SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: April 24, 1997
(Date of earliest event reported)
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
(Exact name of Registrant as specified in its charter)
Delaware 333-21329 13-3320910
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification No.)
11 Madison Avenue
New York, New York 10010-3629
(Zip Code)
Registrant's Telephone Number, Including Area Code: (212) 325-2000
<PAGE>
Item 5. Other Events.
Reference is hereby made to the Registrant's Registration Statement on
Form S-3 (File No. 333-21329) filed with the Securities and Exchange Commission
(the "Commission") on February 7, 1997, as amended by Amendment No. 1 thereto
filed with the Commission on February 27, 1997, (collectively, the "Registration
Statement"), pursuant to which the Registrant registered $1,000,000,000
aggregate principal amount of its asset-backed certificates, issuable in various
series, for sale in accordance with the provisions of the Securities Act of
1933, as amended (the "Act"). Reference is also hereby made to the Prospectus
dated March 17, 1997 and the related Prospectus Supplement, dated March 17, 1997
(collectively, the "Prospectus"), which were previously filed with the
Commission pursuant to Rule 424(b)(5), with respect to the Registrant's
Preferred Credit Asset-Backed Certificates, Series 1997-1, consisting of the
following Classes of Certificates (collectively, the "Certificates"): (i) Class
A- 1 Certificates, Class A-2 Certificates, Class A-3 Certificates, Class A-4
Certificates, Class A-5 and Certificates Class A-6 Certificates, (collectively,
the "Offered Certificates"), (ii) Class B Certificates, and (iii) Class RU and
RL Certificates. Only the Offered Certificates were offered by the Prospectus.
The Certificates represent the entire undivided interest in the Trust
created pursuant to the Pooling and Servicing Agreement dated as of June 1, 1996
(the "Pooling and Servicing Agreement") among Credit Suisse First Boston
Mortgage Securities Corp., as depositor, Preferred Credit Corporation as Seller,
Advanta Mortgage Corp. USA, as Servicer, and Bankers Trust Company, as trustee
(the "Trustee"). On the Closing Date, the corpus of the Trust consisted
primarily of (i) a pool (the "Mortgage Pool") of mortgage loans (together, the
"Initial Mortgage Loans"), (ii) amounts on deposit in a pre-funding account (the
"Pre-Funding Account") and a capitalized interest account held by the Trustee;
and (iii) the certificate insurance policy issued by MBIA Insurance Corporation
(the "Certificate Insurer"). On the Closing Date, cash in the amount of
$50,000,000 (the "Pre-Funding Account Deposit") was deposited in the Pre-
Funding Account in the name of the Trustee. The Pre-Funding Account Deposit was
intended to be used for the purchase of additional mortgage loans satisfying the
criteria specified in the Pooling and Servicing Agreement and subject to the
approval of the Certificate Insurer (the "Subsequent Mortgage Loans") on or
before June 27, 1997 (the "Subsequent Transfer Date").
On or before the Subsequent Transfer Date, the Trustee, on behalf of
the Trust, and the Sponsor entered into a Subsequent Transfer Instrument, dated
April 24, 1997 (the "Subsequent Transfer Instrument"). Pursuant to the
Subsequent Transfer Instrument, the Trust purchased $47,145,777.14 aggregate
principal balance of Subsequent Mortgage Loans to be included in the Mortgage
Pool.
The description of the Mortgage Pool in the Prospectus contained
information only with respect to the Initial Mortgage Loans as of the date of
the Prospectus. This Current Report on Form 8-K is being filed to update the
description of the Mortgage Pool contained in the Prospectus and to file copies
of certain final agreements executed in connection with the issuance of the
Certificates.
The following is a summary of certain terms of the final Mortgage
Pool, which includes the Subsequent Mortgage Loans. The information set forth
below is presented with respect to the Initial Mortgage Loans as of the Cut-off
Date and with respect to the Subsequent Mortgage Loans as of April 1, 1997 (the
"Subsequent Cut-off-Date"). The description of the Mortgage Pool below does not
reflect any payments with respect to the Mortgage Loans received by the Servicer
after the Cut-off Date or the Subsequent Cut-off Date. The final Mortgage Pool
consists of 5,733 Mortgage Loans having an aggregate principal balance of
$206,141,805.05. The Mortgage Loans included in the final Mortgage Pool (by
aggregate Cut-Off Date Principal Balance) will have the characteristics set
forth in the tables below:
<TABLE>
<CAPTION>
MORTGAGE INTEREST RATES
Percentage of Cut-off Date
Number of Cut-off Date Aggregate Aggregate Unpaid
MORTGAGE INTEREST RATES MORTGAGE LOANS UNPAID PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C> <C>
9.75- 9.99% 2 $54,931.41 0.03%
10.00-10.24% 1 21,000.00 0.001
10.25-10.49% 3 126,505.78 0.06%
10.50-10.74% 3 128,969.86 0.06%
10.75-10.99% 46 1,573,423.67 0.76%
11.00-11.24% 9 292,802.95 0.14%
11.25-11.49% 60 1,966,989.58 0.95%
11.50-11.74% 20 759,229.52 0.37%
11.75-11.99% 193 7,433,975.07 3.61%
12.00-12.24% 62 2,024,419.81 0.98%
12.25-12.49% 137 4,976,934.61 2.41%
12.50-12.74% 347 12,799,930.33 6.21%
12.75-12.99% 408 15,579,474.80 7.56%
13.00-13.24% 167 6,604,105.04 3.20%
13.25-13.49% 324 12,357,199.91 5.99%
13.50-13.74% 385 15,367,932.70 7.46%
13.75-13.99% 1,187 41,443,037.78 20.10%
14.00-14.24% 137 5,165,051.96 2.51%
14.25-14.49% 403 15,079,068.53 7.31%
14.50-14.74% 242 8,741,511.54 4.24%
14.75-14.99% 575 19,797,594.35 9.60%
15.00-15.24% 69 2,690,949.02 1.31%
15.25-15.49% 241 8,036,250.32 3.90%
15.50-15.74% 140 4,481,904.58 2.17%
15.75-15.99% 294 9,699,017.35 4.71%
16.00-16.24% 43 1,352,344.98 0.66%
16.25-16.49% 49 1,659,564.07 0.81%
16.50-16.74% 58 1,894,581.11 0.92%
16.75-16.99% 60 1,917,852.69 0.93%
17.00-17.24% 19 628,312.65 0.30%
17.25-17.49% 6 159,461.38 0.08%
17.50-17.74% 27 855,414.09 0.41%
17.75-17.99% 12 365,169.86 0.18%
18.00-18.24% 2 60,000.00 0.03%
18.25-18.49% 2 46,893.75 0.02%
---------- ---------------- --------
TOTAL 5,733 $206,141,805.05 100.00%
</TABLE>
The weighted average Mortgage Interest Rate of the Initial Mortgage
Loans as of the Cut-off Date and the Subsequent Mortgage Loans as of the
Subsequent Cut-off Date is approximately 13.94% per annum.
<PAGE>
<TABLE>
REMAINING MONTHS TO STATED MATURITY
<CAPTION>
Percentage of
Remaining Months Number of Cut-off Date Aggregate Aggregate Unpaid
TO STATED MATURITY MORTGAGE LOANS UNPAID PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C> <C>
56 3 77,195.84 0.04%
57 1 23,515.20 0.01%
58 1 9,775.84 0.00%
59 1 19,754.17 0.01%
60 1 29,000.00 0.01%
69 1 21,899.38 0.01%
80 1 24,359.39 0.01%
82 1 20,158.25 0.01%
84 1 23,000.00 0.01%
96 3 80,700.00 0.04%
113 1 39,071.91 0.02%
114 2 61,897.30 0.03%
116 5 133,494.32 0.06%
117 6 192,911.57 0.09%
118 4 127,788.53 0.06%
119 6 136,334.46 0.07%
120 17 448,826.69 0.22%
144 1 45,000.00 0.02%
160 1 28,207.88 0.01%
162 2 25,960.59 0.01%
163 14 362,906.51 0.18%
164 60 1,711,854.30 0.83%
165 177 5,399,557.07 2.62%
166 151 4,685,535.03 2.27%
167 86 2,405,493.96 1.17%
168 20 581,184.13 0.28%
169 3 108,627.99 0.05%
173 2 74,235.87 0.04%
174 8 214,668.41 0.10%
175 19 578,679.65 0.28%
176 67 2,400,447.90 1.16%
177 216 8,269,350.74 4.01%
178 547 21,379,373.08 10.37%
179 735 26,823,968.87 13.01%
180 3,178 114,003,019.69 55.30%
181 8 367,500.00 0.18%
235 2 63,022.27 0.03%
236 6 221,836.82 0.11%
237 10 380,502.87 0.18%
238 17 719,540.41 0.35%
239 55 2,173,859.76 1.05%
240 290 11,532,973.12 5.59%
241 2 89,964.58 0.04%
340 1 24,850.70 0.01%
------- ---------------- ----------
TOTAL 5,733 $206,141,805.05 100.00%
</TABLE>
The weighted average remaining term to stated maturity of the Initial
Mortgage Loans as of the Cut- off Date and the Subsequent Mortgage Loans as of
the Subsequent Cut-off Date is approximately 182.29 months. The latest
scheduled maturity of the Mortgage Loans is June, 2025.
<PAGE>
<TABLE>
ORIGINAL MONTHS TO STATED MATURITY
<CAPTION>
Percentage of Cut-off Date
Original Months to Number of Cut-off Date Aggregate Aggregate Unpaid
STATED MATURITY MORTGAGE LOANS UNPAID PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C> <C>
60 7 $ 159,241.05 0.08%
72 1 21,899.38 0.01%
84 3 67,517.64 0.03%
96 3 80,700.00 0.04%
119 3 89,436.53 0.04%
120 37 1,033,021.87 0.50%
121 1 17,866.38 0.01%
144 1 45,000.00 0.02%
179 136 5,182,928.37 2.51%
180 5,144 183,617,917.26 89.07%
181 14 619,726.04 0.30%
239 26 1,068,479.96 0.52%
240 354 14,023,255.29 6.80%
241 2 89,964.58 0.04%
360 1 24,850.70 0.01%
------ ---------------- --------
TOTAL 5,733 $206,141,805.05 100.00%
ORIGINATION MONTH
<CAPTION>
Percentage of Cut-off Date
Number of Cut-off Date Aggregate Aggregate Unpaid
ORIGINATION MONTH MORTGAGE LOANS UNPAID PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C> <C>
Jun-1995 1 $ 24,850.70 0.01%
Sep-1995 8 211,729.12 0.10%
Oct-1995 57 1,640,555.78 0.80%
Nov-1995 243 7,735,195.63 3.75%
Dec-1995 102 2,933,403.27 1.42%
Jan-1996 103 2,764,019.94 1.34%
Feb-1996 1 24,423.72 0.01%
Jun-1996 1 49,424.58 0.02%
Aug-1996 9 309,753.13 0.15%
Sep-1996 19 511,743.12 0.25%
Oct-1996 121 4,472,758.69 2.17%
Nov-1996 625 24,250,923.81 11.76%
Dec-1996 1,172 42,791,351.16 20.76%
Jan-1997 1,385 51,111,872.09 24.79%
Feb-1997 1,419 50,882,369.31 24.68%
Mar-1997 467 16,427,431.00 7.97%
------ -------------- -------
TOTALS 5,733 $206,141,805.05 100.00%
</TABLE>
<PAGE>
<TABLE>
ORIGINAL MORTGAGE LOAN PRINCIPAL BALANCE
Percentage of
<CAPTION>
Original Mortgage Loan Number of Cut-off Date Aggregate Aggregate Unpaid
PRINCIPAL BALANCE MORTGAGE LOANS UNPAID PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C> <C>
$10,000-14,999 76 $ 953,967.51 0.46%
15,000-19,999 305 5,235,936.26 2.54%
20,000-24,999 546 11,924,676.91 5.78%
25,000-29,999 858 22,660,208.54 10.99%
30,000-34,999 785 24,734,102.48 12.00%
35,000-39,999 845 30,623,969.72 14.86%
40,000-44,999 827 34,030,331.71 16.51%
45,000-49,999 627 28,830,375.83 13.99%
50,000-54,999 461 23,237,280.95 11.27%
55,000-59,999 210 11,630,196.05 5.64%
60,000-64,999 94 5,729,158.16 2.78%
65,000-69,999 91 5,919,048.82 2.87%
70,000-74,999 2 137,985.54 0.07%
75,000-79,999 1 75,000.00 0.04%
80,000-84,999 2 158,823.08 0.08%
85,000-89,999 2 173,000.00 0.08%
90,000-94,999 1 87,743.49 0.04%
---- ----------------- --------
TOTAL 5,733 $206,141,805.05 100.00%
</TABLE>
The average original principal balance of the Initial Mortgage Loans as
of the Cut-off Date and the Subsequent Mortgage Loans as of the Subsequent
Cut-off Date is approximately $36,084.73. As of the Subsequent Cut-off Date,
the largest original principal balance of the Mortgage Loans is $90,500.00.
<PAGE>
<TABLE>
LOAN UNPAID PRINCIPAL BALANCE
<CAPTION>
Percentage of Cut-off Date
Range of Unpaid Number of Cut-off Date Aggregate Aggregate Unpaid
PRINCIPAL BALANCE MORTGAGE LOANS UNPAID PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C> <C>
$ 5,000-9,999 7 $ 68,335.96 0.03%
10,000-14,999 88 1,166,935.34 0.57%
15,000-19,999 348 6,177,021.59 3.00%
20,000-24,999 628 14,233,421.53 6.90%
25,000-29,999 832 22,609,988.43 10.97%
30,000-34,999 810 26,191,417.05 12.71%
35,000-39,999 859 31,931,803.04 15.49%
40,000-44,999 793 33,289,414.16 16.15%
45,000-49,999 654 30,760,610.05 14.92%
50,000-54,999 371 19,083,879.58 9.26%
55,000-59,999 175 9,832,615.26 4.77%
60,000-64,999 98 6,124,061.09 2.97%
65,000-69,999 63 4,107,735.40 1.99%
70,000-74,999 1 70,000.00 0.03%
75,000-79,999 3 233,823.08 0.11%
85,000-89,999 3 260,743.49 0.13%
------ --------------- -------
TOTAL 5,733 $206,141,805.05 100.00%
</TABLE>
The average remaining loan unpaid Principal Balance of the Initial
Mortgage Loans as of the Cut-off Date and the Subsequent Mortgage Loans as
of the Subsequent Cut-off Date is approximately $35,957.06.
<TABLE>
MORTGAGED PROPERTY TYPES
<CAPTION>
Percentage of Cut-off Date
Number of Cut-off Date Aggregate Aggregate Unpaid
PROPERTY TYPES MORTGAGE LOANS UNPAID PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
Single Family 5,459 $196,713,485.83 95.43%
Low-Rise Condo 191 6,488,829.03 3.15%
High-Rise Condo 7 273,062.00 0.13%
PUD 42 1,471,163.39 0.72%
2 Unit 13 471,223.58 0.23%
3 Unit 7 272,054.24 0.13%
4 Unit 1 27,543.17 0.01%
Town House 13 424,443.81 0.21%
------ --------------- ------
TOTAL 5,733 $206,141,805.05 100.00%
</TABLE>
<PAGE>
<TABLE>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
Percentage of Cut-off Date
Number of Cut-off Date Aggregate Aggregate Unpaid
STATE MORTGAGE LOANS UNPAID PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
ALABAMA 2 $ 64,625.00 0.03%
ALASKA 52 2,314,563.18 1.12%
ARIZONA 170 6,263,013.71 3.04%
ARKANSAS 4 134,000.00 0.07%
CALIFORNIA 2,203 82,989,282.42 40.26%
COLORADO 186 6,935,174.14 3.36%
CONNECTICUT 1 24,000.00 0.01%
DELAWARE 2 80,944.27 0.04%
FLORIDA 152 4,992,417.85 2.42%
GEORGIA 142 4,821,812.50 2.34%
HAWAII 4 159,150.70 0.08%
IDAHO 154 5,472,476.34 2.65%
ILLINOIS 23 868,389.34 0.42%
INDIANA 181 6,047,398.76 2.93%
IOWA 217 7,498,686.11 3.64%
KANSAS 153 4,795,965.00 2.33%
KENTUCKY 37 1,267,461.10 0.61%
LOUISIANA 100 3,305,628.23 1.60%
MARYLAND 59 2,330,892.00 1.13%
MICHIGAN 22 573,742.73 0.28%
MINNESOTA 135 4,566,773.33 2.22%
MISSISSIPPI 5 120,849.28 0.06%
MISSOURI 119 3,784,554.74 1.84%
MONTANA 89 3,312,223.11 1.61%
NEBRASKA 137 4,647,793.32 2.25%
NEVADA 63 2,197,498.45 1.07%
NEW MEXICO 15 461,980.43 0.22%
NEW YORK 2 62,000.00 0.03%
NORTH CAROLINA 166 5,715,862.35 2.77%
OHIO 256 9,656,529.55 4.68%
OKLAHOMA 153 4,656,522.27 2.26%
OREGON 89 3,194,246.76 1.55%
PENNSYLVANIA 1 40,000.00 0.02%
SOUTH CAROLINA 117 3,967,085.66 1.92%
SOUTH DAKOTA 61 2,069,229.74 1.00%
TENNESSEE 46 1,469,338.81 0.71%
UTAH 23 838,348.80 0.41%
VIRGINIA 70 2,603,613.53 1.26%
WASHINGTON 214 7,942,063.52 3.85%
WISCONSIN 21 625,570.71 0.30%
WYOMING 87 3,270,097.31 1.59%
------ --------------- -------
TOTAL 5,733 $206,141,805.05 100.00%
</TABLE>
<PAGE>
<TABLE>
COMBINED LOAN-TO-VALUE RATIOS
<CAPTION>
Percentage of Cut-off Date
Loan-to-Value Number of Cut-off Date Aggregage Aggregate Unpaid
RATIOS MORTGAGE LOLANS UNPAID PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C> <C>
5.00-9.99 2 39,825.94 0.02%
15.00-19.99 1 55,000.00 0.03%
20.00-24.99 1 18,300.00 0.01%
25.00-29.99 3 88,908.29 0.04%
30.00-34.99 2 48,264.93 0.02%
35.00-39.99 3 74,121.02 0.04%
45.00-49.99 5 163,496.94 0.08%
50.00-54.99 8 183,497.28 0.09%
55.00-59.99 6 215,364.61 0.10%
60.00-64.99 7 244,532.75 0.12%
65.00-69.99 9 229,209.64 0.11%
70.00-74.99 35 1,068,967.35 0.52%
75.00-79.99 95 3,074,469.63 1.49%
80.00-84.99 78 2,214,582.90 1.07%
85.00-89.99 211 6,665,851.70 3.23%
90.00-94.99 132 4,092,884.74 1.99%
95.00-99.99 165 5,276,774.28 2.56%
100.00-104.99 216 7,112,464.73 3.45%
105.00-109.99 364 12,249,249.45 5.94%
110.00-114.99 516 17,486,953.16 8.48%
115.00-119.99 898 32,703,133.61 15.86%
120.00-124.99 2,820 107,186,941.87 52.00%
125.00-129.99 156 5,649,010.23 2.74%
------ --------------- -------
TOTALS 5,733 206,141,805.05 100.00%
</TABLE>
The weighted average Combined Loan-to Value Ratio at the Initial
Mortgage Loans as of the Initial Cut-off Date and the Subsequent Mortgage Loan
as of the Subsequent Cut-off Date is approximately 115.80%. The "Combined
Loan-to-Value Ratio" of a Mortgage Loan is the ratio, expressed as a percentage,
equal to the sum of any outstanding senior liens mortgage balance plus the
original balance of the Mortgage Loan divided by the appraised value of the
Mortgaged Property. In the instance where more than one appraisal was performed
on the subject property, the lesser of the two values was used to determine the
Combined Loan-to-Value Ratio.
<PAGE>
<TABLE>
CREDIT BUREAU RISK SCORES
<CAPTION>
Percentage of Cut-off Date
Number of Cut-off Date Aggregate Aggregate Unpaid
CREDIT BUREAU RISK SCORES MORTGAGE LOANS UNPAID PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C> <C>
590-599 2 $ 83,100.00 0.04%
600-609 19 663,386.68 0.32%
610-619 38 1,183,382.63 0.57%
620-629 465 14,715,422.58 7.14%
630-639 513 16,565,655.85 8.04%
640-649 713 24,519,634.45 11.89%
650-659 615 21,251,216.41 10.31%
660-669 706 26,520,868.89 12.87%
670-679 538 19,800,373.28 9.61%
680-689 516 19,637,042.07 9.53%
690-699 395 15,372,080.40 7.46%
700-709 402 15,540,344.44 7.54%
710-719 284 10,815,850.38 5.25%
720-729 197 7,548,455.24 3.66%
730-739 115 4,099,647.21 1.99%
740-749 84 3,276,146.94 1.59%
750-759 46 1,694,225.67 .82%
760-769 50 1,524,825.31 0.74%
770-779 19 678,093.35 0.33%
780-789 10 412,101.19 0.20%
790-799 3 95,000.00 0.05%
800-899 3 144,952.08 0.07%
------ --------------- --------
TOTAL 5,733 $206,141,805.05 100.00%
</TABLE>
The weighted average Credit Bureau Risk Score of the Initial Mortgage
Loans as of the Cut-off Date and the Subsequent Mortgage Loans as of the
Subsequent Cut-off Date, is 673.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Current Report on Form 8-K to be signed on
its behalf by the undersigned hereunto duly authorized.
CREDIT SUISSE FIRST BOSTON
MORTGAGE SECURITIES CORP.
May __, 1997 By:/s/ Joy Margolies
Joy Margolies
Vice President
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
1.1 Underwriting Agreement, dated March 17, 1997, between Credit Suisse
First Boston Mortgage Securities Corp. and Credit Suisse First Boston
Corporation
1.2 Terms Agreement, dated March 17, 1997, between Credit Suisse First
Boston Mortgage Securities Corp. and Credit Suisse First Boston
Corporation
4.1 Pooling and Servicing Agreement, dated as of March 1, 1997, among
Preferred Credit Corporation, as Seller, Credit Suisse First Boston
Mortgage Securities Corp., as Depositor, Advanta Mortgage Corp. USA,
as Servicer, and Bankers Trust Company, as Trustee
4.2 Sale and Purchase Agreement, dated March 17, 1997 between Credit
Suisse First Boston Mortgage Securities Corp. and Credit Suisse First
Boston Corporation
10.4 Form of Certificate Guaranty Insurance Policy issued by MBIA
Insurance Company
Exhibit 1.1
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
Depositor
Preferred Credit Asset-Backed
Certificates
March 17, 1997
UNDERWRITING AGREEMENT
Credit Suisse First Boston Corporation
11 Madison Avenue
New York, New York 10010
Dear Sirs:
I. INTRODUCTION. Credit Suisse First Boston Mortgage Securities Corp.,
a Delaware corporation (the "Depositor"), proposes to form one or more real
estate mortgage investment conduits (each, a "Trust"), which will issue, from
time to time, securities entitled Preferred Credit Asset-Backed Certificates
(the "Certificates") in one or more series (each, a "Series"). Each Certificate
will evidence a fractional, undivided percentage interest or beneficial interest
in a Trust. The property of each Trust may consist primarily of a pool (the
"Mortgage Loan Pool") of fixed rate, closed-end no or low equity mortgage loans
secured primarily by subordinate lien mortgages on residential one- to
four-family properties (the "Mortgage Loans") and certain related property to be
conveyed to the Trust by the Depositor (the "Trust Fund"). The Mortgage Loans
may be sold to the Depositor pursuant to one or more Sale and Purchase
Agreements, dated as set forth in the applicable Terms Agreement (as hereinafter
defined) (each, a "Sale and Purchase Agreement"), between the Depositor, as
purchaser, and Preferred Credit Corporation, as Seller (the "Seller"). The
Certificates of any Series will be issued pursuant to a Pooling and Servicing
Agreement to be dated as set forth in the applicable Terms Agreement (the
"Pooling and Servicing Agreement" and, together with this Agreement and the
related Sale and Purchase Agreement, the "Agreements"), among the Depositor, a
servicer (the "Servicer") named in such Terms Agreement and a trustee (the
"Trustee") named in such Terms Agreement.
The Certificates are more fully described in the Registration
Statement (as such term is defined in Section 2(a)), which the Depositor has
furnished to you. Each Series of Certificates and any classes or subclasses of
Certificates (each, a "Class" or "Subclass", respectively) within such Series
may vary, among other things, as to number and types of Classes or Subclasses,
aggregate principal balance or notional amount or aggregate stated principal
balance, the pass- through rate with respect to each Class or Subclass, the
percentage interest if any, evidenced by each Class or Subclass in payments of
principal and interest on, or with respect to, the Mortgage Loans included in
the related Trust Fund, the stated principal balance and interest rate, if any,
priority of payment among Classes or Subclasses, the method of credit
enhancement with respect to the Mortgage Loans in the Trust Fund for such
Series, the Classes or Subclasses of Certificates of such Series subject to this
Agreement, and any other variable terms contemplated by the Pooling and
Servicing Agreement and in the Certificates of such Series. The Depositor will
elect to treat the related Trust Fund as a "real estate mortgage investment
conduit" (a "REMIC") under the Internal Revenue Code of 1986, as amended (the
"Code").
Each offering of Certificates will be made through you, through you
and other underwriters for whom you are acting as representative or through an
underwriting syndicate managed by you. Whenever the Depositor determines to form
a Trust and to make such an offering of Certificates, it will enter into an
agreement (the "Terms Agreement") providing for the sale of such Certificates
to, and the purchase and offering thereof by, (i) you, (ii) you and such other
underwriters who execute the Terms Agreement and agree thereby to become
obligated to purchase Certificates from the Depositor, or (iii) you and such
other underwriters, if any, selected by you as have authorized you to enter into
such Terms Agreement on their behalf (in each case, the "Underwriters"). Such
Terms Agreement shall specify the fractional undivided interest, principal or
notional amount, or stated principal balance, of each Class or Subclass of the
Certificates to be issued and their terms not otherwise specified in the Pooling
and Servicing Agreement, the Classes or Subclasses of Certificates subject to
this Agreement, the price at which such Certificates are to be purchased by the
Underwriters from the Depositor, the aggregate amount of Certificates to be
purchased by each Underwriter and any other Underwriter that is a party to such
Terms Agreement and the initial public offering price or the method by which the
price at which such Certificates are to be sold will be determined. The Terms
Agreement, which shall be substantially in the form of Exhibit A hereto, which
may take the form of an exchange of any standard form of written
telecommunication between you and the Depositor. Each offering of Certificates
will be governed by this Agreement, as supplemented by the applicable Terms
Agreement, and this Agreement and such Terms Agreement shall inure to the
benefit of and be binding upon the related Underwriters. Except as otherwise
required by the context, all references herein to a Terms Agreement, Delivery
Date, Pooling and Servicing Agreement and Underwriters shall refer to the Terms
Agreement, Delivery Date, Pooling and Servicing Agreement and Underwriter or
Underwriters, as the case may be, relating to the related Series of
Certificates.
II. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The Depositor
represents and warrants to the Underwriters as of the date hereof and as of the
date of the applicable Terms Agreement, as follows:
(a) A registration statement on Form S-3 (No. 333-21329),
including a prospectus and such amendments thereto as may have been
required to the date hereof, relating to the Certificates and the
offering of each Series thereof from time to time in accordance with
Rule 415 under the Securities Act of 1933, as amended (the "Act"), has
been filed with the Securities and Exchange Commission (the
"Commission") and such registration statement, as amended, has become
effective. For purposes of this Agreement, "Effective Time" means the
date and time as of which such registration statement, or the most
recent post-effective amendment thereto (if any) filed prior to the
execution and delivery of this Agreement, was declared effective by the
Commission and "Effective Date" means the date of the Effective Time.
Such registration statement, as amended, and the prospectus and related
prospectus supplement that the Depositor has filed with the Commission
pursuant to Rule 424(b) relating to the sale of the Certificates of the
applicable Series offered thereby constituting a part thereof, as from
time to time amended or supplemented (including any prospectus relating
to the Certificates filed with the Commission pursuant to Rule 424(b)
of the rules and regulations of the Commission promulgated under the
Act (the "Rules and Regulations")), including all documents
incorporated therein by reference relating to the Series of
Certificates to which the Terms Agreement relates, are respectively
referred to as the "Registration Statement" and the "Base Prospectus";
provided, however, that a supplement to such Base Prospectus prepared
pursuant to Section 5(a) shall be deemed to have supplemented the Base
Prospectus only with respect to the offering of the Series of
Certificates to which it relates (any such supplement for a Series of
Certificates, together with the Base Prospectus, the "Prospectus"). The
conditions to the use of a registration statement on Form S-3 under the
Act, as set forth in the General Instructions to Form S-3, and the
conditions of Rule 415 under the Act, have been satisfied with respect
to the Registration Statement.
(b) The Registration Statement, on the Effective Date, and the
Base Prospectus, as of the date of the related Prospectus conformed in
all material respects to the requirements of the Act and the Rules and
Regulations, and did not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and on the
date of this Agreement, at the time of the filing of the Prospectus for
the Series of Certificates identified in the related Terms Agreement,
pursuant to Rule 424(b) and at the Delivery Date (as such terms are
defined in Section 3), such Base Prospectus conforms and will conform
in all material respects to the requirements of the Act and the Rules
and Regulations, and does not include and will not include, any untrue
statement of a material fact and does not omit and will not omit to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. The Prospectus delivered to the Underwriters for use in
connection with the offering of the related Series of Certificates was
identical to the electronically transmitted copies thereof filed with
the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system, except to the extent permitted by Regulation S-T. The
two immediately preceding sentences do not apply to statements or
omissions from either of such documents based upon written information
(including Computational Materials (as such term is defined in Section
8(a)) furnished to the Depositor by any Underwriter specifically for
use therein.
(c) The Depositor has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with full corporate power and authority to own its assets and
conduct its business as described in the Prospectus, is duly qualified
as a foreign corporation in good standing in all jurisdictions in which
the ownership or lease of its property or the conduct of its business
requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the Depositor,
and is conducting its business so as to comply in all material respects
with the applicable statutes, ordinances, rules and regulations of the
jurisdictions in which it is conducting business.
(d) The Pooling and Servicing Agreement and the related
Certificates conform, or will conform as of the related Delivery Date,
to the description thereof contained in the Registration Statement and
the related Prospectus; and the Certificates of a Series, on the
Delivery Date set forth in the related Terms Agreement, will have been
duly and validly authorized and, when such Certificates are duly and
validly executed by the Depositor or the Trustee, authenticated by the
Trustee and delivered in accordance with such Pooling and Servicing
Agreement and delivered and paid for as provided herein, will be
validly issued and outstanding and entitled to the benefits afforded by
the Pooling and Servicing Agreement.
(e) The execution and delivery by the Depositor of this Agreement,
the related Terms Agreement, the related Pooling and Servicing
Agreement and the Certificates of the related Series are within the
corporate power of the Depositor and have been, or will have been on
the related Delivery Date, duly authorized by all necessary corporate
action on the part of the Depositor; and neither the execution and
delivery by the Depositor of such instruments, nor the consummation by
the Depositor of the transactions herein or therein contemplated, nor
the compliance by the Depositor with the provisions hereof or thereof,
will (i) conflict with or result in a breach of, or constitute a
default under, any of the provisions of the certificate of
incorporation or by-laws of the Depositor, (ii) conflict with any of
the provisions of any law, governmental rule, regulation, judgment,
decree or order binding on the Depositor or its properties, (iii)
conflict with any of the provisions of any indenture, mortgage,
contract or other instrument to which the Depositor is a party or by
which it is bound, or (iv) result in the creation or imposition of any
lien, charge or encumbrance upon any of its property pursuant to the
terms of any such indenture, mortgage, contract or other instrument.
(f) At the date thereof, the Pooling and Servicing Agreement will
constitute a legal, valid and binding obligation of the Depositor,
enforceable against the Depositor in accordance with its terms,
subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium and other similar laws affecting
creditors' rights generally from time to time in effect, and to general
principles of equity.
(g) All approvals, authorizations, consents, orders or other
actions of any person, corporation or other organization, or of any
court, governmental agency or body or official (except with respect to
the state securities or Blue Sky laws of various jurisdictions),
required in connection with the valid and proper authorization,
issuance and sale of the Certificates of the related Series pursuant to
this Agreement, the Terms Agreement and the Pooling and Servicing
Agreement, has been or will be taken or obtained on or prior to the
applicable Delivery Date.
(h) The Reserve Fund, if any, will be established in accordance
with the Pooling and Servicing Agreement on or prior to the Delivery
Date; and a UCC-1 financing statement with respect to such Reserve Fund
naming the Trustee, for the benefit of the holders of the Certificates,
as the secured party has been filed in the office of the Secretary of
State of the state in which the principal trust office of the Trustee
is located and, upon the purchase by you of the Certificates subject to
this Agreement in the manner contemplated by this Agreement, and the
initial deposit of any amount required to be deposited therein pursuant
to the Pooling and Servicing Agreement, the Trustee, for the benefit of
the holders of the Certificates will, on the date of such deposit, have
a first perfected priority security interest in such Reserve Fund.
(i) At the applicable Delivery Date, each of the Mortgage Loans
included in the Trust Fund will meet the criteria for selection
described in the related Prospectus, and will conform to the
representations and warranties with respect thereto set forth in the
related Pooling and Servicing Agreement.
(j) Certificates subject to this Agreement and offered by means of
the Registration Statement will, when issued pursuant to the Pooling
and Servicing Agreement, not be "mortgage related securities", as such
term is defined in Section 3(a)(41) of the Securities Act of 1934, as
amended (the "Exchange Act").
(k) No Pooling and Servicing Agreement relating to a Series of
Certificates will be required to be qualified under the Trust Indenture
Act of 1933, as amended.
(l) The characteristics of the Trust Fund will not subject the
related Trust to registration as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company
Act").
III. PURCHASE, SALE AND DELIVERY OF CERTIFICATES. Delivery of and
payment for each Series of Certificates to which this Agreement applies will be
made at the office of Credit Suisse First Boston Corporation, 11 Madison Avenue,
New York, New York 10010 or such other place as specified in the Terms
Agreement, at such time as shall be specified in the Terms Agreement, or at such
other time thereafter as set forth in the Terms Agreement, or as you and the
Depositor shall agree upon, each such time being herein referred to as a
"Delivery Date". Delivery of such Certificates shall be made by the Depositor to
the Underwriters against payment of the purchase price specified in the
applicable Terms Agreement in same day funds wired to such bank as may be
designated by the Depositor, or by such other manner of payment as may be agreed
upon by the Depositor and you. Except as otherwise provided in the related Terms
Agreement, each Class of Certificates of a Series sold to the Underwriters
pursuant to such Terms Agreement will be represented initially by one or more
certificates registered in the name of Cede & Co., the nominee of the Depository
Trust Company (the "DTC Certificates"). The interests of the beneficial owners
of the DTC Certificates will be represented by book entries on the records of
DTC and participating members thereof. Definitive certificates for the DTC
Certificates will be made available only under the limited circumstances
specified in the Pooling and Servicing Agreement. Except as otherwise provided
in the related Terms Agreement, each Class of Certificates of a Series not sold
to the Underwriters pursuant to such Terms Agreement will be in definitive,
fully registered form, in such denominations and registered in such names as you
shall request, and will be made available at least 24 hours prior to the
applicable Closing Date, for checking and packaging at the offices of Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038 in such amounts
as determined pursuant to the Terms Agreement.
Except as otherwise provided in the related Terms Agreement, pursuant
to Rule 15c6-l(d) under the Exchange Act, the Depositor and the Underwriters
have agreed that the Delivery Date will not be less than five business days
following the date hereof.
IV. OFFERING BY UNDERWRITERS. It is understood that the Underwriters
propose to offer the Certificates subject to this Agreement for sale to the
public as set forth in the Prospectus.
V. COVENANTS OF THE DEPOSITOR. The Depositor covenants and agrees with
the Underwriters participating in the offering of the applicable Series of
Certificates that:
(a) Immediately following the execution of the Terms Agreement, the
Depositor will prepare a supplement to the Base Prospectus setting forth the
amount of Certificates of the related Series covered thereby and the terms
thereof not otherwise specified in the Base Prospectus, the price at which such
Certificates are to be purchased by the Underwriters, from the Depositor, either
the initial public offering price or the method by which the price at which such
Certificates are to be sold will be determined, the selling concessions and
reallowances, if any, and such other information as you and the Depositor deem
appropriate in connection with the offering of such Certificates, but the
Depositor will not file, for so long as the delivery of a Prospectus is required
in connection with the offering or sale of such Certificates, any amendments to
the Registration Statement as in effect with respect to such Certificates, or
any amendments or supplements to the related Prospectus, unless it shall first
have delivered copies of such amendments or supplements to you, or if you shall
have reasonably objected thereto promptly after receipt thereof, the Depositor
will, during such period, immediately advise you or your counsel (i) when notice
is received from the Commission that any post- effective amendment to the
Registration Statement has become or will become effective and (ii) of any order
or communications suspending or preventing, or threatening to suspend or
prevent, the offer and sale of the Certificates or of any proceedings or
examinations that may lead to such an order or communication, whether by or of
the Commission or any authority administering any state securities or Blue Sky
law, as soon as the Depositor is advised thereof, and will use its best efforts
to prevent the issuance of any such order or communication and to obtain as soon
as possible its lifting, if issued. Subject to the Underwriters' compliance with
their obligations set forth in Section 8, the Depositor shall file with the
Commission a current report on Form 8-K including any Computational Materials
provided to it by the Underwriters pursuant to Section 8 no later than the date
that the related Prospectus is filed with the Commission.
(b) If, at any time when a Prospectus relating to the Certificates
of the related Series is required to be delivered under the Act, any
event occurs as a result of which the Prospectus as then amended or
supplemented would include any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if it is necessary at any time to amend or
supplement the Prospectus to comply with the Act or the Rules and
Regulations, the Depositor will promptly prepare and file with the
Commission, an amendment or supplement that will correct such statement
or omission or an amendment that will effect such compliance.
(c) The Depositor will make generally available to the holders of
the Certificates (the "Certificateholders"), and deliver to you, in
each case as soon as practicable, an earnings statement which will
satisfy the provisions of Section ll(a) of the Act and Rule 158 of the
Commission with respect to the Certificates; and the Depositor will
cause the Trustee to furnish or make available, within a reasonable
time after the end of each calendar year, to each holder of a
Certificate at any time during such year, such information as the
Depositor deems necessary or desirable to assist Certificateholders in
preparing their federal income tax returns.
(d) The Depositor will furnish to you copies of the Registration
Statement (two of which will be signed and will include all documents
and exhibits thereto or incorporated by reference therein), each
related preliminary prospectus, the Prospectus and all amendments and
supplements to such documents relating to the Certificates of the
related Series, in each case as soon as available, but in no event
later than five business days after signing the related Terms
Agreement, and in such quantities as you reasonably request.
(e) The Depositor will arrange for the qualification
of the Certificates of the related Series for sale and the
determination of their eligibility for investment under the
laws of such jurisdictions as you designate and will continue such
qualifications in effect so long as required for the distribution of
the Certificates; provided, however, that neither the Depositor nor the
Trust shall be required to do business in any jurisdiction where it is
now not qualified or to take any action which would subject it to
general or unlimited service of process in any jurisdiction in which it
is now not subject to service of process.
(f) The Depositor will, while the Certificates of a Series are
outstanding furnish to you, and upon request of each other Underwriter,
information with respect to the related Trust or the Mortgage Loans
included in the related mortgage pool, as any Underwriter may
reasonably request, including but not limited to information necessary
or appropriate to the maintenance of a secondary market in the
Certificates of such Series.
