<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
Commission File Number: 0-22474
-------
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
-----------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 87-0418807
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 Presidential Boulevard, Bala Cynwyd, PA 19004
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(610) 668-2440
--------------
(Registrant's telephone number including area code)
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
As of May 10, 2000, there were 3,323,674 shares of the registrant's Common Stock
issued and outstanding.
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
- ------ ----
<S> <C> <C>
Item 1. Financial Information
Consolidated Balance Sheets as of March 31, 2000
and June 30, 1999...................................................................... 3
Consolidated Statements of Income for the three and nine months ended
March 31, 2000 and 1999................................................................ 4
Consolidated Statements of Stockholders' Equity for the nine months ended
March 31, 2000 and 1999................................................................ 5
Consolidated Statements of Cash Flow for the nine months ended
March 31, 2000 and 1999................................................................ 6
Notes to Consolidated Financial Statements................................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 14
Item 3. Quantitative and Qualitative Disclosure about Market Risk.................................... 33
PART II OTHER INFORMATION............................................................................ 34
- -------
</TABLE>
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1- Financial Information
American Business Financial Services, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
-------------- ---------
(Unaudited) (Note)
<S> <C> <C>
Assets
Cash and cash equivalents $ 45,399 $ 22,395
Loan and lease receivables, net
Available for sale 33,259 33,776
Other 10,819 6,863
Interest-only and residual strips 258,772 178,218
Receivable for sold loans and leases 62,651 66,086
Prepaid expenses 4,412 1,671
Property and equipment, net 17,299 10,671
Servicing rights 66,081 43,210
Other assets 35,065 33,411
--------- ---------
Total assets $ 533,757 $ 396,301
========= =========
Liabilities and Stockholders' Equity
Liabilities
Subordinated debt $ 329,038 $ 211,652
Warehouse lines and other notes payable 57,302 58,691
Accounts payable and accrued expenses 27,148 26,826
Deferred income taxes 26,198 16,604
Other liabilities 27,579 24,282
--------- ---------
Total liabilities 467,265 338,055
--------- ---------
Stockholders' Equity
Preferred stock, par value $.001, Authorized, 1,000,000 shares
Issued and outstanding, none -- --
Common stock, par value $.001, Authorized, 9,000,000 shares
Issued: 3,639,704 and 3,703,514 shares (including treasury
shares of 250,300 and 116,550) 4 3
Additional paid-in capital 24,284 23,339
Accumulated other comprehensive income 3,663 3,354
Retained earnings 42,125 33,596
Treasury stock, 250,300 and 116,550 shares (2,984) (1,446)
--------- ---------
67,092 58,846
Note receivable (600) (600)
--------- ---------
Total stockholders' equity 66,492 58,246
--------- ---------
Total liabilities and stockholders' equity $ 533,757 $ 396,301
========= =========
</TABLE>
Note: The balance sheet at June 30, 1999 has been derived from the audited
financial statements at that date. See accompanying notes to consolidated
financial statements.
3
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Consolidated Statements of Income
(amounts in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------- ---------------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
Gain on sale of loans and leases $23,412 $17,417 $63,025 $45,789
Interest and fees 4,723 4,271 14,219 12,717
Interest accretion on interest-only strips 4,836 307 11,902 699
Servicing income 1,173 952 3,412 1,967
Other income 2 22 5 37
------- ------- ------- -------
Total revenues 34,146 22,969 92,563 61,209
------- ------- ------- -------
Expenses
Interest 10,112 6,126 26,175 15,674
Provision for credit losses 331 542 1,040 745
Employee related costs 2,820 1,157 7,342 3,666
Sales and marketing 6,081 5,830 19,945 15,083
General and administrative 8,277 3,832 18,956 9,910
------- ------- ------- -------
Total expenses 27,621 17,487 73,458 45,078
------- ------- ------- -------
Income before provision for income taxes 6,525 5,482 19,105 16,131
Provision for income taxes 2,610 1,973 7,642 5,704
------- ------- ------- -------
Net income $ 3,915 $ 3,509 $11,463 $10,427
======= ======= ======= =======
Earnings per common share:
Basic $ 1.16 $ 0.95 $ 3.32 $ 2.82
Diluted $ 1.12 $ 0.92 $ 3.23 $ 2.74
Average common shares:
Basic 3,375 3,703 3,451 3,700
Diluted 3,502 3,806 3,538 3,810
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
----------------------- Accumulated
Number Additional Other
Of Shares Paid-In Comprehensive Retained
Outstanding Amount Capital Income Earnings
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1999 3,587 $ 3 $ 23,339 $ 3,354 $ 33,596
Comprehensive income:
Net income -- -- -- -- 11,463
Unrealized gains on investment securities -- -- -- 309 --
-------- -------- -------- -------- --------
Total comprehensive income -- -- -- 309 11,463
-------- -------- -------- -------- --------
Exercise of stock options 61 1 211 -- --
Issuance of non-employee stock options -- -- 130 -- --
Repurchase of treasury shares (259) -- -- -- --
Cash dividends ($0.22 per share) -- -- -- -- (778)
Stock dividend (5% of outstanding shares):
Issuance of treasury shares -- -- -- -- --
Issuance of new shares -- -- 604 -- (2,156)
-------- -------- -------- -------- --------
Balance, March 31, 2000 3,389 $ 4 $ 24,284 $ 3,663 $ 42,125
======== ======== ======== ======== ========
Balance, June 30, 1998 3,699 $ 3 $ 23,256 $ -- $ 20,083
Comprehensive income:
Net income -- -- -- -- 10,427
Unrealized gains on investment securities -- -- -- 1,190 --
-------- -------- -------- -------- --------
Total comprehensive income -- -- -- 1,190 10,427
-------- -------- -------- -------- --------
Exercise of stock options 4 -- 10 -- --
Issuance of non-employee stock options -- -- 73 -- --
Cash dividends ($0.115 per share) -- -- -- -- (404)
-------- -------- -------- -------- --------
Balance, March 31, 1999 3,703 $ 3 $ 23,339 $ 1,190 $ 30,106
======== ======== ======== ======== ========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Total
Treasury Note Stockholders'
Stock Receivable Equity
-------- -------- --------
<S> <C> <C> <C>
Balance, June 30, 1999 $ (1,446) $ (600) $ 58,246
Comprehensive income:
Net income -- -- 11,463
Unrealized gains on investment securities -- -- 309
-------- -------- --------
Total comprehensive income -- -- 11,772
-------- -------- --------
Exercise of stock options -- -- 212
Issuance of non-employee stock options -- -- 130
Repurchase of treasury shares (3,090) -- (3,090)
Cash dividends ($0.22 per share) -- -- (778)
Stock dividend (5% of outstanding shares):
Issuance of treasury shares 1,552 -- 1,552
Issuance of new shares -- -- (1,552)
-------- -------- --------
Balance, March 31, 2000 $ (2,984) $ (600) $ 66,492
======== ======== ========
Balance, June 30, 1998 $ -- $ (600) $ 42,742
Comprehensive income:
Net income -- -- 10,427
Unrealized gains on investment securities -- -- 1,190
-------- -------- --------
Total comprehensive income -- -- 11,617
-------- -------- --------
Exercise of stock options -- -- 10
Issuance of non-employee stock options -- -- 73
Cash dividends ($0.115 per share) -- -- (404)
-------- -------- --------
Balance, March 31, 1999 $ -- $ (600) $ 54,038
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flow
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------
2000 1999
---------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 11,463 $ 10,427
Adjustments to reconcile net income to net
cash used in operating activities:
Gain on sale of loans and leases (63,025) (45,789)
Depreciation and amortization 13,945 7,497
Interest accretion on interest-only and residual strips (11,901) (699)
Provision for credit losses 1,040 745
Accounts written off, net (1,273) (761)
Loans and leases originated for sale (844,365) (653,805)
Proceeds from sale of loans and leases 788,638 599,738
Principal payments on loans and leases 3,377 8,015
Increase in accrued interest and fees on
loan and lease receivables (3,956) (1,676)
Purchase of initial overcollateralization on securitized loans
and leases (7,342) (3,724)
Required purchases of additional overcollateralization on
securitized loans and leases (20,710) (11,490)
Cash flow from interest-only and residual strips 34,474 26,482
Decrease in receivable for loans and leases sold 13,361 2,537
Increase in prepaid expenses (2,741) (1,220)
Increase in accounts payable and accrued expenses 322 5,720
Increase (decrease) in deferred income taxes 9,403 (1,145)
Increase in loans in process 3,297 9,255
Decrease in other, net (1,195) (1,297)
---------- ---------
Net cash used in operating activities (77,188) (51,190)
---------- ---------
Cash Flows from Investing Activities:
Purchase of property and equipment, net (9,758) (3,668)
Purchase of investment - (646)
Principal receipts on investments 24 699
---------- ---------
Net cash used in investing activities (9,734) (3,615)
---------- ---------
</TABLE>
6
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flow (continued)
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------------------------------
2000 1999
---------- ---------
<S> <C> <C>
Cash Flows from Financing Activities:
Proceeds from issuance of subordinated debt $ 177,055 $ 111,616
Redemptions of subordinated debt (59,670) (44,022)
Net borrowings on revolving lines of credit (10,225) 6,828
Borrowings, lease financing facility 12,294 -
Principal payments on lease financing facility (1,635) -
Principal payments on note payable, other (1,822) (686)
Financing costs incurred (2,545) (2,218)
Cash dividend paid (778) (405)
Exercise of employee stock options 212 10
Issuance of non-employee stock options 130 73
Repurchase of treasury stock (3,090) -
---------- ---------
Net cash provided by financing activities 109,926 71,196
---------- ---------
Net increase in cash and cash equivalents 23,004 16,391
Cash and cash equivalents, beginning of period 22,395 4,486
---------- ---------
Cash and cash equivalents, end of period $ 45,399 $ 20,877
========== =========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 19,280 $ 13,302
Income taxes $ 500 $ 2,755
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2000
1 Basis of Financial Statement Presentation
American Business Financial Services, Inc., together with its
subsidiaries (the "Company"), is a diversified retail financial service
organization operating throughout the United States. The Company
originates, sells and services loans to businesses secured by real
estate and other business assets and conventional first mortgage and
home equity loans, including loans to credit impaired borrowers secured
by first and second mortgages. In addition, the Company continues to
service its portfolio of business equipment leases, and to originate a
minimal amount of new leases. The Company also sells subordinated debt
securities to the public, the proceeds of which are used to fund loan
originations and the Company's operations.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly,
they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals and the elimination of intercompany
balances) considered necessary for a fair presentation have been
included. Operating results for the nine month period ended March 31,
2000 are not necessarily indicative of financial results that may be
expected for the full year ended June 30, 2000. These unaudited
consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1999.
Certain prior period financial statement balances have been
reclassified to conform to the current period presentation. All prior
period outstanding share, average common share and earnings per common
share amounts have been retroactively adjusted to reflect the effect of
a 5% stock dividend declared August 18, 1999, and paid September 27,
1999.
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board ("FASB") issued
the Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging
activities. It requires that entities recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. If certain conditions are met,
a derivative may be specifically designated as (a) a hedge of the
exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment (fair value hedge), (b) a
hedge of the exposure to variable cash flows of a forecasted
transaction (cash flow hedge), or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. At the time of
issuance SFAS No. 133 was to be effective on a prospective basis for
all fiscal quarters of fiscal years beginning after June 15, 1999.
Subsequently in August 1999, the FASB issued the Statement of Financial
Accounting Standards No. 137, which deferred the effective date of the
standard until years beginning after June 15, 2000. The adoption of
this standard is not expected to have a material effect on the
Company's financial condition or results of operations.
8
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2000
In October 1999, the FASB issued Statement of Financial Accounting
Standards ("SFAS No. 134"), "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a
Mortgage Banking Enterprise". SFAS No. 134, which became effective
January 1, 1999, requires that after the securitization of a mortgage
loan held for sale, the resulting mortgage-backed security or other
retained interests be classified based on the Company's ability and
intent to hold or sell the investments. As a result, retained interests
previously classified as trading assets, as required by prior
accounting principles, had been reclassified to available-for-sale on
January 1, 1999.
2. Loan and Lease Receivables - Available for Sale
Loan and lease receivables available for sale which are held in the
Company's portfolio were as follows (in thousands):
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
--------- --------
<S> <C> <C>
Real estate secured loans $ 14,111 $ 21,017
Leases, net of unearned income of $2,696
and $1,543 19,617 13,451
--------- --------
33,728 34,478
Less: Allowance for credit losses on loans and leases
available for sale 469 702
--------- --------
$ 33,259 $ 33,776
========= ========
3. Interest-Only and Residual Strips
Activity for interest-only and residual strips during the nine-month period ended March 31, 2000 was as follows
(in thousands):
Balance at beginning of period $ 178,218
Initial recognition of interest-only and residual strips,
including initial overcollateralization of $7,342 81,917
Required purchases of additional overcollateralization 20,710
Interest accretion 11,901
Cash flow from interest-only and residual strips (34,474)
Net adjustments to fair value 500
---------
Balance at end of period $ 258,772
=========
</TABLE>
Interest-only and residual strips include overcollateralization
balances that represent excess principal balances of loans and leases
in securitization trusts over investor interests maintained to provide
credit enhancement to investors in securitization trusts. In order to
meet the required overcollateralization levels, the trust initially
retains residual cash flows until overcollateralization requirements,
which are specific to each securitization, are met. At March 31, 2000,
the Company's investment in overcollateralization was $69.6 million.
9
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2000
4. Servicing Rights
Activity for servicing rights during the nine-month period ended March
31, 2000 was as follows (in thousands):
Balance at beginning of period $ 43,210
Initial recognition of servicing rights 31,439
Amortization (8,568)
----------
Balance at end of period $ 66,081
==========
Servicing rights are periodically valued by the Company based on a
discounted cash flow analysis of loans and leases remaining in the
securitization trusts. A review for impairment is performed on a
disaggregated basis for the predominant risk characteristics, referred
to as a stratum, of the underlying loans and leases, which consist of
loan type and credit quality and other factors. Impairments if they
occurred would be recognized in a valuation allowance for each impaired
stratum in the period of impairment. As of March 31, 2000, no valuation
allowance for impairment was required.
5. Other Assets
Other assets were comprised of the following (in thousands):
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
--------- ---------
<S> <C> <C>
Goodwill, net of accumulated amortization
of $2,814 and $1,913 $ 15,450 $ 15,018
Financing costs, debt offering costs, net of
accumulated amortization of $5,014 and $3,903 5,902 4,487
Due from securitization trusts for servicing
related activities 7,131 6,266
Investments held to maturity (mature April 2000
through April 2011) 990 1,014
Real estate owned 1,781 843
Other 3,811 5,783
--------- ---------
$ 35,065 $ 33,411
========= =========
</TABLE>
10
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2000
6. Subordinated Debt and Warehouse Lines and Other Notes Payable
Subordinated debt was comprised of the following (in thousands):
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
----------- ----------
<S> <C> <C>
Subordinated debentures (a) $ 325,539 $ 206,918
Subsidiary subordinated debentures (b) 3,499 4,734
----------- ----------
Total subordinated debentures $ 329,038 $ 211,652
=========== ==========
Warehouse lines and other notes payable were comprised of the following
(in thousands):
March 31, June 30,
2000 1999
----------- ----------
Warehouse revolving line of credit (c) $ 31,774 $ 42,627
Warehouse revolving line of credit (d) -- 3,764
Warehouse revolving line of credit (e) 4,493 102
Revolving line of credit (f) 5,000 5,000
Repurchase agreement (g) 4,677 4,677
Lease funding facility (h) 10,659 --
Senior subordinated debt (i) -- 1,250
Other debt 699 1,271
----------- ----------
Total warehouse lines and other notes payable $ 57,302 $ 58,691
=========== ==========
</TABLE>
(a) Subordinated debentures due April 2000 through March 2009,
interest rates ranging from 6.15% to 12.90%; subordinated to all
of the Company's indebtedness.
(b) Subsidiary subordinated debentures due April 2000 through May
2003, interest rates ranging from 9.00% to 11.99%; subordinated to
all of the Company's indebtedness.
(c) $150 million warehouse revolving line of credit expiring October
2000, interest rates ranging from LIBOR plus 1.375% to LIBOR plus
2.0%, collateralized by certain loan receivables.
(d) $20 million warehouse revolving line of credit expired January
2000, interest rates at prime less 1.0% or LIBOR at the Company's
option, collateralized by lease receivables.
(e) $150 million warehouse line of credit expiring August 2000,
interest rate of LIBOR plus 1.0%, collateralized by certain loan
receivables.
(f) $5 million revolving line of credit expiring December 2000,
interest rate of LIBOR plus 2.0%, collateralized by certain
residual interests in securitization trusts.
(g) Repurchase agreement due April 2000, interest rate of LIBOR plus
0.5%, collateralized by certain lease backed securities.
(h) Lease funding facility due April 2000 through December 2004,
interest rate of LIBOR plus 1.775%, collateralized by certain
lease receivables.
(i) Senior subordinated debt due December 1999, interest rate of
12.0%, subordinated to certain subsidiary's senior indebtedness.
11
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2000
7. Earnings Per Share
Following is a reconciliation of the Company's basic and diluted
earnings per share calculations (in thousands except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ------------------------
2000 1999 2000 1999
------ ------- -------- --------
<S> <C> <C> <C> <C>
Earnings
(a) Net income $ 3,915 $ 3,509 $ 11,463 $ 10,427
Average Common Shares
(b) Average common shares outstanding 3,375 3,703 3,451 3,700
Average potentially dilutive shares 127 103 87 110
------ ------- -------- --------
(c) Average common and potentially dilutive
shares 3,502 3,806 3,538 3,810
====== ======= ======== ========
Earnings Per Common Share
Basic (a/b ) $ 1.16 $ 0.95 $ 3.32 $ 2.82
Diluted ( a/c ) $ 1.12 $ 0.92 $ 3.23 $ 2.74
</TABLE>
8. Segment Information
The Company has three operating segments: Loan Origination, Servicing,
and Investment Note Services.
The Loan Origination segment originates business purpose loans secured
by real estate and other business assets and home equity loans
including loans to credit-impaired borrowers and conventional first
mortgage loans secured by one to four family residential real estate.
The Servicing segment services the loans and leases the Company
originates both while held in the Company's portfolio and subsequent to
securitization. Servicing activities include billing and collecting
payments from borrowers, transmitting payments to investors, accounting
for principal and interest, collections and foreclosure activities and
disposing of real estate owned.
The Investment Note Services segment funds the Company's general
operating and lending activities through the offering of the Company's
subordinated debt securities.
All Other mainly represents segments that do not meet the Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of
an Enterprise and Related Information" quantitative or defined
thresholds for determining reportable segments, financial assets not
related to operating segments, unallocated overhead and other expenses
of the Company unrelated to the reportable segments identified.
12
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
March 31, 2000
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies.
Reconciling items represent elimination of inter-segment income and expense
items.
<TABLE>
<CAPTION>
Nine months ended Investment
March 31, 2000 Loan Note Reconciling
(in thousands) Origination Services Servicing All Other Items Consolidated
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
External revenues:
Gain on sale of loans and
leases $ 63,025 $ -- $ -- $ -- $ -- $ 63,025
Interest income 3,760 -- -- 13,473 -- 17,233
Non-interest income 1,535 -- 10,770 -- -- 12,305
Inter-segment revenues -- 26,134 -- 7,699 (33,833) --
Operating expenses:
Interest expense 19,136 19,402 168 13,603 (26,134) 26,175
Non-interest expense 27,280 6,194 6,240 7,569 -- 47,283
Inter-segment expense 7,699 -- -- -- (7,699) --
Income tax expense 5,682 215 1,745 -- -- 7,642
-------- -------- -------- -------- -------- --------
Net income $ 8,523 $ 323 $ 2,617 $ -- $ -- $ 11,463
======== ======== ======== ======== ======== ========
Segment assets $116,870 $ 51,347 $ 67,370 $298,170 $ -- $533,757
======== ======== ======== ======== ======== ========
</TABLE>
13
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
PART 1. FINANCIAL INFORMATION (continued)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Our consolidated financial information set forth below should be read
in conjunction with the consolidated financial statements and the accompanying
notes to consolidated financial statements included in Item 1 of this Quarterly
Report, and the consolidated financial statements, notes to consolidated
financial statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations and the risk factors contained in our Annual
Report on Form 10-K for the year ended June 30, 1999 incorporated by reference
in this Form 10-Q in their entirety.
Forward Looking Statements
When used in this Quarterly Report on Form 10-Q the words or phrases
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "projected," or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, including but not limited to general economic conditions, changes
in interest rates, changes in future residential real estate values, regulatory
changes (legislative or otherwise) affecting the real estate market and mortgage
lending activities, competition, demand for our services, availability of
funding, loan payment rates, delinquency and default rates, changes in factors
influencing the loan securitization market and other risks identified in our
Securities and Exchange Commission filings. Such factors could affect our
financial performance and could cause the actual results for future periods to
differ materially from any opinion or statements expressed herein with respect
to future periods. As a result, we wish to caution readers not to place undue
reliance on any such forward looking statements, which speak only as of the date
made.
General
American Business Financial Services, Inc. is a retail financial
services organization operating throughout the United States. We originate, sell
and service business purpose loans, home equity loans and conventional first
mortgage loans through our principal direct and indirect subsidiaries. We also
underwrite, process and purchase home equity loans through the Bank Alliance
Program whereby we purchase home equity loans from financial institutions that
do not meet the underlying guidelines of the selling institutions but meet our
underwriting criteria. Loans originated primarily consist of fixed rate loans
secured by first or second mortgages on single family residences. Our customers
include credit impaired borrowers and other borrowers who would qualify for
loans from traditional sources but who are attracted to our loan products due to
our personalized service and timely response to loan applications. We originate
loans through a combination of channels including a national processing center
and a retail branch network of 18 offices. In addition, we sell subordinated
debt securities to the public, the proceeds of which are used to fund loan
originations and our operations.
Due to the current rising interest rate environment, we expect our
ability to originate loans at rates that will maintain our current level of
profitability will become more difficult. We are addressing this challenge by
carefully monitoring our product pricing, the actions of our competition and
market trends in order to continue to originate loans in as profitable a manner
as possible.
Prior to December 31, 1999 we also originated equipment leases. We have
since de-emphasized the leasing origination business in keeping with our
strategy of focusing on our most profitable lines of business. We are currently
originating a minimal volume of leases and are continuing to service the run off
of our managed portfolio of leases, which totaled $134.8 million in gross
receivables at March 31, 2000.
A recent focus by certain governmental regulatory agencies relates to
predatory lending practices by companies in our industry. Sanctions have been
imposed on certain industry competitors for practices including but not limited
to charging borrowers excess fees, imposing higher interest rates than the
borrower's credit risk warrants and failing to disclose the material terms of
loans to the borrowers. We have reviewed our lending policies in light of these
actions against other lenders and we believe we are in compliance with all
lending related guidelines. To date, no sanctions or recommendations from state
regulatory agencies regarding our practices related to predatory lending have
been imposed. We are unable to predict whether state regulatory authorities will
require changes in our lending practices in the future or the impact of such
changes on our profitability.
Securitizations
The ongoing securitization of loans is a central part of our current
business strategy. We sell loans and have in the past sold leases through
securitizations with servicing retained in order to fund additional loan
originations and to provide additional sources of revenue through retained
mortgage and lease servicing rights. We rely primarily on securitizations to
generate cash proceeds for repayment of warehouse credit facilities and other
borrowings.
14
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Several factors affect our ability to complete securitizations, including
conditions in the securities markets generally, conditions in the asset-backed
securities markets specifically and credit quality of the portfolio of loans
serviced. Any substantial reduction in the size or availability of the
securitization market for loans could have a material adverse effect on our
results of operations and financial condition.
Recent movements in market interest rates may negatively impact the
the profitability of our securitizations due to increases in rates demanded in
the asset backed securities markets. We are continuously monitoring market rate
fluctuations and our product pricing in order to best manage these changes and
maintain our current profitability on securitizations.
Our quarterly revenues and net income have fluctuated in the past and
may fluctuate in the future principally as a result of the timing and size of
securitizations and changes in market interest rates. The strategy of selling
loans through securitizations requires building an inventory of loans over time,
during which time costs and expenses are incurred. Since a gain on sale is not
recognized until a securitization is completed, operating results for a given
quarter can fluctuate significantly as a result of the timing and level of
securitizations.
The gain on sale of loans may be unfavorably impacted to the extent we
hold fixed-rate mortgage loans in our available for sale portfolio prior to
securitization. A significant variable affecting the gain on sale of loans in a
securitization is the spread between the average coupon rate on fixed rate
loans, and the weighted average pass-through rate to investors for interests
issued in connection with a securitization. Although the loan coupon rate is
fixed at the time the loan is originated, the pass-through rate to investors is
not fixed until the pricing of the securitization which occurs just prior to the
sale of the loans. Therefore, if market rates required by investors increase
prior to securitization of the loans, the spread between the average coupon rate
on the loans and the pass-through rate to investors may be reduced or
eliminated. See "INTEREST RATE RISK MANAGEMENT" for further detail.
Our business strategy is dependent upon our ability to identify and
emphasize lending related activities that will provide the most economic value
to the Company. The implementation of this strategy will depend in large part on
a variety of factors outside of our control, including, but not limited to, our
ability to obtain adequate financing on favorable terms, profitably securitize
our loans on a regular basis and continue to expand in the face of increasing
competition. Our failure with respect to any of these factors could impair our
ability to successfully implement our strategy, which would adversely affect our
results of operations and financial condition.
Securitization Accounting Considerations
When we securitize our loans and leases by selling them to trusts we
receive cash and a retained interest in the securitized loans and leases which
is called a residual interest. The trust issues multi-class securities, which
derive their cash flows from the pool of securitized loans and leases. These
securities, which are senior to our residual interest in the trusts, are sold to
public investors. In addition, when we securitize our loans and leases we retain
the right, for a fee, to service the loans and leases. Servicing includes
billing and collecting payments from borrowers, transmitting payments to
investors, accounting for principal and interest, collections and foreclosure
activities and disposing of real estate owned.
As the holder of residual interests in a securitization, we are
entitled to receive certain excess (or residual) cash flows. These cash flows
are the difference between the payments made by the loan and lease borrowers and
the sum of the scheduled and prepaid principal and interest paid to the
investors in the trust, servicing fees, trustee fees and, if applicable,
insurance fees. Overcollateralization requirements, representing an excess of
the aggregate principal balances of loans and leases in a securitized pool over
investor interests, are established to provide credit enhancement for the trust
investors. In order to meet the required overcollateralization levels, the trust
initially retains the excess cash flow until after the overcollateralization
requirements, which are specific to each securitization, are met.
15
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Gain on sale of loans and leases securitized represents the difference
between the net proceeds received and the allocated cost of loans and leases
securitized. The allocated cost of the loans and leases securitized is
determined by allocating their net carrying value between the loans and leases
securitized, our retained residual interests in the securitization and retained
servicing rights, based upon their relative fair values.
The calculation of the fair value of residual interests and servicing
rights is based upon the present value of the future expected excess cash flows
from the securitized loans and leases and utilizes certain assumptions made by
management at the time loans and leases are sold. These assumptions include the
discount rate used to calculate present value, the prepayment rates and default
rates on the pool of loans or leases. The prepayment rate of loans and leases
may be affected by a variety of economic and other factors, including prevailing
interest rates and the availability of alternative financing to borrowers. The
effect of those factors on loan and lease prepayment rates may vary depending on
the type of loan or lease. Estimates of prepayment rates are made based on
management's expectation of future prepayment rates, which are based, in part,
on the historical rate of prepayment of the loans and leases and other
considerations. Although we believe we have made reasonable estimates of
prepayment rates and default assumptions, the actual prepayment and default
experience may materially vary from our estimates. The gain recognized upon the
sale of loans and leases will have been overstated if prepayments or losses are
greater than estimated. To the extent that prepayments or defaults differ from
the estimates made, adjustments of the gain on sale of loans and leases may be
required. Higher levels of future prepayments, defaults and/or liquidations
could result in a reduction in the value of residual interests, which would
adversely affect income in the period of adjustment.
Interest-only and residual strips and servicing rights are periodically
revalued based on a discounted cash flow analysis of loans and leases remaining
in the trusts. The assumptions for prepayment and default rates are monitored
against actual experience and adjusted if warranted.
16
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The following chart presents certain key assumptions used in the
initial valuation of interest-only and residual strips and servicing rights from
securitizations during the third quarter of fiscal 2000, and revaluation
performed on our interest-only and residual strips and servicing rights from
previous securitizations.
<TABLE>
<CAPTION>
Quarterly
Revaluations
2000-1 of Previous
Securitization Securitizations
----------------------------------------------------------------------------------------
<S> <C> <C>
Discount rates
Home equity loans 11.0% 11.0%
Business purpose loans 11.0% 11.0%
Business equipment leases --(e) 11.0%
Annual prepayment rate assumptions
Home equity loans 2.0 - 24.0%(a) 2.0 - 24.0%(b)
Business purpose loans 3.0 - 10.0%(c) 3.0 - 13.0%(c)
Business equipment leases --(e) -- (d)
Actual prepayment rate experience (see table on page 18)
Annual credit loss rate (default rate) assumptions
Home equity loans
First lien 0.25% 0.25%
Second lien 0.70% 0.25-0.70%
Business purpose loans
First lien 0.25% 0.25%
Second lien 0.70% 0.25-0.70%
Business equipment leases --(e) 0.50%
Actual cumulative credit losses (default rate)
Home equity loans -- 0.14%(f)
Business purpose loans -- 0.22%(f)
Business equipment leases -- 1.13%
----------------------------------------------------------------------------------------
</TABLE>
(a) Ramped over 18 months
(b) Ramped over 12 to 18 months
(c) Ramped over 24 months
(d) Residual values are continuously adjusted based on actual
experience.
(e) There were no business equipment lease securitizations during
the third quarter.
(f) See "Managed Portfolio Quality - Loss Experience" for a
summary of cumulative credit losses by loan securitization
for further detail.
17
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The following table summarizes actual prepayment experience by loan
securitization trust.
<TABLE>
<CAPTION>
Assumption Utilized for Third Quarter
Valuation Actual Annualized CPR
------------------------------------ ----------------------------------------------
Business Home Business Home
Purpose Equity Blended Purpose Equity Blended
Trust Loans Loans Rate Loans Loans Rate
- ----- ----- ----- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
1996-1 13.00% 24.00% 17.99% 19.67% 18.15% 19.02%
1996-2 13.00 24.00 18.77 20.35 26.85 24.06
1997-1 13.00 24.00 20.25 18.05 25.09 22.95
1997-2 13.00 24.00 20.83 16.41 24.64 22.56
1998-1 13.00 24.00 22.21 16.38 21.74 20.94
1998-2 10.83 (a) 24.00 22.07 9.35 19.80 18.47
1998-3 9.21 (a) 24.00 22.73 8.34 11.99 11.69
1998-4 7.58 (a) 24.00 22.23 14.95 11.48 11.64
----- ------ ------ ------ ------ ------
Weighted
average-seasoned 11.54% 24.00% 21.90% 14.59% 16.77% 16.48%
trusts (d)
===== ====== ====== ====== ====== ======
1999-1 4.58%(b) 14.67%(c) 13.74% 5.73% 9.47% 9.13%
1999-2 3.33 (b) 10.67 (c) 9.67 9.95 7.16 7.46
1999-3 2.08 (b) 6.67 (c) 6.11 2.14 5.90 5.47
1999-4 0.83 (b) 2.67 (c) 2.46 0.00 4.14 3.64
</TABLE>
(a) Ramping to 13% over 24 months
(b) Ramping to 10% over 24 months
(c) Ramping to 24% over 18 months
(d) Seasoned trusts have been established for one year or more
18
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
RESULTS OF OPERATIONS
- ---------------------
Summary Financial Results
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ Percentage ------------------ Percentage
2000 1999 Increase 2000 1999 Increase
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Total revenues ............. $34,146 $22,969 48.7% $92,563 $61,209 51.2%
Total expenses ............. $27,621 $17,487 58.0% $73,458 $45,078 63.0%
Net income ................. $ 3,915 $ 3,509 11.6% $11,463 $10,427 9.9%
Return on average equity ... 24.19% 27.48% 24.35% 28.88%
Return on average assets ... 3.06% 4.45% 3.29% 4.84%
Earnings per share:
Basic ................... $ 1.16 $ 0.95 22.1% $ 3.32 $ 2.82 17.7%
Diluted ................. $ 1.12 $ 0.92 21.7% $ 3.23 $ 2.74 17.9%
Dividends declared per share $ 0.08 $ 0.05 60.0% $ 0.22 $ 0.115 91.3%
</TABLE>
Net Income. For the third quarter of fiscal 2000, net income increased
$0.4 million, or 11.6%, to $3.9 million from $3.5 million for the third quarter
of fiscal 1999. Basic earnings per common share increased to $1.16 on average
common shares of 3,375,000 compared to $0.95 per share on average common shares
of 3,703,000 for the third quarter of fiscal 1999. Diluted earnings per common
share increased to $1.12 on average common shares of 3,502,000 compared to $0.92
per share on average common shares of 3,806,000 for the third quarter of fiscal
1999.
For the nine months ended March 31, 2000, net income increased $1.1
million, or 9.9%, to $11.5 million from $10.4 million for the nine months ended
March 31, 1999. Basic earnings per common share increased to $3.32 on average
common shares outstanding of 3,451,000 compared to $2.82 per share on average
common shares outstanding of 3,700,000 for the nine months ended March 31, 1999.
Diluted earnings per common share increased to $3.23 on average common shares
outstanding of 3,538,000 compared to $2.74 per share on average common shares
outstanding of 3,810,000 for the nine months ended March 31, 1999.
Increases in net income and earnings per share primarily resulted from
the growth in the volume of loans originated and securitized during the periods,
interest accretion earned on interest-only strips and increases in the
collection of fee income due to growth in loans and leases available for sale
and securitized loans and leases for which servicing was retained, referred to
as the total managed portfolio.
All fiscal 1999 average common share and per share amounts have been
retroactively adjusted to reflect the effect of a 5% stock dividend declared
August 18, 1999, and paid on September 27, 1999.
In the first quarter of fiscal 2000, the quarterly dividend was
increased by 40.0% to $0.07 per share from $0.05 per share. In January, 2000 the
quarterly dividend was increased an additional 14.3% to $0.08 per share. The
common dividend payout ratio based on diluted earnings per share was 7.1% for
the third quarter of fiscal 2000, compared to 5.4% for the third quarter of
fiscal 1999.
19
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
As previously reported, our Board of Directors authorized the repurchase of up
to 10% of the outstanding shares of our common stock. On January 24, 2000, the
Board of Directors authorized the repurchase of an additional 338,000 shares,
representing 10.0% of the then outstanding shares. In the third quarter of
fiscal 2000, 18,000 shares were repurchased representing 0.5% of the outstanding
shares. For the first nine months of fiscal 2000, 258,910 shares were
repurchased representing 7.2% of the outstanding shares at the beginning of the
fiscal year. The impact of the share repurchase program was an increase of
diluted earnings per share by $0.05 and $0.09 for the three and nine-month
periods ended March 31, 2000, respectively.
Total Revenues. For the third quarter of fiscal 2000, total revenues
increased $11.1 million, or 48.7%, to $34.1 million from $23.0 million for the
third quarter of fiscal 1999. For the first nine months of fiscal 2000, total
revenues increased $31.4 million, or 51.2%, to $92.6 million from $61.2 million
for the first nine months of fiscal 1999. Growth in total revenue was the result
of increased gains on sales of loans and leases in the first nine months of
fiscal 2000, increases in interest accretion earned on our interest-only strips,
increases in interest and fees collected on loans and leases originated, and
increases in servicing income due to the growth of the total managed portfolio.
Gain on Sale of Loans and Leases. Gain on sale of loans and leases
increased $6.0 million, or 34.4%, to $23.4 million for the third quarter of
fiscal 2000 from $17.4 million in the third quarter of fiscal 1999. The increase
was the result of selling $264.0 million of loans through securitizations in the
third quarter of fiscal 2000, including, $27.2 million of business purpose loans
and $236.8 million of home equity loans compared to $16.4 million of business
purpose loans, $168.6 million of home equity loans and $19.0 million of
equipment leases in the third quarter of fiscal 1999.
For the nine months ended March 31, 2000, gain on sale of loans and
leases increased $17.2 million, or 37.6%, to $63.0 million from $45.8 million
for the nine months ended March 31, 1999. The increase was the result of the
securitization of $78.9 million of business purpose loans and $622.9 million of
home equity loans. Securitizations in the first nine months of fiscal 1999
included $41.7 million of business purpose loans, $423.3 million of home equity
loans and $67.7 million of equipment leases.
Gain on sale of loans and leases as a percentage of loans and leases
securitized was 8.9% in fiscal 2000, compared to 8.7% in fiscal 1999. Factors
impacting the gain percentage included increases in the relative percentage of
business purpose loans to home equity loans securitized. Business purpose loans
have a higher coupon rate, which results in an increased value of our residual
interests in the pool of securitized loans. In addition, due to increases in the
volume of loans originated with prepayment fees, we have reduced the annual
prepayment rate assumption on business loans and lengthened the ramping rate for
prepayments on home equity loans for fiscal 2000 securitizations. These factors
which increased the gain on sale as a percentage of loans and leases securitized
were offset by the impact of the January 1, 1999 adoption of the Statement of
Financial Accounting Standards No. 134 "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise" (SFAS No. 134). SFAS No. 134 requires that after
the securitization of a mortgage loan held for sale, an entity classify the
resulting mortgage-backed security or other retained interests based on its
ability and intent to hold or sell those investments. In accordance with the
provisions of SFAS No. 134, as of January 1, 1999 we reclassified our retained
interests from trading securities to available-for-sale securities. As
available-for-sale securities, subsequent adjustments to the fair value of
retained interests are recorded in stockholders' equity and reported as a
component of comprehensive income. The adoption of SFAS No. 134 did not have a
material effect on our financial condition, but reduced gains on sale by $5.9
million pre-tax in the first six months of fiscal 2000. Fair value adjustments
in the third quarter of both fiscal 2000 and 1999 were recognized as a component
of comprehensive income.
20
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The following schedule details our loan and lease originations (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------ -----------------------
2000 1999 2000 1999
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Business purpose loans $ 28,815 $ 16,771 $ 81,056 $ 42,721
Home equity loans 265,966 169,725 700,294 500,121
Equipment leases 22 24,441 19,631 76,745
---------- ---------- ---------- ---------
$ 294,803 $ 210,937 $ 800,981 $ 619,587
========== ========== ========== =========
</TABLE>
Loan originations for our subsidiary, American Business Credit, Inc.,
which offers business purpose loans secured by real estate, increased $12.0
million, or 71.8%, to $28.8 million for the third quarter of fiscal 2000 from
$16.8 million in the third quarter of fiscal 1999. For the nine months ended
March 31, 2000, loan originations increased $38.4 million, or 89.7%, to $81.1
million from $42.7 million for the nine months ended March 31, 1999. This
increase was attributable to geographic expansion of American Business Credit's
lending program as well as refocused marketing efforts. In the third quarter of
fiscal 2000, American Business Credit launched a web site, www.abceasyloan.com
in order to increase its distribution channels for business purpose loans.
Home equity loans originated by our Consumer Mortgage Group, which
includes Upland Mortgage, New Jersey Mortgage and Investment Corp. and
Processing Service Center Inc., increased $96.3 million, or 56.7%, to $266.0
million for the third quarter of fiscal 2000 from $169.7 million for the third
quarter of fiscal 1999. For the nine months ended March 31, 2000, loan
originations increased $200.2 million, or 40.0%, to $700.3 million from $500.1
million for the nine months ended March 31, 1999. The Consumer Mortgage Group
has redirected its marketing mix to focus on targeted direct mail, which
delivers more leads at a lower cost than broadcast marketing channels. The
Consumer Mortgage Group has continued to phase in advanced Internet technology
through its web site www.UplandMortgage.com. In addition to the ability to take
online loan applications and utilize an automated rapid credit approval process,
both of which reduce time and manual effort required for loan approval, the site
features our proprietary patent-pending Easy Loan Advisor, which provides
personalized services and solutions to retail customers through interactive web
dialog.
Interest and Fees. Interest and fee income for the third quarter of
fiscal 2000 increased $0.5 million, or 10.6%, to $4.7 million from $4.2 million
in the third quarter of fiscal 1999. For the nine months ended March 31, 2000,
interest and fee income increased $1.5 million, or 11.8%, to $14.2 million from
$12.7 million for the nine months ended March 31, 1999. Interest and fee income
consists primarily of interest income earned on loans and leases while held in
our portfolio, premiums earned on loans sold with servicing released and other
ancillary fees collected in connection with loan and lease originations.
Interest income decreased $0.1 million, or 6.0%, to $1.7 million for
the third quarter of fiscal 2000 from $1.8 million in the third quarter of
fiscal 1999. During the nine months ended March 31, 2000, interest income
decreased $0.5 million, or 7.5%, to $5.3 million from $5.8 million for the nine
months ended March 31, 1999. The decreases are attributable to a shortening of
the time loans remain on our balance sheet prior to securitization.
21
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Fee income increased $0.6 million, or 23.0%, to $3.0 million from $2.4
million for the third quarter of fiscal 1999. For the nine months ended March
31, 2000, fee income increased $2.0 million, or 27.8%, to $8.9 million from $6.9
million for the nine months ended March 31, 1999. The increases for the three
and nine-month periods were the result of increases in the volume of loans
originated during the periods.
Interest Accretion on Interest-only Strips. Interest accretion
represents the interest component of cash flows received on interest-only
strips. Interest accretion of $4.8 million and $11.9 million was earned in the
three-month and nine-month periods ended March 31, 2000, respectively, compared
to $0.3 million and $0.7 million in the three-month and nine-month periods ended
March 31, 1999, respectively. The increases in interest accretion reflect the
growth in interest-only strips and the maturing of the interest-only strip
portfolio in terms of generating cash flow.
Servicing Income. Servicing income is comprised of contractual and
ancillary fees collected on securitized loans and leases less amortization of
the servicing rights assets recorded at the time loans and leases are
securitized. For the third quarter of fiscal 2000, servicing income increased
$0.2 million, or 23.2%, to $1.2 million from $1.0 million for the third quarter
of fiscal 1999. These balances are comprised of cash collections of contractual
servicing and other ancillary fees of $3.7 million, net of amortization of
servicing rights of $2.5 million for the three months ended March 31, 2000 and
collections of contractual servicing and other ancillary fees of $2.5 million
net of amortization of servicing rights of $1.5 million for the three months
ended March 31, 1999. For the nine months ended March 31, 2000, servicing income
increased $1.4 million, or 73.5%, to $3.4 million from $2.0 million for the nine
months ended March 31, 1999. These balances were comprised of cash collections
of contractual servicing and other ancillary fees of $12.0 million net of
amortization of contractual servicing rights of $8.6 million for the nine months
ended March 31, 2000 and collections of contractual servicing and other
ancillary fees of $5.7 million net of amortization of servicing rights of $3.7
million for the nine months ended March 31, 1999.
As an annualized percentage of the average managed portfolio, servicing
income for the quarter decreased to 0.31%, from 0.49% in the prior year. The
servicing income annualized percentage for the first nine months of fiscal 2000
was 0.34%, compared to 0.39% for the first nine months of fiscal 1999. These
decreases were the result of a decrease in the percentage of loans prepaying
from the third quarter of fiscal 1999. In the three-month period ended March 31,
2000, prepayment fees collected as a percentage of the average managed portfolio
were 0.08% compared to 0.13% for the three-month period ended March 31, 1999. In
addition, amortization of the servicing asset was increased for certain
securitizations based on an analysis of actual ancillary fee collection
experience for each pool of loans in the securitization trust. In the
three-month period ended March 31, 2000, amortization as a percentage of the
average managed portfolio was 0.21% compared to 0.17% for the three-month period
ended March 31, 1999.
Total Expenses. For the third quarter of fiscal 2000, total expenses
increased $10.1 million, or 58.0%, to $27.6 million from $17.5 million for the
third quarter of fiscal 1999. Total expenses increased $28.4 million, or 63.0%,
to $73.5 million for the nine months ended March 31, 2000 as compared to $45.1
million for the nine months ended March 31, 1999. As described in more detail
below, this increase was a result of increased interest expense attributable to
the sale of subordinated debt and borrowings used to fund loan and lease
originations and increases in sales and marketing, and general and
administrative expenses related to growth in loan originations, the growth of
the total managed portfolio and the continued building of support area
infrastructure and internet capabilities.
22
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Interest Expense. For the third quarter of fiscal 2000, interest
expense increased $4.0 million, or 65.1%, to $10.1 million from $6.1 million for
the third quarter of fiscal 1999. The increase was attributable to an increase
in the amount of subordinated debt outstanding during the third quarter of
fiscal 2000, the proceeds of which were used to fund loan originations, the
costs of originating loans and investments in systems technology and Internet
capabilities required to position us for future growth. Average subordinated
debt outstanding during the three months ended March 31, 2000 was $300.2 million
compared to $166.7 million during the three months ended March 31, 1999. Average
interest rates paid on subordinated debt outstanding increased to 9.96% during
the three months ended March 31, 2000 from 9.32% during the three months ended
March 31, 1999. Rates offered on subordinated debt increased in response to
general increases in market rates and to attract funds with a longer average
maturity. The average outstanding balances under warehouse lines were $111.5
million during the three months ended March 31, 2000, compared to $130.5 million
during the three months ended March 31, 1999. This decrease was due to the
increased utilization of proceeds from the sale of subordinated debt to fund
loan originations.
During the first nine months of fiscal 2000 interest expense increased
$10.5 million, or 67.0%, to $26.2 million from $15.7 million for the nine months
ended March 31, 1999. Average subordinated debt outstanding during the nine
months ended March 31, 2000 was $260.0 compared to $143.5 during the nine months
ended March 31, 1999. The average outstanding balances under warehouse and other
credit lines were $110.5 during the nine months ended March 31, 2000 compared to
$99.2 during the nine months ended March 31, 1999. Average interest rates paid
on subordinated debt increased to 9.67% for the first nine months of fiscal 2000
from 9.31% during the comparable nine-month period. Average rates paid on
subordinated debt for the fiscal 2000 nine-month period increased due to the
factors listed above.
Provision for Credit Losses. The provision for credit losses on
portfolio loans and leases for the third quarter of fiscal 2000 decreased $0.2
million, or 38.9%, to $0.3 million from $0.5 million for the quarter ended March
31, 1999. The decrease was due to decreased net charge-offs in the three months
ended March 31, 2000 which resulted in a lower provision required to maintain
the allowance for credit losses. Net charge-offs were $0.2 million in the three
months ended March 31, 2000 compared to $0.5 million in the three months ended
March 31, 1999. The difference between the two three-month period's charge-offs
was attributable to losses on securitized loans and leases absorbed on our books
in the third quarter of fiscal 1999. The provision for credit losses on
portfolio loans and leases for the nine months ended March 31, 2000 increased
$0.3 million, or 39.6%, to $1.0 million as compared to $0.7 million for the nine
months ended March 31, 1999. The increase in the provision for the nine-month
period was due to the recording of additional reserves for delinquent leases in
the second quarter of fiscal 2000. See "Managed Portfolio Quality - loss
experience" for further detail.
An allowance for credit losses for portfolio loans and leases is
maintained primarily to account for loans and leases that are delinquent and are
expected to be ineligible for sale into a future securitization. The allowance
is calculated based upon management's estimate of the expected collectibility of
loans and leases outstanding based upon a variety of factors, including but not
limited to, periodic analysis of the portfolio, economic conditions and trends,
historical credit loss experience, borrowers ability to repay, and collateral
considerations. Although we maintain an allowance for credit losses at the level
we consider adequate to provide for potential losses, there can be no assurances
that actual losses will not exceed the estimated amounts or that an additional
provision will not be required. The allowance for credit losses was $0.5 million
at March 31, 2000 compared to $0.7 million at June 30, 1999. The changes in the
allowance for credit losses are due primarily to the write off of $1.0 million
of equipment lease receivables in fiscal 2000.
23
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The following table summarizes the changes in the allowance for credit losses by
loan and lease type (in thousands).
<TABLE>
<CAPTION>
Business Home
Purpose Equity Equipment
Three Months Ended March 31, 2000 Loans Loans Leases Total
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 23 $ 160 $ 156 $ 339
Provision for credit losses 108 (12) 235 331
(Charge-offs) recoveries, net (86) -- (115) (201)
------- ------- ------- -------
Balance at end of period $ 45 $ 148 $ 276 $ 469
======= ======= ======= =======
Business Home
Purpose Equity Equipment
Nine Months Ended March 31, 2000 Loans Loans Leases Total
------- ------- ------- -------
Balance at beginning of period $ 26 $ 243 $ 433 $ 702
Provision for credit losses 192 (1) 849 1,040
(Charge-offs) recoveries, net (173) (94) (1,006) (1,273)
------- ------- ------- -------
Balance at end of period $ 45 $ 148 $ 276 $ 469
======= ======= ======= =======
</TABLE>
Charge-offs related to securitized loans and leases are generally
absorbed by securitization trusts. Therefore, in addition to the allowance for
credit losses on portfolio loans and leases, certain assumptions are made
regarding the expected impact of credit losses on the fair value of
interest-only strips and residual interests created in securitizations. See
"Securitization Accounting Considerations" for more information regarding these
credit loss assumptions and "Managed Portfolio Quality - Loss Experience" for
information regarding actual losses.
Sales and Marketing Expenses. For the third quarter of fiscal 2000,
sales and marketing expenses increased $0.3 million, or 4.3%, to $6.1 million
from $5.8 million for the third quarter of fiscal 1999. For the nine months
ended March 31, 2000, sales and marketing expenses increased $4.8 million, or
32.2%, to $19.9 million from $15.1 million for the nine months ended March 31,
1999. The increase for the three and nine-month periods ended March 31, 2000 was
primarily attributable to increases in marketing efforts through targeted direct
mail programs for our loan products. These targeted programs are considered to
be more cost effective than the television and radio advertising campaigns
utilized into the second quarter of fiscal 2000. In addition, we increased the
use of newspaper and periodical advertising to generate additional sales of our
subordinated debt securities. Subject to market conditions, we plan to
selectively increase the funding for advertising in markets where we believe we
can generate significant additional increases in loan originations and sales of
subordinated debt securities.
General and Administrative Expenses. For the third quarter of fiscal
2000, general and administrative expenses increased $4.5 million, or 116.0%, to
$8.3 million from $3.8 million for the third quarter of fiscal 1999. For the
nine months ended March 31, 2000, general and administrative expenses increased
$9.1 million, or 91.3%, to $19.0 million from $9.9 million for the nine months
ended March 31, 1999. The increases were primarily attributable to increases in
rent, telephone, office supplies and equipment, expenses associated with real
estate owned, professional fees, investments in systems and technology and other
expenses incurred as a result of the previously discussed growth in loan
originations, the volume of total loans and leases managed during fiscal 2000
and the continued building of support area infrastructure and Internet
capabilities.
