<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number 1-8972
CWM MORTGAGE HOLDINGS, INC.
(Formerly Countrywide Mortgage Investments, Inc.)
(Exact name of registrant as specified in its charter)
DELAWARE 95-3983415
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
35 NORTH LAKE AVENUE, PASADENA, CALIFORNIA 91101-1857
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (800) 669-2300
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 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
requirements for the past 90 days. Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this report.
Common stock outstanding as of June 30, 1994: 32,145,031 shares
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CWM Mortgage Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
--------------- ------------------
<S> <C> <C>
ASSETS
Mortgage assets
Mortgage loans held for sale $ 680,324 $ 872,490
Mortgage loans held for investment 167,143 -
Collateral for CMOs (market value $272,958 in 1994 and
$413,000 in 1993) 276,538 402,503
Revolving warehouse lines of credit 49,502 92,058
Cash 8,527 6,866
Master servicing fees receivable 124,430 45,237
Due from affiliate 19,400 -
Other assets 57,106 20,999
--------------- ---------------
Total assets $ 1,382,970 $ 1,440,153
=============== ===============
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Reverse-repurchase agreements $ 867,417 $ 806,557
Collateralized mortgage obligations 244,223 365,886
Accounts payable and accrued liabilities 18,302 17,102
-------------- --------------
Total liabilities 1,129,942 1,189,545
Commitments and contingencies - -
Shareholders' equity
Common stock - authorized, 60,000,000 shares of
$.01 par value; issued and outstanding, 32,145,031 shares
in 1994 and 32,020,484 in 1993 321 320
Additional paid-in capital 257,241 256,587
Cumulative earnings 83,070 72,306
Cumulative distributions to shareholders (87,604) (78,605)
-------------- --------------
Total shareholders' equity 253,028 250,608
-------------- --------------
Total liabilities and shareholders' equity $ 1,382,970 $ 1,440,153
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
2
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CWM Mortgage Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
------------------------- --------------------------
1994 1993 1994 1993
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES
Interest income
Mortgage loans held for sale $12,935 $4,255 $31,080 $5,710
Mortgage loans held for investment 2,709 - 2,709 -
Collateral for CMOs 5,497 12,359 11,746 23,840
Revolving warehouse lines of credit 838 157 2,479 157
Other 543 - 746 674
---------- ---------- ---------- ----------
Total interest income 22,522 16,771 48,760 30,381
Interest expense
Reverse-repurchase agreements 10,298 1,926 21,271 2,430
Collateralized mortgage obligations 7,047 15,377 15,690 28,798
---------- ---------- ---------- ----------
Total interest expense 17,345 17,303 36,961 31,228
Net interest income (expense) 5,177 (532) 11,799 (847)
Master servicing income 6,451 - 10,224 -
Master servicing and servicing hedge amortization (4,272) - (9,720) -
---------- ---------- ---------- ----------
Net master servicing income 2,179 - 504 -
(Loss) gain on sale of mortgage loans and securities (3,931) 1,112 746 2,029
Gain on sale of servicing 5,834 - 5,834 -
---------- ---------- ---------- ----------
Net revenues 9,259 580 18,883 1,182
EXPENSES
Salaries and related expenses 2,072 - 3,783 -
General and administrative 1,818 431 3,259 807
Management fees to affiliate 92 95 203 203
---------- ---------- ---------- ----------
Total expenses 3,982 526 7,245 1,010
---------- ---------- ---------- ----------
Earnings before income taxes 5,277 54 11,638 172
Income tax (benefit) provision (434) - 874 -
---------- ---------- ---------- ----------
NET EARNINGS $ 5,711 $ 54 $ 10,764 $ 172
========== ========== ========== ==========
EARNINGS PER SHARE $ 0.18 $ 0.00 $ 0.34 $ 0.01
========== ========== ========== ==========
Weighted average shares outstanding 32,141,443 13,981,537 32,123,456 13,981,293
========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
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CWM Mortgage Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1994 1993
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 10,764 $ 172
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Amortization 14,047 4,712
Gain on sale of mortgage loans and securities (746) (2,029)
Gain on sale of servicing (5,834) -
Change in other assets and liabilities (43,486) (10,703)
------------ ----------
Net cash provided by (used in) operating activities (25,255) (7,848)
Cash flows from investing activities:
Collateral for CMOs:
Purchases of mortgage loans subsequently securitized - (244,108)
Principal payments on collateral 116,999 178,863
Net change in GICs held by trustees 6,162 24,429
Proceeds from sale of collateral for CMOs, net - 2,641
------------ ----------
123,161 (38,175)
Purchases of mortgage loans held for sale (2,920,500) (635,453)
Purchases of mortgage loans held for investment (37,682) -
Proceeds from sale of mortgage loans and securities 2,951,531 270,352
Principal payments on mortgage loans and securities 32,506 3,441
Net decrease (increase) in revolving warehouse lines of credit 42,556 (16,698)
Investment in master servicing fees receivable (84,992) -
Purchase of servicing (14,573) -
Proceeds from sale of servicing 5,168 -
------------ ---------
Net cash provided by (used in) investing activities 97,175 (416,533)
Cash flows from financing activities:
Collateralized mortgage obligations:
Proceeds from issuance of securities - 239,936
Principal payments on securities (122,775) (194,737)
------------ ---------
(122,775) 45,199
Net increase in reverse-repurchase agreements 60,860 391,322
Net proceeds from issuance of common stock 655 -
Cash dividends paid (8,999) (3,383)
------------ ---------
Net cash (used in) provided by financing activities (70,259) 433,138
----------- ---------
Net increase in cash 1,661 8,757
Cash at beginning of period 6,866 27
----------- ----------
Cash at end of period $ 8,527 $ 8,784
=========== =========
Supplemental cash flow information:
Cash paid for interest $ 31,465 $ 29,484
=========== ==========
Cash paid for income taxes $ 1 -
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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CWM MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The Company has elected to qualify as a real estate investment
trust ("REIT") under the requirements of the Internal Revenue Code, and the
Company intends to operate so as to continue to so qualify.
On May 17, 1994, the shareholders approved a change in the Company's name from
Countrywide Mortgage Investments, Inc. to CWM Mortgage Holdings, Inc. ("CWM").
In addition, the name of the Company's subsidiary, Countrywide Mortgage Conduit,
has been changed to Independent National Mortgage Corporation ("INMC"). The
Company's warehouse lending operation, formerly a division of CWM, was
separately incorporated as a Delaware corporation. This wholly owned subsidiary
was named Warehouse Lending Corporation of America, Inc. ("WLCA").
The consolidated financial statements include the accounts of CWM and each of
the entities that is consolidated with CWM for financial reporting purposes
(collectively, the "Company"). The Company's mortgage loan conduit operations
are primarily conducted through INMC, a taxable corporation that is consolidated
with CWM for financial reporting purposes but is not consolidated for income tax
purposes. The Company's warehouse lending operations are conducted through WLCA,
a wholly owned qualified REIT subsidiary that is consolidated for both financial
reporting and income tax purposes. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain reclassifications
have been made to the financial statements for the period ended June 30, 1993 to
conform to the June 30, 1994 financial statement presentation.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 1994 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1994. For further information with respect to financial reporting, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1993.
NOTE B - MORTGAGE LOANS HELD FOR INVESTMENT
In April of 1994, the Company began a program to acquire mortgage loans to be
held as long-term investments. In conjunction with this program, the Company
transferred certain mortgage loans held for sale to mortgage investments to be
held as long-term investments. The loans were transferred to mortgage loans
held for investment at a value that approximated the market value at the time of
the transfer. The Company has the intent and ability to hold these loans until
maturity. These mortgage investments are loans secured by mortgages on single-
family residential real estate. The premiums and discounts and the market
valuation related to these loans are amortized over the estimated life of the
loan using the level-yield method.
NOTE C - RELATED PARTY TRANSACTIONS
The Company has entered into an agreement (the "Management Agreement") with
Countrywide Asset Management Corporation, a subsidiary of Countrywide Credit
Industries, (the "Manager"), to advise the Company on various facets of its
business and manage its operations, subject to supervision by the Company's
Board of Directors. The Manager has entered into a subcontract with its
affiliate, Countrywide Funding Corporation ("CFC"), to perform such services for
the Company as the Manager deems necessary.
5
<PAGE>
During June 1994 the Company sold approximately $1.8 billion of its purchased
servicing portfolio to CFC. The Company recorded a gain on the sale of these
servicing rights of $5.8 million. Total proceeds from the sale amounted to
$24.6 million of which $19.4 million was outstanding as of June 30, 1994. This
balance is receivable in installments with the final payment due within 30 days
of the transfer date, in September 1994.
NOTE D - SUBSEQUENT EVENT
On July 20, 1994, the Board of Directors declared a cash dividend of $0.18 per
share to be paid on August 23, 1994 to shareholders of record on August 2,
1994.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
On May 17, 1994, the shareholders approved a change in the Company's name from
Countrywide Mortgage Investments, Inc. to CWM Mortgage Holdings, Inc. In
addition, the name of the Company's subsidiary, Countrywide Mortgage Conduit has
been changed to Independent National Mortgage Corporation. The Company's
warehouse lending was formally incorporated as a Delaware Corporation and named
Warehouse Lending Corporation of America, Inc.
During the first quarter of 1993, the Company commenced operations of a mortgage
loan conduit which purchases mortgage loans from mortgage bankers and financial
institutions which generally retain the servicing rights. The Company generally
purchases mortgage loans originated in regions of the country with higher
volumes of jumbo and non-conforming mortgage loans, including California. As
the mortgage loans are accumulated, they are generally financed through short-
term borrowing sources such as reverse-repurchase agreements. When a sufficient
volume of mortgage loans with similar characteristics has been accumulated, the
loans generally are securitized through the issuance of mortgage-backed
securities in the form of REMIC securities or CMOs or resold in bulk whole loan
sales. The Company's principal sources of revenue from its mortgage conduit
operations are the net interest income earned from holding the mortgage loans
during the accumulation phase and gains or losses on the REMIC securities or
whole loan sale transactions. Alternatively, if the Company elects to invest in
the mortgage loans on a long-term basis using financing provided by CMOs or
other sources, the Company recognizes a net yield on these investments over
time. In addition, the Company earns fee income and net interest income through
its warehouse lending program which provides warehouse lines of credit to third
party mortgage loan originators.
Prior to 1993, the Company's principal source of earnings has been net interest
income generated from its mortgage portfolio which was primarily financed
through the issuance of CMOs (the "CMO Portfolio"). The amount of net interest
earned on the CMO Portfolio is directly affected by the rate of principal
repayment (including prepayments) of the related mortgage loans as discussed
below.
During all of 1993 and the first quarter of 1994, low mortgage interest rates
resulted in continued high prepayment rates which adversely impacted the net
interest earned on the CMO Portfolio. When prevailing mortgage interest rates
are low relative to interest rates of existing mortgage loans, prepayments on
the underlying mortgage loans generally tend to increase as mortgagors refinance
their existing loans. The cash flow generated by these prepayments is used to
repay the CMOs which are collateralized by these mortgage loans. However, the
remaining loans typically carry a lower coupon, and the interest spread between
these loans and the underlying financing thus narrows. The CMO Portfolio
experienced substantial prepayments during all of 1993 and the beginning of
1994, and since mortgage loan premiums, original issue discount and bond
issuance costs were required to be amortized, losses were ultimately realized on
the portfolio. Due to a decrease in the size of the CMO portfolio and the
decrease in prepayment activity during the quarter ended June 30, 1994, there
was a decrease in the net interest expense realized on the portfolio during the
second quarter of 1994 compared to the second quarter of 1993. Although the
recent increase in interest rates has decreased prepayment activity and the
negative impact on the Company's earnings from its CMO Portfolio, higher
interest rates have had an adverse affect on the Company's new mortgage conduit
and warehouse lending operations. Higher interest rates have resulted in
increased competition in the market for mortgage-backed securities, increased
hedging costs and lower margins. Higher interest rates have also resulted in a
decrease in the volume of mortgage loans purchased and warehouse lines
outstanding. In addition, the increase in interest rates has affected the
types of loans currently being purchased, as the market shifted from primarily
fixed rate mortgages to adjustable rate mortgages, which has resulted in the
reduction of net interest income earned during the loan accumulation phase.
7
<PAGE>
FINANCIAL CONDITION
CONDUIT AND WAREHOUSE LENDING OPERATIONS: During the six months ended June 30,
1994, the Company purchased $2.9 billion of mortgage loans through its mortgage
loan conduit operations, which were financed on an interim basis using equity
and short-term borrowings in the form of reverse-repurchase agreements. During
the six months ended June 30, 1994, the Company sold $3.0 billion of mortgage
loans through the issuance of REMIC securities and bulk whole loan sales. At
June 30, 1994, the Company was committed to sell approximately $526.9 million of
mortgage loans in the third quarter of 1994. In addition, the Company held
$167.1 million in mortgage loans as long term-investments at June 30, 1994.
The Company's warehouse lending program provides secured short-term revolving
financing to small- and medium-size mortgage bankers to finance mortgage loans
from the closing of the loan until it is sold to a permanent investor. In
addition, financing is also provided for the retention or acquisition of
servicing rights as well as the carrying of mortgage loans pending foreclosure
and/or repurchase from an investor. At June 30, 1994, the Company had extended
committed lines of credit under this program in the aggregate amount of $264.5
million, of which $49.5 million was outstanding. Reverse-repurchase agreements
associated with the financing of warehouse lines of credit totaled $40.9 million
at June 30, 1994.
CMO PORTFOLIO: As of June 30, 1994, the CMO Portfolio was comprised of 15
series of CMOs issued from the Company's inception through 1990 ("Pre-1993 CMO
Portfolio"). In 1993, two new series of CMOs were issued in connection with the
Company's new mortgage conduit operation. Disclosures relative to the CMO
Portfolio include both groups of CMOs.
Collateral for CMOs decreased from $402.5 million at December 31, 1993 to $276.5
million at June 30, 1994. This decrease of $126.0 million included repayments
(including prepayments and premium and discount amortization) of $118.4 million
and a decrease in guaranteed investment contracts ("GICs") held by trustees and
accrued interest receivable of $6.2 million and $1.4 million, respectively. The
Company's CMOs outstanding decreased to $244.2 million at June 30, 1994 from
$365.9 million at December 31, 1993. This decrease of $121.7 million resulted
from principal payments (including discount amortization) on CMOs of $120.4
million and a decrease in accrued interest payable on CMOs of $1.3 million.
When interest rates decline, prepayments on the underlying mortgage loans
generally tend to increase as mortgagors refinance their existing loans. The
cash flow generated by these unanticipated prepayments is ultimately used by the
Company to repay the CMOs since they are collateralized by these mortgages.
When interest rates decline and prepayments increase, the net yield achieved
from the Company's net investment in the CMO Portfolio is adversely impacted due
to factors which are explained below.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1994 COMPARED TO QUARTER ENDED JUNE 30, 1993
NET EARNINGS: The Company's net earnings were $5.7 million or $0.18 per share,
based on 32,141,443 weighted average shares outstanding for the quarter ended
June 30, 1994, as compared to $54,000 or $0.00 per share, based on 13,981,537
weighted average shares outstanding for the quarter ended June 30, 1993. The
increase in net earnings of $5.7 million was primarily due to an increase in
earnings of $4.2 million associated with the Company's new mortgage conduit and
warehouse lending operations combined with a decrease in the loss of $1.5
million associated with the CMO Portfolio.
The increase in earnings associated with the operation of the Company's new
mortgage loan conduit and warehouse lending program were primarily due to a gain
on the sale of servicing of $5.8 million during the quarter, an increase in net
interest income and net master servicing income of $6.4 million, and an income
tax benefit of $434,000, offset by losses on the sale of mortgage loans and
securities of $3.9 million and an increase in expenses of $3.5 million. The
income tax benefit for the three months ended June 30, 1994 resulted from an
operating loss recorded by INMC, the Company's taxable subsidiary, primarily due
to the loss on the sale of purchased mortgage loans.
8
<PAGE>
The net earnings of the Company for the quarter ended June 30, 1993 did not
include certain personnel and other operating expenses which were absorbed by
Countrywide Asset Management Corporation, the manager of the Company (the
"Manager"), under the terms of its Management Agreement. The Company began
paying all expenses of its new operations in June 1993.
INTEREST INCOME: Total interest income was $22.5 million for the quarter ended
June 30, 1994 and $16.8 million for the quarter ended June 30, 1993. This
increase in interest income of $5.7 million is due to an increase in interest on
mortgage loans held for sale, mortgage loans held for investment and revolving
warehouse lines of credit of $8.7 million, $2.7 million and $681,000,
respectively, and an increase in other interest of $543,000. These increases in
interest income were partially offset by a decrease in interest income on
collateral for CMOs of $6.9 million.
Interest income earned on mortgage loans held for sale, mortgage loans held for
investment and revolving warehouse lines of credit was $12.9 million, $2.7
million and $838,000, respectively, for the second quarter of 1994. The average
principal balance of mortgage loans held for sale, mortgage loans held for
investment and revolving warehouse lines of credit outstanding approximated
$753.1 million, $156.6 million and $37.1 million, respectively, for the second
quarter of 1994 and earned interest at an effective yield of approximately
6.87%, 6.92% and 9.04%, respectively. For the second quarter of 1993, $4.3
million of interest income was earned on mortgage loans held for sale with an
average principal balance of $230.5 million and at an effective yield of 7.38%.
The Company did not own any mortgage loans held for investment during 1993, and
therefore no interest was earned during that period. The warehouse lending
operations commenced in May of 1993; therefore, there was an insignificant
amount of income in the second quarter of 1993 related to this operation.
Interest income on collateral for CMOs was $5.5 million and $12.4 million for
the quarters ended June 30, 1994 and 1993, respectively. The decline was
primarily attributable to a decrease in the average aggregate principal amount
of collateral for CMOs outstanding, from $620.0 million for the quarter ended
June 30, 1993 to $285.3 million for the quarter ended June 30, 1994, combined
with a decrease in the effective yield earned on the collateral from 8.0% in the
second quarter of 1993 to 7.7% in the second quarter of 1994. The decrease in
the average balance of collateral for CMOs and the effective interest yield
earned thereon was due to the continued low interest rate environment
experienced throughout 1993 and the first quarter of 1994. This low interest
rate environment resulted in significant prepayment activity. In a declining
interest rate environment, loans with higher interest rates prepay faster than
loans with lower interest rates, resulting in a lower overall effective yield.
In addition, the interest income was reduced on collateral for CMOs by the
amortization of premiums paid in connection with acquiring the portfolio and a
delay in the receipt of prepayments and temporary investment in lower yielding
short-term investments (GICs) until such amounts were used to repay CMOs.
INTEREST EXPENSE: Total interest expense was $17.3 million in both the three
months ended June 30, 1994 and June 30, 1993. The $8.4 million increase in
interest expense on reverse-repurchase agreements was offset by a $8.3 million
decrease in interest expense on CMOs.
Interest expense on reverse-repurchase agreements was $10.3 million for the
three months ended June 30, 1994 on average balances of $914.8 million,
representing 4.50% of the average balance outstanding for the three months ended
June 30, 1994. For the three months ended June 30, 1993, interest expense on
such reverse-repurchase agreements was $1.9 million on average balances of
$195.6 million, representing 3.94% of the average balance.
9
<PAGE>
Interest expense on CMOs was $7.0 million and $15.4 million for the three months
ended June 30, 1994 and 1993, respectively. This decrease was primarily
attributable to a decrease in average aggregate CMOs outstanding from $621.5
million for the quarter ended June 30, 1993 to $277.9 million for the quarter
ended June 30, 1994 partially offset by an increase in the weighted average cost
of CMOs from 9.91% in the second quarter of 1993 to 10.14% in the second quarter
of 1994. The decrease in the average balance of CMOs was directly related to
the prepayment activity on collateral for CMOs discussed above. The prepayments
are ultimately used to repay the related CMOs. In general, the class of each
series of CMO with the shortest maturity receives all principal payments until
it is repaid in full. After the first class is retired, the second class will
receive all principal payments until retired and so forth. In general, the CMO
bonds were structured with the shortest maturity class generally having the
lowest interest rate and interest rates increasing as the maturity of the class
increased. Therefore, prepayments generally must be applied to the class with
the lowest interest rate, resulting in repayment of CMO classes with relatively
low interest rates and increasing the weighted average interest rate of the
remaining outstanding CMOs. In addition, interest expense is increased by the
amortization of bond issuance costs and original issue discounts. Accelerated
amortization associated with increased prepayment activity has the effect of
increasing the weighted average cost of CMOs.
NET MASTER SERVICING INCOME: During 1993, as a result of the new mortgage
conduit operations, the Company began earning master servicing fee income. At
June 30, 1994, the Company master serviced loans with principal balances
aggregating $4.8 billion, which represents a $1.2 billion increase from March
31, 1994. The growth in the Company's master servicing portfolio during the
second quarter of 1994 was the result of loan production volume from the
Company's new conduit operations, partially offset by prepayments of mortgage
loans. The weighted average interest rate of the mortgage loans in the
Company's master servicing portfolio at June 30, 1994 was 7.21%. It is the
Company's strategy to build and retain its master servicing portfolio because of
the returns the Company can earn from such investment and because the Company
believes that master servicing income is countercyclical to loan production
income. In periods of rising interest rates, prepayments tend to decline and
income from the master servicing portfolio should increase. In periods of
decreasing interest rates, prepayments tend to increase. To mitigate the effect
on earnings of higher amortization (which is deducted from master servicing
income) resulting from increased prepayment activity, the Company purchased call
options that increase in value when interest rates decline. As of June 30,
1994, all of these call options had expired. Master servicing income was $6.5
million for the three months ended June 30, 1994. This was offset by
amortization of master servicing fees and the servicing hedge call options of
$4.3 million resulting in net master servicing income of $2.2 million for the
second quarter of 1994. The Company began earning income on its master
servicing portfolio in July of 1993 and purchased the call options beginning in
December of 1993. Therefore, no income or expense was recognized from these
activities during the three months ended June 30, 1993.
GAIN ON SALE OF SERVICING: The Company recorded a gain on the sale of servicing
of $5.8 million during the quarter ended June 30, 1994. The gain resulted from
the sale of approximately $1.8 billion of the Company's purchased servicing
portfolio to CFC. Total proceeds amounted to $24.6 million of which $19.4
million was outstanding at June 30, 1994. This balance is receivable in
installments with the final payment due within 30 days of the transfer date, in
September, 1994.
SALARIES AND RELATED EXPENSES: Salaries and related expenses were $2.1 million
for the three months ended June 30, 1994. The Company incurred no salaries and
related expenses during the three months ended June 30, 1993. This increase
was associated with the implementation of the Company's new mortgage conduit and
warehouse lending operations. As of June 30, 1994, the Manager employed
approximately 116 employees dedicated to the Company's operations. All
personnel costs associated with these employees were paid for by the Company.
As of June 30, 1993 there were approximately 31 employees. Personnel costs
associated with these employees were absorbed by the Manager as a component of
the management fee.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses for
the three months ended June 30, 1994 and 1993 were $1.8 million and $431,000,
respectively. This increase of $1.4 million was primarily attributed to costs
related to the new mortgage conduit and warehouse lending operations. Included
in the above amounts are approximately $82,000 and $95,000 attributable to the
administration of CMOs for the three months ended June 30, 1994 and June 30,
1993, respectively.
10
<PAGE>
MANAGEMENT FEES: For the three months ended June 30, 1994, management fees
were $92,000 compared to $95,000 for the three months ended June 30, 1993. Under
the agreement with the Company's Manager, management fees for 1993 were waived.
Accordingly, such fees were reflected as an expense and a corresponding capital
contribution for the quarter ended June 30, 1993.
SIX MONTHS ENDED JUNE 30, 1994 COMPARED TO SIX MONTHS ENDED JUNE 30, 1993
NET EARNINGS: The Company's net earnings were $10.8 million or $0.34 per share,
based on 32,123,456 weighted average shares outstanding for the six months ended
June 30, 1994 compared to $172,000 or $0.01 per share, based on 13,981,293
weighted average shares outstanding for the six months ended June 30, 1993. The
increase in net earnings of $10.6 million was almost entirely associated with
the earnings of the Company's mortgage conduit and warehouse lending operations
and included a gain on the sale of servicing amounting to $5.8 million. Net
earnings for the CMO portfolio remained relatively stable for the six months
ended June 30, 1994 and June 30, 1993.
The increase in earnings associated with the operation of the Company's new
mortgage loan conduit and warehouse lending program was due to an increase in
net interest income and net master servicing income of $12.1 million and an
increase in gains of $5.5 million, offset by an increase in expenses of $6.1
million and a provision for income taxes of $874,000. The provision for income
taxes for the six months ended June 30, 1994 is associated with earnings of
INMC, the taxable subsidiary.
The net earnings of the Company for the six months ended June 30, 1993 did not
include certain personnel and other operating expenses which were absorbed by
the Manager of the Company, under the terms of its Management Agreement. The
Company began paying all expenses of its new operations in June 1993.
INTEREST INCOME: Total interest income was $48.8 million and $30.4 million for
the six months ended June 30, 1994 and June 30, 1993, respectively. This
increase in interest income of $18.4 million is primarily due to an increase in
interest on mortgage loans held for sale and revolving warehouse lines of credit
of $25.4 million and $2.3 million, respectively, offset by a decrease in
interest income on collateral for CMOs of $12.1 million. Additionally, since
the Company began investing in mortgage loans in April 1994, $2.7 million in
interest income on these portfolio loans has been earned for the three months
ended June 30, 1994.
Interest income earned on mortgage loans held for sale, mortgage loans held for
investment and revolving warehouse lines of credit was $31.1 million, $2.7
million and $2.5 million, respectively, for the six months ended June 30, 1994.
The average principal balance of mortgage loans held for sale, mortgage loans
held for investment and revolving warehouse lines of credit outstanding
approximated $915.5 million, $78.3 million and $58.0 million, respectively, for
the first six months of 1994 and earned interest at an effective yield of
approximately 6.79%, 6.92% and 8.62%, respectively. Interest income earned on
mortgage loans held for sale was $5.7 million on an average principal balance
outstanding of $154.6 representing an effective yield of 7.37% for the six
months ended June 30, 1993. The warehouse lending operations commenced in May of
1993; therefore, there was an insignificant amount of income during the six
months ended June 30, 1993 related to this operation.