(g) The Depositor will pay all expenses incident to the
performance of its obligations under this Agreement and the Terms
Agreement and will reimburse the Underwriters for any expenses
(including fees and disbursements of its counsel) incurred by them in
connection with the offering and the qualification of the related
Series of Certificates and determination of their eligibility for
investment under the laws of such jurisdictions as you may designate
and the reproduction of memoranda relating thereto, for any fees
charged by investment rating agencies for the rating of the
Certificates and, to the extent previously agreed upon with you, the
expenses incurred in distributing any preliminary prospectuses, the
Prospectus or any amendments or supplements thereto to the
Underwriters.
(h) During the period when a Prospectus is required by law to be
delivered in connection with the sale of Certificates of a related
Series pursuant to this Agreement, the Depositor will file, or cause
the Trustee to file on behalf of the related Trust, on a timely and
complete basis, all documents that are required by the related Trust
with the Commission pursuant to Sections 13, 14 or 15(d) of the
Exchange Act.
(i) The Depositor will prepare, or cause to be prepared, and file, or
cause to be filed, a timely election to treat the Trust as a REMIC for federal
income tax purposes and will file, or cause to be filed, such tax returns and
take such actions, all on a timely basis, as are required to elect and maintain
such status.
VI. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The obligations
of the Underwriters to purchase and pay for the Certificates of a related Series
subject to this Agreement will be subject to the accuracy of the representations
and warranties on the part of the Depositor as of the date hereof, the date of
the Terms Agreement and the applicable Delivery Date, to the accuracy of the
statements of the Depositor made pursuant to the provisions thereof, to the
performance by the Depositor in all material respects of its obligations
hereunder and to the following additional conditions precedent:
(a) You shall have received a letter from KPMG Peat Marwick
L.L.P., dated the date of the Terms Agreement, and a letter from KPMG
Peat Marwick L.L.P., dated the Delivery Date, and addressed to you each
in the forms heretofore agreed to.
(b) You shall have received a copy of the Prospectus
for the related Series of Certificates.
(c) All actions required to be taken and all filings required to
be made by the Depositor under the Act prior to the sale of the
Certificates of the applicable Series shall have been duly taken or
made; and prior to the applicable Delivery Date, no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted, or to the knowledge of the Depositor or any Underwriter,
shall be contemplated by the Commission.
(d) The Certificates subject to this Agreement and offered by
means of the Registration Statement shall be rated at the time of
issuance as set forth in the Terms Agreement.
(e) You shall have received an opinion of counsel or counsels for
the Depositor, dated the applicable Delivery Date, substantially to
the effect that:
(i) The Depositor is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware, with corporate power and corporate
authority to own its assets, operate its business as described
in the Prospectus, and is duly qualified to do business as a
foreign corporation in the State of New York which the
Depositor has advised us in writing are the jurisdictions in
which the Depositor owns or leases real property or conducts
material operations.
(ii) This Agreement and the Terms Agreement have
been duly authorized, executed and delivered by the
Depositor.
(iii) The execution, delivery and performance of the
Agreements do not conflict with the Certificate of
Incorporation or the By-laws of the Depositor and, to the
knowledge of such counsel and based solely on its examination
of the documents referred to herein, (A) do not conflict with
or violate or constitute a material breach of, or constitute a
default under, any material written contract, indenture,
undertaking or other agreement or instrument by which the
Depositor is now bound or to which it is now a party, or
result in the imposition of any material lien upon any of its
material properties, and (B) do not conflict with or violate
any order, write, injunction or the decree of any court or
governmental authority against the Depositor or by which any
of its properties is bound.
(iv) Each of the Sale and Purchase Agreement and the
Pooling and Servicing Agreement has been duly authorized,
executed and delivered by the Depositor and, assuming the due
authorization, execution and delivery thereof by the other
parties thereto, constitutes the legal, valid and binding
agreement of the Depositor, enforceable against the Depositor
in accordance with its terms, except as enforcement thereof
may be subject to or limited by bankruptcy, insolvency,
moratorium, reorganization, arrangement, fraudulent conveyance
or other laws relating to or affecting creditors' rights
generally or by general equitable principles.
(v) The Certificates of the related Series have
been duly authorized by the Depositor and, when
executed and authenticated pursuant to the Pooling and
Servicing Agreement and paid for and delivered pursuant to
this Agreement and the Terms Agreement, will be validly issued
and outstanding and will be entitled to the benefits afforded
by the Pooling and Servicing Agreement.
(vi) No consent, approval, authorization or order of any
court or governmental agency or body is required for the
consummation by the Depositor of the transactions contemplated
by the Agreements except such as may be required under federal
or state securities laws in connection with the purchase by
the Underwriters of the Certificates, filings with respect to
the transfer of the Mortgage Loans from the Seller to the
Depositor pursuant to the Sale and Purchase Agreement and from
the Depositor to the Trustee pursuant to the Pooling and
Servicing Agreement, which approvals, together with all other
necessary approvals, have been obtained.
(vii) The Pooling and Servicing Agreement is not required
to be qualified under the Trust Indenture Act of 1939 and the
Trust Fund is not required to be registered under the
Investment Company Act.
(viii) The Registration Statement has become effective
under the Act, and, to the knowledge of such counsel, no stop
order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the
Act; the Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective
effective or issue dates complied as to form in all material
respects to the requirements of the Act and the Rules and
Regulations; such counsel has no reason to believe that either
the Registration Statement, at the Effective Time, or any such
amendment or supplement, as of its effective date, contained
any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the
Prospectus, at the date of this Agreement, or any such
amendment or supplement, as of its respective date, or at the
Delivery Date, included or includes an untrue statement of a
material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; it being understood that such counsel need express
no opinion as to (i) the financial statements or other
financial or statistical data contained in the Registration
Statement or the Prospectus, including Computational Materials
or (ii) any exhibit to the Registration Statement or item
incorporated therein by reference which does not relate to the
offering of the related Series of Certificates.
(ix) The statements in the Prospectus under the caption
"Description of Certificates", "Servicing of the Mortgage
Loans" and "Description of the Sale and Purchase Agreement"
insofar as such statements constitute a summary of certain
terms of the Certificates, the Sale and Purchase Agreement and
the Pooling and Servicing Agreement, while they do not purport
to discuss all aspects of such documents, constitute a fair
summary of such documents in all material respects; the
statements in the Base Prospectus and/or the Prospectus, as
the case may be, under the captions "Certain Aspects of the
Mortgage Loans", "ERISA Considerations", "Certain Federal
Income Tax Considerations" and "Certain Federal Income Tax
Consequences", to the extent that they constitute matters of
federal or New York State law or legal conclusions with
respect thereto relating to the Mortgage Loans or the
Certificates of the related Series, have been prepared or
reviewed by us and are correct in all material respects.
(e) You shall have received an opinion of counsel to the Seller,
addressed to the Underwriters and the Depositor, dated the applicable
Delivery Date, substantially to the effect that the statements in the
Prospectus prepared by the Depositor pursuant to Section 5(a) under the
captions "The Seller" and "Description of the Mortgage Loans" do not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading (it being understood that such
counsel need not render any opinion with respect to any financial or
statistical information contained therein).
(f) You shall have received an opinion of counsel to the Trustee,
dated the Delivery Date, and in the form agreed to on or prior to the
date of the Terms Agreement.
(g) If applicable, you shall have received an opinion of counsel
to the Servicer, dated the Delivery Date, and in the form agreed to on
or prior to the date of the Terms Agreement.
(h) You shall have received from Andrews & Kurth L.L.P., counsel
for the Underwriters, such opinion or opinions, dated the Delivery
Date, with respect to the existence of the Depositor, the Registration
Statement, the Prospectus and other related matters as the Underwriters
may require, and the Depositor shall have furnished to such
counsel such documents as they request for the purpose of enabling
them to pass upon such matters.
(i) You shall have received a certificate or certificates signed
by such of the principal executive, financial and accounting officers
of the Depositor as you may request, dated the applicable Delivery
Date, in which such officers, to the best of their knowledge after
reasonable investigation, shall state that (i) the representations and
warranties of the Depositor in this Agreement are true and correct;
(ii) the Depositor has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the
Closing Date; (iii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are contemplated; (iv) subsequent to
the respective dates as of which information is given in the
Prospectus, and except as otherwise set forth in or contemplated by the
Prospectus, there has not been any material adverse change in the
general affairs, capitalization, financial condition or results of
operations of the Depositor; (v) except as otherwise stated in the
Prospectus, there are no material actions, suits or proceedings
pleading before any court or governmental agency, authority or body or,
to their knowledge, threatened, affecting the Depositor or the
transactions contemplated by this Agreement; (vi) attached thereto are
true and correct copies of a letter from the rating agency or agencies
rating the related Series of Certificates confirming that the
Certificates of such Series have been rated in one of the four highest
rating categories established by such agency or agencies as set forth
in the Terms Agreement and such rating has not been lowered since the
date of such letter; and (vii) the Reserve Fund, if any, shall have
been established by the Depositor as contemplated by the Pooling and
Servicing Agreement.
(j) If applicable, you shall have received letters dated the
applicable Delivery Date from counsel rendering opinions to any
nationally recognized statistical rating organization rating the
applicable Series of Certificates, to the effect that you may rely upon
their opinion to such rating organization, as if such opinion were
rendered to you.
(k) You shall have received a certificate of the Trustee, signed
by one or more duly authorized officers of the Trustee, dated the
applicable Delivery Date, as to the due acceptance of the Pooling and
Servicing Agreement by the Trustee and the due authorization and
delivery of the Certificates of such Series by the Trustee thereunder.
(l) To the extent, if any, that the ratings provided
to the Certificates of the related Series by any of
Standard & Poor's, Fitch or Moody's is conditional upon the
furnishing of documents or the taking of any other actions by the
Depositor or the Servicer, the Depositor or the Servicer, as the case
may be, shall furnish such documents and take any such other actions.
(m) You shall have received letters from each Rating Agency
confirming the ratings set forth in the related Terms Agreement.
(n) The Reserve Fund and Reserve Accounts, if any, shall have been
established as provided in the Pooling and Servicing Agreement.
The Depositor will furnish you with such conformed copies of such
opinions, certificates, letters and documents as you reasonably request.
VII. INDEMNIFICATION.
(a) The Depositor will indemnify and hold harmless each
Underwriter and each person, if any, who controls such Underwriter
within the meaning of the Act, against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or such
controlling person may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement or the Prospectus or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; and will
reimburse each Underwriter and each such controlling person for any
legal or other expenses reasonably incurred by such Underwriter and
each such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided
however, that the Depositor will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon any such untrue statement or alleged untrue statement in
or omission or alleged omission made in any of such documents in
reliance upon and in conformity with written information furnished to
the Depositor by the relevant Underwriter specifically for use therein.
This indemnity agreement will be in addition to any liability which the
Depositor may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the
Depositor, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the
Depositor within the meaning of the Act against any losses, claims,
damages or liabilities to which the Depositor or any such director,
officer or controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
the Registration Statement or the Prospectus or any amendment or
supplement thereto, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with
written information furnished to the Depositor by such Underwriter
specifically for use therein, and will reimburse any legal or other
expenses reasonably incurred by the Depositor or any such director,
officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. This
indemnity agreement will be in addition to any liability that such
Underwriter may otherwise have. The Depositor acknowledges that, for
purposes of this Section, the statements set forth in the Prospectus
Supplement on page S-2 regarding stabilization, in the third paragraph
under the heading "Underwriting" with respect to the related Series of
Certificates to be purchased by the Underwriters, constitute the only
information furnished to the Depositor by the Underwriters for
inclusion in the Prospectus.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section, notify the indemnifying party of
the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise in this Section. In case any
such action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying
party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will be entitled to participate
therein, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party) and, after notice from the indemnifying party to
such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a
result of the losses, claims, damages or liabilities referred to in
subsection (a) or (b) above (i) in such proportion as is appropriate to
reflect the relative benefits received by the Depositor on the one hand
and the Underwriters on the other from the offering of the related
Series of Certificates or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Depositor on the
one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages
or liabilities as well as any other relevant equitable considerations.
The relative benefits received by the Depositor on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses)
received by the Depositor bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Depositor or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by
such indemnified in connection with investigating or defending any
action or claim which is the subject to this subsection (d).
Notwithstanding the provisions of this subsection (d), no Underwriter
shall be required to contribute any amount in excess of the amount by
which the total price at which the related Series of Certificates
underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section ll(f) of
the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
VIII. COMPUTATIONAL MATERIALS.
(a) Each Underwriter agrees to provide to the Depositor no less than
two business days prior to the date on which the Prospectus is
proposed to be filed pursuant to Rule 424(b) under the Act, for the
purpose of permitting the Depositor to comply with the filing
requirement set forth in Section 5(a), all information (in such
written or electronic format as required by the Depositor) with
respect to the related Series of Certificates which constitutes
"Computational Materials", as defined in the Commission's No-Action
Letter, dated May 20, 1994, addressed to Kidder, Peabody Acceptance
Corporation I, Kidder, Peabody & Co. Incorporated and Kidder
Structured Asset Corporation (the "Kidder Letter"), and that is
required to be filed as described in the Kidder Letter.
(b) The relevant Underwriter shall provide to the Depositor, together
with the information required to be provided to the Depositor pursuant
to Section 8(a) or 8(c)(iii) hereof, a letter, in form and substance
acceptable to the Depositor, of independent certified public
accountants acceptable to the Depositor, stating in effect that such
independent certified public accountants have performed certain
specified procedures, all of which have been agreed to by the
Depositor, and that they have verified or confirmed, as appropriate,
the financial, numerical or statistical information to be filed by the
Depositor as part of the Computational Materials and have found such
information to be accurate without exception. Such letter will be
obtained at the sole expense of the Underwriters.
(c) (i) The relevant Underwriter represents and warrants to, and
covenants with, the Depositor that all information provided to the
Depositor pursuant to this Section, as of the date such information is
so provided and as of the date such information is filed by the
Depositor with the Commission will not include any untrue statement of
a material fact and will not omit to state any material facts required
to be stated therein or necessary in order to make the statements
contained therein, in the light of the circumstances under which they
were made, not misleading.
(ii) The relevant Underwriter further covenants with
the Depositor that if any Computational Materials required to be
provided to the Depositor pursuant to Section 8(a) are determined to
contain any information that is inaccurate or misleading, the relevant
Underwriter (whether or not such Computational Materials are provided
to the Depositor or filed by the Depositor with the Commission) shall
promptly prepare and deliver to the Depositor and each prospective
investor which received such Computational Materials corrected
Computational Materials. All information provided to the Depositor
pursuant to this Section 8(c)(ii) shall be provided within the time
periods set forth in Section 8(a) hereof.
(iii) The Underwriters represent and warrant to the
Depositor that the Underwriters have taken all necessary and required
steps to ensure that no written material of any kind relating to a
given Series of Certificates (or any certificates similar to the
Certificates) will be delivered to potential investors other than
Computational Materials required to be filed pursuant to the Kidder
Letter and that all Computational Materials will be provided to the
Depositor and to ensure that all such Computational Materials are
accurate and not misleading.
(iv) The Underwriters covenant with the Depositor
that all Computational Materials delivered to prospective investors
shall contain a legend substantially to the following effect:
"THIS INFORMATION IS FURNISHED TO YOU SOLELY
BY CREDIT SUISSE FIRST BOSTON CORPORATION
AND/OR THE OTHER UNDERWRITERS AND NOT BY
CREDIT SUISSE FIRST BOSTON MORTGAGE
SECURITIES CORP. (THE "DEPOSITOR") OR ANY
OF ITS AFFILIATES (OTHER THAN CREDIT SUISSE
FIRST BOSTON CORPORATION IN ITS CAPACITY
AS AN UNDERWRITER). THE UNDERWRITERS ARE
NOT ACTING AS AGENTS FOR THE DEPOSITOR OR
ITS AFFILIATES IN CONNECTION WITH THE
PROPOSED TRANSACTION."
(d) The relevant Underwriter agrees to indemnify and hold harmless the
Depositor, each of the Depositor's officers and directors and each
person who controls the Depositor within the meaning of either the Act
or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they may become subject under
the Act, the Exchange Act, or other Federal or State statutory law or
regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) (i) are
based on, result from or arise of: (A) the relevant Underwriter's use
or delivery to any prospective investor in the Certificates of any
Series of any Computational Materials; (B) the relevant Underwriter's
failure to comply with Sections 8(a) or 8(c); (C) the filing by the
Depositor with the Commission of any information pursuant to the last
sentence of Section 5(a); or (ii) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact
contained in any information required to be delivered to the Depositor
pursuant to a Section 8(a) or 8(c)(ii) hereof, or arise out of or are
based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, and agrees to reimburse each such
indemnified party for any legal or other expenses reasonably incurred
by him, her or it in connection with investigating or defending any
such loss, claim, damage, liability or action. The obligations of such
Underwriter under this Section shall be in addition to any liability
which such Underwriter may otherwise have.
The procedures set forth in Section 7(c) and 7(d) shall be equally
applicable to this Section.
(e) Notwithstanding any other provision herein, (a) no Underwriter
shall be required to be responsible for any amount in excess of the
amount by which the total re-offering price at which the Certificates
underwritten by it and distributed and offered to the public exceeds
the amount paid hereunder by the Underwriter for the Certificates. For
the purposes of this Section 8(e), each person, if any, who controls
the Underwriter within the meaning of the Securities Act or the
Exchange Act shall have the same rights to contribution as the
Underwriter and each director of the Depositor, each officer of the
Depositor who signed the Registration Statement, and each person, if
any, who controls the Depositor within the meaning of the Securities
Act or the Exchange Act shall have the same rights to contribution as
the Depositor and (b) the relevant Underwriter agrees to pay all costs
and expenses of the Depositor incurred in connection with (i) the
filing by the Depositor of any Computational Material with the
Commission and (ii) any action by the Depositor against the relevant
Underwriter to enforce any of its rights set forth in this Section,
including, without limitation, legal fees and expenses.
IX. DEFAULT OF UNDERWRITERS. If any Underwriter or Underwriters
participating in an offering of a Series of Certificates default in their
obligations to purchase Certificates of the related Series hereunder and under
the related Terms Agreement and the aggregate principal amount of such
Certificates which such defaulting Underwriter or Underwriters agreed, but
failed, to purchase does not exceed 10% of the total principal amount of the
Certificates set forth in such Terms Agreement, you may make arrangements
satisfactory to the Depositor for the purchase of such Certificates by other
persons, including any of the Underwriters participating in such offering, but
regardless of whether such arrangements are made the non-defaulting Underwriters
shall remain obligated severally to purchase the Certificates of the related
Series which they committed to purchase in accordance with the terms hereunder
and under the Terms Agreement. If any Underwriter or Underwriters so default and
the aggregate principal amount of Certificates of the related Series with
respect to which such default or defaults occur is more than 10% of the total
principal amount of the Certificates set forth in such Terms Agreement and
arrangements satisfactory to you and the Depositor for the purchase of such
Certificates by other persons are not made, this Agreement will terminate
without liability on the part of any nondefaulting Underwriter, except as
provided in Section 10. As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section. Nothing
herein will relieve a defaulting Underwriter from liability for its default.
X. TERMINATION OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations
of the Underwriters to purchase the Certificates of a given Series on the
related Delivery Date shall be terminable by the Underwriters if (a) at any time
on or prior to the Delivery Date (i) trading in securities generally on the New
York Stock Exchange shall have been suspended or materially limited, or there
shall have been any setting of minimum prices for trading on such exchange, (ii)
a general moratorium on commercial banking activities in New York shall have
been declared by either Federal or New York State authorities, (iii) there shall
have occurred any material outbreak or escalation of hostilities or other
calamity or crisis, the effect of which on the financial markets of the United
States is such as to make it, in your judgment as representative of the
Underwriters, impracticable to consummate the transactions contemplated herein
or is such as would materially and adversely affect the marketability of or the
market price for the Certificates or (iv) any change or any development
involving a prospective change, materially and adversely affecting (A) the Trust
Fund taken as a whole or (B) the business or properties of the Depositor occurs,
which, in your reasonable judgment as representative of the Underwriters, in the
case of either clause (A) or (B), materially impairs the investment quality of
the Certificates or (b) any representation or warranty of another party shall be
incorrect in any material respect.
XI. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The
respective indemnities, agreements, representations, warranties and other
statements by the Depositor or its officers and of the Underwriters set forth in
or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation, or statement as to the results thereof, made by
or on behalf of the Underwriters, the Depositor or any of its officers or
directors or any controlling person, and will survive delivery of and payment
for Certificates of the related Series.
If this Agreement is terminated pursuant to Section 9 or if for any
reason the purchase of the Certificates of a given Series by the Underwriters is
not consummated, the Depositor shall remain responsible for the expenses to be
paid or reimbursed by them pursuant to Section 5(g), and the obligations of the
Depositor and the Underwriters pursuant to Sections 7 and 8 shall remain in
effect.
XII. NOTICES. All communications hereunder will be in writing and, if
sent to an Underwriter will be mailed, delivered or telegraphed and confirmed to
you at 11 Madison Avenue, New York, New York 10010 or if sent the Depositor,
will be mailed, delivered or telegraphed and confirmed to it at 11 Madison
Avenue, New York, New York 10010 Attention: President; provided, however, that
any notice to an Underwriter pursuant to Section 7 or 8 will be mailed,
delivered or telegraphed to such Underwriter at the addressee furnished by it.
XIII. SUCCESSORS. This Agreement and the Terms Agreement with respect
to a given Series of Certificates will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers,
directors and controlling persons referred to in Sections 7 and 8, and their
successors and assigns, and no other person will have any right or obligations
hereunder.
XIV. REPRESENTATION OF UNDERWRITERS. You will act for the several
Underwriters set forth in the applicable Terms Agreement in connection with the
transactions described in this Agreement and such Terms Agreement with respect
to a given Series of Certificates and any action taken by you under this
Agreement will be binding upon all the Underwriters for such Series of
Certificates.
XV. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS.
XVI. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same instrument.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon, it will
become a binding agreement among the Depositor and the several Underwriters in
accordance with its terms.
Very truly yours,
CREDIT SUISSE FIRST BOSTON MORTGAGE
SECURITIES CORP.,
as Depositor
By: /s/ Joy Margolies
Name: Joy Margolies
Title: Vice President
The foregoing Agreement is
hereby confirmed and accepted
as of the date first
above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
as Underwriter
By: /s/ Nita Cherry
Name: Nita Cherry
Title: Managing Director
<PAGE>
FORM OF TERMS AGREEMENT
___________SERIES 199_-_
----- --, ----
To: Credit Suisse First Boston Mortgage Securities Corp., as
Depositor under the Pooling and Servicing Agreement
dated as of _____ _, ____.
Re: Underwriting Agreement dated _____ __, ____.
TITLE: Preferred Credit Asset-Backed Certificates,
Series ____-_, Class ___.
PRINCIPAL AMOUNT: $_________
TERMS OF THE CERTIFICATES:
Original Pass-Through
Class Principal Amount Rate
$ %
$ %
$ %
$ %
$ %
$ %
<PAGE>
CERTIFICATE RATING:
(Rating (Rating
Class Agency) Agency)
SERVICER: ___________ (in such capacity, the "Servicer").
TRUSTEE: ____________ (in such capacity, the "Trustee").
TERMS OF SALE: The purchase price payable by the Underwriters for each
Class of Certificates is % of the principal amount of the Class __ Certificates,
% of the principal amount of the Class __ Certificates, % of the principal
amount of the Class __ Certificates, % of the principal amount of the Class __
Certificates, % of the principal amount of the Class __ Certificates, and % of
the principal amount of the Class __Certificates, in each case plus accrued
interest at the related Pass-Through Rate from the date of initial issuance.
Payment of the purchase price shall be in immediately available
Federal funds wired to such bank as may be designated by the Depositor.
UNDERWRITING COMMISSIONS:
Notwithstanding anything to the contrary in the Underwriting
Agreement, no additional underwriting commission shall be payable by the
Depositor to the Underwriter in connection with the purchase of the
Certificates.
Public offering price and/or method of determining price at which the
Underwriter will sell the Certificates:
%
%
%
%
%
%
MORTGAGE LOANS: The mortgage loans (the "Mortgage Loans") sold by
Preferred Credit Corporation (the "Seller") to the Depositor pursuant to the
Sale and Purchase Agreement, dated as of ____ __, ____, between the Depositor,
as purchaser, and the Seller, as seller and conveyed by the Depositor to the
Trust pursuant to the Pooling and Servicing Agreement, dated as of _____ __,
____ (the "Pooling and Servicing Agreement"), among the Depositor, the Seller,
the Servicer and the Trustee, as more fully described in Exhibit __ to the
Pooling and Servicing Agreement.
DISTRIBUTION DATES: The __th day (or, if such day is not a business
day, the next succeeding business day) of each month, commencing with _____ __,
____.
DELIVERY DATE AND LOCATION: 10:00 a.m., New York Time, on or about
____ __, ____, or at such other time not later than seven full business days
thereafter as may be agreed upon, at the offices of ______________.
CREDIT SUISSE FIRST BOSTON CORPORATION,
as Underwriter
By: ----------------------------------
Accepted:
CREDIT SUISSE FIRST BOSTON
MORTGAGE SECURITIES CORP.,
as Depositor
By: ----------------------------------
Exhibit 1.2
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
(DEPOSITOR)
PREFERRED CREDIT ASSET-BACKED CERTIFICATES,
SERIES 1997-1
TERMS AGREEMENT
March 17, 1997
To: Credit Suisse First Boston Mortgage Securities Corp., as
Depositor under the Pooling and Servicing Agreement
dated as of March 1, 1997.
Re: Underwriting Agreement dated March 17, 1997.
Title: Preferred Credit Asset-Backed Certificates,
Series 1997-1, Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5, Class A-6.
Principal Amount: $200,000,000.00
Terms of the Certificates:
Original Pass-Through
Class Principal Amount Rate
A-1 $47,800,000.00 6.20%
A-2 $29,500,000.00 6.71%
A-3 $23,200,000.00 6.91%
A-4 $50,600,000.00 7.15%
A-5 $11,500,000.00 7.39%
A-6 $37,400,000.00 7.59%
Certificate Rating:
Standard &
Class Moody's Poor's
A-1 Aaa AAA
A-2 Aaa AAA
A-3 Aaa AAA
A-4 Aaa AAA
A-5 Aaa AAA
A-6 Aaa AAA
SERVICER: Advanta Mortgage Corp. U.S.A. (in such capacity, the
"Servicer").
TRUSTEE: Bankers Trust Company (in such capacity, the "Trustee").
TERMS OF SALE: The purchase price payable by the Underwriters for each
Class of Certificates is 99.353866% of the principal amount of the Class A-1
Certificates, 99.638428% of the principal amount of the Class A-2 Certificates,
99.483919% of the principal amount of the Class A-3 Certificates, 99.364569% of
the principal amount of the Class A-4 Certificates 99.277618% of the principal
amount of the Class A-5 Certificates, and 99.215304% of the principal amount of
the Class A-6 Certificates, in each case plus accrued interest at the related
Pass-Through Rate from the date of initial issuance.
Payment of the purchase price shall be in immediately available
Federal funds wired to such bank as may be designated by the Depositor.
The Class B and R Certificates issued pursuant to the Pooling and
Servicing Agreement are not subject to this Agreement.
UNDERWRITING COMMISSIONS:
Notwithstanding anything to the contrary in the Underwriting
Agreement, no additional underwriting commission shall be payable by the
Depositor to the Underwriter in connection with the purchase of the
Certificates.
Public offering price and/or method of determining price at which the
Underwriter will sell the Certificates:
Class A-1: 99.578866%
Class A-2: 99.950928%
Class A-3: 99.983919%
Class A-4: 99.989569%
Class A-5: 99.952618%
Class A-6: 99.990304%
MORTGAGE LOANS: The mortgage loans (the "Mortgage Loans") sold by
Preferred Credit Corporation (the "Seller") to the Depositor pursuant to the
Sale and Purchase Agreement, dated as of March 1, 1997, between the Depositor,
as purchaser, and the Seller, as seller and conveyed by the Depositor to the
Trust pursuant to the Pooling and Servicing Agreement, dated as of March 1, 1997
(the "Pooling and Servicing Agreement"), among the Depositor, the Seller, the
Servicer and the Trustee, as more fully described in Exhibit C to the Pooling
and Servicing Agreement.
DISTRIBUTION DATES: The 25th day (or, if such day is not a business
day, the next succeeding business day) of each month, commencing with April 25,
1997.
DELIVERY DATE AND LOCATION: 10:00 a.m., New York Time, on or about
March 27, 1997, or at such other time not later than seven full business days
thereafter as may be agreed upon, at the offices of Stroock & Stroock & Lavan
LLP, 180 Maiden Lane, New York, New York 10038.
COMPUTATIONAL MATERIALS: As no Computational Materials have been
distributed by the Underwriter in connection with the offering of the
Certificates, the provisions of Section VIII of the Underwriting Agreement shall
not apply to the offering of the Class A Certificates.
CREDIT SUISSE FIRST BOSTON CORPORATION,
as Underwriter
By: /s/ Nita Cherry
Accepted:
CREDIT SUISSE FIRST BOSTON MORTGAGE
SECURITIES CORP.,
as Depositor
By:/s/ Joy Margolies
Exhibit 4.1
EXECUTION COPY
POOLING AND SERVICING AGREEMENT
Dated as of March 1, 1997
by and among
Credit Suisse First Boston Mortgage Securities Corp.
(Depositor)
Preferred Credit Corporation
(Seller)
and
Advanta Mortgage Corp. USA
(Servicer)
and
Bankers Trust Company
(Trustee)
Preferred Credit Asset-Backed Certificates,
Series 1997-1
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I Definitions.................................................1
Section 1.1 Certain Defined Terms....................................1
Section 1.2 Provisions of General Application.......................42
ARTICLE II Establishment of the Trust Sale and Conveyance of
the Trust Fund.............................................44
Section 2.1 Sale and Conveyance of Trust Fund: Priority
and Subordination of Ownership Interests;
Establishment of the Trust.............................44
Section 2.2 Possession of Mortgage Files; Access to
Mortgage Files..........................................46
Section 2.3 Delivery of Mortgage Loan Documents.....................46
Section 2.4 Acceptance by Trustee of the Trust Fund;
Certain Substitutions; Certification by
Trustee.................................................49
Section 2.5 [RESERVED]..............................................50
Section 2.6 Execution of Certificates...............................51
Section 2.7 Application of Principal and Interest...................51
Section 2.8 Further Assurances; Powers of Attorney.................51
Section 2.9 Conveyance of the Subsequent Mortgage Loans.............51
ARTICLE III Representations and Warranties.............................56
Section 3.1 Representations of the Servicer.........................56
Section 3.2 Representations, Warranties and Covenants of
the Depositor...........................................57
Section 3.3 RESERVED................................................58
Section 3.4 Purchase and Substitution...............................58
Section 3.5 Indemnification of the Trust Fund by the
Indemnitors.............................................60
Section 3.6 Third Party Claims......................................61
ARTICLE IV The Certificates...........................................62
Section 4.1 The Certificates........................................62
Section 4.2 Registration of Transfer and Exchange of
Certificates............................................62
Section 4.3 Mutilated, Destroyed; Lost or Stolen
Certificates............................................68
Section 4.4 Persons Deemed Owners...................................68
ARTICLE V Administration and Servicing of the Mortgage Loans.........70
Section 5.1 Appointment of the Servicer.............................70
Section 5.2 Subservicing Agreements Between the Servicer
and Subservicers.......................................71
Section 5.3 Collection of Certain Mortgage Loan Payments;
Collection Account.....................................72
Section 5.4 Permitted Withdrawals from the Collection
Account.................................................74
Section 5.5 Payment of Taxes, Insurance and Other Charges...........75
Section 5.6 Maintenance of Casualty Insurance.......................75
Section 5.7 Servicer Account........................................76
Section 5.8 Fidelity Bond: Errors and Omissions Policy..............77
Section 5.9 Collection of Taxes, Assessments and Other
Items...................................................77
Section 5.10 Enforcement of Due-on-Sale Clauses;
Assumption Agreements...................................78
Section 5.11 Realization upon Defaulted Mortgage Loans...............79
Section 5.12 Trustee to Cooperate; Release of Mortgage Files.........82
Section 5.13 Servicing Fee; Servicing Compensation...................83
Section 5.14 Reports to the Trustee; Collection Account Statements...83
Section 5.15 Annual Statement as to Compliance.......................84
Section 5.16 Annual Independent Public Accountants' Servicing Report.84
Section 5.17 [Reserved]..............................................84
Section 5.18 Reports to be Provided by the Servicer..................84
Section 5.19 Adjustment of Servicing Compensation in
Respect of Prepaid Mortgage Loans.....................85
Section 5.20 Delinquency Interest Advances..........................85
Section 5.21 [Reserved].............................................85
Section 5.22 Maintenance of Corporate Existence and Licenses;
Merger or Consolidation of the Servicer...............85
Section 5.23 Assignment of Agreement by Servicer; Servicer
Not to Resign..........................................86
Section 5.24 Information Reports to be Filed by the Servicer........86
ARTICLE Vl Distributions and Payments.................................87
Section 6.1 Establishment of Certificate Account; Deposits
to the Certificate Account............................87
Section 6.2 Permitted Withdrawals From the Certificate
Account................................................87
Section 6.3 Collection of Money....................................88
Section 6.4 The Certificate Insurance Policy.......................88
Section 6.5 Distributions..........................................90
Section 6.7 Reports by Trustee.....................................92
Section 6.8 Additional Reports by Trustee..........................95
Section 6.9 Compensating Interest..................................95
Section 6.10 Effect of Payments by the Certificate Insurer;
Subrogation............................................95
Section 6.11 Pre-Funding Account....................................96
Section 6.12 Capitalized Interest Accounts..........................97
ARTICLE VII Default..................................................98
Section 7.1 Events of Default......................................98
Section 7.2 Trustee to Act; Appointment of Successor..............100
Section 7.3 Waiver of Defaults....................................102
Section 7.4 Mortgage Loans, Trust Fund and Accounts Held
for Benefit of the Certificate Insurer... ............102
ARTICLE VIII Termination.............................................103
Section 8.1 Termination...........................................103
Section 8.2 Additional Termination Requirements...................105
Section 8.3 Accounting Upon Termination of Servicer...............106
ARTICLE IX The Trustee..............................................107
Section 9.1 Duties of Trustee.....................................107
Section 9.2 Certain Matters Affecting the Trustee.................109
Section 9.3 Not Liable for Certificates or Mortgage Loans.........110
Section 9.4 Trustee May Own Certificates..........................110
Section 9.5 Payment of Trustee Fees...............................111
Section 9.6 Eligibility Requirements for Trustee..................111
Section 9.7 Resignation and Removal of the Trustee................111
Section 9.8 Successor Trustee.....................................112
Section 9.9 Merger or Consolidation of Trustee....................113
Section 9.10 Appointment of Co-Trustee or Separate Trustee.........113
Section 9.11 Retirement of Certificates............................114
ARTICLE X REMIC Administration and Provisions.......................115
Section 10.1 REMIC Administration..................................115
Section 10.2 Prohibited Transactions and Activities................121
Section 10.3 Servicer, Trustee and REMIC Administrator
Indemnification.......................................121
ARTICLE XI Miscellaneous Provisions..................................123
Section 11.1 Limitation on Liability of the Depositor and
the Servicer.........................................123
Section 11.2 Acts of Certificateholders;
Certificateholders' Rights...........................123
Section 11.3 Amendment............................................124
Section 11.4 Recordation of Agreement.............................125
Section 11.5 Duration of Agreement................................125
Section 11.6 Notices..............................................125
Section 11.7 Severability of Provisions...........................126
Section 11.8 No Partnership.......................................126
Section 11.9 Counterparts.........................................126
Section 11.10 Successors and Assigns...............................126
Section 11.11 Headings.............................................126
Section 11.12 The Certificate Insurer Default......................126
Section 11.13 Third Party Beneficiary..............................127
Section 11.14 Intent of the Parties................................127
<PAGE>
This Pooling and Servicing Agreement, dated as of March 1, 1997, by
and among Credit Suisse First Boston Mortgage Securities Corp., a Delaware
corporation, in its capacity as depositor (the "Depositor"), Preferred Credit
Corporation, a California corporation, in its capacity as seller (the "Seller"),
Advanta Mortgage Corp. USA, a Delaware corporation, in its capacity as servicer
(the "Servicer"), and Bankers Trust Company, a New York banking corporation, in
its capacity as trustee (the "Trustee).
PRELIMINARY STATEMENT:
The Depositor intends to sell asset-backed certificates (collectively,
the "Certificates"), to be issued hereunder in nine classes (each, a "Class"),
which in the aggregate will evidence the entire beneficial ownership interest in
the Trust Fund (as defined herein), consisting primarily of the Mortgage Loans,
the Collection Account, the Certificate Account, the Pre-Funding Account and the
Capitalized Interest Account (each, as defined herein).
In consideration of the mutual agreements herein contained, the
Depositor, the Seller, the Servicer and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINED TERMS. Whenever used herein, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings.
"ACCEPTED SERVICING PRACTICES" shall mean the Servicer's normal
servicing practices in servicing and administering mortgage loans for its own
account, which in general will conform to the mortgage servicing practices of
prudent mortgage lending institutions which service for their own account
mortgage loans of the same type as the Mortgage Loans in the jurisdictions in
which the related Mortgaged Properties are located and will give due
consideration to the Certificate Insurer's and the Certificateholders' reliance
on the Servicer.
"ACCOUNT" shall mean any Eligible Account established hereunder.
"ACCRUAL PERIOD" shall mean, with respect to any Distribution Date,
the calendar month immediately preceding the month in which such Distribution
Date occurs.
"ADDITION NOTICE" shall mean, with respect to the transfer of
Subsequent Mortgage Loans to the Trust Fund pursuant to Section 2.9 of this
Agreement and the related Subsequent Transfer Instrument, a notice,
substantially in the form of Exhibit O, which shall be given not later than five
Business Days prior to the related Subsequent Transfer Date, of the Depositor's
designation of Subsequent Mortgage Loans to be sold to the Trust Fund and the
aggregate Principal Balance as of the related Subsequent Cut-Off Date of such
Subsequent Mortgage Loans.
"ADVANTA" shall mean Advanta Mortgage Corp. USA, a Delaware
corporation.
"AFFILIATE" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"AGREEMENT" shall mean this Pooling and Servicing Agreement, including
the Exhibits hereto, as amended or supplemented from time to time.
"APPRAISED VALUE" shall mean the appraised value of any Mortgaged
Property, equal to the value of the related Mortgaged Property based upon the
appraisal made at the time the Mortgage Loan is originated.
"ASSIGNMENT OF MORTGAGE" shall mean, with respect to each Mortgage
Loan, an assignment of the Mortgage, notice of transfer or equivalent instrument
sufficient under the laws of the jurisdiction wherein the related Mortgaged
Property is located to reflect of record the sale of the Mortgage to the Trustee
for the benefit of the Certificateholders and the Certificate Insurer.
"AUTHORIZED DENOMINATIONS" shall mean with respect to each of the
Class A Certificates, the minimum Percentage Interest corresponding to a minimum
denomination of $1,000 or integral multiples of $1.00 in excess thereof; with
respect to the Class B Certificates and the Residual Certificates, a minimum
Percentage Interest of 10.00% and integral multiples of 0.01% in excess thereof.
"AVAILABLE FUNDS" shall have the meaning set forth in Section 6.4(a).