24
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
BALANCE SHEET INFORMATION
Balance Sheet Data:
(in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
------------ ----------
<S> <C> <C>
Cash and cash equivalents $ 45,399 $ 22,395
Loan and lease receivables, net:
Available for sale 33,259 33,776
Other 10,819 6,863
Interest-only and residual strips 258,772 178,218
Receivable for sold loans and leases 62,651 66,086
Servicing rights 66,081 43,210
Total assets 533,757 396,301
Subordinated debt 329,038 211,652
Warehouse lines and other notes payable 57,302 58,691
Total liabilities 467,265 338,055
Total stockholders' equity 66,492 58,246
Book value per common share $ 19.62 $ 16.24
Debt to tangible equity (a) 9.16x 7.83x
Adjusted debt to tangible equity (b) 7.01x 7.01x
Subordinated debt to tangible equity 6.4x 4.9x
Interest-only and residual strips to adjusted tangible equity (c) 2.6x 2.5x
</TABLE>
(a) Total liabilities to tangible equity.
(b) Total liabilities less cash and secured borrowings to tangible equity.
(c) Interest-only and residual strips less overcollateralization interests to
tangible equity plus subordinated debt with a remaining maturity greater
than 5 years.
Total assets increased $137.5 million, or 34.7%, to $533.8 million at
March 31, 2000 from $396.3 million at June 30, 1999 primarily due to increases
in cash, interest-only and residual strips and servicing rights.
Cash increased $23.0 million, or 102.7%, to $45.4 million from $22.4
million due to an increase in sales of subordinated debt during the quarter.
Interest-only and residual strips, which are residual interests created
in connection with securitizations, increased $80.6 million, or 45.2%, to $258.8
million from $178.2 million at June 30, 1999. We completed $711.0 million in
loan securitizations during fiscal 2000, resulting in the recording of $81.9
million of interest-only and residual strips. In addition, for the first nine
months of fiscal 2000, interest accretion and increases in the fair value of
interest-only and residual strips were $11.9 million and $0.5 million,
respectively. These increases were offset by cash flow received during the
nine-month period from securitization trusts of $34.5 million. Cash receipts on
interest-only and residual strips include required purchases of additional
overcollateralization of $20.7 million for the nine months ended March 31, 2000.
Total overcollateralization balances included in interest-only and residual
strips were $69.6 million at March 31, 2000.
Servicing rights increased $22.9 million, or 52.9%, to $66.1 million
from $43.2 million at June 30, 1999, due to the recording of $31.4 million of
mortgage servicing rights obtained in connection with loan securitizations,
partially offset by amortization of servicing rights of $8.6 million for the
nine months ended March 31, 2000.
25
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Total liabilities increased $129.2 million, or 38.2%, to $467.3 million
from $338.1 million at June 30, 1999 due primarily to an increase in
subordinated debt outstanding. For the first nine months of fiscal 2000
subordinated debt increased $117.4 million, or 55.5%, to $329.0 million due to
net sales of subordinated debt used to fund loan originations, the costs of
originating loans, and investments in systems and technology. Subordinated debt
was 6.4 times tangible equity at March 31, 2000, compared to 4.9 times as of
June 30, 1999. See "Liquidity and Capital Resources" for further detail.
26
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Managed Portfolio Quality
The following table provides data concerning delinquency experience,
REO and loss experience for the managed loan and lease portfolio (dollars in
thousands):
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999 September 30, 1999
------------------- -------------------- --------------------
Delinquency by Type Amount % Amount % Amount %
------------ ----- ----------- ----- ----------- -----
<S> <C> <C> <C>
Business Purpose Loans
Total managed portfolio............. $ 205,590 $ 185,820 $ 165,827
============ =========== ===========
Period of delinquency
31-60 days...................... $ 1,302 .63% $ 605 .33% $ 710 .43%
61-90 days...................... 990 .48 1,328 .71 1,165 .70
Over 90 days.................... 10,903 5.30 8,729 4.70 8,732 5.27
------------ ----- ----------- ----- ----------- -----
Total delinquencies............. $ 13,195 6.41% $ 10,662 5.74% $ 10,607 6.40%
============ ===== =========== ===== =========== =====
REO................................. $ 2,314 $ 3,211 $ 3,434
============ =========== ===========
Home Equity Loans
Total managed portfolio............. $ 1,356,772 $ 1,155,438 $ 1,006,075
============ =========== ===========
Period of delinquency
31-60 days...................... $ 5,965 .44% $ 8,272 .72% $ 5,614 .56%
61-90 days...................... 4,814 .35 5,371 .46 4,807 .48
Over 90 days.................... 28,068 2.07 27,505 2.38 20,379 2.02
------------ ----- ----------- ----- ----------- -----
Total delinquencies............. $ 38,847 2.86% $ 41,148 3.56% $ 30,800 3.06%
============ ===== =========== ===== =========== =====
REO................................. $ 12,146 $ 10,221 $ 8,873
============ =========== ===========
Equipment Leases
Total managed portfolio............. $ 134,854 $ 155,282 $ 168,973
============ =========== ===========
Period of delinquency
31-60 days...................... $ 597 .44% $ 612 .39% $ 300 .18%
61-90 days...................... 524 .39 379 .24 236 .14
Over 90 days.................... 885 .66 817 .53 2,011 1.19
------------ ----- ----------- ----- ----------- -----
Total delinquencies............. $ 2,006 1.49% $ 1,808 1.16% $ 2,547 1.51%
============ ===== =========== ===== =========== =====
Combined
Total managed portfolio............. $ 1,697,216 $ 1,496,540 $ 1,340,875
============ =========== ===========
Period of delinquency
31-60 days...................... $ 7,864 .46% $ 9,489 .63% $ 6,624 .50%
61-90 days...................... 6,328 .37 7,078 .47 6,208 .46
Over 90 days.................... 39,856 2.35 37,051 2.48 31,122 2.32
------------ ----- ----------- ----- ----------- -----
Total delinquencies............. $ 54,048 3.18% $ 53,618 3.58% $ 43,954 3.28%
============ ===== =========== ===== =========== =====
REO................................. $ 14,460 .85% $ 13,432 .90% $ 12,307 .92%
============ ===== =========== ===== =========== =====
Losses (recoveries) experienced
during the 3 month
period(a)(b)
Loans........................... $ 751 .21% $ 686 .22% $ 770 .28%
===== ===== =====
Leases.......................... 212 .67% 893 2.62% (9) (.03)%
============ ===== =========== ===== =========== =====
Total managed portfolio......... $ 963 .25% $ 1,579 .46% $ 761 .25%
============ ===== =========== ===== =========== =====
</TABLE>
(a) Percentage based on annualized losses and average managed portfolio.
(b) Losses recorded on our books were $575,000 ($201,000 from charge-offs
through the allowance for credit losses and $374,000 for write-downs of REO).
Losses absorbed by loan securitization trusts were $388,000 for the three months
ended March 31, 2000. Losses recorded on our books were $1.1 million and losses
absorbed by loan securitization trusts were $517,000 for the three months ended
December 31, 1999. Losses recorded on our books were $10,000 and losses absorbed
by securitization trusts were $751,000 for the three months ended September 30,
1999.
27
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Delinquent loans and leases- Total delinquencies (loans and leases with
payments past due greater than 30 days) in the total managed portfolio were
$54.0 million at March 31, 2000 compared to $53.6 million at December 31, 1999
and $44.0 million at September 30, 1999. Total delinquencies as a percentage of
the total managed portfolio (the "delinquency rate") were 3.18% at March 31,
2000 compared to 3.58% at December 31, 1999 and 3.28% at September 30, 1999 on a
total managed portfolio of $1.7 billion at March 31, 2000, $1.5 billion at
December 31, 1999 and $1.3 billion at September 30, 1999. Delinquent loans and
leases in the available for sale portfolio (which are included in total
delinquencies) at March 31, 2000 were $1.0 million, or 3.0%. In addition, at
March 31, 2000, $2.3 million, or 6.9% of portfolio loans were on non-accrual
status. See "Risk Factors" in our Form 10-K for further discussion of risks
associated with potential increases in delinquencies.
Published statistics gathered from a national sample of sub-prime
mortgage companies by the Mortgage Information Corporation, have shown that
delinquency rates averaged 14.39% as of September 1999, as compared to our
current mortgage delinquency rate of 3.33% and September 30, 1999 delinquency
rate of 3.53%. Even when calculating our delinquency rates on a twelve-month
trailing basis, our delinquency rates were 5.3% at March 31, 2000, 6.1% at
December 31, 1999, and 6.2% at September 30, 1999. We believe that our
delinquency rate is in part the result of our centralized credit underwriting
structure, adherence to written underwriting standards and emphasis on
collections. Our collection processes are based on early identification of loans
and leases that have become credit problems, followed by an evaluation and
implementation of appropriate action to work out these loans and leases.
Real estate owned- Total real estate owned ("REO"), comprising
foreclosed properties and deeds acquired in lieu of foreclosure, increased to
$14.5 million, or 0.85% of the total managed portfolio at March 31, 2000
compared to $13.4 million or 0.90% and $12.3 million or 0.92%, respectively, at
December 31, 1999 and September 30, 1999. The increase in the volume of REO
reflects the seasoning of the portfolio and the results of loss mitigation
initiatives of quick repossession of collateral through accelerated foreclosure
processes and "Cash For Keys" programs. Cash for Keys is a program utilized in
certain select situations, when collateral values of loans support the action, a
delinquent borrower may be offered a monetary payment in exchange for the deed
to a property held as collateral for a loan. This process eliminates the need to
initiate a formal foreclosure process, which could take many months.
Included in total REO at March 31, 2000 was $1.8 million recorded in
our financial statements, and $12.7 million in loan securitization trusts.
Property acquired by foreclosure or in settlement of loan and lease receivables
is recorded in our financial statements at the lower of the cost basis in the
loan or fair value of the property less estimated costs to sell.
Loss experience- During the third quarter of fiscal 2000, we
experienced net loan and lease charge-offs in our total managed portfolio of
$1.0 million. On an annualized basis, net loan charge-offs for the third quarter
of fiscal 2000 represent 0.25% of the total managed portfolio. Loss severity
experience on delinquent loans generally has ranged from 5% to 15% of principal
and loss severity experience on REO generally has ranged from 25% to 30% of
principal. The business purpose and home equity loans we originate have average
loan-to-value ratios of 61.0% and 78.0%, respectively, and the predominant share
of our home mortgage products are first liens as opposed to junior lien loans.
We believe these factors may mitigate certain potential losses on our managed
portfolio.
28
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The following table summarizes the cumulative net loss experience by loan
securitization trusts. Net losses (net recoveries)
<TABLE>
<CAPTION>
Cumulative Losses Original Pool Balance
(in thousands) (in millions) Cumulative Loss Percentage
----------------------------------- ------------------------------------ ---------------------------------
Business Home Business Home Business Home Combined
Trust Purpose Equity Combined Purpose Equity Combined Purpose Equity Combined Annualized
- ---------- ---------- --------- ----------- ----------- ----------- ------------ ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996-1 $ 69 $ 11 $ 80 $ 13 $ 9 $ 22 0.53% 0.12% 0.36% 0.09%
1996-2 218 88 306 16 24 40 1.36 0.37 0.77 0.24
1997-1 104 302 406 22 53 75 0.47 0.57 0.54 0.18
1997-2 (8) 353 345 23 77 100 (0.03) 0.46 0.35 0.13
1998-1 139 417 556 16 89 105 0.87 0.47 0.53 0.25
1998-2 - 389 389 15 105 120 - 0.37 0.32 0.18
1998-3 - 157 157 17 183 200 - 0.09 0.08 0.05
1998-4 (27) 218 191 9 71 80 (0.30) 0.31 0.24 0.17
1999-1 41 12 53 16 169 185 0.26 0.01 0.03 0.03
1999-2 (23) 4 (19) 30 190 220 (0.08) - (0.01) (0.01)
1999-3 - 10 10 28 194 222 - 0.01 - 0.01
1999-4 - - - 25 197 222 - - - -
------- ---------- ----------- -------- ---------- ---------
$ 513 $ 1,961 $ 2,474 $ 230 $ 1,361 $ 1,591
======= ========== =========== ======== ========== =========
</TABLE>
Weighted average cumulative loss percentages for all securitization trusts:
Business purpose 0.22%
Home equity 0.14%
Combined 0.16%
The expected impact of credit losses for delinquent loans, leases and
REO property held by securitization trusts are reflected through assumptions for
credit losses used in the estimation of the fair value of our interest-only and
residual strips and servicing rights. (See "Securitization Accounting
Considerations" for further information regarding these assumptions.)
29
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
INTEREST RATE RISK MANAGEMENT
A primary market risk exposure that we face is interest rate risk.
Profitability and financial performance is sensitive to changes in U.S. Treasury
yields, LIBOR yields and the spread between the effective rate of interest
received on loans and leases available for sale or securitized (generally fixed
interest rates) and the interest rates paid pursuant to credit facilities or the
pass-through rate to investors for interests issued in connection with
securitizations. A substantial and sustained increase in market interest rates
could adversely affect our ability to originate and purchase loans. The overall
objective of our interest rate risk management strategy is to mitigate the
effects of changing interest rates on profitability and the fair value of
interest rate sensitive balances (primarily loans and leases available for sale,
interest-only strips, servicing rights and subordinated debt).
Due to the current rising interest rate environment, we expect the
challenge to originate loans at rates that will maintain our current level of
profitability will increase. In addition, recent movements in market interest
rates may negatively impact the profitability of our securitizations due to
increases in rates demanded in the asset backed securities markets. We are
continuously monitoring market rate fluctuations, our product pricing, actions
of our competition and market trends in order to best manage these changes and
maintain our current profitability on loan originations and securitizations.
Loans and Leases Available for Sale - Gain on sale of loans and leases
may be unfavorably impacted to the extent fixed-rate mortgage loans or leases in
the available for sale portfolio are held prior to securitization. A significant
variable affecting the gain on sale of loans and leases in a securitization is
the spread between the average coupon rate on fixed rate loans and leases, and
the weighted average pass-through rate to investors for interests issued in
connection with the securitization. Although the average loan and lease coupon
rate is fixed at the time the loan or lease is originated, the pass-through rate
to investors is not fixed until the pricing of the securitization which occurs
just prior to the sale of the loans and leases. Therefore, if market rates
required by investors increase prior to securitization of the loans and leases,
the spread between the average coupon rate on the loans and leases and the
pass-through rate to investors may be reduced or eliminated.
Hedging strategies may be utilized in an attempt to mitigate the effect
of changes in interest rates on fixed-rate loan and lease portfolios between the
date of origination and the date of securitization. These strategies include the
utilization of derivative financial instruments such as futures and forward
pricing on securitizations. The nature and quality of hedging transactions are
determined based on various factors, including market conditions and the
expected volume of mortgage loan and lease originations and purchases. The gain
or loss derived from these hedging transactions is deferred and recognized as an
adjustment to the gain on sale of loans and leases when the loans and leases are
securitized. During the three month and nine month periods ended March 31, 2000,
respectively, cash losses of $0.2 million and cash gains of $0.8 million were
incurred on hedging transactions (futures contracts), and were recognized as a
component of the gain on sale recorded on securitizations during the periods. At
March 31, 2000 we had open hedge contracts for the short-sale of $50.0 million
of U.S. Treasury securities. Unrealized losses on these contracts were $0.2
million at period end.
In the future, we intend to expand the types of derivative financial
instruments we use to hedge interest rate risk. The U.S. Treasury Department has
embarked on a repurchase program as a result of budget surpluses resulting in
less liquidity in the Treasury market. The asset backed security market is
moving toward pricing that is based on the Eurodollar and the interest rate swap
markets. As a result, we plan to incorporate Eurodollar futures and interest
rate swaps as part of our future hedging strategy. We believe the correlation
between hedging instruments and securitization pricing will strengthen under
this new pricing convention.
We may use hedging in an attempt to mitigate the effect of changes in
market value of fixed-rate mortgage loans held for sale. However, an effective
interest rate risk management strategy is complex and no such strategy can
completely insulate us from interest rate changes. Poorly designed strategies or
improperly executed transactions may increase rather than mitigate risk. In
addition, hedging involves transaction and other costs. Such costs could
increase as the period covered by the hedging protection increases. It is
expected that such loss would be offset by income realized from securitizations
in that period or in future periods. As a result, we may be prevented from
effectively hedging fixed-rate loans held for sale, without reducing income in
current or future periods due to the costs associated with hedging activities.
Interest-only and Residual Strips and Servicing Rights - A portion of
the certificates issued to investors by securitization trusts are floating
interest rate certificates based on one-month LIBOR plus a spread. The fair
value of the excess cash flow we will receive from these trusts would be
affected by any changes in rates paid on the floating rate certificates. At
March 31, 2000, $143.6 million of debt issued by loan securitization trusts was
floating rate debt based on LIBOR, representing 9.38% of total debt issued by
loan securitization trusts. From December 31, 1999 to March 31, 2000 increases
in one-month LIBOR resulted in a decrease in the fair value of our interest-only
and residual strips of $0.1 million.
30
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Decreases for the nine months ended March 31, 2000 were $2.9 million. In
accordance with generally accepted accounting principles, the changes in fair
value were recognized as part of net adjustments to other comprehensive income,
which is a component of retained earnings.
A significant decline in market interest rates could increase the level
of loan prepayments, thereby decreasing the size of the total managed loan and
lease portfolio and the related projected cash flows. Higher than anticipated
rates of loan prepayments could require a write down of the fair value of the
related interest-only and residual strips and servicing rights, adversely
impacting earnings during the period of adjustment. Revaluation of our
interest-only and residual strips and servicing rights are periodically
performed. As part of the revaluation process, assumptions used for prepayment
rates are monitored against actual experience and adjusted if warranted. It is
estimated that a 100 basis point increase in prepayment rates would decrease the
fair value of interest-only and residual strips by approximately $6.8 million
and the fair value of servicing rights by approximately $1.6 million.
We attempt to minimize prepayment risk on interest-only strips and
servicing rights by requiring prepayment fees on business purpose loans and home
equity loans, where permitted by law. Currently, approximately 95% of business
purpose loans and 80% of home equity loans we originate are subject to
prepayment fees. In addition, we have found that credit impaired borrowers are
less sensitive to interest rates than monthly payments, further reducing
prepayment expectations.
Subordinated Debt - We also experience interest rate risk to the extent
that as of March 31, 2000 approximately $149.9 million of our liabilities were
comprised of fixed rate subordinated debt with scheduled maturities of greater
than one year. To the extent that market interest rates demanded for
subordinated debt increase in the future, the rates paid on replacement debt
could exceed rates currently paid thereby increasing interest expense and
reducing net income.
LIQUIDITY AND CAPITAL RESOURCES
Our business requires continual access to short and long-term sources
of debt financing. Our cash requirements include the funding of loan and lease
originations, payment of interest expense, funding of over-collaterization
requirements in connection with our securitizations, payment of operating
expenses and funding of capital expenditures. We rely on borrowings such as
subordinated debt and warehouse credit facilities to fund these business
activities. At March 31, 2000, a total of $329.0 million of subordinated debt
was outstanding, and credit facilities totaling $323.1 million were available,
of which $81.8 million was drawn upon.
We continue to significantly rely on access to the asset-backed
securities market through securitizations to generate cash proceeds for the
repayment of debt and to fund our ongoing operations. As a result of the terms
of the securitizations, we will receive less cash flow from the portfolios of
loans and leases securitized than we would otherwise receive absent
securitizations. Additionally, pursuant to the terms of the securitizations, we
act as the servicer of the loans and leases we securitize and in that capacity
are obligated to advance funds in certain circumstances which may create greater
demands on our cash flow than either selling loans with servicing released or
maintaining a portfolio of loans and leases.
A significant portion of our loan originations are non-conforming
mortgages to subprime borrowers. Certain participants in the non-conforming
mortgage industry have experienced greater than anticipated losses on their
securitization residual interests due to the effects of increased credit losses
and increased prepayment rates, resulting in some competitors exiting the
business or recording valuation allowances or write-downs for these conditions.
As a result, some participants experienced restricted access to capital required
to fund loan originations, and have been precluded from participation in the
asset-backed securitization market. However, we have maintained our ability to
obtain funding and to securitize loans and leases. Factors that have minimized
the effect of adverse market conditions on our business include our ability to
originate loans and leases through established retail channels, focus on credit
underwriting, assessment of prepayment fees on loans, diversification of lending
in the home equity and business loan markets and the ability to raise capital
through sales of subordinated debt securities pursuant to a registered public
offering.
31
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Subject to economic, market and interest rate conditions, we intend to continue
to transact additional securitizations of our loan portfolio. Any delay or
impairment in our ability to securitize loans and leases, as a result of market
conditions or otherwise, could adversely affect our results of operations.
To a limited extent, we intend to continue to augment the interest and
fee income earned on loan and lease portfolios by selling loans and leases
either at the time of origination or from our portfolio to unrelated third
parties. These transactions also create additional liquid funds available for
lending activities.
Subordinated Debt Securities - During the third quarter of fiscal 2000,
we sold $62.8 million in principal amount of subordinated debt securities, net
of redemptions, with maturities ranging between one day and ten years. As of
March 31, 2000, $329.0 million of subordinated debt was outstanding. Under a
shelf registration statement declared effective by the Securities and Exchange
Commission on October 15, 1999, we registered $300.0 million of subordinated
debt, of which $170.0 million was available for future issuance at March 31,
2000. The proceeds from sales of subordinated debt securities will be used to
fund general operating and lending activities. We intend to meet our obligation
to repay such debt as it matures with income from operations, including
securitization or sale of loans or leases, cash flows from interest-only and
residual strips, working capital and cash generated from additional debt
financing. The utilization of funds for the repayment of such obligations should
not adversely affect operations.
Credit Facilities - The following is a description of the warehouse and
other credit facilities utilized to fund the origination of loans and leases
prior to securitization and for other operating purposes as of March 31, 2000.
All of these facilities are senior in right of payment to our subordinated debt
(in thousands).
<TABLE>
<CAPTION>
Amount Amount
Committed Utilized
---------- ---------
<S> <C> <C>
Warehouse revolving line of credit, expiring August 2000: $ 150,000
On balance sheet warehouse facility $ 4,493
Off balance sheet conduit facility 21,407
Warehouse revolving line of credit, expiring October 2000 150,000 31,774
---------- ----------
Total warehouse facilities 300,000 57,674
---------- ----------
Revolving line of credit, expiring December 2000 5,000 5,000
Repurchase agreement 4,677 4,677
Commercial paper conduit for lease production, maturity matches
underlying leases 13,401
On balance sheet lease funding facility 10,659
Off balance sheet conduit facility 2,742
---------- ----------
Total credit facilities $ 323,078 $ 81,752
========== ==========
</TABLE>
The warehouse revolving lines of credit are secured by loan and lease
receivables. The other credit facilities are secured with certain residual
interests in securitization trusts. The warehouse credit agreements require that
we maintain specific covenants regarding net worth, leverage and other
standards. At March 31, 2000, we are in compliance with the terms of all loan
covenants.
In March of 2000 one of our warehouse lines of credit was amended to
provide for the sale of loans into an off balance sheet conduit facility. In
March 2000, $21.4 million of loans were sold to this facility.
32
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Any failure to renew or obtain adequate funding under a warehouse
credit facility, or other borrowings, or any substantial reduction in the size
or pricing in the markets for loans could have a material adverse effect on our
results of operations and financial condition. To the extent we are not
successful in maintaining or replacing existing financing, we may have to
curtail our loan production activities or sell loans rather than securitize
them, which would have a material adverse effect on our results of operations
and financial condition.
We lease our corporate headquarters in Bala Cynwyd, PA under an
operating lease expiring in January 2003 at a minimum annual rental of
approximately $2.2 million. We also lease a facility in Roseland, New Jersey
under an operating lease expiring July 2003 at an annual rental of $0.8 million.
The corporate headquarters and Roseland leases have a renewal provision at an
increased annual rental.
Year 2000 Update
Prior to December 31, 2000 the Company had performed certain activities
to ensure our information technology systems and those of our significant
vendors were Year 2000 compliant. Since January 1, 2000 there have been no
disruptions to our operations due to Year 2000 related events.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Interest Rate Risk Management". Additional quantitative
and qualitative disclosures regarding market risk are contained in the Company's
Form 10-K for the fiscal year ended June 30, 1999.
33
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Agreement
- ------ ------------------------
10.l 2000-1 Securitization Agreement - the Sale and Servicing Agreement,
dated as of March 1, 2000, by and among Prudential Securities Secured
Financing Corporation, ABFS Mortgage Loan Trust 2000-1, Chase Bank of
Texas, N.A., as collateral agent, The Chase Manhattan Bank, as
indenture trustee and American Business Credit, Inc., as servicer.
10.2 The Sale and Servicing Agreement dated as of March 1, 2000 by and Among
ABFS Millenium, Inc., as Depositor, American Business Credit, Inc.,
HomeAmerican Credit, Inc., d/b/a Upland Mortgage and New Jersey
Mortgage and Investment Corp., as Originators, American Business
Financial Services, Inc., as Guarantor, ABFS Mortgage Loan Warehouse
Trust, as Issuer, American Business Credit, Inc., as Servicer, and The
Chase Manhattan Bank, as Indenture Trustee and Collateral Agent.
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended March 31,
2000.
34
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
DATE: May 12, 2000 BY: /s/ Albert W. Mandia
---------------------------------------------------
Albert W. Mandia
Executive Vice President and Chief Financial Officer
35
<PAGE>
American Business Financial Services, Inc. and Subsidiaries
Exhibit Index
Exhibit
Number Description of Agreement
- ------ ------------------------
10.l 2000-1 Securitization Agreement - the Sale and Servicing Agreement,
dated as of March 1, 2000, by and among Prudential Securities Secured
Financing Corporation, ABFS Mortgage Loan Trust 2000-1, Chase Bank of
Texas, N.A., as collateral agent, The Chase Manhattan Bank, as
indenture trustee and American Business Credit, Inc., as servicer.
10.2 The Sale and Servicing Agreement dated as of March 1, 2000 by and Among
ABFS Millenium, Inc., as Depositor, American Business Credit, Inc.,
HomeAmerican Credit, Inc., d/b/a Upland Mortgage and New Jersey
Mortgage and Investment Corp., as Originators, American Business
Financial Services, Inc., as Guarantor, ABFS Mortgage Loan Warehouse
Trust, as Issuer, American Business Credit, Inc., as Servicer, and The
Chase Manhattan Bank, as Indenture Trustee and Collateral Agent.
27 Financial Data Schedule
36
<PAGE>
SALE AND SERVICING AGREEMENT
dated as of March 1, 2000
by and among
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION,
as Depositor,
ABFS MORTGAGE LOAN TRUST 2000-1,
as Issuer,
AMERICAN BUSINESS CREDIT, INC.,
as Servicer,
CHASE BANK OF TEXAS, N.A.,
as Collateral Agent,
and
THE CHASE MANHATTAN BANK,
as Indenture Trustee
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I DEFINITIONS 1
<S> <C> <C>
Section 1.01. Certain Defined Terms............................................................................1
Section 1.02. Provisions of General Application................................................................1
Section 1.03. Business Day Certificate.........................................................................2
ARTICLE II SALE AND CONVEYANCE OF THE MORTGAGE LOANS..............................................................2
Section 2.01. Purchase and Sale of Initial Mortgage Loans......................................................2
Section 2.02. Purchase and Sale of Subsequent Mortgage Loans...................................................3
Section 2.03. Purchase Price...................................................................................3
Section 2.04. Possession of Mortgage Files; Access to Mortgage Files...........................................4
Section 2.05. Delivery of Mortgage Loan Documents..............................................................4
Section 2.06. Acceptance of the Trust Estate; Certain Substitutions; Certification by the Collateral Agent.....7
Section 2.07. Grant of Security Interest.......................................................................9
Section 2.08. Further Action Evidencing Assignments...........................................................10
Section 2.09. Assignment of Agreement.........................................................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES.......................................................................10
Section 3.01. Representations of the Servicer.................................................................10
Section 3.02. Representations, Warranties and Covenants of the Depositor......................................12
Section 3.03. Representations, Warranties and Covenants of the Collateral Agent...............................13
Section 3.04. Representations, Warranties and Covenants of the Indenture Trustee..............................13
ARTICLE IV THE MORTGAGE LOANS....................................................................................14
Section 4.01. Representations and Warranties Concerning the Mortgage Loans....................................14
Section 4.02. Purchase and Substitution.......................................................................14
ARTICLE V ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS.....................................................16
Section 5.01. The Servicer....................................................................................16
Section 5.02. Collection of Certain Mortgage Loan Payments; Collection Account................................17
Section 5.03. Permitted Withdrawals from the Collection Account...............................................18
Section 5.04. Hazard Insurance Policies; Property Protection Expenses.........................................19
Section 5.05. Assumption and Modification Agreements..........................................................20
Section 5.06. Realization Upon Defaulted Mortgage Loans.......................................................20
Section 5.07. Indenture Trustee to Cooperate..................................................................22
Section 5.08. Servicing Compensation; Payment of Certain Expenses by Servicer.................................22
Section 5.09. Annual Statement as to Compliance...............................................................22
Section 5.10. Annual Independent Public Accountants' Servicing Report.........................................23
Section 5.11. Access to Certain Documentation.................................................................23
Section 5.12. Maintenance of Fidelity Bond....................................................................23
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 5.13. The Subservicers................................................................................23
Section 5.14. Reports to the Indenture Trustee; Collection Account Statements.................................24
Section 5.15. Optional Purchase of Defaulted Mortgage Loans...................................................24
Section 5.16. Reports to be Provided by the Servicer..........................................................25
Section 5.17. Adjustment of Servicing Compensation in Respect of Prepaid Mortgage Loans.......................26
Section 5.18. Periodic Advances; Special Advance..............................................................26
Section 5.19. Indemnification; Third Party Claims.............................................................27
Section 5.20. Maintenance of Corporate Existence and Licenses; Merger or Consolidation of the Servicer........28
Section 5.21. Assignment of Agreement by Servicer; Servicer Not to Resign.....................................29
Section 5.22. Periodic Filings with the Securities and Exchange Commission; Additional Information............29
ARTICLE VI APPLICATION OF FUNDS..................................................................................29
Section 6.01. Deposits to the Payment Account.................................................................29
Section 6.02. Collection of Money.............................................................................30
Section 6.03. Application of Principal and Interest...........................................................30
Section 6.04. Information Concerning the Mortgage Loans.......................................................30
Section 6.05. Compensating Interest...........................................................................30
Section 6.06. Effect of Payments by the Note Insurer; Subrogation.............................................30
ARTICLE VII SERVICER DEFAULT.....................................................................................31
Section 7.01. Servicer Events of Default......................................................................31
Section 7.02. Indenture Trustee to Act; Appointment of Successor..............................................33
Section 7.03. Waiver of Defaults..............................................................................35
Section 7.04. Rights of the Note Insurer to Exercise Rights of the Noteholders................................35
Section 7.05. Indenture Trustee To Act Solely with Consent of the Note Insurer................................36
Section 7.06. Mortgage Loans, Trust Estate and Accounts Held for Benefit of the Note Insurer..................36
Section 7.07. Note Insurer Default............................................................................36
ARTICLE VIII TERMINATION.........................................................................................37
Section 8.01. Termination.....................................................................................37
Section 8.02. Additional Termination Requirements.............................................................38
Section 8.03. Accounting Upon Termination of Servicer.........................................................38
ARTICLE IX THE COLLATERAL AGENT..................................................................................38
Section 9.01. Duties of the Collateral Agent..................................................................38
Section 9.02. Certain Matters Affecting the Collateral Agent..................................................40
Section 9.03. Collateral Agent Not Liable for Notes or Mortgage Loans.........................................41
Section 9.04. Collateral Agent May Own Notes..................................................................41
Section 9.05. Collateral Agent's Fees and Expenses; Indemnity.................................................41
Section 9.06. Eligibility Requirements for Collateral Agent...................................................42
Section 9.07. Resignation and Removal of the Collateral Agent.................................................42
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 9.08. Successor Collateral Agent......................................................................42
Section 9.09. Merger or Consolidation of Collateral Agent.....................................................43
ARTICLE X MISCELLANEOUS PROVISIONS...............................................................................43
Section 10.01. Limitation on Liability........................................................................43
Section 10.02. Acts of Noteholders............................................................................44
Section 10.03. Amendment......................................................................................44
Section 10.04. Recordation of Agreement.......................................................................45
Section 10.05. Duration of Agreement..........................................................................45
Section 10.06. Notices........................................................................................45
Section 10.07. Severability of Provisions.....................................................................46
Section 10.08. No Partnership.................................................................................46
Section 10.09. Counterparts...................................................................................46
Section 10.10. Successors and Assigns.........................................................................46
Section 10.11. Headings.......................................................................................46
Section 10.12. The Note Insurer Default.......................................................................47
Section 10.13. Third Party Beneficiary........................................................................47
Section 10.14. Intent of the Parties..........................................................................47
Section 10.15. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL...................................47
</TABLE>
EXHIBITS
EXHIBIT A Contents of the Mortgage File
EXHIBIT B Indenture Trustee's Acknowledgement of Receipt
EXHIBIT C Collateral Agent's Acknowledgement of Receipt
EXHIBIT D Initial Certification of Collateral Agent
EXHIBIT E Final Certification of Collateral Agent
EXHIBIT F Request for Release of Documents
EXHIBIT G Form of Subsequent Contribution Agreement
SCHEDULES
SCHEDULE I Mortgage Loan Schedule
(iii)
<PAGE>
SALE AND SERVICING AGREEMENT, dated as of March 1, 2000 (this
"Agreement"), by and among PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION,
a Delaware corporation, as depositor (the "Depositor"), ABFS MORTGAGE LOAN TRUST
2000-1, a Delaware statutory business trust, as issuer (the "Trust"), AMERICAN
BUSINESS CREDIT, INC., a Pennsylvania corporation, as servicer (the "Servicer"),
CHASE BANK OF TEXAS, N.A., a national banking association, as collateral agent
(the "Collateral Agent"), and THE CHASE MANHATTAN BANK, a New York banking
corporation, as indenture trustee (the "Indenture Trustee").
W I T N E S S E T H
WHEREAS, the Depositor desires to sell to the Trust, and the
Trust desires to purchase from the Depositor, the mortgage loans (the "Mortgage
Loans") listed on Schedule I to this Agreement;
WHEREAS, immediately after such purchase, the Trust will
pledge such Mortgage Loans to the Indenture Trustee pursuant to the terms of an
Indenture, dated as of March 1, 2000 (the "Indenture"), between the Trust and
the Indenture Trustee, and issue the ABFS Mortgage Loan Trust 2000-1, Mortgage
Backed Notes (the "Notes");
WHEREAS, the Servicer has agreed to service the Mortgage
Loans, which constitute the principal assets of the Trust;
WHEREAS, the Collateral Agent will hold, on behalf of the
Indenture Trustee, the Mortgage Loans and certain other assets pledged to the
Indenture Trustee pursuant to the Indenture; and
WHEREAS, Ambac Assurance Corporation (the "Note Insurer") is
intended to be a third-party beneficiary of this Agreement, and is hereby
recognized by the parties hereto as a third-party beneficiary of this Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein contained, the Trust, the Depositor, the Servicer, the
Collateral Agent and the Indenture Trustee hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. Capitalized terms used
herein but not defined herein shall have the meanings ascribed to such terms in
Appendix I attached hereto.
Section 1.02. Provisions of General Application. (a) All
accounting terms not specifically defined herein shall be construed in
accordance with GAAP.
(b) The terms defined herein and in Appendix I to the
Indenture include the plural as well as the singular.
1
<PAGE>
(c) The words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole. All references to
Articles and Sections shall be deemed to refer to Articles and Sections of this
Agreement.
(d) Any reference to statutes are to be construed as including
all statutory provisions consolidating, amending or replacing the statute to
which reference is made and all regulations promulgated pursuant to such
statutes.
(e) All calculations of interest with respect to the Class A-1
Notes provided for herein shall be made on the basis of a 360-day year
consisting of twelve 30-day months. All calculations of interest with respect to
the Class A-2 Notes provided for herein shall be on the basis of a 360-day year
and the actual number of days elapsed in the related Accrual Period. All
calculations of interest with respect to any Mortgage Loan provided for herein
shall be made in accordance with the terms of the related Mortgage Note and
Mortgage or, if such documents do not specify the basis upon which interest
accrues thereon, on the basis of a 360-day year consisting of twelve 30-day
months, to the extent permitted by applicable law.
(f) Any Mortgage Loan payment is deemed to be received on the
date such payment is actually received by the Servicer; provided, however, that,
for purposes of calculating payments on the Notes, prepayments with respect to
any Mortgage Loan are deemed to be received on the date they are applied in
accordance with Accepted Servicing Practices consistent with the terms of the
related Mortgage Note and Mortgage to reduce the outstanding Principal Balance
of such Mortgage Loan on which interest accrues.
Section 1.03. Business Day Certificate. On the Closing Date
(with respect to the calendar year 2000) and thereafter, within fifteen (15)
days prior to the end of each calendar year while this Agreement remains in
effect (with respect to the succeeding calendar years), the Servicer shall
provide to the Indenture Trustee and the Collateral Agent a certificate of a
Servicing Officer specifying the days on which banking institutions in the
Commonwealth of Pennsylvania are authorized or obligated by law, executive order
or governmental decree to be closed.
ARTICLE II
SALE AND CONVEYANCE OF THE MORTGAGE LOANS
Section 2.01. Purchase and Sale of Initial Mortgage Loans. The
Depositor does hereby sell, transfer, assign, set over and convey to the Trust,
without recourse, but subject to the terms and provisions of this Agreement, all
of the right, title and interest of the Depositor in and to the Initial Mortgage
Loans, including the outstanding principal of, and interest due on, such Initial
Mortgage Loans listed on Schedule I attached hereto, and all other assets
included or to be included in the Trust Estate. In connection with such transfer
and assignment, and pursuant to Section 2.07 of the Unaffiliated Seller's
Agreement, the Depositor does hereby also irrevocably transfer, assign, set over
and otherwise convey to the Trust all of its rights under the Unaffiliated
Seller's Agreement, including, without limitation, its right to exercise the
remedies created by Sections 2.06 and 3.05 of the Unaffiliated Seller's
Agreement for defective documentation and for breaches of representations and
warranties, agreements and covenants of the Unaffiliated Seller and the
Originators contained in Sections 3.01, 3.02 and 3.03 of the Unaffiliated
Seller's Agreement.
2
<PAGE>
Section 2.02. Purchase and Sale of Subsequent Mortgage Loans.
(a) Subject to the satisfaction of the conditions set forth in Section 2.14(b)
of the Indenture, in consideration of the Trust's delivery on the related
Subsequent Transfer Dates to or upon the order of the Depositor of all or a
portion of the balance of funds in the related Pre-Funding Account, the
Depositor shall on any Subsequent Transfer Date sell, transfer, assign, set over
and convey to the Trust without recourse, but subject to terms and provisions of
this Agreement, all of the right, title and interest of the Depositor in and to
the Subsequent Mortgage Loans in the related Pool, including the outstanding
principal of, and interest due on, such Subsequent Mortgage Loans, and all other
assets included or to be included in the Trust Estate. In connection with such
transfer and assignment, and pursuant to Section 2.07 of the Unaffiliated
Seller's Agreement, the Depositor will also irrevocably transfer, assign, set
over and otherwise convey to the Trust all of its rights under the Unaffiliated
Seller's Agreement and the related Subsequent Transfer Agreement, including,
without limitation, its right to exercise the remedies created by Sections 2.06
and 3.05 of the Unaffiliated Seller's Agreement for defective documentation and
for breaches of representations and warranties, agreements and covenants of the
Unaffiliated Seller and the Originators contained in Sections 3.01, 3.02 and
3.03 of the Unaffiliated Seller's Agreement.
The amount released from a Pre-Funding Account with respect to
a transfer of Subsequent Mortgage Loans to the related Pool shall be one-hundred
percent (100%) of the Aggregate Principal Balances of the Subsequent Mortgage
Loans so transferred, as of the related Subsequent Cut-Off Date.
(b) In connection with the transfer and assignment of the
Subsequent Mortgage Loans to the Trust, the Depositor shall cause the
Unaffiliated Seller to satisfy the document delivery requirements set forth in
Section 2.05 hereof.
(c) For any Subsequent Mortgage Loan that has a first Due Date
that occurs later than the last day of the Due Period following the Due Period
in which the Subsequent Mortgage Loan was sold to the Trust, on each applicable
Servicer Payment Date, the Servicer will deposit into the Payment Account 30
days' interest at the related Mortgage Interest Rate, net of the Servicing Fee,
for each month after the month in which the Subsequent Transfer occurs until,
but not including, the month in which such first Due Date occurs.
Section 2.03. Purchase Price. On the Closing Date, as full
consideration for the Depositor's sale of the Initial Mortgage Loans to the
Trust, the Underwriter, on behalf of the Trust, will deliver to, or at the
direction of, the Depositor (i) an amount in cash equal to the sum of (A) 99.70%
and 99.70% of the Original Note Principal Balance as of the Closing Date of the
Class A-1 Notes and the Class A-2 Notes, respectively, plus (B) accrued interest
on the Original Note Principal Balance of the Class A-1 Notes at the rate of
7.925% per annum from (and including) March 1, 2000 to (but not including) the
Closing Date, minus (C) the Original Pre-Funded Amount and the Original
Capitalized Interest Amount with respect to each Class of Notes, payable by wire
transfer of same day funds, and (ii) the Trust Certificates to be issued
pursuant to the Trust Agreement.
3
<PAGE>
Section 2.04. Possession of Mortgage Files; Access to Mortgage
Files. (a) Upon the receipt by the Depositor, or its designee, of the purchase
price for the Initial Mortgage Loans set forth in Section 2.03 hereof and the
issuance of the Notes pursuant to the Indenture, the ownership of each Mortgage
Note, each Mortgage and the contents of the Mortgage File related to each
Initial Mortgage Loan will be vested in the Trust, and will be pledged to the
Indenture Trustee, for the benefit of the Noteholders and the Note Insurer.
(b) Pursuant to Section 2.05 hereof and Section 2.05 of the
Unaffiliated Seller's Agreement, the Unaffiliated Seller has delivered or caused
to be delivered the Indenture Trustee's Mortgage File related to each Initial
Mortgage Loan to the Collateral Agent, on behalf of the Indenture Trustee.
(c) The Collateral Agent will be the custodian, on behalf of
the Indenture Trustee, to hold the Indenture Trustee's Mortgage Files in trust
for the benefit of all present and future Noteholders and the Note Insurer. In
the event the Collateral Agent resigns or is removed, the Indenture Trustee
shall either (x) hold the Indenture Trustee's Mortgage Files, or (y) appoint a
successor Collateral Agent to hold the Indenture Trustee's Mortgage Files as set
forth in Section 9.08 hereof.
(d) The Collateral Agent shall afford the Depositor, the
Trust, the Note Insurer and the Servicer reasonable access to all records and
documentation regarding the Mortgage Loans relating to this Agreement, such
access being afforded at customary charges, upon reasonable prior written
request and during normal business hours at the offices of the Collateral Agent.
Section 2.05. Delivery of Mortgage Loan Documents. (a) In
connection with the transfer and assignment of the Mortgage Loans, the Depositor
shall on or before the Closing Date, with respect to the Initial Mortgage Loans,
and shall on or before the Subsequent Transfer Date with respect to Subsequent
Mortgage Loans, deliver, or cause the Unaffiliated Seller to deliver, to the
Collateral Agent, on behalf of the Indenture Trustee (as pledgee of the Trust
pursuant to the Indenture), the following documents or instruments with respect
to each Mortgage Loan so transferred or assigned:
(i) the original Mortgage Note, endorsed without recourse
in blank by the related Originator, including all intervening
endorsements showing a complete chain of endorsement;
(ii) the related original Mortgage with evidence of
recording indicated thereon or a copy thereof certified by the
applicable recording office;
(iii)the recorded mortgage assignment, or copy thereof
certified by the applicable recording office, if any, showing a
complete chain of assignment from the originator of the related
Mortgage Loan to the related Originator (which assignment may, at such
Originator's option, be combined with the assignment referred to in
subpart (iv) hereof, in which case it must be in recordable form, but
need not have been previously recorded);
4
<PAGE>
(iv) a mortgage assignment in recordable form (which, if
acceptable for recording in the relevant jurisdiction, may be included
in a blanket assignment or assignments) of each Mortgage from the
related Originator to the Indenture Trustee;
(v) originals of all assumption, modification and
substitution agreements in those instances where the terms or
provisions of a Mortgage or Mortgage Note have been modified or such
Mortgage or Mortgage Note has been assumed; and
(vi) an original title insurance policy (or (A) a copy of
the title insurance policy, or (B) a binder thereof or copy of such
binder together with a certificate from the related Originator that the
original Mortgage has been delivered to the title insurance company
that issued such binder for recordation).
In instances where the original recorded Mortgage and a
completed assignment thereof in recordable form cannot be delivered by the
related Originator to the Unaffiliated Seller, and by the Unaffiliated Seller to
the Collateral Agent, on behalf of the Indenture Trustee prior to or
concurrently with the execution and delivery of this Agreement (or, with respect
to Subsequent Mortgage Loans, prior to or on the related Subsequent Transfer
Date), due to a delay in connection with recording, the related Originator may:
(x) in lieu of delivering such original recorded Mortgage,
deliver to the Collateral Agent, on behalf of the Indenture Trustee, a copy
thereof; provided, that the related Originator 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; and
(y) in lieu of delivering the completed assignment in
recordable form, deliver to the Collateral Agent, on behalf of the Indenture
Trustee, the assignment in recordable form, otherwise complete except for
recording information.
The Collateral Agent, at the direction and authority of the
parties to this Agreement, on behalf of the Indenture Trustee, shall promptly
upon receipt thereof, with respect to each Mortgage Note described in Section
2.05(a)(i) hereof and each assignment described in Section 2.05(a)(iv) hereof,
endorse such Mortgage Note and assignment as follows: "The Chase Manhattan Bank,
as Indenture Trustee under the Indenture dated as of March 1, 2000, ABFS
Mortgage Loan Trust 2000-1."
(b) As promptly as practicable, but in any event within thirty
(30) days from the Closing Date or the Subsequent Transfer Date, as applicable,
the Unaffiliated Seller shall promptly submit, or cause to be submitted by the
related Originator, for recording in the appropriate public office for real
property records, each assignment referred to in Section 2.05(a)(iv). The
Collateral Agent, on behalf of the Indenture Trustee, shall retain a copy of
each assignment submitted for recording. In the event that any such assignment
is lost or returned unrecorded because of a defect therein, the Unaffiliated
Seller or such Originator shall promptly prepare a substitute assignment or cure
such defect, as the case may be, and thereafter the Unaffiliated Seller or such
Originator shall submit each such assignment for recording. The costs relating
to the delivery and recordation of the documents in connection with the Mortgage
Loans as specified in this Article II shall be borne by the Unaffiliated Seller.
5
<PAGE>
(c) The Unaffiliated Seller or the related Originator shall,
within five (5) Business Days after the receipt thereof, deliver, or cause to be
delivered, to the Collateral Agent, on behalf of the Indenture Trustee: (i) the
original recorded Mortgage and related power of attorney, if any, in those
instances where a copy thereof certified by the related Originator was delivered
to the Collateral Agent, on behalf of the Indenture Trustee; (ii) the original
recorded assignment of Mortgage from the related Originator to the Indenture
Trustee, which, together with any intervening assignments of Mortgage, evidences
a complete chain of assignment from the originator of the Mortgage Loan to the
Indenture Trustee, in those instances where copies of such assignments certified
by the related Originator were delivered to the Collateral Agent, on behalf of
the Indenture Trustee, and (iii) the title insurance policy or title opinion
required in Section 2.05(a)(vi). The Collateral Agent shall review the recorded
assignment to confirm the information contained therein. The Collateral Agent
shall notify the Indenture Trustee, the Note Insurer and the Servicer, of any
defect in such assignment based on such review. The Servicer shall have a period
of sixty (60) days following such notice to correct or cure such defect.
Notwithstanding anything to the contrary contained in this
Section 2.05, in those instances where the public recording office retains the
original Mortgage, power of attorney, if any, assignment or assignment of
Mortgage after it has been recorded or such original has been lost, the
Unaffiliated Seller or the related Originator shall be deemed to have satisfied
its obligations hereunder upon delivery to the Collateral Agent, on behalf of
the Indenture Trustee, of a copy of such Mortgage, power of attorney, if any,
assignment or assignment of Mortgage certified by the public recording office to
be a true copy of the recorded original thereof.
From time to time the Unaffiliated Seller or the related
Originator may forward, or cause to be forwarded, to the Collateral Agent, on
behalf of the Indenture Trustee, additional original documents evidencing any
assumption or modification of a Mortgage Loan.
(d) All original documents relating to the Mortgage Loans that
are not delivered to the Collateral Agent, on behalf of the Indenture Trustee,
as permitted by Section 2.05(a) hereof are, and shall be, held by the Servicer,
the Unaffiliated Seller or the related Originator, as the case may be, in trust
for the benefit of the Indenture Trustee, on behalf of the Noteholders and the
Note Insurer. In the event that any such original document is required pursuant
to the terms of this Section 2.05 to be a part of an Indenture Trustee's
Mortgage File, such document shall be delivered promptly to the Collateral
Agent, on behalf of the Indenture Trustee. From and after the sale of the
Mortgage Loans to the Trust pursuant hereto, to the extent that the Unaffiliated
Seller or the related Originator retains legal title of record to any Mortgage
Loans prior to the vesting of legal title in the Trust, such title shall be
retained in trust for the Trust as the owner of the Mortgage Loans, and the
Indenture Trustee, as the pledgee of the Trust under the Indenture. In acting as
custodian of any original document which is part of the Indenture Trustee's
Mortgage Files, the Servicer agrees further that it does not and will not have
or assert any beneficial ownership interest in the related Mortgage Loans or the
Mortgage Files. Promptly upon the Servicer's receipt of any such original
document, the Servicer, on behalf of the Trust, shall mark conspicuously each
such original document, and its master data processing records with a legend
evidencing that the Trust has purchased the related Mortgage Loan and all right
and title thereto and interest therein, and pledged such Mortgage Loan and all
right and title thereto and interest therein to the Indenture Trustee, on behalf
of the Noteholders and the Note Insurer.
6
<PAGE>
Section 2.06. Acceptance of the Trust Estate; Certain
Substitutions; Certification by the Collateral Agent. (a) The Indenture Trustee
agrees to execute and deliver to the Depositor, the Note Insurer, the Collateral
Agent and the Servicer on or prior to the Closing Date an acknowledgement of
receipt of the Policy in the form attached as Exhibit B hereto.
(b) The Collateral Agent is authorized and directed, on behalf
of the Indenture Trustee, to do the following:
(i) execute and deliver to the Depositor, the Note
Insurer, the Indenture Trustee, the Servicer and the Unaffiliated
Seller, on or prior to the Closing Date or any Subsequent Transfer
Date, as applicable, with respect to each Mortgage Loan transferred on
such date, an acknowledgement of receipt of the Mortgage File
containing the original Mortgage Note (with any exceptions noted), in
the form attached as Exhibit C hereto, and declares that it will hold
such documents and any amendments, replacements or supplements thereto,
as well as any other assets included in the definition of Trust Estate
and delivered to the Collateral Agent, on behalf of the Indenture
Trustee, subject to the conditions set forth herein, for the benefit of
the Noteholders and the Note Insurer.
