of which have been rated A-l by
Standard & Poor's and P-l by Moody's; provided that any such certificates of
deposit must be secured at all times by collateral described in clause (a) or
(b) above, such collateral must be held by a third party and the Trustee must
have a perfected first priority security interest in such collateral;
(g) Deposits of any bank or savings and loan association (the long-term
deposit rating of which is A2 or better by Moody's and BBB by Standard & Poor's)
which has combined capital, surplus and undivided profits of at least
[$50,000,000] which deposits are insured by the FDIC and held up to the limits
insured by the FDIC;
(h) Repurchase agreements collateralized by securities described in
(a), (c), or (e) above with any registered broker/dealer subject to the
Securities Investors Protection Corporation's jurisdiction and subject to
applicable limits therein promulgated by Securities Investors Protection
Corporation or any commercial bank, if such broker/dealer or bank has an
uninsured, unsecured and unguaranteed short-term or long term obligation rated
P-l or Aa2, respectively, or better by Moody's and A-1+ or AA, respectively, or
better by Standard & Poor's, provided:
a. A master repurchase agreement or specific written
repurchase agreement governs the transaction;
b. The securities are held free and clear of any lien by the
Trustee or an independent third party acting solely as agent for the
Trustee, and such third party is (a) a Federal Reserve Bank, (b) a bank
which is a member of the FDIC and which has combined capital, surplus
and undivided profits of not less than [$125,000,000], or (c) a bank
approved in writing for such purpose by the Certificate Insurer, and
the Trustee shall have received written confirmation from such third
party that it holds such securities, free and clear of any lien, as
agent for the Trustee;
c. A perfected first security interest under the Uniform
Commercial Code, or book entry procedures prescribed at 31 CFR 306.1 ET
SEQ. or 31 CFR 350.0 ET SEQ., in such securities is created for the
benefit of the Trustee;
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d. The repurchase agreement has a term of thirty days or less
and the Trustee will value the collateral securities no less frequently
than weekly marked-to-market at current market price plus interest and
will liquidate the collateral securities if any deficiency in the
required collateral percentage is not restored within two business days
of such valuation; and
e. The fair market value of the collateral securities in
relation to the amount of the repurchase obligation, including
principal and interest, is equal to at least ____%.
(i) Commercial paper (having original maturities of not more than ___
days) rated in the highest short-term rating categories of Standard & Poor's and
Moody's;
(j) Any money market fund rated AAAm or AAAm-G by Standard & Poor's and
Aaa by Moody's which funds are registered under the Investment Company Act of
1940 and whose shares are registered under the Securities Act of 1933, including
any such fund that is managed by the Trustee or any affiliate of the Trustee or
for which the Trustee or any of its affiliates acts as an adviser; and
(k) Any other investment permitted by each of the Rating Agencies and
the Certificate Insurer;
provided that no instrument described above 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 ____% of the
yield to maturity at par of the underlying obligations; and provided, further,
that all instruments described hereunder shall mature at par on or prior to the
next succeeding Distribution Date unless otherwise provided in this Agreement
and that no instrument described hereunder may be purchased at a price greater
than par if such instrument may be prepaid or called at a price less than its
purchase price prior to stated maturity.
Section 7.08. ACCOUNTING AND DIRECTIONS BY TRUSTEE.
By 12:00 noon New York time, on each Distribution Date (or such earlier
period as shall be agreed by the Seller and the Trustee), the Trustee shall
notify (subject to the terms of Section 10.03(j) hereof, based solely on
information provided to the Trustee by the Servicer and upon which the Trustee
may conclusively rely) the Seller, the Depositor, each Owner and the Certificate
Insurer, of the following information with respect to such Distribution Date
(which notification may be given by facsimile, or by telephone promptly
confirmed in writing):
(1) The aggregate amount on deposit in the Certificate Account as
of the related Determination Date;
(2) The Class A Distribution Amount, with respect to each Class
individually, and all Classes in the aggregate on the next
Distribution Date;
(3) The amount of any Extra Principal Distribution Amount for each
Group;
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(4) The amount of any Insured Payment to be made by the
Certificate Insurer on such Distribution Date;
(5) The application of the amounts described in clauses (1), (3)
and (4) above in respect of the distribution of the Class A
Distribution Amount on such Distribution Date in accordance
with Section 7.03 hereof;
(6) The Class A Certificate Principal Balance, the aggregate
amount of the principal of each Class of the Class A
Certificates to be paid on such Distribution Date and the
remaining Certificate Principal Balance of each Class of Class
A Certificates following any such payment;
(7) The amount, if any, of any Realized Losses for each Group for
the related Remittance Period; and
(8) The amount of any Collateralization Deficit, any
Overcollateralization Release Amount and the Target
Overcollateralization Amount for each Group.
Section 7.09. REPORTS BY TRUSTEE TO OWNERS AND CERTIFICATE INSURER.
(a) On each Distribution Date the Trustee shall transmit a report in
writing to each Owner, the Underwriters, the Depositor, the Certificate Insurer,
Standard & Poor's and Moody's setting forth:
(i) the amount of the distribution with respect to such
Owners' Certificates (based on a Certificate in the original principal
amount of [$1,000]);
(ii) the amount of such Owner's distributions allocable to
principal, separately identifying the aggregate amount of any
Prepayments in full or other Prepayments or other recoveries of
principal included therein with respect to Group I and Group II (based
on a Certificate in the original principal amount of [$1,000]) and any
related Extra Principal Distribution Amount;
(iii) the amount of such Owner's distributions allocable to
interest (based on a Certificate in the original principal amount of
[$1,000]);
(iv) if the distribution to the Owners of any Class of the
Class A Certificates on such Distribution Date was less than the
related Class A Distribution Amount on such Distribution Date, the
related Carry-Forward Amount and the allocation thereof to the related
Classes of Class A Certificates resulting therefrom;
(v) the amount of any Insured Payment included in the amounts
distributed to the Owners of Class A Certificates on such Distribution
Date;
(vi) the principal amount of each Class of Class A Certificate
which will be Outstanding and the aggregate Loan Balance of each Group
after giving effect to any payment of principal on such Distribution
Date;
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(vii) the Overcollateralization Amount, Target
Overcollateralization Amount and Collateralization Deficit for each
Group, if any, remaining after giving effect to all distributions and
transfers on such Distribution Date;
(viii) based upon information furnished by the Servicer, such
information as may be required by Section 6049(d)(7)(C) of the Code and
the regulations promulgated thereunder to assist the Owners in
computing their market discount;
(ix) the total of any Substitution Amounts and any Loan
Purchase Price amounts included in such distribution with respect to
each Group;
(x) the weighted average Coupon Rate of the Home Equity Loans
in each Group;
(xi) the amount of any Carry-Forward Amounts;
(xii) such other information as the Certificate Insurer or any
Owner may reasonably request with respect to Delinquent Home Equity
Loans;
(xiii) the weighted average gross margin of the Home Equity
Loans in Group II;
(xiv) the largest home equity loan balance outstanding in each
Group;
(xv) the Class A-7 Certificate Rate for the related
Distribution Date;
(xvi) the Class A-7 Certificateholders' Interest Index
Carryover paid to the Owners of the Class A-7 Certificates for such
Distribution Date and any Class A-7 Certificateholders' Interest Index
Carryover remaining unpaid;
(xvii) the Class A-1 Certificate Rate for the related
Distribution Date;
(xviii) the Class A-2 Certificate Rate for the related
Distribution Date;
(xix) the Class A-3 Certificate Rate for the related
Distribution Date;
(xx) the Class A-4 Certificate Rate for the related
Distribution Date;
(xxi) the Class A-5 Certificate Rate for the related
Distribution Date;
(xxii) the Class A-6 Certificate Rate for the related
Distribution Date;
(xxiii) the Class A-7 Certificate Rate for the related
Distribution Date;
(xxiv) the Group I Net WAC Cap, the Group II Net WAC Cap and
the Class A-7 Available Funds Cap for such Distribution Date; and
(xxv) the Reimbursement Amount, if any, for such Distribution.
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The Servicer shall provide to the Trustee the information described in
Section 8.08(d)(ii) and in clause (b) below to enable the Trustee to perform its
reporting obligations under this Section, and such obligations of the Trustee
under this Section are conditioned upon such information being received and the
information provided in clauses (ii), (ix) and (x) above shall be based solely
upon information contained in the monthly servicing report provided by the
Servicer to the Trustee pursuant to Section 8.08 hereof.
(b) In addition, on each Distribution Date the Trustee will distribute
to each Owner, the Certificate Insurer, the Underwriters, Standard & Poor's and
Moody's, together with the information described in Subsection (a) preceding,
the following information with respect to each Home Equity Loan Group and for
both Groups in the aggregate which is hereby required to be prepared by the
Servicer and furnished to the Trustee for such purpose on or prior to the
related Monthly Remittance Date:
(i) the number and aggregate principal balances of Home Equity
Loans (a) 30-59 days Delinquent, (b) 60-89 days Delinquent and (c) 90
or more days Delinquent, as of the close of business on the last
Business Day of the calendar month immediately preceding the
Distribution Date, (d) the numbers and aggregate Loan Balances of all
Home Equity Loans as of such Distribution Date after giving effect to
any payment of principal on the last day of the Remittance Period
immediately preceding the Distribution Date and (e) the percentage that
each of the amounts represented by clauses (a), (b) and (c) represent
as a percentage of the respective amounts in clause (d);
(ii) the status and the number and dollar amounts of all Home
Equity Loans in foreclosure proceedings as of the close of business on
the last Business Day of the calendar month immediately preceding such
Distribution Date, separately stating, for this purpose, all Home
Equity Loans with respect to which foreclosure proceedings were
commenced in the immediately preceding calendar month;
(iii) the number of Mortgagors and the Loan Balances of (a)
the related Mortgages involved in bankruptcy proceedings as of the
close of business on the last Business Day of the calendar month
immediately preceding such Distribution Date and (b) Home Equity Loans
that are "balloon" loans;
(iv) the existence and status of any REO Properties, as of the
close of business of the last Business Day of the month immediately
preceding the Distribution Date;
(v) the book value of any REO Property as of the close of
business on the last Business Day of the calendar month immediately
preceding the Distribution Date;
(vi) cumulative Realized Losses, incurred on the Home Equity
Loans from the Startup Day to and including the Remittance Period
immediately preceding the Distribution Date;
(vii) the amount of Net Liquidation Proceeds realized on the
Home Equity Loans during the Remittance Period immediately preceding
the Distribution Date;
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(viii) the Annual Loss Percentage (Rolling Twelve Month) with
respect to such Distribution Date; and
(ix) the 90+ Delinquency Percentage (Rolling Three Month) with
respect to such Distribution Date.
The Trustee shall forward such report (together with the information
described in (a) above) concurrently with each distribution to the
Certificateholders, the Rating Agencies and the Certificate Insurer.
(c) The Trustee shall, on behalf of the Trust, cause to be filed with
the Commission any periodic reports required to be filed on behalf of the Trust
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, the
Servicer and the Depositor 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.
(i) 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 Depositor certifying that all filings
under the Exchange Act have been made and shall attach a copy of
acceptance slips for such filings. On the Startup Day, the Depositor
shall provide the Trustee with a letter at Closing, substantially in
the form attached hereto as Exhibit M, instructing the Trustee, as
filing agent, to comply with the reporting obligations for the Trust
under the Exchange Act.
Section 7.10. REPORTS BY TRUSTEE.
(a) The Trustee shall report to the Depositor, the Seller, the
Certificate Insurer and each Owner, with respect to the amount on deposit in the
Certificate Account (including the amount therein relating to each Group) and
the identity of the investments included therein, as the Depositor, the Seller,
any Owner or the Certificate Insurer may from time to time reasonably request.
Without limiting the generality of the foregoing, the Trustee shall, at the
reasonable request of the Depositor, the Seller, any Owner or the Certificate
Insurer transmit promptly to the Depositor, the Seller, any Owner and the
Certificate Insurer copies of all accountings of receipts in respect of the Home
Equity Loans furnished to it by the Servicer and shall notify the Seller and the
Certificate Insurer if any Monthly Remittance Amount has not been received by
the Trustee when due.
(b) The Trustee shall report to the Certificate Insurer and each Owner
with respect to any written notices it may from time to time receive which
provide an Authorized Officer with actual knowledge that any of the statements
set forth in Section 3.04(b) hereof are inaccurate.
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(c) The Trustee will make the report referred to in Section 7.09 herein
(and, at its option, any additional files containing the same information in an
alternative format) available each month to Certificateholders and other parties
to the Agreement via the Trustee's internet website and its fax-on-demand
service. The Trustee's fax-on-demand service may be accessed by calling (312)
461-3525. Assistance in using the fax-on-demand service can be obtained by
calling the Trustee. Parties that are unable to use the above distribution
options are entitled to have a paper copy mailed to them via first Class mail by
calling the Trustee and indicating such in writing. The Trustee shall have the
right to change the way the report referred to in Section 7.09 herein is
distributed in order to make such distribution more convenient and/or more
accessible to the above parties and the Trustee shall provide timely and
adequate notification to all above parties regarding any such changes.
END OF ARTICLE VII
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ARTICLE VIII
SERVICING AND ADMINISTRATION OF HOME EQUITY LOANS
Section 8.01. SERVICER AND SUB-SERVICERS.
Acting directly or through one or more Sub-Servicers as provided in
Section 8.03, the Servicer shall service and administer the Home Equity Loans in
accordance with this Agreement and the terms of the respective Home Equity
Loans, and with prudent and reasonable care, using the degree of skill and
attention that the Servicer exercises with respect to comparable home equity
loans that it services for itself or others and shall have full power and
authority, acting alone, to do or cause to be done any and all things in
connection with such servicing and administration which it may deem necessary or
desirable but without regard to: (i) any relationship that the Servicer, any
Sub-Servicer or any Affiliate of the Servicer or any Sub-Servicer may have with
the related Mortgagor; (ii) the ownership of any Certificate by the Servicer or
any Affiliate of the Servicer; (iii) the Servicer's obligation to make
Delinquency Advances or Servicing Advances; or (iv) the Servicer's or any
Sub-Servicer's right to receive compensation for its services hereunder or with
respect to any particular transaction.
Subject to Section 8.03 hereof, the Servicer may, and is hereby
authorized to, perform any of its servicing responsibilities with respect to all
or certain of the Home Equity Loans through a Sub-Servicer as it may from time
to time designate, but no such designation of a Sub-Servicer shall serve to
release the Servicer from any of its obligations under this Agreement. Such
Sub-Servicer shall have the rights and powers of the Servicer which have been
delegated to such Sub-Servicer with respect to such Home Equity Loans under this
Agreement.
Without limiting the generality of the foregoing, but subject to
Sections 8.13 and 8.14, the Servicer in its own name or in the name of a
Sub-Servicer is hereby authorized and empowered to execute and deliver, on
behalf of itself, the Owners and the Trustee or any of them, (i) any and all
instruments of satisfaction or cancellation or of partial or full release or
discharge and all other comparable instruments with respect to the Home Equity
Loans and with respect to the Properties, (ii) to institute foreclosure
proceedings or obtain a deed in lieu of foreclosure so as to effect ownership of
any Property in the name of the Servicer on behalf of the Trustee, and (iii) to
hold title to any Property upon such foreclosure or deed in lieu of foreclosure
on behalf of the Trustee; PROVIDED, HOWEVER, that to the extent any instrument
described in clause (i) preceding would be delivered by the Servicer outside of
its usual procedures for home equity loans held in its own portfolio the
Servicer shall, prior to executing and delivering such instrument, obtain the
prior written consent of the Certificate Insurer, and PROVIDED, FURTHER,
however, that Section 8.13(a) and Section 8.14(a) shall each constitute a
revocable power of attorney from the Trustee to the Servicer to execute an
instrument of satisfaction (or assignment of mortgage without recourse) with
respect to any Home Equity Loan held by the Trustee hereunder paid in full or
foreclosed (or with respect to which payment in full has been escrowed).
Revocation of the power of attorney created by the final proviso of the
preceding sentence shall take effect upon (i) the receipt by the Servicer of
written notice thereof from the Trustee, (ii) a Servicer Termination Event or
(iii) the termination of the Trust. The Trustee shall at the written direction
of the Servicer execute any documentation furnished to it by the Servicer for
recordation by the
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Servicer in the appropriate jurisdictions, as shall be necessary to
effectuate the foregoing. Subject to Sections 8.13 and 8.14, the Trustee
shall, if necessary, execute a limited power of attorney in the form
reasonably acceptable to the Trustee to the Servicer or any Sub-Servicer and
furnish them with any other documents as the Servicer or such Sub-Servicer
shall reasonably request to enable the Servicer and such Sub-Servicer to
carry out their respective servicing and administrative duties hereunder.
Upon the request of the Trustee, the Servicer shall send to the Trustee
the details concerning the servicing of the Home Equity Loans on computer
generated tape, diskette or other machine readable format which is mutually
agreeable.
The Servicer shall give prompt written notice to the Trustee of any
action, of which the Servicer has actual knowledge, to (i) assert a claim
against the Trust or (ii) assert jurisdiction over the Trust.
Servicing Advances incurred by the Servicer or any Sub-Servicer in
connection with the servicing of the Home Equity Loans (including any penalties
in connection with the payment of any taxes and assessments or other charges) on
any Property shall be recoverable by the Servicer or such Sub-Servicer to the
extent described in Section 8.09(b) hereof.
Section 8.02. COLLECTION OF CERTAIN HOME EQUITY LOAN PAYMENTS.
The Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Home Equity Loans, and shall,
to the extent such procedures shall be consistent with this Agreement and the
terms and provisions of any applicable Insurance Policy, follow collection
procedures for all Home Equity Loans at least as rigorous as those described in
the FNMA Guide. Consistent with the foregoing, the Servicer may in its
discretion waive or permit to be waived any late payment charge, prepayment
charge, assumption fee or any penalty interest in connection with the prepayment
of a Home Equity Loan or any other fee or charge which the Servicer would be
entitled to retain hereunder as servicing compensation. In the event the
Servicer shall consent to the deferment of the due dates for payments due on a
Note, the Servicer shall nonetheless make payment of any required Delinquency
Advance with respect to the payments so extended to the same extent as if such
installment were due, owing and Delinquent and had not been deferred, and shall
be entitled to reimbursement therefor in accordance with Section 8.09(a) hereof.
Section 8.03. SUB-SERVICING AGREEMENTS BETWEEN SERVICER AND
SUB-SERVICERS.
The Servicer may, with the prior written consent of the Certificate
Insurer and the Trustee, enter into Sub-Servicing Agreements for any servicing
and administration of Home Equity Loans with any institution which is acceptable
to the Certificate Insurer and the Trustee and which, (x) is in compliance with
the laws of each state necessary to enable it to perform its obligations under
such Sub-Servicing Agreement, (y) has experience servicing home equity loans
that are similar to the Home Equity Loans and (z) has equity of not less than
[$5,000,000] (as determined in accordance with generally accepted accounting
principles). The Servicer shall give written notice to the Trustee, the Owners,
the Certificate Insurer and the Rating Agencies of
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the appointment of any Sub-Servicer (and shall receive the confirmation of
the Rating Agencies that such Sub-Servicer shall not result in a withdrawal
or downgrading by any Rating Agency of the rating or the shadow rating of the
Class A Certificates). For purposes of this Agreement, the Servicer shall be
deemed to have received payments on Home Equity Loans when any Sub-Servicer
has received such payments. Each Sub-Servicer shall be required to service
the Home Equity Loans in accordance with this Agreement and any such
Sub-Servicing Agreement shall be consistent with and not violate the
provisions of this Agreement. Each Sub-Servicing Agreement shall provide that
the Trustee (if acting as successor Servicer) or any other successor Servicer
shall have the option to terminate such agreement without payment of any fees
if the original Servicer is terminated or resigns. The Servicer shall deliver
to the Trustee and the Certificate Insurer copies of all Sub-Servicing
Agreements, and any amendments or modifications thereof promptly upon the
Servicer's execution and delivery of such instrument.
Section 8.04. SUCCESSOR SUB-SERVICERS.
The Servicer shall be entitled to terminate any Sub-Servicing Agreement
in accordance with the terms and conditions of such Sub-Servicing Agreement and
to either itself directly service the related Home Equity Loans or enter into a
Sub-Servicing Agreement with a successor Sub-Servicer which qualifies under
Section 8.03.
Section 8.05. LIABILITY OF SERVICER; INDEMNIFICATION.
(a) The Servicer shall not be relieved of its obligations under this
Agreement notwithstanding any Sub-Servicing Agreement or any of the provisions
of this Agreement relating to agreements or arrangements between the Servicer
and a Sub-Servicer and the Servicer shall be obligated to the same extent and
under the same terms and conditions as if it alone were servicing and
administering the Home Equity Loans. The Servicer shall be entitled to enter
into any agreement with a Sub-Servicer for indemnification of the Servicer by
such Sub-Servicer and nothing contained in such Sub-Servicing Agreement shall be
deemed to limit or modify this Agreement.
(b) The Servicer agrees to indemnify and hold the Trustee, the
Depositor, the Certificate Insurer and each Owner harmless against any and all
claims, losses, penalties, fines, forfeitures, legal fees and related costs,
judgments, and any other costs, fees and expenses that the Trustee, the
Depositor, the Certificate Insurer and any Owner may sustain in any way related
to the failure of the Servicer to perform its duties and service the Home Equity
Loans in compliance with the terms of this Agreement. The Servicer shall
immediately notify the Trustee in writing, the Depositor, the Certificate
Insurer and each Owner if a claim is made by a third party with respect to this
Agreement, and the Servicer shall assume (with the consent of the Trustee and
the Certificate Insurer) the defense of any such claim and pay all expenses in
connection therewith, including reasonable counsel fees, and promptly pay,
discharge and satisfy any judgment or decree which may be entered against the
Servicer, the Trustee, the Depositor, the Certificate Insurer and/or Owner in
respect of such claim. The Trustee shall, in accordance with written
instructions received from the Servicer, reimburse the Servicer only from
amounts otherwise distributable on the Class R Certificates for all amounts
advanced by it pursuant to the preceding sentence, except when a final
nonpayable adjudication determines that the claim
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relates directly to the failure of the Servicer to perform its duties in
compliance with the Agreement. The provisions of this Section 8.05(b) shall
survive the termination of this Agreement and the payment of the outstanding
Certificates.
Section 8.06. NO CONTRACTUAL RELATIONSHIP BETWEEN SUB-SERVICER, TRUSTEE
OR THE OWNERS.
Any Sub-Servicing Agreement and any other transactions or services
relating to the Home Equity Loans involving a Sub-Servicer shall be deemed to be
between the Sub-Servicer and the Servicer alone and the Trustee and the Owners
shall not be deemed parties thereto and shall have no claims, rights,
obligations, duties or liabilities with respect to any Sub-Servicer except as
set forth in Section 8.07.
Section 8.07. ASSUMPTION OR TERMINATION OF SUB-SERVICING AGREEMENT BY
TRUSTEE.
In connection with the assumption of the responsibilities, duties and
liabilities and of the authority, power and rights of the Servicer hereunder by
the Trustee pursuant to Section 8.20 or another successor Servicer, it is
understood and agreed that the Servicer's rights and obligations under any
Sub-Servicing Agreement then in force between the Servicer and a Sub-Servicer
shall be assumed simultaneously by the Trustee or another successor Servicer
without act or deed on part of the Trustee; PROVIDED, HOWEVER, that the Trustee
(if acting as successor Servicer) or any other successor Servicer may terminate
the Sub-Servicer as provided in Section 8.03.
The Servicer shall, upon the reasonable request of the Trustee, but at
the expense of the Servicer, deliver to the assuming party documents and records
relating to each Sub-Servicing Agreement and an accounting of amounts collected
and held by it and otherwise use its best reasonable efforts to effect the
orderly and efficient transfer of the Sub-Servicing Agreements to the assuming
party.
Section 8.08. PRINCIPAL AND INTEREST ACCOUNT.
(a) The Servicer shall establish and maintain at one or more
Designated Depository Institutions the Principal and Interest Account, which
shall be an Eligible Account. The Principal and Interest Account shall be
identified on the records of the Designated Depository Institution as
follows: ________________, as Trustee on behalf of [MBIA Insurance Corporation]
and the Owners of the Centex Home Equity Loan Trust 2000-__ Home Equity Loan
Asset-Backed Certificates. If the institution at any time holding the
Principal and Interest Account ceases to be eligible as a Designated
Depository Institution hereunder, then the Servicer shall immediately be
required to name a successor institution meeting the requirements for a
Designated Depository Institution hereunder. If the Servicer fails to name
such a successor institution, then the Principal and Interest Account shall
thenceforth be held as a trust account with a qualifying Designated
Depository Institution selected by the Trustee. The Servicer shall notify the
Trustee, the Certificate Insurer and the Owners if there is a change in the
name, account number or institution holding the Principal and Interest
Account.
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Subject to Subsection (c) below, the Servicer shall deposit all
receipts required pursuant to Subsection (c) below and related to the Home
Equity Loans to the Principal and Interest Account on a daily basis (but no
later than the second Business Day after receipt).
(b) All funds in the Principal and Interest Account shall be held (i)
uninvested up to the amount insured by the FDIC or (ii) invested in Eligible
Investments. Any investments of funds in the Principal and Interest Account
shall mature or be withdrawable at par on or prior to the immediately succeeding
Monthly Remittance Date. The Principal and Interest Account shall be held in
trust in the name of the Trust for the benefit of the Owners. The Trust shall be
divided into two separate sub-trusts; one for Group I and any Trust assets
allocable to such Group I and the other for Group II and any Trust assets
allocable to such Group II. Any investment earnings on funds held in the
Principal and Interest Account shall be for the account of the Servicer and may
only be withdrawn from the Principal and Interest Account by the Servicer
immediately following the remittance of the Monthly Remittance Amount by the
Servicer in accordance with the terms hereof. Any investment losses on amounts
held in the Principal and Interest Account shall be for the account of the
Servicer and promptly upon the realization of such loss shall be contributed by
the Servicer to the Principal and Interest Account. Any references herein to
amounts on deposit in the Principal and Interest Account shall refer to amounts
net of such investment earnings.
(c) The Servicer shall deposit to the Principal and Interest Account no
later than the second Business Day after receipt, all principal collected and
interest due on the Home Equity Loans (net of the Servicing Fee related to such
Home Equity Loans) on and after the Cut-Off Date and the Replacement Cut-Off
Date, as applicable, including any Prepayments and Net Liquidation Proceeds,
other recoveries or amounts related to the Home Equity Loans received by the
Servicer and any income from REO Properties, but net of (i) Net Liquidation
Proceeds to the extent such Net Liquidation Proceeds exceed the sum of (A) the
Loan Balance of the related Home Equity Loan immediately prior to liquidation,
plus (B) accrued and unpaid interest on such Home Equity Loan (net of the
related Servicing Fee) and (C) any unrecovered Cram Down Losses, (ii)
reimbursements for unreimbursed Delinquency Advances (but solely from amounts
received on the related Home Equity Loan) and (iii) reimbursements for amounts
deposited in the Principal and Interest Account representing payments of
principal and/or interest on a Note by a Mortgagor which are subsequently
returned by a depository institution as unpaid.
(d) The Servicer may make withdrawals from the Principal and Interest
Account, with respect to each Home Equity Loan Group, only in the following
priority and for the following purposes:
(A) on each Monthly Remittance Date, to pay itself the related
Servicing Fees to the extent such Servicing Fees are not
retained by the Servicer;
(B) to withdraw investment earnings on amounts on deposit in
the Principal and Interest Account;
(C) to withdraw amounts that have been deposited to the
Principal and Interest Account in error;
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(D) to reimburse itself pursuant to Section 8.09(a) for
unrecovered Delinquency Advances and unrecovered
Servicing Advances (in each case, solely from amounts
recovered on the related Home Equity Loan);
(E) Nonrecoverable Advances; and
(F) to clear and terminate the Principal and Interest Account
following the termination of the Trust pursuant to
Article IX.
(i) The Servicer shall (a) remit to the Trustee for deposit in
the Certificate Account by wire transfer, or otherwise make funds
available in immediately available funds, without duplication, the
Monthly Remittance Amount allocable to a Remittance Period not later
than the related Monthly Remittance Date, and (b) on each Monthly
Remittance Date, deliver to the Trustee, the Depositor and the
Certificate Insurer, a monthly servicing report, with respect to each
Home Equity Loan Group, containing (without limitation) the following
information: principal and interest collected in respect of the Home
Equity Loans, scheduled principal and interest that was due on the Home
Equity Loans, relevant information with respect to Liquidated Loans, if
any, summary and detailed delinquency reports, Liquidation Proceeds and
other similar information concerning the servicing of the Home Equity
Loans and any other information requested by the Certificate Insurer
(including, without limitation, a liquidation report with respect to
each Liquidated Loan). In addition, the Servicer shall inform the
Trustee and the Certificate Insurer on each Monthly Remittance Date,
with respect to each Home Equity Loan Group, of the amounts of any Loan
Purchase Prices or Substitution Amounts so remitted during the related
Remittance Period, and of the Loan Balance of the Home Equity Loan
having the largest Loan Balance as of such date.
(ii) The Servicer shall provide to the Trustee the information
described in Section 8.08(d)(i)(b) and in Section 7.09(b) to enable the
Trustee to perform its reporting requirements under Section 7.09 and to
make the allocations and disbursements set forth in Sections 7.02 and
7.03.
Section 8.09. DELINQUENCY ADVANCES AND SERVICING ADVANCES.
(a) On or before each Monthly Remittance Date, the Servicer shall be
required to remit to the Trustee for deposit to the Certificate Account out of
the Servicer's own funds or from collections on any Home Equity Loans that are
not required to be distributed on the Distribution Date occurring during the
month in which such remittance is made (all or any portion of such amount to be
replaced on future Monthly Remittance Dates to the extent required for
distribution) any Delinquent payment of interest with respect to each Delinquent
Home Equity Loan, which payment was not received on or prior to the last day of
the related Remittance Period. Such amounts of the Servicer's own funds so
deposited are "Delinquency Advances".
The Servicer shall be permitted to reimburse itself on any Business Day
for any Delinquency Advances paid from the Servicer's own funds, from late
collections on the related Home Equity Loan or as provided in Section 7.03(b).
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Notwithstanding the foregoing, in the event that the Servicer
determines in its reasonable business judgment in accordance with the servicing
standards set out herein that any proposed Delinquency Advance would not be
recoverable, the Servicer shall not be required to make Delinquency Advances
with respect to such Home Equity Loan. To the extent that the Servicer
previously has made Delinquency Advances with respect to a Home Equity Loan that
the Servicer subsequently determines is a Nonrecoverable Advance, the Servicer
shall be entitled to reimbursement for such aggregate Nonrecoverable Advances
from collections on any Home Equity Loan on deposit in the Principal and
Interest Account. The Servicer shall give written notice of such determination
as to why such amount would not be recoverable to the Trustee and the
Certificate Insurer; the Trustee shall promptly furnish a copy of such notice to
the Owners of the Class R Certificates; PROVIDED, FURTHER, that the Servicer
shall be entitled to recover any unreimbursed Delinquency Advances from
Liquidation Proceeds for the related Home Equity Loan.
(b) The Servicer will pay all "out-of-pocket" costs and expenses
incurred in the performance of its servicing obligations, including, but not
limited to, (i) Preservation Expenses, (ii) the cost of any enforcement or
judicial proceedings, including foreclosures, (iii) the cost of the management
and liquidation of REO Property, (iv) advances required by Section 8.13(a),
except to the extent that such amounts are determined by the Servicer in its
reasonable business judgment not to be recoverable and (v) expenses incurred
pursuant to Section 8.22. Such costs will constitute "Servicing Advances". The
Servicer may recover a Servicing Advance (x) from the Mortgagors to the extent
permitted by the Home Equity Loans or, if not theretofore recovered from the
Mortgagor on whose behalf such Servicing Advance was made, from Liquidation
Proceeds realized upon the liquidation of the related Home Equity Loan and (y)
as provided in Section 7.03(b)(xi). The Servicer shall be entitled to recover
the Servicing Advances from the Liquidation Proceeds on the related Home Equity
Loan prior to the payment of the Liquidation Proceeds to any other party to this
Agreement. In no case may the Servicer recover Servicing Advances from the
principal and interest payments on any other Home Equity Loan except as provided
in Section 7.03(b)(xi).
Section 8.10. COMPENSATING INTEREST; REPURCHASE OF HOME EQUITY LOANS.
(a) If any Prepayment of a Home Equity Loan occurs during any calendar
month, any shortfall between (x) the interest collected from the Mortgagor in
connection with such payoff, and (y) the full months interest at the Coupon Rate
that would be due on the related Due Date for such Home Equity Loan
("Compensating Interest") (but not in excess of the aggregate Servicing Fee for
the related Remittance Period) shall be deposited by the Servicer to the
Principal and Interest Account (or if such difference is an excess, the Servicer
shall retain such excess) on the next succeeding Monthly Remittance Date and
shall be included in the Monthly Remittance Amount to be made available to the
Trustee on such Monthly Remittance Date. The Servicer may recover any
unreimbursed payments of Compensating Interest as provided in Section
7.03(b)(xi).
(b) Subject to the clause (c) below, the Servicer has the right and the
option, but not the obligation, to purchase for its own account any Home Equity
Loan which becomes a 60-Day Delinquent Loan, or any Home Equity Loan as to which
enforcement proceedings have been
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brought by the Servicer pursuant to Section 8.13; PROVIDED, HOWEVER, that the
Servicer may not purchase any such Home Equity Loan unless the Servicer has
delivered to the Trustee and the Certificate Insurer at the Servicer's
expense, an Opinion of Counsel acceptable to the Certificate Insurer and to
the Trustee to the effect that such a purchase would not constitute a
Prohibited Transaction for the Trust or otherwise subject the Trust to tax
and would not jeopardize the status of REMIC I or REMIC II as REMICs. Any
such Home Equity Loan so purchased shall be purchased by the Servicer on or
prior to a Monthly Remittance Date at a purchase price equal to the Loan
Purchase Price thereof, which purchase price shall be deposited in the
Principal and Interest Account.
(c) If a Home Equity Loan to be purchased by the Servicer pursuant to
clause (b) above, is the greatest number of days Delinquent of all then
Delinquent Home Equity Loans (including Home Equity Loans relating to REO
Property), the Servicer may purchase such Home Equity Loan without having first
notified the Certificate Insurer of such purchase. In all other cases, the
Servicer must notify the Certificate Insurer and the Trustee, in writing, of its
intent to purchase a Home Equity Loan and the Servicer may not purchase such
Home Equity Loan without the written consent of the Certificate Insurer.
(d) The Net Liquidation Proceeds from the disposition of any REO
Property shall be deposited in the Principal and Interest Account and remitted
to the Trustee as part of the Monthly Remittance Amount remitted by the Servicer
to the Trustee.
Section 8.11. MAINTENANCE OF INSURANCE.
(a) (i) The Servicer shall cause to be maintained with respect to each
Home Equity Loan a hazard insurance policy with a carrier generally acceptable
to the Servicer that provides for fire and extended coverage, and which provides
for a recovery by the Trust of insurance proceeds relating to such Home Equity
Loan in an amount not less than the least of (A) the outstanding principal
balance of the Home Equity Loan (plus the related senior lien loan, if any), (B)
the minimum amount required to compensate for damage or loss on a replacement
cost basis and (C) the full insurable value of the premises. The Servicer shall
maintain the insurance policies required hereunder in the name of the mortgagee,
its successors and assigns, and shall be named as loss payee. The policies shall
require the insurer to provide the mortgagee with 30 days' notice prior to any
cancellation or as otherwise required by law. (ii) As an alternative to
maintaining a hazard insurance policy with respect to each Home Equity Loan as
described in Clause (i), the Servicer may maintain a blanket hazard insurance
policy or policies if the insurer or insurers of such policies are rated
investment grade by Moody's and Standard & Poor's.
(b) If the Home Equity Loan at the time of origination (or if required
by federal law, at any time thereafter) relates to a Property in an area
identified in the Federal Register by the Federal Emergency Management Agency as
having special flood hazards, the Servicer will cause to be maintained with
respect thereto a flood insurance policy in a form meeting the requirements of
the then current guidelines of the Federal Insurance Administration with a
carrier generally acceptable to the Servicer in an amount representing coverage,
and which provides for a recovery by the Trust of insurance proceeds relating to
such Home Equity Loan of not less than the least of (i) the outstanding
principal balance of the Home Equity Loan (plus the related senior lien loan,
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if any), (ii) the minimum amount required to compensate for damage or loss on
a replacement cost basis and (iii) the maximum amount of insurance that is
available under the Flood Disaster Protection Act of 1973. The Servicer shall
indemnify the Trust and the Certificate Insurer out of the Servicer's own
funds for any loss to the Trust or the Certificate Insurer resulting from the
Servicer's failure to advance premiums for such insurance required by this
Section when so permitted by the terms of the Mortgage as to which such loss
relates.
(c) Amounts collected by the Servicer under any Insurance Policies
shall be deposited into the Principal and Interest Account.
Section 8.12. DUE-ON-SALE CLAUSES; ASSUMPTION AND SUBSTITUTION
AGREEMENTS.
When a Property has been or is about to be conveyed by the Mortgagor,
the Servicer shall (except as provided below), to the extent it has knowledge of
such conveyance or prospective conveyance, exercise its rights to accelerate the
maturity of the related Home Equity Loan under any "due-on-sale" clause
contained in the related Mortgage or 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, or the
Servicer, in a manner consistent with reasonable commercial practice, and only
if the Servicer reasonably believes assumption by the purchaser would not
materially and adversely affect the interests of the Owners or of the
Certificate Insurer, permits the purchaser of the related Property to assume
such Home Equity Loan. An Opinion of Counsel, provided at the expense of the
Servicer, to the foregoing effect shall conclusively establish the
reasonableness of such belief. 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 becomes liable
under the Note and, unless prohibited by applicable law or the Mortgage
documents, the Mortgagor remains liable thereon. If the foregoing is not
permitted under applicable law, the Servicer is authorized to enter into a
substitution of liability agreement with such person, pursuant to which the
original Mortgagor is released from liability and such person is substituted as
Mortgagor and becomes liable under the Note; PROVIDED, HOWEVER, that to the
extent any such substitution of liability agreement would be delivered by the
Servicer outside of its usual procedures for home equity loans held in its own
portfolio the Servicer shall, prior to executing and delivering such agreement,
obtain the prior written consent of the Certificate Insurer. The Home Equity
Loan, as assumed, shall conform in all material respects to the requirements,
representations and warranties of this Agreement. The Servicer shall notify the
Trustee in writing that any such assumption or substitution agreement has been
completed by forwarding to the Custodian on the Trustee's behalf the original
copy of such assumption or substitution agreement (indicating the File to which
it relates) which copy shall be added by the Trustee or by the Custodian on the
Trustee's behalf to the related File and which shall, for all purposes, be
considered a part of such File to the same extent as all other documents and
instruments constituting a part thereof. The Servicer shall be responsible for
recording any such assumption or substitution agreements. In connection with any
such assumption or substitution agreement, no material term of the Home Equity
Loan (including, without limitation, the required monthly payment on the related
Home Equity Loan, the stated maturity, the outstanding principal amount or the
Coupon Rate) shall be changed nor shall any required monthly payments of
principal or interest be deferred or forgiven. Any fee collected by the Servicer
or the Sub-Servicer for consenting to any such conveyance or
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entering into an assumption or substitution agreement shall be retained by or
paid to the Servicer as additional servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Home Equity Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.
Section 8.13. REALIZATION UPON DEFAULTED HOME EQUITY LOANS; WORKOUT OF
HOME EQUITY LOANS.
(a) The Servicer shall foreclose upon or otherwise comparably effect
the ownership in the name of the Trustee on behalf of the Trust of Properties
relating to defaulted Home Equity Loans as to which no satisfactory
arrangements can be made for collection of Delinquent payments and which the
Servicer has not purchased pursuant to Section 8.10(b). In connection with
such foreclosure or other conversion, the Servicer shall exercise such of the
rights and powers vested in it hereunder, and use the same degree of care and
skill in their exercise or use, as prudent mortgage lenders would exercise or
use under the circumstances in the conduct of their own affairs and
consistent with the servicing standards set forth in the FNMA Guide,
including, but not limited to, advancing funds for the payment of taxes,
amounts due with respect to Senior Liens, and insurance premiums. Any amounts
so advanced shall constitute "Servicing Advances" within the meaning of
Section 8.09(b) hereof. The Servicer shall sell any REO Property within 35
months from the close of the taxable year of its acquisition by the Trust, at
such price as the Servicer in good faith deems necessary to comply with this
covenant unless the Servicer obtains for the Certificate Insurer and the
Trustee, an Opinion of Counsel (the expense of which opinion shall be a
Servicing Advance) experienced in federal income tax matters acceptable to
the Certificate Insurer and the Trustee, addressed to the Certificate
Insurer, the Trustee and the Servicer, to the effect that the holding by the
Trust of such REO Property for any greater period will not result in the
imposition of taxes on "Prohibited Transactions" of the Trust or either REMIC
as defined in Section 860F of the Code or cause either REMIC to fail to
qualify as a REMIC under the REMIC Provisions at any time that any
Certificates are Outstanding. Notwithstanding the generality of the foregoing
provisions, the Servicer shall manage, conserve, protect and operate each REO
Property for the Owners solely for the purpose of its prompt disposition and
sale in a manner which does not cause such REO Property to fail to qualify as
"foreclosure property within the meaning of Section 860G(a)(8) of the Code or
result in the receipt by either REMIC created hereunder of any "income from
non-permitted assets" within the meaning of Section 860F(a)(2)(B) of the Code
or any "net income from foreclosure property" which is subject to taxation
under the REMIC Provisions. Pursuant to its efforts to sell such REO
Property, the Servicer shall either itself or through an agent selected by
the Servicer protect and conserve such REO Property in the same manner and to
such extent as is customary in the locality where such REO Property is
located and may, incident to its conservation and protection of the interests
of the Owners, rent the same, or any part thereof, as the Servicer deems to
be in the best interest of the Owners for the period prior to the sale of
such REO Property. The Servicer shall take into account the existence of any
hazardous substances, hazardous wastes or solid wastes, as such terms are
defined in the Comprehensive Environmental Response
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Compensation and Liability Act, the Resource Conservation and Recovery Act of
1976, or other federal, state or local environmental legislation, on a
Property in determining whether to foreclose upon or otherwise comparably
convert the ownership of such Property. If the Servicer has actual knowledge
of any environmental or hazardous waste risk with respect to the Property
that the Servicer is contemplating acquiring in foreclosure or deed in lieu
of foreclosure, the Servicer will cause an environmental inspection of the
Property in accordance with the servicing standards set forth in this
Agreement. The Servicer shall not take any such action with respect to any
Property known by the Servicer to contain such wastes or substances or to be
within one mile of the site of such wastes or substances, without the prior
written consent of the Certificate Insurer.
(b) The Servicer shall determine, with respect to each defaulted
Home Equity Loan, when it has recovered, whether through trustee's sale,
foreclosure sale or otherwise, all amounts it expects to recover from or on
account of such defaulted Home Equity Loan, whereupon such Home Equity Loan
shall become a "Liquidated Loan" and the Servicer shall promptly submit a
liquidation report to the Certificate Insurer in form acceptable to the
Certificate Insurer.
(c) The Servicer shall not agree to any modification, waiver or
amendment of any provision of any Home Equity Loan unless, in the Servicer's
good faith judgment, such modification, waiver or amendment would minimize
the loss that might otherwise be experienced with respect to such Home Equity
Loan and only in the event of a payment default with respect to such Home
Equity Loan or in the event that a payment default with respect to such Home
Equity Loan is reasonably foreseeable by the Servicer; PROVIDED, HOWEVER,
that no such modification, waiver or amendment shall extend the maturity date
of such Home Equity Loan beyond the Remittance Period related to the Final
Scheduled Distribution Date of the latest Class of Class A Certificates
remaining in the Trust. Notwithstanding anything set out in this Section
8.13(c) or elsewhere in this Agreement to the contrary, the Servicer shall be
permitted to modify, waive or amend any provision of a Home Equity Loan if
required by statute or a court of competent jurisdiction to do so.
(d) The Servicer has no intent to foreclose on any Mortgage based on
the delinquency characteristics as of the Startup Day; provided, that the
foregoing does not prevent the Servicer from initiating foreclosure proceedings
on any date hereafter if the facts and circumstances of such Mortgage including
delinquency characteristics in the Servicer's discretion so warrant such action.
Section 8.14. TRUSTEE TO COOPERATE; RELEASE OF FILES.
(a) Upon the payment in full of any Home Equity Loan (including any
liquidation of such Home Equity Loan through foreclosure or otherwise), or
the receipt by the Servicer of a notification that payment in full will be
escrowed in a manner customary for such purposes, the Servicer shall deliver
to the Custodian, on behalf of the Trustee, a written request of the Servicer
signed by an Authorized Officer which states the purpose of the release of a
File. Upon receipt of such written request, the Custodian, on behalf of the
Trustee shall promptly release the related File, in trust, in its reasonable
discretion to (i) the Servicer, (ii) an escrow agent or (iii) any employee,
agent or attorney of the Trustee. Upon any such payment in full, or the
receipt of such
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notification that such funds have been placed in escrow, the Servicer is
authorized to give, as attorney-in-fact for the Trustee and the mortgagee
under the Mortgage which secured the Note, an instrument of satisfaction (or
assignment of Mortgage without recourse) regarding the Property relating to
such Mortgage, which instrument of satisfaction or assignment, as the case
may be, shall be delivered to the Person or Persons entitled thereto against
receipt therefor of payment in full, it being understood and agreed that no
expense incurred in connection with such instrument of satisfaction or
assignment, as the case may be, shall be chargeable to the Principal and
Interest Account or to the Trustee.
(b) The Servicer shall have the right (upon receiving the prior
written consent of the Certificate Insurer) to accept applications of
Mortgagors for consent to (i) partial releases of Mortgages, (ii) alterations
and (iii) removal, demolition or division of properties subject to Mortgages.
No application for approval shall be considered by the Servicer unless: (x)
the provisions of the related Note and Mortgage have been complied with; (y)
the Loan-to-Value Ratio and debt-to-income ratio after any release does not
exceed the Loan-to-Value Ratio and debt-to-income ratio of such Note on the
Cut-Off Date, and any increase in the Loan-to-Value Ratio shall not exceed
____% unless approved in writing by the Certificate Insurer; and (z) the lien
priority of the related Mortgage is not affected. Upon receipt by the Trustee
of an Officer's Certificate executed on behalf of the Servicer setting forth
the action proposed to be taken in respect of a particular Home Equity Loan
and certifying that the criteria set forth in the immediately preceding
sentence have been satisfied, the Trustee shall execute and deliver to the
Servicer the consent or partial release so requested by the Servicer. A
proposed form of consent or partial release, as the case may be, shall
accompany any Officer's Certificate delivered by the Servicer pursuant to
this paragraph. The Servicer shall notify the Certificate Insurer and the
Rating Agencies if an application is approved under clause (y) above without
approval in writing by the Certificate Insurer.
(c) From time to time and as appropriate in the servicing of any
Home Equity Loan, including, without limitation, foreclosure or other
comparable conversion of a Home Equity Loan or collection under any
applicable Insurance Policy, the Custodian, on behalf of the Trustee, shall
release the related File to the Servicer, promptly upon a written request of
the Servicer signed by an Authorized Officer, which states the purpose of the
release of a File; provided, however, that no more than ____% of the
outstanding Home Equity Loans (by number) shall be released to the Servicer
at any time. Such receipt shall obligate the Servicer to return the File to
the Custodian, on behalf of the Trustee, when the need therefore by the
Servicer no longer exists.
(d) In all cases where the Servicer directs the Custodian, on behalf
of the Trustee, to sign any document or to release a File within a particular
period of time, the Servicer shall notify an Authorized Officer of the
Trustee by telephone of such need and the Trustee shall thereon use its best
efforts to comply with the Servicer's needs, but in any event will comply
within two Business Days of such request.
(e) No costs associated with the procedures described in this Section
8.14 shall be an expense of the Trust.
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Section 8.15. SERVICING COMPENSATION.
As compensation for its activities hereunder, the Servicer shall be
entitled to retain the amount of the Servicing Fee with respect to each Home
Equity Loan Group. Additional servicing compensation in the form of
prepayment charges, release fees, bad check charges, assumption fees, late
payment charges, prepayment penalties, or any other servicing-related fees,
Net Liquidation Proceeds not required to be deposited in the Principal and
Interest Account pursuant to Section 8.08(c)(i) and similar items may, to the
extent collected from Mortgagors, be retained by the Servicer, unless a
successor Servicer is appointed pursuant to Section 8.20 hereof, in which
case the successor Servicer shall be entitled to such fees as are agreed upon
by the Trustee, the Certificate Insurer and the successor Servicer.
The right to receive the Servicing Fee may not be transferred in whole
or in part except in connection with the transfer of all of the Servicer's
responsibilities and obligations under this Agreement.
Section 8.16. ANNUAL STATEMENT AS TO COMPLIANCE.
The Servicer, at its own expense, will deliver to the Trustee, the
Certificate Insurer, the Depositor, and the Rating Agencies, on or before
July 31 of each year, commencing in 20__, an Officer's Certificate stating,
as to each signer thereof, that (i) a review of the activities of the
Servicer during such preceding calendar year and of performance under this
Agreement has been made under such officers' supervision, and (ii) to the
best of such officers' knowledge, based on such review, the Servicer has
fulfilled all its obligations under this Agreement for such year, or, if
there has been a default in the fulfillment of all such obligations,
specifying each such default known to such officers and the nature and status
thereof including the steps being taken by the Servicer to remedy such
default.
The Servicer shall deliver to the Trustee, the Depositor, the
Certificate Insurer and 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 would become a Servicer Termination
Event.
Section 8.17. ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORTS.
On or before July 31 of each year, commencing in 20___, the
Servicer, at its own expense (or if the Trustee is then acting as Servicer,
at the expense of the Seller), shall cause to be delivered to the Trustee,
the Certificate Insurer, the Depositor, and the Rating Agencies a letter or
letters of a firm of independent, nationally recognized certified public
accountants reasonably acceptable to the Certificate Insurer stating that
such firm has examined the Servicer's overall servicing 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 Trustee to agree to the procedures
performed by such firm, the Servicer shall direct the Trustee in writing to
so agree; it being understood and agreed that the Trustee will deliver such
letter of agreement in conclusive reliance upon the direction of the
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Servicer, and the Trustee makes 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 8.18. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
THE HOME EQUITY LOANS.
The Servicer shall provide to the Trustee and the Certificate Insurer
access to the documentation regarding the Home Equity Loans and the Trust, such
access being afforded without charge but only upon reasonable request and during
normal business hours at the offices of the Servicer designated by it.
Upon any change in the format of the computer tape maintained by the
Servicer in respect of the Home Equity Loans, the Servicer shall deliver a copy
of such computer tape to the Trustee and in addition shall provide a copy of
such computer tape to the Trustee, and the Certificate Insurer at such other
times as the Trustee or the Certificate Insurer may reasonably request.
Section 8.19. ASSIGNMENT OF AGREEMENT.
Other than with respect to entering into Sub-Servicing Agreements
pursuant to Section 8.03 hereof, the Servicer may not assign its obligations
under this Agreement, in whole or in part, unless it shall have first obtained
the written consent of the Trustee and the Certificate Insurer, which such
consent shall not be unreasonably withheld; PROVIDED, HOWEVER, that any assignee
must meet the eligibility requirements set forth in Section 8.20(h) hereof for a
successor servicer.
Section 8.20. REMOVAL OF SERVICER; RETENTION OF SERVICER; RESIGNATION
OF SERVICER.
(a) The Certificate Insurer or the Trustee (with the prior written
consent of the Certificate Insurer) may remove the Servicer upon the occurrence
of any of the following events (each a "Servicer Termination Event"):
(i) The Servicer shall (I) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian or similar
entity with respect to itself or its property, (II) admit in writing
its inability to pay its debts generally as they become due, (III) make
a general assignment for the benefit of creditors, (IV) be adjudicated
a bankrupt or insolvent, (V) commence a voluntary case under the
federal bankruptcy laws of the United States of America or any state
bankruptcy law or similar laws or file a voluntary petition or answer
seeking reorganization, an arrangement with creditors or an order for
relief or seeking to take advantage of any insolvency law or file an
answer admitting the material allegations of a petition filed against
it in any bankruptcy, reorganization or insolvency proceeding or (VI)
take corporate action for the purpose of effecting any of the
foregoing; or
(ii) If without the application, approval or consent of the
Servicer, a proceeding shall be instituted in any court of competent
jurisdiction, under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking in respect of the Servicer
an order for relief or an adjudication in bankruptcy, reorganization,
dissolution, winding up, liquidation, a composition or arrangement with
creditors, a
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readjustment of debts, the appointment of a trustee, receiver,
liquidator or custodian or similar entity with respect to the
Servicer or of all or any substantial part of its assets, or other like
relief in respect thereof under any bankruptcy or insolvency law, and,
if such proceeding is being contested by the Servicer in good faith,
the same shall (A) result in the entry of an order for relief or any
such adjudication or appointment or (B) continue undismissed or pending
and unstayed for any period of seventy-five (75) consecutive days; or
(iii) The Servicer shall fail to perform any one or more of
its obligations hereunder and shall continue in default thereof for a
period of thirty (30) days (one (1) Business Day in the case of a delay
in making a payment or deposit required of the Servicer under this
Agreement) after the earlier of (a) actual knowledge of an officer of
the Servicer or (b) receipt of notice from the Trustee or the
Certificate Insurer of said failure; PROVIDED, HOWEVER, that if the
Servicer can demonstrate to the reasonable satisfaction of the
Certificate Insurer that it is diligently pursuing remedial action,
then the cure period may be extended with the written approval of the
Certificate Insurer; or
(iv) The Servicer shall fail to cure any breach of any of its
representations and warranties set forth in Section 3.02 or in the
other Operative Documents which materially and adversely affects the
interests of the Owners or the Certificate Insurer which remains
unremedied for a period of sixty (60) days after the earlier of the
Servicer's discovery or receipt of notice thereof; PROVIDED, HOWEVER,
that if the Servicer can demonstrate to the reasonable satisfaction of
the Certificate Insurer that it is diligently pursuing remedial action,
then the cure period may be extended with the written approval of the
Certificate Insurer; or
(v) The merger, consolidation or other combination of the
Servicer with or into any other entity, unless (1) the Servicer or an
Affiliate of the Servicer is the surviving entity of such combination
or (2) the surviving entity (A) is servicing at least $__________ of
home equity loans that are similar to the Home Equity Loans, (B) has
Tangible Net Worth of not less than $___________ (as determined in
accordance with generally acceptable account principles), (C) is
consented to by the Certificate Insurer (such consent not to be
unreasonably withheld) and (D) agrees to assume the Servicer's
obligations hereunder; or
(vi) The failure of the Servicer to satisfy the Servicer
Termination Test; or
(vii) The Servicer shall be declared in default of its credit
facility by its credit facility provider, which default, if left
uncured, would result in termination or acceleration of amounts owed
thereunder; or
(viii) Centex Corporation or its successors shall fail to own,
directly or indirectly, at least ___% of the Servicer unless (a) the
Servicer shall be rated at least investment grade by each Rating Agency
or (b) the Servicer shall have at all times committed financing
capacity in a total amount of at least three times the Servicer's
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average loan originations funded during the immediately preceding three
calendar months.
(b) Upon the occurrence of a Servicer Termination Event, the
Servicer shall continue to act as servicer under this Agreement until removed
as set forth in this Section 8.20 and a successor Servicer has assumed the
servicing obligations. After the occurrence of a Servicer Termination Event,
the Certificate Insurer or the Trustee (with the prior written consent of the
Certificate Insurer) may remove the Servicer by written notice to the
Servicer. Such termination shall be effective on the date specified in such
notice, provided that a successor Servicer or the Trustee has assumed the
servicing obligations. Upon the effective date of termination of the
Servicer, the Trustee (or another successor Servicer appointed by the
Certificate Insurer) shall assume the servicing obligations hereunder.
Notwithstanding the foregoing, the parties hereto agree that the Trustee, in
its capacity as successor Servicer, immediately will assume all of the
obligations of the Servicer to make Delinquency Advances and the Trustee will
assume the other duties of the Servicer as soon as practicable, but in no
event later than 90 days after the Trustee becomes successor Servicer
pursuant to the preceding sentence. Notwithstanding the foregoing, the
Trustee, in its capacity as successor Servicer, shall not be responsible for
the lack of information and or documents that it cannot obtain through
reasonable efforts. The Certificate Insurer may appoint a successor Servicer
other than the Trustee. Until a successor Servicer has been appointed by the
Certificate Insurer, the Trustee shall be the successor Servicer in all
respects without further action, and all authority and power of the Servicer
under this agreement shall pass to and be vested in the Trustee on and after
the effective date of termination. Notwithstanding anything herein to the
contrary, in no event shall the Trustee be liable for any Servicing Fee or
for any differential in the amount of the Servicing Fee paid hereunder and
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.
(c) Reserved
(d) The Servicer shall not resign from the obligations and duties
hereby imposed on it, except upon (i) determination that its 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, the other
activities of the Servicer so causing such a conflict being of a type and nature
carried on by the Servicer at the date of this Agreement or (ii) written consent
of the Certificate Insurer and the Trustee. Any such determination under clause
(i) shall be evidenced by an Opinion of Counsel acceptable to the Trustee and
the Certificate Insurer at the expense of the Servicer to such effect which
shall be delivered to the Trustee and the Certificate Insurer.
(e) No removal or resignation of the Servicer shall become effective
until the Trustee or a successor Servicer shall have assumed the Servicer's
responsibilities and obligations in accordance with this Section.
(f) Upon removal or resignation of the Servicer, the Servicer at its
own expense also shall promptly deliver or cause to be delivered to a
successor servicer or the Trustee all the books and records (including,
without limitation, records kept in electronic form) that the Servicer has
maintained for the Home Equity Loans, including all tax bills, assessment
notices, insurance
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premium notices and all other documents as well as all original documents
then in the Servicer's possession.
(g) Any collections due to the Trust then being held by the Servicer
prior to its removal and any collections received by the Servicer after removal
or resignation shall be endorsed by it to the Trustee and remitted directly and
immediately to the Trustee or the successor Servicer.
(h) Upon removal or resignation of the Servicer, the Trustee (A)
may, unless the Certificate Insurer has appointed a successor Servicer other
than the Trustee, solicit bids for a successor servicer as described below
and (B) until such time as another successor Servicer is appointed by the
Certificate Insurer, shall assume the duties and obligations of the Servicer
hereunder. The Trustee agrees to act as Servicer during the solicitation
process and shall assume all duties and obligations of the Servicer. The
Certificate Insurer may appoint a successor Servicer other than the Trustee.
If the Certificate Insurer fails to appoint a successor Servicer, the Trustee
shall, if it is unable to obtain a qualifying bid and is prevented by law
from acting as Servicer, appoint, or petition a court of competent
jurisdiction to appoint, any housing and home finance institution, bank or
mortgage servicing institution which has been designated as an approved
seller-servicer by FNMA or FHLMC for first and second home equity loans and
having equity of not less than $_________ (or such lower level as may be
acceptable to the Certificate Insurer), as determined in accordance with
generally accepted accounting principles and acceptable to the Certificate
Insurer 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. The compensation of any successor Servicer (other than the Trustee
in its capacity as successor Servicer) so appointed shall be the amount
agreed to between the successor Servicer, the Certificate Insurer and the
Trustee (up to a maximum of ___% per annum on the outstanding principal
balance of each Home Equity Loan), together with the other servicing
compensation in the form of assumption fees, late payment charges or
otherwise as provided in Sections 8.08 and 8.15; PROVIDED, HOWEVER, that if
the Trustee becomes the successor Servicer it shall receive as its
compensation the same compensation paid to the Servicer immediately prior to
the Servicer's removal or resignation; PROVIDED, FURTHER, HOWEVER, that the
predecessor Servicer agrees to pay to the Trustee or other successor Servicer
at such time that it becomes such successor Servicer a set-up fee of
[twenty-five dollars ($25)] for each Home Equity Loan then included in the
Trust Estate. The amount payable in excess of [twenty-five dollars ($25)] per
Home Equity Loan, if any, shall be payable to the successor Servicer and
reimbursable pursuant to Section 7.03(b)(x) hereof. The Trustee shall be
obligated to serve as successor Servicer whether or not the fee described in
this section is paid by the Servicer, but shall in any event be entitled to
receive, and to enforce payment of, such fee from the Servicer.