"AVAILABLE FUNDS SHORTFALL" shall mean, with respect to the Mortgage
Loans and any Distribution Date, the excess of (x) the Insured Distribution
Amount over (y) the Available Funds for such Distribution Date.
"BUSINESS DAY" shall mean any day other than (a) a Saturday or Sunday,
or (b) a day on which banking institutions in the States of California or New
York or in the city in which the Corporate Trust Office of the Trustee or the
principal offices of the Certificate Insurer are authorized or obligated by law
or executive order to be closed.
"CAPITALIZED INTEREST ACCOUNT" shall mean the Account established and
maintained pursuant to Section 6.12, which must be an Eligible Account.
"CAPITALIZED INTEREST ADDITION" shall mean, as to any Distribution
Date, an amount equal to interest accrued for the related Collection Period on
an amount equal to (i) $45,773,852.93 minus (ii) the aggregate Principal Balance
of any related Subsequent Mortgage Loans transferred prior to the first day of
the month in which such Distribution Date occurs, calculated at a rate equal to
the sum of the weighted average Class A Pass-Through Rate and, with respect to
the second and third Distribution Dates, the Premium Percentage.
"CAPITALIZED INTEREST AMOUNT" shall mean $529,407.80.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980.
"CERTIFICATE" shall mean any Class A Certificate, Class B Certificate,
Class RU Certificate or Class RL Certificate executed by the Trustee on behalf
of the Trust Fund and authenticated by the Trustee.
"CERTIFICATE ACCOUNT" shall mean the Eligible Account established in
accordance with Section 6.1(a) hereof and maintained by the Trustee.
"CERTIFICATEHOLDER" OR "HOLDER" shall mean the Person in whose name a
Certificate is registered in the Certificate Register, except that, neither a
Disqualified Organization nor a Non-United States Person shall be a Holder of a
Residual Certificate for any purposes hereof and, solely for the purposes of
giving any consent (except any consent required to be obtained pursuant to
Section 11.2), waiver, request or demand pursuant to this Agreement, any
Certificate registered in the name of the Depositor or the Seller or any
Affiliate thereof shall be deemed not to be outstanding and the rights to which
it is entitled shall not be taken into account in determining whether the
requisite percentage of rights necessary to effect any such consent has been
obtained, except as otherwise provided in Section 11.3. The Trustee shall be
entitled to rely upon a certification of the Depositor or the Seller in
determining if any Certificates are registered in the name of a respective
Affiliate. Any Class A Certificates on which payments are made under the
Certificate Insurance Policy shall be deemed to be outstanding and held by the
Certificate Insurer to the extent of such payment.
"CERTIFICATE INSURANCE AGREEMENT" shall mean that certain agreement
dated as of March 1, 1997 between the Certificate Insurer, the Depositor and the
parties named therein.
"CERTIFICATE INSURANCE PAYMENTS ACCOUNT" shall mean the Eligible
Account established in accordance with Section 6.4(c) hereof and maintained by
the Trustee.
"CERTIFICATE INSURANCE POLICY" shall mean the certificate guaranty
insurance policy No. 23479, and all endorsements thereto dated the Closing Date,
issued by the Certificate Insurer for the benefit of the Class A
Certificateholders, a copy of which is attached hereto as Exhibit A-1.
"CERTIFICATE INSURANCE POLICY PREMIUM AMOUNT" shall mean the product
of the Premium Percentage and the Class A Principal Balance for the related
Distribution Date.
"CERTIFICATE INSURER" shall be MBIA Insurance Corporation, a stock
insurance company organized and created under the laws of the State of New York,
and any successors thereto.
"CERTIFICATE INSURER DEFAULT" shall mean the failure, and continuance
of such failure, by the Certificate Insurer to make a payment required under the
Certificate Insurance Policy in accordance with its terms.
"CERTIFICATE REGISTER" shall have the meaning described in Section
4.2(a).
"CHARGED-OFF LOAN": a Mortgage Loan shall become a Charged-off Loan on
the earlier to occur of (a) the date on which any payment due or portion thereof
with respect to such Mortgage Loan has become Delinquent for a period of 180
consecutive days (irrespective of grace periods), (b) the time such Mortgage
Loan becomes a Liquidated Loan or (c) the date on which the holder of 50.01%
Percentage Interest of the Class RL Certificates repurchases such Mortgage Loan
pursuant to the last paragraph of Section 5.11(a) hereof.
"CIVIL RELIEF ACT" shall mean the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended.
"CLASS" shall mean any designated Class of Certificates of this
Series.
"CLASS A CARRY-FORWARD AMOUNT" shall mean, as of any Distribution
Date, the sum of the Class A-1 Carry-Forward Amount, Class A-2 Carry-Forward
Amount, Class A-3 Carry-Forward Amount, Class A-4 Carry-Forward Amount, Class
A-5 Carry-Forward Amount and Class A-6 Carry-Forward Amount.
"CLASS A CERTIFICATE" shall mean any of the Certificates designated as
a "Class A-1 Certificate," "Class A-2 Certificate," "Class A-3 Certificate,"
"Class A-4 Certificate," "Class A-5 Certificate" or "Class A-6 Certificate" on
the face thereof, in the form of Exhibit B-1-1, B-1-2, B-1-3, B-1-4, B-1-5 and
B-1-6, respectively, hereto, and executed, authenticated and delivered by the
Trustee in accordance with the procedures set forth herein and evidencing an
interest designated as a "regular interest" in the Upper-Tier REMIC for the
purposes of the REMIC Provisions.
"CLASS A FINAL SCHEDULED MATURITY DATE" shall mean with respect to
each Class of Class A Certificates, the scheduled final maturity date for such
Class A Certificates.
"CLASS A INTEREST DISTRIBUTION AMOUNT" shall mean the sum of the Class
A-1 Interest Distribution Amount, the Class A-2 Interest Distribution Amount,
the Class A-3 Interest Distribution Amount, the Class A-4 Interest Distribution
Amount, the Class A-5 Interest Distribution Amount and the Class A-6 Interest
Distribution Amount.
"CLASS A PRINCIPAL BALANCE" shall mean, as of any date of
determination, the sum of the Class A-1 Principal Balance, the Class A-2
Principal Balance, the Class A-3 Principal Balance, the Class A-4 Principal
Balance, the Class A-5 Principal Balance and the Class A-6 Principal Balance.
"CLASS A PRINCIPAL DISTRIBUTION AMOUNT" shall mean the related
principal distribution with respect to the Class A-1 Principal Distribution
Amount, the Class A-2 Principal Distribution Amount, the Class A-3 Principal
Distribution Amount, the Class A-4 Principal Distribution Amount, the Class A-5
Principal Distribution Amount or the Class A-6 Principal Distribution Amount, as
the case may be.
"CLASS A-1 CARRY-FORWARD AMOUNT" shall mean, as of any Distribution
Date, the sum of (a) the amount, if any, by which (i) the Insured Distribution
Amount relating to the Class A-1 Certificates as of the immediately preceding
Distribution Date exceeded (ii) the amount actually distributed to the Holders
of the Class A-1 Certificates on such Distribution Date in respect thereof
(including, without limitation, any amounts paid to the Class A-1
Certificateholders by the Certificate Insurer pursuant to Section 6.5 hereof)
and (b) interest accrued for the related Accrual Period on the amount described
in clause (a), calculated at an interest rate equal to the Class A-1
Pass-Through Rate. Any Class A-1 Carry-Forward Amount shall be deemed to be
allocated first to any related Overcollateralization Deficit and second to any
related Class A-1 Interest Distribution Amount.
"CLASS A-1 FINAL SCHEDULED MATURITY DATE" shall mean with respect to
the Class A-1 Certificates, July 25, 2026, or if such date is not a Business
Day, the first Business Day thereafter.
"CLASS A-1 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-1 Certificates for any Distribution Date the sum of (i) the
aggregate amount of interest accrued for the related Accrual Period on the Class
A-1 Principal Balance immediately prior to such Distribution Date at the Class
A-1 Pass-Through Rate (based on a 360-day year and a 30-day month) and (ii) the
portion of any Class A-1 Carry-Forward Amount which equals the unpaid interest
shortfall from any prior Distribution Date in a distribution of a Class A-1
Interest Distribution Amount in respect of the Class A-1 Certificates.
"CLASS A-1 PASS-THROUGH RATE" with respect to any Distribution Date,
will be equal to a per annum rate of 6.20%.
"CLASS A-1 PRINCIPAL BALANCE" shall mean, as of any time of
determination, the Original Class A-1 Principal Balance less any amounts
distributed with respect to principal thereon on all prior Distribution Dates.
"CLASS A-1 PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-1 Certificates for any Distribution Date, the lesser of:
(a) the excess of (i) the sum, as of such Distribution
Date, of (A) the Available Funds, PLUS (B) any
Insured Payment over (ii) the Class A-1 Interest
Distribution Amount; and
(b) the sum, without duplication, of:
(i) the portion of any Class A-1 Carry-Forward
Amount which relates to a shortfall in a
distribution of an Overcollateralization
Deficit,
(ii) all scheduled and unscheduled amounts
relating to principal with respect to the
Mortgage Loans received by the Servicer
during the prior Collection Period to the
extent actually received by the Trustee,
(iii) the Principal Balance of each Mortgage Loan
that either was repurchased by a Seller or
by the Depositor on the related Servicer
Remittance Date to the extent such Principal
Balances are actually received by the
Trustee,
(iv) any Substitution Adjustments delivered by
the Seller or the Depositor on the related
Servicer Remittance Date in connection with
a substitution of a Mortgage Loan to the
extent such Substitution Adjustments are
actually received by the Trustee,
(v) the Net Liquidation Proceeds collected by
the Servicer of all Mortgage Loans during
the related Collection Period (to the extent
such Net Liquidation Proceeds are related
to principal) to the extent actually
received by the Trustee,
(vi) any amounts released from the Pre-Funding
Account as a prepayment of such Class A-1
Certificates on the Distribution Date which
immediately follows the end of the
Pre-Funding Period,
(vii) the proceeds received by the Trustee of
any termination of the Trust Fund (to the
extent such proceeds are related to
principal),
(viii) the amount of any Overcollateralization
Deficit for such Distribution Date, and
(ix) without duplication of amounts distributed
under clause (viii) above, the amount of
any Overcollateralization Increase Amount
for such Distribution Date;
MINUS
(x) the amount of any Overcollateralization
Reduction Amount for such Distribution
Date.
"CLASS A-2 CARRY-FORWARD AMOUNT" shall mean, as of any Distribution
Date, the sum of (a) the amount, if any, by which (i) the Insured Distribution
Amount relating to the Class A-2 Certificates as of the immediately preceding
Distribution Date exceeded (ii) the amount actually distributed to the Holders
of the Class A-2 Certificates on such Distribution Date in respect thereof
(including, without limitation, any amounts paid to the Class A-2
Certificateholders by the Certificate Insurer pursuant to Section 6.5 hereof)
and (b) interest accrued for the related Accrual Period on the amount described
in clause (a), calculated at an interest rate equal to the Class A-2
Pass-Through Rate. Any Class A-2 Carry-Forward Amount shall be deemed to be
allocated first to any related Overcollateralization Deficit and second to any
related Class A-2 Interest Distribution Amount.
"CLASS A-2 FINAL SCHEDULED MATURITY DATE" shall mean with respect to
the Class A-2 Certificates, July 25, 2026, or if such day is not a Business Day,
the first Business Day thereafter.
"CLASS A-2 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-2 Certificates for any Distribution Date the sum of (i) the
aggregate amount of interest accrued for the related Accrual Period on the Class
A-2 Principal Balance immediately prior to such Distribution Date at the Class
A-2 Pass-Through Rate (based on a 360-day year and a 30-day month) and (ii) the
portion of any Class A-2 Carry-Forward Amount which equals the unpaid interest
shortfall from any prior Distribution Date in a distribution of a Class A-2
Interest Distribution Amount in respect of the Class A-2 Certificates.
"CLASS A-2 PASS-THROUGH RATE" with respect to any Distribution Date,
will be equal to a per annum rate of 6.71%.
"CLASS A-2 PRINCIPAL BALANCE" shall mean, as of any time of
determination, the Original Class A-2 Principal Balance less any amounts
distributed with respect to principal thereon on all prior Distribution Dates.
"CLASS A-2 PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-2 Certificates for any Distribution Date after the Class A-1
Principal Balance has been reduced to zero, the lesser of:
(a) the excess of (i) the sum, as of such Distribution
Date, of (A) the Available Funds, PLUS (B) any
Insured Payment over (ii) the Class A-2 Interest
Distribution Amount; and
(b) the sum, without duplication, of:
(i) the portion of any Class A-2 Carry-Forward
Amount which relates to a shortfall in a
distribution of an Overcollateralization
Deficit,
(ii) all scheduled and unscheduled amounts
relating to principal with respect to the
Mortgage Loans received by the Servicer
during the prior Collection Period to the
extent actually received by the Trustee,
(iii) the Principal Balance of each Mortgage Loan
that either was repurchased by a Seller or
by the Depositor on the related Servicer
Remittance Date to the extent such Principal
Balances are actually received by the
Trustee,
(iv) any Substitution Adjustments delivered by
the Seller or the Depositor on the related
Servicer Remittance Date in connection with
a substitution of a Mortgage Loan to the
extent such Substitution Adjustments are
actually received by the Trustee,
(v) the Net Liquidation Proceeds collected by
the Servicer of all Mortgage Loans during
the related Collection Period (to the extent
such Net Liquidation Proceeds are related
to principal) to the extent actually
received by the Trustee,
(vi) any amount released from the Pre-Funding
Account as a prepayment of such Class A-2
Certificates on the Distribution Date which
immediately follows the end of the
Pre-Funding Period,
(vii) the proceeds received by the Trustee of
any termination of the Trust Fund (to the
extent such proceeds are related to
principal),
(viii) the amount of any Overcollateralization
Deficit for such Distribution Date, and
(ix) without duplication of amounts
distributed under clause (viii) above, the
amount of any Overcollateralization Increase
Amount for such Distribution Date;
MINUS
(x) the amount of any Overcollateralization
Reduction Amount for such Distribution
Date.
"CLASS A-3 CARRY-FORWARD AMOUNT" shall mean, as of any Distribution
Date, the sum of (a) the amount, if any, by which (i) the Insured Distribution
Amount relating to the Class A-3 Certificates as of the immediately preceding
Distribution Date exceeded (ii) the amount actually distributed to the Holders
of the Class A-3 Certificates on such Distribution Date in respect thereof
(including, without limitation, any amounts paid to the Class A-3
Certificateholders by the Certificate Insurer pursuant to Section 6.5 hereof)
and (b) interest accrued for the related Accrual Period on the amount described
in clause (a), calculated at an interest rate equal to the Class A-3
Pass-Through Rate. Any Class A-3 Carry-Forward Amount shall be deemed to be
allocated first to any related Overcollateralization Deficit and second to any
related Class A-3 Interest Distribution Amount.
"CLASS A-3 FINAL SCHEDULE MATURITY DATE" shall mean with respect to
the Class A-3 Certificates, July 25, 2026, or if such day is not a Business Day,
the first Business Day thereafter.
"CLASS A-3 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-3 Certificates for any Distribution Date the sum of (i) the
aggregate amount of interest accrued for the related Accrual Period on the Class
A-3 Principal Balance immediately prior to such Distribution Date at the Class
A-3 Pass-Through Rate (based on a 360-day year and a 30-day month) and (ii) the
portion of any Class A-3 Carry-Forward Amount which equals the unpaid interest
shortfall from any prior Distribution Date in a distribution of a Class A-3
Interest Distribution Amount in respect of the Class A-3 Certificates.
"CLASS A-3 PASS-THROUGH RATE" with respect to any Distribution Date,
will be equal to a per annum rate of 6.91%.
"CLASS A-3 PRINCIPAL BALANCE" shall mean, as of any time of
determination, the Original Class A-3 Principal Balance less any amounts
distributed with respect to principal thereon on all prior Distribution Dates.
"CLASS A-3 PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-3 Certificates for any Distribution Date after the Class A-1
Principal Balance and the Class A-2 Principal Balance have been reduced to zero,
the lesser of:
(a) the excess of (i) the sum, as of such Distribution
Date, of (A) the Available Funds, PLUS (B) any
Insured Payment over (ii) the Class A-3 Interest
Distribution Amount; and
(b) the sum, without duplication, of:
(i) the portion of any Class A-3 Carry-Forward
Amount which relates to a shortfall in a
distribution of an Overcollateralization
Deficit,
(ii) all scheduled and unscheduled amounts
relating to principal with respect to the
Mortgage Loans received by the Servicer
during the prior Collection Period to the
extent actually received by the Trustee,
(iii) the Principal Balance of each Mortgage Loan
that either was repurchased by a Seller or
by the Depositor on the related Servicer
Remittance Date to the extent such Principal
Balances are actually received by the
Trustee,
(iv) any Substitution Adjustments delivered by
the Seller or the Depositor on the related
Servicer Remittance Date in connection with
a substitution of a Mortgage Loan to the
extent such Substitution Adjustments are
actually received by the Trustee,
(v) the Net Liquidation Proceeds collected by
the Servicer of all Mortgage Loans during
the related Collection Period (to the extent
such Net Liquidation Proceeds are related
to principal) to the extent actually
received by the Trustee,
(vi) any amounts released from the Pre-Funding
Account as a prepayment of such Class A-3
Certificates on the Distribution Date which
immediately follows the end of the
Pre-Funding Period,
(vii) the proceeds received by the Trustee of
any termination of the Trust Fund (to the
extent such proceeds are related to
principal),
(viii) the amount of any Overcollateralization
Deficit for such Distribution Date, and
(ix) without duplication of amounts distributed
under clause (viii) above, the amount of
any Overcollateralization Increase Amount
for such Distribution Date;
MINUS
(x) the amount of any Overcollateralization
Reduction Amount for such Distribution
Date.
"CLASS A-4 CARRY-FORWARD AMOUNT" shall mean, as of any Distribution
Date, the sum of (a) the amount, if any, by which (i) the Insured Distribution
Amount relating to the Class A-4 Certificates as of the immediately preceding
Distribution Date exceeded (ii) the amount actually distributed to the Holders
of the Class A-4 Certificates on such Distribution Date in respect thereof
(including, without limitation, any amounts paid to the Class A-4
Certificateholders by the Certificate Insurer pursuant to Section 6.5 hereof)
and (b) interest accrued for the related Accrual Period on the amount described
in clause (a), calculated at an interest rate equal to the Class A-4
Pass-Through Rate. Any Class A-4 Carry-Forward Amount shall be deemed to be
allocated first to any related Overcollateralization Deficit and second to any
related Class A-4 Interest Distribution Amount.
"CLASS A-4 FINAL SCHEDULED MATURITY DATE" shall mean with respect to
the Class A-4 Certificates, July 25, 2026, or if such day is not a Business Day,
the first Business Day thereafter.
"CLASS A-4 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-4 Certificates for any Distribution Date the sum of (i) the
aggregate amount of interest accrued for the related Accrual Period on the Class
A-4 Principal Balance immediately prior to such Distribution Date at the Class
A-4 Pass-Through Rate (based on a 360-day year and a 30-day month) and (ii) the
portion of any Class A-4 Carry-Forward Amount which equals the unpaid interest
shortfall from any prior Distribution Date in a distribution of a Class A-4
Interest Distribution Amount in respect of the Class A-4 Certificates.
"CLASS A-4 PASS-THROUGH RATE" with respect to any Distribution Date,
will be equal to a per annum rate of 7.15%.
"CLASS A-4 PRINCIPAL BALANCE" shall mean, as of any time of
determination, the Original Class A-4 Principal Balance less any amounts
distributed with respect to principal thereon on all prior Distribution Dates.
"CLASS A-4 PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-4 Certificates for any Distribution Date after the Class A-1
Principal Balance, the Class A-2 Principal Balance and the Class A-3 Principal
Balance have been reduced to zero, the lesser of:
(a) the excess of (i) the sum, as of such Distribution
Date, of (A) the Available Funds, PLUS (B) any
Insured Payment over (ii) the Class A-4 Interest
Distribution Amount; and
(b) the sum, without duplication, of:
(i) the portion of any Class A-4 Carry-Forward
Amount which relates to a shortfall in a
distribution of an Overcollateralization
Deficit,
(ii) all scheduled and unscheduled amounts
relating to principal with respect to the
Mortgage Loans received by the Servicer
during the prior Collection Period to the
extent actually received by the Trustee,
(iii) the Principal Balance of each Mortgage Loan
that either was repurchased by a Seller or
by the Depositor on the related Servicer
Remittance Date to the extent such Principal
Balances are actually received by the
Trustee,
(iv) any Substitution Adjustments delivered by
the Seller or the Depositor on the related
Servicer Remittance Date in connection with
a substitution of a Mortgage Loan to the
extent such Substitution Adjustments are
actually received by the Trustee,
(v) the Net Liquidation Proceeds collected by
the Servicer of all Mortgage Loans during
the related Collection Period (to the extent
such Net Liquidation Proceeds are related
to principal) to the extent actually
received by the Trustee,
(vi) any amounts released from the Pre-Funding
Account as a prepayment of such Class A-4
Certificates on the Distribution Date which
immediately follows the end of the
Pre-Funding Period,
(vii) the proceeds received by the Trustee of
any termination of the Trust Fund (to the
extent such proceeds are related to
principal),
(viii) the amount of any Overcollateralization
Deficit for such Distribution Date, and
(ix) without duplication of amounts distributed
under clause (viii) above, the amount of
any Overcollateralization Increase Amount
for such Distribution Date;
MINUS
(x) the amount of any Overcollateralization
Reduction Amount for such Distribution
Date.
"CLASS A-5 CARRY-FORWARD AMOUNT" shall mean, as of any Distribution
Date, the sum of (a) the amount, if any, by which (i) the Insured Distribution
Amount relating to the Class A-5 Certificates as of the immediately preceding
Distribution Date exceeded (ii) the amount actually distributed to the Holders
of the Class A-5 Certificates on such Distribution Date in respect thereof
(including, without limitation, any amounts paid to the Class A-5
Certificateholders by the Certificate Insurer pursuant to Section 6.5 hereof)
and (b) interest accrued for the related Accrual Period on the amount described
in clause (a), calculated at an interest rate equal to the Class A-5
Pass-Through Rate. Any Class A-5 Carry-Forward Amount shall be deemed to be
allocated first to any related Overcollateralization Deficit and second to any
related Class A-5 Interest Distribution Amount.
"CLASS A-5 FINAL SCHEDULED MATURITY DATE" shall mean with respect to
the Class A-5 Certificates, July 25, 2026, or if such day is not a Business Day,
the first Business Day thereafter.
"CLASS A-5 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-5 Certificates for any Distribution Date the sum of (i) the
aggregate amount of interest accrued for the related Accrual Period on the Class
A-5 Principal Balance immediately prior to such Distribution Date at the Class
A-5 Pass-Through Rate (based on a 360-day year and a 30-day month) and (ii) the
portion of any Class A-5 Carry-Forward Amount which equals the unpaid interest
shortfall from any prior Distribution Date in a distribution of a Class A-5
Interest Distribution Amount in respect of the Class A-5 Certificates.
"CLASS A-5 PASS-THROUGH RATE" with respect to any Distribution Date,
will be equal to a per annum rate of 7.39%.
"CLASS A-5 PRINCIPAL BALANCE" shall mean, as of any time of
determination, the Original Class A-5 Principal Balance less any amounts
distributed with respect to principal thereon on all prior Distribution Dates.
"CLASS A-5 PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-5 Certificates for any Distribution Date after the Class A-1
Principal Balance, the Class A-2 Principal Balance, the Class A-3 Principal
Balance and the Class A-4 Principal Balance have been reduced to zero, the
lesser of:
(a) the excess of (i) the sum, as of such Distribution
Date, of (A) the Available Funds, PLUS (B) any
Insured Payment over (ii) the Class A-5 Interest
Distribution Amount; and
(b) the sum, without duplication, of:
(i) the portion of any Class A-5 Carry-Forward
Amount which relates to a shortfall in a
distribution of an Overcollateralization
Deficit,
(ii) all scheduled and unscheduled amounts
relating to principal with respect to the
Mortgage Loans received by the Servicer
during the prior Collection Period to the
extent actually received by the Trustee,
(iii) the Principal Balance of each Mortgage Loan
that either was repurchased by a Seller or
by the Depositor on the related Servicer
Remittance Date to the extent such Principal
Balances are actually received by the
Trustee,
(iv) any Substitution Adjustments delivered by
the Seller or the Depositor on the related
Servicer Remittance Date in connection with
a substitution of a Mortgage Loan to the
extent such Substitution Adjustments are
actually received by the Trustee,
(v) the Net Liquidation Proceeds collected by
the Servicer of all Mortgage Loans during
the related Collection Period (to the extent
such Net Liquidation Proceeds are related
to principal) to the extent actually
received by the Trustee,
(vi) any amounts released from the Pre-Funding
Account as a prepayment of such Class A-5
Certificates on the Distribution Date which
immediately follows the end of the
Pre-Funding Period,
(vii) the proceeds received by the Trustee of
any termination of the Trust Fund (to the
extent such proceeds are related to
principal),
(viii) the amount of any Overcollateralization
Deficit for such Distribution Date, and
(ix) without duplication of amounts distributed
under clause (viii) above, the amount of
any Overcollateralization Increase Amount
for such Distribution Date;
MINUS
(x) the amount of any Overcollateralization
Reduction Amount for such Distribution Date.
"CLASS A-6 CARRY-FORWARD AMOUNT" shall mean, as of any Distribution
Date, the sum of (a) the amount, if any, by which (i) the Insured Distribution
Amount relating to the Class A-6 Certificates as of the immediately preceding
Distribution Date exceeded (ii) the amount actually distributed to the Holders
of the Class A-6 Certificates on such Distribution Date in respect thereof
(including, without limitation, any amounts paid to the Class A-6
Certificateholders by the Certificate Insurer pursuant to Section 6.5 hereof and
(b) interest accrued for the related Accrual Period on the amount described in
clause (a), calculated at an interest rate equal to the Class A-6 Pass-Through
Rate. Any Class A-6 Carry-Forward Amount shall be deemed to be allocated first
to any related Overcollateralization Deficit and second to any related Class A-6
Interest Distribution Amount.
"CLASS A-6 FINAL SCHEDULED MATURITY DATE" shall mean with respect to
the Class A-6 Certificates, July 25, 2026, or if such day is not a Business Day,
the first Business Day thereafter.
"CLASS A-6 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-6 Certificates for any Distribution Date the sum of (i) the
aggregate amount of interest accrued for the related Accrual Period on the Class
A-6 Principal Balance immediately prior to such Distribution Date at the Class
A-6 Pass-Through Rate (based on a 360-day year and a 30-day month) and (ii) the
portion of any Class A-6 Carry-Forward Amount which equals the unpaid interest
shortfall from any prior Distribution Date in a distribution of a Class A-6
Interest Distribution Amount in respect of the Class A-6 Certificates.
"CLASS A-6 PASS-THROUGH RATE" with respect to any Distribution Date,
will be equal to a per annum rate of 7.59%.
"CLASS A-6 PRINCIPAL BALANCE" shall mean, as of any time of
determination, the Original Class A-6 Principal Balance less any amounts
distributed with respect to principal thereon on all prior Distribution Dates.
"CLASS A-6 PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-6 Certificates for any Distribution Date after the Class A-1
Principal Balance, the Class A-2 Principal Balance, the Class A-3 Principal
Balance, the Class A-4 Principal Balance and the Class A-5 Principal Balance
have been reduced to zero, the lesser of:
(a) the excess of (i) the sum, as of such Distribution
Date, of (A) the Available Funds, PLUS (B) any
Insured Payment over (ii) the Class A-6 Interest
Distribution Amount; and
(b) the sum, without duplication, of:
(i) the portion of any Class A-6 Carry-Forward
Amount which relates to a shortfall in a
distribution of an Overcollateralization
Deficit,
(ii) all scheduled and unscheduled amounts
relating to principal with respect to the
Mortgage Loans received by the Servicer
during the prior Collection Period to the
extent actually received by the Trustee,
(iii) the Principal Balance of each Mortgage Loan
that either was repurchased by a Seller or
by the Depositor on the related Servicer
Remittance Date to the extent such Principal
Balances are actually received by the
Trustee,
(iv) any Substitution Adjustments delivered by
the Seller or the Depositor on the related
Servicer Remittance Date in connection with
a substitution of a Mortgage Loan to the
extent such Substitution Adjustments are
actually received by the Trustee,
(v) the Net Liquidation Proceeds collected by
the Servicer of all Mortgage Loans during
the related Collection Period (to the extent
such Net Liquidation Proceeds are related
to principal) to the extent actually
received by the Trustee,
(vi) any amounts released from the Pre-Funding
Account as a prepayment of such Class A-6
Certificates on the Distribution Date which
immediately follows the end of the
Pre-Funding Period,
(vii) the proceeds received by the Trustee of
any termination of the Trust Fund (to the
extent such proceeds are related to
principal),
(viii) the amount of any Overcollateralization
Deficit for such Distribution Date, and
(ix) without duplication of amounts distributed
under clause (viii) above, the amount of
any Overcollateralization Increase Amount
for such Distribution Date;
MINUS
(x) the amount of any Overcollateralization
Reduction Amount for such Distribution
Date.
"CLASS B ACCRUED INTEREST" shall mean, with respect to any
Distribution Date, the interest allocated to the Class B Certificate as separate
components pursuant to footnote (5) of Section 10.1(c) with respect to such
Distribution Date.
"CLASS B CERTIFICATE" shall mean any Certificate denominated as a
"Class B Certificate" on the face thereof and subordinate to the Class A
Certificates in right of payment to the extent set forth herein, which
Certificates shall be executed, authenticated and delivered by the Trustee in
accordance with the procedures set forth herein and shall be in the form of
Exhibit B-2 hereto and evidencing an interest designated as a "regular interest"
in the Upper-Tier REMIC for the purposes of the REMIC Provisions.
"CLASS B CERTIFICATEHOLDER" shall mean a Holder of a Class B
Certificate.
"CLASS B FINAL SCHEDULED DISTRIBUTION DATE" shall mean the July 25,
2026 Distribution Date.
"CLASS B PRINCIPAL BALANCE" shall mean the Original Class B Principal
Balance, increased by (i) 3% of the principal balance of each Subsequent
Mortgage Loan as of the related Subsequent Cut-Off Date and (ii) the amount of
any previously unpaid Class B Accrued Interest pursuant to Section 6.5(vi), and
decreased by (i) any amounts deposited into the Certificate Account pursuant to
Section 6.11(b)(ii) and (ii) any distributions pursuant to Section 6.5(vii).
"CLASS LT-A CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS LT-1 CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS LT-2 CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS LT-3 CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS LT-4 CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS LT-5 CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS LT-6 CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS LT-M CERTIFICATES" means the uncertificated class of interests
in the Lower- Tier REMIC, as described in and designated in Section 10.1 hereof.
"CLASS RL CERTIFICATES" shall mean those Certificates executed,
authenticated and delivered by the Trustee in the form of Exhibit B-4 hereto,
which represent certain residual rights to distributions from the Lower-Tier
REMIC.
"CLASS RU CERTIFICATES" shall mean those Certificates executed,
authenticated and delivered by the Trustee in the form of Exhibit B-5 hereto,
which represent certain residual rights to distributions from the Upper-Tier
REMIC.
"CLEAN-UP CALL DATE" shall mean the first date on which the Holder of
the Residual Certificates can exercise its option set forth in Section 8.1(b).
"CLOSING DATE" shall mean March 27, 1997.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COLLECTION ACCOUNT" shall mean the Eligible Account established and
maintained by the Servicer for the benefit of the Certificateholders and the
Certificate Insurer pursuant to Section 5.3(a) hereof.
"COLLECTION PERIOD" shall mean, with respect to each Distribution
Date, the period beginning on the opening of business on the first day of the
calendar month preceding the calendar month in which such Distribution Date
occurs, and ending at the close of business on the last day of the calendar
month preceding the calendar month in which such Distribution Date occurs.
"COMBINED LOAN-TO-VALUE RATIO" shall mean, with respect to any
Mortgage Loan, the sum of (x) any outstanding (as of the date of origination of
such Mortgage Loan) senior mortgage balance plus (y) the original principal
balance of the Mortgage Loan, divided by the Appraised Value of such Mortgaged
Property.
"COMMISSION" shall mean the Securities and Exchange Commission.
"COMPENSATING INTEREST" shall have the meaning set forth in Section
6.9 hereof.
"CREDIT BUREAU RISK SCORE" shall mean a statistical ranking of likely
future credit performance developed by Fair, Isaac & Company and the three
national credit repositories, Equifax, TransUnion and TRW; such score is
obtained from one of the three national credit repositories previously stated
and is used by the Seller to provide a means of analysis to assist in
underwriting to estimate the probability that a mortgage loan will be paid in
accordance with its terms.
"CURTAILMENT" shall mean, with respect to a Mortgage Loan, any payment
of principal received during a Collection Period as part of a payment that is in
excess of the amount of the Monthly Payment due for such Collection Period and
which is neither intended to satisfy the Mortgage Loan in full, intended as an
advance payment of an amount due in a subsequent Collection Period, nor intended
to cure a delinquency.
"CUT-OFF DATE" shall mean the opening of business on March 1, 1997.
"DELETED MORTGAGE LOAN" shall mean a Mortgage Loan replaced by a
Qualified Substitute Mortgage Loan.
"DELINQUENCY INTEREST ADVANCE" shall mean, with respect to any
Delinquent Mortgage Loan and Collection Period, the interest due, but not
collected, with respect to such Mortgage Loan during such Collection Period.
"DELINQUENT" shall mean a Mortgage Loan is "delinquent" if any payment
due thereon or any portion thereof is not made by the close of business on the
Due Date therefor. A Mortgage Loan is "30 days delinquent" if such payment has
not been received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the close of
business on the last day of such immediately succeeding month. Similarly for "60
days delinquent," "90 days delinquent" and so on.
"DEPOSITOR" shall mean Credit Suisse First Boston Mortgage Securities
Corp., a Delaware corporation, and any successor thereto.
"DEPOSITORY" shall mean the Depository Trust Company, 7 Hanover
Square, New York, New York 10004 and any successor Depository hereafter named.
"DETERMINATION DATE" shall mean, with respect to each Distribution
Date, the 15th day of each calendar month in which such Distribution Date occurs
or, if such 15th day is not a Business Day, the Business Day immediately
preceding such 15th day.
"DIRECT PARTICIPANT" shall mean any broker-dealer, bank or other
financial institution for which the Depository holds Class A Certificates from
time to time as a securities depositary.
"DISQUALIFIED ORGANIZATION" shall mean any of (i) the United States,
any State or political subdivision thereof, any possession of the United States,
or any agency or instrumentality of any of the foregoing (other than an
instrumentality which is a corporation if all of its activities are subject to
tax and, except for the FHLMC, a majority of its board of directors is not
selected by such governmental unit), (ii) any foreign government, any
international organization, or any agency or instrumentality of any of the
foregoing, (iii) any organization (other than certain farmers' cooperatives
described in Section 521 of the Code) which is exempt from the tax imposed by
Chapter 1 of the Code (unless such organization is subject to the tax imposed by
Section 511 of the Code on unrelated business taxable income), or rural electric
and telephone cooperatives described in Section 1381(a)(2)(C) of the Code and
(iv) any other Person so designated by the Trustee based upon an Opinion of
Counsel provided to the Trustee that the holding of an ownership interest in a
Residual Certificate by such Person may cause the Trust Fund or any Person
having an ownership interest in any Class of Certificates (other than such
Person) to incur liability for any federal tax imposed under the Code that would
not otherwise be imposed but for the transfer of an ownership interest in the
Residual Certificate to such Person. The terms "United States," "State" and
"international organization" shall have the meanings set forth in section 7701
of the Code.
"DISTRIBUTION DATE" shall mean the 25th day of any month or if such
25th day is not a Business Day, the first Business Day immediately following,
commencing on April 25, 1997.
"DUE DATE" shall mean the day of each calendar month specified in the
related Mortgage Note.
"ELIGIBLE ACCOUNT" shall mean either (A) a segregated account or
accounts maintained with an institution (which may include the Trustee, provided
such institution otherwise meets these requirements) whose deposits are insured
by the FDIC, the unsecured and uncollateralized long term debt obligations of
which institution shall be rated A or better by S&P and Aal or better by Moody's
and in the highest short term rating by each of the Rating Agencies, and which
is (i) a federal savings and loan association duly organized, validly existing
and in good standing under the federal banking laws, (ii) an institution duly
organized, validly existing and in good standing under the applicable laws of
any state, (iii) a national banking association (including the Trustee) duly
organized, validly existing and in good standing under the federal banking laws,
(iv) a principal subsidiary of a bank holding company, or (v) approved in
writing by the Certificate Insurer and each of the Rating Agencies or (B) a
segregated trust account or accounts maintained with the trust department of a
federal or state chartered depository institution acceptable to each Rating
Agency and the Certificate Insurer (the Trustee shall be deemed acceptable,
PROVIDED THAT the Trustee otherwise meets these requirements), having capital
and surplus of not less than $100,000,000, acting in its fiduciary capacity.
"ERISA" shall have the meaning defined in Section 4.2(i) hereof.
"EVENT OF DEFAULT" shall have the meaning described in Section 7.1.
"EXCESS OVERCOLLATERALIZATION AMOUNT" shall mean, with respect to any
Distribution Date, the difference, if any, between (a) the Overcollateralization
Amount that would exist on such Distribution Date after taking into account all
distributions to be made on such Distribution Date (exclusive of any reductions
thereto attributable to Overcollateralization Reduction Amounts on such
Distribution Date) and (b) the Required Overcollateralization Level for such
Distribution Date.
"FDIC" shall mean the Federal Deposit Insurance Corporation and any
successor thereto.
"FHLMC" shall mean the Federal Home Loan Mortgage Corporation and any
successor thereto.
"FISCAL AGENT" shall have the meaning set forth in the Certificate
Insurance Policy.
"FNMA" shall mean the Federal National Mortgage Association and any
successor thereto.
"FORECLOSURE PROFITS" shall mean, as to any Distribution Date, the
excess, if any, of (i) Net Liquidation Proceeds in respect of each Mortgage Loan
that became a Liquidated Loan during the month immediately preceding the month
of such Distribution Date over (ii) the sum of the unpaid Principal Balance of
each such Liquidated Loan plus accrued and unpaid interest at the applicable
Mortgage Interest Rate on the unpaid Principal Balance thereof from the Due Date
to which interest was last paid by the Mortgagor (or, in the case of a
Liquidated Loan that had been an REO Mortgage Loan, from the Due Date to which
interest was last deemed to have been paid pursuant to Section 5.11 to the first
day of the month following the month in which such Mortgage Loan became a
Liquidated Loan).
"HAZARDOUS MATERIALS" shall mean any dangerous, toxic or hazardous
pollutants, chemical wastes or substances, including, without limitation, those
identified pursuant to CERCLA or any other federal, state or local environmental
related laws now existing or hereafter enacted.
"INDIRECT PARTICIPANT" shall mean any financial institution for whom
any Direct Participant holds an interest in a Class A Certificate.
"INSURANCE PROCEEDS" shall mean proceeds paid by any insurer pursuant
to any insurance policy covering a Mortgage Loan to the extent such proceeds are
not applied to the restoration of the related Mortgaged Property or released to
the related Mortgagor in accordance with Accepted Servicing Practices or
pursuant to applicable law plus amounts required to be paid by the Servicer
pursuant to Section 5.6. "Insurance Proceeds" do not include "Insured Payments."