(ii) to review (or cause to be reviewed) each Indenture
Trustee's Mortgage File within thirty (30) days after the Closing Date
or any Subsequent Transfer Date, as applicable (or, with respect to any
Qualified Substitute Mortgage Loans, within thirty (30) days after the
receipt by the Collateral Agent, on behalf of the Indenture Trustee,
thereof), and to deliver to the Unaffiliated Seller, the Servicer, the
Depositor, the Indenture Trustee and the Note Insurer a certification,
in the form attached hereto as Exhibit D, to the effect that, except as
otherwise noted, as to each Mortgage Loan listed in the related
Mortgage Loan Schedule (other than any Mortgage Loan paid in full or
any Mortgage Loan specifically identified in such certification as not
covered by such certification), (i) all documents required to be
delivered to it pursuant to Section 2.05 are in its possession, (ii)
each such document has been reviewed by it and appears, on its face,
not to have been mutilated, damaged, torn or otherwise physically
altered (handwritten additions, changes or corrections shall not
constitute physical alteration if they reasonably appear to have been
initialed), appears regular on its face and relates to such Mortgage
Loan, and (iii) based on its examination and only as to the foregoing
documents, the information set forth on the Mortgage Loan Schedule as
to the information set forth in (i), (ii), (v) and (vi) of the
definition of "Mortgage Loan Schedule" accurately reflects the
information set forth in the Indenture Trustee's Mortgage File
delivered on such date.
(iii)to review (or cause to be reviewed) each Indenture
Trustee's Mortgage File within ninety (90) days after the Closing Date
or any Subsequent Transfer Date, as applicable (or, with respect to any
Qualified Substitute Mortgage Loans, within ninety (90) days after the
receipt by the Collateral Agent, on behalf of the Indenture Trustee,
thereof), and to deliver to the Unaffiliated Seller, the Servicer, the
Depositor, the Indenture Trustee, the Rating Agencies and the Note
Insurer a certification in the form attached hereto as Exhibit E to the
effect that, except as otherwise noted, as to each Mortgage Loan listed
in the related Mortgage Loan Schedule (other than any Mortgage Loan
paid in full or any Mortgage Loan specifically identified in such
certification as not covered by such certification), (i) all documents
required to be delivered to it pursuant to Section 2.05 are in its
possession, (ii) each such document has been reviewed by it and has not
been mutilated, damaged, torn or otherwise physically altered
(handwritten additions, changes or corrections shall not constitute
physical alteration if they reasonably appear to be initialed by the
Mortgagor), appears regular on its face and relates to such Mortgage
Loan, and (iii) based on its examination and only as to the foregoing
documents, the information set forth in the definition of "Mortgage
Loan Schedule" accurately reflects the information set forth in the
Indenture Trustee's Mortgage File delivered on such date.
7
<PAGE>
In performing any such review, the Collateral Agent may
conclusively rely on the Unaffiliated Seller as to the purported genuineness of
any such document and any signature thereon. It is understood that the scope of
the Collateral Agent's review of the Indenture Trustee's Mortgage Files is
limited solely to confirming that the documents listed in Section 2.05 have been
executed and received and relate to the Indenture Trustee's Mortgage Files
identified in the related Mortgage Loan Schedule. The Collateral Agent 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.
(c) If the Collateral Agent during the process of reviewing
the Indenture Trustee's Mortgage Files finds any document constituting a part of
a Indenture Trustee's Mortgage File which is not executed, has not been
received, is unrelated to the Mortgage Loan identified in the related Mortgage
Loan Schedule, or does not conform to the requirements of Section 2.05 or the
description thereof as set forth in the related Mortgage Loan Schedule, the
Collateral Agent shall promptly so notify the Servicer, the Unaffiliated Seller,
the Originators, the Note Insurer and the Indenture Trustee. Pursuant to Section
2.06(b) of the Unaffiliated Seller's Agreement, the Unaffiliated Seller and the
Originators have agreed to use reasonable efforts to cause to be remedied a
material defect in a document constituting part of an Indenture Trustee's
Mortgage File of which it is so notified by the Collateral Agent. If, however,
within sixty (60) days after the Collateral Agent's notice to it respecting such
defect the Unaffiliated Seller or the Originators have not caused to be remedied
the defect and the defect materially and adversely affects the interest of the
Noteholders and the Note Insurer in the related Mortgage Loan, the Unaffiliated
Seller and the Originators will be obligated, pursuant to Section 3.05 of the
Unaffiliated Seller's Agreement, to either (i) substitute in lieu of such
Mortgage Loan a Qualified Substitute Mortgage Loan in the manner and subject to
the conditions set forth in Section 3.05 of the Unaffiliated Seller's Agreement
or (ii) purchase such Mortgage Loan at a purchase price equal to the Loan
Repurchase Price. Upon receipt by the Collateral Agent and the Indenture Trustee
of a certification, in the form attached hereto as Exhibit F, of a Servicing
Officer of such substitution or purchase and, in the case of a substitution,
upon receipt by the Collateral Agent, on behalf of the Indenture Trustee, of the
related Indenture Trustee's Mortgage File, and the deposit of the amounts
described above in the Collection Account, the Collateral Agent shall release to
the Servicer for release to the Unaffiliated Seller the related Indenture
Trustee's Mortgage File and the Indenture Trustee shall execute, without
recourse, and deliver such instruments of transfer furnished by the Unaffiliated
Seller as may be necessary to transfer such Mortgage Loan to the Unaffiliated
Seller. The Collateral Agent shall report to the Indenture Trustee, who shall
notify the Note Insurer if the Unaffiliated Seller fails to repurchase or
substitute for a Mortgage Loan in accordance with the foregoing.
8
<PAGE>
Section 2.07. Grant of Security Interest. (a) It is intended
that the conveyance of the Mortgage Loans and other property by the Depositor to
the Trust as provided in this Article II be, and be construed as, a sale of the
Mortgage Loans and such other property by the Depositor to the Trust. It is,
further, not intended that such conveyance be deemed a pledge of the Mortgage
Loans or such other property by the Depositor to the Trust to secure a debt or
other obligation of the Depositor. However, in the event that the Mortgage Loans
or any of such other property are held to be property of the Depositor, or if
for any reason this Agreement is held or deemed to create a security interest in
the Mortgage Loans or any of such other property, then it is intended that: (i)
this Agreement shall also be deemed to be a security agreement within the
meaning of the Uniform Commercial Code; (ii) the conveyance provided for in this
Article II shall be deemed to be a grant by the Depositor to the Trust of a
security interest in all of the Depositor's right, title and interest in and to
the Mortgage Loans and such other property and all amounts payable to the
holders of the Mortgage Loans in accordance with the terms thereof and all
proceeds of the conversion, voluntary or involuntary, of the foregoing into
cash, instruments, securities or other property, including, without limitation,
all amounts from time to time held or invested in the Payment Account, whether
in the form of cash, instruments, securities or other property; (iii) the
possession by the Collateral Agent, on behalf of the Indenture Trustee, of the
Mortgage Notes and such other items of property as constitute instruments,
money, negotiable documents or chattel paper shall be deemed to be "possession
by the secured party" for purposes of perfecting the security interest pursuant
to the Uniform Commercial Code; and (iv) notifications to persons holding such
property, and acknowledgments, receipts or confirmations from persons holding
such property, shall be deemed notifications to, or acknowledgments, receipts or
confirmations from financial intermediaries, bailees or agents, as applicable,
of the Indenture Trustee for the purpose of perfecting such security interest
under applicable law. The Depositor, the Servicer, on behalf of the Trust, the
Collateral Agent and the Indenture Trustee, shall, to the extent consistent with
this Agreement, take such actions as may be reasonably necessary to ensure that,
if this Agreement were deemed to create a security interest in the Mortgage
Loans or any of such other property, such security interest would be deemed to
be a perfected security interest of first priority under applicable law and will
be maintained as such throughout the term of this Agreement.
(b) The Unaffiliated Seller, the Depositor and the Servicer
shall take no action inconsistent with the Trust's ownership of the Trust Estate
and each shall indicate or shall cause to be indicated in its records and
records held on its behalf that ownership of each Mortgage Loan and the other
assets in the Trust Estate are held by the Collateral Agent, on behalf of the
Indenture Trustee, for the benefit of the Noteholders and the Note Insurer. The
Collateral Agent is authorized to act, pursuant to the terms of this Agreement,
as agent and bailee of the Indenture Trustee for the benefit of the Noteholders
and Note Insurer and shall be authorized to act at the direction of such
parties. In addition, the Unaffiliated Seller, the Depositor and the Servicer
shall respond to any inquiries from third parties with respect to ownership of a
Mortgage Loan or any other asset in the Trust Estate by stating that it is not
the owner of such asset and that the Trust is the owner of such Mortgage Loan or
other asset in the Trust Estate, which is held by the Collateral Agent, on
behalf of the Indenture Trustee, for the benefit of the Noteholders and the Note
Insurer.
9
<PAGE>
Section 2.08. Further Action Evidencing Assignments. (a) The
Servicer agrees that, from time to time, at its expense, it shall cause the
Unaffiliated Seller to (and the Depositor on behalf of itself also agrees that
it shall), promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or appropriate, or that the
Servicer, the Indenture Trustee or the Collateral Agent may reasonably request,
in order to perfect, protect or more fully evidence the transfer of ownership of
the Mortgage Loans and other assets in the Trust Estate or to enable the
Collateral Agent, on behalf of the Indenture Trustee, to exercise or enforce any
of its rights hereunder. Without limiting the generality of the foregoing, the
Servicer and the Depositor will, upon the request of the Servicer, the Indenture
Trustee or the Collateral Agent execute and file (or cause to be executed and
filed) such real estate filings, financing or continuation statements, or
amendments thereto or assignments thereof, and such other instruments or
notices, as may be necessary or appropriate.
(b) The Depositor hereby grants to the Servicer, the Indenture
Trustee and the Collateral Agent powers of attorney to execute all documents on
its behalf under this Agreement and the Unaffiliated Seller's Agreement as may
be necessary or desirable to effectuate the foregoing.
Section 2.09. Assignment of Agreement. The Depositor hereby
acknowledges and agrees that the Trust may assign its interest under this
Agreement to the Indenture Trustee, for the benefit of the Noteholders and the
Note Insurer, as may be required to effect the purposes of the Indenture,
without further notice to, or consent of, the Depositor, and the Indenture
Trustee shall succeed to such of the rights and obligations of the Trust
hereunder as shall be so assigned. The Trust shall, pursuant to the Indenture,
assign all of its right, title and interest in and to the Mortgage Loans and its
right to exercise the remedies created by Section 2.06 and 3.05 of the
Unaffiliated Seller's Agreement for breaches of the representations, warranties,
agreements and covenants of the Unaffiliated Seller or the Originators contained
in Sections 2.05, 2.06, 3.02 and 3.03 of the Unaffiliated Seller's Agreement,
assign such right, title and interest to the Indenture Trustee, for the benefit
of the Noteholders and the Note Insurer. The Depositor agrees that, upon such
assignment to the Indenture Trustee, such representations, warranties,
agreements and covenants will run to and be for the benefit of the Indenture
Trustee and the Indenture Trustee may enforce, without joinder of the Depositor
or the Trust, the repurchase obligations of the Unaffiliated Seller and the
Originators set forth herein with respect to breaches of such representations,
warranties, agreements and covenants.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations of the Servicer. The Servicer
hereby represents and warrants to the Indenture Trustee, the Depositor, the
Collateral Agent, the Trust, the Note Insurer and the Noteholders as of the
Closing Date and during the term of this Agreement that:
(a) Each of the Servicer and the Subservicers is duly
organized, validly existing and in good standing under the laws of their
respective states of incorporation and has the power to own its assets and to
transact the business in which it is currently engaged. Each of the Servicer and
the Subservicers is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the character of the business
transacted by it or properties owned or leased by it or the performance of its
obligations hereunder requires such qualification and in which the failure so to
qualify could reasonably be expected to have a material adverse effect on the
business, properties, assets, or condition (financial or other) of the Servicer
or the Subservicers or the performance of their respective obligations
hereunder;
(b) The Servicer has the power and authority to make, execute,
deliver and perform this Agreement and all of the transactions contemplated
under this Agreement, and has taken all necessary corporate action to authorize
the execution, delivery and performance of this Agreement, and assuming the due
authorization, execution and delivery hereof by the other parties hereto
constitutes, or will constitute, the legal, valid and binding obligation of the
Servicer, enforceable in accordance with its terms, except as enforcement of
such terms may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting the rights of creditors
generally, and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law);
10
<PAGE>
(c) The Servicer is not required to obtain the consent of any
other party or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or agency
which consent already has not been obtained in connection with the execution,
delivery, performance, validity or enforceability of this Agreement, except such
as have been obtained prior to the Closing Date;
(d) The execution, delivery and performance of this Agreement
by the Servicer will not violate any provision of any existing law or regulation
or any order or decree of any court or the charter or bylaws of the Servicer, or
constitute a breach of any mortgage, indenture, contract or other Agreement to
which the Servicer is a party or by which it may be bound;
(e) There is no action, suit, proceeding or investigation
pending or threatened against the Servicer or the Subservicers which, either in
any one instance or in the aggregate, is, in the Servicer's judgment, likely to
result in any material adverse change in the business, operations, financial
condition, properties, or assets of the Servicer or the Subservicers, or in any
material impairment of the right or ability of any of them to carry on its
business substantially as now conducted, or in any material liability on the
part of any of them, or which would draw into question the validity of this
Agreement, the Notes, or the Mortgage Loans or of any action taken or to be
taken in connection with the obligations of the Servicer or the Subservicers
contemplated herein or therein, or which would be likely to impair materially
the ability of the Servicer or the Subservicers to perform their respective
obligations hereunder;
(f) Neither this Agreement nor any statement, report, or other
document furnished by the Servicer or the Subservicers pursuant to this
Agreement or in connection with the transactions contemplated hereby, including,
without limitation, the sale or placement of the Notes, contains any untrue
statement of fact provided by or on behalf of the Servicer or omits to state a
fact necessary to make the statements provided by or on behalf of the Servicer
contained herein or therein not misleading:
11
<PAGE>
(g) The Servicer does not believe, nor does it have any reason
or cause to believe, that it cannot perform each and every covenant contained in
this Agreement; and
(h) None of the Servicer or the Subservicers is an "investment
company" or a company "controlled by an investment company," within the meaning
of the Investment Company Act of 1940, as amended.
It is understood and agreed that the representations,
warranties and covenants set forth in this Section 3.01 shall survive the
delivery of the respective Indenture Trustee's Mortgage Files to the Collateral
Agent, on behalf of the Indenture Trustee or to another custodian, as the case
may be, and inure to the benefit of the Indenture Trustee.
Section 3.02. Representations, Warranties and Covenants of the
Depositor. The Depositor hereby represents, warrants and covenants to the
Indenture Trustee, the Trust, the Collateral Agent and the Servicer that as of
the date of this Agreement or as of such date specifically provided herein:
(a) The Depositor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware;
(b) The Depositor has the corporate power and authority to
convey the Mortgage Loans and to execute, deliver and perform, and to enter into
and consummate transactions contemplated by this Agreement;
(c) This Agreement has been duly and validly authorized,
executed and delivered by the Depositor, all requisite corporate action having
been taken, and, assuming the due authorization, execution and delivery hereof
by the other parties hereto, constitutes or will constitute the legal, valid and
binding agreement of the Depositor, enforceable against the Depositor in
accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law);
(d) No consent, approval, authorization or order of or
registration or filing with, or notice to, any governmental authority or court
is required for the execution, delivery and performance of or compliance by the
Depositor with this Agreement or the consummation by the Depositor of any of the
transactions contemplated hereby, except as have been made on or prior to the
Closing Date;
(e) None of the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby or thereby, or the
fulfillment of or compliance with the terms and conditions of this Agreement,
(i) conflicts or will conflict with or results or will result in a breach of, or
constitutes or will constitute a default or results or will result in an
acceleration under (A) the charter or bylaws of the Depositor, or (B) of any
term, condition or provision of any material indenture, deed of trust, contract
or other agreement or instrument to which the Depositor or any of its
subsidiaries is a party or by which it or any of its subsidiaries is bound; (ii)
results or will result in a violation of any law, rule, regulation, order,
judgment or decree applicable to the Depositor of any court or governmental
authority having jurisdiction over the Depositor or its subsidiaries; or (iii)
results in the creation or imposition of any lien, charge or encumbrance which
would have a material adverse effect upon the Mortgage Loans or any documents or
instruments evidencing or securing the Mortgage Loans;
12
<PAGE>
(f) There are no actions, suits or proceedings before or
against or investigations of, the Depositor pending, or to the knowledge of the
Depositor, threatened, before any court, administrative agency or other
tribunal, and no notice of any such action, which, in the Depositor's reasonable
judgment, might materially and adversely affect the performance by the Depositor
of its obligations under this Agreement, or the validity or enforceability of
this Agreement; and
(g) The Depositor is not in default with respect to any order
or decree of any court or any order, regulation or demand of any federal, state,
municipal or governmental agency that may materially and adversely affect its
performance hereunder.
It is understood and agreed that the representations,
warranties and covenants set forth in this Section 3.02 shall survive delivery
of the respective Indenture Trustee's Mortgage Files to the Collateral Agent, on
behalf of the Indenture Trustee or to another custodian, as the case may be, and
shall inure to the benefit of the Indenture Trustee.
Section 3.03. Representations, Warranties and Covenants of the
Collateral Agent. The Collateral Agent hereby represents, warrants and covenants
to the Indenture Trustee, the Trust, the Servicer and the Depositor that as of
the date of this Agreement or as of such date specifically provided herein:
(a) The Collateral Agent is a national banking association
duly organized, validly existing and in good standing under the laws of the
United States of America;
(b) The Collateral Agent has the corporate power and authority
to execute, deliver and perform, and to enter into and consummate transactions
contemplated by this Agreement; and
(c) This Agreement has been duly and validly authorized,
executed and delivered by the Collateral Agent, all requisite corporate action
having been taken, and, assuming the due authorization, execution and delivery
hereof by the other parties hereto, constitutes or will constitute the legal,
valid and binding agreement of the Collateral Agent, enforceable against the
Collateral Agent in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
It is understood and agreed that the representations,
warranties and covenants set forth in this Section 3.03(b) and 3.03(c) shall
survive delivery of the respective Indenture Trustee's Mortgage Files to the
Collateral Agent, on behalf of the Indenture Trustee or to another custodian, as
the case may be, and shall inure to the benefit of the Indenture Trustee.
Section 3.04. Representations, Warranties and Covenants of the
Indenture Trustee. The Indenture Trustee hereby represents, warrants and
covenants to the Collateral Agent, the Trust, the Servicer and the Depositor
that as of the date of this Agreement or as of such date specifically provided
herein:
13
<PAGE>
(a) The Indenture Trustee is a banking corporation duly
organized, validly existing and in good standing under the laws of the State of
New York;
(b) The Indenture Trustee has the corporate power and
authority to execute, deliver and perform, and to enter into and consummate
transactions contemplated by this Agreement;
(c) This Agreement has been duly and validly authorized,
executed and delivered by the Indenture Trustee, all requisite corporate action
having been taken, and, assuming the due authorization, execution and delivery
hereof by the other parties hereto, constitutes or will constitute the legal,
valid and binding agreement of the Indenture Trustee, enforceable against the
Indenture Trustee in accordance with its terms, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors generally, and by
general equity principles (regardless of whether such enforcement is considered
in a proceeding in equity or at law);
It is understood and agreed that the representations,
warranties and covenants set forth in this Section 3.04 shall survive delivery
of the respective Indenture Trustee's Mortgage Files to the Collateral Agent, on
behalf of the Indenture Trustee or to another custodian, as the case may be.
ARTICLE IV
THE MORTGAGE LOANS
Section 4.01. Representations and Warranties Concerning the
Mortgage Loans. With respect to each Mortgage Loan, the Depositor hereby assigns
to the Trust, pursuant to Section 2.07 of the Unaffiliated Seller's Agreement,
the representations, warranties and covenants of the Unaffiliated Seller and the
Originators set forth in Sections 3.01, 3.02 and 3.03 of the Unaffiliated
Seller's Agreement. Such representations, warranties and covenants are made or
deemed to be made (x) with respect to the Initial Mortgage Loans, as of the
Initial Cut-Off Date and (y) with respect to the Subsequent Mortgage Loans, as
of the related Subsequent Cut-Off Date.
Section 4.02. Purchase and Substitution. (a) It is understood
and agreed that the representations and warranties set forth in Sections 3.01,
3.02 and 3.03 of the Unaffiliated Seller's Agreement shall survive the purchase
by the Depositor of the Mortgage Loans, the subsequent transfer thereof by the
Depositor to the Trust, the subsequent pledge thereof by the Trust to the
Indenture Trustee, for the benefit of the Noteholders and the Note Insurer, and
the delivery of the Notes to the Noteholders, and shall continue in full force
and effect, notwithstanding any restrictive or qualified endorsement on the
Mortgage Notes and notwithstanding subsequent termination of this Agreement or
the Unaffiliated Seller's Agreement.
14
<PAGE>
(b) Upon discovery by the Unaffiliated Seller, the Depositor,
the Servicer, any Subservicer, the Indenture Trustee, the Note Insurer or a
Noteholder of a breach of any of the representations and warranties in Sections
3.01, 3.02 or 3.03 of the Unaffiliated Seller's Agreement which materially and
adversely affects the value of the Mortgage Loans or the interest of the
Noteholders or the Note Insurer, or which materially and adversely affects the
interests of the Note Insurer or the Noteholders in the related Mortgage Loan in
the case of a representation and warranty relating to a particular Mortgage Loan
(notwithstanding that such representation and warranty was made to the
Unaffiliated Seller's or the Originator's best knowledge), the party discovering
such breach or failure shall promptly (and in any event within five (5) days of
the discovery) give written notice thereof to the others. Within forty-five (45)
days of the earlier of its discovery or its receipt of notice of any breach of a
representation or warranty, the Servicer shall, or shall cause the Unaffiliated
Seller or an Originator to, (a) promptly cure such breach in all material
respects, (b) purchase such Mortgage Loan on the next succeeding Servicer
Payment Date, in the manner and at the price specified in Section 2.06(b) and
this Section 4.02, or (c) remove such Mortgage Loan from the Trust Estate (in
which case it shall become a Deleted Mortgage Loan) and substitute one or more
Qualified Substitute Mortgage Loans in the manner specified in Section 2.06(b)
and this Section 4.02. The Collateral Agent shall give prompt written notice to
the Indenture Trustee, who shall deliver such notice to the Note Insurer and the
Rating Agencies of any repurchase or substitution made pursuant to this Section
4.02 or Section 2.06(b).
(c) As to any Deleted Mortgage Loan for which the Unaffiliated
Seller substitutes a Qualified Substitute Mortgage Loan or Loans, the Servicer
shall cause the Unaffiliated Seller or an Originator, as applicable, to effect
such substitution by delivering to the Indenture Trustee a certification, in the
form attached hereto as Exhibit F, executed by a Servicing Officer, and the
documents described in Sections 2.05(a)(i)-(vi) for such Qualified Substitute
Mortgage Loan or Loans.
(d) The Servicer shall deposit in the Payment Account all
payments received in connection with such Qualified Substitute Mortgage Loan or
Loans after the date of such substitution. Monthly Payments received with
respect to Qualified Substitute Mortgage Loan or Loans on or before the date of
substitution will be retained by the Unaffiliated Seller. The Trust will own all
payments received on the Deleted Mortgage Loan on or before the date of
substitution, and the Unaffiliated Seller shall thereafter be entitled to retain
all amounts subsequently received in respect of such Deleted Mortgage Loan. The
Servicer shall give written notice to the Indenture Trustee, the Collateral
Agent and the Note Insurer that such substitution has taken place and shall
amend the Mortgage Loan Schedule to reflect the removal of such Deleted Mortgage
Loan from the terms of this Agreement and the substitution of the Qualified
Substitute Mortgage Loan or Loans. Upon such substitution, such Qualified
Substitute Mortgage Loan or Loans shall be subject to the terms of this
Agreement in all respects.
(e) With respect to any Mortgage Loan that has been converted
to an REO Mortgage Loan, all references in this Section 4.02 or Section 2.06 to
"Mortgage Loan" shall be deemed to also refer to the REO Mortgage Loan. With
respect to any Mortgage Loan that the Servicer, Originator or Unaffiliated
Seller is required to repurchase that is or becomes a Liquidated Mortgage Loan,
in lieu of repurchasing such Mortgage Loan, the Servicer, Originator or
Unaffiliated Seller shall deposit into the related Payment Account, pursuant to
Section 8.01 of the Indenture, an amount equal to the amount of the Liquidated
Loan Loss, if any, incurred in connection with the liquidation of such Mortgage
Loan within the same time period in which the Servicer, Originator or
Unaffiliated Seller would have otherwise been required to repurchase such
Mortgage Loan.
15
<PAGE>
(f) It is understood and agreed that the obligations of the
Unaffiliated Seller and the Originators set forth in Sections 2.06 and 3.05 of
the Unaffiliated Seller's Agreement to, and the Servicer's obligation set forth
in this Section 4.02 to cause the Unaffiliated Seller and the Originators to,
cure, purchase or substitute for a defective Mortgage Loan, or to indemnify as
described in Section 3.05(g) of the Unaffiliated Seller's Agreement, constitute
the sole remedies of the Indenture Trustee, the Collateral Agent, the Note
Insurer and the Noteholders respecting a breach of the representations and
warranties of the Unaffiliated Seller and the Originators set forth in Sections
3.01, 3.02 and 3.03 of the Unaffiliated Seller's Agreement.
(g) Pursuant to Section 3.05(g) of the Unaffiliated Seller's
Agreement, the Unaffiliated Seller and the Originators shall be obligated to
indemnify the Indenture Trustee, the Depositor, the Trust, the Owner Trustee,
the Collateral Agent, the Noteholders and the Note Insurer for any third party
claims arising out of a breach by the Unaffiliated Seller or the related
Originator of representations or warranties regarding the Mortgage Loans.
(h) Pursuant to Section 3.05(h) of the Unaffiliated Seller's
Agreement, the Unaffiliated Seller and each of the Originators shall be jointly
and severally responsible for any repurchase, cure or substitution obligation of
the Unaffiliated Seller or any of the Originators under this Agreement, the
Unaffiliated Seller's Agreement or the Indenture.
ARTICLE V
ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS
Section 5.01. The Servicer. The Servicer shall service and
administer the Mortgage Loans in accordance with the Accepted Servicing
Practices and shall have full power and authority to do any and all things not
inconsistent therewith in connection with such servicing and administration
which it may deem necessary or desirable subject to the limitations set forth in
this Agreement. The Indenture Trustee shall furnish the Servicer with any powers
of attorney and other documents necessary or appropriate to enable the Servicer
to carry out its servicing and administrative duties hereunder. Without limiting
the generality of the foregoing, the Servicer shall continue, and is hereby
authorized and empowered by the Indenture Trustee, to execute and deliver, on
behalf of itself, the Noteholders and the Indenture Trustee or any of them, any
and all instruments of satisfaction or cancellation, or of partial or full
release or discharge and all other comparable instruments, and to effect such
modifications, waivers, indulgences and other like matters as are in its
judgment necessary or desirable, with respect to the Mortgage Loans and the
Mortgaged Properties and the servicing and administration thereof. The Servicer
shall notify the Indenture Trustee of any such waiver, release, discharge,
modification, indulgence or other such matter by delivering to the Indenture
Trustee an Officer's Certificate certifying that such agreement is in compliance
with this Section 5.01 together with the original copy of any written agreement
or other document executed in connection therewith, all of which written
agreements or documents shall, for all purposes, be considered a part of the
related Indenture Trustee's Mortgage File to the same extent as all other
documents and instruments constituting a part thereof. Notwithstanding anything
in this Agreement to the contrary, the Servicer shall not permit any
modification with respect to any Mortgage Loan unless (i) the modifications do
not decrease the Mortgage Interest Rate, reduce or increase the principal
balance, decrease the lien priority, increase the current LTV above the lesser
of the current LTV or the original LTV, or change the final maturity date on or
of such Mortgage Loan and (ii) the Note Insurer consents to such modifications
in writing; provided, however, that the Servicer shall be permitted to extend
the final maturity date on a Mortgage Loan by 180 days or less without the
consent of the Note Insurer.
16
<PAGE>
The relationship of the Servicer (and of any successor to the
Servicer as servicer under this Agreement) to the Indenture Trustee under this
Agreement is intended by the parties to be that of an independent contractor and
not that of a joint venturer, partner or agent.
Section 5.02. Collection of Certain Mortgage Loan Payments;
Collection Account. (a) The Servicer shall make its reasonable efforts to
collect all payments called for under the terms and provisions of the Mortgage
Loans, and shall, to the extent such procedures shall be consistent with this
Agreement, follow Accepted Servicing Practices. Consistent with the foregoing,
the Servicer may in its discretion waive any assumption fees or other fees which
may be collected in the ordinary course of servicing such Mortgage Loans.
(b) The Servicer shall establish and maintain, in the name of
the Indenture Trustee, the Collection Account, in trust for the benefit of the
Noteholders and the Note Insurer. The Collection Account shall be established
and maintained as an Eligible Account.
(c) The Servicer shall deposit in the Collection Account any
amounts representing Monthly Payments on the Mortgage Loans due or to be applied
as of a date after the related Cut-Off Date, and thereafter, on each Business
Day (except as otherwise permitted herein), the following payments and
collections received or made by it (other than in respect of principal collected
and interest due on the Mortgage Loans on or before the related Cut-Off Date):
(i) payments of interest on the Mortgage Loans;
(ii) payments of principal of the Mortgage Loans;
(iii)the Loan Repurchase Price of Mortgage Loans
repurchased pursuant to Sections 2.06, 4.02 or 5.05;
(iv) the Substitution Adjustment received in connection
with Mortgage Loans for which Qualified Substitute Mortgage Loans are
received pursuant to Sections 2.06, 4.02 and 3.03;
(v) all Liquidation Proceeds; and
(vi) all Insurance Proceeds (including, for this purpose,
any amounts required to be deposited by the Servicer pursuant to
Section 5.04 hereof).
17
<PAGE>
It is understood that the Servicer need not deposit amounts representing fees,
prepayment premiums, late payment charges or extension or other administrative
charges payable by Mortgagors, or amounts received by the Servicer for the
account of Mortgagors for application towards the payment of taxes, insurance
premiums, assessments and similar items.
(d) The Servicer shall invest any funds in the Collection
Account in Permitted Investments, which shall mature not later than the Business
Day next preceding the Servicer Payment Date next following the date of such
investment (except that any investment held by the Indenture Trustee may mature
on such Servicer Payment Date) and shall not be sold or disposed of prior to its
maturity. All net income and gain realized from any such investment shall be for
the benefit of the Servicer and shall be subject to its withdrawal or order on a
Servicer Payment Date. The Servicer shall deposit from its own funds the amount
of any loss, to the extent not offset by investment income or earnings, in the
Collection Account upon the realization of such loss.
Section 5.03. Permitted Withdrawals from the Collection
Account. The Servicer may make withdrawals from the Collection Account, on or
prior to any Servicer Payment Date, for the following purposes:
(a) to reimburse the Servicer for Liquidation Expenses
theretofore incurred in respect of any Mortgage Loan in an amount not to exceed
the amount of the sum of the related Insurance Proceeds and Liquidation Proceeds
deposited in the Collection Account pursuant to Section 5.02(c)(v)-(vi);
(b) to reimburse the Servicer for amounts expended by it
pursuant to Section 5.04 in good faith in connection with the restoration of
damaged property, in an amount not to exceed the amount of the related Insurance
Proceeds and Liquidation Proceeds (net of withdrawals pursuant to Section
5.03(a)) and amounts representing proceeds of other insurance policies covering
the property subject to the related Mortgage deposited in the Collection Account
pursuant to Section 5.02(c)(v)-(vi);
(c) to pay to the Unaffiliated Seller amounts received in
respect of any Defective Mortgage Loan purchased or substituted for by the
Unaffiliated Seller to the extent that the payment of any such amounts on the
Servicer Payment Date upon which the proceeds of such purchase are paid would
make the total amount distributed in respect of any such Mortgage Loan on such
Servicer Payment Date greater than the Loan Repurchase Price or the Substitution
Adjustment therefor;
(d) to reimburse the Servicer for unreimbursed Servicing
Advances, without interest, with respect to the Mortgage Loans for which it has
made a Servicing Advance, from subsequent collections with respect to interest
on such Mortgage Loans and from Liquidation Proceeds, Insurance Proceeds and/or
the Loan Repurchase Price or Substitution Adjustment of or relating to such
Mortgage Loans;
(e) to reimburse the Servicer for any Periodic Advances
determined in good faith to have become Nonrecoverable Advances, such
reimbursement to be made from any funds in the Collection Account;
18
<PAGE>
(f) to withdraw any amount received from a Mortgagor that is
recoverable and sought to be recovered as a voidable preference by a trustee in
bankruptcy pursuant to the Bankruptcy Code in accordance with a final,
nonappealable order of a court having competent jurisdiction;
(g) to withdraw any funds deposited in the Collection Account
that were not required to be deposited therein; and
(h) to pay the Servicer the Servicing Compensation pursuant to
Section 5.08 hereof to the extent not retained or paid.
The Servicer shall keep and maintain a separate accounting for
each Mortgage Loan for the purpose of accounting for withdrawals from the
Collection Account pursuant to this Section 5.03.
Section 5.04. Hazard Insurance Policies; Property Protection
Expenses. (a) The Servicer shall cause to be maintained for each Mortgage Loan a
hazard insurance policy with extended coverage which contains a standard
mortgagee's clause with an appropriate endorsement in an amount equal to the
lesser of (x) the maximum insurable value of the related Mortgaged Property or
(y) the sum of the Principal Balance of such Mortgage Loan plus the outstanding
balance of any mortgage loan senior to such Mortgage Loan, but in no event shall
such amount be less than is necessary to prevent the Mortgagor from becoming a
coinsurer thereunder. The Servicer shall also maintain on property acquired upon
foreclosure, or by deed in lieu of foreclosure, hazard insurance with extended
coverage in an amount which is at least equal to the lesser of (i) the maximum
insurable value from time to time of the improvements which are a part of such
property or (ii) the sum of the Principal Balance of such Mortgage Loan and the
principal balance of any mortgage loan senior to such Mortgage Loan at the time
of such foreclosure plus accrued interest and the good-faith estimate of the
Servicer of related Liquidation Expenses to be incurred in connection therewith.
Amounts collected by the Servicer under any such policies shall be deposited in
the Collection Account to the extent that they constitute Liquidation Proceeds
or Insurance Proceeds. Each hazard insurance policy shall contain a standard
mortgage clause naming the Originator, its successors and assigns, as mortgagee.
The Servicer shall be under no obligation to require that any Mortgagor maintain
earthquake or flood or other additional insurance and shall be under no
obligation itself to maintain any such additional insurance on property acquired
in respect of a Mortgage Loan, other than pursuant to such applicable laws and
regulations as shall at any time be in force and as shall require such
additional insurance.
(b) If the Servicer shall obtain and maintain a blanket policy
issued by an insurer acceptable to the Rating Agencies and the Note Insurer
insuring against hazard losses on all of the Mortgage Loans, it shall
conclusively be deemed to have satisfied its obligations as set forth in Section
5.04(a), it being understood and agreed that such policy may contain a
deductible clause, in which case the Servicer shall, in the event that there
shall not have been maintained on the related Mortgaged Property a policy
complying with Section 5.04(a), and there shall have been a loss which would
have been covered by such policy, deposit in the Collection Account the amount
not otherwise payable under the blanket policy because of such deductible
clause.
19
<PAGE>
(c) If the Mortgaged Property or REO Property is located at
the time of origination of the Mortgage Loan in a federally designated special
flood hazard area (and if the flood insurance policy referenced herein has been
made available), the Servicer will cause to be maintained flood insurance in
respect thereof. Such flood insurance shall be in an amount equal to the lesser
of (i) the sum of the Principal Balance of the related Mortgage Loan and the
principal balance of the related first lien, if any, (ii) the maximum insurable
value of the related Mortgaged Property, and (iii) the maximum amount of such
insurance available for the related Mortgaged Property under the national flood
insurance program (assuming that the area in which such Mortgaged Property is
located is participating in such program).
Section 5.05. Assumption and Modification Agreements. In any
case in which a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Servicer shall exercise its right to accelerate the maturity of
the related Mortgage Loan and require that the Principal Balance thereof be paid
in full on or prior to such conveyance by the Mortgagor under any "due-on-sale"
clause applicable thereto. If such "due-on-sale" clause, by its terms, is not
operable or the Servicer is prevented, as provided in the last paragraph of this
Section 5.05, from enforcing any such clause, the Servicer is authorized,
subject to the consent of the Note Insurer, to take or enter into an assumption
and modification agreement from or with the Person to whom such property has
been or is about to be conveyed, pursuant to which such Person becomes liable
under the Mortgage Note and the Mortgagor remains liable thereon or, if the
Servicer in its reasonable judgment finds it appropriate, is released from
liability thereon. The Servicer shall notify the Indenture Trustee and the
Collateral Agent that any assumption and modification agreement has been
completed by delivering to the Indenture Trustee, the Collateral Agent and the
Note Insurer an Officer's Certificate certifying that such agreement is in
compliance with this Section 5.05 together with the original copy of such
assumption and modification agreement. Any such assumption and modification
agreement shall, for all purposes, be considered a part of the related Mortgage
File to the same extent as all other documents and instruments constituting a
part thereof. In connection with any such agreement, the then current Mortgage
Interest Rate thereon shall not be increased or decreased. Any fee collected by
the Servicer for entering into any such agreement will be retained by the
Servicer as additional servicing compensation. At its sole election, the
Servicer may purchase from the Trust any Mortgage Loan that has been assumed in
accordance with this Section 5.05 within one month after the date of such
assumption at a price equal to the greater of (i) the fair market value of such
Mortgage Loan (as determined by the Servicer in its good faith judgment) and
(ii) the Loan Repurchase Price. Such amount, if any, shall be deposited into the
Collection Account in the Due Period in which such repurchase is made.
Notwithstanding the foregoing paragraph of this Section 5.05
or any other provision of this Agreement, the Servicer shall not be deemed to be
in default, breach or any other violation of its obligations hereunder by reason
of any assumption of a Mortgage Loan, or transfer of any Mortgaged Property
without the assumption thereof, by operation of law or any assumption or
transfer which the Servicer reasonably believes it may be restricted by law from
preventing for any reason whatsoever.
Section 5.06. Realization Upon Defaulted Mortgage Loans. (a)
The Servicer shall foreclose upon or otherwise comparably convert to ownership
Mortgaged Properties securing such of the Mortgage Loans as come into and
20
<PAGE>
continue in default and as to which no satisfactory arrangements can be made for
collection of delinquent payments pursuant to Section 5.02(a). Prior to
conducting any sale in a foreclosure proceeding or accepting a deed-in-lieu of
foreclosure with respect to any Mortgaged Property, the Servicer shall cause an
environmental review to be performed, in accordance with Accepted Servicing
Practices on the Mortgaged Property by a company such as Equifax, Inc. or
Toxicheck. If such review reveals that the Mortgaged Property has on it, under
it or is near hazardous or toxic material or waste or reveals any other
environmental problem, the Servicer shall not foreclose or accept a deed-in-lieu
of foreclosure, without the prior written consent of the Note Insurer. In
connection with such foreclosure or other conversion, the Servicer shall follow
such practices (including, in the case of any default on a related senior
mortgage loan, the advancing of funds to correct such default) and procedures
which are consistent with Accepted Servicing Practices as it shall deem
necessary or advisable and as shall be normal and usual in its general first and
second mortgage loan servicing activities. Notwithstanding the foregoing, the
Servicer shall not be required to expend its own funds in connection with any
foreclosure or towards the correction of any default on a related senior
mortgage loan or restoration of any property unless, in the reasonable judgment
of the Servicer, such expenses will be recoverable from Liquidation Proceeds.
(b) In the event that title to any Mortgaged Property is
acquired in foreclosure or by deed in lieu of foreclosure, the deed or
certificate of sale shall be issued to the Indenture Trustee, or to its nominee,
on behalf of Noteholders and the Note Insurer.
(c) Any Insurance Proceeds or Liquidation Proceeds received
with respect to a Mortgage Loan or REO Property (other than received in
connection with a purchase by the Trust Certificateholders of all the Mortgage
Loans and REO Properties in the Trust Estate pursuant to Section 10.01 of the
Indenture) will be applied in the following order of priority, in each case to
the extent of Available Funds: first, to pay the Servicer any accrued and unpaid
Servicing Fees relating to such Mortgage Loan; second, to reimburse the Servicer
or any Subservicer for any related unreimbursed Servicing Advances, and any
related unreimbursed Periodic Advances theretofore funded by the Servicer or any
Subservicer from its own funds, in each case, with respect to the related
Mortgage Loan; third, to accrued and unpaid interest on the Mortgage Loan, at
the Mortgage Interest Rate (or at such lesser rate as may be in effect for such
Mortgage Loan pursuant to application of the Relief Act) on the Principal
Balance of such Mortgage Loan, to the date such Mortgage Loan is determined to
be a Liquidated Mortgage Loan if it is a Liquidated Mortgage Loan, or to the Due
Date in the Due Period prior to the Payment Date on which such amounts are to be
paid if such determination has not yet been made, minus any unpaid Servicing
Fees with respect to such Mortgage Loan; fourth, to the extent of the Principal
Balance of the Mortgage Loan outstanding immediately prior to the receipt of
such proceeds, as a recovery of principal of the related Mortgage Loan; and
fifth, to any prepayment or late payment charges or penalty interest payable in
connection with the receipt of such proceeds and to all other fees and charges
due and payable with respect to such Mortgage Loan. The amount of any gross
Insurance Proceeds and Liquidation Proceeds received with respect to any
Mortgage Loan or REO Property minus the amount of any unreimbursed Servicing
Advances, unreimbursed Periodic Advances or unpaid Servicing Fees, in each case,
with respect to the related Mortgage Loan, are the "Net Recovery Proceeds" with
respect to such Mortgage Loan or REO Property.
21
<PAGE>
Section 5.07. Indenture Trustee to Cooperate. Upon the payment
in full of the Principal Balance of any Mortgage Loan, the Servicer will notify
the Indenture Trustee and the Collateral Agent by a certification (which
certification shall include a statement to the effect that all amounts received
in connection with such payment which are required to be deposited in the
Collection Account pursuant to Section 5.02 have been so deposited) of a
Servicing Officer. Upon any such payment in full, the Servicer is authorized to
execute, pursuant to the authorization contained in Section 5.01, an instrument
of satisfaction regarding the related Mortgage, which instrument of satisfaction
shall be recorded by the Servicer if required by applicable law and be delivered
to the Person entitled thereto, it being understood and agreed that no expenses
incurred in connection with such instrument of satisfaction shall be reimbursed
from the Collection Account. From time to time and as appropriate for the
servicing or foreclosure of any Mortgage Loan, the Collateral Agent shall, upon
request of the Servicer and delivery to the Collateral Agent of a Request for
Release signed by a Servicing Officer, release the related Mortgage File to the
Servicer and shall execute, as Collateral Agent on behalf of the Indenture
Trustee, such documents as shall be necessary for the prosecution of any such
proceedings. Such Request for Release shall obligate the Servicer to return the
Indenture Trustee's Mortgage File to the Collateral Agent when the need therefor
by the Servicer no longer exists unless the Mortgage Loan shall be liquidated,
in which case, upon receipt of a certificate of a Servicing Officer similar to
that hereinabove specified, the Request for Release shall be released by the
Collateral Agent to the Servicer.
Section 5.08. Servicing Compensation; Payment of Certain
Expenses by Servicer. On each Payment Date, the Servicer shall be entitled to
receive, and the Indenture Trustee shall pay, out of collections on the Mortgage
Loans for the Due Period, as servicing compensation for such Due Period, an
amount (the "Monthly Servicing Fee") equal to the product of one-twelfth of the
Servicing Fee Rate and the aggregate outstanding Principal Balance of each Pool
of Mortgage Loans as of the beginning of such Due Period. Additional servicing
compensation in the form of assumption fees, late payment charges or extension
and other administrative charges shall be retained by the Servicer. The Servicer
shall be required to pay all expenses incurred by it in connection with its
activities hereunder (including payment of all fees and expenses of the
Subservicer, payment of the Indenture Trustee Fee and payment of the Collateral
Agent Fee to the extent that monies in the Collection Account are insufficient
therefor, as provided in Section 6.16 of the Indenture and Section 9.05 hereof,
and all other fees and expenses not expressly stated hereunder to be payable by
or from another source) and shall not be entitled to reimbursement therefor
except as specifically provided herein.
Section 5.09. Annual Statement as to Compliance. The Servicer
will deliver to the Indenture Trustee, the Collateral Agent, the Rating
Agencies, the Note Insurer and each Noteholder, on or before April 30 of each
year, beginning April 30, 2001, an Officer's Certificate of the Servicer stating
that (a) a review of the activities of the Servicer during the preceding
calendar year and of its performance under this Agreement has been made under
such officer's supervision and (b) to the best of such officer's knowledge,
based on such review, the Servicer has fulfilled all its material obligations
under this Agreement throughout such year, or, if there has been a default in
the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof.
22
<PAGE>
Section 5.10. Annual Independent Public Accountants' Servicing
Report. On or before April 30 of each year, beginning April 30, 2001, the
Servicer at its expense shall cause a firm of independent public accountants
that is a member of the American Institute of Certified Public Accountants (who
may also render other services to the Servicer) to furnish a report to the
Indenture Trustee, the Collateral Agent, the Rating Agencies and each Noteholder
to the effect that such firm has examined certain documents and records relating
to the servicing of mortgage loans under servicing agreements (including this
Agreement) substantially similar to this Agreement, and that such examination,
which has been conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers (to the extent that the procedures in
such audit guide are applicable to the servicing obligations set forth in such
agreements), has disclosed no items of noncompliance with the provisions of this
Agreement which, in the opinion of such firm, are material, except for such
items of noncompliance as shall be set forth in such report.
Section 5.11. Access to Certain Documentation. The Servicer
shall permit the designated agents or representatives of each Noteholder, the
Note Insurer, the Collateral Agent and the Indenture Trustee (i) to examine and
make copies of and abstracts from all books, records and documents (including
computer tapes and disks) in the possession or under the control of the Servicer
relating to the Mortgage Loans and (ii) to visit the offices and properties of
the Servicer for the purpose of examining such materials and to discuss matters
relating to the Mortgage Loans and the Servicer's performance under this
Agreement with any of the officers or employees of the Servicer having knowledge
thereof and with the independent public accountants of the Servicer (and by this
provision the Servicer authorizes its accountants to discuss their respective
finances and affairs), all at such reasonable times, as often as may be
reasonably requested and without charge to such Noteholder, the Note Insurer,
the Collateral Agent or the Indenture Trustee.
Section 5.12. Maintenance of Fidelity Bond. The Servicer shall
during the term of its service as Servicer maintain in force a fidelity bond and
errors and omissions insurance in respect of its officers, employees or agents.
Such bond and insurance shall comply with the requirements from time to time of
the FNMA for Persons performing servicing for mortgage loans purchased by such
association.
Section 5.13. The Subservicers. The parties acknowledge that
the Servicer intends to appoint the Subservicers as the Servicer's agents for
the purpose of servicing on the Servicer's behalf such of the Mortgage Loans as
were originated in the States of New Jersey, Pennsylvania and New York. The
Servicer agrees to cause the Subservicers to service such Mortgage Loans in a
manner consistent with the Accepted Servicing Practices set forth in this
Agreement, and agrees that receipt by the Subservicers of any and all amounts
which by the terms hereof are required to be deposited in the Collection Account
shall constitute receipt thereof by the Servicer for all purposes hereof as of
the date so received by the Subservicers. Notwithstanding such designation of
the Subservicers, the Servicer agrees that it is, and it shall remain, fully
obligated under the terms hereof as Servicer with respect to all such Mortgage
Loans, and nothing herein shall relieve or release the Servicer from its
obligations to the other parties hereto to service such Mortgage Loans in the
manner provided in this Agreement.
23
<PAGE>
Section 5.14. Reports to the Indenture Trustee; Collection
Account Statements. Not later than fifteen (15) days after each Payment Date,
the Servicer shall provide to the Indenture Trustee, the Collateral Agent and
the Note Insurer a statement, certified by a Servicing Officer, setting forth
the status of the Collection Account as of the close of business on the related
Payment Date, stating that all payments required by this Agreement to be made by
the Servicer on behalf of the Indenture Trustee have been made (or if any
required payment has not been made by the Servicer, specifying the nature and
status thereof) and showing, for the period covered by such statement, the
aggregate of deposits into and withdrawals from the Collection Account for each
category of deposit specified in Section 5.02 and each category of withdrawal
specified in Section 5.03 and the aggregate of deposits into the Collection
Account as specified in Section 6.01. Such statement shall also state the
aggregate unpaid principal balance of all the Mortgage Loans as of the close of
business on the last day of the month preceding the month in which such Payment
Date occurs. Copies of such statement shall be provided by the Indenture Trustee
to any Noteholder upon request.
Section 5.15. Optional Purchase of Defaulted Mortgage Loans.
(a) Subject to Sections 5.15(b) and 5.15(c), the Unaffiliated Seller or any
Affiliate of the Unaffiliated Seller, in its sole discretion, shall have the
right to elect (by written notice sent to the Servicer, the Indenture Trustee
and the Note Insurer), but shall not be obligated, to purchase for its own
account from the Trust any Mortgage Loan which is ninety (90) days or more
Delinquent in the manner and at the Loan Purchase Price (except that the amount
described in clause (ii) of the definition of Loan Purchase Price shall in no
case be net of the Servicing Fee). The purchase price for any Mortgage Loan
purchased hereunder shall be deposited in the Collection Account and the
Collateral Agent, upon the Indenture Trustee's receipt of such deposit, shall
release or cause to be released to the purchaser of such Mortgage Loan the
related Indenture Trustee's Mortgage File and shall execute and deliver such
instruments of transfer or assignment prepared by the purchaser of such Mortgage
Loan, in each case without recourse, as shall be necessary to vest in the
purchaser of such Mortgage Loan any Mortgage Loan released pursuant hereto and
the purchaser of such Mortgage Loan shall succeed to all the Indenture Trustee's
right, title and interest in and to such Mortgage Loan and all security and
documents related thereto. Such assignment shall be an assignment outright and
not for security. The purchaser of such Mortgage Loan shall thereupon own such
Mortgage Loan, and all security and documents, free of any further obligation to
the Indenture Trustee, the Collateral Agent, the Note Insurer or the Noteholders
with respect thereto. The purchaser of such Mortgage Loan shall give written
notice to the Note Insurer of the means by which any Mortgage Loan purchased
pursuant to this Section 5.15 is ultimately disposed of.
(b) After the Unaffiliated Seller or an Affiliate of the
Unaffiliated Seller has repurchased any Mortgage Loans which are 90 days or more
Delinquent in an Aggregate Principal Balance equal to 1% of the Maximum
Collateral Amount, then notwithstanding the foregoing, unless the Note Insurer
consents, any such Unaffiliated Seller or Affiliate of the Unaffiliated Seller
may only exercise its option pursuant to this Section 5.15 with respect to the
Mortgage Loan or Mortgage Loans that have been Delinquent for the longest period
at the time of such repurchase. Any request by the Unaffiliated Seller or
Affiliate to the Note Insurer for consent to repurchase Mortgage Loans that are
not the most Delinquent shall be accompanied by a description of the Mortgage
Loans that have been Delinquent longer than the Mortgage Loan or Mortgage Loans
the Unaffiliated Seller or such Affiliate proposes to repurchase. If the Note
Insurer fails to respond to such request within ten (10) Business Days after
receipt thereof, the Unaffiliated Seller or such Affiliate may repurchase the
Mortgage Loan or Mortgage Loans proposed to be repurchased without the consent
of, or any further action by, the Note Insurer. Notice to the Note Insurer shall
be delivered in accordance with the terms of the Insurance and Indemnity
Agreement.