(i) In the event the Trustee elects to solicit bids as provided above,
the Trustee shall solicit, by public announcement, bids from housing and home
finance institutions, banks and mortgage servicing institutions meeting the
qualifications set forth above. Such public announcement shall specify that the
successor Servicer shall be entitled to servicing compensation in accordance
with clause (h) above, together with the other servicing compensation in the
form of assumption fees, late payment charges or otherwise as provided in
Sections 8.08 and 8.15. Within thirty days after any such public announcement,
the Trustee shall
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negotiate and effect the sale, transfer and assignment of the servicing
rights and responsibilities hereunder to the qualified party submitting the
highest satisfactory bid as to the price it will pay to obtain servicing
provided that the Certificate Insurer has given its prior written consent.
The Trustee shall deduct from any sum received by the Trustee from the
successor to the Servicer in respect of such sale, transfer and assignment
all costs and expenses of any public announcement and of any sale, transfer
and assignment of the servicing rights and responsibilities hereunder. After
such deductions, the remainder of such sum less any amounts due the Trustee
or the Trust from the Servicer shall be paid by the Trustee to the
predecessor Servicer at the time of such sale, transfer and assignment to the
Servicer's successor.
(j) The Trustee and such successor Servicer shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession, including the notification to all Mortgagors of the transfer of
servicing. The predecessor Servicer agrees to cooperate with the Trustee and
any successor Servicer in effecting the termination of the predecessor
Servicer's servicing responsibilities and rights hereunder and shall promptly
provide the Trustee or such successor Servicer, as applicable, all documents
and records reasonably requested by it to enable it to assume the Servicer's
functions hereunder and shall promptly also transfer to the Trustee or such
successor Servicer, as applicable, all amounts which then have been or should
have been deposited in the Principal and Interest Account by the Servicer or
which are thereafter received with respect to the Home Equity Loans. Any
amounts and documents which are property of the Trust held by the predecessor
Servicer shall be held in trust on behalf of the Trustee until transferred to
the successor Servicer or Trustee. Neither the Trustee nor any other
successor Servicer shall be held liable by reason of any failure to make, or
any delay in making, any distribution hereunder or any portion thereof caused
by (i) the failure of the Servicer to deliver, or any delay in delivering,
cash, documents or records to it, or (ii) restrictions imposed by any
regulatory authority having jurisdiction over the Servicer. If the Servicer
resigns or is replaced hereunder, the Servicer agrees to reimburse the Trust,
the Owners and the Certificate Insurer for the costs and expenses associated
with the transfer of servicing to the replacement Servicer, but subject to a
maximum reimbursement to all such parties in the amount of
[twenty-five dollars ($25)] for each Home Equity Loan then included in the
Trust Estate. The amount payable in excess of [twenty-five dollars ($25)] per
Home Equity Loan, if any, shall be payable to the successor Servicer and
reimbursable pursuant to Section 7.03(b)(x) hereof.
(k) The Trustee or any other successor Servicer, upon assuming the
duties of Servicer hereunder, shall immediately (i) record all assignments of
Home Equity Loans not previously recorded in the name of the Trustee pursuant
to Section 3.05(b)(ii) as a result of an Opinion of Counsel and (ii) make all
Delinquency Advances and Compensating Interest payments and deposit them to
the Principal and Interest Account which the Servicer has theretofore failed
to remit with respect to the Home Equity Loans.
(l) The Servicer which is being removed or is resigning shall give
notice to the Mortgagors, to Moody's and to Standard & Poor's of the transfer of
the servicing to the successor.
(m) The Trustee shall give notice to the Certificate Insurer, the
Depositor, the Owners, the Trustee, the Seller, Moody's and Standard & Poor's of
the occurrence of any event described in paragraphs (a) above of which the
Trustee is aware.
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(n) Upon appointment, the successor Servicer shall be the successor
in all respects to the predecessor Servicer and shall be subject to all the
responsibilities, duties and liabilities of the predecessor Servicer
including, but not limited to, the maintenance of the hazard insurance
policy(ies), the fidelity bond and an errors and omissions policy pursuant to
Section 8.21(b) and shall be entitled to the Servicing Fee and all of the
rights granted to the predecessor Servicer by the terms and provisions of
this Agreement. 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 (including, without
limitation, any deductible under an insurance policy) 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.
(o) The Trustee shall be entitled to be reimbursed pursuant to
Sections 7.03(b) for all Transition Expenses (other than amounts reimbursed
pursuant to paragraph (j) above), including, without limitation, any costs or
expenses associated with the complete transfer of all servicing data and the
completion, correction or manipulation of such servicing data as may be
required by the Trustee to correct any errors or insufficiencies in the
servicing data or otherwise to enable the Trustee to service the Home Equity
Loans properly and effectively.
Section 8.21. INSPECTIONS BY CERTIFICATE INSURER; ERRORS AND OMISSIONS
INSURANCE.
(a) At any reasonable time and from time to time upon reasonable
notice, the Trustee, the Certificate Insurer, any Owner of a Class X-IO or
Class R Certificate, or any agents thereof may inspect the Servicer's
servicing operations and discuss the servicing operations of the Servicer
during the Servicer's normal business hours with any of its officers or
directors; PROVIDED, HOWEVER, that the costs and expenses incurred by the
Servicer or its agents or representatives in connection with any such
examinations or discussions shall be paid by the Servicer.
(b) The Servicer (including the Trustee if it shall become the
Servicer hereunder) agrees to maintain errors and omissions coverage and a
fidelity bond, each at least to the extent required by Section 305 of Part I
of FNMA Guide or any successor provision thereof; PROVIDED, HOWEVER, that in
any event that the fidelity bond or the errors and omissions coverage is no
longer in effect, the Servicer shall notify the Trustee and the Trustee shall
promptly give such notice to the Certificate Insurer and the Owners.
Section 8.22. ADDITIONAL SERVICING RESPONSIBILITIES FOR SECOND MORTGAGE
LOANS.
The Servicer shall file (or cause to be filed) a request for notice
of any action by a superior lienholder under a superior 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 Servicer is notified that any superior lienholder has
accelerated or intends to accelerate the obligations under a First Mortgage
Loan, or has declared or intends to declare a
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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 Owners and the Certificate
Insurer, and/or to preserve the security of the related Home Equity Loan,
subject to the application of the REMIC Provisions. The Servicer shall
advance the necessary funds to cure the default or reinstate the lien
securing a First Mortgage Loan, if such advance is in the best interests of
the Certificate Insurer and the Owners; PROVIDED, HOWEVER, that no such
additional advance need be made if such advance would be nonrecoverable from
Liquidation Proceeds on the related Home Equity Loan. The Servicer shall
thereafter take such action as is necessary to recover the amount so
advanced. Any expenses incurred by the Servicer pursuant to this Section 8.22
shall be Servicing Advances.
Section 8.23. THE GROUP II HOME EQUITY LOANS.
The Servicer shall enforce each Home Equity Loan in Group II in
accordance with its terms and shall timely calculate, record, report and apply
all interest rate adjustments in accordance with the related Note. The
Servicer's records shall, at all times, reflect the then Coupon Rate and monthly
payment and the Servicer shall timely notify the Mortgagor of any changes to the
Coupon Rate or the Mortgagor's monthly payment. If the Servicer fails to make
either a timely or accurate adjustment to the Coupon Rate or monthly payment or
to notify the Mortgagor of such adjustments, upon the Servicer's discovery of
such error and such continued failure, the Servicer shall pay from its own funds
any shortage. If the Servicer's continued failure after notice thereof to make a
scheduled change affects the Trust's rights to make future adjustments under the
terms of such Home Equity Loan, the Servicer shall repurchase such Home Equity
Loan in accordance with the provisions hereof. Any amounts paid by the Servicer
pursuant to this Section shall not be an advance and shall not be reimbursable
from the proceeds of any Home Equity Loan.
Section 8.24. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS OF SERVICER. Any corporation into which the Servicer may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Servicer shall be a
party or any corporation succeeding to all or substantially all of the business
of the Servicer shall be the successor of the Servicer hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto provided that such corporation meets the qualifications set forth
in Section 8.20(h) and the resulting corporation has a Tangible Net Worth of at
least $_________ .
Section 8.25. NOTICES OF MATERIAL EVENTS. The Servicer shall give
prompt notice to the Certificate Insurer, the Trustee, Moody's and Standard &
Poor's of the occurrence of any of the following events:
(a) Any default or any fact or event of which the Servicer has
knowledge which results, or which with notice or the passage of time, or both,
would result in the occurrence of a default by the Seller, or the Servicer under
any Operative Document or would constitute a material breach of a
representation, warranty or covenant under any Operative Document;
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(b) The submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation against the
Seller or the Servicer to which the Servicer has knowledge in any federal,
state or local court or before any governmental body or agency or before any
arbitration board or any such proceedings threatened by any governmental
agency, which, if adversely determined, would have a material adverse effect
upon any of the Seller's or the Servicer's ability to perform its obligations
under any Operative Document;
(c) The commencement of any proceedings by or against the Seller or the
Servicer under any applicable bankruptcy, reorganization, liquidation,
insolvency or other similar law now or hereafter in effect or of any proceeding
in which a receiver, liquidator, trustee or other similar official shall have
been, or may be, appointed or requested for the Seller or the Servicer; and
(d) The receipt of notice from any agency or governmental body having
authority over the conduct of any of the Seller's or the Servicer's business
that the Seller or the Servicer is to cease or desist, or to undertake any
practice, program, procedure or policy employed by the Seller or the Servicer in
the conduct of the business of any of them, and such cessation or undertaking
will materially and adversely affect the conduct of the Seller's or the
Servicer's business or its ability to perform under the Operative Documents or
materially and adversely affect the financial affairs of the Seller or the
Servicer.
Section 8.26. INDEMNIFICATION BY THE SERVICER. The Servicer agrees to
indemnify and hold the Trustee, the Depositor, the Certificate Insurer and each
Owner harmless against any and all claims, losses, penalties, fines,
forfeitures, legal fees and related costs, judgments, and any other costs, fees
and expenses that the Trustee, the Depositor, the Certificate Insurer and any
Owner may sustain in any way related to the failure of the Servicer to perform
its duties and service the Home Equity Loans in compliance with the terms of
this Agreement. A party against whom a claim is brought shall immediately notify
the other parties and the Rating Agencies if a claim is made by a third party
with respect to this Agreement, and the Servicer shall assume (with the consent
of the Trustee) the defense of any such claim and pay all expenses in connection
therewith, including reasonable counsel fees, and promptly pay, discharge and
satisfy any judgment or decree which may be entered against the Certificate
Insurer, the Servicer, the Trustee and/or Owner in respect of such claim.
Section 8.27. REPORTS ON FORECLOSURE AND ABANDONMENT OF PROPERTIES. On
or before __________________ ____________of each year beginning in 20
___________, the Servicer shall file the reports of foreclosures and
abandonments of any Property required by Code Section 6050J with the Internal
Revenue Service and provide a copy of such filing to the Trustee. The reports
from the Servicer shall be in a form and substance sufficient to meet the
reporting requirements imposed by such Section 6050J.
END OF ARTICLE VIII
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ARTICLE IX
TERMINATION OF TRUST
Section 9.01. TERMINATION OF TRUST.
The Trust created hereunder and all obligations created by this
Agreement will terminate upon the payment to the Owners of all Certificates from
amounts other than those available under the Certificate Insurance Policies of
all amounts held by the Trustee and required to be paid to such Owners pursuant
to this Agreement and payment in full of all amounts owed to the Certificate
Insurer upon the later to occur of (a) the final payment or other liquidation
(or any advance made with respect thereto) of the last Home Equity Loan in the
Trust Estate, (b) the disposition of all property acquired in respect of any
Home Equity Loan remaining in the Trust Estate and (c) at any time if a
Qualified Liquidation of both Home Equity Loan Groups within the Trust is
effected as described in Section 9.02. To effect a termination of this Agreement
pursuant to clause (c) above, the Owners of all Certificates then Outstanding
shall provide to the Trustee and the Certificate Insurer, at their expense, an
Opinion of Counsel experienced in federal income tax matters acceptable to the
Certificate Insurer and the Trustee to the effect that each such liquidation
constitutes a Qualified Liquidation, and the Servicer either shall sell or
purchase the Home Equity Loans and the Trustee shall distribute the proceeds of
the liquidation of the Trust Estate. In no event, however, will the Trust
created by this Agreement continue beyond the expiration of twenty-one (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 United Kingdom, living
on the date hereof. The Trustee shall give written notice of termination of the
Agreement to each Owner in the manner set forth in Section 11.05.
Section 9.02. TERMINATION UPON OPTION OF THE SERVICER.
(a) On any Monthly Remittance Date after the Clean-Up Call Date, the
Servicer may determine to purchase, in whole only, and may cause the purchase
from the Trust of all (but not fewer than all) Home Equity Loans and all
property theretofore acquired in respect of any Home Equity Loan by foreclosure,
deed in lieu of foreclosure, or otherwise then remaining in the Trust Estate (i)
on terms agreed upon between the Certificate Insurer, the Servicer and the
Owners of the Class X-IO and Class R Certificates (if such terms result in
payment to the Holders of the Class A Certificates of their entire balance and
interest at their Certificate Rate (and any Carry-Forward Amount)), or (ii) in
the absence of such an agreement, at a price equal to the Termination Price. In
connection with such purchase, the Servicer shall remit to the Trustee all
amounts then on deposit in the Principal and Interest Account for deposit to the
Certificate Account, which deposit shall be deemed to have occurred immediately
preceding such purchase.
(b) In the event that the Servicer purchases all Home Equity Loans and
each REO Property remaining in the Trust Estate pursuant to Section 9.02(a), the
Trust Estate shall be terminated in accordance with the following additional
requirements:
(i) The Trustee shall specify the first day in the 90-day
liquidation period in a statement attached to the final Tax Return of
the REMICs created hereunder pursuant to
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Treasury regulation Section 1.860F-1 and shall satisfy all
requirements of a qualified liquidation under Section 860F of the Code
and any regulations thereunder;
(ii) During such 90-day liquidation period, and at or prior to
the time of making the final payment on the Certificates, the Trustee
shall sell all of the assets of the Trust Estate to the Servicer for
cash; and
(iii) At the time of the making of the final payment on the
Certificates and payment of all amounts owed to the Certificate
Insurer, the Trustee shall distribute or credit, or cause to be
distributed or credited, to the Owners of the Class X-IO and Class R
Certificates all cash on hand in the Trust Estate (other than cash
retained to meet claims), and the Trust Estate shall terminate at that
time.
(c) By their acceptance of the Certificates, the Owners thereof hereby
agree to authorize the Trustee to specify the first day in the 90-day
liquidation period in a statement attached to the Trust Estate's final Tax
Return, which shall be binding upon all successor Owners.
(d) In connection with any such purchase, the Servicer shall provide to
the Trustee and the Certificate Insurer an Opinion of Counsel at the expense of
the Servicer experienced in federal income tax matters acceptable to the
Certificate Insurer and the Trustee to the effect that such purchase and
liquidation constitutes a Qualified Liquidation of REMIC I and REMIC II.
(e) Promptly following any purchase described in this Section 9.02, the
Trustee will release the Files to the Servicer or the Certificate Insurer, as
the case may be, or otherwise upon their order, in a manner similar to that
described in Section 8.14 hereof.
Section 9.03. TERMINATION UPON LOSS OF REMIC STATUS.
(a) Following a final determination by the Internal Revenue Service or
by a court of competent jurisdiction, in either case from which no appeal is
taken within the permitted time for such appeal, or if any appeal is taken,
following a final determination of such appeal from which no further appeal can
be taken, to the effect that either REMIC created hereunder does not and will no
longer qualify as a REMIC pursuant to Section 860D of the Code (the "Final
Determination"), at any time on or after the date which is 30 calendar days
following such Final Determination (i) the Certificate Insurer or the Owners of
a majority in Percentage Interests represented by the Class A Certificates then
Outstanding with the consent of the Certificate Insurer may direct the Trustee
on behalf of the Trust to adopt a plan of complete liquidation, as contemplated
by Section 860F(a)(4) of the Code and (ii) the Certificate Insurer may notify
the Trustee of the Certificate Insurer's determination to purchase from the
Trust all (but not fewer than all) Home Equity Loans and all property
theretofore acquired by foreclosure, deed in lieu of foreclosure, or otherwise
in respect of any Home Equity Loan then remaining in the Trust Estate at a price
equal to the Termination Price.
Upon receipt of such direction from the Certificate Insurer, the
Trustee shall notify the Owners of the Class R Certificates of such election to
liquidate or such determination to
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purchase, as the case may be (the "Termination Notice"). The Owners of a
majority of the Percentage Interest of the Class R Certificates then
Outstanding may, within 60 days from the date of receipt of the Termination
Notice (the "Purchase Option Period"), at their option, purchase from the
Trust all (but not fewer than all) Home Equity Loans and all property
theretofore acquired by foreclosure, deed in lieu of foreclosure, or
otherwise in respect of any Home Equity Loan then remaining in the Trust
Estate at a purchase price equal to the Termination Price. If, during the
Purchase Option Period, the Owners of the Class R Certificates have not
exercised the option described in the immediately preceding paragraph, then
upon the expiration of the Purchase Option Period (i) in the event that the
Certificate Insurer or the Owners of the Class A Certificates with the
consent of the Certificate Insurer have given the Trustee the direction
described in clause (a)(i) above, the Trustee shall sell the Home Equity
Loans and distribute the proceeds of the liquidation of the Trust Estate,
each in accordance with the plan of complete liquidation, such that, if so
directed, the liquidation of the Trust Estate, the distribution of the
proceeds of the liquidation and the termination of this Agreement occur no
later than the close of the 60th day, or such later day as the Certificate
Insurer or the Owners of the Class A Certificates with the consent of the
Certificate Insurer shall permit or direct in writing, after the expiration
of the Purchase Option Period and (ii) in the event that the Certificate
Insurer has given the Trustee notice of the Certificate Insurer's
determination to purchase the Trust Estate described in clause (a)(ii)
preceding the Certificate Insurer shall, within 60 days, purchase all (but
not fewer than all) Home Equity Loans and all property theretofore acquired
by foreclosure, deed in lieu of foreclosure or otherwise in respect of any
Home Equity Loan then remaining in the Trust Estate. In connection with such
purchase, the Servicer shall remit to the Trustee all amounts then on deposit
in the Principal and Interest Account for deposit to the Certificate Account,
which deposit shall be deemed to have occurred immediately preceding such
purchase.
(b) Following a Final Determination, the Owners of a majority of the
Percentage Interest of the Class R Certificates then Outstanding may, at
their option and upon delivery to the Certificate Insurer of an Opinion of
Counsel experienced in federal income tax matters, acceptable to the
Certificate Insurer and selected by the Owners of the Class R Certificates,
which opinion shall be reasonably satisfactory in form and substance to the
Certificate Insurer, to the effect that the effect of the Final Determination
is to increase substantially the probability that the gross income of the
Trust will be subject to federal taxation, purchase from the Trust all (but
not fewer than all) Home Equity Loans and all property theretofore acquired
by foreclosure, deed in lieu of foreclosure, or otherwise in respect of any
Home Equity Loan then remaining in the Trust Estate at a purchase price equal
to the Termination Price. In connection with such purchase, the Servicer
shall remit to the Trustee all amounts then on deposit in the Principal and
Interest Account for deposit to the Certificate Account, which deposit shall
be deemed to have occurred immediately preceding such purchase. The foregoing
opinion shall be deemed satisfactory unless the Certificate Insurer gives the
Owners of a majority of the Percentage Interest of the Class R Certificates
notice that such opinion is not satisfactory within thirty days after receipt
by the Certificate Insurer of such opinion.
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Section 9.04. DISPOSITION OF PROCEEDS.
The Trustee shall, upon receipt thereof, deposit the proceeds of any
Termination Price or other liquidation of the Trust Estate pursuant to this
Article IX to the Certificate Account for distribution in accordance with the
priorities set forth in Section 7.03(b) hereof; provided, however, that any
amounts representing unreimbursed Delinquency Advances and Servicing Advances
theretofore funded by the Servicer from the Servicer's own funds shall be paid
by the Trustee to the Servicer from the proceeds of the Trust Estate.
Notwithstanding the foregoing, no distribution of the proceeds of any
Termination Price shall be made to the Owners of the Class X-IO and Class R
Certificates until all such amounts have been applied in reduction of any
outstanding Class A-2 Certificateholders' Interest Index Carryover.
Section 9.05. NETTING OF AMOUNTS.
If any Person paying the Termination Price would receive a portion of
the amount to be paid, such Person may net any such amount against the
Termination Price otherwise payable.
END OF ARTICLE IX
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ARTICLE X
THE TRUSTEE
Section 10.01. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The Trustee (i) (A) undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement, and no implied covenants
or obligations shall be read into this Agreement against the Trustee and (B) the
banking institution that is the Trustee shall serve as the Trustee at all times
under this Agreement, and (ii) in the absence of bad faith on its part, may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions or any other
resolutions, statements, reports, documents, orders or other instruments
furnished pursuant to and conforming to the requirements of this Agreement; but
in the case of any such certificates or opinions or any other resolutions,
statements, reports, documents, orders or other instruments which by any
provision hereof are specifically required to be furnished to the Trustee, shall
be under a duty to examine the same to determine whether or not on their face
they conform to the requirements of this Agreement; PROVIDED, HOWEVER, that the
Trustee shall not be responsible for the accuracy or content of any resolution,
Certificate, statement, opinion, report, document, order or other instrument
furnished by the Servicer, the Certificate Insurer, the Sellers or the Depositor
hereunder. If any such instrument is found not to conform in any material
respect to the requirements of this Agreement, the Trustee shall notify the
Certificate Insurer. Notwithstanding the foregoing, if a Servicer Termination
Event of which an Authorized Officer of the Trustee shall have actual knowledge
has occurred and has not been cured or waived, 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.
(b) Notwithstanding the appointment of the Servicer hereunder, the
Trustee is hereby empowered to perform the duties of the Servicer it being
expressly understood, however, that the foregoing describes a power and not an
obligation of the Trustee (unless the Servicer shall have resigned or been
terminated and a successor Servicer shall not have been appointed pursuant to
the terms of this Agreement), and that all parties hereto agree that, prior to
any termination of the Servicer, the Servicer and, thereafter, the Trustee or
any other successor servicer shall perform such duties. Specifically, and not in
limitation of the foregoing, the Trustee shall upon termination or resignation
of the Servicer, and pending the appointment of any other Person as successor
Servicer have the power and duty during its performance as successor Servicer:
(i) to collect Mortgagor payments;
(ii) to foreclose on defaulted Home Equity Loans;
(iii) to enforce due-on-sale clauses and to enter into assumption
and substitution agreements as permitted by Section 8.12
hereof;
(iv) to deliver instruments of satisfaction pursuant to
Section 8.14;
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(v) to enforce the Home Equity Loans; and
(vi) to make Delinquency Advances and Servicing Advances and to pay
Compensating Interest.
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that:
(i) This subsection shall not be construed to limit the effect of
subsection (a) of this Section;
(ii) The Trustee shall not be personally liable for any error of
judgment made in good faith by an Authorized Officer, unless
it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(iii) The Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance
with the direction of the Certificate Insurer or of the Owners
of a majority in Percentage Interest of the Certificates of
the affected Class or Classes and the Certificate Insurer
relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee,
under this Agreement relating to such Certificates;
(iv) The Trustee shall not be required to take notice or be deemed
to have notice or knowledge of any default unless an
Authorized Officer of the Trustee shall have received written
notice thereof or an Authorized Officer shall have actual
knowledge thereof. In the absence of receipt of such notice,
the Trustee may conclusively assume that there is no default;
and
(v) Subject to the other provisions of this Agreement and without
limiting the generality of this Section l0.01, the Trustee
shall have no duty (A) to see to any recording, filing, or
depositing of this Agreement or any agreement referred to
herein or any financing statement or continuation statement
evidencing a security interest, or to see to the maintenance
of any such recording or filing or depositing or to any
rerecording, refiling or redepositing of any thereof, (B) to
see to any insurance or (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 from
funds available in the Certificate Account.
(d) Whether or not therein expressly so provided, every provision of
this Agreement relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
(e) No provision of this Agreement shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder,
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or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or indemnity
reasonably satisfactory to it against such risk or liability is not
reasonably assured to it. None of the provisions contained in this Agreement
shall in any event require the Trustee to perform, or be responsible for the
manner of performance of, any of the obligations of the Servicer under this
Agreement, except during such time, if any, as the Trustee shall be the
successor to, and be vested with the rights, duties, powers and privileges
of, the Servicer in accordance with the terms of this Agreement.
(f) The permissive right of the Trustee to take actions enumerated
in this Agreement shall not be construed as a duty and the Trustee shall not
be answerable for other than its own negligence or willful misconduct.
(g) The Trustee shall be under no obligation to institute any suit, or
to take any remedial proceeding under this Agreement, or to take any steps in
the execution of the trusts hereby created or in the enforcement of any rights
and powers hereunder until it shall be indemnified to its satisfaction against
any and all costs and expenses, outlays and counsel fees and other reasonable
disbursements and against all liability, except liability which is adjudicated
to have resulted from its negligence or willful misconduct, in connection with
any action so taken.
(h) The Trustee hereby undertakes to provide CHEC with notice of any
correspondence relating to any Property.
(i) The Trustee hereby agrees to disclose the Premium Amount to any
Person upon request.
Section 10.02. REMOVAL OF TRUSTEE FOR CAUSE.
(a) The Trustee may be removed pursuant to paragraph (b) hereof upon
the occurrence of any of the following events (whatever the reason for such
event 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):
(1) the Trustee shall fail to distribute to the Owners
entitled hereto on any Distribution Date any amounts available for
distribution that it has received in accordance with the terms hereof;
(PROVIDED, HOWEVER, that any such failure which is due to circumstances
beyond the control of the Trustee shall not be a cause for removal
hereunder); or
(2) the Trustee shall fail in the performance of, or breach,
any covenant or agreement of the Trustee in this Agreement, or if any
representation or warranty of the Trustee made in this Agreement or in
any certificate or other writing delivered pursuant hereto or in
connection herewith shall prove to be incorrect in any material respect
as of the time when the same shall have been made, and such failure or
breach shall continue or not be cured for a period of 30 days after
there shall have been given, by registered or
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certified mail, to the Trustee by the Seller, the Certificate Insurer,
or by the Owners of at least ___% of the aggregate Percentage
Interests in the Trust Estate represented by the Class A
Certificates then Outstanding, or, if there are no Class A
Certificates then Outstanding, by such Percentage Interests
represented by the Class X-IO Certificates, or if there are no
Class X-IO Certificates then Outstanding, by such Percentage
Interests represented by the Class R Certificates, a written notice
specifying such failure or breach and requiring it to be remedied;
or
(3) a decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, or for
the winding-up or liquidation of its affairs, shall have been entered
against the Trustee, and such decree or order shall have remained in
force undischarged or unstayed for a period of____ days; or
(4) a conservator or receiver or liquidator or sequestrator or
custodian of the property of the Trustee is appointed in any
insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings of or relating to the Trustee or relating to all
or substantially all of its property; or
(5) the Trustee shall become insolvent (however insolvency is
evidenced), generally fail to pay its debts as they come due, file or
consent to the filing of a petition to take advantage of any applicable
insolvency or reorganization statute, make an assignment for the
benefit of its creditors, voluntarily suspend payment of its
obligations, or take corporate action for the purpose of any of the
foregoing.
The Depositor shall give to the Certificate Insurer, Moody's and
Standard & Poor's notice of the occurrence of any such event of which the
Depositor is aware.
(b) If any event described an Paragraph (a) occurs and is
continuing, then and in every such case (i) the Certificate Insurer or (ii)
with the prior written consent (which shall not be unreasonably withheld) of
the Certificate Insurer, the Depositor and the Owners of a majority of the
Percentage Interests represented by the Class A Certificates or if there are
no Class A Certificates then outstanding by such majority of the Percentage
Interests represented by the Class X-IO Certificates or if there are no Class
X-IO Certificates then Outstanding by such majority of the Percentage
Interests represented by the Class R Certificates, may, whether or not the
Trustee resigns pursuant to Section l0.09(b) hereof, immediately,
concurrently with the giving of notice to the Trustee, and without delaying
the____ days required for notice therein, appoint a successor Trustee
pursuant to the terms of Section l0.09 hereof.
Section 10.03. CERTAIN RIGHTS OF THE TRUSTEE.
Except as otherwise provided in Section 10.01 hereof:
(a) the Trustee (acting as Trustee or Tax Matters Person) may request
and may conclusively rely and shall be fully protected in acting or refraining
from acting upon any
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resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, note or other paper or document
believed by it to be genuine and to have been signed or presented by the
proper party or parties;
(b) any request or direction of the Depositor, the Seller, the
Certificate Insurer, or the Owners of any Class of Certificates mentioned herein
shall be sufficiently evidenced in writing;
(c) whenever in the administration of this Agreement the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officer's Certificate;
(d) the Trustee may consult with counsel, and the advice of such
counsel (selected in good faith by the Trustee) shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reasonable reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement at the request or direction of
any of the Owners pursuant to this Agreement, unless such Owners shall have
offered to the Trustee security or indemnity reasonably satisfactory to it
against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(f) 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, direction, consent, order, bond, note or other
paper or document, unless requested in writing to do so by the Owners; 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 taking any such action;
(g) 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 custodian and shall not be responsible for any willful misconduct or
gross negligence on the part of any agent, attorney, custodian or nominee
appointed with due care;
(h) the Trustee shall not be liable for any action it takes or omits to
take in good faith which it reasonably believes to be authorized by the
Authorized Officer of any Person and within its rights or powers under this
Agreement other than as to validity and sufficiency of its authentication of the
Certificates;
(i) 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;
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(j) pursuant to the terms of this Agreement, the Servicer is required
to furnish to the Trustee from time to time certain information and make various
calculations which are relevant to the performance of the Trustee's duties under
the Agreement. The Trustee shall be entitled to rely in good faith on any such
information and calculations in the performance of its duties hereunder, (i)
unless and until an Authorized Officer of the Trustee has actual knowledge, or
is advised by any Owner of a Certificate or the Certificate Insurer (either in
writing or orally with prompt written or telecopy confirmations), that such
information or calculations is or are incorrect, or (ii) unless there is a
manifest error in any such information;
(k) the Trustee shall not be required to give any bond or surety in
respect of the execution of the Trust Estate created hereby or the powers
granted hereunder;
(l) In no event shall the Trustee be liable for the selection of
investments or for investment losses incurred thereon. The Trustee shall have no
liability in respect of losses incurred as a result of the liquidation of any
investment prior to its stated maturity. The Trustee shall invest and reinvest
amounts held in the Certificate Account in Eligible Investments as set forth in
Schedule I-E hereto; and
(m) In the event that the Trustee is also acting as Registrar, Transfer
Agent or Paying Agent hereunder, the rights and protections afforded to the
Trustee pursuant to this section shall also be afforded to the Registrar,
Transfer Agent and Paying Agent.
Section 10.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF
CERTIFICATES.
The recitals and representations contained herein and in the
Certificates, except the execution and authentication of the Certificates, shall
be taken as the statements of the Depositor, and the Trustee assumes no
responsibility for their correctness (other than with respect to such execution
and authentication). The Trustee makes no representation as to the validity or
sufficiency of this Agreement, of the Certificates, or any Home Equity Loan or
document related thereto other than as to validity and sufficiency of its
authentication of the Certificates. The Trustee shall not be accountable for the
use or application by the Depositor of any of the Certificates or of the
proceeds of such Certificates, or for the use or application of any funds paid
to the Depositor, the Seller or the Servicer in respect of the Home Equity Loans
or deposited into or withdrawn from the Principal and Interest Account or the
Certificate Account by the Depositor, the Servicer or the Seller, and shall have
no responsibility for filing any financing or continuation statement in any
public office at any time or otherwise to perfect or maintain the perfection of
any security interest or lien or to prepare or file any tax returns or
Securities and Exchange Commission filings for the Trust or to record this
Agreement. The Trustee shall not be required to take notice or be deemed to have
notice or knowledge of any default unless an Authorized Officer of the Trustee
shall have received written notice thereof or an Authorized Officer has actual
knowledge thereof. In the absence of receipt of such notice, the Trustee may
conclusively assume that no default has occurred.
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Section 10.05. MAY HOLD CERTIFICATES.
The Trustee, any Paying Agent, Registrar or any other agent of the
Trust, in its individual or any other capacity, may become an Owner or pledged
of Certificates and may otherwise deal with the Trust with the same rights it
would have if it were not Trustee, any Paying Agent, Registrar or such other
agent.
Section 10.06. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated
from other trust funds except to the extent required herein or required by law.
The Trustee shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed with the Depositor and except to the extent
of income or other gain on investments which are deposits in or certificates of
deposit of the Trustee in its commercial capacity and income or other gain
actually received by the Trustee on Eligible Investments.
Section 10.07. COMPENSATION AND REIMBURSEMENT.
Except as otherwise provided in this Agreement, the Trustee and any
director, officer, employee or agent of the Trustee shall be indemnified by the
Trust and held harmless against any loss, liability, or "unanticipated
out-of-pocket" expense incurred or paid to third parties (which expenses shall
not include salaries paid to employees, or allocable overhead, of the Trustee)
in connection with or any claim or legal action or any pending or threatened
claim or legal action arising out of or in connection with the acceptance or
administration of its trusts hereunder or the Certificates, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties hereunder. All such amounts described in the
preceding sentence shall constitute Trustee Reimbursable Expenses. It is
understood by the parties hereto that a "claim" as used in this paragraph
includes any claim for indemnification made by the Custodian under the
applicable provisions of the Custodial Agreement. The Trustee and any director,
officer, employee or agent of the Trustee shall be indemnified by the Seller and
held harmless against any loss, liability or reasonable expenses incurred by the
Trustee in performing its duties as Tax Matters Person for the REMICs created
under this Agreement, other than any loss, liability or expense incurred by
reason of willful misfeasance or bad faith. When the Trustee incurs expenses or
provides services after the occurrence of a default and the commencement of a
voluntary or involuntary case under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or similar law
involving any of the Sellers or the Servicer, the expenses and fees for such
services are intended to constitute expenses of administration under such laws.
The provisions of this Section 10.07 shall survive the termination of this
Agreement.
Section 10.08. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be a
corporation or association organized and doing business under the laws of the
United States of America or of any State authorized under such laws to exercise
corporate trust powers, having a combined capital and
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surplus of at least $_____________ subject to supervision or examination by
the United States of America, or any state, acceptable to the Certificate
Insurer and having a deposit rating of at least A- from Standard & Poor's and
A2 by Moody's. If such Trustee 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 or association shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section, it shall, upon the request
of the Certificate Insurer, resign immediately in the manner and with the
effect hereinafter specified in this Article X.
Section 10.09. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to this Article X shall become effective until the
acceptance of appointment by the successor trustee under Section 10.10 hereof.
(b) The Trustee, or any trustee or trustees hereafter appointed, may
resign at any time by giving written notice of resignation to the Depositor and
the Seller and by mailing notice of resignation by first-class mail, postage
prepaid, to the Certificate Insurer and the Owners at their addresses appearing
on the Register. A copy of such notice shall be sent by the resigning Trustee to
the Rating Agencies. Upon receiving notice of resignation, the Depositor shall
promptly appoint a successor Trustee or Trustees acceptable to the Certificate
Insurer by written instrument, in duplicate, executed on behalf of the Trust by
an Authorized Officer of the Depositor, one copy of which instrument shall be
delivered to the Trustee so resigning and one copy to the successor Trustee or
Trustees. If no successor Trustee shall have been appointed and have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee, or any Owner may, on behalf of himself and
all others similarly situated, petition any such court for the appointment of a
successor Trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and appropriate, appoint a successor Trustee.
(c) If at any time the Trustee shall cease to be eligible under Section
10.08 hereof and shall fail to resign after written request therefor by the
Depositor or by the Certificate Insurer, the Certificate Insurer or the
Depositor with the written consent of the Certificate Insurer may remove the
Trustee and appoint a successor Trustee acceptable to the Certificate Insurer by
written instrument, in duplicate, executed on behalf of the Trust by an
Authorized Officer of the Depositor, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor Trustee.
(d) The Owners of a majority of the Voting Rights represented by the
Class A Certificates with the prior written consent of the Certificate Insurer,
or, if there are no Class A Certificates then Outstanding, by such majority of
the Voting Rights represented by the Class X-IO and Class R Certificates, may at
any time remove the Trustee and appoint a successor Trustee acceptable to the
Certificate Insurer by delivering to the Trustee to be removed, to the successor
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Trustee so appointed, to the Depositor, to the Servicer and to the Certificate
Insurer, copies of the record of the act taken by the Owners, as provided for in
Section 11.03 hereof.
(e) If the Trustee fails to perform its duties in accordance with the
terms of this Agreement, or becomes ineligible pursuant to Section 10.08 to
serve as Trustee, the Certificate Insurer may remove the Trustee and appoint a
successor Trustee by written instrument, in triplicate, signed by the
Certificate Insurer duly authorized, one complete set of which instruments shall
be delivered to the Depositor, one complete set to the Trustee so removed and
one complete set to the successor Trustee so appointed.
(f) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of the Trustee for any cause,
the Depositor shall promptly appoint a successor Trustee acceptable to the
Certificate Insurer. If within one year after such resignation, removal or
incapability or the occurrence of such vacancy, a successor Trustee shall be
appointed by act of the Certificate Insurer or the Owners of a majority of the
Percentage Interests represented by the Class A Certificates then Outstanding
with the consent of the Certificate Insurer, the successor Trustee so appointed
shall forthwith upon its acceptance of such appointment become the successor
Trustee and supersede the successor Trustee appointed by the Depositor. If no
successor Trustee shall have been so appointed by the Depositor or the Owners
and shall have accepted appointment in the manner hereinafter provided, any
Owner may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, appoint a successor Trustee.
(g) The Servicer shall give notice of any removal of the Trustee by
mailing notice of such event by first-class mail, postage prepaid, to the
Certificate Insurer, to the Rating Agencies and to the Owners as their names and
addresses appear in the Register. Each notice shall include the name of the
successor Trustee and the address of its corporate trust office.
Section 10.10. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR TRUSTEE.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Depositor on behalf of the Trust to the Certificate Insurer
and to its predecessor Trustee an instrument accepting such appointment
hereunder and stating its eligibility to serve as Trustee 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 vested with all the rights, powers, trusts, duties and
obligations of its predecessor hereunder; but, on request of the Depositor, the
Certificate Insurer or the successor Trustee, such predecessor Trustee shall,
upon payment of its charges then unpaid, execute and deliver an instrument
transferring to such successor Trustee all of the rights, powers and trusts of
the Trustee so ceasing to act, and shall duly assign, transfer and deliver to
such successor Trustee all property and money held by such Trustee so ceasing to
act hereunder. Upon request of any such successor Trustee, the Depositor on
behalf of the Trust shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
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Upon acceptance of appointment by a successor Trustee as provided in
this Section, the Depositor shall mail notice thereof by first-class mail,
postage prepaid, to the Owners at their last addresses appearing upon the
Register and to the Certificate Insurer. The Depositor shall send a copy of such
notice to the Rating Agencies. If the Depositor fails to mail such notice within
ten days after acceptance of appointment by the successor Trustee, the successor
Trustee shall cause such notice to be mailed at the expense of the Trust.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor shall be qualified and eligible under this
Article X.
Section 10.11. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS OF THE TRUSTEE.
Any corporation or association into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation or
association resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation or association succeeding to all or
substantially all of the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, without the execution or filing of any paper
or any further act on the pan of any of the parties hereto; PROVIDED, HOWEVER,
that such corporation or association shall be otherwise qualified and eligible
under this Article X. In case any Certificates have been executed, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such Trustee may adopt such execution and deliver the
Certificates so executed with the same effect as if such successor Trustee had
itself executed such Certificates.
Section 10.12. REPORTING; WITHHOLDING.
(a) The Trustee shall timely provide to the Owners the Internal Revenue
Service's Form 1099 and any other statement required by applicable Treasury
regulations as determined by the Tax Matters Person, and shall withhold, as
required by applicable law, federal, state or local taxes, if any, applicable to
distributions to the Owners, including but not limited to backup withholding
under Section 3406 of the Code and the withholding tax on distributions to
foreign investors under Sections 1441 and 1442 of the Code.
(b) As required by law or upon request of the Tax Matters Person and
except as otherwise specifically set forth in (a) preceding, the Trustee shall
timely file all reports prepared by the Seller and required to be filed by the
Trust, including other reports that must be filed with the Owners, such as the
Internal Revenue Service's Form 1066 and Schedule Q. The Trustee shall, upon
written request of the Seller, collect any forms or reports from the Owners
determined by the Seller to be required under applicable federal, state and
local tax laws.
(c) Except as otherwise provided, the Trustee shall have the
responsibility for preparation and execution of those returns, forms, reports
and other documents referred to in this Section.
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(d) The Seller covenants and agrees that it shall provide to the
Trustee any information necessary to enable the Trustee to meet its obligations
under subsections (a), (b) and (c) above.
Section 10.13. LIABILITY OF THE TRUSTEE.
The Trustee shall be liable in accordance herewith only to the extent
of the obligations specifically imposed upon and undertaken by the Trustee
herein. Neither the Trustee nor any of the directors, officers, employees or
agents of the Trustee shall be under any liability on any Certificate or
otherwise to the Certificate Account, the Depositor, the Sellers, the Servicer
or any Owner for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in judgment;
PROVIDED, HOWEVER, that this provision shall not protect the Trustee, its
directors, officers, employees or agents or any such Person against any
liability which would otherwise be imposed by reason of negligent action,
negligent failure to act or willful misconduct in the performance of duties or
by reason of reckless disregard of obligations and duties hereunder. Subject to
the foregoing sentence, the Trustee shall not be liable for losses on
investments of amounts in the Certificate Account (except for any losses on
obligations on which the bank serving as Trustee is the obligor). In addition,
the Depositor and CHEC covenant and agree to indemnify the Trustee and the
Servicer (if the Servicer is also the Trustee) and their officers, directors,
agents and employees from, and hold it harmless against, any and all losses,
liabilities, damages, claims or expenses (including legal fees and expenses) of
whatsoever kind arising out of or in connection with the performance of its
duties hereunder other than those resulting from the negligence or bad faith.
The Trustee and any director, officer, employee or agent of the Trustee may
conclusively rely and shall be fully protected in acting or refraining from
acting in good faith on any Certificate, notice or other document of any kind
PRIMA FACIE properly executed and submitted by the Authorized Officer of any
Person respecting any matters arising hereunder. The provisions of this Section
10.13 shall survive the termination of this Agreement and the payment of the
outstanding Certificates. When the Trustee incurs expenses or provides services
after the occurrence of a default and the commencement of a voluntary or
involuntary case under Title 11 of the United States Code or any other
applicable federal or state bankruptcy, insolvency or similar law involving on
the Sellers or the Servicer, the expenses and fees for such services are
intended to constitute expenses of administration under such laws.
Section 10.14. 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 Estate or Property may at the time be located, the
Servicer and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee and reasonably acceptable to the Certificate Insurer to act as
co-Trustee or co-Trustees, jointly with the Trustee, of all or any part of the
Trust Estate or separate Trustee or separate Trustees of any part of the Trust
Estate, and to vest in such Person or Persons, in such capacity and for the
benefit of the Owners and the Certificate Insurer, such title to the Trust
Estate, or any part thereof, and, subject to the other provisions of this
Section 10.14, such powers, duties, obligations, rights and trusts as the
Servicer and the Trustee may consider
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necessary or desirable. If the 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 any event indicated in Section 8.20(a) shall have occurred and be
continuing, the Trustee subject to reasonable approval of the Certificate
Insurer 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 10.08 and no notice to Owner of the
appointment of any co-Trustee or separate Trustee shall be required under
Section 10.09.
Every separate Trustee and co-Trustee shall, to the extent permitted,
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 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 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 Trustee;
(ii) No co-Trustee hereunder shall be held personally liable
by reason of any act or omission of any other co-Trustee hereunder; and
(iii) The Servicer, and the Certificate Insurer and the
Trustee acting jointly may at any time accept the resignation of 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 Section 10.14. 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
Servicer and the Certificate Insurer.
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.
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Section 10.15. APPOINTMENT OF CUSTODIANS.
The Trustee may appoint one or more Custodians to hold all or a portion
of the Files as agent for the Trustee, by entering into a Custodial Agreement
acceptable to the Certificate Insurer. Subject to this Article X, the Trustee
agrees to comply with the terms of the Custodial Agreement and to enforce the
terms and provisions thereof against the Custodian for the benefit of the Owners
of the Certificates and the Certificate Insurer.
END OF ARTICLE X
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ARTICLE XI
MISCELLANEOUS
Section 11.01. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Depositor, the Seller, the
Certificate Insurer or the Owners to the Trustee to take any action under any
provision of this Agreement, the Depositor, the Seller, the Certificate Insurer
or the Owners, as the case may be, shall furnish to the Trustee a certificate
stating that all conditions precedent, if any, provided for in this Agreement
relating to the proposed action have been complied with, 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 Agreement relating to such
particular application or request, no additional certificate need be furnished.
Except as otherwise specifically provided herein, each certificate or
opinion with respect to compliance with a condition or covenant provided for in
this Agreement (including one furnished pursuant to specific requirements of
this Agreement relating to a particular application or request) shall include:
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein relating
thereto;
(b) 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; and
(c) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
Section 11.02. FORM OF DOCUMENTS DELIVERED TO THE 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 Trustee may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by counsel, unless such Authorized 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 his certificate or
opinion is based are erroneous. Any such certificate or opinion of an Authorized
Officer of the Trustee or any Opinion of Counsel may be based, insofar as it
relates to factual matter upon a certificate or opinion of, or representations
by, one or more Authorized Officers of the Depositor, the Seller or the
Servicer, stating that the information with respect to such factual matters is
in the possession of the Depositor, the Seller or the Servicer, unless such
Authorized Officer or
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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. Any Opinion of Counsel may also be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
Authorized Officer of the Trustee, stating that the information with respect
to such matters is in the possession of the Trustee, 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. Any Opinion of Counsel may be based on the written opinion of
other counsel, in which event such Opinion of Counsel shall be accompanied by
a copy of such other counsel's opinion and shall include a statement to the
effect that such counsel believes that such counsel and the Trustee may
reasonably rely upon the opinion of such other counsel.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Agreement, they may, but need not, be consolidated and
form one instrument.
Section 11.03. ACTS OF OWNERS.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by the
Owners may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Owners in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee, and, where it is hereby expressly required, to the Seller. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "act" of the Owners 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
Agreement and conclusive in favor of the Trustee and the Trust, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Whenever
such execution is by an officer of a corporation or a member of a partnership on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his authority.
(c) The ownership of Certificates shall be proved by the Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Owner of any Certificate shall bind the Owner of
every Certificate issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done, omitted or
suffered to be done by the Trustee or the Trust in reliance thereon, whether or
not notation of such action is made upon such Certificates.
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Section 11.04. NOTICES, ETC. TO TRUSTEE.
Any request, demand, authorization, direction, notice, consent, waiver
or act of the Owners or other documents provided or permitted by this Agreement
to be made upon, given or furnished to, or filed with the Trustee by any Owner,
the Certificate Insurer, the Depositor, either of the Sellers or the Servicer
shall be sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with and received by the Trustee at its Corporate Trust
Office as set forth in Section 2.02 hereof.
Section 11.05. NOTICES AND REPORTS TO OWNERS; WAIVER OF NOTICES.
Where this Agreement provides for notice to Owners of any event or the
mailing of any report to Owners, such notice or report shall be sufficiently
given (unless otherwise herein expressly provided) if mailed, first-class
postage prepaid, to each Owner affected by such event or to whom such report is
required to be mailed, at the address of such Owner as it appears on the
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice or the mailing of such report. In
any case where a notice or report to Owners is mailed in the manner provided
above, neither the failure to mail such notice or report nor any defect in any
notice or report so mailed to any particular Owner shall affect the sufficiency
of such notice or report with respect to other Owners, and any notice or report
which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given or provided. Notwithstanding the foregoing, if the Servicer
is removed or resigned or the Trust is terminated, notice of any such events
shall be made by overnight courier, registered mail or telecopy followed by a
telephone call.
Where this Agreement 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 Owners shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such 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 Owners when such notice is required to be given
pursuant to any provision of this Agreement, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Agreement provides for notice to any Rating Agency that
rated any Certificates, failure to give such notice shall not affect any other
rights or obligations created hereunder.
Section 11.06. RULES BY TRUSTEE.
The Trustee may make reasonable rules for any meeting of Owners.
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Section 11.07. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Agreement by any party hereto
shall bind its successors and assigns, whether so expressed or not.
Section 11.08. SEVERABILITY.
In case any provision in this Agreement or in the Certificates 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 11.09. BENEFITS OF AGREEMENT.
Nothing in this Agreement or in the Certificates, expressed or implied,
shall give to any Person, other than the Owners, the Certificate Insurer and the
parties hereto and their successors hereunder, any benefit or any legal or
equitable right, remedy or claim under this Agreement.
Section 11.10. LEGAL HOLIDAYS.
In any case where the date of any Distribution Date, any other date on
which any distribution to any Owner is proposed to be paid, or any date on which
a notice is required to be sent to any Person pursuant to the terms of this
Agreement (with the exception of any Monthly Remittance Date) shall not be a
Business Day, then (notwithstanding any other provision of the Certificates or
this Agreement) payment or mailing 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 or mailed on the nominal date of any such Distribution Date, or such other
date for the payment of any distribution to any Owner or the mailing of such
notice, as the case may be, and no interest shall accrue for the period from and
after any such nominal date, provided such payment is made in full on such next
succeeding Business Day. In any case where the date of any Monthly Remittance
Date or any Monthly Reporting Date shall not be a Business Day, then payment or
mailing need not be made on such date, but must be made on the preceding
Business Day.
Section 11.11. GOVERNING LAW; SUBMISSION TO JURISDICTION.
(a) In view of the fact that Owners are expected to reside in many
states and outside the United States and the desire to establish with certainty
that this Agreement will be governed by and construed and interpreted in
accordance with the law of a state having a well-developed body of commercial
and financial law relevant to transactions of the type contemplated herein, this
Agreement and each Certificate shall be construed in accordance with and
governed by the laws of the State of New York applicable to agreements made and
to be performed therein, without giving effect to the conflicts of law
principles thereof.
(b) The parties hereto hereby irrevocably submit to the jurisdiction of
the United States District Court for the Southern District of New York and any
court in the State of New York located in the City and County of New York, and
any appellate court from any thereof, in any action, suit or proceeding brought
against it or in connection with this Agreement or any of the related documents
or the transactions contemplated hereunder or for recognition or
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enforcement of any judgment, and the parties hereto hereby irrevocably and
unconditionally agree that all claims in respect of any such action or
proceeding may be heard or determined in such New York State court or, to the
extent permitted by law, in such federal court. The parties hereto agree that
a final judgment in any such action, suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law. To the extent permitted by applicable law, the
parties hereto hereby waive and agree not to assert by way of motion, as a
defense or otherwise in any such suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of such courts, that the
suit, action or proceeding is brought in an inconvenient forum, that the
venue of the suit, action or proceeding is improper or that the related
documents or the subject matter thereof may not be litigated in or by such
courts.
(c) Each of the Depositor, Seller, and the Servicer hereby irrevocably
appoints and designates the Trustee as its true and lawful attorney and duly
authorized agent for acceptance of service of legal process with respect to any
action, suit or proceeding set forth in paragraph (b) hereof. Each of the Seller
and the Servicer agrees that service of such process upon the Trustee shall
constitute personal service of such process upon it.
(d) Nothing contained in this Agreement shall limit or affect the right
of the Depositor, the Seller, the Servicer or the Certificate Insurer or
third-party beneficiary hereunder, as the case may be, to serve process in any
other manner permitted by law or to start legal proceedings relating to any of
the Home Equity Loans against any Mortgagor in the courts of any jurisdiction.
Section 11.12. COUNTERPARTS.
This instrument 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 11.13. USURY.
The amount of interest payable or paid on any Certificate under the
terms of this Agreement shall be limited to an amount which shall not exceed the
maximum nonusurious rate of interest allowed by the applicable laws of the State
of New York or any applicable law of the United States permitting a higher
maximum nonusurious rate that preempts such applicable New York laws, which
could lawfully be contracted for, charged or received (the "Highest Lawful
Rate"). In the event any payment of interest on any Certificate exceeds the
Highest Lawful Rate, the Trust stipulates that such excess amount will be deemed
to have been paid to the Owner of such Certificate as a result of an error on
the part of the Trustee acting on behalf of the Trust and the Owner receiving
such excess payment shall promptly, upon discovery of such error or upon notice
thereof from the Trustee on behalf of the Trust, refund the amount of such
excess or, at the option of such Owner, apply the excess to the payment of
principal of such Certificate, if any, remaining unpaid. In addition, all sums
paid or agreed to be paid to the Trustee for the benefit of Owners of
Certificates for the use, forbearance or detention of money shall, to the extent
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permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such Certificates.
Section 11.14. AMENDMENT.
(a) The Trustee, the Depositor, the Seller and the Servicer, may at any
time and from time to time, with the prior written approval of the Certificate
Insurer but without the giving of notice to or the receipt of the consent of the
Owners, amend this Agreement, and the Trustee shall consent to the amendment for
the purposes of (i) if accompanied by an approving Opinion of Counsel and
Officer's Certificate which shall not be at the expense of the Trustee
experienced in federal income tax matters, removing the restriction against the
transfer of a Class R Certificate to a Disqualified Organization (as such term
is defined in the Code), (ii) complying with the requirements of the Code
including any amendments necessary to maintain REMIC status of each REMIC, (iii)
curing any ambiguity, (iv) correcting or supplementing any provisions of this
Agreement which are inconsistent with any other provisions of this Agreement or
(v) for any other purpose, provided that in the case of clause (v), such
amendment shall not adversely affect in any material respect any Owner. Any such
amendment shall be deemed not to adversely affect in any material respect any
Owner if such Owner shall have consented thereto in writing or if there is
delivered to the Trustee written notification from each Rating Agency that such
amendment will not cause such Rating Agency to reduce its then current rating
assigned to the Class A Certificates without regard to the related Certificate
Insurance Policy. Notwithstanding anything to the contrary, no such amendment
shall (a) change in any manner the amount of, or delay the timing of, payments
which are required to be distributed to any Owner without the consent of the
Owner of such Certificate, (b) change the percentages of Percentage Interest
which are required to consent to any such amendments, without the consent of the
Owners of all Certificates of the Class or Classes affected then outstanding or
(c) affect in any manner the terms or provisions of the related Certificate
Insurance Policy. The Trustee shall not be required to execute any amendment or
supplement if it affects its rights, duties, immunities or indemnities.
(b) The Certificate Insurer and the Rating Agencies shall be provided
by the Seller and the Depositor with copies of any amendments to this Agreement,
together with copies of any opinions or other documents or instruments executed
in connection therewith.
(c) Notwithstanding any contrary provisions of this Agreement, the
Trustee shall not consent to any amendment to this Agreement unless it shall
have first received an Opinion of Counsel (provided by the Person requesting
such amendment) to the effect that such amendment will not result in the
imposition of any tax on the Trust pursuant to the REMIC Provisions or cause
either REMIC created hereunder to fail to qualify as a REMIC at any time that
any of the Certificates are outstanding.
Section 11.15. PAYING AGENT; APPOINTMENT AND ACCEPTANCE OF DUTIES.
The Trustee is hereby appointed Paying Agent. The Seller may, subject
to the eligibility requirements for the Trustee set forth in Section 10.08
hereof, including, without limitation, the
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prior written consent of the Certificate Insurer, appoint one or more other
Paying Agents or successor Paying Agents.
Each Paying Agent, immediately upon such appointments shall signify its
acceptance of the duties and obligations imposed upon it by this Agreement by
written instrument of acceptance deposited with the Trustee.
Each such Paying Agent other than the Trustee shall execute and deliver
to the Trustee an instrument in which such Paying Agent shall agree with the
Trustee, subject to the provisions of Section 6.02, that such Paying Agent will:
(a) allocate all sums received for distribution to the Owners
of Certificates of each Class for which it is acting as Paying Agent on
each Distribution Date among such Owners in the proportion specified by
the Trustee; and
(d) hold all sums held by it for the distribution of amounts
due with respect to the Certificates in trust for the benefit of the
Owners entitled thereto until such sums shall be paid to such Owners or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided.
Any Paying Agent other than the Trustee may at any time resign and be
discharged of the duties and obligations created by this Agreement by giving at
least sixty (60) days written notice to the Trustee. Any such Paying Agent may
be removed at any time by an instrument filed with such Paying Agent and signed
by the Trustee.
In the event of the resignation or removal of any Paying Agent other
than the Trustee such Paying Agent shall pay over, assign and deliver any moneys
held by it as Paying Agent to its successor, or if there be no successor, to the
Trustee.
Upon the appointment, removal or notice of resignation of any Paying
Agent, the Trustee shall notify the Certificate Insurer and the Owners by
mailing notice thereof at their addresses appearing on the Register.
Section 11.16. REMIC STATUS.
(a) The parties hereto intend that each REMIC created hereunder
shall constitute, and that the affairs of each REMIC created hereunder shall
be conducted so as to qualify it as a REMIC in accordance with the REMIC
Provisions. In furtherance of such intention, _____________ or such other
person designated pursuant to Section 11.18 hereof shall act as agent for the
Trust and as Tax Matters Person for the Trust and that in such capacity it
shall: (i) prepare or cause to be prepared and filed, at its own expense, in
a timely manner, annual tax returns and any other tax return required to be
filed by each REMIC created hereunder using a calendar year as the taxable
year for such REMIC; (ii) in the related first such tax return, make (or
cause to be made) an election satisfying the requirements of the REMIC
Provisions, on behalf of each REMIC created hereunder, for it to be treated
as a REMIC; (iii) at the Tax Matters Person's expense, prepare and forward,
or cause to be prepared and forwarded, to the Owners all information, reports
or tax returns required with respect to each REMIC created hereunder,
including
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Schedule Q to Form 1066, as, when and in the form required to be
provided to the Owners, and to the Internal Revenue Service and any other
relevant governmental taxing authority in accordance with the REMIC
Provisions and any other applicable federal, state or local laws, including
without limitation information reports relating to "original issue discount"
as defined in the Code based upon the prepayment assumption and calculated by
using the "Issue Price" (within the meaning of Section 1273 of the Code) of
the Certificates of the related Class; provided that the tax return filed on
Schedule Q to Form 1066 shall be prepared and forwarded to the Owners of the
Class R Certificates no later than 50 days after the end of the period to
which such tax return was due; (iv) not take any action or omit to take any
action that would cause the termination of the REMIC status of either REMIC
created hereunder, except as provided under this Agreement; (v) represent,
the Trust or each REMIC created hereunder in any administrative or judicial
proceedings relating to an examination or audit by any governmental taxing
authority, request an administrative adjustment as to a taxable year of the
Trust or each REMIC created hereunder, enter into settlement agreements with
any governmental taxing agency, extend any statute of limitations relating to
any tax item of the Trust or each REMIC created hereunder, and otherwise act
on behalf of the Trust or each REMIC created hereunder in relation to any tax
matter involving the Trust or each REMIC created hereunder (the legal
expenses and costs of any such action described in this subsection (v) and
any liability resulting therefrom shall constitute expenses of the Trust and
shall constitute Trustee Reimbursable Expenses, unless such legal expenses
and costs are incurred by reason of the Trustee's willful misfeasance, bad
faith or negligence; (vi) comply with all statutory or regulatory
requirements with regard to its conduct of activities pursuant to the
foregoing clauses of this Section 11.16, including, without limitation,
providing all notices and other information to the Internal Revenue Service
and Owners of Class R Certificates required of a "tax matters person"
pursuant to subtitle F of the Code and the Treasury Regulations thereunder;
(vii) make available information necessary for the computation of any tax
imposed (A) on transferor of residual interests to certain Disqualified
Organizations or (B) on pass-through entities, any interest in which is held
by a Disqualified Organization; and (viii) acquire and hold the Tax Matters
Person Residual Interest. The obligations of the Trustee or such other
designated Tax Matters Person pursuant to this Section 11.16 shall survive
the termination or discharge of this Agreement.