"INSURED DISTRIBUTION AMOUNT" shall mean, with respect to any
Distribution Date, the sum of (a) the Class A Interest Distribution Amount with
respect to such Distribution Date and (b) the Overcollateralization Deficit, if
any, as of such Distribution Date.
"INSURED PAYMENT" shall mean, the sum of (i) with respect to any
Distribution Date, the related Available Funds Shortfall PLUS (ii) any unpaid
Preference Amount.
"INTEREST COLLECTIONS" shall mean all amounts (including, without
limitation, Monthly Payments (or Delinquency Interest Advances in respect
thereof) and Liquidation Proceeds) collected on any Mortgage Loan allocable to
interest pursuant to the terms of the related Mortgage Note, or if no provision
for allocation is made therein, pursuant to the terms hereof.
"LATE PAYMENT RATE" shall have the meaning assigned thereto in the
Certificate Insurance Agreement.
"LIQUIDATED LOAN" shall mean a Mortgage Loan as to which the Servicer,
in its good faith, reasonable business judgment in accordance with Accepted
Servicing Practices, has determined that all amounts which will be recovered
with respect to such Mortgage Loan have been so recovered (exclusive of a
possibility of a deficiency judgment).
"LIQUIDATION EXPENSES" shall mean expenses incurred by the Servicer in
connection with the charge-off or liquidation of any defaulted Mortgage Loan,
REO Mortgage Loan or REO Property (including, without limitation, legal fees and
expenses, committee or referee fees, and, if applicable, brokerage commissions
and conveyance taxes), any unreimbursed amount expended by the Servicer pursuant
to Sections 5.5, 5.6 and 5.11 respecting the related Mortgage Loan and any
unreimbursed expenditures for real property taxes or for property restoration or
preservation of the related Mortgaged Property. Liquidation Expenses shall not
include any previously incurred expenses in respect of an REO Mortgage Loan
which have been netted against related REO Proceeds.
"LIQUIDATION PROCEEDS" shall mean amounts, if any, received by the
Servicer (including Insurance Proceeds) in connection with the liquidation of
Mortgage Loans or property acquired in respect thereof, whether through
foreclosure, sale or otherwise, including payments in connection with such
Mortgage Loans received from the Mortgagor, other than amounts required to be
paid to the Mortgagor pursuant to the terms of the applicable Mortgage or to be
applied otherwise pursuant to law and other than any Loan Repurchase Price
deposited into the Certificate Account pursuant to the last paragraph of Section
5.11(a).
"LOAN REPURCHASE PRICE" shall have the meaning defined in Section
2.4(b).
"LOWER-TIER INTERESTS" means the uncertificated classes of interests
in the Lower-Tier REMIC, as described and designated in Section 10.1(c) hereof.
"LOWER-TIER REMIC" means the segregated pool of assets held by the
Trust Fund consisting of the Mortgage Loans, the Collection Account, the
Certificate Insurance Policy and the Certificate Account, but excluding the
Pre-Funding Account and Capitalized Interest Account.
"MAJORITY CERTIFICATEHOLDERS" shall mean the Holder or Holders of
Class A Certificates evidencing a Percentage Interest in excess of 50% in the
aggregate; once the Class A Certificates have been paid in full, then the Holder
or Holders of Class B Certificates evidencing a Percentage Interest in excess of
50% in the aggregate.
"MATURITY DATE" shall mean the latest possible maturity date as
defined in Section 1.860G-1(a)(4)(iii) of the Treasury regulations, by which the
Certificates representing a regular interest in a REMIC of the Trust Fund would
be reduced to zero as determined under a hypothetical scenario that assumes,
among other things, that (a) scheduled interest and principal payments on the
Mortgage Loans are received in a timely manner, with no delinquencies or losses,
(b) there are no principal prepayments on the Mortgage Loans, (c) the Depositor
and the Seller will not repurchase any Mortgage Loan and neither the Seller, the
Servicer nor the Certificate Insurer will exercise its option to purchase the
Mortgage Loans and thereby cause a termination of the REMICs of the Trust Fund,
and (d) the Mortgage Loans generally have an original term to maturity of 360
months and, on a latest maturing loan basis, a remaining term to maturity of 360
months.
"MAXIMUM COLLATERAL AMOUNT" shall mean an amount equal to the sum of
(i) the Original Pool Principal Balance and (ii) the Principal Balance (as of
the related Subsequent Cut-Off Date) of each Subsequent Mortgage Loan acquired
by the Trust Fund.
"MONTHLY PAYMENT" shall mean, as to any Mortgage Loan (including any
REO Mortgage Loan) and any Due Date, the scheduled payment of principal and
interest due thereon by such Due Date.
"MOODY'S" shall mean Moody's Investors Service, Inc., a corporation
organized and existing under Delaware law, or any successor thereto and if such
corporation no longer for any reason performs the services of a securities
rating agency, "Moody's" shall be deemed to refer to any other nationally
recognized rating agency designated by the Certificate Insurer.
"MORTGAGE" shall mean the mortgage, deed of trust or other instrument
creating a first, second or third lien on the Mortgaged Property.
"MORTGAGE FILE" shall include the Mortgage Loan documents described in
Section 2.3 hereof.
"MORTGAGE INTEREST RATE" shall mean, as to any Mortgage Loan, the per
annum rate at which interest accrues on the unpaid principal balance thereof.
"MORTGAGE LOAN" shall mean (i) each closed-end home equity loan
identified on the Mortgage Loan Schedule on the Closing Date, (ii) any
additional such closed-end home equity loans identified on the Mortgage Loan
Schedule after the Closing Date, as such schedule is amended and supplemented
from time to time to reflect the substitution of Qualified Substitute Mortgage
Loans for loans deleted from the Trust Fund, (iii) from and after the date a
mortgage loan becomes a Subsequent Mortgage Loan in accordance with Section 6.11
hereof, each Subsequent Mortgage Loan and (iv) the related Mortgage. Unless
otherwise clearly indicated by the context, Mortgage Loan shall be deemed to
refer to the related REO Mortgage Loan and REO Property.
"MORTGAGE LOAN INTEREST SHORTFALL" shall mean, with respect to any
Distribution Date, as to any Mortgage Loan, any Prepayment Interest Shortfall
for which no payment of Compensating Interest is paid.
"MORTGAGE LOAN SCHEDULE" shall mean the list of the Mortgage Loans
transferred to the Trustee on the Closing Date as part of the Trust Fund and
attached hereto as Exhibit C (and also provided to the Trustee and the
Certificate Insurer on a computer readable magnetic tape or disk) and any
Subsequent Mortgage Loans transferred to the Trustee pursuant to any Subsequent
Transfer Instrument as provided in Section 6.11 and attached to such Subsequent
Transfer Instrument as an Exhibit (and also provided to the Trustee and the
Certificate Insurer on a computer readable magnetic tape or disk). The Mortgage
Loan Schedule shall set forth at a minimum the following information as to each
Mortgage Loan:
(i) the Mortgage Loan identifying number;
(ii) the Mortgagor's name;
(iii) the original Principal Balance of the
Mortgage Loan;
(iv) the Due Date;
(v) the date of the first Monthly Payment;
(vi) the origination date;
(vii) the Principal Balance of the Mortgage
Loan as of the Cut-Off Date or with respect
to Subsequent Mortgage Loans, the Subsequent
Cut-Off Date;
(viii) the city, state and zip code of the
Mortgaged Property;
(ix) the type of Mortgaged Property;
(x) the current Monthly Payment as of the
Cut-Off Date (and with respect to any
Subsequent Mortgage Loan, the current
Monthly Payment as of the Subsequent Cut-Off
Date applicable thereto);
(xi) the original number of months to maturity;
(xii) the scheduled maturity date;
(xiii) the Principal Balance of such Mortgage Loan
as of the Cut-Off Date (or, with respect to
any Qualified Substituted Mortgage Loans,
the revised Principal Balance as of the date
of such substitution);
(xiv) as of the Cut-Off Date, Substitution
Date or Subsequent Cut-Off Date, as
applicable, the remaining number of months
to stated maturity;
(xv) the Subordinate Mortgage Ratio at
origination and the Combined Loan-to-Value
Ratio as of the Cut-Off Date;
(xvi) the Mortgage Interest Rate at
origination;
(xvii) the Mortgage Interest Rate as of the
Cut-Off Date, or, with respect to
Subsequent Mortgage Loans, the Subsequent
Cut-Off Date applicable thereto (the
"Current Mortgage Interest Rate");
(xviii) the Appraised Value;
(xix) the occupancy status; and
(xx) the lien priority of each Mortgage Loan.
Such "Mortgage Loan Schedule" may consist of multiple reports that collectively
set forth all of the information required, including the aggregate number of
Mortgage Loans and the aggregate Principal Balance as of the Cut-Off Date or
applicable Subsequent Cut-Off Date. In addition, a summary of the information
regarding the Mortgage Loans shall be included as a part of the Mortgage Loan
Schedule which summary shall include such consolidated and aggregated
information as may be requested by the Trustee and the Certificate Insurer from
time to time.
"MORTGAGE NOTE" shall mean the original, executed note or other
evidence of indebtedness evidencing the indebtedness of a Mortgagor under a
Mortgage Loan.
"MORTGAGED PROPERTY" shall mean the underlying property securing a
Mortgage Loan, consisting of a fee simple estate in a single parcel of land
improved by a Residential Dwelling.
"MORTGAGED PROPERTY STATE" shall mean any state in which any Mortgaged
Property is located.
"MORTGAGOR" shall mean the obligor on a Mortgage Note.
"NET FORECLOSURE PROFITS" shall mean, as to any Distribution Date, the
excess, if any, of (i) the aggregate Foreclosure Profits with respect to such
Distribution Date over (ii) the aggregate Realized Losses with respect to such
Distribution Date.
"NET LIQUIDATION PROCEEDS" shall mean, as to any Liquidated Loan,
Liquidation Proceeds net of Liquidation Expenses and net of any unreimbursed
Delinquency Interest Advances or Servicing Advances made by the Servicer with
respect to the related Mortgage Loan. For all purposes of this Agreement, Net
Liquidation Proceeds shall be allocated first to accrued and unpaid interest on
the related Mortgage Loan and then to the unpaid principal balance thereof.
"NET MONTHLY EXCESS CASHFLOW" shall mean, as of any Distribution Date,
an amount equal to (x) the Available Funds minus (y) the sum of (i) sum of the
Class A Interest Distribution Amount and the amount described in clause (b) of
the definition of the related Class A Principal Distribution Amount (calculated
for this purpose without regard to any Overcollateralization Increase Amount or
portion thereof included therein); and (ii) the Reimbursement Amount, if any,
for such Distribution Date.
"NET MORTGAGE INTEREST RATE" shall mean, with respect to each Mortgage
Loan at any time of determination, a rate equal to (i) the Mortgage Interest
Rate on such Mortgage Loan minus (ii) the sum of the per annum rates used to
determine the Servicing Fee and Trustee Fee and the Premium Percentage. Any
regular monthly computation of interest at such rate shall be based upon annual
interest at such rate on the applicable amount divided by twelve.
"NET REO PROCEEDS" shall mean, as to any REO Mortgage Loan, REO
Proceeds net of any related expenses of the Servicer.
"NONRECOVERABLE ADVANCE" shall mean, with respect to any Mortgage
Loan, (a) any Delinquency Interest Advance or Servicing Advance previously made
and not reimbursed from late collections pursuant to Section 5.4(b), or (b) a
Delinquency Interest Advance or Servicing Advance proposed to be made in respect
of a Mortgage Loan or REO Property either of which, in the good faith business
judgment of the Servicer, as evidenced by an Officer's Certificate delivered to
the Certificate Insurer and the Trustee, would not be ultimately recoverable
pursuant to Section 5.4.
"OFFICER'S CERTIFICATE" shall mean a certificate signed by the
Chairman of the Board, the President or a Vice President and the Treasurer, the
Secretary or one of the Assistant Treasurers or Assistant Secretaries of the
Seller and/or the Servicer, or the Depositor, as required by this Agreement.
"OPINION OF COUNSEL" shall mean a written opinion of counsel, who may,
without limitation, be counsel for the Seller, the Servicer, the Trustee, a
Certificateholder or a Certificateholder's prospective transferee or the
Certificate Insurer (including except as otherwise provided herein, in-house
counsel) reasonably acceptable to each addressee of such opinion and experienced
in matters relating to the subject of such opinion; except that any opinion of
counsel relating to (a) the qualification of the Upper-Tier REMIC or Lower-Tier
REMIC as a REMIC or (b) compliance with the REMIC Provisions must be an opinion
of counsel who (i) is in fact independent of the Depositor, the Seller, the
Servicer and the Trustee, (ii) does not have any direct financial interest or
any material indirect financial interest in the Depositor, the Seller, the
Servicer or the Trustee or any Affiliate thereof, (iii) is not connected with
the Depositor or the Seller or the Servicer or the Trustee as an officer,
employee, director or person performing similar functions and (iv) is reasonably
acceptable to the Certificate Insurer. The Certificate Insurer shall be an
addressee on each Opinion of Counsel relating to, or otherwise affecting, the
Trust Fund and the Class A Certificates.
"ORIGINAL CLASS A PRINCIPAL BALANCE" shall mean, the respective
original class principal balance of each of the Class A Certificates.
"ORIGINAL CLASS A-L PRINCIPAL BALANCE" shall mean, as of the Startup
Day and as to the Class A-1 Certificates, $47,800,000.
"ORIGINAL CLASS A-2 PRINCIPAL BALANCE" shall mean, as of the Startup
Day and as to the Class A-2 Certificates, $29,500,000.
"ORIGINAL CLASS A-3 PRINCIPAL BALANCE" shall mean, as of the Startup
Day and as to the Class A-3 Certificates, $23,200,000.
"ORIGINAL CLASS A-4 PRINCIPAL BALANCE" shall mean, as of the Startup
Day and as to the Class A-4 Certificates, $50,600,000.
"ORIGINAL CLASS A-5 PRINCIPAL BALANCE" shall mean, as of the Startup
Day and as to the Class A-5 Certificates, $11,500,000.
"ORIGINAL CLASS A-6 PRINCIPAL BALANCE" shall mean, as of the Startup
Day and as to the Class A-6 Certificates, $37,400,000.
"ORIGINAL CLASS B PRINCIPAL BALANCE" shall mean, as of the Startup Day
and as to the Class B Certificates, $4,769,880.37.
"ORIGINAL POOL PRINCIPAL BALANCE" shall mean the Pool Principal
Balance as of the Cut-off Date, which amount is equal to $158,996,027.33.
"ORIGINAL PRE-FUNDED AMOUNT" shall mean $45,773,852.93.
"OUTSTANDING MORTGAGE LOAN" shall mean, as to any Due Date, a Mortgage
Loan (including an REO Mortgage Loan) which has not been prepaid in full prior
to such Due Date, which did not become a Charged-off Loan prior to such Due Date
and which was not repurchased by the Seller prior to such Due Date pursuant to
Section 2.4 and which is not a Deleted Mortgage Loan.
"OVERCOLLATERALIZATION AMOUNT" shall mean, as of any Distribution
Date, the amount, if any, by which (a) the Pool Principal Balance plus the
Pre-Funded Amount (exclusive of any investment earnings thereon) as of the close
of business on the last day of the related Collection Period exceeds (b) the
aggregate Class A Principal Balance as of such Distribution Date (after taking
into account the payment of the aggregate Class A Principal Distribution Amount
on such Distribution Date, but without regard to any portion thereof funded by
the proceeds of an Insured Payment); PROVIDED, HOWEVER, that such amount shall
not be less than zero.
"OVERCOLLATERALIZATION DEFICIENCY AMOUNT" shall mean, with respect to
any Distribution Date, the amount, if any, by which (a) the Required
Overcollateralization Level applicable to such Distribution Date exceeds (b) the
Overcollateralization Amount applicable to such Distribution Date prior to
taking into account the payment of any related Overcollateralization Increase
Amounts on such Distribution Date.
"OVERCOLLATERALIZATION DEFICIT" shall mean, as of any Distribution
Date, the amount, if any, by which (a) the aggregate Class A Principal Balance
(after taking into account the payment of the related Class A Principal
Distribution Amount (other than payments in respect thereof under the
Certificate Insurance Policy) on such date) exceeds (b) the Pool Principal
Balance plus the Pre-Funded Amount, each determined as of the end of the
immediately preceding Collection Period.
"OVERCOLLATERALIZATION INCREASE AMOUNT" shall mean, with respect to
any Distribution Date, the lesser of (a) the Overcollateralization Deficiency
Amount as of such Distribution Date (after taking into account the payment of
the related Class A Principal Distribution Amount on such Distribution Date
(other than clause (viii) thereof) and (b) the amount of Net Monthly Excess
Cashflow on such Distribution Date.
"OVERCOLLATERALIZATION REDUCTION AMOUNT" shall mean, with respect to
any Distribution Date, an amount equal to the lesser of (a) the Excess
Overcollateralization Amount for such Distribution Date and (b) the Principal
Remittance Amount for such Distribution Date.
"OWNERSHIP INTEREST" shall mean, as to any Certificate, any ownership
or security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether direct
or indirect, legal or beneficial, as owner or as pledgee.
"OWNER-OCCUPIED MORTGAGED PROPERTY" shall mean a Residential Dwelling
as to which (a) the related Mortgagor represented an intent to occupy as such
Mortgagor's primary residence at the origination of the Mortgage Loan, and (b)
the Seller has no actual knowledge that such Residential Dwelling is not so
occupied.
"PERCENTAGE INTEREST" shall mean, with respect to a Class A
Certificate, the portion evidenced by such Certificate, expressed as a
percentage rounded to four decimal places, equal to a fraction the numerator of
which is the original denomination of such Certificate and the denominator of
which is the related Original Class A Principal Balance, and with respect to a
Class B, Class RL or RU Certificate, the portion evidenced thereby as stated on
the face of such Certificate.
"PERMITTED INVESTMENTS" shall mean, as used herein, Permitted
Investments shall include the following:
(a) direct general obligations of, or obligations
fully and unconditionally guaranteed as to the
timely payment of principal and interest by, the
United States or any agency or instrumentality
thereof, provided such obligations are backed by
the full faith and credit of the United States
and any obligation of, or guaranties by, FHLMC
or FNMA (other than senior debt obligations and
mortgage pass-through certificates guaranteed by
FHLMC or FNMA) shall be a Permitted Investment;
PROVIDED, that at the time of such investment,
such investment is acceptable to the Certificate
Insurer, but excluding any of such securities
whose terms do not provide for payment of a
fixed dollar amount upon maturity or call for
redemption;
(b) federal funds and certificates of deposit, time
and demand deposits and banker's acceptances
issued by any bank or trust company incorporated
under the laws of the United States or any state
thereof and subject to supervision and
examination by federal or state banking
authorities, PROVIDED THAT at the time of such
investment or contractual commitment providing
for such investment the short-term debt
obligations of such bank or trust company at the
date of acquisition thereof have been rated A-1 +
by S&P and P-1 by Moody's;
(c) commercial paper (having original maturities of
not more than 180 days) rated A-1 + by S&P and
P-1 by Moody's;
(d) investments in money market funds rated "AAAm" or
"AAAm-G" by S&P and Aaa by Moody's; and
(e) investments approved by the Rating Agencies and
the Certificate Insurer in writing delivered to
the Trustee;
PROVIDED, that each such Permitted Investment shall be a "permitted investment"
within the meaning of Section 860G(a)(5) of the Code and that no instrument
described hereunder shall evidence either the right to receive (x) only interest
with respect to the obligations underlying such instrument or (y) both principal
and interest payments derived from obligations underlying such instrument and
the interest and principal payments with respect to such instrument provided a
yield to maturity at par greater than 120% of the yield to maturity at par of
the underlying obligations; and PROVIDED, FURTHER, that no instrument described
hereunder may be purchased at a price greater than par if such instrument may be
prepaid or called at a price less than its purchase price prior to stated
maturity.
"PERMITTED TRANSFEREE" shall mean any Person other than a Non-United
States Person or Disqualified Organization.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
national banking association, unincorporated organization or government or any
agency or political subdivision thereof.
"PLAN" shall have the meaning defined in Section 4.2(i).
"POOL CUMULATIVE REALIZED LOSSES" shall mean, with respect to any
period, the sum of all Realized Losses with respect to the Mortgage Loans
experienced during such period.
"POOL DEFAULT RATE" shall mean with respect to any Collection Period,
the fraction, expressed as a percentage, equal to (x) twelve times the aggregate
Principal Balances of all Mortgage Loans that became Charged-off Loans
(including all foreclosures and REO Properties) as of the close of business on
the last day of such Collection Period over (y) the Pool Principal Balance as of
the close of business on the last day of such Collection Period.
"POOL DELINQUENCY RATE" shall mean with respect to any Collection
Period, the fraction, expressed as a percentage, equal to (x) the aggregate
Principal Balances of all Mortgage Loans 60 or more days Delinquent (including
all foreclosures and REO Properties) as of the close of business on the last day
of such Collection Period over (y) the Pool Principal Balance as of the close of
business on the last day of such Collection Period.
"POOL PRINCIPAL BALANCE" shall mean the sum of the aggregate Principal
Balances of the Outstanding Mortgage Loans in the Trust Fund as of any date of
determination.
"POOL ROLLING THREE MONTH DELINQUENCY RATE" shall mean as of any
Distribution Date, the fraction, expressed as a percentage, equal to the average
of the Pool Delinquency Rates for each of the three (or one or two, in the case
of the first and second Distribution Dates) immediately preceding Collection
Periods.
"PREFERENCE AMOUNT" shall mean any amount previously distributed to a
Class A Certificateholder that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the U.S. Bankruptcy
Code as amended from time to time, in accordance with a final nonappealable
order of a court having competent jurisdiction.
"PREFERENCE CLAIM" shall have the meaning defined in Section 6.4(f).
"PRE-FUNDING ACCOUNT" shall mean the Eligible Account established and
maintained pursuant to Section 6.11 as defined therein.
"PRE-FUNDED AMOUNT" shall mean, with respect to any Determination
Date, the amount on deposit in the Pre-Funding Account.
"PRE-FUNDING PERIOD" shall mean the period beginning on the Closing
Date and ending on the earlier of the date on which (a) the amount on deposit in
the Pre-Funding Account is less than $50,000.00, (b) the date on which an Event
of Default occurs hereunder or (c) the close of business on June 25, 1997.
"PREMIUM PERCENTAGE" shall have the meaning assigned thereto in the
Certificate Insurance Agreement.
"PREPAYMENT ASSUMPTION" shall mean (used solely for determining the
accrual of original issue discount and market discount on the Certificates for
federal income tax purposes) a prepayment rate of 4% per annum of the then
outstanding principal balance of the Mortgage Loans in the first month in the
life of the mortgage loans and an additional .909% per annum in each month
thereafter until the twelfth month. In the twelfth month and thereafter, the
Prepayment Assumption shall mean a prepayment rate of 14% per annum each month.
"PREPAYMENT INTEREST SHORTFALL" shall mean, with respect to any
Distribution Date, for each Mortgage Loan that was the subject during the
related Collection Period of a Principal Prepayment, an amount equal to the
excess, if any, of (a) 30 days' interest on the Principal Balance of such
Mortgage Loan at a per annum rate equal to the Mortgage Interest Rate, MINUS the
rate at which the Servicing Fee is calculated OVER (b) the amount of interest
actually remitted by the Mortgagor in connection with such Principal Prepayment
LESS the Servicing Fee for such Mortgage Loan in such month.
"PRINCIPAL BALANCE" shall mean, as to any Mortgage Loan and
Distribution Date, initially the outstanding principal balance of such Mortgage
Loan as of the Cut-Off Date or the related Subsequent Cut-Off Date, as
applicable, and thereafter, as of any Distribution Date such balance as of the
last day of the Collection Period related to such Distribution Date after giving
effect to Principal Prepayments received and payments of principal collected
during such Collection Period and any Curtailments applied by the Servicer in
reduction of the unpaid principal balance of such Mortgage Loan as of such Due
Date; once a Mortgage Loan becomes a Charged-off Loan, its Principal Balance,
for purposes of the Trust Fund, will thereafter be considered to be zero.
"PRINCIPAL PREPAYMENT" shall mean any payment or other recovery of
principal on a Mortgage Loan equal to the outstanding principal balance thereof,
received in advance of the final scheduled Due Date which is not intended as an
advance payment of a scheduled Monthly Payment.
"PRINCIPAL REMITTANCE AMOUNT" shall mean, as of any Distribution Date,
the sum, without duplication of the amounts specified in clauses (b)(ii) through
(v) and (vii) of the definition of Class A Principal Distribution Amount for
such Distribution Date.
"QUALIFIED MORTGAGE" shall have the meaning set forth from time to
time in the definition of "Qualified Mortgage" at Section 860G(a)(3) of the Code
(or any successor statute thereto).
"QUALIFIED SUBSTITUTE MORTGAGE LOAN" shall mean a mortgage loan or
mortgage loans which on the date of substitution (a) has or have a mortgage
interest rate or rates of not less than (and not more than two percentage points
more than) the Mortgage Interest Rate for the Deleted Mortgage Loan for which it
is to be substituted, (b) relates or relate to a detached one-family residence
or to the same type of Residential Dwelling as the Deleted Mortgage Loan for
which it is to be substituted and in each case has or have the same or a better
lien priority as the Deleted Mortgage Loan for which it is to be substituted and
has or have the same occupancy status or is an Owner-Occupied Mortgaged
Property, (c) matures or mature no later than (and not more than one year
earlier than) the Deleted Mortgage Loan for which it is to be substituted, (d)
has or have a Subordinate Mortgage Ratio or Combined Loan-to-Value Ratios at the
time of such substitution no higher than the Subordinate Mortgage Ratio or the
Combined Loan-to-Value Ratio of the Deleted Mortgage Loan for which it is to be
substituted, (e) has or have a principal balance or principal balances (after
deduction of all payments received on or prior to the date of substitution) not
substantially less and not more than the Principal Balance of the Deleted
Mortgage Loan for which it is to be substituted as of such date, (f) satisfies
or satisfy the criteria set forth from time to time in the definition of
"qualified replacement mortgage" at Section 860G(a)(4) of the Code (or any
successor statute thereto), (g) has or have an applicable borrower or borrowers
with the same or better traditionally ranked credit status as the borrower or
borrowers under the Deleted Mortgage Loan for which it is to be substituted, and
(h) complies or comply as of the date of substitution with each representation
and warranty set forth in Section 3.3 herein.
"RATING AGENCY" shall mean S&P or Moody's.
"REALIZED LOSS" shall mean, with respect to each Mortgage Loan which
became a Charged-off Loan, the excess, if any, of (i) the Principal Balance of
such Mortgage Loan as of the date of charge-off and accrued interest thereon
over (ii) Net Liquidation Proceeds, if any, realized thereon and allocated to
principal and accrued interest.
"RECORD DATE" shall mean, with respect to any Distribution Date, the
close of business on the last Business Day of the calendar month immediately
preceding the month in which such Distribution Date occurs. The Record Date for
the first Distribution Date shall be the Closing Date.
"REIMBURSEMENT AMOUNT" shall mean, as of any Distribution Date, the
sum of (i) all Insured Payments (as defined in the Certificate Insurance Policy)
previously paid by the Certificate Insurer and in each case not previously
repaid to the Certificate Insurer pursuant to Section 6.5(iii) hereof; plus (ii)
interest accrued on each such Insured Payment not previously repaid calculated
at the rate specified in the Certificate Insurance Agreement from the date such
Insured Payment was made and (b)(i) any amounts then due and owing to the
Certificate Insurer under the Certificate Insurance Agreement, as certified to
the Trustee by the Certificate Insurer plus (ii) interest on such amounts at the
rate specified in the Certificate Insurance Agreement. The Certificate Insurer
shall notify the Trustee and the Depositor of the amount of any Reimbursement
Amount.
"RELEASED MORTGAGED PROPERTY PROCEEDS" shall mean, as to any Mortgage
Loan, proceeds received by the Servicer in connection with (a) a taking of an
entire Mortgaged Property by exercise of the power of eminent domain or
condemnation or (b) any release of part of the Mortgaged Property from the lien
of the related Mortgage, whether by partial condemnation, sale or otherwise;
which are not released to the Mortgagor in accordance with applicable law,
Accepted Servicing Practices and this Agreement.
"REMIC" shall mean a "real estate mortgage investment conduit" within
the meaning of Section 860D of the Code.
"REMIC ADMINISTRATOR" shall mean initially Bankers Trust Company, its
successor or assigns, PROVIDED, that each REMIC Administrator shall be
reasonably acceptable to the Certificate Insurer.
"REMIC PROVISIONS" shall mean provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of Subchapter M of Chapter I of the Code, and related
provisions, and temporary and final regulations promulgated thereunder and
published rulings, notices and announcements, as the foregoing may be in effect
from time to time.
"REO DISPOSITION" shall mean the final sale by the Servicer of a
Mortgaged Property acquired by the Servicer in foreclosure or by deed in lieu of
foreclosure.
"REO MORTGAGE LOAN" shall mean any Mortgage Loan which is not a
Liquidated Loan and as to which the indebtedness evidenced by the related
Mortgage Note is discharged and the related Mortgaged Property is held as part
of the Trust Fund.
"REO PROCEEDS" shall mean proceeds received in respect of any REO
Mortgage Loan (including, without limitation, proceeds from the rental of the
related Mortgaged Property).
"REO PROPERTY" shall have the meaning described in Section 5.11.
"REPRESENTATION LETTER" shall mean letters to, or agreements with, the
Depository to effectuate a book entry system with respect to the Class A
Certificates registered in the Certificate Register under the nominee name of
the Depository.
"REQUEST FOR RELEASE" shall mean a request for release in
substantially the form attached as Exhibit G hereto.
"REQUIRED OVERCOLLATERALIZATION LEVEL" shall mean, for each
Distribution Date, the amount determined as follows:
(a) for any Distribution Date occurring during the
period commencing on the Closing Date and ending
on the later of (x) the date upon which principal
payments on the Mortgage Loans equal to one-half of
the sum of (1) the Original Pool Principal Balance
PLUS (2) the aggregate Principal Balances
(as of the related Subsequent Cut-Off Dates) of all
Subsequent Mortgage Loans acquired by the Trust Fund
have been received by the Class A Certificateholders
and (y) the thirtieth Distribution Date following the
Closing Date, the greater of the following:
(i) the product of (x) $200,000,000 and (y) the
Target Percentage applicable to such
Distribution Date; and
(ii) two times an amount equal to (x) the
aggregate Principal Balances of all Mortgage
Loans which are 91 or more days Delinquent
(including REO Properties) minus (y) five
times the Net Monthly Excess Cashflow for
such Distribution Date; and
(b) for any Distribution Date occurring after the end
of the period in clause (a) above, the greatest
of the following:
(i) the lesser of (A) the product of (x)
$200,000,000 and (y) the Target Percentage
applicable to such Distribution Date and (B)
the product of (i) the Class A Principal
Balance immediately preceding such
Distribution Date and (ii) two times the
Target Percentage applicable to such
Distribution Date;
(ii) two times the difference of (A) the
aggregate Principal Balances of all Mortgage
Loans which are 91 or more days Delinquent
(including REO Properties) and (B) five
times the Net Monthly Excess Cashflow for
such Distribution Date;
(iii) an amount equal to 0.50% of the sum of
(1) the Original Pool Principal Balance
plus (2) the aggregate Principal Balances
as of the related Subsequent Cut-Off Dates) of
all Subsequent Mortgage Loans acquired by
the Trust Fund; and
(iv) three times the Principal Balance of the
Mortgage Loan with the largest Principal
Balance as of the last day of the related
Collection Period.
Notwithstanding anything to the contrary set forth in clauses (a) or (b)
above, on or after any Distribution Date on which an Insured Payment is made, or
any Distribution Date on which an Event of Default has occurred and is
continuing, the Required Overcollateralization Level shall be equal to the
Required Overcollateralization Level as of the Distribution Date immediately
prior to the Distribution Date on which either such event occurred.
The Certificate Insurer, in its sole discretion, may reduce or
eliminate the Required Overcollateralization Level without the consent of any
party hereto or any Certificateholder. Upon any reduction or elimination, the
Trustee shall give written notice thereof to each of the Rating Agencies.
"RESIDENTIAL DWELLING" shall mean a one- to four-family dwelling, a
unit in a planned unit development, a unit in a condominium development or a
townhouse.
"RESIDUAL CERTIFICATE" means any Class RL Certificate or any Class RU
Certificate.
"RESIDUAL CERTIFICATEHOLDER" means the person in whose name a Residual
Certificate is registered on the Certificate Register.
"RESPONSIBLE OFFICER" shall mean, when used with respect to the
Trustee, any officer assigned to the Corporate Trust Department (or any
successor thereto), including any Vice President, Assistant Vice President,
Senior Trust Officer, Trust Officer, Assistant Trust Officer, any Assistant
Secretary, any trust officer or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and to whom, with respect to a particular matter, such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Seller or the Servicer, the
President or any Vice President, Assistant Vice President, or any Secretary or
Assistant Secretary.
"S&P" shall mean Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies, Inc., or any successor thereto and if such corporation no
longer for any reason performs the services of a securities rating agency, "S&P"
shall be deemed to refer to any other nationally recognized statistical rating
organization designated by the Certificate Insurer.
"SALE AND PURCHASE AGREEMENT" shall mean that certain Sale and
Purchase Agreement dated March 1, 1997 between the Seller and the Depositor.
"SELLER" shall mean Preferred Credit Corporation, a California
corporation.
"SERVICER" shall mean Advanta Mortgage Corp. USA, a Delaware
corporation, or any successor appointed as herein provided.
"SERVICER ACCOUNT" shall mean the Eligible Account created and
maintained pursuant to Section 5.7.
"SERVICER EMPLOYEES" shall have the meaning as defined in Section 5.8
hereof.
"SERVICER REMITTANCE AMOUNT" shall mean, with respect to any Servicer
Remittance Date, an amount equal to the sum of (i) all scheduled and unscheduled
collections of principal on the Mortgage Loans (including Principal Prepayments,
Curtailments, Net REO Proceeds and Net Liquidation Proceeds, if any, and any
amounts deposited in the Collection Account in connection with a complete plan
of liquidation of the assets of the Trust or termination of the Trust) collected
by the Servicer during the Collection Period and all interest due during such
Collection Period and received by the Servicer on or prior to the related
Determination Date, plus (ii) all Delinquency Interest Advances made by the
Servicer with respect to interest payments due to be received on the Mortgage
Loans during the related Collection Period PLUS (iii) the amount of Compensating
Interest due with respect to the related Collection Period, plus (iv) any other
amounts required to be deposited in the Collection Account pursuant to this
Agreement, but excluding, without duplication, the following:
(a) amounts received on particular Mortgage Loans as late
payments of principal or interest and respecting
which the Servicer has previously made an
unreimbursed Delinquency Interest Advance or
Servicing Advance;
(b) the portion of Liquidation Proceeds used to
reimburse any unreimbursed Delinquency Interest
Advances or Servicing Advances by the Servicer;
(c) the Servicing Fee;
(d) that portion of Liquidation Proceeds and REO
Proceeds which represents any unpaid Servicing
Fee;
(e) all income from Permitted Investments that is
held in the Collection Account for the account
of the Servicer;
(f) all amounts in respect of late fees, assumption
fees, prepayment fees and similar fees;
(g) all other amounts which are explicitly reimbursable
to the Servicer hereunder, including (i) as provided
in Section 5.4 hereof; and (ii) any unreimbursed and
accrued Liquidation Expenses; and
(h) the portion of Net Foreclosure Profits
representing any unpaid Servicing Fee.
"SERVICER REMITTANCE DATE" shall mean, with respect to any
Distribution Date, the 18th day of the month in which such Distribution Date
occurs, or if such day is not a Business Day, the first Business Day preceding
such 18th day.
"SERVICER TRIGGER EVENT" has the meaning set forth in Section 7.1(c)
hereof.
"SERVICING ADVANCES" shall mean all reasonable and customary
"out-of-pocket" costs and expenses incurred in the performance by the Servicer
of its servicing obligations, including, but not limited to, the cost of (a) the
preservation, restoration and protection of the Mortgaged Property, (b) any
enforcement proceedings, including foreclosures, (c) expenditures relating to
the purchase or maintenance of a first lien not included in the Trust Fund on
the Mortgaged Property, (d) the management and liquidation of the REO Property,
including reasonable fees paid to any independent contractor in connection
therewith, (e) compliance with the obligations under Sections 5.5, 5.9 or 5.11,
all of which reasonable and customary out-of-pocket costs and expenses are
reimbursable to the Servicer to the extent provided in Section 5.4(a) and (b)
and 5.11.
"SERVICING COMPENSATION" shall mean the Servicing Fee and other
amounts to which the Servicer is entitled pursuant to Section 5.13.
"SERVICING FEE" shall mean, as to each Distribution Date, the annual
fee payable to the Servicer, which is calculated as an amount equal to the
product of (a) 0.65% per annum and (b) the aggregate Principal Balance of the
Mortgage Loans (except any Charged-off Loan as to which the Servicer is not
pursuing any collection activity). Such fee shall be calculated and payable
monthly. The Servicing Fee includes any servicing fees owed or payable to any
Subservicer.
"SERVICING OFFICER" shall mean any officer of the Servicer involved
in, or responsible for, the administration and servicing of the Mortgage Loans
whose name and specimen signature appear on a list of servicing officers
furnished to the Trustee and the Certificate Insurer by the Servicer, as such
list may from time to time be amended.
"STARTUP DAY" shall mean the day designated as such pursuant to
Section 10.1(d) hereof.
"SUBORDINATE MORTGAGE RATIO" shall mean, with respect to any Mortgage
Loan, an amount equal to the ratio (expressed as a percentage) of the original
principal balance of such Mortgage Loan to the sum of (i) the original principal
balance of such Mortgage Loan and (ii) the principal balance at the time of
origination of any senior liens (computed at the time of origination of such
Mortgage Loan).
"SUBSEQUENT CUT-OFF DATE" shall mean, with respect to those Subsequent
Mortgage Loans which are transferred and assigned to the Trust Fund pursuant to
a Subsequent Transfer Instrument (i) the last day of the month preceding the
month in which Subsequent Mortgage Loans shall be conveyed by the Depositor to
the Trust Fund occurring during the Pre-Funding Period or (ii) the date of
origination, if any such Subsequent Mortgage Loan is originated in the month of
conveyance by the Depositor to the Trust Fund.
"SUBSEQUENT MORTGAGE LOAN" shall mean a Mortgage Loan assigned and
transferred by the Depositor to the Trustee pursuant to Section 6.11, such
Mortgage Loan being identified on the Mortgage Loan Schedule attached to a
Subsequent Transfer Instrument.
"SUBSEQUENT TRANSFER DATE" shall mean the date on which a Subsequent
Mortgage Loan is transferred and assigned to the Trustee.
"SUBSEQUENT TRANSFER INSTRUMENT" shall mean each Subsequent Transfer
Instrument dated as of a Subsequent Transfer Date executed by the Trustee, the
Seller and the Depositor substantially in the form of Exhibit O, by which
Subsequent Mortgage Loans are transferred and assigned to the Trustee.
"SUBSERVICER" shall mean any Person with whom the Servicer has entered
into a Subservicing Agreement and who satisfies the requirements set forth in
Section 5.2(a) hereof in respect of the qualification of a Subservicer.
"SUBSERVICING AGREEMENT" shall mean any agreement between the Servicer
and any Subservicer relating to subservicing and/or administration of certain
Mortgage Loans as provided in Section 5.2(b), a copy of which shall be
delivered, along with any modifications thereto, to the Trustee and the
Certificate Insurer.