Interest income on collateral for CMOs was $11.7 million and $23.8 million for
the six months ended June 30, 1994 and June 30, 1993, respectively. The decline
was primarily attributable to a decrease in the average aggregate principal
amount of collateral for CMOs outstanding from $553.0 million for the first six
months of June 30, 1993 to $315.7 million for the same period in 1994, combined
with a decrease in the effective yield earned on the collateral from 8.6% for
the six months ended June 30, 1993 to 7.4% for the six months ended June 30,
1994. As previously discussed above, the decrease in the average balance of
collateral for CMOs and the effective interest yield earned thereon was due to
the continued low interest rate environment experienced throughout 1993 and
1994, which resulted in significant prepayment activity and a lower overall
effective yield. In addition, the interest income was reduced on collateral for
CMOs by the amortization of premiums paid in connection with acquiring the
portfolio and a delay in the receipt of prepayments and temporary investment in
lower yielding short-term investments (GICs) until such amounts were used to
repay CMOs.
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INTEREST EXPENSE: For the six months ended June 30, 1994 and June 30, 1993,
total interest expense was $37.0 million and $31.2 million, respectively. This
increase in interest expense of $5.8 million was due to an increase in interest
expense on reverse-repurchase agreements of $18.9 million offset by a decrease
in interest expense on CMOs of $13.1 million.
Interest expense on reverse-repurchase agreements was $21.3 million on average
balances of $995.9 million representing 4.27% of the average balance outstanding
for the six months ended June 30, 1994. For the six months ended June 30, 1993,
interest expense on such reverse-repurchase agreements was $2.4 million on
average balances of $127.2 million, representing 3.82% of the average balance.
For the six months ended June 30, 1994 and 1993, interest expense on CMOs was
$15.7 million and $28.8 million, respectively. This decrease was primarily
attributable to a decrease in average aggregate CMOs outstanding from $561.0
million for the six months ended June 30, 1993 to $308.2 million for the six
months ended June 30, 1994 and a decrease in the weighted average cost of CMOs
from 10.26% in the first half of 1993 to 10.19% over the same period. The
decrease in the average balance of CMOs was directly related to the prepayment
activity on collateral for CMOs discussed above.
NET MASTER SERVICING INCOME: During the six months ended June 30, 1994, the
Company's master servicing portfolio grew from $3.0 billion at December 31, 1993
to $4.8 billion at June 30, 1994. This growth was the result of loan production
volume from the Company's new conduit operations, partially offset by
prepayments of mortgage loans. Master servicing income was $10.2 million for
the six months ended June 30, 1994. This was offset by amortization of master
servicing fees and servicing hedge of $9.7 million resulting in a net master
servicing income of $504,000 for the first six months of 1994. The Company
began earning income on its master servicing portfolio in July of 1993 and
purchased the call options beginning in December of 1993. Therefore, no income
or expense was recognized from these activities during the six months ended June
30, 1993.
GAIN ON SALE OF SERVICING: The Company recorded a gain on the sale of servicing
of $5.8 million during the six months ended June 30, 1994. The gain resulted
from the sale of approximately $1.8 billion of the Company's purchased servicing
portfolio to CFC. Total proceeds from the sale amounted to $24.6 million of
which $19.4 million was outstanding as of June 30, 1994. This balance is
receivable in installments with the final payment due within 30 days of the
transfer date, in September, 1994.
SALARIES AND RELATED EXPENSES: Salaries and related expenses were $3.8 million
for the six months ended June 30, 1994. The Company incurred no salaries and
related expense during the six months ended June 30, 1993. This increase was
associated with the implementation of the Company's new mortgage conduit and
warehouse lending operations. As of June 30, 1994, the Manager employed
approximately 116 employees dedicated to the Company's operations whereas as of
June 30, 1993 there were approximately 31 employees. As discussed above,
personnel costs were absorbed by the Manager as a component of the management
fee for the six months ended June 30, 1993.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses for
the six months ended June 30, 1994 and 1993 were $3.3 million and $807,000,
respectively. This increase of $2.5 million was primarily attributed to costs
related to the new mortgage conduit and warehouse lending operations. Included
in the above amounts are approximately $242,000 and $141,000 attributable to the
administration of CMOs for the six months ended June 30, 1994 and 1993,
respectively. The increase is primarily attributable to two additional CMOs
that were issued during the first half of 1993.
MANAGEMENT FEES: For each of the six months ended June 30, 1994 and 1993,
management fees were $203,000. Under the agreement with the Company's Manager,
management fees for 1993 were waived. Accordingly, such fees were reflected as
an expense and a corresponding capital contribution for the six months ended
June 30, 1993.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has used proceeds from the issuance of CMOs, reverse-
repurchase agreements, other borrowings and proceeds from the issuance of common
stock to meet its working capital needs. In connection with mortgage conduit
operations, the Company issues REMIC securities through INMC to help meet such
needs. The Company may also borrow collateral or funds from CFC to meet
collateral maintenance requirements under reverse-repurchase agreements or
margin calls on forward securities sales. These borrowings are made pursuant to
a $10.0 million one-year, unsecured line of credit which expires on September
30, 1994 subject to extension by CFC and the Company. As of June 30, 1994, the
Company had no outstanding borrowings under this agreement.
The Company has established a committed reverse-repurchase facility with an
aggregate amount of up to $500.0 million (with a decreasing annual credit limit)
for its mortgage conduit operations and warehouse lending program that expires
in April 1996. The Company also has obtained credit approval from the same
lender to enter into additional reverse repurchase agreements associated with
the mortgage conduit operations, under which individual transactions and their
terms will be subject to agreement by the parties based upon market conditions
at the time of each transaction. The maximum balance outstanding under reverse-
repurchase agreements during the second quarter of 1994 was $1.2 billion and as
of June 30, 1994 the Company had entered into reverse-repurchase agreements with
an aggregate of $857.9 million outstanding. In August 1994 the Company signed
another master repurchase agreement with a different lender to provide a
committed short-term credit line in the amount of $300.0 million for its
mortgage conduit and warehouse lending operations. This agreement expires in
August 1996.
In May 1994, the Company signed a commitment letter with a third lender for a
two year master repurchase agreement to provide a committed short-term credit
line in the amount of $300 million. In July 1994, the Company signed another
commitment letter for a master repurchase agreement in the amount of $75 million
to provide financing for certain mortgage-related securities which have been
retained or purchased. This agreement expires in July 1996. The Company, to
the extent permitted by its by-laws, may issue other debt securities or incur
other types of indebtedness from time to time.
The collateral maintenance requirements under reverse-repurchase agreements
could adversely affect the Company's liquidity in the event of a significant
decrease in the market value of the mortgage portfolio financed under such
reverse-repurchase agreements. However, the Company has implemented a hedging
strategy for its mortgage portfolio which to some extent may mitigate the effect
of adverse market movement.
The REIT provisions of the Internal Revenue Code restrict the Company's ability
to retain earnings and thereby replenish the capital committed to its mortgage
portfolio by requiring the Company to distribute to its shareholders
substantially all of its income from operations.
Management believes that the cash flow from operations and the current and
potential financing arrangements are sufficient to meet current liquidity
requirements. The Company's ability to meet future liquidity requirements is
subject to the renewal of credit facilities or obtaining other sources of
financing.
INFLATION
Interest rates often increase during periods of rising inflation. Higher
interest rates may depress the market value of the Company's mortgage assets if
the yield on such mortgage assets does not keep pace with increases in interest
rates. As a result of decreased market values it could be necessary for the
Company to borrow additional funds and pledge additional assets to maintain
financing for its investments that have not been financed to maturity through
the issuance of CMOs or other debt securities. Increases in short-term
borrowing rates relative to rates earned on investments that have not been
financed to maturity through the issuance of CMOs or other debt securities may
also adversely affect the Company's earnings. However, the Company has
implemented a hedging strategy which may mitigate this adverse effect. In
addition, high levels of interest rates tend to decrease the rate at which
mortgages prepay. A decrease in the rate of prepayments may lengthen the
estimated average lives of the underlying mortgages supporting master servicing
fees receivable and for classes of the CMOs issued by the Company and may result
in higher residual cash flows from the CMOs than would otherwise have been
obtained.
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<PAGE>
However, higher rates of interest may also discourage potential mortgagors from
borrowing or refinancing mortgage loans, thus decreasing the volume of loans
available to be purchased through the Company's mortgage conduit operations.
With respect to mortgage loans held for investment, higher interest rates
generally will negatively affect the net interest earned on these loans, as the
interest earned on the mortgage loans may be fixed for various periods of time
while financing related to these loans floats to a short-term index and
therefore increases more rapidly with rising interest rates.
14
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the annual meeting of the Company's stockholders held on May 17, 1994, the
stockholders voted on several proposals in addition to the election of the
Company's directors. The stockholders voted to amend the Company's Certificate
of Incorporation to change the Company's name from "Countrywide Mortgage
Investments, Inc." to "CWM Mortgage Holdings, Inc." The votes cast on this
proposal were as follows: 29,721,420 in favor; 547,114 opposed; 235,719
abstaining; and 0 broker non-vote. The stockholders voted to amend the
Company's Certificate of Incorporation for the purpose of preventing ownership
of the Company's stock by governmental and other tax exempt entities. The votes
cast on this proposal were as follows: 21,137,645 in favor; 465,578 opposed;
169,516 abstaining; and 0 broker non-vote. The stockholders voted to approve
the Company's 1994 Stock Incentive Plan. The votes cast on this proposal were
as follows: 27,768,054 in favor, 2,415,083 opposed; 321,116 abstaining; and 0
broker non-vote.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
10.1 1994 Amended and Extended Management Agreement dated as of May 15,
1994, between the Company and Countrywide Asset Management Corporation.
10.2 Financing Facility dated as of August 3, 1994 among CWM, INMC, WLCA
and Nomura Asset Capital Corp.
Reports on Form 8-K.
--------------------
None
15
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Pasadena, State of California, on August 11, 1994.
CWM MORTGAGE HOLDINGS, INC.
By: /Michael W. Perry
-----------------
Michael W. Perry
Executive Vice President and Chief Operating Officer
By: /Carmella L. Grahn
--------------------
Carmella L. Grahn
Chief Accounting Officer
16
<PAGE>
EXHIBIT 10.1
1994 AMENDED AND EXTENDED
MANAGEMENT AGREEMENT
THIS AGREEMENT, initially made as of September 3, 1985 and amended and
extended from time to time thereafter, is amended and extended as of May 15,
1994 by and between COUNTRYWIDE MORTGAGE INVESTMENTS, INC., a Delaware
corporation which has elected to qualify as a real estate investment trust (the
"Company"), and COUNTRYWIDE ASSET MANAGEMENT CORPORATION, a Delaware
corporation, and its permitted successors and assigns under this agreement (the
"Manager").
WITNESSETH
WHEREAS, the Company has elected to qualify for the tax benefits
accorded by Sections 856 to 860 of the Internal Revenue Code of 1986, as
amended; and
WHEREAS, the Company, directly or through Subsidiaries, in the conduct
of its business primarily operates a mortgage loan conduit, engages in warehouse
lending and invests in mortgage loans and mortgage-related securities meeting
the investment criteria established from time to time by its Board of Directors;
and
WHEREAS, the Company desires to retain the Manager to manage the
operations and investments of the Company and its Subsidiaries and to perform
administrative services for the Company and its Subsidiaries, each in the manner
and on the terms set forth in this Agreement; and
WHEREAS, the Company and the Manager wish to amend and extend their
agreement originally entered into as of September 3, 1985 for a one year period
through May 14, 1995;
NOW, THEREFORE, in consideration of the mutual agreements set forth in
this Agreement, the Company and the Manager agree as follows:
Section 1. Definitions. Whenever used in this Agreement, the
--------- -----------
following terms, unless the context otherwise requires, shall have the following
meanings:
(a) "Affiliate" of another person shall mean any person directly or
indirectly owning, controlling or holding with power to vote, more than 5% of
the outstanding voting securities of such other person; any person 5% or more of
whose outstanding voting securities are directly or indirectly owned, controlled
or held with power to vote by such other person; any person directly or
indirectly controlling, controlled by or under common control with, such other
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<PAGE>
person; and any officer, director, partner or employee of such other person.
The term "person" includes a natural person, corporation, partnership, trust,
company or other entity.
(b) "Agency Securities" shall mean (i) fully modified pass-through
mortgage-backed certificates guaranteed as to timely payment of principal and
interest by the Governmental National Mortgage Association, (ii) mortgage
participation certificates guaranteed as to payment of interest and principal by
the Federal Home Loan Mortgage Corporation and (iii) mortgage pass-through
certificates guaranteed as to payment of interest and principal by the Federal
National Mortgage Association.
(c) "Agreement" shall mean this 1994 Amended and Extended Management
Agreement.
(d) "Average Invested Assets" for any period shall mean the average of
the aggregate book value of the assets of the mortgage conduit operations of the
Company and its Subsidiaries invested, directly or indirectly, in loans secured
by real estate (including without limitation whole mortgage loans, retained
undivided interests in mortgage loans and Agency Securities, but not including
any whole mortgage loans, retained undivided interests in mortgage loans, or
Agency Securities pledged to secure the issuance of collateralized mortgage
obligations or other mortgage collateralized debt or sold in the form of
mortgage backed securities in transactions entered into by the Company or a
Subsidiary), computed by taking the average of such values at the end of each
calendar month during such period.
(e) "Average Net Worth" for any period shall mean the arithmetic
average of the Net Worth of the Company at the beginning of such period and at
the end of each calendar month during such period.
(f) "Board of Directors" shall mean the Board of Directors of the
Company.
(g) "CCI" shall mean Countrywide Credit Industries, Inc., a Delaware
corporation.
(h) "CFC" shall mean Countrywide Funding Corporation, a Subsidiary of
CCI, and a New York corporation.
(i) "CMC" shall mean Countrywide Mortgage Conduit, Inc. a Delaware
corporation.
(j) "Commitment" shall mean any document containing the terms pursuant
to which the Company or any Subsidiary agrees to purchase on a forward basis any
specified mortgage loans, including purchases from Affiliates of the Manager.
2
<PAGE>
(k) "Consolidated Average Invested Assets" for any period shall mean
the Average Invested Assets for the Company and its consolidated subsidiaries
taken as a whole, computed by taking the average of such values at the end of
each calendar month during such period.
(l) "Governing Instruments" shall mean the articles or certificate of
incorporation, trust agreement and bylaws of the Company or any Subsidiary, as
applicable.
(m) "Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended.
(n) "Loan Purchase Agreement" shall mean the 1993 Amended and Extended
Loan Purchase and Administrative Services Agreement, dated as of May 15, 1993,
as thereafter amended or supplemented, between the Company and CFC.
(o) "Mortgage Backed Securities" shall mean the collateralized
mortgage obligations, mortgage collateralized debt, mortgage pass-through
securities including real estate mortgage investment conduits or other mortgage-
related securities issued by the Company or a Subsidiary of the Company.
(p) "Net Income" for any period shall mean total revenues applicable
to such period, less the expenses applicable to such period determined in
accordance with generally accepted accounting principles.
(q) "Net Worth" at any time shall mean the sum of the gross proceeds
from any offerings of equity securities by the Company (before deducting any
underwriting discounts and commissions and other expenses and costs relating to
the offering), plus or minus any retained earnings or losses of the Company,
computed in accordance with generally accepted accounting principals.
(r) "Return on Equity" for a period shall be calculated by dividing
the Company's Net Income for such period by the Company's Average Net Worth for
such period.
3
<PAGE>
(s) "Servicing Agreement" shall mean an agreement between the Company
or any Subsidiary and each seller or servicer of mortgage loans purchased by the
Company, including CFC, which agreement governs the sale and/or servicing of
such mortgage loans.
(t) "Shareholders" shall mean the owners of the shares of the Company.
(u) "Subsidiary" shall mean any corporation, whether now existing or
in the future established, of which the Company, directly or indirectly, owns
more than 50% of the outstanding voting securities of any class or classes, any
business trust, partnership or similar non-corporate form in which the Company,
directly or indirectly, owns more than 50% of the beneficial interests and CMC.
(v) "Ten Year Average Yield" shall mean the average yield to maturity
for actively traded marketable U.S. Treasury fixed interest rate securities
(adjusted to constant maturities of 10 years).
(w) "Ten Year U.S. Treasury Rate" for a quarterly period shall mean
the arithmetic average of the weekly per annum Ten Year Average Yields published
by the Federal Reserve Board during such quarter. In the event that the Federal
Reserve Board does not publish a weekly per annum Ten Year Average Yield during
any week in a quarter, then the Ten Year U.S. Treasury Rate for such week shall
be the weekly per annum Ten Year Average Yields published by any Federal Reserve
Bank or by any U.S. Government department or agency selected by the Company for
such week. In the event that the Company determines in good faith that for any
reason the Company cannot determine the Ten Year U.S. Treasury Rate for any
quarter as provided above, then the Ten Year U.S. Treasury Rate for such quarter
shall be the arithmetic average of the per annum average yields to maturity
based upon the daily closing bids during such quarter for each of the issues of
actively traded marketable U.S. Treasury fixed interest rate securities (other
than securities which can, at the option of the holder, be surrendered at face
value in payment of any federal estate tax) with a final maturity date not less
than eight nor more than twelve years from the date of each such quotation, as
chosen and quoted for each business day (or less frequently if daily quotations
shall not be generally available) in each such quarterly period in New York City
to the Company by at least three recognized dealers in U.S. Government
securities selected by the Company.
(x) "Unaffiliated Directors" shall mean those members of the Board of
Directors of the Company who are not Affiliates of the Manager.
Section 2. General Duties of the Manager. Subject to the supervision
--------- -----------------------------
of the Board of Directors and in accordance with the Governing Instruments, the
Manager shall provide services to the Company and CMC, and to the extent
directed by the Board of Directors, shall provide similar services to any other
Subsidiary of the Company, as follows:
4
<PAGE>
(a) conduct the day-to-day mortgage loan conduit, warehouse lending
and other operations of the Company and CMC as approved by the Board of
Directors, including without limitation, the purchase, accumulation, financing
and securitization of mortgage loans, the establishment and financing of
warehouse lending facilities, the management of assets and investments and the
administration thereof; and
(b) provide such reports and analysis to the Board of Directors
regarding the operating strategies and results of the Company and its
Subsidiaries as the Board may reasonably request.
The Manager shall perform its duties and shall take actions on behalf
of the Company and its Subsidiaries consistent with (i) the operating policies
and criteria established from time to time by the Board of Directors or any
authorized officer with respect thereto, and (ii) the obligations of the Company
and its Subsidiaries under the various agreements to which each is a party. So
long as the Manager is serving as the Manager under this Agreement, it shall be
and remain a Subsidiary of and wholly owned, directly or indirectly, by CCI.
Section 3. Additional Activities of Manager. Except as provided in
--------- --------------------------------
the Letter Agreement between CCI and the Company attached hereto as Exhibit A,
nothing herein shall prevent the Manager or its Affiliates from engaging in
other businesses or from rendering services of any kind to any other person or
entity, including investment in or advisory service to others investing in any
type of real estate investment, including investments which meet the principal
investment objectives of the Company or any Subsidiary of the Company.
Directors, officers, employees and agents of the Manager or Affiliates of the
Manager may serve as directors, officers, employees, agents, nominees or
signatories for the Company or any Subsidiary of the Company, to the extent
permitted by its Governing Instruments, as from time to time amended, or by any
resolutions duly adopted by the Board of Directors pursuant to its Governing
Instruments. When executing documents or otherwise acting in such capacities
for the Company or any Subsidiary of the Company, such persons shall use their
respective titles in the Company or such Subsidiary.
Section 4. Purchases and Sales of Investments and Loans from the
--------- -----------------------------------------------------
Manager and its Affiliates. The Manager agrees that sales of investments to and
- - --------------------------
purchases of investments from the Manager and its Affiliates, including without
limitation purchases and sales of mortgage loans, Agency Securities and
Commitments, shall only be made as stated in an agreement therefor setting forth
in general the operating policies and guidelines within which such sales or
purchases may be made, which agreement has been approved by the Board of
Directors, including a majority of the Unaffiliated Directors. Notwithstanding
the terms of any other agreements between the manager or its Affiliates and the
Company, the Manager further agrees that all such sales and purchases will be
made upon terms no less favorable to the Company than are generally available to
other third parties. The Manager shall purchase or exercise the Company's
option to purchase mortgage loans from CFC in accordance with the Company's
rights and obligations under the
5
<PAGE>
Loan Purchase Agreement or any other applicable agreement between the Company
and CFC which is approved by the Board of Directors, including a majority of the
Unaffiliated Directors.
Section 5. Repurchase Obligation.
--------- ----------------------
(a) The Manager agrees that if the Company purchases any mortgage
loan, Agency Security or other investment which does not meet the investment
and/or purchase criteria and policies of the Company and/or CMC as applicable at
the time of purchase, the Manager will repurchase or will cause the repurchase
of such mortgage loan, Agency Security or other investment from the Company for
an amount not less than the unpaid principal balance of the mortgage loan,
Agency Security or other investment as of the date of repurchase, less any
amounts received by the Company representing prepaid interest not accrued as of
the date of repurchase, plus any amounts representing accrued and unpaid
interest to the date of repurchase and any amounts incurred by the Company,
including, but not limited to reasonable fees and out-of-pocket expenses of
counsel, in enforcing the obligation of the Manager to repurchase or cause the
repurchase of such mortgage loan. In lieu of repurchasing or causing the
repurchase of any mortgage loan, Agency Security or other investment, the
Manager may, in its discretion, substitute or cause the substitution,
respectively, of a mortgage loan, Agency Security or other investment having an
unpaid principal amount and yield at least equivalent to and a maturity not
later than the defective mortgage loan, Agency Security or other investment and
otherwise meeting the investment and/or purchase criteria and policies of the
Company and/or CMC as applicable and the terms of the agreement, if any,
pursuant to which the mortgage loan, Agency Security or other investment has
been securitized.
(b) The Manager shall be subrogated to any and all rights of the
Company or any Subsidiary, and the Company agrees to assign to the Manager or
direct its Subsidiary to assign to the Manager its rights, under any Servicing
Agreement with any third party with respect to any mortgage loan repurchased or
substituted for, by or on behalf of the Manager under Subsection (a).
Section 6. Bank Accounts. The Manager may establish and maintain one
--------- -------------
or more bank accounts in the name of the Company or any Subsidiary, at the
direction of the Board of Directors, and may collect and deposit into any such
account or accounts, and disburse from any such account or accounts, any money
on behalf of the Company or any Subsidiary, under such terms and conditions as
the Board of Directors may approve; and the Manager shall from time to time
render appropriate accountings of such collections and payment to the Board of
Directors and, when requested, to the auditors of the Company or any Subsidiary.
Section 7. Records; Confidentiality. The Manager shall maintain
--------- ------------------------
appropriate books of account and records relating to services performed
hereunder, which books of account and records shall be accessible for inspection
by the Company or any Subsidiary at any time during normal business hours. The
Manager agrees to keep confidential any and all information it obtains from time
to time in connection with the services it renders under this Agreement and
6
<PAGE>
shall not disclose any portion thereof to non-affiliated third parties except
with the prior written consent of the Company.
Section 8. Obligations of Manager.
---------- -----------------------
(a) The Manager shall use its best efforts to provide that each
mortgage loan conforms to the purchase criteria of the Company or CMC as
applicable and shall require each seller or transferor of mortgage loans to the
Company or CMC in connection with such purchase or transfer to make all
applicable representations and warranties contained in the Servicing Agreement
for such loans. The Manager shall take such other action as the Manager deems
necessary or appropriate with regard to the protection of the Company's or CMC's
investments.
(b) Anything else in this Agreement to the contrary notwithstanding,
the Manager shall refrain from any action which in its sole judgment made in
good faith would adversely affect the status of the Company, or any Subsidiary
which elects to so qualify, as a real estate investment trust as defined and
limited in Section 856 through 860 of the Internal Revenue Code or which in its
sole judgment made in good faith would violate any law, rule or regulation of
any governmental body or agency having jurisdiction over the Company or any
Subsidiary or which would otherwise not be permitted by the Company's or its
Subsidiary's Governing Instruments except if such action shall be ordered by the
Board of Directors, in which event the Manager shall promptly notify the Board
of Directors of the Manager's judgment that such action would adversely affect
such status or violate any such law, rule or regulation or the Governing
Instruments and shall refrain from taking such action pending further
clarification or instructions from the Board of Directors. If the Board of
Directors thereafter instructs the Manager, despite the Manager's notification
as provided herein, to take any such action and the Manager so acts upon the
instructions given, the Manager shall not be responsible for any loss of the
Company's or Subsidiary's status as a real estate investment trust or violation
of any law, rule or regulation or the Governing Instruments caused thereby.
Section 9. Fidelity Bond. The Manager shall maintain a fidelity bond
--------- -------------
with a responsible surety company in an amount approved by the Board of
Directors covering all officers and employees of the Manager handling funds of
the Company or any Subsidiary and any documents or papers, which bond shall
protect the Company or any Subsidiary against all losses of any such property
from acts of such officers and employees through theft, embezzlement, fraud,
negligent acts, errors and omissions or otherwise. The premium for said bond
shall be paid by the Manager.
Section 10. Compensation.
----------- -------------
(a) Manager will receive a base management fee equal to the Average
Invested Assets Multiplied by 1/8 of 1%. "
7
<PAGE>
(b) The Manager shall be paid for services rendered with respect to
warehouse lending activities a management fee in an amount equal to 3/8 of 1% of
the average daily balance of the amounts outstanding under warehouse lines of
credit extended by the Company or its Subsidiaries to originators of mortgage
loans.
(c) If the Company's annualized Return on Equity during any fiscal
quarter (computed by multiplying the Return on Equity for such fiscal quarter by
four) is in excess of the Ten Year U.S. Treasury Rate, plus 2% after taking into
account any recovery of the Manager's fees under Subsection (d), the Company
will pay the Manager as incentive compensation for such quarter an amount equal
to 25% of the amount by which the annualized Return on Equity of the Company for
such fiscal quarter exceeds the Ten Year U.S. Treasury Rate plus 2%, but in no
event shall any payment of incentive compensation under this Subsection reduce
the Company's annualized Return on Equity for such quarter to less than the Ten
Year U.S. Treasury Rate plus 2%. For purposes of the calculation contained in
this Subsection (b), all Net Income of the Company and any Subsidiaries shall be
deemed to have been distributed on the last day of each quarter. The incentive
compensation shall be paid to the Manager within 60 days after the end of each
fiscal quarter on an interim basis, subject to adjustment under Subsection (d).