(b) The Seller, the Depositor, the Trustee and the Servicer covenant
and agree for the benefit of the Owners and the Certificate Insurer (i) to take
no action which would result in the termination of REMIC status for either REMIC
created hereunder, (ii) not to engage in any "prohibited transaction", as such
term is defined in Section 860F(a)(2) of the Code, (iii) not to engage in any
other action which may result in the imposition on the Trust of any other taxes
under the Code and (iv) to cause the Servicer not to take or engage in any such
action, to the extent either of the Seller is aware of any such proposed action
by the Servicer.
(c) Each REMIC created hereunder shall, for federal income tax
purposes, maintain books on a calendar year basis and report income on an
accrual basis.
(d) Except as otherwise permitted by Section 7.05(b), no Eligible
Investment shall be sold prior to its stated maturity (unless sold pursuant to a
plan of liquidation in accordance with Article IX hereof).
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(e) None of the Depositor, the Seller or the Trustee shall enter into
any arrangement by which the Trustee will receive a fee or other compensation
for services rendered pursuant to this Agreement, other than as expressly
contemplated by this Agreement.
(f) Notwithstanding the foregoing clauses (d) and (e), the Trustee or
the Seller may engage in any of the transactions prohibited by such clauses,
provided that the Trustee shall have received an Opinion of Counsel experienced
in federal income tax matters acceptable to the Certificate Insurer to the
effect that such transaction does not result in a tax imposed on the Trustee or
cause a termination of REMIC status for either REMIC created hereunder;
PROVIDED, HOWEVER, that such transaction is otherwise permitted under this
Agreement.
(g) In the event that any tax is imposed on "prohibited transactions"
of the Trust created hereunder as defined in Section 860F(a)(2) of the Code, on
"net income from foreclosure property" of the Trust as defined in Section
860G(c) of the Code, on any contributions to the Trust after the Startup Date
therefor pursuant to Section 860G(d) of the Code, or any other tax is imposed by
the Code or any applicable provisions of state or local tax laws, such tax shall
be charged (i) to the Trustee if such tax arises out of or results from the
willful misfeasance, bad faith or negligence in performance by the Trustee of
any of its obligations under Article X, (ii) to the Servicer if such tax arises
out of or results from a breach by the Servicer of any of its obligations under
Article VIII or otherwise.
Section 11.17. ADDITIONAL LIMITATION ON ACTION AND IMPOSITION OF TAX.
Any provision of this Agreement to the contrary notwithstanding, the
Trustee shall not, without having obtained an Opinion of Counsel experienced in
federal income tax matters acceptable to the Certificate Insurer at the expense
of the party seeking to take such action but in no event at the expense of the
Trust to the effect that such transaction does not result in a tax imposed on
the Trust or either REMIC created hereunder or cause a termination of REMIC
status for either REMIC created hereunder, (i) sell any assets in the Trust
Estate, (ii) accept any contribution of assets after the Startup Day, (iii)
allow the Servicer to foreclose upon any Home Equity Loan if such foreclosure
would result in a tax on the Trust or either REMIC created hereunder or cause
termination of REMIC status for either REMIC created hereunder or (iv) agree to
any modification of this Agreement. To the extent that sufficient amounts cannot
be so retained to pay or provide for the payment of such tax, the Trustee is
hereby authorized to and shall segregate, into a separate non-interest bearing
account, the net income from any such Prohibited Transactions of each REMIC
created hereunder and use such income, to the extent necessary, to pay such tax;
PROVIDED THAT, to the extent that any such income is paid to the Internal
Revenue Service, the Trustee shall retain an equal amount from future amounts
otherwise distributable to the Owners of Class R Certificates and shall
distribute such retained amounts to the Owners of Class A Certificates to the
extent they are fully reimbursed and then to the Owners of the Class R
Certificates. If any tax, including interest penalties or assessments,
additional amounts or additions to tax, is imposed on the Trust, such tax shall
be charged against amounts otherwise distributable to the owners of the Class R
Certificates on a PRO RATA basis. The Trustee is hereby authorized to and shall
retain from amounts otherwise distributable to the Owners of the Class R
Certificates sufficient funds to pay or provide for the payment of, and to
actually pay, such tax as is legally owed by the Trust (but such authorization
shall not prevent the
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Trustee from contesting any such tax in appropriate proceedings, and
withholding payment of such tax, if permitted by law, pending the outcome of
such proceedings).
Section 11.18. APPOINTMENT OF TAX MATTERS PERSON.
A Tax Matters Person will be appointed for each REMIC created hereunder
for all purposes of the Code and such Tax Matters Person will perform, or cause
to be performed, such duties and take, or cause to be taken, such actions as are
required to be performed or taken by the Tax Matters Person under the Code. The
Tax Matters Person for each REMIC created hereunder shall be the Trustee as long
as it owns a Class R Certificate. If the Trustee does not own a Class R
Certificate, the Tax Matters Person will be the holder of the largest percentage
interest in the Class R Certificates. The Trustee is hereby irrevocably
appointed to act as the agent of the Tax Matters Person for all purposes of the
Code and regulations thereunder.
Section 11.19. THE CERTIFICATE INSURER.
Any right conferred to the Certificate Insurer hereunder, including
but not limited to consent rights, shall be suspended and shall run to the
benefit of the Owners and shall be exercisable by a vote of Owners holding
Certificates representing at least a ____% Percentage Interest of all Class A
Certificates during any period in which there exists a Certificate Insurer
Default; PROVIDED, that the right of the Certificate Insurer to receive the
Premium Amount or any Reimbursement Amounts shall not be suspended if such
Certificate Insurer Default was a default other than a default under clause
(a) of the definition thereof. If a Certificate Insurer Default shall cease
to exist, the rights of the Certificate Issuer shall be immediately restored.
At such time as the Class A Certificates are no longer Outstanding hereunder
and the Certificate Insurer has received all Reimbursement Amounts, the
Certificate Insurer's rights hereunder shall terminate.
Section 11.20. RESERVED.
Section 11.21. THIRD PARTY RIGHTS.
The Trustee, the Sellers, the Servicer, the Depositor and the Owners
agree that the Certificate Insurer shall be deemed a third-party beneficiary of
this Agreement as if it were a party hereto.
Section 11.22. NOTICES.
All notices hereunder shall be given as follows, until any superseding
instructions are given to all other Persons listed below:
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THE TRUSTEE:
____________________________
____________________________
____________________________
Attention:__________________
Tel:________________________
Fax:________________________
THE DEPOSITOR: CHEC Funding, LLC
2728 North Harwood
Dallas, TX 75201
Attention: Jeffrey B. Upperman
Tel: (214) 981-6811
Fax: (214) 756-4580
THE SELLER: Centex Credit Corporation d/b/a Centex Home
Equity Corporation
2728 North Harwood
Dallas, TX 75201
Attention: Jeffrey B. Upperman
Tel: (214) 981-6811
Fax: (214) 756-4580
THE SERVICER: Centex Credit Corporation d/b/a Centex Home
Equity Corporation
2728 North Harwood
Dallas, TX 75201
Attention: Jeffrey B. Upperman
Tel: (214) 981-6811
Fax: (214) 756-4580
THE CUSTODIAN: [Bank One Trust Company, N.A.
465 N. Halstead, Suite 140
Pasadena, CA 91107
Attention: Laurie Meder
Tel: (626)
Fax: (626) 351-3150]
THE CERTIFICATE
INSURER: [MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Insured Portfolio
Management-Structured Finance (IPM-SF)
Re: Centex Home Equity Loan Trust 2000-__
Tel: (914) 273-4545
Fax: (914) 765-3810]
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THE UNDERWRITERS: ____________________________
____________________________
____________________________
Attention:__________________
Tel:________________________
Fax:________________________
____________________________
____________________________
____________________________
Attention: _________________
Tel: _______________________
Fax: _______________________
MOODY'S: Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Attention: The Residential Mortgage
Monitoring Department
Tel: (212) 553-0300
Fax: (212) 553-0355
STANDARD & POOR'S: Standard & Poor's Ratings Services,
a division of The McGraw-Hill
Companies, Inc.
55 Water Street
41st Floor
New York, New York 10041
Attention: Residential Mortgage Group
Tel: (212) 438-2000
Fax: (212) 438-2661
Section 11.23. RULE 144A INFORMATION. For so long as any of the Class R
or Class X-IO Certificates are "restricted securities" within the meaning of
Rule 144A under the Securities Act, the Servicer (or if the Trustee is then
acting as Servicer, CHEC) agrees to provide to any Owner of the Class R or Class
X-IO Certificate and to any prospective purchaser of Class R or Class X-IO
Certificates designated by such an Owner, upon the request of such Owner or
prospective purchaser, the information specified below which is intended to
satisfy the conditions set forth in Rule 144A(d)(4) under the Securities Act;
PROVIDED that this Section 11.23 shall require, as to the Trustee or CHEC, only
that the Servicer (or if the Trustee is then acting as Servicer, CHEC) provide
publicly available information regarding it or the Trustee in response to any
such request; and PROVIDED FURTHER that the Servicer (or if the Trustee is then
acting as Servicer, CHEC) shall be obligated to provide only such basic,
material information concerning the structure of the Class R or Class X-IO
Certificates and distributions thereon, the nature, performance and servicing of
the Home Equity Loans supporting the Certificates, and any credit enhancement
mechanism, if any, associated with the Certificates. Any recipient of
information provided
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pursuant to this Section 11.23 shall agree that such information shall not be
disclosed or used for any purpose other than the evaluation of the Class R or
Class X-IO Certificates by the prospective purchaser. The Trustee shall have
no responsibility for the sufficiency under Rule 144A of any information so
provided by the Servicer to any Owner or prospective purchaser of Class R or
Class X-IO Certificates.
END OF ARTICLE XI
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ARTICLE XII
CERTAIN MATTERS REGARDING THE CERTIFICATE INSURER
Section 12.01. TRUST ESTATE AND ACCOUNTS HELD FOR BENEFIT OF THE
CERTIFICATE INSURER.
The Trustee shall hold the Trust Estate for the benefit of the related
Owners and the Certificate Insurer and all references in this Agreement and in
the Certificates to the benefit of Owners 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.
The Servicer hereby acknowledges and agrees that it shall service and
administer the Home Equity Loans and any REO Properties, and shall maintain the
Principal and Interest Account, for the benefit of the Owners and for the
benefit of the Certificate Insurer, and all references in this Agreement to the
benefit of or actions on behalf of the Owners shall be deemed to include the
Certificate Insurer. Unless a Certificate Insurer Default exists, the Servicer
shall not terminate any Sub-Servicing Agreements without the prior consent of
the Certificate Insurer.
Section 12.02. CLAIMS UPON THE POLICIES; POLICY PAYMENTS ACCOUNT
(a) In the event that an Insured Payment becomes due pursuant to the
terms of a Certificate Insurance Policy, the Trustee shall submit a Notice (in
the form attached to such Certificate Insurance Policy) in accordance with the
terms of such Certificate Insurance Policy.
(b) The Trustee shall establish and maintain a separate special purpose
trust account for the benefit of the Owners of the Class A Certificates and the
Certificate Insurer referred to herein as the "Policy Payments Account" over
which the Trustee shall have exclusive control and sole right of withdrawal. The
Policy Payments Account shall be an Eligible Account. The Trustee shall deposit
any amount paid under the Certificate Insurance Policies into the Policy
Payments Account and distribute such amount only for purposes of payment to the
Owners of the related Class A Certificates of the Insured Payments for which a
claim was made and such amount may not be applied to satisfy any costs, expenses
or liabilities of the Servicer, the Seller, the Depositor, the Custodian, the
Trustee or the Trust. Amounts paid under the related Certificate Insurance
Policy shall be transferred to the Certificate Account in accordance with the
next succeeding paragraph and disbursed by the Trustee to Owners of the related
Class A Certificates in accordance with Section 7.03(e). It shall not be
necessary for such payments to be made by checks or wire transfers separate from
the checks or wire transfers used to pay the Insured Payments with other funds
available to make such payment. However, the amount of any payment of principal
of or interest on the related Class A Certificates to be paid from funds
transferred from the Policy Payments Account shall be noted as provided in
paragraph (c) below in the Register and in the statement to be furnished to
Owners of the Class A Certificates pursuant to Section 7.08. Funds held in the
Policy Payments Account shall not be invested by the Trustee.
138
<PAGE>
On any Distribution Date with respect to which a claim has been made
under the related Certificate Insurance Policy, the amount of funds received by
the Trustee as a result of any claim under the related Certificate Insurance
Policy, to the extent required to make the Insured Payment on such Distribution
Date shall be withdrawn from the Policy Payments Account and deposited in the
Certificate Account and applied by the Trustee, directly to the payment in full
of the Insured Payment due on the related Class of Class A Certificates in
accordance with Section 7.03(e). Funds received by the Trustee as a result of
any claim under either Certificate Insurance Policy shall be deposited by the
Trustee in the Policy Payments Account and used solely for payment to the Owners
of the Class A Certificates and may not be applied to satisfy any costs,
expenses or liabilities of the Servicer, the Seller, the Depositor, the
Custodian, the Trustee or the Trust. Any funds remaining in the Policy Payments
Account on the first Business Day following a Distribution Date shall be
remitted to the Certificate Insurer, pursuant to the instructions of the
Certificate Insurer, by the end of such Business Day.
(c) 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 Policies. The Certificate Insurer shall
have the right to inspect such records at reasonable times during normal
business hours upon one Business Day's prior notice to the Trustee.
(d) The Trustee shall promptly notify the Certificate Insurer and
Fiscal Agent (as defined in the Certificate Insurance Policies) of any
proceeding or the institution of any action, of which an Authorized Officer of
the Trustee has actual knowledge, seeking the avoidance as a preferential
transfer under applicable bankruptcy, insolvency, receivership or similar law (a
"Preference Claim") of any distribution made with respect to the Class A
Certificates. Each Owner of a Class A Certificate by its purchase of such
Certificate, the Servicer 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. In addition and without limitation of the foregoing, the Certificate
Insurer shall be subrogated to the rights of the Servicer, the Trustee and each
Owner of a Class A Certificate in the conduct of any such Preference Claim,
including, without limitation, all rights of any party to an adversary
proceeding action with respect to any court order issued in connection with any
such Preference Claim.
Section 12.03. EFFECT OF PAYMENTS BY THE CERTIFICATE INSURER;
SUBROGATION.
Anything herein to the contrary notwithstanding, any payment with
respect to principal of or interest on any of the Class A Certificates which is
made with moneys received pursuant to the terms of the Certificate Insurance
Policies shall not be considered payment of such Certificates 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 Certificates within the meaning of Section
7.03. The Depositor, the Servicer and the Trustee acknowledge, and each Owner by
its acceptance of a Certificate agrees, that without the need for any further
action on the part of the Certificate Insurer, the Depositor, the Servicer, the
Trustee or the Registrar (a) to the extent the Certificate Insurer makes
139
<PAGE>
payments, directly or indirectly, on account of principal of or interest on any
Class A Certificates to the Owners of such Certificates, the Certificate Insurer
will be fully subrogated to the rights of such holders to receive such principal
and interest from the Trust and (b) the Certificate Insurer shall be paid such
principal and interest but only from the sources and in the manner provided
herein for the payment of such principal and interest.
The Trustee, the Seller, the Depositor and the Servicer shall cooperate
in all respects with any reasonable request by the Certificate Insurer for
action to preserve or enforce the Certificate Insurer's rights or interests
under this Agreement without limiting the rights or affecting the interests of
the Owners as otherwise set forth therein.
Section 12.04. NOTICES TO THE CERTIFICATE INSURER.
All notices, statements, reports, certificates or opinions required by
this Agreement to be sent to any other party hereto or to any of the Owners
shall also be sent to the Certificate Insurer.
Section 12.05. THIRD-PARTY BENEFICIARY.
The Certificate Insurer shall be a third-party beneficiary of this
Agreement, entitled to enforce the provisions hereof as if a party hereto.
Section 12.06. RIGHTS TO THE CERTIFICATE INSURER TO EXERCISE RIGHTS OF
OWNERS.
By accepting its Certificate, each Owner of a Class A Certificate
agrees that unless a Certificate Insurer Default exists, the Certificate Insurer
shall have the right to exercise all rights of the Owners of the Class A
Certificates as specified under this Agreement without any further consent of
the Owners of the Class A Certificates.
END OF ARTICLE XII
140
<PAGE>
IN WITNESS WHEREOF, the Depositor, the Sellers, the Servicer and the
Trustee have caused this Agreement to be duly executed their respective officers
thereunto duly authorized, all as of the day and year first above written.
CHEC FUNDING, LLC,
as Depositor
By:____________________________
Name: Jeffrey B. Upperman
Title: Vice President
CENTEX CREDIT CORPORATION d/b/a CENTEX
HOME EQUITY CORPORATION,
as Seller
By:____________________________
Name: Jeffrey B. Upperman
Title: Vice President
CENTEX CREDIT CORPORATION d/b/a CENTEX
HOME EQUITY CORPORATION,
as Servicer
By: ____________________________
Name: Jeffrey B. Upperman
Title: Vice President
________________________________,
as Trustee
By:____________________________
Name:____________________________
Title:____________________________
141
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ___ day of ______________, 2000, before me personally came
_______________to me known that he is a Vice President of CHEC Funding, LLC,
a Delaware limited liability agreement; and that he signed his name thereto
by order of the sole member of said company.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
NOTARIAL SEAL
____________________________
Notary Public
142
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ___ day of ______________ 2000, before me personally came
Jeffrey B. Upperman to me known that he is a Vice President of Centex Credit
Corporation d/b/a Centex Home Equity Corporation, a Nevada corporation and that
he signed his name thereto by order of the respective Boards of Directors of
said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
NOTARIAL SEAL
____________________________
Notary Public
143
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ___ day of ____________, 2000, before me personally came
____________________to me, known that he is a Vice President of
______________described in and that executed the above instrument as Trustee;
and that he signed his name thereto by order of the Board of Directors of
said bank.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
NOTARIAL SEAL
____________________________
Notary Public
144
<PAGE>
SCHEDULE I-A
GROUP I SCHEDULE OF HOME EQUITY LOANS
A copy of this Schedule is maintained by the Trustee at the Corporate
Trust Office and by the Servicer.
I-A-1
<PAGE>
SCHEDULE I-B
GROUP II SCHEDULE OF HOME EQUITY LOANS
A copy of this Schedule is maintained by the Trustee at the Corporate
Trust Office and by the Servicer.
I-B-1
<PAGE>
SCHEDULE I-E
INVESTMENT INSTRUCTIONS TO TRUSTEE
Account Eligible Investment
------- -------------------
(1) Certificate Account
(2) Supplemental Interest Reserve Fund
A-1-2
<PAGE>
EXHIBIT A-1
FORM OF CLASS A-1 CERTIFICATE
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A CLASS OF
"REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC") AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING COMPLIANCE WITH THE
REMIC PROVISIONS OF THE CODE.
CENTEX HOME EQUITY LOAN TRUST 2000-__
HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
CLASS A-1
(___% CERTIFICATE RATE)
Representing Certain Interests in a Pool of Group I Home Equity
Loans Sold and Serviced by
CENTEX CREDIT CORPORATION d/b/a CENTEX HOME EQUITY CORPORATION
(This certificate does not represent an interest in, or an obligation
of, nor are the underlying Home Equity Loans insured or guaranteed by CHEC
Funding, LLC (the "Depositor") or Centex Credit Corporation d/b/a Centex Home
Equity Corporation (the "Seller" or the "Servicer"). This Certificate represents
a fractional ownership interest in Group I Home Equity Loans and certain other
property held by the Trust.)
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to the Issuer
("Centex Home Equity Loan Trust 2000-__") or its agent for registration of
transfer, exchange, or payment and any certificate issued is registered in the
name of Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
-------------------
NO:A-1-1 CUSIP
,20 ,20
---------------------- -------------- -------------
Original Class A-1 Certificate Date Final Scheduled
Principal Balance Distribution Date
A-1-3
<PAGE>
CEDE & CO.
-----------------------------
Registered Owner
The registered Owner named above is the registered beneficial Owner of
a fractional interest in (a) the Home Equity Loans in Group I listed in SCHEDULE
I-A to the Pooling and Servicing Agreement which the Seller is causing to be
delivered to the Depositor and the Depositor is causing to be delivered to the
Trustee, together with the related Home Equity Loan documents and the
Depositor's interest in any Property, and all payments thereon and proceeds of
the conversion, voluntary or involuntary, of the foregoing; (b) such amounts
allocable to Group I as may be held by the Trustee in the Certificate Account,
together with investment earnings on such amounts and such amounts as may be
held in the name of the Trustee in the Principal and Interest Account, if any,
inclusive of investment earnings thereon, whether in the form of cash,
instruments, securities or other properties (including any Eligible Investments
held by the Servicer), and (c) proceeds of all the foregoing (including, but not
by way of limitation, all proceeds of any mortgage insurance, flood insurance,
hazard insurance and title insurance policy relating to the Home Equity Loans,
cash proceeds, accounts, accounts receivable, notes, drafts, acceptances,
chattel paper, checks, deposit accounts, rights to payment of any and every
kind, and other forms of obligations and receivables which at any time
constitute all or part of or are included in the proceeds of any of the
foregoing) to pay the Certificates as specified in the Pooling and Servicing
Agreement ((a) - (c) above shall be collectively referred to herein as the
"Trust Estate").
The Owner hereof is entitled to principal payments on each Distribution
Date, as hereinafter described, which will fully amortize such original
Certificate Principal Balance of the Class A-1 Certificates over the period from
the date of initial issuance of the Certificates to the final Distribution Date
for the Class A-1 Certificates. Therefore, the actual Outstanding principal
amount of this Certificate may, on any date subsequent to January 25, 20__ (the
first Distribution Date) be less than the original Certificate Principal Balance
of the Class A-1 Certificates set forth above.
Upon receiving the final distribution hereon, the Owner hereof is
required to send this Certificate to the Trustee. The Pooling and Servicing
Agreement (as defined below) provides that, in any event, upon the making of the
final distribution due on this Certificate, this Certificate shall be deemed
canceled for all purposes under the Pooling and Servicing Agreement.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING HOME EQUITY LOANS ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
THE PRINCIPAL OF THIS CERTIFICATE IS PAYABLE IN INSTALLMENTS.
THEREFORE, THE ACTUAL OUTSTANDING PRINCIPAL AMOUNT OF THIS CERTIFICATE MAY ON
ANY DATE SUBSEQUENT TO JANUARY 25, 20__ (THE
A-1-4
<PAGE>
FIRST DISTRIBUTION DATE) BE LESS THAN ITS ORIGINAL CERTIFICATE PRINCIPAL
BALANCE.
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF
ANY PERSON IS REPRESENTED HEREBY.
This Certificate is one of a Class of duly-authorized Certificates
designated as Centex Home Equity Loan Trust 2000-__, Home Equity Loan
Asset-Backed Certificates, Class A-1 (the "Class A-1 Certificates") and issued
under and subject to the terms, provisions and conditions of that certain
Pooling and Servicing Agreement dated as of __________, 20__ (the "Pooling and
Servicing Agreement") by and among Centex Credit Corporation d/b/a Centex Home
Equity Corporation, in its capacity as the Seller (the "Seller") and as the
Servicer (the "Servicer"), CHEC Funding, LLC, in its capacity as Depositor (the
"Depositor"), CHEC Fund, LLC and __________, in its capacity as the Trustee (the
"Trustee"), to which Pooling and Servicing Agreement the Owner of this
Certificate by virtue of acceptance hereof assents and by which such Owner is
bound. Also issued under the Pooling and Servicing Agreement are Certificates
designated as Centex Home Equity Loan Trust 2000-__ Home Equity Loan
Asset-Backed Certificates, Class A-2 (the "Class A-2 Certificates"), Class A-3
(the "Class A-3 Certificates"), Class A-4 (the "Class A-4 Certificates"), Class
A-5 (the "Class A-5 Certificates"), Class A-6 (the "Class A-6 Certificates"),
Class A-7 (the "Class A-7 Certificates"), Class X-IO (the "Class X-IO
Certificates"), and Class R-1 and Class R-2 (together, the "Class R
Certificates"). The Class A-1 Certificates, the Class A-2 Certificates, the
Class A-3 Certificates, the Class A-4 Certificates, the Class A-5 Certificates,
the Class A-6 Certificates and the Class A-7 Certificates shall be together
referred to as the "Class A Certificates" and the Class A Certificates, the
Class X-IO Certificates and the Class R Certificates are together referred to
herein as the "Certificates." Terms capitalized herein and not otherwise defined
herein shall have the respective meanings set forth in the Pooling and Servicing
Agreement.
On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing January 25, 20__, the Owners of the Class A-1 Certificates as
of the close of business on the last Business Day of the calendar month
immediately preceding the calendar month in which a Distribution Date occurs
(the "Record Date") will be entitled to receive the Class A-1 Distribution
Amount relating to such Certificate on such Distribution Date. Distributions
will be made in immediately available funds to Owners of Certificates having an
aggregate original Certificate Principal Balance of at least [$1,000,000] (by
wire transfer or otherwise) to the account of an Owner at a domestic bank or
other entity having appropriate facilities therefor, if such Owner has so
notified the Trustee, or by check mailed to the address of the person entitled
thereto as it appears on the Register.
Each Owner of record of a Class A-1 Certificate will be entitled to
receive such Owner's Percentage Interest in the amounts due on such Distribution
Date to the Owners of the Class A-1 Certificates. The Percentage Interest of
each Class A-1 Certificate as of any date of determination will be equal to the
percentage obtained by dividing the original Certificate
A-1-5
<PAGE>
Principal Balance of such Class A-1 Certificate on the Startup Day by the
aggregate Certificate Principal Balance of the Class A-1 Certificates on the
Startup Day.
The Certificate Insurer is required, subject to the terms of the
related Certificate Insurance Policy to make Insured Payments available to the
Trustee on or prior to the related Distribution Date for distribution to the
Owners provided that timely notice has been given to the Certificate Insurer by
the Trustee. "Insured Payments" shall have the meaning as provided therefor in
the related Certificate Insurance Policy.
Upon receipt of amounts under the related Certificate Insurance Policy
on behalf of the Owners of the Class A Certificates, the Trustee shall
distribute in accordance with the Pooling and Servicing Agreement such amounts
(directly or through a Paying Agent) to the Owners of the appropriate Class of
the Class A Certificates.
The Trustee or any duly-appointed Paying Agent will duly and punctually
pay distributions with respect to this Certificate in accordance with the terms
hereof and the Pooling and Servicing Agreement. Amounts properly withheld under
the Code by any Person from a distribution to any Owner shall be considered as
having been paid by the Trustee to such Owner for all purposes of the Pooling
and Servicing Agreement.
The Home Equity Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Home Equity Loans. No appointment of any Sub-Servicer shall release
the Servicer from any of its obligations under the Pooling and Servicing
Agreement.
This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Home Equity Loans insured or
guaranteed by CHEC Funding, LLC or Centex Credit Corporation d/b/a Centex Home
Equity Corporation or any of their affiliates. This Certificate is limited in
right of payment to certain collections and recoveries relating to the Home
Equity Loans and amounts on deposit in the Certificate Account and the Principal
and Interest Account (except as otherwise provided in the Pooling and Servicing
Agreement) and payments received by the Trustee pursuant to the related
Certificate Insurance Policy, all as more specifically set forth hereinabove and
in the Pooling and Servicing Agreement.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall
A-1-6
<PAGE>
not be impaired without the consent of such Owner. The Owner of this
Certificate, by its acceptance hereof, agrees, however, that to the extent
the Certificate Insurer makes Insured Payments, either directly or indirectly
(as by paying through the Trustee or Paying Agent), to the Owners of such
Class A-1 Certificates, the Certificate Insurer will be subrogated to the
rights of such Owners of Class A-1 Certificates with respect to such Insured
Payment, shall be deemed to the extent of the payments so made to be a
registered Owner of such Class A-1 Certificates and shall receive all future
distributions of the Class A-1 Distribution Amount until all such Insured
Payments by the Certificate Insurer have been fully reimbursed.
The Pooling and Servicing Agreement provides that the obligations
created thereby will terminate upon the payment to the Owners of all
Certificates from amounts other than those available under the Certificate
Insurance Policies of all amounts held by the Trustee and required to be paid to
such Owners pursuant to the Pooling and Servicing Agreement and payment in full
of all amounts owed to the Certificate Insurer upon the latest to occur of (a)
the final payment or other liquidation (or any advance made with respect
thereto) of the last Home Equity Loan in the Trust Estate, (b) the disposition
of all property acquired in respect of any Home Equity Loan remaining in the
Trust Estate or (c) at any time if a Qualified Liquidation of the Trust Estate
is effected as described below. To effect a termination of the Pooling and
Servicing Agreement pursuant to clause (c) above, the Owners of all Certificates
then Outstanding shall provide the Trustee and the Certificate Insurer, at such
Owners' expense, an Opinion of Counsel experienced in federal income tax matters
acceptable to the Certificate Insurer and the Trustee to the affect that each
such liquidation constitutes a Qualified Liquidation, and the Servicer shall
either sell the Home Equity Loans and the Trustee shall distribute the proceeds
of the liquidation of the Trust Estate, or the Servicer shall distribute
equitably in kind all of the assets of the Trust Estate to the remaining Owners
of the Certificates to the effect that each such liquidation constitutes a
Qualified Liquidation, each in accordance with such plan, so that the
liquidation or distribution of the Trust Estate, the distribution of any
proceeds of the liquidation and the termination of the Pooling and Servicing
Agreement occur no later than the close of the 90th day after the date of
adoption of the plan of liquidation and such liquidation qualifies as a
Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that the
Servicer may, at its option, purchase from the Trust all remaining Home Equity
Loans and other property then constituting the Trust Estate, and thereby effect
early retirement of the Certificates, on any Monthly Remittance Date after the
Clean-Up Call Date. In addition, under certain circumstances relating to the
qualification of REMIC I and REMIC II as REMICs under the Code, the Home Equity
Loans may be sold, thereby effecting the early retirement of the Certificates.
The Trustee shall give written notice of termination of the Pooling and
Servicing Agreement to each Owner in the manner set forth therein.
The Certificate Insurer or the Owners of the majority of the Percentage
Interests represented by the Class A Certificates with the prior written consent
of the Certificate Insurer have the right to exercise any trust or power set
forth in Section 6.11 of the Pooling and Servicing Agreement.
A-1-7
<PAGE>
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registrable in the Register upon surrender of
this Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by,
the Owner hereof or his attorney duly authorized in writing, and thereupon one
or more new Certificates of the like Class, tenor and a like Percentage Interest
will be issued to the designated transferee or transferees.
The Pooling and Servicing Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modifications of rights and
obligations of the parties provided therein by the Depositor, the Trustee, the
Seller and the Servicer at any time and from time to time, with the prior
written approval of the Certificate Insurer and without the consent of the
Owners; provided that in certain other circumstances provided for in the Pooling
and Servicing Agreement such consent of the Owners will be required prior to
amendments. Any such consent by the Owner at the time of the giving thereof, of
this Certificate shall be conclusive and binding upon such Owner and upon all
future Owners of the Certificate and of any Certificate issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Certificate.
The Trustee is required to furnish certain information on each
Distribution Date to the Owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.
The Class A-1 Certificates are issuable only as registered Certificates
in minimum denominations of [$1,000] original Certificate Principal Balance. As
provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth, Class A-1 Certificates are exchangeable for new
Class A-1 Certificates of authorized denominations evidencing the same aggregate
principal amount.
No service charge will be made for any such registration of transfer or
exchange, but the Registrar or Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in whose
name this Certificate is registered as the owner hereof for all purposes, and
neither the Trustee or any such agent shall be affected by notice to the
contrary, except as may otherwise be specifically provided in the Pooling and
Servicing Agreement with respect to the Certificate Insurer.
A-1-8
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.
[__________________________], as Trustee
By: _________________________________
Title: _______________________________
Trustee Authentication
[______________________], as Trustee
By: _________________________________
Title: ______________________________
A-1-9
<PAGE>
EXHIBIT A-2
FORM OF CLASS A-2 CERTIFICATE
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A CLASS OF
"REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC") AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING COMPLIANCE WITH THE
REMIC PROVISIONS OF THE CODE.
CENTEX HOME EQUITY LOAN TRUST 2000-__
HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
CLASS A-2
(____% CERTIFICATE RATE)
Representing Certain Interests in a Pool of Group I Home Equity
Loans Sold and Serviced by
CENTEX CREDIT CORPORATION D/B/A CENTEX HOME EQUITY CORPORATION
(This certificate does not represent an interest in, or an obligation
of, nor are the underlying Home Equity Loans insured or guaranteed by CHEC
Funding, LLC (the "Depositor") or Centex Credit Corporation d/b/a Centex Home
Equity Corporation (the "Seller" or the "Servicer"). This Certificate represents
a fractional ownership interest in Group I Home Equity Loans and certain other
property held by the Trust.)
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to the Issuer
("Centex Home Equity Loan Trust 2000-__") or its agent for registration of
transfer, exchange, or payment and any certificate issued is registered in the
name of Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
_______________________
NO: A-2-1 CUSIP
---------------- ---------- --------------------
Original Class A-2 Certificate Date Final Scheduled
Principal Balance Distribution Date
A-2-1
<PAGE>
CEDE & CO.
---------------------------
Registered Owner
The registered Owner named above is the registered beneficial Owner of
a fractional interest in (a) the Home Equity Loans in Group I listed in SCHEDULE
I-A to the Pooling and Servicing Agreement which the Seller is causing to be
delivered to the Depositor and the Depositor is causing to be delivered to the
Trustee, together with the related Home Equity Loan documents and the
Depositor's interest in any Property, and all payments thereon and proceeds of
the conversion, voluntary or involuntary, of the foregoing; (b) such amounts
allocable to Group I as may be held by the Trustee in the Certificate Account,
together with investment earnings on such amounts and such amounts as may be
held in the name of the Trustee in the Principal and Interest Account, if any,
inclusive of investment earnings thereon, whether in the form of cash,
instruments, securities or other properties (including any Eligible Investments
held by the Servicer), and (c) proceeds of all the foregoing (including, but not
by way of limitation, all proceeds of any mortgage insurance, flood insurance,
hazard insurance and title insurance policy relating to the Home Equity Loans,
cash proceeds, accounts, accounts receivable, notes, drafts, acceptances,
chattel paper, checks, deposit accounts, rights to payment of any and every
kind, and other forms of obligations and receivables which at any time
constitute all or part of or are included in the proceeds of any of the
foregoing) to pay the Certificates as specified in the Pooling and Servicing
Agreement ((a) - (c) above shall be collectively referred to herein as the
"Trust Estate").
The Owner hereof is entitled to principal payments on each Distribution
Date, as hereinafter described, which will fully amortize such original
Certificate Principal Balance of the Class A-2 Certificates over the period from
the date of initial issuance of the Certificates to the final Distribution Date
for the Class A-2 Certificates. Therefore, the actual Outstanding principal
amount of this Certificate may, on any date subsequent to January 25, 20__ (the
first Distribution Date) be less than the original Certificate Principal Balance
of the Class A-2 Certificates set forth above.
Upon receiving the final distribution hereon, the Owner hereof is
required to send this Certificate to the Trustee. The Pooling and Servicing
Agreement (as defined below) provides that, in any event, upon the making of the
final distribution due on this Certificate, this Certificate shall be deemed
canceled for all purposes under the Pooling and Servicing Agreement.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING HOME EQUITY LOANS ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
THE PRINCIPAL OF THIS CERTIFICATE IS PAYABLE IN INSTALLMENTS.
THEREFORE, THE ACTUAL OUTSTANDING PRINCIPAL AMOUNT OF THIS CERTIFICATE MAY ON
ANY DATE SUBSEQUENT TO JANUARY 25, 20__ (THE FIRST DISTRIBUTION DATE) BE LESS
THAN ITS ORIGINAL CERTIFICATE PRINCIPAL BALANCE.
A-2-2
<PAGE>
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF
ANY PERSON IS REPRESENTED HEREBY.
This Certificate is one of a Class of duly-authorized Certificates
designated as Centex Home Equity Loan Trust 2000-__, Home Equity Loan
Asset-Backed Certificates, Class A-2 (the "Class A-2 Certificates") and issued
under and subject to the terms, provisions and conditions of that certain
Pooling and Servicing Agreement dated as of __________, 20__ (the "Pooling and
Servicing Agreement") by and among Centex Credit Corporation d/b/a Centex Home
Equity Corporation, in its capacity as the Seller (the "Seller") and as the
Servicer (the "Servicer"), CHEC Funding, LLC, in its capacity as Depositor (the
"Depositor"), and _______________, in its capacity as the Trustee (the
"Trustee"), to which Pooling and Servicing Agreement the Owner of this
Certificate by virtue of acceptance hereof assents and by which such Owner is
bound. Also issued under the Pooling and Servicing Agreement are Certificates
designated as Centex Home Equity Loan Trust 2000-__ Home Equity Loan
Asset-Backed Certificates, Class A-1 (the "Class A-1 Certificates"), Class A-3
(the "Class A-3 Certificates"), Class A-4 (the "Class A-4 Certificates"), Class
A-5 (the "Class A-5 Certificates"), Class A-6 (the "Class A-6 Certificates"),
Class A-7 (the "Class A-7 Certificates"), Class X-IO (the "Class X-IO
Certificates"), and Class R-1 and Class R-2 (together, the "Class R
Certificates"). The Class A-1 Certificates, the Class A-2 Certificates, the
Class A-3 Certificates, the Class A-4 Certificates, the Class A-5 Certificates,
the Class A-6 Certificates and the Class A-7 Certificates shall be together
referred to as the "Class A Certificates" and the Class A Certificates, the
Class X-IO Certificates and the Class R Certificates are together referred to
herein as the "Certificates." Terms capitalized herein and not otherwise defined
herein shall have the respective meanings set forth in the Pooling and Servicing
Agreement.
On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing January 25, 20__, the Owners of the Class A-2 Certificates as
of the close of business on the last Business Day of the calendar month
immediately preceding the calendar month in which a Distribution Date occurs
(the "Record Date") will be entitled to receive the Class A-2 Distribution
Amount relating to such Certificate on such Distribution Date. Distributions
will be made in immediately available funds to Owners of Certificates having an
aggregate original Certificate Principal Balance of at least [$1,000,000] (by
wire transfer or otherwise) to the account of an Owner at a domestic bank or
other entity having appropriate facilities therefor, if such Owner has so
notified the Trustee, or by check mailed to the address of the person entitled
thereto as it appears on the Register.
Each Owner of record of a Class A-2 Certificate will be entitled to
receive such Owner's Percentage Interest in the amounts due on such Distribution
Date to the Owners of the Class A-2 Certificates. The Percentage Interest of
each Class A-2 Certificate as of any date of determination will be equal to the
percentage obtained by dividing the original Certificate Principal Balance of
such Class A-2 Certificate on the Startup Day by the aggregate Certificate
Principal Balance of the Class A-2 Certificates on the Startup Day.
The Certificate Insurer is required, subject to the terms of the
related Certificate Insurance Policy to make Insured Payments available to the
Trustee on or prior to the related Distribution
A-2-3
<PAGE>
Date for distribution to the Owners provided that timely notice has been
given to the Certificate Insurer by the Trustee. "Insured Payments" shall
have the meaning as provided therefor in the related Certificate Insurance
Policy.
Upon receipt of amounts under the related Certificate Insurance Policy
on behalf of the Owners of the Class A Certificates, the Trustee shall
distribute in accordance with the Pooling and Servicing Agreement such amounts
(directly or through a Paying Agent) to the Owners of the appropriate Class of
the Class A Certificates.
The Trustee or any duly-appointed Paying Agent will duly and punctually
pay distributions with respect to this Certificate in accordance with the terms
hereof and the Pooling and Servicing Agreement. Amounts properly withheld under
the Code by any Person from a distribution to any Owner shall be considered as
having been paid by the Trustee to such Owner for all purposes of the Pooling
and Servicing Agreement.
The Home Equity Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Home Equity Loans. No appointment of any Sub-Servicer shall release
the Servicer from any of its obligations under the Pooling and Servicing
Agreement.
This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Home Equity Loans insured or
guaranteed by CHEC Funding, LLC or Centex Credit Corporation d/b/a Centex Home
Equity Corporation or any of their affiliates. This Certificate is limited in
right of payment to certain collections and recoveries relating to the Home
Equity Loans and amounts on deposit in the Certificate Account and the Principal
and Interest Account (except as otherwise provided in the Pooling and Servicing
Agreement) and payments received by the Trustee pursuant to the related
Certificate Insurance Policy, all as more specifically set forth hereinabove and
in the Pooling and Servicing Agreement.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such Owner. The Owner of this Certificate, by
its acceptance hereof, agrees, however, that to the extent the Certificate
Insurer makes Insured Payments, either directly or indirectly (as by paying
through the Trustee or Paying Agent), to the Owners of such Class A-2
Certificates, the Certificate Insurer will be subrogated to the rights of such
Owners of Class A-2 Certificates with respect to such Insured Payment, shall be
deemed to the extent of the payments so made to be a registered Owner of such
Class A-2 Certificates and
A-2-4
<PAGE>
shall receive all future distributions of the Class A-2 Distribution Amount
until all such Insured Payments by the Certificate Insurer have been fully
reimbursed.
The Pooling and Servicing Agreement provides that the obligations
created thereby will terminate upon the payment to the Owners of all
Certificates from amounts other than those available under the Certificate
Insurance Policies of all amounts held by the Trustee and required to be paid to
such Owners pursuant to the Pooling and Servicing Agreement and payment in full
of all amounts owed to the Certificate Insurer upon the latest to occur of (a)
the final payment or other liquidation (or any advance made with respect
thereto) of the last Home Equity Loan in the Trust Estate, (b) the disposition
of all property acquired in respect of any Home Equity Loan remaining in the
Trust Estate or (c) at any time if a Qualified Liquidation of the Trust Estate
is effected as described below. To effect a termination of the Pooling and
Servicing Agreement pursuant to clause (c) above, the Owners of all Certificates
then Outstanding shall provide the Trustee and the Certificate Insurer, at such
Owners' expense, an Opinion of Counsel experienced in federal income tax matters
acceptable to the Certificate Insurer and the Trustee to the affect that each
such liquidation constitutes a Qualified Liquidation, and the Servicer shall
either sell the Home Equity Loans and the Trustee shall distribute the proceeds
of the liquidation of the Trust Estate, or the Servicer shall distribute
equitably in kind all of the assets of the Trust Estate to the remaining Owners
of the Certificates to the effect that each such liquidation constitutes a
Qualified Liquidation, each in accordance with such plan, so that the
liquidation or distribution of the Trust Estate, the distribution of any
proceeds of the liquidation and the termination of the Pooling and Servicing
Agreement occur no later than the close of the 90th day after the date of
adoption of the plan of liquidation and such liquidation qualifies as a
Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that the
Servicer may, at its option, purchase from the Trust all remaining Home Equity
Loans and other property then constituting the Trust Estate, and thereby effect
early retirement of the Certificates, on any Monthly Remittance Date after the
Clean-Up Call Date. In addition, under certain circumstances relating to the
qualification of REMIC I and REMIC II as REMICs under the Code, the Home Equity
Loans may be sold, thereby effecting the early retirement of the Certificates.
The Trustee shall give written notice of termination of the Pooling and
Servicing Agreement to each Owner in the manner set forth therein.
The Certificate Insurer or the Owners of the majority of the Percentage
Interests represented by the Class A Certificates with the prior written consent
of the Certificate Insurer have the right to exercise any trust or power set
forth in Section 6.11 of the Pooling and Servicing Agreement.
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registrable in the Register upon surrender of
this Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by,
the Owner hereof or his attorney duly authorized in writing, and thereupon one
or more new Certificates of the like Class, tenor and a like Percentage Interest
will be issued to the designated transferee or transferees.
A-2-5
<PAGE>
The Pooling and Servicing Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modifications of rights and
obligations of the parties provided therein by the Depositor, the Trustee, the
Seller and the Servicer at any time and from time to time, with the prior
written approval of the Certificate Insurer and without the consent of the
Owners; provided that in certain other circumstances provided for in the Pooling
and Servicing Agreement such consent of the Owners will be required prior to
amendments. Any such consent by the Owner at the time of the giving thereof, of
this Certificate shall be conclusive and binding upon such Owner and upon all
future Owners of the Certificate and of any Certificate issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Certificate.
The Trustee is required to furnish certain information on each
Distribution Date to the Owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.
The Class A-2 Certificates are issuable only as registered Certificates
in minimum denominations of [$1,000] original Certificate Principal Balance. As
provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth, Class A-2 Certificates are exchangeable for new
Class A-2 Certificates of authorized denominations evidencing the same aggregate
principal amount.
No service charge will be made for any such registration of transfer or
exchange, but the Registrar or Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in whose
name this Certificate is registered as the owner hereof for all purposes, and
neither the Trustee or any such agent shall be affected by notice to the
contrary, except as may otherwise be specifically provided in the Pooling and
Servicing Agreement with respect to the Certificate Insurer.
A-2-6
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.
[_________________________], as Trustee
By:______________________________
Title:___________________________
Trustee Authentication
[______________________], as Trustee
By: ______________________________
Title: ____________________________
A-2-7
<PAGE>
EXHIBIT A-3
FORM OF CLASS A-3 CERTIFICATE
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A CLASS OF
"REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC") AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING COMPLIANCE WITH THE
REMIC PROVISIONS OF THE CODE.
CENTEX HOME EQUITY LOAN TRUST 2000-__
HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
CLASS A-3
(____% CERTIFICATE RATE)
Representing Certain Interests in a Pool of Group I Home Equity
Loans Sold and Serviced by
CENTEX CREDIT CORPORATION D/B/A CENTEX HOME EQUITY CORPORATION
(This certificate does not represent an interest in, or an obligation
of, nor are the underlying Home Equity Loans insured or guaranteed by CHEC
Funding, LLC (the "Depositor") or Centex Credit Corporation d/b/a Centex Home
Equity Corporation (the "Seller" or the "Servicer"). This Certificate represents
a fractional ownership interest in Group I Home Equity Loans and certain other
property held by the Trust.)
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to the Issuer
("Centex Home Equity Loan Trust 2000-__") or its agent for registration of
transfer, exchange, or payment and any certificate issued is registered in the
name of Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
__________
NO: A-3-1 CUSIP
_____________________ _____ ____________
Original Class A-3 Certificate Date Final Scheduled
Principal Balance Distribution Date
CEDE & CO.
--------------------------
A-3-1
<PAGE>
Registered Owner
The registered Owner named above is the registered beneficial Owner of
a fractional interest in (a) the Home Equity Loans in Group I listed in SCHEDULE
I-A to the Pooling and Servicing Agreement which the Seller is causing to be
delivered to the Depositor and the Depositor is causing to be delivered to the
Trustee, together with the related Home Equity Loan documents and the
Depositor's interest in any Property, and all payments thereon and proceeds of
the conversion, voluntary or involuntary, of the foregoing; (b) such amounts
allocable to Group I as may be held by the Trustee in the Certificate Account,
together with investment earnings on such amounts and such amounts as may be
held in the name of the Trustee in the Principal and Interest Account, if any,
inclusive of investment earnings thereon, whether in the form of cash,
instruments, securities or other properties (including any Eligible Investments
held by the Servicer), and (c) proceeds of all the foregoing (including, but not
by way of limitation, all proceeds of any mortgage insurance, flood insurance,
hazard insurance and title insurance policy relating to the Home Equity Loans,
cash proceeds, accounts, accounts receivable, notes, drafts, acceptances,
chattel paper, checks, deposit accounts, rights to payment of any and every
kind, and other forms of obligations and receivables which at any time
constitute all or part of or are included in the proceeds of any of the
foregoing) to pay the Certificates as specified in the Pooling and Servicing
Agreement ((a) - (c) above shall be collectively referred to herein as the
"Trust Estate").
The Owner hereof is entitled to principal payments on each Distribution
Date, as hereinafter described, which will fully amortize such original
Certificate Principal Balance of the Class A-3 Certificates over the period from
the date of initial issuance of the Certificates to the final Distribution Date
for the Class A-3 Certificates. Therefore, the actual Outstanding principal
amount of this Certificate may, on any date subsequent to January 25, 20__ (the
first Distribution Date) be less than the original Certificate Principal Balance
of the Class A-3 Certificates set forth above.
Upon receiving the final distribution hereon, the Owner hereof is
required to send this Certificate to the Trustee. The Pooling and Servicing
Agreement (as defined below) provides that, in any event, upon the making of the
final distribution due on this Certificate, this Certificate shall be deemed
canceled for all purposes under the Pooling and Servicing Agreement.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING HOME EQUITY LOANS ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
THE PRINCIPAL OF THIS CERTIFICATE IS PAYABLE IN INSTALLMENTS.
THEREFORE, THE ACTUAL OUTSTANDING PRINCIPAL AMOUNT OF THIS CERTIFICATE MAY ON
ANY DATE SUBSEQUENT TO JANUARY 25, 20__ (THE FIRST DISTRIBUTION DATE) BE LESS
THAN ITS ORIGINAL CERTIFICATE PRINCIPAL BALANCE.
A-3-2
<PAGE>
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF
ANY PERSON IS REPRESENTED HEREBY.
This Certificate is one of a Class of duly-authorized Certificates
designated as Centex Home Equity Loan Trust 2000-__, Home Equity Loan
Asset-Backed Certificates, Class A-3 (the "Class A-3 Certificates") and issued
under and subject to the terms, provisions and conditions of that certain
Pooling and Servicing Agreement dated as of __________, 20__ (the "Pooling and
Servicing Agreement") by and among Centex Credit Corporation d/b/a Centex Home
Equity Corporation, in its capacity as the Seller (the "Seller") and as the
Servicer (the "Servicer"), CHEC Funding, LLC, in its capacity as Depositor (the
"Depositor"), and _______________, in its capacity as the Trustee (the
"Trustee"), to which Pooling and Servicing Agreement the Owner of this
Certificate by virtue of acceptance hereof assents and by which such Owner is
bound. Also issued under the Pooling and Servicing Agreement are Certificates
designated as Centex Home Equity Loan Trust 2000-__ Home Equity Loan
Asset-Backed Certificates, Class A-1 (the "Class A-1 Certificates"), Class A-2
(the "Class A-2 Certificates"), Class A-4 (the "Class A-4 Certificates"), Class
A-5 (the "Class A-5 Certificates"), Class A-6 (the "Class A-6 Certificates"),
Class A-7 (the "Class A-7 Certificates"), Class X-IO (the "Class X-IO
Certificates"), and Class R-1 and Class R-2 (together, the "Class R
Certificates"). The Class A-1 Certificates, the Class A-2 Certificates, the
Class A-3 Certificates, the Class A-4 Certificates, the Class A-5 Certificates,
the Class A-6 Certificates and the Class A-7 Certificates shall be together
referred to as the "Class A Certificates" and the Class A Certificates, the
Class X-IO Certificates and the Class R Certificates are together referred to
herein as the "Certificates." Terms capitalized herein and not otherwise defined
herein shall have the respective meanings set forth in the Pooling and Servicing
Agreement.
On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing January 25, 20__, the Owners of the Class A-3 Certificates as
of the close of business on the last Business Day of the calendar month
immediately preceding the calendar month in which a Distribution Date occurs
(the "Record Date") will be entitled to receive the Class A-3 Distribution
Amount relating to such Certificate on such Distribution Date. Distributions
will be made in immediately available funds to Owners of Certificates having an
aggregate original Certificate Principal Balance of at least [$1,000,000] (by
wire transfer or otherwise) to the account of an Owner at a domestic bank or
other entity having appropriate facilities therefor, if such Owner has so
notified the Trustee, or by check mailed to the address of the person entitled
thereto as it appears on the Register.
Each Owner of record of a Class A-3 Certificate will be entitled to
receive such Owner's Percentage Interest in the amounts due on such Distribution
Date to the Owners of the Class A-3 Certificates. The Percentage Interest of
each Class A-3 Certificate as of any date of determination will be equal to the
percentage obtained by dividing the original Certificate Principal Balance of
such Class A-3 Certificate on the Startup Day by the aggregate Certificate
Principal Balance of the Class A-3 Certificates on the Startup Day.
The Certificate Insurer is required, subject to the terms of the
related Certificate Insurance Policy to make Insured Payments available to the
Trustee on or prior to the related Distribution
A-3-3
<PAGE>
Date for distribution to the Owners provided that timely notice has been
given to the Certificate Insurer by the Trustee. "Insured Payments" shall
have the meaning as provided therefor in the related Certificate Insurance
Policy.
Upon receipt of amounts under the related Certificate Insurance Policy
on behalf of the Owners of the Class A Certificates, the Trustee shall
distribute in accordance with the Pooling and Servicing Agreement such amounts
(directly or through a Paying Agent) to the Owners of the appropriate Class of
the Class A Certificates.
The Trustee or any duly-appointed Paying Agent will duly and punctually
pay distributions with respect to this Certificate in accordance with the terms
hereof and the Pooling and Servicing Agreement. Amounts properly withheld under
the Code by any Person from a distribution to any Owner shall be considered as
having been paid by the Trustee to such Owner for all purposes of the Pooling
and Servicing Agreement.
The Home Equity Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Home Equity Loans. No appointment of any Sub-Servicer shall release
the Servicer from any of its obligations under the Pooling and Servicing
Agreement.
This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Home Equity Loans insured or
guaranteed by CHEC Funding, LLC or Centex Credit Corporation d/b/a Centex Home
Equity Corporation or any of their affiliates. This Certificate is limited in
right of payment to certain collections and recoveries relating to the Home
Equity Loans and amounts on deposit in the Certificate Account and the Principal
and Interest Account (except as otherwise provided in the Pooling and Servicing
Agreement) and payments received by the Trustee pursuant to the related
Certificate Insurance Policy, all as more specifically set forth hereinabove and
in the Pooling and Servicing Agreement.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such Owner. The Owner of this Certificate, by
its acceptance hereof, agrees, however, that to the extent the Certificate
Insurer makes Insured Payments, either directly or indirectly (as by paying
through the Trustee or Paying Agent), to the Owners of such Class A-3
Certificates, the Certificate Insurer will be subrogated to the rights of such
Owners of Class A-3 Certificates with respect to such Insured Payment, shall be
deemed to the extent of the payments so made to be a registered Owner of such
Class A-3 Certificates and
A-3-4
<PAGE>
shall receive all future distributions of the Class A-3 Distribution Amount
until all such Insured Payments by the Certificate Insurer have been fully
reimbursed.
The Pooling and Servicing Agreement provides that the obligations
created thereby will terminate upon the payment to the Owners of all
Certificates from amounts other than those available under the Certificate
Insurance Policies of all amounts held by the Trustee and required to be paid to
such Owners pursuant to the Pooling and Servicing Agreement and payment in full
of all amounts owed to the Certificate Insurer upon the latest to occur of (a)
the final payment or other liquidation (or any advance made with respect
thereto) of the last Home Equity Loan in the Trust Estate, (b) the disposition
of all property acquired in respect of any Home Equity Loan remaining in the
Trust Estate or (c) at any time if a Qualified Liquidation of the Trust Estate
is effected as described below. To effect a termination of the Pooling and
Servicing Agreement pursuant to clause (c) above, the Owners of all Certificates
then Outstanding shall provide the Trustee and the Certificate Insurer, at such
Owners' expense, an Opinion of Counsel experienced in federal income tax matters
acceptable to the Certificate Insurer and the Trustee to the affect that each
such liquidation constitutes a Qualified Liquidation, and the Servicer shall
either sell the Home Equity Loans and the Trustee shall distribute the proceeds
of the liquidation of the Trust Estate, or the Servicer shall distribute
equitably in kind all of the assets of the Trust Estate to the remaining Owners
of the Certificates to the effect that each such liquidation constitutes a
Qualified Liquidation, each in accordance with such plan, so that the
liquidation or distribution of the Trust Estate, the distribution of any
proceeds of the liquidation and the termination of the Pooling and Servicing
Agreement occur no later than the close of the 90th day after the date of
adoption of the plan of liquidation and such liquidation qualifies as a
Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that the
Servicer may, at its option, purchase from the Trust all remaining Home Equity
Loans and other property then constituting the Trust Estate, and thereby effect
early retirement of the Certificates, on any Monthly Remittance Date after the
Clean-Up Call Date. In addition, under certain circumstances relating to the
qualification of REMIC I and REMIC II as REMICs under the Code, the Home Equity
Loans may be sold, thereby effecting the early retirement of the Certificates.
The Trustee shall give written notice of termination of the Pooling and
Servicing Agreement to each Owner in the manner set forth therein.
The Certificate Insurer or the Owners of the majority of the Percentage
Interests represented by the Class A Certificates with the prior written consent
of the Certificate Insurer have the right to exercise any trust or power set
forth in Section 6.11 of the Pooling and Servicing Agreement.
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registrable in the Register upon surrender of
this Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by,
the Owner hereof or his attorney duly authorized in writing, and thereupon one
or more new Certificates of the like Class, tenor and a like Percentage Interest
will be issued to the designated transferee or transferees.
A-3-5
<PAGE>
The Pooling and Servicing Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modifications of rights and
obligations of the parties provided therein by the Depositor, the Trustee, the
Seller and the Servicer at any time and from time to time, with the prior
written approval of the Certificate Insurer and without the consent of the
Owners; provided that in certain other circumstances provided for in the Pooling
and Servicing Agreement such consent of the Owners will be required prior to
amendments. Any such consent by the Owner at the time of the giving thereof, of
this Certificate shall be conclusive and binding upon such Owner and upon all
future Owners of the Certificate and of any Certificate issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Certificate.
The Trustee is required to furnish certain information on each
Distribution Date to the Owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.
The Class A-3 Certificates are issuable only as registered Certificates
in minimum denominations of [$1,000] original Certificate Principal Balance. As
provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth, Class A-3 Certificates are exchangeable for new
Class A-3 Certificates of authorized denominations evidencing the same aggregate
principal amount.
No service charge will be made for any such registration of transfer or
exchange, but the Registrar or Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in whose
name this Certificate is registered as the owner hereof for all purposes, and
neither the Trustee or any such agent shall be affected by notice to the
contrary, except as may otherwise be specifically provided in the Pooling and
Servicing Agreement with respect to the Certificate Insurer.
A-3-6
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.
[________________________], as Trustee
By:_____________________________
Title:___________________________
Trustee Authentication
[_________________________], as Trustee
By: ____________________________________
Title: _________________________________
A-3-7
<PAGE>
EXHIBIT A-4
FORM OF CLASS A-4 CERTIFICATE
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A CLASS OF
"REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC") AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING COMPLIANCE WITH THE
REMIC PROVISIONS OF THE CODE.
CENTEX HOME EQUITY LOAN TRUST 2000-__
HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
CLASS A-4
(____% CERTIFICATE RATE)
Representing Certain Interests in a Pool of Group I Home Equity
Loans Sold and Serviced by
CENTEX CREDIT CORPORATION d/b/a CENTEX HOME EQUITY CORPORATION
(This certificate does not represent an interest in, or an obligation
of, nor are the underlying Home Equity Loans insured or guaranteed by CHEC
Funding, LLC (the "Depositor") or Centex Credit Corporation d/b/a Centex Home
Equity Corporation (the "Seller" or the "Servicer"). This Certificate represents
a fractional ownership interest in Group I Home Equity Loans and certain other
property held by the Trust.)
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to the Issuer
("Centex Home Equity Loan Trust 2000-__") or its agent for registration of
transfer, exchange, or payment and any certificate issued is registered in the
name of Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
-----
NO: A-4-1 CUSIP
---------- ---- -----------
Original Class A-4 Certificate Date Final Scheduled
Principal Balance Distribution Date
CEDE & CO.