"SUBSTITUTION ADJUSTMENT" shall mean, as to any date on which a
substitution occurs pursuant to Section 2.4 or 3.3, the amount (if any) by which
the aggregate Principal Balances (after application of principal payments
received on or before the date of substitution of any Qualified Substitute
Mortgage Loans as of the date of substitution) of the related Qualified
Substitute Mortgage Loans are less than the aggregate of the Principal Balances
of the related Deleted Mortgage Loans together with 30 days' interest thereon at
the Mortgage Interest Rate plus any unreimbursed Servicing Advances and any
unreimbursed Delinquency Interest Advances with respect to such Deleted Mortgage
Loan.
"TARGET PERCENTAGE" shall mean, initially, 9.6%, PROVIDED, HOWEVER,
that the Target Percentage shall be increased to 11.50% if:
(i) on any Distribution Date, the Pool Rolling
Three Month Delinquency Rate for each of the
three (or one or two, in the case of the
first and second Distribution Dates)
immediately preceding Collection Periods, is
4.0% or greater; or
(ii) on any Distribution Date, the Three Month
Average Annualized Default Rate for each of
the three (or one or two, in the case of the
first and second Distribution Dates)
immediately preceding Collection Periods,
is 3.5% or greater; or
(iii) (a) on any Distribution Date occurring
before March 1, 1998, the aggregate Pool
Cumulative Realized Losses since the Cut-off
Date exceed 1.5% of the Maximum Collateral
Amount, (b) on any Distribution Date on or
after March 1, 1998 and before March 1,
1999, the aggregate Pool Cumulative Realized
Losses since the Cut-off Date exceed 3.0%
of the Maximum Collateral Amount, (c) on
any Distribution Date on or after March 1,
1999 and before March 1, 2000, the
aggregate Pool Cumulative Realized Losses
since the Cut-off Date exceed 4.5% of the
Maximum Collateral Amount, (d) on any
Distribution Date on or after March 1, 2000
and before March 1, 2001, the aggregate Pool
Cumulative Realized Losses since the
Cut-off Date exceed 6.0% of the Maximum
Collateral Amount, or (e) on any
Distribution Date on or after March 1,
2001, the aggregate Pool Cumulative Realized
Losses since the Cut-off Date exceed 7.5%
of the Maximum Collateral Amount;
PROVIDED, FURTHER, HOWEVER, that if the Target Percentage has increased to
11.50% pursuant to application of clause (i) above, the Target Percentage may
thereafter revert to 9.6% if (x) the Pool Rolling Three Month Delinquency Rate
has remained below 4.00% for six consecutive Distribution Dates (y) the Three
Month Average Annualized Default Rate has remained below 3.5% for six
consecutive Distribution Dates and (z) Pool Cumulative Realized Losses remain
below the levels set forth in clause (iii) above.
The Certificate Insurer, in its sole discretion, may reduce or
eliminate the Target Percentage without the consent of any party hereto or any
Certificateholder. Upon any reduction or elimination, the Servicer shall give
written notice thereof to each of the Rating Agencies.
"TAX MATTERS PERSON" shall mean the Person or Persons appointed
pursuant to Section 10.1(e) from time to time to act as the "tax matters person"
(within the meaning of the REMIC Provisions) of a REMIC of the Trust Fund.
"TAX RETURN" shall mean the federal income tax return on Internal
Revenue Service Form 1066, "U.S. Real Estate Mortgage Investment Conduit Income
Tax Return," including Schedule Q thereto, Quarterly Notice to Residual Interest
Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms,
to be filed on behalf of the Trust Fund due to the classification of each of the
Lower-Tier REMIC and the Upper-Tier REMICs as a REMIC under the REMIC
Provisions, together with any and all other information reports or returns that
may be required to be furnished to the Certificateholders or filed with the
Internal Revenue Service or any other governmental taxing authority under any
applicable provision of federal, state or local tax laws.
"THREE MONTH AVERAGE ANNUALIZED DEFAULT RATE" shall mean as of any
Distribution Date, the fraction, expressed as a percentage, equal to the average
of the Pool Default Rates for each of the three (or one or two, in the case of
the first and second Distribution Dates) immediately preceding Collection
Periods.
"TOTAL EXPECTED LOSSES" shall mean, as of Distribution Date, the sum,
as of such Distribution Date, of (x) Pool Cumulative Realized Losses since the
Cut-Off Date and (y) the sum of (i) 25% of the aggregate Principal Balances of
all Mortgage Loans 30-59 days Delinquent as of the end of the preceding
Collection Period, (ii) 50% of the aggregate Principal Balances of all Mortgage
Loans 60-89 days Delinquent as of the end of the preceding Collection Period and
(iii) 100% of the sum of (x) the aggregate Principal Balances of all Mortgage
Loans 90 or more days Delinquent (plus, without duplication, (y) the aggregate
Principal Balances of all Mortgage Loans in foreclosure and the Principal
Balance of all Mortgage Loans relating to REO Properties) at the end of the
preceding Collection Period.
"TRANSFER" shall mean any direct or indirect transfer, sale, pledge,
hypothecation or other form of assignment of any Ownership Interest in a
Certificate.
"TRANSFER AFFIDAVIT AND AGREEMENT" shall have the meaning as defined
in Section 4.2(f)(ii).
"TRANSFEREE" shall mean any Person who is acquiring by Transfer any
Ownership Interest in a Certificate.
"TRANSFEROR" shall mean any Person who is disposing by Transfer any
Ownership Interest in a Certificate.
"TRUST FUND" shall mean the segregated pool of assets subject hereto,
and to be administered hereunder, consisting of: (a) such Mortgage Loans as from
time to time are subject to this Agreement, together with the Mortgage Files
relating thereto and all principal collections received thereon, interest due
thereon, and the proceeds thereof, on and after the Cut-Off Date (other than
Monthly Payments due on each Mortgage Loan up to and including any Due Date
prior to the Cut-Off Date), (b) such assets as from time to time are identified
as REO Property and collections thereon and proceeds thereof, (c) amounts
(including Permitted Investments as may be held from time to time, except as
otherwise provided herein) on deposit in each Account, (d) the Trustee's rights
with respect to the Mortgage Loans under the Certificate Insurance Policy and
all insurance policies required to be maintained pursuant to this Agreement and
any Insurance Proceeds, (e) Liquidation Proceeds, (f) Released Mortgaged
Property Proceeds, (g) amounts (including Permitted Investments as may be held
from time to time) on deposit in the Capitalized Interest Account and the
Pre-Funding Account, (h) all of the income, payments and proceeds of each of the
foregoing, except to the extent provided herein; (i) the rights and remedies of
the Trustee against any representation or warranty made to the Trustee hereby
and (j) the rights and remedies of the Depositor against the Seller under the
Sale and Purchase Agreement.
"TRUSTEE" shall mean Bankers Trust Company, or its successor in
interest, or any successor trustee appointed as herein provided.
"TRUSTEE FEE" shall mean, as to any Distribution Date, the fee payable
to the Trustee in respect of its services as Trustee that accrues at a monthly
rate equal to 1/12 of 0.0115% of the Pool Principal Balance of each Outstanding
Mortgage Loan and the amount of funds in the Pre-Funding Account as of the
opening of the immediately preceding Collection Period; provided, HOWEVER, in
the event the Trustee is no longer the REMIC Administrator, the REMIC
Administrator shall be entitled to 0.020% of the Trustee Fee.
"TRUSTEE'S MORTGAGE FILE" shall mean the documents delivered to the
Trustee or its designated agent pursuant to Section 2.3.
"TRUSTEE'S REMITTANCE REPORT" shall have the meaning as defined in
Section 6.7.
"UNDERWRITER" shall mean Credit Suisse First Boston Corporation and
its successors and assigns.
"UNITED STATES PERSON" shall mean a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or any political subdivision thereof, an
estate whose income from sources without the United States is includible in
gross income for United States federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States, and
a trust other than a "foreign trust," as such term is defined in Section
7701(a)(31) of the Code.
"UNPAID REO AMORTIZATION" shall mean, as to any REO Mortgage Loan and
any month, the aggregate of the installments of principal and accrued interest
(adjusted to the related Net Mortgage Interest Rate) deemed to be due in such
month and in any prior months that remain unpaid, calculated in accordance with
Section 5.11.
"UPPER-TIER REMIC" means the segregated pool of assets held by the
Trust Fund consisting of the Lower-Tier Interests (except for the Class RL
Lower-Tier Interest), as set forth in the chart in Section 10.1(c) hereof.
Section 1.2 Provisions of General Application. (a) All accounting
terms not specifically defined herein shall be construed in accordance with
GAAP.
(b) The terms defined in this Article include the plural as well as
the singular.
(c) The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole. All references to Articles
and Sections shall be deemed to refer to Articles and Sections of this
Agreement.
(d) Reference to statutes are to be construed as including all
statutory provisions consolidating, amending or replacing the statute to which
reference is made and all regulations promulgated pursuant to such statutes.
(e) All calculations of interest (other than with respect to the
Mortgage Loans, or as otherwise specifically set forth herein) provided for
herein shall be made on the basis of actual days elapsed divided by a year
comprised of 360 days. All calculations of interest with respect to any Mortgage
Loan provided for herein shall be made in accordance with the terms of the
related Note and Mortgage or, if such documents do not specify the basis upon
which interest accrues thereon, on the basis of dividing actual days elapsed by
a 360 day year.
(f) Any Mortgage Loan payment is deemed to be received on the date
such payment is actually received by the Servicer; PROVIDED, HOWEVER, that for
purposes of calculating distributions on the Certificates prepayments with
respect to any Mortgage Loan are deemed to be received on the date they are
applied in accordance with customary servicing practices consistent with the
terms of the related Note and Mortgage to reduce the outstanding principal
balance of such Mortgage Loan on which interest accrues.
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<PAGE>
ARTICLE II
Establishment of the Trust
Sale and Conveyance of the Trust Fund
Section 2.1 SALE AND CONVEYANCE OF TRUST FUND: PRIORITY AND
SUBORDINATION OF OWNERSHIP INTERESTS; ESTABLISHMENT OF THE TRUST. (a) The
Depositor, as of the Closing Date, does hereby sell, transfer, assign, set over
and convey to the Trust Fund, for the benefit of the Certificateholders as their
respective interests may from time to time appear and the Certificate Insurer,
without recourse but subject to the provisions in this Section 2.1 and the other
terms and provisions of this Agreement, all of the right, title and interest of
the Depositor in and to the Trust Fund, exclusive of the obligations of the
Depositor, Seller or any other party with respect to the Mortgage Loans. In
connection with such transfer and assignment, and pursuant to Section 2.07 of
the Sale and Purchase Agreement, the Depositor does hereby also irrevocably
transfer, assign, set over and otherwise convey to the Trustee all of its rights
under the Sale and Purchase Agreement including, without limitation, its right
to exercise the remedies created by Section 3.05 of the Sale and Purchase
Agreement for breaches of representations and warranties, agreements and
covenants of the Seller contained in Sections 3.02 and 3.03 of the related Sale
and Purchase Agreement. Upon receipt of the Certificates in exchange for the
Mortgage Loans, the Depositor shall have hereby relinquished all rights with
respect to the Mortgage Loans, and have no right to sell, pledge, encumber or
otherwise dispose of the Mortgage Loans.
It is intended that the conveyance of the Mortgage Loans by the
Depositor to the Trustee as provided in this Section 2.1(b) and of the
Subsequent Mortgage Loans and the related property pursuant to Section 2.9 be,
and be construed as, a sale of the Mortgage Loans by the Depositor to the
Trustee for the benefit of the Certificateholders and the Certificate Insurer,
and it is, further, not intended that such conveyance be deemed a pledge of the
Mortgage Loans by the Depositor to the Trustee to secure a debt or other
obligation of the Depositor. However, in the event that the Mortgage Loans are
held to be property of the Depositor or if for any reason this Agreement is held
or deemed to create a security interest in the Mortgage Loans, then it is
intended that, (a) this Agreement shall also be deemed to be a security
agreement within the meaning of Articles 8 and 9 of the New York Uniform
Commercial Code; (b) the conveyance provided for in this Section 2.1 shall be
deemed (1) to be a grant by the Depositor to the Trustee of a security interest
in all of the Depositor's right, title and interest in and to the Mortgage Loans
and all amounts payable to the holders of the Mortgage Loans in accordance with
the terms thereof and all proceeds of the conversion, voluntary or involuntary,
of the foregoing into cash, instruments, securities or other property,
including, without limitation, all amounts from time to time held or invested in
the Certificate Account, the Collection Account, the Pre-Funding Account and the
Capitalized Interest Account, whether in the form of cash, instruments,
securities or other property and (2) an assignment by the Depositor to the
Trustee of any security interest in any and all of the Depositor's right
(including the power to convey title thereto), title and interest, whether now
owned or hereafter acquired, in and to the property described in the foregoing
clause (b) granted by the Seller to the Depositor pursuant to the Sale and
Purchase Agreement; (c) the possession by the Trustee or its agent of Mortgage
Notes and such other items of property as constitute instruments, money,
negotiable documents or chattel paper shall be deemed to be "possession by the
secured party" for purposes of perfecting the security interest pursuant to the
New York Uniform Commercial Code and the Uniform Commercial Code of any other
applicable jurisdiction (including, without limitation, Section 9-305, 8-313 or
8-321 thereof); and (d) notifications to persons holding such property, and
acknowledgments, receipts or confirmations from, financial intermediaries,
bailees or agents (as applicable) of the Trustee shall be made for the purpose
of perfecting such security interest under applicable law. The Depositor and the
Trustee, as directed by the Servicer, the Certificate Insurer or the Depositor,
shall, to the extent consistent with this Agreement, take such actions as may be
necessary to ensure that, if this Agreement were deemed to create a security
interest in the Mortgage Loans, such security interest would be deemed to be a
perfected security interest of first priority under applicable law and will be
maintained as such throughout the term of the Agreement, including the filing by
the Depositor of any financing statements and continuation statements evidencing
such security interest.
In connection with the sale, transfer, assignment, and conveyance,
from the Depositor to the Trust Fund, the Depositor has filed, or shall cause to
be filed, in the appropriate office or offices in the State of New York, a UCC-1
financing statement executed by the Depositor as debtor, naming the Trustee as
secured party and listing the Mortgage Loans and the other property described
above as collateral. The characterization of the Depositor as a debtor and the
Trustee as the secured party in such financing statements is solely for
protective purposes and shall in no way be construed as being contrary to the
intent of the parties that this transaction be treated as a sale of the
Depositor's entire right, title and interest in the Mortgage Loans to the Trust
Fund. In connection with such filing, the Depositor agrees that it shall cause
to be filed all necessary continuation statements thereof and to take or cause
to be taken such actions and execute such documents as are necessary to perfect
and protect the Trustee's, the Certificateholders' and the Certificate Insurer's
interests in the Mortgage Loans.
(b) The rights of the Certificateholders to receive payments with
respect to the Mortgage Loans in respect of the Certificates, and all ownership
interests of the Certificateholders, in such payments, shall be as set forth in
this Agreement. In this regard, all rights of the Class B Certificateholders and
the Residual Certificateholders to receive payments in respect of the Class B
Certificates and the Residual Certificates, respectively, are subject and
subordinate to the preferential rights of the Class A Certificateholders to
receive payments in respect of the Class A Certificates and to the Certificate
Insurer's rights to be reimbursed for Insured Payments together with interest
thereon at the rate specified in the Certificate Insurance Agreement. In
accordance with the foregoing, the ownership interest of the Class B
Certificateholders and the Residual Certificateholders in amounts deposited in
the Certificate Account, the Collection Account, the Pre-Funding Account or the
Capitalized Interest Account from time to time shall not vest unless and until
such amounts are distributed in respect of the Class B Certificates and the
Residual Certificates in accordance with the terms of this Agreement.
Section 2.2 POSSESSION OF MORTGAGE FILES; ACCESS TO MORTGAGE FILES.
(a) Upon the issuance of the Certificates, the ownership of each Mortgage Note,
the Mortgage and the contents of the related Mortgage File related to each
Mortgage Loan is vested in the Trustee for the benefit of the Certificateholders
and the Certificate Insurer, as their respective interests may, from time to
time, appear.
(b) The Trustee shall or cause to afford the Depositor, the
Certificate Insurer and the Servicer reasonable access to all records and
documentation regarding the Mortgage Loans relating to this Agreement, such
access being afforded at customary charges, upon reasonable request and during
normal business hours at the offices of the Trustee.
Section 2.3 DELIVERY OF MORTGAGE LOAN DOCUMENTS. (a) In connection
with each conveyance pursuant to Section 2.1 or 2.9 hereof, the Depositor has
delivered or does hereby agree to deliver or cause to be delivered to the
Trustee the Certificate Insurance Policy and each of the following documents for
each Mortgage Loan sold by the Seller to the Depositor and sold by the Depositor
to the Trust Fund:
(i) The original Mortgage Note, bearing all
intervening endorsements showing a complete
chain of endorsements from the originator of such
Mortgage Loan to the Seller endorsed by the Seller
endorsed without recourse in the following form: "Pay
to the order of Bankers Trust Company, as Trustee for
the benefit of the Certificateholders and the
Certificate Insurer for Preferred Credit Asset-Backed
Certificates Series 1997-1, without recourse" and
signed in the name of the Seller by an authorized
officer;
(ii) The original Mortgage with evidence of recording
indicated thereon; PROVIDED, HOWEVER, that if such
Mortgage has not been returned from the applicable
recording office, a copy of the Mortgage certified by
an authorized officer of the Seller (such original
recorded Mortgage shall be delivered when so
returned);
(iii) An original assignment of the original
Mortgage, in suitable form for recordation in
the jurisdiction in which the related Mortgaged
Property is located, in the name of the Seller
signed by an authorized officer of the Seller
(with evidence of submission for recordation of
such assignment in the appropriate real estate
recording office for such Mortgaged Property);
PROVIDED, HOWEVER, that Assignments of Mortgages
shall not be required to be submitted for
recording with respect to any Mortgage Loan which
relates to the Trustee's Mortgage File if the
Trustee, each of the Rating Agencies and the
Certificate Insurer shall have received an opinion of
counsel at the expense of the Seller satisfactory to
the Trustee, each of the Rating Agencies and the
Certificate Insurer stating that, in such counsel's
opinion, the failure to record such Assignment of
Mortgage shall not have a materially adverse effect
on the security interest of the Trustee in the
Mortgage; provided, FURTHER, that any Assignment of
Mortgage for which an opinion has been delivered
shall be recorded by the Seller
upon the earlier to occur of (i) receipt by the
Trustee of the Certificate Insurer's written
direction to record such Mortgage, (ii) the
occurrence of any Event of Default, as such term is
defined in this Pooling and Servicing Agreement, or
(iii) a bankruptcy or insolvency proceeding involving
the Mortgagor is initiated or foreclosure proceedings
are initiated against the Mortgaged Property as a
consequence of an event of default under the Mortgage
Loan; PROVIDED, FURTHER, that if the related Mortgage
has not been returned from the applicable recording
office, a copy of the Mortgage certified by an
authorized officer of the Seller (such original
assignment shall be delivered when so returned);
(iv) The original of any intervening Assignments of the
Mortgage with evidence of recording thereon showing a
complete chain of assignment from the originator of
such Mortgage Loan to the Seller;
(v) The original of any assumption, modification,
consolidation or extension agreements with
evidence of recording thereon; and
(vi) The title report or policy of title insurance (or a
commitment for title insurance, if the policy is
being held by the title insurance company pending
recordation of the Mortgage) issued with respect to
such Mortgage Loan;
PROVIDED, HOWEVER, that in the case of any Mortgage Loans which have been
prepaid in full after the Cut-Off Date and prior to the date of the execution of
this Agreement, the Depositor, in lieu of delivering the above documents, hereby
delivers to the Trustee a certification of an officer of the Seller of the
nature set forth in Exhibit N attached hereto; and PROVIDED, FURTHER, HOWEVER,
that as to certain Mortgages or assignments thereof which have been delivered or
are being delivered to recording offices for recording and have not been
returned to the Seller in time to permit their delivery hereunder at the time of
such transfer, in lieu of delivering such original documents, the Depositor is
delivering to the Trustee a true copy thereof with a certification by the Seller
on the face of such copy substantially as follows: "certified true and correct
copy of original which has been transmitted for recordation." The Seller agrees
that it will deliver such original documents, together with any related policy
of title insurance not previously delivered, on behalf of the Depositor to the
Trustee promptly after they are received, and no later than 120 days after the
Closing Date; PROVIDED, HOWEVER, that in those instances where the public
recording office retains the original Mortgage or Assignment of Mortgage after
it has been recorded or such original document has been lost by the recording
office, the Seller shall be deemed to have satisfied its obligations hereunder
if it shall have delivered to the Trustee a copy of such original Mortgage or
Assignment of Mortgage certified by the public recording office to be a true
copy of the recorded original thereof. The Seller agrees, at its own expense, to
record (or to provide the Trustee with evidence of recordation thereof) each
assignment within 60 days of the Closing Date in the appropriate public office
for real property records, PROVIDED THAT such assignments are redelivered by the
Trustee to the Seller upon the Seller's written request and at the Seller's
expense, unless the Seller (at its expense) furnishes to the Trustee, the
Certificate Insurer and the Rating Agencies an Opinion of Counsel reasonably
acceptable to the Trustee and the Certificate Insurer to the effect that
recordation of such assignment is not necessary under applicable state law to
preserve the Trustee's interest in the related Mortgage Loan against the claim
of any subsequent transferee of such Mortgage Loan or any successor to, or
creditor of, the
(b) In the event that any additional original documents are required
pursuant to the terms of this Section 2.3 to be a part of a Mortgage File, the
Seller or the Depositor, respectively, shall promptly deliver written notice to
the Trustee that such additional original documents are required hereunder and
deliver such original documents to the Trustee. In acting as custodian of any
such original document, the Servicer agrees further that it does not and will
not have or assert any beneficial ownership interest in the Mortgage Loans or
the Mortgage Files.
On or prior to the Closing Date, the Trustee, at the Seller's
direction and expense, shall also complete each Assignment of Mortgage with
respect to each Mortgage Loan conveyed on the Closing Date such that the final
Assignment of Mortgage appears in the following form:
"Bankers Trust Company, as Trustee for the benefit of the
Certificateholders and the Certificate Insurer for Preferred Credit Asset Backed
Certificates Series 1997-1."
(c) In the event that any Mortgage Note required to be delivered
pursuant to this Section 2.3 is conclusively determined by any of the Seller,
the Servicer or the Trustee to be lost, stolen or destroyed the Seller shall,
within 14 days of the Closing Date, deliver to the Trustee a "lost note
affidavit" in form and substance acceptable to the Trustee, and shall
simultaneously therewith request the obligor on such Mortgage Note to execute
and return a replacement Mortgage Note, and shall further agree to hold the
Trustee and the Certificate Insurer harmless from any loss or damage resulting
from any action taken in reliance on the delivery and possession by the Trustee
of such lost note affidavit. Upon the receipt of such replacement Mortgage Note,
the Trustee shall return the lost note affidavit. Delivery by the Seller of such
lost note affidavit shall not affect the obligations of the Seller hereunder
with respect to the related Mortgage Loan.
(d) Promptly after the Closing Date, the Seller shall, with respect to
each Mortgage Loan, cause to be recorded in the appropriate public office for
real property records, where permitted by applicable law and where applicable
law does not require that a subordinate mortgagee be named as a party defendant
in foreclosure or comparable proceedings in order to foreclose or otherwise
preempt such mortgagee's equity of redemption, a request for notice of any
action by or on behalf of any mortgagee under the related senior lien.
Section 2.4 ACCEPTANCE BY TRUSTEE OF THE TRUST FUND; CERTAIN
SUBSTITUTIONS; CERTIFICATION BY TRUSTEE. (a) The Trustee agrees to execute and
deliver to the Depositor, the Certificate Insurer, the Servicer and the Seller
on or prior to the Closing Date an acknowledgment of receipt of the related
Certificate Insurance Policy and, with respect to each Mortgage Loan, the
original Mortgage Note (with any exceptions noted), in the form attached as
Exhibit D hereto and declares that it will hold such documents and any
amendments, replacements or supplements thereto, as well as any other assets
included in the definition of Trust Fund and delivered to the Trustee, as
Trustee in trust upon and subject to the conditions set forth herein for the
benefit of the Certificateholders and the Certificate Insurer. The Trustee
agrees, for the benefit of the Certificateholders and the Certificate Insurer,
to review (or cause to be reviewed) each Trustee's Mortgage File prior to the
Closing Date (with respect to the Mortgage Loans) and to deliver to the Seller,
the Servicer, the Depositor and the Certificate Insurer a certification in the
form attached hereto as Exhibit E to the effect that, as to each Mortgage Loan
listed in the related Mortgage Loan Schedule (other than any Mortgage Loan paid
in full or any Mortgage Loan specifically identified in such certification as
not covered by such certification), (i) all Mortgage Notes required to be
delivered to it pursuant to Section 2.3(a)(i) hereof are in its possession, (ii)
each such Mortgage Note has been reviewed by it, has been, to the extent
required, executed and has not been mutilated, damaged, torn or otherwise
physically altered (handwritten additions, changes or corrections shall not
constitute physical alteration if initialed by the Mortgagor), appears regular
on its face and relates to such Mortgage Loan. The Trustee shall be under no
duty or obligation to inspect, review or examine any such documents,
instruments, certificates or other papers to determine that they are genuine,
enforceable, or appropriate for the represented purpose or that they are other
than what they purport to be on their face.
Within thirty (30) days after the Closing Date and within thirty (30)
days of receipt of a Subsequent Mortgage Loan or Qualified Substitute Mortgage
Loan, the Trustee shall deliver (or cause to be delivered) to the Servicer, the
Seller, the Depositor and the Certificate Insurer a final certification in the
form attached hereto as Exhibit F to the effect that, as to each Mortgage Loan
listed in the Mortgage Loan Schedule (other than any Mortgage Loan paid in full
or any Mortgage Loan specifically identified in such certification as not
covered by such certification), and as to any document noted as an exception
included in the Trustee's initial certification, (i) all documents required to
be delivered to it pursuant to Section 2.3 hereof are in its possession, (ii)
each such document has been reviewed by it, has been, to the extent required,
executed and has not been mutilated, damaged, torn or otherwise physically
altered (handwritten additions, changes or corrections shall not constitute
physical alteration if initialed by the Mortgagor), appears regular on its face
and relates to such Mortgage Loan.
(b) If the Certificate Insurer or the Trustee during the process of
reviewing the Trustee's Mortgage Files finds any document constituting a part of
a Trustee's Mortgage File which is not executed, has not been received, is
unrelated to the Mortgage Loan identified in the related Mortgage Loan Schedule,
or does not conform to the requirements of Section 2.3 or the description
thereof as set forth in the related Mortgage Loan Schedule, the Trustee or the
Certificate Insurer, as applicable, shall promptly so notify the Servicer, the
Seller, the Depositor, the Certificate Insurer and the Trustee. In performing
any such review, the Trustee may conclusively rely on the Seller as to the
purported genuineness of any such document and any signature thereon. It is
understood that the scope of the Trustee's review of the Mortgage Files is
limited solely to confirming that the documents listed in Section 2.3 have been
executed and received and relate to the Mortgage Files identified in the related
Mortgage Loan Schedule. The Seller agrees to use reasonable efforts to cause to
be remedied a material defect in a document constituting part of a Mortgage File
of which it is so notified by the Trustee. If, however, within 60 days after the
Trustee's notice to it respecting such defect the Seller has not caused to be
remedied the defect and the defect materially and adversely affects the interest
of the Certificateholders in the related Mortgage Loan or the interests of the
Certificate Insurer, the Trustee shall enforce the Seller's obligation to either
(i) substitute in lieu of such Mortgage Loan a Qualified Substitute Mortgage
Loan in the manner and subject to the conditions set forth in Section 3.4 hereof
or (ii) purchase such Mortgage Loan at a purchase price equal to the outstanding
Principal Balance of such Mortgage Loan as of the date of purchase, plus the
greater of (x) all accrued and unpaid interest thereon and (y) 30 days' interest
thereon, computed at the related Mortgage Interest Rate, plus the amount of any
unpaid and accrued Servicing Fees, any unreimbursed Delinquency Interest
Advances and Servicing Advances made by the Servicer with respect to such
Mortgage Loan, which purchase price shall be deposited in the Collection Account
prior to the next succeeding Servicer Remittance Date, after deducting therefrom
any amounts received in respect of such repurchased Mortgage Loan or Loans and
being held in the Collection Account for future distribution to the extent such
amounts have not yet been applied to principal or interest on such Mortgage Loan
(the "Loan Repurchase Price"); PROVIDED, HOWEVER, that the Seller may not,
pursuant to clause (ii) preceding, purchase the Principal Balance of any
Mortgage Loan that is not in default or as to which no default is imminent
unless the Seller has theretofore delivered an Opinion of Counsel knowledgeable
in federal income tax matters which states that such a purchase would not
constitute a prohibited transaction under the Code.
(c) Upon receipt by the Trustee of a certification of a Servicing
Officer of such substitution or purchase and, in the case of a substitution,
upon receipt of the related Trustee's Mortgage File for the applicable Qualified
Substitute Mortgage Loan or Loans, and the deposit of the amounts described
above into the Collection Account (which certification shall be in the form of
Exhibit G hereto), the Trustee shall release to the Servicer for release to the
Seller the related Trustee's Mortgage File and shall execute, without recourse,
and deliver such instruments of transfer furnished by the Seller as may be
necessary to transfer such Mortgage Loan to the Seller. The Trustee shall
promptly notify the Certificate Insurer if the Seller fails to repurchase or
substitute for a Mortgage Loan in accordance with the foregoing.
Section 2.5 [RESERVED] .
Section 2.6 EXECUTION OF CERTIFICATES. The Trustee acknowledges the
assignment to it of the Mortgage Loans and the delivery to it of the Trustee's
Mortgage Files relating thereto and, concurrently with such delivery, has
executed, authenticated and delivered to or upon the order of the Depositor, in
exchange for the Mortgage Loans, the Trustee's Mortgage Files and the other
assets included in the definition of Trust Fund, Certificates duly authenticated
by the Trustee, in Authorized Denominations, evidencing the entire beneficial
ownership interest in the Trust Fund.
Section 2.7 APPLICATION OF PRINCIPAL AND INTEREST. In the event that
Net Liquidation Proceeds on a Liquidated Mortgage Loan are less than the
outstanding Principal Balance of the related Mortgage Loan plus accrued interest
thereon, or any Mortgagor makes a partial payment of any Monthly Payment due on
a Mortgage Loan, such Net Liquidation Proceeds or partial payment shall be
applied to payment of the related Mortgage Note as provided therein, and if not
so PROVIDED, first to interest accrued at the Mortgage Interest Rate, then to
the principal owed on such Mortgage Loan.
Section 2.8 FURTHER ASSURANCES; POWERS OF Attorney. (a) The Depositor
and the Servicer shall take no action inconsistent with the Trust's ownership of
the Trust Fund and shall indicate or shall cause to be indicated in its records
and records held on its behalf that ownership of each Mortgage Loan and the
assets in the Trust Fund are held by the Trustee on behalf of the Trust Fund. In
addition, the Depositor and the Servicer shall respond to any inquiries from
third parties with respect to ownership of a Mortgage Loan or any other asset in
the Trust Fund by stating that it is not the owner of such asset and that
ownership of such Mortgage Loan or other Trust Fund asset is held by the Trustee
on behalf of the Trust Fund.
(b) The Servicer agrees that, from time to time, at the Seller's
expense, it shall cause the Seller (and the Depositor also agrees that it
shall), promptly to execute and deliver all further instruments and documents,
and take all further action, that may be necessary or appropriate, or that the
Servicer or the Trustee or the Certificate Insurer may reasonably request, in
order to perfect, protect or more fully evidence the transfer of ownership of
the Trust Fund or to enable the Trustee to exercise or enforce any of its rights
hereunder. Without limiting the generality of the foregoing, the Servicer, the
Seller and the Depositor will, upon the request of the Servicer or of the
Trustee execute and file (or cause to be executed and filed) such real estate
flings, financing or continuation statements, or amendments thereto or
assignments thereof, and such other instruments or notices, as may be necessary
or appropriate.
(c) The Depositor hereby grants to the Servicer and the Trustee powers
of attorney to execute all documents on its behalf under this Agreement as may
be necessary or desirable to effectuate the foregoing.
Section 2.9 CONVEYANCE OF THE SUBSEQUENT MORTGAGE LOANS. (a) Subject
to the conditions set forth in Section 2.3 above and paragraph (b) below in
consideration of the Trustee's delivery on the related Subsequent Transfer Dates
to or upon the order of the Depositor of all or a portion of the balance of
funds in the Pre-Funding Account, the Depositor shall on any Subsequent Transfer
Date sell, transfer, assign, set over and convey without recourse to the Trustee
but subject to the other terms and provisions of this Agreement all of the
right, title and interest of the Depositor in and to (i) the Subsequent Mortgage
Loans identified on the Mortgage Loan Schedule attached to the related
Subsequent Transfer Instrument delivered by the Depositor on such Subsequent
Transfer Date, (ii) principal due and interest accruing on the Subsequent
Mortgage Loans on and after the related Subsequent Cut-Off Date and (iii) all
items with respect to such Subsequent Mortgage Loans to be delivered pursuant to
Section 2.3 above and the other items in the related Mortgage Files; PROVIDED,
HOWEVER, that the Depositor reserves and retains all right, title and interest
in and to principal received and interest accruing on the Subsequent Mortgage
Loans prior to the related Subsequent Cut-Off Date. The transfer to the Trustee
by the Depositor of the Subsequent Mortgage Loans identified on the Mortgage
Loan Schedule shall be absolute and is intended by the Depositor, the Servicer,
the Trustee and the Certificateholders to constitute and to be treated as a sale
of the Subsequent Mortgage Loans by the Depositor to the Trust Fund. The related
Mortgage File for each Subsequent Mortgage Loan shall be delivered to the
Trustee three Business Days (or such shorter period as may be agreed between the
Depositor and the Trustee) prior to the Subsequent Transfer Date.
The purchase price paid by the Trustee from amounts released from the
Pre- Funding Account shall be 97% of the aggregate Principal Balances as of the
related Subsequent Cut-Off Date of the Subsequent Mortgage Loans so transferred.
This Agreement shall constitute a fixed-price purchase contract in accordance
with Section 860G(a)(3)(A)(ii) of the Code.
(b) The Depositor shall transfer to the Trustee the Subsequent
Mortgage Loans and the other property and rights related thereto described in
Section 2.9 (a) above, and the Trustee shall release funds from the Pre-Funding
Account, only upon the satisfaction of each of the following conditions on or
prior to the related Subsequent Transfer Date:
(i) the Depositor shall have provided the Trustee and the
Certificate Insurer no later than five Business Days
prior to the Subsequent Transfer Date an Addition
Notice and shall have provided any information
reasonably requested by the Trustee or the
Certificate Insurer with respect to the Subsequent
Mortgage Loans;
(ii) the Depositor shall have delivered to the Trustee a
duly executed Subsequent Transfer Instrument, which
shall include a Mortgage Loan Schedule, listing the
Subsequent Mortgage Loans;
(iii) as of each Subsequent Transfer Date, the Depositor
shall not be insolvent nor shall it have been made
insolvent by such transfer nor shall it be aware of
any pending insolvency;
(iv) such sale and transfer shall not result in a
material adverse tax consequence to the Trust
Fund or the Certificateholders;
(v) the Pre-Funding Period shall not have terminated;
(vi) each of the conditions precedent to the obligations
of the Depositor to purchase the Subsequent Mortgage
Loans pursuant to the Sale and Purchase Agreement
shall have been satisfied;
(vii) the Depositor shall have delivered to the Trustee an
Officer's Certificate, substantially in the form
delivered at closing, confirming the satisfaction of
each condition precedent and representations
specified in this Section 2.9(b) and Section 2.9(c)
following and in the related Subsequent Transfer
Instrument;
(viii) the Depositor shall have delivered to the
Trustee and the Certificate Insurer Opinions of
Counsel addressed to the Certificate Insurer, the
Rating Agencies and the Trustee with respect to the
transfer of the Subsequent Mortgage Loans
substantially in the form of the Opinions of Counsel
delivered to the Certificate Insurer and the Trustee
on the Closing Date regarding certain bankruptcy, tax
and corporate matters; and
(ix) the Trustee shall have delivered to the
Certificate Insurer and the Depositor an Opinion
of Counsel addressed to the Depositor, the Rating
Agencies and the Certificate Insurer with respect to
the Subsequent Transfer Instrument substantially in
the form of the Opinion of Counsel delivered to the
Certificate Insurer and the Depositor on the Closing
Date regarding certain corporate matters relating to
the Trustee.
(c) The obligation of the Trust Fund to purchase a Subsequent Mortgage
Loan on any Subsequent Transfer Date is subject to the following representations
and warranties of the Seller and the Depositor with respect to such Subsequent
Mortgage Loan being satisfied (i) such Subsequent Mortgage Loan may not be more
than 30 days Delinquent as of the related Subsequent Cut-Off Date; (ii) such
Subsequent Mortgage Loan has a Mortgage Interest Rate of at least 10%; (iii)
such Subsequent Mortgage Loan has a weighted average Combined Loan-to- Value
Ratio (based on the original appraisal) no greater than 125%; (iv) such
Subsequent Mortgage Loan is a fully amortizing loan with level payments
generally over 15 years; (v) such Subsequent Mortgage Loan is secured by a
Residential Dwelling; (vi) the related Trustee's Mortgage File with respect to
such Subsequent Mortgage Loan shall have been delivered to the Trustee; (vii) no
such Subsequent Mortgage Loan is secured by an investor property or associated
with the purchase of a home; (viii) the Subsequent Mortgage Loans in the
aggregate have a weighted average Principal Balance no greater than $37,765;
(ix) the Subsequent Mortgage Loans in the aggregate (as of their related
Subsequent Cut-off Dates) have a weighted average remaining term to stated
maturity of no greater than 182 months; (x) such Subsequent Mortgage Loan may
not have a DTI greater than 50%; (xi) such Subsequent Mortgage Loan has a Credit
Bureau Risk Score of at least 620; and (xii) following the purchase of such
Subsequent Mortgage Loans by the Trust Fund, the Mortgage Loans (including the
Subsequent Mortgage Loans) (a) will have a weighted average Mortgage Interest
Rate of at least 14.03%; (b) will have a weighted average Combined Loan-to-Value
Ratio (based on the original appraisal) of not more than 118%; (c) will have no
Subsequent Mortgage Loan with a Principal Balance in excess of $88,000; (d) will
not have any non-owner occupied properties; (e) will have a weighted average
Subordinate Mortgage Ratio of not more than 30%; (f) will not have a
concentration in a single zip code in excess of 2.0% by aggregate Principal
Balance; (g) will not have a concentration in Los Angeles County, California in
excess of 10% by aggregate Principal Balance; (h) will not have concentration in
any other county in excess of 8% by aggregate Principal Balance; (i) the
concentration of Credit Bureau Risk Scores by aggregate Principal Balance shall
be the following: (1) between 620-639 shall not exceed 16%; (2) between 620-659
shall not exceed 39%; (3) between 620-669 shall not exceed 52%; (4) between
620-689 shall not exceed 70% (5) between 620-709 shall not exceed 85%; and (j)
will not have a concentration of Mortgage Loans with self employed mortgagors in
excess of 4% by aggregate Principal Balances; (k) will have a weighted average
Credit Bureau Risk Score of at least 673 and a weighted average DTI of no more
than 38%; (l) will have a concentration of Mortgage Loans secured by single
family residences of at least 100% by aggregate Principal Balances; and (n) the
concentration of Combined Loan-to-Value Ratios by aggregate Principal Balance
shall be the following (1) greater than 80% shall not exceed 96%; (2) greater
than 115% and less than 120% shall not exceed 18%; and (3) greater than 120% and
less than 125% shall not exceed 61%; (o) will not have a concentration in the
State of California in excess of 38% by aggregate Principal Balance; (p) will
not have a concentration of Mortgage Loans secured by condominiums in excess of
5% (q) such Subsequent Mortgage Loan satisfies all representations and
warranties set forth in Sections 3.02 and 3.03 of the Sale and Purchase
Agreement hereof as of the related Subsequent Transfer Date. Such requirements
may be waived or modified in writing by the Certificate Insurer; PROVIDED THAT,
if the Certificate Insurer waives or modifies any such requirements because such
Subsequent Mortgage Loans do not satisfy such requirements, the Certificate
Insurer, in its sole discretion, may modify the definitions of "Required
Overcollateralization Level" and/or "Target Percentage," without the consent of
any party hereto or any Certificateholder; PROVIDED, FURTHER, that the
Certificate Insurer agrees to notify the Depositor and the Trustee in writing of
any modifications to the definitions of "Required Overcollateralization Level"
and/or "Target Percentage" no later than the Determination Date immediately
preceding a Distribution Date (or such shorter period as the Trustee shall
reasonably agree).