(d) The Manager shall compute the compensation payable under
Subsections (a), (b) and (c) within 45 days after the end of each fiscal
quarter. A copy of the computations made by the Manager to calculate its
compensation shall thereafter by promptly delivered to the Company and, upon
such delivery, payment of the interim compensation earned under Subsections (a),
(b) and (c) shown therein shall be due and payable within 60 days after the end
of such fiscal quarter. The aggregate amount of the Manager's compensation for
each fiscal year shall be adjusted within 120 days after the end of such fiscal
year so as to provide compensation for such year in the annual amounts stated in
Subsections (a), (b) and (c) and any excess owed to, or shortfall owed by, the
Manager with respect to such compensation, collectively, shall be promptly
remitted by, or paid to, the Company.
(e) Notwithstanding the definition of Average Invested Assets, in the
event the Company implements a strategy of investing directly or indirectly in
loans secured by real estate which are not intended to be securitized, the base
management fee in Subsection (a) shall be paid with respect to these assets.
The Manager acknowledges that it has waived 25% of all fees payable to the
Manager pursuant to Section 10(c) of this Agreement, if any, for the calendar
year 1994
Section 11. Operating Expenses. The Manager shall be reimbursed by
---------- ------------------
the Company for its operating expenses on a monthly basis. Any allocation of
general administrative costs and overhead by the Manager to the Company shall be
supported by documentation establishing that each other applicable affiliate of
the Manager is also charged a pro rata share of such expenses. Promptly
following the end of each month for which reimbursement is due, the Manager
shall submit an itemized accounting of its expenses to the Company, and the
Company shall pay within 30 days of the receipt of the accounting. The Board of
Directors shall have the
8
<PAGE>
authority to approve the incurrence of any expenses by the Manager for the
account of the Company, either prior to or after such expenses have been
incurred. The Manager shall be required to request and receive the approval of
the Board of Directors with respect to the compensation and expense
reimbursement provided to the executive officers of the Company.
Section 12. Limits of Manager Responsibility. The Manager assumes no
---------- --------------------------------
responsibility under this Agreement other than to render the services called for
hereunder in good faith and shall not be responsible for any action of the Board
of Directors in following or declining to follow any advice or recommendations
of the Manager, including as set forth in Subsection 9(b) above. The Manager,
its directors, officers, shareholders and employees will not be liable to the
Company, any Subsidiary, the Unaffiliated Directors of the Company or the
Company's or any Subsidiary's shareholders for any acts performed by the
Manager, its directors, officers, shareholders or employees in accordance with
this Agreement, except by reason of acts constituting bad faith, willful
misconduct, gross negligence or reckless disregard of their duties. The Company
or any Subsidiaries, as applicable, shall reimburse, indemnify and hold harmless
the Manager, its shareholders, directors, officers or employees for and from any
and all expenses, losses, damages, liabilities, demands, charges and claims of
any nature whatsoever in respect of or arising from any acts or omissions of the
Manager, its shareholders, directors, officers and employees made in good faith
in the performance of the Manager's duties under this Agreement and not
constituting bad faith, willful misconduct, gross negligence or reckless
disregard of duties.
Section 13. No Joint Venture. The Company and the Manager are not
---------- ----------------
partners or joint venturers with each other and nothing herein shall be
construed to make them such partners or joint venturers or impose any liability
as such on either of them.
Section 14. Term; Termination. This agreement shall continue in
---------- -----------------
force through May 14, 1995, and thereafter it may be extended only with the
consent of the Manager and by the affirmative vote of a majority of the
Unaffiliated Directors.
Each extension shall be executed in writing by all parties hereto
before the expiration of this Agreement or of any extension thereof. Each such
extension shall be effective for a period in no case exceeding twelve months.
Notwithstanding any other provision to the contrary, this Agreement,
or any extension hereof, may be terminated by any party, upon sixty (60) days'
written notice, by majority vote of the Unaffiliated Directors or by majority
vote of the Shareholders, in the case of termination by the Company, or, in the
case of termination by the Manager, by majority vote of the directors of the
Manager.
If this Agreement is terminated pursuant to this Section, such
termination shall be without any further liability or obligation of either party
to the other, except as provided in Section 17.
9
<PAGE>
Section 15. Assignment; Subcontract.
----------- ------------------------
(a) This Agreement may not be assigned, in whole or in part, by the
Manager, unless such assignment is to a corporation, association, trust or other
organization which shall acquire the property and carry on the business of the
Manager, if at the time of such assignment a majority of the voting stock of
such assignee organization shall be owned, directly or indirectly, by CCI or any
of its Affiliates or unless such assignment is consented to in writing by the
Company with the consent of a majority of the Unaffiliated Directors. Such a
permitted assignment shall bind the assignee hereunder in the same manner as the
Manager is bound under this Agreement and, to further evidence its obligations,
under this Agreement, the assignee shall execute and deliver to the Company a
counterpart of this Agreement. This Agreement shall not be assignable by the
Company without the consent of the Manager, except in the case of assignment by
the Company to a real estate investment trust or other organization which is a
successor (by merger, consolidation, or otherwise purchase of assets) to the
Company, in which case such successor organization shall be bound hereunder and
by the terms of said assignment in the same manner as the Company is bound
hereunder.
(b) Notwithstanding the foregoing, the Company and the Manager agree
that the Manager may enter into a subcontract with CFC or any of its Affiliates
pursuant to which CFC or such Affiliate will provide such of the management
services required under this Agreement as the Manager deems necessary, and the
Company hereby consents to the entering into and performance of such
subcontract; provided, however, that no such arrangement between the Manager and
CFC or any of its Affiliates shall relieve the Manager of any of its duties or
obligations under this Agreement and, provided further, that if any subcontract
results in operating expenses to be paid by the Company to the Manager, such
expenses shall be in the amount actually incurred by the Manager.
Section 16. Termination by Company for Cause. At the option solely
---------- --------------------------------
of the Company, this Agreement shall be and become terminated upon thirty days'
written notice of termination from the Board of Directors to the Manager if any
of the following events shall occur:
(a) If the Manager shall violate any provision of this Agreement and,
after notice of such violation, shall not cure such default within 30 days; or
(b) There is entered an order for relief or similar decree or order
with respect to the Manager by a court having jurisdiction in the premises in an
involuntary case under the federal bankruptcy laws as now or hereafter
constituted or under any applicable federal or state bankruptcy, insolvency or
other similar laws; or the Manager (i) ceases or admits in writing its inability
to pay debts as they become due and payable, or makes a general assignment for
the benefit of, or enters into any composition or arrangement with, creditors;
(ii) applies for, or consents (by admission of material allegations of a
petition or otherwise) to the appointment of a receiver, trustee, assignee,
custodian, liquidator or sequestrator (or other similar official) of the Manager
or of any substantial part of its properties or assets, or authorizes such an
application or
10
<PAGE>
consent, or proceedings seeking such appointment are commenced without such
authorization, consent or application against the Manager and continue
undismissed for 30 days; (iii) authorizes or files a voluntary petition in
bankruptcy, or applies for or consents (by admission of material allegations of
a petition or otherwise) to the application of any bankruptcy, reorganization,
arrangement, readjustment of debt, insolvency, dissolution, liquidation or other
similar law of any jurisdiction, or authorizes such application or consent, or
proceedings to such end are instituted against the Manager without such
authorization, application or consent and remain undismissed for 30 days or
result in adjudication of bankruptcy or insolvency; or (iv) permits or suffers
all or any substantial part of its properties or assets to be sequestered or
attached by court order and the order remains undismissed for 30 days.
(c) The Manager agrees that if any of the events specified in
paragraph (b) of this Section 16 shall occur, it will give prompt written notice
thereof to the Board of Directors after the happening of such event.
Section 17. Action Upon Termination. From and after the effective
---------- -----------------------
date of termination of this Agreement, pursuant to Sections 14, 15, or 16
hereof, the Manager shall not be entitled to compensation for further services
hereunder, but shall be paid all compensation accruing to the date of
termination, subject to adjustment on an annualized basis in accordance with
Section 10(d). The Manager shall forthwith upon such termination:
(a) Pay over to the Company or any Subsidiary, as applicable, all
money collected and held for the account of the Company or any Subsidiary
pursuant to this Agreement, after deducting any accrued compensation and
reimbursement for its expenses to which it is then entitled;
(b) Deliver to the Board of Directors a full accounting, including a
statement showing all payments collected by it and a statement of all money held
by it, covering the period following the date of the last accounting furnished
to the Board of Directors with respect to the Company or any Subsidiary; and
(c) Deliver to the Board of Directors all property and documents of
the Company or any Subsidiary then in the custody of the Manager.
Section 18. Release of Money or Other Property Upon Written Request.
---------- -------------------------------------------------------
The Manager agrees that any money or other property of the Company or any
Subsidiary held by the Manager under this Agreement shall be held for the
Company or such Subsidiary in a custodial capacity, and the Manager's records
shall be appropriately marked to reflect clearly the ownership of such money or
other property by the Company or such Subsidiary. Upon the receipt by the
Manager of a written request signed by a duly authorized officer of the Company
requesting the Manager to release to the Company or any Subsidiary any money or
other property then held by the Manager for the account of the Company or any
Subsidiary under this Agreement, the Manager shall release such money or other
property to the Company or any Subsidiary within a
11
<PAGE>
reasonable period of time, but in no event later than 60 days following such
request. The Manager shall not be liable to the Company, any Subsidiary, the
Unaffiliated Directors, or the Company's Shareholders for any acts thereafter
performed or omissions thereafter to act by the Company or any Subsidiary of the
Company in connection with the money or other property released to the Company
or any Subsidiary in accordance with this Section. The Company and any
Subsidiary receiving released money or other property hereby agree to indemnify
the Manager, its directors, officers, shareholders and employees against any and
all expenses, losses, damages, liabilities, demands, charges and claims of any
nature whatsoever, which arise in connection with the Manager's release of such
money or other property to the Company or such Subsidiary in accordance with the
terms of this Section unless the Manager's release of such money constitutes bad
faith, willful misconduct, gross negligence or reckless disregard of duties.
This provision shall be in addition to any right of the Manager to
indemnification under Section 12.
12
<PAGE>
Section 19. Representations and Warranties.
----------- -------------------------------
(a) The Company hereby represents and warrants to the Manager as
follows:
(i) Corporate Existence. The Company is duly organized, validly
-------------------
existing and in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power to own its assets and to transact the
business in which it is now engaged and is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification, except for failures to be so qualified, authorized or licensed
that could not in the aggregate have a material adverse effect on the business
operations, assets or financial condition of the Company and its Subsidiaries,
taken as a whole. The Company does not do business under any fictitious
business name.
(ii) Corporate Power; Authorization; Enforceable Obligations. The
-------------------------------------------------------
Company has the corporate power, authority and legal right to execute, deliver
and perform this Agreement and all obligations required hereunder and has taken
all necessary corporate action authorize this Agreement on the terms and
conditions hereof and its execution, delivery and performance of this Agreement
and all obligations required hereunder. Except such as have been obtained, no
consent of any other person including, without limitation, stockholders and
creditors of the Company, and no license, permit, approval or authorization of,
exemption by, notice or report to, or registration, filing or declaration with,
any governmental authority is required by the Company in connection with this
Agreement or the execution, delivery, performance, validity or enforceability of
this Agreement and all obligations required hereunder. This Agreement has been,
and each instrument or document required hereunder will be, executed and
delivered by a duly authorized officer of the Company, and this Agreement
constitutes, and each instrument or document required hereunder when executed
and delivered hereunder will constitute, the legally valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms.
(iii) No Legal Bar to This Agreement. The execution, delivery and
------------------------------
performance of this Agreement and the documents or instruments required
hereunder, will not violate any provision of any existing law or regulation
binding on the Company, or any order, judgment, award or decree of any court,
arbitrator or governmental authority binding on the Company, or the certificate
of incorporation or by-laws of, or any securities issued by the Company or of
any mortgage, indenture, lease, contract or other agreement, instrument or
undertaking to which the Company is a party or by which the Company or any of
its assets may be bound, the violation of which would have a material adverse
effect on the business operations, assets or financial condition of the Company
and its Subsidiaries, taken as a whole, and will not result in, or require, the
creation or imposition of any lien on any of its property, assets or revenues
pursuant to the provisions of any such mortgage, indenture, lease, contract or
other agreement, instrument or undertaking.
13
<PAGE>
(b) The Manager hereby represents and warrants to the Company as
follows:
(i) Corporate Existence. The Manager is duly organized, validly
-------------------
existing and in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power to own its assets and to transact the
business in which it is now engaged and is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification, except for failures to be so qualified, authorized or licensed
that could not in the aggregate have a material adverse effect on the business
operations, assets or financial condition of the Manager and its Subsidiaries,
taken as a whole. The Manager does not do business under any fictitious
business name.
(ii) Corporate Power; Authorization; Enforceable Obligations. The
--------------------------------------------------------
Manager has the corporate power, authority and legal right to execute, deliver
and perform this Agreement and all obligations required hereunder and has taken
all necessary corporate action to authorize this Agreement on the terms and
conditions hereof and its execution, delivery and performance of this Agreement
and all obligations required hereunder. Except such as have been obtained, no
consent of any other person including, without limitation, stockholders and
creditors of the Manager, and no license, permit, approval or authorization of,
exemption by, notice or report to, or registration, filing or declaration with,
any governmental authority is required by the Manager in connection with this
Agreement or the execution, delivery, performance, validity or enforceability of
this Agreement and all obligations required hereunder. This Agreement has been,
and each instrument or document required hereunder will be, executed and
delivered by a duly authorized officer of the Manager, and this Agreement
constitutes, and each instrument or document required hereunder when executed
and delivered hereunder will constitute, the legally valid and binding
obligation of the Manager enforceable against the Manager in accordance with its
terms.
(iii) No Legal Bar to This Agreement. The execution, delivery and
------------------------------
performance of this Agreement and the documents or instruments required
hereunder, will not violate any provision of any existing law or regulation
binding on the Manager, or any order, judgment, award or decree of any court,
arbitrator or governmental authority binding on the Manager, or the certificate
of incorporation or by-laws of, or any securities issued by the Manager or of
any mortgage, indenture, lease, contract or other agreement, instrument or
undertaking to which the Manager is a party or by which the Manager or any of
its assets may be bound, the violation of which would have a material adverse
effect on the business operations, assets or financial condition of the Manager
and its Subsidiaries, taken as a whole, and will not result in, or require, the
creation or imposition of any lien on any of its property, assets or revenues
pursuant to the provisions of any such mortgage, indenture, lease, contract or
other agreement, instrument or undertaking.
Section 20. Notices. Any notice, report, or other communication
---------- -------
required or permitted to be given hereunder shall be in writing unless some
other method of giving such
14
<PAGE>
notice, report, or other communication is accepted by the party to whom it is
given, and shall be given by being delivered at the following addresses of the
parties hereto:
The Company: Countrywide Mortgage Investments, Inc.
35 North Lake Avenue
P.O. Box 7211
Pasadena, California 91109-7311
Attention: General Counsel
The Manager: Countrywide Asset Management Corporation
155 North Lake Avenue
P.O. Box 7137
Pasadena, California 91109-7137
Attention: General Counsel
Either party may at any time give notice in writing to the other party
of a change of its address for the purpose of this Section 20.
Section 21. Name Change Upon Termination of Management Agreement.
---------- ----------------------------------------------------
The Company agrees that, if at any time the Manager or any Affiliate of CCI
shall cease to serve generally as manager of the Company or any Subsidiary, upon
receipt of a written request from the Manager, the Company and such Subsidiary
will cause their Governing Instruments to be amended so as to change their names
to a name that does not include "Countrywide" or any approximation thereof;
provided, however, that such requirement shall not apply to any trust in which
the Company or any of its Subsidiaries has sold a majority of the beneficial
interest, and which has issued Mortgage Backed Securities that remain
outstanding in whole or in part.
Section 22. Amendments. This Agreement shall not be amended,
---------- ----------
changed, modified, terminated or discharged in whole or in part except by an
instrument in writing signed by all parties hereto, or their respective
successors or assigns, or otherwise as provided herein.
Section 23. Successors and Assigns. This Agreement shall bind any
---------- ----------------------
successors or assigns of the parties hereto as herein provided.
Section 24. Governing Law. This Agreement shall be governed,
---------- -------------
construed and interpreted in accordance with the laws of the State of
California.
Section 25. Headlines and Cross References. The section headings
---------- ------------------------------
hereof have been inserted for convenience of reference only and shall not be
construed to affect the meaning, construction or effect of this Agreement. Any
reference in this Agreement to a "Section" or "subsection" shall be construed,
respectively, as referring to a section of this Agreement or a subsection of a
section of this Agreement in which the reference appears.
15
<PAGE>
Section 26. Severability. The invalidity or unenforceability of any
---------- ------------
provision of this Agreement shall not affect the validity of any other
provision, and all other provisions shall remain in full force and effect.
Section 27. Entire Agreement. This instrument contains the entire
---------- ----------------
agreement between the parties as to the rights granted and the obligations
assumed in this instrument.
Section 28. Waiver. Any forbearance by a party to this Agreement in
---------- ------
exercising any right or remedy under this Agreement or otherwise afforded by
applicable law shall not be a waiver of or preclude the exercise of that or any
other right or remedy.
Section 29. Execution in Counterparts. This Agreement may be
---------- -------------------------
executed in one or more counterparts, any of which shall constitute an original
as against any party whose signature appears on it, and all of which shall
together constitute a single instrument. This Agreement shall become binding
when one or more counterparts, individually or taken together, bear the
signatures of both parties.
Section 30. Guaranty of Manager's Obligations. The Manager agrees
---------- ---------------------------------
that in order to insure the performance of its duties under this Agreement, it
will be necessary for CFC to guarantee the full performance of the Manager, and
this Agreement is conditioned upon the execution and delivery to the Company of
a Guaranty Agreement in the form attached to this Agreement as Exhibit B. Such
Guaranty Agreement shall remain in effect through the term of this Agreement,
including any renewals or extensions; provided, however, that the Guaranty
Agreement may be terminated by the Guarantor as provided therein at such time as
the Manager and the Guarantor are no longer Affiliates.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers thereunto duly authorized as of the day and year
first above written.
COUNTRYWIDE MORTGAGE INVESTMENTS, INC.
By: __________________________________
Michael W. Perry
Executive Vice President
COUNTRYWIDE ASSET MANAGEMENT CORPORATION
By: __________________________________
Stanford L. Kurland
President
16
<PAGE>
EXHIBIT A
---------
August 29, 1985
Countrywide Mortgage Investments, Inc.
155 North Lake Avenue
P.O. Box 7137
Pasadena, California 91109-7137
Gentlemen:
In order to induce Countrywide Mortgage Investments, Inc. (the "Company") to
enter into a Management Agreement with Countywide Asset Management Corporation
(the "Manager"), the Manager's parent corporation, Countrywide Credit
Industries, Inc. ("CCI") agrees that so long as the Manager or any affiliated
company of CCI is serving as the Manager of the Company pursuant to a management
agreement neither CCI nor any of its affiliated companies will either sponsor
another real estate investment trust or elect, or cause the election by any such
affiliate, to be taxed as a real estate investment trust without the prior
approval of a majority of the members of the Board of Directors of the Company
who are not affiliated with CCI or any of its affiliates.
COUNTRYWIDE CREDIT INDUSTRIES, INC.
(SEAL) By: /s/Angelo R. Mozilo
--------------------------------
Title: Executive Vice President
ATTEST:
By: /s/Wayne Turkheimer
---------------------
Title: Secretary
17
<PAGE>
EXHIBIT B
---------
GUARANTY
--------
THIS GUARANTY (the "Guaranty"), dated as of September 3, 1985, is made
by Countrywide Funding Corporation (the "Guarantor") to Countrywide Asset
Management Corporation (the "Manager") and Countrywide Mortgage Investments,
Inc. (the "Company").
R E C I T A L S
A. Pursuant to the Management Agreement, dated as of September 3,
1985, (the "Agreement"), entered into between the Manager and the Company
concurrently with the execution of this Guaranty, the Manager has agreed to
manage the investments and the day-to-day operations of the Company, including
the issuance of commitments on behalf of the Company to acquire mortgage loans
meeting the investment criteria set from time to time by the Company's Board of
Directors;
B. The Manager is a newly organized corporation which is a wholly-
owned subsidiary of Countrywide Credit Industries, Inc.;
C. The Guarantor is an experienced originator and servicer of mortgage
loans which is also a wholly-owned subsidiary of Countrywide Credit Industries,
Inc., and in order to induce the parties thereto to enter into the Agreement,
has agreed to guarantee the full performance of the Manager of its obligations
under the Agreement; and
D. The Guarantor will benefit from the relationship embodied in the
Agreement between the Company and the Manager.
NOW THEREFORE, for the consideration recited above and other good and
valuable consideration, the Guarantor agrees as follows:
1. The Guarantor hereby unconditionally guarantees to the Company the
due and punctual payment, performance and discharge of all duties, obligations,
debts and liabilities of the Manager to the Company under the Agreement (the
"Obligations"), together with any and all expenses of, for and incidental to
collection of the Obligations, including attorneys' fees and court costs.
Nothing
18
<PAGE>
shall discharge or satisfy the liability of the Guarantor hereunder except the
full performance and payment of the Obligations to the Company.
2. The Guarantor hereby waives notice of acceptance hereof, notice of
the amount of the Obligations of the Manager to the Company from time to time,
notice of any adverse change in the Manager's financial condition or any other
fact which might increase the Guarantor's risk. The Guarantor waives all (x)
set-offs, counterclaims, presentments and (y) protests, notices of protest,
notices of dishonor and notices of any action or non-action, including
acceptance of this Guaranty, notices of default under the Agreement or any
agreement related thereto and notice of any other extension of credit to the
Manager. The Guarantor further waives any rights granted by statute or otherwise
to require the Company to institute suit against the Manager or to exhaust its
rights and remedies against the Manager, it being acknowledged that the
Guarantor is bound for the payment of all Obligations of the Manager to the
Company now existing or hereafter occurring as fully as if such Obligations were
owing directly to the Company by the Guarantor. The Guarantor waives all rights
of exoneration granted by statute or otherwise in the event this Agreement is
altered in any respect by or with the consent of the Manager without the consent
of the Guarantor. The Guarantor shall not be released from any liability by
reason of the Manager's personal disability.
3. The Guarantor consents and agrees that without notice to the
Guarantor and without affecting or impairing the obligations of the Guarantor
hereunder, the Company may compromise or settle, extend the period or duration
of time for payment or discharge of performance of, or may refuse to enforce or
may release all or any parties to any and all of the Obligations, or may grant
other indulgences to the Manager with respect thereof, or may amend or modify in
any manner any documents or agreements relating to such obligations.
4. The Guarantor agrees to pay any and all expenses incurred by the
Company in connection with the enforcement of its obligations under this
Guaranty, as well as court costs, collections charges and attorneys' fees and
disbursements.
5. This Guaranty is a primary, original obligations of the Guarantor
and is an absolute, unconditional, continuing and irrevocable guaranty of
payment and performance and, except as provided in Section 10, shall remain in
full force and effect throughout the term of the Agreement without respect to
future changes in conditions, including any change of law or any invalidity or
irregularity with respect to the issuance of any Obligations of the Manager to
the Company. This is a continuing Guaranty relating to the Obligations,
including that arising under
19
<PAGE>
successive transactions under the Agreement which shall either continue the
Obligations or from time to time renew any or all of them. The obligations
hereunder are independent of the Obligations of the Manager and the obligations
of any other guarantor of the Obligations of the Manger under the Agreement, and
a separate action or actions may be brought and prosecuted against the Guarantor
whether any action is brought against the Manager or any of such other
guarantors or whether the Manager be joined any such action or actions; and the
Guarantor waives all principles or provisions of law, statutory or otherwise,
which are or might be in conflict with the terms of this Guaranty. However, this
Guaranty shall not limit the effect of any provisions in the Agreement or any
principles or provisions of law, statutory or otherwise, which provide legal
rights to the Manager, and to the extent the Guarantor is required to perform
any of the Obligations under this Guaranty, it shall be entitled to seek
enforcement of such principles or provisions of law to the same extent as the
Manager.
6. The Company shall have the right to seek recourse against the
Guarantor to the full extent provided for herein and in any other document or
instrument evidencing the Obligations and against the Manager to the full
extent provided for in the Agreement. No election to proceed in one form of
action or proceeding, or against any party, or on any Obligations, shall
constitute a waiver of the Company's right to proceed in any other form of
action or proceeding or against other parties.
7. The Guarantor agrees that all the rights, benefits and privileges
herein shall vest in, and be enforceable by, the Company and its successors and
assigns.
8. So long as any Obligations shall be owing to the company, the
Guarantor shall not, without the prior consent of The Company, commence or join
with any other person in commencing any bankruptcy, reorganization or insolvency
proceedings of or against the Manager. The obligations of the Guarantor under
this Guaranty shall not be altered, limited or affected by any proceeding,
voluntary or involuntary, involving the bankruptcy, insolvency, receivership,
reorganization, liquidation or arrangement of the Manger or by any defense which
the Manager may have by reason of the order, decree or decision of any court or
administrative body resulting from any such proceeding. The Company shall have
the sole right to accept or reject any plan proposed in such proceeding and to
take any other action which a party filing a claim is entitled to take. In the
event that all or any portion of the Obligations is paid or performed by the
Manager, the obligations of Guarantor hereunder shall continue and remain in
full force and effect in the event that all or any part of such payment(s) or
performance(s) is avoided or recovered directly or indirectly from the Company
as a preference, fraudulent transfer or otherwise in such proceeding.
20
<PAGE>
9. In order to induce the Company to accept this Guaranty and to make
the Agreement, Guarantor hereby represents the warrants to the Company that the
following statements are true and correct:
(i) Corporate Existence. Guarantor is duly organized, validly
-------------------
existing and in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power to own its assets and to transact the
business in which it is now engaged and is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification, except for failures to be so qualified, authorized or licensed
that could not in the aggregate have a material adverse effect on the business
operations, assets or financial condition of Guarantor and its subsidiaries,
taken as a whole. Guarantor does not do business under any fictitious business
name.