------------------------------
A-4-1
<PAGE>
Registered Owner
The registered Owner named above is the registered beneficial Owner of
a fractional interest in (a) the Home Equity Loans in Group I listed in SCHEDULE
I-A to the Pooling and Servicing Agreement which the Seller is causing to be
delivered to the Depositor and the Depositor is causing to be delivered to the
Trustee, together with the related Home Equity Loan documents and the
Depositor's interest in any Property, and all payments thereon and proceeds of
the conversion, voluntary or involuntary, of the foregoing; (b) such amounts
allocable to Group I as may be held by the Trustee in the Certificate Account,
together with investment earnings on such amounts and such amounts as may be
held in the name of the Trustee in the Principal and Interest Account, if any,
inclusive of investment earnings thereon, whether in the form of cash,
instruments, securities or other properties (including any Eligible Investments
held by the Servicer), and (c) proceeds of all the foregoing (including, but not
by way of limitation, all proceeds of any mortgage insurance, flood insurance,
hazard insurance and title insurance policy relating to the Home Equity Loans,
cash proceeds, accounts, accounts receivable, notes, drafts, acceptances,
chattel paper, checks, deposit accounts, rights to payment of any and every
kind, and other forms of obligations and receivables which at any time
constitute all or part of or are included in the proceeds of any of the
foregoing) to pay the Certificates as specified in the Pooling and Servicing
Agreement ((a) - (c) above shall be collectively referred to herein as the
"Trust Estate").
The Owner hereof is entitled to principal payments on each Distribution
Date, as hereinafter described, which will fully amortize such original
Certificate Principal Balance of the Class A-4 Certificates over the period from
the date of initial issuance of the Certificates to the final Distribution Date
for the Class A-4 Certificates. Therefore, the actual Outstanding principal
amount of this Certificate may, on any date subsequent to January 25, 20__ (the
first Distribution Date) be less than the original Certificate Principal Balance
of the Class A-4 Certificates set forth above.
Upon receiving the final distribution hereon, the Owner hereof is
required to send this Certificate to the Trustee. The Pooling and Servicing
Agreement (as defined below) provides that, in any event, upon the making of the
final distribution due on this Certificate, this Certificate shall be deemed
canceled for all purposes under the Pooling and Servicing Agreement.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING HOME EQUITY LOANS ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
THE PRINCIPAL OF THIS CERTIFICATE IS PAYABLE IN INSTALLMENTS.
THEREFORE, THE ACTUAL OUTSTANDING PRINCIPAL AMOUNT OF THIS CERTIFICATE MAY ON
ANY DATE SUBSEQUENT TO JANUARY 25, 20__ (THE FIRST DISTRIBUTION DATE) BE LESS
THAN ITS ORIGINAL CERTIFICATE PRINCIPAL BALANCE.
A-4-2
<PAGE>
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF
ANY PERSON IS REPRESENTED HEREBY.
This Certificate is one of a Class of duly-authorized Certificates
designated as Centex Home Equity Loan Trust 2000-__, Home Equity Loan
Asset-Backed Certificates, Class A-4 (the "Class A-4 Certificates") and issued
under and subject to the terms, provisions and conditions of that certain
Pooling and Servicing Agreement dated as of __________, 20__ (the "Pooling and
Servicing Agreement") by and among Centex Credit Corporation d/b/a Centex Home
Equity Corporation, in its capacity as the Seller (the "Seller") and as the
Servicer (the "Servicer"), CHEC Funding, LLC, in its capacity as Depositor (the
"Depositor"), and _______________, in its capacity as the Trustee (the
"Trustee"), to which Pooling and Servicing Agreement the Owner of this
Certificate by virtue of acceptance hereof assents and by which such Owner is
bound. Also issued under the Pooling and Servicing Agreement are Certificates
designated as Centex Home Equity Loan Trust 2000-__ Home Equity Loan
Asset-Backed Certificates, Class A-1 (the "Class A-1 Certificates"), Class A-2
(the "Class A-2 Certificates"), Class A-3 (the "Class A-3 Certificates"), Class
A-5 (the "Class A-5 Certificates"), Class A-6 (the "Class A-6 Certificates"),
Class A-7 (the "Class A-7 Certificates"), Class X-IO (the "Class X-IO
Certificates"), and Class R-1 and Class R-2 (together, the "Class R
Certificates"). The Class A-1 Certificates, the Class A-2 Certificates, the
Class A-3 Certificates, the Class A-4 Certificates, the Class A-5 Certificates,
the Class A-6 Certificates and the Class A-7 Certificates shall be together
referred to as the "Class A Certificates" and the Class A Certificates, the
Class X-IO Certificates and the Class R Certificates are together referred to
herein as the "Certificates." Terms capitalized herein and not otherwise defined
herein shall have the respective meanings set forth in the Pooling and Servicing
Agreement.
On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing January 25, 20__, the Owners of the Class A-4 Certificates as
of the close of business on the last Business Day of the calendar month
immediately preceding the calendar month in which a Distribution Date occurs
(the "Record Date") will be entitled to receive the Class A-4 Distribution
Amount relating to such Certificate on such Distribution Date. Distributions
will be made in immediately available funds to Owners of Certificates having an
aggregate original Certificate Principal Balance of at least [$1,000,000] (by
wire transfer or otherwise) to the account of an Owner at a domestic bank or
other entity having appropriate facilities therefor, if such Owner has so
notified the Trustee, or by check mailed to the address of the person entitled
thereto as it appears on the Register.
Each Owner of record of a Class A-4 Certificate will be entitled to
receive such Owner's Percentage Interest in the amounts due on such Distribution
Date to the Owners of the Class A-4 Certificates. The Percentage Interest of
each Class A-4 Certificate as of any date of determination will be equal to the
percentage obtained by dividing the original Certificate Principal Balance of
such Class A-4 Certificate on the Startup Day by the aggregate Certificate
Principal Balance of the Class A-4 Certificates on the Startup Day.
The Certificate Insurer is required, subject to the terms of the
related Certificate Insurance Policy to make Insured Payments available to the
Trustee on or prior to the related Distribution
A-4-3
<PAGE>
Date for distribution to the Owners provided that timely notice has been
given to the Certificate Insurer by the Trustee. "Insured Payments" shall
have the meaning as provided therefor in the related Certificate Insurance
Policy.
Upon receipt of amounts under the related Certificate Insurance Policy
on behalf of the Owners of the Class A Certificates, the Trustee shall
distribute in accordance with the Pooling and Servicing Agreement such amounts
(directly or through a Paying Agent) to the Owners of the appropriate Class of
the Class A Certificates.
The Trustee or any duly-appointed Paying Agent will duly and punctually
pay distributions with respect to this Certificate in accordance with the terms
hereof and the Pooling and Servicing Agreement. Amounts properly withheld under
the Code by any Person from a distribution to any Owner shall be considered as
having been paid by the Trustee to such Owner for all purposes of the Pooling
and Servicing Agreement.
The Home Equity Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Home Equity Loans. No appointment of any Sub-Servicer shall release
the Servicer from any of its obligations under the Pooling and Servicing
Agreement.
This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Home Equity Loans insured or
guaranteed by CHEC Funding, LLC or Centex Credit Corporation d/b/a Centex Home
Equity Corporation or any of their affiliates. This Certificate is limited in
right of payment to certain collections and recoveries relating to the Home
Equity Loans and amounts on deposit in the Certificate Account and the Principal
and Interest Account (except as otherwise provided in the Pooling and Servicing
Agreement) and payments received by the Trustee pursuant to the related
Certificate Insurance Policy, all as more specifically set forth hereinabove and
in the Pooling and Servicing Agreement.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such Owner. The Owner of this Certificate, by
its acceptance hereof, agrees, however, that to the extent the Certificate
Insurer makes Insured Payments, either directly or indirectly (as by paying
through the Trustee or Paying Agent), to the Owners of such Class A-4
Certificates, the Certificate Insurer will be subrogated to the rights of such
Owners of Class A-4 Certificates with respect to such Insured Payment, shall be
deemed to the extent of the payments so made to be a registered Owner of such
Class A-4 Certificates and
A-4-4
<PAGE>
shall receive all future distributions of the Class A-4 Distribution Amount
until all such Insured Payments by the Certificate Insurer have been fully
reimbursed.
The Pooling and Servicing Agreement provides that the obligations
created thereby will terminate upon the payment to the Owners of all
Certificates from amounts other than those available under the Certificate
Insurance Policies of all amounts held by the Trustee and required to be paid to
such Owners pursuant to the Pooling and Servicing Agreement and payment in full
of all amounts owed to the Certificate Insurer upon the latest to occur of (a)
the final payment or other liquidation (or any advance made with respect
thereto) of the last Home Equity Loan in the Trust Estate, (b) the disposition
of all property acquired in respect of any Home Equity Loan remaining in the
Trust Estate or (c) at any time if a Qualified Liquidation of the Trust Estate
is effected as described below. To effect a termination of the Pooling and
Servicing Agreement pursuant to clause (c) above, the Owners of all Certificates
then Outstanding shall provide the Trustee and the Certificate Insurer, at such
Owners' expense, an Opinion of Counsel experienced in federal income tax matters
acceptable to the Certificate Insurer and the Trustee to the affect that each
such liquidation constitutes a Qualified Liquidation, and the Servicer shall
either sell the Home Equity Loans and the Trustee shall distribute the proceeds
of the liquidation of the Trust Estate, or the Servicer shall distribute
equitably in kind all of the assets of the Trust Estate to the remaining Owners
of the Certificates to the effect that each such liquidation constitutes a
Qualified Liquidation, each in accordance with such plan, so that the
liquidation or distribution of the Trust Estate, the distribution of any
proceeds of the liquidation and the termination of the Pooling and Servicing
Agreement occur no later than the close of the 90th day after the date of
adoption of the plan of liquidation and such liquidation qualifies as a
Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that the
Servicer may, at its option, purchase from the Trust all remaining Home Equity
Loans and other property then constituting the Trust Estate, and thereby effect
early retirement of the Certificates, on any Monthly Remittance Date after the
Clean-Up Call Date. In addition, under certain circumstances relating to the
qualification of REMIC I and REMIC II as REMICs under the Code, the Home Equity
Loans may be sold, thereby effecting the early retirement of the Certificates.
The Trustee shall give written notice of termination of the Pooling and
Servicing Agreement to each Owner in the manner set forth therein.
The Certificate Insurer or the Owners of the majority of the Percentage
Interests represented by the Class A Certificates with the prior written consent
of the Certificate Insurer have the right to exercise any trust or power set
forth in Section 6.11 of the Pooling and Servicing Agreement.
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registrable in the Register upon surrender of
this Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by,
the Owner hereof or his attorney duly authorized in writing, and thereupon one
or more new Certificates of the like Class, tenor and a like Percentage Interest
will be issued to the designated transferee or transferees.
A-4-5
<PAGE>
The Pooling and Servicing Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modifications of rights and
obligations of the parties provided therein by the Depositor, the Trustee, the
Seller and the Servicer at any time and from time to time, with the prior
written approval of the Certificate Insurer and without the consent of the
Owners; provided that in certain other circumstances provided for in the Pooling
and Servicing Agreement such consent of the Owners will be required prior to
amendments. Any such consent by the Owner at the time of the giving thereof, of
this Certificate shall be conclusive and binding upon such Owner and upon all
future Owners of the Certificate and of any Certificate issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Certificate.
The Trustee is required to furnish certain information on each
Distribution Date to the Owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.
The Class A-4 Certificates are issuable only as registered Certificates
in minimum denominations of [$1,000] original Certificate Principal Balance. As
provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth, Class A-4 Certificates are exchangeable for new
Class A-4 Certificates of authorized denominations evidencing the same aggregate
principal amount.
No service charge will be made for any such registration of transfer or
exchange, but the Registrar or Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in whose
name this Certificate is registered as the owner hereof for all purposes, and
neither the Trustee or any such agent shall be affected by notice to the
contrary, except as may otherwise be specifically provided in the Pooling and
Servicing Agreement with respect to the Certificate Insurer.
A-4-6
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.
[__________________________], as Trustee
By: __________________________
Title:________________________
Trustee Authentication
[_______________________], as Trustee
By: ____________________________
Title: _____________________________
A-4-7
<PAGE>
EXHIBIT A-5
FORM OF CLASS A-5 CERTIFICATE
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A CLASS
OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT"
("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND 860D
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS OF THE CODE.
CENTEX HOME EQUITY LOAN TRUST 2000-__
HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
CLASS A-5
(____% CERTIFICATE RATE, OR ____% CERTIFICATE RATE ON OR AFTER THE CLEAN-UP
CALL DATE) (SUBJECT TO GROUP I NET WAC CAP)
Representing Certain Interests in a Pool of Group I Home Equity
Loans Sold and Serviced by
CENTEX CREDIT CORPORATION D/B/A CENTEX HOME EQUITY CORPORATION
(This certificate does not represent an interest in, or an
obligation of, nor are the underlying Home Equity Loans insured or guaranteed
by CHEC Funding, LLC (the "Depositor") or Centex Credit Corporation d/b/a
Centex Home Equity Corporation (the "Seller" or the "Servicer"). This
Certificate represents a fractional ownership interest in Group I Home Equity
Loans and certain other property held by the Trust.)
Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the
Issuer ("Centex Home Equity Loan Trust 2000-__") or its agent for
registration of transfer, exchange, or payment and any certificate issued is
registered in the name of Cede & Co. or in such other name as is requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or
to such other entity as is requested by an authorized representative of DTC),
ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has
an interest herein.
NO: A-5-1 _______
CUSIP
________ _______ _________
Original Class A-5 Certificate Date Final Scheduled
Principal Balance Distribution Date
A-5-1
<PAGE>
CEDE & CO.
-------------------------------------
Registered Owner
The registered Owner named above is the registered beneficial Owner
of a fractional interest in (a) the Home Equity Loans in Group I listed in
SCHEDULE I-A to the Pooling and Servicing Agreement which the Seller is
causing to be delivered to the Depositor and the Depositor is causing to be
delivered to the Trustee, together with the related Home Equity Loan
documents and the Depositor's interest in any Property, and all payments
thereon and proceeds of the conversion, voluntary or involuntary, of the
foregoing; (b) such amounts allocable to Group I as may be held by the
Trustee in the Certificate Account, together with investment earnings on such
amounts and such amounts as may be held in the name of the Trustee in the
Principal and Interest Account, if any, inclusive of investment earnings
thereon, whether in the form of cash, instruments, securities or other
properties (including any Eligible Investments held by the Servicer), and (c)
proceeds of all the foregoing (including, but not by way of limitation, all
proceeds of any mortgage insurance, flood insurance, hazard insurance and
title insurance policy relating to the Home Equity Loans, cash proceeds,
accounts, accounts receivable, notes, drafts, acceptances, chattel paper,
checks, deposit accounts, rights to payment of any and every kind, and other
forms of obligations and receivables which at any time constitute all or part
of or are included in the proceeds of any of the foregoing) to pay the
Certificates as specified in the Pooling and Servicing Agreement ((a) - (c)
above shall be collectively referred to herein as the "Trust Estate").
The Owner hereof is entitled to principal payments on each
Distribution Date, as hereinafter described, which will fully amortize such
original Certificate Principal Balance of the Class A-5 Certificates over the
period from the date of initial issuance of the Certificates to the final
Distribution Date for the Class A-5 Certificates. Therefore, the actual
Outstanding principal amount of this Certificate may, on any date subsequent
to January 25, 20__ (the first Distribution Date) be less than the original
Certificate Principal Balance of the Class A-5 Certificates set forth above.
Upon receiving the final distribution hereon, the Owner hereof is
required to send this Certificate to the Trustee. The Pooling and Servicing
Agreement (as defined below) provides that, in any event, upon the making of
the final distribution due on this Certificate, this Certificate shall be
deemed canceled for all purposes under the Pooling and Servicing Agreement.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING HOME EQUITY LOANS ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
THE PRINCIPAL OF THIS CERTIFICATE IS PAYABLE IN INSTALLMENTS.
THEREFORE, THE ACTUAL OUTSTANDING PRINCIPAL AMOUNT OF THIS CERTIFICATE MAY ON
ANY DATE SUBSEQUENT TO JANUARY 25, 20__ (THE FIRST DISTRIBUTION DATE) BE LESS
THAN ITS ORIGINAL CERTIFICATE PRINCIPAL BALANCE.
A-5-2
<PAGE>
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT
OF ANY PERSON IS REPRESENTED HEREBY.
This Certificate is one of a Class of duly-authorized Certificates
designated as Centex Home Equity Loan Trust 2000-__, Home Equity Loan
Asset-Backed Certificates, Class A-5 (the "Class A-5 Certificates") and
issued under and subject to the terms, provisions and conditions of that
certain Pooling and Servicing Agreement dated as of __________, 20__ (the
"Pooling and Servicing Agreement") by and among Centex Credit Corporation
d/b/a Centex Home Equity Corporation, in its capacity as the Seller (the
"Seller") and as the Servicer (the "Servicer"), CHEC Funding, LLC, in its
capacity as Depositor (the "Depositor"), and _______________, in its capacity
as the Trustee (the "Trustee"), to which Pooling and Servicing Agreement the
Owner of this Certificate by virtue of acceptance hereof assents and by which
such Owner is bound. Also issued under the Pooling and Servicing Agreement
are Certificates designated as Centex Home Equity Loan Trust 2000-__ Home
Equity Loan Asset-Backed Certificates, Class A-1 (the "Class A-1
Certificates"), Class A-2 (the "Class A-2 Certificates"), Class A-3 (the
"Class A-3 Certificates"), Class A-4 (the "Class A-4 Certificates"), Class
A-6 (the "Class A-6 Certificates"), Class A-7 (the "Class A-7 Certificates"),
Class X-IO (the "Class X-IO Certificates"), and Class R-1 and Class R-2
(together, the "Class R Certificates"). The Class A-1 Certificates, the Class
A-2 Certificates, the Class A-3 Certificates, the Class A-4 Certificates, the
Class A-5 Certificates, the Class A-6 Certificates and the Class A-7
Certificates shall be together referred to as the "Class A Certificates" and
the Class A Certificates, the Class X-IO Certificates and the Class R
Certificates are together referred to herein as the "Certificates." Terms
capitalized herein and not otherwise defined herein shall have the respective
meanings set forth in the Pooling and Servicing Agreement.
On the 25th day of each month, or, if such day is not a Business
Day, then the next succeeding Business Day (each such day being a
"Distribution Date") commencing January 25, 20__, the Owners of the Class A-5
Certificates as of the close of business on the last Business Day of the
calendar month immediately preceding the calendar month in which a
Distribution Date occurs (the "Record Date") will be entitled to receive the
Class A-5 Distribution Amount relating to such Certificate on such
Distribution Date. Distributions will be made in immediately available funds
to Owners of Certificates having an aggregate original Certificate Principal
Balance of at least [$1,000,000] (by wire transfer or otherwise) to the
account of an Owner at a domestic bank or other entity having appropriate
facilities therefor, if such Owner has so notified the Trustee, or by check
mailed to the address of the person entitled thereto as it appears on the
Register.
Each Owner of record of a Class A-5 Certificate will be entitled to
receive such Owner's Percentage Interest in the amounts due on such
Distribution Date to the Owners of the Class A-5 Certificates. The Percentage
Interest of each Class A-5 Certificate as of any date of determination will
be equal to the percentage obtained by dividing the original Certificate
Principal Balance of such Class A-5 Certificate on the Startup Day by the
aggregate Certificate Principal Balance of the Class A-5 Certificates on the
Startup Day.
The Certificate Insurer is required, subject to the terms of the
related Certificate Insurance Policy to make Insured Payments available to
the Trustee on or prior to the related Distribution
A-5-3
<PAGE>
Date for distribution to the Owners provided that timely notice has been
given to the Certificate Insurer by the Trustee. "Insured Payments" shall
have the meaning as provided therefor in the related Certificate Insurance
Policy.
Upon receipt of amounts under the related Certificate Insurance
Policy on behalf of the Owners of the Class A Certificates, the Trustee shall
distribute in accordance with the Pooling and Servicing Agreement such
amounts (directly or through a Paying Agent) to the Owners of the appropriate
Class of the Class A Certificates.
The Trustee or any duly-appointed Paying Agent will duly and
punctually pay distributions with respect to this Certificate in accordance
with the terms hereof and the Pooling and Servicing Agreement. Amounts
properly withheld under the Code by any Person from a distribution to any
Owner shall be considered as having been paid by the Trustee to such Owner
for all purposes of the Pooling and Servicing Agreement.
The Home Equity Loans will be serviced by the Servicer pursuant to
the Pooling and Servicing Agreement. The Pooling and Servicing Agreement
permits the Servicer to enter into Sub-Servicing Agreements with certain
institutions eligible for appointment as Sub-Servicers for the servicing and
administration of certain Home Equity Loans. No appointment of any
Sub-Servicer shall release the Servicer from any of its obligations under the
Pooling and Servicing Agreement.
This Certificate does not represent a deposit or other obligation
of, or an interest in, nor are the underlying Home Equity Loans insured or
guaranteed by CHEC Funding, LLC or Centex Credit Corporation d/b/a Centex
Home Equity Corporation or any of their affiliates. This Certificate is
limited in right of payment to certain collections and recoveries relating to
the Home Equity Loans and amounts on deposit in the Certificate Account and
the Principal and Interest Account (except as otherwise provided in the
Pooling and Servicing Agreement) and payments received by the Trustee
pursuant to the related Certificate Insurance Policy, all as more
specifically set forth hereinabove and in the Pooling and Servicing Agreement.
No Owner shall have any right to institute any proceeding, judicial
or otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the
Pooling and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is
absolute and unconditional to receive distributions to the extent provided in
the Pooling and Servicing Agreement with respect to such Certificate or to
institute suit for the enforcement of any such distribution, and such right
shall not be impaired without the consent of such Owner. The Owner of this
Certificate, by its acceptance hereof, agrees, however, that to the extent
the Certificate Insurer makes Insured Payments, either directly or indirectly
(as by paying through the Trustee or Paying Agent), to the Owners of such
Class A-5 Certificates, the Certificate Insurer will be subrogated to the
rights of such Owners of Class A-5 Certificates with respect to such Insured
Payment, shall be deemed to the extent of the payments so made to be a
registered Owner of such Class A-5 Certificates and
A-5-4
<PAGE>
shall receive all future distributions of the Class A-5 Distribution Amount
until all such Insured Payments by the Certificate Insurer have been fully
reimbursed.
The Pooling and Servicing Agreement provides that the obligations
created thereby will terminate upon the payment to the Owners of all
Certificates from amounts other than those available under the Certificate
Insurance Policies of all amounts held by the Trustee and required to be paid
to such Owners pursuant to the Pooling and Servicing Agreement and payment in
full of all amounts owed to the Certificate Insurer upon the latest to occur
of (a) the final payment or other liquidation (or any advance made with
respect thereto) of the last Home Equity Loan in the Trust Estate, (b) the
disposition of all property acquired in respect of any Home Equity Loan
remaining in the Trust Estate or (c) at any time if a Qualified Liquidation
of the Trust Estate is effected as described below. To effect a termination
of the Pooling and Servicing Agreement pursuant to clause (c) above, the
Owners of all Certificates then Outstanding shall provide the Trustee and the
Certificate Insurer, at such Owners' expense, an Opinion of Counsel
experienced in federal income tax matters acceptable to the Certificate
Insurer and the Trustee to the affect that each such liquidation constitutes
a Qualified Liquidation, and the Servicer shall either sell the Home Equity
Loans and the Trustee shall distribute the proceeds of the liquidation of the
Trust Estate, or the Servicer shall distribute equitably in kind all of the
assets of the Trust Estate to the remaining Owners of the Certificates to the
effect that each such liquidation constitutes a Qualified Liquidation, each
in accordance with such plan, so that the liquidation or distribution of the
Trust Estate, the distribution of any proceeds of the liquidation and the
termination of the Pooling and Servicing Agreement occur no later than the
close of the 90th day after the date of adoption of the plan of liquidation
and such liquidation qualifies as a Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that the
Servicer may, at its option, purchase from the Trust all remaining Home
Equity Loans and other property then constituting the Trust Estate, and
thereby effect early retirement of the Certificates, on any Monthly
Remittance Date after the Clean-Up Call Date. In addition, under certain
circumstances relating to the qualification of REMIC I and REMIC II as REMICs
under the Code, the Home Equity Loans may be sold, thereby effecting the
early retirement of the Certificates.
The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each Owner in the manner set forth therein.
The Certificate Insurer or the Owners of the majority of the
Percentage Interests represented by the Class A Certificates with the prior
written consent of the Certificate Insurer have the right to exercise any
trust or power set forth in Section 6.11 of the Pooling and Servicing
Agreement.
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registrable in the Register upon surrender of
this Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed
by, the Owner hereof or his attorney duly authorized in writing, and
thereupon one or more new Certificates of the like Class, tenor and a like
Percentage Interest will be issued to the designated transferee or
transferees.
A-5-5
<PAGE>
The Pooling and Servicing Agreement permits, with certain exceptions
as therein provided, the amendment thereof and the modifications of rights
and obligations of the parties provided therein by the Depositor, the
Trustee, the Seller and the Servicer at any time and from time to time, with
the prior written approval of the Certificate Insurer and without the consent
of the Owners; provided that in certain other circumstances provided for in
the Pooling and Servicing Agreement such consent of the Owners will be
required prior to amendments. Any such consent by the Owner at the time of
the giving thereof, of this Certificate shall be conclusive and binding upon
such Owner and upon all future Owners of the Certificate and of any
Certificate issued upon the registration of transfer hereof or in exchange
hereof or in lieu hereof whether or not notation of such consent or waiver is
made upon this Certificate.
The Trustee is required to furnish certain information on each
Distribution Date to the Owner of this Certificate, as more fully described
in the Pooling and Servicing Agreement.
The Class A-5 Certificates are issuable only as registered
Certificates in minimum denominations of [$1,000] original Certificate
Principal Balance. As provided in the Pooling and Servicing Agreement and
subject to certain limitations therein set forth, Class A-5 Certificates are
exchangeable for new Class A-5 Certificates of authorized denominations
evidencing the same aggregate principal amount.
No service charge will be made for any such registration of transfer
or exchange, but the Registrar or Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge payable in
connection therewith.
The Trustee and any agent of the Trustee may treat the Person in
whose name this Certificate is registered as the owner hereof for all
purposes, and neither the Trustee or any such agent shall be affected by
notice to the contrary, except as may otherwise be specifically provided in
the Pooling and Servicing Agreement with respect to the Certificate Insurer.
A-5-6
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be
duly executed on behalf of the Trust.
[_______________________], as Trustee
By:
----------------------------
Title:
-------------------------
Trustee Authentication
[_____________________], as Trustee
By:
-------------------------------------
Title:
----------------------------------
A-5-7
<PAGE>
EXHIBIT A-6
FORM OF CLASS A-6 CERTIFICATE
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A CLASS
OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT"
("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND 860D
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS OF THE CODE.
CENTEX HOME EQUITY LOAN TRUST 2000-__
HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
CLASS A-6
(____% CERTIFICATE RATE SUBJECT TO GROUP I NET WAC CAP)
Representing Certain Interests in a Pool of Group I Home Equity
Loans Sold and Serviced by
CENTEX CREDIT CORPORATION D/B/A CENTEX HOME EQUITY CORPORATION
(This certificate does not represent an interest in, or an
obligation of, nor are the underlying Home Equity Loans insured or guaranteed
by CHEC Funding, LLC (the "Depositor") or Centex Credit Corporation d/b/a
Centex Home Equity Corporation (the "Seller" or the "Servicer"). This
Certificate represents a fractional ownership interest in Group I Home Equity
Loans and certain other property held by the Trust.)
Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the
Issuer ("Centex Home Equity Loan Trust 2000-__") or its agent for
registration of transfer, exchange, or payment and any certificate issued is
registered in the name of Cede & Co. or in such other name as is requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or
to such other entity as is requested by an authorized representative of DTC),
ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has
an interest herein.
NO: A-6-1 _______
CUSIP
_________ _______ _________
Original Class A-6 Certificate Date Final Scheduled
Principal Balance Distribution Date
CEDE & CO.
----------------------
A-6-1
<PAGE>
Registered Owner
The registered Owner named above is the registered beneficial Owner
of a fractional interest in (a) the Home Equity Loans in Group I listed in
SCHEDULE I-B to the Pooling and Servicing Agreement which the Seller is
causing to be delivered to the Depositor and the Depositor is causing to be
delivered to the Trustee, together with the related Home Equity Loan
documents and the Depositor's interest in any Property, and all payments
thereon and proceeds of the conversion, voluntary or involuntary, of the
foregoing; (b) such amounts allocable to Group I as may be held by the
Trustee in the Certificate Account, together with investment earnings on such
amounts and such amounts as may be held in the name of the Trustee in the
Principal and Interest Account, if any, inclusive of investment earnings
thereon, whether in the form of cash, instruments, securities or other
properties (including any Eligible Investments held by the Servicer), and (c)
proceeds of all the foregoing (including, but not by way of limitation, all
proceeds of any mortgage insurance, flood insurance, hazard insurance and
title insurance policy relating to the Home Equity Loans, cash proceeds,
accounts, accounts receivable, notes, drafts, acceptances, chattel paper,
checks, deposit accounts, rights to payment of any and every kind, and other
forms of obligations and receivables which at any time constitute all or part
of or are included in the proceeds of any of the foregoing) to pay the
Certificates as specified in the Pooling and Servicing Agreement ((a) - (c)
above shall be collectively referred to herein as the "Trust Estate").
The Owner hereof is entitled to principal payments on each
Distribution Date, as hereinafter described, which will fully amortize such
original Certificate Principal Balance of the Class A-6 Certificates over the
period from the date of initial issuance of the Certificates to the final
Distribution Date for the Class A-6 Certificates. Therefore, the actual
Outstanding principal amount of this Certificate may, on any date subsequent
to January 25, 20__ (the first Distribution Date) be less than the original
Certificate Principal Balance of the Class A-6 Certificates set forth above.
Upon receiving the final distribution hereon, the Owner hereof is
required to send this Certificate to the Trustee. The Pooling and Servicing
Agreement (as defined below) provides that, in any event, upon the making of
the final distribution due on this Certificate, this Certificate shall be
deemed canceled for all purposes under the Pooling and Servicing Agreement.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING HOME EQUITY LOANS ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
THE PRINCIPAL OF THIS CERTIFICATE IS PAYABLE IN INSTALLMENTS.
THEREFORE, THE ACTUAL OUTSTANDING PRINCIPAL AMOUNT OF THIS CERTIFICATE MAY ON
ANY DATE SUBSEQUENT TO JANUARY 25, 20__ (THE FIRST DISTRIBUTION DATE) BE LESS
THAN ITS ORIGINAL CERTIFICATE PRINCIPAL BALANCE.
A-6-2
<PAGE>
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT
OF ANY PERSON IS REPRESENTED HEREBY.
This Certificate is one of a Class of duly-authorized Certificates
designated as Centex Home Equity Loan Trust 2000-__, Home Equity Loan
Asset-Backed Certificates, Class A-6 (the "Class A-6 Certificates") and
issued under and subject to the terms, provisions and conditions of that
certain Pooling and Servicing Agreement dated as of __________, 20__ (the
"Pooling and Servicing Agreement") by and among Centex Credit Corporation
d/b/a Centex Home Equity Corporation, in its capacity as the Seller (the
"Seller") and as the Servicer (the "Servicer"), CHEC Funding, LLC, in its
capacity as Depositor (the "Depositor"), and _______________, in its capacity
as the Trustee (the "Trustee"), to which Pooling and Servicing Agreement the
Owner of this Certificate by virtue of acceptance hereof assents and by which
such Owner is bound. Also issued under the Pooling and Servicing Agreement
are Certificates designated as Centex Home Equity Loan Trust 2000-__ Home
Equity Loan Asset-Backed Certificates, Class A-1 (the "Class A-1
Certificates"), Class A-2 (the "Class A-2 Certificates"), Class A-3 (the
"Class A-3 Certificates"), Class A-4 (the "Class A-4 Certificates"), Class
A-5 (the "Class A-5 Certificates"), Class A-7 (the "Class A-7 Certificates"),
Class X-IO (the "Class X-IO Certificates"), and Class R-1 and Class R-2
(together, the "Class R Certificates"). The Class A-1 Certificates, the Class
A-2 Certificates, the Class A-3 Certificates, the Class A-4 Certificates, the
Class A-5 Certificates, the Class A-6 Certificates and the Class A-7
Certificates shall be together referred to as the "Class A Certificates" and
the Class A Certificates, the Class X-IO Certificates and the Class R
Certificates are together referred to herein as the "Certificates." Terms
capitalized herein and not otherwise defined herein shall have the respective
meanings set forth in the Pooling and Servicing Agreement.
On the 25th day of each month, or, if such day is not a Business
Day, then the next succeeding Business Day (each such day being a
"Distribution Date") commencing January 25, 20__, the Owners of the Class A-6
Certificates as of the close of business on the last Business Day of the
calendar month immediately preceding the calendar month in which a
Distribution Date occurs (the "Record Date") will be entitled to receive the
Class A-6 Distribution Amount relating to such Certificate on such
Distribution Date. Distributions will be made in immediately available funds
to Owners of Certificates having an aggregate original Certificate Principal
Balance of at least [$1,000,000] (by wire transfer or otherwise) to the
account of an Owner at a domestic bank or other entity having appropriate
facilities therefor, if such Owner has so notified the Trustee, or by check
mailed to the address of the person entitled thereto as it appears on the
Register.
Each Owner of record of a Class A-6 Certificate will be entitled to
receive such Owner's Percentage Interest in the amounts due on such
Distribution Date to the Owners of the Class A-6 Certificates. The Percentage
Interest of each Class A-6 Certificate as of any date of determination will
be equal to the percentage obtained by dividing the original Certificate
Principal Balance of such Class A-6 Certificate on the Startup Day by the
aggregate Certificate Principal Balance of the Class A-6 Certificates on the
Startup Day.
The Certificate Insurer is required, subject to the terms of the
related Certificate Insurance Policy to make Insured Payments available to
the Trustee on or prior to the related Distribution
A-6-3
<PAGE>
Date for distribution to the Owners provided that timely notice has been
given to the related Certificate Insurer by the Trustee. "Insured Payments"
shall have the meaning as provided therefor in the Certificate Insurance
Policy.
Upon receipt of amounts under the related Certificate Insurance Policy
on behalf of the Owners of the Class A Certificates, the Trustee shall
distribute in accordance with the Pooling and Servicing Agreement such amounts
(directly or through a Paying Agent) to the Owners of the appropriate Class of
the Class A Certificates.
The Trustee or any duly-appointed Paying Agent will duly and punctually
pay distributions with respect to this Certificate in accordance with the terms
hereof and the Pooling and Servicing Agreement. Amounts properly withheld under
the Code by any Person from a distribution to any Owner shall be considered as
having been paid by the Trustee to such Owner for all purposes of the Pooling
and Servicing Agreement.
The Home Equity Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Home Equity Loans. No appointment of any Sub-Servicer shall release
the Servicer from any of its obligations under the Pooling and Servicing
Agreement.
This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Home Equity Loans insured or
guaranteed by CHEC Funding, LLC or Centex Credit Corporation d/b/a Centex Home
Equity Corporation or any of their affiliates. This Certificate is limited in
right of payment to certain collections and recoveries relating to the Home
Equity Loans and amounts on deposit in the Certificate Account and the Principal
and Interest Account (except as otherwise provided in the Pooling and Servicing
Agreement) and payments received by the Trustee pursuant to the related
Certificate Insurance Policy, all as more specifically set forth hereinabove and
in the Pooling and Servicing Agreement.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such Owner. The Owner of this Certificate, by
its acceptance hereof, agrees, however, that to the extent the Certificate
Insurer makes Insured Payments, either directly or indirectly (as by paying
through the Trustee or Paying Agent), to the Owners of such Class A-6
Certificates, the Certificate Insurer will be subrogated to the rights of such
Owners of Class A-6 Certificates with respect to such Insured Payment, shall be
deemed to the extent of the payments so made to be a registered Owner of such
Class A-6 Certificates and
A-6-4
<PAGE>
shall receive all future distributions of the Class A-6 Distribution Amount
until all such Insured Payments by the Certificate Insurer have been fully
reimbursed.
The Pooling and Servicing Agreement provides that the obligations
created thereby will terminate upon the payment to the Owners of all
Certificates from amounts other than those available under the Certificate
Insurance Policies of all amounts held by the Trustee and required to be paid to
such Owners pursuant to the Pooling and Servicing Agreement and payment in full
of all amounts owed to the Certificate Insurer upon the latest to occur of (a)
the final payment or other liquidation (or any advance made with respect
thereto) of the last Home Equity Loan in the Trust Estate, (b) the disposition
of all property acquired in respect of any Home Equity Loan remaining in the
Trust Estate or (c) at any time if a Qualified Liquidation of the Trust Estate
is effected as described below. To effect a termination of the Pooling and
Servicing Agreement pursuant to clause (c) above, the Owners of all Certificates
then Outstanding shall provide the Trustee and the Certificate Insurer, at such
Owners' expense, an Opinion of Counsel experienced in federal income tax matters
acceptable to the Certificate Insurer and the Trustee to the affect that each
such liquidation constitutes a Qualified Liquidation, and the Servicer shall
either sell the Home Equity Loans and the Trustee shall distribute the proceeds
of the liquidation of the Trust Estate, or the Servicer shall distribute
equitably in kind all of the assets of the Trust Estate to the remaining Owners
of the Certificates to the effect that each such liquidation constitutes a
Qualified Liquidation, each in accordance with such plan, so that the
liquidation or distribution of the Trust Estate, the distribution of any
proceeds of the liquidation and the termination of the Pooling and Servicing
Agreement occur no later than the close of the 90th day after the date of
adoption of the plan of liquidation and such liquidation qualifies as a
Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that the
Servicer may, at its option, purchase from the Trust all remaining Home Equity
Loans and other property then constituting the Trust Estate, and thereby effect
early retirement of the Certificates, on any Monthly Remittance Date after the
Clean-Up Call Date. In addition, under certain circumstances relating to the
qualification of REMIC I and REMIC II as REMICs under the Code, the Home Equity
Loans may be sold, thereby effecting the early retirement of the Certificates.
The Trustee shall give written notice of termination of the Pooling and
Servicing Agreement to each Owner in the manner set forth therein.
The Certificate Insurer or the Owners of the majority of the Percentage
Interests represented by the Class A Certificates with the prior written consent
of the Certificate Insurer have the right to exercise any trust or power set
forth in Section 6.11 of the Pooling and Servicing Agreement.
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registrable in the Register upon surrender of
this Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by,
the Owner hereof or his attorney duly authorized in writing, and thereupon one
or more new Certificates of the like Class, tenor and a like Percentage Interest
will be issued to the designated transferee or transferees.
A-6-5
<PAGE>
The Pooling and Servicing Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modifications of rights and
obligations of the parties provided therein by the Depositor, the Trustee, the
Seller and the Servicer at any time and from time to time, with the prior
written approval of the Certificate Insurer and without the consent of the
Owners; provided that in certain other circumstances provided for in the Pooling
and Servicing Agreement such consent of the Owners will be required prior to
amendments. Any such consent by the Owner at the time of the giving thereof, of
this Certificate shall be conclusive and binding upon such Owner and upon all
future Owners of the Certificate and of any Certificate issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Certificate.
The Trustee is required to furnish certain information on each
Distribution Date to the Owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.
The Class A-6 Certificates are issuable only as registered Certificates
in minimum denominations of [$1,000] original Certificate Principal Balance. As
provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth, Class A-6 Certificates are exchangeable for new
Class A-6 Certificates of authorized denominations evidencing the same aggregate
principal amount.
No service charge will be made for any such registration of transfer or
exchange, but the Registrar or Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in whose
name this Certificate is registered as the owner hereof for all purposes, and
neither the Trustee or any such agent shall be affected by notice to the
contrary, except as may otherwise be specifically provided in the Pooling and
Servicing Agreement with respect to the Certificate Insurer.
A-6-6
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.
[_______________________], as Trustee
By: _______________________________
Title: ____________________________
Trustee Authentication
[_______________________], as Trustee
By: _____________________________
Title: ____________________________
A-6-7
<PAGE>
EXHIBIT A-7
FORM OF CLASS A-7 CERTIFICATE
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A CLASS OF
"REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC") AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING COMPLIANCE WITH THE
REMIC PROVISIONS OF THE CODE.
CENTEX HOME EQUITY LOAN TRUST 2000-__
HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
CLASS A-7
(VARIABLE CERTIFICATE RATE, WITH AN INCREASE IN MARGIN ON OR
AFTER THE CLEAN-UP CALL DATE)
(SUBJECT TO AVAILABLE FUNDS CAP)
Representing Certain Interests in a Pool of Group II Home Equity
Loans Sold and Serviced by
CENTEX CREDIT CORPORATION d/b/a CENTEX HOME EQUITY CORPORATION
(This certificate does not represent an interest in, or an obligation
of, nor are the underlying Home Equity Loans insured or guaranteed by CHEC
Funding, LLC (the "Depositor") or Centex Credit Corporation d/b/a Centex Home
Equity Corporation (the "Seller" or the "Servicer"). This Certificate represents
a fractional ownership interest in Group II Home Equity Loans and certain other
property held by the Trust.)
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to the Issuer
("Centex Home Equity Loan Trust 2000-__") or its agent for registration of
transfer, exchange, or payment and any certificate issued is registered in the
name of Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
--------
NO: A-7-1 CUSIP
---------------- ---- --------------
Original Class A-7 Certificate Date Final Scheduled
Principal Balance Distribution Date
A-7-1
<PAGE>
CEDE & CO.
-----------------------
Registered Owner
The registered Owner named above is the registered beneficial Owner of
a fractional interest in (a) the Home Equity Loans in Group II listed in
SCHEDULE I-B to the Pooling and Servicing Agreement which the Seller is causing
to be delivered to the Depositor and the Depositor is causing to be delivered to
the Trustee, together with the related Home Equity Loan documents and the
Depositor's interest in any Property, and all payments thereon and proceeds of
the conversion, voluntary or involuntary, of the foregoing; (b) such amounts
allocable to Group II as may be held by the Trustee in the Certificate Account,
together with investment earnings on such amounts and such amounts as may be
held in the name of the Trustee in the Principal and Interest Account, if any,
inclusive of investment earnings thereon, whether in the form of cash,
instruments, securities or other properties (including any Eligible Investments
held by the Servicer), and (c) proceeds of all the foregoing (including, but not
by way of limitation, all proceeds of any mortgage insurance, flood insurance,
hazard insurance and title insurance policy relating to the Home Equity Loans,
cash proceeds, accounts, accounts receivable, notes, drafts, acceptances,
chattel paper, checks, deposit accounts, rights to payment of any and every
kind, and other forms of obligations and receivables which at any time
constitute all or part of or are included in the proceeds of any of the
foregoing) to pay the Certificates as specified in the Pooling and Servicing
Agreement ((a) - (c) above shall be collectively referred to herein as the
"Trust Estate").
The Owner hereof is entitled to principal payments on each Distribution
Date, as hereinafter described, which will fully amortize such original
Certificate Principal Balance of the Class A-7 Certificates over the period from
the date of initial issuance of the Certificates to the final Distribution Date
for the Class A-7 Certificates. Therefore, the actual Outstanding principal
amount of this Certificate may, on any date subsequent to January 25, 20__ (the
first Distribution Date) be less than the original Certificate Principal Balance
of the Class A-7 Certificates set forth above.
Upon receiving the final distribution hereon, the Owner hereof is
required to send this Certificate to the Trustee. The Pooling and Servicing
Agreement (as defined below) provides that, in any event, upon the making of the
final distribution due on this Certificate, this Certificate shall be deemed
canceled for all purposes under the Pooling and Servicing Agreement.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING HOME EQUITY LOANS ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
THE PRINCIPAL OF THIS CERTIFICATE IS PAYABLE IN INSTALLMENTS.
THEREFORE, THE ACTUAL OUTSTANDING PRINCIPAL AMOUNT OF THIS CERTIFICATE MAY ON
ANY DATE SUBSEQUENT TO JANUARY 25, 20__ (THE FIRST DISTRIBUTION DATE) BE LESS
THAN ITS ORIGINAL CERTIFICATE PRINCIPAL BALANCE.
A-7-2
<PAGE>
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF
ANY PERSON IS REPRESENTED HEREBY.
This Certificate is one of a Class of duly-authorized Certificates
designated as Centex Home Equity Loan Trust 2000-__, Home Equity Loan
Asset-Backed Certificates, Class A-7 (the "Class A-7 Certificates") and issued
under and subject to the terms, provisions and conditions of that certain
Pooling and Servicing Agreement dated as of __________, 20__ (the "Pooling and
Servicing Agreement") by and among Centex Credit Corporation d/b/a Centex Home
Equity Corporation, in its capacity as the Seller (the "Seller") and as the
Servicer (the "Servicer"), CHEC Funding, LLC, in its capacity as Depositor (the
"Depositor"), and _______________, in its capacity as the Trustee (the
"Trustee"), to which Pooling and Servicing Agreement the Owner of this
Certificate by virtue of acceptance hereof assents and by which such Owner is
bound. Also issued under the Pooling and Servicing Agreement are Certificates
designated as Centex Home Equity Loan Trust 2000-__ Home Equity Loan
Asset-Backed Certificates, Class A-1 (the "Class A-1 Certificates"), Class A-2
(the "Class A-2 Certificates"), Class A-3 (the "Class A-3 Certificates"), Class
A-4 (the "Class A-4 Certificates"), Class A-5 (the "Class A-5 Certificates"),
Class A-6 (the "Class A-6 Certificates"), Class X-IO (the "Class X-IO
Certificates"), and Class R-1 and Class R-2 (together, the "Class R
Certificates"). The Class A-1 Certificates, the Class A-2 Certificates, the
Class A-3 Certificates, the Class A-4 Certificates, the Class A-5 Certificates,
the Class A-6 Certificates and the Class A-7 Certificates shall be together
referred to as the "Class A Certificates" and the Class A Certificates, the
Class X-IO Certificates and the Class R Certificates are together referred to
herein as the "Certificates." Terms capitalized herein and not otherwise defined
herein shall have the respective meanings set forth in the Pooling and Servicing
Agreement.
On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing January 25, 20__, the Owners of the Class A-7 Certificates as
of the close of business on the last Business Day immediately preceding a
Distribution Date, or if Definitive Certificates have been issued, as of the
close of business on the last Business Day of the calendar month immediately
preceding the calendar month in which a Distribution Date occurs (the "Record
Date") will be entitled to receive the Class A-7 Distribution Amount relating to
such Certificate on such Distribution Date. Distributions will be made in
immediately available funds to Owners of Certificates having an aggregate
original Certificate Principal Balance of at least [$1,000,000] (by wire
transfer or otherwise) to the account of an Owner at a domestic bank or other
entity having appropriate facilities therefor, if such Owner has so notified the
Trustee, or by check mailed to the address of the person entitled thereto as it
appears on the Register.
Each Owner of record of a Class A-7 Certificate will be entitled to
receive such Owner's Percentage Interest in the amounts due on such Distribution
Date to the Owners of the Class A-7 Certificates. The Percentage Interest of
each Class A-7 Certificate as of any date of determination will be equal to the
percentage obtained by dividing the original Certificate Principal Balance of
such Class A-7 Certificate on the Startup Day by the aggregate Certificate
Principal Balance of the Class A-7 Certificates on the Startup Day.
A-7-3
<PAGE>
The Certificate Insurer is required, subject to the terms of the
related Certificate Insurance Policy to make Insured Payments available to the
Trustee on or prior to the related Distribution Date for distribution to the
Owners provided that timely notice has been given to the Certificate Insurer by
the Trustee. "Insured Payments" shall have the meaning as provided therefor in
the related Certificate Insurance Policy.
Upon receipt of amounts under the related Certificate Insurance Policy
on behalf of the Owners of the Class A Certificates, the Trustee shall
distribute in accordance with the Pooling and Servicing Agreement such amounts
(directly or through a Paying Agent) to the Owners of the appropriate Class of
the Class A Certificates.
The Trustee or any duly-appointed Paying Agent will duly and punctually
pay distributions with respect to this Certificate in accordance with the terms
hereof and the Pooling and Servicing Agreement. Amounts properly withheld under
the Code by any Person from a distribution to any Owner shall be considered as
having been paid by the Trustee to such Owner for all purposes of the Pooling
and Servicing Agreement.
The Home Equity Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Home Equity Loans. No appointment of any Sub-Servicer shall release
the Servicer from any of its obligations under the Pooling and Servicing
Agreement.
This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Home Equity Loans insured or
guaranteed by CHEC Funding, LLC or Centex Credit Corporation d/b/a Centex Home
Equity Corporation or any of their affiliates. This Certificate is limited in
right of payment to certain collections and recoveries relating to the Home
Equity Loans and amounts on deposit in the Certificate Account and the Principal
and Interest Account (except as otherwise provided in the Pooling and Servicing
Agreement) and payments received by the Trustee pursuant to the related
Certificate Insurance Policy, all as more specifically set forth hereinabove and
in the Pooling and Servicing Agreement.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such Owner. The Owner of this Certificate, by
its acceptance hereof, agrees, however, that to the extent the Certificate
Insurer makes Insured Payments, either directly or indirectly (as by paying
through the Trustee or Paying Agent), to the Owners of such Class A-7
Certificates, the Certificate Insurer will be subrogated to the rights of
A-7-4
<PAGE>
such Owners of Class A-7 Certificates with respect to such Insured Payment,
shall be deemed to the extent of the payments so made to be a registered
Owner of such Class A-7 Certificates and shall receive all future
distributions of the Class A-7 Distribution Amount until all such Insured
Payments by the Certificate Insurer have been fully reimbursed.
The Pooling and Servicing Agreement provides that the obligations
created thereby will terminate upon the payment to the Owners of all
Certificates from amounts other than those available under the Certificate
Insurance Policies of all amounts held by the Trustee and required to be paid to
such Owners pursuant to the Pooling and Servicing Agreement and payment in full
of all amounts owed to the Certificate Insurer upon the latest to occur of (a)
the final payment or other liquidation (or any advance made with respect
thereto) of the last Home Equity Loan in the Trust Estate, (b) the disposition
of all property acquired in respect of any Home Equity Loan remaining in the
Trust Estate or (c) at any time if a Qualified Liquidation of the Trust Estate
is effected as described below. To effect a termination of the Pooling and
Servicing Agreement pursuant to clause (c) above, the Owners of all Certificates
then Outstanding shall provide the Trustee and the Certificate Insurer, at such
Owners' expense, an Opinion of Counsel experienced in federal income tax matters
acceptable to the Certificate Insurer and the Trustee to the affect that each
such liquidation constitutes a Qualified Liquidation, and the Servicer shall
either sell the Home Equity Loans and the Trustee shall distribute the proceeds
of the liquidation of the Trust Estate, or the Servicer shall distribute
equitably in kind all of the assets of the Trust Estate to the remaining Owners
of the Certificates to the effect that each such liquidation constitutes a
Qualified Liquidation, each in accordance with such plan, so that the
liquidation or distribution of the Trust Estate, the distribution of any
proceeds of the liquidation and the termination of the Pooling and Servicing
Agreement occur no later than the close of the 90th day after the date of
adoption of the plan of liquidation and such liquidation qualifies as a
Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that the
Servicer may, at its option, purchase from the Trust all remaining Home Equity
Loans and other property then constituting the Trust Estate, and thereby effect
early retirement of the Certificates, on any Monthly Remittance Date after the
Clean-Up Call Date. In addition, under certain circumstances relating to the
qualification of REMIC I and REMIC II as REMICs under the Code, the Home Equity
Loans may be sold, thereby effecting the early retirement of the Certificates.
The Trustee shall give written notice of termination of the Pooling and
Servicing Agreement to each Owner in the manner set forth therein.
The Certificate Insurer or the Owners of the majority of the Percentage
Interests represented by the Class A Certificates with the prior written consent
of the Certificate Insurer have the right to exercise any trust or power set
forth in Section 6.11 of the Pooling and Servicing Agreement.
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registrable in the Register upon surrender of
this Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by,
the Owner hereof or his attorney
A-7-5
<PAGE>
duly authorized in writing, and thereupon one or more new Certificates of the
like Class, tenor and a like Percentage Interest will be issued to the
designated transferee or transferees.
The Pooling and Servicing Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modifications of rights and
obligations of the parties provided therein by the Depositor, the Trustee, the
Seller and the Servicer at any time and from time to time, with the prior
written approval of the Certificate Insurer and without the consent of the
Owners; provided that in certain other circumstances provided for in the Pooling
and Servicing Agreement such consent of the Owners will be required prior to
amendments. Any such consent by the Owner at the time of the giving thereof, of
this Certificate shall be conclusive and binding upon such Owner and upon all
future Owners of the Certificate and of any Certificate issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Certificate.
The Trustee is required to furnish certain information on each
Distribution Date to the Owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.
The Class A-7 Certificates are issuable only as registered Certificates
in minimum denominations of [$1,000] original Certificate Principal Balance. As
provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth, Class A-7 Certificates are exchangeable for new
Class A-7 Certificates of authorized denominations evidencing the same aggregate
principal amount.
No service charge will be made for any such registration of transfer or
exchange, but the Registrar or Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in whose
name this Certificate is registered as the owner hereof for all purposes, and
neither the Trustee or any such agent shall be affected by notice to the
contrary, except as may otherwise be specifically provided in the Pooling and
Servicing Agreement with respect to the Certificate Insurer.
A-7-6
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.
[________________________], as Trustee
By: _____________________
Title:____________________
Trustee Authentication
[______________________], as Trustee
By: __________________________
Title: _______________________
A-7-7
<PAGE>
EXHIBIT B
FORM OF CLASS X-IO CERTIFICATE
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A CLASS OF
"REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC") AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING COMPLIANCE WITH THE
REMIC PROVISIONS OF THE CODE.
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). ANY RESALE OR TRANSFER OF THIS CERTIFICATE WITHOUT
REGISTRATION THEREOF UNDER THE ACT MAY BE MADE ONLY IN A TRANSACTION EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH THE PROVISIONS
OF SECTION 5.08 OF THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
TRANSFER OF THIS CLASS X-IO CERTIFICATE IS RESTRICTED AS SET FORTH IN
THE POOLING AND SERVICING AGREEMENT.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING HOME EQUITY LOANS ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
THIS CERTIFICATE WAS ISSUED ON __________, 20__ AT A PRICE (INCLUSIVE OF ACCRUED
INTEREST AT CLOSING) EQUAL TO ____% OF THE ORIGINAL AGGREGATE LOAN BALANCE.
UNDER TREASURY REGULATIONS RELATING TO ORIGINAL ISSUE DISCOUNT ("OID"), ALL
INTEREST PAYMENTS TO BE RECEIVED ON THIS SECURITY ARE TREATED AS PART OF THE
CERTIFICATE'S STATED REDEMPTION PRICE AT MATURITY. ACCORDINGLY, THE CERTIFICATE
WAS ISSUED WITH OID FOR FEDERAL INCOME TAX PURPOSES IN AN AMOUNT EQUAL TO
APPROXIMATELY ____% OF THE ORIGINAL AGGREGATE LOAN BALANCE. THE MONTHLY YIELD TO
MATURITY OF THIS CERTIFICATE EXPRESSED ON AN ANNUAL BASIS IS APPROXIMATELY
____%, AND THE AMOUNT OF OID ALLOCABLE TO THE FIRST INTEREST PERIOD THROUGH
__________, 20__ IS EQUAL TO APPROXIMATELY ____% OF THE ORIGINAL AGGREGATE LOAN
BALANCE. THE COMPUTATION OF THE MONTHLY YIELD TO MATURITY AND THE OID AMOUNTS
SPECIFIED ABOVE WAS BASED ON: (I) A METHOD EMBODYING AN ECONOMIC ACCRUAL OF
INCOME, (II) A PREPAYMENT ASSUMPTION OF ___% PREPAYMENT ASSUMPTION WITH RESPECT
TO THE GROUP I HOME EQUITY LOANS AND ___% CPR WITH RESPECT TO THE GROUP II HOME
EQUITY LOANS (EACH AS DEFINED IN THE PROSPECTUS SUPPLEMENT), AND (III) A 30 DAYS
PER MONTH/360 DAYS PER YEAR ACCOUNTING CONVENTION. THE ACTUAL YIELD TO MATURITY,
PREPAYMENT EXPERIENCE, AND OID AMOUNTS MAY DIFFER FROM THOSE SET FORTH ABOVE.
B-1
<PAGE>
CENTEX HOME EQUITY LOAN TRUST 2000-__
HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
CLASS X-IO
(REGULAR INTEREST)
Representing Certain Interests in a Pool of
Home Equity Loans Sold and Serviced by
CENTEX CREDIT CORPORATION d/b/a CENTEX HOME EQUITY CORPORATION
(This certificate does not represent an interest in, or an obligation
of, nor are the underlying Home Equity Loans insured or guaranteed by CHEC
Funding, LLC (the "Depositor") or Centex Credit Corporation d/b/a Centex Home
Equity Corporation (the "Seller" or the "Servicer"). This Certificate represents
a fractional ownership interest in Group I Home Equity Loans and certain other
property held by the Trust.)
NO: X-IO-1
Date: __________, 20__
Percentage Interest _____%
CHEC RESIDUAL CORPORATION
Registered Owner
The registered Owner named above is the registered beneficial Owner of
a fractional interest in (a) the Home Equity Loans listed in SCHEDULE I-A to the
Pooling and Servicing Agreement which the Seller is causing to be delivered to
the Depositor and the Depositor is causing to be delivered to the Trustee,
together with the related Home Equity Loan documents and the Depositor's
interest in any Property, and all payments thereon and proceeds of the
conversion, voluntary or involuntary, of the foregoing; (b) such amounts as may
be held by the Trustee in the Certificate Account, together with investment
earnings on such amounts and such amounts as may be held in the name of the
Trustee in the Principal and Interest Account, if any, inclusive of investment
earnings thereon, whether in the form of cash, instruments, securities or other
properties (including any Eligible Investments held by the Servicer), and (c)
proceeds of all the foregoing (including, but not by way of limitation, all
proceeds of any mortgage insurance, flood insurance, hazard insurance and title
insurance policy relating to the Home Equity Loans, cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, rights to payment of any and every kind, and other forms of
obligations and receivables which at any time constitute all or part of or are
included in the proceeds of any of the foregoing) to pay the Certificates as
specified in the Pooling and Servicing Agreement ((a) - (c) above shall be
collectively referred to herein as the "Trust Estate").
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF
ANY PERSON IS REPRESENTED HEREBY.
This Certificate is one of a Class of duly-authorized Certificates
designated as Centex Home Equity Loan Trust 2000-__, Home Equity Loan
Asset-Backed Certificates, Class X-IO
B-2
<PAGE>
(the "Class X-IO Certificates") and issued under and subject to the terms,
provisions and conditions of that certain Pooling and Servicing Agreement
dated as of __________, 20__ (the "Pooling and Servicing Agreement") by and
among Centex Credit Corporation d/b/a Centex Home Equity Corporation, in its
capacity as the Seller (the "Seller") and as the Servicer (the "Servicer"),
CHEC Funding, LLC, in its capacity as Depositor (the "Depositor"), and
_______________, in its capacity as the Trustee (the "Trustee"), to which
Pooling and Servicing Agreement the Owner of this Certificate by virtue of
acceptance hereof assents and by which such Owner is bound. Also issued under
the Pooling and Servicing Agreement are Certificates designated as Centex
Home Equity Loan Trust 2000-__ Home Equity Loan Asset-Backed Certificates,
Class A-1 (the "Class A-1 Certificates"), Class A-2 (the "Class A-2
Certificates"), Class A-3 (the "Class A-3 Certificates"), Class A-4 (the
"Class A-4 Certificates"), Class A-5 (the "Class A-5 Certificates"), Class
A-6 (the "Class A-6 Certificates"), Class A-7 (the "Class A-7 Certificates")
and Class R-1 and Class R-2 (together, the "Class R Certificates"). The Class
A-1 Certificates, the Class A-2 Certificates, the Class A-3 Certificates, the
Class A-4 Certificates, the Class A-5 Certificates, the Class A-6
Certificates and the Class A-7 Certificates shall be together referred to as
the "Class A Certificates" and the Class A Certificates, the Class X-IO
Certificates and the Class R Certificates are together referred to herein as
the "Certificates." Terms capitalized herein and not otherwise defined herein
shall have the respective meanings set forth in the Pooling and Servicing
Agreement.