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 REPRESENTATIONS OF THE SERVICER. The Servicer hereby
represents and warrants to the Trustee, the Depositor, the Certificate Insurer
and the Certificateholders as of the Closing Date:
(a) The Servicer is a Delaware corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation
and is in compliance with the laws of each state in which any Mortgaged Property
is located to the extent necessary to enable it to perform its obligations under
the terms of this Agreement; the Servicer has the full corporate power and
authority to execute and deliver this Agreement and to perform in accordance
herewith: the execution, delivery and performance of this Agreement by the
Servicer and the consummation of the transactions contemplated hereby have been
duly and validly authorized; this Agreement evidences the legal, valid, binding
and enforceable obligation of the Servicer; and all requisite corporate action
has been taken by the Servicer to make this Agreement valid and binding upon the
Servicer in accordance with its terms;
(b) Neither the execution and delivery of this Agreement, nor the
fulfillment of or compliance with the terms and conditions of this Agreement,
will conflict with or result in a breach of any of the terms, conditions or
provisions of the Servicer's charter or by-laws or any legal restriction or any
agreement or instrument to which the Servicer is now a party or by which it is
bound, or constitute a default or result in an acceleration under any of the
foregoing, or result in the violation of any law, rule, regulation, order,
judgment or decree to which the Servicer or its property is subject, or impair
the ability of the Trustee (or the Servicer as the agent of the Trustee) to
realize on the Mortgage Loans, or impair the value of the Mortgage Loans;
(c) The Servicer is an approved seller/servicer of conventional
residential mortgage loans for FNMA and FHLMC;
(d) There is no action, suit, proceeding or investigation pending or,
to the knowledge of the Servicer, threatened against the Servicer which, either
in any one instance or in the aggregate, may result in any material adverse
change in the business, operations, financial condition, properties or assets of
the Servicer, or in any material impairment of the right or ability of the
Servicer to carry on its business substantially as now conducted, or of any
action taken or to be taken in connection with the obligations of the Servicer
contemplated herein, or which would materially impair the ability of the
Servicer to perform under the terms of this Agreement;
(e) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Servicer of or compliance by the Servicer with this Agreement
or the Mortgage Loans or the consummation of the transactions contemplated by
this Agreement or, if required, such approval has been obtained prior to the
Closing Date; and
(f) Neither this Agreement nor any statement, report or other document
furnished by the Servicer pursuant to this Agreement or in connection with the
transactions contemplated hereby contains any untrue statement of material fact
regarding the Servicer or omits to state a material fact necessary to make the
statements regarding the Servicer contained herein or therein not misleading.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.1 shall survive the delivery of the
respective Mortgage Files to the Trustee or to a custodian, as the case may be,
and inure to the benefit of the Trustee.
Section 3.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
DEPOSITOR. (a) The Depositor hereby represents, warrants and covenants to the
Trustee and the Certificate Insurer that as of the Closing Date or as of such
date specifically provided herein:
(i) The Depositor is a corporation duly organized,
validly existing and in good standing under the
laws of the State of Delaware;
(ii) The Depositor has the corporate power and authority
to convey the Mortgage Loans and to execute, deliver
and perform, and to enter into and consummate
transactions contemplated by, this Agreement;
(iii) This Agreement has been duly and validly
authorized, executed and delivered by the
Depositor, all requisite corporate action having
been taken, and, assuming the due authorization,
execution and delivery hereof by the Servicer
and the Trustee, constitutes or will constitute
the legal, valid and binding agreement of the
Depositor, enforceable against the Depositor in
accordance with its terms, except as such
enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights
of creditors generally, and by general equity
principles (regardless of whether such
enforcement is considered in a proceeding in
equity or at law);
(iv) No consent, approval, authorization or order of,
or registration or filing with, or notice to,
any governmental authority or court is required
for the execution, delivery and performance of
or compliance by the Depositor with this
Agreement or the consummation by the Depositor of
any of the transactions contemplated hereby,
except as have been received or obtained on or
prior to the Closing Date;
(v) None of the execution and delivery of this
Agreement, the consummation of the transactions
contemplated hereby or thereby, or the
fulfillment of or compliance with the terms and
conditions of this Agreement, (a) conflicts or
will conflict with or results or will result in a
breach of, or constitutes or will constitute a
default or results or will result in an
acceleration (I) under the charter or bylaws of
the Depositor, or (II) of any term, condition or
provision of any material indenture, deed of
trust, contract or other agreement or instrument
to which the Depositor or any of its subsidiaries
is a party or by which it or any of its subsidiaries
is bound; (b) results or will result in a violation
of any law, rule, regulation, order, judgment or
decree applicable to the Depositor of any court or
governmental authority having jurisdiction over the
Depositor or its subsidiaries; or (c) results in the
creation or imposition of any lien, charge or
encumbrance which would have a material adverse
effect upon the Mortgage Loans or any documents or
instruments evidencing or securing the Mortgage
Loans;
(vi) There are no actions, suits or proceedings before
or against or investigations of, the Depositor
pending, or to the knowledge of the Depositor,
threatened, before any court, administrative
agency or other tribunal, and no notice of any
such action, which, in the Depositor's
reasonable judgment, might materially and
adversely affect the performance by the
Depositor of its obligations under this
Agreement, or the validity or enforceability of
this Agreement; and
(vii) The Depositor is not in default with respect to any
order or decree of any court or any order, regulation
or demand of any federal, state, municipal or
governmental agency that would materially and
adversely affect its performance hereunder.
Section 3.3 RESERVED.
Section 3.4 PURCHASE AND SUBSTITUTION. (a) It is understood and agreed
that the representations and warranties set forth herein shall survive delivery
of the Certificates to the Certificateholders. With respect to any
representation or warranty contained in Sections 3.02 and 3.03 of the Sale and
Purchase Agreement that is made to the best of the Seller's knowledge, if it is
discovered by the Servicer, any Subservicer, the Depositor, the Trustee, the
Certificate Insurer or any Certificateholder that the substance of such
representation and warranty was inaccurate as of the Closing Date (or in the
case of the Subsequent Mortgage Loans, as of the respective Subsequent Transfer
Date) and such inaccuracy materially and adversely affects the value of the
related Mortgage Loan or the interest of the Certificate Insurer, then
notwithstanding the Seller's lack of knowledge with respect to the inaccuracy at
the time the representation or warranty was made, such inaccuracy shall be
deemed a breach of the applicable representation or warranty. Upon discovery by
the Seller, the Depositor, the Servicer, any Subservicer, the Trustee the
Certificate Insurer or any Certificateholder of a breach of any representations
and warranties which materially and adversely affects the value of the Mortgage
Loans or the interest of the Certificateholders, or which materially and
adversely affects the interests of the Certificate Insurer or the
Certificateholders in the related Mortgage Loan in the case of a representation
and warranty relating to a particular Mortgage Loan (notwithstanding that such
representation and warranty was made to the Seller's best knowledge), the party
discovering such breach shall give prompt written notice to the others. Subject
to the last paragraph of this Section 3.4, within 60 days of the earlier of its
discovery or its receipt of notice of any breach of a representation or
warranty, the Seller shall be required to (i) promptly cure such breach in all
material respects, (ii) purchase such Mortgage Loan on the next succeeding
Servicer Remittance Distribution Date, in the manner and at the related Loan
Repurchase Price, or (iii) remove such Mortgage Loan from the Trust Fund (in
which case the Mortgage Loan shall become a Deleted Mortgage Loan) and
substitute one or more Qualified Substitute Mortgage Loans; provided however,
that with respect to any Mortgage Loan for which the representation in Section
3.03(ac) of the Sale and Purchase Agreement is breached solely as a result of
flood conditions in the states of Indiana, Kentucky and Ohio during the period
from December 1996 through March 1997, the Seller shall use its best efforts to
substitute a Qualified Substitute Mortgage Loan for each such Mortgage Loan;
PROVIDED, that, such substitution is effected not later than the date which is
two years after the Startup Day or at such later date, if the Trustee and the
Certificate Insurer receive an Opinion of Counsel to the effect that such
substitution will not constitute a prohibited transaction for the purposes of
the REMIC provisions of the Code or cause the Upper Tier REMIC or Lower Tier
REMIC to fail to qualify as a REMIC at any time any Certificates are
outstanding. Any such substitution shall be accompanied by payment by the Seller
of the Substitution Adjustment, if any, to the Servicer to be deposited in the
Collection Account.
(b) As to any Deleted Mortgage Loan for which the Seller substitutes a
Qualified Substitute Mortgage Loan or Loans, the Seller shall be required to
effect such substitution by delivering to the Trustee a certification in the
form attached hereto as Exhibit G, executed by a Servicing Officer and the
documents described in Sections 2.3(a)(i)-(vi) for such Qualified Substitute
Mortgage Loan or Loans.
(c) The Servicer shall deposit in the Collection Account all principal
payments received and interest due in connection with such Qualified Substitute
Mortgage Loan or Loans after the date of such substitution or related cut-off
date, as applicable, set forth in the certification delivered to the Trustee.
Monthly Payments received with respect to Qualified Substitute Mortgage Loans on
or before the date of substitution or cut-off date, as applicable, will be
retained by the Seller. The Trust Fund will own all principal payments received
and interest due on the Deleted Mortgage Loan on or before the date of
substitution or cut-off date, as applicable, and the Seller shall thereafter be
entitled to retain all amounts subsequently received in respect of such Deleted
Mortgage Loan after the date of substitution or the related cut-off date, as
applicable. The Servicer shall give written notice to the Trustee and the
Certificate Insurer that such substitution has taken place and shall amend the
Mortgage Loan Schedule to reflect the removal of such Deleted Mortgage Loan from
the terms of this Agreement and the substitution of the Qualified Substitute
Mortgage Loan. Upon such substitution, such Qualified Substitute Mortgage Loan
or Loans shall be subject to the terms of this Agreement in all respects. For
purposes of this paragraph, "cut-off date" shall mean a date not later than the
related date of substitution.
(d) It is understood and agreed that the obligations of the Seller to
cure, purchase or substitute for a defective Mortgage Loan constitute the sole
remedies of the Trustee, the Certificate Insurer and the Certificateholders with
respect to a breach of the representations and warranties of the Seller set
forth in Sections 3.02 and 3.03 of the Sale and Purchase Agreement (other than
the representation and warranty set forth in Section 3.03(g) to the extent of
any fines, penalties, costs or other damages or losses except the lost economic
value of the Mortgage Loan, the value of which the remedies provided for in
Section 2.06 and this Section 3.4 shall be deemed adequate for). The Trustee
shall give prompt written notice to the Certificate Insurer and each of the
Rating Agencies of any repurchase or substitution made pursuant to this Section
3.4 or Section 2.4(b) hereof.
(e) Upon discovery by the Seller, the Servicer, the Trustee, the
Certificate Insurer or any Certificateholder that any Mortgage Loan does not
constitute a Qualified Mortgage, the party discovering such fact shall promptly
(and in any event within 5 days of the discovery) give written notice thereof to
the other parties and the Certificate Insurer. In connection therewith, the
Seller shall be required to repurchase or substitute a Qualified Substitute
Mortgage Loan for the affected Mortgage Loan within 60 days of the earlier of
such discovery by any of the foregoing parties, or the Trustee's or the Seller's
receipt of notice, in the same manner as it would a Mortgage Loan for a breach
of representation or warranty contained in Section 3.02 or 3.03 of the Sale and
Purchase Agreement. The Trustee shall reconvey to the Seller the Mortgage Loan
to be released pursuant hereto in the same manner, and on the same terms and
conditions, as it would a Mortgage Loan repurchased for breach of a
representation or warranty contained in Section 3.02 or 3.03 of the Sale and
Purchase Agreement.
Section 3.5 INDEMNIFICATION OF THE TRUST FUND BY THE INDEMNITORS. The
Indemnitors hereby agree to indemnify the Trust Fund for any losses incurred by
it on any Liquidated Loan which had a Combined Loan-to-Value Ratio at
origination of greater than 100%; PROVIDED THAT such indemnity is limited to the
dollar amount of the difference at origination between the aggregate principal
balance of such Liquidated Loan and its Appraised Value; PROVIDED FURTHER, that
such indemnity is a nonrecourse obligation of each Indemnitor limited to an
amount equal to the aggregate of amounts received by such Indemnitor pursuant to
Section 6.5(vi) through (ix) and the outstanding principal amount of any demand
notes contributed by the Seller to either Indemnitor, if any. Upon receipt of
such funds from the Indemnitors, the Trustee shall deposit such amount in the
Certificate Account for distribution to Certificateholders. "Indemnitors" means,
together, Preferred Mortgage SPC Funding Corp. II and Preferred Mortgage SPC
Funding Corp.
The Trustee, the Certificate Insurer and each Certificateholder, by
its acceptance of a Certificate agree (i) that they will not at any time
institute against any Indemnitor or join in any institution against any
Indemnitor of any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any United States Federal or
state bankruptcy or similar law, and (ii) the foregoing obligations of each
Indemnitor shall not constitute claims against such Indemnitor to the extent not
paid from amounts received by such Indemnitor or distributor on the Residual
Certificates, the Class B Certificates or any demand note contributed to such
Indemnitor.
Section 3.6 THIRD PARTY CLAIMS. The Trustee shall reimburse the Seller
from amounts otherwise distributable on the Residual Certificates for all
amounts advanced by the Seller pursuant to the second sentence of Section
4.04(a)(ii) of the Sale and Purchase Agreement except when the relevant claim
relates directly to the failure of the Seller to perform its duties in
compliance with the terms of the Sale and Purchase Agreement.
Section 3.7 INDEMNIFICATION OF CERTIFICATE ISSUER. By acceptance of
its Certificate, the Class RL Certificateholders agree to indemnify the
Certificate Insurer pursuant to Section 3.03 (f) of the Certificate Insurance
Agreement.
ARTICLE IV
THE CERTIFICATES
Section 4.1 THE CERTIFICATES. The Certificates shall be substantially
in the forms annexed hereto as Exhibit B-l-l, Exhibit B-1-2, Exhibit B-1-3,
Exhibit B-1-4, Exhibit B-1-5, Exhibit B-1-6, Exhibit B-2, Exhibit B-3, Exhibit
B-4 and Exhibit B-5. All Certificates shall be executed by manual or facsimile
signature on behalf of the Trustee by an authorized officer and authenticated by
the manual or facsimile signature of an authorized officer. Any Certificates
bearing the signatures of individuals who were at the time of the execution
thereof the authorized officers of the Trustee shall bind the Trustee,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the delivery of such Certificates or did not hold such offices
at the date of such Certificates. All Certificates issued hereunder shall be
dated the date of their authentication.
Section 4.2 REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES. (a)
The Trustee, as registrar, shall cause to be kept a register (the "Certificate
Register") in which, subject to such reasonable regulations as it may prescribe,
the Trustee shall provide for the registration of Certificates and the
registration of transfer of Certificates. The Trustee is hereby appointed
registrar for the purpose of registering and transferring Certificates, as
herein provided. The Certificate Insurer and the Servicer shall be entitled to
inspect and copy the Certificate Register and the records of the Trustee
relating to the Certificates during normal business hours upon reasonable
notice.
(b) All Certificates issued upon any registration of transfer or
exchange of Certificates shall be valid evidence of the same ownership interests
in the Trust Fund and entitled to the same benefits under this Agreement as the
Certificates surrendered upon such registration of transfer or exchange.
(c) Every Certificate presented or surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly executed by the
Holder or holder thereof or his attorney duly authorized in writing. Every Class
A Certificate issued in definitive form shall include a statement of insurance,
attached hereto as Exhibit A-2 provided by the Certificate Insurer.
(d) (i) No service charge shall be made to a Holder or holder for any
registration of transfer or exchange of Certificates, but the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Certificates.
(ii) It is intended that the Class A Certificates be registered so as
to participate in a global book-entry system with the Depository, as set forth
herein. The Class A Certificates shall, except as otherwise provided in the next
paragraph, be initially issued in the form of six fully registered Class A
Certificates with a denomination equal to the related Original Class A Principal
Balance. Upon initial issuance, the ownership of each such Class A Certificate
shall be registered in the Certificate Register in the name of Cede & Co., or
any successor thereto, as nominee for the Depository. The Depositor and the
Trustee are hereby authorized to execute and deliver the Representation Letter
with the Depository. With respect to Class A Certificates registered in the
Certificate Register in the name of Cede & Co., as nominee of the Depository,
the Depositor, the Seller, the Servicer, the Trustee and the Certificate Insurer
shall have no responsibility or obligation to Direct or Indirect Participants or
beneficial owners for which the Depository holds Class A Certificates from time
to time as a Depository. Without limiting the immediately preceding sentence,
the Depositor, the Seller, the Servicer, the Trustee and the Certificate Insurer
shall have no responsibility or obligation with respect to (i) the accuracy of
the records of the Depository, Cede & Co., or any Direct or Indirect Participant
with respect to any Ownership Interest, (ii) the delivery to any Direct or
Indirect Participant or any other Person, other than a Certificateholder, of any
notice with respect to the Class A Certificates or (iii) the payment to any
Direct or Indirect Participant or any other Person, other than a
Certificateholder, of any amount with respect to any distribution of principal
or interest on the Class A Certificates. No Person other than a
Certificateholder shall receive a certificate evidencing such Class A
Certificate. Upon delivery by the Depository to the Trustee of written notice to
the effect that the Depository has determined to substitute a new nominee in
place of Cede & Co., and subject to the provisions hereof with respect to the
payment of interest by the mailing of checks or drafts to the Certificateholders
appearing as Certificateholders at the close of business on a Record Date, the
name "Cede & Co." in this Agreement shall refer to such new nominee of the
Depository.
In the event that (x) the Depository or the Seller advises the Trustee
and the Certificate Insurer in writing that the Depository is no longer willing
or able to discharge properly its responsibilities as nominee and depository
with respect to the Class A Certificates and the Seller or the Depository is
unable to locate a qualified successor or (ii) the Trustee at its sole option
elects to terminate the book-entry system through the Depository, the Class A
Certificates shall no longer be restricted to being registered in the
Certificate Register in the name of Cede & co. (or a successor nominee) as
nominee of the Depository. At that time, the Seller may determine that the Class
A Certificates shall be registered in the name of and deposited with a successor
depository operating a global book-entry as may be acceptable to the Seller, or
such depository's agent or designee but, if the Seller does not select such
alternative global book-entry system, then the Class A Certificates may be
registered in whatever name or names Certificateholders transferring Class A
Certificates shall designate, in accordance with the provisions hereof.
Notwithstanding any other provision of this Agreement to the contrary,
so long as any Class A Certificate is registered in the name of Cede & Co., as
nominee of the Depository, all distributions of principal or interest on such
Class A Certificates as the case may be and all notices with respect to such
Class A Certificates as the case may be shall be made and given, respectively,
in the manner provided in the Representation Letter.
(e) Except as provided in Section 4.2(e)(ii), no transfer, sale,
pledge or other disposition of any Class B or Residual Certificate shall be made
unless such transfer, sale, pledge or other disposition is exempt from the
registration requirements of the Securities Act of 1933, as amended (the "Act"),
and any applicable state securities laws or is made in accordance with said Act
and laws. In the event that a transfer of a Class B or Residual Certificate is
to made under this Section 4.2(e)(i), (a) the Trustee shall require an Opinion
of Counsel acceptable to and in form and substance satisfactory to the Trustee
and the Depositor that such transfer shall be made pursuant to an exemption,
describing the application exemption and the basis therefor, from said Act and
laws or is being made pursuant to said Act and laws, which Opinion of Counsel
shall not be an expense of the Trustee, the Depositor or the Servicer, PROVIDED
THAT such Opinion of Counsel will not be required in connection with the initial
transfer of any such Certificate by the Depositor or any affiliate thereof, to a
non-affiliate of the Depositor and (b) the Trustee shall require the transferee
to execute a representation letter, substantially in the form of Exhibit H
hereto, and Trustee shall require the transferor to execute a representation
letter, substantially in the form of Exhibit I hereto, each acceptable to and in
form and substance satisfactory to the Depositor and the Trustee certifying to
the Depositor and the Trustee the facts surrounding such transfer, which
representation letters shall not be an expense of the Trustee, the Depositor or
the Servicer, PROVIDED THAT such representation letter will not be required in
connection with any transfer of any such Certificate by the Depositor to an
affiliate of the Depositor. Any such Certificateholder desiring to effect such
transfer shall, and does hereby agree to, indemnify the Trustee, the Depositor,
the Servicer and the Certificate Insurer against any liability that may result
if the transfer is not so exempt or is not made in accordance with such
applicable federal and state laws.
(ii) Transfers of Certificates may be made in accordance with Section
4.2(e)(ii) if the prospective transferee of a Certificate provides the Trustee
and the Depositor with an investment letter substantially in the form of Exhibit
J attached hereto, which investment letter shall not be an expense of the
Trustee, the Depositor or the Servicer, and which investment letter states that,
among other things, such transferee is a "qualified institutional buyer" as
defined under Rule 144A. Such transfers shall be deemed to have complied with
the requirements of Section 4.2(e)(i) hereof; PROVIDED, HOWEVER, that no
Transfer of any of the Certificates may be made pursuant to this Section
4.2(e)(ii) by the Depositor. Any such Certificateholder desiring to effect such
transfer shall, and does hereby agree to indemnify the Trustee, the Depositor,
the Servicer and the Certificate Insurer against any liability that may result
if the transfer is not so exempt or is not made in accordance with such
applicable federal and state laws.
(f) Each Person who has or who acquires any Ownership Interest in a
Residual Certificate shall be deemed by the acceptance or acquisition of such
Ownership Interest to have agreed to be bound by the following provisions and to
have irrevocably appointed the Trustee or its designee as its attorney-in-fact
to negotiate the terms of any mandatory sale under subclause (vii) below and to
execute all instruments of transfer and to do all other things necessary in
connection with any such sale, and the rights of each Person acquiring any
Ownership Interest in a Residual Certificate are expressly subject to the
following provisions:
(i) Each Person holding or acquiring any
Ownership Interest in a Residual Certificate shall be a
Permitted Transferee and shall promptly notify the Trustee of
any change or impending change in its status as either a
United States Person or a Permitted Transferee.
(ii) In connection with any proposed
Transfer of any Ownership Interest in a Residual Certificate,
the Trustee shall require delivery to it, and shall not
register the Transfer of any Residual Certificate until its
receipt of, an affidavit and agreement (a "Transfer Affidavit
and Agreement") attached hereto as Exhibit K from the proposed
Transferee, representing and warranting, among other things,
that such Transferee is a Permitted Transferee, that it is not
acquiring its Ownership Interest in the Residual Certificate
that is the subject of the proposed Transfer as a nominee,
trustee or agent for any Person that is not a Permitted
Transferee, that for so long as it retains its Ownership
Interest in a Residual Certificate, it will endeavor to remain
a Permitted Transferee, and that it has reviewed the
provisions of this Section 4.2(f) and agrees to be bound by
them.
(iii) Notwithstanding the delivery of a
Transfer Affidavit and Agreement by a proposed Transferee
under clause (ii) above, if a Responsible Officer of the
Trustee has actual knowledge that the proposed Transferee is
not a Permitted Transferee, no Transfer of an Ownership
Interest in a Residual Certificate to such proposed Transferee
shall be effected.
(iv) Each Person holding or acquiring any
Ownership Interest in a Residual Certificate shall agree (x)
to require a Transfer Affidavit and Agreement from any other
Person to whom such Person attempts to transfer its Ownership
Interest in a Residual Certificate and (y) not to transfer its
Ownership Interest unless it provides a certificate (attached
hereto as Exhibit L) to the Trustee stating that, among other
things, it has no actual knowledge that such other Person is
not a Permitted Transferee.
(v) Each Person holding or acquiring an
Ownership Interest in a Residual Certificate, by purchasing an
Ownership Interest in such Certificate, agrees to give the
Trustee written notice that it is a "pass-through interest
holder" within the meaning of temporary Treasury Regulation
Section 1.67-3T(a)(2)(i)(A) immediately upon acquiring an
Ownership Interest in a Residual Certificate, if it is, or is
holding an Ownership Interest in a Residual Certificate on
behalf of, a "pass-through interest holder."
(vi) The Trustee will register the Transfer
of any Residual Certificate only if it shall have received the
Transfer Affidavit and Agreement. In addition, no Transfer of
a Residual Certificate shall be made unless the Trustee shall
have received a representation letter from the Transferee of
such Certificate to the effect that such Transferee is a
Permitted Transferee and is not a "disqualified organization"
(as defined in Section 860E(e)(5) of the Code).
(vii) Any attempted or purported transfer of
any Ownership Interest in a Residual Certificate in violation
of the provisions of this Section 4.2 shall be absolutely null
and void and shall vest no rights in the purported transferee.
If any purported transferee shall become a Holder of a
Residual Certificate in violation of the provisions of this
Section 4.2, then the last preceding Permitted Transferee
shall be restored to all rights as Holder thereof retroactive
to the date of registration of transfer of such Residual
Certificate. The Trustee shall notify the Servicer upon
receipt of written notice or discovery by a Responsible
Officer that the registration of transfer of a Residual
Certificate was not in fact permitted by this Section 4.2.
Knowledge shall not be imputed to the Trustee with respect to
an impermissible transfer in the absence of such a written
notice or discovery by a Responsible Officer. The Trustee
shall be under no liability to any Person for any registration
of transfer of a Residual Certificate that is in fact not
permitted by this Section 4.2 or for making any payments due
on such Certificate to the Holder thereof or taking any other
action with respect to such Holder under the provisions of
this Agreement so long as the transfer was registered after
receipt of the related Transfer Affidavit and Transfer
Certificate. The Trustee shall be entitled, but not obligated
to recover from any Holder of a Residual Certificate that was
in fact not a Permitted Transferee at the time it became a
Holder or, at such subsequent time as it became other than a
Permitted Transferee, all payments made on such Residual
Certificate at and after either such time. Any such payments
so recovered by the Trustee shall be paid and
delivered by the Trustee to the last preceding Holder
of such Certificate.
(viii) If any purported transferee shall
become a Holder of a Residual Certificate in violation of the
restrictions in this Section 4.2, then the Trustee or its
designee shall have the right, without notice to the Holder or
any prior Holder of such Residual Certificate, to sell such
Residual Certificate to a purchaser selected by the Trustee or
its designee on such reasonable terms as the Trustee or its
designee may choose. Such purchaser may be the Trustee itself
or any Affiliate of the Trustee. The proceeds of such sale,
net of commissions, expenses and taxes due, if any, will be
remitted by the Trustee to the last preceding purported
transferee of such Residual Certificate, except that in the
event that the Trustee determines that the Holder or any prior
Holder of such Residual Certificate may be liable for any
amount due under this Section 4.2 or any other provision of
this Agreement, the Trustee may withhold a corresponding
amount from such remittance as security for such claim. The
terms and conditions of any sale under this subclause (viii)
shall be determined in the sole discretion of the Trustee or
its designee, and it shall not be liable to any Person having
an Ownership Interest in a Residual Certificate as a result of
its exercise of such discretion.
(g) The Trustee shall make available to the Internal Revenue Service
and those Persons specified by the REMIC Provisions, all information necessary
to compute any tax imposed (A) as a result of the transfer of an ownership
interest in a Residual Certificate to any Person who is a Disqualified
Organization, including the information regarding "excess inclusions" of such
Residual Certificates required to be provided to the Internal Revenue Service
and certain Persons as described in Treasury Regulations Sections 1.860D-l(b)(5)
and 1.860E-2(a)(5), and (B) as a result of any regulated investment company,
real estate investment trust, common trust fund, partnership, trust, estate or
organization described in Section 1381 of the Code holds an Ownership Interest
in a Residual Certificate having as among its record holders at any time any
Person who is a Disqualified Organization. The Trustee may charge and shall be
entitled to reasonable compensation for providing such information as may be
required from those Persons which may have had a tax imposed upon them as
specified in clauses (A) and (B) of this paragraph for providing such
information.
(h) The provisions of Section 4.2 may be modified, added to or
eliminated, PROVIDED THAT there shall have been delivered to the Trustee and the
Certificate Insurer an Opinion of Counsel to the effect that such modification
of, addition to or elimination of such provisions will not cause the Upper-Tier
REMIC or Lower-Tier REMIC to cease to qualify as a REMIC and will not cause (x)
the Upper-Tier REMIC or Lower-Tier REMIC to be subject to an entity-level tax
caused by the Transfer of any Ownership Interest in a Residual Certificate to a
Person that is not a Permitted Transferee or (y) a Person other than the
prospective transferee to be subject to a REMIC-related tax caused by the
Transfer of an Ownership Interest in a Residual Certificate to a Person that is
not a Permitted Transferee.
(i) No transfer of a Class B Certificate or a Residual Certificate or
any interest therein shall be made to any (a) employee benefit plans (as defined
in Section 3(3) of ERISA) subject to the provisions of Title I of ERISA, (b)
plans described in section 4975(e)(1) of the Code, including individual
retirement accounts or Keogh plans, (c) any entities whose underlying assets
include assets of a plan described in (a) or (b) above by reason of such a
plan's investment in such entities (each a "Plan"). Prior to the earlier of (i)
the date on which the Pre- Funding Period expires and (ii) the date on which the
U.S. Department of Labor amends Prohibited Transaction Class Exemption 90-32 to
permit the use thereunder of pre-funding accounts as described herein, no
transfer of a Class A Certificate shall be made to any Plan. The Trustee and the
Servicer shall require the prospective transferee of any Class B Certificate or
Residual Certificate to certify (in the form of Exhibit M-1 hereto) that it is
not a Plan. The Trustee and the Servicer shall require the prospective
transferee of any Class A Certificate (1) if such proposed transfer shall occur
during the period the proposed transfer of the Class A Certificates is not
permitted to be made to Plans (as described above), to certify (in the form of
Exhibit M-1 hereto) that it is not a Plan or (2) if such proposed transfer shall
occur after such period, to execute a certificate in the form of Exhibit M-2
hereto.
(j) Subject to the restrictions set forth in this Agreement, upon
surrender for registration of transfer of any Certificate at the office or
agency of the Trustee located in New York, New York, the Trustee shall execute,
authenticate and deliver in the name of the designated transferee or
transferees, a new Certificate of the same Class and evidencing the same
Percentage Interest, and in any other case, the equivalent undivided beneficial
ownership interest in the Trust Fund and dated the date of authentication by the
Trustee. At the option of the Certificateholders, Certificates may be exchanged
for other Certificates of Authorized Denominations of a like aggregate undivided
beneficial ownership interest, upon surrender of the Certificates to be
exchanged at such office. Whenever any Certificates are so surrendered for
exchange, the Trustee shall execute, authenticate and deliver the Certificates
which the Certificateholder making the exchange is entitled to receive. No
service charge shall be made for any transfer or exchange of Certificates, but
the Trustee may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer or
exchange of Certificates. All Certificates surrendered for transfer and exchange
shall be canceled by the Trustee.
Section 4.3 MUTILATED, DESTROYED; LOST OR STOLEN CERTIFICATES. If (a)
any mutilated Certificate is surrendered to the Trustee, or the Trustee receives
evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (b) there is delivered to the Certificate Insurer and the
Trustee such security or indemnity as may reasonably be required by each of them
to save each of them harmless, then, in the absence of notice to the Certificate
Insurer and the Trustee that such Certificate has been acquired by a bona fide
purchaser, the Trustee shall execute, authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like tenor and representing an equivalent beneficial ownership
interest, but bearing a number not contemporaneously outstanding. Upon the
issuance of any new Certificate under this Section 4.3, the Trustee may require
the payment by the transferee Certificateholder of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and
their fees and expenses connected therewith. Any duplicate Certificate issued
pursuant to this Section 4.3 shall constitute complete and indefeasible evidence
of ownership in the Trust Fund, as if originally issued, whether or not the
mutilated, destroyed, lost or stolen Certificate shall be found at any time.
Section 4.4 PERSONS DEEMED OWNERS. Prior to due presentation of a
Certificate for registration of transfer and subject to the provisions of
Section 4.2 and Article XI, the Servicer, the Depositor, the Seller, the
Certificate Insurer and the Trustee may treat the Person in whose name any
Certificate is registered as the owner of such Certificate for the purpose of
receiving remittances pursuant to Section 6.5 and for all other purposes
whatsoever, and the Servicer, the Depositor, the Seller, the Certificate Insurer
and the Trustee shall not be affected by notice to the contrary.
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<PAGE>
ARTICLE V
ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS
Section 5.1 APPOINTMENT OF THE SERVICER. (a) Advanta Mortgage Corp.
USA agrees to act as the Servicer and to perform all servicing duties under this
Agreement subject to the terms hereof.
(b) The Servicer shall service and administer the Mortgage Loans on
behalf of the Trustee and the Certificate Insurer and shall have full power and
authority, acting alone or through one or more Subservicers, to do any and all
things in connection with such servicing and administration which it may deem
necessary or desirable. Without limiting the generality of the foregoing, the
Servicer, in its own name or the name of a Subservicer, may, and is hereby
authorized and empowered by the Trustee to, execute and deliver, on behalf of
itself, the Certificateholders and the Trustee or any of them, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge and all other comparable instruments, with respect to the Mortgage
Loans, the insurance policies and accounts related thereto and the properties
subject to the Mortgages. Upon the execution and delivery of this Agreement, and
from time to time as may be required thereafter, the Trustee shall furnish the
Servicer or its Subservicers with any powers of attorney and such other
documents as may be necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties hereunder.
In servicing and administering the Mortgage Loans, the Servicer shall
employ procedures consistent with Accepted Servicing Practices and in a manner
consistent with recovery under any insurance policy required to be maintained by
the Servicer pursuant to this Agreement. The Servicer shall notify the
Certificate Insurer and the Seller of any material changes to its Accepted
Servicing Practices.
In servicing and administering the Mortgage Loans, the Servicer may,
in its sole discretion, and is hereby authorized to obtain and use consumer
reports, including but not limited to Credit Bureau Risk Scores, on behalf of
the Trust Fund for any lawful purpose, including but not limited to account
review and collection activities.
Costs incurred by the Servicer in effectuating the timely payment of
taxes and assessments on the property securing a Mortgage Note and foreclosure
costs may be added by the Servicer to the amount owing under such Mortgage Note
where the terms of such Mortgage Note so permit; PROVIDED, HOWEVER, that the
addition of any such cost shall not be taken into account for purposes of
calculating the principal amount of the Mortgage Note and the Mortgage Loan
secured by the Mortgage Note or distributions to be made to Certificateholders.
Such costs shall be recoverable by the Servicer pursuant to Section 5.9.
Notwithstanding any other provision of this Agreement, the Servicer shall at all
times service the Mortgage Loans in a manner consistent with the provisions of
this Section 5.1(b).
(c) Subject to Section 5. 11, the Servicer is hereby authorized and
empowered to execute and deliver on behalf of the Trustee and each
Certificateholder, all instruments of satisfaction or cancellation, or of
partial or full release, discharge and all other comparable instruments, with
respect to the Mortgage Loans and with respect to the Mortgaged Properties. If
reasonably required by the Servicer, the Trustee shall execute any powers of
attorney furnished to the Trustee by the Servicer and other documents necessary
or appropriate to enable the Servicer to carry out its servicing and
administrative duties under this Agreement.
(d) On and after such time as the Trustee receives the resignation of,
or notice of the removal of, the Servicer from its rights and obligations under
this Agreement, and with respect to resignation pursuant to Section 5.23, after
receipt by the Trustee and the Certificate Insurer of the Opinion of Counsel
required pursuant to Section 5.23, the Trustee or its designee approved by the
Certificate Insurer or other successor servicer approved by the Certificate
Insurer shall assume all of the rights and obligations of the Servicer, subject
to Section 7.2 hereof. The Servicer shall, upon request of the Trustee but at
the expense of the Servicer, deliver to the Trustee all documents and records
relating to the Mortgage Loans and an accounting of amounts collected and held
by the Servicer and otherwise use its best efforts to effect the orderly and
efficient transfer of servicing rights and obligations to the assuming party.
(e) The Servicer shall deliver a list of Servicing Officers to the
Trustee and the Certificate Insurer by the Closing Date, which list may, from
time to time, be amended, modified or supplemented by the subsequent delivery to
the Trustee and the Certificate Insurer of any superseding list of Servicing
Officers.
Section 5.2 SUBSERVICING AGREEMENTS BETWEEN THE SERVICER AND
SUBSERVICERS. (a) The Servicer may, subject to the prior written approval of the
Certificate Insurer, enter into Subservicing Agreements with Subservicers for
the performance of servicing and administration of the Mortgage Loans. Each
Subservicer shall be either (i) a depository institution the accounts of which
are insured by the FDIC or (ii) another entity that engages in the business of
originating, acquiring or servicing mortgage loans, and in either case shall be
authorized to transact business in the state or states where the related
Mortgaged Properties it is to service are situated. In addition, each
Subservicer will obtain and preserve its qualifications to do business as a
foreign corporation in each jurisdiction in which such qualification is or shall
be necessary to protect the validity and enforceability of this Agreement, the
Certificates and any of the Mortgage Loans and to perform or cause to be
performed its duties under the related Subservicing Agreement which shall
provide that the Subservicer's rights shall automatically terminate upon the
termination, resignation or other removal of the Servicer under this Agreement.
Each account used by any Subservicer for the deposit of payments on any of the
Mortgage Loans shall be an Eligible Account.
(b) Notwithstanding any Subservicing Agreement or arrangement with a
collection agency, any of the provisions of this Agreement relating to
agreements or arrangements between the Servicer and a Subservicer or any
collection agency or reference to actions taken through a Subservicer, a
collection agency or otherwise, the Servicer shall remain obligated and
primarily liable to the Trustee, the Certificate Insurer and the
Certificateholders for the servicing and administering of the Mortgage Loans in
accordance with the provisions of this Agreement without diminution of such
obligation or liability by virtue of such Subservicing Agreements or
arrangements with a Subservicer or any collection agency or by virtue of
indemnification from the Subservicer or any collection agency and to the same
extent and under the same terms and conditions as if the Servicer alone were
servicing and administering the Mortgage Loans. For purposes of this Agreement,
the Servicer shall be deemed to have received payments on Mortgage Loans when
the Subservicer or any collection agency, as the case may be, has received such
payments.