(ii) Corporate Power; Authorization; Enforceable Obligations.
-------------------------------------------------------
Guarantor has the corporate power, authority and legal right to execute, deliver
and perform the Guaranty and all obligations required hereunder and has taken
all necessary corporate action to authorize its Guaranty hereunder on the terms
and conditions hereof and its execution, delivery and performance of this
Guaranty and all obligations required hereunder. No consent of any other person
including, without limitation, stockholders and creditors of Guarantor, and no
license, permit, approval or authorization of, exemption by, notice or report
to, or registration, filing or declaration with, any governmental authority is
required by Guarantor in connection with this Guaranty or the execution,
delivery, performance, validity or enforceability of this Guaranty and all
obligations required hereunder. This Guaranty has been, and each instrument or
document required hereunder will be, executed and delivered by a duly authorized
officer of Guarantor, and this Guaranty constitutes, and each instrument of
document required hereunder when executed and delivered hereunder will
constitute, the legally valid and binding obligation of Guarantor enforceable
against Guarantor in accordance with its terms.
(iii) No Legal Bar to This Guaranty. The execution, delivery and
-----------------------------
performance of this Guaranty and the documents or instruments required hereunder
will not violate and provision of any existing law or regulation binding on
Guarantor, or any order, judgment, award or decree of any court, arbitrator or
governmental authority binding on Guarantor, or the certificate of incorporation
or by-laws of, or any securities issued by Guarantor, or of any mortgage,
indenture, lease, contract or other agreement, instrument or undertaking to
which Guarantor is a party or by which Guarantor or any of its assets may be
bound, the violation
21
<PAGE>
of which would have a material adverse effect on the business operation, assets
or financial condition of Guarantor and its subsidiaries, taken as a whole, and
will not result in, or require, the creation or imposition of any lien on any of
its property, assets or revenues pursuant to the provisions of any such
mortgage, indenture, lease, contract or other agreement, instrument or
undertaking.
10. This Guaranty shall remain in effect through the term of the
Agreement, including any renewals or extensions thereof; provided however, that
this Guaranty may be terminated by the Guarantor at such time as the Manager and
the Guarantor are not longer "Affiliates" as such term is defined in the
Agreement.
11. This Guaranty, all acts and transactions hereunder, and the rights
and obligations of the parties hereto shall be governed by, construed under and
interpreted in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the Guarantor executed this Guaranty as of the 3rd
day of September, 1985.
COUNTRYWIDE FUNDING CORPORATION
By: s/sAngelo R. Mozilo
-----------------------------------------------
Title: President, Chief Executive Officer
--------------------------------------------
Attest:
s/sWayne Turkheimer
- - --------------------------------------------------------------------------------
Title: Secretary
--------------------------------------------
(CORPORATE SEAL)
22
<PAGE>
EXHIBIT 10.2
NOMURA ASSET CAPITAL CORPORATION
MORTGAGE FUNDING PROGRAM
FINANCING FACILITY AGREEMENT
DATED: AUGUST 3, 1994
BETWEEN
NOMURA ASSET CAPITAL CORPORATION, AS THE LENDER
AND
CWM MORTGAGE HOLDINGS, INC.,
INDEPENDENT NATIONAL MORTGAGE CORPORATION, AND
WAREHOUSE LENDING CORPORATION OF AMERICA, INC.,
JOINTLY AND SEVERALLY, AS THE BORROWER
The Lender has agreed to establish for the benefit of the Borrower a Mortgage
Loan Financing Facility (the "Financing Facility") upon the terms set forth
herein. Capitalized terms used but not defined herein have meanings set forth
in the Pledge Agreement, dated the date hereof, between the Borrower and Lender
(the "Pledge Agreement").
1. FINANCING FACILITY. Subject to the terms and conditions hereof, the Lender
------------------
has agreed to make loans to the Borrower secured by mortgage loans or first
priority perfected security interests therein assigned to Lender by Borrower
(each, an "Advance" and, collectively, the "Advances"). Each Advance shall be
evidenced by a master promissory note duly executed by each Borrower (the
"Promissory Note") and the related Notice of Advance in the form attached hereto
("Notice of Advance"). The principal amount of the Promissory Note shall be the
aggregate principal amount of the Advances that may be outstanding at any one
time (the "Maximum Loan Amount"). With respect to each Advance, interest and
principal on the Promissory Note shall be payable in arrears on the related
Maturity Date of each such Advance. The Promissory Note shall be enforceable
only to the extent of the unpaid aggregate principal amount of the Advances then
outstanding, plus accrued and unpaid interest thereon and any other amounts due
thereunder.
1
<PAGE>
2. ADVANCES. The Borrower shall request each Advance by delivering to the
--------
Lender a fully executed Notice of Advance specifying the principal amount,
specified term and funding date of the proposed Advance. The Lender, subject to
the conditions precedent to each Advance set forth in Section 5 below, shall
make such Advance, specifying the terms including the interest rate per annum
applicable to the proposed Advance in accordance with Section 3 below, on the
date specified in the applicable Notice of Advance (the "Quoted Rate"). The
outstanding amount of Advances secured by Wet Mortgage Loans shall not exceed
$60,000,000 and the total outstanding amount of all Advances shall not exceed
$300,000,000. Promptly after making an Advance, the Lender will send to the
Borrower a written confirmation of such Advance (each, a "Confirmation"), and
the Borrower's acceptance of the related proceeds shall constitute the
Borrower's agreement to the terms of such Confirmation. Such Confirmation may
be termed a "Repo Confirmation", but for purposes hereof the term "Repo", when
used in any such Confirmation, shall be deemed to mean "Advance." Upon each
disbursement of funds by the Lender pursuant to a Notice of Advance, the
Borrower shall have effected a borrowing from the Lender hereunder and shall be
obligated to repay to the Lender, on the date specified in the Notice of Advance
or the Maturity Date, as applicable, in United States dollars and in same day
funds, the principal amount thereof plus interest thereon, all in accordance
with the terms of this Agreement, the Promissory Note and the Notice of Advance.
In taking any action pursuant to the Facility Documents, the Lender may
conclusively rely upon, and shall incur no liability to the Borrower in acting
upon, any request or other communication that the Lender believes to have been
given or made by a person authorized to borrow on the Borrower's behalf, whether
or not such person is listed on the certificate delivered pursuant to Section
4.1.4 hereof. Unless waived by Lender, each Advance (i) shall be equal to or in
excess of $1,000,000, (ii) shall not involve more than one wire transfer per
Business Day (unless otherwise agreed to by Lender), and (iii) if in excess of
$50,000,000 shall require two (2) Business Days notice from Borrower to Lender.
3. THE QUOTED RATE.
---------------
3.1 The per annum interest rate for amounts outstanding on Advances
secured by Wet Mortgage Loans shall be equal to the Appropriate LIBOR
(as defined below), plus 95 basis points (.95%).
3.2 The per annum interest rate for amounts outstanding on Advances
secured by Mortgage Loans that are not Wet Mortgage Loans or Second
Mortgage Loans shall be equal to the Appropriate LIBOR, plus 60 basis
points (.60%).
2
<PAGE>
3.3 The per annum interest rate for amounts outstanding on Advances
secured by Second Mortgage Loans shall be equal to the Appropriate
LIBOR, plus 125 basis points (1.25%).
3.4 "Appropriate LIBOR" shall mean the London Interbank Offered Rate for
U.S. dollar deposits of a maturity comparable to that of each
respective Advance which appears on Telerate, page 12 as of 11:00 a.m.
Greenwich Mean Time on the date of the related Advance (or on such
other page number and/or time of day at which the Appropriate LIBOR is
established for such date), or, if Telerate is not available on such
date, the next preceding date on which Telerate was available.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Borrower, as of the date
-----------------------------------------
hereof and as of the date of each Advance, hereby represents, warrants and
covenants as follows:
4.1 The Borrower is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation and
the Borrower's principal place of business, and the Borrower is in
compliance, in all material respects, with applicable law.
4.2 The Borrower's execution, delivery and performance of the Facility
Documents are within the Borrower's charter and corporate powers, have
been duly authorized by all necessary corporate action, and do not
contravene the Borrower's charter or bylaws or any rule, regulation or
other law or contractual restriction, which contravention would
materially adversely affect the Borrower or the Borrower's property.
4.3 No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required
for the Borrower's due execution, delivery and performance of the
Facility Documents, except for authorizations, approvals, actions,
notices or filings, which if not obtained would not have a material
adverse effect on the Borrower.
4.4 The Facility Documents are the Borrower's legal, valid and binding
obligations, enforceable against the Borrower in accordance with their
respective terms, subject to bankruptcy laws and other similar laws of
general application affecting rights of creditors and subject to the
application of the rules of equity, including those respecting the
availability of specific performance.
3
<PAGE>
4.5 The balance sheets, statements of income and changes in financial
condition of the Borrower as of the Borrower's most recently completed
fiscal year ended December 31, 1993 and quarter ended March 31, 1994,
fairly present the Borrower's financial condition and results of
operations for the period then ended and are in accordance with
generally accepted accounting principles consistently applied, and
copies of such statements, together with the most recent opinion with
respect to such statements of an independent public accounting firm,
have been provided to the Lender, and since such date there has been
no material adverse change in such financial condition or results of
operations.
4.6 There is no pending or threatened action or proceeding affecting the
Borrower before any court, governmental agency or arbitrator, that,
which if adversely determined, would materially and adversely affect
the financial condition or results of operations of the Borrower.
4.7 At any time any Advance shall be outstanding, the aggregate amount of
outstanding Advances is less than or equal to the sum of (i) 95.2381%
of the aggregate Collateral Value of the items of Collateral that are
Wet Mortgage Loans, and (ii) 97.0874% of the aggregate Collateral
Value of the items of Collateral that are Mortgage Loans which are not
Wet Mortgage Loans. To the extent that a deficiency in Collateral
Value exists, the Borrower shall promptly cure any such deficiency by
delivering cash, securities or other additional Collateral reasonably
acceptable to the Lender.
4.8 The Borrower is duly licensed, qualified and in good standing in every
state in which the Borrower transacts business, where the failure to
be so licensed, qualified and in good standing would materially
adversely affect Borrower's ability to perform under the Financing
Facility.
4.9 The Facility Documents are not entered into in contemplation of
insolvency or with any intent to hinder, delay or defraud any of the
Borrower's creditors.
5. CONDITIONS PRECEDENT.
--------------------
5.1 Initial Advance. As conditions precedent to the making of the initial
---------------
Advance, the Lender shall have received on or before the day of such
4
<PAGE>
Advance the following, in form and substance satisfactory to the
Lender and duly executed by the Borrower:
5.1.1 The Facility Documents.
5.1.2 Evidence that all other actions necessary or, in the reasonable
judgment of the Lender, desirable to perfect and protect the
security interests and liens created or assigned, as the case
may be, by the Pledge Agreement have been taken, including
without limitation duly executed Uniform Commercial Code
financing statements on Form UCC-1 with respect to the
Collateral and contract rights related thereto.
5.1.3 A certified copy of the Borrower's corporate resolutions
approving the Facility Documents and borrowings thereunder
(either specifically or by general resolution approving
borrowings of the type described in the Facility Documents),
and all documents evidencing other necessary corporate action
or governmental approvals as may be reasonably required in
connection with the Facility Documents.
5.1.4 A certificate of the Borrower's Corporate Secretary or
Assistant Secretary certifying the names, true signatures and
titles of the Borrower's officers duly authorized to request
Advances and to sign the Facility Documents and the other
documents to be delivered thereunder.
5.1.5 A favorable opinion of the Borrower's counsel, which may be
internal counsel, as to such matters as the Lender may
reasonably request.
5.1.6 All the documents set forth in paragraph 4.2 below.
5.2 Additional Advances. As conditions precedent to making Advances
-------------------
subsequent to the initial Advance hereunder, (1) the requested
Advance, together with the outstanding principal balance of all prior
Advances, shall not exceed the Maximum Loan Amount and (2) the Lender
shall have received on or before the day of such Advance the
following, in form and substance satisfactory to the Lender and duly
executed:
5
<PAGE>
5.2.1 A Notice of Advance, the related Collateral Receipt and, if any
item of Collateral securing such Advance is a Wet Mortgage
Loan, the related Wet Closing Notice;
5.2.2 If the Collateral is subject to a security interest or lien
immediately prior to the Advance, except for a security
interest or lien created by any Sub-Facility Collateral, a
letter from the holder of such security interest or lien
releasing the Collateral from such security interest or lien
upon receipt of a stated sum that is less than or equal to the
related Advance;
5.2.3 Such other documents as the Lender may reasonably request.
6. TERM. The term of the Financing Facility shall commence as of the date
----
hereof and shall terminate upon the second anniversary of the date hereof,
unless otherwise extended by mutual consent of the parties hereto. Termination
shall not affect the Borrower's obligations with respect to any Advances
outstanding at the time of such termination or shall not be effective with
respect to any Advances made prior to the Lender's receipt of notice thereof.
The Borrower's obligation to indemnify the Lender pursuant to this Agreement
shall survive the termination hereof.
7. INDEMNIFICATION. The Borrower shall indemnify and hold harmless the Lender
---------------
from and against all reasonable losses, costs, expenses and other liabilities,
including without limitation fees and expenses of counsel, the Lender may
sustain in the enforcement of its rights hereunder, except in the case of
losses, costs, expenses and liabilities resulting from gross negligence or
wilful misconduct on the part of the Lender.
8. NOTICES. Any notices or other communications permitted or required hereunder
-------
shall be in writing and shall be deemed conclusively to have been given if (a)
personally delivered, (b) sent by express courier delivery service and received
by the party to whom it is sent or (c) transmitted by telex or facsimile
transmission (or any other type of electronic transmission agreed upon by the
parties).
9. MISCELLANEOUS. All rights and obligations hereunder of the Lender, but not
-------------
the Borrower, are assignable to an affiliate of the Lender or upon the
occurrence and continuance of an Event of Default. No supplement, modification,
waiver or termination of this Agreement or any provision hereof shall be binding
unless executed in writing by the parties to be bound thereby. No waiver of any
of the provisions of this Agreement shall constitute a waiver of any other
provisions nor
6
<PAGE>
shall such waiver constitute a continuing waiver unless otherwise
expressly provided. This Agreement and the Facility Documents constitute the
entire agreement among the parties hereto pertaining to the subject matter
hereof and supersedes all prior and contemporaneous agreements. This Agreement
shall be construed in accordance with, and governed by, the law of the State of
New York, without giving effect to the conflict of law principles thereof. The
Borrower hereby waives trial by jury and hereby irrevocably consents to the non-
exclusive jurisdiction of any court of the State of New York, or in the United
States District Court for the Southern District of New York, arising out of or
relating to the Facility Documents in any action or proceeding. The Borrower
hereby submits and waives any objection that the Borrower may have to personal
jurisdiction and venue in the courts of the State of New York and the United
States District Court for the Southern District of New York, over any disputes
arising out of or relating to and transaction hereunder.
10. AGENCY AMENDMENT. The Borrower and Lender agree to cooperate reasonably to
----------------
amend the Facility Documents in the event that Borrower and Lender desire to
allow Mortgage Loans which are intended to secure or underlie securities or
certificates issued or guaranteed by the Government National Mortgage
Association, the Federal National Mortgage Association or the Federal Home Loan
Mortgage Corporation (each, an "Agency") or are eligible for purchase by an
Agency to be included as Collateral hereunder.
11. JOINT AND SEVERAL. The joint and several obligations of each of CWM
-----------------
Mortgage Holdings, Inc., Independent National Mortgage Corporation and Warehouse
Lending Corporation of America, Inc. hereunder are absolute, unconditional,
irrevocable, present and continuing and, with respect to any Obligation to the
Lender, is a guaranty of performance of such Obligation (and not of
collectability) and is in no way conditional or contingent upon the continued
existence of any other Borrower and is not and will not be subject to any
setoffs. Any notice or other communication provided to one Borrower pursuant
hereto shall be deemed to have been given to all Borrowers and failure to be
sent any notice or communication contemplated hereby shall not relieve a
Borrower from its joint and several liability for the Obligations of any other
Borrower hereunder.
7
<PAGE>
IN WITNESS WHEREOF, this Facility Agreement has been executed by the
parties hereto as of the date first above written.
CWM MORTGAGE HOLDINGS, INC., as Borrower
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
INDEPENDENT NATIONAL MORTGAGE CORPORATION,
as Borrower
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
WAREHOUSE LENDING CORPORATION OF AMERICA,
INC., as Borrower
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
NOMURA ASSET CAPITAL CORPORATION, as Lender
By:
-----------------------------------------
Name: James K. Lieblich
---------------------------------------
Title: Director
--------------------------------------
8
<PAGE>
NOTICE OF ADVANCE NO._____
9
<PAGE>
Nomura Asset Capital Corporation
2 World Financial Center
Building B, 21st Floor
New York, New York 10281
Attention: James K. Lieblich
Facsimile (212) 667-1044
Pursuant to the Financing Facility Agreement, dated ________________,
199___, between Nomura Asset Capital Corporation (the "Lender") and the
undersigned (as amended from time to time, the "Facility Agreement"), the
undersigned hereby gives notice of its election to borrow from the Lender an
Advance and, in connection therewith, sets forth below the following information
(each capitalized term used herein shall have the meaning specified therefor in
the Facility Agreement):
1. The aggregate unpaid principal of the Mortgage Loans is
$________________.
2. The Collateral Value of the Mortgage Loans is $________________.
3. The aggregate unpaid principal of Wet Mortgage Loans securing
this advance is $________________.
4. The principal amount of this Advance is $_____________.
5. The aggregate principal amount of outstanding Advances is $
_______ .
6. The Quoted Rate for this Advance is ________ % per annum.
7. The beginning Business Day of this Advance is _________________,
199__.
8. The Maturity Date of this Advance, if applicable, is ______,
199__.
The undersigned hereby certifies that, in consideration of the Lender
making an Advance to finance the period prior to securitization or cash purchase
of the Mortgage Loans, the following statements are true and correct on the date
hereof and shall be true and correct on the date of the Advance requested
herein, before and after giving effect thereto: (a) Borrower has satisfied all
of the conditions precedent in Section 5 of the Facility Agreement and (b) the
Required Documents with respect to such Mortgage Loans have been or are hereby
10
<PAGE>
submitted to the Custodian pursuant to the Custody Agreement or, with respect to
Wet Mortgage Loans, will be submitted within five (5) business days.
_____ No lien exists with respect to the Mortgage Loans that secure this
Advance.
_____ A lien secured by the Mortgage Loans that secure this Advance is
currently in effect.
_____ If applicable, a Prior Lender's Release Letter has been delivered to the
Custodian under separate cover.
________________________, as Borrower
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
NOMURA ASSET CAPITAL CORPORATION
MORTGAGE FUNDING PROGRAM
PLEDGE AGREEMENT
DATED: AUGUST 3, 1994
BETWEEN
NOMURA ASSET CAPITAL CORPORATION,
AS THE LENDER
AND
CWM MORTGAGE HOLDINGS, INC.,
INDEPENDENT NATIONAL MORTGAGE CORPORATION,
AND
WAREHOUSE LENDING CORPORATION OF AMERICA, INC.,
11
<PAGE>
JOINTLY AND SEVERALLY, AS THE BORROWER
Borrower and Lender have entered into a Financing Facility Agreement, dated the
date hereof (as amended from time to time, the "Facility Agreement"), pursuant
to which Lender shall make certain Advances (as defined below) to Borrower,
subject to the terms and conditions contained therein. Borrower has agreed to
secure its Obligations (as defined below) by granting or assigning, as the case
may be, a security interest in the Collateral (as defined below) pursuant to the
terms hereof. The parties hereto have agreed that certain items of Collateral
are to be deposited with and retained by Custodian (as defined below), acting as
bailee of and agent for Lender and its affiliates.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS. The following terms have the meanings indicated when used
-----------
herein:
"Advance" means an Advance as defined in the Facility Agreement.
"Borrowing Base Amount" means the sum of (i) 95.2381% of the aggregate
Collateral Value of the items of Collateral that are Wet Mortgage Loans, and
(ii) 97.0874% of the aggregate Collateral Value of the items of Collateral that
are Mortgage Loans which are not Wet Mortgage Loans.
"Business Day" means any day other than a Saturday, Sunday or a public
or bank holiday in New York City or the State of California.
"Collateral" shall have the meaning assigned to it in Section 2.1
hereof.
"Collateral Receipt" means a document duly executed by Custodian with
respect to each delivery of Mortgage Loans and containing a schedule of all
Mortgage Loans (including any Wet Mortgage Loans) submitted therewith, in the
form attached as Exhibit A to the Custody Agreement.
"Collateral Value" means, with respect to Collateral that is Mortgage
Loans, the lesser of the Market Value or the unpaid principal amount of an item
of Collateral; provided, however, that any item of Collateral which does not
conform
12
<PAGE>
in any material respect to the representations and warranties listed in
Appendix A hereto (including the requirement that with respect to Wet Mortgage
Loans, Borrower delivers within five days certain documents required under the
Custody Agreement) shall have a Collateral Value of zero.
"Custodian" means each entity acting as bailee of and agent for Lender
with respect to any item of Collateral.
"Custody Agreement" means each Tri-Party Custody Agreement, as amended
from time to time, among Borrower, Lender and a Custodian, with respect to any
Collateral delivered in conjunction with this Pledge Agreement.
"Default" means any event that, with the giving of notice or the lapse
of time or both, would constitute an Event of Default.
"Default Rate" means the Default Rate as defined in the Promissory
Note.
"Event of Default" means an Event of Default as defined in the
Promissory Note.
"Facility Documents" means the Facility Agreement, this Pledge
Agreement, the Promissory Note, each Custody Agreement, each Notice of Advance
and each Collateral Receipt.
"Market Value" means the market bid price obtainable for an item of
Collateral, as determined on a reasonable basis by Lender, with reference made
either (a) to bids from at least three (3) dealers generally known as reputable
in pricing mortgage collateral, provided that such bids are obtainable in a
reasonable amount of time or (b) to published bid prices for FNMA securities
evidencing interests in residential one-to-four family mortgage loans with
interest rates and maturities comparable to the Mortgage Loans included in the
Collateral.
"Mortgage Loan" means a mortgage loan described in a Collateral
Receipt.
"Notice of Advance" means a Notice of Advance as defined in the
Facility Agreement.
"Obligations" means (a) all indebtedness, obligations and liabilities
(including without limitation, guarantees and other contingent liabilities) of
Borrower to
13
<PAGE>
Lender for borrowed funds arising under, or in connection with, the Facility
Documents, whether now existing or hereafter arising, including without
limitation each Advance made or to be made; (b) any and all reasonable sums paid
by Lender or on behalf of Lender in order to preserve the Collateral or its
security interest therein and lien thereon; (c) in the event of any proceeding
for the collection or enforcement of any indebtedness, obligations, or
liabilities of Borrower referred to in clause (a) after an Event of Default
shall have occurred and be continuing, the reasonable expenses of retaking,
holding, collecting, preparing for sale, selling or otherwise disposing of or
realizing on the Collateral, or of any exercise by Lender of its rights under
the Facility Documents, together with reasonable attorneys' fees and
disbursements and court costs; and (d) all indemnity obligations of Borrower to
Lender pursuant to the Facility Documents.
"Promissory Note" means the Promissory Note, dated the date hereof,
executed by Borrower, as amended from time to time.
"PSA Guide" The Uniform Practices for the Clearance and Settlement of
Mortgage-Backed Securities and Other Related Securities, published (and
periodically updated as supplemented) by the Public Securities Association
("PSA").
"Purchase Commitment" means an obligation of a Purchaser to purchase
Mortgage Loans.
"Purchaser" means any bona fide purchaser acceptable to Lender in its
sole discretion or listed on Schedule 1 to the Custody Agreement.
"Repledged Collateral" means any Collateral which any Sub-borrower has
pledged to Borrower, the security interest in which has been assigned by
Borrower to Lender pursuant hereto.
"Required Documents" means Required Documents as defined in the
Custody Agreement.
"Servicing Records" means all servicing records, including but not
limited to any and all servicing agreements, subservicing agreements, custodial
agreements, files, documents, records, data bases, customer lists, computer
software, computer tapes, copies of computer tapes, proof of insurance coverage,
insurance policies, appraisals, other closing documentation, payment history
records, and
14
<PAGE>
any other data and records relating to or evidencing the servicing of the
Mortgage Loans described in each Collateral Receipt.
"Sub-borrower" means each entity, if any, that has conveyed,
transferred, mortgaged, hypothecated, pledged, granted and assigned to Borrower
and its successors and assigns a first priority perfected security interest in
and lien on all of the right, title and interest of such entity in, under and to
any of the Collateral.
"Sub-Facility Collateral" means any facility, loan, warehousing or
similar agreement, pledge agreement, promissory note, custody agreement,
collateral receipt, security agreement and any other document related thereto
entered into by any Sub-borrower in favor of Borrower which relates to the grant
of a first priority perfected security interest in and lien on all of the right,
title and interest of a Sub-borrower, in, under and to those items of Collateral
listed in Section 2.1.1 through Section 2.1.7, which security interest is being
assigned to the Lender pursuant hereto.
"Wet Mortgage Loan" shall have the meaning assigned to it in the
respective Custody Agreement or, if not defined therein, shall be inapplicable
for purposes of the related Advance under the Facility Documents.