On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing January 25, 20__, the Owners of the Class X-IO Certificates as
of the close of business on the last Business Day of the calendar month
immediately preceding the calendar month in which a Distribution Date occurs
(the "Record Date") will be entitled to receive the Class X-IO Distribution
Amount relating to such Certificate on such Distribution Date. Distributions
will be made in immediately available funds to Owners of Class X-IO Certificates
having an aggregate Percentage Interest of at least ___% (by wire transfer or
otherwise) to the account of an Owner at a domestic bank or other entity having
appropriate facilities therefor, if such Owner has so notified the Trustee, or
by check mailed to the address of the person entitled thereto as it appears on
the Register.
The Trustee or any duly-appointed Paying Agent will duly and punctually
pay distributions with respect to this Certificate in accordance with the terms
hereof and the Pooling and Servicing Agreement. Amounts properly withheld under
the Code by any Person from a distribution to any Owner shall be considered as
having been paid by the Trustee to such Owner for all purposes of the Pooling
and Servicing Agreement.
The Home Equity Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Home Equity Loans. No appointment of any Sub-Servicer shall release
the Servicer from any of its obligations under the Pooling and Servicing
Agreement.
This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Home Equity Loans insured or
guaranteed by CHEC Funding, LLC or Centex
B-3
<PAGE>
Credit Corporation d/b/a Centex Home Equity Corporation or any of their
affiliates. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Home Equity Loans, all as more
specifically set forth hereinabove and in the Pooling and Servicing Agreement.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such Owner.
The Pooling and Servicing Agreement provides that the obligations
created thereby will terminate upon the payment to the Owners of all
Certificates from amounts other than those available under the Certificate
Insurance Policies of all amounts held by the Trustee and required to be paid to
such Owners pursuant to the Pooling and Servicing Agreement and payment in full
of all amounts owed to the Certificate Insurer upon the latest to occur of (a)
the final payment or other liquidation (or any advance made with respect
thereto) of the last Home Equity Loan in the Trust Estate, (b) the disposition
of all property acquired in respect of any Home Equity Loan remaining in the
Trust Estate or (c) at any time when a Qualified Liquidation of the Trust Estate
is effected as described below. To effect a termination of the Pooling and
Servicing Agreement pursuant to clause (c) above, the Owners of all Certificates
then Outstanding shall provide the Trustee and the Certificate Insurer, at such
Owners' expense, an Opinion of Counsel experienced in federal income tax matters
acceptable to the Certificate Insurer and the Trustee to the effect that each
such liquidation constitutes a Qualified Liquidation, and the Servicer shall
either sell the Home Equity Loans and the Trustee shall distribute the proceeds
of the liquidation of the Trust Estate, or the Servicer shall distribute
equitably in kind all of the assets of the Trust Estate to the remaining Owners
of the Certificates to the effect that each such liquidation constitutes a
Qualified Liquidation, each in accordance with such plan, so that the
liquidation or distribution of the Trust Estate, the distribution of any
proceeds of the liquidation and the termination of the Pooling and Servicing
Agreement occur no later than the close of the 90th day after the date of
adoption of the plan of liquidation and such liquidation qualifies as a
Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that the
Servicer may, at its option, purchase from the Trust all remaining Home Equity
Loans and other property then constituting the Trust Estate, and thereby effect
early retirement of the Certificates, on any Monthly Remittance Date after the
Clean-Up Call Date. In addition, under certain circumstances relating to the
qualification of REMIC I and REMIC II as REMICs under the Code, the Home Equity
Loans may be sold, thereby effecting the early retirement of the Certificates.
The Trustee shall give written notice of termination of the Pooling and
Servicing Agreement to each Owner in the manner set forth therein.
B-4
<PAGE>
The Certificate Insurer or the Owners of the majority of the Percentage
Interests represented by the Class A Certificates with the prior written consent
of the Certificate Insurer have the right to exercise any trust or power set
forth in Section 6.11 of the Pooling and Servicing Agreement.
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registrable in the Register upon surrender of
this Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by,
the Owner hereof or his attorney duly authorized in writing, and thereupon one
or more new Certificates of the like Class, tenor and a like aggregate
fractional undivided interest in the Trust Estate will be issued to the
designated transferee or transferees.
The Pooling and Servicing Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modifications of rights and
obligations of the parties provided therein by the Depositor, the Trustee, and
the Servicer at any time and from time to time, with the prior written approval
of the Certificate Insurer and without the consent of the Owners; provided, that
in certain other circumstances provided for in the Pooling and Servicing
Agreement such consent of the Owners will be required prior to amendment. Any
such consent by the Owner at the time of the giving thereof, of this Certificate
shall be conclusive and binding upon such Owner and upon all future Owners of
the Certificate and of any Certificate issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Certificate.
The Trustee is required to furnish certain information on each
Distribution Date to the Owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.
The Class X-IO Certificates are issuable only as registered
Certificates. As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class X-IO Certificates are exchangeable
for new Class X-IO Certificates evidencing the same Percentage Interest as the
Class X-IO Certificates exchanged.
No service charge will be made for any such registration of transfer or
exchange, but the Registrar or Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in whose
name this Certificate is registered as the owner hereof for all purposes, and
neither the Trustee or any such agent shall be affected by notice to the
contrary, except as may otherwise be specifically provided in the Pooling and
Servicing Agreement with respect to the Certificate Insurer.
B-5
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.
[_______________________], as Trustee
By: _____________________________
Title: __________________________
Trustee Authentication
[__________________], as Trustee
By: ___________________________
Title: ________________________
B-6
<PAGE>
EXHIBIT C
FORM OF CLASS R CERTIFICATE
SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS OWNERSHIP OF
EACH OF THE SOLE CLASSES OF "RESIDUAL INTERESTS" IN TWO "REAL ESTATE MORTGAGE
INVESTMENT CONDUITS" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN
SECTION 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), ASSUMING COMPLIANCE WITH THE REMIC PROVISIONS OF THE CODE.
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). ANY RESALE OR TRANSFER OF THIS CERTIFICATE WITHOUT
REGISTRATION THEREOF UNDER THE ACT MAY BE MADE ONLY IN A TRANSACTION EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH THE PROVISIONS
OF SECTION 5.08 OF THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
TRANSFER OF THIS CLASS R CERTIFICATE IS RESTRICTED AS SET FORTH IN THE
POOLING AND SERVICING AGREEMENT. NO TRANSFER OF THIS CLASS R CERTIFICATE MAY BE
MADE TO A "DISQUALIFIED ORGANIZATION" AS DEFINED IN SECTION 860E(e)(5) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUCH TERM INCLUDES THE
UNITED STATES, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY FOREIGN
GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, ANY AGENCY OR INSTRUMENTALITY OF ANY
OF THE FOREGOING (OTHER THAN CERTAIN TAXABLE INSTRUMENTALITIES), ANY COOPERATIVE
ORGANIZATION FURNISHING ELECTRIC ENERGY OR PROVIDING TELEPHONE SERVICE TO
PERSONS IN RURAL AREAS, OR ANY ORGANIZATION (OTHER THAN A FARMER'S COOPERATIVE)
THAT IS EXEMPT FROM FEDERAL INCOME TAX UNLESS SUCH ORGANIZATION IS SUBJECT TO
THE TAX ON UNRELATED BUSINESS INCOME. NO TRANSFER OF THIS CLASS R CERTIFICATE
WILL BE REGISTERED BY THE CERTIFICATE REGISTRAR UNLESS THE PROPOSED TRANSFEREE
HAS DELIVERED AN AFFIDAVIT AFFIRMING, AMONG OTHER THINGS, THAT THE PROPOSED
TRANSFEREE HAS DELIVERED AN AFFIDAVIT AFFIRMING, AMONG OTHER THINGS, THE
PROPOSED TRANSFEREE IS NOT A DISQUALIFIED ORGANIZATION AND IS NOT ACQUIRING THE
CLASS R CERTIFICATE FOR THE ACCOUNT OF A DISQUALIFIED ORGANIZATION. A COPY OF
THE FORM OF AFFIDAVIT REQUIRED OF EACH PROPOSED TRANSFEREE IS ON FILE AND
AVAILABLE FROM THE TRUSTEE.
A TRANSFER IN VIOLATION OF THE APPLICABLE RESTRICTIONS MAY GIVE RISE TO
A SUBSTANTIAL TAX UPON THE TRANSFEROR OR, IN CERTAIN CASES, UPON AN AGENT ACTING
FOR THE TRANSFEREE. A PASS-THROUGH ENTITY THAT HOLDS THIS CLASS R CERTIFICATE
AND THAT HAS A
C-1
<PAGE>
DISQUALIFIED ORGANIZATION AS A RECORD OWNER IN ANY TAXABLE YEAR GENERALLY
WILL BE SUBJECT TO A TAX FOR EACH SUCH YEAR EQUAL TO THE PRODUCT OF (A) THE
AMOUNT OF EXCESS INCLUSIONS WITH RESPECT TO THE PORTION OF THIS CERTIFICATE
OWNED THROUGH SUCH PASS-THROUGH ENTITY BY SUCH DISQUALIFIED ORGANIZATION, AND
(B) THE HIGHEST MARGINAL FEDERAL TAX RATE ON CORPORATIONS. FOR PURPOSES OF
THE PRECEDING SENTENCE, THE TERM "PASS-THROUGH" ENTITY INCLUDES REGULATED
INVESTMENT COMPANIES, REAL ESTATE INVESTMENT TRUSTS, COMMON TRUST FUNDS,
PARTNERSHIPS, TRUSTS, ESTATES, COOPERATIVES TO WHICH PART I OF SUBCHAPTER 1T
OF THE CODE APPLIES AND, EXCEPT AS PROVIDED IN REGULATIONS, NOMINEES.
NEITHER THIS CERTIFICATE NOR THE UNDERLYING HOME EQUITY LOANS ARE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.
THIS CLASS R CERTIFICATE REPRESENTS A RESIDUAL INTEREST IN EACH OF
REMIC I AND REMIC II FOR FEDERAL INCOME TAX PURPOSES.
C-2
<PAGE>
CENTEX HOME EQUITY LOAN TRUST 2000-__
HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
CLASS R
(RESIDUAL INTEREST)
Representing Certain Interests Relating to two Pools of
Home Equity Loans Sold and Serviced by
CENTEX CREDIT CORPORATION d/b/a CENTEX HOME EQUITY CORPORATION
(This certificate does not represent an interest in, or an obligation
of, nor are the underlying Home Equity Loans insured or guaranteed by CHEC
Funding, LLC or Centex Credit Corporation d/b/a Centex Home Equity Corporation.
This Certificate represents a fractional ownership interest in the Trust Estate
as defined below.)
NO: R-_
Date: __________, 20__
Percentage Interest _____%
CHEC RESIDUAL CORPORATION
Registered Owner
The registered Owner named above is the registered beneficial Owner of
a fractional interest in (a) the Home Equity Loans listed in SCHEDULE I-A and
SCHEDULE I-B to the Pooling and Servicing Agreement which the Seller is causing
to be delivered to the Depositor and the Depositor is causing to be delivered to
the Trustee, together with the related Home Equity Loan documents and the
Seller's interest in any Property which secured a Home Equity Loan but which has
been acquired by foreclosure or deed in lieu of foreclosure, and all payments
thereon and proceeds of the conversion, voluntary or involuntary, of the
foregoing; (b) such amounts as may be held by the Trustee in the Certificate
Account, together with investment earnings on such amounts and such amounts as
may be held in the name of the Trustee in the Principal and Interest Account, if
any, exclusive of investment earnings thereon (except as otherwise provided in
the Pooling and Servicing Agreement), whether in the form of cash, instruments,
securities or other properties (including any Eligible Investments held by the
Servicer) and (c) proceeds of all the foregoing (including, but not by way of
limitation, all proceeds of any mortgage insurance, hazard insurance and title
insurance policy relating to the Home Equity Loans, cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, rights to payment of any and every kind, and other forms of
obligations and receivables which at any time constitute all or part of or are
included in the proceeds of any of the foregoing) to pay the Certificates as
specified in the Pooling and Servicing Agreement ((a) - (d) above shall be
collectively referred to herein as the "Trust Estate").
THIS CERTIFICATE IS AN ASSET-BACKED CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY.
C-3
<PAGE>
This Certificate is one of a Class of duly-authorized Certificates
designated as Centex Home Equity Loan Trust 2000-__, Home Equity Loan
Asset-Backed Certificates, Class R (the "Class R Certificates") and issued under
and subject to the terms, provisions and conditions of that certain Pooling and
Servicing Agreement dated as of __________, 20__ (the "Pooling and Servicing
Agreement") by and among Centex Credit Corporation d/b/a Centex Home Equity
Corporation, in its capacity as the Seller (the "Seller") and as the Servicer
(the "Servicer"), CHEC Funding, LLC, in its capacity as Depositor (the
"Depositor"), and _______________, in its capacity as the Trustee (the
"Trustee"), to which Pooling and Servicing Agreement the Owner of this
Certificate by virtue of acceptance hereof assents and by which such Owner is
bound. Also issued under the Pooling and Servicing Agreement are Certificates
designated as Centex Home Equity Loan Trust 2000-__ Home Equity Loan
Pass-Through Certificates, Class A-1 (the "Class A-1 Certificates"), Class A-2
(the "Class A-2 Certificates"), Class A-3 (the "Class A-3 Certificates"), Class
A-4 (the "Class A-4 Certificates"), Class A-5 (the "Class A-5 Certificates"),
Class A-6 (the "Class A-6 Certificates"), Class A-7 (the "Class A-7
Certificates"), Class X-IO (the "Class X-IO Certificates"), and Class R-1 and
Class R-2 (together, the "Class R Certificates"). The Class A-1 Certificates,
the Class A-2 Certificates, the Class A-3 Certificates, the Class A-4
Certificates, the Class A-5 Certificates, the Class A-6 Certificates and the
Class A-7 Certificates shall be together referred to as the "Class A
Certificates" and the Class A Certificates, the Class X-IO Certificates and the
Class R Certificates are together referred to herein as the "Certificates."
Terms capitalized herein and not otherwise defined herein shall have the
respective meanings set forth in the Pooling and Servicing Agreement.
On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing January 25, 20__, each owner of a Class R Certificate as of
the close of business on the last day of the calendar month immediately
preceding the calendar month in which a Distribution Date occurs (the "Record
Date") will be entitled to receive the Residual Net Monthly Excess Cashflow
relating to such Certificate on such Distribution Date. Distributions will be
made in immediately available funds to Owners of Class R Certificates having an
aggregate Percentage Interest of at least ___% (by wire transfer or otherwise)
to the account of an Owner at a domestic bank or other entity having appropriate
facilities therefor, if such Owner has so notified the Trustee, or by check
mailed to the address of the person entitled thereto as it appears on the
Register.
The Trustee or any duly-appointed Paying Agent will duly and punctually
pay distributions with respect to this Certificate in accordance with the terms
hereof and the Pooling and Servicing Agreement. Amounts properly withheld under
the Code by any Person from a distribution to any Owner shall be considered as
having been paid by the Trustee to such Owner for all purposes of the Pooling
and Servicing Agreement.
The Home Equity Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Home Equity Loans. No appointment of any Sub-Servicer shall release
the Servicer from any of its obligations under the Pooling and Servicing
Agreement.
C-4
<PAGE>
This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Home Equity Loans insured or
guaranteed by CHEC Funding, LLC or Centex Credit Corporation d/b/a Centex Home
Equity Corporation or any of their affiliates. This Certificate is limited in
right of payment to certain collections and recoveries relating to the Home
Equity Loans, all as more specifically set forth hereinabove and in the Pooling
and Servicing Agreement.
No Owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement, or for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.
Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the Owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such Owner.
The Pooling and Servicing Agreement provides that the obligations
created thereby will terminate upon the payment to the Owners of all
Certificates from amounts other than those available under the Certificate
Insurance Policies of all amounts held by the Trustee and required to be paid to
such Owners pursuant to the Pooling and Servicing Agreement and payment in full
of all amounts owed to the Certificate Insurer upon the latest to occur of (a)
the final payment or other liquidation (or any advance made with respect
thereto) of the last Home Equity Loan in the Trust Estate, (b) the disposition
of all property acquired in respect of any Home Equity Loan remaining in the
Trust Estate or (c) at any time when a Qualified Liquidation of the Trust Estate
is effected as described below. To effect a termination of the Pooling and
Servicing Agreement pursuant to clause (c) above, the Owners of all Certificates
then Outstanding shall provide the Trustee and the Certificate Insurer, at such
Owners' expense, an Opinion of Counsel experienced in federal income tax matters
acceptable to the Certificate Insurer and the Trustee to the effect that each
such liquidation constitutes a Qualified Liquidation, and the Servicer shall
either sell the Home Equity Loans and the Trustee shall distribute the proceeds
of the liquidation of the Trust Estate, or the Servicer shall distribute
equitably in kind all of the assets of the Trust Estate to the remaining Owners
of the Certificates to the effect that each such liquidation constitutes a
Qualified Liquidation, each in accordance with such plan, so that the
liquidation or distribution of the Trust Estate, the distribution of any
proceeds of the liquidation and the termination of the Pooling and Servicing
Agreement occur no later than the close of the 90th day after the date of
adoption of the plan of liquidation and such liquidation qualifies as a
Qualified Liquidation.
The Pooling and Servicing Agreement additionally provides that the
Servicer may, at its option, purchase from the Trust all remaining Home Equity
Loans and other property then constituting the Trust Estate, and thereby effect
early retirement of the Certificates, on any Monthly Remittance Date after the
Clean-Up Call Date. In addition, under certain circumstances relating to the
qualification of REMIC I and REMIC II as REMICs under the Code, the Home Equity
Loans may be sold, thereby effecting the early retirement of the Certificates.
C-5
<PAGE>
The Class R Certificates evidence ownership in the "residual interest"
in REMIC I and the "residual interest" in REMIC II. The registered Owner of a
Class R Certificate will be entitled to separate such Certificate into such
component parts. The Trustee shall, upon delivery to it of this Class R
Certificate and a written request of the registered Owner thereof to separate
such Certificate into its component parts, issued to such registered Owner in
exchange for such Class R Certificate (i) a separately transferable, certified
and fully registered security (a "Class R-1 Certificate) that will, from the
date of its issuance, represent the Owner's Percentage Interest in the residual
interest in REMIC I and (ii) a separately transferable, certified and fully
registered security (a "Class R-2 Certificate") that will, from the date of its
issuance, represent the Owner's Percentage Interest in the residual interest in
REMIC II. The Trustee may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection with such exchange of this
Class R Certificate.
The Trustee shall give written notice of termination of the Pooling and
Servicing Agreement to each Owner in the manner set forth therein.
The Certificate Insurer or the Owners of the majority of the Percentage
Interests represented by the Class A Certificates with the prior written consent
of the Certificate Insurer have the right to exercise any trust or power set
forth in Section 6.11 of the Pooling and Servicing Agreement.
As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registrable in the Register upon surrender of
this Certificate for registration of transfer at the office designated as the
location of the Register duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Registrar duly executed by,
the Owner hereof or his attorney duly authorized in writing, and thereupon one
or more new Certificates of the like Class, tenor and a like aggregate
fractional undivided interest in the Trust Estate will be issued to the
designated transferee or transferees.
The Pooling and Servicing Agreement permits, with certain exceptions as
therein provided, the amendment thereof and the modifications of rights and
obligations of the parties provided therein by the Depositor, the Trustee, the
Seller and the Servicer at any time and from time to time, with the prior
written approval of the Certificate Insurer and without the consent of the
Owners; provided, that in certain other circumstances provided for in the
Pooling and Servicing Agreement such consent of the Owners will be required
prior to amendment. Any such consent by the Owner at the time of the giving
thereof, of this Certificate shall be conclusive and binding upon such Owner and
upon all future Owners of the Certificate and of any Certificate issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Certificate.
The Trustee is required to furnish certain information on each
Distribution Date to the Owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.
The Class R Certificates are issuable only as registered Certificates.
As provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth, Class R
C-6
<PAGE>
Certificates are exchangeable for new Class R Certificates evidencing the
same Percentage Interest as the Class R Certificates exchanged.
No service charge will be made for any such registration of transfer or
exchange, but the Registrar or Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Trustee and any agent of the Trustee may treat the Person in whose
name this Certificate is registered as the owner hereof for all purposes, and
neither the Trustee or any such agent shall be affected by notice to the
contrary, except as may otherwise be specifically provided in the Pooling and
Servicing Agreement with respect to the Certificate Insurer.
C-7
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.
[___________________________], as Trustee
By:_____________________________
Title:__________________________
Trustee Authentication
[_____________________], as Trustee
By: ________________________________
Title: ______________________________
C-8
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE RE: HOME EQUITY LOANS
PREPAID IN FULL AFTER CUT-OFF DATE
CERTIFICATE RE: PREPAID LOANS
I, __________________________, ______________________ of Centex Credit
Corporation d/b/a Centex Home Equity Corporation ("Centex"), hereby certify that
between the "Cut-Off Date" (as defined in the Pooling and Servicing Agreement
dated as of __________, 20__ among CHEC Funding, LLC, as Depositor, Centex as
Seller and Servicer, and _______________, as Trustee) and the "Startup Day," the
following schedule of "Home Equity Loans" (each as defined in the Pooling and
Servicing Agreement) have been prepaid in full.
<TABLE>
<CAPTION>
Account Original Current Date
Number Name Amount Balance Paid Off
---------- ----- --------- --------- ----------
<S> <C> <C> <C> <C>
</TABLE>
Dated: ____ __, 20__
By: _________________________
Title:_______________________
D-1
<PAGE>
EXHIBIT E-1
TRUSTEE ACKNOWLEDGMENT
Reference is made to that certain Pooling and Servicing Agreement dated
as of __________, 20__ (the "Pooling and Servicing Agreement") among CHEC
Funding, LLC, as depositor, Centex Credit Corporation d/b/a Centex Home Equity
Corporation, as seller and servicer, and _______________, as trustee (the
"Trustee"). Capitalized terms used herein but not defined herein have the
meaning assigned to them in the Pooling and Servicing Agreement.
The Trustee hereby acknowledges the receipt of the sum of $___________
to be deposited in the Certificate Account.
Dated: __________, 20__
----------------------------,
as Trustee
By:__________________________
Name:
Title:
E-1
<PAGE>
EXHIBIT E-2
FORM OF CUSTODIAN'S ACKNOWLEDGMENT OF RECEIPT
CUSTODIAN'S ACKNOWLEDGMENT OF RECEIPT
The First Chicago National Processing Corporation, in its capacity as
custodian (the "Custodian") under the Custodial Agreement dated as of
__________, 20__, among the Custodian and _______________, in its capacity as
trustee (the "Trustee") under that certain Pooling and Servicing Agreement dated
as of __________, 20__ ("the Pooling and Servicing Agreement") among CHEC
Funding, LLC, as depositor (the "Depositor"), Centex Credit Corporation d/b/a
Centex Home Equity Corporation, a Nevada corporation, as seller and servicer
("Centex"), and the Trustee, as trustee, hereby acknowledges receipt (subject to
review as required by Section 3.06(a) of the Pooling and Servicing Agreement) of
the items delivered to it by Centex with respect to the Initial Home Equity
Loans pursuant to Section 3.05(b)(i) of the Pooling and Servicing Agreement.
The Schedule of Initial Home Equity Loans is attached to this receipt
as Schedule I.
The Custodian hereby additionally acknowledges that it shall review
such items as required by Section 3.06(a) of the Pooling and Servicing Agreement
and shall otherwise comply with Section 3.06(b) and 3.06(c) of the Pooling and
Servicing Agreement as required thereby.
THE FIRST CHICAGO NATIONAL
PROCESSING CORPORATION,
as Custodian
By: __________________________________
Name:
Title:
Dated: __________, 20__
E-2
<PAGE>
EXHIBIT F
FORM OF POOL CERTIFICATION
POOL CERTIFICATION
WHEREAS, the undersigned is an Authorized Officer of First Chicago
National Processing Corporation, in its capacity as custodian (the "Custodian")
under the Custodial Agreement dated __________, 20__, between the Custodian and
_______________, acting in its capacity as trustee (the "Trustee") of a certain
pool of home equity loans (the "Pool") heretofore conveyed in trust to the
Trustee, pursuant to that certain Pooling and Servicing Agreement dated as of
__________, 20__, (the "Pooling and Servicing Agreement") among CHEC Funding,
LLC, as depositor, Centex Credit Corporation d/b/a Centex Home Equity
Corporation, as seller and servicer ("Centex"), and Trustee, as trustee; and
WHEREAS, the Custodian is required, pursuant to Section 3.06(a) of the
Pooling and Servicing Agreement, to review the Files relating to the Home Equity
Loans within a specified period following the Startup Day and to notify the
Seller promptly of any defects with respect to the Home Equity Loans, and the
Seller is required to remedy such defects or take certain other action, all as
set forth in Section 3.06(b) of the Pooling and Servicing Agreement; and
WHEREAS, Section 3.06(a) of the Pooling and Servicing Agreement
requires the Custodian to deliver this Pool Certification upon the satisfaction
of certain conditions set forth therein.
NOW, THEREFORE, the Custodian hereby certifies that it has determined
that all required documents (or certified copies of documents listed in Section
3.05 of the Pooling and Servicing Agreement) have been executed or received, and
that such documents relate to the Home Equity Loans identified in the Schedule
of Home Equity Loans pursuant to Section 3.06(a) of the Pooling and Servicing
Agreement or, in the event that such documents have not been executed and
received or do not so relate to such Home Equity Loans, any remedial action by
the Seller pursuant to Section 3.06(b) of the Pooling and Servicing Agreement
has been completed. The Custodian makes no certification hereby, however, with
respect to any intervening assignments or assumption and modification
agreements.
F-1-1
<PAGE>
Capitalized terms used but not defined herein shall have the meanings ascribed
to such terms in the Pooling and Servicing Agreement.
FIRST CHICAGO NATIONAL PROCESSING
CORPORATION, as Custodian
By: ________________________
Name:
Title
Dated: __________, 20__
F-1-2
<PAGE>
EXHIBIT G
FORM OF DELIVERY ORDER
DELIVERY ORDER
_______________________
_______________________
_______________________
Dear Sirs:
Pursuant to Section 4.01 of the Pooling and Servicing Agreement, dated
as of __________, 20__ (the "Pooling and Servicing Agreement") among CHEC
Funding, LLC, as Depositor, Centex Credit Corporation d/b/a Centex Home Equity
Corporation, a Nevada corporation, as Seller and Servicer, and _______________,
as Trustee (the "Trustee"), THE DEPOSITOR HEREBY CERTIFIES that all conditions
precedent to the issuance of the Centex Home Equity Loan Trust 2000-__ Home
Equity Loan Asset-Backed Certificates, Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5, Class A-6, Class A-7, Class X-IO and Class R (the
"Certificates"), HAVE BEEN SATISFIED, and HEREBY REQUESTS YOU TO AUTHENTICATE
AND DELIVER said Certificates, and to RELEASE said Certificates to the owners
thereof, or otherwise upon their order. Instructions regarding the registration
of the Certificates are attached hereto.
Very truly yours,
CHEC FUNDING, LLC
By: _________________________________
Title: _________________________________
Dated: ____ __, 200_
G-1
<PAGE>
EXHIBIT H
FORM OF CLASS R TAX MATTERS TRANSFER CERTIFICATE
AFFIDAVIT PURSUANT TO SECTION
860E(e) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED
STATE OF )
) ss:
COUNTY OF )
[NAME OF OFFICER], being first duly sworn, deposes and says:
1. That he is [Title of Officer] of [Name of Investor] (the
"Investor"), a [savings institution] [corporation] duly organized and existing
under the laws of [the State of _________] [the United States], on behalf of
which he makes this affidavit.
2. That (i) the Investor is not a "disqualified organization" and will
not be a "disqualified organization" as of [date of transfer] (For this purpose,
a "disqualified organization" means the United States, any state or political
subdivision thereof, any foreign government, any international organization, any
agency or instrumentality of any of the foregoing (other than certain taxable
instrumentalities), any cooperative organization furnishing electric energy or
providing telephone service to persons in rural areas, or any organization
(other than a farmers' cooperative) that is exempt from federal income tax
unless such organization is subject to the tax on unrelated business income.);
(ii) it is not acquiring the Class R Certificate for the account of a
disqualified organization; (iii) it consents to any amendment of the Pooling and
Servicing Agreement that shall be deemed necessary by the Trustee (upon advice
of counsel) to constitute a reasonable arrangement to ensure that the Class R
Certificates will not be owned directly or indirectly by a disqualified
organization; and (iv) it will not transfer such Class R Certificate unless (a)
it has received from the transferee an affidavit in substantially the same form
as this affidavit containing these same four representations and (b) as of the
time of the transfer, it does not have actual knowledge that such affidavit is
false.
H-1-1
<PAGE>
IN WITNESS WHEREOF, the Investor has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
[Title of Officer] and its corporate seal to be hereunto attached, attested by
its [Assistant] Secretary, this ___ day of __________, 2000.
[NAME OF INVESTOR]
By: _____________________
[Name of Officer]
[Title of Officer]
[Corporate Seal]
Attest:
__________________________
[Assistant] Secretary
Personally appeared before me the above-named [Name of Officer], known
or proved to be the same person who executed the foregoing instrument and to be
the [Title of Officer] of the Investor, and acknowledged to me that he executed
the same as his free act and deed and the free act and deed of the Investor.
Subscribed and sworn before me this __ day of ____________, 2000.
___________________
NOTARY PUBLIC
COUNTY OF __________________
STATE OF ____________________
My commission expires the _ day of _______________, 2000.
H-1-2
<PAGE>
EXHIBIT I-1
FORM OF CERTIFICATE REGARDING TRANSFER
(ACCREDITED INVESTOR)
[DATE]
______________________
______________________
______________________
Attention: Advanced Structured Products Services
Re: Centex Home Equity Loan Trust 2000-__
Home Equity Loan Asset-Backed Certificates
("CERTIFICATES")
Gentlemen:
In connection with our purchase on the date hereof of the
above-referenced Certificates from ___________________ ("Seller"), [PURCHASER]
(the "Purchaser") hereby certifies that:
1. The Purchaser is acquiring the Certificates for [investment purposes
only for](1) the Purchaser's own account and not with a view to or for sale or
transfer in connection with any distribution thereof in any manner which would
violate Section 5 of the Securities Act of 1933, as amended (the "Act"),
provided that the disposition of its property shall at all times be and remain
within its control;
2. The Purchaser understands that the Certificates have not been and
will not be registered under the Act and may not be resold or transferred unless
they are (a) registered pursuant to the Act or (b) sold or transferred in
transactions which are exempt from registration;
3. The Purchaser has received a copy of the Pooling and Servicing
Agreement dated as of __________, 20__ (the "Pooling and Servicing Agreement")
pursuant to which the Certificates are being sold, and such other documents and
information concerning the Certificates and the home equity loans in which the
Certificates represent interests which it has requested;
4. The Purchaser believes it has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of an investment in the Certificates and that it is able to bear the
economic risks of such an investment;
- ----------------------
(1) Not required if the Purchaser is a broker/dealer.
I-1
<PAGE>
5. The Purchaser is not an employee benefit plan subject to Section
406 of ERISA nor a plan or other arrangement subject to Section 406 of ERISA
nor a plan or other arrangement subject to Section 4975 of the Code
(collectively, a "Plan"), nor is acting on behalf of any Plan nor using the
assets of any Plan to effect such transfer or (ii) in the event that any
Class X-IO or Class R Certificate is purchased by a Plan, or by a person or
entity acting on behalf of any Plan or using the assets of any Plan to effect
such transfer (including the assets of any Plan held in an insurance company
separate or general account), an Opinion of Counsel, acceptable to and in
form and substance satisfactory to the Trustee and the Certificate Insurer,
which Opinion of Counsel shall not be at the expense of either the Trustee,
the Certificate Insurer or the Trust, to the effect that the purchase or
holding of any Class X-IO or Class R Certificates will not result prohibited
transaction under ERISA and/or Section 4975 of the Code, and will not subject
the Trustee to any obligation or liability in addition to those expressly
undertaken under this Agreement. Notwithstanding anything else to the
contrary herein, any purported transfer of a Certificate to or on behalf of
any Plan without the delivery to the Trustee and the Certificate Insurer of
an Opinion of Counsel as described above shall be null and void and no effect;
6. If the Purchaser sells any of the Certificates at its option, it
will (i) obtain from any investor that purchases any Certificate from it a
letter substantially in the form of Exhibit J-1 or J-2 to the Pooling and
Servicing Agreement and (ii) to the extent required by the Pooling and
Servicing Agreement, cause an Opinion of Counsel to be delivered, addressed
and satisfactory to the Seller and the Trustee, to the effect that such sale
is in compliance with all applicable federal and state securities laws; and
7. The Purchaser certifies that for purposes of the Certificate
Register, its address, including telecopier number and telephone number, is
as follows:
telecopier:
telephone:
8. The purchase of the Certificates by the Purchaser does not
violate the provisions of the first sentence of Section 5.08(d) of the
Pooling and Servicing Agreement.
I-1-2
<PAGE>
IN WITNESS WHEREOF, the Purchaser has caused this letter to be executed
by its signatory, duly authorized, as of the date first above written.
[PURCHASER]
By: ______________________
Name: ____________________
Title: ___________________
I-1-3
<PAGE>
EXHIBIT I-2
FORM OF CERTIFICATE REGARDING TRANSFER
(Rule 144A)
[Date]
_____________________
_____________________
_____________________
Attention: Advanced Structured Products Services
Re: Centex Home Equity Loan Trust 2000-__
Home Equity Loan Asset-Backed Certificates,
Class ___-_____ ("Certificates")
Dear Gentlemen or Ladies:
In connection with our purchase on the date hereof of the
above-referenced Certificates from ______________________ ("Seller") hereby
certify that:
1. We are acquiring the Certificates for our own account for investment
and not with a view to or for sale or transfer in connection with any
distribution thereof in any manner which would violate the Securities Act of
1933, as amended (the "Act"), provided that the disposition of our property
shall at all times be and remain within our control;
2. We understand that the Certificates have not been and will not be
registered under the Act and may not be resold or transferred unless they are
(a) registered pursuant to the Act or (b) sold or transferred in transactions
which are exempt from registration;
3. We have received a copy of the Pooling and Servicing Agreement dated
as of __________, 20__ (the "Pooling and Servicing Agreement") pursuant to which
the Certificates are being sold, and such other documents and information
concerning the Certificates and the home equity loans in which the Certificates
represent interests which we have requested;
4. We believe we have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Certificates and that we are able to bear the economic risks
of such an investment;
5. If we sell any of the Certificates at our option, we will either (i)
obtain from any institutional investor that purchases any Certificate from us a
certificate containing the same representations, warranties and agreements
contained in the foregoing paragraphs 1, 2 through 4 and this paragraph 5 or
(ii) deliver an Opinion of Counsel to such institutional investor, addressed and
satisfactory to the Seller and the Trustee, to the effect that such sale is in
compliance with all applicable federal and state securities laws;
I-2-1
<PAGE>
6. We are acquiring the Certificates for our own account and the source
of funds is not an employee benefit plan subject to Section 406 of ERISA nor a
plan or other arrangement subject to Section 406 of ERISA nor a plan or other
arrangement subject to Section 4975 of the Code (collectively, a "Plan"), nor is
acting on behalf of any Plan nor using the assets of any Plan to effect such
transfer or (ii) in the event that any Class X-IO or Class R Certificate is
purchased by a Plan, or by a person or entity acting on behalf of any Plan or
using the assets of any Plan to effect such transfer (including the assets of
any Plan held in an insurance company separate or general account), an Opinion
of Counsel, acceptable to and in form and substance satisfactory to the Trustee
and the Certificate Insurer, which Opinion of Counsel shall not be at the
expense of either the Trustee, the Certificate Insurer or the Trust, to the
effect that the purchase or holding of any Class X-IO or Class R Certificates
will not result prohibited transaction under ERISA and/or Section 4975 of the
Code, and will not subject the Trustee to any obligation or liability in
addition to those expressly undertaken under this Agreement. Notwithstanding
anything else to the contrary herein, any purported transfer of a Certificate to
or on behalf of any Plan without the delivery to the Trustee and the Certificate
Insurer of an Opinion of Counsel as described above shall be null and void and
no effect;
7. We certify that for purposes of the Certificate Register, our
address, including telecopier number and telephone number, is as follows:
___________________________________________
___________________________________________
___________________________________________
telecopier: _______________________________
telephone: ________________________________
8. If we sell any of the Certificates, we will obtain from any
purchaser from us the same representations contained in the foregoing paragraph
6 and this paragraph 7; and
9. Our purchase of the Certificates does not violate the provisions of
the first sentence of Section 5.08(d) of the Pooling and Servicing Agreement.
I-2-2
<PAGE>
IN WITNESS WHEREOF, we have signed this certificate as of the date
first written above.
By: ___________________________
Name: _________________________
Title: ________________________
I-2-3
<PAGE>
EXHIBIT J
HOME EQUITY LOANS WITH DOCUMENT EXCEPTIONS
<TABLE>
<CAPTION>
Loan Number Borrower Name Original Loan Amount Exception
- ----------- ------------- -------------------- ----------
<S> <C> <C> <C>
</TABLE>
J-1
<PAGE>
EXHIBIT K
DEFINITION OF GROUP II TARGET OVERCOLLATERALIZATION AMOUNT
(AND RELATED DEFINITIONS)
"GROUP II DELINQUENCY AMOUNT" means, with respect to each Distribution
Date, the product of (i) the Group II Delinquency Percentage and (ii) the
aggregate Loan Balance of the Home Equity Loans in Group II as of the end of the
related Remittance Period.
"GROUP II DELINQUENCY PERCENTAGE" means with respect to Group II and
any date of determination, the average of the percentage equivalents of the
fractions determined for each of the three immediately preceding Remittance
Periods the numerator of each of which is equal to (x) the sum (without
duplication) of (i) the aggregate Loan Balance of the Home Equity Loans in Group
II which are 90-Day Delinquent Loans, (ii) the aggregate Loan Balance of the
Home Equity Loans in Group II in foreclosure and (iii) the aggregate Loan
Balance of the Home Equity Loans in Group II relating to REO Properties, in each
case as of the end of such Remittance Period and the denominator of which is (y)
the aggregate Loan Balance of the Home Equity Loans in Group II as of the end of
such Remittance Period.
"GROUP II INITIAL TARGET OVERCOLLATERALIZATION AMOUNT" means the Group
II Target Percentage times the Original Group II Pool Balance.
"GROUP II TARGET OVERCOLLATERALIZATION AMOUNT" means:
(a) for any Distribution Date occurring during the period commencing
on the Startup Day and ending on the later of (A) the date upon which
principal in the amount equal to one half of the Original Group II Pool
Balance has been received by the Owners of the Class A-7 Certificates and (B)
the thirtieth Distribution Date following the Startup Day, the greater of:
(i) the Group II Initial Target Overcollateralization Amount, and (ii) ___%
of the Group II Delinquency Amount.
(b) for any Distribution Date occurring after the end of the period in
clause (a) above, the greatest of (i)(x) two times the Group II Target
Percentage times (y) the aggregate Loan Balance of the Home Equity Loans in
Group II with respect to Group II as of the end of the immediately preceding
Remittance Period, (ii) ___% of the Original Group II Pool Balance, (iii) ___%
of the Group II Delinquency Amount and (iv) the aggregate principal balance of
the three Home Equity Loans with the largest outstanding principal balances in
Group II as of the end of the immediately preceding Remittance Period;
provided, however, for any Distribution Date occurring after the end of the
period specified in clause (a) above, if the Group II Delinquency Percentage
exceeds ___%, the Group II Target
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Overcollateralization Amount shall be no less than the Group II Target
Overcollateralization Amount as of the previous Distribution Date.
The Certificate Insurer may, in its sole discretion, modify this definition of
Group II Target Overcollateralization Amount for the purpose of reducing or
eliminating, in whole or in part, the definition hereof. The Trustee and the
Rating Agencies shall be notified in writing of such modification prior to the
related Distribution Date and such modification shall not result in a
downgrading of the then-current ratings of the Class A Certificates, without
regard to the Certificate Insurance Policies.
"GROUP II TARGET PERCENTAGE" means ___%.
"ORIGINAL GROUP II POOL BALANCE" means the aggregate Loan Balance of
the Home Equity Loans in Group II as of the Cut-Off Date.
K-1-2
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EXHIBIT L
DEFINITION OF GROUP I TARGET OVERCOLLATERALIZATION AMOUNT
(AND RELATED DEFINITIONS)
"GROUP I DELINQUENCY AMOUNT" means with respect to each Distribution
Date the product of (i) the Group I Delinquency Percentage and (ii) the
aggregate Loan Balance of the Home Equity Loans in Group I as of the end of the
related Remittance Period.
"GROUP I DELINQUENCY PERCENTAGE" means with respect to Group I and any
date of determination, the average of the percentage equivalents of the
fractions determined for each of the three immediately preceding Remittance
Periods the numerator of each of which is equal to (x) the sum (without
duplication) of (i) the aggregate Loan Balance of the Home Equity Loans in the
Group I which are 90-Day Delinquent Loans, (ii) the aggregate Loan Balance of
the Home Equity Loans in the Group I in foreclosure and (iii) the aggregate Loan
Balance of Home Equity Loans in Group I relating to REO Properties, in each case
as of the end of such Remittance Period and the denominator of which is (y) the
aggregate Loan Balance of the Home Equity Loans in Group I as of the end of such
Remittance Period.
"GROUP I INITIAL TARGET OVERCOLLATERALIZATION AMOUNT" means the Group I
Target Percentage times the Original Group I Pool Balance.
"GROUP I TARGET OVERCOLLATERALIZATION AMOUNT" means:
(a) for any Distribution Date occurring during the period commencing on
the Startup Day and ending on the later of (A) the date upon which principal in
the amount equal to one half of the Original Group I Pool Balance has been
received by the Owners of the Group I Certificates and (B) the thirtieth
Distribution Date following the Startup Day, the greater of: (i) the Group I
Initial Target Overcollateralization Amount, and (ii) ___% of the Group I
Delinquency Amount.
(b) for any Distribution Date occurring after the end of the period in
clause (a) above, the greatest of (i)(x) two times the Group I Target Percentage
times (y) the aggregate Loan Balance of the Home Equity Loans in Group I as of
the end of the preceding Remittance Period, (ii) .___% of the Original Group I
Pool Balance, (iii) ___% of the Group I Delinquency Amount, and (iv) the
aggregate principal balance of the three Home Equity Loans with the largest
outstanding principal balances in the Group I as of the end of the preceding
Remittance Period;
provided, however, for any Distribution Date occurring after the end of the
period specified in clause (a) above, if the Group I Delinquency Percentage
exceeds ___%, the Group I Target Overcollateralization Amount shall be no less
than the Group I Target Overcollateralization Amount as of the previous
Distribution Date.
The Certificate Insurer may, in its sole discretion, modify the
definition of Group I Target Overcollateralization Amount for the purpose of
reducing or eliminating, in whole or in part, the
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definition hereof. The Trustee and the Rating Agencies shall be notified in
writing of such modification prior to the related Distribution Date and such
modification shall not result in a downgrading of the then-current ratings of
the Class A Certificates, without regard to the Certificate Insurance
Policies.
"GROUP I TARGET PERCENTAGE" means ___%.
"ORIGINAL GROUP I POOL BALANCE" means the aggregate Loan Balance of the
Home Equity Loans in Group I as of the Cut-Off Date.
L-1-2
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EXHIBIT M
FORM OF LETTER REGARDING REPORTING OBLIGATIONS UNDER
THE SECURITIES EXCHANGE ACT OF 1934
________, 200_
_____________________
_____________________
_____________________
Re: CENTEX HOME EQUITY LOAN TRUST 2000-__
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES,
SERIES 2000-
Ladies and Gentlemen:
Pursuant to and in reference to Section 7.09(c) of the Pooling and
Servicing Agreement dated as of __________, 20__ relating to the above
referenced Certificates, please note the following:
(a) CIK Number for Centex Home Equity Loan Trust 2000-__ (the
"Trust"): .
(b) CCC for the Trust: .
In order to comply with the reporting obligations for the Trust under
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), the
Trustee must file within 15 days following each Distribution Date a copy of the
report distributed by the Trustee to the Certificateholders in a current report
on Form 8-K. Such reports provide all current information ordinarily of interest
to the Certificateholders. The Trustee must also report on a current report on
Form 8-K any significant occurrences during the reporting period that would be
reportable under Item 1, Item 2, Item 4 and Item 5. In addition, the Trustee
should cause the filing of an annual report on Form 10-K within 90 days
following the end of the Trust's fiscal year containing the following
information:
Part I, Item 3. A description of any material pending
litigation;
Part I, Item 4. A description of any submission matters to
vote of Certificateholders;
Part II, Item 5. A statement of the number of
Certificateholders and the principal
market, if any, in which the Certificates
trade;
Part II, Item 9. A statement as to any changes in or
disagreements with the independent public
accounts for the Trust;
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Part IV, Item 14. A copy of the annual certificate of
compliance by an officer of the Servicer,
and any Subservicer and the audit of the
servicing by the independent accounting
firm.
Promptly after filing the Form 10-K, the Trustee should file a Form 15 in
accordance with Section 7.09(c) of the Pooling and Servicing Agreement,
deregistering the Trust and terminating the reporting obligations under the
All filings must be made through the Edgar System and all acceptance slips from
the filings should be saved as they will be needed for the annual certificate.
CHEC FUNDING, LLC
By: ______________________________
Name:
Title:
E-2
<PAGE>
Exhibit 4.4
SALE AND SERVICING AGREEMENT
Dated as of ____________ __, 2000
among
CENTEX CREDIT CORPORATION
d/b/a
CENTEX HOME EQUITY CORPORATION
(Seller and Servicer)
CHEC FUNDING, LLC
(Depositor)
CENTEX HOME EQUITY LOAN TRUST 2000-__
(Trust)
and
--------------------------------------------
(Indenture Trustee)
CENTEX HOME EQUITY LOAN TRUST 2000-__
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
Section 1.01 Definitions.................................................................................6
Section 1.02 Other Definitional Provisions..............................................................35
Section 1.03 Captions; Table of Contents................................................................35
Section 1.04 Opinions...................................................................................36
ARTICLE II
CONVEYANCE OF THE HOME EQUITY LOANS
Section 2.01 Conveyance of the Home Equity Loans........................................................37
Section 2.02 Representations and Warranties of the Depositor............................................37
Section 2.03 Representations and Warranties of the Servicer.............................................39
Section 2.04 Representations and Warranties of the Seller...............................................42
Section 2.05 Covenants of Seller to Take Certain Actions with Respect to the Home Equity Loans
in Certain Situations......................................................................45
Section 2.06 Sale Treatment of the Home Equity Loans and Qualified Replacement Mortgages................54
Section 2.07. Acceptance by Indenture Trustee; Certain Substitutions of Home Equity Loans;
Certification by Indenture Trustee.........................................................58
Section 2.08. Custodian..................................................................................60
Section 2.09. Cooperation Procedures.....................................................................60
ARTICLE III
ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS
Section 3.01 The Servicer...............................................................................62
Section 3.02 Collection of Certain Home Equity Loan Payments............................................64
Section 3.03 Principal and Interest Account.............................................................65
Section 3.04 Delinquency Advances and Servicing Advances................................................67
Section 3.05 Compensating Interest; Repurchase of Home Equity Loans.....................................68
Section 3.06 Maintenance of Insurance...................................................................69
Section 3.07 Reserved...................................................................................69
Section 3.08 Reserved...................................................................................69
Section 3.09 Due-on-Sale Clauses; Assumption and Substitution Agreements................................69
Section 3.10 Realization Upon Defaulted Home Equity Loans; Workout of Home Equity Loans.................71
Section 3.11 Indenture Trustee to Cooperate; Release of Mortgage Files..................................72
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Section 3.12 Servicing Compensation.....................................................................73
Section 3.13 Annual Statement as to Compliance..........................................................74
Section 3.14 Annual Independent Certified Public Accountants' Reports...................................74
Section 3.15 Reserved...................................................................................74
Section 3.16 Assignment of Agreement....................................................................74
Section 3.17 Inspections by Insurer; Errors and Omissions Insurance.....................................75
Section 3.18 Additional Servicing Responsibilities for Second Mortgage Loans............................75
Section 3.19 The Group III Home Equity Loans............................................................75
Section 3.20 Reserved...................................................................................76
Section 3.21 Notices of Material Events.................................................................76
Section 3.22 Reports on Foreclosure and Abandonment of Properties.......................................76
ARTICLE IV
INSURER
Section 4.01 Claims upon the Insurance Policies.........................................................78
Section 4.02 Effect of Payments by the Insurer; Subrogation.............................................79
Section 4.05 Replacement Insurance Policy...............................................................79
ARTICLE V
PRIORITY OF DISTRIBUTIONS; STATEMENTS TO NOTEHOLDERS; RIGHTS OF NOTEHOLDERS
Section 5.01 Distributions..............................................................................81
Section 5.02 Calculation of the Note Rate...............................................................83
Section 5.03 Statements to Noteholders..................................................................83
Section 5.04 Cross-Collateralization Reserve Accounts...................................................87
Section 5.05 Distribution Account.......................................................................88
Section 5.06 Investment of Accounts.....................................................................88
ARTICLE VI
THE SELLER, THE SERVICER AND THE DEPOSITOR
Section 6.01 Liability of the Seller, the Servicer and the Depositor....................................91
Section 6.02 Merger or Consolidation of, or Assumption of the Obligations of, the Seller, the
Servicer or the Depositor..................................................................91
Section 6.03 Limitation on Liability of the Servicer and Others.........................................91
Section 6.04 Servicer Not to Resign.....................................................................92
Section 6.05 Delegation of Duties.......................................................................92
Section 6.06 Indemnification by the Servicer............................................................92
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ARTICLE VII
SERVICING TERMINATION
Section 7.01 Events of Servicing Termination............................................................94
Section 7.02 Indenture Trustee to Act; Appointment of Successor.........................................96
Section 7.03 Waiver of Defaults.........................................................................97
Section 7.04 Notification to Noteholders................................................................97
ARTICLE VIII
TERMINATION
Section 8.01 Termination................................................................................98
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.01 Amendment.................................................................................100
Section 9.02 Recordation of Agreement..................................................................101
Section 9.03 Duration of Agreement.....................................................................101
Section 9.04 Governing Law.............................................................................101
Section 9.05 Notices...................................................................................102
Section 9.06 Severability of Provisions................................................................102
Section 9.07 No Partnership............................................................................102
Section 9.08 Counterparts..............................................................................102
Section 9.09 Successors and Assigns....................................................................102
Section 9.10 Headings..................................................................................103
Section 9.11 Indenture Trustee.........................................................................103
Section 9.12 Reports to Rating Agencies................................................................103
Section 9.13 Inconsistencies Among Transaction Documents...............................................103
Section 9.14 Rights of the Insurer to Exercise Rights of Noteholders...................................103
</TABLE>
EXHIBITS
EXHIBIT A-1 Home Equity Loan Schedule for Group I
EXHIBIT A-2 Home Equity Loan Schedule for Group II
EXHIBIT A-3 Home Equity Loan Schedule for Group III
[EXHIBIT B List of Servicing Officers]
[EXHIBIT C Form of Monthly Statement to Noteholders]
[EXHIBIT D Form of Servicing Certificate]
[EXHIBIT E Letter of Depositor to Indenture Trustee Re: Exchange Act Reports]
[EXHIBIT F Form of Liquidation Report]
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[EXHIBIT G Form of Notes]
[EXHIBIT H Form of Mortgage Note]
[EXHIBIT I Form of Mortgage]
[EXHIBIT J Form of Request for Release]
[EXHIBIT K Specimens of Insurance Policies]
[EXHIBIT L Custodial Fee Letter]
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<PAGE>
This Sale and Servicing Agreement (the "Agreement") is entered into
effective as of ____________________, among CENTEX HOME EQUITY LOAN TRUST
2000-__, a Delaware business trust (the "Trust"), CENTEX CREDIT CORPORATION
d/b/a CENTEX HOME EQUITY CORPORATION, a Nevada corporation ("Centex") as seller
(the "Seller") and as servicer (the "Servicer"), CHEC FUNDING, LLC, a Delaware
limited liability company, as depositor (the "Depositor"), and
____________________, a ____________ banking corporation, as Indenture Trustee
on behalf of the Noteholders (in such capacity, the "Indenture Trustee").
PRELIMINARY STATEMENT
WHEREAS, the Seller desires to sell to the Depositor, the Depositor
desires to purchase from the Seller and to sell to the Trust, and the Trust
desires to purchase from the Depositor a pool of Home Equity Loans, divided into
three separate loan groups, which were originated by the Seller in the ordinary
course of business of the Seller; and
WHEREAS, the Servicer is willing to service such Home Equity 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:
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<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 Principal and Interest Account, the Distribution
Account, the Group I Cross-Collateralization Reserve Account, the Group II
Cross-Collateralization Reserve Account or Group III Cross-Collateralization
Reserve Account.
ADJUSTMENT DATE: As to each adjustable-rate Home Equity Loan, each date
on which the related Coupon Rate is subject to adjustment, as provided in the
related Mortgage Note.
ADMINISTRATION AGREEMENT: The Administration Agreement dated as of
__________ among the Trust, the Administrator, the Indenture Trustee and
Centrex.
ADMINISTRATOR: _______________________.
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.
ANNUAL LOSS PERCENTAGE (ROLLING TWELVE MONTH): As of any date of
determination thereof, a fraction, expressed as a percentage, the numerator of
which is the aggregate of the Realized Losses as of the last day of the calendar
month of each Remittance Period for the twelve immediately preceding Remittance
Periods and the denominator of which is the aggregate of the Principal Balances
as of the first day of the first such Remittance Period.
APPRAISED VALUE: The appraised value of any Mortgaged Property based
upon the appraisal made at the time of the origination of the related Home
Equity Loan, or, in the case of a Home Equity Loan which is a purchase money
mortgage or with respect to which the Mortgaged Property was sold within 12
months preceding the time of origination, the sales price of the Mortgaged
Property, if such sales price is less than such appraised value.
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
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<PAGE>
Indenture Trustee, which assignment, notice of transfer or equivalent
instrument may be in the form of one or more blanket assignments covering the
Home Equity Loans secured by Mortgaged Properties located in the same
jurisdiction.
AUTHORIZED OFFICER: With respect to any Person, any officer of such
Person who is authorized to act for such Person in matters relating to this
Agreement, and whose action is binding upon such Person; with respect to the
Indenture Trustee, Depositor, the Seller and the Servicer, initially including
those individuals whose names appear on the lists of Authorized Officers
delivered at the Closing; with respect to the Indenture Trustee, any officer
assigned to the Corporate Trust Department (or any successor thereto), including
any Vice President, Assistant Vice President, Trust Officer, any Assistant
Secretary, any trust officer 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.
AVAILABLE FUNDS: As to any Distribution Date and Group, the sum of (A)
the Monthly Remittance Amount; (B) Insured Payments, if any, in respect of such
Group; (C) the amount of any Cross-Collateralization Payment in respect of the
other Groups and Distribution Date; (D) any Delinquency Advances made during the
related Remittance Period; (E) the proceeds of any liquidation of the Trust
Estate; and (F) any Termination Price with respect to the related Home Equity
Loans deposited to the Distribution Account pursuant to Section 8.01(b).
AVAILABLE FUNDS CAP: With respect to any Interest Period and any
Distribution Date, a rate per annum equal to the fraction, expressed as a
percentage, the numerator of which is an amount equal to (i) the product of (A)
the weighted average of the Net Coupon Rates (net of the Minimum Spread) of the
Home Equity Loans in Group III (by outstanding principal balance) at the
beginning of the related Remittance Period, and (B) the aggregate Principal
Balance of the Home Equity Loans in Group III as of the beginning of the
Remittance Period), minus (ii) the product of (A) the Class A-3 Note Rate and
(B) the Outstanding Note Principal Balance before giving effect to payments of
principal on such Distribution Date, and the denominator of which is the
outstanding Outstanding Note Principal Balance before giving effect to payments
of principal on such Distribution Date such rate, as calculated on the basis of
a 360 day year and the actual number of days elapsed in the related Interest
Period.
BASE O/C AMOUNT: With respect to any Distribution Date and Group, an
amount equal to the product of (x) the related Base O/C Percentage and (y) the
Cut-Off Date Principal Balance for such Group.
BASE O/C PERCENTAGE: With respect to Group I, ___%, with respect to
Group II, ___% and with respect to Group III, __%.
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
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<PAGE>
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 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 a Saturday, Sunday or a day on which
commercial banking institutions in New York, New York, Dallas, Texas, the State
of Maryland, the city in which the Corporate Trust Office of
______________________ is located, the city in which the Insurer is located, or,
with respect to the obligations of the Custodian hereunder, the State of
California, are authorized or obligated by law or executive order to be closed.
BUSINESS TRUST STATUTE: Chapter 38 of Title 12 of the Delaware Code, 12
Del. Code Sections 3801 ET SEQ., as the same may be amended from time to time.
CLASS: With respect to each of the Class A-1 Notes, Class A-2 Notes and
Class A-3 Notes, all of the Notes of such Class.
CLASS A-1 INTEREST RATE CAP: For any Distribution Date, as of the
related Monthly Remittance Date, a rate per annum equal to the weighted average
of the Net Coupon Rates on the Home Equity Loans in Group I as of the beginning
of the related Remittance Period.
CLASS A-1 NOTE: Any Class A-1 Note executed by the Trust and
authenticated by the Indenture Trustee substantially in the form set forth in
Exhibit ______ hereto.
CLASS A-1 NOTE RATE: For any Distribution Date and the applicable
Interest Period, the lesser of (A) in any month up to and including the month in
which the Clean-Up Call Date occurs, ___% per annum, and ___% thereafter; and
(B) the Class A-1 Interest Rate Cap.
CLASS A-2 INTEREST RATE CAP: For any Distribution Date, as of the
related Monthly Remittance Date, a rate per annum equal to the weighted average
of the Net Coupon Rates on the Home Equity Loans in Group II as of the beginning
of the related Remittance Period.
CLASS A-2 NOTE: Any Class A-2 Note executed by the Trust and
authenticated by the Indenture Trustee substantially in the form set forth in
Exhibit _______ hereto.
CLASS A-2 NOTE RATE: For any Distribution Date and the applicable
Interest Period, the lesser of (A) in any month up to and including the month in
which the Clean-Up Call Date occurs, __% per annum, and ___% thereafter; and (B)
the Class A-2 Interest Rate Cap.
CLASS A-3 NOTE: Any Class A-3 Note executed by the Trust and
authenticated by the Indenture Trustee substantially in the form set forth in
Exhibit _______ hereto.
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CLASS A-3 NOTE RATE: For any Distribution Date and the applicable
Interest Period, the lesser of the Class A-3 Formula Rate and (B) the Available
Funds Cap.
CLASS A-3 FORMULA RATE: For any Distribution Date and the applicable
Interest Period, the sum of (A) One-Month LIBOR and (B) in any month up to and
including the month in which the Clean-Up Call Date occurs, __% per annum, and
__% per annum thereafter.
CLEAN-UP CALL DATE: The first Monthly Remittance Date on which the
aggregate outstanding principal balances of the Home Equity Loans as of the
close of business on the last day of the immediately preceding Remittance Period
has declined to 10% or less of the Maximum Collateral Amount.
CLOSING DATE: _____________, 2000.
CODE: The Internal Revenue Code of 1986, as amended from time to time,
and Treasury Regulations promulgated thereunder.
COMBINED LOAN-TO-VALUE RATIO or CLTV: With respect to any Home Equity
Loan, the sum of the original principal balance of such Home Equity Loan and the
outstanding principal balance of the First Lien, if any, as of the date of
origination of the Home Equity Loan, divided by the Appraised Value.
COMPENSATING INTEREST: As to any Distribution Date, the amount
calculated pursuant to Section 3.05.
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 ________________________.