In the event the Servicer shall for any reason no longer be the
Servicer (including by reason of an Event of Default), the Trustee or its
designee may, with the prior written consent of the Certificate Insurer, or
shall, at the direction of the Certificate Insurer, either (i) assume all of the
rights and obligations of the Servicer under each Subservicing Agreement that
the Servicer may have entered into or (ii) notwithstanding anything to the
contrary contained in each such Subservicing Agreement, terminate the related
Subservicer without being required to pay any fee in connection therewith.
Section 5.3 COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS; COLLECTION
ACCOUNT. (a) The Servicer shall use its best efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans, and shall, to
the extent such procedures shall be consistent with this Agreement and any
applicable primary mortgage insurance policy, follow such collection procedures
as shall constitute Accepted Servicing Practices. The Servicer may utilize the
services of any collection agencies in connection with its collection efforts.
The costs of any such collection agency shall be a "Servicing Advance."
The Servicer shall establish and maintain in the name of the Trustee
the Collection Account (collectively, the "Collection Account"), in trust for
the benefit of the Holders of the Certificates and the Certificate Insurer. The
Servicer shall promptly provide notice to the Certificate Insurer, the Trustee
and each Rating Agency of any creation and establishment of a Collection Account
hereunder. The Collection Account shall be established and maintained as an
Eligible Account.
The Servicer shall deposit in the Collection Account any amounts
representing Monthly Payments on the Mortgage Loans due or to be applied as of a
date after the Cut-Off Date, and thereafter, on a daily basis within two
Business Days of receipt (except as otherwise permitted herein), the following
payments and collections received or made by it (other than in respect of
principal of and interest on the Mortgage Loans due on or before the Cut-Off
Date):
(i) all payments received after the Cut-Off Date on
account of principal on the Mortgage Loans and all Principal
Prepayments, Curtailments and all Net REO Proceeds collected
after the Cut-Off Date;
(ii) all payments received after the Cut-Off Date on
account of interest on the Mortgage Loans (other than payments
of interest that accrued on each Mortgage Loan up to and
including the Due Date immediately preceding the Cut-Off
Date);
(iii) all Net Liquidation Proceeds;
(iv) all Insurance Proceeds;
(v) all Released Mortgaged Property Proceeds;
(vi) any amounts payable in connection with the
repurchase of any Mortgage Loan and the amount of any
Substitution Adjustment pursuant to Sections 2.4 and
3.4 hereof;
(vii) any amount expressly required to be deposited
in the Collection Account in accordance with certain
provisions of this Agreement, including, without limitation
amounts in respect of the termination of the Trust Fund, and
amounts referenced in Sections 2.4(b), 3.4, 5.3, 5.6, and
6.6(d) of this Agreement; and
(viii) any deficiency judgments collected by
the Servicer;
PROVIDED, HOWEVER, that the Servicer shall be entitled, at its election to pay
to itself the applicable Servicing Fee. All other amounts shall be deposited in
the Collection Account not later than the second Business Day following the day
of receipt by the Servicer.
The Servicer may direct, in writing, the institution maintaining the
Collection Account to invest the funds in the Collection Account, only in
Permitted Investments. No Permitted Investment shall be sold or disposed of at a
gain prior to maturity unless the Servicer has obtained an Opinion of Counsel
delivered to the Trustee and the Certificate Insurer (at the Servicer's expense)
that such sale or disposition will not cause either the Upper-Tier REMIC or
Lower-Tier REMIC to be subject to the tax on income from prohibited transactions
imposed by Code Section 860F(a)(1), otherwise subject either Upper-Tier REMIC or
Lower-Tier REMIC to tax or cause the Trust Fund to fail to qualify as a REMIC.
All income (other than any gain from a sale or disposition of the type referred
to in the preceding sentence) realized from any such Permitted Investment shall
be for the benefit of the Servicer as additional servicing compensation. The
amount of any losses incurred in respect of any such investments shall be
deposited in the Collection Account by the Servicer out of its own funds
immediately as realized.
The foregoing requirements for deposit in the Collection Account shall
be exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, payments in the nature of those described in the
last paragraph of Section 5.13 and payments in the nature of prepayment charges,
late payment charges or assumption fees need not be deposited by the Servicer in
the Collection Account. Notwithstanding any provision herein to the contrary, if
the Servicer deposits in the Collection Account any amount not required to be
deposited therein, it may at any time withdraw such amount from the Collection
Account. All funds deposited by the Servicer in the Collection Account shall be
held therein for the account of the Trustee in trust for the Certificateholders
and the Certificate Insurer until disbursed in accordance with Section 6.1 or
withdrawn in accordance with Section 5.4.
(b) Prior to the time of their required deposit in the Collection
Account, all amounts required to be deposited therein may be deposited in an
account in the name of Servicer, PROVIDED THAT such account is an Eligible
Account. The Servicer hereby acknowledges all such related funds shall be held
in trust for the benefit of the Certificateholders and the Certificate Insurer
pursuant to the terms hereof.
(c) The Collection Account may, upon written notice by the Trustee to
the Certificate Insurer, be transferred by the Servicer to a different
depository so long as such transfer is to an Eligible Account.
Section 5.4 PERMITTED WITHDRAWALS FROM THE COLLECTION ACCOUNT. The
Servicer may, from time to time, make withdrawals from the Collection Account
for the following purposes, without duplication:
(a) to pay to itself from any funds in the Collection Account any
accrued and unpaid Servicing Fees and unreimbursed Delinquency Interest Advances
and Servicing Advances, PROVIDED, HOWEVER, that Servicing Advances may only be
reimbursed from late collections on the related Mortgage Loan, Insurance
Proceeds and Liquidation Proceeds;
(b) to reimburse itself for any Delinquency Interest Advances or
Servicing Advances determined in good faith to have become Nonrecoverable
Advances, such reimbursement to be made from any funds in the Collection
Account;
(c) to withdraw from the Collection Account any Preference Amount
received from a Mortgagor;
(d) to withdraw any funds deposited in the Collection Account that
were not required to be deposited therein;
(e) to withdraw from the Collection Account any funds needed to pay
itself Servicing Compensation pursuant to Section 5.13 hereof to the extent not
retained or paid pursuant to Section 5.3, 5.4 or 5.13;
(f) to withdraw from the Collection Account to pay to the Seller with
respect to each Mortgage Loan or property acquired in respect thereof that has
been repurchased or replaced pursuant to Section 2.4 or 3.4 or to pay to itself
with respect to each Mortgage Loan or property acquired in respect thereof that
has been purchased pursuant to Section 8.1, all amounts received thereon and not
required to be distributed as of the date on which the related repurchase or
purchase price or Principal Balance, as the case may be, was determined as a
result of such repurchase or replacement;
(g) to withdraw from the Collection Account to pay to the Seller with
respect to each Mortgage Loan any interest accrued and unpaid on such Mortgage
Loan prior to the Cut-Off Date, to the extent received;
(h) to transfer funds from the Collection Account necessary to make
deposits to the Certificate Account (which shall include the Trustee Fee) in the
amounts and in the manner provided for herein;
(i) to pay itself any interest earned on or investment income earned
with respect to funds in the Collection Account;
(j) to reimburse itself or the Depositor pursuant to 11. 1; and
(k) to clear and terminate the Collection Account upon the termination
of this Agreement.
Section 5.5 PAYMENT OF TAXES, INSURANCE AND OTHER CHARGES. With
respect to each Mortgage Loan as to which the Servicer maintains escrow
accounts, the Servicer shall maintain accurate records reflecting the status of
ground rents, taxes, assessments, water rates and other charges which are or may
become a lien upon the Mortgaged Property and the status of primary mortgage
guaranty insurance premiums, if any, and casualty insurance coverage and shall
obtain, from time to time, all bills for the payment of such charges (including
renewal premiums) and shall effect payment thereof prior to the applicable
penalty or termination date and at a time appropriate for securing maximum
discounts allowable, employing for such purpose deposits of the Mortgagor in any
escrow account which shall have been estimated and accumulated by the Servicer
in amounts sufficient for such purposes, as allowed under the terms of the
Mortgage. To the extent that a Mortgage does not provide for escrow payments,
the Servicer shall, if it has received notice of a default or deficiency,
monitor such payments to determine if they are made by the Mortgagor.
Section 5.6 MAINTENANCE OF CASUALTY INSURANCE. With respect to each
Mortgage Loan, the Servicer shall maintain accurate records reflecting casualty
insurance coverage. For each Mortgage Loan, the Servicer shall maintain or cause
to be maintained, to the extent required by the related Mortgage Loan to be
maintained by the Mortgagor, fire and casualty insurance with a standard
mortgagee clause and extended coverage in an amount which is not less than the
replacement value of the improvements securing such Mortgage Loan or the unpaid
principal balance of such Mortgage Loan, whichever is less. If, upon origination
of the Mortgage Loan, the Mortgaged Property was in an area identified in the
Federal Register by the Federal Emergency Management Agency as having special
flood hazards (and such flood insurance has been made available) the Servicer
will cause to be maintained, to the extent required by the related Mortgage Loan
to be maintained by the Mortgagor, a flood insurance policy meeting the
requirements of the current guidelines of the Federal Insurance Administration
with a generally acceptable insurance carrier, in an amount representing
coverage not less than the least of (i) the unpaid principal balance of the
Mortgage Loan, (ii) the full insurable value of the Mortgaged Property and (iii)
the maximum amount of insurance available under the Flood Disaster Protection
Act of 1973. With respect to each Mortgage Loan, the Servicer shall also
maintain fire insurance with extended coverage and, if applicable, flood
insurance on REO Property in an amount which is at least equal to the lesser of
(i) the maximum insurable value of the improvements which are a part of such
property and (ii) the principal balance owing on such Mortgage Loan at the time
of such foreclosure or grant of deed in lieu of foreclosure. It is understood
and agreed that such insurance shall be with insurers approved by the Servicer
and that no earthquake or other additional insurance is to be required of any
Mortgagor or to be maintained on property acquired in respect of a defaulted
loan, other than pursuant to such applicable laws and regulations as shall at
any time be in force and as shall require such additional insurance. Pursuant to
Section 5.3, any amounts collected by the Servicer under any insurance policies
maintained pursuant to this Section 5.6 (other than amounts to be applied to the
restoration or repair of the related Mortgaged Property or released to the
Mortgagor in accordance with Accepted Servicing Practices and applicable law)
shall be deposited into the Collection Account, subject to withdrawal pursuant
to Section 5.4. Any cost incurred by the Servicer in maintaining any such
insurance shall be added to the amount owing under the Mortgage Loan where the
terms of the Mortgage Loan so permit; PROVIDED, HOWEVER, that the addition of
any such cost shall not be taken into account for purposes of calculating the
principal amount of the Mortgage Note or the Mortgage Loan secured by the
Mortgage Note or the distributions to be made to the Certificateholders. Such
costs shall be recoverable by the Servicer pursuant to Section 5.4. In the event
that the Servicer shall obtain and maintain a blanket policy issued by an
insurer that is acceptable to FNMA or FHLMC, insuring against hazard losses on
all of the Mortgage Loans, it shall conclusively be deemed to have satisfied its
obligation as set forth in the second and third sentences of this Section 5.6,
it being understood and agreed that such policy may contain a deductible clause,
in which case the Servicer shall, in the event that there shall not have been
maintained on the related mortgaged or acquired property an insurance policy
complying with the second and third sentences of this Section 5.6 and there
shall have been a loss which would have been covered by such a policy had it
been maintained, be required to deposit from its own funds into the Collection
Account the amount not otherwise payable under the blanket policy because of
such deductible clause.
Section 5.7 SERVICER ACCOUNT. In addition to the Collection Account,
the Servicer shall be permitted to establish and maintain one or more Servicer
Accounts (collectively, the "Servicer Account"), which shall be an Eligible
Account, in which the Servicer may deposit all payments by, and collections
from, the Mortgagors received in connection with the Mortgage Loans prior to the
Servicer's deposit of all such funds required to be deposited into the
Collection Account. Withdrawals may be made out of such collections in the
Servicer Account to reimburse the Servicer for any required advances not
otherwise made from amounts on deposit in the Collection Account or for any
refunds made by the Servicer of any sums determined to be overages, or to pay
any interest owed to Mortgagors on such account to the extent required by law,
and in order to terminate and clear the Servicer Account upon the termination of
this Agreement upon the termination of the Trust Fund.
Section 5.8 FIDELITY BOND: ERRORS AND OMISSIONS POLICY. (a) The
Servicer shall maintain with a responsible company, and at its own expense, a
blanket fidelity bond (a "Fidelity Bond") and an errors and omissions insurance
policy (an "Errors and Omissions Policy"), in a minimum amount acceptable to
FNMA or otherwise in an amount as is commercially available at a cost that is
not generally regarded as excessive by industry standards, with broad coverage
on all officers, employees or other persons acting in any capacity requiring
such persons to handle funds, money, documents or papers relating to the
Mortgage Loans ("Servicer Employees"). Any such fidelity bond and errors and
omissions insurance shall protect and insure the Servicer against losses,
including losses resulting from forgery, theft, embezzlement, fraud, errors and
omissions and negligent acts of such Servicer Employees. Such fidelity bond
shall also protect and insure the Servicer against losses in connection with the
release or satisfaction of a Mortgage Loan without having obtained payment in
full of the indebtedness secured thereby. No provision of this Section 5.8
requiring such fidelity bond and errors and omissions insurance shall diminish
or relieve the Servicer from its duties and obligations as set forth in this
Agreement.
(b) The Servicer shall be deemed to have complied with this provision
if one of its respective Affiliates has such a Fidelity Bond and Errors and
Omissions Policy and, by the terms of such fidelity bond and errors and omission
policy, the coverage afforded thereunder extends to the Servicer and the
Servicer Employees. The Servicer shall cause each and every Subservicer for it
to maintain a policy of insurance covering errors and omissions and a fidelity
bond which would meet the requirements of Section 5.8(a) hereof.
Section 5.9 COLLECTION OF TAXES, ASSESSMENTS AND OTHER ITEMS. The
Servicer shall deposit all payments by Mortgagors for taxes, assessments,
primary mortgage or hazard insurance premiums or comparable items in the
Servicer Account. Withdrawals from the Servicer Account may be made to effect
payment of taxes, assessments, primary mortgage or hazard insurance premiums or
comparable items, to reimburse the Servicer out of related collections for any
advances made in the nature of any of the foregoing, to refund to any Mortgagors
any sums determined to be overages, or to pay any interest owed to Mortgagors on
such account to the extent required by law or to clear and terminate the
Servicer Account at the termination of this Agreement upon the termination of
the Trust Fund. The Servicer shall advance the payments referred to in the first
sentence of this Section 5.9 that are not timely paid by the Mortgagors on the
date when the tax, assessment, premium or other cost for which such payment is
intended is due, but the Servicer shall be required to so advance only to the
extent that such advances, in the good faith judgment of the Servicer, will be
recoverable by the Servicer pursuant to Section 5.4 out of Liquidation Proceeds,
Insurance Proceeds or otherwise.
Section 5.10 ENFORCEMENT OF DUE-ON-SALE CLAUSES; ASSUMPTION
AGREEMENTS. In any case in which a Mortgaged Property is about to be conveyed by
the Mortgagor (whether by absolute conveyance or by contract of sale, and
whether or not the Mortgagor remains liable thereon) and the Servicer has
knowledge of such prospective conveyance, the Servicer shall effect assumptions
in accordance with the terms of any due-on-sale provision contained in the
related Mortgage Note or Mortgage. The Servicer shall enforce any due-on-sale
provision contained in such Mortgage Note or Mortgage to the extent the
requirements thereunder for an assumption of the Mortgage Loan have not been
satisfied to the extent permitted under the terms of the related Mortgage Note,
unless such provision is not exercisable under applicable law and governmental
regulations or in the Servicer's judgment, such exercise is reasonably likely to
result in legal action by the Mortgagor, or such conveyance is in connection
with a permitted assumption of the related Mortgage Loan. Subject to the
foregoing, the Servicer is authorized to take or enter into an assumption
agreement from or with the Person to whom such property is about to be conveyed,
pursuant to which such person becomes liable under the related Mortgage Note
and, unless prohibited by applicable state law, the Mortgagor remains liable
thereon, PROVIDED THAT the Mortgage Interest Rate with respect to such Mortgage
Loan shall remain unchanged. The Servicer is also authorized to release the
original Mortgagor from liability upon the Mortgage Loan and substitute the new
Mortgagor as obligor thereon. In connection with such assumption or
substitution, the Servicer shall apply such underwriting standards and follow
such practices and procedures as shall be normal and usual for mortgage loans
similar to the Mortgage Loans and as it applies to mortgage loans owned solely
by it. The Servicer shall notify the Trustee that any such assumption or
substitution agreement has been completed by forwarding to the Trustee the
original copy of such assumption or substitution agreement, which copy shall be
added by the Trustee to the related Mortgage File and shall, for all purposes,
be considered a part of such Mortgage File to the same extent as all other
documents and instruments constituting a part thereof. In connection with any
such assumption or substitution agreement, the Mortgage Interest Rate of the
related Mortgage Note and the payment terms shall not be changed. Any fee
collected by the Servicer for entering into an assumption or substitution of
liability agreement will be retained by the Servicer as servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any conveyance by the
Mortgagor of the property subject to the Mortgage or any assumption of a
Mortgage Loan by operation of law which the Servicer in good faith determines it
may be restricted by law from preventing, for any reason whatsoever, or if the
exercise of such right would impair or threaten to impair any recovery under any
applicable insurance policy or, in the Servicer's judgment, be reasonably likely
to result in legal action by the Mortgagor.
Section 5.11 REALIZATION UPON DEFAULTED MORTGAGE LOANS. (a) In the
event that any payment due under any Mortgage Loan is not paid when the same
becomes due and payable, or in the event the Mortgagor fails to perform any
other covenant or obligation under the Mortgage Loan and such failure continues
beyond any applicable grace period, the Servicer shall take such action as it
shall deem to be in the best interest of the Certificateholders and the
Certificate Insurer. With respect to any Charged-off Loan as to which no
satisfactory arrangements can be made for collection of delinquent payments in
accordance with the provisions of Section 5.1, and in accordance with the
standard of care specified in Section 5. 1, in the event that in the Servicer's
reasonable judgment a foreclosure or the taking of title to a related Mortgaged
Property or pursuit of a deficiency judgment against the related borrower is
likely to result in a positive economic benefit to the Trust Fund by creating
Net Liquidation Proceeds, the Servicer shall foreclose upon or otherwise
comparably effect the ownership thereof in the name of Trustee for the benefit
of the Certificateholders and the Certificate Insurer or seek a deficiency
judgment. The Servicer shall give the Trustee and the Certificate Insurer notice
of the election of remedies made pursuant to this Section 5.11. In connection
with any foreclosure or seeking of deficiency judgment or other conversion, the
Servicer shall exercise collection and foreclosure procedures with the same
degree of care and skill as it customarily employs and exercises in collecting
and foreclosing on mortgage loans for its own account and in accordance with
accepted collection and foreclosure practices of prudent lending institutions
and servicers of loans similar to the Mortgage Loans and giving due
consideration to the Certificateholders' and the Certificate Insurer's reliance
on the Servicer. Any amounts advanced or expenses incurred in connection with
such foreclosure, deficiency judgment or other action shall constitute
"Servicing Advances". The foregoing is subject to the proviso that the Servicer
shall not expend its own funds in connection with any foreclosure or to restore
any damaged property unless it shall determine that (i) such foreclosure and/or
restoration will increase the proceeds of liquidation of the Mortgage Loan to
Certificateholders after reimbursement to itself for such expenses and (ii) such
expenses will be recoverable to it through Liquidation Proceeds (respecting
which it shall reimburse itself for such expense prior to the deposit in the
Collection Account of such proceeds). The Servicer shall be entitled to
reimbursement of the Servicing Fee and other amounts due it, if any, to the
extent, but only to the extent, that withdrawals from the Collection Account
with respect thereto are permitted under Section 5.4.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure (an "REO Property"), the deed or
certificate of sale shall be issued to the Trustee, or to the Servicer in the
name of the Trustee on behalf of the Trustee and the Certificateholders and the
Certificate Insurer. Notwithstanding any such acquisition of title and
cancellation of the related Mortgage Loan, such REO Mortgage Loan shall be
considered to be a Mortgage Loan held in the Trust Fund until such time as the
related Mortgaged Property shall be sold and such REO Mortgage Loan becomes a
Liquidated Loan. Consistent with the foregoing, for purposes of all calculations
hereunder, so long as such REO Mortgage Loan shall be considered to be an
Outstanding Mortgage Loan:
(i) It shall be assumed that, notwithstanding that
the indebtedness evidenced by the related Mortgage Note shall
have been discharged, such Mortgage Note and the related
amortization schedule in effect at the time of any such
acquisition of title (after giving effect to any previous
Curtailments and before any adjustment thereto by reason of
any bankruptcy or similar proceeding or any moratorium or
similar waiver or grace period) shall be assumed to remain in
effect, except that such schedule shall be adjusted to reflect
the application of Net REO Proceeds received in any month
pursuant to the succeeding clause.
(ii) Net REO Proceeds received in any month shall be
deemed to have been received first in payment of the accrued
interest that remained unpaid on the date that such Mortgage
Loan became an REO Mortgage Loan, with the excess thereof, if
any, being deemed to have been received in respect of the
delinquent principal installments that remained unpaid on such
date. Thereafter, Net REO Proceeds received in any month shall
be applied to the payment of installments of principal and
accrued interest on such Mortgage Loan deemed to be due and
payable in accordance with the terms of such Mortgage Note and
such amortization schedule. If such Net REO Proceeds exceed
the then Unpaid REO Amortization, the excess shall be treated
as a Curtailment received in respect of such Mortgage Loan.
In the event that the Trust Fund acquires any Mortgaged Property as
aforesaid or otherwise in connection with a default or imminent default on a
Mortgage Loan, such Mortgaged Property shall be disposed of by or on behalf of
the Trust Fund within two years after its acquisition thereby unless (a) the
Servicer shall have provided to the Trustee and the Certificate Insurer an
Opinion of Counsel (at the expense of the Trust Fund) to the effect that the
holding by the Trust Fund of such Mortgaged Property subsequent to two years
after its acquisition (and specifying the period beyond such two-year period for
which the Mortgaged Property may be held) will not cause either the Upper-Tier
REMIC or Lower-Tier REMIC to be subject to the tax on prohibited transactions
imposed by Code Section 860F(a)(1), otherwise subject either the Upper-Tier
REMIC or Lower-Tier REMIC to tax or cause either the Upper-Tier REMIC or
Lower-Tier REMIC to fail to qualify as a REMIC at any time that any Certificates
are outstanding, or (b) the Servicer or the Trustee (at the Trust Fund's
expense) shall have applied for, at least 60 days prior to the expiration of
such two-year period, an extension of such two-year period in the manner
contemplated by Code Section 856(e)(3), in which case the two-year period shall
be extended by the applicable period. The Servicer shall further ensure that the
Mortgaged Property is administered so that it constitutes "foreclosure property"
within the meaning of Code Section 860G(a)(8) at all times, that the sale of
such property does not result in the receipt by the Trust Fund of any income
from non-permitted assets as described in Code Section 860F(a)(2)(B), and that
the Trust Fund does not derive any "net income from foreclosure property" within
the meaning of Code Section 860G(c)(2) with respect to such property.
Any REO Disposition shall be for cash only (unless changes in the
REMIC Provisions made subsequent to the Startup Day allow for a sale for other
consideration).
In lieu of foreclosing upon any defaulted Mortgage Loan, the Servicer
may, in its discretion, permit the assumption of such Mortgage Loan if, in the
Servicer's judgment, such default is unlikely to be cured and if the assuming
borrower satisfies the Servicer's good faith underwriting guidelines with
respect to mortgage loans owned by the Servicer. In connection with any such
assumption, the Mortgage Interest Rate of the related Mortgage Note and the
payment terms shall not be changed. Any fee collected by the Servicer for
entering into an assumption agreement will be retained by the Servicer as
servicing compensation. Alternatively, the Servicer may encourage the
refinancing of any defaulted Mortgage Loan by the Mortgagor.
Notwithstanding the foregoing, prior to instituting foreclosure
proceedings or accepting a deed-in-lieu of foreclosure with respect to any
Mortgaged Property, the Servicer shall make, or cause to be made, inspection of
the Mortgaged Property in accordance with the Accepted Servicing Practices and,
with respect to environmental hazards, such procedures as are required by the
provisions of the FNMA's selling and servicing guide applicable to single-family
homes and in effect on the date hereof. The Servicer shall be entitled to rely
upon the results of any such inspection made by others. In cases where the
inspection reveals that such Mortgaged Property is potentially contaminated with
or affected by hazardous wastes or hazardous substances, the Servicer shall
promptly give written notice of such fact to the Certificate Insurer, the
Trustee and each Class A Certificateholder. The Servicer shall not proceed with
any foreclosure proceedings or accept a deed in lieu of foreclosure for such
Mortgaged Property without the prior written consent of the Certificate Insurer.
In addition to the foregoing, the holder of 50.01% Percentage Interest
or greater of the Class RL Certificates may purchase from the Trust Fund any
Charged-off Loan (or any Mortgage Loan which will imminently become a
Charged-off Loan) by depositing in the Certificate Account an amount equal to
the Loan Repurchase Price; PROVIDED, that such holder of the Class RL
Certificate may only make such repurchases if, following such repurchase, the
aggregate Loan Repurchase Price of all such repurchased Mortgage Loans does not
exceed 10% of the Maximum Collateral Amount.
(b) Upon becoming aware that a first lien mortgage loan relating to
any Mortgage Loan has come into default or of any action that the related
mortgagee has taken or may take in respect thereof, the Servicer shall,
consistent with the REMIC Provisions, take such actions as it shall deem
necessary or advisable, as shall be normal and usual in its general mortgage
servicing activities and as shall be required or permitted by Accepted Servicing
Practices. In taking such actions, the Servicer may advance such funds as are
necessary to cure such default, maintain such first lien mortgage loan relating
to any Mortgage Loan, acquire the related mortgagee's interest therein or redeem
the related Mortgaged Property. The Servicer, however, shall not be required to
expend its own funds in connection therewith unless it shall determine that such
expense will be recoverable to it. All such expenses shall be included as
Liquidation Expenses pursuant to the definition thereof, and shall be
reimbursable from the related Liquidation Proceeds in accordance with Section
5.4.
Section 5.12 TRUSTEE TO COOPERATE; RELEASE OF MORTGAGE FILES. (a) Upon
the payment in full of any Mortgage Loan, or the receipt by the Servicer of a
notification that payment in full will be escrowed in a manner customary for
such purposes, the Servicer shall (i) immediately deliver to the Trustee a
notice substantially in the form of the Request for Release of Documents
attached hereto as Exhibit G (which request shall include a statement to the
effect that all amounts received in connection with such payment which are
required to be deposited in the Collection Account pursuant to Section 5.3 have
been or shall be so deposited) and executed by a Servicing Officer and (ii)
request delivery to it of the Mortgage File. Upon receipt of such Request for
Release of Documents, the Trustee, or the Custodian on its behalf, shall
promptly release the related Mortgage File to the Servicer. Upon any such
payment in full, the Servicer is authorized to give, as agent for the Trustee
and the mortgagee under the Mortgage which secured the Mortgage Loan, an
instrument of satisfaction (or assignment of mortgage without recourse)
regarding the property subject to such Mortgage, which instrument of
satisfaction or assignment, as the case may be, shall be delivered to the Person
or Persons entitled thereto against receipt therefor of such payment, it being
understood and agreed that no expenses incurred in connection with such
instrument of satisfaction or assignment, as the case may be, shall be
chargeable to the Collection Account. In connection therewith, the Trustee shall
execute and return to the Servicer any required power of attorney provided to
the Trustee by the Servicer and other required documentation in accordance with
Section 5.1(b). From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan and in accordance with Accepted Servicing
Practices, the Trustee shall, upon request of the Servicer and delivery to the
Trustee of a Request for Release of Documents signed by a Servicing Officer,
release, or cause the Custodian to release, the related Mortgage File to the
Servicer and shall execute such documents as shall be necessary to the
prosecution of any such proceedings. Such Request for Release of Documents shall
obligate the Servicer to return the Mortgage File to the Trustee when the need
therefor by the Servicer no longer exists unless the Mortgage Loan shall be
liquidated, in which case, upon receipt of a certificate of a Servicing Officer
similar to the Request for Release of Documents or an additional Request for
Release of Documents hereinabove specified, the Mortgage File shall be delivered
by the Trustee to the Servicer.
(b) Each Request for Release of Documents may be delivered to the
Trustee (i) via mail or courier, (ii) via facsimile or (iii) by such other
means, including, without limitation, electronic or computer readable medium, as
the Servicer and the Trustee shall mutually agree. The Trustee shall promptly
release the related Mortgage File(s) within five (5) to seven (7) Business Days
of receipt of a properly completed Request for Release of Documents pursuant to
clauses (i), (ii) or (iii) above or such shorter period as may be agreed upon by
the Servicer and the Trustee. Receipt of a Request for Release of Documents
pursuant to clauses (i), (ii) or (iii) above shall be authorization to the
Trustee to release such Mortgage Files, provided the Trustee has determined that
such Request for Release of Documents has been executed, with respect to clauses
(i) or (ii) above, or approved, with respect to clause (iii) above, by a
Servicing Officer of the Servicer, and so long as the Trustee complies with its
duties and obligations under this Agreement. If the Trustee is unable to release
the Mortgage Files within the time frames previously specified, the Trustee
shall immediately notify the Servicer indicating the reason for such delay, but
in no event shall such notification be later than five Business Days after
receipt of a Request for Release of Documents. If the Servicer is required to
pay penalties or damages due solely to the Trustee's negligent failure to
release the related Mortgage File or the Trustee's negligent failure to execute
and release documents in a timely manner, the Trustee shall be liable for such
penalties or damages.
On each day that the Servicer remits to the Trustee Requests for
Release of Documents pursuant to clauses (ii) or (iii) above, the Servicer shall
also submit to the Trustee a summary of the total amount of such Request for
Release of Documents requested on such day by the same method as described in
such clauses (ii) or (iii) above.
Section 5.13 SERVICING FEE; SERVICING COMPENSATION. (a) The Servicer
shall be entitled, to pay itself the Servicing Fee pursuant to Section 5.3.
The aggregate Servicing Fee is reserved for the administration of the
Trust Fund and, in the event of replacement of the Servicer as servicer of the
Mortgage Loans, for the payment of other expenses related to such replacement.
The Trustee, in its capacity as successor servicer, shall not be liable for the
costs of replacement of a predecessor servicer, unless the Trustee is the
predecessor servicer.
The aggregate Servicing Fee shall be offset as provided in Section
5.19. The Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder (including maintenance of the
hazard insurance required by Section 5.5) and shall not be entitled to
reimbursement therefor except as specifically provided herein.
(b) Servicing compensation in the form of assumption fees, late
payment charges, tax service fees, fees for statement of account or payoff of
the Mortgage Loan (to the extent permitted by applicable law) or otherwise shall
be retained by the Servicer and are not required to be deposited in the
Collection Account.
Section 5.14 REPORTS TO THE TRUSTEE; COLLECTION ACCOUNT STATEMENTS.
Not later than 15 days after each Distribution Date, the Servicer shall provide
to the Trustee, the Certificate Insurer, the Underwriter and the Depositor a
statement, certified by a Servicing Officer, setting forth the status of the
Collection Account as of the close of business on the last day of the
immediately preceding calendar month, stating that all distributions required by
this Agreement to be made by the Servicer on behalf of the Trustee have been
made (or if any required distribution has not been made by the Servicer,
specifying the nature and status thereof) and showing, for the period covered by
such statement, the aggregate of deposits into and withdrawals from the
Collection Account for each category of deposit specified in Section 5.3 and
each category of withdrawal specified in Section 5.4 and the aggregate of
deposits into the Certificate Account specified in Section 6.1(c). Copies of
such statement shall be provided by the Trustee to any Certificateholder upon
request.
Section 5.15 ANNUAL STATEMENT AS TO COMPLIANCE. The Servicer will
deliver to the Trustee, the Certificate Insurer, the Underwriter, and each of
the Rating Agencies not later than the last day of the fifth month subsequent to
the end of the Servicer's fiscal year, beginning in 1998, an Officers'
Certificate stating as to each signer thereof, that (i) a review of the
activities of the Servicer during the preceding calendar year and of its
performance under this Agreement has been made under such officer's supervision,
and (ii) to the best of such officer's knowledge, based on such review, the
Servicer has fulfilled all its obligations under this Agreement throughout such
year, or if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof and (iii) the Servicer has in full force and effect a blanket fidelity
bond and an errors and omissions insurance policy in accordance with the terms
and requirements of Section 5.8 hereof. Such Officers' Certificate shall be
accompanied by the statement described in Section 5.16 of this Agreement. Copies
of such statement shall, upon request, be provided to any Certificateholder by
the Servicer, or by the Trustee at the Servicer's expense if the Servicer shall
fail to provide such copies.
Section 5.16 ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT.
Not later than the last day of the fifth month subsequent to the end of the
Servicer's fiscal year, beginning in 1998, the Servicer, at its expense, shall
cause a firm of nationally recognized independent public accountants to furnish
a statement to the Trustee, the Certificate Insurer, the Underwriter, each of
the Rating Agencies, each Certificateholder to the effect that, on the basis of
an examination of certain documents and records relating to the servicing of the
mortgage loans being serviced by the Servicer under pooling and servicing
agreements similar to this Agreement (which agreements shall be described in a
schedule to such statement), conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers, such firm is of the
opinion that such servicing has been conducted in compliance with this
Agreement. Copies of such statement shall, upon request, be provided to
Certificateholders by the Servicer, or by the Trustee at the Servicer's expense
if the Servicer shall fail to provide such copies. For purposes of such
statement, such firm may conclusively presume that any pooling and servicing
agreement which governs mortgage pass-through certificates offered by the
Depositor (or any predecessor or successor thereto) in a registration statement
under the Securities Act of 1933, as amended, is similar to this Agreement,
unless such other pooling and servicing agreement expressly states otherwise.
Section 5.17 [Reserved].
Section 5.18 REPORTS TO BE PROVIDED BY THE Servicer. The Servicer
agrees to make available on a reasonable basis to the Certificate Insurer a
knowledgeable financial or accounting officer for the purpose of answering
reasonable questions respecting recent developments affecting the Servicer or
the financial statements of the Servicer and to permit the Certificate Insurer
to inspect the Servicer's servicing facilities during normal business hours for
the purpose of satisfying the Certificate Insurer that the Servicer has the
ability to service the Mortgage Loans in accordance with this Agreement.
Section 5.19 ADJUSTMENT OF SERVICING COMPENSATION IN RESPECT OF
PREPAID MORTGAGE LOANS. The aggregate amount of the Servicing Fees that the
Servicer shall be entitled to receive with respect to all of the Mortgage Loans
and each Distribution Date shall be offset on such Distribution Date by an
amount equal to the aggregate Prepayment Interest Shortfall with respect to all
Mortgage Loans which were subjects of Principal Prepayments during the
Collection Period applicable to such Distribution Date. The amount of any offset
against the aggregate Servicing Fee with respect to any Distribution Date under
this Section 5.19 shall be limited to the aggregate amount of the Servicing Fees
otherwise payable to the Servicer and any Subservicer (without adjustment on
account of Prepayment Interest Shortfalls) with respect to (i) scheduled
payments having the Due Date occurring in Collection Period applicable to such
Distribution Date, and (ii) Principal Prepayments and Liquidation Proceeds
applicable to such Distribution Date, and the rights of the Certificateholders
to the offset of the aggregate Prepayment Interest Shortfalls shall not be
cumulative.
Section 5.20 DELINQUENCY INTEREST ADVANCES. By 3:00 p.m. New York time
on each Servicer Remittance Date, the Servicer shall make a Delinquency Interest
Advance with respect to delinquent interest on each Mortgage Loan which was a
Delinquent Mortgage Loan with respect to the related Collection Period by
depositing such Delinquency Interest Advance into the Certificate Account;
PROVIDED, HOWEVER, that the Servicer will not be required to make any
Delinquency Interest Advance if the Servicer has determined in accordance with
Accepted Servicing Practices that all amounts which it expects to receive with
respect to such Mortgage Loan have been received. Such deposit may be made in
whole or in part or in part from funds in the Collection Account being held for
future distribution or withdrawal on or in connection with Distribution Dates in
subsequent months. Any funds being held for future distribution to
Certificateholders and so used shall be replaced by Servicer from its own funds
by deposit in the Certificate Account on or before the Business Day preceding
any such future Servicer Remittance Date to the extent that funds in the
Certificate Account on such Servicer Remittance Date shall be less than payments
to Certificateholders required to be made on such date.
The Servicer shall be permitted to reimburse itself for any
Delinquency Interest Advance from any subsequent collections or Net Liquidation
Proceeds relating to such Mortgage Loan. If not theretofore recovered by the
Servicer, and the Servicer determines that any Delinquency Interest Advance was
a Nonrecoverable Advance, such Delinquency Interest Advance shall be recoverable
pursuant to Section 5.4 hereof.
Section 5.21 [RESERVED].
Section 5.22 MAINTENANCE OF CORPORATE EXISTENCE AND LICENSES; MERGER
OR CONSOLIDATION OF THE SERVICER. (a) The Servicer will keep in full effect its
existence, rights and franchises as a corporation, will obtain and preserve its
qualification to do business as a foreign corporation in each jurisdiction
necessary to protect the validity and enforceability of this Agreement or any of
the Mortgage Loans and to perform its duties under this Agreement and will
otherwise operate its business so as to cause the representations and warranties
under Section 3.1 to be true and correct at all times under this Agreement.
(b) Any Person into which the Servicer may be merged or consolidated,
or any corporation resulting from any merger, conversion or consolidation to
which the Servicer shall be a party, or any Person succeeding to the business of
the Servicer, shall be an established mortgage loan servicing institution
acceptable to the Certificate Insurer that has a net worth of at least
$15,000,000 and is a Permitted Transferee, and in all events shall be the
successor of the Servicer without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding. The Servicer shall send notice of any such merger or
consolidation to the Trustee and the Certificate Insurer.
Section 5.23 ASSIGNMENT OF AGREEMENT BY SERVICER; SERVICER NOT TO
RESIGN. The Servicer shall not assign this Agreement nor resign from the
obligations and duties hereby imposed on it except by mutual written consent of
the Servicer, the Seller, the Depositor, the Certificate Insurer and the Trustee
or upon the determination that the Servicer's duties hereunder are no longer
permissible under applicable law and that such incapacity cannot be cured by the
Servicer without the incurrence, in the reasonable judgment of the Certificate
Insurer, of unreasonable expense. Any such determination that the Servicer's
duties hereunder are no longer permissible under applicable law permitting the
resignation of the Servicer shall be evidenced by a written Opinion of Counsel
(who may be counsel for the Servicer) to such effect delivered to the Trustee,
the Seller, the Depositor and the Certificate Insurer. No such resignation shall
become effective until the Trustee or a successor appointed in accordance with
the terms of this Agreement has assumed the Servicer's responsibilities and
obligations hereunder in accordance with Section 7.2. The Servicer shall provide
the Trustee, each of the Rating Agencies and the Certificate Insurer with 30
days' prior written notice of its intention to resign pursuant to this Section
5.23.
Section 5.24 INFORMATION REPORTS TO BE FILED BY THE SERVICER. The
Servicer or Subservicers shall file information returns with respect to the
receipt of mortgage interest received in a trade or business, reports of
foreclosures and abandonments of any Mortgaged Property and cancellation of
indebtedness income with respect to any Mortgaged Property as required by
Sections 6050H, 6050J and 6050P of the Code, respectively.