2. SECURITY INTEREST.
-----------------
2.1 Grant or Assignment of Security Interest to Lender. In consideration
--------------------------------------------------
for the making of each respective Advance and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrower does hereby convey, transfer, mortgage,
hypothecate, pledge, grant and assign to Lender and its affiliates, as
security for the payment of the Obligations, a first priority
perfected security interest in and lien on all of the right, title and
interest of Borrower (including, if applicable, whatever right, title
and interest a Borrower may have in the right, title and interest of a
Sub-borrower) in, under and to the following properties, estates,
rights and privileges, whether now existing or hereafter acquired of
(collectively, the "Collateral"):
2.1.1 All Mortgage Loans described in and subject to a Collateral
Receipt in respect of which Advances have been made by Lender,
all payments of principal and interest thereon and all
15
<PAGE>
related items constituting the complete file for each such
Mortgage Loan (including, without limitation, all escrow
payments, mortgage notes, mortgages, title insurance policies,
primary mortgage insurance policies, guarantees, applications,
appraisals, surveys and all other documents evidencing or
relating to each such Mortgage Loan), wherever located and
whether now or hereafter held in whole or in part by a
Custodian, Lender, Borrower, Sub-borrower, as applicable, or
otherwise;
2.1.2 All Purchase Commitments related to Mortgage Loans that do not
constitute or relate to Sub-Facility Collateral in each case
which are described in, and all other documents required to be
submitted in connection with, a Collateral Receipt, wherever
located and whether now or hereafter held in whole or in part
by a Custodian, Lender, Borrower, Sub-borrower, as applicable,
or otherwise;
2.1.3 All securities or cash on deposit with, or received by, Lender
or Custodian for the account of Borrower, Sub-borrower, as
applicable, in connection with this transaction or in respect
of such Mortgage Loans, or representing proceeds of Collateral;
2.1.4 All tangible and intangible personal property of whatever kind
(except servicing rights) including all payments with respect
thereto and all proceeds thereof, that relates to such Mortgage
Loans, wherever located and whether now or hereafter held in
whole or in part by a Custodian, Lender, Borrower, Sub-
borrower, as applicable, or otherwise;
2.1.5 All rights, powers and privileges, if any, of Borrower or Sub-
borrower, as applicable, related to the servicing of such
Mortgage Loans, including all Servicing Records;
2.1.6 All proceeds of any of the foregoing; and
2.1.7 Sub-Facility Collateral, if applicable, and all proceeds
thereof.
16
<PAGE>
2.2 Release of Collateral. So long as no Default or Event of Default has
---------------------
occurred and is continuing, but subject to the rights of any holder of
a lien on the items of Collateral of which Lender has notice, Lender
shall direct Custodian, at the request of the Borrower, to release to
or at the direction of the Borrower, those Mortgage Loans so requested
and items of Collateral related thereto; provided, however, that no
such release shall be permitted to occur if such release will cause
the aggregate amount of outstanding Advances to exceed the Borrowing
Base Amount.
3. REPRESENTATIONS AND WARRANTIES.
------------------------------
Borrower, as of the date hereof and as of the date of each Advance, hereby
represents and warrants to Lender as follows:
3.1 Ownership of Collateral; No Encumbrance. Either (A) Borrower is the
---------------------------------------
sole legal and equitable owner and holder of the Collateral, free and
clear of all security interests, liens, pledges, participation
interests or other encumbrances whatsoever, except (i) the security
interests and liens granted hereunder and (ii) if payment hereunder
will satisfy any existing security interest, lien or other encumbrance
on the Collateral or (B) Borrower has an assignable first priority
perfected security interest in the Collateral, free and clear of all
other security interests, liens, pledges, participation interests or
other encumbrances whatsoever, except (i) the security interests and
liens assigned hereunder and (ii) if payment hereunder will satisfy
any existing security interest, lien or other encumbrance on the
Collateral. All Purchase Commitments, when delivered, have been or
will be duly authorized and validly issued, and all Mortgage Loans
that are part of the Collateral are duly and validly originated by or
conveyed to Borrower. All of the items of Collateral (a) comply with
all of the material requirements of this Pledge Agreement and (b) have
been duly and validly pledged or assigned to Lender in such a manner
that Lender's first priority security interest therein is fully
perfected, except with respect to actions to be taken by Custodian and
Lender which may be necessary to so fully perfect such security
interest.
3.2 No consent required. Other than those consents or approvals which
--------------------
Borrower has previously obtained, or those notices or filings which
17
<PAGE>
Borrower has previously delivered or made, no consent, authorization
or approval, or other action by, and no notice to or filing with, any
person, including any Sub-borrower, is required for the Borrower's
grant or assignment to Lender of a first priority perfected security
interest in the Collateral.
3.3 Authority to Pledge Collateral; All Necessary Action Taken. Borrower
----------------------------------------------------------
has, and will continue to have, the full right, power and authority,
and has taken, and will take, all necessary action to grant or assign
to Lender a first priority perfected security interest in the
Collateral, except with respect to actions to be taken by Custodian
and Lender which may be necessary to fully perfect such security
interest.
3.4 Conformity; Eligibility. All Mortgage Loans, Required Documents
-----------------------
applicable thereto and Purchase Commitments, if any, conform to the
underwriting requirements of the relevant Purchaser.
3.5 Mortgage Loans. Each Mortgage Loan meets in all material respects all
--------------
of the representations set forth on Appendix A hereto as of the date
delivered to Custodian and continuously while it is a part of the
Collateral.
3.6 Sub-Facility Collateral.
-----------------------
3.6.1 The Sub-Facility Collateral, if applicable, meets all of the
following requirements as of the date delivered to Custodian
continuously while it is part of the Collateral:
3.6.1.1 The related promissory note and the documents related
thereto have been duly executed and delivered by the
parties thereto;
3.6.1.2 The related promissory note has been made in
compliance with all applicable laws, regulations,
rules, directives and orders of all governmental
authorities; and
18
<PAGE>
3.6.1.3 The related promissory note and the documents related
thereto are and will be valid and enforceable in
accordance with their terms, without defense, offset
or right of rescission, and such promissory note has
not been and will not be modified or amended nor any
requirements thereof waived without notice to Lender
and the deposit of such modified or amended promissory
note with the Custodian immediately thereafter.
4. COVENANTS OF BORROWER.
---------------------
4.1 Defense of Title. Borrower warrants and will defend the right, title
----------------
and interest of Lender in and to all Collateral against all adverse
claims and demands.
4.2 No Amendment or Compromise. Without Lender's prior consent, Borrower
--------------------------
and those acting on behalf of Borrower, including, without limitation,
Sub-borrower, as applicable, shall not amend or modify, or waive any
term or condition of, or settle or compromise any claim in respect of,
any item of Collateral or any related rights, where such amendment,
modification, waiver, settlement or compromise would have a material
adverse effect on the Market Value of such item of Collateral.
4.3 No Assignment. Borrower shall not, and as applicable, shall prohibit
-------------
Sub-borrower to, sell, assign, transfer or otherwise dispose of, or
grant any option with respect to, or pledge, hypothecate or grant any
other security interest in or lien on or otherwise encumber (except in
favor of Borrower or by Borrower as contemplated in this Pledge
Agreement), any of the Collateral or any interest therein, provided
that this section shall not prevent (i) any transfer of Collateral in
accordance with this Pledge Agreement and the Custody Agreement or
(ii) any sale to an investor by the Borrower or any Sub-borrower,
provided that such sale is subject to a Bailee Letter as provided for
in the Custody Agreement.
4.4 Servicing of Mortgages.
----------------------
19
<PAGE>
4.4.1 Borrower shall service, or cause to be serviced, all Mortgage
Loans that are part of the Collateral in accordance with the
standard industry practices, employing at least the same
procedures and exercising the same care that it customarily
employs in servicing Mortgage Loans for its own account. At the
request of Lender, Borrower shall notify Lender of the name and
address of all servicers. If an Event of Default has occurred
and is continuing, Lender shall have the right to approve each
servicer and the form of all servicing agreements. Borrower
shall hold or cause to be held all escrow funds collected with
respect to such Mortgage Loans in trust accounts and shall
apply or cause to be applied the same for the purposes for
which such funds were collected.
4.4.2 At the request of Lender, if an Event of Default has occurred
and is continuing, Borrower shall provide to Lender a letter
addressed to each servicer of Mortgage Loans (the "Servicer
Letters"), in form and substance reasonably satisfactory to
Lender, advising such servicer of Lender's security interest in
the Collateral and such other matters as Lender may reasonably
request.
4.4.3 If Borrower should discover that, for any reason whatsoever, it
or any entity responsible to it by contract for managing or
servicing any such Mortgage Loan has failed to perform fully
Borrower's obligations under the Facility Documents or any of
the obligations of such entities with respect to the
Collateral, and such failure to perform would have a material
adverse effect on the Market Value of the Collateral, Borrower
shall promptly so notify Lender.
4.5 Preservation of Collateral. Borrower shall do all things necessary
--------------------------
and within its control to preserve the Collateral so that it remains
effective security hereunder. Without limiting the foregoing,
Borrower will, in its dealings with the Collateral, comply with all
rules, regulations and other laws of any governmental authority and
cause the Collateral to comply with all applicable rules, regulations
and other laws, where the failure to so comply would have a material
adverse effect on the
20
<PAGE>
Market Value of the Collateral. Borrower shall fully perform or cause
to be performed when due all of its obligations under any Collateral.
4.6 Maintenance of Papers, Records and Files.
----------------------------------------
4.6.1 Borrower shall acquire and it, its servicer or Sub-borrower's
servicer shall build, maintain and have available a complete
file in accordance with industry custom and practice for each
Mortgage Loan that is part of the Collateral. Borrower or its
servicers or the Sub-borrower's servicers will maintain all
such papers, records and files not in the possession of
Custodian in good and complete condition in accordance with
industry practices and preserve them against loss.
4.6.2 Borrower or its servicers or the Sub-borrower's servicers shall
collect and maintain or cause to be collected and maintained
all papers, records and files relating to the Collateral in
accordance with industry custom and practice, including those
maintained pursuant to Section 4.6.1 above, and all such
materials shall be in Custodian's, Borrower's, Sub-borrower's
or their respective servicers' possession unless Lender
otherwise approves. Borrower will not allow any such papers,
records or files that are an original or an only copy to leave
its or Custodian's possession, or Borrower's servicers' or the
Sub-borrower's servicers' possession, except for individual
items removed in connection with servicing a specific Mortgage
Loan, in which event Borrower will obtain or cause to be
obtained a receipt from a financially responsible person for
any such paper, record or file.
4.6.3 For so long as Lender has a security interest in or lien on any
Collateral, Borrower will hold, or cause to be held, any paper,
record or file related to the Collateral in trust for Lender.
If an Event of Default has occurred and is continuing, Borrower
shall notify every other party holding any such paper, record
or file of the security interests and liens granted hereby.
4.6.4 Upon reasonable advance notice from Custodian or Lender, and
during regular business hours, Borrower shall make any and all
21
<PAGE>
such papers, records or files available (or cause to be made
available) to Custodian or Lender to examine any such papers,
records and files, either by its own officers or employees, or by
agents or contractors, or both, and make copies of all or any
portion thereof.
4.7 Preservation and Perfection of Security Interest. Borrower shall
------------------------------------------------
execute and deliver, or cause the execution and delivery of, such
further instruments and shall do and perform, or cause to be done and
performed, all acts and things reasonably necessary or expedient to be
done or observed for the purpose of effectively treating, perfecting,
maintaining and preserving the security interests, liens and other
benefits intended to be afforded by this Pledge Agreement. This shall
include, upon request of Lender, the delivery of documents to
Custodian, or additional filings and recordations with governmental
authorities.
4.8 Stamp. If an Event of Default has occurred and is continuing,
-----
Borrower shall, upon request of Lender, stamp on its records, and
cause to be stamped on Sub-borrower's records, as applicable,
concerning the Collateral or a portion thereof a notation, in form and
substance satisfactory to Lender, of the security interest and lien of
Lender hereunder.
4.9 Additional Rights of Lender. Upon the occurrence and during the
---------------------------
continuance of an Event of Default, Lender, at its option, shall have
the right to do, or to request Custodian to do, any or all of the
following, and upon a request therefor by Lender, Borrower agrees to
cooperate, and cause Sub-borrower, as applicable, to cooperate with
Lender and Custodian, as the case may be, to accomplish such request:
4.9.1 Lender or, at its direction, Lender's designee may take
possession of all original papers, records and files relating
to the Collateral. In Custodian's discretion, Custodian shall
move such records and files to a location acceptable to and
under the control of Custodian.
22
<PAGE>
4.9.2 If an Event of Default has occurred and is continuing: Borrower
will instruct or cause to be instructed all persons servicing
the Mortgage Loans that are part of the Collateral to take
instructions from, make all reports to and make all remittances
to, Custodian for the account of Borrower; and if Lender so
desires and the applicable servicing agreement permits,
Borrower will cause a change of the servicer for any such
Mortgage Loans to a company acceptable to Lender.
4.9.3 Borrower shall cause all sums received with respect to the
Collateral to be deposited with Custodian.
4.10 Lender Appointed Attorney-in-Fact. Upon the occurrence and during the
---------------------------------
continuance of an Event of Default, Lender is hereby appointed the
attorney-in-fact of Borrower for the purpose of carrying out the
provisions hereof and taking any action and executing any instruments
that Lender may deem necessary or advisable to accomplish the purposes
hereof, which appointment is irrevocable and coupled with an interest.
Without limiting the generality of the foregoing, if an Event of
Default has occurred and is continuing, Lender shall have the right
and power to receive, endorse and collect all checks made payable to
the order of Borrower representing any payment on account of the
Collateral and to give full discharge for the same.
5. DEFAULT - RIGHTS AND REMEDIES.
-----------------------------
5.1 Events of Default; Remedies.
---------------------------
5.1.1 With respect to any Collateral including Sub-Facility
Collateral but not including Repledged Collateral, should any
Event of Default occur and be continuing, Lender, at its
option, in addition to its rights and remedies under the
Promissory Note, shall have any or all of the following rights
and remedies, which may be exercised by Lender or by Custodian
in accordance with the instructions of Lender:
5.1.1.1 Lender may cause the disposition of all or any portion
of the Collateral to be conducted
23
<PAGE>
immediately upon the occurrence and during the
continuance of an Event of Default, or upon the
expiration of any period of delay or notice required
by law. Should Lender decide to conduct more than one
such sale or disposition, Lender may at its option
cause the same to be conducted simultaneously or
successively on the same day or upon such different
days or at such different times and in such order as
Lender may deem to be in the best interests of the
holders of interests in the Promissory Note. Borrower
waives, to the fullest extent permitted by law, any
prejudice resulting to it from any such decision.
5.1.1.2 Lender shall have the right to sell the Collateral in
one or more lots, at one or more times, at such place
or places, at public or private sales and with or
without notice of any kind, as Lender may elect, at
such prices and on such terms, as to cash or credit,
as Lender may reasonably deem to be the best terms
obtainable at such time, provided that
notwithstanding any provision of this Pledge
Agreement to the contrary, notice of two (2) Business
Days, if the Event of Default listed in Section 5.1.1
of the Promissory Note exists, and five (5) Business
Days otherwise shall be given to Borrower of all
sales of all or any portion of the Collateral. Lender
shall have the right to become a purchaser at any
such sale that is open to the public and to apply all
unpaid Obligations toward the purchase price of all
or any portion of the Collateral sold to Lender. If
notice is given of public sale, it is agreed that
notice shall be satisfactorily given if such notice
is published at least once in The Wall Street Journal
-----------------------
not less than two (2) Business Days prior to such
sale. The foregoing notice provisions shall not
preclude Lender's rights to foreclose upon the
Collateral in any other manner permitted under the
Uniform
24
<PAGE>
Commercial Code as in effect in the applicable
jurisdiction; however, a sale of the Collateral in
accordance with such notice requirements shall be
deemed a disposal of the Collateral in a commercially
reasonable manner. Lender shall have the right to
sell the Collateral, or to foreclose, sue upon, or
otherwise seek to enforce the same in its own name or
in the name of either Custodian or Borrower. Subject
to the foregoing provisions of this paragraph, if an
Event of Default shall have occurred and be
continuing, Lender shall have the right to renew,
extend the time of payment of, or otherwise modify,
amend, supplement, settle or compromise, in any
manner, any obligations for the payment of money
included in the Collateral, any security therefor and
any other agreements, instruments, claims or choses
in action of any kind, that may be included in the
Collateral. In view of the nature of the Collateral,
the parties agree that liquidation of the Collateral
does not require a public sale and that one or more
good faith private sales, including such private
sales at which Lender shall have the right to become
a purchaser, constitute a commercially reasonable
disposition of the Collateral.
5.1.1.3 Lender, or upon its direction, Custodian, may take
possession of all or any portion of the Collateral
that is not already in its or Custodian's possession,
and Borrower agrees to assemble and make available
the Collateral to Lender at a convenient location.
Lender, acting through Custodian if it so desires,
may manage and protect the Collateral, do any acts
that Lender deems proper to protect the Collateral as
security hereunder, and sue upon any contract or
claim relating to the Collateral and receive any
payments due thereon or any damages thereunder, and
apply all sums received to the payment of the
Obligations in accordance with the
25
<PAGE>
same order of priorities as set forth in Section
5.3 hereof. Any such actions of Lender or Custodian
shall not, absent written ratification by Lender, be
deemed to impose upon Lender or Custodian any of
Borrower's obligations under any contracts.
5.1.1.4 To the extent permitted by the Sub-Facility
Collateral, Lender may direct the servicers to take
such action with respect to the Collateral as Lender
determines is appropriate.
5.1.2 With respect to any Collateral which is Repledged Collateral,
should any Event of Default occur and be continuing, Lender, at
its option, in addition to its rights and remedies under the
Promissory Note, shall have the right to exercise all of the
rights, powers and privileges accorded Borrower under any
agreement, note or other instrument included in any Sub-
Facility Collateral, and to take such action as Lender deems
proper to protect its interests thereunder, in and to the
Repledged Collateral.
5.1.3 If an Event of Default has occurred and is continuing, Lender
shall be entitled to the appointment of a receiver by any court
having jurisdiction to take possession of and protect, collect,
manage, liquidate, and sell the Collateral which is not
Repledged Collateral or any portion thereof, collect the
payments due with respect to the Collateral or any portion
thereof, and do anything that Lender or Custodian are
authorized hereunder to do. Borrower shall pay all reasonable
costs and expenses incurred by Lender in connection with the
appointment and activities of such receiver.
5.1.4 If an Event of Default has occurred and is continuing, Lender
may enforce its rights and remedies hereunder without prior
judicial process or hearing, and Borrower hereby expressly
waives, to the extent permitted by law, any right Borrower
might otherwise have to require Lender to enforce its rights by
judicial process. Borrower also waives, to the extent permitted
by law, any defense Borrower might otherwise have to the
26
<PAGE>
Obligations arising from use of nonjudicial process,
enforcement and sale of all or any portion of the Collateral or
from any other election of remedies. Borrower recognizes that
nonjudicial remedies are consistent with the usages of the
trade, are responsive to commercial necessity and are the
result of a bargain at arm's length.
5.1.5 Notwithstanding the foregoing, upon the occurrence and during
the continuance of any Event of Default described in Sections
5.5 and 5.6 of the Promissory Note, Lender shall have the right
to exercise any of its rights and/or remedies without
presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower.
5.2 Delay not Waiver; Remedies are Cumulative.
-----------------------------------------
5.2.1 No failure on the part of Lender or Custodian to exercise, and
no delay in exercising, any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or
partial exercise by Lender or Custodian of any right, power or
remedy hereunder preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.
5.2.2 All remedies of Lender or Custodian provided for herein are
cumulative and in addition to any and all other rights and
remedies provided by law, the Facility Documents and the other
instruments and agreements contemplated hereby and thereby.
Lender may exercise at any time after the occurrence and during
the continuance of an Event of Default one or more remedies, as
it so desires, and may thereafter at any time and from time to
time exercise any other remedy or remedies.
5.3 Application of Proceeds. The proceeds of any sale or disposition of
-----------------------
each item of the Collateral pursuant to this Article shall be applied
as follows:
5.3.1 First, to the payment of the reasonable costs and expenses of
such sale or disposition, or any other enforcement action
pursuant hereto, including reasonable attorneys' fees, and all
27
<PAGE>
other reasonable expenses incurred in connection therewith,
with a reasonable reserve for any liabilities, which shall be
determined in full within ninety (90) days, incurred in
connection therewith and full repayment with interest of all
advances made or incurred in connection therewith;
5.3.2 Second, to the payment in full, in such order as Lender shall
determine, of (i) the accrued interest on the Advances, (ii)
the outstanding principal on the Advances and (iii) all other
Obligations due and owing to the Lender;
5.3.3 Finally, to the payment to the person or persons entitled
thereto, or as a court of competent jurisdiction directs.
If the proceeds of any such sale are insufficient to cover the reasonable
costs and expenses of such sale, as aforesaid, and the payment in full of
the Promissory Note, including without limitation all Advances thereunder,
and all other Obligations, Borrower shall remain liable for any deficiency.
5.4 Reimbursement. All reasonable sums expended by Lender or Custodian in
-------------
connection with the exercise of any right or remedy provided for
herein shall be and remain the obligation of Borrower. At the option
of Lender, all such reasonable sums may be paid from the Collateral,
or may be advanced by Lender or Custodian, in which event they shall
be deemed to have been advanced to Borrower and shall be reimbursed by
Borrower to the party advancing such amount, with interest at the
Default Rate commencing on the tenth day after notice to Borrower of
such amount to be reimbursed until reimbursement is made. During the
continuance of an Event of Default, Borrower waives, and shall not
have, any right to restrict or control the expenditures by Lender or
Custodian from any cash which constitutes Collateral.
5.5 Indemnity.
---------
5.5.1 The powers conferred on Lender hereunder are solely for its
protection and do not impose any duty on it to exercise any
such powers. Borrower, its successors and assigns, waive all
28
<PAGE>
rights whatsoever against Lender for any loss, expense,
liability or damage suffered by Borrower as a result of
reasonable actions taken pursuant to this Pledge Agreement,
including those arising under any "mortgagee in possession"
doctrine or the like. Borrower agrees to indemnify and hold
harmless Lender from each and every obligation, liability,
loss, cost, expense, death, injury, or damage resulting from,
or arising out of the Facility Documents and all other
documents related thereto, and all actions taken pursuant
thereto (including, without limitation, any such obligation,
liability, loss, cost, expense, death, injury or damage
resulting from any action taken by Lender pursuant to Section 5
hereof), other than those caused by the gross negligence or
willful misconduct of Lender).
5.5.2 Without limiting the application of Section 5.5.1, Borrower
agrees to pay, or reimburse Lender for all reasonable fees and
taxes in connection with the recording or filing of instruments
and documents in public offices, payment or discharge of any
taxes or liens upon or in respect of the Collateral and all
other reasonable fees, costs and expenses in connection with
protecting, maintaining or preserving the Collateral and
Lender's interest therein, whether through judicial proceedings
or otherwise, or in defending or prosecuting any actions, suits
or proceedings arising out of or relating to the Collateral.
5.6 Survival. The indemnity obligations of Borrower contained in this
--------
Pledge Agreement shall continue in full force and effect
notwithstanding the full payment of the Promissory Note and all of the
other Obligations and notwithstanding the discharge thereof.
5.7 Waiver of Redemption. Borrower hereby expressly waives, to the
--------------------
fullest extent permitted by law, any right of redemption, any
moratorium or redemption period, any reduction in the proceeds of any
Collateral as a result of restrictions upon Lender or Custodian
contained in the Facility Documents or any other instrument delivered
in connection therewith, and any right that it may have to direct the
order in which any of the Collateral shall be disposed of in the event
of any disposition pursuant hereto.
29
<PAGE>
6. MISCELLANEOUS.
-------------
6.1 Notices. Any notices or other communications permitted or required
-------
hereunder shall be in writing and shall be deemed conclusively to have
been given if (a) personally delivered, (b) sent by express courier
delivery service and received by the party to whom it is sent or (c)
transmitted by telex or facsimile transmission (or any other type of
electronic transmission agreed upon by the parties).
6.2 Costs of Collection. Borrower agrees to pay, with interest at the
-------------------
Default Rate commencing on the tenth day after notice to Borrower of
such amount to be reimbursed until reimbursement is made, the
reasonable out-of-pocket expenses (including estimated allocated costs
for internal counsel) and reasonable attorneys' fees incurred by
Lender in connection with the administration and enforcement of the
Facility Documents, the taking of any action, including legal action,
required or permitted to be taken by Lender pursuant thereto, or in
connection with any refinancing or restructuring in the nature of a
"workout".
6.3 Entire Agreement. This Pledge Agreement supersedes and integrates all
----------------
negotiations, contracts, agreements and understandings between the
parties relating thereto, and it, together with the other Facility
Documents and the other documents delivered pursuant hereto or
thereto, contains the entire final agreement of the parties. No prior
negotiation, agreement, understanding or prior contract shall have any
validity hereafter.
6.4 Amendments, Etc. No amendment or waiver of any provision of this
---------------
Pledge Agreement nor any consent to any departure herefrom shall in
any event be effective unless the same shall be in writing and signed
by all the parties hereto, and then such amendment, waiver or consent
shall be effective only in the specific instance and for the specific
purpose for which given.
6.5 Severability. If any provision of this Pledge Agreement is declared
------------
invalid by any court of competent jurisdiction, such invalidity shall
not
30
<PAGE>
affect any other provision, and this Pledge Agreement shall be
enforced to the fullest extent permitted by law.
6.6 Binding Effect; Governing Law. This Pledge Agreement shall be binding
-----------------------------
and inure to the benefit of the parties hereto and their respective
successors and assigns. Borrower may not assign this Pledge Agreement
or any of Borrower's rights or obligations hereunder. Lender may sell
or pledge participation interests, in whole or in part, in its rights
hereunder so long as Lender remains solely responsible for its
obligations hereunder and the participants have no rights, voting or
otherwise, as against the Borrower; provided, however, that if an
Event of Default has occurred and is continuing, Lender may assign all
of its rights arising hereunder or under any of the Facility
Documents. Nothing contained herein shall preclude Lender from
continuing to exercise all of its rights hereunder for the benefit of
any such participant, and Borrower shall continue to take directions
solely from Lender. This Agreement shall be construed in accordance
with, and governed by, the law of the State of New York, without
giving effect to the conflict of laws principles thereof.
6.7 Joint and Several. The joint and several obligations of each of CWM
-----------------
Mortgage Holdings, Inc., Independent National Mortgage Corporation and
Warehouse Lending Corporation of America, Inc. hereunder are absolute,
unconditional, irrevocable, present and continuing and, with respect
to any Obligation to the Lender, is a guaranty of performance of such
Obligation (and not of collectability) and is in no way conditional or
contingent upon the continued existence of any other Borrower and is
not and will not be subject to any setoffs. Any notice or other
communication provided to one Borrower pursuant hereto shall be deemed
to have been given to all Borrowers and failure to be sent any notice
or communication contemplated hereby shall not relieve a Borrower from
its joint and several liability for the Obligations of any other
Borrower hereunder.
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<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed by the
parties hereto as of the date first above written.