COUPON RATE: The rate of interest borne by each Mortgage Note from time
to time.
CRAM DOWN LOSS: With respect to a Home Equity Loan, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the Principal Balance of such Home Equity Loan, the amount of such
reduction. A "Cram Down Loss" shall be deemed to have occurred on the date of
issuance of such order.
CROSS-COLLATERALIZATION PAYMENT: For any Distribution Date and Group,
subject to Section 5.04(d), the lesser of (a) the sum of (i) the Excess
Available Funds in respect of such Group and Distribution Date and (ii) amounts
withdrawn from the Cross-Collateralization Reserve Account for such Group and
Distribution Date pursuant to Sections 5.04(b) and (c), and (b) the sum of (i)
any Interest Deficiency, (ii) any Insurer Reimbursement Deficiency and (iii) any
Undercollateralization Amount, in each case for such Distribution Date and with
respect to the other Groups.
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CROSS-COLLATERALIZATION RESERVE ACCOUNT: Any of the Group I
Cross-Collateralization Reserve Account, Group II Cross-Collateralization
Reserve Account or Group III Cross-Collateralization Account established
pursuant to Section 5.04.
CROSS-COLLATERALIZATION RESERVE DEPOSIT: For any Group and Distribution
Date, the lesser of (a) Remaining Excess Available Funds, and (b) the product of
(x) the excess of (i) the Required Cross-Collateralization Reserve Amount for
such Group over (ii) the amount on deposit in the Cross-Collateralization
Reserve Account for such Group and (y) a fraction, the numerator of which is the
Remaining Excess Available Funds for such Group and Distribution Date and the
denominator of which is the aggregate Remaining Excess Available Funds for all
Groups for such Distribution Date.
CROSS-COLLATERALIZATION RESERVE RELEASE AMOUNTS: For any Group and
Distribution Date, the product of (x) the excess, if any, of (a) the aggregate
amount on deposit in the Cross-Collateralization Reserve Account for all Groups
on such Distribution Date, as reduced by amounts withdrawn from such
Cross-Collateralization Reserve Accounts pursuant to Sections 5.04(b) and (c)
for such Distribution Date, over (b) the Required Aggregate
Cross-Collateralization Reserve Amount for all Groups on such Distribution Date
and (y) a fraction, the numerator of which is the amount on deposit in the
Cross-Collateralization Reserve Account for such Group on such Distribution
Date, as reduced by amounts withdrawn from such Cross-Collateralization Reserve
Account pursuant to Sections 5.04(b) and (c) for such Distribution Date and the
denominator of which is the amount calculated pursuant to subclause (a) of
clause (x) above.
CUMULATIVE LOSS PERCENTAGE: As of any date of determination thereof,
the aggregate of all Realized Losses since the Startup Day as a percentage of
the Maximum Collateral Amount.
CUMULATIVE UNCOVERED LOSSES: For any Group and Distribution Date, the
sum of Uncovered Losses in respect of such Group for such Distribution Date and
all prior Distribution Dates.
CURTAILMENT: With respect to a Home Equity Loan, any payment of
principal received during a Remittance Period as part of a payment that is in
excess of the amount of the Monthly Payment due for such Remittance Period and
which is not intended to satisfy the Home Equity 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 AGREEMENT: The Custodial Agreement dated as of _____________
between the Custodian and the Indenture Trustee.
CUSTODIAN: The Indenture Trustee.
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CUSTODIAL FEE: The fees and expenses as set forth in the Custodial
Agreement.
CUT-OFF DATE: The opening of business on ________________, 2000.
CUT-OFF DATE POOL PRINCIPAL BALANCE: $____________
CUT-OFF DATE PRINCIPAL BALANCE: With respect to any Home Equity Loan,
the unpaid principal balance thereof as of the Cut-Off Date (or as of the
applicable date of substitution with respect to a Qualified Replacement Mortgage
pursuant to Section 2.03 or 2.06).
DEFICIENCY EXCESS: As defined in Section 5.04(c).
DEFINITIVE NOTES: As defined in the Indenture.
DELINQUENCY ADVANCE: As defined in Section 3.04(a) hereof.
DELINQUENCY PERCENTAGE: With respect to a Group, 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 Home Equity Loans in
such Group which are (i) at or over 90 Days Delinquent, (ii) in bankruptcy and
at or over 90 Days Delinquent, (iii) in foreclosure or (iv) relating to REO
Properties, and the denominator of which is (y) the Group Principal Balance of
such Group.
DELINQUENT: A Home Equity Loan is "Delinquent" if any payment due
thereon is not made by the Mortgagor by the close of business on the related Due
Date. A Home Equity Loan is "30 days Delinquent" if such payment has not been
received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days Delinquent," "90
days Delinquent" and so on.
DEPOSITOR: CHEC Funding, LLC, a Delaware limited liability company, or
its successors.
DEPOSITORY: The initial Depository shall be The Depository Trust
Company, the nominee of which is Cede & Co., as the registered Holder of (i)
Class A-1 Notes evidencing $__________ in initial aggregate principal amount of
the Class A-1 Notes, (ii) Class A-2 Notes evidencing $____________ in initial
aggregate principal amount of the Class A-2 Notes, and (iii) Class A-3 Notes
evidencing $______________ in initial aggregate principal amount of the Class
A-3 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.
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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: The 15th day of each month, or if such day is not a
Business Day, on the preceding Business Day, commencing in _______________.
DISTRIBUTABLE EXCESS SPREAD: As to any Distribution Date and Group, the
lesser of (i) the Excess Spread for such Distribution Date and Group and (ii)
the excess, if any, of the Specified O/C Amount for such Distribution Date and
Group over the O/C Amount in respect of such Group on such date before giving
effect to the application of Distributable Excess Spread in respect of such
Group on such Distribution Date.
DISTRIBUTION ACCOUNT: The account established by the Indenture Trustee
pursuant to Section 5.05. The Distribution Account shall be an Eligible Account.
DISTRIBUTION DATE: Any date on which the Indenture Trustee is required
to make distributions to the Owners, which shall be the 25th day of each month
or if such day is not a Business Day, the next Business Day thereafter,
commencing in the month following the Startup Day. The first Distribution Date
will be _________ ___, 2000.
DUE DATE: With respect to any Home Equity Loan, the date on which the
Monthly Payment with respect to such Home Equity Loan is required to be paid
pursuant to the related Mortgage Note exclusive of any days of grace.
ELIGIBLE ACCOUNT: A segregated trust 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
Notes, without regard to any Insurance Policy.
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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 each 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 Moody's and 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 and 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 and 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 and 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 Notes, as evidenced by a letter to such effect
from such Rating Agency and the Insurer and with respect to which the
Servicer has
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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.
ERISA: Employee Retirement Income Security Act of 1974, as amended.
EVENT OF SERVICING TERMINATION: As defined in Section 7.01.
EXCESS AVAILABLE FUNDS: With respect to any Payment Date and Group, the
amount of Available Funds in respect of such Group remaining after distributions
are made in respect of such Group pursuant to Sections 5.01(a)(i)-(vi).
EXCESS O/C AMOUNT: As to any Distribution Date and Group, the amount by
which (i) the O/C Amount for such Distribution Date and Group exceeds (ii) the
Specified O/C Amount for such Distribution Date and Group.
EXCESS SPREAD: With respect to any Distribution Date and Group, the
excess, if any, of (a) Available Funds (other than the portion thereof in
respect of any related Cross-Collateralization Payment) for such Distribution
Date and Group over (b) the aggregate of amounts required to be distributed in
respect of such Group pursuant to subclauses (i) through (iv) of Section 5.01(a)
herein on such Distribution Date.
FHLMC: The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created pursuant to the Emergency Home
Finance Act of 1970, as amended, or any successor thereof.
FINAL CERTIFICATION: As defined in Section 2.07(c) hereof.
FINAL DISTRIBUTION DATE: The Distribution Date in _________________.
FINAL RECOVERY DETERMINATION: With respect to any defaulted Home Equity
Loan or REO Property (other than a Home Equity Loan purchased by the Seller, the
Depositor or the Servicer), a determination made by the Servicer that all
recoveries which the Servicer, in its reasonable business judgment expects to be
finally recoverable in respect thereof have been so recovered or that the
Servicer believes in its reasonable business judgment the cost of obtaining any
additional
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recoveries therefrom would exceed the amount of such recoveries. The Servicer
shall maintain records of each Final Recovery Determination.
FIRST LIEN: With respect to any Home Equity Loan that is a second
priority lien, the home equity loan or home equity loans relating to the
corresponding Mortgaged Property having a first priority lien to such Home
Equity Loan.
FIRST MORTGAGE LOAN: A Home Equity Loan which constitutes a first
priority mortgage lien with respect to any Property.
FISCAL AGENT: As defined in the Insurance Policies.
FNMA: The Federal National Mortgage Association, a federally-chartered
and privately-owned corporation existing under the Federal National Mortgage
Association Charter Act, as amended, or any successor thereof.
FNMA GUIDE": FNMA's Servicing Guide, as the same may be amended by FNMA
from time to time.
GROUP: Any of Group I, Group II or Group III.
GROUP PRINCIPAL BALANCE: With respect to any date of determination and
Group, the aggregate of the Principal Balances of all Home Equity Loans in such
Group on such date.
GROUP I: With respect to the Home Equity Loans, the pool of Home Equity
Loans identified in the related Schedule of Home Equity Loans as having been
assigned to Group I, including any Qualified Replacement Mortgage delivered in
replacement thereof.
GROUP I CROSS-COLLATERALIZATION RESERVE ACCOUNT: The account in respect
of Group I established by the Indenture Trustee pursuant to Section 5.04 hereof.
The Group I Cross-Collateralization Reserve Account shall be an Eligible
Account.
GROUP I INTEREST REMITTANCE AMOUNT: As of any Monthly Remittance Date,
the sum, without duplication, of (i) all interest paid during the related
Remittance Period with respect to the Home Equity Loans in Group I (net of the
Group I Servicing Fees), (ii) all Compensating Interest paid by the Servicer on
such Monthly Remittance Date with respect to Group I, (iii) the portions of the
Loan Purchase Prices and the Substitution Amount relating to interest on the
Home Equity Loans in Group I paid by the Seller or Servicer on or prior to such
Monthly Remittance Date and (iv) the interest portion of all Net Liquidation
Proceeds actually collected by the Servicer with respect to such Home Equity
Loans in Group I during the related Remittance Period.
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GROUP I MONTHLY REMITTANCE AMOUNT: As of any Monthly Remittance Date,
the sum of (i) the Group I Interest Remittance Amount for such Monthly
Remittance Date and (ii) the Group I Principal Remittance Amount for such
Monthly Remittance Date.
GROUP I PRINCIPAL REMITTANCE AMOUNT: As of any Monthly Remittance Date,
the sum, without duplication, of (i) the principal actually collected by the
Servicer with respect to Home Equity Loans in Group II during the related
Remittance Period, (ii) the outstanding principal balance of each such Home
Equity Loan in Group II that was purchased from the Indenture Trustee on or
prior to such Monthly Remittance Date, to the extent such outstanding principal
balance was actually deposited in the Principal and Interest Account, (iii) any
Substitution Amounts relating to principal delivered by the Seller in connection
with a substitution of a Home Equity Loan in Group II, to the extent such
Substitution Amounts were actually deposited in the Principal and Interest
Account on or prior to such Monthly Remittance Date, (iv) the principal portion
of all Net Liquidation Proceeds actually collected by the Servicer with respect
to such Home Equity Loans in Group II during the related Remittance Period (to
the extent such Net Liquidation Proceeds related to principal) and (v) the
amount of investment losses required to be deposited pursuant to Section
3.03(b).
GROUP I SERVICING FEE: With respect to any Home Equity Loan in Group I
and each Remittance Period, an amount retained by the Servicer as compensation
for servicing and administration duties relating to such Home Equity Loan
pursuant to Section 3.12 and equal to one month's interest at 0.50% per annum of
the then outstanding principal balance of such Home Equity Loan as of the first
day of each Remittance Period payable on a monthly basis; provided, however,
that if a successor Servicer is appointed pursuant to Section 7.02 hereof, the
Group I Servicing Fee shall be the amount as agreed upon by the Indenture
Trustee, the Insurer and the successor Servicer, and the per annum rate at which
the Group I Servicing Fee is calculated shall not exceed 0.50% per annum.
GROUP II: With respect to the Home Equity Loans, the pool of Home
Equity Loans identified in the related Schedule of Home Equity Loans as having
been assigned to Group II, including any Qualified Replacement Mortgage
delivered in replacement thereof.
GROUP II CROSS-COLLATERALIZATION RESERVE ACCOUNT: The account in
respect of Group II established by the Indenture Trustee pursuant to Section
5.04 hereof. The Group II Cross-Collateralization Reserve Account shall be an
Eligible Account.
GROUP II INTEREST REMITTANCE AMOUNT: As of any Monthly Remittance Date,
the sum, without duplication, of (i) all interest paid during the related
Remittance Period with respect to the Home Equity Loans in Group II (net of the
Group II Servicing Fees), (ii) all Compensating Interest paid by the Servicer on
such Monthly Remittance Date with respect to Group II, (iii) the portions of the
Loan Purchase Prices and the Substitution Amount relating to interest on the
Home Equity Loans in Group II paid by the Seller or Servicer on or prior to such
Monthly Remittance Date and (iv) the interest portion of all Net Liquidation
Proceeds actually collected
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by the Servicer with respect to such Home Equity Loans in Group II during the
related Remittance Period.
GROUP II MONTHLY REMITTANCE AMOUNT: As of any Monthly Remittance Date,
the sum of (i) the Group II Interest Remittance Amount for such Monthly
Remittance Date and (ii) the Group II Principal Remittance Amount for such
Monthly Remittance Date.
GROUP II PRINCIPAL REMITTANCE AMOUNT: As of any Monthly Remittance
Date, the sum, without duplication, of (i) the principal actually collected by
the Servicer with respect to Home Equity Loans in Group II during the related
Remittance Period, (ii) the outstanding principal balance of each such Home
Equity Loan in Group II that was purchased from the Indenture Trustee on or
prior to such Monthly Remittance Date, to the extent such outstanding principal
balance was actually deposited in the Principal and Interest Account, (iii) any
Substitution Amounts relating to principal delivered by the Seller in connection
with a substitution of a Home Equity Loan in Group II, to the extent such
Substitution Amounts were actually deposited in the Principal and Interest
Account on or prior to such Monthly Remittance Date, (iv) the principal portion
of all Net Liquidation Proceeds actually collected by the Servicer with respect
to such Home Equity Loans in Group II during the related Remittance Period (to
the extent such Net Liquidation Proceeds related to principal) and (v) the
amount of investment losses required to be deposited pursuant to Section
3.03(b).
GROUP II SERVICING FEE: With respect to any Home Equity Loan in Group
II, an amount retained by the Servicer as compensation for servicing and
administration duties relating to such Home Equity Loan pursuant to Section 3.12
and equal to one month's interest at 0.50% per annum of the then outstanding
principal balance of such Home Equity Loan as of the first day of each
Remittance Period payable on a monthly basis, provided, however, that if a
successor Servicer is appointed pursuant to Section 7.02 hereof, the Group II
Servicing Fee shall be such amount as agreed upon by the Indenture Trustee, the
Insurer and the successor Servicer, and the per annum rate at which the Group II
Servicing Fee is calculated shall not exceed 0.50% per annum.
GROUP III: With respect to the Home Equity Loans, the pool of Home
Equity Loans identified in the related Schedule of Home Equity Loans as having
been assigned to Group III, including any Qualified Replacement Mortgage
delivered in replacement thereof.
GROUP III CROSS-COLLATERALIZATION RESERVE ACCOUNT: The account in
respect of Group III established by the Indenture Trustee pursuant to Section
5.04 hereof. The Group III Cross-Collateralization Reserve Account shall be an
Eligible Account.
GROUP III INTEREST REMITTANCE AMOUNT: As of any Monthly Remittance
Date, the sum, without duplication, of (i) all interest paid during the related
Remittance Period with respect to the Home Equity Loans in Group III (net of the
Group III Servicing Fee), (ii) all Compensating Interest paid by the Servicer on
such Monthly Remittance Date with respect to Group III and (iii) the portion of
the Loan Purchase Prices and Substitution Amount relating to interest on the
Home
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Equity Loans in Group III paid by the Seller or the Servicer on or prior to
such Monthly Remittance Date and (iv) the interest portion of all Net
Liquidation Proceeds actually collected by the Servicer with respect to the
Home Equity Loans in Group III during the related Remittance Period.
GROUP III MONTHLY REMITTANCE AMOUNT: As of any Monthly Remittance Date,
the sum of (i) the Group III Interest Remittance Amount for such Monthly
Remittance Date and (ii) the Group III Principal Remittance Amount for such
Monthly Remittance Date.
GROUP III PRINCIPAL REMITTANCE AMOUNT: As of any Monthly Remittance
Date, the sum, without duplication, of (i) the principal actually collected by
the Servicer with respect to Home Equity Loans in Group III during the related
Remittance Period, (ii) the outstanding principal balance of each such Home
Equity Loan in Group III that was purchased from the Indenture Trustee on or
prior to such Monthly Remittance Date, to the extent such outstanding principal
balance was actually deposited in the Principal and Interest Account, (iii) any
Substitution Amounts relating to principal delivered by the Seller in connection
with a substitution of a Home Equity Loan in Group III, to the extent such
Substitution Amounts were actually deposited in the Principal and Interest
Account on or prior to such Monthly Remittance Date, (iv) the principal portion
of all Net Liquidation Proceeds actually collected by the Servicer with respect
to such Home Equity Loans in Group III during the related Remittance Period (to
the extent such Net Liquidation Proceeds related to principal) and (v) the
amount of investment losses required to be deposited pursuant to Section
3.03(b).
GROUP III SERVICING FEE: With respect to any Home Equity Loan in Group
III, an amount retained by the Servicer as compensation for servicing and
administration duties relating to such Home Equity Loan pursuant to Section 3.12
and equal to one month's interest at 0.50% per annum of the then outstanding
principal balance of such Home Equity Loan as of the first day of each
Remittance Period payable on a monthly basis, provided, however, that if a
successor Servicer is appointed pursuant to Section 7.02 hereof, the Group III
Servicing Fee shall be such amount as agreed upon by the Indenture Trustee, the
Insurer and the successor Servicer, and the per annum rate at which the Group
III Servicing Fee is calculated shall not exceed 0.50% per annum.
GUARANTEED PRINCIPAL DISTRIBUTION AMOUNT: With respect to any
Distribution Date (other than the Final Distribution Date) and a Class of Notes,
the amount, if any, by which the Note Principal Balance of such Class of Notes
exceeds the sum of (i) the related Group Principal Balance as of the end of the
related Remittance Period (after giving effect to all payments of principal on
such Notes on such Distribution Date pursuant to Section 5.01(a) hereof). With
respect to the Final Distribution Date and a Class of Notes, the outstanding
Note Principal Balance of such Class of Notes (after giving effect to all
payments of principal on such Notes on such Final Distribution Date pursuant to
Section 5.01(a) hereof).
HOME EQUITY LOANS: Such home equity loans transferred and assigned to
the Trust pursuant to Section 2.01 hereof together with any Qualified
Replacement Mortgages substituted
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therefor in accordance with this Agreement, as from time to time are held as
a part of the Trust Estate, the Home Equity Loans originally so held being
identified in the Schedules of Home Equity Loans. The term "Home Equity Loan"
includes the terms "First Mortgage Loan" and "Second Mortgage Loan". The term
"Home Equity Loan" includes any Home Equity Loan which is Delinquent, which
relates to a foreclosure or which relates to a Mortgaged Property which is
REO Property prior to such REO Property's disposition by the Trust. Any home
equity loan which, although intended by the parties hereto to have been, and
which purportedly was, transferred and assigned to the Trust by the
Depositor, in fact was not transferred and assigned to the Trust for any
reason whatsoever, including, without limitation, the incorrectness of the
statement set forth in Section 2.05(b)(x) hereof with respect to such home
equity loan, shall nevertheless be considered a "Home Equity Loan" for all
purposes of this Agreement.
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 Distribution Date and Group,
the greater of (i) the sum of (a) 1/12 of the product of (1) the Indenture
Trustee Fee Rate and (2) the Group Principal Balance of the Home Equity Loans in
such Group as of the end of the second preceding Remittance Period (or, in the
case of the first Distribution Date, as of the Cut-Off Date) and (b) any
Custodial Fees in respect of such Group to the extent not paid by the Servicer,
or (ii) an amount equal to the product of (a) $1,000 and (b) the percentage
obtained by dividing the aggregate Group Principal Balance of such Group by the
aggregate Pool Principal Balance, in each case as of the end of the second
preceding Remittance Period (or, in the case of the first Distribution Date, as
of the Cut-Off Date).
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 AGREEMENT: The Insurance Agreement dated as of __________
among the Indenture Trustee, the Seller, the Servicer, the Depositor and the
Insurer, including any amendments and supplements thereto in accordance with the
terms thereof.
INSURANCE POLICY: For each Class of Notes, the Financial Guaranty
Insurance Policy No. ________, No. _________ or No. _________, respectively, and
all endorsements thereto, if any, each dated the Closing Date, issued by the
Insurer for the benefit of the Holders of the relevant Class or Notes, copies of
which are attached hereto as Exhibit ____, ____ or ____ hereto.
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INSURED PAYMENT: With respect to any Distribution Date and Class of
Notes, an amount equal to the sum of the (i) the Guaranteed Principal
Distribution Amount for such Distribution Date and Class of Notes and (ii) the
amount, if any, by which the aggregate of the Interest Distributions with
respect to the Notes for such Distribution Date and Class of Notes exceeds the
amount on deposit in the Distribution Account available to be distributed
therefor on such Distribution Date, including Cross-Collateralization Payments,
if any.
INSURER: ______________________, a stock insurance company organized
and created under the laws of the State of _________, or any successor thereto.
INSURER DEFAULT: For an Insurance Policy, (i) Any failure and
continuance of such failure of the Insurer to make a payment required under an
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.
INSURER REIMBURSEMENT DEFICIENCY: With respect to any Distribution Date
and Group, the amount by which the Available Funds for such Group (applied in
the order described in Section 5.01(a)) is insufficient to pay amounts payable
to the Insurer under the Insurance Agreement as reimbursement for prior draws on
the applicable Insurance Policy, including interest thereon, in respect of such
Group and Distribution Date.
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INTEREST CARRYOVER SHORTFALL: With respect to any Distribution Date and
each Class of Notes, the amount by which the related Interest Distribution for
such Class for the preceding Distribution Date exceeded the amount of interest
that was actually distributed to such Class on such preceding Distribution Date.
INTEREST DEFICIENCY: With respect to any Distribution Date and Group,
the amount by which the Available Funds for such Group (applied in the order
described in Section 5.01(a)) is insufficient to pay the Interest Distribution
for the related Class of Notes on such Distribution Date.
INTEREST DISTRIBUTION: With respect to any Distribution Date and each
Class of Notes, the sum of (a) the related Monthly Interest Distributable Amount
for such Class, for such Distribution Date, and (b) any related Outstanding
Interest Carryover Shortfall for such, for such Distribution Date.
INTEREST INDEX CARRYOVER: As of any distribution date for any Class A-3
Note, the sum of (A) the excess of (1) the amount of interest the Notes would
otherwise be entitled to receive on the Distribution Date had the rate not been
limited by the Available Funds Cap over (2) the amount of interest payable on
the applicable Notes at the Available Funds Cap for the Distribution Date and
(B) the Interest Index Carryover for all previous distribution dates not
previously paid to the applicable class of noteholders (including any interest
accrued thereon at the applicable note rate).
INTEREST PERIOD: As of any Distribution Date, (A) for each of the Class
A-1 and Class A-2 Notes, the calendar month deemed to consist of 30 days and
immediately preceeding the month in which the Distribution Date occurs; and (B)
for the Class A-3 Notes, the period commencing on the immediately preceding
Distribution Date (or the Closing Date, in the case of the first Distribution
Date) to and including the day prior to the current Distribution Date. All
calculations of interest on the Class A-1 and Class A-2 Notes will be made on
the basis of a 360-day year assumed to consist of twelve 30-day months. All
calculations of interest on the Class A-3 Notes will be made on the basis of the
actual number of days elapsed in the related Interest Period, and a year of 360
days.
ISSUER: Centex Home Equity Loan Trust 2000-__.
LIBOR BUSINESS DAY: means 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 LOAN: A Home Equity Loan as to which a Final Recovery
Determination has been made.
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LIQUIDATION PROCEEDS: With respect to any Liquidated Loan, all amounts
(including the proceeds of any Home Equity Loan Insurance Policy) recovered by
the Servicer in connection with such Liquidated Loan, whether through trustee's
sale, foreclosure sale or otherwise.
LOAN PURCHASE PRICE: With respect to any Home Equity Loan purchased
from the Trust on or prior to a Monthly Remittance Date pursuant to Section
2.04, 2.05, 2.07 or 3.05 hereof, an amount equal to the outstanding principal
balance of such Home Equity Loan as of the date of purchase (assuming that the
Monthly Remittance Amount remitted by the Servicer on such Monthly Remittance
Date has already been remitted), plus all accrued and unpaid interest on such
Home Equity Loan at the Coupon Rate to but not including the date of such
purchase together with (without duplication) the aggregate amounts of (i) all
unreimbursed Delinquency Advances and Servicing Advances theretofore made with
respect to such Home Equity Loan, (ii) all Delinquency Advances which the
Servicer has theretofore failed to remit with respect to such Home Equity Loan
and (iii) all reimbursed Delinquency Advances and Servicing Advances to the
extent that reimbursement is not made from the Mortgagor.
LOAN-TO-VALUE RATIO: As of any particular date (i) with respect to any
First Mortgage Loan, the percentage obtained by dividing the Appraised Value
into the original principal balance of the Mortgage Note relating to such First
Mortgage Loan and (ii) with respect to any Second Mortgage Loan, the percentage
obtained by dividing the Appraised Value as of the date of origination of such
Second Mortgage Loan into an amount equal to the sum of (a) the remaining
principal balance of the Senior Lien relating to such First Mortgage Loan as of
the date of origination of the related Second Mortgage Loan and (b) the original
principal balance of the Mortgage Note relating to such Second Mortgage Loan.
MAJORITY NOTEHOLDER: With respect to each Class of Notes, the Holder or
Holders of Notes of such Class representing at least 51% of the aggregate Note
Principal Balance of such Class. With respect to all the Notes, the Holder or
Holders of Notes representing at least 51% of the aggregate Note Principal
Balance of all Classes of Notes.
MANUFACTURED HOME: A unit of manufactured housing, including all
accessions thereto, securing the indebtedness of the Mortgagor under the related
Home Equity Loan treated as real estate under applicable state law.
MAXIMUM COLLATERAL AMOUNT: ______________ outstanding principal balance
of Home Equity Loans on the Cut-Off Date.
MAXIMUM RATE: With respect to any Home Equity Loan in Group III, means
the maximum rate at which interest may accrue on such Home Equity Loan.
MINIMUM RATE: With respect to each Home Equity Loan in Group III, the
minimum Coupon Rate permitted over the life of such Home Equity Loan.
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MINIMUM SPREAD: A percentage per annum equal to ____% for Distribution
Dates which occur prior to ___________ and equal to _____% for Distribution
Dates which occur in __________ or thereafter.
MONTHLY INTEREST DISTRIBUTABLE AMOUNT: As to any Distribution Date and
each Class of Notes, interest at the related Note Rate that accrued during the
related Interest Period on the Note Principal Balance thereof immediately prior
to such Distribution Date.
MONTHLY PAYMENT: With respect to a Home Equity Loan, the scheduled
monthly payment of principal and/or interest required to be made by a Mortgagor
on such Home Equity Loan.
MONTHLY PAYMENT: With respect to any Home Equity Loan and any
Remittance Period, the payment of principal, if any, and interest due on the Due
Date in such Remittance Period pursuant to the related Note.
MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT: as of any Distribution Date
with respect to a Class of Notes, an amount with respect to the immediately
preceeding Remittance Period, and to the extent of Available Funds, equal to the
sum of (A) all collections allocable to principal with respect to the applicable
Group, whether through prepayment or liquidation of Mortgaged Properties,
repurchased Home Equity Loans, or otherwise; (B) the Principal Balance of any
Home Equity Loan that became a Liquidated Loan during the Remittance Period
immediately preceding such Distribution Date; and (C) the Distributable Excess
Spread.
MONTHLY REMITTANCE AMOUNT: The sum of the Group I Monthly Remittance
Amount, the Group II Monthly Remittance Amount and the Group III Monthly
Remittance Amount.
MONTHLY REMITTANCE DATE: The 18th day of each month, or if such day is
not a Business Day, on the preceding Business Day, commencing in _____________
_____.
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 Home Equity Loan.
MORTGAGE FILE: The documents delivered to the Custodian pursuant to
Section 2.06(b) hereof pertaining to a particular Home Equity Loan and any
additional documents required to be added to the Mortgage File pursuant to this
Agreement.
MORTGAGE NOTE: With respect to a Home Equity 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 or PROPERTY: The underlying property, including any
real property and improvements thereon, securing a Home Equity Loan.
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MORTGAGOR: With respect to any Home Equity Loan, the obligor or
obligors under the related Mortgage Note.
MORTGAGOR: The obligor on a Note.
NET COUPON RATE: With respect to any Home Equity Loan in a Group, means
a rate per annum equal to the Coupon Rate of such Home Equity Loan minus the sum
of (i) the rate at which the Servicing Fee accrues, (ii) the rate at which the
Indenture Trustee Fee accrues, (iii) the rate at which the Owner Trustee Fee
accrues, and (iv) the applicable Premium Amount (expressed as a per annum
percentage of the aggregate Principal Balance of the Home Equity Loans in the
applicable Group).
NET LIQUIDATION PROCEEDS: As to any Liquidated Loan, Liquidation
Proceeds net of expenses incurred by the Servicer (including unreimbursed
Servicing Advances) in connection with the liquidation of such Home Equity Loan
and unreimbursed Delinquency Advances relating to such Home Equity Loan. In no
event shall Net Liquidation Proceeds with respect to any Liquidated Loan be less
than zero.
90-DAY DELINQUENT LOAN: With respect to any Determination Date, all REO
Properties and each Home Equity Loan, with respect to which any portion of a
Monthly Payment is, as of the last day of the prior Remittance Period, three
months (calculated from Due Date with respect to such Home Equity Loan to Due
Date) or more past due (without giving effect to any grace period).
90+ DELINQUENCY PERCENTAGE (ROLLING THREE MONTH): With respect to any
Determination Date, the average of the percentage equivalents of the fractions
determined for each of the three immediately preceding Remittance Periods (or
such fewer number of Remittance Periods since the Cut-Off Date, in the case of
the first three Determination Dates) the numerator of each of which is equal to
the sum of (without duplication) (i) the aggregate Principal Balance of 90-Day
Delinquent Loans, (ii) the aggregate outstanding principal balance of Home
Equity Loans in foreclosure and (iii) the aggregate outstanding principal
balance of Home Equity Loans relating to REO Properties as of the end of such
Remittance Period and the denominator of which is the Principal Balance of all
of the Home Equity Loans as of the end of such Remittance Period.
NONRECOVERABLE ADVANCE: With respect to any Home Equity Loan for which
a Final Recovery Determination has been made, any Delinquency Advance previously
made and not reimbursed from proceeds on the related Home Equity Loan or
otherwise hereunder which the Servicer has determined, in good faith business
judgment, as evidenced by an Officer's Certificate delivered to the Insurer and
the Indenture Trustee no later than the Business Day following such
determination, would not be ultimately recovered.
NOTE: Any of the Class A-1, Class A-2 or Class A-3 Notes, or, where the
context requires, a Mortgage Note.
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NOTE OWNER or OWNER: The Person who is the beneficial owner of a
Book-Entry Note.
NOTE PRINCIPAL BALANCE: With respect to any date of determination and
each Class of Notes, (a) the Original Note Principal Balance of such Class LESS
(b) the aggregate of amounts distributed as principal to the Noteholders of such
Class on previous Distribution Dates.
NOTE RATE: The Class A-1 Note Rate, the Class A-2 Note Rate, or the
Class A-3 Note Rate, as applicable.
NOTE REGISTER AND NOTE REGISTRAR: As defined in the Indenture.
NOTEHOLDER or HOLDER: The Person in whose name 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 Note registered
in the name of the Seller or the Depositor, or any Person actually known to a
Responsible Officer of the Indenture Trustee to be an Affiliate of the Seller or
the Depositor, (y) any Note for which the Seller or the Depositor, or any Person
actually known to a Responsible Officer of the Indenture Trustee to be an
Affiliate of the Seller or the Depositor is the Note Owner shall be deemed not
to be outstanding (unless to the actual knowledge of a Responsible Officer of
the Indenture Trustee (i) the Seller or the Depositor, or such Affiliate, is
acting as trustee or nominee for a Person who is not an Affiliate of the Seller
or the Depositor and who makes the voting decision with respect to such Note or
(ii) the Seller or the Depositor, or such Affiliate, is the Note Owner of all
the 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
Notes so long as no Insurer Default is then continuing.
O/C AMOUNT: As to any Distribution Date and Group, the excess, if any,
of (a) the Group Total Balance of such Group as of the close of business on the
last day of the related Remittance Period over (b) the Note Principal Balance of
the related Class of Notes (after giving effect to amounts available in respect
of the related Monthly Principal Distributable Amount for such Distribution
Date).
O/C DEFICIENCY AMOUNT: For any Group and Distribution Date, the excess,
if any, of (a) the Specified O/C Amount for such Group and Distribution Date,
over (b) the O/C Amount for such Group and Distribution Date (after giving
effect to distributions of principal, including Cross-Collateralization
Payments, for such Group and Distribution Date).
O/C REDUCTION AMOUNT: As to any Distribution Date and Group, an amount
equal to the lesser of (i) the Excess O/C Amount for such Distribution Date and
Group and (ii) the Monthly Principal Distributable Amount for such Distribution
Date and Group.
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OFFICER'S CERTIFICATE: A certificate signed by any Authorized Officer
of any Person delivering such certificate and delivered to the Indenture Trustee
and the Insurer.
ONE-MONTH LIBOR" means, with respect any Interest Period, an amount
established by the Indenture Trustee equal to the rate for United States dollar
deposits for one month which appears on the display designated as page 3750 on
the Telerate Service or a successor page as of 11:00 A.M., London time, on the
second LIBOR Business Day prior to the first day of the related Interest Period.
If the rate does not appear on that page, the rate will be determined on the
basis of the rates at which deposits in U.S. Dollars are offered by three major
banks in the London interbank market, selected by the servicer, as of 11:00
A.M., London time, on the determination date to prime banks in the London
interbank market for a period of one month in amounts approximately equal to the
principal amount of the notes then outstanding. The Indenture Trustee will
request the principal London office of each of the reference banks to provide a
quotation of its rate. If at least two such quotations are provided, the rate
will be the arithmetic mean of the quotations. If on such date fewer than two
quotations are provided as requested, the rate will be the arithmetic mean of
the rates quoted by two or more major banks in New York City, selected by the
servicer 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 principal amount
of the notes then outstanding. If no such quotations can be obtained, the rate
will be one-month LIBOR for the prior distribution date.
OPINION OF COUNSEL: A written Opinion of Counsel acceptable, in form
and substance, to the Indenture Trustee, and in the case of opinions delivered
to any of the Insurer or the Rating Agencies, reasonably acceptable, in form and
substance, to such party.
ORIGINAL AGGREGATE PRINCIPAL BALANCE: The aggregate Principal Balances
of all Home Equity Loans as of the Cut-Off Date, which is
$_______________________.
ORIGINAL NOTE PRINCIPAL BALANCE: For the A-1 Notes, $__________; for
the A-2 Notes, $________; and for the A-3 Notes, $____________.
ORIGINAL TRUST AGREEMENT: shall mean the Trust Agreement dated as of
_________ between ____________ and ________________, a ________ banking
corporation.
OUTSTANDING INTEREST CARRYOVER SHORTFALL: With respect to any
Distribution Date and each Class of Notes, the amount of Interest Carryover
Shortfall for such Distribution, plus one month's interest thereon, at the
related Note Rate, 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.
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OWNER TRUSTEE FEE: With respect to any Distribution Date and Group, a
monthly fee equal to the product of (a) 1/12 of $________ and (b) the percentage
obtained by dividing the aggregate Group Principal Balance of such Group by the
aggregate Pool Principal Balance in each case as of the end of the second
preceding Remittance Period (or, in the case of the first Distribution Date, as
of the Cut-Off Date).
OWNERSHIP INTEREST: The Transferor Interest issued pursuant to the
Trust Agreement.
PAYING AGENT: Any paying agent appointed pursuant to the Indenture.
PERCENTAGE INTEREST: As to a Class of Notes and any date of
determination, the percentage obtained by dividing the principal denomination of
such Class by the aggregate of the principal denominations of all the Notes of
such Class.
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 PRINCIPAL BALANCE: With respect to any date of determination, the
aggregate of the Principal Balance of all Home Equity Loans.
PREFERENCE EVENT: As defined in Section 4.01(c).
PREMIUM AMOUNT: The premium payable to the Insurer pursuant to the
Insurance Agreement.
PREPAYMENT: Any payment of principal of a Home Equity Loan which is
received by the Servicer in advance of the scheduled due date for the payment of
such principal and which is not accompanied by an amount of interest
representing the full amount of scheduled interest due on any Due Date in any
month or months subsequent to the month of prepayment, Substitution Amounts, the
portion of the purchase price of any Home Equity Loan purchased from the Trust
pursuant to Section 2.04, 2.05, 2.07 or 3.05 hereof representing principal and
the proceeds of any Home Equity Loan Insurance Policy which are to be applied as
a payment of principal on the related Home Equity Loan shall be deemed to be
Prepayments for all purposes of this Agreement.
PRESERVATION EXPENSES: Expenditures made by the Servicer in connection
with a foreclosed Home Equity Loan prior to the liquidation thereof, including,
without limitation, expenditures for real estate property taxes, hazard
insurance premiums, property restoration or preservation.
PRINCIPAL AND INTEREST ACCOUNT: The principal and interest account
created by the Servicer pursuant to Section 3.03 hereof.
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PRINCIPAL BALANCE: As to any Home Equity Loan and any day, other than a
Liquidated Loan, the Cut-Off Date Principal Balance, minus all collections
credited against the Principal Balance of any such Home Equity Loan in
accordance with the related Mortgage Note. For purposes of this definition, a
Liquidated Loan shall be deemed to have a Principal Balance equal to the
Principal Balance of the related Home Equity Loan immediately prior to the final
recovery of related Liquidation Proceeds and a Principal Balance of zero
following the end of the Remittance Period in which such Home Equity Loan
becomes a Liquidated Loan.
PRINCIPAL DISTRIBUTION: With respect to any Distribution Date (other
than the Final Distribution Date) and each Class of Notes, the excess of (A) the
Monthly Principal Distributable Amount for such Distribution Date and such Class
of Notes over (B) the related O/C Reduction Amount for such Distribution Date
and such Class of Notes; PROVIDED, HOWEVER, that the Principal Distribution
shall not exceed the Note Principal Balance of such Class. The "Principal
Distribution" on the Final Distribution Date for a Class of Notes will equal the
Note Principal Balance of such Class as of such Distribution Date.
PRINCIPAL REMITTANCE AMOUNT: The Group I Principal Remittance Amount,
the Group II Principal Remittance Amount, or the Group III Principal Remittance
Amount.
PROHIBITED TRANSACTION: "Prohibited Transaction" shall have the meaning
set forth from time to time in the definition thereof at Section 860F(a)(2) of
the Code (or any successor statute thereto) and applicable to the Trust.
PROSPECTUS: The base prospectus of the Depositor dated
___________________.
PROSPECTUS SUPPLEMENT: The prospectus supplement dated
__________________, relating to the offering of the Notes.
QUALIFIED MORTGAGE: The meaning set forth from time to time in the
definition thereof at Section 860G(a)(3) of the Code (or any successor statute
thereto) and applicable to the Trust.
QUALIFIED REPLACEMENT MORTGAGE: A Home Equity Loan substituted for
another pursuant to Section 2.04, 2.05 and 2.07(b) hereof, which (i) has a
Coupon Rate at least equal to the Coupon Rate of the Home Equity Loan being
replaced; (ii) is of the same or better property type or is a single family
dwelling and the same or better occupancy status or is a primary residence as
the Home Equity Loan being replaced, (iii) shall mature no later than the
final scheduled distribution date with respect to the related Home Equity
Group, (iv) has a Loan-to-Value Ratio as of the Replacement Cut-Off Date no
higher than the Loan-to-Value Ratio of the replaced Home Equity Loan at such
time, (v) shall be of the same or higher credit quality classification
(determined in accordance with the Seller's credit underwriting guidelines
set forth in the Seller's underwriting manual) as the Home Equity Loan which
such Qualified Replacement Mortgage replaces, (vi) shall be a First Mortgage
Loan if the Home Equity Loan which such Qualified Replacement Mortgage
replaces was a First Mortgage Loan and shall be a First Mortgage Loan or
Second Mortgage Loan if the Home Equity Loan which such Qualified Replacement
Mortgage
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replaces was a Second Mortgage Loan, (vii) has an outstanding principal
balance as of the related Replacement Cut-Off Date equal to or less than the
outstanding principal balance of the replaced Home Equity Loan as of such
Replacement Cut-Off Date, (viii) shall not provide for a "balloon" payment if
the related Home Equity Loan did not provide for a "balloon" payment (and if
such related Home Equity Loan provided for a "balloon" payment, such
Qualified Replacement Mortgage shall have an original maturity of not less
than the original maturity of such related Home Equity Loan), (ix) shall be a
fixed rate Home Equity Loan if the Home Equity Loan being replaced is in
Group I or Group II or an adjustable rate Home Equity Loan if the Home Equity
Loan being replaced is in Group III, (x) satisfies the criteria set forth
from time to time in the definition thereof at Section 860G(a)(4) of the Code
(or any successor statute thereto) and applicable to the Trust, (xi)
satisfies the representations and warranties set forth in Section 2.04(b)
hereof, (xii) shall not be 30 days or more delinquent and (xiii) if such Home
Equity Loan being replaced is in the Group III, shall adjust based on the
same index, have no lower margin, have the same interval between adjustment
dates and have a maximum Coupon Rate no lower than, and a minimum Coupon Rate
no lower than the Home Equity Loan being replaced. In the event that one or
more home equity loans are proposed to be substituted for one or more Home
Equity Loans, the Insurer may allow the foregoing tests to be met on a
weighted average basis or other aggregate basis acceptable to the Insurer, as
evidenced by a written approval delivered to the Indenture Trustee by the
Insurer, except that the requirements of clauses (i), (iii), (iv), (ix), (x),
(xi) and (xii) hereof must be satisfied as to each Qualified Replacement
Mortgage.
"RATING AGENCIES": Collectively, Moody's and Standard & Poor's.
"REALIZED LOSS": As to any Liquidated Loan (or, in the case of a Cram
Down Loss a Home Equity Loan that is not a Liquidated Loan), the amount (not
less than zero), if any, by which (A) the sum of (x) the Principal Balance
thereof as of the date of liquidation, (y) the amount of accrued but unpaid
interest thereon and (z) the amount of any Cram Down Loss with respect thereto
is in excess of (B) the Net Liquidation Proceeds, if any, realized thereon
applied in reduction of such Principal Balance.
RATINGS: The ratings initially assigned to the Notes by the Rating
Agencies, as evidenced by letters from the Rating Agencies.
RECORD DATE: With respect to (i) any Distribution Date and each of the
Class A-1 and Class A-2 Notes, the last Business Day of the calendar month
immediately preceding the calendar month in which such Distribution Date occurs
and (ii) any Distribution Date and the Class A-3 Notes, the Business Day
immediately preceding such Distribution Date, or if Definitive Notes have been
issued, the last Business Day of the calendar month immediately preceding the
calendar month in which such Distribution Date occurs.
REGISTRATION STATEMENT: The Registration Statement filed by the
Depositor with the Securities and Exchange Commission (Registration Number
___-________), including all amendments thereto and including the Prospectus and
Prospectus Supplement relating to the Notes.
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"REIMBURSEMENT AMOUNT": With respect to each Group and any Distribution
Date, (i) all amounts owing to the Insurer for draws on any Insurance Policy
paid by the Insurer, or any other amounts owed under the Insurance Agreement,
including, without limitation, any unpaid Premium Amount relating to such
Distribution Date or any earlier Distribution Date, plus (ii) interest on such
amounts as specified in the Insurance Agreement. The Insurer shall notify the
Indenture Trustee, the Depositor and the Seller in writing of the amount of any
Reimbursement Amount.
REMAINING EXCESS AVAILABLE FUNDS: For any Group and Distribution Date,
the excess of Excess Available Funds for such Group over the
Cross-Collateralization Payment made from such Group.
REMITTANCE PERIOD: With respect to each Monthly Remittance Date,
Determination Date or Distribution Date, as applicable, the calendar month
immediately preceding such Monthly Remittance Date, Determination Date or
Distribution Date, as applicable.
REO PROPERTY: A Property acquired by the Servicer on behalf of the
Trust through foreclosure or deed-in-lieu of foreclosure in connection with a
defaulted Home Equity Loan.
REPLACEMENT CUT-OFF DATE: With respect to any Qualified Replacement
Mortgage, the opening of business of the first day of the calendar month in
which such Qualified Replacement Mortgage is conveyed to the Trust.
REQUIRED AGGREGATE CROSS-COLLATERALIZATION RESERVE AMOUNT: For any
Distribution Date, the lesser of (a) the sum of Cumulative Uncovered Losses for
each Group for such Distribution Date and (b) the O/C Deficiency Amount for each
Group for such Distribution Date after the application of funds on deposit to
each of such accounts pursuant to Section ____ of the Insurance Agreement on
such Distribution Date.
REQUIRED CROSS-COLLATERALIZATION RESERVE AMOUNT: For any Group and
Distribution Date, the lesser of (a) Cumulative Uncovered Losses for the other
Groups and Distribution Date, and (b) the O/C Deficiency Amount for the other
Groups and Distribution Date after application of funds on deposit in such
account pursuant to the Section ____ of the Insurance Agreement on such
Distribution Date.
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.
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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.
SCHEDULE OF HOME EQUITY LOANS": The schedules of Home Equity Loans with
respect to the Home Equity Loans listing each Home Equity Loan to be conveyed on
the Startup Day. Such Schedule of Home Equity Loans shall identify each Home
Equity Loan by the Servicer's loan number, borrower's name and address
(including the state and zip code) of the Property and shall set forth as to
each Home Equity Loan the lien status thereof, the Loan-to-Value Ratio and the
Principal Balance as of the Cut-Off Date, the Coupon Rate thereof, the original
loan balance thereof, the current scheduled monthly payment of principal and
interest and the maturity date of the related Note, the property type, occupancy
status, Appraised Value and the original term-to-maturity thereof and whether or
not such Home Equity Loan (including related Note) has been modified and in the
case of the Group III Home Equity Loans, the Maximum Rate, the Minimum Rate and
the next adjustment date. The Schedule of Home Equity Loans will be delivered to
the Custodian via electronic transmission in a mutually acceptable format
between the Custodian and the Servicer, with a hard copy attached to the
Mortgage Files when they are delivered.
SECOND MORTGAGE LOAN: A Home Equity Loan which constitutes a second
priority mortgage lien with respect to the related Property.
SECURITIES ACT: The Securities Act of 1933, as amended.
SELLER: Centex, as seller under this Agreement, or its successors.
SENIOR LIEN: With respect to any Second Mortgage Loan, the home equity
loan relating to the corresponding Property having a first priority lien.
SERVICER: Centex and its permitted successors and assigns.
SERVICER LOSS TEST: The Servicer Loss Test for any period set out below
is satisfied, if the Cumulative Loss Percentage for such period does not exceed
the percentage set out for such period below (provided, that for purposes of the
Servicer Loss Test, Realized Losses attributable solely to Cram Down Losses
should be excluded from the calculation of Cumulative Loss Percentage):
<TABLE>
<CAPTION>
Cumulative Loss
Period Percentage
------ ---------------
<S> <C>
_________ ____ _ _________ _____ ____%
_________ ____ _ _________ _____ ____%
_________ ____ _ _________ _____ ____%
_________ ____ _ _________ _____ ____%
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_________ ____ _ _________ _____ ____%
_________ ____ and thereafter ____%
</TABLE>
SERVICER TERMINATION TEST: The Servicer Termination Test is satisfied
for any date of determination thereof, if (w) the Servicer's Tangible Net Worth
is at least the greater of (a) $___________ and (b) the amount required pursuant
to any credit facility of the Servicer, (x) the 90+ Delinquency Percentage
(Rolling Three Month) is less than or equal to ___%, (y) the Servicer Loss Test
is satisfied and (z) the Annual Loss Percentage (Rolling Twelve Month) for the
twelve month period immediately preceding the date of determination thereof is
not greater than ___%.
SERVICING ADVANCE: As defined in Section 3.04 hereof.
SERVICING CERTIFICATE: A certificate completed and executed by a
Servicing Officer on behalf of the Servicer.
SERVICING FEE: The Group I Servicing Fee, the Group II Servicing Fee,
or the Group III Servicing Fee, as the context may require.
SERVICING OFFICER: Any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Home Equity 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.
60-DAY DELINQUENT LOAN: With respect to any Determination Date, all REO
Properties and each Home Equity Loan, with respect to which any portion of a
Monthly Payment is, as of the last day of the prior Remittance Period, two
months (calculated from Due Date with respect to such Home Equity Loan to Due
Date) or more past due (without giving effect to any grace period).
SPECIFIED O/C AMOUNT: With respect to any Distribution Date and each
Group set forth in Exhibit ____ hereto.
STANDARD & POOR'S: Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc., or any successor thereto.
STARTUP DAY: _______________.
SUBSERVICER: Any Person with whom the Servicer has entered into a
Subservicing Agreement and who satisfies the requirements set forth in Section
7.02 and in respect of the qualification of a Subservicer.
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SUBSERVICING AGREEMENT: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of certain Home
Equity Loans as provided in Section 3.01(a), a copy of which shall be delivered,
along with any modifications thereto, to the Indenture Trustee and the Insurer.
SUBSTITUTION AMOUNT: As defined in Section 2.04 hereof.
SUB-TRUST: As defined in Section 3.1 of the Trust Agreement. It
includes Sub-Trust 1, Sub-Trust 2 or Sub-Trust 3, each of which constitute a
separate interest in the Trust Estate (as defined in the Trust Agreement)
pursuant to Section 3806(b)(2) of the Business Trust Statute.
SUB-TRUST 1: The portion of the Trust Estate assigned to Group I.
SUB-TRUST 2: The portion of the Trust Estate assigned to Group II.
SUB-TRUST 3: The portion of the Trust Estate assigned to Group III.
TANGIBLE NET WORTH: Shall mean the difference between: (A) the tangible
assets of the Seller or Servicer, as applicable, and its Affiliates calculated
in accordance with GAAP, as reduced by adequate reserves in each case where a
reserve is appropriate; and (B) all indebtedness, including subordinated debt,
of the Seller or Servicer, as applicable, and its Affiliates; provided, however,
that (i) intangible assets such as patents, trademarks, trade names, copyrights,
licenses, good will, organization costs, advances or loans to, or receivables
from directors, officers, employees or affiliates, prepaid assets, amounts
relating to covenants not to compete, pension assets, deferred charges or
treasury stock of any securities unless the same are readily marketable in the
United States of America or are entitled to be used as a credit against federal
income tax liabilities, shall not be included in the calculation of (A) above,
(ii) securities included as tangible assets shall be valued at their current
market price or costs, whichever is lower and (iii) any write-up in book value
of any assets shall not be taken into account.
TERMINATION PRICE: With respect to Section 8.01 hereof, and on any date
of determination thereof, an amount equal to the sum of (w) the greater of (i)
100% of the aggregate outstanding principal balances of the Home Equity Loans as
of such date of determination less amounts remitted to the Principal and
Interest Account representing collections of principal on the Home Equity Loans
during the current Remittance Period, and (ii) the greater of (A) the aggregate
outstanding Note Principal Balance of the Notes and (B) the fair market value of
such Home Equity Loans (disregarding accrued interest), (x) one month's interest
on such amount (calculated at the Adjusted Certificate Rate), (y) all
Reimbursement Amounts and (z) the sum of the aggregate amount of any
unreimbursed Delinquency Advances, Servicing Advances, Compensating Interest and
any Delinquency Advances which the Servicer has theretofore failed to remit.
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TRANSACTION DOCUMENTS: This Agreement, the Insurance Agreement, the
Insurance Policies, the Notes, the Custodial Agreement, the Administration
Agreement, the Trust Agreement and the Indenture.
TRANSFEROR: The Depositor, or any such permitted holder of the
Transferor Interest.
TRANSFEROR INTEREST: The Transferor Interest issued pursuant to the
Trust Agreement.
TRANSITION EXPENSES: All actual and reasonable costs associated with
the transfer of servicing from the predecessor servicer, including, without
limitation, any costs or expenses associated with the complete transfer of
servicing data and any completion, manipulation or correction of servicing data
required by the Indenture Trustee to correct any errors or insufficiency therein
or otherwise to enable the Indenture Trustee to service the Home Equity Loans
properly and effectively.
[TRIGGER EVENT: As defined in Section ____ of the Insurance
Agreement.]
TRUST: The trust created by the Trust Agreement. The Trust will consist
of three separate Sub-Trusts, as provided in the Trust Agreement. The Trust is a
series trust under the Business Trust Statute, and the relative rights,
obligations and liabilities of each such series are as set forth in Article III
of the Trust Agreement.
TRUST AGREEMENT: The Original Trust Agreement as amended and restated
by the Amended and Restated Trust Agreement dated as of _________, among the
Seller, the Depositor and the Owner Trustee.
TRUST ESTATE: As defined in the Trust Agreement.
UCC: The Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
UNCOVERED LOSS: For any Group and Distribution Date, the excess, if
any, of (i) the O/C Amount as of the prior Distribution Date for such Group,
over (ii) the O/C Amount as of the current Distribution Date for such Group
(after giving effect to distributions of principal, excluding
Cross-Collateralization Payments, but before giving effect to any O/C Reduction
Amount, in each case for such Group and current Distribution Date).
UNDERCOLLATERALIZATION AMOUNT: As to any Distribution Date and Group,
the amount by which the aggregate Note Principal Balance of the Notes in the
related Class of Notes (after giving effect to distributions in respect of
principal on such Notes, other than any portion thereof in respect of
Cross-Collateralization Payments and Insured Payments, on such Distribution
Date) exceeds the Group Principal Balance at the end of the related Remittance
Period.
UNDERWRITER: ________________________
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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 CAPTIONS; TABLE OF CONTENTS.
The captions or headings in this Agreement and the Table of Contents
are for convenience only and in no way define, limit or describe the scope and
intent of any provisions of this Agreement.
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Section 1.04 OPINIONS.
Each opinion with respect to the validity, binding nature and
enforceability of documents or Notes may be qualified to the extent that the
same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the of creditors' rights generally
and by general principles of equity (whether considered in a proceeding or
action in equity or at law) and may state that no opinion is expressed on the
availability of the remedy of specific enforcement, injunctive relief or any
other equitable remedy. Any opinion required to be furnished by any Person
hereunder must be delivered by counsel upon whose opinion the addressee of such
opinion may reasonably rely, and such opinion may state that it is given in
reasonable reliance upon an opinion of another, a copy of which must be
attached, concerning the laws of a foreign jurisdiction. Any opinion delivered
hereunder shall be addressed to the Rating Agencies, the Insurer and the
Indenture Trustee.
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ARTICLE II
CONVEYANCE OF THE HOME EQUITY LOANS
Section 2.01 CONVEYANCE OF THE HOME EQUITY LOANS.
The Seller hereby bargains, sells, conveys, assigns and transfers to
the Depositor, in trust, without recourse and for the exclusive benefit of the
Owners of the Notes and the Insurer, all of its right, title and interest in and
to any and all benefits accruing from (a) the Home Equity Loans, which the
Depositor will cause to be delivered to the Custodian on behalf of the
Indenture, together with the related Home Equity Loan documents and the
Depositor's interest in any Property, and all payments thereon and proceeds of
the conversion, voluntary or involuntary, of the foregoing; (b) such amounts as
may be held by the Indenture in the Distribution Account and the
Cross-Collateralization Reserve Accounts, together with investment earnings on
such amounts and such amounts as may be held in the name the Indenture in the
Principal and Interest Account, if any, inclusive of investment earnings
thereon, whether in the form of cash, instruments, securities or other
properties (including any Eligible Investments held by the Servicer), and (c)
proceeds of all the foregoing (including, but not by way of limitation, all
proceeds of any mortgage insurance, flood insurance, hazard insurance and title
insurance policy relating to the Home Equity Loans, cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, rights to payment of any and every kind, and other forms of
obligations and receivables which at any time constitute all or part of or are
included in the proceeds of any of the foregoing) to pay the Notes as specified
herein. In addition to the foregoing, the Depositor shall cause the Insurer to
deliver the three Insurance Policies to the Indenture Trustee for the benefit of
the Owners of the Notes of each Class.
The Depositor, concurrently with the execution and delivery hereof,
hereby sells, transfers, assigns, sets over and otherwise conveys to the Trust,
to be included as Sub-Trust 1, Sub-Trust 2 or Sub-Trust 3, as specified in the
Schedule of Home Equity Loans, without recourse, all the right, title and
interest of the Depositor in and to the Trust Estate.
The Indenture Trustee acknowledges such sale, accepts the trusts
hereunder in accordance with the provisions hereof and the Indenture Trustee
agrees to perform the duties herein to the best of its ability to the end that
the interests of the Owners may be adequately and effectively protected.
Section 2.02 REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR.
The Depositor hereby represents, warrants and covenants to the
Indenture Trustee and the Insurer that as of the Startup Day:
(a) The Depositor is a limited liability company duly formed and
validly existing under the laws of the State of Delaware, is in compliance with
the laws of each state in which any
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Property or the Depositor is located or doing business and is in good
standing in each jurisdiction in which the nature of its business, or the
properties owned or leased by it make such qualification necessary. The
Depositor has all requisite authority to own and operate its properties, to
carry out its business as presently conducted and as proposed to be conducted
and to enter into and discharge its obligations under this Agreement and the
other Transaction Documents to which it is a party.
(b) The execution and delivery of this Agreement and the other
Transaction Documents to which it is a party by the Depositor and its
performance and compliance with the terms of this Agreement and the other
Transaction Documents to which it is a party have been duly authorized by all
necessary action on the part of the Depositor and will not violate the
Depositor's Certificate of Formation or Amended and Restated Limited Liability
Company Agreement or constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, or result in a breach
of, any material contract, agreement or other instrument to which the Depositor
is a party or by which the Depositor is bound or violate any statute or any
order, rule or regulation of any court, governmental agency or body or other
tribunal having jurisdiction over the Depositor or any of its properties.
(c) This Agreement and the other Transaction Documents to which
the Depositor is a party, assuming due authorization, execution and delivery by
the other parties hereto and thereto, each constitutes a valid, legal and
binding obligation of the Depositor, enforceable against it in accordance with
the terms hereof and thereof, except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and by general principles of
equity (whether considered in a proceeding or action in equity or at law).
(d) The Depositor is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal, state,
municipal or governmental agency, which default could materially and adversely
affect the condition (financial or other) or operations of the Depositor or its
properties or the consequences of which could materially and adversely affect
its performance hereunder and under the other Transaction Documents to which the
Depositor is a party.
(e) No litigation, proceeding or investigation is pending with
respect to which the Depositor has received service of process or, to the best
of the Depositor's knowledge, threatened against the Depositor which litigation,
proceeding or investigation might have consequences that would prohibit its
entering into this Agreement or any other Transaction Documents to which it is a
party or that would materially and adversely affect the condition (financial or
otherwise) or operations of the Depositor or its properties or might have
consequences that would materially and adversely affect the validity or
enforceability of the Home Equity Loans or the Depositor's performance hereunder
and under the other Transaction Documents to which the Depositor is a party.