24
<PAGE>
(c) After the Unaffiliated Seller or an Affiliate of the
Unaffiliated Seller has repurchased any Mortgage Loans which are 90 days or more
Delinquent in an Aggregate Principal Balance equal to 5% of the Maximum
Collateral Amount, then notwithstanding the foregoing, unless the Note Insurer
consents, any such Unaffiliated Seller or Affiliate of the Unaffiliated Seller
may not repurchase such additional Mortgage Loans.
Section 5.16. Reports to be Provided by the Servicer.
--------------------------------------
(a) On each Servicer Payment Date, the Servicer shall deliver
to the Indenture Trustee and the Note Insurer (i) a Noteholder Statement and
(ii) a Servicer Remittance Report for such Servicer Payment Date setting forth
the following information with respect to all Mortgage Loans as well as a break
out as to (x) consumer purpose and business purpose Mortgage Loans and (y) each
Mortgage Loan Group, in each case, as of the close of business on the last
Business Day of the prior calendar month (except as otherwise provided in clause
(v) below):
(i) the total number of Mortgage Loans and the Aggregate
Principal Balances thereof, together with the number, Aggregate
principal balances of such Mortgage Loans and the percentage (based on
the Aggregate Principal Balances of the Mortgage Loans) of the
Aggregate Principal Balances of such Mortgage Loans to the Aggregate
Principal Balance of all Mortgage Loans (A) 31-59 days Delinquent, (B)
60-89 days Delinquent and (C) 90 or more days Delinquent;
(ii) the number, Aggregate Principal Balances of all
Mortgage Loans and percentage (based on the Aggregate Principal
Balances of the Mortgage Loans) of the Aggregate Principal Balances of
such Mortgage Loans to the aggregate Principal Balance of all Mortgage
Loans in foreclosure proceedings and the number, Aggregate Principal
Balances of all Mortgage Loans and percentage (based on the Aggregate
Principal Balances of the Mortgage Loans) of any such Mortgage Loans
also included in any of the statistics described in the foregoing
clause (i);
(iii)the number, Aggregate Principal Balances of all
Mortgage Loans and percentage (based on the Aggregate Principal
Balances of the Mortgage Loans) of the Aggregate Principal Balances of
such Mortgage Loans to the Aggregate Principal Balance of all Mortgage
Loans relating to Mortgagors in bankruptcy proceedings and the number,
Aggregate Principal Balances of all Mortgage Loans and percentage
(based on the Aggregate Principal Balances of the Mortgage Loans) of
any such Mortgage Loans also included in any of the statistics
described in the foregoing clause (i);
(iv) the number, Aggregate Principal Balances of all
Mortgage Loans and percentage (based on the Aggregate Principal
Balances of the Mortgage Loans) of the Aggregate Principal Balances of
such Mortgage Loans to the Aggregate Principal Balance of all Mortgage
Loans relating to REO Properties and the number, Aggregate Principal
Balances of all Mortgage Loans and percentage (based on the Aggregate
Principal Balances of the Mortgage Loans) of any such Mortgage Loans
also included in any of the statistics described in the foregoing
clause (i);
25
<PAGE>
(v) the weighted average Mortgage Interest Rate as of the
Due Date occurring in the Due Period related to such Payment Date;
(vi) the weighted average remaining term to stated
maturity of all Mortgage Loans;
(vii) the book value of any REO Property;
(viii) the Cumulative Loan Losses and the aggregate
Cumulative Loan Losses since the Closing Date; and
(ix) the total number of Mortgage Loans and the Pool
Principal Balance.
(b) In connection with the transfer of the Notes, the
Indenture Trustee on behalf of any Noteholder may request that the Servicer make
available to any prospective Noteholder annual audited financial statements of
the Servicer for one or more of the most recently completed five (5) fiscal
years for which such statements are publicly available, which request shall not
be unreasonably denied or unreasonably delayed. Such annual audited financial
statements also shall be made available to the Note Insurer upon request.
(c) The Servicer also agrees to make available on a reasonable
basis to the Note Insurer or any prospective Noteholder a knowledgeable
financial or accounting officer for the purpose of answering reasonable
questions respecting recent developments affecting the Servicer or the financial
statements of the Servicer and to permit the Note Insurer or any prospective
Noteholder to inspect the Servicer's servicing facilities during normal business
hours for the purpose of satisfying the Note Insurer or such prospective
Noteholder that the Servicer has the ability to service the Mortgage Loans in
accordance with this Agreement.
Section 5.17. Adjustment of Servicing Compensation in Respect
of Prepaid Mortgage Loans. The Monthly Servicing Fee that the Servicer shall be
entitled to receive with respect to each Mortgage Loan and each Payment Date
shall be offset on such Payment Date by an amount equal to the Prepayment
Interest Shortfall with respect to such Mortgage Loan to the extent that it is
the subject of Principal Prepayments during the month preceding the month of
such Payment Date. The amount of any offset against the Monthly Servicing Fee
with respect to any Payment Date under this Section 5.17 shall be limited to the
Monthly Servicing Fee otherwise payable to the Servicer (without adjustment on
account of Prepayment Interest Shortfalls) with respect to such Mortgage Loan,
and the rights of the Noteholders to the offset of the aggregate Prepayment
Interest Shortfalls against the Monthly Servicing Fee shall not be cumulative.
Section 5.18. Periodic Advances; Special Advance. (a) If, on
any Servicer Payment Date, the Servicer determines that any Monthly Payments due
on the Due Date immediately preceding such Servicer Payment Date have not been
26
<PAGE>
received as of the end of the related Due Period, the Servicer shall determine
the amount of any Periodic Advance required to be made with respect to the
related Payment Date. The Servicer shall, one (1) Business Day after such
Servicer Payment Date, deliver a magnetic tape or diskette to the Indenture
Trustee indicating the payment status of each Mortgage Loan as of such Servicer
Payment Date. The Servicer shall include in the amount to be deposited in the
Collection Account on such Servicer Payment Date an amount equal to the Periodic
Advance, if any, which deposit may be made in whole or in part from funds in the
Collection Account being held for future payment or withdrawal on or in
connection with Payment Dates in subsequent months. Any funds being held for
future payment to Noteholders and so used shall be replaced by the Servicer from
its own funds by deposit in the Collection Account on or before the Business Day
preceding any such future Servicer Payment Date to the extent that funds in the
Collection Account on such Servicer Payment Date shall be less than payments to
Noteholders required to be made on such date; provided, however, that at no time
may the aggregate outstanding amount of Periodic Advances funded by such amounts
held for future payment exceed the sum of (i) the aggregate amount of Monthly
Payments due and received after the end of the most recently ended Due Period
and on or prior to the most recent Servicer Payment Date and (ii) 15% of
unscheduled principal collections received after the end of the most recently
ended Due Period and on or prior to the most recent Servicer Payment Date and to
the extent that the aggregate outstanding amount of Periodic Advances funded by
such amounts held for future payments exceeds the sum of the amounts specified
in clauses (i) and (ii) above, the Servicer shall immediately make a payment
from its own funds to the Collection Account of an amount equal to such excess.
The Servicer shall designate on its records the specific
Mortgage Loans and related installments (or portions thereof) as to which such
Periodic Advance shall be deemed to have been made, such determination being
conclusive for purposes of withdrawals from the Collection Account pursuant to
Section 5.03 hereof.
(b) In addition to the Periodic Advances, the Servicer shall
make special advances ("Special Advances") on the Servicer Payment Date
occurring in April 2000, of $611,239.97, with respect to interest on Mortgage
Loans in Pool I not having their first payment due until after March 2000 and
$108,178.53, with respect to interest on Mortgage Loans in Pool II not having
their first payment due until after March 2000. The Special Advances shall be
made without regard to recoverability, and shall not be reimbursable. In no
event shall the Indenture Trustee, as successor Servicer, be liable for the
payment of the Special Advances.
On each Subsequent Transfer Date, the Servicer will make the
Special Advance set forth in the related subsequent Pledge Agreement.
Section 5.19. Indemnification; Third Party Claims. (a) The
Servicer agrees to indemnify and to hold each of the Trust, the Owner Trustee,
the Depositor, the Indenture Trustee, the Collateral Agent, the Unaffiliated
Seller, the Note Insurer and each Noteholder 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 Trust, the Owner
Trustee, the Depositor, the Indenture Trustee, the Collateral Agent, the
Unaffiliated Seller, the Note Insurer and any Noteholder may sustain in any way
related to the failure of the Servicer to perform its duties and service the
Mortgage Loans in compliance with the terms of this Agreement and the other
Basic Documents. Each indemnified party and the Servicer shall immediately
notify the other indemnified parties if a claim is made by a third party with
respect to this Agreement and the other Basic Documents, and the Servicer shall
27
<PAGE>
assume 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 Trust, the Owner
Trustee, the Depositor, the Servicer, the Indenture Trustee, the Collateral
Agent, the Unaffiliated Seller, the Note Insurer and/or a Noteholder in respect
of such claim. The Indenture Trustee shall reimburse the Servicer in accordance
with Section 5.08 hereof, out of collections on the Mortgage Loans for the Due
Period, for all amounts advanced by it pursuant to the preceding sentence except
to the extent that the claim relates directly to the failure of the Servicer to
service and administer the Mortgages in compliance with the terms of this
Agreement; provided, that the Servicer's indemnity hereunder shall not be in any
manner conditioned on the availability of funds for such reimbursement. The
obligations of the Servicer under this Section 5.19 arising prior to any
resignation or termination of the Servicer hereunder shall survive the
resignation or termination of the Servicer.
(b) The Indenture Trustee may, if necessary, reimburse the
Servicer from amounts otherwise distributable on the Trust Certificates for all
amounts advanced by it pursuant to Section 4.04(a)(ii) of the Unaffiliated
Seller's Agreement, except to the extent that the claim relates directly to the
failure of the Servicer, if it is the Unaffiliated Seller, or is an Affiliate of
the Unaffiliated Seller, to perform its obligations to service and administer
the Mortgages in compliance with the terms of the Unaffiliated Seller's
Agreement and this Agreement, or the failure of the Unaffiliated Seller to
perform its duties in compliance with the terms of this Agreement.
(c) The Indenture Trustee shall reimburse the Unaffiliated
Seller from amounts otherwise distributable on the Trust Certificates for all
amounts advanced by the Unaffiliated Seller pursuant to the second sentence of
Section 4.04(a)(ii) of the Unaffiliated Seller's Agreement except when the
relevant claim relates directly to the failure of the Unaffiliated Seller to
perform its duties in compliance with the terms of the Unaffiliated Seller's
Agreement.
Section 5.20. Maintenance of Corporate Existence and Licenses;
Merger or Consolidation of the Servicer. (a) The Servicer will keep in full
effect its existence, rights and franchises as a corporation, will obtain and
preserve its qualification to do business as a foreign corporation in each
jurisdiction necessary to protect the validity and enforceability of this
Agreement or any of the Mortgage Loans and to perform its duties under this
Agreement and will otherwise operate its business so as to cause the
representations and warranties under Section 3.01 to be true and correct at all
times under this Agreement.
(b) Any Person into which the Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Servicer shall be a party, or any Person succeeding
to the business of the Servicer, shall be an established mortgage loan servicing
institution that has a net worth of at least $15,000,000 and is a Permitted
Transferee, and in all events shall be the successor of the Servicer without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding. The Servicer
shall send notice of any such merger or consolidation to the Owner Trustee, the
Indenture Trustee, the Collateral Agent and the Note Insurer.
28
<PAGE>
Section 5.21. Assignment of Agreement by Servicer; Servicer
Not to Resign. The Servicer shall not assign this Agreement nor resign from the
obligations and duties hereby imposed on it except by mutual consent of the
Owner Trustee, on behalf of the Trust, at the direction of the Trust
Certificateholders, the Depositor, the Servicer, the Unaffiliated Seller, the
Note Insurer, the Collateral Agent and the Indenture Trustee or upon the
determination that the Servicer's duties hereunder are no longer permissible
under applicable law and that such incapacity cannot be cured by the Servicer
without incurring, in the reasonable judgment of the Note Insurer, unreasonable
expense. Any such determination that the Servicer's duties hereunder are no
longer permissible under applicable law permitting the resignation of the
Servicer shall be evidenced by a written Opinion of Counsel (who may be counsel
for the Servicer) to such effect delivered to the Indenture Trustee, the
Collateral Agent, the Unaffiliated Seller, the Trust, the Depositor and the Note
Insurer. No such resignation shall become effective until the Indenture Trustee
or a successor appointed in accordance with the terms of this Agreement has
assumed the Servicer's responsibilities and obligations hereunder in accordance
with Section 7.02. The Servicer shall provide the Indenture Trustee, the
Collateral Agent, the Rating Agencies and the Note Insurer with 30 days' prior
written notice of its intention to resign pursuant to this Section 5.21.
Section 5.22. Periodic Filings with the Securities and
Exchange Commission; Additional Information. The Indenture Trustee shall prepare
or cause to be prepared for filing with the Commission (other than the initial
Current Report on Form 8-K to be filed by the Depositor in connection with the
issuance of the Notes) any and all reports, statements and information
respecting the Trust and/or the Notes required to be filed, and shall solicit
any and all proxies of the Noteholders whenever such proxies are required to be
solicited, pursuant to the Securities Exchange Act of 1934, as amended. The
Depositor shall promptly file, and exercise its reasonable best efforts to
obtain a favorable response to, no-action requests with, or other appropriate
exemptive relief from, the Commission seeking the usual and customary exemption
from such reporting requirements granted to issuers of securities similar to the
Notes. Fees and expenses incurred by the Indenture Trustee in connection with
the foregoing shall be reimbursed pursuant to Section 6.16 of the Indenture and
shall not be paid by the Trust.
The Servicer and the Depositor each agree to promptly furnish
to the Indenture Trustee, from time to time upon request, such further
information, reports and financial statements as the Indenture Trustee deems
appropriate to prepare and file all necessary reports with the Commission.
ARTICLE VI
APPLICATION OF FUNDS
Section 6.01. Deposits to the Payment Account. On each
Servicer Payment Date, the Servicer shall cause to be deposited in the Payment
Account, from funds on deposit in the Collection Account, (a) an amount equal to
the Servicer Remittance Amount and (b) Net Foreclosure Profits, if any with
respect to the related Payment Date, minus any portion thereof payable to the
Servicer pursuant to Section 5.03. On each Servicer Payment Date, the Servicer
shall also deposit into the Payment Account any Periodic Advances with respect
to the related Payment Date calculated in accordance with Section 5.18 and any
29
<PAGE>
amounts required to be deposited in connection with a Subsequent Mortgage Loan
pursuant to Section 2.14(b) of the Indenture; on the Servicer Payment Date
occurring in April 2000, the Servicer also will deposit the related Special
Advance pursuant to Section 5.18(b).
Section 6.02. Collection of Money. Except as otherwise
expressly provided herein, the Indenture Trustee may demand payment or delivery
of all money and other property payable to or receivable by the Indenture
Trustee pursuant to this Agreement, including (a) all payments due on the
Mortgage Loans in accordance with the respective terms and conditions of such
Mortgage Loans and required to be paid over to the Indenture Trustee by the
Servicer or by any Subservicer and (b) Insured Payments. The Indenture Trustee
shall hold all such money and property received by it, as part of the Trust
Estate and shall apply it as provided in the Indenture.
Section 6.03. Application of Principal and Interest. In the
event that Net Liquidation Proceeds on a Liquidated Mortgage Loan are less than
the Principal Balance of the related Mortgage Loan plus accrued interest
thereon, or any Mortgagor makes a partial payment of any Monthly Payment due on
a Mortgage Loan, such Net Liquidation Proceeds or partial payment shall be
applied to payment of the related Mortgage Note as provided therein, and if not
so provided, first to interest accrued at the Mortgage Interest Rate and then to
principal.
Section 6.04. Information Concerning the Mortgage Loans. No
later than 12:00 noon Pennsylvania time on the fourth Business Day preceding
each Payment Date, the Servicer shall deliver to the Indenture Trustee a report
in computer-readable form containing such information as to each Mortgage Loan
and as to each Mortgage Loan Pool as of such Payment Date and such other
information as the Indenture Trustee shall reasonably require.
Section 6.05. Compensating Interest. Not later than the close
of business on the third Business Day prior to the Payment Date, the Servicer
shall remit to the Indenture Trustee (without right to reimbursement therefor)
for deposit into the related Payment Account, an amount equal to, for each
Mortgage Loan, the lesser of (a) the Prepayment Interest Shortfall for such
Mortgage Loan for the related Payment Date resulting from Principal Prepayments
during the related Due Period and (b) its Monthly Servicing Fees with respect to
such Mortgage Loan received in the related Due Period (the "Compensating
Interest").
Section 6.06. Effect of Payments by the Note Insurer;
Subrogation. Anything herein to the contrary notwithstanding, any payment with
respect to principal of or interest on the Notes which is made with moneys
received pursuant to the terms of the Policy shall not be considered payment of
the Notes from the Trust Estate. The Depositor, the Servicer, the Trust, the
Collateral Agent and the Indenture Trustee acknowledge and agree, that without
the need for any further action on the part of the Note Insurer, the Depositor,
the Servicer, the Trust, the Collateral Agent, the Indenture Trustee or the Note
Registrar (a) to the extent the Note Insurer makes payments, directly or
indirectly, on account of principal of or interest on the Notes to the Holders
of such Notes, the Note Insurer will be fully subrogated to, and each
Noteholder, the Servicer, the Depositor, the Trust, the Collateral Agent and the
30
<PAGE>
Indenture Trustee hereby delegate and assign to the Note Insurer, to the fullest
extent permitted by law, the rights of such Holders to receive such principal
and interest from the Trust Estate, including, without limitation, any amounts
due to the Noteholders in respect of securities law violations arising from the
offer and sale of the Notes, and (b) the Note Insurer shall be paid such amounts
from the sources and in the manner provided herein for the payment of such
amounts and as provided in the Insurance Agreement. The Indenture Trustee, the
Collateral Agent and the Servicer shall cooperate in all respects with any
reasonable request by the Note Insurer for action to preserve or enforce the
Note Insurer's rights or interests under this Agreement without limiting the
rights or affecting the interests of the Holders as otherwise set forth herein.
ARTICLE VII
SERVICER DEFAULT
Section 7.01. Servicer Events of Default. (a) The following
events shall each constitute a "Servicer Event of Default" hereunder:
(i) any failure by the Servicer to remit to the Indenture
Trustee any payment required to be made by the Servicer under the terms
of this Agreement (other than Servicing Advances covered by clause (ii)
below), which continues unremedied for one (1) Business Day after the
date upon which written notice of such failure, requiring the same to
be remedied, shall have been given to the Servicer and the Note Insurer
by the Indenture Trustee or to the Servicer and the Indenture Trustee
by the Note Insurer or Noteholders of Notes evidencing Percentage
Interests of at least 25%;
(ii) the failure by the Servicer to make any required
Servicing Advance, which failure continues unremedied for a period of
thirty (30) days after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to
the Servicer by the Indenture Trustee or to the Servicer and the
Indenture Trustee by any Noteholder or the Note Insurer;
(iii)any failure on the part of the Servicer duly to
observe or perform in any material respect any other of the covenants
or agreements on the part of the Servicer contained in this Agreement,
or the failure of any representation and warranty made pursuant to
Section 3.01(a) hereof to be true and correct which continues
unremedied for a period of thirty (30) days after the date on which
written notice of such failure, requiring the same to be remedied,
shall have been given to the Servicer by the Indenture Trustee or to
the Servicer and the Indenture Trustee by any Noteholder or the Note
Insurer;
(iv) a decree or order of a court or agency or supervisory
authority having jurisdiction in an involuntary case under any present
or future federal or state bankruptcy, insolvency or similar law or for
the appointment of a conservator or receiver or liquidation in any
insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against the Servicer and such decree
or order shall have remained in force, undischarged or unstayed for a
period of ninety (90) days;
(v) the Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
31
<PAGE>
of debt, marshalling of assets and liabilities or similar proceedings
of or relating to the Servicer or of or relating to all or
substantially all of the Servicer's property;
(vi) the Servicer shall admit in writing its inability
generally to pay its debts as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute, make
an assignment for the benefit of its creditors, or voluntarily suspend
payment of its obligations;
(vii)the Note Insurer shall notify the Indenture Trustee
of any "event of default" under the Insurance Agreement;
(viii) if on any Payment Date the Rolling Six Month
Delinquency Rate exceeds 12.50% of the sum of aggregate outstanding
Principal Balance for the Mortgage Loans and any amount on deposit in
the Pre-Funding Accounts;
(ix) if on any Payment Date, commencing in March 2001, the
Twelve Month Loss Amount exceeds 2.50% of the sum of aggregate
outstanding Principal Balance for the Mortgage Loans and any amount on
deposit in the Pre-Funding Accounts, as of the close of business on the
first day of the twelfth preceding calendar month;
(x) if on any Payment Date, the occurrence of a Company
Stockholder's Equity Trigger; and
(xi) the occurrence of an Event of Default under the
Indenture.
(b) So long as a Servicer Event of Default shall have occurred
and not have been remedied: (x) with respect solely to Section 7.01(a)(i), if
such payment is in respect of Periodic Advances or Compensating Interest owing
by the Servicer and such payment is not made by 12:00 noon New York time on the
second Business Day prior to the applicable Payment Date, the Indenture Trustee,
upon receipt of written notice or discovery by a Responsible Officer of such
failure, shall give immediate telephonic and facsimile notice of such failure to
a Servicing Officer of the Servicer and to the Note Insurer and the Indenture
Trustee shall, with the consent of the Note Insurer, terminate all of the rights
and obligations of the Servicer under this Agreement, except for the Servicer's
indemnification obligation under Section 5.19, and the Indenture Trustee, or a
successor Servicer appointed in accordance with Section 7.02, shall immediately
make such Periodic Advance or payment of Compensating Interest and assume,
pursuant to Section 7.02 hereof, the duties of a successor Servicer; (y) with
respect to that portion of Section 7.01(a)(i) not referred to in the preceding
clause (x) and with respect to clauses (ii), (iii), (iv), (v), (vi) and (vii) of
Section 7.01, the Indenture Trustee shall, but only at the direction of the Note
Insurer or the Majority Noteholders, by notice in writing to the Servicer and a
Responsible Officer of the Indenture Trustee and subject to the prior written
consent of the Note Insurer, in the case of any removal at the direction of the
Majority Noteholders, and in addition to whatever rights such Noteholders may
have at law or equity to damages, including injunctive relief and specific
performance, terminate all the rights and obligations of the Servicer under this
32
<PAGE>
Agreement, except for the Servicer's indemnification obligations under Section
5.19, and in and to the Mortgage Loans and the proceeds thereof, as servicer;
and (z) with respect to clauses (viii)-(x) of Section 7.01(a), the Indenture
Trustee shall, but only at the direction of the Note Insurer, after notice in
writing to the Servicer and a Responsible Officer of the Indenture Trustee,
terminate all the rights and obligations of the Servicer under this Agreement,
except for the Servicer's indemnification obligations under Section 5.19, and in
and to the Mortgage Loans and the proceeds thereof, as Servicer. Upon receipt by
the Servicer of such written notice, all authority and power of the Servicer
under this Agreement, whether with respect to the Mortgage Loans or otherwise,
shall, subject to Section 7.02, pass to and be vested in the Indenture Trustee,
or its designee approved by the Note Insurer, and the Indenture Trustee is
hereby authorized and empowered to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, at the expense of the Servicer, any
and all documents and other instruments and do or cause to be done all other
acts or things necessary or appropriate to effect the purposes of such notice of
termination, including, but not limited to, the transfer and endorsement or
assignment of the Mortgage Loans and related documents. The Servicer agrees to
cooperate (and pay any related costs and expenses) with the Indenture Trustee in
effecting the termination of the Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the Indenture Trustee,
or its designee, for administration by it of all amounts which shall at the time
be credited by the Servicer to the Collection Account or thereafter received
with respect to the Mortgage Loans. The Indenture Trustee shall promptly notify
the Note Insurer and the Rating Agencies of the occurrence of a Servicer Event
of Default.
Section 7.02. Indenture Trustee to Act; Appointment of
SuccessorOn and after the time the Servicer receives a notice of termination
pursuant to Section 7.01 or the Indenture Trustee receives the resignation of
the Servicer evidenced by an Opinion of Counsel pursuant to Section 5.21, or the
Servicer is removed as Servicer pursuant to this Article VII, in which event the
Indenture Trustee shall promptly notify the Rating Agencies, except as otherwise
provided in Section 7.01, the Indenture Trustee shall be the successor in all
respects to the Servicer in its capacity as servicer under this Agreement and
the transactions set forth or provided for herein and shall be subject to all
the responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof arising on or after the date of
succession; provided, however, that the Indenture Trustee shall not be liable
for any actions or the representations and warranties of any Servicer prior to
it and including, without limitation, the obligations of the Servicer set forth
in Sections 2.06 and 4.02 hereof. The Indenture Trustee, as successor Servicer,
shall be obligated to pay Compensating Interest pursuant to Section 6.05 in any
event and to make advances pursuant to Section 5.18 unless, and only to the
extent the Indenture Trustee determines reasonably and in good faith that such
advances would not be recoverable pursuant to Section 5.04, such determination
to be evidenced by a certification of a Responsible Officer of the Indenture
Trustee delivered to the Note Insurer.
(b) Notwithstanding the above, the Indenture Trustee may, if
it shall be unwilling to so act, or shall, if it is unable to so act or if the
Majority Noteholders with the consent of the Note Insurer or the Note Insurer so
requests in writing to the Indenture Trustee, appoint, pursuant to such
direction of the Majority Noteholders and Note Insurer or the Note Insurer, or
if no such direction is provided to the Indenture Trustee, pursuant to the
provisions set forth in Section 7.02(c), or petition a court of competent
jurisdiction to appoint, any established mortgage loan servicing institution
acceptable to the Note Insurer that has a net worth of not less than $15,000,000
as the successor to the Servicer hereunder in the assumption of all or any part
of the responsibilities, duties or liabilities of the Servicer hereunder.
33
<PAGE>
(c) In the event the Indenture Trustee is the successor
Servicer, it shall be entitled to the same Servicing Compensation (including the
Servicing Fee as adjusted pursuant to the definition thereof) and other funds
pursuant to Section 5.08 hereof as the Servicer if the Servicer had continued to
act as servicer hereunder. In the event the Indenture Trustee is unable or
unwilling to act as successor Servicer, the Indenture Trustee shall solicit, by
public announcement, bids from housing and home finance institutions, banks and
mortgage servicing institutions meeting the qualifications set forth above. Such
public announcement shall specify that the successor servicer shall be entitled
to the full amount of the aggregate Servicing Fees hereunder as servicing
compensation, together with the other Servicing Compensation. Within thirty (30)
days after any such public announcement, the Indenture Trustee shall negotiate
and effect the sale, transfer and assignment of the servicing rights and
responsibilities hereunder to the qualified party submitting the highest
qualifying bid. The Indenture Trustee shall deduct from any sum received by the
Indenture Trustee from the successor to the Servicer in respect of such sale,
transfer and assignment all costs and expenses of any public announcement and of
any sale, transfer and assignment of the servicing rights and responsibilities
hereunder and the amount of any unreimbursed Servicing Advances and Periodic
Advances owed to the Indenture Trustee. After such deductions, the remainder of
such sum shall be paid by the Indenture Trustee to the Servicer at the time of
such sale, transfer and assignment to the Servicer's successor.
(d) The Indenture Trustee and such successor shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any
such succession. The Servicer agrees to cooperate with the Indenture Trustee and
any successor Servicer in effecting the termination of the Servicer's servicing
responsibilities and rights hereunder and shall promptly provide the Indenture
Trustee or such successor Servicer, as applicable, at the Servicer's cost and
expense, all documents and records reasonably requested by it to enable it to
assume the Servicer's functions hereunder and shall promptly also transfer to
the Indenture Trustee or such successor servicer, as applicable, all amounts
that then have been or should have been deposited in the Collection Account by
the Servicer or that are thereafter received with respect to the Mortgage Loans.
Any collections received by the Servicer after such removal or resignation shall
be endorsed by it to the Indenture Trustee and remitted directly to the
Indenture Trustee or, at the direction of the Indenture Trustee, to the
successor Servicer. Neither the Indenture Trustee nor any other successor
Servicer shall be held liable by reason of any failure to make, or any delay in
making, any payment hereunder or any portion thereof caused by (i) the failure
of the Servicer to deliver, or any delay in delivering, cash, documents or
records to it, or (ii) restrictions imposed by any regulatory authority having
jurisdiction over the Servicer hereunder. Notwithstanding anything to the
contrary herein, no appointment of a successor Servicer under this Agreement
shall be effective until the Indenture Trustee and the Note Insurer shall have
consented thereto, and written notice of such proposed appointment shall have
been provided by the Indenture Trustee to the Note Insurer and to each
Noteholder. The Indenture Trustee shall not resign as Servicer until a successor
Servicer reasonably acceptable to the Note Insurer has been appointed. The Note
Insurer shall have the right to remove the Indenture Trustee as successor
Servicer under this Section 7.02 without cause, and the Indenture Trustee shall
appoint such other successor Servicer as directed by the Note Insurer.
(e) Pending appointment of a successor Servicer hereunder, the
Indenture Trustee shall act in such capacity as hereinabove provided. In
connection with such appointment and assumption, the Indenture Trustee may make
such arrangements for the compensation of such successor Servicer out of
34
<PAGE>
payments on Mortgage Loans as it and such successor shall agree; provided,
however, that no such compensation shall be in excess of that permitted the
Servicer pursuant to Section 5.08, together with other Servicing Compensation.
The Servicer, the Indenture Trustee and such successor Servicer shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any
such succession.
Section 7.03. Waiver of Defaults. The Majority Noteholders
may, on behalf of all Noteholders, and subject to the consent of the Note
Insurer, waive any events permitting removal of the Servicer as servicer
pursuant to this Article VII; provided, however, that the Majority Noteholders
may not waive a default in making a required payment 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 Servicer Event of Default arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereto except to the extent expressly so waived.
Notice of any such waiver shall be given by the Indenture Trustee to the Rating
Agencies and the Note Insurer.
Section 7.04. Rights of the Note Insurer to Exercise Rights of
the Noteholders. By accepting its Note, each Noteholder agrees that unless a
Note Insurer Default exists, the Note Insurer shall be deemed to be the
Noteholders for all purposes (other than with respect to the receipt of payment
on the Notes) and shall have the right to exercise all rights of the Noteholders
under this Agreement and under the Notes without any further consent of the
Noteholders, including, without limitation:
(a) the right to require the Unaffiliated Seller to repurchase
Mortgage Loans pursuant to Sections 2.06 and 4.02 hereof to the extent set forth
therein;
(b) the right to give notices of breach or to terminate the
rights and obligations of the Servicer as servicer pursuant to Section 7.01
hereof and to consent to or direct waivers of Servicer defaults pursuant to
Section 7.03 hereof;
(c) the right to direct the actions of the Indenture Trustee
during the continuance of a Servicer Event of Default pursuant to Sections 7.01
and 7.02 hereof;
(d) the right to institute proceedings against the Servicer
pursuant to Section 7.01 hereof;
(e) the right to remove the Indenture Trustee pursuant to
Section 6.09 of the Indenture;
(f) the right to direct foreclosures upon the failure of the
Servicer to do so in accordance with the provisions of Section 5.06 of this
Agreement; and
(g) any rights or remedies expressly given the Majority
Noteholders.
In addition, each Noteholder agrees that, subject to Section
10.02, unless a Note Insurer Default exists, the rights specifically enumerated
above may only be exercised by the Noteholders with the prior written consent of
the Note Insurer.
35
<PAGE>
Section 7.05. Indenture Trustee To Act Solely with Consent of
the Note Insurer. Unless a Note Insurer Default exists, the Indenture Trustee
shall not, without the Note Insurer's consent or unless directed by the Note
Insurer:
(a) terminate the rights and obligations of the Servicer as
Servicer pursuant to Section 7.01 hereof;
(b) agree to any amendment pursuant to Section 10.03 hereof;
or
(c) undertake any litigation.
The Note Insurer may, in writing and in its sole discretion
renounce all or any of its rights under Sections 7.04, 7.05 or 7.06 or any
requirement for the Note Insurer's consent for any period of time.
Section 7.06. Mortgage Loans, Trust Estate and Accounts Held
for Benefit of the Note Insurer. (a) The Indenture Trustee shall hold the Trust
Estate and the Indenture Trustee's Mortgage Files, for the benefit of the
Noteholders and the Note Insurer, and all references in this Agreement and in
the Notes to the benefit of Noteholders shall be deemed to include the Note
Insurer. The Indenture Trustee shall cooperate in all reasonable respects with
any reasonable request by the Note Insurer for action to preserve or enforce the
Note Insurer's rights or interests under this Agreement and the Notes unless, as
stated in an Opinion of Counsel addressed to the Indenture Trustee and the Note
Insurer, such action is adverse to the interests of the Noteholders or
diminishes the rights of the Noteholders or imposes additional burdens or
restrictions on the Noteholders.
(b) The Servicer hereby acknowledges and agrees that it shall
service the Mortgage Loans for the benefit of the Noteholders and for the
benefit of the Note Insurer, and all references in this Agreement to the benefit
of or actions on behalf of the Noteholders shall be deemed to include the Note
Insurer.
Section 7.07. Note Insurer Default. Notwithstanding anything
elsewhere in this Agreement or in the Notes to the contrary, if a Note Insurer
Default exists, or if and to the extent the Note Insurer has delivered its
written renunciation of all of its rights under this Agreement, the provisions
of this Article VII and all other provisions of this Agreement which (a) permit
the Note Insurer to exercise rights of the Noteholders, (b) restrict the ability
of the Noteholders, the Servicer, the Collateral Agent or the Indenture Trustee
to act without the consent or approval of the Note Insurer, (c) provide that a
particular act or thing must be acceptable to the Note Insurer, (d) permit the
Note Insurer to direct (or otherwise to require) the actions of the Indenture
Trustee, the Collateral Agent, the Servicer or the Noteholders, (e) provide that
any action or omission taken with the consent, approval or authorization of the
Note Insurer shall be authorized hereunder or shall not subject the party taking
or omitting to take such action to any liability hereunder or (f) which have a
similar effect, shall be of no further force and effect and the Indenture
Trustee shall administer the Trust Estate and perform its obligations hereunder
solely for the benefit of the Holders of the Notes. Nothing in the foregoing
sentence, nor any action taken pursuant thereto or in compliance therewith,
shall be deemed to have released the Note Insurer from any obligation or
liability it may have to any party or to the Noteholders hereunder, under any
other agreement, instrument or document (including, without limitation, the
Policy) or under applicable law.
36
<PAGE>
ARTICLE VIII
TERMINATION
Section 8.01. Termination. (a) Subject to Section 8.02, this
Agreement shall terminate upon notice to the Indenture Trustee of either: (i)
the disposition of all funds with respect to the last Mortgage Loan and the
remittance of all funds due hereunder and the payment of all amounts due and
payable to the Note Insurer and the Indenture Trustee or (ii) mutual consent of
the Owner Trustee, on behalf of the Trust, at the direction of the Trust
Certificateholders, the Indenture Trustee, the Collateral Agent, the Servicer,
the Note Insurer and all Noteholders in writing.
(b) In addition, subject to Section 8.02, certain of the Trust
Certificateholders or the Servicer may, at their respective option and at their
respective sole cost and expense, call the Notes or terminate the Trust in
accordance with the terms of Section 10.01 of the Indenture.
(c) If on any Payment Date, the Servicer determines that there
are no outstanding Mortgage Loans and no other funds or assets in the Trust
Estate other than funds in the Payment Account, the Servicer shall send a final
payment notice promptly to each Noteholder in accordance with Section 8.01(d).
(d) Notice of any termination, specifying the Payment Date
upon which the Trust will terminate and the Noteholders shall surrender their
Notes to the Indenture Trustee for final payment and cancellation, shall be
given promptly by the Servicer by letter to Noteholders mailed during the month
of such final payment before the Servicer Payment Date in such month, specifying
(i) the Payment Date upon which final payment of the Notes will be made upon
presentation and surrender of Notes at the office of the Indenture Trustee
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 Notes at the
office of the Indenture Trustee therein specified. The Servicer shall give such
notice to the Indenture Trustee therein specified at the time such notice is
given to Noteholders. The obligations of the Note Insurer hereunder shall
terminate upon the deposit by the Servicer with the Indenture Trustee of a sum
sufficient to purchase all of the Mortgage Loans and REO Properties as set forth
in Section 10.01 of the Indenture or when the Note Principal Balance of the
Notes has been reduced to zero.
(e) In the event that all of the Noteholders do not surrender
their Notes for cancellation within six (6) months after the time specified in
the above-mentioned written notice, the Servicer shall give a second written
notice to the remaining Noteholders to surrender their Notes for cancellation
and receive the final payment with respect thereto. If within six (6) months
after the second notice, all of the Notes shall not have been surrendered for
cancellation, the Indenture Trustee may take appropriate steps, or may appoint
an agent to take appropriate steps, to contact the remaining Noteholders
concerning surrender of their Notes and the cost thereof shall be paid out of
37
<PAGE>
the funds and other assets which remain subject hereto. If within nine (9)
months after the second notice all the Notes shall not have been surrendered for
cancellation, the related Trust Certificateholders shall 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 only to the related Trust
Certificateholders for payment and not to the Note Insurer. Such funds shall
remain uninvested.
Section 8.02. Additional Termination Requirements. By their
acceptance of the Notes, the Holders thereof hereby agree to appoint the
Servicer as their attorney in fact to: (i) adopt such a plan of complete
liquidation (and the Noteholders hereby appoint the Indenture Trustee as their
attorney in fact to sign such plan) as appropriate or upon the written request
of the Note Insurer and (ii) to take such other action in connection therewith
as may be reasonably required to carry out such plan of complete liquidation all
in accordance with the terms hereof.
Section 8.03. Accounting Upon Termination of Servicer. Upon
termination of the Servicer, the Servicer shall, at its expense:
(a) deliver to the successor Servicer or, if none shall yet
have been appointed, to the Indenture Trustee, the funds in any Account;
(b) deliver to the successor Servicer or, if none shall yet
have been appointed, to the Indenture Trustee all Indenture Trustee's Mortgage
Files and related documents and statements held by it hereunder and a Mortgage
Loan portfolio computer tape;
(c) deliver to the successor Servicer or, if none shall yet
have been appointed, to the Indenture Trustee and, upon request, to the
Noteholders a full accounting of all funds, including a statement showing the
Monthly Payments collected by it and a statement of monies held in trust by it
for the payments or charges with respect to the Mortgage Loans; and
(d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer of
servicing of the Mortgage Loans to the successor Servicer and to more fully and
definitively vest in such successor all rights, powers, duties,
responsibilities, obligations and liabilities of the Servicer under this
Agreement.
ARTICLE IX
THE COLLATERAL AGENT
Section 9.01. Duties of the Collateral Agent. (a) The
Collateral Agent, prior to the occurrence of an Event of Default and after the
curing of all Events of Default which may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in this
Agreement. If an Event of Default has occurred and has not been cured or waived,
the Collateral Agent shall exercise such of the rights and powers vested in it
by this Agreement, and use the same degree of care and skill in its exercise as
a prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
38
<PAGE>
(b) The Collateral Agent, upon receipt of all resolutions,
certificates, statements, opinions, reports, documents, orders or other
instruments furnished to the Collateral Agent which are specifically required to
be furnished pursuant to any provision of this Agreement, shall examine them to
determine whether they conform on their face to the requirements of this
Agreement; provided, however, that the Collateral Agent shall not be responsible
for the accuracy or content of any resolution, certificate, statement, opinion,
report, document, order or other instrument furnished by any Person hereunder.
If any such instrument is found not to conform on its face to the requirements
of this Agreement, the Collateral Agent shall note it as such on the Initial
Certification or Final Certification delivered pursuant to Section 2.06(b).
(c) No provision of this Agreement shall be construed to
relieve the Collateral Agent from liability for its own negligent action, its
own negligent failure to act or its own willful misconduct; provided, however,
that:
(i) prior to the occurrence of an Event of Default, and
after the curing of all such Events of Default which may have occurred,
the duties and obligations of the Collateral Agent shall be determined
solely by the express provisions of this Agreement, the Collateral
Agent shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Agreement, no implied
covenants or obligations shall be read into this Agreement against the
Collateral Agent and, in the absence of bad faith on the part of the
Collateral Agent, the Collateral Agent may conclusively rely, as to the
truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Collateral
Agent and conforming to the requirements of this Agreement;
(ii) the Collateral Agent shall not be personally liable
for an error of judgment made in good faith by a Responsible Officer or
other officers of the Collateral Agent, unless it shall be proved that
the Collateral Agent was negligent in ascertaining the pertinent facts;
(iii)the Collateral Agent shall not be personally liable
with respect to any action taken, suffered or omitted to be taken by it
in good faith in accordance with the direction of the Note Insurer or
the Indenture Trustee or with the consent of the Note Insurer or the
Indenture Trustee;
(iv) the Collateral Agent shall not be required to expend
or risk its own funds or otherwise incur financial liability for the
performance of any of its duties hereunder or the exercise of any of
its rights or powers if there is reasonable ground for believing that
the repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it and none of the provisions
contained in this Agreement shall in any event require the Collateral
Agent to perform, or be responsible for the manner of performance of,
any of the obligations of the Servicer or the Indenture Trustee under
this Agreement; and
(v) subject to the other provisions of this Agreement and
without limiting the generality of this Section 9.01, the Collateral
Agent shall have no duty (A) to see to any recording, filing, or
39
<PAGE>
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, (C) to see to the payment or
discharge of any tax, assessment, or other governmental charge or any
lien or encumbrance of any kind owing with respect to, assessed or
levied against, any part of the Trust, the Trust Estate, the
Noteholders or the Mortgage Loans, (D) to confirm or verify the
contents of any reports or certificates of any Person delivered to the
Collateral Agent pursuant to this Agreement believed by the Collateral
Agent to be genuine and to have been signed or presented by the proper
party or parties.
Section 9.02. Certain Matters Affecting the Collateral Agent.
Except as otherwise provided in Section 9.01 hereof:
(a) the Collateral Agent may rely and shall be protected in
acting or refraining from acting upon any resolution, Officer's Certificate,
Opinion of Counsel, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal, bond or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) the Collateral Agent may consult with counsel and any
Opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it hereunder in good faith
and in accordance with such Opinion of Counsel;
(c) the Collateral Agent shall be under no obligation to
exercise any of the powers vested in it by this Agreement or to institute,
conduct or defend by litigation hereunder or in relation hereto at the request,
order or direction of the Note Insurer or any of the Noteholders, pursuant to
the provisions of this Agreement, unless such Noteholders or the Note Insurer,
as applicable, shall have offered to the Indenture Trustee reasonable security
or indemnity against the costs, expenses and liabilities which may be incurred
therein by the Collateral Agent or thereby; nothing contained herein shall,
however, relieve the Collateral Agent of the obligation, upon the occurrence of
an Event of Default (which has not been cured), to exercise such of the rights
and powers vested in it by this Agreement, and to use the same degree of care
and skill in its exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs;
(d) the Collateral Agent shall not be personally liable for
any action taken, suffered or omitted by it in good faith and believed by it to
be authorized or within the discretion or rights or powers conferred upon it by
this Agreement;
(e) the Collateral Agent 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 Note Insurer or Holders of Class A Notes evidencing Percentage Interests
aggregating not less than 25%; provided, however, that if the payment within a
reasonable time to the Collateral Agent of the costs, expenses or liabilities
40
<PAGE>
likely to be incurred by it in the making of such investigation is, in the
opinion of the Collateral Agent, not reasonably assured to the Collateral Agent
by the security afforded to it by the terms of this Agreement, the Collateral
Agent may require reasonable indemnity against such expense or liability as a
condition to taking any such action. The reasonable expense of every such
examination shall be paid by the Servicer or, if paid by the Collateral Agent,
shall be repaid by the Servicer upon demand from the Servicer's own funds;
(f) the right of the Collateral Agent to perform any
discretionary act enumerated in this Agreement shall not be construed as a duty,
and the Collateral Agent shall not be answerable for anything other than its
negligence or willful misconduct in the performance of such act;
(g) the Collateral Agent may execute any of the powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys.
Section 9.03. Collateral Agent Not Liable for Notes or
Mortgage Loans. (a) The recitals contained herein shall be taken as the
statements of the Trust and the Servicer, as the case may be, and the Collateral
Agent assumes no responsibility for their correctness. The Collateral Agent
makes no representations as to the validity or sufficiency of this Agreement or
of any Mortgage Loan or related document. The Collateral Agent shall not be
accountable for the use or application of any funds paid to the Servicer in
respect of the Mortgage Loans or deposited in or withdrawn from the Collection
Account by the Servicer. The Collateral Agent shall not be responsible for the
legality or validity of the Agreement or the validity, priority, perfection or
sufficiency of the security for the Notes issued or intended to be issued under
the Indenture.
Section 9.04. Collateral Agent May Own Notes. (a) The
Collateral Agent in its individual or any other capacity may become the owner or
pledgor of Notes with the same rights it would have if it were not Collateral
Agent, and may otherwise deal with the parties hereto.
Section 9.05. Collateral Agent's Fees and Expenses; Indemnity.
(a) The Collateral Agent acknowledges that in consideration of the performance
of its duties hereunder it is entitled to receive its fees and expenses from the
Servicer, as separately agreed between the Servicer and the Collateral Agent.
The Trust, the Depositor, the Indenture Trustee and the Note Insurer shall not
pay any of the Collateral Agent fees and expenses in connection with this
transaction. The Collateral Agent shall not be entitled to compensation for any
expense, disbursement or advance as may arise from its negligence or bad faith,
and the Collateral Agent shall have no lien on the Trust Estate for the payment
of its fees and expenses.
(b) The Collateral Agent and any director, officer, employee
or agent of the Collateral Agent shall be indemnified by the Servicer and held
harmless against any loss, liability, claim, damage or expense arising out of,
or imposed upon the Trust Estate or the Collateral Agent through the Servicer's
acts or omissions in violation of this Agreement, other than any loss, liability
or expense incurred by reason of willful misfeasance, bad faith or negligence of
the Collateral Agent in the performance of its duties hereunder or by reason of
the Collateral Agent 's reckless disregard of obligations and duties hereunder.
The obligations of the Servicer under this Section 9.05 arising prior to any
resignation or termination of the Servicer hereunder shall survive termination
of the Servicer and payment of the Notes.
41
<PAGE>
Section 9.06. Eligibility Requirements for Collateral Agent.
The Collateral Agent hereunder shall at all times be a banking entity (a)
organized and doing business under the laws of any state or the United States of
America subject to supervision or examination by federal or state authority, (b)
authorized under such laws to exercise corporate trust powers, including taking
title to the Trust Estate on behalf of the Indenture Trustee, for the benefit of
the Noteholders and the Note Insurer, (c) having a combined capital and surplus
of at least $50,000,000, (d) whose long-term deposits, if any, shall be rated at
least BBB- by S&P and Baa3 by Moody's (except as provided herein) or such lower
long-term deposit rating as may be approved in writing by the Note Insurer, and
(e) reasonably acceptable to the Note Insurer as evidenced in writing. If such
banking entity 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 determining an entity's combined capital and surplus for
clause (c) of this Section 9.06, the amount set forth in its most recent report
of condition so published shall be deemed to be its combined capital and
surplus. In case at any time the Collateral Agent shall cease to be eligible in
accordance with the provisions of this Section 9.06, the Collateral Agent shall
resign immediately in the manner and with the effect specified in Section 9.07.
Section 9.07. Resignation and Removal of the Collateral Agent.
(a) The Collateral Agent may at any time resign and be discharged from the
trusts hereby created by giving thirty (30) days' written notice thereof to the
Indenture Trustee, the Servicer, and the Note Insurer.
(b) If at any time the Collateral Agent shall cease to be
eligible in accordance with the provisions of Section 9.06 and shall fail to
resign after written request therefor by the Indenture Trustee, the Servicer or
the Note Insurer, or if at any time the Collateral Agent shall become incapable
of acting, or shall be adjudged bankrupt or insolvent, or a receiver of the
Collateral Agent or of its property shall be appointed, or any public officer
shall take charge or control of the Collateral Agent or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Indenture Trustee or the Servicer, with the consent of the Note Insurer, or the
Note Insurer may remove the Collateral Agent.
(c) If the Collateral Agent fails to perform in accordance
with the terms of this Agreement, the Indenture Trustee, the Servicer or the
Majority Noteholders, with the consent of the Note Insurer, or the Note Insurer
may remove the Collateral Agent.
(d) Upon removal or receipt of notice of resignation of the
Collateral Agent, the Indenture Trustee shall either (i) take possession of the
Indenture Trustee's Mortgage Files and assume the duties of the Collateral Agent
hereunder or (ii) appoint a successor Collateral Agent pursuant to Section 9.08.
If the Indenture Trustee shall assume the duties of the Collateral Agent
hereunder, it shall notify the Trust, the Depositor, the Servicer and Note
Insurer in writing.
Section 9.08. Successor Collateral Agent. Upon the resignation
or removal of the Collateral Agent, the Indenture Trustee may appoint a
successor Collateral Agent, with the written approval of the Note Insurer;
provided, however, that the successor Collateral Agent so appointed shall in no
event be the Unaffiliated Seller, the Depositor or the Servicer or any Person
known to a Responsible Officer of the Indenture Trustee to be an Affiliate of
42
<PAGE>
the Unaffiliated Seller, the Depositor or the Servicer and shall be approved by
the Note Insurer. The Indenture Trustee or such custodian, as the case may be,
shall assume the duties of the Collateral Agent hereunder. Any successor
Collateral Agent appointed as provided in this Section 9.08 shall execute,
acknowledge and deliver to the Trust, the Depositor, the Note Insurer, the
Servicer, the Indenture Trustee and to its predecessor Collateral Agent an
instrument accepting such appointment hereunder, and thereupon the resignation
or removal of the predecessor Collateral Agent shall become effective and such
successor Collateral Agent, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with the like effect as if originally named as Collateral
Agent herein. The predecessor Collateral Agent shall deliver to the successor
Collateral Agent all Indenture Trustee's Mortgage Files and related documents
and statements held by it hereunder, and the Servicer and the predecessor
Collateral Agent shall execute and deliver such instruments and do such other
things as may reasonably be required for more fully and certainly vesting and
confirming in the successor Collateral Agent all such rights, powers, duties and
obligations. The cost of any such transfer to the successor Collateral Agent
shall be for the account of the Collateral Agent in the event of the resignation
of the Collateral Agent, and shall be for the account of the Servicer in the
event of the removal of the Collateral Agent. No successor Collateral Agent
shall accept appointment as provided in this Section 9.08 unless at the time of
such acceptance such successor Collateral Agent shall be eligible under the
provisions of Section 9.06. Upon acceptance of appointment by a successor
Collateral Agent as provided in this Section 9.08, the Servicer shall mail
notice of the succession of such Collateral Agent hereunder to all Noteholders
at their addresses as shown in the Note Register and to the Rating Agencies. If
the Servicer fails to mail such notice within ten (10) days after acceptance of
appointment by the successor Collateral Agent, the successor Collateral Agent
shall cause such notice to be mailed at the expense of the Servicer.