CWM MORTGAGE HOLDINGS, INC., as Borrower
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
INDEPENDENT NATIONAL MORTGAGE CORPORATION,
as Borrower
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
WAREHOUSE LENDING CORPORATION OF AMERICA,
INC., as Borrower
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
NOMURA ASSET CAPITAL CORPORATION, as Lender
By:
-----------------------------------------
Name: James K. Lieblich
---------------------------------------
Title: Director
--------------------------------------
32
<PAGE>
APPENDIX A
33
<PAGE>
Representations and Warranties Regarding
Mortgage Loans as of the Date of the Related
Advance
(a) Mortgage Loans as Described. The information set forth in the
---------------------------
Collateral Receipt and the related mortgage loan schedule (the "Mortgage Loan
Schedule") is complete, true and correct, in all material respects.
(b) Payments Current; No Default. Unless Lender is otherwise
----------------------------
notified, all payments required to be made under the terms of the mortgage note
have been made and credited. No material payment required under the Mortgage
Loan has been delinquent at any time since the date the Mortgage Loan was
originated. There is no material default, breach, violation or event of
acceleration existing under the mortgage or the mortgage note and no event that,
with the passage of time or with notice and the expiration of any grace or cure
period, would constitute a material default, breach, violation or event of
acceleration, and neither Borrower nor its predecessors have waived any material
default, breach, violation or event of acceleration.
(c) No Outstanding Charges. There are no material defaults in
----------------------
complying with the terms of the mortgage, and all material taxes, governmental
assessments, insurance premiums, water, sewer and municipal charges, leasehold
payments or ground rents that previously became due and owing have been paid, or
an escrow of funds has been established in an amount sufficient to pay for every
such item that remains unpaid and that has been assessed but is not yet due and
payable. Borrower, or Sub-borrower, as applicable, has not advanced funds, or
induced, solicited or knowingly received any advance of funds by a party other
than the mortgagor, directly or indirectly, for the payment of any amount
required under the Mortgage Loan, except for interest accruing from the date of
the mortgage note or date of disbursement of the Mortgage Loan proceeds,
whichever is greater, to the day that precedes by one month the due date of the
first installment of principal and interest.
(d) Original Terms Unmodified. The terms of the mortgage note and
-------------------------
mortgage have not been impaired, waived, altered or modified in any material
respect, except by a written instrument that has been recorded, if necessary to
protect the interest of Lender and that has been delivered to Lender or its
designee (including the Custodian). The substance of any such material waiver,
alteration or modification has been approved by the title insurer, to the extent
required by the policy, and its terms are reflected on the Mortgage Loan
Schedule. No
34
<PAGE>
mortgagor has been released, in whole or in part, except in connection with an
assumption agreement approved by the title insurer, to the extent required by
the policy, and which assumption agreement is included in the mortgage file
delivered to Lender or its designee (including the Custodian) and the terms of
which are reflected in the Mortgage Loan Schedule.
(e) No Defenses. The Mortgage Loan is not subject to any material
-----------
right of rescission, set-off, counterclaim or defense, including without
limitation 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 material right of rescission, set-off, counterclaim or
defense, including without limitation the defense of usury, and no such right of
rescission, set-off, counterclaim or defense has been asserted with respect
thereto.
(f) Insurance Policies in Effect. The fire and casualty insurance
----------------------------
policy covering the mortgaged property (1) affords and will afford sufficient
insurance against fire and such other risks as are usually insured against in
the broad form of extended coverage insurance from time to time available, as
well as insurance against flood hazards if the mortgaged property is in an area
identified by the Federal Emergency Management Agency as having special flood
hazards or the same is required by the relevant Purchaser, (2) is a standard
policy of insurance for the locale where the mortgaged property is located, is
in full force and effect, and the amount of insurance is in the amount of the
full insurable value of the structure on the mortgaged property on a replacement
cost basis or the unpaid balance of the Mortgage Loans, whichever is less; (3)
names (and will name) the present owner of the mortgaged property as the
insured; and (4) contains a standard mortgagee loss payable clause in favor of
the servicer, Borrower, or Sub-borrower, as the case may be.
(g) Compliance with Applicable Laws. Any and all requirements of any
-------------------------------
federal, state or local law including, without limitation, usury, truth-in-
lending, real estate settlement procedure, consumer credit protection, equal
credit opportunity or disclosure laws applicable to the Mortgage Loan have been
materially complied with, and Borrower or Sub-borrower shall maintain in its
possession, available for Lender's inspection, and shall deliver to Lender upon
demand, evidence of compliance with all such requirements.
(h) No Satisfaction of Mortgage. The mortgage has not been satisfied,
---------------------------
canceled, subordinated or rescinded, in whole or in part, in any material
35
<PAGE>
respect, and the mortgaged property has not been released from the lien of the
mortgage, in whole or in part, nor has any instrument been executed that would
effect any such release, cancellation, subordination or rescission.
(i) Use of Mortgaged Property. No portion of the mortgaged property
-------------------------
is used for commercial purposes.
(j) Valid First Lien. Except for second lien mortgages with a
----------------
Collateral Value not to exceed, in the aggregate, $20,000,000, the mortgage is a
valid, existing and enforceable first lien on a mortgaged property improved by a
one- to four-family residential dwelling, including all buildings on the
mortgaged property and all additions, alterations and replacements made at any
time with respect to the foregoing. The lien of the mortgage is subject only
to:
(1) the lien of the current real property taxes and assessments not
yet due and payable.
(2) covenants, conditions and restrictions, rights of way, easements
and other matters of the public record as of the date of recording
acceptable to mortgage lending institutions generally and specifically
referred to in the lender's title insurance policy delivered to the
originator of the Mortgage Loan and (A) referred to or otherwise considered
in the appraisal made for the originator of the Mortgage Loan or (B) that
do not materially adversely affect the appraised value of the mortgaged
property set forth in such appraisal; and
(3) other matters to which like properties are commonly subject that
do not materially interfere with the benefits of the security intended to
be provided by the mortgage or the use, enjoyment, value of marketability
of the related mortgaged property.
Any security agreement, chattel mortgage or equivalent document
related to and delivered in connection with the Mortgage Loan establishes and
creates, or established and created a valid, subsisting and enforceable first
lien and first priority security interest on the property described therein,
except for second lien mortgages with a Collateral Value not to exceed, in the
aggregate, $20,000,000, and Borrower has full right to pledge and assign such
liens to Lender or its designee (including Custodian).
36
<PAGE>
(k) Validity of Mortgage Documents. 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. All parties to the
mortgage note and the mortgage had legal capacity to enter into the Mortgage
Loan and to execute and deliver the mortgage note and the mortgage, and the
mortgage note and the mortgage have been duly and properly executed by such
parties.
(l) Full Disbursement of Proceeds. The proceeds of the Mortgage Loan
-----------------------------
have been fully disbursed and there is no requirement of future advances
thereunder, and any and all requirements as to completion of any on-site or off-
site improvement and as to disbursements of any escrow funds therefor have been
complied with. All material costs, fees and expenses incurred in making or
closing the Mortgage Loan and the recording of the mortgage were paid, and the
mortgagor is not entitled to any material refund of any amounts paid or due
under the mortgage note or mortgage.
(m) Doing Business. All parties that have had any interest in the
--------------
Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or,
during the period in which they held and disposed of such interest, were), where
material, (1) in compliance with any and all applicable licensing requirements
of the laws of the state wherein the mortgaged property is located, and (2)
organized under the laws of such state, or (3) qualified to do business in such
state, or (4) federal savings and loan associations or national banks having
principal offices in such state, or (5) not doing business in such state.
(n) LTV. No Mortgage Loan has or had at origination an LTV of more
---
than 100%.
(o) Title Insurance. The Mortgage Loan is covered by either (1) an
---------------
attorney's opinion of title and abstract of title the form and substance of
which is acceptable to mortgage lending institutions making mortgage loans in
the area where the mortgaged property is located or (2) an ALTA lender's title
insurance policy or other generally acceptable form of policy of insurance,
issued by a title insurer and qualified to do business in the jurisdiction where
the mortgaged property is located, insuring Borrower or Sub-borrower, as the
case may be, its successors and assigns, as to the first priority lien of the
mortgage in the amount of 100% of the original principal amount of the Mortgage
Loan, subject only to the exceptions contained in clauses (1), (2) and (3) of
paragraph (j) above and, with respect to adjustable rate Mortgage Loans, against
any loss by reason of the
37
<PAGE>
invalidity or unenforceability of the lien resulting from the provisions of the
mortgage providing for adjustment to the mortgage interest rate and monthly
payment. The related servicer, Borrower or Sub-borrower, as the case may be, is
the sole insured of such lender's title insurance policy, and such lender's
title insurance policy is in full force and effect and will be in force and
effect upon the consummation of the transactions contemplated by this Agreement.
No claims have been made under such lender's title insurance policy, and no
prior holder of the mortgage, including the related servicer, Borrower and Sub-
borrower, as applicable, has done, by act or omission, anything that would
impair the coverage of such lender's title insurance policy.
(p) No Mechanics' Liens. There are no material mechanics' or similar
-------------------
liens or claims that have been filed for work, labor or material (and no rights
are outstanding that under the law could give rise to such liens) affecting the
mortgaged property that are or may be liens prior to, or equal or coordinate
with, the lien of the Mortgage.
(q) Location of Improvements; No Encroachments. All improvements that
------------------------------------------
were considered in determining the appraised value of the mortgaged property lay
wholly within the boundaries and building restriction lines of the mortgaged
property and no improvements on adjoining properties encroach upon the mortgaged
property. No improvement located on or being part of the mortgaged property is
in material violation of any applicable zoning law or regulation.
(r) Origination; Payment Terms. The documents, instruments and
--------------------------
agreements submitted for loan underwriting were not falsified and contain no
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the information and statements therein
not misleading. With respect to adjustable rate Mortgage Loans, the mortgage
interest rate is adjusted annually on each interest rate adjustment date to
equal the index plus the gross margin, rounded up or down to the nearest 1/8%,
subject to the mortgage interest rate cap. With respect to fixed rate Mortgage
Loans, the mortgage note is payable each month in equal monthly installments of
principal and interest. With respect to adjustable rate Mortgage Loans,
installments of interest are subject to change due to the adjustments to the
mortgage interest rate on each interest rate adjustment date, with interest
calculated and payable in arrears, sufficient to amortize the Mortgage Loan
fully by the stated maturity date, over an original term of not more than thirty
years from commencement of amortization.
38
<PAGE>
(s) Deeds of Trust. In the event 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 the mortgage, and no
fees or expenses are or will become payable by Lender to the trustee under the
deed of trust, except in connection with a trustee's sale after default by the
mortgagor.
(t) Acceptable Investment. Borrower has no actual knowledge of any
---------------------
circumstances or conditions with respect to the mortgage, the mortgaged
property, the mortgagor or the mortgagor's credit standing that can reasonably
be expected to cause private institutional investors to regard the Mortgage Loan
as an unacceptable investment, cause the Mortgage Loan to become delinquent, or
adversely affect the value or marketability of the Mortgage Loan in any material
respect.
(u) Due on Sale. The Mortgage contains an enforceable provision for
-----------
the acceleration of the payment of the unpaid principal balance of the Mortgage
Loan in the event that the mortgaged property is sold or transferred without the
prior written consent of the mortgagee thereunder.
(v) No Graduated Payments or Contingent Interests. The Mortgage Loan
---------------------------------------------
is not a graduated payment mortgage loan and the Mortgage Loan does not have a
shared appreciation or other contingent interest feature.
(w) Consolidation of Future Advances. Any future advances made prior
--------------------------------
to the date such Mortgage Loan was delivered to Custodian have been consolidated
with the outstanding principal amount secured by the mortgage, and the secured
principal amount, as consolidated, bears a single interest rate and single
repayment term. The consolidated principal amount does not exceed the original
principal amount of the Mortgage Loan.
(x) Mortgaged Property Undamaged. There is no proceeding pending or
----------------------------
threatened for the total or partial condemnation of any material portion of the
mortgaged property. The mortgaged property is undamaged by waste, fire,
earthquake or earth movement, windstorm, flood, tornado or other casualty so as
to materially affect adversely the value of the mortgaged property as security
for the Mortgage Loan or the use for which the premises were intended.
39
<PAGE>
(y) Collection Practices; Escrow Deposits; Interest Rate Adjustments.
----------------------------------------------------------------
The origination and collection practices used with respect to the Mortgage Loan
have been in all material respects in accordance with industry custom and
practice, and have been in all material respects legal and proper. With respect
to escrow deposits and escrow payments, all such payments are in the possession
of Borrower or Sub-borrower, as the case may be, and there exist no material
deficiencies in connection therewith for which customary arrangements for
repayment thereof have not been made. All escrow payments have been collected
in material compliance with state and federal law. An escrow of funds is not
prohibited by applicable law and has been established in an amount sufficient to
pay for every material item that remains unpaid and has been assessed but is not
yet due and payable. No escrow deposits or escrow payments or other charges or
payments due Borrower or Sub-borrower, as the case may be, have been capitalized
under the Mortgage or the mortgage note. All mortgage interest rate adjustments
have been made in strict compliance with state and federal law and the terms of
the related mortgage note. Any interest required to be paid pursuant to state
and local law has been properly paid and credited.
(z) Appraisal. The mortgage file contains an appraisal of the related
---------
mortgaged property signed prior to the approval of the Mortgage Loan application
by a qualified appraiser, duly appointed by the related servicer, Borrower or
Sub-borrower, as the case may be, who had no interest, direct or indirect in the
mortgaged property or in any loan made on the security thereof, and whose
compensation is not affected by the approval or disapproval of the Mortgage
Loan, all as in effect on the date the Mortgage Loan was originated.
(aa) Purchase Commitments. All Purchase Commitments that are part of
--------------------
the Collateral are valid and enforceable obligations and have been approved by
all necessary authorities.
(bb) Defaulted Mortgage Loan. During the first two months following
-----------------------
origination of a Wet Mortgage Loan, the principal of and/or interest on such
Mortgage Loan is not due and unpaid for more than thirty (30) days. The
principal of and/or interest on any Mortgage Loan is not due and unpaid for more
than forty-five (45) days.
(cc) Delivery of Wet Mortgage Loan Documents. With respect to Wet
---------------------------------------
Mortgage Loans, Borrower has delivered to Custodian the documents required to be
delivered under the related Custody Agreement within five (5) Business Days of
the date of the related Advance.
40
<PAGE>
(dd) Eligibility. The Mortgage Loan is eligible, and in the form
-----------
required, for securitization or purchase by the relevant Purchaser. It is a
bona fide Mortgage Loan of the type it purports to be, made to one or more
borrowers each having substantially the credit standing he or she is represented
to have.
PROMISSORY NOTE
$300,000,000.00 Dated: August 3, 1994
New York, New York
FOR VALUE RECEIVED, the undersigned (individually and collectively,
"Borrower") HEREBY PROMISES TO PAY to Nomura Asset Capital Corporation
("Lender"), for the benefit of Lender, in lawful money of the United States of
America, the lesser of (i) the amount set forth above and (ii) the aggregate
unpaid principal amount of all Advances made by Lender to Borrower pursuant to
the Financing Facility Agreement, dated the date hereof (as amended from time to
time, the "Facility Agreement"), between Lender and Borrower, on the applicable
Maturity Date for outstanding Advances, together with interest on the
outstanding Advances, from and including the date on which such Advance is made
until the principal amount of such Advance is paid in full on the applicable
Maturity Date (and, as to any overdue principal and accrued interest thereon, on
demand), at an interest rate per annum with respect to such Advance equal to the
Quoted Rate applicable to such Advance. Each Advance under this promissory note
(the "Promissory Note") shall be made pursuant to an executed Notice of Advance.
Upon the execution of each Notice of Advance, Lender shall attach hereto, or
shall cause to be attached hereto, a list of all new Advances hereunder, which
list shall be made a part hereof; provided, however, that the failure of Lender
to attach such list or to cause such list to be attached, or any inaccuracy in
any such list, shall not limit or affect the obligations of Borrower hereunder.
1. DEFINITIONS. All capitalized terms not otherwise defined herein shall have
-----------
the meanings ascribed to them in the Facility Agreement or the Pledge Agreement
("Pledge Agreement") executed by Borrower and Lender and dated the date hereof.
41
<PAGE>
2. LATE PAYMENTS. Borrower shall pay interest on any overdue principal of each
-------------
Advance and (to the extent permitted by applicable law) accrued interest
thereon, payable daily at a fluctuating interest rate per annum equal to 2%
above the rate of interest per annum quoted as the prime rate in The Wall Street
---------------
Journal (the "Default Rate"), each change in such Default Rate to take effect
- - -------
simultaneously with any change in such prime rate.
3. MORTGAGE FUNDING PROGRAM. This Promissory Note is the Promissory Note
------------------------
referred to in the Facility Agreement and is entitled to the benefit thereof and
shall be subject to the provisions thereof and of the Pledge Agreement. This
Promissory Note is secured pursuant to the Pledge Agreement.
4. PAYMENTS AND COMPUTATIONS. Borrower shall make each payment hereunder on
-------------------------
the day when due to Lender pursuant to Lender's instructions in same day funds.
All computations of interest shall be made by Lender on the basis of a year of
360 days for the actual number of days (including the first day but excluding
the last day) occurring in the period for which such interest is payable. Any
payment to be made hereunder on a day other than a Business Day shall be made on
the next succeeding Business Day, and such extension of time shall in such case
be included in the computation of payment of interest.
5. EVENTS OF DEFAULT; NOTICE; REMEDIES.
-----------------------------------
5.1 EVENTS OF DEFAULT. The following events shall each be deemed an "Event
of Default":
5.1.1 Borrower shall fail to pay (i) any payment of principal
attributable to any Advance made hereunder when due, (ii)
any payment of interest attributable to any Advance made
hereunder within two (2) Business Days of when due or (iii)
any other amounts due and payable under this Promissory Note
upon five (5) days' notice to Borrower by Lender; or
5.1.2 Borrower shall (i) fail to perform or observe any other
material term, covenant or agreement contained in the
Facility Documents on its part to be performed or observed
when required, and (ii) fail to cure such failure within 30
days of notice from Lender of such failure; or
42
<PAGE>
5.1.3 any representation or warranty, except for those listed in
Appendix A to the Pledge Agreement, made by Borrower (or any
of its officers) in the Facility Documents or in any
document delivered in connection therewith shall prove to
have been incorrect in any material respect when made; or
5.1.4 Borrower shall fail to pay any of its indebtedness for
borrowed money in an aggregate amount in excess of $500,000
or any interest or premium thereon when due (whether by
scheduled maturity, required prepayment, acceleration,
demand or otherwise) and such failure shall continue after
the applicable grace period, if any, specified in the
agreement or instrument relating to such indebtedness; or
any other default under any agreement or instrument relating
to any such indebtedness, or any other event, shall occur
and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the
effect of such default or event is to accelerate, or to
permit the acceleration of, the maturity of such
indebtedness; or if any such indebtedness shall be declared
to be due and payable, or required to be prepaid in full
(other than by a regularly scheduled required prepayment),
prior to the stated maturity thereof; or
5.1.5 a custodian, receiver, conservator, liquidator, trustee,
sequestrator or similar official for Borrower, or of any of
its property, is appointed or takes possession of such
property; or Borrower generally fails to pay its debts as
they become due; or Borrower is adjudicated bankrupt or
insolvent; or an order for relief is entered under the
Federal Bankruptcy Code, any successor or similar applicable
statute, or any administrative insolvency scheme, against
Borrower; or any of its property is sequestered by court or
administrative order; or a petition is filed, which is not
vacated or stayed within 60 days, against Borrower under any
bankruptcy,
43
<PAGE>
reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction,
whether now or subsequently in effect; or
5.1.6 Borrower files a voluntary petition in bankruptcy or seeks
relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction
whether now or subsequently in effect; or consents to the
filing of any petition against it under any such law; or
consents to the appointment of or taking possession by a
custodian, receiver, conservator, trustee, liquidator,
sequestrator or similar official for Borrower, or of all or
any part of its property; or makes an assignment for the
benefit of its creditors; or
5.1.7 any judgment or order, which is not reversed, vacated,
bonded or stayed within 45 days, for the payment of money in
excess of $1,000,000 shall be rendered against Borrower; or
5.1.8 any governmental authority or agency or any person, agency
or entity acting under governmental authority shall have
taken any action to condemn, seize or appropriate, or to
assume custody or control of, all or any substantial part of
the property of Borrower, or shall have taken any action to
displace the management of Borrower or to curtail its
authority in the conduct of the business of Borrower, where
any such action stated in this Section 5.1.8 (i) is not
dismissed, discontinued, vacated, bonded or stayed within 45
days and (ii) would have a material adverse effect on the
Market Value of the Collateral and the ability of Borrower
to repay the Obligations; or
5.1.9 Borrower shall default under, or fail to perform as
requested under, or shall otherwise breach the terms of any
instrument, agreement or contract between it and Lender or
any of Lender's affiliates, where such failure to
44
<PAGE>
perform or such breach shall have a material adverse effect
on the Market Value of the Collateral and the ability of
Borrower to repay the Obligations; or
5.1.10 any material adverse change occurs in the financial
condition, operations or corporate structure of Borrower.
5.2 NOTICE OF SUB-BORROWER DEFAULT. Borrower shall immediately notify
------------------------------
Lender if, pursuant to the Sub-Facility Collateral, any Sub-borrower (i) fails
to make any payment of principal when due pursuant to the Sub-Facility
Collateral, or (ii) breaches any covenants which would have a material effect on
the ability of the Sub-borrower to perform its obligations.
5.3 REMEDIES. If an Event of Default occurs and is continuing, Lender may
--------
(i) by notice to Borrower, declare this Promissory Note and all Advances made
hereunder, the outstanding principal of and all interest accrued thereon and all
other amounts payable under the Facility Documents to be immediately due and
payable, whereupon this Promissory Note and all such Advances, interest and
other amounts shall become and be immediately due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by Borrower, and (ii) exercise or cause to be exercised
all rights and remedies of Lender as secured party under the Pledge Agreement;
provided, that upon occurrence and during the continuance of any Event of
Default described in Sections 5.1.5 and 5.1.6 above, the outstanding principal
of and accrued interest on this Promissory Note and all other amounts payable
under the Facility Documents shall immediately and automatically become due and
payable without presentment, demand, protest or notice of any kind.
6. AMENDMENTS, ETC. No amendment or waiver of any provision of this
---------------
Promissory Note, nor any consent to any departure by Borrower therefrom, shall
be effective unless the same shall be in writing and signed by Lender and
Borrower, and then such amendment, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it is given.
7. JOINT AND SEVERAL. The joint and several obligations of each of CWM
-----------------
Mortgage Holdings, Inc., Independent National Mortgage Corporation and Warehouse
Lending Corporation of America, Inc. hereunder are absolute, unconditional,
irrevocable, present and continuing and, with respect to any Obligation to the
Lender, is a guaranty of performance of such Obligation (and not
45
<PAGE>
of collectability) and is in no way conditional or contingent upon the continued
existence of any other Borrower and is not and will not be subject to any
setoffs. Any notice or other communication provided to one Borrower pursuant
hereto shall be deemed to have been given to all Borrowers and failure to be
sent any notice or communication contemplated hereby shall not relieve a
Borrower from its joint and several liability for the Obligations of any other
Borrower hereunder.
8. NOTICES. Any notices or other communications permitted or required
-------
hereunder shall be in writing and shall be deemed conclusively to have been
given if (a) personally delivered, (b) sent by express courier delivery service
and received by the party to whom it is sent or (c) transmitted by telex or
facsimile transmission (or any other type of electronic transmission agreed upon
by the parties).
9. NO WAIVER, REMEDIES. No failure on the part of Lender to exercise, and no
-------------------
delay in exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any other remedies provided
in equity or at law.
10. BINDING EFFECT; GOVERNING LAW; VENUE. This Promissory Note shall be
------------------------------------
binding upon Borrower and its successors and assigns, and shall inure to the
benefit of Lender and its successors and assigns. Borrower may not assign its
obligations under this Promissory Note without the prior written consent of
Lender. Lender may assign to any affiliate or upon the occurrence and during
the continuance of an Event of Default, by bookkeeping entry on Lender's records
or otherwise, all or any part of, or any interest in, Lender's rights and
benefits hereunder, including, without limitation, its right to payments of
principal and interest with respect to a particular Advance. To the extent of
such assignment, such assignee shall have the same rights and benefits against
Borrower as it would have had if it were Lender hereunder; provided, however,
that nothing contained herein shall preclude Lender from continuing to exercise
all of its rights hereunder for the benefit of any such assignee of Lender, and
Borrower shall continue to take directions solely from Lender unless otherwise
notified by Lender in writing. This Promissory Note shall be construed in
accordance with, and governed by, the laws of the State of New York, without
giving effect to the conflict of law principles thereof. Borrower waives trial
by jury. Borrower hereby irrevocably consents to the non-exclusive jurisdiction
of any court of the State of New York, or in the United States District Court
for the Southern District of New York, in any action or
46
<PAGE>
proceeding arising out of or relating to this Promissory Note. Borrower hereby
submits to, and waives any objection it may have to personal jurisdiction and
venue in, the courts of the State of New York and the United States District
Court for the Southern District of New York, over any disputes arising out of or
relating to this Promissory Note. Borrower consents to service of process by
mail at the address specified in the Custody Agreement or otherwise designated
pursuant to Section 8 hereof and waives any objection it may have to the
sufficiency or adequacy of such method of service of process.
47
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be
executed by its officer thereunto duly authorized, as of the date first above
written.