(f) The statements contained in the Registration Statement which
describe the Depositor or matters or activities for which the Depositor is
responsible in accordance with the
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Transaction Documents or which are attributed to the Depositor therein are
true and correct in all material respects, and the Registration Statement
does not contain any untrue statement of a material fact with respect to the
Depositor or omit to state a material fact required to be stated therein or
necessary in order to make the statements contained therein with respect to
the Depositor not misleading.
(g) Immediately prior to the sale and assignment by the Depositor
to the Indenture on behalf of the Trust of each Home Equity Loan, the Depositor
had good and equitable title to each Home Equity 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.
(h) As of the Startup Day, the Depositor has transferred all
right, title and interest in the Home Equity Loans to the Indenture on behalf of
the Trust.
(i) The Depositor has not transferred the Home Equity Loans to the
Indenture on behalf of the Trust with any intent to hinder, delay or defraud any
of its creditors.
(j) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, by or from any
federal, state or other governmental authority or agency (other than any such
actions, approvals, etc. under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Depositor makes no such
representation or warranty), that are necessary or advisable in connection with
the purchase and sale of the Notes and the execution and delivery by the
Depositor of the Transaction Documents to which it is a party, have been duly
taken, given or obtained, as the case may be, are in full force and effect on
the date hereof, are not subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time within which any
appeal therefrom may be taken or review thereof may be obtained has expired or
no review thereof may be obtained or appeal therefrom taken, and are adequate to
authorize the consummation of the transactions contemplated by this Agreement
and the other Transaction Documents on the part of the Depositor and the
performance by the Depositor of its obligations under this Agreement and such of
the other Transaction Documents to which it is a party.
Section 2.03. REPRESENTATIONS AND WARRANTIES OF THE SERVICER.
The Servicer hereby represents, warrants and covenants to the
Depositor, the Indenture, the Insurer and the Owners that as of the Startup Day:
(a) The Servicer is a corporation duly formed and validly existing
under the laws governing its creation and existence, is in compliance with the
laws of each state in which any Property is located to the extent necessary to
enable it to perform its obligations hereunder and is in good standing in each
jurisdiction in which the nature of its business, or the properties owned or
leased by it make such qualification necessary. The Servicer has all requisite
corporate power and authority to own and operate its or their properties, to
carry out its or their business as
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presently conducted and as proposed to be conducted and to enter into and
discharge its or their obligations under this Agreement and the other
Transaction Documents to which the Servicer is a party.
(b) The execution and delivery of this Agreement and any other
Transaction Document to which it is a party by the Servicer and its performance
and compliance with the terms hereof and thereof have been duly authorized by
all necessary action on the part of the Servicer and will not violate the
Servicer's Articles of Incorporation or By-laws or constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, or result in the breach of, any material contract, agreement or other
instrument to which the Servicer is a party or by which the Servicer is bound or
violate any statute or any order, rule or regulation of any court, governmental
agency or body or other tribunal having jurisdiction over the Servicer or any of
its properties.
(c) This Agreement and the Transaction Documents to which the
Servicer is a party, assuming due authorization, execution and delivery by the
other parties hereto and thereto, each constitutes a valid, legal and binding
obligation of the Servicer, enforceable against it in accordance with the terms
hereof and thereof, except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and by general principles of equity
(whether considered in a proceeding or action in equity or at law).
(d) The Servicer 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 might have consequences that would
materially and adversely affect the condition (financial or otherwise) or
operations of the Servicer or its properties or might have consequences that
would materially and adversely affect its performance hereunder or under the
other Transaction Documents to which the Servicer is a party.
(e) No litigation, proceeding or investigation is pending with
respect to which the Servicer has received service of process or, to the best of
the Servicer's knowledge, threatened against the Servicer which litigation,
proceeding or investigation might have consequences that would prohibit its
entering into this Agreement or any other Transaction Document or that would
materially and adversely affect the condition (financial or otherwise) or
operations of the Servicer or its properties or might have consequences that
would materially and adversely affect the validity or the enforceability of the
Home Equity Loans or its performance hereunder and the other Transaction
Documents to which the Servicer is a party.
(f) The statements contained in the Registration Statement which
describe the Servicer or matters or activities for which the Servicer is
responsible in accordance with the Transaction Documents or which are attributed
to the Servicer therein are true and correct in all material respects, and the
Registration Statement does not contain any untrue statement of a material fact
with respect to the Servicer or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein with
respect to the Servicer not misleading.
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(g) The Servicing Fee is a "current (normal) servicing fee rate"
as that term is used in Statement of Financial Accounting Standards No. 65
issued by the Financial Accounting Standards Board. Neither the Servicer nor any
affiliate thereof will report on any financial statements any part of the
Servicing Fee as an adjustment to the sales price of the Home Equity Loans.
(h) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, by or from any
federal, state or other governmental authority or agency (other than any such
actions, approvals, etc. under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Servicer makes no such
representation or warranty), that are necessary or advisable in connection with
the execution and delivery by the Servicer of the Transaction Documents to which
it is a party, have been duly taken, given or obtained, as the case may be, are
in full force and effect on the date hereof, are not subject to any pending
proceedings or appeals (administrative, judicial or otherwise) and either the
time within which any appeal therefrom may be taken or review thereof may be
obtained has expired or no review thereof may be obtained or appeal therefrom
taken, and are adequate to authorize the consummation of the transactions
contemplated by this Agreement and the other Transaction Documents on the part
of the Servicer and the performance by the Servicer of its obligations under
this Agreement and such of the other Transaction Documents to which it is a
party.
(i) The collection practices used by the Servicer with respect to
the Home Equity Loans have been, in all material respects, legal, proper,
prudent and customary in the home equity mortgage servicing business.
(j) The transactions contemplated by this Agreement are in the
ordinary course of business of the Servicer.
(k) The Servicer is not in default under any agreement involving
financial obligations or on any outstanding obligation which would materially
adversely impact the financial condition or operations of the Servicer or legal
documents associated with the transaction contemplated by this Agreement.
(l) There are no Subservicers as of the Startup Day.
(m) The Servicer covenants that it will terminate any Subservicer
within ninety (90) days after being directed by the Insurer to do so.
(n) The Servicer represents and warrants that its computer and
other systems used in servicing the Home Equity Loans currently are capable of
operating in a manner so that on and after ________ ___, ____ (i) the Servicer
can service the Home Equity Loans in accordance with the terms of this Agreement
and (ii) the Servicer can operate its business in the same manner as it is
operating on the date hereof.
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It is understood and agreed that the representations and warranties set
forth in this Section 2.03 shall survive delivery of the Home Equity Loans to
the Indenture.
Upon discovery by any of the Depositor, the Seller, the Servicer, the
Custodian, any Subservicer, the Insurer, any Owner or the Indenture (each, for
purposes of this paragraph, a party) of a breach of any of the representations
and warranties set forth in this Section 2.03 which materially and adversely
affects the interests of the Owners or of the Insurer, the party discovering
such breach shall give prompt written notice to the other parties. As promptly
as practicable, but in any event, within 60 days of its discovery or its receipt
of notice of breach, the Servicer shall cure such breach in all material
respects and, upon the Servicer's continued failure to cure such breach, may
thereafter be removed by the Insurer or by the Indenture with the written
consent of the Insurer pursuant to Section 7.01 hereof; PROVIDED, HOWEVER, that
if the Servicer can establish to the reasonable satisfaction of the Insurer that
it is diligently pursuing remedial action, then the cure period may be extended
for an additional 90 days with the written approval of the Insurer.
Section 2.04. REPRESENTATIONS AND WARRANTIES OF THE SELLER.
The Seller hereby represents, warrants and covenants to the Depositor,
the Indenture, the Insurer and the Owners that as of the Startup Day:
(a) The Seller is a corporation duly formed and validly existing
under the laws governing its creation and existence, is in compliance with the
laws of each state in which any Property or the Seller is located or doing
business and is in good standing in each jurisdiction in which the nature of its
business, or the properties owned or leased by it make such qualification
necessary. The Seller has all requisite authority to own and operate its
properties, to carry out its business as presently conducted and as proposed to
be conducted and to enter into and discharge its obligations under this
Agreement and the other Transaction Documents to which it is a party.
(b) The execution and delivery of this Agreement and the other
Transaction Documents to which it is a party by the Seller and its performance
and compliance with the terms of this Agreement and the other Transaction
Documents to which it is a party have been duly authorized by all necessary
corporate action on the part of the Seller and will not violate the Seller's
Articles of Incorporation or By-laws or constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default) under, or
result in a breach of, any material contract, agreement or other instrument to
which the Seller is a party or by which the Seller is bound or violate any
statute or any order, rule or regulation of any court, governmental agency or
body or other tribunal having jurisdiction over the Seller or any of its
properties.
(c) This Agreement and the other Transaction Documents to which
the Seller is a party, assuming due authorization, execution and delivery by the
other parties hereto and thereto, each constitutes a valid, legal and binding
obligation of the Seller, enforceable against it in accordance with the terms
hereof and thereof, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting
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creditors' rights generally and by general principles of equity (whether
considered in a proceeding or action in equity or at law).
(d) 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 governmental agency, which default could materially and adversely
affect the condition (financial or other) or operations of the Seller or its
properties or the consequences of which could materially and adversely affect
its performance hereunder and under the other Transaction Documents to which the
Seller is a party.
(e) No litigation, proceeding or investigation is pending with
respect to which the Seller has received service of process or, to the best of
the Seller's knowledge, threatened against the Seller which litigation,
proceeding or investigation might have consequences that would prohibit its
entering into this Agreement or any other Transaction Documents to which it is a
party or 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 the validity or
enforceability of the Home Equity Loans or the Seller's performance hereunder
and under the other Transaction Documents to which the Seller is a party.
(f) The statements contained in the Registration Statement which
describe the Seller or matters or activities for which the Seller is responsible
in accordance with the Transaction Documents or which are attributed to the
Seller therein are true and correct in all material respects, and the
Registration Statement does not contain any untrue statement of a material fact
with respect to the Seller or omit to state a material fact required to be
stated therein or necessary in order to make the statements contained therein
with respect to the Seller not misleading.
(g) Upon the receipt of each Home Equity Loan (including the
related Note) and other items of the Trust Estate by the Indenture under this
Agreement, the Trust will have good title to such Home Equity Loan (including
the related Note) and such other items of the Trust Estate free and clear of any
lien, charge, mortgage, encumbrance or rights of others, except as set forth in
Section 2.05 (b) (ix) (other than liens which will be simultaneously released).
(h) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, by or from any
federal, state or other governmental authority or agency (other than any such
actions, approvals, etc. under any state securities laws, real estate
syndication or "Blue Sky" statutes, as to which the Seller makes no such
representation or warranty), that are necessary or advisable in connection with
the purchase and sale of the Notes and the execution and delivery by the Seller
of the Transaction Documents to which it is a party, have been duly taken, given
or obtained, as the case may be, are in full force and effect on the date
hereof, are not subject to any pending proceedings or appeals (administrative,
judicial or otherwise) and either the time within which any appeal therefrom may
be taken or review thereof may be obtained has expired or no review thereof may
be obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement and the other
Transaction Documents on the part of the Seller and the performance by the
Seller of its
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obligations under this Agreement and such of the other Transaction Documents
to which it is a party.
(i) The origination practices used by the Seller with respect to
the Home Equity Loans have been, in all material respects, legal, proper,
prudent and customary in the mortgage lending business.
(j) The transactions contemplated by this Agreement are in the
ordinary course of business of the Seller.
(k) Neither the Indenture nor the Seller has any obligation to
register the Trust and the Trust has no obligation to register as an investment
company under the Investment Company Act of 1940, as amended.
(l) The Seller is not insolvent, nor will it be made insolvent by
the transfer of the Home Equity Loans, nor is the Seller aware of any pending
insolvency.
(m) The Seller received fair consideration and reasonably
equivalent value in exchange for the sale of the interests in the Home Equity
Loans.
(n) The Seller did not sell any interest in any Home Equity Loan
with any intent to hinder, delay or defraud any of its creditors.
(o) No material adverse change affecting any security for the
Notes has occurred prior to delivery of and payment for the Notes.
(p) The Seller is not in default under any agreement involving
financial obligations or on any outstanding obligation which would materially
adversely impact the financial condition or operations of the Seller or legal
documents associated with the transaction contemplated by this Agreement.
(q) To the best of the knowledge of the Seller, there has been no
material adverse change in any information submitted by the Seller in writing to
the Insurer with respect to the transactions contemplated by this Agreement
(unless such information was subsequently supplemented in writing to the
Insurer).
(r) The sale, transfer, assignment and conveyance of Home Equity
Loans by the Seller pursuant to this Agreement is not subject to and will not
result in any tax, fee or governmental charge payable by the Seller, the
Depositor or the Indenture to any federal, state or local government ("Transfer
Taxes") other than Transfer Taxes which have or will be paid by the Seller as
due. The Seller shall pay, and otherwise indemnify and hold the Insurer
harmless, on an after-tax basis, from and against any and all such Transfer
Taxes (it being understood that the Insurer shall have no obligation to pay such
Transfer Taxes).
(s) 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
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omits to state any material fact necessary to make the certificate, statement
or report not misleading.
It is understood and agreed that the representations and warranties set
forth in this Section 2.04 shall survive delivery of the respective Home Equity
Loans to the Indenture.
Upon discovery by any of the Depositor, the Servicer, the Custodian,
any Subservicer, any Owner, the Seller, the Insurer or the Indenture Trustee
(each, for purposes of this paragraph, a "party") of a breach of any of the
representations and warranties set forth in this Section 2.04 which materially
and adversely affects the interests of the Owners or the interests of the
Insurer, the party discovering such breach shall give prompt written notice to
the other parties. The Seller hereby covenants and agrees that within 60 days of
its discovery or its receipt of notice of breach, it shall cure such breach in
all material respects or, with respect to a breach of clause (g) above, the
Seller may (or may cause an affiliate of the Seller to) on or prior to the
second Monthly Remittance Date next succeeding such discovery or receipt of
notice (i) substitute in lieu of any Home Equity Loan not in compliance with
clause (g) above a Qualified Replacement Mortgage and, if the outstanding
principal amount of such Qualified Replacement Mortgage as of the applicable
Replacement Cut-Off Date is less than the outstanding principal balance of such
Home Equity Loan as of such Replacement Cut-Off Date, deliver an amount (a
"Substitution Amount") equal to such difference together with the aggregate
amount of (A) all Delinquency Advances and Servicing Advances theretofore made
with respect to such Home Equity Loan and (B) all accrued and unpaid interest
with respect to such Home Equity Loan to the Servicer for deposit in the
Principal and Interest Account or (ii) purchase such Home Equity Loan from the
Trust at the Loan Purchase Price, which purchase price shall be delivered to the
Servicer for deposit in the Principal and Interest Account. The Seller shall
deliver an Officer's Certificate to the Indenture Trustee and the Insurer
concurrently with the delivery of a Qualified Replacement Mortgage pursuant to
Sections 2.04, 2.05 and 2.07(b) stating that such Home Equity Loan meets the
requirements of the definition of a Qualified Replacement Mortgage and that all
other conditions to the substitution thereof have been satisfied. Any Home
Equity Loan as to which repurchase or substitution was delayed pursuant to this
Section shall be repurchased or substituted for (subject to compliance with
Section 2.04, 2.05 or 2.07(b), as the case may be) upon the earlier of (a) the
occurrence of a default or imminent default with respect to such Home Equity
Loan and (b) receipt by the Indenture Trustee and the Insurer.
Section 2.05. COVENANTS OF SELLER TO TAKE CERTAIN ACTIONS WITH RESPECT
TO THE HOME EQUITY LOANS IN CERTAIN SITUATIONS.
(a) Upon the discovery by the Depositor, the Seller, the Servicer,
the Insurer, any Subservicer, any Owner, the Custodian or the Indenture Trustee
that the representations and warranties set forth in clause (b) below were
untrue in any material respect, without regard to any limitation set forth
therein concerning the knowledge of the Seller as to the facts stated therein as
of the Startup Day (or in the case of a Qualified Replacement Mortgage, as of
the respective replacement date) with the result that the interests of the
Owners or of the Insurer in the related Home Equity Loan are, or may be,
materially and adversely affected, the party discovering such breach shall give
prompt written notice to the other parties. Upon the earliest to occur of the
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Seller's discovery, its receipt of notice of breach from any one of the other
parties or such time as a situation resulting from an existing statement which
is untrue materially and adversely affects the interests of the Owners or of the
Insurer, without regard to any limitation set forth therein concerning the
knowledge of the Seller as to the facts stated therein, the Seller hereby
covenants and warrants that it shall promptly cure such breach in all material
respects or subject to the last three sentences of Section 2.04 it shall on or
before the second Monthly Remittance Date next succeeding such discovery,
receipt of notice or such time (i) substitute in lieu of each Home Equity Loan
which has given rise to the requirement for action by the Seller a Qualified
Replacement Mortgage and deliver the Substitution Amount to the Servicer for
deposit in the Principal and Interest Account or (ii) purchase such Home Equity
Loan from the Trust at a purchase price equal to the Loan Purchase Price
thereof, which purchase price shall be delivered to the Servicer for deposit in
the Principal and Interest Account; PROVIDED, HOWEVER, that if the Seller can
establish to the reasonable satisfaction of the Insurer that it is diligently
pursuing remedial action, the period of time in which the Seller must substitute
a Qualified Replacement Mortgage or purchase such Home Equity Loan may be
extended with the written approval of the Insurer. It is understood and agreed
that the obligation of the Seller so to substitute or purchase any Home Equity
Loan as to which such a statement set forth below is untrue in any material
respect and has not been remedied shall constitute the sole remedy respecting a
discovery of any such statement which is untrue in any material respect in this
Section 2.05 available to the Owners and the Indenture Trustee on behalf of the
Owners.
(b) The Seller hereby represents, warrants and covenants to the
Indenture Trustee, the Depositor, the Servicer, the Insurer and the Owners that
as of the Startup Day (or the Replacement Cut-off Date, with respect to a
Qualified Replacement Mortgage):
(i) The information with respect to each Home Equity Loan set
forth in the related Schedule of Home Equity Loans is true and correct
as of the Cut-Off Date;
(ii) All the original or certified documentation set forth in
Section 2.06 (including all material documents related thereto) with
respect to each Home Equity Loan has been or will be delivered to the
Custodian on behalf of the Indenture Trustee on the Startup Day or as
otherwise provided in Section 2.06. To the Seller's best knowledge, no
documentation contains any untrue statement of a material fact or omits
to state a fact necessary to make the statements contained therein not
misleading.
(iii) Each Home Equity Loan being transferred to the Trust is
a Qualified Mortgage or Qualified Replacement Mortgage and is a
Mortgage;
(iv) Each Property is a fee simple estate in a single parcel
of real property improved by a single family residential dwelling
(except for ___ and ___ Home Equity Loans in the amount of
$______________ and $_____________, respectively, that are
condominiums, townhouses, manufactured housing, two-to-four family
residential dwellings or PUDs), and no more than ____% and ____%,
respectively, of the Home Equity Loans are secured Properties that are
Manufactured Homes, each of which is considered to be real property
under the applicable local law;
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(v) As of the Cut-Off Date or Replacement Cut-Off Date, as
applicable, no Home Equity Loan has a combined Loan-to-Value Ratio in
excess of 99.99%
(vi) Each Home Equity Loan is being serviced by the Servicer
in accordance with the terms of this Agreement;
(vii) The Note related to each Home Equity Loan in Group I
bears a current Coupon Rate of at least ___% per annum, the Note
related to each Home Equity Loan in Group II bears a current Coupon
Rate of at least ___% and the Note related to each Home Equity Loan in
Group III beas a current Coupon Rate of at least ___%;
(viii) Each Note with respect to the Home Equity Loans will
provide for a schedule of substantially level and equal Monthly
Payments (or periodic rate adjustments in the case of the Home Equity
Loans in Group III), which are sufficient to amortize fully the
principal balance of such Note on or before its maturity date, except
for ___ Home Equity Loans representing approximately ___% of the
aggregate Principal Balance of the Home Equity Loans in Group __ as of
the Cut-Off Date which may provide for a "balloon" payment due at the
end of the 15th year and no Home Equity Loan is a graduated payment
loan;
(ix) As of the Startup Day, each Mortgage is a valid and
enforceable first or second lien of record (or is in the process of
being recorded) on the Property subject in the case of any Second
Mortgage Loan only to a Senior Lien on such Property and subject in all
cases to the exceptions to title set forth in the title insurance
policy or attorney's opinion of title, with respect to the related Home
Equity Loan, which exceptions are generally acceptable to banking
institutions in connection with their regular mortgage lending
activities, 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;
(x) Immediately prior to the transfer and assignment of the
Home Equity Loans by the Seller to the Depositor and by the Depositor
to the Indenture Trustee herein contemplated, the Seller and the
Depositor, as the case may be, held good and indefeasible title to, and
was the sole owner of, each Home Equity Loan (including the related
Note) conveyed by the Seller subject to no liens, charges, mortgages,
encumbrances or rights of others except as set forth in clause (ix) or
other liens which will be released simultaneously with such transfer
and assignment; and immediately upon the transfer and assignment herein
contemplated, the Indenture Trustee will hold good and indefeasible
title to, and be the sole owner of, each Home Equity Loan subject to no
liens, charges, mortgages, encumbrances or rights of others except as
set forth in paragraph (ix) or other liens which will be released
simultaneously with such transfer and assignment;
(xi) As of the Cut-Off Date, approximately ___% of the Home
Equity Loans are more than 30 days Delinquent (and none are more than
59 days Delinquent);
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(xii) To the best of the knowledge of the Seller, there is no
delinquent tax or assessment lien on any Property, and each Property is
free of substantial damage and is in good repair;
(xiii) To the best of the knowledge of the Seller, there is no
valid and enforceable right of offset, claim, defense or counterclaim
to any Note or Mortgage, including the obligation of the related
Mortgagor to pay the unpaid principal of or interest on such Note nor
has any such claim, defense, offset or counterclaim been asserted;
(xiv) To the best of the knowledge of the Seller, there is no
mechanics' lien or claim for work, labor or material affecting any
Property which is or may be a lien prior to, or equal with, the lien of
the related Mortgage except those which are insured against by any
title insurance policy referred to in paragraph (xvi) below;
(xv) Each Home Equity Loan at the time it was made complied in
all material respects with applicable state and federal laws and
regulations, including, without limitation, the federal
Truth-in-Lending Act (as amended by the Riegle Community Development
and Regulatory Improvement Act of 1994) and other consumer protection
laws, usury, equal credit opportunity, disclosure and recording laws;
(xvi) With respect to each Home Equity Loan either (a) if a
title insurance policy is not available in the applicable state, an
attorney's opinion of title has been obtained but no title policy has
been obtained, or (b) a lender's title insurance policy, issued in
standard American Land Title Association form by a title insurance
company authorized to transact business in the state in which the
related Property is situated, in an amount at least equal to the
original balance of such Home Equity Loan together, in the case of a
Second Mortgage Loan, with the then-original principal amount of the
mortgage note relating to the Senior Lien, insuring the mortgagee's
interest under the related Home Equity Loan as the holder of a valid
first or second mortgage lien of record on the real Property described
in the related Mortgage, as the case may be, subject only to exceptions
of the character referred to in paragraph (ix) above, was effective on
the date of the origination of such Home Equity Loan, and, as of the
Startup Day, such policy is valid and thereafter such policy shall
continue in full force and effect;
(xvii) The improvements upon each Property are covered by a
valid and existing hazard insurance policy with a carrier generally
acceptable to the Servicer that provides for fire and extended coverage
representing coverage not less than the least of (A) the outstanding
principal balance of the related Home Equity Loan (together, in the
case of a Second Mortgage Loan, with the outstanding principal balance
of the Senior Lien), (B) the minimum amount required to compensate for
damage or loss on a replacement cost basis or (C) the full insurable
value of the Property;
(xviii) If any Property is in an area identified in the
Federal Register by the Federal Emergency Management Agency as having
special flood hazards, a flood insurance policy in a form meeting the
requirements of the current guidelines of the Flood
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Insurance Administration is in effect with respect to such Property
with a carrier generally acceptable to the Servicer in an amount
representing coverage not less than the least of (A) the outstanding
principal balance of the related Home Equity Loan (together, in the
case of a Second Mortgage Loan, with the outstanding principal balance
of the Senior Lien), (B) the minimum amount required to compensate for
damage or loss on a replacement cost basis or (C) the maximum amount of
insurance that is available under the Flood Disaster Protection Act of
1973;
(xix) Each Mortgage and Mortgage Note are the legal, valid and
binding obligation of the maker thereof and are enforceable in
accordance with their 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 Home Equity
Loan had full legal capacity to execute all documents relating to such
Home Equity Loan and convey the estate therein purported to be
conveyed;
(xx) The Seller has caused and will cause to be performed any
and all acts required to be performed to preserve the rights and
remedies of the Indenture Trustee in any Insurance Policies applicable
to any Home Equity Loans delivered by the Seller 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;
(xxi) As of the Startup Day, no more than ___% of the
aggregate Principal Balance of the Home Equity Loans in any Home Equity
Group will be secured by Properties located within any single zip code
area;
(xxii) Each original Mortgage was recorded or is in the
process of being recorded, and all subsequent assignments of the
original Mortgage have been delivered for recordation or have been
recorded in the appropriate jurisdictions wherein such recordation is
necessary to perfect the lien thereof as against creditors of or
purchasers from the Seller (or, subject to Section 2.06 hereof, are in
the process of being recorded); each Mortgage and assignment of
Mortgage is in recordable form and is acceptable for recording under
the laws of the jurisdiction in which the property securing such
Mortgage is located;
(xxiii) The terms of each Mortgage Note and each Mortgage have
not been impaired, waived, altered or modified in any respect, except
by a written instrument which has been recorded, if necessary, to
protect the interest of the Owners and the Insurer and which has been
delivered to the Indenture Trustee. The substance of any such waiver,
alteration or modification is reflected on the related Schedule of Home
Equity Loans;
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(xxiv) The proceeds of each Home Equity 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
such Home Equity Loans were paid and the Mortgagor is not entitled to
any refund of any amounts paid or due under the related Mortgage Note
or Mortgage;
(xxv) The related Mortgage Note is not and has not been
secured by any collateral, pledged account or other security except the
lien of the corresponding Mortgage;
(xxvi) No Home Equity Loan has a shared appreciation feature,
or other contingent interest feature;
(xxvii) Each Property is located in the state identified in
the respective Schedule of Home Equity Loans and consists of one or
more parcels of real property with a residential dwelling erected
thereon;
(xxviii) Each Mortgage contains a provision for the
acceleration of the payment of the unpaid principal balance of the
related Home Equity Loan in the event the related Property is sold
without the prior consent of the mortgagee thereunder;
(xxix) Any advances made after the date of origination of a
Home Equity Loan but prior to the Cut-Off Date have been consolidated
with the outstanding principal amount secured by the related Mortgage,
and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the respective
Schedule of Home Equity Loans. The consolidated principal amount does
not exceed the original principal amount of the related Home Equity
Loan. No Mortgage Note permits or obligates the Servicer to make future
advances to the related Mortgagor at the option of the Mortgagor;
(xxx) To the best of the knowledge of the Seller, there is no
proceeding pending or threatened for the total or partial condemnation
of any Property, nor is such a proceeding currently occurring, and each
Property is undamaged by waste, fire, water, flood, earthquake, earth
movement or other casualty;
(xxxi) All of the improvements which were included for the
purposes of determining the Appraised Value of any Property lie wholly
within the boundaries and building restriction lines of such Property,
and no improvements on adjoining properties encroach upon such
Property, and are stated in the title insurance policy and
affirmatively insured;
(xxxii) To the best of the knowledge of the Seller, no
improvement located on or being part of any Property is in violation of
any applicable zoning law or regulation. All
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inspections, licenses and certificates required to be made or issued
with respect to all occupied portions of each 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 such Property is lawfully occupied under the
applicable law;
(xxxiii) 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 Owners or the Trust to the trustee under the deed of trust, except
in connection with a trustee's sale after default by the related
Mortgagor;
(xxxiv) Each Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder thereof
adequate for the realization against the related Property of the
benefits of the security, including (A) in the case of a Mortgage
designated as a deed of trust, by trustee's sale and (B) otherwise by
judicial foreclosure. There is no homestead or other exemption other
than any applicable Mortgagor redemption rights available to the
related Mortgagor which would materially interfere with the right to
sell the related Property at a trustee's sale or the right to foreclose
the related Mortgage;
(xxxv) There is no default, breach, violation or event of
acceleration existing under any Mortgage or the related Note and no
event which, with the passage of time or with notice and the expiration
of any grace or cure period, would constitute a default, breach,
violation or event of acceleration; and neither the Servicer nor the
Seller has waived any default, breach, violation or event of
acceleration or advanced funds, directly or indirectly for the payment
of any amount required under any Home Equity Loan;
(xxxvi) No instrument of release or waiver has been executed
in connection with any Home Equity Loan, and no Mortgagor has been
released, in whole or in part, except in connection with an assumption
agreement which has been approved by the primary mortgage guaranty
insurer, if any, and which has been delivered to the Indenture Trustee;
(xxxvii) [Reserved]
(xxxviii) Each Home Equity Loan was underwritten in accordance
with the credit underwriting guidelines of the Seller as set forth in
the Seller's Policies and Procedures Manual, as in effect on the date
hereof and such Manual conforms in all material respects to the
description thereof set forth in the Registration Statement;
(xxxix) Each Home Equity Loan was originated based upon a full
appraisal, which included an interior inspection of the subject
property;
(xl) The Home Equity Loans were not selected for inclusion
in the Trust by the Seller on any basis intended to adversely affect
the Trust or the Insurer;
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(xli) No more than ___% and ___% of the aggregate Principal
Balance of the Home Equity Loans in Group I, Group II and Group III,
respectively, are secured by Properties that are non-owner occupied
Properties (I.E., investor-owned and vacation);
(xlii) The Seller has no actual knowledge that there exist any
hazardous substances, hazardous wastes or solid wastes, as such terms
are defined in the Comprehensive Environmental Response Compensation
and Liability Act, the Resource Conservation and Recovery Act of 1976,
or other federal, state or local environmental legislation on any
Property, and no violations of any local, state or federal
environmental law, rule or regulation exist with respect to any
Property;
(xliii) The Seller (and the originator, if not the Seller) was
properly licensed or otherwise authorized, to the extent required by
applicable law, to originate or purchase each Home Equity Loan; and the
consummation of the transactions herein contemplated, including,
without limitation, the receipt of interest by the Owners and the
ownership of the Home Equity Loans by the Indenture Trustee as trustee
of the Trust will not involve the violation of such laws;
(xliv) With respect to each Property subject to a ground lease
(i) the current ground lessor has been identified and all ground rents
which have previously become due and owing have been paid; (ii) the
ground lease term extends, or is automatically renewable, for at least
five years beyond the maturity date of the related Home Equity Loan;
(iii) the ground lease has been duly executed and recorded; (iv) the
amount of the ground rent and any increases therein are clearly
identified in the lease and are for predetermined amounts at
predetermined times; (v) the ground rent payment is included in the
borrower's monthly payment as an expense item in determining the
qualification of the borrower for such Home Equity Loan; (vi) the Trust
has the right to cure defaults on the ground lease; and (vii) the terms
and conditions of the leasehold do not prevent the free and absolute
marketability of the Property. As of the Cut-Off Date, the Principal
Balance of the Home Equity Loans with related Properties subject to
ground leases does not exceed ___% of the Original Aggregate Principal
Balance;
(xlv) As of the Startup Day, with respect to any Second
Mortgage Loan, the Seller has not received a notice of default of any
Senior Lien secured by any Property which has not been cured by a party
other than the Seller;
(xlvi) No Home Equity Loan is subject to a rate reduction
pursuant to a buydown program;
(xlvii) Reserved;
(xlviii) The Coupon Rate on each Home Equity Loan is
calculated on the basis of a year of 360 days with twelve 30-day
months;
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(xlix) Each Home Equity Loan was originated by the Seller, an
affiliate of the Seller or a broker for simultaneous assignment to the
Seller;
(l) Neither the operation of any of the terms of each Note and
each Mortgage nor the exercise of any right thereunder will render
either the Note or the Mortgage unenforceable, in whole or in part, nor
subject it to any right of rescission, claim set-off, counterclaim or
defense, including, without limitation, the defense of usury;
(li) Any adjustment to the Coupon Rate on a Home Equity Loan
in Group III has been legal, proper and in accordance with the terms of
the related Note;
(lii) No Home Equity Loan in Group III is subject to
negative amortization;
(liii) As of the Cut-Off Date, the FTC holder regulation
provided in 16 C.F.R. Part 433 applies to none of the Home Equity
Loans;
(liv) As of the Cut-Off Date with respect to the Home Equity
Loans or the Replacement Cut-Off Date with respect to the Qualified
Replacement Mortgages, a portion of the Home Equity Loans are
"mortgages" as defined in 15 U.S.C. 1602(aa), and with respect to each
such Home Equity Loan, no Mortgagor has or will have a claim or defense
under such Home Equity Loan;
(lv) Reserved;
(lvi) The rights with respect to each Home Equity Loan are
assignable by the Seller without the consent of any Person other than
consents which will have been obtained on or before the Startup Day;
(lvii) The Seller has duly fulfilled all obligations to be
fulfilled on the lender's part under or in connection with the
origination, acquisition and assignment of the Home Equity Loans and
the related Mortgage and Note, and has done nothing to impair the
rights of the Indenture Trustee, the Insurer or the Owners in payments
with respect thereto;
(lviii) To the Seller's knowledge, the documents, instruments
and agreements submitted by each Mortgagor for loan underwriting were
not falsified and contain no untrue statement of a material fact and do
not omit to state a material fact required to be stated therein or
necessary to make the information and statements contained therein not
misleading.
(lix) No Home Equity Loan matures later than _____________.
(lx) The first date on which the applicable Mortgagor must
make a payment on each Home Equity Loan is no later than _____________,
except with respect to ___ Home Equity Loans, which represent ___% of
the Original Aggregate Principal Balance as of the Cut-Off Date, that
provide for a first payment on or after _________________.
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(lxi) With respect to each Home Equity Loan that is a Second
Mortgage Loan:
(a) The related Senior Lien does not provide for
negative amortization.
(b) The Seller has not received, and is not aware of,
a notice of default of any Senior Lien which has not been
cured.
(c) To the best of the knowledge of the Seller, no
funds provided to the Mortgagor from a Second Mortgage Loan
were concurrently used as a down payment for the Senior Lien.
c) In the event that any Qualified Replacement Mortgage is
delivered by the Seller to the Trust pursuant to Section 2.04, Section 2.05 or
Section 2.07 hereof, the Seller shall be obligated to take the actions described
in Section 2.05(a) with respect to such Qualified Replacement Mortgage upon the
discovery by any of the Owners, the Seller, the Servicer, the Insurer, any
Subservicer, the Custodian or the Indenture Trustee that the statements set
forth in subsection (b) above are untrue in any material respect, without regard
to any limitation set forth therein concerning the knowledge of the Seller as to
facts stated therein, on the date such Qualified Replacement Mortgage is
conveyed to the Trust such that the interests of the Owners or the Insurer in
the related Qualified Replacement Mortgage are, or may be, materially and
adversely affected; PROVIDED, HOWEVER, that for the purposes of this subsection
(c) the statements in subsection (b) above referring to items "as of the Cut-Off
Date" or "as of the Startup Day" shall be deemed to refer to such items as of
the date such Qualified Replacement Mortgage is conveyed to the Trust.
Notwithstanding the fact that a representation contained in subsection (b) above
may be limited to the Seller's knowledge, such limitation shall not relieve the
Seller of its repurchase obligation under this Section and Section 2.06 hereof.
(d) It is understood and agreed that the representations,
warranties and covenants set forth in this Section 2.05 shall survive delivery
of the respective Home Equity Loans (including Qualified Replacement Mortgage)
to the Indenture Trustee or the Custodian, on behalf of the Indenture Trustee.
(e) The Indenture Trustee shall have no duty to conduct any
affirmative investigation other than as specifically set forth in this Agreement
as to the occurrence of any condition requiring the repurchase or substitution
of any Home Equity Loan pursuant to this Article II or the eligibility of any
Home Equity Loan for the purpose of this Agreement.
Section 2.06. SALE TREATMENT OF THE HOME EQUITY LOANS AND QUALIFIED
REPLACEMENT MORTGAGES.
(a) The transfer by the Seller and the Depositor of the Home
Equity Loans set forth on the Schedule of Home Equity Loans to the Indenture
Trustee is absolute and is intended by the Owners and all parties hereto to be
treated as a sale by the Seller and the Depositor.
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(b) In connection with the transfer and assignment of the Home
Equity Loans, the Depositor agrees to:
(i) deliver without recourse to the Custodian, on behalf of
the Indenture Trustee, on the Startup Day with, (A) the original Notes
endorsed in blank or to the order of the Indenture Trustee ("Pay to the
order of __________________, as Indenture Trustee in trust for the
registered holders of Centex Home Equity Loan Asset-Backed Notes Series
2000-__, without recourse") and signed by manual signature of the
Seller, (B) (I) if the original title insurance policy is not
available, the original title insurance commitment or a copy thereof
certified as a true copy by the closing agent or the Seller, and when
available, the original title insurance policy or a copy certified by
the issuer of the title insurance policy or (II) if title insurance is
not available in the applicable state, the attorney's opinion of title,
(C) originals or copies of all intervening assignments certified as
true copies by the closing agent or the Seller, showing a complete
chain of title from origination to the Indenture Trustee, if any,
including warehousing assignments, if recorded, (D) originals of all
assumption and modification agreements, if any, (E) either: (1) the
original Mortgage, with evidence of recording thereon (if such original
Mortgage has been returned to the Seller from the applicable recording
office) or a copy of the Mortgage certified as a true copy by the
closing attorney or an Authorized Officer of the Seller, or (2) a copy
of the Mortgage certified by the public recording office in those
instances where the original recorded Mortgage has been lost and (F)
the original assignments of Mortgages (as described in clause (b)(ii))
in recordable form and acceptable for recording in the state or other
jurisdiction where the Property is located;
(ii) cause, within 60 days following the Startup Day,
assignments of the Mortgages to "_____________, as Indenture Trustee
in trust for the registered holders of Centex Home Equity Loan
Asset-Backed Notes Series 2000-__ under the Indenture dated as of
_________") to be submitted for recording in the appropriate
jurisdictions; PROVIDED, FURTHER, that the Seller shall not be required
to record an assignment of a Mortgage if the Seller furnishes to the
Indenture Trustee and the Insurer, on or before the Startup Day, at
the Seller's expense, an Opinion of Counsel with respect to the
relevant jurisdiction that such recording is not necessary to perfect
the Indenture Trustee's interest in the related Home Equity Loans (in
form and substance satisfactory to the Indenture Trustee, the Insurer
and the Rating Agencies); PROVIDED FURTHER, HOWEVER, notwithstanding
the delivery of any legal opinions, each assignment of Mortgage shall
be recorded by the Indenture Trustee or the Custodian on behalf of the
Indenture Trustee upon the earliest to occur of: (i) reasonable
direction by the Insurer, (ii) the occurrence of a Servicer Termination
Event, (iii) if the Seller is not Servicer and with respect to any one
assignment of Mortgage, the occurrence of a bankruptcy, insolvency or
foreclosure relating to the Mortgagor under the related Mortgage, or
(iv) the occurrence of a bankruptcy, insolvency or foreclosure relating
to the Seller;
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(iii) deliver the title insurance policy or title searches,
the original Mortgages and such recorded assignments, together with
originals or duly certified copies of any and all prior assignments
(other than unrecorded warehouse assignments), to the Custodian, on
behalf of the Indenture Trustee, within 15 days of receipt thereof by
the Seller (but in any event, with respect to any Mortgage as to which
original recording information has been made available to the Seller,
within one year after the Startup Day; and
(iv) furnish to the Indenture Trustee, the Insurer and the
Rating Agencies at the Seller's expense, an Opinion of Counsel with
respect to the sale and perfection of the Home Equity Loans delivered
to the Trust in form and substance satisfactory to the Insurer.
In instances where the original recorded Mortgage cannot be delivered
by the Seller to the Custodian on behalf of the Indenture Trustee prior to or
concurrently with the execution and delivery of this Agreement due to a delay in
connection with recording, the Seller may in lieu of delivering such original
recorded Mortgage, deliver to the Custodian on behalf of the Indenture Trustee a
copy thereof, provided that the Seller certifies that the original Mortgage has
been delivered to a title insurance company for recordation after receipt of its
policy of title insurance or binder therefor. In all such instances, the Seller
will deliver or cause to be delivered the original recorded Mortgage to the
Custodian on behalf of the Indenture Trustee promptly upon receipt of the
original recorded Mortgage but in no event later than one year after the Startup
Day.
The Seller hereby confirms to the Indenture Trustee that it has made
the appropriate entries in its general accounting records, to indicate that such
Home Equity Loans have been transferred to the Indenture Trustee and constitute
part of the Trust in accordance with the terms of the trust created hereunder.
Notwithstanding anything to the contrary contained in this Section
2.06, in those instances where the public recording office retains the original
Mortgage, the assignment of a Mortgage or the intervening assignments of the
Mortgage after it has been recorded, the Depositor and Seller shall be deemed to
have satisfied its obligations hereunder upon delivery to the Custodian, on
behalf of the Indenture Trustee of a copy of such Mortgage, such assignment or
assignments of Mortgage certified by the public recording office to be a true
copy of the recorded original thereof.
Not later than ten days following the end of the 60-day period referred
in clause (b)(ii) above, the Seller shall deliver to the Custodian, on behalf of
the Indenture Trustee, a list of all Mortgages for which no Mortgage assignment
has yet been submitted for recording by the Seller, which list shall state the
reason why the Seller has not yet submitted such Mortgage assignments for
recording. With respect to any Mortgage assignment disclosed on such list as not
yet submitted for recording for a reason other than a lack of original recording
information, the Custodian, on behalf of the Indenture Trustee, shall make an
immediate demand on the Seller to prepare such Mortgage assignments, and shall
inform the Insurer, in writing, of the Seller's failure to prepare such Mortgage
assignments. Thereafter, the Custodian, on behalf of the
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Indenture Trustee, shall cooperate in executing any documents prepared by the
Insurer and submitted to the Custodian, on behalf of the Indenture Trustee in
connection with this provision. Following the expiration of the 60-day period
referred to in clause (b)(ii) above, the Seller shall promptly prepare a
Mortgage assignment for any Mortgage for which original recording information
is subsequently received by the Seller, and shall promptly deliver a copy of
such Mortgage assignment to the Custodian, on behalf of the Indenture
Trustee. The Seller agrees that it will follow its normal servicing
procedures and attempt to obtain the original recording information necessary
to complete a Mortgage assignment. In the event that the Seller is unable to
obtain such recording information with respect to any Mortgage prior to the
end of the 18th calendar month following the Startup Day and has not provided
to the Custodian, on behalf of the Indenture Trustee a Mortgage assignment
with evidence of recording thereon relating to the assignment of such
Mortgage to the Indenture Trustee, the Custodian, on behalf of the Indenture
Trustee shall notify the Seller of the Seller's obligation to provide a
completed assignment (with evidence of recording thereon) on or before the
end of the 20th calendar month following the Startup Day. A copy of such
notice shall be sent by the Custodian, on behalf of the Indenture Trustee to
the Insurer. If no such completed assignment (with evidence of recording
thereon) is provided before the end of such 20th calendar month, the related
Home Equity Loan shall be deemed to have breached the representation
contained in clause (xxii) of Section 2.05(b) hereof; PROVIDED, HOWEVER, that
if as of the end of such 20th calendar month the Seller demonstrates to the
satisfaction of the Insurer that it is exercising its best efforts to obtain
such completed assignment and, during each month thereafter until such
completed assignment is delivered to the Custodian, on behalf of the
Indenture Trustee, the Seller continues to demonstrate to the satisfaction of
the Insurer that it is exercising its best efforts to obtain such completed
assignment, the related Home Equity Loan will not be deemed to have breached
such representation. The requirement to deliver a completed assignment with
evidence of recording thereon will be deemed satisfied upon delivery of a
copy of the completed assignment certified by the applicable public recording
office.
Copies of all Mortgage assignments received by the Custodian on behalf
of the Indenture Trustee shall be retained in the related Mortgage File.
All recording required pursuant to this Section 2.06 shall be
accomplished at the expense of the Seller.
(c) In the case of Home Equity Loans which have been prepaid in
full on or after the Cut-Off Date and prior to the Startup Day, the Seller, in
lieu of the foregoing, will deliver within six (6) days after the Startup Day to
the Indenture Trustee a certification of an Authorized Officer in the form set
forth in Exhibit __.
(d) The Seller shall transfer, assign, set over and otherwise
convey without recourse, to the Indenture Trustee all right, title and interest
of the Seller in and to any Qualified Replacement Mortgage delivered to the
Custodian, on behalf of the Indenture Trustee on behalf of the Trust by the
Seller pursuant to Section 2.04, 2.05 or 2.07 hereof and all its right, title
and interest to principal and interest due on such Qualified Replacement
Mortgage on and after the applicable Replacement Cut-Off Date; PROVIDED,
HOWEVER, that the Seller shall reserve and retain
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all right, title and interest in and to payments of principal and interest
due on such Qualified Replacement Mortgage prior to the applicable
Replacement Cut-Off Date.
(e) As to each Home Equity Loan released from the Trust in
connection with a repurchase or the conveyance of a Qualified Replacement
Mortgage therefor, the Indenture Trustee will transfer, assign, set over and
otherwise convey without recourse or representation, on the Seller's order, all
of its right, title and interest in and to such released Home Equity Loan and
all the Trust's right, title and interest to principal and interest due on such
released Home Equity Loan after the applicable Replacement Cut-Off Date, as the
case may be; PROVIDED, HOWEVER, that the Trust shall reserve and or and retain
all right, title and interest in and to payments of principal and interest due
on such released Home Equity Loan prior to such repurchase or the applicable
Replacement Cut-Off Date, as the case may be.
(f) In connection with any transfer and assignment of a Qualified
Replacement Mortgage to the Indenture Trustee on behalf of the Trust, the Seller
agrees to (i) deliver without recourse to the Custodian, on behalf of the
Indenture Trustee on the date of delivery of such Qualified Replacement Mortgage
the original Note relating thereto, endorsed in blank or to the order of the
Indenture Trustee, (ii) cause promptly to be recorded an assignment in the
appropriate jurisdictions, (iii) deliver the original Qualified Replacement
Mortgage and such recorded assignment, together with original or duly certified
copies of any and all prior assignments, to the Custodian, on behalf of the
Indenture Trustee within 15 days of receipt thereof by the Seller (but in any
event within 120 days after the date of conveyance of such Qualified Replacement
Mortgage) and (iv) deliver the title insurance policy, or where no such policy
is required to be provided under Section 2.06(b)(i)(B), the other evidence of
title required in Section 2.06(b)(i)(B).
(g) As to each Home Equity Loan released from the Trust in
connection with a repurchase or the conveyance of a Qualified Replacement
Mortgage the Custodian, on behalf of the Indenture Trustee shall deliver on the
date of such repurchase or conveyance of such Qualified Replacement Mortgage and
on the order of the Seller (i) the original Note relating thereto, endorsed
without recourse or representation, in blank or to the order of, to the Seller,
(ii) the original Mortgage so released and all assignments relating thereto and
(iii) such other documents as constituted the Mortgage File with respect
thereto.
(h) If a Mortgage assignment is lost during the process of
recording, or is returned from the recorder's office unrecorded due to a defect
therein, the Seller shall prepare a substitute assignment or cure such defect,
as the case may be, and thereafter cause each such assignment to be duly
recorded.
Section 2.07. ACCEPTANCE BY INDENTURE TRUSTEE; CERTAIN SUBSTITUTIONS OF
HOME EQUITY LOANS; CERTIFICATION BY INDENTURE TRUSTEE.
(a) The Indenture Trustee agrees to execute and deliver and to
cause the Custodian to execute and deliver on the Startup Day an acknowledgment
of receipt of the items delivered by the Seller in the forms attached as Exhibit
__ hereto, and declares through the Custodian that it
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will hold such documents and any amendments, replacement or supplements
thereto, as well as any other assets included in the definition of Trust
Estate and delivered to the Custodian, in trust upon and subject to the
conditions set forth herein for the benefit of the Owners and the Insurer.
The Indenture Trustee agrees, for the benefit of the Owners and the Insurer,
to cause the Custodian to review such items within 45 days after the Startup
Day (or, with respect to any document delivered after the Startup Day, within
45 days of receipt and with respect to any Qualified Replacement Mortgage,
within 45 days after the assignment thereof) and to deliver to the Depositor,
the Seller, the Servicer and the Insurer a certification in the form attached
hereto as Exhibit __ (a "Pool Certification") to the effect that, as to each
Home Equity Loan listed in the Schedule of Home Equity Loans (other than any
Home Equity Loan paid in full or any Home Equity Loan specifically identified
in such Pool Certification as not covered by such Pool Certification), (i)
all documents required to be delivered to it pursuant to Section 2.06(b)(i)
of this Agreement have been executed and are in its possession and that the
Notes have been endorsed as set forth in Section 2.06(b)(i) hereof, (ii) such
documents have been reviewed by it and have not been mutilated, damaged or
torn and relate to such Home Equity Loan and (iii) based on its examination
and only as to the foregoing documents, the information set forth on the
Schedule of Home Equity Loans accurately reflects the information set forth
in the Mortgage File. The Indenture Trustee shall have no responsibility for
reviewing any Mortgage File except as expressly provided in this subsection
2.07(a). Without limiting the effect of the preceding sentence, in reviewing
any Mortgage File, the Indenture Trustee shall have no responsibility for
determining whether any document is valid and binding, whether the text of
any assignment is in proper form (except to determine if the Indenture
Trustee is the assignee), 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, 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. The Indenture Trustee shall be under no duty or obligation to
inspect, review or examine any such documents, instruments, certificates or
other papers to determine that they are genuine, enforceable, or appropriate
for the represented purpose or that they are other than what they purport to
be on their face, nor shall the Indenture Trustee be under any duty to
determine independently whether there are any intervening assignments or
assumption or modification agreements with respect to any Home Equity Loan.
(b) If the Custodian, on behalf of the Indenture Trustee during
such 45-day period finds any document constituting a part of a Mortgage File
which is not executed, has not been received, or is unrelated to the Home Equity
Loans identified in the Schedule of Home Equity Loans, or that any Home Equity
Loan does not conform to the description thereof as set forth in the Schedule of
Home Equity Loans, the Custodian, on behalf of the Indenture Trustee shall
promptly so notify the Depositor, the Seller, the Owners and the Insurer. In
performing any such review, the Custodian, on behalf of the Indenture Trustee
may conclusively rely on the Seller as to the purported genuineness of any such
document and any signature thereon. It is understood that the scope of the
review of the items delivered by the Seller pursuant to Section 2.06(b)(i) is
limited solely to confirming that the documents listed in Section 2.06(b)(i)
have been executed and received, relate to the Mortgage Files identified in the
Schedule of Home Equity Loans and conform to the description thereof in the
Schedule of Home Equity Loans. The Seller agrees to
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use reasonable efforts to remedy a material defect in a document constituting
part of a Mortgage File of which it is so notified by the Custodian, on
behalf of the Indenture Trustee. If, however, within 90 days after such
notice to it respecting such defect the Seller has not remedied the defect
and the defect materially and adversely affects the interest in the related
Home Equity Loan of the Owners or the Insurer, the Seller will (or will cause
an affiliate of the Seller to) on the next succeeding Monthly Remittance Date
(i) substitute in lieu of such Home Equity Loan a Qualified Replacement
Mortgage and deliver the Substitution Amount to the Servicer for deposit in
the Principal and Interest Account or (ii) purchase such Home Equity Loan at
a purchase price equal to the Loan Purchase Price thereof, which purchase
price shall be delivered to the Servicer for deposit in the Principal and
Interest Account.
(c) In addition to the foregoing, the Custodian, on behalf of the
Indenture Trustee also agrees to make a review during the 12th month after the
Startup Day indicating the current status of the exceptions previously indicated
on the Pool Certification (the "Final Certification"). After delivery of the
Final Certification, the Custodian, on behalf of the Indenture Trustee and the
Servicer shall provide to the Insurer no less frequently than monthly updated
certifications indicating the then current status of exceptions, until all such
exceptions have been eliminated.
Section 2.08. CUSTODIAN.
Notwithstanding anything to the contrary in this Agreement, the parties
hereto acknowledge that the functions of the Indenture Trustee with respect to
the custody, acceptance, inspection and release of the Mortgage Files pursuant
to Sections 2.06, 2.07 and 3.11 and the related Pool Certification and Final
Certification shall be performed by the Custodian on the Indenture Trustee's
behalf pursuant to the Custodial Agreement; provided, however, the Indenture
Trustee shall remain primarily liable for such obligations. The fees and
expenses of the Custodian will be paid by the Servicer.
If, pursuant to Section ____ of the Custodial Agreement, the Custodian
shall request written instructions from the Indenture Trustee, the Indenture
Trustee hereby agrees to promptly provide such instructions.
Section 2.09. COOPERATION PROCEDURES. The Seller shall, in connection
with the delivery of each Qualified Replacement Mortgage to the Custodian, on
behalf of the Indenture Trustee, provide the Indenture Trustee with information
set forth in the Schedules of Home Equity Loans with respect to such Qualified
Replacement Mortgage.
(a) The Seller, the Depositor, the Servicer and the Indenture
Trustee covenant to provide each other with all data and information required to
be provided by them hereunder at the times required hereunder, and additionally
covenant reasonably to cooperate with each other in providing any additional
information required to be obtained by any of them in connection with their
respective duties hereunder.
(b) The Servicer shall maintain such accurate and complete
accounts, records and computer systems pertaining to each Mortgage File as shall
enable it and the Indenture Trustee to
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comply with this Agreement. In performing its recordkeeping duties the
Servicer shall act in accordance with the servicing standards set forth in
this Agreement. The Servicer shall conduct, or cause to be conducted,
periodic audits of its accounts, records and computer systems as set forth in
Sections 3.13 and 3.14 hereof. The Servicer shall promptly report to the
Indenture Trustee any failure on its part to maintain its accounts, records
and computer systems herein provided and promptly take appropriate action to
remedy any such failure.
(c) The Seller further confirms to the Indenture Trustee that it
has caused the portions of the electronic ledger relating to the Home Equity
Loans to be clearly and unambiguously marked to indicate that such Home Equity
Loans have been sold, transferred, assigned and conveyed through the Depositor
to the Indenture Trustee and constitute part of the Trust Estate in accordance
with the terms of the trust created hereunder and that the Seller will treat the
transaction contemplated by such sale, transfer, assignment and conveyance as a
sale for accounting purposes.
Notwithstanding anything to the contrary in this Agreement, the parties
hereto acknowledge that the functions of the Indenture Trustee with respect to
the custody, acceptance, inspection and release of the Mortgage Files pursuant
to Sections 2.06, 2.07 and 3.11 and the related Pool Certification and Final
Certification shall be performed by the Custodian pursuant to the Custodial
Agreement. The fees and expenses of the Custodian will be paid by the Servicer.
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ARTICLE III
ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS
Section 3.01 THE SERVICER.
(a) The Servicer, as independent contract servicer, shall service
and administer the Home Equity 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 Home Equity 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 home equity 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 Home Equity 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 Home Equity 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 Home Equity Loans. For purposes of this Agreement, the Servicer shall be
deemed to have received payments on Home Equity 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 Home Equity 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 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
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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 Home Equity 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 Home Equity 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 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 Home Equity Loan, or such default is, in the
judgment of the Servicer, imminent, (y) with respect to any modification
lowering the Coupon Rate or effecting the forgiveness of any amount owed under
the Mortgage Note, or extending the final maturity date on such Home Equity
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 Home
Equity Loan that would change the Coupon Rate, defer or forgive the payment of
any principal or interest (unless in connection with the liquidation of the
related Home Equity Loan) or extend the final maturity date on the Home Equity
Loan. No costs incurred by the Servicer or any Subservicer in respect of
Servicing Advances shall, for the
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purposes of distributions to Noteholders, be added to the amount owing under
the related Home Equity 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
Noteholder, all instruments of satisfaction or cancellation, or of partial or
full release, discharge and all other comparable instruments with respect to
the Home Equity 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 Home Equity 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 home equity loans for its own
account, in accordance with accepted mortgage servicing practices of prudent
lending institutions servicing home equity loans similar to the Home Equity
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, 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 Home Equity
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 home equity loan
that refinances a First Lien and the combined loan-to-value ratio of the related
Home Equity Loan immediately following the refinancing (based on the outstanding
principal balance of the Home Equity Loan and the original principal balance of
such refinanced home equity loan) is not greater than the Combined Loan-to-Value
Ratio of such Home Equity Loan as of the related Cut-Off Date.
Section 3.02 COLLECTION OF CERTAIN HOME EQUITY LOAN PAYMENTS.
The Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Home Equity Loans, and shall,
to the extent such procedures shall be
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consistent with this Agreement and the terms and provisions of any applicable
Insurance Policy, follow collection procedures for all Home Equity Loans as
it follows with respect to home equity loans in its servicing portfolio
comparable to the Home Equity Loans. Consistent with the foregoing, the
Servicer may in its discretion waive or permit to be waived any late payment
charge, prepayment charge, assumption fee or any penalty interest in
connection with the prepayment of a Home Equity Loan or any other fee or
charge which the Servicer would be entitled to retain hereunder as servicing
compensation. In the event the Servicer shall consent to the deferment of the
due dates for payments due on a Note, the Servicer shall nonetheless make
payment of any required Delinquency Advance with respect to the payments so
extended to the same extent as if such installment were due, owing and
Delinquent and had not been deferred, and shall be entitled to reimbursement
therefor in accordance with Section 3.04 hereof.
Section 3.03 Principal and Interest Account.
(a) The Servicer shall establish an account, which includes three
separate subaccounts into which amounts in respect of each Group will be
separately deposited and maintained (the "Principal and Interest Account"). The
Principal and Interest Account shall be an Eligible Account. The Principal and
Interest Account shall be titled: "________________, as Indenture Trustee in
trust for the registered holders of Centex 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 2000-__ Principal and
Interest Account." If the institution at any time holding the Principal and
Interest Account ceases to be eligible as a Designated Depository Institution
hereunder, then the Servicer shall immediately be required to name a successor
institution meeting the requirements for a Designated Depository Institution
hereunder. If the Servicer fails to name such a successor institution, then the
Principal and Interest Account shall thenceforth be held as a trust account with
a qualifying Designated Depository Institution selected by the Indenture
Trustee. The Servicer shall notify the Indenture Trustee, the Insurer and the
Owners if there is a change in the name, account number or institution holding
the Principal and Interest Account.
(b) Subject to Subsection (c) below, the Servicer shall deposit
all receipts required pursuant to Subsection (c) below and related to the Home
Equity Loans to the Principal and Interest Account on a daily basis (but no
later than the second Business Day after receipt). All funds in the Principal
and Interest Account shall be held and invested as set forth in Section 5.06
hereof.
(c) The Servicer shall deposit to the Principal and Interest
Account no later than the second Business Day after receipt, all principal
collected and interest due on the Home Equity Loans (net of the Servicing Fee
related to such Home Equity Loans) on and after the Cut-Off Date and the
Replacement Cut-Off Date, as applicable, including any Prepayments and Net
Liquidation Proceeds, other recoveries or amounts related to the Home Equity
Loans received by the Servicer and any income from REO Properties, but net of
(i) Net Liquidation Proceeds to the extent such Net Liquidation Proceeds exceed
the sum of (a) the Principal Balance of the related Home Equity Loan immediately
prior to liquidation, plus (b) accrued and unpaid interest on such
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Home Equity Loan (net of the related Servicing Fee) and (c) any unrecovered
Cram Down Losses, (ii) reimbursements for unreimbursed Delinquency Advances
(but solely from amounts received on the related Home Equity Loan) and (iii)
reimbursements for amounts deposited in the Principal and Interest Account
representing payments of principal and/or interest on a Note by a Mortgagor
which are subsequently returned by a depository institution as unpaid.