Section 9.09. Merger or Consolidation of Collateral Agent. Any
Person into which the Collateral Agent may be merged or converted or with which
it may be consolidated or any corporation or national banking association
resulting from any merger, conversion or consolidation to which the Collateral
Agent shall be a party, or any corporation or national banking association
succeeding to the business of the Collateral Agent, shall be the successor of
the Collateral Agent hereunder; provided, that such corporation or national
banking association shall be eligible under the provisions of Section 9.06,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.01. Limitation on Liability. None of the Trust, the
Owner Trustee, the Depositor, the Servicer, the Collateral Agent, the Indenture
Trustee or any of the directors, officers, employees or agents of such Persons
shall be under any liability to the Trust, the Noteholders or the Note Insurer
for any action taken, or for refraining from the taking of any action, in good
faith pursuant to this Agreement, or for errors in judgment; provided, however,
that this provision shall not protect the Trust, the Owner Trustee, the
43
<PAGE>
Depositor, the Servicer, the Collateral Agent, the Indenture Trustee or any such
Person against any breach of warranties or representations made herein by such
party, or against any specific liability imposed on each such party pursuant to
this Agreement or against any liability which would otherwise be imposed upon
such party by reason of willful misfeasance, bad faith or gross negligence in
the performance of duties or by reason of reckless disregard of obligations or
duties hereunder. The Trust, the Owner Trustee, the Depositor, the Servicer, the
Collateral Agent, the Indenture Trustee and any director, officer, employee or
agent of such Person may rely in good faith on any document of any kind which,
prima facie, is properly executed and submitted by any appropriate Person
respecting any matters arising hereunder.
Section 10.02. Acts of Noteholders. (a) Except as otherwise
specifically provided herein, whenever Noteholder action, consent or approval is
required under this Agreement, such action, consent or approval shall be deemed
to have been taken or given on behalf of, and shall be binding upon, all
Noteholders if the Majority Noteholders or the Note Insurer agrees to take such
action or give such consent or approval.
(b) The death or incapacity of any Noteholder shall not
operate to terminate this Agreement or the Trust, nor entitle such Noteholder'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 the Trust, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
(c) No Noteholder shall have any right to vote (except as
expressly provided for herein) or in any manner otherwise control the operation
and management of the Trust, or the obligations of the parties hereto, nor shall
anything herein set forth, or contained in the terms of the Notes, be construed
so as to constitute the Noteholders from time to time as partners or members of
an association; nor shall any Noteholder be under any liability to any third
person by reason of any action taken by the parties to this Agreement pursuant
to any provision hereof.
Section 10.03. Amendment. (a) This Agreement may be amended
from time to time by the Owner Trustee, on behalf of the Trust, the Servicer,
the Depositor, the Collateral Agent and the Indenture Trustee by written
agreement, upon the prior written consent of the Note Insurer, without notice to
or consent of the Noteholders to cure any ambiguity, to correct or supplement
any provisions herein, to comply with any changes in the Code, or to make any
other provisions with respect to matters or questions arising under this
Agreement which shall not be inconsistent with the provisions of this Agreement;
provided, however, that such action shall not, as evidenced by (i) an Opinion of
Counsel, at the expense of the party requesting the change, delivered to the
Indenture Trustee or (ii) a letter from each Rating Agency confirming that such
action will not result in the reduction, qualification or withdrawal of the
then-current ratings on the Notes, adversely affect in any material respect the
interests of any Noteholder; and provided further, that no such amendment shall
reduce in any manner the amount of, or delay the timing of, payments received on
Mortgage Loans which are required to be paid on any Note without the consent of
such Noteholder, or change the rights or obligations of any other party hereto
without the consent of such party. The Indenture Trustee shall give prompt
written notice to the Rating Agencies of any amendment made pursuant to this
Section 10.03.
(b) This Agreement may be amended from time to time by the
Owner Trustee, on behalf of the Trust, the Servicer, the Depositor, the
44
<PAGE>
Collateral Agent and the Indenture Trustee, with the consent of the Note
Insurer, the Majority Noteholders and the Holder of the majority of the
Percentage Interest of the Trust Certificates, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Noteholders;
provided, however, that no such amendment shall reduce in any manner the amount
of, or delay the timing of, payments received on Mortgage Loans which are
required to be paid on any Class of Notes without the consent of the Holders of
such Class of Notes or reduce the percentage for the Holders of which are
required to consent to any such amendment without the consent of the Holders of
100% of such Class of Notes affected thereby.
(c) It shall not be necessary for the consent of Holders under
this Section 10.03 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof.
(d) In executing, or accepting the additional trusts created
by, any supplemental indenture permitted by Article IX of the Indenture or the
modifications thereby of the trusts created by the Indenture, the Indenture
Trustee shall be entitled to receive, and (subject to Section 6.01 of the
Indenture) shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by the Indenture. The Indenture Trustee may, but shall not be
obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties or immunities under the Indenture or
otherwise. The Servicer, on behalf of the Trust, shall cause executed copies of
any supplemental indentures to be delivered to the Note Insurer and the Rating
Agencies.
Section 10.04. Recordation of Agreement. To the extent
permitted by applicable law, this Agreement, or a memorandum thereof if
permitted under applicable law, is subject to recordation in all appropriate
public offices for real property records in all of the counties or other
comparable jurisdictions in which any or all of the properties subject to the
Mortgages are situated, and in any other appropriate public recording office or
elsewhere, such recordation to be effected by the Servicer at the Noteholders'
expense on direction and at the expense of Majority Noteholders requesting such
recordation, but only when accompanied by an Opinion of Counsel to the effect
that such recordation materially and beneficially affects the interests of the
Noteholders or is necessary for the administration or servicing of the Mortgage
Loans.
Section 10.05. Duration of Agreement. This Agreement shall
continue in existence and effect until terminated as herein provided.
Section 10.06. Notices. All demands, notices and
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered to (i) in the case of the Servicer, the Subservicers
or the Originators, addressed to such Person, c/o American Business Financial
Services, Inc., Balapointe Office Centre, 111 Presidential Boulevard, Suite 127,
Bala Cynwyd, Pennsylvania 19004, Attention: General Counsel; (ii) in the case of
the Unaffiliated Seller, 3411 Silverside Road, 103 Springer Bldg., Wilmington,
Delaware 19810, Attention: Jeffrey Ruben, Executive Vice President; (iii) in the
45
<PAGE>
case of the Trust, ABFS Mortgage Loan Trust 2000-1, c/o the Owner Trustee at its
Corporate Trust Office, Attention: Corporate Trust Administration; (iv) in the
case of the Collateral Agent, Chase Bank of Texas, N.A., 1111 Fannin, 12th
floor, Houston, Texas 77002, Attention: Document Custody Manager; (v) in the
case of the Indenture Trustee, c/o The Chase Manhattan Bank, 450 West 33rd
Street, 14th Floor, New York, New York, 10001, Attention: Capital Markets
Fiduciary Services, telephone (212) 946-3200, telecopy (212) 946-7317; (vi) in
the case of the Depositor or the Underwriter, Prudential Securities Secured
Financing Corporation or Prudential Securities Incorporated, One New York Plaza,
New York, New York 10292, Attention: Managing Director- Asset Backed Finance
Group; (vii) in the case of the Note Insurer, Ambac Assurance Corporation, One
State Street Plaza, New York, New York 10004 Attention: Structure Finance
Department- MBS (in each case in which notice or other communication to the Note
Insurer refers to an Event of Default, a Servicer Event of Default or a claim on
the Policy or with respect to which failure on the part of the Note Insurer to
respond shall be deemed to constitute consent or acceptance, then a copy of such
notice or other communication should also be sent to the attention of each of
the General Counsel, and shall be marked to indicate "URGENT MATERIAL
ENCLOSED"); (viii) in the case of Standard & Poor's Rating Services, 55 Water
Street, New York, New York 10041 Attention: Residential Mortgage Surveillance
Group; (ix) in the case of Moody's Investors Service, Inc., 99 Church Street,
New York, New York 10007 Attention: Home Equity Monitoring Group; (x) in the
case of Duff & Phelps Credit Rating Co., 17 State Street, New York, New York
10004 Attention: Residential Mortgage-Backed Securities Group, and (xi) 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 10.07. Severability of Provisions. If any one or more
of the covenants, agreements, provisions or terms of this Agreement shall be
held invalid for any reason whatsoever, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way affect the
validity or enforceability of the other covenants, agreements, provisions or
terms of this Agreement.
Section 10.08. No Partnership. Nothing herein contained shall
be deemed or construed to create a co-partnership or joint venture between the
parties hereto and the services of the Servicer shall be rendered as an
independent contractor and not as agent for the Noteholders.
Section 10.09. Counterparts. This Agreement may be executed in
one or more counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed to be an
original; such counterparts, together, shall constitute one and the same
agreement.
Section 10.10. Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the Trust, the Servicer, the
Depositor, the Indenture Trustee, the Collateral Agent and the Noteholders and
their respective successors and permitted assigns.
Section 10.11. Headings. The headings of the various sections
of this Agreement have been inserted for convenience of reference only and shall
not be deemed to be part of this Agreement.
46
<PAGE>
Section 10.12. The Note Insurer Default. Any right conferred
to the Note Insurer shall be suspended during any period in which a Note Insurer
Default exists. At such time as the Notes are no longer outstanding hereunder,
and no amounts owed to the Note Insurer hereunder remain unpaid, the Note
Insurer's rights hereunder shall terminate.
Section 10.13. Third Party Beneficiary. The parties agree that
each of the Owner Trustee, the Unaffiliated Seller and the Note Insurer is
intended and shall have all rights of a third-party beneficiary of this
Agreement.
Section 10.14. Intent of the Parties. It is the intent of the
parties hereto and Noteholders that, for federal income taxes, state and local
income or franchise taxes and other taxes imposed on or measured by income, the
Notes be treated as debt. The parties to this Agreement and the Holder of each
Note, by acceptance of its Note, and each Beneficial Owner thereof, agree to
treat, and to take no action inconsistent with the treatment of, the related
Notes in accordance with the preceding sentence for purposes of federal income
taxes, state and local income and franchise taxes and other taxes imposed on or
measured by income.
Section 10.15. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER
OF JURY TRIAL. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS)
OF THE STATE OF NEW YORK.
(b) THE TRUST, THE SERVICER, THE DEPOSITOR, THE COLLATERAL
AGENT AND THE INDENTURE TRUSTEE HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT
LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY, AND EACH WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET FORTH IN SECTION
10.06 HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS
AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. THE
TRUST, THE DEPOSITOR, THE SERVICER, THE COLLATERAL AGENT AND THE INDENTURE
TRUSTEE EACH HEREBY WAIVE ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY
OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
COURT. NOTHING IN THIS SECTION 10.15 SHALL AFFECT THE RIGHT OF THE TRUST, THE
DEPOSITOR, THE SERVICER, THE COLLATERAL AGENT OR THE INDENTURE TRUSTEE TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT ANY OF THEIR RIGHTS
TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION.
(c) THE TRUST, THE DEPOSITOR, THE SERVICER, THE COLLATERAL
AGENT AND THE INDENTURE TRUSTEE EACH HEREBY WAIVES ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION WITH THIS
AGREEMENT. INSTEAD, ANY DISPUTE WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A
JURY.
[Remainder of Page Intentionally Left Blank]
<PAGE>
[Signature Page to Sale and Servicing Agreement]
IN WITNESS WHEREOF, the Servicer, the Trust, the Indenture
Trustee, the Collateral Agent and the Depositor have caused their names to be
signed hereto by their respective officers thereunto duly authorized as of the
day and year first above written.
PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION, as Depositor
By:
------------------------------
Name:
Title:
ABFS MORTGAGE LOAN TRUST 2000-1
By: FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, not in its
individual capacity, but solely as
Owner Trustee under the Trust
Agreement
By:
------------------------------
Name:
Title:
AMERICAN BUSINESS CREDIT, INC., as
Servicer
By:
------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Indenture Trustee
By:
------------------------------
Name:
Title:
CHASE BANK OF TEXAS, N.A., as
Collateral Agent
By:
------------------------------
Name:
Title:
<PAGE>
SCHEDULE I
MORTGAGE LOAN SCHEDULE
[See Schedule I to Unaffiliated Seller's Agreement]
<PAGE>
APPENDIX I
DEFINED TERMS
[See Appendix I to Indenture]
<PAGE>
ABFS Warehouse Trust
SALE AND SERVICING AGREEMENT
dated as of March 1, 2000
by and among
ABFS MILLENIUM, INC.,
as Depositor,
AMERICAN BUSINESS CREDIT, INC.,
HOMEAMERICAN CREDIT, INC., D/B/A UPLAND MORTGAGE, and
NEW JERSEY MORTGAGE AND INVESTMENT CORP.,
as Originators
AMERICAN BUSINESS FINANCIAL SERVICES, INC.,
as Guarantor
ABFS MORTGAGE LOAN WAREHOUSE TRUST,
as Issuer,
AMERICAN BUSINESS CREDIT, INC.,
as Servicer,
and
THE CHASE MANHATTAN BANK,
as Indenture Trustee and Collateral Agent
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
Page
----
ARTICLE I
DEFINITIONS
<S> <C>
Section 1.01. Certain Defined Terms...............................................................................1
Section 1.02. Provisions of General Application...................................................................1
Section 1.03. Business Day Certificate............................................................................2
ARTICLE II
SALE AND CONVEYANCE OF THE MORTGAGE LOANS
Section 2.01. Purchase and Sale of Initial Mortgage Loans.........................................................2
Section 2.02. Purchase and Sale of Subsequent Mortgage Loans......................................................3
Section 2.03. Purchase Price......................................................................................3
Section 2.04. Possession of Mortgage Files; Access to Mortgage Files..............................................3
Section 2.05. Delivery of Mortgage Loan Documents.................................................................4
Section 2.06. Acceptance of the Trust Estate; Certain Substitutions; Certification by the Collateral Agent........6
Section 2.07. Grant of Security Interest..........................................................................8
Section 2.08. Further Action Evidencing Assignments...............................................................9
Section 2.09. Assignment of Agreement.............................................................................9
Section 2.10. Books and Records..................................................................................10
Section 2.11. Cost of Delivery and Recordation of Documents......................................................10
Section 2.12. Maintenance Call...................................................................................10
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations and Warranties as to the Originators...............................................10
Section 3.02. Representations of the Servicer....................................................................12
Section 3.03. Representations, Warranties and Covenants of the Depositor.........................................14
Section 3.04. Representations, Warranties and Covenants of the Indenture Trustee and the Collateral Agent........15
ARTICLE IV
THE MORTGAGE LOANS
Section 4.01. Representations and Warranties Relating to the Mortgage Loans......................................16
Section 4.02. Purchase and Substitution..........................................................................23
ARTICLE V
THE ORIGINATORS AND THE DEPOSITOR
Section 5.01. Covenants of the Originators and the Depositor.....................................................25
Section 5.02. Merger or Consolidation............................................................................25
Section 5.03. Costs..............................................................................................26
Section 5.04. Indemnification....................................................................................26
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VI
CONDITIONS OF CLOSING
<S> <C>
Section 6.01. Conditions of Depositor's Obligations..............................................................27
Section 6.02. Termination of Initial Purchaser's Obligations.....................................................28
ARTICLE VII
ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS
Section 7.01. The Servicer.......................................................................................29
Section 7.02. Collection of Certain Mortgage Loan Payments; Collection Account...................................29
Section 7.03. Permitted Withdrawals from the Collection Account..................................................30
Section 7.04. Hazard Insurance Policies; Property Protection Expenses............................................31
Section 7.05. Assumption and Modification Agreements.............................................................32
Section 7.06. Realization Upon Defaulted Mortgage Loans..........................................................33
Section 7.07. Indenture Trustee to Cooperate.....................................................................34
Section 7.08. Servicing Compensation; Payment of Certain Expenses by Servicer....................................34
Section 7.09. Annual Statement as to Compliance..................................................................35
Section 7.10. Annual Independent Public Accountants' Servicing Report............................................35
Section 7.11. Access to Certain Documentation....................................................................35
Section 7.12. Maintenance of Fidelity Bond.......................................................................35
Section 7.13. The Subservicers...................................................................................36
Section 7.14. Reports to the Indenture Trustee; Collection Account Statements....................................36
Section 7.15. Optional Purchase of Defaulted Mortgage Loans......................................................36
Section 7.16. Reports to be Provided by the Servicer.............................................................37
Section 7.17. Adjustment of Servicing Compensation in Respect of Prepaid Mortgage Loans..........................38
Section 7.18. Periodic Advances..................................................................................39
Section 7.19. Indemnification; Third Party Claims................................................................39
Section 7.20. Maintenance of Corporate Existence and Licenses; Merger or Consolidation of the Servicer...........40
Section 7.21. Assignment of Agreement by Servicer; Servicer Not to Resign........................................40
Section 7.22. Hedging............................................................................................40
ARTICLE VIII
APPLICATION OF FUNDS
Section 8.01. Deposits to the Payment Account....................................................................41
Section 8.02. Collection of Money................................................................................41
Section 8.03. Application of Principal and Interest..............................................................41
Section 8.04. [Reserved].........................................................................................41
Section 8.05. Compensating Interest..............................................................................41
ARTICLE IX
SERVICER DEFAULT
Section 9.01. Servicer Events of Default.........................................................................41
Section 9.02. Indenture Trustee to Act; Appointment of Successor.................................................44
Section 9.03. Waiver of Defaults.................................................................................45
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 9.04. Reserved...........................................................................................46
Section 9.05. Indenture Trustee To Act Solely with Consent of the Initial Purchaser..............................46
ARTICLE X
TERMINATION
Section 10.01. Termination.......................................................................................46
Section 10.02. Additional Termination Requirements...............................................................47
Section 10.03. Accounting Upon Termination of Servicer...........................................................47
ARTICLE XI
THE COLLATERAL AGENT
Section 11.01. Duties of the Collateral Agent....................................................................48
Section 11.02. Certain Matters Affecting the Collateral Agent....................................................49
Section 11.03. Collateral Agent Not Liable for Notes or Mortgage Loans...........................................50
Section 11.04. Collateral Agent May Own Notes....................................................................50
Section 11.05. Collateral Agent's Fees and Expenses; Indemnity...................................................51
Section 11.06. Eligibility Requirements for Collateral Agent.....................................................51
Section 11.07. Resignation and Removal of the Collateral Agent...................................................51
Section 11.08. Successor Collateral Agent........................................................................52
Section 11.09. Merger or Consolidation of Collateral Agent.......................................................52
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01. Limitation on Liability...........................................................................53
Section 12.02. Acts of Noteholders...............................................................................53
Section 12.03. Amendment.........................................................................................54
Section 12.04. Recordation of Agreement..........................................................................54
Section 12.05. Duration of Agreement.............................................................................54
Section 12.06. Notices...........................................................................................54
Section 12.07. Severability of Provisions........................................................................55
Section 12.08. No Partnership....................................................................................55
Section 12.09. Counterparts......................................................................................55
Section 12.10. Successors and Assigns............................................................................55
Section 12.11. Headings..........................................................................................55
Section 12.12. Reserved..........................................................................................55
Section 12.13. Third Party Beneficiary...........................................................................55
Section 12.14. Intent of the Parties.............................................................................55
Section 12.15. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL......................................56
Section 12.16. Auction Sale......................................................................................57
Section 12.17. Power of Attorney.................................................................................57
ARTICLE XIII
THE GUARANTY
Section 13.01. Guaranty..........................................................................................57
Section 13.02. Guaranty Absolute and Unconditional...............................................................58
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 13.03. Discharge Only Upon Performance in Full; Reinstatement in Certain Circumstances...................59
Section 13.04. Waiver of Presentment.............................................................................59
Section 13.05. Waiver of Subrogation and Contribution............................................................59
Section 13.06. Financial and Other Information of the Guarantor..................................................59
ARTICLE XIV
PASS-THROUGH TRANSFER
Section 14.01. Removal of Mortgage Loans from Inclusion Under this Agreement Upon a Pass-Through Transfer on
One or More Securitization Dates................................................................60
</TABLE>
EXHIBITS
EXHIBIT A Collateral Agent's Acknowledgement of Receipt
EXHIBIT B Certification of Collateral Agent
EXHIBIT C Request for Release of Documents
EXHIBIT D Form of Release of Security Interest
EXHIBIT E Form of Subsequent Transfer Agreement
SCHEDULE I Mortgage Loan Schedule
APPENDIX I Definitions
(iv)
<PAGE>
ABFS Warehouse Trust
SALE AND SERVICING AGREEMENT, dated as of March 1, 2000 (this
"Agreement"), by and among ABFS MILLENIUM, INC., a Delaware corporation, as
depositor (the "Depositor"), AMERICAN BUSINESS CREDIT, INC., a Pennsylvania
corporation ("ABC"), HOMEAMERICAN CREDIT, INC. D/B/A UPLAND MORTGAGE, a
Pennsylvania corporation ("Upland") and NEW JERSEY MORTGAGE AND INVESTMENT
CORP., a New Jersey corporation ("NJMIC", and together with ABC and Upland, the
"Originators", AMERICAN BUSINESS FINANCIAL SERVICES, INC., a Delaware
corporation, as guarantor (the "Guarantor"), ABFS MORTGAGE LOAN WAREHOUSE TRUST
2000-1, a Delaware statutory business trust, as issuer (the "Trust"), AMERICAN
BUSINESS CREDIT, INC., a Pennsylvania corporation, as servicer (the "Servicer")
and THE CHASE MANHATTAN BANK, a New York banking corporation, as indenture
trustee and collateral agent (respectively, the "Indenture Trustee" and the
"Collateral Agent").
W I T N E S S E T H
WHEREAS, Originators desire to sell to the Depositor and the Depositor
desires to sell to the Trust, and the Trust desires to purchase from the
Depositor, the mortgage loans (the "Mortgage Loans") listed on Schedule I to
this Agreement;
WHEREAS, immediately after such purchase, the Trust will pledge such
Mortgage Loans to the Indenture Trustee pursuant to the terms of an Indenture,
dated as of March 1, 2000 (the "Indenture"), between the Trust and the Indenture
Trustee, and issue the ABFS Mortgage Loan Warehouse Trust 2000-1, Mortgage
Backed Notes (the "Notes");
WHEREAS, the Servicer has agreed to service the Mortgage Loans, which
constitute the principal assets of the Trust;
WHEREAS, the Collateral Agent will hold, on behalf of the Indenture
Trustee, the Mortgage Loans and certain other assets pledged to the Indenture
Trustee pursuant to the Indenture;
WHEREAS, the Guarantor has agreed to guaranty certain obligations of
the Trust and the Depositor; and
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Trust, the Depositor, the Originators, the
Servicer, the Collateral Agent and the Indenture Trustee hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01. Certain Defined Terms. Capitalized terms used herein but
not defined herein shall have the meanings ascribed to such terms in Appendix I
attached hereto.
Section 1.02. Provisions of General Application. (a) All accounting
terms not specifically defined herein shall be construed in accordance with
GAAP.
<PAGE>
(b) The terms defined herein and in Appendix I to the Indenture
include the plural as well as the singular.
(c) The words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole. All references to
Articles and Sections shall be deemed to refer to Articles and Sections of this
Agreement.
(d) Any reference to statutes are to be construed as including
all statutory provisions consolidating, amending or replacing the statute to
which reference is made and all regulations promulgated pursuant to such
statutes.
(e) All calculations of interest with respect to the Class A
Notes provided for herein shall be made on the basis of a 360-day year and the
actual number of days elapsed in the related Accrual Period. All calculations of
interest with respect to any Mortgage Loan provided for herein shall be made in
accordance with the terms of the related Mortgage Note and Mortgage or, if such
documents do not specify the basis upon which interest accrues thereon, on the
basis of a 360-day year consisting of twelve 30-day months, to the extent
permitted by applicable law.
(f) Any Mortgage Loan payment is deemed to be received on the
date such payment is actually received by the Servicer; provided, however, that,
for purposes of calculating payments on the Notes, prepayments with respect to
any Mortgage Loan are deemed to be received on the date they are applied in
accordance with Accepted Servicing Practices consistent with the terms of the
related Mortgage Note and Mortgage to reduce the outstanding Principal Balance
of such Mortgage Loan on which interest accrues.
Section 1.03. Business Day Certificate. On the Closing Date (with
respect to the calendar years 2000 and 2001) and thereafter, within fifteen (15)
days prior to the end of each calendar year while this Agreement remains in
effect (with respect to the succeeding calendar years), the Servicer shall
provide to the Indenture Trustee and the Collateral Agent a certificate of a
Servicing Officer specifying the days on which banking institutions in the
Commonwealth of Pennsylvania are authorized or obligated by law, executive order
or governmental decree to be closed.
ARTICLE II
SALE AND CONVEYANCE OF THE MORTGAGE LOANS
Section 2.01. Purchase and Sale of Initial Mortgage Loans. (a) The
Originators do hereby sell, transfer, assign, set over and convey to the
Depositor and the Depositor does hereby sell, transfer, assign, set over and
convey to the Trust, without recourse, but subject to the terms and provisions
of this Agreement, all of their respective right, title and interest in and to
the Initial Mortgage Loans, including the outstanding principal of, and interest
due on or after the Initial Cut-Off Date, such Initial Mortgage Loans listed on
Schedule I attached hereto, and all other assets included or to be included in
the Trust Estate.
2
<PAGE>
(b) The closing for the purchase and sale of the Mortgage Loans
shall take place at the offices of Brown & Wood LLP, Washington, D.C., at 10:00
a.m., New York, New York time, on each Closing Date, or such other place and
time as the parties shall agree.
Section 2.02. Purchase and Sale of Subsequent Mortgage Loans. (a)
During the last fifteen (15) days of each calendar quarter (but in no event
later than September 30, 2000), subject to the satisfaction of the conditions
set forth in Section 2.14(b) of the Indenture, in consideration of the Trust's
delivery on the related Subsequent Transfer Dates to or upon the order of the
Depositor of the Purchase Price, the Originators shall on any Subsequent
Transfer Date sell, transfer, assign, set over and convey to the Depositor and
the Depositor shall on such Subsequent Transfer Date sell, transfer, assign, set
over and convey to the Trust without recourse, but subject to the terms and
provisions of this Agreement, all of their respective right, title and interest
in and to the Subsequent Mortgage Loans, including the outstanding principal of,
and interest due on or after the related Subsequent Cut-Off Date, such
Subsequent Mortgage Loans, and all other assets included or to be included in
the Trust Estate; provided, however, that the Class A Note Principal Balance
shall not exceed $150,000,000 (taking into account the outstanding balance on
the Existing Warehouse Facility) and provided, further, that the Trust shall not
purchase Initial Mortgage Loans or Subsequent Mortgage Loans on the initial
Closing Date or any Subsequent Transfer Date unless the Advance Amount with
respect to such Initial Mortgage Loans or Subsequent Mortgage Loans shall be at
least equal to $5,000,000.
(b) For any Subsequent Mortgage Loan that has a first Due Date
that occurs later than the last day of the Due Period following the Due Period
in which the Subsequent Mortgage Loan was sold to the Trust, on each applicable
Servicer Payment Date, the Servicer will deposit into the Payment Account 30
days' interest at the related Mortgage Interest Rate, net of the Servicing Fee,
for each month after the month in which the Subsequent Transfer occurs until,
but not including, the month in which such first Due Date occurs.
Section 2.03. Purchase Price. On the initial Closing Date, as full
consideration for the Originators' sale of the Initial Mortgage Loans to the
Depositor and the Depositor's sale of the Initial Mortgage Loans to the Trust,
the Initial Purchaser, on behalf of the Trust, will deliver to, or at the
direction of, the Depositor (i) an amount in cash equal to the sum of the
Purchase Price for the Initial Mortgage Loans, and (ii) the Trust Certificates
to be issued pursuant to the Trust Agreement; provided, however, that the Class
A Note Principal Balance shall not exceed $150,000,000 (taking into account the
outstanding balance on the Existing Warehouse Facility) and provided, further,
that the Trust shall not purchase Initial Mortgage Loans or Subsequent Mortgage
Loans on the initial Closing Date or any Subsequent Funding Date unless the
Advance Amount with respect to such Initial Mortgage Loans or Subsequent
Mortgage Loans shall be at least equal to $5,000,000.
Section 2.04. Possession of Mortgage Files; Access to Mortgage Files.
(a) Upon the receipt by the Depositor, or their designee, of the purchase price
for the Initial Mortgage Loans set forth in Section 2.03 hereof and the issuance
of the Notes pursuant to the Indenture, the ownership of each Mortgage Note,
including principal due and interest accrued thereon after the Initial Cut-Off
3
<PAGE>
Date, each Mortgage and the contents of the Mortgage File related to each
Initial Mortgage Loan will be vested in the Trust, and will be pledged to the
Indenture Trustee, for the benefit of the Noteholders.
(b) Pursuant to Section 2.05 hereof, the related Originator
will have delivered or caused to be delivered the Indenture Trustee's Mortgage
File related to each Initial Mortgage Loan to the Collateral Agent, on behalf of
the Indenture Trustee.
(c) The Collateral Agent will be the custodian, on behalf of
the Indenture Trustee, to hold the Indenture Trustee's Mortgage Files in trust
for the benefit of all present and future Noteholders. In the event the
Collateral Agent resigns or is removed, the Indenture Trustee shall either (x)
hold the Indenture Trustee's Mortgage Files, or (y) appoint a successor
Collateral Agent to hold the Indenture Trustee's Mortgage Files as set forth in
Section 9.08 hereof.
(d) The Collateral Agent shall afford the Depositor, the
Originators, the Trust, the Initial Purchaser and the Servicer reasonable access
to all records and documentation regarding the Mortgage Loans relating to this
Agreement, such access being afforded at customary charges, upon reasonable
prior written request and during normal business hours at the offices of the
Collateral Agent.
Section 2.05. Delivery of Mortgage Loan Documents. (a) In connection
with the transfer and assignment of the Mortgage Loans, the related Originator
shall on or before the Closing Date, with respect to the Initial Mortgage Loans,
and shall on or before the Subsequent Transfer Date with respect to Subsequent
Mortgage Loans, deliver to the Collateral Agent, on behalf of the Indenture
Trustee (as pledgee of the Trust pursuant to the Indenture), the following
documents or instruments with respect to each Mortgage Loan so transferred or
assigned:
(i) the original Mortgage Note, endorsed without recourse
from the related Originator to "The Chase Manhattan Bank, as collateral agent
for the holder of the related mortgage note from time to time"; including all
intervening endorsements showing a complete chain of endorsement;
(ii) the related original Mortgage with evidence of
recording indicated thereon or a copy thereof certified by the applicable
recording office;
(iii) the recorded mortgage assignment, or copy thereof
certified by the applicable recording office, if any, showing a complete chain
of assignment from the originator of the related Mortgage Loan to the related
Originator (which assignment may, at such Originator's option, be combined with
the assignment referred to in subpart (iv) hereof, in which case it must be in
recordable form, but need not have been previously recorded);
(iv) a mortgage assignment in recordable form (which, if
acceptable for recording in the relevant jurisdiction, may be included in a
blanket assignment or assignments) of each Mortgage endorsed from the related
4
<PAGE>
Originator to "The Chase Manhattan Bank, as collateral agent for the holder of
the related mortgage note from time to time";
(v) originals of all assumption, modification and
substitution agreements in those instances where the terms or provisions of a
Mortgage or Mortgage Note have been modified or such Mortgage or Mortgage Note
has been assumed; and
(vi) an original title insurance policy (or (A) a copy of
the title insurance policy, or (B) a binder thereof or copy of such binder
together with a certificate from the related Originator that the original
Mortgage has been delivered to the title insurance company that issued such
binder for recordation).
In instances where the original recorded Mortgage and a completed
assignment thereof in recordable form cannot be delivered by the related
Originator to the Collateral Agent, on behalf of the Indenture Trustee prior to
or concurrently with the execution and delivery of this Agreement (or, with
respect to Subsequent Mortgage Loans, prior to or on the related Subsequent
Transfer Date), due to a delay in connection with recording, the related
Originator may:
(x) in lieu of delivering such original recorded Mortgage,
deliver to the Collateral Agent, on behalf of the Indenture Trustee, a copy
thereof; provided, that the related Originator 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; and
(y) in lieu of delivering the completed assignment in
recordable form, deliver to the Collateral Agent, on behalf of the Indenture
Trustee, the assignment in recordable form, otherwise complete except for
recording information.
The Collateral Agent, on behalf of the Indenture Trustee, shall
promptly upon receipt thereof, with respect to each Mortgage Note described in
Section 2.05(a)(i) hereof and each assignment described in Section 2.05(a)(iv)
hereof, endorse such Mortgage Note and assignment in blank.
(b) As promptly as practicable, but in any event within thirty
(30) days from the Closing Date or the Subsequent Transfer Date, as applicable,
the related Originator shall promptly submit for recording in the appropriate
public office for real property records, each assignment referred to in Section
2.05(a)(iv). The Collateral Agent, on behalf of the Indenture Trustee, shall
retain a copy of each assignment submitted for recording. In the event that any
such assignment is lost or returned unrecorded because of a defect therein, such
Originator shall promptly prepare a substitute assignment or cure such defect,
as the case may be, and thereafter such Originator shall submit each such
assignment for recording. The costs relating to the delivery and recordation of
the documents in connection with the Mortgage Loans as specified in this Article
II shall be borne by the related Originator.
(c) The related Originator shall, within five (5) Business Days
after the receipt thereof, deliver, or cause to be delivered, to the Collateral
5
<PAGE>
Agent, on behalf of the Indenture Trustee: (i) the original recorded Mortgage
and related power of attorney, if any, in those instances where a copy thereof
certified by the related Originator was delivered to the Collateral Agent, on
behalf of the Indenture Trustee; (ii) the original recorded assignment of
Mortgage from the related Originator to the Indenture Trustee, which, together
with any intervening assignments of Mortgage, evidences a complete chain of
assignment from the originator of the Mortgage Loan to the Indenture Trustee, in
those instances where copies of such assignments certified by the related
Originator were delivered to the Collateral Agent, on behalf of the Indenture
Trustee, and (iii) the title insurance policy or title opinion required in
Section 2.05(a)(vi) in those instances where a copy thereof certified by the
related Originator was delivered to the Collateral Agent, on behalf of the
Indenture Trustee. The Collateral Agent shall review the recorded assignment to
confirm the information contained therein. The Collateral Agent shall notify the
Indenture Trustee and the Servicer, of any defect in such assignment based on
such review. The Servicer shall have a period of fifteen (15) days following
such notice to correct or cure such defect. In the event that the related
Originator fails to record an assignment of a Mortgage as provided herein, the
Collateral Agent shall, at the Servicer's expense, use reasonable efforts to
prepare and, if required hereunder, file such assignments for recordation in the
appropriate real property or other records and the related Originator hereby
appoints the Collateral Agent as its attorney-in-fact with full power and
authority acting in its stead for the purpose of such preparation, execution and
filing.
Notwithstanding anything to the contrary contained in this Section
2.05, in those instances where the public recording office retains the original
Mortgage, power of attorney, if any, assignment or assignment of Mortgage after
it has been recorded or such original has been lost, the related Originator
shall be deemed to have satisfied its obligations hereunder upon delivery to the
Collateral Agent, on behalf of the Indenture Trustee, of a copy of such
Mortgage, power of attorney, if any, assignment or assignment of Mortgage
certified by the public recording office to be a true copy of the recorded
original thereof.
From time to time the related Originator may forward, or cause to be
forwarded, to the Collateral Agent, on behalf of the Indenture Trustee,
additional original documents evidencing any assumption or modification of a
Mortgage Loan.
(d) All original documents relating to the Mortgage Loans that
are not delivered to the Collateral Agent, on behalf of the Indenture Trustee,
as permitted by Section 2.05(a) hereof are, and shall be, held by the Servicer
or the related Originator, as the case may be, in trust for the benefit of the
Indenture Trustee, on behalf of the Noteholders. In the event that any such
original document is required pursuant to the terms of this Section 2.05 to be a
part of an Indenture Trustee's Mortgage File, such document shall be delivered
promptly to the Collateral Agent, on behalf of the Indenture Trustee. From and
after the sale of the Mortgage Loans to the Trust pursuant hereto, to the extent
that the related Originator retains legal title of record to any Mortgage Loans
prior to the vesting of legal title in the Trust, such title shall be retained
in trust for the Trust as the owner of the Mortgage Loans, and the Indenture
Trustee, as the pledgee of the Trust under the Indenture. In acting as custodian
of any original document which is part of the Indenture Trustee's Mortgage
Files, the Servicer agrees further that it does not and will not have or assert
any beneficial ownership interest in the related Mortgage Loans or the Mortgage
Files. Promptly upon the Servicer's receipt of any such original document, the
Servicer, on behalf of the Trust, shall mark conspicuously each such original
6
<PAGE>
document, and its master data processing records with a legend evidencing that
the Trust has purchased the related Mortgage Loan and all right and title
thereto and interest therein, and pledged such Mortgage Loan and all right and
title thereto and interest therein to the Indenture Trustee, on behalf of the
Noteholders.
Section 2.06. Acceptance of the Trust Estate; Certain Substitutions;
Certification by the Collateral Agent. (a) Reserved.
(b) The Collateral Agent, on behalf of the Indenture Trustee,
agrees to:
(i) execute and deliver to the Depositor, the Indenture
Trustee, the Servicer and the related Originator, on or prior to the Closing
Date or any Subsequent Transfer Date, as applicable, with respect to each
Mortgage Loan transferred on such date, an acknowledgement of receipt of the
Mortgage File containing the original Mortgage Note (with any exceptions noted),
in the form attached as Exhibit A hereto, and declares that it will hold such
documents and any amendments, replacements or supplements thereto, as well as
any other assets included in the definition of Trust Estate and delivered to the
Collateral Agent, on behalf of the Indenture Trustee, in trust upon and subject
to the conditions set forth herein, for the benefit of the Noteholders.
(ii) to review (or cause to be reviewed) each Indenture
Trustee's Mortgage File prior to the Closing Date or any Subsequent Transfer
Date, as applicable (or, with respect to any Qualified Substitute Mortgage Loans
prior to such substitution), and to deliver to the related Originator, the
Servicer, the Depositor, the Indenture Trustee and the Initial Purchaser a
certification in the form attached hereto as Exhibit B to the effect that,
except as otherwise noted, as to each Mortgage Loan listed in the related
Mortgage Loan Schedule (other than any Mortgage Loan paid in full or any
Mortgage Loan specifically identified in such certification as not covered by
such certification), (i) all documents required to be delivered to it pursuant
to Section 2.05 are in its possession, (ii) each such document has been reviewed
by it and has not been mutilated, damaged, torn or otherwise physically altered
(handwritten additions, changes or corrections shall not constitute physical
alteration if they reasonably appear to be initialed by the Mortgagor), appears
regular on its face and relates to such Mortgage Loan, and (iii) based on its
examination and only as to the foregoing documents, the information set forth in
the definition of "Mortgage Loan Schedule" accurately reflects the information
set forth in the Indenture Trustee's Mortgage File delivered on such date.
In performing any such review, the Collateral Agent may conclusively
rely on the Originators as to the purported genuineness of any such document and
any signature thereon. It is understood that the scope of the Collateral Agent's
review of the Indenture Trustee's Mortgage Files is limited solely to confirming
that the documents listed in Section 2.05 have been executed and received and
relate to the Indenture Trustee's Mortgage Files identified in the related
Mortgage Loan Schedule. The Collateral Agent 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
7
<PAGE>
appropriate for the represented purpose or that they are other than what they
purport to be on their face.
(c) If the Collateral Agent during the process of reviewing the
Indenture Trustee's Mortgage Files finds any document constituting a part of an
Indenture Trustee's Mortgage File which is not executed, has not been received,
is unrelated to the Mortgage Loan identified in the related Mortgage Loan
Schedule, or does not conform to the requirements of Section 2.05 or the
description thereof as set forth in the related Mortgage Loan Schedule, the
Collateral Agent shall promptly so notify the Servicer, the Depositor, the
Originators, the Indenture Trustee and the Initial Purchaser. Pursuant to
Section 4.02(b), the Originators have (and, if the Originators fail to do so ,
the Depositor has) agreed to cause to be remedied a material defect in a
document constituting part of an Indenture Trustee's Mortgage File of which it
is so notified by the Collateral Agent. If, however, within five (5) Business
Days after the Collateral Agent's notice to it respecting such defect the
Originators have (or, if the Originators fail to do so, the Depositor has) not
caused to be remedied the defect and the defect materially and adversely affects
the interest of the Noteholders in the related Mortgage Loan, the Originators
(or, it the Originators fail to do so, the Depositor) will be obligated,
pursuant to Section 4.02, to either (i) substitute in lieu of such Mortgage Loan
a Qualified Substitute Mortgage Loan in the manner and subject to the conditions
set forth in Section 4.02 or (ii) purchase such Mortgage Loan at a purchase
price equal to the Loan Repurchase Price. Upon receipt by the Collateral Agent
and the Indenture Trustee of a certification, in the form attached hereto as
Exhibit C, of a Servicing Officer of such substitution or purchase and, in the
case of a substitution, upon receipt by the Collateral Agent, on behalf of the
Indenture Trustee, of the related Indenture Trustee's Mortgage File, and in the
case of a purchase, upon the deposit of the amounts described above in the
Collection Account, the Collateral Agent shall release to the Servicer for
release to the Originators (or the Depositor, as the case may be) the related
Indenture Trustee's Mortgage File and the Indenture Trustee shall execute,
without recourse, and deliver such instruments of transfer furnished by the
Originators (or the Depositor, as the case may be) as may be necessary to
transfer such Mortgage Loan to the Originator (or the Depositor, as the case may
be) . The Collateral Agent shall notify the Indenture Trustee, who shall notify
the Initial Purchaser if the Originators fail to repurchase or substitute for a
Mortgage Loan in accordance with the foregoing.
Section 2.07. Grant of Security Interest. (a) It is intended that the
conveyance of the Mortgage Loans and other property by the Depositor to the
Trust as provided in this Article II be, and be construed as, a sale of the
Mortgage Loans and such other property by the Depositor to the Trust. It is,
further, not intended that such conveyance be deemed a pledge of the Mortgage
Loans or such other property by the Depositor to the Trust to secure a debt or
other obligation of the Depositor. However, in the event that the Mortgage Loans
or any of such other property are held to be property of the Depositor, or if
for any reason this Agreement is held or deemed to create a security interest in
the Mortgage Loans or any of such other property, then it is intended that: (i)
this Agreement shall also be deemed to be a security agreement within the
meaning of the Uniform Commercial Code; (ii) the conveyance provided for in this
Article II shall be deemed to be a grant by the Depositor to the Trust of a
security interest in all of the Depositor's right, title and interest in and to
the Mortgage Loans and such other property and all amounts payable to the
holders of the Mortgage Loans in accordance with the terms thereof and all
proceeds of the conversion, voluntary or involuntary, of the foregoing into
8
<PAGE>
cash, instruments, securities or other property, including, without limitation,
all amounts from time to time held or invested in the Payment Account, whether
in the form of cash, instruments, securities or other property; (iii) the
possession by the Collateral Agent, on behalf of the Indenture Trustee, of the
Mortgage Notes and such other items of property as constitute instruments,
money, negotiable documents or chattel paper shall be deemed to be "possession
by the secured party" for purposes of perfecting the security interest pursuant
to the Uniform Commercial Code; and (iv) notifications to persons holding such
property, and acknowledgments, receipts or confirmations from persons holding
such property, shall be deemed notifications to, or acknowledgments, receipts or
confirmations from financial intermediaries, bailees or agents, as applicable,
of the Indenture Trustee for the purpose of perfecting such security interest
under applicable law. The Depositor, the Servicer, on behalf of the Trust, the
Collateral Agent and the Indenture Trustee, shall, to the extent consistent with
this Agreement, take such actions as may be reasonably necessary to ensure that,
if this Agreement were deemed to create a security interest in the Mortgage
Loans or any of such other property, such security interest would be deemed to
be a perfected security interest of first priority under applicable law and will
be maintained as such throughout the term of this Agreement.
(b) The Originators, the Depositor and the Servicer shall take
no action inconsistent with the Trust's ownership of the Trust Estate and each
shall indicate or shall cause to be indicated in its records and records held on
its behalf that ownership of each Mortgage Loan and the other assets in the
Trust Estate are held by the Collateral Agent, on behalf of the Indenture
Trustee, for the benefit of the Noteholders. In addition, the Originators, the
Depositor and the Servicer shall respond to any inquiries from third parties
with respect to ownership of a Mortgage Loan or any other asset in the Trust
Estate by stating that it is not the owner of such asset and that the Trust is
the owner of such Mortgage Loan or other asset in the Trust Estate, which is
held by the Collateral Agent, on behalf of the Indenture Trustee, for the
benefit of the Noteholders.
Section 2.08. Further Action Evidencing Assignments. (a) The Servicer
agrees that, from time to time, at its expense, it shall cause the Originators
to (and the Depositor on behalf of itself also agrees that it shall), promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or appropriate, or that the Servicer, the
Indenture Trustee or the Collateral Agent may reasonably request, in order to
perfect, protect or more fully evidence the transfer of ownership of the
Mortgage Loans and other assets in the Trust Estate or to enable the Collateral
Agent, on behalf of the Indenture Trustee, to exercise or enforce any of its
rights hereunder. Without limiting the generality of the foregoing, the
Servicer, the Originators and the Depositor will, upon the request of the
Servicer, the Indenture Trustee or the Collateral Agent execute and file (or
cause to be executed and filed) such real estate filings, financing or
continuation statements, or amendments thereto or assignments thereof, and such
other instruments or notices, as may be necessary or appropriate.
(b) The Originators and the Depositor hereby grant to the
Servicer, the Indenture Trustee and the Collateral Agent powers of attorney to
execute all documents on its behalf under this Agreement as may be necessary or
desirable to effectuate the foregoing.
9
<PAGE>
Section 2.09. Assignment of Agreement. The Originators and the
Depositor hereby acknowledge and agree that the Trust may assign its interest
under this Agreement to the Indenture Trustee, for the benefit of the
Noteholders, as may be required to effect the purposes of the Indenture, without
further notice to, or consent of, the Originators or the Depositor, and the
Indenture Trustee shall succeed to such of the rights and obligations of the
Trust hereunder as shall be so assigned. The Trust shall, pursuant to the
Indenture, assign all of its right, title and interest in and to the Mortgage
Loans and its right to exercise the remedies created by Section 2.06 and 4.02
for breaches of the representations, warranties, agreements and covenants of the
Originators contained in Sections 2.05, 2.06, 3.01 and 4.01, assign such right,
title and interest to the Indenture Trustee, for the benefit of the Noteholders.
The Originators and the Depositor agree that, upon such assignment to the
Indenture Trustee, such representations, warranties, agreements and covenants
will run to and be for the benefit of the Indenture Trustee and the Indenture
Trustee may enforce, without joinder of the Trust, the repurchase obligations of
the Originators set forth herein with respect to breaches of such
representations, warranties, agreements and covenants.
Section 2.10. Books and Records. The transfer of each Mortgage Loan
shall be reflected on each of the Originators' and the Depositor's accounting
and other records, balance sheet and other financial statements as a sale of
assets by the Originators to the Depositor and by the Depositor to the Trust;
provided, that the related Originator's tax returns ^ may reflect the transfer
from the related Originator to the Depositor ^ as a sale. Each of the
Originators and the Depositor shall be responsible for maintaining, and shall
maintain, a complete set of books and records for each Mortgage Loan which shall
be clearly marked to reflect the ownership of each Mortgage Loan by the Trust,
and the pledge of each Mortgage Loan by the Trust to the Indenture Trustee, for
the benefit of the Noteholders.
Section 2.11. Cost of Delivery and Recordation of Documents. The costs
relating to the delivery and recordation of the documents in connection with the
Mortgage Loans as specified in this Article II shall be borne by the
Originators.
Section 2.12. Maintenance Call. If, on any Payment Date, a Collateral
Deficiency Event has occurred and is continuing, the Initial Purchaser may, at
its option, require the Depositor to contribute additional Mortgage Loans or
cash to the Trust in an amount necessary to cure such Collateral Deficiency
Event.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations and Warranties as to the Originators.
Each of the Originators hereby represents and warrants to the Depositor, the
Indenture Trustee, the Trust, the Collateral Agent and the Noteholders, as of
the Closing Date, that:
(a) The Originator is a corporation duly organized, validly
existing and in good standing under the laws of (i) with respect to ABC and
Upland, the State of Pennsylvania, or (ii) with respect to NJMIC, the State of
10
<PAGE>
New Jersey, and has all licenses necessary to carry on its business as now being
conducted and is licensed, qualified and in good standing in each state where a
Mortgaged Property is located if the laws of such state require licensing or
qualification in order to conduct business of the type conducted by the
Originator and to perform its obligations as the Originator hereunder, and in
any event the Originator is in compliance with the laws of any such state to the
extent necessary to ensure the enforceability of the related Mortgage Loan; the
Originator has the full power and authority, corporate and otherwise, 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 Originator and the
consummation of the transactions contemplated hereby have been duly and validly
authorized; this Agreement evidences the valid, binding and enforceable
obligation of the Originator; and all requisite corporate action has been taken
by the Originator to make this Agreement valid and binding upon the Originator
in accordance with its terms;
(b) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery and
performance by the Originator of, or compliance by the Originator with, this
Agreement or the sale of the Mortgage Loans pursuant to the terms of this
Agreement or the consummation of the transactions contemplated by this
Agreement, or if required, such approval has been obtained prior to the Closing
Date;
(c) Neither the execution and delivery of this Agreement, nor
the acquisition or origination of the Mortgage Loans by the Originator or the
transactions contemplated hereby, nor the fulfillment of or compliance with the
terms and conditions of this Agreement, has or will conflict with or result in a
breach of any of the terms, conditions or provisions of the Originator's charter
or by-laws or any legal restriction or any agreement or instrument to which the
Originator is now a party or by which it is bound or to which its property is
subject, or constitute a default or result in an acceleration under any of the
foregoing, or result in the violation of any law, rule, regulation, order,
judgment or decree to which the Originator or its property is subject, or impair
the ability of the Indenture Trustee (or the Servicer as the agent of the
Indenture Trustee) to realize on the Mortgage Loans, or impair the value of the
Mortgage Loans;
(d) Neither this Agreement nor any statement, report or other
document prepared by the Originator and furnished or to be furnished pursuant to
this Agreement or in connection with the transactions contemplated hereby
contains any untrue statement or alleged untrue statement of any material fact
or omits to state a material fact necessary to make the statements contained
herein or therein, in light of the circumstances under which they were made, not
misleading;
(e) There is no action, suit, proceeding or investigation
pending or, to the knowledge of the Originator, threatened before a court,
administrative agency or government tribunal against the Originator which,
either in any one instance or in the aggregate, may result in any material
adverse change in the business, operations, financial condition, properties or
assets of the Originator, or in any material impairment of the right or ability
of the Originator to carry on its business substantially as now conducted, or in
any material liability on the part of the Originator, or which would draw into
question the validity of this Agreement, the Mortgage Loans, or of any action
taken or to be taken in connection with the obligations of the Originator
contemplated herein, or which would impair materially the ability of the
11
<PAGE>
Originator to perform under the terms of this Agreement or that will prohibit
its entering into this Agreement or the consummation of any of the transactions
contemplated hereby;
(f) The Originator is not in violation of or in default with
respect to, and the execution and delivery of this Agreement by the Originator
and its performance of and compliance with the terms hereof will not constitute
a violation or 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 violation or default might have consequences that would materially
and adversely affect the condition (financial or other) or operations of the
Originator or its properties or might have consequences that would materially
and adversely affect its performance hereunder or under any subservicing
agreement;
(g) Upon the receipt of each Mortgage File by the Depositor (or
its assignee) under this Agreement, the Depositor (or its assignee) will have
good title to each related Mortgage Loan and such other items comprising the
corpus of the Trust Estate free and clear of any lien created by the Originator
(other than liens which will be simultaneously released);
(h) The consummation of the transactions contemplated by this
Agreement are in the ordinary course of business of the Originator, and the
transfer, assignment and conveyance of the Mortgage Notes and the Mortgages by
the Originator pursuant to this Agreement are not subject to the bulk transfer
or any similar statutory provisions in effect in any applicable jurisdiction;
(i) With respect to any Mortgage Loan purchased by the
Originator, the Originator acquired title to the Mortgage Loan in good faith,
without notice of any adverse claim;
(j) The Originator does not believe, nor does it have any
reason or cause to believe, that it cannot perform each and every covenant
contained in this Agreement. The Originator is solvent and the sale of the
Mortgage Loans by the Originator pursuant to the terms of this Agreement will
not cause the Originator to become insolvent. The sale of the Mortgage Loans by
the Originator pursuant to the terms of this Agreement was not undertaken with
the intent to hinder, delay or defraud any of the Originator's creditors;
(k) The Mortgage Loans are not intentionally selected in a
manner so as to affect adversely the interests of the Depositor or of any
transferee of the Depositor (including the Trust and the Indenture Trustee);
(l) The Originator has determined that it will treat the
disposition of the Mortgage Loans pursuant to this Agreement as a sale for
accounting purposes;
(m) The Originator has not dealt with any broker or agent or
anyone else that may be entitled to any commission or compensation in connection
with the sale of the Mortgage Loans to the Depositor other than to the Depositor
or an affiliate thereof; and
12
<PAGE>
(n) The consideration received by the Originator upon the sale
of the Mortgage Loans under this Agreement constitutes fair consideration and
reasonably equivalent value for the Mortgage Loans.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.01 shall survive the delivery of the
respective Indenture Trustee's Mortgage Files to the Collateral Agent, on behalf
of the Indenture Trustee or to another custodian, as the case may be, and inure
to the benefit of the Indenture Trustee.