CWM MORTGAGE HOLDINGS, INC., as Borrower
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
INDEPENDENT NATIONAL MORTGAGE
CORPORATION, as Borrower
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
WAREHOUSE LENDING CORPORATION OF
AMERICA, INC., as Borrower
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
NOMURA ASSET CAPITAL CORPORATION
MORTGAGE FUNDING PROGRAM
TRI-PARTY CUSTODY AGREEMENT
DATED: AUGUST 3, 1994
AMONG
CWM MORTGAGE HOLDINGS, INC.,
48
<PAGE>
INDEPENDENT NATIONAL MORTGAGE CORPORATION, AND
WAREHOUSE LENDING CORPORATION OF AMERICA, INC.,
JOINTLY AND SEVERALLY, AS THE BORROWER
AND
NOMURA ASSET CAPITAL CORPORATION, AS THE LENDER
AND
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.,
AS THE CUSTODIAN
1. ADVANCES TO WHICH THE AGREEMENT RELATES. The Lender has agreed, from time
---------------------------------------
to time, pursuant to a facility agreement (the "Facility Agreement"), to make
Loans (each, an "Advance") to the Borrower with respect to the mortgage loans
(or security interests therein) related to this Agreement. The Borrower has
granted or shall hereafter grant to the Lender and its successors and assigns a
security interest in and lien on certain collateral (the "Collateral") as
security for the performance of the obligations of the Borrower in connection
with the Advances. The Borrower intends, from time to time, to deliver to the
Custodian certain items of, and items pertaining to, the Collateral, and the
Custodian is willing to hold such Collateral (and items pertaining thereto) in
custody as collateral agent for the Lender and its successors and assigns, in
order to perfect for the Lender, its successors and assigns, the security
interest in and lien on such Collateral. The Collateral consists of mortgage
loans ("Mortgage Loans") intended to be purchased for cash by a purchaser listed
on Schedule I hereto ("Purchaser"), and facility, loan, warehousing or similar
agreements, pledge agreements, promissory notes, custody agreements, collateral
receipts, security agreements and any other documents related thereto entered
into by entities (each, a "Sub-borrower") in favor of Borrower which relate to
the grant of first priority perfected security interests in and liens on all of
the right, title and interest of Sub-borrowers, in, under and to Mortgage Loans,
which security interests are being assigned to the Lender.
2. APPOINTMENT OF THE CUSTODIAN. The Lender hereby appoints the Custodian, and
----------------------------
the Custodian hereby accepts its appointment, to act as collateral agent for the
Lender, and its successors and assigns, for the purpose of taking custody of the
Collateral and certain items pertaining thereto as described herein. With
respect to any item of Collateral, the duties and obligations of the Custodian
hereunder as collateral agent (as described herein) for the Lender shall
terminate
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<PAGE>
upon receipt by the Lender of all amounts of principal and interest
due and owing to the Lender by the Borrower or upon notice from the Lender.
3. DEPOSIT OF COLLATERAL. The Borrower shall deposit with the Custodian, and
---------------------
the Custodian agrees to hold as custodian and as collateral agent (as described
herein) for the Lender and its successors and assigns, such Collateral that may
from time to time be so deposited hereunder. The Custodian shall maintain such
Collateral so deposited in separate records and files.
4. REQUIRED LOAN DOCUMENTS. For each Mortgage Loan, the Borrower shall deposit
-----------------------
with the Custodian the following required documents (the "Required Loan
Documents"), and/or all such other documents as the Lender may reasonably
require from time to time for the purchase by a Purchaser of the related
Mortgage Loans, as the case may be, duly authorized and completed, provided that
the Custodian is advised of such documents:
4.1 The original note endorsed "Pay to the order of _____________, without
recourse" and signed in the name of the Borrower by an officer of the
Borrower.
4.2 An unrecorded assignment of mortgage, with assignee in blank but
otherwise in recordable form, and all interim assignments, if any.
4.3 If applicable, a completed Prior Lender's Release Letter.
4.4 A schedule of mortgage loans in a form acceptable to the Lender.
4.5 If an Event of Default has occurred and is continuing, and if the
Custodian has been notified of such Event of Default by the Lender,
any Purchase Commitments.
5. WET FINANCING REQUIRED DOCUMENTS. For each mortgage loan intended to be
--------------------------------
financed or refinanced by the Borrower through funds provided by the Lender the
Borrower shall deposit, or cause to be deposited, with the Custodian within 5
Business Days (as defined in the Facility Agreement) of the related Advance, the
following required documents (the "Wet Financing Required Documents"), duly
authorized and completed, provided that the Custodian is advised of such
documents:
5.1 The original note endorsed "Pay to the order of ________ without
recourse" and signed in the name of the Borrower by an officer of the
Borrower.
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5.2 An unrecorded assignment of mortgage, with assignee in blank but
otherwise in recordable form, and all interim assignments, if any.
5.3 A schedule of mortgage loans in a form acceptable to the Lender and
the Custodian, the aggregate unpaid principal balance of which equals
the aggregate unpaid principal balance stated on the Notice of Advance
(a form of which is attached hereto).
6. SUB-FACILITY REQUIRED DOCUMENTS. For each mortgage loan as to which it is
-------------------------------
intended that the Borrower assign to Lender Borrower's first priority perfected
security interest in and lien on all of the right, title and interest of Sub-
borrower, the Borrower shall deposit, or cause to be deposited, with the
Custodian, in addition to the documents required to be deposited above, the
Promissory note of Sub-borrower to Borrower (the "Sub-Facility Required
Documents"), and/or all such other documents as the Lender may require from time
to time, duly authorized, executed and completed, provided that the Custodian is
advised of such documents. The Lender and the Borrower shall deliver to the
Custodian appropriate intercreditor agreements following the execution thereof.
7. CERTIFICATION OF DOCUMENTATION.
------------------------------
7.1 The Custodian, upon receipt of all of the Required Loan Documents, the
Wet Financing Required Documents, and/or the Sub-Facility Required Documents, as
the case may be (collectively, the "Required Documents"), shall review such
Required Documents in accordance with the review and certification guidelines
established by the Lender (as separately agreed to by the Lender and the
Custodian) to verify whether all are complete, whether each such document
purporting to be an original appears on its face to be an original, and whether
each such document purporting to be a certified photocopy or conformed copy
appears on its face to be a true copy of its original. Subject to the
provisions set forth in Section 7.2 with respect to Wet Mortgage Loans, the
Custodian shall notify the Borrower and the Lender of any documents that are
missing, that are incomplete on their face or that are patently inconsistent.
The Borrower shall promptly deposit such missing documents with the Custodian or
complete or correct the documents. When the Required Documents have been
received in full and correct form, the Custodian shall: (i) promptly deliver a
duly executed Collateral Receipt and Prior Lender's Release Letter, if
applicable, to the Lender; and (ii) upon request of the Lender, deliver copies
of the Required Documents to the Lender. In making such verification, the
Custodian may rely conclusively on the Notice of Advance completed by the
Borrower, the Required Documents and the documents constituting the Custodian's
mortgage file, and the Custodian shall have no obligation to independently
verify the correctness of the Borrower's certification on such Notice of Advance
or the effectiveness, sufficiency, validity, enforceability, collectability,
recordability or adequacy of the Notice of Advance
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<PAGE>
completed by the Borrower, Required Documents and the documents constituting the
Custodian's mortgage file.
7.2 The Borrower may pledge, as part of the Collateral securing an
Advance, a mortgage loan originated in the name of the Borrower or Sub-borrower,
as the case may be, on or prior to the date of such Advance and for which all of
the related Required Documents have not been deposited with the Custodian on or
prior to the date of such Advance (a "Wet Mortgage Loan"). In connection with
any assignment of Borrower's interest in a Wet Mortgage Loan, the Borrower
shall, not later than 4:00 p.m. New York City time on the Business Day
immediately prior to the scheduled date of the related Advance, deposit with the
Custodian a true and correct copy of a fully completed Notice of Advance. The
Notice of Advance shall constitute a Required Document, and the deposit of the
Notice of Advance shall be deemed to satisfy the requirement for the deposit of
the documents set forth in Sections 5.1 and 5.2 solely for purposes of the
execution of the Collateral Receipt as of the date thereof. Notwithstanding the
foregoing, the Borrower shall cause to be deposited with the Custodian the
documents set forth in Sections 5.1 and 5.2 for such Wet Mortgage Loan within
five (5) Business Days after the date of the related Collateral Receipt. If the
Borrower does not deposit such documents with the Custodian within such five (5)
Business Day period, the Custodian shall immediately notify the Lender. Upon
deposit of such documents with the Custodian, the Custodian shall review such
documents in accordance with the standards set forth in Section 7.1, shall
promptly notify the Lender if such documents do not comply with the requirements
thereof and shall indicate on its records that the Custodian maintains
possession of such documents for the Lender hereunder. The Borrower hereby
represents, warrants and covenants to the Lender and the Custodian that the
Borrower and any person or entity acting on behalf of the Borrower that has
possession of any of the documents set forth in Sections 5.1 or 5.2, as
applicable, for such Wet Mortgage Loan prior to the deposit thereof with the
Custodian will hold such documents in trust for the Lender.
8. FURTHER OBLIGATIONS OF THE CUSTODIAN.
------------------------------------
8.1 The Custodian shall promptly notify the Lender if (i) the Borrower
fails to pay any amount due to the Custodian under this Agreement or otherwise,
and such failure results in the Custodian's accelerating the payment of any
amount owed to the Custodian by the Borrower, or (ii) the Custodian has actual
knowledge that any mortgage, pledge, lien, security interest or other charge or
encumbrance (other than for the benefit of the Lender, its affiliates or its
successors and assigns) has been placed on any account maintained by the
Borrower with the Custodian or on the Required Documents.
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<PAGE>
8.2 The Custodian shall use reasonable care in accordance with the
standards it customarily uses for its own clients in similar transactions and
shall hold the Required Documents in its fire rated storage vault under its
exclusive custody and control, in accordance with customary standards for such
custody, and shall maintain a fidelity bond plus document hazard insurance in a
sufficient amount to cover any and all transactions contemplated by this
Agreement.
8.3 The Custodian hereby represents and warrants to the Lender that (i)
the Custodian is not controlled by, under common control with or otherwise
affiliated with the Borrower, and covenants and agrees with the Lender that
prior to any such affiliation in the future, the Custodian shall promptly notify
the Lender; and (ii) this Agreement has been duly authorized, executed and
delivered by the Custodian and constitutes the legal, valid and binding
obligation of the Custodian, enforceable in accordance with its terms.
8.4 If the Borrower desires to sell mortgage loans directly to a
Purchaser, the Custodian shall complete the endorsements and forward such
related Required Documents as instructed by the Borrower to effect such sale to
the respective Purchaser, together with a duly executed and completed Bailee
Letter; provided, however, that any Required Documents that are unacceptable to
the Purchaser shall be returned directly to the Custodian and held by the
Custodian for the Lender in accordance with this Agreement.
9. RELEASE OF REQUIRED DOCUMENTS. From time to time and as appropriate for
-----------------------------
the purpose of correcting errors therein or for the proper servicing of the
Mortgage Loans, the Custodian is hereby authorized, upon receipt of a Request
for Release of Documents in the form attached hereto ("Request for Release"),
executed by the Borrower and the Lender, to release or cause to be released to
the Borrower the mortgage loan documents set forth in such Request for Release;
provided, that any mortgage loan documents released to the Borrower pursuant to
a Request for Release shall be returned to Custodian no later than fifteen (15)
days from the date on such Request for Release. Notwithstanding the foregoing,
the Custodian may permit the withdrawals of certain mortgage loan documents
contained in the mortgage file relating to only twenty (20) Mortgage Loans
without the written consent of the Lender; provided, however, that if the
withdrawal of any mortgage note is for the purpose of changing the principal
amount thereof, a Request for Release executed by the Borrower and the Lender is
required to be delivered to the Custodian prior to such withdrawal. The
Custodian shall execute an acknowledgement of such Request for Release, shall
return a copy to both the Borrower and the Lender, and shall retain one original
copy. All documents released by the Custodian to the Borrower pursuant to this
Section shall be held in trust by the Borrower for the benefit of the Lender.
Upon the request of the Borrower, the Custodian may deliver the documents
referred to in Sections 4.1, 4.2, 4.4, 5.1 and 5.2 above, to a Purchaser so long
as such Interim Required
53
<PAGE>
Documents are accompanied by a Bailee Letter in the form attached hereto
addressed to such Purchaser. Upon the request of the Borrower, the Custodian
shall deliver such documents to a Purchaser by the end of the next Business Day.
The Custodian shall make a reasonable effort to require such Purchaser to
execute such Bailee Letter and return it to the Custodian, but shall not be
required to obtain such return.
10. RIGHT TO INSPECT. Upon reasonable prior written notice to the Custodian,
----------------
the Custodian shall permit at all reasonable times during regular business hours
(i) inspection by the Lender or the Borrower (or by their respective auditors
when requested by the Lender or Borrower, as the case may be) of the Required
Documents and the records of the Custodian relating to this Agreement and (ii)
copies to be made by the Lender (or its auditors when requested by the Lender)
of the Required Documents and the records of the Custodian relating to this
Agreement.
11. DELIVERY OF REQUIRED DOCUMENTS TO THE LENDER. If an Event of Default has
--------------------------------------------
occurred and is continuing, or if the Custodian is unable to perform its
obligations hereunder, the Custodian shall promptly deliver to the Lender or its
designee any or all Required Documents and other items of Collateral in the
Custodian's custody upon the Lender's written request. The Lender shall provide
the Borrower with a copy of any such request delivered to the Custodian.
Written instructions as to the method of shipment and shipper(s) the Custodian
is directed to utilize in connection with the transmission of Required Documents
in the performance of the Custodian's duties hereunder shall be delivered by the
Lender to the Custodian prior to any shipment of Required Documents pursuant to
the request of the Lender hereunder. The Lender will arrange for the provision
of such services at its sole cost and expense (or, at the Custodian's option,
reimburse the Custodian for all reasonable costs and expenses incurred by the
Custodian consistent with such instructions) and will maintain such insurance
against loss or damage to the Required Documents as the Borrower deems
appropriate.
12. THE CUSTODIAN FEES. It is understood that the Custodian, or its successor,
------------------
will charge such reasonable fees for its services under this Agreement as are
set forth in a separate agreement between the Custodian and the Borrower, the
payment of which, together with the Custodian's reasonable expenses in
connection herewith, shall be solely the obligation of the Borrower.
13. RESIGNATION OR REMOVAL OF THE CUSTODIAN.
---------------------------------------
13.1 Except as otherwise provided in the third sentence of this Section,
the Custodian may resign at any time by giving thirty (30) days prior written
notice thereof to the Borrower and the Lender. Such resignation shall take
effect upon (i) the appointment, of a successor custodian by the Borrower,
subject to approval by
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<PAGE>
the Lender, and (ii) the delivery by the resigning Custodian to the successor
custodian of all Required Documents and other items of Collateral in the custody
of the resigning the custodian pursuant to this Agreement (collectively the
"Custodial Items"). If, however, a successor custodian is not duly appointed
within ninety (90) days following delivery of such notice of resignation, the
sole responsibility of the Custodian thereafter under this Agreement shall be to
safely maintain the Custodial Items and to deliver the same to the successor
custodian upon its due appointment; provided, however, if the Borrower and the
Lender have not appointed a successor custodian within thirty (30) days after
the expiration of the aforementioned ninety (90) day period, the Custodian shall
deliver to the Lender the Custodial Items.
13.2 The Borrower may at any time, and shall promptly upon the written
request of the Lender, remove and discharge the Custodian, or any successor
custodian thereafter appointed, from the performance of its duties under this
Agreement by written notice from the Borrower to the Custodian or the successor
custodian, with copies thereof to the Lender. Such removal shall take effect
upon (i) the appointment of a successor custodian by the Borrower, subject to
the approval of the Lender, and (ii) the delivery by the removed Custodian to
the successor custodian of all Custodial Items.
13.3 In the event of any such resignation or removal, the Custodian shall
promptly transfer to the successor custodian all Custodial Items, and the
successor custodian shall thereafter hold such Custodial Items as the "the
Custodian" in accordance with the terms of this Agreement.
14. REPRESENTATIONS BY THE BORROWER. The Borrower hereby represents and
-------------------------------
warrants to the Lender and the Custodian that each Wet Mortgage Loan has been
originated by a Sub-borrower in accordance with Borrower's Wet Funding
Procedures, a copy of which has been previously delivered to Lender, and notice
of any material changes thereto shall promptly be delivered to Lender.
15. NOTICES. Any notice, consent, election, direction, request and other
-------
communication given under this Agreement shall be in writing and shall be
delivered by overnight courier, by hand, by mail (first class postage prepaid),
or by facsimile transmission (with the original subsequently forwarded by
overnight courier, by hand or by mail (first class postage prepaid)) to the
respective address set forth on the signature page hereof for the Lender, the
Borrower or the Custodian, or to such other address as either party shall give
notice to the other parties pursuant to this Section.
16. CONCERNING THE CUSTODIAN. The Custodian shall not be liable for any action
------------------------
or omission to act hereunder, except for its own gross negligence or wilful
misconduct. In no event shall the Custodian or its directors, officers, agents
and
55
<PAGE>
employees be held liable for any special, indirect, punitive or consequential
damages resulting from any action taken or omitted to be taken by it or them
hereunder or in connection herewith even if advised of the possibility of such
damages. In no event shall the Custodian have any responsibility to ascertain or
take action with respect to the Required Documents or other items of Collateral,
except as expressly provided herein. The Custodian may act in reliance upon any
written communication of the Borrower and the Lender concerning the delivery of
the Required Documents and other items of Collateral pursuant to this Agreement.
The Custodian does not assume and shall have no responsibility for, and makes no
representation as to, monitoring the value of the Required Documents and other
items of Collateral.
17. REPRESENTATIONS BY THE CUSTODIAN. The Custodian hereby represents and
--------------------------------
warrants that (i) it is either (A) a commercial or savings bank, (B) an
industrial savings bank, (C) a savings and loan association or (D) a trust
company, and (ii) it does not have, and will not assert, any security interest,
lien, claim or other adverse interest against the Required Documents or any
other item of Collateral. However, the Custodian makes no representations as to
the title thereto, or as to the validity or adequacy of the security afforded
thereby or hereby (except as to the Custodian's authority to enter into this
Agreement and the legality, validity, binding effect and enforceability of this
Agreement with respect to the Custodian), and the Custodian shall incur no
liability or responsibility in respect of any such matters. Except for the
Custodian's obligation to take possession of the Collateral, the Custodian shall
not be responsible for the validity and perfection of the security interest.
18. DUTIES OF THE CUSTODIAN.
-----------------------
18.1 The Custodian shall have no duties or responsibilities except those
that are specifically set forth herein, and no duties or obligations shall be
implied in this Agreement against the Custodian. To the extent that the
Custodian is unable to locate or produce any document constituting a part of a
Mortgage File delivered to it as required under this Agreement, Custodian shall,
upon the request of the Lender, promptly exercise reasonable efforts to locate
or replace, at its own expense, such document. The Custodian shall be under no
responsibility or duty with respect to the disposition of any Required Documents
while such Required Documents are not required to be in its possession. If the
Custodian shall request instructions from the Lender with respect to any act,
action or failure to act in connection with this Agreement, the Custodian shall
be entitled to refrain from taking such action and continue to refrain from
acting unless and until the Custodian shall have received written instructions
from the Lender without incurring any liability therefor to the Lender, the
Borrower or any other person.
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<PAGE>
18.2 If the Custodian shall at any time receive conflicting instructions
from the Lender and the Borrower with respect to the Custodian's mortgage files
and the conflict between such instructions cannot be resolved by reference to
the terms of this Agreement, the Custodian shall be entitled to rely on the
instructions of the Lender. In the absence of bad faith or willful misconduct
on the part of the Custodian, the Custodian may conclusively rely, as to the
truth of the statements and the correctness of the opinions expressed therein,
upon any request, instruction, certificate, opinion or other document furnished
to the Custodian, reasonably believed by the Custodian to be genuine and to have
been signed or presented by the proper party or parties and conforming to the
requirements of this Agreement. The Custodian may rely upon the validity of
documents delivered to it, without investigation as to their authenticity or
legal effectiveness, and the Borrower will hold the Custodian harmless from any
claims that may arise or be asserted against the Custodian because of the
invalidity of any such documents or their failure to fulfill their intended
purpose. The Custodian shall not be responsible to the Lender or any other
party for recitals, statements or warranties or representations of the Borrower
contained herein, or in any document, or be bound to ascertain or inquire as to
the performance or observance of any of the terms of this Agreement or any other
agreement on the part of any party, except as may otherwise be specifically set
forth herein. No provision of this Agreement shall require the Custodian to
expend or risk its own funds or otherwise incur financial liability in the
performance of its duties under this Agreement if it shall have the reasonable
grounds for believing that repayment of such funds or adequate indemnity is not
reasonably assured to it. The Custodian may consult with counsel with regard to
legal questions arising out of or in connection with this Agreement and the
advice or opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, omitted or suffered by the Custodian
in good faith in accordance therewith.
18.3 Upon the Custodian's receipt of a power of attorney from the Lender,
the Lender hereby authorizes and directs the Custodian to sign on behalf of the
Lender each of the Required Loan Documents. Without limiting the generality of
the foregoing, the Custodian may rely upon and shall be protected in acting in
good faith upon any notice or other communication received by it and which it
reasonably believes to be genuine and duly authorized with respect to all
matters pertaining to this Agreement and its duties hereunder; provided,
however, that nothing set forth in this section shall relieve the Custodian of
its obligations set forth in Section 8 of this Agreement.
19. INDEMNIFICATION OF CUSTODIAN. The Borrower agrees to indemnify and hold
----------------------------
the Custodian and its directors, officers, agents and employees harmless against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever, including reasonable attorney's fees, that may be imposed on,
incurred by, or
57
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asserted against it or then in any way relating to or arising out of this
Agreement or any action taken or not taken by it or them hereunder unless such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements were imposed on, incurred by or asserted
against the Custodian because of the breach by the Custodian of its obligations
hereunder, which breach was caused by the gross negligence, lack of good faith
or willful misconduct on the part of the Custodian or any of its directors,
officers, agents or employees. The foregoing indemnification shall survive any
termination of this Agreement.
20. AUTHORIZATIONS. The persons whose signatures and titles appear on the
--------------
signature page hereof ("Authorized Representatives") are authorized, acting
singly, to act for the Borrower, the Lender or the Custodian, as the case may
be, under this Agreement. From time to time, each party may supplement or amend
the list of Authorized Representatives and specimen signatures by notice to the
other parties, but each of the parties shall be entitled to rely conclusively on
the then current list until receipt of a superseding list. The Custodian may
rely, and shall be protected in acting or refraining to act, upon any written
instruction, notice, order, request, direction, certificate, opinion or other
instrument or document believed by the Custodian to be genuine and to have been
signed or presented by an Authorized Representative in the case of the Borrower
and the Lender and by the proper party or parties, in all other cases.
21. AMENDMENTS, ETC. Except as otherwise expressly provided herein, no
----------------
amendment or waiver of any provision of this Agreement nor consent to any
departure therefrom shall in any event be effective unless the same shall be in
writing and signed by all the parties hereto (provided that the Lender may
modify the Required Documents set forth in Sections 4, 5 and 6 hereof by giving
notice of such modification to the Borrower and the Custodian, which notice is
not objected to within five (5) Business Days after having been delivered), and
then such amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. This Agreement
constitutes the entire agreement and understanding of the parties with respect
to those matters and transactions contemplated by this Agreement and supersedes
any prior agreement and understandings with respect to such matters and
transactions. The provisions of this Agreement set forth the exclusive duties
of the Custodian and no implied duties shall be read into this Agreement against
the Custodian. Schedule I hereto may be amended from time to time by agreement
between the Lender and the Borrower with notice to the Custodian.
22. SEVERABILITY. If any provision of this Agreement is declared invalid by
------------
any court of competent jurisdiction, such invalidity shall not affect any other
provision, and this Agreement shall be enforced to the fullest extent permitted
by law.
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23. BINDING EFFECT; GOVERNING LAW. This Agreement shall be binding and inure
-----------------------------
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that none of the Borrower, the Lender or the
Custodian may assign this Agreement or any of its rights or obligations
hereunder, except with the prior written consent of the other parties, subject
to any participation rights granted by the Lender. If an Event of Default has
occurred and is continuing, the Lender may assign its security interest in or
lien on certain items of Collateral held by the Custodian hereunder, whereupon
the Lender will act for the benefit of such assignee hereunder. This Agreement
shall be construed in accordance with, and governed by the law of the State of
New York, without giving effect to the conflict of law principles thereof. The
parties hereto waive trial by jury. The parties hereby submit to, and waive any
objection they may have to personal jurisdiction and venue in, the courts of the
State of New York and the United States District Court for the Southern District
of New York, over any disputes arising out of or relating to this Agreement.
24. COUNTERPARTS. This Agreement may be executed in any number of counterparts,
-------------
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
25. JOINT AND SEVERAL. The joint and several obligations of each of CWM
-----------------
Mortgage Holdings, Inc., Independent National Mortgage Corporation and Warehouse
Lending Corporation of America, Inc. hereunder are absolute, unconditional,
irrevocable, present and continuing and, with respect to any Obligation to the
Lender, is a guaranty of performance of such Obligation (and not of
collectability) and is in no way conditional or contingent upon the continued
existence of any other Borrower and is not and will not be subject to any
setoffs. Any notice or other communication provided to one Borrower pursuant
hereto shall be deemed to have been given to all Borrowers and failure to be
sent any notice or communication contemplated hereby shall not relieve a
Borrower from its joint and several liability for the Obligations of any other
Borrower hereunder.
26. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating
-------------------------
thereto, including, without limitation, (a) consents, waivers and modifications
which may hereafter be executed, (b) documents received by any party at the
closing, and (c) certificates and other information previously or hereafter
furnished, may be reproduced by any photographic, photostatic, microfilm, micro-
card, miniature photographic or other similar process. The parties agree that
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
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27. QUALIFICATION. Nothing in this Agreement shall be deemed to impose upon the
-------------
Custodian any duty to qualify to do business in any jurisdiction other than the
State of California.
28. TAX REPORTS. The Custodian is not responsible for preparing or filing any
-----------
reports or returns relating to federal, state or local income taxes with respect
this Agreement, other than for the Custodian's compensation or for reimbursement
of expenses.
29. FEES. The Custodian will charge such fees for its services under this
----
Agreement as are set forth in a separate agreement between the Custodian and the
Borrower, the payment of which, together with the Custodian's expenses in
connection herewith, shall be solely the obligation of the Borrower.
30. FORCE MAJEURE. The Custodian shall not be responsible for delays or
-------------
failures in performance resulting from acts beyond its control. Such acts shall
include but not be limited to acts of God, strikes, lockouts, riots, acts of war
or terrorism, epidemics, nationalization, expropriation, currency restrictions,
governmental regulations superimposed after the fact, fire, communication line
failures, power failures, earthquakes or other disasters.