(d) The Servicer may make withdrawals from the Principal and
Interest Account, with respect to each Home Equity Group, only in the following
priority and for the following purposes:
(A) on each Monthly Remittance Date, to pay itself the related
Servicing Fees to the extent such Servicing Fees are not retained by
the Servicer;
(B) to withdraw investment earnings on amounts on deposit in
the Principal and Interest Account;
(C) to withdraw amounts that have been deposited to the
Principal and Interest Account in error;
(D) to reimburse itself pursuant to Section 3.04 for
unrecovered Delinquency Advances and unrecovered Servicing Advances (in
each case, solely from amounts recovered on the related Home Equity
Loan);
(E) Nonrecoverable Advances; and
(F) to clear and terminate the Principal and Interest
Account following the termination of the Trust
pursuant to Article IX;
(i) The Servicer shall (a) remit to the Indenture Trustee for
deposit in the Distribution Account by wire transfer, or otherwise make
funds available in immediately available funds, without duplication,
the Monthly Remittance Amount allocable to a Remittance Period not
later than the related Monthly Remittance Date, and (b) on each Monthly
Remittance Date, deliver to the Indenture Trustee, the Depositor and
the Insurer, a monthly servicing report, with respect to each Home
Equity Group, containing (without limitation) the following
information: principal and interest collected in respect of the Home
Equity Loans, scheduled principal and interest that was due on the Home
Equity Loans, relevant information with respect to Liquidated Loans, if
any, summary and detailed delinquency reports, Liquidation Proceeds and
other similar information concerning the servicing of the Home Equity
Loans and any other information requested by the Insurer (including,
without limitation, a liquidation report with respect to each
Liquidated Loan). In addition, the Servicer shall inform the Indenture
Trustee and the Insurer on each Monthly Remittance Date, with respect
to each Home Equity Group, of the amounts of any Loan Purchase Prices
or Substitution Amounts so remitted during the
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related Remittance Period, and of the Principal Balance of the Home
Equity Loan having the largest Principal Balance as of such date.
(ii) The Servicer shall provide to the Indenture Trustee the
information described in Section 3.03(d)(i)(b) and in Section 5.03 to
enable the Indenture Trustee to perform its reporting requirements
under Section 5.03 and to make the allocations and disbursements set
forth in Sections 5.01 and 5.04.
Section 3.04 Delinquency Advances and Servicing Advances.
(a) On or before each Monthly Remittance Date, the Servicer shall
be required to remit to the Indenture Trustee for deposit to the Distribution
Account out of the Servicer's own funds or from collections on any Home Equity
Loans that are not required to be distributed on the Distribution Date occurring
during the month in which such remittance is made (all or any portion of such
amount to be replaced on future Monthly Remittance Dates to the extent required
for distribution) any Delinquent payment of interest with respect to each
Delinquent Home Equity Loan, which payment was not received on or prior to the
last day of the related Remittance Period. Such amounts of the Servicer's own
funds so deposited are "Delinquency Advances".
The Servicer shall be permitted to reimburse itself on any Business Day
for any Delinquency Advances paid from the Servicer's own funds, from late
collections on the related Home Equity Loan or as provided in Section 5.01.
Notwithstanding the foregoing, in the event that the Servicer
determines in its reasonable business judgment in accordance with the servicing
standards set out herein that any proposed Delinquency Advance would not be
recoverable, the Servicer shall not be required to make Delinquency Advances
with respect to such Home Equity Loan. To the extent that the Servicer
previously has made Delinquency Advances with respect to a Home Equity Loan that
the Servicer subsequently determines is a Nonrecoverable Advance, the Servicer
shall be entitled to reimbursement for such aggregate Nonrecoverable Advances
from collections on any Home Equity Loan on deposit in the Principal and
Interest Account. The Servicer shall give written notice of such determination
as to why such amount would not be recoverable to the Indenture Trustee and the
Insurer; the Indenture Trustee shall promptly furnish a copy of such notice to
the Transferor with respect to the Transferor Interest; PROVIDED, FURTHER, that
the Servicer shall be entitled to recover any unreimbursed Delinquency Advances
from Liquidation Proceeds for the related Home Equity Loan.
(b) The Servicer will pay all "out-of-pocket" costs and expenses
incurred in the performance of its servicing obligations, including, but not
limited to, (i) Preservation Expenses, (ii) the cost of any enforcement or
judicial proceedings, including foreclosures, (iii) the cost of the management
and liquidation of REO Property, (iv) advances required by Section 3.10, except
to the extent that such amounts are determined by the Servicer in its reasonable
business judgment not to be recoverable and (v) expenses incurred pursuant to
Section 7.01. Such costs
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will constitute "Servicing Advances". The Servicer may recover a Servicing
Advance (x) from the Mortgagors to the extent permitted by the Home Equity
Loans or, if not theretofore recovered from the Mortgagor on whose behalf
such Servicing Advance was made, from Liquidation Proceeds realized upon the
liquidation of the related Home Equity Loan and (y) as provided in Section
5.01. The Servicer shall be entitled to recover the Servicing Advances from
the Liquidation Proceeds on the related Home Equity Loan prior to the payment
of the Liquidation Proceeds to any other party to this Agreement. In no case
may the Servicer recover Servicing Advances from the principal and interest
payments on any other Home Equity Loan except as provided in Section 5.01.
Section 3.05 Compensating Interest; Repurchase of Home Equity Loans.
(a) If a Prepayment in full of a Home Equity Loan or a Prepayment
of at least six times a Mortgagor's Monthly Payment occurs during any calendar
month, any shortfall between (x) the interest collected from the Mortgagor in
connection with such payoff, and (y) the full months interest at the Coupon Rate
that would be due on the related Due Date for such Home Equity Loan
("Compensating Interest") (but not in excess of the aggregate Servicing Fee for
the related Remittance Period) shall be deposited by the Servicer to the
Principal and Interest Account (or if such difference is an excess, the Servicer
shall retain such excess) on the next succeeding Monthly Remittance Date and
shall be included in the Monthly Remittance Amount to be made available to the
Indenture Trustee on such Monthly Remittance Date. The Servicer may recover any
unreimbursed payments of Compensating Interest as provided in Section 5.01.
(b) Subject to the clause (c) below, the Servicer has the right
and the option, but not the obligation, to purchase for its own account any Home
Equity Loan which becomes a 60-Day Delinquent Loan, or any Home Equity Loan as
to which enforcement proceedings have been brought by the Servicer pursuant to
Section 3.10. Any such Home Equity Loan so purchased shall be purchased by the
Servicer on or prior to a Monthly Remittance Date at a purchase price equal to
the Loan Purchase Price thereof, which purchase price shall be deposited in the
Principal and Interest Account.
(c) If a Home Equity Loan to be purchased by the Servicer pursuant
to clause (b) above, is the greatest number of days Delinquent of all then
Delinquent Home Equity Loans (including Home Equity Loans relating to REO
Property), the Servicer may purchase such Home Equity Loan without having first
notified the Insurer of such purchase. In all other cases, the Servicer must
notify the Insurer and the Indenture Trustee, in writing, of its intent to
purchase a Home Equity Loan and the Servicer may not purchase such Home Equity
Loan without the written consent of the Insurer.
(d) The Net Liquidation Proceeds from the disposition of any REO
Property shall be deposited in the Principal and Interest Account and remitted
to the Indenture Trustee as part of the Monthly Remittance Amount remitted by
the Servicer to the Indenture Trustee.
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Section 3.06 MAINTENANCE OF INSURANCE.
(a) The Servicer shall cause to be maintained with respect to each
Home Equity Loan a hazard insurance policy with a carrier generally acceptable
to the Servicer that provides for fire and extended coverage, and which provides
for a recovery by the Trust of insurance proceeds relating to such Home Equity
Loan in an amount not less than the least of (i) the outstanding principal
balance of the Home Equity Loan (plus the related senior lien loan, if any),
(ii) the minimum amount required to compensate for damage or loss on a
replacement cost basis and (iii) the full insurable value of the premises. The
Servicer shall maintain the insurance policies required hereunder in the name of
the mortgagee, its successors and assigns, and shall be named as loss payee. The
policies shall require the insurer to provide the mortgagee with 30 days' notice
prior to any cancellation or as otherwise required by law. As an alternative to
maintaining a hazard insurance policy with respect to each Home Equity Loan, the
Servicer may maintain a blanket hazard insurance policy or policies if the
insurer or insurers of such policies are rated investment grade by Moody's and
Standard & Poor's.
(b) If the Home Equity Loan at the time of origination (or if
required by federal law, at any time thereafter) relates to a Mortgaged Property
in an area identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards, the Servicer will cause to be
maintained with respect thereto a flood insurance policy in a form meeting the
requirements of the then current guidelines of the Federal Insurance
Administration with a carrier generally acceptable to the Servicer in an amount
representing coverage, and which provides for a recovery by the Trust of
insurance proceeds relating to such Home Equity Loan of not less than the least
of (i) the outstanding principal balance of the Home Equity Loan (plus the
related senior lien loan, if any), (ii) the minimum amount required to
compensate for damage or loss on a replacement cost basis and (iii) the maximum
amount of insurance that is available under the Flood Disaster Protection Act of
1973. The Servicer shall indemnify the Trust and the Insurer out of the
Servicer's own funds for any loss to the Trust or the Insurer resulting from the
Servicer's failure to advance premiums for such insurance required by this
Section when so permitted by the terms of the Mortgage as to which such loss
relates.
(c) Amounts collected by the Servicer under any Insurance Policies
shall be deposited into the Principal and Interest Account.
Section 3.07 RESERVED.
Section 3.08 RESERVED.
Section 3.09 DUE-ON-SALE CLAUSES; ASSUMPTION AND SUBSTITUTION
AGREEMENTS.
When a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Servicer shall (except as provided below), to the extent it has
knowledge of such conveyance or prospective conveyance, exercise its rights to
accelerate the maturity of the related Home Equity Loan under any "due-on-sale"
clause contained in the related Mortgage or Note; PROVIDED,
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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, or the Servicer, in a manner consistent
with reasonable commercial practice, and only if the Servicer reasonably
believes assumption by the purchaser would not materially and adversely
affect the interests of the Owners or of the Insurer, permits the purchaser
of the related Mortgaged Property to assume such Home Equity Loan. An Opinion
of Counsel, provided at the expense of the Servicer, to the foregoing effect
shall conclusively establish the reasonableness of such belief. 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 becomes liable under the Note and, unless
prohibited by applicable law or the Mortgage documents, the Mortgagor remains
liable thereon. If the foregoing is not permitted under applicable law, the
Servicer is authorized to enter into a substitution of liability agreement
with such person, pursuant to which the original Mortgagor is released from
liability and such person is substituted as Mortgagor and becomes liable
under the Note; PROVIDED, HOWEVER, that to the extent any such substitution
of liability agreement would be delivered by the Servicer outside of its
usual procedures for home equity loans held in its own portfolio the Servicer
shall, prior to executing and delivering such agreement, obtain the prior
written consent of the Insurer. The Home Equity Loan, as assumed, shall
conform in all material respects to the requirements, representations and
warranties of this Agreement. The Servicer shall notify the Indenture Trustee
that any such assumption or substitution agreement has been completed by
forwarding to the Indenture Trustee or to the Custodian on the Indenture
Trustee's behalf the original copy of such assumption or substitution
agreement (indicating the Mortgage File to which it relates) which copy shall
be added by the Indenture Trustee or by the Custodian on the Indenture
Trustee's behalf to the related Mortgage File and which 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. The Servicer
shall be responsible for recording any such assumption or substitution
agreements. In connection with any such assumption or substitution agreement,
no material term of the Home Equity Loan (including, without limitation, the
required monthly payment on the related Home Equity Loan, the stated
maturity, the outstanding principal amount or the Coupon Rate) shall be
changed nor shall any required monthly payments of principal or interest be
deferred or forgiven. Any fee collected by the Servicer or the Subservicer
for consenting to any such conveyance or entering into an assumption or
substitution agreement shall be retained by or paid to the Servicer as
additional servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Home Equity Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.
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Section 3.10 REALIZATION UPON DEFAULTED HOME EQUITY LOANS; WORKOUT OF
HOME EQUITY LOANS.
(a) The Servicer shall foreclose upon or otherwise comparably
effect the ownership in the name of the Indenture Trustee on behalf of the Trust
of Properties relating to defaulted Home Equity Loans as to which no
satisfactory arrangements can be made for collection of Delinquent payments and
which the Servicer has not purchased pursuant to Section 3.05. In connection
with such foreclosure or other conversion, the Servicer shall exercise such of
the rights and powers vested in it hereunder, and use the same degree of care
and skill in their exercise or use, as prudent mortgage lenders would exercise
or use under the circumstances in the conduct of their own affairs and
consistent with its servicing standards, including, but not limited to,
advancing funds for the payment of taxes, amounts due with respect to Senior
Liens, and insurance premiums. Any amounts so advanced shall constitute
"Servicing Advances" within the meaning of Section 3.04 hereof. Pursuant to its
efforts to sell such REO Property, the Servicer shall either itself or through
an agent selected by the Servicer protect and conserve such REO Property in the
same manner and to such extent as is customary in the locality where such REO
Property is located and may, incident to its conservation and protection of the
interests of the Owners, rent the same, or any part thereof, as the Servicer
deems to be in the best interest of the Owners for the period prior to the sale
of such REO Property. The Servicer shall take into account the existence of any
hazardous substances, hazardous wastes or solid wastes, as such terms are
defined in the Comprehensive Environmental Response Compensation and Liability
Act, the Resource Conservation and Recovery Act of 1976, or other federal, state
or local environmental legislation, on a Mortgaged Property in determining
whether to foreclose upon or otherwise comparably convert the ownership of such
Mortgaged Property. If the Servicer has actual knowledge of any environmental or
hazardous waste risk with respect to the Mortgaged Property that the Servicer is
contemplating acquiring in foreclosure or deed in lieu of foreclosure, the
Servicer will cause an environmental inspection of the Mortgaged Property in
accordance with the servicing standards set forth in this Agreement. The
Servicer shall not take any such action with respect to any Mortgaged Property
known by the Servicer to contain such wastes or substances or to be within one
mile of the site of such wastes or substances, without the prior written consent
of the Insurer.
(b) The Servicer shall determine, with respect to each defaulted
Home Equity Loan, when it has recovered, whether through Indenture Trustee's
sale, foreclosure sale or otherwise, all amounts it expects to recover from or
on account of such defaulted Home Equity Loan, whereupon such Home Equity Loan
shall become a "Liquidated Loan" and the Servicer shall promptly submit a
liquidation report to the Insurer in form acceptable to the Insurer.
(c) The Servicer shall not agree to any modification, waiver or
amendment of any provision of any Home Equity Loan unless, in the Servicer's
good faith judgment, such modification, waiver or amendment would minimize the
loss that might otherwise be experienced with respect to such Home Equity Loan
and only in the event of a payment default with respect to such Home Equity Loan
or in the event that a payment default with respect to such Home Equity Loan is
reasonably foreseeable by the Servicer; PROVIDED, HOWEVER, that no
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such modification, waiver or amendment shall extend the maturity date of such
Home Equity Loan beyond the Remittance Period related to the Final
Distribution Date. Notwithstanding anything set out in this Section 3.10(c)
or elsewhere in this Agreement to the contrary, the Servicer shall be
permitted to modify, waive or amend any provision of a Home Equity Loan if
required by statute or a court of competent jurisdiction to do so.
(d) The Servicer has no intent to foreclose on any Mortgage based
on the delinquency characteristics as of the Startup Day; provided, that the
foregoing does not prevent the Servicer from initiating foreclosure proceedings
on any date hereafter if the facts and circumstances of such Mortgage including
delinquency characteristics in the Servicer's discretion so warrant such action.
Section 3.11 INDENTURE TRUSTEE TO COOPERATE; RELEASE OF MORTGAGE FILES.
(a) Upon the payment in full of any Home Equity Loan (including
any liquidation of such Home Equity Loan through foreclosure or otherwise), or
the receipt by the Servicer of a notification that payment in full will be
escrowed in a manner customary for such purposes, the Servicer shall deliver to
the Custodian, on behalf of the Indenture Trustee, a written request of the
Servicer signed by an Authorized Officer which states the purpose of the release
of a Mortgage File. Upon receipt of such written request, the Custodian, on
behalf of the Indenture Trustee shall promptly release the related Mortgage
File, in trust, in its reasonable discretion to (i) the Servicer, (ii) an escrow
agent or (iii) any employee, agent or attorney of the Indenture Trustee. Upon
any such payment in full, or the receipt of such notification that such funds
have been placed in escrow, the Servicer is authorized to give, as
attorney-in-fact for the Indenture Trustee and the mortgagee under the Mortgage
which secured the Note, an instrument of satisfaction (or assignment of Mortgage
without recourse) regarding the Mortgaged Property relating to such Mortgage,
which instrument of satisfaction or assignment, as the case may be, shall be
delivered to the Person or Persons entitled thereto against receipt therefor of
payment in full, it being understood and agreed that no expense incurred in
connection with such instrument of satisfaction or assignment, as the case may
be, shall be chargeable to the Principal and Interest Account or to the
Indenture Trustee. In lieu of executing any such satisfaction or assignment, as
the case may be, the Servicer may prepare and submit to the Custodian, on behalf
of the Indenture Trustee, a satisfaction (or assignment without recourse, if
requested by the Person or Persons entitled thereto) in form for execution by
the Indenture Trustee with all requisite information completed by the Servicer;
in such event, the Custodian, on behalf of the Indenture Trustee shall execute
and acknowledge such satisfaction or assignment, as the case may be, and deliver
the same with the related Mortgage File, as aforesaid.
(b) The Servicer shall have the right (upon receiving the prior
written consent of the Insurer) to accept applications of Mortgagors for
consent to (i) partial releases of Mortgages, (ii) alterations and (iii)
removal, demolition or division of properties subject to Mortgages. No
application for approval shall be considered by the Servicer unless: (x) the
provisions of the related Note and Mortgage have been complied with; (y) the
Loan-to-Value Ratio and debt-to-income ratio after any release does not
exceed the Loan-to-Value Ratio and debt-to-income ratio
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of such Note on the Cut-Off Date or Replacement Cut-Off Date, as applicable,
and any increase in the Loan-to-Value Ratio shall not exceed ___% unless
approved in writing by the Insurer; and (z) the lien priority of the related
Mortgage is not affected. Upon receipt by the Indenture Trustee of an
Officer's Certificate executed on behalf of the Servicer setting forth the
action proposed to be taken in respect of a particular Home Equity Loan and
certifying that the criteria set forth in the immediately preceding sentence
have been satisfied, the Indenture Trustee shall execute and deliver to the
Servicer the consent or partial release so requested by the Servicer. A
proposed form of consent or partial release, as the case may be, shall
accompany any Officer's Certificate delivered by the Servicer pursuant to
this paragraph. The Servicer shall notify the Insurer and the Rating Agencies
if an application is approved under clause (y) above without approval in
writing by the Insurer.
(c) From time to time and as appropriate in the servicing of any
Home Equity Loan, including, without limitation, foreclosure or other comparable
conversion of a Home Equity Loan or collection under any applicable Home Equity
Loan Insurance Policy, the Indenture Trustee shall release the related Mortgage
File to the Servicer, promptly upon a written request of the Servicer signed by
an Authorized Officer, which states the purpose of the release of a Mortgage
File; provided, however, that no more than ___% of the outstanding Home Equity
Loans (by number) shall be released to the Servicer at any time. Such receipt
shall obligate the Servicer to return the Mortgage File to the Indenture Trustee
when the need therefore by the Servicer no longer exists.
(d) In all cases where the Servicer needs the Indenture Trustee to
sign any document or to release a Mortgage File within a particular period of
time, the Servicer shall notify an Authorized Officer of the Indenture Trustee
by telephone of such need and the Indenture Trustee shall thereon use its best
efforts to comply with the Servicer's needs, but in any event will comply within
two Business Days of such request.
(e) No costs associated with the procedures described in this
Section 3.11 shall be an expense of the Trust.
Section 3.12 SERVICING COMPENSATION.
As compensation for its activities hereunder, the Servicer shall be
entitled to retain the amount of the related Servicing Fee with respect to each
Home Equity Loan. Additional servicing compensation in the form of prepayment
charges, release fees, bad check charges, assumption fees, late payment charges,
prepayment penalties, or any other servicing-related fees, Net Liquidation
Proceeds not required to be deposited in the Principal and Interest Account
pursuant to Section 3.03 and similar items may, to the extent collected from
Mortgagors, be retained by the Servicer, unless a successor Servicer is
appointed pursuant to Section 7.02 hereof, in which case the successor Servicer
shall be entitled to such fees as are agreed upon by the Indenture Trustee, the
Insurer and the successor Servicer.
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The right to receive the Servicing Fee may not be transferred in
whole or in part except in connection with the transfer of all of the
Servicer's responsibilities and obligations under this Agreement.
Section 3.13 ANNUAL STATEMENT AS TO COMPLIANCE.
The Servicer, at its own expense, will deliver to the Indenture
Trustee, the Insurer, the Depositor, and the Rating Agencies, on or before
________ ___ of each year, commencing in _____, an Officer's Certificate
stating, as to each signer thereof, that (i) a review of the activities of the
Servicer during such preceding calendar year and of performance under this
Agreement has been made under such officers' supervision, and (ii) to the best
of such officers' knowledge, based on such review, the Servicer has fulfilled
all its obligations under this Agreement for such year, or, if there has been a
default in the fulfillment of all such obligations, specifying each such default
known to such officers and the nature and status thereof including the steps
being taken by the Servicer to remedy such default.
The Servicer shall deliver to the Indenture Trustee, the Depositor, the
Insurer and 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 would become a Servicer Termination Event.
Section 3.14 ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORTS.
On or before ________ ___ of each year, commencing in _____, the
Servicer, at its own expense (or if the Indenture Trustee is then acting as
Servicer, at the expense of the Seller, which in no event shall exceed $_____
per annum), shall cause to be delivered to the Indenture Trustee, the Insurer,
the Depositor, and the Rating Agencies a letter or letters of a firm of
independent, nationally recognized certified public accountants reasonably
acceptable to the Insurer stating that such firm has examined the Servicer's
overall servicing operations in accordance with the requirements of the Uniform
Single Attestation Program for Mortgage Bankers, and stating such firm's
conclusions relating thereto.
Section 3.15 RESERVED.
Section 3.16 ASSIGNMENT OF AGREEMENT.
Other than with respect to entering into Subservicing Agreements
pursuant to Section 3.01 hereof, the Servicer may not assign its obligations
under this Agreement, in whole or in part, unless it shall have first obtained
the written consent of the Indenture Trustee and the Insurer, which such consent
shall not be unreasonably withheld; PROVIDED, HOWEVER, that any assignee must
meet the eligibility requirements set forth in Section 7.01 hereof for a
successor servicer.
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Section 3.17 INSPECTIONS BY INSURER; ERRORS AND OMISSIONS
INSURANCE.
(a) At any reasonable time and from time to time upon reasonable
notice, the Indenture Trustee, the Insurer, [the Transferor], or any agents
thereof may inspect the Servicer's servicing operations and discuss the
servicing operations of the Servicer during the Servicer's normal business hours
with any of its officers or directors; PROVIDED, HOWEVER, that the costs and
expenses incurred by the Servicer or its agents or representatives in connection
with any such examinations or discussions shall be paid by the Servicer.
(b) The Servicer (including the Indenture Trustee if it shall
become the Servicer hereunder) agrees to maintain errors and omissions coverage
and a fidelity bond, each at least to the extent required by Section 305 of Part
I of FNMA Guide or any successor provision thereof; PROVIDED, HOWEVER, that in
any event that the fidelity bond or the errors and omissions coverage is no
longer in effect, the Servicer shall notify the Indenture Trustee and the
Indenture Trustee shall promptly give such notice to the Insurer and the Owners.
Section 3.18 ADDITIONAL SERVICING RESPONSIBILITIES FOR SECOND MORTGAGE
LOANS.
The Servicer shall file (or cause to be filed) a request for notice of
any action by a superior lienholder under a superior 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 under a First Mortgage
Loan, 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 Owners and the Insurer, and/or to preserve the security of the related Home
Equity Loan. The Servicer shall advance the necessary funds to cure the default
or reinstate the lien securing a First Mortgage Loan, if such advance is in the
best interests of the Insurer and the Owners; PROVIDED, HOWEVER, that no such
additional advance need be made if such advance would be nonrecoverable from
Liquidation Proceeds on the related Home Equity Loan. The Servicer shall
thereafter take such action as is necessary to recover the amount so advanced.
Any expenses incurred by the Servicer pursuant to this Section 3.18 shall be
Servicing Advances.
Section 3.19 THE GROUP III HOME EQUITY LOANS.
The Servicer shall enforce each Home Equity Loan in Group III in
accordance with its terms and shall timely calculate, record, report and apply
all interest rate adjustments in accordance with the related Note. The
Servicer's records shall, at all times, reflect the then Coupon Rate and monthly
payment and the Servicer shall timely notify the Mortgagor of any changes to the
Coupon Rate or the Mortgagor's monthly payment. If the Servicer fails to make
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either a timely or accurate adjustment to the Coupon Rate or monthly payment or
to notify the Mortgagor of such adjustments, upon the Servicer's discovery of
such error and such continued failure, the Servicer shall pay from its own funds
any shortage. If the Servicer's continued failure after notice thereof to make a
scheduled change affects the Trust's rights to make future adjustments under the
terms of such Home Equity Loan, the Servicer shall repurchase such Home Equity
Loan in accordance with the provisions hereof. Any amounts paid by the Servicer
pursuant to this Section shall not be an advance and shall not be reimbursable
from the proceeds of any Home Equity Loan.
Section 3.20 RESERVED.
Section 3.21 NOTICES OF MATERIAL EVENTS. The Servicer shall give prompt
notice to the Insurer, the Indenture Trustee, Moody's and Standard & Poor's of
the occurrence of any of the following events:
(a) Any default or any fact or event of which the Servicer has
knowledge which results, or which with notice or the passage of time, or both,
would result in the occurrence of a default by the Seller, or the Servicer under
any Transaction Document or would constitute a material breach of a
representation, warranty or covenant under any Transaction Document;
(b) The submission of any claim or the initiation of any legal
process, litigation or administrative or judicial investigation against the
Seller or the Servicer to which the Servicer has knowledge in any federal, state
or local court or before any governmental body or agency or before any
arbitration board or any such proceedings threatened by any governmental agency,
which, if adversely determined, would have a material adverse effect upon any of
the Seller's or the Servicer's ability to perform its obligations under any
Transaction Document;
(c) The commencement of any proceedings by or against the Seller
or the Servicer under any applicable bankruptcy, reorganization, liquidation,
insolvency or other similar law now or hereafter in effect or of any proceeding
in which a receiver, liquidator, trustee or other similar official shall have
been, or may be, appointed or requested for the Seller or the Servicer; and
(d) The receipt of notice from any agency or governmental body
having authority over the conduct of any of the Seller's or the Servicer's
business that the Seller or the Servicer is to cease or desist, or to undertake
any practice, program, procedure or policy employed by the Seller or the
Servicer in the conduct of the business of any of them, and such cessation or
undertaking will materially and adversely affect the conduct of the Seller's or
the Servicer's business or its ability to perform under the Transaction
Documents or materially and adversely affect the financial affairs of the Seller
or the Servicer.
Section 3.22 REPORTS ON FORECLOSURE AND ABANDONMENT OF PROPERTIES. On
or before _________ ____ of each year beginning in _____, the Servicer shall
file the reports of foreclosures and abandonments of any Property required by
Code Section 6050J with the Internal Revenue Service and provide a copy of such
filing to the Indenture Trustee. The reports from the
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Servicer shall be in a form and substance sufficient to meet the reporting
requirements imposed by such Section 6050J.
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ARTICLE IV
INSURER
Section 4.01 CLAIMS UPON THE INSURANCE POLICIES.
(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 Distribution
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
applicable Insurance Policy (the "Notice for Payment") in the event that the
relevant Insured Payment for such Distribution Date is equal to an amount
greater than zero. The Notice for Payment shall specify the amount of the
Insured Payment and the Class of Notes with respect to which such Insured
Payment is to be made, and shall constitute a claim for an Insured Payment
pursuant to the applicable Insurance Policy. Upon receipt of an Insured Payment
on behalf of the Holders of the Notes 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 Notes from
moneys received under each 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 Noteholders which is guaranteed pursuant
to an Insurance Policy is voided (a "Preference Event") under any applicable
bankruptcy, insolvency, receivership or similar law in an Insolvency Proceeding
(as defined in the applicable 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 Notes (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) appropriate instruments to effect the appointment of the
Insurer as agent for the beneficiary in any legal proceeding related to such
preference payment. 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 Noteholder 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 Noteholder upon
proof of such payment reasonably satisfactory to Insurer). The Indenture Trustee
is not permitted to make a claim on the Trust or
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on any Noteholder for payments made to any Noteholder 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 any
Insurance Policy in respect of the Notes 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 Notes which are made with moneys received pursuant to
the terms of any Insurance Policy shall not be considered payment of such Notes,
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 Notes, 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 Note 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 Notes to the Holders of such Notes, 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 Notes, as otherwise set forth
herein.
Section 4.03 REPLACEMENT INSURANCE POLICY. In the event of a default by
the Insurer under any 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 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 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 Notes shall be rated no lower than the rating assigned by each
Rating Agency to the 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
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following receipt of such items and such taking of physical possession,
deliver the replaced Insurance Policy to the Insurer.
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ARTICLE V
PRIORITY OF DISTRIBUTIONS; STATEMENTS TO NOTEHOLDERS; RIGHTS OF
NOTEHOLDERS
Section 5.01 DISTRIBUTIONS.
(a) DISTRIBUTIONS OF INTEREST AND PRINCIPAL PROCEEDS. On each
Distribution Date, the Indenture Trustee, with respect to the Notes, and the
Paying Agent, with respect to the Ownership Interest, shall distribute out of
the Distribution Account, to the extent of Available Funds for each Group
(except that with respect to Cross-Collateralization Payments, such Payments
shall be applied only to cover shortfalls as a result of defaults and
delinquencies and (A) the portion thereof payable to the Noteholders in respect
of any Interest Deficiency shall be distributed solely pursuant to Section
5.01(a)(ii), (B) the portion thereof payable to the Insurer in respect of any
Insurer Reimbursement Deficiency shall be distributed solely pursuant to Section
5.01(a)(iv), and (C) the portion thereof payable in respect of any
Undercollateralization Amount shall be applied pursuant to Section
5.01(a)(iii)), the following amounts and in the following order of priority to
the following Persons (based on the information set forth in the Servicing
Certificate) in respect of the related Group:
(i) concurrently, to the Indenture Trustee, the Indenture
Trustee Fee and Transition Expenses for such Distribution Date, to the
Owner Trustee, the Owner Trustee Fee for such Distribution Date, and to
the Insurer (so long as no Insurer Default defined in clause (i) in the
definition thereof has occurred and is continuing), the Premium Amount,
in each case, in respect of such Group;
(ii) concurrently, to the holders of the related Class of
Notes, an amount equal to the related Interest Distribution for such
Class of Notes for such Distribution Date;
(iii) to the holders of the related Class of Notes, the
Principal Distribution for such Distribution Date and such Class (other
than the portion constituting Distributable Excess Spread);
(iv) to the Insurer (so long as no Insurer Default defined in
clause (i) in the definition thereof has occurred and is continuing),
the amount owing to the Insurer under the Insurance Agreement for
reimbursement for prior draws made on the applicable Insurance Policy,
including interest thereon, in respect of such Group;
(v) to the holders of the related Class of Notes, to the
extent of Available Funds in respect of such Group remaining, the
Distributable Excess Spread for such Distribution Date and such Group;
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(vi) to the Insurer (so long as no Insurer Default described
in clause (i) thereof has occurred and is continuing), any other
amounts owing to the Insurer in respect of such Group under the
Insurance Agreement;
(vii) to the other Group(s), for deposit in the related
subaccount(s) of the Distribution Account, any related
Cross-Collateralization Payment for such Distribution Date;
(viii) to the Holders of the Class A-3 Notes, the Interest
Index Carryover;
(ix) to the Indenture Trustee, reimbursement for all
reimbursable expenses incurred in connection with its duties and
obligations under this Agreement, to the extent not reimbursed as
Transition Expenses pursuant to clause (i) above;
(x) to the Servicer, any unreimbursed Delinquency Advances,
Servicing Advances and Compensating Interest;
(xi) to the Cross-Collateralization Reserve Account for such
Group, the Cross-Collateralization Reserve Deposit for such Group and
Distribution Date; and
(xii) 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 Distribution Date to each 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 Noteholder at the
address appearing in the Note Register, or upon written request by a Noteholder
delivered to the Indenture Trustee at least five Business Days prior to such
Record Date, by wire transfer (but only if such Noteholder is the Depository or
such Noteholder owns of record one or more Notes having principal denominations
aggregating at least $1,000,000), or by such other means of payment as such
Noteholder and the Indenture Trustee shall agree. Distributions among
Noteholders shall be made in proportion to the Percentage Interests evidenced by
the Notes held by such Noteholders.
(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 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 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 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.
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Section 5.02 CALCULATION OF THE NOTE RATE. With respect to the Class
A-3 Notes, on the second LIBOR Business Day immediately preceding each
Distribution Date (or as of the second LIBOR Business Day prior to the Closing
Date, in the case of the first Distribution Date), the Indenture Trustee shall
determine One-Month LIBOR for the Interest Period commencing on such
Distribution Date and inform the Servicer (at the facsimile number given to the
Indenture Trustee in writing) of such rates. On the second LIBOR Business Day
prior to each Distribution Date, the Indenture Trustee shall determine the
applicable Note Rate for the related Distribution Date.
Section 5.03 STATEMENTS TO NOTEHOLDERS.
(a) Not later than 12:00 noon, New York time, on each Monthly
Remittance Date, the Servicer shall deliver to the Indenture Trustee, the
Depositor and the Underwriter 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 __
hereto with respect to the Home Equity Loans on an aggregate basis as of the end
of the preceding Remittance 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 Distribution Date, the Indenture Trustee shall
deliver to the Depositor, the Servicer, the Transferor and to the Insurer, by
telecopy, with a hard copy thereof to be delivered on such Distribution 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 Distribution
Date:
(i) The Available Funds for each Group and the Note Rate for
each Class of Notes for the related Distribution Date;
(ii) The Note Principal Balance for each Class of Notes, the
Pool Principal Balance and the Group Principal Balance for each Group,
each as reported in the prior Indenture Trustee's Statement to
Noteholders, or, in the case of the first Monthly Remittance Date, the
Original Note Principal Balance for each Class of Notes, the Cut-Off
Date Pool Principal Balance and the Group Cut-Off Date Principal
Balance for each Group;
(iii) The aggregate amount of collections received on the Home
Equity Loans on or prior to such Distribution Date in respect of the
preceding Remittance Period, separately stating the amounts received in
respect of principal and interest for each Group;
(iv) The number and Principal Balances of all Home Equity
Loans in each Group that were the subject of principal prepayments
during the related Remittance Period;
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(v) The amount of all Curtailments that were received during
the Remittance Period in respect of each Group;
(vi) The principal portion of all Monthly Payments received
during the Remittance Period in respect of each Group;
(vii) The interest portion of all Monthly Payments received
during the Remittance Period in respect of each Group;
(viii) The amount required to be paid by the Seller (reported
separately) in respect of each Group pursuant to Sections 2.04, 2.06
and 2.07;
(ix) The amount of the Delinquency Advances, Servicing
Advances and the Compensating Interest paid with respect to such
Distribution Date in respect of each Group;
(x) The Principal Distribution to be distributed on each Class
of Notes and the Interest Distribution to be distributed on each Class
of Notes on the related Distribution Date;
(xi) The amount, if any, of the Outstanding Interest Carryover
Shortfall for each Class of Notes after giving effect to the
distributions on the related Distribution Date;
(xii) The amount of the Insured Payments in respect of each
Group, if any, to be made on the related Distribution Date;
(xiii) The amount to be distributed to the Transferor in
respect of the Transferor Interest for the related Distribution Date
pursuant to Section 5.01(a)(xii);
(xiv) The Note Principal Balance of each Class of Notes after
giving effect to the distribution to be made on the related
Distribution Date;
(xv) The weighted average remaining term to maturity and the
weighted average Coupon Rate of the Home Equity Loans in each Group;
(xvi) With respect to each Group, the amounts to be paid to
the Insurer, separately stated, pursuant to Sections 5.01(a)(iv) and
5.01(a)(vi);
(xvii) The Premium Amount in respect of each Group 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 in respect of each Group;
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(xix) With respect to each Group, the related O/C Amount, O/C
Reduction Amount, Excess O/C Amount and Specified O/C Amount for the
Distribution Date and the related Excess Spread for such Distribution
Date;
(xx) The amount of Distributable Excess Spread to be
distributed to the Holders of each Class of Notes on such Distribution
Date pursuant to Section 5.01(a)(v) on such Distribution Date;
(xxi) The number of Home Equity Loans in each Group
outstanding at the beginning and at the end of the related Remittance
Period;
(xxii) The Pool Principal Balance and Group Principal Balance
of each Group as of the end of the Remittance Period related to such
Distribution Date;
(xxiii) The number and aggregate Principal Balances of Home
Equity Loans in each Group (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 Remittance 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 Home Equity Loans in
each Group that became Liquidated Loans during such Remittance Period;
(xxv) The Net Liquidation Proceeds received during such
Remittance Period for each Group;
(xxvi) The cumulative losses on the Home Equity Loans in each
Group;
(xxvii) The book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xxviii) Reserved;
(xxix) Reserved;
(xxx) The Delinquency Percentage for each Group in respect of
such Distribution Date; and
(xxxi) The amount of any Cross-Collateralization Payment,
Cross-Collateralization Reserve Deposit, Cross-Collateralization
Reserve Release Amount and the amount on deposit in the
Cross-Collateralization Reserve Account for each Group on such
Distribution Date.
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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 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 Noteholder, the Rating Agencies,
[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
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 Notes as indebtedness of the
Trust, or as may be otherwise required by Section 3.21 herein) Internal Revenue
Service Form 1099 (or any successor form) and any other tax forms required to be
filed or furnished to Noteholders in respect of distributions by the Indenture
Trustee (or the Paying Agent) on the Notes and shall file and distribute such
forms as required by law.
(c) The Servicer and the Indenture Trustee shall furnish to each
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 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 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 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
Depositor, 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 Home Equity Loans to
third-party information providers. No Person entitled to receive copies of such
reports or tapes or lists of 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.
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Section 5.04 CROSS-COLLATERALIZATION RESERVE ACCOUNTS.
(a) The Indenture Trustee shall establish and maintain three
separate trust accounts in respect of Group I, Group II and Group III (the
"Group I Cross-Collateralization Reserve Account", the "Group II
Cross-Collateralization Reserve Account" and the "Group III
Cross-Collateralization Reserve Account," respectively, each, a
"Cross-Collateralization Reserve Account" and, together, the
"Cross-Collateralization Reserve Accounts"), titled "____________, as
Indenture Trustee, in trust for the registered holders Centex 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 2000-__ Group [1][2][3] Cross-Collateralization Reserve
Account." Each Cross-Collateralization Reserve Account shall be an Eligible
Account.
On each Distribution Date, the Indenture Trustee shall deposit any
Cross-Collateralization Reserve Deposit for a Group and such Distribution Date
in the Cross-Collateralization Reserve Account for such Group. The amounts on
deposit, if any, in each Cross-Collateralization Reserve Account will be used to
make Cross-Collateralization Payments in respect of each other Class of Notes,
as provided in subsections (b)-(d) below. Amounts may be withdrawn or released
from the Cross-Collateralization Reserve Accounts solely in accordance with
subsections (b)-(e) of this Section 5.04. Amounts on deposit in each
Cross-Collateralization Reserve Account may be invested in Eligible Investments
pursuant to Section 5.06 below. Any investment earnings on such amounts will be
retained in the related Cross-Collateralization Reserve Account.
(b) On any Distribution Date on which the Note Principal Balance
of the Notes in a Class (after giving effect to payments in respect of principal
of such Notes, including any Cross-Collateralization Payments to be made from
Excess Available Funds for the other Group(s), but before giving effect to
withdrawals from the Cross-Collateralization Reserve Account for the other
Group(s), on such Distribution Date) exceeds the Group Principal Balance for
such Group as of the end of the related Remittance Period, the Indenture Trustee
shall withdraw from the Cross-Collateralization Reserve Account for each other
Group an amount in the aggregate equal to the lesser of (a) the
Undercollateralization Amount, and (b) the amount on deposit in the related
Cross-Collateralization Reserve Account and apply such withdrawn amount as a
Cross-Collateralization Payment in accordance with Section 5.01(a). The amount
to be withdrawn from each Cross-Collateralization Reserve Account is determined
pursuant to Section 5.04(d)(2) below.
(c) On any Distribution Date on which the sum of any Interest
Deficiency and Insurer Reimbursement Deficiency, in each case with respect to a
Group and such Distribution Date, exceeds the amount of Excess Available Funds
for the other Group(s) and Distribution Date after application of such Excess
Available Funds to any Cross-Collateralization Payment (such excess, the
"Deficiency Excess"), the Indenture Trustee shall withdraw from each other
Cross-Collateralization Reserve Account an amount equal in the aggregate to such
Deficiency Excess and apply such withdrawn amount as a Cross-Collateralization
Payment in accordance with Section 5.01(a).
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(d) (1) Any Cross-Collateralization Payments shall be made
first from all Excess Available Funds and then from amounts on deposit
in the Cross-Collateralization Reserve Accounts.
(2) If two Groups will make Cross-Collateralization Payments,
each contributing Group will contribute to the amount calculated for
the receiving Group in accordance with clause (b) of the definition of
"Cross Collateralization Payment" pro rata, based on the amount of
Excess Available Funds for each contributing Group, and if required,
based on the amounts on deposit in the Cross-Collateralization Reserve
Account of each contributing Group. Alternatively, if one Group will
make a Cross-Collateralization Payment, each receiving Group shall
share, pro rata, the Excess Available Funds and if required, the
amounts withdrawn from the Cross-Collateralization Reserve Account, of
the contributing Group, based on the amount calculated for each
receiving Group in accordance with clause (b) of the definition of
"Cross Collateralization Payment".
(e) On any Distribution Date on which the amounts on deposit in a
Cross-Collateralization Reserve Account for a Group exceed the Required
Cross-Collateralization Reserve Amount with respect to such Group and
Distribution Date (after giving effect to all distributions on such Distribution
Date), the Indenture Trustee shall withdraw an amount equal to the
Cross-Collateralization Reserve Release Amount for such Group and Distribution
Date, and distribute such Cross-Collateralization Reserve Release Amount to the
Transferor in respect of the Transferor Interest.
Section 5.05 DISTRIBUTION ACCOUNT. The Indenture Trustee shall
establish an account, which includes three separate subaccounts into which
amounts in respect of each Group will be separately deposited (the "Distribution
Account"), titled "________________, as Indenture Trustee, in trust for the
registered holders of Centex 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 2000-__ 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 Home Equity Loans received by it immediately following receipt
thereof to the appropriate subaccount in the Distribution Account including,
without limitation, all amounts (i) withdrawn by the Servicer from the Principal
and Interest Account pursuant to Sections 3.03 or 3.04 herein for deposit to the
Distribution Account, (ii) drawn under any Insurance Policy in respect of an
Insured Payment, or (iii) received by it in respect of a Cross-Collateralization
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
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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 shall mature later
than (i) the Business Day immediately preceding the next Distribution Date,
in the case of the Distribution Account, (ii) the Monthly Remittance Date
immediately preceeding the Distribution Date, in the case of the Principal
and Interest Account, or (iii) the third Business Day immediately preceding
the next Distribution Date, in the case of the Cross-Collateralization
Reserve Accounts (except that, in the case of the Distribution Account, (i)
if such Eligible Investment is an investment described in item (vi) of
Eligible Investments or an obligation of the Indenture Trustee, then such
Eligible Investment shall mature not later than such Distribution 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 Principal and Interest Account and
the Distribution Account shall be for the benefit of the Servicer as servicing
compensation (in addition to the Servicing Fee), and shall (i) in the case of
the Distribution Account, be subject to withdrawal by the Servicer on or before
the first Business Day of the month following the month in which such income or
gain is received; and (ii) in the case of the Principal and Interest Account, be
subject to withdrawal by the Servicer immediately following remittance of the
Monthly Remittance Amount on the Monthly
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Remittance Date. The Servicer shall deposit in the Principal and Interest
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.
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ARTICLE VI
THE SELLER, THE SERVICER AND THE DEPOSITOR
Section 6.01 LIABILITY OF THE SELLER, THE SERVICER AND THE DEPOSITOR.
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 Depositor shall be liable in
accordance herewith only to the extent of the obligations specifically imposed
upon and undertaken by the Depositor.
Section 6.02 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SELLER, THE SERVICER OR THE DEPOSITOR. Any corporation into
which the Seller, the Servicer or Depositor may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Seller, the Servicer or the Depositor shall be a party, or any corporation
succeeding to the business of the Seller, the Servicer or the Depositor, shall
be the successor of the Seller, the Servicer or the Depositor, 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.
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 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 Home Equity 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 Home Equity Loan or
Home Equity 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. 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
Noteholders
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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. 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, Section 7.01 and Section 7.02 herein, 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 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 such Subservicer (which consent shall
not have been unreasonably withheld).
Section 6.06 INDEMNIFICATION BY THE SERVICER. The Servicer shall
indemnify and hold harmless each of the Trust, the Depositor and the Indenture
Trustee and its officers, directors,
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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 Home Equity 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 Servicer 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.
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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) The Servicer shall (a) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian or similar
entity with respect to itself or its property, (b) admit in writing its
inability to pay its debts generally as they become due, (c) make a
general assignment for the benefit of creditors, (d) be adjudicated a
bankrupt or insolvent, (e) commence a voluntary case under the federal
bankruptcy laws of the United States of America or any state bankruptcy
law or similar laws or file a voluntary petition or answer seeking
reorganization, an arrangement with creditors or an order for relief or
seeking to take advantage of any insolvency law or file an answer
admitting the material allegations of a petition filed against it in
any bankruptcy, reorganization or insolvency proceeding or (f) take
corporate action for the purpose of effecting any of the foregoing; or
(ii) If without the application, approval or consent of the
Servicer, a proceeding shall be instituted in any court of competent
jurisdiction, under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking in respect of the Servicer
an order for relief or an adjudication in bankruptcy, reorganization,
dissolution, winding up, liquidation, a composition or arrangement with
creditors, a readjustment of debts, the appointment of a trustee,
receiver, liquidator or custodian or similar entity with respect to the
Servicer or of all or any substantial part of its assets, or other like
relief in respect thereof under any bankruptcy or insolvency law, and,
if such proceeding is being contested by the Servicer in good faith,
the same shall (A) result in the entry of an order for relief or any
such adjudication or appointment or (B) continue undismissed or pending
and unstayed for any period of seventy-five (75) consecutive days; or
(iii) The Servicer shall fail to perform any one or more of
its obligations hereunder and shall continue in default thereof for a
period of thirty (30) days (one (1) Business Day in the case of a delay
in making a payment or deposit required of the Servicer under this
Agreement) after the earlier of (a) actual knowledge of an officer of
the Servicer or (b) receipt of notice from the Indenture Trustee or the
Insurer of said failure; PROVIDED, HOWEVER, that if the Servicer can
demonstrate to the reasonable satisfaction of the Insurer that it is
diligently pursuing remedial action, then the cure period may be
extended with the written approval of the Insurer; or
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(iv) The Servicer shall fail to cure any breach of any of its
representations and warranties set forth in Section 2.03 or in the
other Transaction Documents which materially and adversely affects the
interests of the Owners or the Insurer which remains unremedied for a
period of sixty (60) days after the earlier of the Servicer's discovery
or receipt of notice thereof; PROVIDED, HOWEVER, that if the Servicer
can demonstrate to the reasonable satisfaction of the Insurer that it
is diligently pursuing remedial action, then the cure period may be
extended with the written approval of the Insurer; or
(v) The merger, consolidation or other combination of the
Servicer with or into any other entity, unless (1) the Servicer or an
Affiliate of the Servicer is the surviving entity of such combination
or (2) the surviving entity (A) is servicing at least $300,000,000 of
home equity loans that are similar to the Home Equity Loans, (B) has
Tangible Net Worth of not less than $35,000,000 (as determined in
accordance with generally acceptable account principles), (C) is
consented to by the Insurer (such consent not to be unreasonably
withheld) and (D) agrees to assume the Servicer's obligations
hereunder; or
(vi) The failure of the Servicer to satisfy the Servicer
Termination Test; or
(vii) The Servicer shall be declared in default of its credit
facility by its credit facility provider, which default, if left
uncured, would result in termination or acceleration of amounts owed
thereunder; or
(viii) Centex Corporation or its successors shall fail to own,
directly or indirectly, at least 51% of the Servicer unless (a) the
Servicer shall be rated at least investment grade by each Rating Agency
or (b) the Servicer shall have at all times committed financing
capacity in a total amount of at least three times the Servicer's
average loan originations funded during the immediately preceding three
calendar months.
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, the
Indenture Trustee shall, at the direction of the Insurer or the Holders of Notes
representing not less than 51% of the aggregate Note Principal Balance of all
Classes of Notes (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 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 Depositor, 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 Notes or the Home Equity 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
Home Equity Loan and
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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
Principal and Interest Account, or that have been deposited by the Servicer
in the Principal and Interest Account or thereafter received by the Servicer
with respect to the Home Equity 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 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. The Indenture Trustee
will immediately assume all obligations of the Servicer to make Delinquency
Advances. 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 home equity loan
or home equity loan servicer which has been designated as an approved
seller-servicer by FNMA or FHLMC for first and second home equity loans and
having a net worth of not less than $50,000,000 (or such lower level as may be
acceptable to the Insurer) as determined in accordance with generally accepted
accounting practices 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;
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 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
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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 Home Equity Loans in an
amount equal to the compensation which the Servicer would otherwise have
received pursuant to Section 3.12 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
3.06 herein or to indemnify any party 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 Home Equity 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 3.17
herein.
Section 7.03 WAIVER OF DEFAULTS. The Insurer or the or the Holders of
Notes representing not less than 51% of the aggregate Note Principal Balance of
all Classes of Notes, with the consent of the Insurer (which consent shall not
be unreasonably withheld) may, on behalf of all Noteholders, waive any events
permitting removal of the Servicer as servicer pursuant to this Article VII,
PROVIDED, HOWEVER, that the Insurer and the Holders of Notes representing not
less than 51% of the aggregate Note Principal Balance of all Classes of Notes
may not waive a default in making a required distribution on a Note without the
consent of the Holder of such 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 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 Noteholders at their respective addresses appearing in the Note
Register, the Insurer and each Rating Agency.
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ARTICLE VIII
TERMINATION
Section 8.01 TERMINATION.
(a) The respective obligations and responsibilities of the
Depositor, 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 Noteholders after the Final Distribution 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 Home
Equity Loan remaining in the Trust; (ii) the optional purchase by the Servicer
of the Home Equity Loans as described below and (iii) the Final Distribution
Date. 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 Monthly Remittance Date on or after the Clean-Up Call Date by purchasing all
of the outstanding Home Equity 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 Coupon Rates through the end of the
Remittance Period preceding the final Distribution 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 Principal and Interest 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 Monthly Remittance Date before such Distribution
Date of the Termination Price.
(c) Notice of any termination, specifying the Distribution Date
(which shall be a date that would otherwise be a Distribution Date) upon which
the Noteholders may surrender their 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 Home Equity 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 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
Distribution Date upon which final distribution of the Notes will be made upon
presentation and surrender of Notes at the office or agency of the Indenture
Trustee therein designated, (ii) the
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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 Notes at
the office or agency of the Indenture Trustee therein specified.
(d) Upon presentation and surrender of the Notes, the Indenture
Trustee shall cause to be distributed to the Holders of the Notes on the
Distribution Date for such final distribution, in proportion to the Percentage
Interests of their respective Notes and to the extent that funds are available
for such purpose, an amount equal to the amount required to be distributed to
Noteholders pursuant to Section 5.01 for such Distribution Date. On the final
Distribution 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 Distribution Date, withdraw from the Distribution Account
and remit to the Insurer the lesser of (x) the amount available for distribution
on such final Distribution Date, net of any portion thereof necessary to pay the
Noteholders 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 Noteholders shall not surrender
their Notes for final payment and cancellation on or before such final
Distribution Date, the Indenture Trustee shall promptly following such date
cause all funds in the Distribution Account not distributed in final
distribution to Noteholders, to be withdrawn therefrom and credited to the
remaining Noteholders by depositing such funds in a separate escrow account for
the benefit of such Noteholders, and the Servicer (if the Servicer has exercised
its right to purchase the Home Equity Loans) or the Indenture Trustee (in any
other case) shall give a second written notice to the remaining Noteholders to
surrender their Notes for cancellation and receive the final distribution with
respect thereto. If within nine months after the second notice all the 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 any Insurance Policy
and cancellation of the Notes, the Indenture Trustee shall provide the Insurer
notice of cancellation of the Notes and surrender the Insurance Policy to the
Insurer.
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ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.01 AMENDMENT.
(a) This Agreement may be amended from time to time by the
Depositor, the Seller, the Servicer, the Trust and the Indenture Trustee by
written agreement, without the consent of any of the 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 any 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 Notes (it being understood that, after obtaining the ratings
in effect on the Closing Date, neither the Indenture Trustee, the Seller, the
Depositor 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 Noteholder, the Insurer or
the Trust or (2) adversely affect in any material respect the interest of any
Noteholder or the Insurer, PROVIDED, FURTHER, that the amendment shall not be
deemed to adversely affect in any material respect the interests of the
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 Notes
without regard to any Insurance Policy.
(b) This Agreement also may be amended from time to time by the
Seller, the Servicer, the Depositor, the Trust and the Indenture Trustee, with
the consent of the Holders of Notes representing not less than 51% of the
aggregate Note Principal Balance of the Class of Notes affected thereby, or 51%
of the aggregate Note Principal Balance of all Classes of Notes if all such
Classes are affected thereby, 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 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 Notes or distributions or payments under any Insurance Policy which are
required to be made on the Notes or without the consent of the Holder of such
Notes or (ii) reduce the aforesaid percentage required to consent to any such
amendment, without the consent of the Holders of all Notes then outstanding.
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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 Noteholders, the Indenture Trustee shall furnish
written notification of the substance of such amendment to each 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 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 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 Noteholders'
expense on direction of the Indenture Trustee or the Holders of Notes
representing not less than 51% of the aggregate Note Principal Balance of all
Classes of Notes, but only when accompanied by an opinion of counsel to the
effect that such recordation materially and beneficially affects the interests
of the Noteholders or is necessary for the administration or servicing of the
Home Equity 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
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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, _________________,
Attention: __________, ________________________, (ii) in the case of the
Indenture Trustee, _________________, (iii) in the case of the Insurer,
_____________________________, (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, 55 Water Street, 41st Floor, New York, New
York 10004, (vi) in the case of the Depositor, ________________________________
and (vii) in the case of the 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 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 Noteholders and
their respective successors and permitted assigns. The Insurer is an express
third party beneficiary of this Agreement.
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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 Home
Equity 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 Notes;
(v) notice of any Event of Servicing Termination;
(vi) copies of the annual independent auditor's report
delivered pursuant to Section 3.14 herein, and copies of any compliance
reports delivered by the Servicer hereunder including Section 3.13
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 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
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hereunder shall be suspended and shall run to the benefit of the Noteholders
during any period in which there exists an Insurer Default.
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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.
CENTEX HOME
EQUITY LOAN TRUST 2000-__,
By: ____________________________, not in
its individual capacity but solely as
Owner Trustee
By: ________________________________
Name:
Title:
CENTEX CREDIT CORPORATION,
d/b/a CENTEX HOME EQUITY CORPORATION
as Seller and Servicer
By: ________________________________
Name:
Title:
CHEC FUNDING, LLC
as Depositor
By: __________________________________
Name:
Title:
____________________________________________
as Indenture Trustee
By: __________________________________
Name:
Title:
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THE STATE OF ________ )
)
COUNTY OF ________ )
BEFORE ME, on _____________ ___, 2000, 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 CENTEX HOME EQUITY LOAN TRUST 2000-__, 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>
Exhibit 5.1
January 25, 2000
CHEC Funding, LLC
2728 N. Harwood Street
Dallas, Texas 75201
Ladies and Gentlemen:
We have acted as counsel to CHEC Funding, LLC, a Delaware limited liability
company (the "Company"), in connection with the preparation of a registration
statement on Form S-3 (the "Registration Statement") relating to the proposed
offering from time to time in one or more series (each, a "Series") by one or
more trusts of Asset-Backed Notes (the "Notes") and Asset-Backed Certificates
(the "Certificates," and, together with the Notes, the "Securities"). The
Registration Statement (File No. 333-93255) was initially filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act") on December 21, 1999. As set forth in the
Registration Statement, each Series of Securities is to be issued under and
pursuant to the terms of a separate pooling and servicing agreement, or sale and
servicing agreement, trust agreement and indenture (each, an "Agreement") among
two or more of the Company, Centex Credit Corporation d/b/a Centex Home Equity
Corporation, as seller and servicer (the "Seller" or "Servicer," as applicable),
the issuer of a Series of Securities and one or more independent trustees (each,
a "Trustee") to be identified in the prospectus supplement for such Series of
Securities.
As such counsel, we have examined copies of the Certificate of Formation and the
Amended and Restated Limited Liability Company Agreement of the Company, the
Registration Statement, the base Prospectus and form of Prospectus Supplement
included therein, the form of each Agreement, and originals or copies of such
other records, agreements and other instruments of the Company, certificates of
public officials and other documents and have made such examinations of law, as
we have deemed necessary to form the basis for the opinions hereinafter
expressed. In our examination of such materials, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals and the conformity to original documents of all copies submitted to
us. As to various questions of fact material to such opinion, we have relied, to
the extent we deemed appropriate, upon representations, statements and
certificates of officers and
<PAGE>
CHEC Funding, LLC
January 25, 2000
Page 2
representatives of the Company and others.
Attorneys involved in the preparation of this opinion are admitted to practice
law in the State of New York and we do not express any opinion herein concerning
any law other than the federal laws of the United States of America, the laws of
the State of New York and the Limited Liability Company Act of the State of
Delaware.
Based upon and subject to the foregoing, we are of the opinion that:
1. When the issuance, execution and delivery of each Series of Notes
have been authorized by all necessary action of the Company in accordance with
the provisions of the related indenture, and when such Notes have been duly
executed and delivered, authenticated by the Trustee and sold as described in
the Registration Statement, assuming that the terms of such Notes are otherwise
in compliance with applicable law at such time, such Notes will constitute valid
and binding obligations of the issuer thereof in accordance with their terms and
the terms of such indenture. This opinion is subject to the effect of
bankruptcy, insolvency, moratorium, fraudulent conveyance and similar laws
relating to or affecting creditors' rights generally and court decisions with
respect thereto and we express no opinion with respect to the application of
equitable principles or remedies in any proceeding, whether at law or in equity.
2. When the issuance, execution and delivery of each Series of
Certificates have been authorized by all necessary action of the Company in
accordance with the provisions of the related Agreement or Agreements, and when
such Certificates have been duly executed and delivered, authenticated by the
Trustee and sold as described in the Registration Statement, assuming that the
terms of such Certificates are otherwise in compliance with applicable law at
such time, such Certificates will be legally issued, fully paid and
non-assessable.
3. For federal income tax purposes, assuming (i) the appropriate
election is made, and (ii) compliance with all of the provisions of the
Agreements, the REMIC formed pursuant to an Agreement will constitute a REMIC,
the Class A Certificates will be considered "regular interests" in the REMIC,
and the Class R Certificates will be considered the sole class of "residual
interests" in the REMIC. This opinion confirms and adopts the opinion set forth
in the prospectus and prospectus supplement, which form a part of the
Registration Statement.
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CHEC Funding, LLC
January 25, 2000
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm under the caption
"Federal Income Tax Consequences" and "Legal Matters" in the prospectus which
forms a part of the Registration Statement. In giving such consent, we do not
admit hereby that we come within the category of persons whose consent is
required under Section 7 of the Act or the Rules and Regulations of the
Commission thereunder.
Very truly yours,
/s/ Stroock & Stroock & Lavan LLP
STROOCK & STROOCK & LAVAN LLP