Section 3.02. Representations of the Servicer. The Servicer hereby
represents and warrants to the Indenture Trustee, the Originators, the
Depositor, the Collateral Agent, the Trust and the Noteholders as of the Closing
Date and during the term of this Agreement that:
(a) Each of the Servicer and the Subservicers is duly
organized, validly existing and in good standing under the laws of their
respective states of incorporation and has the power to own its assets and to
transact the business in which it is currently engaged. Each of the Servicer and
the Subservicers is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the character of the business
transacted by it or properties owned or leased by it or the performance of its
obligations hereunder requires such qualification and in which the failure so to
qualify could reasonably be expected to have a material adverse effect on the
business, properties, assets, or condition (financial or other) of the Servicer
or the Subservicers or the performance of their respective obligations
hereunder;
(b) The Servicer has the power and authority to make, execute,
deliver and perform this Agreement and all of the transactions contemplated
under this Agreement, and has taken all necessary corporate action to authorize
the execution, delivery and performance of this Agreement, and assuming the due
authorization, execution and delivery hereof by the other parties hereto
constitutes, or will constitute, the legal, valid and binding obligation of the
Servicer, enforceable in accordance with its terms, except as enforcement of
such terms may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting the rights of creditors
generally, and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law);
(c) The Servicer is not required to obtain the consent of any
other party or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or agency
which consent already has not been obtained in connection with the execution,
delivery, performance, validity or enforceability of this Agreement, except such
as have been obtained prior to the Closing Date;
(d) The execution, delivery and performance of this Agreement
by the Servicer will not violate any provision of any existing law or regulation
or any order or decree of any court or the charter or bylaws of the Servicer, or
constitute a breach of any mortgage, indenture, contract or other Agreement to
which the Servicer is a party or by which it may be bound;
13
<PAGE>
(e) There is no action, suit, proceeding or investigation
pending or threatened against the Servicer or the Subservicers which, either in
any one instance or in the aggregate, is, in the Servicer's judgment, likely to
result in any material adverse change in the business, operations, financial
condition, properties, or assets of the Servicer or the Subservicers, or in any
material impairment of the right or ability of any of them to carry on its
business substantially as now conducted, or in any material liability on the
part of any of them, or which would draw into question the validity of this
Agreement, the Notes, or the Mortgage Loans or of any action taken or to be
taken in connection with the obligations of the Servicer or the Subservicers
contemplated herein or therein, or which would be likely to impair materially
the ability of the Servicer or the Subservicers to perform their respective
obligations hereunder;
(f) Neither this Agreement nor any statement, report, or other
document furnished by the Servicer or the Subservicers pursuant to this
Agreement or in connection with the transactions contemplated hereby, including,
without limitation, the sale or placement of the Notes, contains any untrue
statement of fact provided by or on behalf of the Servicer or omits to state a
fact necessary to make the statements provided by or on behalf of the Servicer
contained herein or therein not misleading;
(g) The Servicer does not believe, nor does it have any reason
or cause to believe, that it cannot perform each and every covenant contained in
this Agreement; and
(h) None of the Servicer or the Subservicers is an "investment
company" or a company "controlled by an investment company," within the meaning
of the Investment Company Act of 1940, as amended.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.02 shall survive the delivery of the
respective Indenture Trustee's Mortgage Files to the Collateral Agent, on behalf
of the Indenture Trustee or to another custodian, as the case may be, and inure
to the benefit of the Indenture Trustee.
Section 3.03. Representations, Warranties and Covenants of the
Depositor. The Depositor hereby represents, warrants and covenants to the
Indenture Trustee, the Originators, the Trust, the Collateral Agent, the
Noteholders and the Servicer that as of the date of this Agreement or as of such
date specifically provided herein:
(a) The Depositor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware;
(b) The Depositor has the corporate power and authority to
convey the Mortgage Loans and to execute, deliver and perform, and to enter into
and consummate transactions contemplated by this Agreement;
(c) This Agreement has been duly and validly authorized,
executed and delivered by the Depositor, all requisite corporate action having
been taken, and, assuming the due authorization, execution and delivery hereof
by the other parties hereto, constitutes or will constitute the legal, valid and
binding agreement of the Depositor, enforceable against the Depositor in
14
<PAGE>
accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law);
(d) No consent, approval, authorization or order of or
registration or filing with, or notice to, any governmental authority or court
is required for the execution, delivery and performance of or compliance by the
Depositor with this Agreement or the consummation by the Depositor of any of the
transactions contemplated hereby, except as have been made on or prior to the
Closing Date;
(e) None of the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby or thereby, or the
fulfillment of or compliance with the terms and conditions of this Agreement,
(i) conflicts or will conflict with or results or will result in a breach of, or
constitutes or will constitute a default or results or will result in an
acceleration under (A) the charter or bylaws of the Depositor, or (B) of any
term, condition or provision of any material indenture, deed of trust, contract
or other agreement or instrument to which the Depositor or any of its
subsidiaries is a party or by which it or any of its subsidiaries is bound; (ii)
results or will result in a violation of any law, rule, regulation, order,
judgment or decree applicable to the Depositor of any court or governmental
authority having jurisdiction over the Depositor or its subsidiaries; or (iii)
results in the creation or imposition of any lien, charge or encumbrance which
would have a material adverse effect upon the Mortgage Loans or any documents or
instruments evidencing or securing the Mortgage Loans;
(f) There are no actions, suits or proceedings before or
against or investigations of, the Depositor pending, or to the knowledge of the
Depositor, threatened, before any court, administrative agency or other
tribunal, and no notice of any such action, which, in the Depositor's reasonable
judgment, might materially and adversely affect the performance by the Depositor
of its obligations under this Agreement, or the validity or enforceability of
this Agreement; and
(g) The Depositor is not in default with respect to any order
or decree of any court or any order, regulation or demand of any federal, state,
municipal or governmental agency that may materially and adversely affect its
performance hereunder.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.03 shall survive delivery of the
respective Indenture Trustee's Mortgage Files to the Collateral Agent, on behalf
of the Indenture Trustee or to another custodian, as the case may be, and shall
inure to the benefit of the Indenture Trustee.
Section 3.04. Representations, Warranties and Covenants of the
Indenture Trustee and the Collateral Agent. The Indenture Trustee and the
Collateral Agent hereby represent, warrant and covenant to the Trust, the
Servicer and the Depositor that as of the date of this Agreement or as of such
date specifically provided herein:
15
<PAGE>
(a) Each of the Indenture Trustee and the Collateral Agent is a
banking corporation duly organized, validly existing and in good standing under
the laws of the State of New York;
(b) Each of the Indenture Trustee and the Collateral Agent has
the corporate power and authority to execute, deliver and perform, and to enter
into and consummate transactions contemplated by this Agreement;
(c) This Agreement has been duly and validly authorized,
executed and delivered by the Indenture Trustee and the Collateral Agent, all
requisite corporate action having been taken, and, assuming the due
authorization, execution and delivery hereof by the other parties hereto,
constitutes or will constitute the legal, valid and binding agreement of the
Indenture Trustee and the Collateral Agent, enforceable against such party in
accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law);
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.04 shall survive delivery of the
respective Indenture Trustee's Mortgage Files to the Collateral Agent, on behalf
of the Indenture Trustee or to another custodian, as the case may be.
ARTICLE IV
THE MORTGAGE LOANS
Section 4.01. Representations and Warranties Relating to the Mortgage
Loans. The Originators and the Depositor jointly and severally represent and
warrant to the Indenture Trustee, the Collateral Agent, the Trust and the
Noteholders that, as of the Closing Date, as to each Initial Mortgage Loan, and
as of the Subsequent Transfer Date, as to each Subsequent Mortgage Loan,
immediately prior to the sale and transfer of such Mortgage Loan by the
Originators to the Depositor and by the Depositor to the Trust:
(a) The information set forth in each Mortgage Loan Schedule is
complete, true and correct;
(b) The information to be provided by the Originators to the
Depositor in connection with a Subsequent Mortgage Loan will be true and correct
in all material respects at the date or dates respecting which such information
is furnished;
(c) Each Mortgage is a valid first or second lien on a fee
simple (or its equivalent under applicable state law) estate in the real
property securing the amount owed by the Mortgagor under the Mortgage Note
subject only to (i) the lien of current real property taxes and assessments
which are not delinquent, (ii) with respect to any Mortgage Loan identified on
16
<PAGE>
the Mortgage Loan Schedule as secured by a second lien, the related first
mortgage loan, (iii) covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the date of recording of such
Mortgage, such exceptions appearing of record being acceptable to mortgage
lending institutions generally in the area wherein the property subject to the
Mortgage is located or specifically reflected in the appraisal obtained in
connection with the origination of the related Mortgage Loan obtained by the
related Originator and (iv) other matters to which like properties are commonly
subject which do not materially interfere with the benefits of the security
intended to be provided by such Mortgage;
(d) Immediately prior to the transfer and assignment by the
related Originator to the Depositor, the Originator had good title to, and was
the sole owner of each Mortgage Loan, free of any interest of any other Person,
and the Originator has transferred all right, title and interest in each
Mortgage Loan to the Depositor;
(e) As of the applicable Cut-Off Date, no payment of principal
or interest on or in respect of any Mortgage Loan remains unpaid for thirty (30)
or more days past the date the same was due in accordance with the related
Mortgage Note without regard to applicable grace periods;
(f) To the best knowledge of the Originators, there is no
mechanics' lien or claim for work, labor or material (and no rights are
outstanding that under law could give rise to such lien) affecting the premises
subject to any Mortgage which is or may be a lien prior to, or equal or
coordinate with, the lien of such Mortgage, except those which are insured
against by the title insurance policy referred to in (aa) below;
(g) To the best knowledge of the Depositor and each of the
Originators, there is no delinquent tax or assessment lien against any Mortgaged
Property;
(h) Such Mortgage Loan, the Mortgage, and the Mortgage Note,
including, without limitation, the obligation of the Mortgagor to pay the unpaid
principal of and interest on the Mortgage Note, are each not subject to any
right of rescission (or any such rescission right has expired in accordance with
applicable law), set-off, counterclaim, or defense, including the defense of
usury, nor will the operation of any of the terms of the Mortgage Note or the
Mortgage, or the exercise of any right thereunder, render either the Mortgage
Note or the Mortgage unenforceable, in whole or in part, or subject to any right
of rescission, set-off, counterclaim, or defense, including the defense of
usury, and no such right of rescission, set-off, counterclaim, or defense has
been asserted with respect thereto;
(i) To the best knowledge of the Depositor and each of the
Originators, the Mortgaged Property is free of material damage and is in good
repair, and there is no pending or threatened proceeding for the total or
partial condemnation of the Mortgaged Property;
(j) Neither the Originators nor the Depositor has received a
notice of default of any first mortgage loan secured by the Mortgaged Property
which has not been cured by a party other than the Originator;
17
<PAGE>
(k) Each Mortgage Note and Mortgage are in substantially the
forms previously provided to the Depositor and the Indenture Trustee on behalf
of the Originators;
(l) The Mortgage Loan was not originated in a program in which
the amount of documentation in the underwriting process was limited in
comparison to the Originator's normal documentation requirements;
(m) The Mortgage Loans were not selected by the Depositor or
the Originators for sale hereunder or inclusion in the Trust Estate on any basis
adverse to the Trust Estate relative to the portfolio of similar mortgage loans
of the Depositor or the Originators;
(n) None of the Mortgage Loans constitutes a lien on leasehold
interests;
(o) Each Mortgage contains customary and enforceable provisions
which render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security including (A) in the case of a Mortgage designated as a deed of trust,
by trustee's sale and (B) otherwise by judicial foreclosure. To the best of the
Depositor's and the Originators' knowledge, there is no homestead or other
exemption available to the related Mortgagor which would materially interfere
with the right to sell the related Mortgaged Property at a trustee's sale or the
right to foreclose the related Mortgage. The Mortgage contains customary and
enforceable provisions for the acceleration of the payment of the Principal
Balance of such Mortgage Loan in the event all or any part of the related
Mortgaged Property is sold or otherwise transferred without the prior written
consent of the holder thereof;
(p) The proceeds of such Mortgage Loan have been fully
disbursed, including reserves set aside by the Originators, there is no
requirement for, and neither the Depositor nor the Originators shall make any
future advances thereunder. Any future advances made prior to the applicable
Cut-Off Date have been consolidated with the principal balance secured by the
Mortgage, and such principal balance, as consolidated, bears a single interest
rate and single repayment term reflected on the applicable Mortgage Loan
Schedule. The Principal Balance as of the applicable Cut-Off Date does not
exceed the original principal amount of such Mortgage Loan. Except with respect
to no more than $150,000 of escrow funds in the aggregate with respect to all
Mortgage Loans, any and all requirements as to completion of any on-site or
off-site improvements and as to disbursements of any escrow funds therefor have
been complied with. All costs, fees, and expenses incurred in making, or
recording such Mortgage Loan have been paid;
(q) All Mortgage Loans were originated in compliance with the
Originators' Underwriting Guidelines;
(r) The terms of the Mortgage and the Mortgage Note have not
been impaired, waived, altered, or modified in any respect, except by a written
instrument which has been recorded, if necessary to protect the interest of the
Indenture Trustee, and which has been delivered to the Collateral Agent, on
behalf of the Indenture Trustee. The substance of any such alteration or
modification is or as to Subsequent Mortgage Loans will be reflected on the
applicable Mortgage Loan Schedule and, to the extent necessary, has been or will
be approved by (i) the insurer under the applicable mortgage title insurance
18
<PAGE>
policy, and (ii) the insurer under any other insurance policy required hereunder
for such Mortgage Loan where such insurance policy requires approval and the
failure to procure approval would impair coverage under such policy;
(s) No instrument of release, waiver, alteration, or
modification has been executed in connection with such Mortgage 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 insurer under any insurance
policy required hereunder for such Mortgage Loan where such policy requires
approval and the failure to procure approval would impair coverage under such
policy, and which is part of the Mortgage File and has been delivered to the
Collateral Agent, on behalf of the Indenture Trustee, and the terms of which are
reflected in the applicable Mortgage Loan Schedule;
(t) There is no default, breach, violation, or event of
acceleration existing under the Mortgage or the Mortgage Note and no event
which, with the passage of time or with notice and the expiration of any grace
or cure period, would constitute such a default, breach, violation or event of
acceleration, and neither the Originators nor the Depositor has waived any such
default, breach, violation or event of acceleration. All taxes, governmental
assessments (including assessments payable in future installments), insurance
premiums, water, sewer, and municipal charges, leaseholder payments, or ground
rents which previously became due and owing in respect of or affecting the
related Mortgaged Property have been paid. Neither the Originators nor the
Depositor has advanced funds, or induced, solicited, or knowingly received any
advance of funds by a party other than the Mortgagor, directly or indirectly,
for the payment of any amount required by the Mortgage or the Mortgage Note;
(u) All of the improvements which were included for the
purposes of determining the Appraised Value of the Mortgaged Property were
completed at the time that such Mortgage Loan was originated and lie wholly
within the boundaries and building restriction lines of such Mortgaged Property.
Except for de minimis encroachments, no improvements on adjoining properties
encroach upon the Mortgaged Property. To the best of the Depositor's and the
Originators' knowledge, no improvement located on or being part of the Mortgaged
Property is in violation of any applicable zoning law or regulation. All
inspections, licenses, and certificates required to be made or issued with
respect to all occupied portions of the Mortgaged Property (including all such
improvements which were included for the purpose of determining such Appraised
Value) and, with respect to the use and occupancy of the same, including but not
limited to certificates of occupancy and fire underwriters certificates, have
been made or obtained from the appropriate authorities and the Mortgaged
Property is lawfully occupied under applicable law;
(v) To the best of the Depositor's and the Originators'
knowledge, there do not exist any circumstances or conditions with respect to
the Mortgage, the Mortgaged Property, the Mortgagor, or the Mortgagor's credit
standing that can be reasonably expected to cause such Mortgage Loan to become
delinquent or adversely affect the value or marketability of such Mortgage Loan,
other than any such circumstances or conditions permitted under the Originator's
Underwriting Guidelines;
19
<PAGE>
(w) All parties which have had any interest in the Mortgage,
whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period
in which they held and disposed of such interest, were) (i) in compliance with
any and all applicable licensing requirements of the laws of the state wherein
the Mortgaged Property is located and (ii) (A) organized under the laws of such
state, (B) qualified to do business in such state, (C) federal savings and loan
associations or national banks having principal offices in such state, (D) not
doing business in such state, or (E) not required to qualify to do business in
such state;
(x) The Mortgage Note and the Mortgage are genuine, and each is
the legal, valid and binding obligation of the maker thereof, enforceable in
accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the enforcement of creditors' rights generally and except that the
equitable remedy of specific performance and other equitable remedies are
subject to the discretion of the courts. All parties to the Mortgage Note and
the Mortgage had legal capacity to execute the Mortgage Note and the Mortgage
and convey the estate therein purported to be conveyed, and the Mortgage Note
and the Mortgage have been duly and properly executed by such parties or
pursuant to a valid power-of-attorney that has been recorded with the Mortgage;
(y) The transfer of the Mortgage Note and the Mortgage as and
in the manner contemplated by this Agreement is sufficient either (i) fully to
transfer to the Depositor all right, title, and interest of the Originators
thereto as note holder and mortgagee or (ii) to grant to the Depositor the
security interest referred to in Section 12.14 hereof and thereafter (x) to
transfer the right, title and interest of the Depositor to the Trust and (y) to
pledge the interest of the Trust to the Indenture Trustee for the benefit of the
Noteholders. The Mortgage has been duly assigned and the Mortgage Note has been
duly endorsed. The Assignment of Mortgage delivered to the Collateral Agent, on
behalf of the Indenture Trustee, pursuant to Section 2.05(a)(iv) is in
recordable form and is acceptable for recording under the laws of the applicable
jurisdiction. The endorsement of the Mortgage Note, the delivery to the
Collateral Agent, on behalf of the Indenture Trustee, of the endorsed Mortgage
Note, and such Assignment of Mortgage, and the delivery of such Assignment of
Mortgage for recording to, and the due recording of such Assignment of Mortgage
in, the appropriate public recording office in the jurisdiction in which the
Mortgaged Property is located are sufficient to permit the Indenture Trustee to
avail itself of all protection available under applicable law against the claims
of any present or future creditors of the Depositor and the Originators, and are
sufficient to prevent any other sale, transfer, assignment, pledge, or
hypothecation of the Mortgage Note and Mortgage by the Depositor or the
Originators from being enforceable;
(z) Any and all requirements of any federal, state, or local
law including, without limitation, usury, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit opportunity, or
disclosure laws applicable to such Mortgage Loan have been complied with, and
the Servicer shall maintain in its possession, available for the Indenture
Trustee's inspection, and shall deliver to the Indenture Trustee or its designee
upon demand, evidence of compliance with all such requirements. The consummation
of the transactions contemplated by this Agreement will not cause the violation
of any such laws;
20
<PAGE>
(aa) Such Mortgage Loan is covered by an ALTA mortgage title
insurance policy or such other generally used and acceptable form of policy,
issued by and the valid and binding obligation of a title insurer qualified to
do business in the jurisdiction where the Mortgaged Property is located,
insuring the Originator, and its successors and assigns, as to the first or
second priority lien, as applicable, of the Mortgage in the original principal
amount of such Mortgage Loan. The assignment to the Indenture Trustee of the
Originator's interest in such mortgage title insurance policy does not require
the consent of or notification to the insurer. Such mortgage title insurance
policy is in full force and effect and will be in full force and effect and
inure to the benefit of the Indenture Trustee upon the consummation of the
transactions contemplated by this Agreement. No claims have been made under such
mortgage title insurance policy and none of the Depositor, the Originators nor
any prior holder of the Mortgage has done, by act or omission, anything which
would impair the coverage of such mortgage title insurance policy;
(bb) All improvements upon the Mortgaged Property are insured
against loss by fire, hazards of extended coverage, and such other hazards as
are customary in the area where the Mortgaged Property is located pursuant to
insurance policies conforming to the requirements of Section 7.04 hereof. If the
Mortgaged Property at origination was located in an area identified on a flood
hazard boundary map or flood insurance rate map issued by the Federal Emergency
Management Agency as having special flood hazards (and such flood insurance has
been made available), such Mortgaged Property was covered by flood insurance at
origination. Each individual insurance policy is the valid and binding
obligation of the insurer, is in full force and effect, and will be in full
force and effect and inure to the benefit of the Indenture Trustee upon the
consummation of the transactions contemplated by this Agreement, and contain a
standard mortgage clause naming the originator of such Mortgage Loan, and its
successors and assigns, as mortgagee and loss payee. All premiums thereon have
been paid. The Mortgage obligates the Mortgagor to maintain all such insurance
at the Mortgagor's cost and expense, and upon the Mortgagor's failure to do so,
authorizes the holder of the Mortgage to obtain and maintain such insurance at
the Mortgagor's cost and expense and to seek reimbursement therefor from the
Mortgagor, and none of the Depositor, the related Originator or any prior holder
of the Mortgage has acted or failed to act so as to impair the coverage of any
such insurance policy or the validity, binding effect, and enforceability
thereof;
(cc) If the Mortgage constitutes a deed of trust, a trustee,
duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in such Mortgage, and no fees or
expenses are or will become payable by the trustee or the Noteholders to the
Indenture Trustee under the deed of trust, except in connection with a trustee's
sale after default by the Mortgagor;
(dd) The Mortgaged Property consists of one or more parcels of
real property separately assessed for tax purposes. To the extent there is
erected thereon a detached or an attached one-family residence or a detached
two-to six-family dwelling, or an individual condominium unit in a low-rise
condominium, or an individual unit in a planned unit development, or a
commercial property, a manufactured dwelling, or a mixed use or multiple purpose
property, such residence, dwelling or unit is not (i) a unit in a cooperative
apartment, (ii) a property constituting part of a syndication, (iii) a time
21
<PAGE>
share unit, (iv) a property held in trust, (v) a mobile home, (vi) a
log-constructed home, or (vii) a recreational vehicle;
(ee) There exist no material deficiencies with respect to
escrow deposits and payments, if such are required, for which customary
arrangements for repayment thereof have not been made or which the Depositor or
the related Originator expects not to be cured, and no escrow deposits or
payments of other charges or payments due the Depositor have been capitalized
under the Mortgage or the Mortgage Note;
(ff) Such Mortgage Loan was not originated at a below market
interest rate. Such Mortgage Loan does not have a shared appreciation feature,
or other contingent interest feature;
(gg) The origination and collection practices used by the
Depositor, the Originators or the Servicer with respect to such Mortgage Loan
have been in all respects legal, proper, prudent, and customary in the mortgage
origination and servicing business;
(hh) The Mortgagor has, to the extent required by applicable
law, executed a statement to the effect that the Mortgagor has received all
disclosure materials, if any, required by applicable law with respect to the
making of fixed-rate mortgage loans. The Servicer shall maintain or cause to be
maintained such statement in the Mortgage File;
(ii) All amounts received by the Depositor or the Originators
with respect to such Mortgage Loan after the applicable Cut-Off Date and
required to be deposited in the Payment Account have been so deposited in the
Payment Account and are, as of the Closing Date, or will be as of the Subsequent
Transfer Date, as applicable, in the Payment Account;
(jj) The appraisal report with respect to the Mortgaged
Property contained in the Mortgage File was signed prior to the approval of the
application for such Mortgage Loan by a qualified appraiser, duly appointed by
the originator of such Mortgage Loan, who had no interest, direct or indirect,
in the Mortgaged Property or in any loan made on the security thereof and whose
compensation is not affected by the approval or disapproval of such application;
(kk) Each of the Originators and the Depositor has no knowledge
with respect to the Mortgaged Property of any governmental or regulatory action
or third party claim made, instituted or threatened in writing relating to a
violation of any applicable federal, state or local environmental law, statute,
ordinance, regulation, order, decree or standard;
(ll) With respect to second lien Mortgage Loans:
(i) the Depositor and the Originators have no knowledge
that the Mortgagor has received notice from the holder of the prior
mortgage that such prior mortgage is in default,
(ii) no consent from the holder of the prior mortgage is
needed for the creation of the second lien Mortgage or, if required,
has been obtained and is in the related Mortgage File,
22
<PAGE>
(iii) if the prior mortgage has a negative amortization
feature, the CLTV was determined using the maximum loan amount of such
prior mortgage, and
(iv) the related first mortgage loan encumbering the
related Mortgaged Property does not have a mandatory future advance
provision.
(mm) Each of the Mortgage Loans is securitizable upon
substantially the same terms and conditions as the mortgage loans included in
the ABFS Mortgage Loan Trust 2000-1;
(nn) To the best of the Depositor's and the Originators'
knowledge, no error, omission, misrepresentation, negligence, fraud or similar
occurrence with respect to a Mortgage Loan has taken place on the part of any
person, including without limitation the Mortgagor, any appraiser, any builder
or developer, or any other party involved in the origination of the Mortgage
Loan or in the application of any insurance in relation to such Mortgage Loan;
(oo) Each Mortgaged Property is in compliance with all
environmental laws, ordinances, rules, regulations and orders of federal, state
or governmental authorities relating thereto. No hazardous material has been or
is incorporated in, stored on or under (other than properly stored materials,
used for reasonable residential purposes), released from, treated on,
transported to or from, or disposed of on or from, any Mortgaged Property such
that, under applicable law (A) any such hazardous material would be required to
be eliminated before the Mortgaged Property could be altered, renovated,
demolished or transferred, or (B) the owner of the Mortgaged Property, or the
holder of a security interest therein, could be subjected to liability for the
removal of such hazardous material or the elimination of the hazard created
thereby. Neither the Originators nor any Mortgagor has received notification
from any federal, state or other governmental authority relating to any
hazardous materials on or affecting the Mortgaged Property or to any potential
or known liability under any environmental law arising from the ownership or
operation of the Mortgaged Property. For the purposes of this subsection, the
term "hazardous materials" shall include, without limitation, gasoline,
petroleum products, explosives, radioactive materials, polychlorinated biphenyls
or related or similar materials, asbestos or any material containing asbestos,
lead, lead-based paint and any other substance or material as may be defined as
a hazardous or toxic substance by any federal, state or local environmental law,
ordinance, rule, regulation or order, including, without limitation, CERCLA, the
Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act,
the Toxic Substances Control Act and any regulations promulgated pursuant
thereto;
(pp) With respect to any business purpose loan, the
related Mortgage Note contains an acceleration clause, accelerating the maturity
date under the Mortgage Note to the date the individual guarantying such loan,
if any, becomes subject to any bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting the enforcement of creditors' rights
generally; and
(qq) Each of the Originators and the Depositor further
represent and warrant to the Indenture Trustee and the Noteholders that as of
the Subsequent Cut-Off Date all representations and warranties set forth in
clauses (a) through (pp) above will be correct in all material respects as to
each Subsequent Mortgage Loan, and the representations so made in this
23
<PAGE>
subsection (qq) as to the following matters will be correct: (i) each Subsequent
Mortgage Loan will not be thirty (30) or more days contractually delinquent as
of the related Subsequent Cut-Off Date; and (ii) the purchase of the Subsequent
Mortgage Loans is consented to by the Initial Purchaser, notwithstanding the
fact that the Subsequent Mortgage Loans meet the parameters stated herein.
Section 4.02. Purchase and Substitution. (a) It is understood and
agreed that the representations and warranties set forth in Section 4.01 herein
shall survive the purchase by the Depositor of the Mortgage Loans, the
subsequent transfer thereof by the Depositor to the Trust, the subsequent pledge
thereof by the Trust to the Indenture Trustee, for the benefit of the
Noteholders, and the delivery of the Notes to the Noteholders, and shall
continue in full force and effect, notwithstanding any restrictive or qualified
endorsement on the Mortgage Notes and notwithstanding subsequent termination of
this Agreement.
(b) Upon discovery by the Originators, the Depositor, the
Servicer, any Subservicer, the Indenture Trustee, the Collateral Agent, or a
Noteholder of a breach of any of the representations and warranties in Sections
3.01, 3.02 or 4.01 hereof which materially and adversely affects the value of
the Mortgage Loans or the interest of the Noteholders, or which materially and
adversely affects the interests of the Noteholders in the related Mortgage Loan
in the case of a representation and warranty relating to a particular Mortgage
Loan (notwithstanding that such representation and warranty was made to the
Originator's best knowledge), the party discovering such breach or failure shall
promptly (and in any event within five (5) days of the discovery) give written
notice thereof to the others. Within five (5) days of the earlier of its
discovery or its receipt of notice of any breach of a representation or
warranty, the Servicer shall, or shall cause the Originator (or, if the
Originator fails to do so, the Depositor) to, (a) promptly cure such breach in
all material respects, (b) purchase such Mortgage Loan on the next succeeding
Servicer Payment Date, in the manner and at the price specified in Section
2.06(c) and this Section 4.02, or (c) remove such Mortgage Loan from the Trust
Estate (in which case it shall become a Deleted Mortgage Loan) and substitute
one or more Qualified Substitute Mortgage Loans in the manner specified in
Section 2.06(c) and this Section 4.02. The Collateral Agent shall give prompt
written notice to the Indenture Trustee, who shall deliver such notice to the
Initial Purchaser of any repurchase or substitution made pursuant to this
Section 4.02 or Section 2.06(c).
(c) As to any Deleted Mortgage Loan for which the Originator
(or the Depositor, as the case may be) substitutes a Qualified Substitute
Mortgage Loan or Loans, the Servicer shall cause the Originator (or the
Depositor, as the case may be) to effect such substitution by delivering to the
Indenture Trustee a certification, in the form attached hereto as Exhibit C,
executed by a Servicing Officer, and the documents described in Sections
2.05(a)(i)-(vi) for such Qualified Substitute Mortgage Loan or Loans.
(d) The Servicer shall deposit in the Payment Account all
payments received in connection with such Qualified Substitute Mortgage Loan or
Loans after the date of such substitution. Monthly Payments received with
respect to Qualified Substitute Mortgage Loan or Loans on or before the date of
substitution will be retained by the Originators (or the Depositor, as the case
24
<PAGE>
may be). The Trust will own all payments received on the Deleted Mortgage Loan
on or before the date of substitution, and the Originators (or the Depositor, as
the case may be) shall thereafter be entitled to retain all amounts subsequently
received in respect of such Deleted Mortgage Loan. The Servicer shall give
written notice to the Indenture Trustee, the Collateral Agent and the Initial
Purchaser that such substitution has taken place and shall amend the Mortgage
Loan Schedule to reflect the removal of such Deleted Mortgage Loan from the
terms of this Agreement and the substitution of the Qualified Substitute
Mortgage Loan or Loans. Upon such substitution, such Qualified Substitute
Mortgage Loan or Loans shall be subject to the terms of this Agreement in all
respects.
(e) It is understood and agreed that the obligations of the
Originators and the Depositor set forth herein to, and the Servicer's obligation
set forth in this Section 4.02 to cause the Originators or the Depositor to,
cure, purchase or substitute for a defective Mortgage Loan, or to indemnify as
described in subsection (f) below, together with the Guarantor's guaranty of
such obligations, constitute the sole remedies of the Indenture Trustee, the
Collateral Agent and the Noteholders respecting a breach of the representations
and warranties of the Originators.
(f) The Originators hereby indemnify the Indenture Trustee, the
Depositor, the Trust, the Owner Trustee, the Collateral Agent and the
Noteholders and their successors, assigns, agents and servants (collectively,
the "Indemnified Parties") from and against, any and all liabilities,
obligations, losses, damages, taxes, claims, actions and suits, and any and all
reasonable costs, expenses and disbursements (including reasonable legal fees
and expenses) of any kind and nature whatsoever (collectively, "Expenses") which
may at any time be imposed on, incurred by, or asserted against any Indemnified
Party in any way relating to or arising out of a breach by the Depositor or the
related Originator of the representations or warranties herein. The indemnities
contained herein shall survive the resignation or termination of the Owner
Trustee or the termination of this Agreement.
(g) Each of the Originators shall be jointly and severally
responsible for any repurchase, cure or substitution obligation of the
Originators under this Agreement or the Indenture.
ARTICLE V
THE ORIGINATORS AND THE DEPOSITOR
Section 5.01. Covenants of the Originators and the Depositor. (a) Each
of the Originators and the Depositor covenant to the Indenture Trustee, the
Trust, the Collateral Agent, the Servicer and the Noteholders as follows:
(i) The Originators and the Depositor shall cooperate with
such parties and the firm of independent certified public accountants
retained with respect to the issuance of the Notes in making available
all information and taking all steps reasonably necessary or reasonably
required by the Initial Purchaser to permit the accountants' letters
required hereunder to be delivered within the times set for delivery
herein;
25
<PAGE>
(ii) The Originators and the Depositor agree to satisfy or
cause to be satisfied on or prior to the Closing Date, all of the
conditions set forth in Section 6.01 hereof that are within the
Originators' and the Depositor's (or their agents') control; and
(iii) The Originators and the Depositor hereby agree to do
all acts, transactions, and things and to execute and deliver all
agreements, documents, instruments, and papers by and on behalf of the
Originators or the Depositor as the Owner Trustee or the Initial
Purchaser or their counsel may reasonably request in order to (A)
consummate the transfer of the Mortgage Loans to the Depositor and from
the Depositor to the Trust and the subsequent transfer thereof to the
Indenture Trustee, and the issuance and sale of the Notes and (B)
consummate a Securitization or whole-loan transfer of some or all of
the Mortgage Loans.
(b) The Depositor covenants to the Noteholders that it shall
not, for so long as an Event of Default or an Amortization Event exists under
the Indenture, pay any dividend to the holders of its common stock.
Section 5.02. Merger or Consolidation. Each of the Originators and the
Depositor will keep in full effect its existence, rights and franchises as a
corporation and will obtain and preserve its qualification to do business as a
foreign corporation, in each jurisdiction necessary to protect the validity and
enforceability of this Agreement or any of the Mortgage Loans and to perform its
duties under this Agreement. Any Person into which any of the Originators or the
Depositor may be merged or consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Originators or the Depositor
shall be a party, or any Person succeeding to the business of the Originators or
the Depositor, shall be approved by the Initial Purchaser, which approval shall
not be unreasonably withheld. If the approval of the Initial Purchaser is not
acquired, the successor shall be an established mortgage loan servicing
institution that is a Permitted Transferee and in all events shall be the
successor of the Originators or the Depositor without the execution or filing of
any paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding. The Originators and the Depositor shall
send notice of any such merger or consolidation to the Indenture Trustee and the
Initial Purchaser.
Section 5.03. Costs. In connection with the transactions contemplated
under this Agreement, the Trust Agreement and the Indenture, the Originators and
the Depositor shall promptly pay: (a) the fees and disbursements of the
Depositor's and the Originators' counsel; (b) any of the fees of the Indenture
Trustee and the fees and disbursements of the Indenture Trustee's counsel; (c)
any of the fees of the Owner Trustee and the fees and disbursements of the Owner
Trustee's counsel; (d) the fees and disbursements for Deloitte & Touche LLP,
accountants for the Originators; and (e) all of the reasonable initial expenses
of the Initial Purchaser including, without limitation, legal fees (not to
exceed $40,000) and expenses, accountant fees and expenses and expenses in
connection with due diligence conducted on the Mortgage Files. For the avoidance
of doubt, the parties hereto acknowledge that it is the intention of the parties
that the Initial Purchaser shall not pay any of the Indenture Trustee's or Owner
Trustee's fees and expenses in connection with the transactions contemplated by
this Agreement, the Trust Agreement and the Indenture. All other costs and
26
<PAGE>
expenses in connection with the transactions contemplated hereunder shall be
borne by the party incurring such expenses.
Section 5.04. Indemnification. (a) The Originators and the Depositor,
jointly and severally, agree to indemnify and to hold the Initial Purchaser
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 Initial Purchaser may sustain in any way related to the failure of any
of the Originators or the Depositor to perform any of their duties in compliance
with the terms of this Agreement. The Originators or the Depositor shall
immediately notify the Initial Purchaser if a claim is made by a third party
with respect to this Agreement, and the Originators or the Depositor shall
assume 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 Initial
Purchaser in respect of such claim.
(b) Promptly after receipt by an indemnified party under this
Section 5.04 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 5.04, notify the indemnifying party in writing of the
commencement thereof, but the omission to so notify the indemnifying party will
not relieve the indemnifying party from any liability which the indemnifying
party may have to any indemnified party hereunder except to the extent such
indemnifying party has been prejudiced thereby. 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 elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. After notice from the indemnifying party
to such indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 5.04 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it that are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assert such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. The indemnifying party shall not be liable for the
expenses of more than one separate counsel.
ARTICLE VI
CONDITIONS OF CLOSING
Section 6.01. Conditions of Depositor's Obligations. The obligations of
the Trust to purchase the Mortgage Loans and the Initial Purchaser to purchase
the Notes will be subject to the satisfaction on the Closing Date of the
following conditions.
27
<PAGE>
(a) Each of the obligations of the Originators and the
Depositor required to be performed by it on or prior to the Closing Date
pursuant to the terms of this Agreement shall have been duly performed and
complied with and all of the representations and warranties of the Depositor and
the Originators under this Agreement 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 constitute a default under this Agreement, and the Initial Purchaser shall
have received a certificate to the effect of the foregoing signed by an
authorized officer of each of the Depositor and the Originators. In addition,
with respect to each Closing Date, each Mortgage Loan to be conveyed to the
Trust on such Closing Date shall be determined by the Initial Purchaser, in its
sole discretion, to be securitizable.
(b) All fees and expenses set forth in Section 5.03 shall have
been paid by the Originators and/or the Depositor.
(c) The Mortgage Loans will be acceptable to the Initial
Purchaser, in its sole reasonable discretion.
(d) The Initial Purchaser shall have received the following
additional closing documents, in form and substance reasonably satisfactory to
the Initial Purchaser and its counsel:
(i) the Mortgage Loan Schedule;
(ii) this Agreement, the Indenture, the Trust Agreement,
and the Purchase Agreement dated as of March 29, 2000 between the
Depositor and Prudential Securities Credit Corp., LLC and all documents
required thereunder, duly executed and delivered by each of the parties
thereto;
(iii) officer's certificates of an officer of each of the
Originators and the Depositor, dated as of the Closing Date, and
attached thereto resolutions of the board of directors and a copy of
the charter and by-laws;
(iv) copy of each of the Originators and the Depositor's
charter and all amendments, revisions, and supplements thereof,
certified by a secretary of each entity;
(v) an opinion of the counsel for the Originators and the
Depositor as to various corporate matters in a form acceptable to the
Initial Purchaser and its counsel (it being agreed that the opinion
shall expressly provide that the Indenture Trustee shall be entitled to
rely on the opinion);
(vi) opinions of counsel for the Originators and the
Depositor relating to certain bankruptcy matters, in forms acceptable
to the Initial Purchaser and its counsel (it being agreed that such
opinions shall expressly provide that the Indenture Trustee shall be
entitled to rely on such opinions);
(vii) an opinion of counsel for the Indenture Trustee in
form and substance acceptable to the Initial Purchaser and its counsel
28
<PAGE>
(it being agreed that the opinion shall expressly provide that the
Originators and the Depositor shall be entitled to rely on the
opinion);
(viii) an opinion of counsel for the Owner Trustee in form
and substance acceptable to the Initial Purchaser and its counsel (it
being agreed that the opinion shall expressly provide that the
Originators and the Depositor shall be entitled to rely on the
opinion);
(ix) an opinion or opinions of counsel for the Servicer, in
form and substance acceptable to the Initial Purchaser and its counsel
(it being agreed that the opinion shall expressly provide that the
Originators and the Depositor shall be entitled to rely on the
opinion); and
(e) All proceedings in connection with the transactions
contemplated by this Agreement and all documents incident hereto shall be
satisfactory in form and substance to the Initial Purchaser and its counsel.
(f) The Originators and the Depositor shall have furnished the
Initial Purchaser with such other certificates of its officers or others and
such other documents or opinions as the Initial Purchaser or its counsel may
reasonably request.
Section 6.02. Termination of Initial Purchaser's Obligations. The
Initial Purchaser may terminate its obligations hereunder by notice to the
Originators and the Depositor at any time before delivery of and payment of the
purchase price for the Notes if: (a) any of the conditions set forth in Section
6.01 are not satisfied when and as provided therein; (b) there shall have been
the entry of a decree or order by a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a conservator,
receiver or liquidator in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to the Depositor or
any Originator, or for the winding up or liquidation of the affairs of the
Depositor or any Originator; (c) there shall have been the consent by the
Depositor or any Originator to the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the Depositor or any
Originator or of or relating to substantially all of the property of the
Depositor or any Originator; (d) any purchase and assumption agreement with
respect to the Depositor or any Originator or the assets and properties of the
Depositor or any Originator shall have been entered into; or (e) an Amortization
Event shall have occurred. The termination of the Initial Purchaser's
obligations hereunder shall not terminate the Initial Purchaser's rights
hereunder or its right to exercise any remedy available to it at law or in
equity.
ARTICLE VII
ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS
Section 7.01. The Servicer. The Servicer shall service and administer
the Mortgage Loans in accordance with the Accepted Servicing Practices and shall
have full power and authority to do any and all things not inconsistent
29
<PAGE>
therewith in connection with such servicing and administration which it may deem
necessary or desirable subject to the limitations set forth in this Agreement.
The Indenture Trustee shall furnish the Servicer with any powers of attorney and
other documents necessary or appropriate to enable the Servicer to carry out its
servicing and administrative duties hereunder. Without limiting the generality
of the foregoing, the Servicer shall continue, and is hereby authorized and
empowered by the Indenture Trustee, to execute and deliver, on behalf of itself,
the Noteholders and the Indenture Trustee or any of them, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge and all other comparable instruments, and to effect such
modifications, waivers, indulgences and other like matters as are in its
judgment necessary or desirable, with respect to the Mortgage Loans and the
Mortgaged Properties and the servicing and administration thereof. The Servicer
shall notify the Indenture Trustee of any such waiver, release, discharge,
modification, indulgence or other such matter by delivering to the Indenture
Trustee an Officer's Certificate certifying that such agreement is in compliance
with this Section 7.01 together with the original copy of any written agreement
or other document executed in connection therewith, all of which written
agreements or documents shall, for all purposes, be considered a part of the
related Indenture Trustee's Mortgage File to the same extent as all other
documents and instruments constituting a part thereof. Notwithstanding anything
in this Agreement to the contrary, the Servicer shall not permit any
modification with respect to any Mortgage Loan unless (i) the modifications do
not decrease the Mortgage Interest Rate, reduce or increase the principal
balance, decrease the lien priority, increase the current LTV above the lesser
of the current LTV or the original LTV, or change the final maturity date on or
of such Mortgage Loan and (ii) the Initial Purchaser consents to such
modifications in writing.
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Agreement) to the Indenture Trustee under this Agreement
is intended by the parties to be that of an independent contractor and not that
of a joint venturer, partner or agent.
Section 7.02. Collection of Certain Mortgage Loan Payments; Collection
Account. (a) The Servicer shall make its reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and
shall, to the extent such procedures shall be consistent with this Agreement,
follow Accepted Servicing Practices. Consistent with the foregoing, the Servicer
may in its discretion waive any assumption fees or other fees which may be
collected in the ordinary course of servicing such Mortgage Loans.
(b) The Servicer shall establish and maintain, in the name of
the Indenture Trustee, the Collection Account, in trust for the benefit of the
Noteholders. The Collection Account shall be established and maintained as an
Eligible Account.
(c) The Servicer shall deposit in the Collection Account any
amounts representing Monthly Payments on the Mortgage Loans due or to be applied
as of a date after the related Cut-Off Date, and thereafter, no later than the
third Business Day following receipt thereof (except as otherwise permitted
herein), the following payments and collections received or made by it (other
than in respect of principal collected and interest due on the Mortgage Loans on
or before the related Cut-Off Date):
(i) payments of interest on the Mortgage Loans;
30
<PAGE>
(ii) payments of principal of the Mortgage Loans;
(iii) the Loan Repurchase Price of Mortgage Loans
repurchased pursuant to Sections 2.06 or 4.02;
(iv) the Substitution Adjustment received in connection
with Mortgage Loans for which Qualified Substitute Mortgage Loans are
received pursuant to Sections 2.06 and 4.02;
(v) all Liquidation Proceeds; and
(vi) all Insurance Proceeds (including, for this purpose,
any amounts required to be deposited by the Servicer pursuant to
Section 7.04 hereof).
It is understood that the Servicer need not deposit amounts
representing fees, prepayment premiums, late payment charges or extension or
other administrative charges payable by Mortgagors, or amounts received by the
Servicer for the account of Mortgagors for application towards the payment of
taxes, insurance premiums, assessments and similar items.
(d) The Servicer shall invest any funds in the Collection
Account in Permitted Investments, which shall mature not later than the Business
Day next preceding the Servicer Payment Date next following the date of such
investment (except that any investment held by the Indenture Trustee may mature
on such Servicer Payment Date) and shall not be sold or disposed of prior to its
maturity. All net income and gain realized from any such investment shall be for
the benefit of the Servicer and shall be subject to its withdrawal or order on a
Servicer Payment Date. The Servicer shall deposit from its own funds the amount
of any loss, to the extent not offset by investment income or earnings, in the
Collection Account upon the realization of such loss.
Section 7.03. Permitted Withdrawals from the Collection Account. The
Servicer may make withdrawals from the Collection Account, on or prior to any
Servicer Payment Date, for the following purposes:
(a) to reimburse the Servicer for Liquidation Expenses
theretofore incurred in respect of any Mortgage Loan in an amount not to exceed
the amount of the sum of the related Insurance Proceeds and Liquidation Proceeds
deposited in the Collection Account pursuant to Section 7.02(c)(v)-(vi);
(b) to reimburse the Servicer for amounts expended by it
pursuant to Section 7.04 in good faith in connection with the restoration of
damaged property, in an amount not to exceed the amount of the related Insurance
Proceeds and Liquidation Proceeds (net of withdrawals pursuant to Section
7.03(a)) and amounts representing proceeds of other insurance policies covering
the property subject to the related Mortgage deposited in the Collection Account
pursuant to Section 7.02(c)(v)-(vi);
(c) to pay to the Depositor or the Originator amounts received
in respect of any Defective Mortgage Loan purchased or substituted for by the
31
<PAGE>
Depositor or the Originator to the extent that the payment of any such amounts
on the Servicer Payment Date upon which the proceeds of such purchase are paid
would make the total amount distributed in respect of any such Mortgage Loan on
such Servicer Payment Date greater than the Loan Repurchase Price or the
Substitution Adjustment therefor;
(d) to reimburse the Servicer for unreimbursed Servicing
Advances, without interest, with respect to the Mortgage Loans for which it has
made a Servicing Advance, from subsequent collections with respect to interest
on such Mortgage Loans and from Liquidation Proceeds, Insurance Proceeds and/or
the Loan Repurchase Price or Substitution Adjustment of or relating to such
Mortgage Loans;
(e) to reimburse the Servicer for any Periodic Advances
determined in good faith to have become Nonrecoverable Advances, such
reimbursement to be made from any funds in the Collection Account;
(f) to withdraw any amount received from a Mortgagor that is
recoverable and sought to be recovered as a voidable preference by a trustee in
bankruptcy pursuant to the Bankruptcy Code in accordance with a final,
nonappealable order of a court having competent jurisdiction;
(g) to withdraw any funds deposited in the Collection Account
that were not required to be deposited therein; and
(h) to pay the Servicer the Servicing Compensation pursuant to
Section 7.08 hereof to the extent not retained or paid.
The Servicer shall keep and maintain a separate accounting for each
Mortgage Loan for the purpose of accounting for withdrawals from the Collection
Account pursuant to this Section 7.03.
Section 7.04. Hazard Insurance Policies; Property Protection Expenses.
(a) The Servicer shall cause to be maintained for each Mortgage Loan a hazard
insurance policy with extended coverage which contains a standard mortgagee's
clause with an appropriate endorsement in an amount equal to the lesser of (x)
the maximum insurable value of the related Mortgaged Property or (y) the sum of
the Principal Balance of such Mortgage Loan plus the outstanding balance of any
mortgage loan senior to such Mortgage Loan, but in no event shall such amount be
less than is necessary to prevent the Mortgagor from becoming a coinsurer
thereunder. The Servicer shall also maintain on property acquired upon
foreclosure, or by deed in lieu of foreclosure, hazard insurance with extended
coverage in an amount which is at least equal to the lesser of (i) the maximum
insurable value from time to time of the improvements which are a part of such
property or (ii) the sum of the Principal Balance of such Mortgage Loan and the
principal balance of any mortgage loan senior to such Mortgage Loan at the time
of such foreclosure plus accrued interest and the good-faith estimate of the
Servicer of related Liquidation Expenses to be incurred in connection therewith.