31. DATA ACCESS.
-----------
31.1 The Custodian has issued to the Borrower and the Lender a data access
security system or procedure in order that the Borrower and the Lender may have
access to the CTS. The "CTS" shall mean the Custodian's Collateral Tracking
System, which is subject to the terms and condition set forth in the Protection
of Equipment and Information, which is annexed hereto and made a part hereof, as
such terms and conditions may be changed, modified or supplemented by the
Custodian from time to time by written notice to the Borrower and the Lender
(collectively, the "CTS Security Procedures"). With respect to the CTS (and any
other data and functions to which the Lender or the Borrower is or are provided
access by the Custodian) the Borrower and the Lender each hereby agrees:
31.1.1 To access data and functions only in accordance with the Data
Access Operating Procedures annexed hereto and made a part hereof and to regard
and preserve as confidential all information obtained with respect to the
issuance to the Borrower and the Lender of a data access security system or
procedure;
31.1.2 To access data and functions solely for its own internal use
and benefit;
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<PAGE>
31.1.3 To discontinue use of the data access security system or
procedure at any time for security reasons upon notice from the Custodian;
31.1.4 Upon request, to cause the Lender's or the Borrower's internal
auditors to verify to the Custodian that data access is restricted to authorized
employees;
31.1.5 To designate a duly authorized individual to serve as the Data
Security Administrator by executing and delivering to the Custodian a Data
Security Administrator Designation form (the "Data Security Administrator
Designation Form") in the form annexed hereto and hereby made a part hereof.
31.2 The Custodian makes no representation or warranty with respect to and
shall have no liability for the accuracy or completeness of any data or
information appearing in CTS other than data which is input by the Custodian and
which sets forth information furnished by the Custodian. The Custodian has no
obligation or duty to verify or otherwise investigate the accuracy of any data
input by any party other than the Custodian (other than the Custodian's
responsibility for examination and certification of documents pursuant to
Section 4 of this Agreement and the applicable review procedures). Without
limiting the foregoing, Lender acknowledges that certain data will be input into
the CTS directly by Borrower, or directly from computer disc or magnetic tape
prepared and furnished by the Borrower, without verification or investigation by
the Custodian, and the Custodian shall have no responsibility or liability for
the accuracy or truthfulness of such information. The Custodian is entitled to
rely upon, among other things, the truthfulness and accuracy of any information
from the Borrower, and any notice from the Lender, and to the extent the
Custodian enters data in the CTS from or in reliance upon the truthfulness or
accuracy of any such documents or notices received by it from another party, it
shall have no responsibility or liability therefor.
Each of the Borrower and the Lender further acknowledges that the Custodian
shall have no liability for inaccurate information which results from its
examination of Mortgage Loans and which is input by the Custodian into the CTS,
if such inaccuracy in examination was not due to the Custodian's own gross
negligence or willful misconduct in failing to observe or perform its duties
under the Agreement and pursuant to the review procedures.
Each of the Borrower and the Lender further agrees that it shall not
modify, enhance or otherwise create derivative works based upon the CTS, and
each agrees that it shall not reverse engineer, decompile or otherwise attempt
to secure the source code for all or any part of the CTS.
These CTS Security Procedures may be amended, modified or otherwise changed
(including the addition of other terms and conditions) from time to time at
61
<PAGE>
the option of the Custodian, by written notice to each of the Borrower and the
Lender in advance of the effective date of any such amendment, modification or
change.
31.3 The Custodian's liability to any party to this Agreement, whether
arising out of contract, strict liability in tort, or any other cause of action
under this agreement, for its provision of, or related to, the CTS shall be
limited to the amount paid by such party for the preceding 24 months for access
to or use of such services. No action, regardless of form, arising out of this
Agreement may be brought against the Custodian more than two years after the
party bringing such action has knowledge that the cause of action has arisen.
31.4 No other warranties, whether express or implied, including, without
limitation, the implied warranties of merchantability and fitness for a
particular purpose, are made by the custodian with regard to the CTS, in no
event will the custodian be liable to any party for any consequential or
incidental damages which may arise from the customer's access to the CTS or use
of information obtained thereby.
62
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date and
year first above written.
CWM MORTGAGE HOLDINGS, INC., as Borrower
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
INDEPENDENT NATIONAL MORTGAGE
CORPORATION, as Borrower
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
WAREHOUSE LENDING CORPORATION OF AMERICA,
INC., as Borrower
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Address:
----------------------------
- - ------------------------------------
Attention:
----------------
Telephone: (___) ___-____
Facsimile: (___) ___-____
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<PAGE>
NOMURA ASSET CAPITAL CORPORATION,
as Lender
By:
--------------------------------------
Name: James K. Lieblich
Title: Director
Address: 2 World Financial Center
Building B, 21st Floor,
New York, New York 10281
Attention: James K. Lieblich
Telephone: (212) 667-2145
Facsimile: (212) 667-1044
STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, N.A., as Custodian
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Address: 725 South Figueroa Street, Suite 3100
Los Angeles, CA 90017
Attention: Raymond Cruz
Telephone: (213) 362-7400
Facsimile: (213) 362-7321
64
<PAGE>
SCHEDULE I
AUTHORIZED LIST OF PURCHASERS
65
<PAGE>
COLLATERAL RECEIPT
Nomura Asset Capital Corporation The Custodian:
2 World Financial Center, 21st Floor Address:
New York, New York 10281
Attn: James K. Lieblich Attn:
Facsimile: (212) 667-1044 Facsimile:
Re: Notice of Advance No. ______
Reference is made to the Tri-Party Custody Agreement dated
______________, 199__ (the "Custody Agreement") among ________________ (the
"Borrower"), _______________ (the "Custodian") and Nomura Asset Capital
Corporation (the "Lender"). Capitalized terms not defined herein have the
respective meanings assigned thereto in the Custody Agreement.
CERTIFICATION OF THE CUSTODIAN. The Custodian hereby certifies that, as
------------------------------
to each mortgage loan listed on Schedule I hereto, it has reviewed the
documents delivered to it by the Borrower, it has received all Required
Documents, the Required Documents conform to the requirements of Section 8
of the Custody Agreement, subject to such exceptions noted below, and it
will continue to hold the Required Documents as collateral agent (as
described in the Custody Agreement) for the Lender and its successors and
assigns pursuant to the Custody Agreement until a permitted permanent
withdrawal is effected.
The Custodian makes no representation as to: (i) the validity, legality,
enforceability or genuineness of any of the Required Documents, or (ii) the
collectability, insurability, effectiveness or suitability of any such
Required Documents.
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A., as Custodian
Date: By:______________________________
Name:
Title:
Exceptions:
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<PAGE>
COLLATERAL RECEIPT
(Wet Mortgage Loans)
Nomura Asset Capital Corporation The Custodian:
2 World Financial Center, 21st Floor Address:
New York, New York 10281
Attn: James K. Lieblich Attn:
Facsimile: (212) 667-1044 Facsimile:
Re: Notice of Advance No. ______
Reference is made to the Tri-Party Custody Agreement dated ______________,
199__ (the "Custody Agreement") among ________________ (the "Borrower"),
_______________ (the "Custodian") and Nomura Asset Capital Corporation (the
"Lender"). Capitalized terms not defined herein have the respective meanings
assigned thereto in the Custody Agreement.
CERTIFICATION OF THE CUSTODIAN. The Custodian hereby certifies that, as to
------------------------------
each Wet Mortgage Loan, (i) it has received the related Notice of Advance;
and (ii) once the Required Documents for each Mortgage Loan referenced in
the related Notice of Advance have been received, the Custodian shall hold
such Required Documents as collateral agent (as described in the Custody
Agreement) for the Lender and its successors and assigns pursuant to the
Custody Agreement until a permitted permanent withdrawal is effected.
The Custodian makes no representation as to: (i) the validity, legality,
enforceability or genuineness of any of the Required Documents, or (ii) the
collectability, insurability, effectiveness or suitability of any such Required
Documents.
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A., as Custodian
Date: By:_______________________________
Name:
Title:
Exceptions:
67
<PAGE>
PRIOR LENDER'S RELEASE LETTER
Date:______________________, 199__
Nomura Asset Capital Corporation
2 World Financial Center, 21st Floor
New York, New York 10281
Attn: James K. Lieblich
Facsimile: (212) 667-1044
RE: Borrower:_____________________
Security Rate______% Maturity:_________
The undersigned (the "Prior Lender") hereby releases all right,
interest or claim of any kind with respect to the mortgage loans further
described in the attached schedule, such release to be effective automatically
without any further action by any party, upon payment for the account of the
Borrower of $___________ in immediately available funds to account number
____________ at [specify Bank] for the account of ____________________.
Very truly yours,
____________________________________________________________, as Prior Lender
By:______________________________________
Name:
Title:
Telephone:
Copy to:
____________________________, as the Borrower
Address:____________________________
____________________________________
Attn:_____________________
NOTE: The above dollar amount should be EQUAL TO or LESS THAN the amount being
-------- ---------
funded.
If no lien exists, this form must still be sent; the Borrower should put
a slash through the form, indicated "NOT APPLICABLE" and sign.
----------------
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<PAGE>
BAILEE LETTER
Date: ________________________, 199_
Purchaser:________________________
Address:__________________________
Attention:____________
Gentlemen:
Enclosed please find those mortgage loans listed separately on the attached
schedule (the "Mortgage Loans"), which Mortgage Loans are owned by_____ (the
"Borrower"), or in which the Borrower has been granted a first priority
perfected security interest, and are being delivered to you for purchase. The
Mortgage Loans comprise a portion of the Collateral (as such term is defined in
the hereinafter defined Custody Agreement) under the Tri-Party Custody Agreement
(the "Custody Agreement"), dated as of __________________, 199_, as it may
hereafter be amended, by and among the Borrower,________, as the Custodian ("the
Custodian"), and Nomura Asset Capital Corporation as lender (the "Lender").
Each of the Mortgage Loans is subject to a security interest in favor of the
Lender, which security interest shall be automatically released upon the
Lender's receipt of the full amount of the purchase price of such Mortgage Loan
(as set forth on the schedule attached hereto) by wire transfer to the following
account maintained with the Lender:
________________ ABA ______________
For Further Credit to Nomura Asset Capital Corporation
Reference: Whole Loan Financing Program/ [Borrower Name]
---------------
Pending your purchase of each Mortgage Loan and until payment therefor is
received by the Lender, the aforesaid security interest therein will remain in
full force and effect, and you shall hold possession of such Collateral and the
documentation evidencing same as custodian, agent and bailee for the Lender. In
the event any Mortgage Loan is unacceptable for purchase, return the rejected
item directly to the undersigned at the address set forth below. In no event
shall any Mortgage Loan be returned or sales proceeds remitted to the Borrower.
The Mortgage Loan must be so returned or sales proceeds remitted in full no
later than forty five (45) days from the date hereof. If you are unable to
comply with the above instructions, please so advise the undersigned
immediately.
NOTE: BY ACCEPTING THE MORTGAGE LOANS DELIVERED TO YOU WITH THIS LETTER, YOU
CONSENT TO BE THE CUSTODIAN, AGENT AND BAILEE FOR THE LENDER ON THE TERMS
DESCRIBED IN THIS LETTER. THE UNDERSIGNED REQUESTS THAT YOU ACKNOWLEDGE RECEIPT
OF THE ENCLOSED MORTGAGE LOANS AND THIS LETTER BY SIGNING AND RETURNING THE
ENCLOSED COPY OF THIS LETTER TO THE UNDERSIGNED AT THE ADDRESS INDICATED BELOW;
HOWEVER, YOUR FAILURE TO DO SO DOES NOT NULLIFY SUCH CONSENT.
Sincerely,
69
<PAGE>
[_______________]
as the Custodian for the Lender,
its successors and assigns
By:_________________________________________
Name:
Title:
Address:____________________________________
________________________________________________________________________________
Attn:___________________________________
Acknowledged and Agreed:
[______________]
as Purchaser
By:_______________________________
Name:
Title:
70
<PAGE>
NOTICE OF ADVANCE NO._____
Nomura Asset Capital Corporation
2 World Financial Center
Building B, 21st Floor
New York, New York 10281
Attention: James K. Lieblich
Facsimile (212) 667-1044
Pursuant to the Financing Facility Agreement, dated August 3, 1994,
between Nomura Asset Capital Corporation (the "Lender") and the undersigned (as
amended from time to time, the "Facility Agreement"), the undersigned hereby
gives notice of its election to borrow from the Lender an Advance and, in
connection therewith, sets forth below the following information (each
capitalized term used herein shall have the meaning specified therefor in the
Facility Agreement):
1. The aggregate unpaid principal of the Mortgage Loans
is $________________.
2. The Collateral Value of the Mortgage Loans is $________________.
3. The aggregate unpaid principal of Wet Mortgage Loans securing this
advance is $________________.
4. The principal amount of this Advance is $_____________.
5. The aggregate principal amount of outstanding Advances is
$ _______.
6. The Quoted Rate for this Advance is ________ % per annum.
7. The beginning Business Day of this Advance is _________________,
199__.
8. The Maturity Date of this Advance, if applicable, is ______, 199__.
The undersigned hereby certifies that, in consideration of the Lender
making an Advance to finance the period prior to securitization or cash purchase
of the Mortgage Loans, the following statements are true and correct on the date
hereof and shall be true and correct on the date of the Advance requested
herein, before and after giving effect thereto: (a) Borrower has satisfied all
of the conditions precedent in Section 5 of the Facility Agreement and (b) the
Required Documents with respect to such Mortgage Loans have been or are hereby
submitted to the Custodian pursuant to the Custody Agreement or, with respect to
Wet Mortgage Loans, will be submitted within five (5) Business Days.
_____ No lien exists with respect to the Mortgage Loans that secure this
Advance.
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<PAGE>
_____ A lien secured by the Mortgage Loans that secure this Advance is
currently in effect.
_____ If applicable, a Prior Lender's Release Letter has been delivered to the
Custodian under separate cover.
________________________, as Borrower
By:_________________________________________
Name:_______________________________________
Title:______________________________________
72
<PAGE>
REQUEST FOR RELEASE OF DOCUMENTS
To: [Trustee]
[Address]
Re: Tri-Party Custody Agreement, dated as of __________ 1994,
among Nomura Asset Capital Corporation ("Lender"),
___________________________________________ ("Borrower"), and
___________________as custodian ("Custodian")
In connection with the administration of the Mortgage Loans held by
you as Custodian for the Lender pursuant to the above-captioned Custodial
Agreement, we request the release, and hereby acknowledge receipt, of the
(Custodian's Mortgage File/[specify documents]) for the Mortgage Loan described
below, for the reason indicated.
Mortgage Loan Number:
- - --------------------
Reason for Requesting Documents (check one)
- - -------------------------------
1. Removal of Mortgage Loan will not cause the aggregate amount
of outstanding Advances to exceed the Borrowing Base Amount.
2. Mortgage Loan in foreclosure.
3. Mortgage Loan to be liquidated by Borrower.
(If the release of this Mortgage Loan will cause the aggregate amount of
outstanding Advances to exceed the Borrowing Base Amount, this Request for
Release SHALL NOT BE VALID AND EFFECTIVE until Lender notifies Custodian in
writing that Lender has received proceeds from the liquidation sufficient to
cause the Borrowing Base Amount to exceed the aggregate amount of outstanding
Advances.)
4. Other (explain)
_____________________________________________
If box 1 or 2 above is checked, and if all or part of the Custodian'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 above is checked, and if all or part of the Custodian's
Mortgage File was previously released to us, please, upon the validity and
effectiveness of this Request for Release, 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.
73
<PAGE>
If box 4 above is checked, upon our return of all of the above
documents to you as Custodian, please acknowledge your receipt by signing in the
space indicated below, and returning this form.
The Borrower understands and agrees that all documents delivered to
Borrower pursuant to this Request for Release shall be returned to the Custodian
no later than fifteen (15) days from the date hereof, unless box 1, 2 or 3 above
is checked, in which case, if applicable, such documents shall be returned to
the Custodian as soon as is practicable. Capitalized terms used but not defined
herein shall have the meanings ascribed to them in the Custodial Agreement.
________________________________________________________________________________
as Borrower
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Date:
-----------------------------------
Release of documents consented to:
NOMURA ASSET CAPITAL CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Date:
--------------------------------
Documents returned
to Custodian:
________________________________________________________________________________
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Date:
---------------------------------------
74
<PAGE>
PROTECTION OF EQUIPMENT AND INFORMATION
The databases, computer programs, screen formats, screen designs,
report formats, interactive design techniques, and other information furnished
to the Lender or the Borrower by the Custodian as part of the services
constitute copyrighted, trade secret or proprietary information of substantial
value to the Custodian. Except for information that has already been disclosed
by the parties, or that is in the public domain, such databases, programs and
other information are collectively referred to below as "Proprietary
Information". The Lender and the Borrower each agrees that it shall treat all
Proprietary Information as proprietary to the Custodian and that it shall not
divulge and Proprietary Information to any person or organization except as is
expressly permitted hereunder. Proprietary Information is furnished "as is"
without warranty. Without limiting the foregoing, the Lender and the Borrower
each agrees for itself and its employees and agents:
(1) to use such programs and databases (i) solely on the Custodian's
Computers, (ii) solely from terminals at the Lender's or the Borrower's
locations designated by the Lender or the Borrower on the Appendix attached to
the Data Security Administrator Designation Form delivered to the Custodian by
the Lender of the Borrower and (iii) solely in accordance with the Custodian's
applicable user documentation;
(2) to refrain from copying or duplicating in any way (other than in
the normal course of performing processing on the Custodian's computers) any
part of any Proprietary Information, and to return any Proprietary Information
upon termination of this Agreement;
(3) to refrain from obtaining unauthorized access to any programs,
data or other information to which the Lender or the Borrower is not entitled,
and if such access is accidently obtained, to respect and safeguard the same as
Proprietary Information;
(4) to refrain from causing or allowing information transmitted from
the Custodian's computer to the Lender's or the Borrower's terminal to be
transmitted to another computer, terminal or other device for other than the
Lender's or the Borrower's own use, except upon prior approval of the Custodian;
(5) that the Lender and the Borrower each shall have access to only
those authorized transactions as come within the scope and coverage of the
Custodian Agreement to which this Exhibit is attached;
(6) to honor all reasonable written requests made by the Custodian to
protect at the Custodian's expense the rights of the Custodian in Proprietary
Information at common law, under the Federal copyright statute and under other
Federal and state statutes;
(7) to designate a duly authorized individual to serve as the Data
Security Administrator in accordance with the Designation Form annexed hereto;
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<PAGE>
(8) to request a unique user ID for each separate user. The request
must be made in writing to Custodian's data security manager;
(9) to request immediate deactivation of a user ID or deletion of
access when no longer needed or when the Lender or the Borrower believes
security has been violated;
(10) to limit knowledge of user IDs to only authorized individuals;
(11) to not disclose passwords directly or indirectly to anyone,
including other employees of the Lender or the Borrower;
(12) to not store user IDs or passwords in any computer file, as part
of an "automatic logon" procedure;
(13) to select unique passwords which cannot be easily guessed;
(14) to change the password every 30 days, or when the Lender or the
Borrower, as the case may be, believes the password might have become known to
others, or when the Lender or the Borrower suspects a possible security
violation; and
(15) to not recycle or reuse passwords.
76
<PAGE>
DATA SECURITY ADMINISTRATOR DESIGNATION FORM
Date: ___________________________, 199_
State Street Bank and Trust Company of California, N.A.
725 South Figueroa Street
Los Angeles, California 90017
Gentlemen:
As ____________________________ (title of officer or other authorized
official) of _______________________________________(Name of Company), I hereby
certify that the following individual has been duly authorized by the Board of
Directors or other governing body of the Borrower (as defined in the Tri-Party
Custody Agreement, dated August 3, 1994, by and among CWM Mortgage Holdings,
Inc., Independent National Mortgage Corporation, Warehouse Lending Corporation
of America, Inc., Nomura Asset Capital Corporation and State Street Bank and
Trust Company of California, N.A. ("State Street") (or designated by an official
of the Borrower who has been duly authorized by said Board of Directors or other
governing body to make such designation), to serve as the Data Security
Administrator, as such term is defined in the Data Access Operating Procedures:
CWM Mortgage Holdings, Inc.,
Name: _________________________ Signature: ________________________
Independent National Mortgage Corporation
Name: _________________________ Signature: ________________________
Warehouse Lending Corporation of America, Inc.
Name: _________________________ Signature: ________________________
It is understood and agreed that the above-named individual is the
authorized recipient on behalf of the Borrower of (1) all documents and
correspondence assigning, confirming or otherwise containing company and user
identification codes, passwords, mnemonics, testkeys, encryption keys and other
security devices, and (2) all other notices, documents and correspondence from
State Street respecting the data access security system, including, without
limitation, any changes or supplements to the Data Access Operating Procedures.
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<PAGE>
IN WITNESS WHEREOF, I have executed this document and affixed the seal of
the Borrower on this ____ day of _______________, 199_.
_________________________________
(Signature of officer or other
authorized official)
_________________________________
(Title)
_________________________________
(Signature of other officer or
authorized official)*
_________________________________
(Title)
* In case the first signing officer is a Data Security Administrator, this
form must be signed by a second officer.
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<PAGE>
CUSTODIAN COLLATERAL REVIEW PROCEDURES
I. Specific Collateral Review Procedures
-------------------------------------
A. Original Note
-------------
1. At least one maker of the note must have signed the mortgage.
2. The amount of the note must be the same as the amount specified on the
mortgage. The amount of the note (as modified by any modification
agreement, which must be included with the note) should also be at
least as high as the amount provided on the related Notice of Advance.
3. Original signatures of all makers of the note must be present.
4. An endorsement in blank without recourse must be present and signed by
an authorized signer for the Borrower. If the note was originally
payable to another party, there must also be an endorsement from such
party to the Borrower.
NOTE: Obvious alterations to the note must be initialed by the maker.
----
NOTE: If there are any non-conformities with standards set forth in
----
Section I.A., Mortgage Loans must not be included in the related
Notice of Advance.
B. Copy of the Mortgage
--------------------
1. At least one mortgagor must have signed the note.
2. The mortgagee must be the same as the payee on the note.
3. The amount must be verified with the note and, if written out, must be
the same as in numbers.
4. The mortgage must contain a legal description other than address, city
and state on the first page. (If description references a schedule,
schedule must be attached.)
5. A stamp certifying that the copy of the mortgage is a true copy of the
original mortgage must be present.
6. The notary section (acknowledgment) must be present and signed.
7. All FHA/VA, ARM and Condo riders (or any other rider indicated in the
mortgage), if present, must be signed by all parties to the mortgage.
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<PAGE>
NOTE: Obvious alterations to the mortgage must be initialed.
----
NOTE: If there are any non-conformities with standards set forth in
----
Section I.B. #3 through #7, Mortgage Loans can be included in the
related Notice of Advance but must be corrected within ten (10) days.
If there are any non-conformities with standards set forth in Section
I.B. #1 or #2, the Mortgage Loans must not be included in the related
Notice of Advance.
C. Assignment to State Street Bank And Trust Company of California, N.A. or in
---------------------------------------------------------------------------
Blank
-----
1. This document must be an original.
2. If present, the amount must agree with the amount on the note,
mortgage and, if applicable, intervening assignment (each as modified
by any modification agreement).
3. The mortgagor(s) must be the same as on the mortgage and, if
applicable, intervening assignment. All names must be typed exactly
as they appear on the mortgage.
4. The date must be on or after the date of the mortgage.
5. The original signature of an authorized signer of the Borrower must be
present on those assignments issued by the Borrower to the Collateral
Agent.
6. The notary section must be present and signed.
7. The Borrower's corporate seal must be affixed.
NOTE: If there are any non-conformities with standards set forth in
----
Section I.C., the Mortgage Loans can be included in the related Notice
of Advance, but must be corrected within ten (10) days.
D. Miscellaneous
-------------
1. For all power of attorney signatures (i.e., John Smith as attorney-in-
fact for Mary Smith), the following must be provided:
a. An original or photocopy of the actual power of attorney, or
b. An affidavit certifying that the power of attorney exists.
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<PAGE>
2. The Borrower shall provide the Custodian with an incumbency
certificate setting forth its authorized signatories hereunder and
sample signatures thereof.
II. Document Exceptions
-------------------
A. All loans that do not fit the specifications outlined in I. will be
considered exceptions by the Custodian. All exceptions must be on the
Custodian's exception worksheet documented and provided to Lender and the
Borrower.
B. The Borrower must be notified, in writing, of all document exceptions and
the Borrower must correct them immediately. This notification will be
provided on the Custodian's exception worksheet. The exception worksheet
must be faxed to the Borrower as soon as the collateral has been reviewed.
Corrections not received within ten (10) days must be eliminated from the
related Notice of Advance.
C. The original exception worksheets will be kept by the Custodian.
D. Once the corrected loan document has been reviewed by the Custodian, it
must be reviewed to insure the correction has been made. If, however there
are exceptions on the document received, they must be noted and the
Borrower requested to provide the corrections. The loan file must also be
reviewed to ensure that all documents in the loan file prior to the release
are still present. No document(s) should be discarded.
III. Mortgage-Backed Securities
--------------------------
A. Certificated Mortgage-Backed Securities
---------------------------------------
The Custodian shall have received and be holding in its possession for the
benefit of the secured parties the original mortgage-backed security
certificates, together with a duly executed (in blank) transfer power or
other instrument of assignment sufficient to transfer the security to the
Lender or the Custodian, in either case acting on behalf of the secured
parties.
B. Uncertificated Mortgage-Backed Securities
-----------------------------------------
The Custodian shall receive and hold on in its possession for the benefit
of the secured parties uncertificated (book-entry) mortgage-backed
securities in the following manner: (i) in the case of GNMA securities: all
such securities shall be maintained in the name of the Custodian or if
Custodian is not an approved participant with the Participants Trust
Company ("PTC"), then with an approved participant with the PTC solely for
---
the account of Custodian, in either case in a Seg Account (as defined in
the PTC Rules and Regulations in effect from time to time, the "Rules")
which shall not at any time be subject to any lien or security interest in
favor of the PTC or anyone benefiting through
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the PTC, or (ii) in the case of FHLMC or FNMA mortgage-backed securities:
all such securities shall be maintained in the name and for the account of
the Custodian with the Federal Reserve Bank of New York. In all
circumstances, possession, maintenance and transfer of such uncertified
mortgage-backed securities in, to and from said accounts shall be under the
sole and exclusive control of the Custodian and the Borrower shall not have
access to said accounts. The Custodian shall comply with all rules and
regulations, if any, of PTC and the Federal Reserve Bank recognizing,
creating and perfecting security interests in such book-entry mortgage-
backed securities.
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