Amounts collected by the Servicer under any such policies shall be deposited in
the Collection Account to the extent that they constitute Liquidation Proceeds
32
<PAGE>
or Insurance Proceeds. Each hazard insurance policy shall contain a standard
mortgage clause naming the Originator, its successors and assigns, as mortgagee.
(b) If the Servicer shall obtain and maintain a blanket policy
issued by an insurer acceptable to the Initial Purchaser insuring against hazard
losses on all of the Mortgage Loans, it shall conclusively be deemed to have
satisfied its obligations as set forth in Section 7.04(a), it being understood
and agreed that such policy may contain a deductible clause, in which case the
Servicer shall, in the event that there shall not have been maintained on the
related Mortgaged Property a policy complying with Section 7.04(a), and there
shall have been a loss which would have been covered by such policy, deposit in
the Collection Account the amount not otherwise payable under the blanket policy
because of such deductible clause.
(c) If the Mortgaged Property or REO Property is located at the
time of origination of the Mortgage Loan in a federally designated special flood
hazard area (and if the flood insurance policy referenced herein has been made
available), the Servicer will cause to be maintained flood insurance in respect
thereof. Such flood insurance shall be in an amount equal to the lesser of (i)
the sum of the Principal Balance of the related Mortgage Loan and the principal
balance of the related first lien, if any, (ii) the maximum insurable value of
the related Mortgaged Property, and (iii) the maximum amount of such insurance
available for the related Mortgaged Property under the national flood insurance
program (assuming that the area in which such Mortgaged Property is located is
participating in such program).
Section 7.05. Assumption and Modification Agreements. In any case in
which a Mortgaged Property has been or is about to be conveyed by the Mortgagor,
the Servicer shall exercise its right to accelerate the maturity of the related
Mortgage Loan and require that the Principal Balance thereof be paid in full on
or prior to such conveyance by the Mortgagor under any "due-on-sale" clause
applicable thereto. If such "due-on-sale" clause, by its terms, is not operable
or the Servicer is prevented, as provided in the last paragraph of this Section
7.05, from enforcing any such clause, the Servicer is authorized, subject to the
consent of the Initial Purchaser, to take or enter into an assumption and
modification agreement from or with the Person to whom such property has been or
is about to be conveyed, pursuant to which such Person becomes liable under the
Mortgage Note and the Mortgagor remains liable thereon or, if the Servicer in
its reasonable judgment finds it appropriate, is released from liability
thereon. The Servicer shall notify the Indenture Trustee and the Collateral
Agent that any assumption and modification agreement has been completed by
delivering to the Indenture Trustee, the Collateral Agent and the Initial
Purchaser an Officer's Certificate certifying that such agreement is in
compliance with this Section 7.05 together with the original copy of such
assumption and modification agreement. Any such assumption and modification
agreement shall, for all purposes, be considered a part of the related Mortgage
File to the same extent as all other documents and instruments constituting a
part thereof. In connection with any such agreement, the then current Mortgage
Interest Rate thereon shall not be increased or decreased. Any fee collected by
the Servicer for entering into any such agreement will be retained by the
Servicer as additional servicing compensation. At its sole election, the
Servicer may purchase from the Trust any Mortgage Loan that has been assumed in
accordance with this Section 7.05 within one month after the date of such
assumption at a price equal to the greater of (i) the fair market value of such
Mortgage Loan (as determined by the Servicer in its good faith judgment) and
33
<PAGE>
(ii) the Loan Repurchase Price. Such amount, if any, shall be deposited into the
Collection Account in the Due Period in which such repurchase is made.
Notwithstanding the foregoing paragraph of this Section 7.05 or any
other provision of this Agreement, the Servicer shall not be deemed to be in
default, breach or any other violation of its obligations hereunder by reason of
any assumption of a Mortgage Loan, or transfer of any Mortgaged Property without
the assumption thereof, by operation of law or any assumption or transfer which
the Servicer reasonably believes it may be restricted by law from preventing for
any reason whatsoever.
Section 7.06. Realization Upon Defaulted Mortgage Loans. (a) The
Servicer shall foreclose upon or otherwise comparably convert to ownership
Mortgaged Properties securing such of the Mortgage Loans as come into and
continue in default and as to which no satisfactory arrangements can be made for
collection of delinquent payments pursuant to Section 7.02(a). Prior to
conducting any sale in a foreclosure proceeding or accepting a deed-in-lieu of
foreclosure with respect to any Mortgaged Property, the Servicer shall cause an
environmental review to be performed, in accordance with Accepted Servicing
Practices on the Mortgaged Property by a company such as Equifax, Inc. or
Toxicheck. If such review reveals that the Mortgaged Property has on it, under
it or is near hazardous or toxic material or waste or reveals any other
environmental problem, the Servicer shall not foreclose or accept a deed-in-lieu
of foreclosure, without the prior written consent of the Initial Purchaser. In
connection with such foreclosure or other conversion, the Servicer shall follow
such practices (including, in the case of any default on a related senior
mortgage loan, the advancing of funds to correct such default) and procedures
which are consistent with Accepted Servicing Practices as it shall deem
necessary or advisable and as shall be normal and usual in its general first and
second mortgage loan servicing activities. Notwithstanding the foregoing, the
Servicer shall not be required to expend its own funds in connection with any
foreclosure or towards the correction of any default on a related senior
mortgage loan or restoration of any property unless, in the reasonable judgment
of the Servicer, such expenses will be recoverable from Liquidation Proceeds.
(b) In the event that title to any Mortgaged Property is
acquired in foreclosure or by deed in lieu of foreclosure, the deed or
certificate of sale shall be issued to the Indenture Trustee, or to its nominee,
on behalf of Noteholders.
(c) Any Insurance Proceeds or Liquidation Proceeds received
with respect to a Mortgage Loan or REO Property (other than received in
connection with a purchase by the Trust Certificateholders of all the Mortgage
Loans and REO Properties in the Trust Estate pursuant to Section 10.01 of the
Indenture) will be applied in the following order of priority, in each case to
the extent of Available Funds: first, to pay the Servicer any accrued and unpaid
Servicing Fees relating to such Mortgage Loan; second, to reimburse the Servicer
or any Subservicer for any related unreimbursed Servicing Advances, and any
related unreimbursed Periodic Advances theretofore funded by the Servicer or any
Subservicer from its own funds, in each case, with respect to the related
Mortgage Loan; third, to accrued and unpaid interest on the Mortgage Loan, at
the Mortgage Interest Rate (or at such lesser rate as may be in effect for such
Mortgage Loan pursuant to application of the Civil Relief Act) on the Principal
Balance of such Mortgage Loan, to the date such Mortgage Loan is determined to
be a Liquidated Mortgage Loan if it is a Liquidated Mortgage Loan, or to the Due
Date in the Due Period prior to the Payment Date on which such amounts are to be
paid if such determination has not yet been made, minus any unpaid Servicing
Fees with respect to such Mortgage Loan; fourth, to the extent of the Principal
34
<PAGE>
Balance of the Mortgage Loan outstanding immediately prior to the receipt of
such proceeds, as a recovery of principal of the related Mortgage Loan; and
fifth, to any prepayment or late payment charges or penalty interest payable in
connection with the receipt of such proceeds and to all other fees and charges
due and payable with respect to such Mortgage Loan. The amount of any gross
Insurance Proceeds and Liquidation Proceeds received with respect to any
Mortgage Loan or REO Property minus the amount of any unreimbursed Servicing
Advances, unreimbursed Periodic Advances or unpaid Servicing Fees, in each case,
with respect to the related Mortgage Loan, are the "Net Recovery Proceeds" with
respect to such Mortgage Loan or REO Property.
Section 7.07. Indenture Trustee to Cooperate. Upon the payment in full
of the Principal Balance of any Mortgage Loan, the Servicer will notify the
Indenture Trustee and the Collateral Agent by a certification (which
certification shall include a statement to the effect that all amounts received
in connection with such payment which are required to be deposited in the
Collection Account pursuant to Section 7.02 have been so deposited) of a
Servicing Officer. Upon any such payment in full, the Servicer is authorized to
execute, pursuant to the authorization contained in Section 7.01, an instrument
of satisfaction regarding the related Mortgage, which instrument of satisfaction
shall be recorded by the Servicer if required by applicable law and be delivered
to the Person entitled thereto, it being understood and agreed that no expenses
incurred in connection with such instrument of satisfaction shall be reimbursed
from the Collection Account. From time to time and as appropriate for the
servicing or foreclosure of any Mortgage Loan, the Collateral Agent shall, upon
request of the Servicer and delivery to the Collateral Agent of a Request for
Release signed by a Servicing Officer, release the related Mortgage File to the
Servicer and shall execute such documents as shall be necessary for the
prosecution of any such proceedings. Such Request for Release shall obligate the
Servicer to return the Indenture Trustee's Mortgage File to the Collateral Agent
when the need therefor by the Servicer no longer exists unless the Mortgage Loan
shall be liquidated, in which case, upon receipt of a certificate of a Servicing
Officer similar to that hereinabove specified, the Request for Release shall be
released by the Collateral Agent to the Servicer.
Section 7.08. Servicing Compensation; Payment of Certain Expenses by
Servicer. On each Payment Date, the Servicer shall be entitled to receive, and
the Indenture Trustee shall pay, out of collections on the Mortgage Loans for
the Due Period, as servicing compensation for such Due Period, an amount (the
"Monthly Servicing Fee") equal to the product of one-twelfth of the Servicing
Fee Rate and the aggregate outstanding Principal Balance of each Pool of
Mortgage Loans as of the beginning of such Due Period. Additional servicing
compensation in the form of assumption fees, late payment charges or extension
and other administrative charges shall be retained by the Servicer. The Servicer
shall be required to pay all expenses incurred by it in connection with its
activities hereunder (including payment of all fees and expenses of the
Subservicer, payment of the Indenture Trustee Fee and payment of the Collateral
Agent Fee to the extent that monies in the Collection Account are insufficient
therefor, as provided in Section 6.16 of the Indenture and Section 11.05 hereof,
and all other fees and expenses not expressly stated hereunder to be payable by
or from another source) and shall not be entitled to reimbursement therefor
except as specifically provided herein.
35
<PAGE>
Section 7.09. Annual Statement as to Compliance. The Servicer will
deliver to the Indenture Trustee, the Collateral Agent, and each Noteholder, on
or before April 30 of each year, beginning April 30, 2001, an Officer's
Certificate of the Servicer stating that (a) a review of the activities of the
Servicer during the preceding calendar year and of its performance under this
Agreement has been made under such officer's supervision and (b) to the best of
such officer's knowledge, based on such review, the Servicer has fulfilled all
its material obligations under this Agreement throughout such year, or, if there
has been a default in the fulfillment of any such obligation, specifying each
such default known to such officer and the nature and status thereof.
Section 7.10. Annual Independent Public Accountants' Servicing Report.
On or before April 30 of each year, beginning April 30, 2001, the Servicer at
its expense shall cause a firm of independent public accountants that is a
member of the American Institute of Certified Public Accountants (who may also
render other services to the Servicer) to furnish a report to the Indenture
Trustee, the Collateral Agent and each Noteholder to the effect that such firm
has examined certain documents and records relating to the servicing of mortgage
loans under servicing agreements (including this Agreement) substantially
similar to this Agreement, and that such examination, which has been conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers (to the extent that the procedures in such audit guide are
applicable to the servicing obligations set forth in such agreements), has
disclosed no items of noncompliance with the provisions of this Agreement which,
in the opinion of such firm, are material, except for such items of
noncompliance as shall be set forth in such report.
Section 7.11. Access to Certain Documentation. The Servicer shall
permit the designated agents or representatives of each Noteholder, the Initial
Purchaser, the Collateral Agent and the Indenture Trustee (i) to examine and
make copies of and abstracts from all books, records and documents (including
computer tapes and disks) in the possession or under the control of the Servicer
relating to the Mortgage Loans and (ii) to visit the offices and properties of
the Servicer for the purpose of examining such materials and to discuss matters
relating to the Mortgage Loans and the Servicer's performance under this
Agreement with any of the officers or employees of the Servicer having knowledge
thereof and with the independent public accountants of the Servicer (and by this
provision the Servicer authorizes its accountants to discuss their respective
finances and affairs), all at such reasonable times, as often as may be
reasonably requested and without charge to such Noteholder, the Initial
Purchaser, the Collateral Agent or the Indenture Trustee.
Section 7.12. Maintenance of Fidelity Bond. The Servicer shall during
the term of its service as Servicer maintain in force a fidelity bond and errors
and omissions insurance in respect of its officers, employees or agents in an
amount at least equal to $1,000,000. Such bond and insurance shall comply with
the requirements from time to time of the FNMA for Persons performing servicing
for mortgage loans purchased by such association and shall name the Initial
Purchaser as an additional loss payee.
Section 7.13. The Subservicers. The parties acknowledge that the
Servicer intends to appoint the Subservicers as the Servicer's agents for the
purpose of servicing on the Servicer's behalf such of the Mortgage Loans as were
originated in the States of New Jersey, Pennsylvania and New York. The Servicer
36
<PAGE>
agrees to cause the Subservicers to service such Mortgage Loans in a manner
consistent with the Accepted Servicing Practices set forth in this Agreement,
and agrees that receipt by the Subservicers of any and all amounts which by the
terms hereof are required to be deposited in the Collection Account shall
constitute receipt thereof by the Servicer for all purposes hereof as of the
date so received by the Subservicers. Notwithstanding such designation of the
Subservicers, the Servicer agrees that it is, and it shall remain, fully
obligated under the terms hereof as Servicer with respect to all such Mortgage
Loans, and nothing herein shall relieve or release the Servicer from its
obligations to the other parties hereto to service such Mortgage Loans in the
manner provided in this Agreement.
Section 7.14. Reports to the Indenture Trustee; Collection Account
Statements. Not later than fifteen (15) days after each Payment Date, the
Servicer shall provide to the Indenture Trustee, the Collateral Agent and the
Initial Purchaser a statement, certified by a Servicing Officer, setting forth
the status of the Collection Account as of the close of business on the related
Payment Date, stating that all payments required by this Agreement to be made by
the Servicer on behalf of the Indenture Trustee have been made (or if any
required payment has not been made by the Servicer, specifying the nature and
status thereof) and showing, for the period covered by such statement, the
aggregate of deposits into and withdrawals from the Collection Account for each
category of deposit specified in Section 7.02 and each category of withdrawal
specified in Section 7.03 and the aggregate of deposits into the Collection
Account as specified in Section 8.01. Such statement shall also state the
aggregate unpaid principal balance of all the Mortgage Loans as of the close of
business on the last day of the month preceding the month in which such Payment
Date occurs. Copies of such statement shall be provided by the Indenture Trustee
to any Noteholder upon request.
Section 7.15. Optional Purchase of Defaulted Mortgage Loans. The
Depositor or the Servicer, in its sole discretion, shall have the right to elect
(by written notice sent to the Servicer, the Indenture Trustee and the Initial
Purchaser), but shall not be obligated, to purchase for its own account from the
Trust any Mortgage Loan which is fifty-nine (59) days or more Delinquent in the
manner and at the Loan Purchase Price (except that the amount described in
clause (ii) of the definition of Loan Purchase Price shall in no case be net of
the Servicing Fee). The purchase price for any Mortgage Loan purchased hereunder
shall be deposited in the Collection Account and the Collateral Agent, upon the
Indenture Trustee's receipt of such deposit, shall release or cause to be
released to the purchaser of such Mortgage Loan the related Indenture Trustee's
Mortgage File and shall execute and deliver such instruments of transfer or
assignment prepared by the purchaser of such Mortgage Loan, in each case without
recourse, as shall be necessary to vest in the purchaser of such Mortgage Loan
any Mortgage Loan released pursuant hereto and the purchaser of such Mortgage
Loan shall succeed to all the Indenture Trustee's right, title and interest in
and to such Mortgage Loan and all security and documents related thereto. Such
assignment shall be an assignment outright and not for security. The purchaser
of such Mortgage Loan shall thereupon own such Mortgage Loan, and all security
and documents, free of any further obligation to the Indenture Trustee, the
Collateral Agent, the Initial Purchaser or the Noteholders with respect thereto.
The purchaser of such Mortgage Loan shall give written notice to the Initial
Purchaser of the means by which any Mortgage Loan purchased pursuant to this
Section 7.15 is ultimately disposed of.
37
<PAGE>
Section 7.16. Reports to be Provided by the Servicer. (a) Two (2)
Business Days prior to each Servicer Payment Date, the Servicer shall deliver to
the Indenture Trustee and the Initial Purchaser a Servicer Remittance Report for
such Payment Date, setting forth the information required in the definition of
"Servicer Remittance Report."
(b) On each Servicer Payment Date and each Subsequent Transfer
Date, the Servicer shall deliver to the Indenture Trustee and the Initial
Purchaser (as directed by the Initial Purchaser) the following information with
respect to all Mortgage Loans as well as a break out as to consumer purpose and
business purpose Mortgage Loans, in each case, as of the close of business on
the last Business Day of the prior calendar month (except as otherwise provided
in clause (v) below):
(i) the total number of Mortgage Loans and the Aggregate
Principal Balances thereof, together with the number, Aggregate
principal balances of such Mortgage Loans and the percentage (based on
the Aggregate Principal Balances of the Mortgage Loans) of the
Aggregate Principal Balances of such Mortgage Loans to the Aggregate
Principal Balance of all Mortgage Loans (A) 31-59 days Delinquent, (B)
60-89 days Delinquent and (C) 90 or more days Delinquent;
(ii) the number, Aggregate Principal Balances of all
Mortgage Loans and percentage (based on the Aggregate Principal
Balances of the Mortgage Loans) of the Aggregate Principal Balances of
such Mortgage Loans to the aggregate Principal Balance of all Mortgage
Loans in foreclosure proceedings and the number, Aggregate Principal
Balances of all Mortgage Loans and percentage (based on the Aggregate
Principal Balances of the Mortgage Loans) of any such Mortgage Loans
also included in any of the statistics described in the foregoing
clause (i);
(iii) the number, Aggregate Principal Balances of all
Mortgage Loans and percentage (based on the Aggregate Principal
Balances of the Mortgage Loans) of the Aggregate Principal Balances of
such Mortgage Loans to the Aggregate Principal Balance of all Mortgage
Loans relating to Mortgagors in bankruptcy proceedings and the number,
Aggregate Principal Balances of all Mortgage Loans and percentage
(based on the Aggregate Principal Balances of the Mortgage Loans) of
any such Mortgage Loans also included in any of the statistics
described in the foregoing clause (i);
(iv) the number, Aggregate Principal Balances of all
Mortgage Loans and percentage (based on the Aggregate Principal
Balances of the Mortgage Loans) of the Aggregate Principal Balances of
such Mortgage Loans to the Aggregate Principal Balance of all Mortgage
Loans relating to REO Properties and the number, Aggregate Principal
Balances of all Mortgage Loans and percentage (based on the Aggregate
Principal Balances of the Mortgage Loans) of any such Mortgage Loans
also included in any of the statistics described in the foregoing
clause (i);
(v) such loan level information as is generally included in
the offering documents for Securitizations entered into by the Servicer
and the Originators;
38
<PAGE>
(vi) the book value of any REO Property;
(vii) the aggregate Principal Balance of all Mortgage Loans
that have ceased to be Eligible Mortgage Loans since the Initial
Cut-Off Date (such Principal Balance measured as of the day immediately
preceding the date on which each such Mortgage Loan ceased to be an
Eligible Mortgage Loan), provided that each such Mortgage Loan was
Delinquent more than 30 days at the time such Mortgage Loan ceased to
be an Eligible Mortgage Loan, but excluding any Mortgage Loans that
have been released from the lien of the Indenture due to the
disposition of such Mortgage Loans in a Securitization or as part of a
whole loan sale aggregating $5,000,000 or more in unpaid Principal
Balance;
(viii) the total number of Mortgage Loans and the Pool
Principal Balance; and
(ix) any other information reasonably requested by the
Initial Purchaser.
(c) In connection with the transfer of the Notes, the Indenture
Trustee on behalf of any Noteholder may request that the Servicer make available
to any prospective Noteholder annual audited financial statements of the
Servicer for one or more of the most recently completed five (5) fiscal years
for which such statements are publicly available together with the most recent
unaudited quarterly financial statements of the Servicer, which request shall
not be unreasonably denied or unreasonably delayed. Such annual audited
financial statements also shall be made available to the Initial Purchaser upon
request. In addition, the Servicer shall make available to any prospective
Noteholder any and all information that the Servicer is required to provide to
the lender under the Existing Warehouse Facility.
(d) The Servicer also agrees to make available on a reasonable
basis to the Initial Purchaser and any prospective Noteholder a knowledgeable
financial or accounting officer for the purpose of answering reasonable
questions respecting recent developments affecting the Servicer or the financial
statements of the Servicer and to permit the Initial Purchaser and any
prospective Noteholder to inspect the Servicer's servicing facilities during
normal business hours for the purpose of satisfying the Initial Purchaser and
such prospective Noteholder that the Servicer has the ability to service the
Mortgage Loans in accordance with this Agreement.
Section 7.17. Adjustment of Servicing Compensation in Respect of
Prepaid Mortgage Loans. The Monthly Servicing Fee that the Servicer shall be
entitled to receive with respect to each Mortgage Loan and each Payment Date
shall be offset on such Payment Date by an amount equal to the Prepayment
Interest Shortfall with respect to such Mortgage Loan to the extent that it is
the subject of Principal Prepayments during the month preceding the month of
such Payment Date. The amount of any offset against the Monthly Servicing Fee
with respect to any Payment Date under this Section 7.17 shall be limited to the
Monthly Servicing Fee otherwise payable to the Servicer (without adjustment on
account of Prepayment Interest Shortfalls) with respect to such Mortgage Loan,
and the rights of the Noteholders to the offset of the aggregate Prepayment
Interest Shortfalls against the Monthly Servicing Fee shall not be cumulative.
39
<PAGE>
Section 7.18. Periodic Advances. If, on any Servicer Payment Date, the
Servicer determines that any Monthly Payments due on the Due Date immediately
preceding such Servicer Payment Date have not been received as of the end of the
related Due Period, the Servicer shall determine the amount of any Periodic
Advance required to be made with respect to the related Payment Date. The
Servicer shall include in the amount to be deposited in the Collection Account
on such Servicer Payment Date an amount equal to the Periodic Advance, if any,
which deposit may be made in whole or in part from funds in the Collection
Account being held for future payment or withdrawal on or in connection with
Payment Dates in subsequent months. Any funds being held for future payment to
Noteholders and so used shall be replaced by the Servicer from its own funds by
deposit in the Collection Account on or before the Business Day preceding any
such future Servicer Payment Date to the extent that funds in the Collection
Account on such Servicer Payment Date shall be less than payments to Noteholders
required to be made on such date.
The Servicer shall designate on its records the specific Mortgage Loans
and related installments (or portions thereof) as to which such Periodic Advance
shall be deemed to have been made, such determination being conclusive for
purposes of withdrawals from the Collection Account pursuant to Section 7.03
hereof.
Section 7.19. Indemnification; Third Party Claims. The Servicer agrees
to indemnify and to hold each of the Trust, the Owner Trustee, the Depositor,
the Indenture Trustee, the Collateral Agent, the Originators and each Noteholder
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 Trust, the Owner Trustee, the Depositor, the Indenture Trustee, the
Collateral Agent, the Originators and any Noteholder may sustain in any way
related to the failure of the Servicer to perform its duties and service the
Mortgage Loans in compliance with the terms of this Agreement and the other
Basic Documents. Each indemnified party and the Servicer shall immediately
notify the other indemnified parties if a claim is made by a third party with
respect to this Agreement and the other Basic Documents, and the Servicer shall
assume 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 Trust, the Owner
Trustee, the Depositor, the Servicer, the Indenture Trustee, the Collateral
Agent, the Originators and/or a Noteholder in respect of such claim. The
Indenture Trustee shall reimburse the Servicer in accordance with Section 7.08
hereof, out of collections on the Mortgage Loans for the Due Period, for all
amounts advanced by it pursuant to the preceding sentence except to the extent
that the claim relates directly to the failure of the Servicer to service and
administer the Mortgages in compliance with the terms of this Agreement;
provided, that the Servicer's indemnity hereunder shall not be in any manner
conditioned on the availability of funds for such reimbursement. The obligations
of the Servicer under this Section 7.19 arising prior to any resignation or
termination of the Servicer hereunder shall survive the resignation or
termination of the Servicer.
Section 7.20. Maintenance of Corporate Existence and Licenses; Merger
or Consolidation of the Servicer. (a) The Servicer will keep in full effect its
existence, rights and franchises as a corporation, will obtain and preserve its
qualification to do business as a foreign corporation in each jurisdiction
40
<PAGE>
necessary to protect the validity and enforceability of this Agreement or any of
the Mortgage Loans and to perform its duties under this Agreement and will
otherwise operate its business so as to cause the representations and warranties
under Section 3.02 to be true and correct at all times under this Agreement.
(b) Any Person into which the Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Servicer shall be a party, or any Person succeeding
to the business of the Servicer, shall be an established mortgage loan servicing
institution that has a net worth of at least $15,000,000 and is a Permitted
Transferee, and in all events shall be the successor of the Servicer without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding. The Servicer
shall send notice of any such merger or consolidation to the Owner Trustee, the
Indenture Trustee, the Collateral Agent and the Initial Purchaser.
Section 7.21. Assignment of Agreement by Servicer; Servicer Not to
Resign. The Servicer shall not assign this Agreement nor resign from the
obligations and duties hereby imposed on it except by mutual consent of the
Initial Purchaser or upon the determination that the Servicer's duties hereunder
are no longer permissible under applicable law and that such incapacity cannot
be cured by the Servicer without incurring, in the reasonable judgment of the
Initial Purchaser, unreasonable expense. Any such determination that the
Servicer's duties hereunder are no longer permissible under applicable law
permitting the resignation of the Servicer shall be evidenced by a written
Opinion of Counsel (who may be counsel for the Servicer) to such effect
delivered to the Trust, the Depositor and the Initial Purchaser. No such
resignation shall become effective until the Indenture Trustee or a successor
appointed in accordance with the terms of this Agreement has assumed the
Servicer's responsibilities and obligations hereunder in accordance with Section
9.02. The Servicer shall provide the Initial Purchaser with 30 days' prior
written notice of its intention to resign pursuant to this Section 7.21.
Section 7.22. Hedging. The Servicer covenants and agrees to maintain at
all times on behalf of the Issuer, for the benefit of the Noteholders, hedging
agreements with third parties (including PSI and the Initial Purchaser), with a
principal balance or a notional principal balance that is no less than 90% and
no more than 100% of the outstanding Principal Balance of the Pledged Mortgage
Loans, that are reasonably satisfactory to the Initial Purchaser. The Servicer
and the Depositor hereby covenant and agree that the proceeds from any hedging
transactions shall be deposited in the Payment Account with the Indenture
Trustee and any losses associated with such hedging transactions shall be borne
by the Depositor and the Depositor hereby covenants to pay to the Indenture
Trustee an amount equal to any such losses when such losses are incurred.
ARTICLE VIII
APPLICATION OF FUNDS
Section 8.01. Deposits to the Payment Account. On each Servicer Payment
Date, the Servicer shall cause to be deposited in the Payment Account, from
funds on deposit in the Collection Account, (a) an amount equal to the Servicer
41
<PAGE>
Remittance Amount and (b) Net Foreclosure Profits, if any with respect to the
related Payment Date, minus any portion thereof payable to the Servicer pursuant
to Section 7.03. On each Servicer Payment Date, the Servicer shall also deposit
into the Payment Account any Periodic Advances with respect to the related
Payment Date calculated in accordance with Section 7.18 and any amounts required
to be deposited in connection with a Subsequent Mortgage Loan pursuant to
Section 2.14(b) of the Indenture.
Section 8.02. Collection of Money. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of all
money and other property payable to or receivable by the Indenture Trustee
pursuant to this Agreement, including all payments due on the Mortgage Loans in
accordance with the respective terms and conditions of such Mortgage Loans and
required to be paid over to the Indenture Trustee by the Servicer or by any
Subservicer. The Indenture Trustee shall hold all such money and property
received by it, as part of the Trust Estate and shall apply it as provided in
the Indenture.
Section 8.03. Application of Principal and Interest. In the event that
Net Liquidation Proceeds on a Liquidated Mortgage Loan are less than the
Principal Balance of the related Mortgage Loan plus accrued interest thereon, or
any Mortgagor makes a partial payment of any Monthly Payment due on a Mortgage
Loan, such Net Liquidation Proceeds or partial payment shall be applied to
payment of the related Mortgage Note as provided therein, and if not so
provided, first to interest accrued at the Mortgage Interest Rate and then to
principal.
Section 8.04. [Reserved].
Section 8.05. Compensating Interest. Not later than the close of
business on the third Business Day prior to the Payment Date, the Servicer shall
remit to the Indenture Trustee (without right to reimbursement therefor) for
deposit into the related Payment Account, an amount equal to, for each Mortgage
Loan, the lesser of (a) the Prepayment Interest Shortfall for such Mortgage Loan
for the related Payment Date resulting from Principal Prepayments during the
related Due Period and (b) its Monthly Servicing Fees with respect to such
Mortgage Loan received in the related Due Period (the "Compensating Interest").
ARTICLE IX
SERVICER DEFAULT
Section 9.01. Servicer Events of Default. (a) The following events
shall each constitute a "Servicer Event of Default" hereunder:
(i) any failure by the Servicer to remit to the Indenture
Trustee any payment required to be made by the Servicer under the terms
of this Agreement (other than Servicing Advances covered by clause (ii)
below), which continues unremedied for one (1) Business Day after the
date upon which written notice of such failure, requiring the same to
be remedied, shall have been given to the Servicer and the Initial
Purchaser by the Indenture Trustee or to the Servicer and the Indenture
Trustee by the Initial Purchaser or Noteholders of Notes evidencing
Percentage Interests of at least 25%;
42
<PAGE>
(ii) the failure by the Servicer to make any required Servicing
Advance, which failure continues unremedied for a period of thirty (30)
days after the date on which written notice of such failure, requiring
the same to be remedied, shall have been given to the Servicer by the
Indenture Trustee or to the Servicer and the Indenture Trustee by any
Noteholder;
(iii) any failure on the part of the Servicer duly to observe
or perform in any material respect any other of the covenants or
agreements on the part of the Servicer contained in this Agreement, or
the failure of any representation and warranty made pursuant to Section
3.02 hereof to be true and correct which continues unremedied for a
period of thirty (30) days after the date on which written notice of
such failure, requiring the same to be remedied, shall have been given
to the Servicer by the Indenture Trustee or to the Servicer and the
Indenture Trustee by any Noteholder or the Initial Purchaser;
(iv) a decree or order of a court or agency or supervisory
authority having jurisdiction in an involuntary case under any present
or future federal or state bankruptcy, insolvency or similar law or for
the appointment of a conservator or receiver or liquidation in any
insolvency, readjustment of debt, marshalling of assets and liabilities
or similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against the Servicer and such decree
or order shall have remained in force, undischarged or unstayed for a
period of thirty (30) days;
(v) the Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings
of or relating to the Servicer or of or relating to all or
substantially all of the Servicer's property;
(vi) the Servicer shall admit in writing its inability
generally to pay its debts as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute, make
an assignment for the benefit of its creditors, or voluntarily suspend
payment of its obligations;
(vii) the Initial Purchaser shall notify the Indenture Trustee
of any "event of default" under the Purchase Agreement;
(viii) if at the end of any Collection Period, the Collateral
Performance Ratio exceeds 4%;
(ix) the occurrence of an Event of Default or an Amortization
Event under the Indenture; or
(x) the occurrence of an Event of Default under the Existing
Warehouse Facility.
(b) So long as a Servicer Event of Default shall have occurred
and not have been remedied: (x) with respect solely to Section 9.01(a)(i), if
such payment is in respect of Periodic Advances or Compensating Interest owing
43
<PAGE>
by the Servicer and such payment is not made by 12:00 noon New York time on the
second Business Day prior to the applicable Payment Date, the Indenture Trustee,
upon receipt of written notice or discovery by a Responsible Officer of such
failure, shall give immediate telephonic and facsimile notice of such failure to
a Servicing Officer of the Servicer and to the Initial Purchaser and the
Indenture Trustee shall, with the consent of the Initial Purchaser, terminate
all of the rights and obligations of the Servicer under this Agreement, except
for the Servicer's indemnification obligation under Section 7.19, and the
Indenture Trustee, or a successor Servicer appointed in accordance with Section
9.02, shall immediately make such Periodic Advance or payment of Compensating
Interest and assume, pursuant to Section 9.02 hereof, the duties of a successor
Servicer; (y) with respect to that portion of Section 9.01(a)(i) not referred to
in the preceding clause (x) and with respect to clauses (ii), (iii), (iv), (v),
(vi) and (vii) of Section 9.01, the Indenture Trustee shall, but only at the
direction of the Initial Purchaser or the Majority Noteholders, by notice in
writing to the Servicer and a Responsible Officer of the Indenture Trustee and
subject to the prior written consent of the Initial Purchaser, in the case of
any removal at the direction of the Majority Noteholders, and in addition to
whatever rights such Noteholders may have at law or equity to damages, including
injunctive relief and specific performance, terminate all the rights and
obligations of the Servicer under this Agreement, except for the Servicer's
indemnification obligations under Section 7.19, and in and to the Mortgage Loans
and the proceeds thereof, as servicer; and (z) with respect to clauses
(viii)-(x) of Section 9.01(a), the Indenture Trustee shall, but only at the
direction of the Initial Purchaser, after notice in writing to the Servicer and
a Responsible Officer of the Indenture Trustee, terminate all the rights and
obligations of the Servicer under this Agreement, except for the Servicer's
indemnification obligations under Section 7.19, and in and to the Mortgage Loans
and the proceeds thereof, as Servicer. Upon receipt by the Servicer of such
written notice, all authority and power of the Servicer under this Agreement,
whether with respect to the Mortgage Loans or otherwise, shall, subject to
Section 7.02, pass to and be vested in the Indenture Trustee, or its designee
approved by the Initial Purchaser, and the Indenture Trustee is hereby
authorized and empowered to execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, at the expense of the Servicer, any and all
documents and other instruments and do or cause to be done all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, including, but not limited to, the transfer and endorsement or
assignment of the Mortgage Loans and related documents. The Servicer agrees to
cooperate (and pay any related costs and expenses) with the Indenture Trustee in
effecting the termination of the Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the Indenture Trustee,
or its designee, for administration by it of all amounts which shall at the time
be credited by the Servicer to the Collection Account or thereafter received
with respect to the Mortgage Loans. The Indenture Trustee shall promptly notify
the Initial Purchaser of the occurrence of a Servicer Event of Default.
Section 9.02. Indenture Trustee to Act; Appointment of Successor. (a)
On and after the time the Servicer receives a notice of termination pursuant to
Section 9.01, or the Indenture Trustee receives the resignation of the Servicer
evidenced by an Opinion of Counsel pursuant to Section 7.21, or the Servicer is
removed as Servicer pursuant to this Article IX, except as otherwise provided in
Section 9.01, the Indenture Trustee shall be the successor in all respects to
the Servicer in its capacity as servicer under this Agreement and the
44
<PAGE>
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof arising on or after the date of succession;
provided, however, that the Indenture Trustee shall not be liable for any
actions or the representations and warranties of any Servicer prior to it and
including, without limitation, the obligations of the Servicer set forth in
Sections 2.06 and 4.02 hereof. The Indenture Trustee, as successor Servicer,
shall be obligated to pay Compensating Interest pursuant to Section 8.05 in any
event and to make advances pursuant to Section 7.18 unless, and only to the
extent the Indenture Trustee determines reasonably and in good faith that such
advances would not be recoverable pursuant to Section 7.04, such determination
to be evidenced by a certification of a Responsible Officer of the Indenture
Trustee delivered to the Initial Purchaser.
(b) Notwithstanding the above, the Indenture Trustee may, if it
shall be unwilling to so act, or shall, if it is unable to so act or if the
Majority Noteholders with the consent of the Initial Purchaser so requests in
writing to the Indenture Trustee, appoint, pursuant to such direction of the
Majority Noteholders and Initial Purchaser, or if no such direction is provided
to the Indenture Trustee, pursuant to the provisions set forth in Section
9.02(c), or petition a court of competent jurisdiction to appoint, any
established mortgage loan servicing institution acceptable to the Initial
Purchaser that has a net worth of not less than $15,000,000 as the successor to
the Servicer hereunder in the assumption of all or any part of the
responsibilities, duties or liabilities of the Servicer hereunder.
(c) In the event the Indenture Trustee is the successor
Servicer, it shall be entitled to the same Servicing Compensation (including the
Servicing Fee as adjusted pursuant to the definition thereof) and other funds
pursuant to Section 7.08 hereof as the Servicer if the Servicer had continued to
act as servicer hereunder. In the event the Indenture Trustee is unable or
unwilling to act as successor Servicer, the Indenture Trustee shall solicit, by
public announcement, bids from housing and home finance institutions, banks and
mortgage servicing institutions meeting the qualifications set forth above. Such
public announcement shall specify that the successor servicer shall be entitled
to the full amount of the aggregate Servicing Fees hereunder as servicing
compensation, together with the other Servicing Compensation. Within thirty (30)
days after any such public announcement, the Indenture Trustee shall negotiate
and effect the sale, transfer and assignment of the servicing rights and
responsibilities hereunder to the qualified party submitting the highest
qualifying bid. The Indenture Trustee shall deduct from any sum received by the
Indenture Trustee from the successor to the Servicer in respect of such sale,
transfer and assignment all costs and expenses of any public announcement and of
any sale, transfer and assignment of the servicing rights and responsibilities
hereunder and the amount of any unreimbursed Servicing Advances and Periodic
Advances owed to the Indenture Trustee. After such deductions, the remainder of
such sum shall be paid by the Indenture Trustee to the Servicer at the time of
such sale, transfer and assignment to the Servicer's successor.
(d) The Indenture Trustee and such successor shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any
such succession. The Servicer agrees to cooperate with the Indenture Trustee and
any successor Servicer in effecting the termination of the Servicer's servicing
responsibilities and rights hereunder and shall promptly provide the Indenture
Trustee or such successor Servicer, as applicable, at the Servicer's cost and
expense, all documents and records reasonably requested by it to enable it to
45
<PAGE>
assume the Servicer's functions hereunder and shall promptly also transfer to
the Indenture Trustee or such successor servicer, as applicable, all amounts
that then have been or should have been deposited in the Collection Account by
the Servicer or that are thereafter received with respect to the Mortgage Loans.
Any collections received by the Servicer after such removal or resignation shall
be endorsed by it to the Indenture Trustee and remitted directly to the
Indenture Trustee or, at the direction of the Indenture Trustee, to the
successor Servicer. Neither the Indenture Trustee nor any other successor
Servicer shall be held liable by reason of any failure to make, or any delay in
making, any payment hereunder or any portion thereof caused by (i) the failure
of the Servicer to deliver, or any delay in delivering, cash, documents or
records to it, or (ii) restrictions imposed by any regulatory authority having
jurisdiction over the Servicer hereunder. Notwithstanding anything to the
contrary herein, no appointment of a successor Servicer under this Agreement
shall be effective until the Indenture Trustee and the Initial Purchaser shall
have consented thereto, and written notice of such proposed appointment shall
have been provided by the Indenture Trustee to the Initial Purchaser and to each
Noteholder. The Indenture Trustee shall not resign as Servicer until a successor
Servicer reasonably acceptable to the Initial Purchaser has been appointed. The
Initial Purchaser shall have the right to remove the Indenture Trustee as
successor Servicer under this Section 9.02 without cause, and the Indenture
Trustee shall appoint such other successor Servicer as directed by the Initial
Purchaser.
(e) Pending appointment of a successor Servicer hereunder, the
Indenture Trustee shall act in such capacity as hereinabove provided. In
connection with such appointment and assumption, the Indenture Trustee may make
such arrangements for the compensation of such successor Servicer out of
payments on Mortgage Loans as it and such successor shall agree; provided,
however, that no such compensation shall be in excess of that permitted the
Servicer pursuant to Section 7.08, together with other Servicing Compensation.
The Servicer, the Indenture Trustee and such successor Servicer shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any
such succession.
Section 9.03. Waiver of Defaults. The Majority Noteholders may, on
behalf of all Noteholders, and subject to the consent of the Initial Purchaser,
waive any events permitting removal of the Servicer as servicer pursuant to this
Article IX; provided, however, that the Majority Noteholders may not waive a
default in making a required payment 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 Servicer Event of Default arising therefrom shall be deemed to
have been remedied for every purpose of this Agreement. No such waiver shall
extend to any subsequent or other default or impair any right consequent thereto
except to the extent expressly so waived. Notice of any such waiver shall be
given by the Indenture Trustee to the Initial Purchaser.
Section 9.04. Reserved.
Section 9.05. Indenture Trustee to Act Solely with Consent of the
Initial Purchaser. The Indenture Trustee shall not, without the Initial
Purchaser's consent or unless directed by the Initial Purchaser:
(a) terminate the rights and obligations of the Servicer as
Servicer pursuant to Section 9.01 hereof;
46
<PAGE>
(b) agree to any amendment pursuant to Section 12.03 hereof; or
(c) undertake any litigation.
The Initial Purchaser may, in writing and in its sole discretion
renounce all or any of its rights under this Section 9.05 or any requirement for
the Initial Purchaser's consent for any period of time.
ARTICLE X
TERMINATION
Section 10.01. Termination. (a) Subject to Section 10.02, this
Agreement shall terminate upon notice to the Indenture Trustee of either: (i)
the disposition of all funds with respect to the last Mortgage Loan and the
remittance of all funds due hereunder, the payment of all amounts due and
payable to the Indenture Trustee and the payment in full of all amounts due
under the Notes or (ii) mutual consent of the Owner Trustee, on behalf of the
Trust, at the direction of the Trust Certificateholders, the Indenture Trustee,
the Collateral Agent, the Servicer, the Initial Purchaser and all Noteholders in
writing.
(b) In addition, subject to Section 10.02, certain of the Trust
Certificateholders or the Servicer may, at their respective option and at their
respective sole cost and expense, call the Notes or terminate the Trust in
accordance with the terms of Section 10.01 of the Indenture.
(c) If on any Payment Date, the Servicer determines that there
are no outstanding Mortgage Loans and no other funds or assets in the Trust
Estate other than funds in the Payment Account, the Servicer shall send a final
payment notice promptly to each Noteholder in accordance with Section 10.01(d).
(d) Notice of any termination, specifying the Payment Date upon
which the Trust will terminate and the Noteholders shall surrender their Notes
to the Indenture Trustee for final payment and cancellation, shall be given
promptly by the Servicer by letter to Noteholders mailed during the month of
such final payment before the Servicer Payment Date in such month, specifying
(i) the Payment Date upon which final payment of the Notes will be made upon
presentation and surrender of Notes at the office of the Indenture Trustee
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 Notes at the
office of the Indenture Trustee therein specified. The Servicer shall give such
notice to the Indenture Trustee therein specified at the time such notice is
given to Noteholders.
(e) In the event that all of the Noteholders do not surrender
their Notes for cancellation within six (6) months after the time specified in
the above-mentioned written notice, the Servicer shall give a second written
notice to the remaining Noteholders to surrender their Notes for cancellation
and receive the final payment with respect thereto. If within six (6) months
after the second notice, all of the Notes shall not have been surrendered for
47
<PAGE>
cancellation, the Indenture Trustee may take appropriate steps, or may appoint
an agent to take appropriate steps, to contact the remaining Noteholders
concerning surrender of their Notes and the cost thereof shall be paid out of
the funds and other assets which remain subject hereto. If within nine (9)
months after the second notice all the Notes shall not have been surrendered for
cancellation, the related Trust Certificateholders shall 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 only to the related Trust
Certificateholders for payment. Such funds shall remain uninvested.
Section 10.02. Additional Termination Requirements. By their acceptance
of the Notes, the Holders thereof hereby agree to appoint the Servicer as their
attorney in fact to: (i) adopt such a plan of complete liquidation (and the
Noteholders hereby appoint the Indenture Trustee as their attorney in fact to
sign such plan) as appropriate or upon the written request of the Initial
Purchaser and (ii) to take such other action in connection therewith as may be
reasonably required to carry out such plan of complete liquidation all in
accordance with the terms hereof.
Section 10.03. Accounting Upon Termination of Servicer. Upon
termination of the Servicer, the Servicer shall, at its expense:
(a) deliver to the successor Servicer or, if none shall yet
have been appointed, to the Indenture Trustee, the funds in any Account;
(b) deliver to the successor Servicer or, if none shall yet
have been appointed, to the Indenture Trustee all Indenture Trustee's Mortgage
Files and related documents and statements held by it hereunder and a Mortgage
Loan portfolio computer tape;
(c) deliver to the successor Servicer or, if none shall yet
have been appointed, to the Indenture Trustee and, upon request, to the
Noteholders a full accounting of all funds, including a statement showing the
Monthly Payments collected by it and a statement of monies held in trust by it
for the payments or charges with respect to the Mortgage Loans; and
(d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer of
servicing of the Mortgage Loans to the successor Servicer and to more fully and
definitively vest in such successor all rights, powers, duties,
responsibilities, obligations and liabilities of the Servicer under this
Agreement.
ARTICLE XI
THE COLLATERAL AGENT
Section 11.01. Duties of the Collateral Agent. (a) The Collateral
Agent, prior to the occurrence of an Event of Default or an Amortization Event
and after the curing of all Events of Default and Amortization Events which may
have occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement. If an Event of Default or an
Amortization Event has occurred and has not been cured or waived, the Collateral
48
<PAGE>
Agent shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in its exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) The Collateral Agent, upon receipt of all resolutions,
certificates, statements, opinions, reports, documents, orders or other
instruments furnished to the Collateral Agent which are specifically required to
be furnished pursuant to any provision of this Agreement, shall examine them to
determine whether they conform on their face to the requirements of this
Agreement; provided, however, that the Collateral Agent shall not be responsible
for the accuracy or content of any resolution, certificate, statement, opinion,
report, document, order or other instrument furnished by any Person hereunder.
If any such instrument is found not to conform on its face to the requirements
of this Agreement, the Collateral Agent shall note it as such on the Initial
Certification or Final Certification delivered pursuant to Section 2.06(b).
(c) No provision of this Agreement shall be construed to
relieve the Collateral Agent from liability for its own negligent action, its
own negligent failure to act or its own willful misconduct; provided, however,
that:
(i) prior to the occurrence of an Event of Default or an
Amortization Event, and after the curing of all such Events of Default
or Amortization Events which may have occurred, the duties and
obligations of the Collateral Agent shall be determined solely by the
express provisions of this Agreement, the Collateral Agent shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement, no implied covenants or
obligations shall be read into this Agreement against the Collateral
Agent and, in the absence of bad faith on the part of the Collateral
Agent, the Collateral Agent may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein,
upon any certificates or opinions furnished to the Collateral Agent and
conforming to the requirements of this Agreement;
(ii) the Collateral Agent shall not be personally liable for an
error of judgment made in good faith by a Responsible Officer or other
officers of the Collateral Agent, unless it shall be proved that the
Collateral Agent was negligent in ascertaining the pertinent facts;
(iii) the Collateral Agent shall not be personally liable with
respect to any action taken, suffered or omitted to be taken by it in
good faith in accordance with the direction of the Indenture Trustee or
with the consent of the Indenture Trustee;
(iv) the Collateral Agent shall not be required to expend or
risk its own funds or otherwise incur financial liability for the
performance of any of its duties hereunder or the exercise of any of
its rights or powers if there is reasonable ground for believing that
the repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it and none of the provisions
49
<PAGE>
contained in this Agreement shall in any event require the Collateral
Agent to perform, or be responsible for the manner of performance of,
any of the obligations of the Servicer or the Indenture Trustee under
this Agreement; and
(v) subject to the other provisions of this Agreement and
without limiting the generality of this Section 11.01, the Collateral
Agent 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 re-recording, refiling or redepositing of any
thereof, (B) to see to any insurance, (C) to see to the payment or
discharge of any tax, assessment, or other governmental charge or any
lien or encumbrance of any kind owing with respect to, assessed or
levied against, any part of the Trust, the Trust Estate, the
Noteholders or the Mortgage Loans, (D) to confirm or verify the
contents of any reports or certificates of any Person delivered to the
Collateral Agent pursuant to this Agreement believed by the Collateral
Agent to be genuine and to have been signed or presented by the proper
party or parties.
Section 11.02. Certain Matters Affecting the Collateral Agent. Except
as otherwise provided in Section 11.01 hereof:
(a) the Collateral Agent may rely and shall be protected in
acting or refraining from acting upon any resolution, Officer's Certificate,
Opinion of Counsel, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal, bond or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) the Collateral Agent may consult with counsel and any
Opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it hereunder in good faith
and in accordance with such Opinion of Counsel;
(c) the Collateral Agent shall be under no obligation to
exercise any of the trusts or powers vested in it by this Agreement or to
institute, conduct or defend by litigation hereunder or in relation hereto at
the request, order or direction of any of the Noteholders, pursuant to the
provisions of this Agreement, unless such Noteholders, as applicable, shall have
offered to the Indenture Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein by the Collateral
Agent or thereby; nothing contained herein shall, however, relieve the
Collateral Agent of the obligation, upon the occurrence of an Event of Default
or an Amortization Event (which has not been cured), to exercise such of the
rights and powers vested in it by this Agreement, and to use the same degree of
care and skill in its exercise as a prudent person would exercise or use under
the circumstances in the conduct of such person's own affairs;
(d) the Collateral Agent shall not be personally liable for any
action taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Agreement;
50
<PAGE>
(e) prior to the occurrence of an Event of Default or an
Amortization Event and after the curing of all Events of Default and
Amortization Events which may have occurred, the Collateral Agent 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 Initial Purchaser or Holders of Class A
Notes evidencing Percentage Interests aggregating not less than 25%; provided,
however, that if the payment within a reasonable time to the Collateral Agent of
the costs, expenses or liabilities likely to be incurred by it in the making of
such investigation is, in the opinion of the Collateral Agent, not reasonably
assured to the Collateral Agent by the security afforded to it by the terms of
this Agreement, the Collateral Agent may require reasonable indemnity against
such expense or liability as a condition to taking any such action. The
reasonable expense of every such examination shall be paid by the Servicer or,
if paid by the Collateral Agent, shall be repaid by the Servicer upon demand
from the Servicer's own funds;
(f) the right of the Collateral Agent to perform any
discretionary act enumerated in this Agreement shall not be construed as a duty,
and the Collateral Agent shall not be answerable for anything other than its
negligence or willful misconduct in the performance of such act;
(g) the Collateral Agent may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents or attorneys.
Section 11.03. Collateral Agent Not Liable for Notes or Mortgage Loans.
The recitals contained herein shall be taken as the statements of the Trust and
the Servicer, as the case may be, and the Collateral Agent assumes no
responsibility for their correctness. The Collateral Agent makes no
representations as to the validity or sufficiency of this Agreement or of any
Mortgage Loan or related document. The Collateral Agent shall not be accountable
for the use or application of any funds paid to the Servicer in respect of the
Mortgage Loans or deposited in or withdrawn from the Collection Account by the
Servicer. The Collateral Agent shall not be responsible for the legality or
validity of the Agreement or the validity, priority, perfection or sufficiency
of the security for the Notes issued or intended to be issued under the
Indenture.
Section 11.04. Collateral Agent May Own Notes. The Collateral Agent in
its individual or any other capacity may become the owner or pledgor of Notes
with the same rights it would have if it were not Collateral Agent, and may
otherwise deal with the parties hereto.
Section 11.05. Collateral Agent's Fees and Expenses; Indemnity. (a) The
Collateral Agent acknowledges that in consideration of the performance of its
duties hereunder it is entitled to receive its fees and expenses from the
Servicer, as separately agreed between the Servicer and the Collateral Agent.
The Trust, the Depositor, the Indenture Trustee and the Initial Purchaser shall
not pay any of the Collateral Agent fees and expenses in connection with this
transaction. The Collateral Agent shall not be entitled to compensation for any
expense, disbursement or advance as may arise from its negligence or bad faith,
and the Collateral Agent shall have no lien on the Trust Estate for the payment
of its fees and expenses.
51
<PAGE>
(b) The Collateral Agent and any director, officer, employee or
agent of the Collateral Agent shall be indemnified by the Servicer and held
harmless against any loss, liability, claim, damage or expense arising out of,
or imposed upon the Trust Estate or the Collateral Agent through the Servicer's
acts or omissions in violation of this Agreement, other than any loss, liability
or expense incurred by reason of willful misfeasance, bad faith or negligence of
the Collateral Agent in the performance of its duties hereunder or by reason of
the Collateral Agent 's reckless disregard of obligations and duties hereunder.
The obligations of the Servicer under this Section 11.05 arising prior to any
resignation or termination of the Servicer hereunder shall survive termination
of the Servicer and payment of the Notes.
Section 11.06. Eligibility Requirements for Collateral Agent. The
Collateral Agent hereunder shall at all times be a banking entity (a) organized
and doing business under the laws of any state or the United States of America
subject to supervision or examination by federal or state authority, (b)
authorized under such laws to exercise corporate trust powers, including taking
title to the Trust Estate on behalf of the Indenture Trustee, for the benefit of
the Noteholders, (c) having a combined capital and surplus of at least
$50,000,000, (d) whose long-term deposits, if any, shall be rated at least BBB-
by S&P and Baa3 by Moody's (except as provided herein) or such lower long-term
deposit rating as may be approved in writing by the Initial Purchaser, and (e)
reasonably acceptable to the Initial Purchaser as evidenced in writing. If such
banking entity 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 determining an entity's combined capital and surplus for
clause (c) of this Section 11.06, the amount set forth in its most recent report
of condition so published shall be deemed to be its combined capital and
surplus. In case at any time the Collateral Agent shall cease to be eligible in
accordance with the provisions of this Section 11.06, the Collateral Agent shall
resign immediately in the manner and with the effect specified in Section 11.07.
Section 11.07. Resignation and Removal of the Collateral Agent. (a) The
Collateral Agent may at any time resign and be discharged from the trusts hereby
created by giving thirty (30) days' written notice thereof to the Indenture
Trustee, the Servicer, and the Initial Purchaser.
(b) If at any time the Collateral Agent shall cease to be
eligible in accordance with the provisions of Section 11.06 and shall fail to
resign after written request therefor by the Indenture Trustee, the Servicer or
the Initial Purchaser, or if at any time the Collateral Agent shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Collateral Agent or of its property shall be appointed, or any public
officer shall take charge or control of the Collateral Agent or of its property
or affairs for the purpose of rehabilitation, conservation or liquidation, then
the Indenture Trustee or the Servicer, with the consent of the Initial
Purchaser, or the Initial Purchaser may remove the Collateral Agent.
(c) If the Collateral Agent fails to perform in accordance with
the terms of this Agreement, the Indenture Trustee, the Servicer or the Majority
Noteholders or the Initial Purchaser may remove the Collateral Agent.
(d) Upon removal or receipt of notice of resignation of the
Collateral Agent, the Indenture Trustee shall either (i) take possession of the
52
<PAGE>
Indenture Trustee's Mortgage Files and assume the duties of the Collateral Agent
hereunder or (ii) appoint a successor Collateral Agent pursuant to Section
11.08. If the Indenture Trustee shall assume the duties of the Collateral Agent
hereunder, it shall notify the Trust, the Depositor, the Servicer and Initial
Purchaser in writing.
Section 11.08. Successor Collateral Agent. Upon the resignation or
removal of the Collateral Agent, the Indenture Trustee may appoint a successor
Collateral Agent, with the written approval of the Initial Purchaser; provided,
however, that the successor Collateral Agent so appointed shall in no event be
an Originator, the Depositor or the Servicer or any Person known to a
Responsible Officer of the Indenture Trustee to be an Affiliate of an
Originator, the Depositor or the Servicer and shall be approved by the Initial
Purchaser. Such custodian, as the case may be, shall assume the duties of the
Collateral Agent hereunder. Any successor Collateral Agent appointed as provided
in this Section 11.08 shall execute, acknowledge and deliver to the Trust, the
Depositor, the Initial Purchaser, the Servicer, the Indenture Trustee and to its
predecessor Collateral Agent an instrument accepting such appointment hereunder,
and thereupon the resignation or removal of the predecessor Collateral Agent
shall become effective and such successor Collateral Agent, without any further
act, deed or conveyance, shall become fully vested with all the rights, powers,
duties and obligations of its predecessor hereunder, with the like effect as if
originally named as Collateral Agent herein. The predecessor Collateral Agent
shall deliver to the successor Collateral Agent all Indenture Trustee's Mortgage
Files and related documents and statements held by it hereunder, and the
Servicer and the predecessor Collateral Agent shall execute and deliver such
instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor Collateral Agent all
such rights, powers, duties and obligations. The cost of any such transfer to
the successor Collateral Agent shall be for the account of the Collateral Agent
in the event of the resignation of the Collateral Agent, and shall be for the
account of the Servicer in the event of the removal of the Collateral Agent. No
successor Collateral Agent shall accept appointment as provided in this Section
11.08 unless at the time of such acceptance such successor Collateral Agent
shall be eligible under the provisions of Section 11.06. Upon acceptance of
appointment by a successor Collateral Agent as provided in this Section 11.08,
the Servicer shall mail notice of the succession of such Collateral Agent
hereunder to all Noteholders at their addresses as shown in the Note Register.
If the Servicer fails to mail such notice within ten (10) days after acceptance
of appointment by the successor Collateral Agent, the successor Collateral Agent
shall cause such notice to be mailed at the expense of the Servicer.
Section 11.09. Merger or Consolidation of Collateral Agent. Any Person
into which the Collateral Agent may be merged or converted or with which it may
be consolidated or any corporation or national banking association resulting
from any merger, conversion or consolidation to which the Collateral Agent shall
be a party, or any corporation or national banking association succeeding to the
business of the Collateral Agent, shall be the successor of the Collateral Agent
hereunder; provided, that such corporation or national banking association shall
be eligible under the provisions of Section 11.06, 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.
53
<PAGE>
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01. Limitation on Liability. None of the Trust, the Owner
Trustee, the Depositor, the Servicer, the Collateral Agent, the Indenture
Trustee or any of the directors, officers, employees or agents of such Persons
shall be under any liability to the Trust or the Noteholders 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 Trust, the Owner Trustee, the Depositor, the
Servicer, the Collateral Agent, the Indenture Trustee or any such Person against
any breach of warranties or representations made herein by such party, or
against any specific liability imposed on each such party pursuant to this
Agreement or against any liability which would otherwise be imposed upon such
party by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties or by reason of reckless disregard of obligations or
duties hereunder. The Trust, the Owner Trustee, the Depositor, the Servicer, the
Collateral Agent, the Indenture Trustee and any director, officer, employee or
agent of such Person may rely in good faith on any document of any kind which,
prima facie, is properly executed and submitted by any appropriate Person
respecting any matters arising hereunder.
Section 12.02. Acts of Noteholders. (a) Except as otherwise
specifically provided herein, whenever Noteholder action, consent or approval is
required under this Agreement, such action, consent or approval shall be deemed
to have been taken or given on behalf of, and shall be binding upon, all
Noteholders if the Majority Noteholders agree to take such action or give such
consent or approval.
(b) The death or incapacity of any Noteholder shall not operate
to terminate this Agreement or the Trust, nor entitle such Noteholder'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 the Trust, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
(c) No Noteholder shall have any right to vote (except as
expressly provided for herein) or in any manner otherwise control the operation
and management of the Trust, or the obligations of the parties hereto, nor shall
anything herein set forth, or contained in the terms of the Notes, be construed
so as to constitute the Noteholders from time to time as partners or members of
an association; nor shall any Noteholder be under any liability to any third
person by reason of any action taken by the parties to this Agreement pursuant
to any provision hereof.
Section 12.03. Amendment. (a) This Agreement may be amended from time
to time by the Owner Trustee, on behalf of the Trust, the Servicer, the
Depositor, the Collateral Agent and the Indenture Trustee by written agreement,
upon the prior written consent of the Initial Purchaser, without notice to or
consent of the Noteholders to cure any ambiguity, to correct or supplement any
provisions herein, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under this Agreement
54
<PAGE>
which shall not be inconsistent with the provisions of this Agreement; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel, at
the expense of the party requesting the change, delivered to the Indenture
Trustee that such action will not adversely affect in any material respect the
interests of any Noteholder; and provided further, that no such amendment shall
reduce in any manner the amount of, or delay the timing of, payments received on
Mortgage Loans which are required to be paid on any Note without the consent of
such Noteholder, or change the rights or obligations of any other party hereto
without the consent of such party.
(b) This Agreement may be amended from time to time by the
Owner Trustee, on behalf of the Trust, the Servicer, the Depositor, the
Collateral Agent and the Indenture Trustee, with the consent of the Initial
Purchaser, the Majority Noteholders and the Holder of the majority of the
Percentage Interest of the Trust Certificates, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Noteholders;
provided, however, that no such amendment shall reduce in any manner the amount
of, or delay the timing of, payments received on Mortgage Loans which are
required to be paid on any Class of Notes without the consent of the Holders of
such Class of Notes or reduce the percentage for the Holders of which are
required to consent to any such amendment without the consent of the Holders of
100% of such Class of Notes affected thereby.
(c) It shall not be necessary for the consent of Holders under
this Section 12.03 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof.
Section 12.04. Recordation of Agreement. To the extent permitted by
applicable law, this Agreement, or a memorandum thereof if permitted under
applicable law, is subject to recordation in all appropriate public offices for
real property records in all of the counties or other comparable jurisdictions
in which any or all of the properties subject to the Mortgages are situated, and
in any other appropriate public recording office or elsewhere, such recordation
to be effected by the Servicer at the Noteholders' expense on direction and at
the expense of Majority Noteholders requesting such recordation, but only when
accompanied by an Opinion of Counsel to the effect that such recordation
materially and beneficially affects the interests of the Noteholders or is
necessary for the administration or servicing of the Mortgage Loans.
Section 12.05. Duration of Agreement. This Agreement shall continue
in existence and effect until terminated as herein provided.
Section 12.06. Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered to (i) in the case of the Servicer, the Subservicers or the
Originators, addressed to such Person, c/o American Business Financial Services,
Inc., Balapointe Office Centre, 111 Presidential Boulevard, Suite 127, Bala
Cynwyd, Pennsylvania 19004, Attention: General Counsel; (ii) in the case of the
Depositor, 3411 Silverside Road, 103 Springer Bldg., Wilmington, Delaware 19810,
Attention: Jeffrey Ruben, Executive Vice President; (iii) in the case of the
Trust, ABFS Mortgage Loan Warehouse Trust 2000-1, c/o the Owner Trustee at its
Corporate Trust Office, Attention: Corporate Trust Administration; (iv) in the
case of the Indenture Trustee or the Collateral Agent, c/o The Chase Manhattan
Bank, 450 W. 33rd Street, 14th Floor, New York, New York, 10001, Attention:
Capital Markets Fiduciary Services, telephone (212) 946-3200, telecopy
55
<PAGE>
(212) 946-7317; (v) in the case of the Initial Purchaser, Prudential Securities
Secured Financing Corporation or Prudential Securities Incorporated, One New
York Plaza, New York, New York 10292, Attention: Managing Director- Asset Backed
Finance Group; and (vi) 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 12.07. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other covenants, agreements, provisions or terms of this
Agreement.
Section 12.08. No Partnership. Nothing herein contained shall be deemed
or construed to create a co-partnership or joint venture between the parties
hereto and the services of the Servicer shall be rendered as an independent
contractor and not as agent for the Noteholders.
Section 12.09. Counterparts. This Agreement may be executed in one or
more counterparts and by the different parties hereto on separate counterparts,
each of which, when so executed, shall be deemed to be an original; such
counterparts, together, shall constitute one and the same agreement.
Section 12.10. Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the Trust, the Servicer, the Depositor, the
Indenture Trustee, the Collateral Agent and the Noteholders and their respective
successors and permitted assigns.
Section 12.11. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not
be deemed to be part of this Agreement.
Section 12.12. Reserved.
Section 12.13. Third Party Beneficiary. The parties agree that each of
the Owner Trustee and the Initial Purchaser is intended and shall have all
rights of a third-party beneficiary of this Agreement.
Section 12.14. Intent of the Parties. (a) It is the express intent of
the parties hereto that the conveyance of the Mortgage Loans by the Originators
to the Depositor as contemplated herein be, and be treated for all purposes as,
a sale of the Mortgage Loans and that the conveyance of the Mortgage Loans by
the Depositor to the Trust as contemplated herein be, and be treated for
accounting purposes as, a sale of the Mortgage Loans. It is, further, not the
intention of the parties that any such conveyance be deemed a pledge of the
Mortgage Loans by the Originators to the Depositor or by the Depositor to the
56
<PAGE>
Trust to secure a debt or other obligation of the Originators or the Depositor,
as the case may be. However, in the event that, notwithstanding the intent of
the parties, the Mortgage Loans are held to continue to be property of the
Originators or the Depositor then (a) this Agreement shall also be deemed to be
a security agreement within the meaning of Articles 8 and 9 of the Uniform
Commercial Code; (b) the transfer of the Mortgage Loans provided for herein
shall be deemed to be a grant by the Originators to the Depositor and by the
Depositor to the Trust of a security interest in all of such parties' right,
title and interest in and to the Mortgage Loans and all amounts payable on the
Mortgage Loans in accordance with the terms thereof and all proceeds of the
conversion, voluntary or involuntary, of the foregoing into cash, instruments,
securities or other property; (c) the possession by the Trust (or its assignee)
of Mortgage Notes and such other items of property as constitute instruments,
money, negotiable documents or chattel paper shall be deemed to be "possession
by the secured party" for purposes of perfecting the security interest pursuant
to Section 9-305 of the Uniform Commercial Code; and (d) notifications to
persons holding such property, and acknowledgments, receipts or confirmations
from persons holding such property, shall be deemed notifications to, or
acknowledgments, receipts or confirmations from, financial intermediaries,
bailees or agents (as applicable) of the Trust (or its assignee) for the purpose
of perfecting such security interest under applicable law. Any assignment of the
interest of the Trust pursuant to any provision hereof shall also be deemed to
be an assignment of any security interest created hereby. The Originators, the
Depositor and the Trust shall, to the extent consistent with this Agreement,
take such actions as may be necessary to ensure that, if this Agreement were
deemed to create a security interest in the Mortgage Loans, such security
interest would be deemed to be a perfected security interest of first priority
under applicable law and will be maintained as such throughout the term of this
Agreement.
(b) It is the intent of the parties hereto and Noteholders
that, for federal income taxes, state and local income or franchise taxes and
other taxes imposed on or measured by income, the Notes be treated as debt. The
parties to this Agreement and the Holder of each Note, by acceptance of its
Note, and each Beneficial Owner thereof, agree to treat, and to take no action
inconsistent with the treatment of, the related Notes in accordance with the
preceding sentence for purposes of federal income taxes, state and local income
and franchise taxes and other taxes imposed on or measured by income.
Section 12.15. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE
OF NEW YORK.
(b) THE TRUST, THE SERVICER, THE DEPOSITOR, THE COLLATERAL
AGENT AND THE INDENTURE TRUSTEE HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT
LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY, AND EACH WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET FORTH IN SECTION
12.06 HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS
AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. THE
TRUST, THE DEPOSITOR, THE SERVICER, THE COLLATERAL AGENT AND THE INDENTURE
57
<PAGE>
TRUSTEE EACH HEREBY WAIVE ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY
OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
COURT. NOTHING IN THIS SECTION 12.15 SHALL AFFECT THE RIGHT OF THE TRUST, THE
DEPOSITOR, THE SERVICER, THE COLLATERAL AGENT OR THE INDENTURE TRUSTEE TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT ANY OF THEIR RIGHTS
TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY OTHER JURISDICTION.
(c) THE TRUST, THE DEPOSITOR, THE SERVICER, THE COLLATERAL
AGENT AND THE INDENTURE TRUSTEE EACH HEREBY WAIVES ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION WITH THIS
AGREEMENT. INSTEAD, ANY DISPUTE WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A
JURY.
Section 12.16. Auction Sale. In the event that a Securitization Date
has not taken place with respect to all of the Mortgage Loans on or before
September 30, 2000, the Indenture Trustee shall conduct an auction sale of the
Mortgage Loans on or before October 31, 2000 (or any later date consented to in
writing by the Initial Purchaser). The Initial Purchaser shall administer the
auction sale and may participate therein. The Depositor may also participate in
the auction sale; provided that (i) the Mortgage Loans are offered to at least
three other parties simultaneously with the Depositor's bid and (ii) the
Depositor's bid does not exceed the fair market value of the Mortgage Loans.
Proceeds from the auction sale will be used to pay principal and accrued
interest on the Notes together with an auction sale fee to the Initial Purchaser
equal to 0.50% of the Aggregate Principal Balance of the Mortgage Loans as of
the date of sale.
Section 12.17. Power of Attorney. Upon the occurrence of an Event of
Default or an Amortization Event, each of the Originators, the Depositor, the
Guarantor and each Holder hereby appoints the Initial Purchaser as its
attorney-in-fact with full power and authority acting in its stead for the
purpose of amending this Agreement, the Indenture or any document executed in
connection herewith or therewith to the extent necessary to protect the interest
of the Initial Purchaser in the Collateral. The Indenture Trustee hereby agrees
to consent to any such amendment to the extent that such amendment is reasonably
necessary to protect the interest of the Initial Purchaser in the Collateral.
ARTICLE XIII
THE GUARANTY
Section 13.01. Guaranty. (a) The Guarantor hereby unconditionally and
irrevocably guarantees, as primary obligor, to the Noteholders the full and
punctual payment of all amounts payable by, and the full and punctual
performance of all other obligations of, the Depositor under this Sale and
Servicing Agreement and the Trust under the Indenture and the Notes (the
"Guaranteed Obligations"), in each case at the place of such payment or
performance. Upon failure by the Depositor or the Trust to pay fully and
punctually any such amount or to perform fully and punctually any such other
58
<PAGE>
obligation, the Guarantor shall forthwith immediately upon demand pay the amount
not so paid and perform or cause to be performed such other obligation, in each
case at the place, in the manner and at the time specified in the Sale and
Servicing Agreement, the Indenture or the Notes, as the case may be. This
guaranty is a guaranty of payment and performance and not of collection.
(b) Notwithstanding anything in this Section 13.01 to the
contrary, the Guarantor's obligations pursuant to paragraph (a) above together
with its obligations pursuant to Section 3.16 of the Indenture shall be limited
to an aggregate amount equal to the product of 5.00% and the Maximum Collateral
Amount; provided, however, that such limitation shall not apply to the
Guarantor's obligations with respect to the Depositor's obligation to repurchase
a Mortgage Loan with respect to which a representation or warranty has been
breached.
Section 13.02. Guaranty Absolute and Unconditional. The obligations of
the Guarantor hereunder are unconditional and absolute and, without limiting the
generality of the foregoing, shall not be released, discharged or otherwise
affected by the Depositor or the Trust, as a result of:
(a) any extension, renewal, settlement, compromise, waiver or
release in respect of any Guaranteed Obligation or any related document in
connection with the transactions contemplated hereby or thereby, whether by
operation of law or otherwise;
(b) any modification or amendment of or supplement to this
Agreement, the Indenture or any related documents;
(c) any change in the corporate existence, structure or
ownership of the Depositor, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting the Depositor, or its assets and properties
or any resulting release or discharge of any Guaranteed Obligation;
(d) the existence of any claim, set-off, defense or other right
which the Guarantor may have at any time against the Depositor or the Initial
Purchaser or its affiliates, or any other Person, whether in connection herewith
or any unrelated transactions; provided, however, that nothing herein shall
prevent the assertion of any such claim, set-off, defense or other right by
separate suit or compulsory counterclaim;
(e) any invalidity or unenforceability relating to or against
the Depositor for any reason of this Agreement, the Indenture or any related
documents, or any provision of applicable law purporting to prohibit the
performance of any Guaranteed Obligation;
(f) any other act or omission to act or delay of any kind by
the Depositor; or
(g) any other circumstance whatsoever which might, but for the
provisions of this paragraph, constitute a legal or equitable discharge of the
Guarantor's obligations hereunder. The guarantee provided in this Article XIII
shall encompass any modification or amendment of, or supplement to, this
Agreement, the Indenture or any related documents.
59
<PAGE>
Section 13.03. Discharge Only Upon Performance in Full; Reinstatement
in Certain Circumstances. The Guarantor's obligations hereunder shall remain in
full force and effect for so long as the Depositor has any Guaranteed
Obligations. If at any time any payment of any amount payable by the Depositor
is rescinded or must be otherwise restored or returned upon the insolvency,
bankruptcy or reorganization of the Depositor, the Guarantor's obligations
hereunder with respect to such payment shall be reinstated as though such
payment had been due but not made at such time.
Section 13.04. Waiver of Presentment. The Guarantor irrevocably waives
acceptance hereof, presentment, demand, protest and any notice not provided for
herein, as well as any requirement that at any time any action first be taken by
any Person against the Depositor, or any other Person, including that any action
first be taken to pursue other remedies or to mitigate damages resulting from a
failure by the Depositor to perform any Guaranteed Obligation, prior to seeking
performance by the Guarantor of its obligations hereunder.
Section 13.05. Waiver of Subrogation and Contribution. The Guarantor
shall not enforce or otherwise exercise any right of subrogation to any of the
rights of any other Person or any indemnified Person against the Depositor and,
notwithstanding anything to the contrary contained herein, the Guarantor hereby
waives all rights of subrogation (whether contractual, under Section 509 of the
U.S. Bankruptcy Code, at law or in equity or otherwise) to the claims of the
Noteholders or any indemnified Person against the Depositor and all contractual,
statutory or legal or equitable rights of contribution, reimbursement,
indemnification and similar rights and "claims" (as that term is defined in the
U.S. Bankruptcy Code) which the Guarantor might now have or hereafter acquire
against the Depositor that arise from the existence or performance of the
Guarantor's obligations hereunder.
Section 13.06. Financial and Other Information of the Guarantor. The
Guarantor hereby covenants that, for so long as this Agreement is in effect, it
shall provide to the Initial Purchaser or its agents all such financial or other
information as the Initial Purchaser shall reasonably request, and notify its
auditors and accountants that the Initial Purchaser is authorized to obtain such
information directly from them. Without limitation of the foregoing, the
Guarantor will furnish to the Initial Purchaser in such detail as the Initial
Purchaser shall request:
(a) as soon as available, but in any event not later than one
hundred five (105) days after the close of each fiscal year, consolidated and
consolidating balance sheets of the Guarantor and its consolidated subsidiaries
(reflecting any material intercompany adjustments) as at the end of such fiscal
year and related consolidated and consolidating statements of income, expense
and retained earnings and statements of cash flows of the Guarantor and its
consolidated subsidiaries for such year, setting forth in each case in
comparative form figures for the previous fiscal year, all in reasonable detail,
fairly presenting the financial position of the Guarantor and its consolidated
subsidiaries and the results of operations of the Guarantor and its consolidated
subsidiaries for the fiscal year then ended, and prepared in accordance with
GAAP, in each case certified in a manner acceptable to the Initial Purchaser by
independent certified public accounts of recognized national standing acceptable
to the Initial Purchaser, together with a certificate of such accountants
stating that in the course of performing their examination such accountants did
not become aware of the existence and continuance of any Default, Event of
60
<PAGE>
Default or Amortization Event, except for those, if any, described in such
certificates in reasonable detail;
(b) promptly after the end of each quarterly accounting period
and in any event no later than fifty (50) days after the end of each quarterly
period, consolidated and consolidating balance sheets of the Guarantor and its
consolidated subsidiaries (reflecting any material intercompany adjustments) as
at the end of such period, and consolidated and consolidating statements of
income, expense and retained earnings and of source and application of funds of
the Guarantor and its consolidated subsidiaries, from the beginning of the
fiscal year to the end of each such period, for the Guarantor and its
consolidated subsidiaries, all in reasonable detail, fairly presenting the
consolidated and consolidating financial position and results of operations of
the Guarantor and its consolidated subsidiaries, prepared in accordance with
GAAP (subject to normal year-end adjustments), setting forth in each case in
comparative from the corresponding figures for the corresponding period of the
previous quarter, duly certified to be correct (and, with respect to quarterly
balance sheets and statements of income, expense and retained earnings, subject
to year-end adjustments, to have been prepared in accordance with GAAP), by the
chief financial or accounting officer of the Guarantor and accompanied by a
certificate of such officer stating that, based upon such examination or
investigation as such officer shall have deemed necessary to enable him to
render an informed opinion in respect thereof, to the best of his knowledge and
belief, no Default exists except for those, if any, described in such
certificate in reasonable detail;
(c) promptly after the Guarantor or any subsidiary or affiliate
thereof receives the same, copies of management letters or other statements
provided to the Guarantor or such subsidiary or affiliate by its independent
certified public accountants;
(d) promptly after their preparation, copies of any and all
proxy statements, financial statements, and reports which the Guarantor sends to
its shareholders and holders of its indebtedness, and copies of any and all
periodic special reports, as well as registration statements, which the
Guarantor files with the Securities and Exchange Commission; provided, that, the
Guarantor will provide the Initial Purchaser a copy of its annual Form 10-K no
later than ninety (90) days after year-end; and
(e) such additional information as the Initial Purchaser may
from time to time reasonably request regarding the financial and business
affairs of the Guarantor.
All information provided by the Guarantor pursuant to the Existing
Warehouse Facility is hereby incorporated herein by reference as if stated
herein in full.
61
<PAGE>
ARTICLE XIV
PASS-THROUGH TRANSFER
Section 14.01. Removal of Mortgage Loans from Inclusion Under this
Agreement Upon a Pass-Through Transfer on One or More Securitization Dates.
The Issuer and the Servicer agree that with respect to some or all of
the Mortgage Loans, from time to time the Initial Purchaser may direct the
Issuer to sell the Mortgage Loans to an entity designated by the Depositor in
order to effect a whole-loan transfer or Pass-Through Transfer, retaining the
Servicer as the servicer of such Mortgage Loans, or as applicable the
"seller/servicer." In the event of such a transfer, the Indenture Trustee shall
execute a release of the security interest granted hereunder with respect to the
Mortgage Loans to be transferred substantially in the form attached hereto as
Exhibit D.
The Servicer shall cooperate with the Initial Purchaser in connection
with any whole-loan transfer or Pass-Through Transfer contemplated by the
Initial Purchaser pursuant to this Section 14.01. In that connection, the
Servicer shall (a) execute any Securitization Agreement or other transfer
agreement within a reasonable period of time after receipt of any Securitization
Agreement or other transfer agreement which time shall be sufficient for the
Servicer and Servicer's counsel to review such Securitization Agreement or other
transfer agreement, but such time shall not exceed five days after receipt of a
substantially final draft thereof, and (b) provide to the trustee or a third
party purchaser, as the case may be, subject to any Securitization Agreement
and/or the Initial Purchaser: (i) any and all information and appropriate
verification of information which may be reasonably available to the Servicer,
whether through letters of its auditors and counsel or otherwise, as the Initial
Purchaser shall reasonably request; and (ii) such additional representations,
warranties, covenants, opinions of counsel, letters from auditors, and
certificates of public officials or officers of the Servicer as are reasonably
believed necessary by the trustee, such third party purchaser, any master
servicer, any rating agency, any surety or the Initial Purchaser, as the case
may be, in connection with such transactions.
In the event the Servicer holds record title to the Mortgages, prior to
a Securitization Date the Servicer or its designee shall prepare an Assignment
of Mortgage in blank from the Servicer, acceptable to the trustee or such third
party, as the case may be, for each Mortgage Loan that is part of a whole-loan
transfer or Pass-Through Transfer and shall pay all preparation and recording
costs associated therewith. The Servicer shall execute each Assignment of
Mortgage, track such Assignments of Mortgage to ensure they have been recorded
and deliver them as required by the trustee or such third party, as the case may
be, upon the Servicer's receipt thereof. Additionally, the Servicer shall
prepare and execute, at the direction of the Initial Purchaser, any note
endorsements in connection with any and all Securitization Agreements or other
transfer agreements.
All Mortgage Loans not sold or transferred pursuant to a Pass-Through
Transfer shall be subject to this Agreement and shall continue to be serviced in
accordance with the terms of this Agreement and with respect thereto this
Agreement shall remain in full force and effect.
62
<PAGE>
In connection with any whole-loan transfer or Pass-Through Transfer,
each of the Originators and the Servicer hereby agree to re-make for the benefit
of the trustee or a third-party purchaser each of the representations and
warranties made by it pursuant hereto as of the related Securitization Date.
Upon a breach of any such representation or warranty, each of the Servicer and
each Originator hereby agrees to undertake to cure such breach or repurchase the
related Mortgage Loan upon substantially the same terms and conditions as are
set forth herein in Section 4.02 (including any provision therein relating to
indemnification).
[Remainder of Page Intentionally Left Blank]
63
<PAGE>
ABFS Warehouse Trust
IN WITNESS WHEREOF, the Servicer, the Trust, the Indenture Trustee, the
Collateral Agent and the Depositor have caused their names to be signed hereto
by their respective officers thereunto duly authorized as of the day and year
first above written.
ABFS MILLENIUM, INC., as Depositor
By:_________________________________
Name:
Title:
AMERICAN BUSINESS CREDIT, INC.
By:_________________________________
Name:
Title:
HOMEAMERICAN CREDIT, INC. D/B/A
UPLAND MORTGAGE
By:_________________________________
Name:
Title:
NEW JERSEY MORTGAGE AND
INVESTMENT, INC.
By:_________________________________
Name:
Title:
ABFS MORTGAGE LOAN WAREHOUSE
TRUST 2000-1
By: FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION, not in its
individual capacity, but solely as Owner
Trustee under the Trust Agreement
By:_________________________________
Name:
Title:
[Signature Page to Sale and Servicing Agreement]
<PAGE>
AMERICAN BUSINESS CREDIT, INC., as Servicer
By:_________________________________
Name:
Title:
THE CHASE MANHATTAN BANK, as Indenture
Trustee and Collateral Agent
By:_________________________________
Name:
Title:
AMERICAN BUSINESS FINANCIAL SERVICES, INC.,
as Guarantor
By:_________________________________
Name:
Title:
[Signature Page to Sale and Servicing Agreement]
<PAGE>
SCHEDULE I
MORTGAGE LOAN SCHEDULE
<PAGE>
EXHIBIT A
---------
COLLATERAL AGENT'S ACKNOWLEDGEMENT OF RECEIPT
March [[ ]], 2000
ABFS Millenium, Inc. American Business Credit, Inc.
c/o American Business Credit, Inc. BalaPointe Office Centre
BalaPointe Office Centre 111 Presidential Boulevard, Suite 127
111 Presidential Boulevard, Suite 127 Bala Cynwyd, Pennsylvania 19004
Bala Cynwyd, Pennsylvania 19004
The Chase Manhattan Bank,
as Indenture Trustee and Collateral Agent
450 W. 33rd Street, 14th Floor
New York, New York 10001
Attention: Capital Markets Fiduciary Services
Re: Sale and Servicing Agreement, dated as of March 1, 2000 among ABFS
Millenium, Inc., as Depositor, American Business Credit, Inc.,
HomeAmerican Credit, Inc., d/b/a Upland Mortgage and New Jersey
American Business Financial Services, Inc., as Guarantor, ABFS
Mortgage Loan Warehouse Trust 2000-1, American Business Credit,
Inc., as Servicer and The Chase Manhattan Bank, as Indenture
Trustee and Collateral Agent
------------------------------------------------------------------
Ladies and Gentlemen:
In accordance with Section 2.06 of the above-captioned Sale and
Servicing Agreement, the undersigned, as Collateral Agent, hereby acknowledges
receipt by it in good faith without notice of adverse claims, subject to the
provisions of Sections 2.04 and 2.05 of the Sale and Servicing Agreement (as
such provisions relate to the Initial Mortgage Loans), of, with respect to each
of the Initial Mortgage Loans, the Mortgage File containing the original
Mortgage Note, except with respect to the list of exceptions attached hereto,
and based on its examination and only as to the foregoing, the information set
forth in the Mortgage Loan Schedule accurately reflects information set forth in
the Mortgage Note, and declares that it holds and will hold such documents and
the other documents delivered to it constituting the Indenture Trustee's
Mortgage Files, and that it holds or will hold all such assets and such other
assets included in the definition of "Trust Estate" that are delivered to it, on
behalf of the Indenture Trustee, in trust for the exclusive use and benefit of
all present and future Noteholders.
A-1
<PAGE>
The Collateral Agent has made no independent examination of any such
documents beyond the review specifically required in the above-referenced Sale
and Servicing Agreement. The Collateral Agent makes no representations as to:
(i) the validity, legality, sufficiency, enforceability or genuineness of any
such documents or any of the Mortgage Loans identified on the Mortgage Loan
Schedule, or (ii) the collectability, insurability, effectiveness or suitability
of any such Mortgage Loan.
The Schedule of Mortgage Loans is attached to this Receipt.
A-2
<PAGE>
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in Appendix I to the Indenture, dated as of March 1,
2000, by and between ABFS Mortgage Loan Warehouse Trust 2000-1 and the Indenture
Trustee.
THE CHASE MANHATTAN BANK,
as Collateral Agent
By:_________________________________
Name:
A-3
<PAGE>
EXHIBIT B
---------
CERTIFICATION OF COLLATERAL AGENT
________________, 2000
Prudential Securities Secured American Business Credit, Inc.
Financing Corporation BalaPointe Office Centre
One New York Plaza 111 Presidential Boulevard, Suite 127
New York, New York 10292 Bala Cynwyd, Pennsylvania 19004
The Chase Manhattan Bank,
as Indenture Trustee and Collateral Agent
450 W. 33rd Street, 14th Floor
New York, New York 10001
Attention: Capital Markets Fiduciary Services
Re: Sale and Servicing Agreement, dated as of March 1, 2000 among ABFS
Millenium, Inc., as Depositor, American Business Credit, Inc.,
HomeAmerican Credit, Inc., d/b/a Upland Mortgage and New Jersey
American Business Financial Services, Inc., as Guarantor, ABFS
Mortgage Loan Warehouse Trust 2000-1, American Business Credit,
Inc., as Servicer and The Chase Manhattan Bank, as Indenture
Trustee and Collateral Agent
------------------------------------------------------------------
Ladies and Gentlemen:
In accordance with the provisions of Section 2.06 of the
above-referenced Sale and Servicing Agreement, the undersigned, as Collateral
Agent, hereby certifies that as to each Mortgage Loan listed in the Mortgage
Loan Schedule (other than any Mortgage Loan paid in full or any Mortgage Loan
listed on the attachment hereto), it has reviewed the documents delivered to it
pursuant to Section 2.05 of the Sale and Servicing Agreement and has determined
that (i) all documents required to be delivered to it pursuant to Section 2.05
of the above-referenced Sale and Servicing Agreement are in its possession, (ii)
such documents have been reviewed by it and appear regular on their face and
have not been mutilated, damaged, torn or otherwise physically altered
(handwritten additions, changes or corrections do not constitute physical
alteration if they reasonably appear to have been initialed by the Mortgagor)
appears regular on its face and relates to such Mortgage Loan and (iii) based on
its examination and only as to the foregoing documents, the information set
forth in the Mortgage Loan Schedule respecting such Mortgage Loan accurately
reflects the information set forth in the Indenture Trustee's Mortgage File. The
Collateral Agent has made no independent examination of such documents beyond
the review specifically required in the above-referenced Sale and Servicing
Agreement. The Collateral Agent makes no representations as to: (x) the
validity, legality, enforceability or genuineness of any such documents
contained in each or any of the Mortgage Loans identified on the Mortgage Loan
B-1
<PAGE>
Schedule, or (y) the collectability, insurability, effectiveness or suitability
of any such Mortgage Loan.
Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Sale and Servicing Agreement.
THE CHASE MANHATTAN BANK,
as Collateral Agent
By:_________________________________
Name:
Title:
B-2
<PAGE>
EXHIBIT C
---------
REQUEST FOR RELEASE OF DOCUMENTS
________________,
The Chase Manhattan Bank,
as Indenture Trustee and Collateral Agent
450 W. 33rd Street, 14th Floor
New York, New York 10001
Attention: Capital Markets Fiduciary Services
Re: Sale and Servicing Agreement, dated as of March 1, 2000 among ABFS
Millenium, Inc., as Depositor, American Business Credit, Inc.,
HomeAmerican Credit, Inc., d/b/a Upland Mortgage and New Jersey
American Business Financial Services, Inc., as Guarantor, ABFS
Mortgage Loan Warehouse Trust 2000-1, American Business Credit,
Inc., as Servicer and The Chase Manhattan Bank, as Indenture
Trustee and Collateral Agent
------------------------------------------------------------------
In connection with the administration of the pool of Mortgage Loans
held by The Chase Manhattan Bank, as Collateral Agent, for the benefit of the
Noteholders, we request the release, and acknowledge receipt, of the (Indenture
Trustee's Mortgage File/[specify document]) for the Mortgage Loan described
below, for the reason indicated.
Mortgagor's Name, Address & Zip Code:
- ------------------------------------
Mortgage Loan Number:
- --------------------
Reason for Requesting Documents (check one)
- -------------------------------
____ 1. Mortgage Loan Paid in Full
(Servicer hereby certifies that all amounts received in connection
therewith have been credited to the Collection Account.)
____ 2. Mortgage Loan Liquidated
(Servicer hereby certifies that all proceeds of foreclosure,
insurance or other liquidation have been finally received and
credited to the Collection Account.)
____ 3. Mortgage Loan in Foreclosure
C-1
<PAGE>
____ 4. Mortgage Loan Repurchased Pursuant to Section 5.18 of the Sale and
Servicing Agreement.
____ 5. Mortgage Loan Repurchased or Substituted pursuant to Article II or III
of the Sale and Servicing Agreement (Servicer hereby certifies that
the repurchase price or Substitution Adjustment has been credited to
the related Distribution Account and that the substituted mortgage
loan is a Qualified Substitute Mortgage Loan.)
____ 6. Other (explain)____________________________________________________
If box 1 or 2 above is checked, and if all or part of the Indenture
Trustee's Mortgage File was previously released to us, please release to us our
previous receipt on file with you, as well as any additional documents in your
possession relating to the above specified Mortgage Loan.
If box 3, 4, 5 or 6 above is checked, upon our return of all of the
above documents to the Collateral Agent, please acknowledge your receipt by
signing in the space indicated below, and returning this form.
AMERICAN BUSINESS CREDIT, INC.,
as Servicer
By:_____________________________________
Name:
Title:
Documents returned to Collateral Agent:
THE CHASE MANHATTAN BANK
as Collateral Agent
By:________________________
Name:
Title:
Date:
C-2
<PAGE>
EXHIBIT D
---------
RELEASE OF SECURITY INTEREST
The undersigned, The Chase Manhattan Bank ("Chase"), has been notified
by American Business Credit, Inc. ("ABC"), HomeAmerican Credit, Inc. d/b/a
Upland Mortgage ("Upland") and New Jersey Mortgage and Investment Corp.
("NJMIC", and together with ABC and Upland, the "Co-Borrowers") that ABFS
Mortgage Loan Warehouse Trust 2000-1 (the "Trust") is transferring, on or about
[[ ]], a portion of the Mortgage Loans pledged to Chase as Indenture Trustee
under the Indenture dated as of March 1, 2000 between the Trust and Chase, as
indenture trustee. Subject to the receipt in immediately available funds of the
sum of $[[ ]] (representing principal and accrued interest), Chase releases,
waives and disclaims any interest in the Collateral. Chase agrees to execute
termination statements or partial releases releasing all Uniform Commercial Code
financing statements, if any, concerning security interests granted by the Trust
to Chase in the Collateral.
Dated:
THE CHASE MANHATTAN BANK
By:_____________________________________
Name: Melissa A. Kohler
Title: Assistant Vice President
D-1
<PAGE>
EXHIBIT E
---------
FORM OF SUBSEQUENT
TRANSFER AGREEMENT
This SUBSEQUENT TRANSFER AGREEMENT, dated as of ________, 2000 (the
"Subsequent Transfer Date"), is entered into by and among AMERICAN BUSINESS
CREDIT, INC., as an originator ("ABC"), HOMEAMERICAN CREDIT, INC. D/B/A UPLAND
MORTGAGE, as an originator ("Upland"), NEW JERSEY MORTGAGE AND INVESTMENT CORP.,
as an originator ("NJMIC") (ABC, Upland and NJMIC are collectively referred to
herein as the "Originators"), and ABFS MILLENIUM, INC., as depositor (the
"Depositor").
W I T N E S S E T H:
Reference is hereby made to (x) that certain Sale and Servicing
Agreement, dated as of March 1, 2000 (the "Sale and Servicing Agreement"), by
and among the Originators, the Depositor, ABFS Mortgage Loan Warehouse Trust
2000-1 (the "Trust"), American business Credit, Inc., as servicer (the
"Servicer"), American Business Financial Services, Inc., its guarantor and The
Chase Manhattan Bank, as Indenture Trustee and Collateral Agent (respectively,
the "Indenture Trustee" and the "Collateral Agent"), and (y) that certain
Indenture, dated as of March 1, 2000 (the "Indenture"), by and between the Trust
and the Indenture Trustee. Pursuant to the Sale and Servicing Agreement, the
Originators have agreed to sell, assign and transfer, and the Depositor has
agreed to accept, from time to time, Subsequent Mortgage Loans (as defined
below). The Sale and Servicing Agreement provides that each such sale of
Subsequent Mortgage Loans be evidenced by the execution and delivery of a
Subsequent Transfer Agreement such as this Subsequent Transfer Agreement.
The assets sold to the Depositor pursuant to this Subsequent Transfer
Agreement consist of (a) the Subsequent Mortgage Loans listed in the Mortgage
Loan Schedule attached hereto (including property that secures a Subsequent
Mortgage Loan that becomes an REO Property), including the related Mortgage
Files delivered or to be delivered to the Collateral Agent, on behalf of the
Indenture Trustee, including all payments of principal received, collected or
otherwise recovered after the Subsequent Cut-Off Date for each Subsequent
Mortgage Loan, all payments of interest due on each Subsequent Mortgage Loan
after the Subsequent Cut-Off Date therefor whenever received and all other
proceeds received in respect of such Subsequent Mortgage Loans, (b) the
Insurance Policies relating to the Subsequent Mortgage Loans, and (c) all
proceeds of the conversion, voluntary or involuntary, of any of the foregoing
into cash or other liquid assets, including, without limitation, all insurance
proceeds and condemnation awards.
The "Subsequent Mortgage Loans" are those listed on the Schedule of
Mortgage Loans attached hereto. The Aggregate Principal Balance of such
Subsequent Mortgage Loans as of the Subsequent Cut-Off Date is $__________.
E-1
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
Section 1. Definitions. For the purposes of this Subsequent Transfer
Agreement, capitalized terms used herein but not otherwise defined shall have
the respective meanings assigned to such terms in Appendix I to the Indenture.
Section 2. Sale, Assignment and Transfer. In consideration of the
receipt of $__________ (such amount being approximately 100% of the Advance
Amount with respect to the Subsequent Mortgage Loans) from the Depositor, each
of the Originators hereby sells, assigns and transfers to the Depositor, without
recourse, all of their respective right, title and interest in, to, and under
the Subsequent Mortgage Loans and related assets described above, whether now
existing or hereafter arising.
In connection with each such sale, assignment and transfer, the
Originators shall satisfy the document delivery requirements set forth in
Section 2.05 of the Sale and Servicing Agreement with respect to each Subsequent
Mortgage Loan.
Section 3. Representations and Warranties of the Originators. With
respect to each Subsequent Mortgage Loan, each of the Originators hereby remake
each of the representations, warranties and covenants made by the Originators in
Section 3.01 of the Sale and Servicing Agreement, on which the Depositor relies
in accepting the Subsequent Mortgage Loans. Such representations and warranties
speak as of the Subsequent Transfer Date unless otherwise indicated, and shall
survive each sale, assignment, transfer and conveyance of the Subsequent
Mortgage Loans to the Depositor.
Each of the Originators hereby acknowledge that the Depositor is
transferring the Subsequent Mortgage Loans to the Trust, and that the Trust is
pledging the Subsequent Mortgage Loans to the Indenture Trustee, for the benefit
of the Noteholders, on the date hereof. Each of the Originators hereby
acknowledge and agree that the Depositor may assign to the Trust, and the Trust
may assign to the Indenture Trustee, for the benefit of the Noteholders, its
interest in the representations and warranties set forth in this Section 3. Each
of the Originators agrees that, upon such assignment to the Trust and pledge to
the Indenture Trustee, such representations, warranties, agreements and
covenants will run to and be for the benefit of the Indenture Trustee and the
Indenture Trustee may enforce, without joinder of the Depositor or the Trust,
the repurchase and indemnification obligations of the Originators set forth
herein with respect to breaches of such representations, warranties, agreements
and covenants.
Section 4. Repurchase of Subsequent Mortgage Loans. Upon discovery by
any of the Depositor, an Originator, the Indenture Trustee, the Servicer on
behalf of the Trust or any Noteholder of a breach of any of the representations
and warranties made by the Originators pursuant to Section 3.01 of the Sale and
Servicing Agreement or this Section 3, the party discovering such breach shall
give prompt written notice to each other Person; provided, that the Indenture
Trustee shall have no duty to inquire or to investigate the breach of any such
representations and warranties. The Originators (or, if the Originators fail to
E-2
<PAGE>
do so, the Depositor) will be obligated to repurchase a Subsequent Mortgage Loan
which breaches a representation or warranty in accordance with the provisions of
Section 4.02 of the Sale and Servicing Agreement or to indemnify as described in
Section 5.04 of the Sale and Servicing Agreement. Such repurchase and
indemnification obligation of the Originators (and the Depositor) shall
constitute the sole remedy against the Originators (and the Depositor), and the
Trust for such breach available to the Servicer, the Trust, the Owner Trustee,
the Depositor, the Indenture Trustee and the Noteholders.
Section 5. Amendment. This Subsequent Transfer Agreement may be amended
from time to time by the Originators and the Depositor only with the prior
written consent of the Majority Holders, and to the extent such amendment
materially affects the interests of the Owner Trustee, upon written notice to
the Owner Trustee.
Section 6. GOVERNING LAW; WAIVER OF JURY TRIAL. THIS SUBSEQUENT
TRANSFER AGREEMENT AND ANY AMENDMENT HEREOF PURSUANT TO SECTION 5 SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF. EACH PARTY HERETO
HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS SUBSEQUENT TRANSFER AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY AND FOR ANY COUNTERCLAIM THEREIN.
Section 7. Counterparts. This Subsequent Transfer Agreement may be
executed in counterparts (and by different parties on separate counterparts),
each of which shall be an original, but all of which shall constitute one and
the same instrument.
Section 8. Binding Effect; Third-Party Beneficiaries. This Subsequent
Transfer Agreement will inure to the benefit of and be binding upon the parties
hereto, the Trust, the Owner Trustee, the Noteholders, and their respective
successors and permitted assigns.
Section 9. Headings. The headings herein are for purposes of reference
only and shall not otherwise affect the meaning or interpretation of any
provision hereof.
Section 10. Exhibits. The exhibits attached hereto and referred to
herein shall constitute a part of this Subsequent Transfer Agreement and are
incorporated into this Subsequent Transfer Agreement for all purposes.
Section 11. Intent of the Parties; Security Agreement. The Originators
and the Depositor intend that the conveyance of all right, title and interest in
and to the Subsequent Mortgage Loans and related assets described above by the
Originators to the Depositor pursuant to this Subsequent Transfer Agreement
shall be, and be construed as, a sale of the Subsequent Mortgage Loans from the
Originators to the Depositor.
It is, further, not intended that such conveyances be deemed to be
pledges of the Subsequent Mortgage Loans by the Originators to the Depositor to
E-3
<PAGE>
secure a debt or other obligation of the Originators. However, in the event that
the Subsequent Mortgage Loans are held to be property of the Originators, or if
for any reason this Subsequent Transfer Agreement is held or deemed to create a
security interest in the Subsequent Mortgage Loans, then it is intended that:
(a) this Subsequent Transfer Agreement shall also be deemed to be a security
agreement within the meaning of Articles 8 and 9 of the Uniform Commercial Code
of any other applicable jurisdiction; (b) the conveyance provided for in this
Subsequent Transfer Agreement shall be deemed to be a grant by the Originators
to the Depositor of a security interest in all of the Originators' respective
right, title and interest, whether now owned or hereafter acquired, in and to
the Subsequent Mortgage Loans and related assets described above. The
Originators shall, to the extent consistent with this Subsequent Transfer
Agreement, take such reasonable actions as may be necessary to ensure that, if
this Subsequent Transfer Agreement were deemed to create a security interest in
the Subsequent Mortgage Loans and the other property described above, such
interest would be deemed to be a perfected security interest of first priority
under applicable law and will be maintained as such throughout the term of this
Subsequent Transfer Agreement.
[Remainder of Page Intentionally Left Blank]
E-4
<PAGE>
IN WITNESS WHEREOF, the Originators and the Depositor have caused this
Subsequent Transfer Agreement to be duly executed by their respective officers
as of the day and year first above written.
AMERICAN BUSINESS CREDIT, INC.
By:_____________________________________
Name:
Title:
HOMEAMERICAN CREDIT, INC. D/B/A
UPLAND MORTGAGE
By:_____________________________________
Name:
Title:
NEW JERSEY MORTGAGE AND
INVESTMENT, INC.
By:_____________________________________
Name:
Title:
ABFS MILLENIUM, INC.
By:_____________________________________
Name:
Title:
[Signature Page to Subsequent Transfer Agreement]
<PAGE>
APPENDIX I
DEFINED TERMS
[See Appendix I to Indenture]
A-ii
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of American Business Financial Services, Inc.
and Subsidiaries as of March 31, 2000 and the nine months then ended and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 45,399
<SECURITIES> 0
<RECEIVABLES> 44,078
<ALLOWANCES> 469
<INVENTORY> 0
<CURRENT-ASSETS> 208,574
<PP&E> 27,646
<DEPRECIATION> 10,347
<TOTAL-ASSETS> 533,757
<CURRENT-LIABILITIES> 261,943
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 66,488
<TOTAL-LIABILITY-AND-EQUITY> 533,757
<SALES> 0
<TOTAL-REVENUES> 92,563
<CGS> 0
<TOTAL-COSTS> 73,458
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,040
<INTEREST-EXPENSE> 26,175
<INCOME-PRETAX> 19,105
<INCOME-TAX> 7,642
<INCOME-CONTINUING> 11,463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,463
<EPS-BASIC> 3.32
<EPS-DILUTED> 3.23
</TABLE>