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<PAGE>
ARTICLE Vl
DISTRIBUTIONS AND PAYMENTS
Section 6.1 ESTABLISHMENT OF CERTIFICATE ACCOUNT; DEPOSITS TO THE
CERTIFICATE ACCOUNT. (a) The Trustee shall establish and maintain the
Certificate Account which shall be titled "Certificate Account, Bankers Trust
Company, as trustee for the registered holders of Preferred Credit Asset-Backed
Certificates, Series 1997-1 and MBIA Insurance Corporation as Certificate
Insurer" and which shall be an Eligible Account. Notice of the establishment of
the Certificate Account shall be promptly provided in writing to each of the
Servicer, the Rating Agencies and the Certificate Insurer.
(b) Subject to Section 6.6 hereof, the Servicer may direct the Trustee
in writing to invest the funds in the Certificate Account only in Permitted
Investments which mature not later than the Business Day prior to the
Distribution Date. No Permitted Investment shall be sold or disposed of at a
gain prior to maturity unless the Servicer has delivered to the Trustee and the
Certificate Insurer an Opinion of Counsel (at the Servicer's expense) that such
sale or disposition will not cause the Lower-Tier REMIC or Upper-Tier REMIC to
be subject to the tax on income from prohibited transactions imposed by Code
Section 860F(a)(1), otherwise subject the Lower-Tier REMIC or Upper-Tier REMIC
to tax or cause the Lower-Tier REMIC or Upper-Tier REMIC to fail to qualify as a
REMIC. All income (other than any gain from a sale or disposition of the type
referred to in the preceding sentence) realized from any such Permitted
Investment shall be for the benefit of the Servicer as additional servicing
compensation. The amount of any losses incurred in respect of any such
investments shall be deposited in the Certificate Account by the Servicer out of
its own funds immediately as realized.
(c) on each Servicer Remittance Date, the Servicer shall cause to be
deposited in the Certificate Account, from related funds on deposit in the
Collection Account, an amount equal to the related Servicer Remittance Amount.
(d) The Trustee shall make deposits to the Certificate Account
pursuant to Section 6.11 and 6.12.
Section 6.2 PERMITTED WITHDRAWALS FROM THE CERTIFICATE ACCOUNT. The
Trustee shall, in accordance with the Servicer's written directions to the
Trustee as described in Section 6.5, withdraw or cause to be withdrawn funds
from the Certificate Account for the following purposes:
(i) to effect the distributions described in
Section 6.5;
(ii) to pay the Servicer any interest earned on
or investment income earned with respect to funds in
the Certificate Account;
(iii) to return to the Collection Account any
amount deposited in the Certificate Account that was
not required to be deposited therein;
(iv) to pay to itself the Trustee Fee in
accordance with Section 9.5; and
(v) to clear and terminate the Certificate
Account upon termination of the Trust Fund pursuant
to Article VIII.
The Trustee shall keep and maintain a separate accounting for
withdrawals from the Certificate Account pursuant to each of subclauses (i)
through (vi) listed above.
Section 6.3 COLLECTION OF MONEY. Except as otherwise expressly
provided herein, the Trustee may demand payment or delivery of all money and
other property payable to or receivable by the Trustee pursuant to this
Agreement, including, but not limited to, (a) all payments due on the Mortgage
Loans in accordance with the respective terms and conditions of such Mortgage
Loans and required to be paid over to the Trustee by the Servicer or by any
Subservicer and (b) Insured Payments. The Trustee shall hold all such money and
property received by it, as part of the Trust Fund and shall apply it as
provided in this Agreement.
Section 6.4 THE CERTIFICATE INSURANCE POLICY. (a) Subject to receipt
of the report referenced in Section 6.5, within three Business Days after each
Determination Date, the Trustee shall determine with respect to the immediately
following Distribution Date the amount to be on deposit in the Certificate
Account on such Distribution Date less the amounts described in clauses (i) and
(ii) of Section 6.5 for the related Distribution Date, and not including the
amount of any Insured Payment which is required to be deposited in the related
Certificate Account for such Distribution Date. The amounts described in the
preceding sentence with respect to each Distribution Date are the "Available
Funds" for such Distribution Date.
(b) If on any Distribution Date there is an Available Funds Shortfall,
the Trustee shall complete a Notice in the form of Exhibit A to the Certificate
Insurance Policy and submit such Notice to the Certificate Insurer no later than
12:00 noon New York City time on the third Business Day preceding such
Distribution Date as a claim for an Insured Payment in an amount equal to such
Available Funds Shortfall.
(c) The Trustee shall establish a separate Eligible Account for the
benefit of Holders of the Certificates and the Certificate Insurer referred to
herein as the "Certificate Insurance Payments Account" over which the Trustee
shall have exclusive control and sole right of withdrawal. The Trustee shall
deposit upon receipt any amount paid under the Certificate Insurance Policy in
the Certificate Insurance Payments Account and distribute such amount only for
purposes of payment to Certificateholders of the portion of the Insured
Distribution Amount for which a claim was made and such amount may not be
applied to satisfy any costs, expenses or liabilities of the Servicer, the
Trustee or the Trust Fund. Amounts paid under the Certificate Insurance Policy,
to the extent needed to pay the Insured Distribution Amount, shall be
transferred by the Trustee from the Certificate Insurance Payments Account to
the Certificate Account on the related Distribution Date and disbursed by the
Trustee to the Class A Certificateholders in accordance with Section 6.5. It
shall not be necessary for payments made under the Certificate Insurance Policy
to be made by checks or wire transfers separate from other amounts distributed
pursuant to Section 6.5. However, the amount of any payment of principal of or
interest on the Class A Certificates to be paid from funds transferred from the
Certificate Insurance Payments Account shall be noted as provided in paragraph
(d) below. Funds held in the Certificate Insurance Payments Account shall not be
invested. Any funds remaining in the Certificate Insurance Payments Account on
the first Business Day following a Distribution Date shall be returned to the
Certificate Insurer by the Trustee pursuant to the written instructions of the
Certificate Insurer by the end of such Business Day.
(d) The Trustee shall keep a complete and accurate record of the
amount of interest and principal paid in respect of any Class A Certificate from
moneys received under the Certificate Insurance Policy. The Certificate Insurer
shall have the right to inspect such records at reasonable times during normal
business hours upon one Business Day's prior notice to the Trustee.
(e) In the event that the Trustee has received a certified copy of an
order of the appropriate court that any amount distributed on the Class A
Certificates, including any amounts represented by an Insured Payment, has been
voided in whole or in part as a preference payment under applicable bankruptcy
law that constitutes a Preference Amount under the Certificate Insurance Policy,
the Trustee shall so notify the Certificate Insurer, shall comply with the
provisions of the Certificate Insurance Policy to obtain payment by the
Certificate Insurer of such voided amount distributed, and shall, at the time it
provides notice to the Certificate Insurer, notify, by mail to Class A
Certificateholders of the affected Class A Certificates that, in the event any
Class A Certificateholder's amount distributed is so recovered, such Class A
Certificateholder will be entitled to payment pursuant to the Certificate
Insurance Policy, a copy of which shall be made available through the Trustee,
the Certificate Insurer or the Certificate Insurer's Fiscal Agent, if any, and
the Trustee shall furnish to the Certificate Insurer or its Fiscal Agent, if
any, its records evidencing the payments which have been made by the Trustee and
subsequently recovered from Certificateholders, and dates on which such payments
were made.
(f) The Trustee shall promptly notify the Certificate Insurer of any
proceeding or the institution of any action, of which a Responsible Officer of
the Trustee has actual knowledge, seeking the avoidance as a preferential
transfer under applicable bankruptcy, insolvency, receivership or similar law (a
"Preference Claim") of any distribution made with respect to the Certificates.
Each Certificateholder, by its purchase of Certificates, the Seller, the
Depositor, the Servicer and the Trustee agree that, the Certificate Insurer (so
long as no Certificate Insurer Default exists) may at any time during the
continuation of any proceeding relating to a Preference Claim direct all matters
relating to such Preference Claim, including, without limitation, (i) the
direction of any appeal of any order relating to such Preference Claim and (ii)
the posting of any surety, supersedeas or performance bond pending any such
appeal. In addition and without limitation of the foregoing, the Certificate
Insurer shall be subrogated to, and each Certificateholder, the Servicer, the
Seller, the Depositor and the Trustee hereby delegate and assign to the
Certificate Insurer, to the fullest extent permitted by law, the rights of the
Servicer, the Trustee, the Depositor, the Seller and each Certificateholder in
the conduct of any such Preference Claim, including, without limitation, all
rights of any party to any adversary proceeding or action with respect to any
court order issued in connection with any such Preference Claim.
Section 6.5 DISTRIBUTIONS. No later than 12:00 noon California time on
the Business Day following the Determination Date, the Servicer shall deliver to
the Trustee and the Certificate Insurer a report in computer-readable form
(including electronic transmission) containing such information as to the
Mortgage Loans as of such date and such other information as the Trustee and the
Certificate Insurer may reasonably require. With respect to funds on deposit in
the Certificate Account (inclusive of amounts transferred from the Certificate
Insurance Payments Account, the Pre-Funding Account and the Capitalized Interest
Account), on each Distribution Date, the Trustee shall make the following
allocations, disbursements and transfers in the following order of priority, and
each such allocation, transfer and disbursement shall be treated as having
occurred only after all preceding allocations, transfers and disbursements have
occurred:
(i) to the Certificate Insurer, the Certificate
Insurance Policy Premium Amount;
(ii) to the Trustee, an amount equal to the Trustee
Fees then due to it;
(iii) to the Certificate Insurer, the lesser of (x) an amount
equal to (i) the Available Funds MINUS (ii) the Insured Distribution Amount for
such Distribution Date and (y) the outstanding Reimbursement Amount, if any, as
of such Distribution Date;
(iv) to each Class A Certificateholder, an amount
equal to the related Class A Interest Distribution Amount;
(v) to each of the Class A Certificateholders, an amount
equal to the lesser of (a) the related Class A Principal Distribution Amount and
(b) the amount remaining in the Certificate Account after distributions pursuant
to clauses (i) through (iiv) above, as follows:
(1) to the Class A-1 Certificateholders until
the Class A-1 Principal Balance has been reduced to
zero;
(2) to the Class A-2 Certificateholders until
the Class A-2 Principal Balance has been reduced to
zero;
(3) to the Class A-3 Certificateholders until
the Class A-3 Principal Balance has been reduced to
zero; and
(4) to the Class A-4 Certificateholders until
the Class A-4 Principal Balance has been reduced to
zero;
(5) to the Class A-5 Certificateholders until
the Class A-5 Principal Balance has been reduced to
zero; and
(6) to the Class A-6 Certificateholders until
the Class A-6 Principal Balance has been reduced to
zero;
(vi) to the Class B Certificateholders, the lesser of (a) the Class B
Accrued Interest and (b) the amount remaining in the Certificate Account after
distributions pursuant to clauses (i) through (v) above; however, any unpaid
Class B Accrued Interest for such Distribution Date shall be added to the Class
B Principal Balance.
(vii) to the Class B Certificateholders, an amount equal to the
Overcollateralization Reduction Amount, which shall be applied as a reduction of
the Class B Principal Balance;
(viii) to the Class B Certificateholders, on any Distribution Date an
amount equal to the lesser of (a) the Class B Accrued Interest and (b) the
amount remaining in the Certificate Account after distributions pursuant to
clauses (i) through (v) above.
(ix) to the Holders of the Class RU Certificates, the amount remaining
on such Distribution Date, if any;
PROVIDED, HOWEVER, that if, on any Distribution Date, (x) the Certificate
Insurer is then in default under the Certificate Insurance Policy relating to
the Mortgage Loans and (y) an Overcollateralization Deficit exists, then any
distribution of the Class A Principal Distribution Amount on such Distribution
Date shall be made PRO RATA to the holders of each of the Class A Certificates
until the Class A Principal Balance has been reduced to zero.
Notwithstanding clause (iv) above, the aggregate amounts distributed
on all Distribution Dates to the Holders of the Class A Certificates on account
of the related Class A Principal Distribution Amount shall not exceed the
related Original Class A Principal Balance.
Section 6.6 INVESTMENT OF ACCOUNTS. (a) So long as no Event of Default
shall have occurred and be continuing and consistent with any requirements of
the Code, all or a portion of any Account (other than the Certificate Insurance
Payments Account) held by the Trustee shall be invested and reinvested by the
Trustee, as directed in writing by the Servicer (with respect to the Collection
Account and the Certificate Account) or the Seller (with respect to the
Pre-Funding Account and the Capitalized Interest Account) in one or more
Permitted Investments bearing interest or sold at a discount. If an Event of
Default shall have occurred and be continuing or if the Servicer or the Seller
do not provide investment directions, the Trustee shall invest all Accounts in
Permitted Investments described in paragraph (d) of the definition of Permitted
Investments. No such investment in any Account shall mature later than the
Business Day immediately preceding the next Distribution Date (except that if
such Permitted Investment is an obligation of the Trustee, then such Permitted
Investment shall mature not later than such Distribution Date). Notwithstanding
anything to the contrary in this Section 6.6(a), all amounts received under the
Certificate Insurance Policy shall remain uninvested.
(b) If any amounts are needed for disbursements from any Account
(other than the Certificate Insurance Payments Account) held by the Trustee and
sufficient uninvested funds are not available to make such disbursement, the
Trustee shall cause to be sold or otherwise converted to cash a sufficient
amount of the investments in such Account. The Trustee shall not be liable for
any investment loss or other charge resulting therefrom unless the Trustee's
failure to perform in accordance with this Section 6.6 is the cause of such loss
or charge or the Trustee is the obligor of the related investment.
(c) Subject to Section 9.1 hereof, the Trustee shall not in any way be
held liable by reason of any insufficiency in any Account held by the Trustee
resulting from any investment loss on any Permitted Investment included therein
(except as provided in subsection (b) of this Section 6.6).
(d) So long as no Event of Default shall have occurred and be
continuing, all net income and gain realized from investment of, and all
earnings on, funds deposited in the Collection Account shall be for the benefit
of the Servicer as servicing compensation (in addition to the Servicing Fee).
The Servicer shall deposit in the Collection Account and the Certificate Account
and the Seller shall deposit in the Pre-Funding Account and the Capitalized
Interest Account, the amount of any loss incurred in respect of any Permitted
Investment held therein which is in excess of the income and gain thereon
immediately upon realization of such loss, without any right to reimbursement
therefor from its own funds.
Section 6.7 REPORTS BY TRUSTEE. (a) on each Distribution Date the
Trustee shall, based on a report delivered to it by the Servicer on the
Determination Date, as described in Section 6.5 hereof, provide to each Holder,
to the Certificate Insurer, to the Depositor, to the Servicer, to the
Underwriter, to S&P and to Moody's a written report (the "Trustee Remittance
Report"), setting forth information, including, without limitation, the
following information:
(i) the amount of the distributions made on such
Distribution Date with respect to the Class A
Certificates, the Class B Certificates and any
Residual Certificates;
(ii) the amount of such distributions allocable to
principal, separately identifying the aggregate amount of any
Prepayments, Curtailments, any Pre-Funded Amounts distributed
as a prepayment or other unscheduled recoveries of principal
included therein;
(iii) the amount of such distributions
allocable to interest and the calculation thereof;
(iv) the amount of any Net Liquidation Proceeds
and Net REO Proceeds included in such distributions
and the calculation thereof;
(v) the principal amount of the related Class A
Certificates (based on a Certificate in an original principal
amount of $1,000) then outstanding in each case after giving
effect to any principal payments made on such Distribution
Date;
(vi) the principal amount of the related Class B
Certificates (based on a Certificate in an original principal
amount of $1,000) then outstanding in each case after giving
effect to any principal payments made on such Distribution
Date;
(vii) the amount of any Insured Payment
included in the amounts distributed to the Class A
Certificateholders on such Distribution Date, together
with any Reimbursement Amount paid to the Certificate
Insurer;
(viii) the Required Overcollateralization
Level and the Overcollateralization Amount as of
such Distribution Date;
(ix) the total of any Substitution Adjustments
and any Loan Repurchase Price amounts included in
such distribution;
(x) the amounts, if any, of any Realized Losses
for the related Collection Period; and
(xi) for Distribution Dates during the
Pre-Funding Period, the remaining Pre-Funded Amount.
Items (i), (ii) and (iii) above shall, with respect to the Class A Certificates
and the Class B Certificates, be presented on the basis of a Certificate having
a $1,000 denomination. In addition, by January 31 of each calendar year
following any year during which the Certificates are outstanding, the Trustee
shall furnish a report to the Certificate Insurer and to each Holder of record
if so requested in writing at any time during each calendar year as to the
aggregate of amounts reported pursuant to (i), (ii) and (iii) with respect to
the Certificates for such calendar year.
(b) The Trustee shall, on behalf of the Trust, cause to be filed with
the Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder. Upon
the request of the Trustee, each of the Depositor and the Servicer shall
cooperate with the Trustee in the preparation of any such report and shall
provide to the Trustee in a timely manner all such information or documentation
as the Trustee may reasonably request in connection with the performance of its
duties and obligations under this Section 6.7(b).
(c) All distributions made to the Certificateholders according to
Class or type of Certificate on each Distribution Date will be made on a pro
rata basis among the Certificateholders as of the next preceding Record Date
based on the Percentage Interest represented by their respective Certificates,
and shall be made by wire transfer of immediately available funds to the account
of such Certificateholder at a bank or other entity having appropriate
facilities therefor, if, in the case of a Class A Certificateholder, such
Certificateholder shall own of record Class A Certificates having an aggregate
initial Class A Principal Balance of at least $5,000,000 appearing in the
Certificate Register and shall have provided complete wiring instructions at
least five Business Days prior to the Record Date, and otherwise by check mailed
to the address of such Certificateholder appearing in the Certificate Register.
(d) In addition, on each Distribution Date the Trustee will distribute
to each Holder, to the Certificate Insurer, to the Underwriter, to the
Depositor, to each of the Rating Agencies, together with the information
described in subsection (a) preceding, the following information with respect to
the Mortgage Loans as of the close of business on the last Business Day of the
prior Collection Period (except as otherwise provided in clause (v) below),
which is hereby required to be prepared by the Servicer and furnished to the
Trustee for such purpose on or prior to the related Servicer Remittance Date:
(i) the total number of Mortgage Loans and the
aggregate Principal Balances thereof, together with the
number, aggregate Principal Balances of such Mortgage Loans
and the percentage of the aggregate Principal Balances of such
Mortgage Loans to the aggregate Principal Balance of all
Mortgage Loans (A) 30-59 days Delinquent, (B) 60-89 days
Delinquent and (C) 90 or more days Delinquent;
(ii) the number, aggregate Principal Balances of all
Mortgage Loans and percentage of the aggregate Principal
Balances of such Mortgage Loans to the aggregate Principal
Balance of all Mortgage Loans in foreclosure proceedings and
the number, aggregate Principal Balances of all Mortgage Loans
and percentage of any such Mortgage Loans that are also
included in any of the statistics described in the foregoing
clause (i);
(iii) (a) the number, aggregate Principal Balances of
all Mortgage Loans and percentage of the aggregate Principal
Balances of such Mortgage Loans to the aggregate Principal
Balance of all Mortgage Loans relating to Mortgagors in
bankruptcy proceedings and (b) the number, aggregate Principal
Balances of all Mortgage Loans and percentage of any such
Mortgage Loans that are also included in any of the statistics
described in the foregoing clause (i);
(iv) the number, aggregate Principal Balances of all
Mortgage Loans and percentage of the aggregate Principal
Balances of such Mortgage Loans to the aggregate Principal
Balance of all REO Mortgage Loans and the number, aggregate
Principal Balances of all Mortgage Loans and percentage of any
such Mortgage Loans that are also included in any of the
statistics described in the foregoing clause (i);
(v) the weighted average Mortgage Interest Rate and
the Net Mortgage Interest Rate as of the Due Date occurring in
the Collection Period related to such Distribution Date;
(vi) the weighted average remaining term to
stated maturity of all Mortgage Loans; and
(vii) the book value of any REO Property.
Section 6.8 ADDITIONAL REPORTS BY TRUSTEE. (a) The Trustee shall
report to the Depositor, the Servicer and the Certificate Insurer with respect
to the amount then held in each Account (including investment earnings accrued
or scheduled to accrue) held by the Trustee and the identity of the investments
included therein, as the Depositor, the Servicer or the Certificate Insurer may
from time to time request in writing.
(b) From time to time, at the request of the Certificate Insurer, the
Trustee shall report to the Certificate Insurer with respect to its actual
knowledge, without independent investigation, of any breach of any of the
representations or warranties relating to individual Mortgage Loans set forth in
Section 3.2 or 3.3 hereof.
Section 6.9 COMPENSATING INTEREST. By 3:00 p.m. New York time on each
Servicer Remittance Date, the Servicer or any Subservicer shall remit to the
Trustee (without right of reimbursement therefor) for deposit into the
Certificate Account an amount equal to the lesser of (a) the aggregate of the
Prepayment Interest Shortfalls for the related Distribution Date resulting from
Principal Prepayments during the related Collection Period and (b) its aggregate
Servicing Fees received in the related Collection Period (the "Compensating
Interest").
Section 6.10 EFFECT OF PAYMENTS BY THE CERTIFICATE INSURER;
SUBROGATION. Anything herein to the contrary notwithstanding, any payment with
respect to principal of or interest on the Certificates which is made with
moneys received pursuant to the terms of the Certificate Insurance Policy shall
not be considered payment of the Certificates from the Trust Fund. The
Depositor, the Servicer and the Trustee acknowledge, and each Holder by its
acceptance of a Certificate agrees, that without the need for any further action
on the part of the Certificate Insurer, the Depositor, the Servicer, the Trustee
or the Certificate Registrar (i) to the extent the Certificate Insurer makes
payments, directly or indirectly, on account of principal of or interest on the
Certificates to the Holders of such Certificates, the Certificate Insurer will
be fully subrogated to, and each Certificateholder, the Depositor, the Servicer
and the Trustee hereby delegate and assign to the Certificate Insurer, to the
fullest extent permitted by law, the rights of such Holders to receive such
principal and interest from the Trust Fund, including, without limitation, any
amounts due to the Certificateholders in respect of securities law violations
arising from the offer and sale of the Certificates, and (ii) the Certificate
Insurer shall be paid such amounts but only from the sources and in the manner
provided herein for the payment of such amounts. The Depositor, the Seller and
Trustee and the Servicer shall cooperate in all respects with any reasonable
request by the Certificate Insurer for action to preserve or enforce the
Certificate Insurer's rights or interests under this Agreement without limiting
the rights or affecting the interests of the Holders as otherwise set forth
herein.
Section 6.11 PRE-FUNDING ACCOUNT.
(a) No later than the Closing Date, the Trustee shall establish and
maintain with itself one or more segregated trust accounts that are Eligible
Accounts, which shall be titled "Pre-Funding Account, Bankers Trust Company, as
trustee for the registered holders of Preferred Credit Asset--Backed
Certificates, Series 1997-1 and MBIA Insurance Corporation, as Certificate
Insurer" (the "Pre-Funding Account"). On the Closing Date, the Trustee shall
from the proceeds of the sale of the Class A Certificates deposit in the
Pre-Funding Account and retain therein the Original Pre-Funded Amount. Funds
deposited in the Pre-Funding Account shall be held in trust by the Trustee for
the Holders of the Certificates and the Certificate Insurer for the uses and
purposes set forth herein. For federal income tax purposes, the Depositor shall
be the owner of the Pre-Funding Account and shall report all items of income,
deduction, gain or loss arising therefrom. All income and gain realized from
investment of funds deposited in the Pre-Funding Account shall be transferred to
the Capitalized Interest Account on the Business Day immediately preceding each
Distribution Date.
(b) Amounts on deposit in the Pre-Funding Account shall be withdrawn
by the Trustee as follows:
(i) On any Subsequent Transfer Date, the Trustee,
upon written direction from the Depositor, shall withdraw from
the Pre-Funding Account and pay to the Depositor an amount
equal to 97% of the Principal Balances of the Subsequent
Mortgage Loans transferred and assigned to the Trustee on such
Subsequent Transfer Date upon satisfaction of the conditions
set forth in Sections 2.3 and 2.9(b) above with respect to
such transfer and assignment; and
(ii) if the Pre-Funded Amount has not been reduced to
zero during the Pre-Funding Period, or if the Pre-Funded
Amount has been reduced to $50,000 or less on the immediately
succeeding Determination Date, the Trustee shall deposit into
the Certificate Account any amounts remaining in the
Pre-Funding Account.
Section 6.12 CAPITALIZED INTEREST ACCOUNTS.
(a) No later than the Closing Date, the Trustee shall establish and
maintain with itself a separate, aggregated trust account, which shall be an
Eligible Account, titled "Capitalized Interest Account, Bankers Trust Company,
as trustee for the registered holders of Preferred Credit Asset--Backed
Certificates, Series 1997-1 and MBIA Insurance Corporation, as Certificate
Insurer" (the "Capitalized Interest Account"). On the Closing Date, the Trustee
shall from proceeds of the sale of the Class A Certificates deposit in the
Capitalized Interest Account and retain therein the Capitalized Interest Amount.
In addition, the Trustee shall deposit into the Capitalized Interest Account all
income and gain on investments in the Pre-Funding Account pursuant to Section
6.11. Funds deposited in the Capitalized Interest Account shall be held in trust
by the Trustee for the Holders of the Certificates and the Certificate Insurer
for the uses and purposes set forth herein. For federal income tax purposes, the
Depositor shall be the owner of the Capitalized Interest Account and shall
report all items of income, deduction, gain or loss arising therefrom. The
Depositor shall deposit in the Capitalized Interest Account the amount of any
net loss incurred in respect of any such Permitted Investment immediately upon
realization of such loss, without any right of reimbursement.
(b) On each of the first three Distribution Dates, the Trustee shall
withdraw from the Capitalized Interest Account and deposit in the Certificate
Account the related Capitalized Interest Addition.
(c) On each Determination Date following the conveyance of a
Subsequent Mortgage Loan to the Trustee, funds on deposit in the Capitalized
Interest Account in an amount equal to the product of (i) the Principal Balance
of such Subsequent Mortgage Loan and (ii) the weighted average of the Class A-1
Pass-Through Rate, the Class A-2 Pass-Through Rate, the Class A-3 Pass-Through
Rate, the Class A-4 Pass-Through Rate, the Class A-5 Pass-Through Rate and the
Class A-6 Pass-Through Rate, and (iii) a fraction, the numerator of which is the
number of days from the Subsequent Cut-Off Date to June 1, 1997 and the
denominator of which is 360, shall be remitted immediately to the Depositor.
(d) Upon the earliest of (i) termination of the Trust Fund in
accordance with Section 8.1 or (ii) the first Remittance Day following the end
of the Pre-Funding Period, any amount remaining on deposit in the Capitalized
Interest Account after distributions pursuant to Section 6.12(b) above shall be
withdrawn by the Trustee and paid to the Depositor.
ARTICLE VII
DEFAULT
Section 7.1 EVENTS OF DEFAULT. (a) In case one or more of the
following Events of Default by the Servicer shall occur and be continuing, that
is to say:
(i) any failure by the Servicer to remit to the
Trustee any payment, other than a Servicing Advance, required
to be made by the Servicer under the terms of this Agreement
which continues unremedied for two days after the date upon
which such payment was required to be made;
(ii) the failure by the Servicer to make any required
Servicing Advance which failure continues unremedied for a
period of 30 days after the date on which written notice of
such failure, requiring the same to be remedied, shall have
been given to the Servicer by the Trustee or to the Servicer
and the Trustee by any Certificateholder or the Certificate
Insurer;
(iii) any failure on the part of the Servicer duly to
observe or perform in any material respect any other of the
covenants or agreements on the part of the Servicer contained
in this Agreement or in the Certificate Insurance Agreement,
or the failure of any representation and warranty made
pursuant to Section 3.1 to be true and correct which continues
unremedied for a period of 30 days (or 15 days in the case of
a failure to pay the premium for any insurance policy which is
required to be maintained under this Agreement) after the date
on which written notice of such failure, requiring the same to
be remedied, shall have been given to the Servicer, as the
case may be, by the Depositor or the Trustee or to the
Servicer and the Trustee by any Certificateholder or the
Certificate Insurer;
(iv) a decree or order of a court or agency or
supervisory authority having jurisdiction in an involuntary
case under any present or future federal or state bankruptcy,
insolvency or similar law or for the appointment of a
conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of
its affairs, shall have been entered against the Servicer and
such decree or order shall have remained in force,
undischarged or unstayed for a period of 60 days;
(v) the Servicer shall consent to the appointment of
a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Servicer or of or
relating to all or substantially all of the Servicer's
property;
(vi) the Servicer shall admit in writing its
inability to pay its debts as they become due, file a petition
to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of
its creditors, or voluntarily suspend payment of its
obligations; or
(vii) a Servicer Trigger Event that the
Certificate Insurer declares is an Event of Default.
(b) If an Event of Default described in this Section shall occur,
then, and in each and every such case, so long as such Event of Default shall
not have been remedied or waived pursuant to Section 7.3: (1) with respect
solely to clause (i) above, if such payment is not made on the second day after
the date upon which such payment was required to be made, the Trustee shall give
immediate telephonic notice of such failure to a Responsible Officer of the
Servicer and to the Certificate Insurer and the Trustee shall terminate all of
the rights and obligations of the Servicer under this Agreement and the Trustee,
or a successor Servicer appointed in accordance with Section 7.2, shall
immediately make such payment and assume, pursuant to Section 7.2, the duties of
a successor Servicer and (2) with respect to clauses (ii), (iii), (iv), (v),
(vi) and (vii) above, the Trustee shall, but only at the direction of the
Certificate Insurer or the Majority Certificateholders and with the prior
written consent of the Certificate Insurer, by notice in writing to the Servicer
and a Responsible Officer of the Trustee, and in addition to whatever rights
such Certificateholders may have at law or equity to damages, including
injunctive relief and specific performance, terminate all the rights and
obligations of the Servicer under this Agreement and in and to the Mortgage
Loans and the proceeds thereof, as servicer.
Upon receipt by the Servicer of such written notice, all authority and
power of the Servicer under this Agreement, whether with respect to the Mortgage
Loans or otherwise, shall, subject to Section 7.2, pass to and be vested in the
Trustee or its designee approved by the Certificate Insurer and the Trustee is
hereby authorized and empowered to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, at the expense of the Servicer, any
and all documents and other instruments and do or cause to be done all other
acts or things necessary or appropriate to effect the purposes of such notice of
termination, including, but not limited to, the transfer and endorsement or
assignment of the Mortgage Loans and related documents. The Servicer agrees to
cooperate (and pay any related costs and expenses) with the Trustee in effecting
the termination of the Servicer's responsibilities and rights hereunder,
including, without limitation, the transfer to the Trustee or its designee for
administration by it of all amounts which shall at the time be credited by the
Servicer to the Collection Account or the Servicer Account or thereafter
received with respect to the Mortgage Loans. The Trustee shall promptly notify
the Certificate Insurer, each Certificateholder and each of the Rating Agencies
of the occurrence of an Event of Default.
(c) Upon the occurrence of a Servicer Trigger Event, the Certificate
Insurer may require that an audit of the Servicer's servicing practices be
performed, at the expense of the Seller, by a Person selected by the Certificate
Insurer. The Servicer shall promptly provide the Certificate Insurer the written
results of such audit. If, upon being furnished with the results of such audit,
the Certificate Insurer reasonably concludes that the Servicer's servicing
practices have not been in compliance with the Accepted Servicing Practices, and
the Servicer cannot cure such audit discrepancies within 30 days of the delivery
of such audit to the Certificate Insurer and the Servicer, the Certificate
Insurer may declare an Event of Default and may remove the Servicer by giving
written notice of such determination to the Seller, the Servicer and the
Trustee.
As used above, "SERVICER TRIGGER EVENT" means (a) prior to the
Distribution Date in March, 2002, Total Expected Losses exceed 7.75 % of the
Maximum Collateral Amount or (b) on and after the Distribution Date in March,
2002, Total Expected Losses exceed 12.00 % of the Maximum Collateral Amount.
Section 7.2 TRUSTEE TO ACT; APPOINTMENT OF Successor. (a) On and after
the time the Servicer receives a notice of termination pursuant to Section 7.1,
or the Trustee receives the resignation of the Servicer evidenced by an Opinion
of Counsel pursuant to Section 5.23, or the Servicer is removed as Servicer
pursuant to Article VII, in which event the Trustee shall promptly notify the
Certificate Insurer and each of the Rating Agencies, except as otherwise
provided in Section 7.1, the Trustee shall be the successor in all respects to
the Servicer in its capacity as servicer under this Agreement and the
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof arising on or after the date of succession;
PROVIDED, HOWEVER, that the Trustee shall not be liable for any actions or the
representations and warranties of any servicer prior to it and including,
without limitation, the obligations of the Servicer set forth in Section 3.4.
The Trustee, as successor servicer, or any other successor servicer shall be
obligated to pay Compensating Interest pursuant to Section 6.9 hereof; the
Trustee, as successor servicer shall be obligated to make advances pursuant to
Section 5.20 unless, and only to the extent the Trustee, as successor servicer
or any other successor servicer determines reasonably and in good faith that
such advances would not be recoverable, such determination to be evidenced by a
certification of a Responsible Officer of the Trustee, as successor servicer or
any other successor servicer delivered to the Certificate Insurer.
(b) Notwithstanding the above, the Trustee may, if it shall be
unwilling to so act, or shall, if it is unable to so act or if the Majority
Certificateholders with the consent of the Certificate Insurer or the
Certificate Insurer so requests in writing to the Trustee, appoint, pursuant to
the provisions set forth in paragraph (c) below, or petition a court of
competent jurisdiction to appoint, any established mortgage loan servicing
institution acceptable to the Certificate Insurer that has a net worth of not
less than $15,000,000 as the successor to the Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Servicer hereunder.
(c) In the event the Trustee is the successor servicer, it shall be
entitled to the Servicing Compensation and other funds pursuant to Section 5.13
hereof as the Servicer if the Servicer had continued to act as servicer
hereunder. In the event the Trustee is unable or unwilling to act as successor
servicer, the Trustee shall solicit, by public announcement, bids from housing
and home finance institutions, banks and mortgage servicing institutions meeting
the qualifications set forth above. Such public announcement shall specify that
the successor servicer shall be entitled to the full amount of the aggregate
Servicing Fees hereunder as servicing compensation, together with the other
Servicing Compensation. Within thirty days after any such public announcement,
the Trustee shall negotiate and effect the sale, transfer and assignment of the
servicing rights and responsibilities hereunder to the qualifying party
submitting the highest qualifying bid. The Trustee shall deduct from any sum
received by the Trustee from the successor to the Servicer in respect of such
sale, transfer and assignment all costs and expenses of any public announcement
and of any sale, transfer and assignment of the servicing rights and
responsibilities hereunder and the amount of any unreimbursed Servicing Advances
and Delinquency Interest Advances owed to the Trustee. After such deductions,
the remainder of such sum shall be paid by the Trustee to the Servicer at the
time of such sale, transfer and assignment to the Servicer's successor.
(d) The Trustee and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession.
The Servicer agrees to cooperate with the Trustee and any successor servicer in
effecting the termination of the Servicer's servicing responsibilities and
rights hereunder and shall promptly provide the Trustee or such successor
servicer, as applicable, at the Servicer's cost and expense, all documents and
records reasonably requested by it to enable it to assume the Servicer's
functions hereunder and shall promptly also transfer to the Trustee or such
successor servicer, as applicable, all amounts that then have been or should
have been deposited in the Collection Account by the Servicer or that are
thereafter received with respect to the Mortgage Loans. Any collections received
by the Servicer after such removal or resignation shall be held by the Servicer
in trust for the benefit of the Certificateholders and the Certificate Insurer
and shall be endorsed by it to the Trustee and remitted directly to the Trustee
or, at the direction of the Trustee, to the successor servicer. Neither the
Trustee nor any other successor servicer shall be held liable by reason of any
failure to make, or any delay in making, any distribution hereunder or any
portion thereof caused by (i) the failure of the Servicer to deliver, or any
delay in delivering, cash, documents or records to it, or (ii) restrictions
imposed by any regulatory authority having jurisdiction over the Servicer
hereunder. No appointment of a successor to the Servicer hereunder shall be
effective until the Trustee and the Certificate Insurer shall have consented
thereto, and written notice of such proposed appointment shall have been
provided by the Trustee to the Certificate Insurer and to each
Certificateholder. The Trustee shall not resign as servicer until a successor
servicer reasonably acceptable to the Certificate Insurer has been appointed and
has assumed the Servicer's responsibilities and obligations hereunder.
(e) Pending appointment of a successor to the Servicer hereunder, the
Trustee shall act in such capacity as herein above provided. In connection with
such appointment and assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on Mortgage Loans as it and such
successor shall agree; PROVIDED, HOWEVER, that no such compensation shall be in
excess of that permitted the Servicer pursuant to Section 5.13, together with
other Servicing Compensation. The Servicer, the Trustee and such successor shall
take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
Section 7.3 WAIVER OF DEFAULTS. The Certificate Insurer or the
Majority Certificateholders may, on behalf of all Certificateholders, and
subject to the consent of the Certificate Insurer, waive any events permitting
removal of the Servicer as servicer pursuant to this Article VII; PROVIDED,
HOWEVER, that the Majority Certificateholders may not waive a default in making
a required distribution on a Certificate without the consent of the holder of
such Certificate. Upon any waiver of a past default, such default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereto except to the
extent expressly so waived. Notice of any such waiver shall be given by the
Trustee to each of the Rating Agencies.
Section 7.4 MORTGAGE LOANS, TRUST FUND AND ACCOUNTS HELD FOR BENEFIT
OF THE CERTIFICATE INSURER. (a) The Trustee shall hold the Trust Fund and the
Mortgage Files for the benefit of the Certificateholders and the Certificate
Insurer and all references in this Agreement and in the Certificates to the
benefit of Holders of the Certificates shall be deemed to include the
Certificate Insurer. The Trustee shall cooperate in all reasonable respects with
any reasonable request by the Certificate Insurer for action to preserve or
enforce the Certificate Insurer's rights or interests under this Agreement and
the Certificates unless, as stated in an Opinion of Counsel addressed to the
Trustee and the Certificate Insurer, such action is adverse to the interests of
the Certificateholders or diminishes the rights of the Certificateholders or
imposes additional burdens or restrictions on the Certificateholders.
(b) The Servicer hereby acknowledges and agrees that it shall service
the Mortgage Loans for the benefit of the Certificateholders and for the benefit
of the Certificate Insurer, and all references in this Agreement to the benefit
of or actions on behalf of the Certificateholders shall be deemed to include the
Certificate Insurer.
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<PAGE>
ARTICLE VIII
TERMINATION
Section 8.1 TERMINATION. (a) Subject to Section 8.2, this Agreement
shall terminate upon notice to the Trustee and the Certificate Insurer of
either: (i) the later of the distribution to Certificateholders of the final
payment or collection with respect to the last Mortgage Loan (or Delinquency
Interest Advances of same by the Servicer), or the disposition of all funds with
respect to the last Mortgage Loan and the remittance of all funds due hereunder
and the payment of all amounts due and payable to the Certificate Insurer and
the Trustee or (ii) mutual consent of the Servicer, the Certificate Insurer and
all Certificateholders in writing; PROVIDED, HOWEVER, that in no event shall the
Trust Fund established by this Agreement terminate later than twenty-one years
after the death of the last survivor of the descendants of John D. Rockefeller,
alive as of the date hereof.
(b) In addition, subject to Section 8.2, the holder of a 50.01%
Percentage Interest or greater of the Class RL Certificates or the Servicer (or
the Certificate Insurer, if the Servicer fails to exercise such option) may, at
its option and at its sole cost and expense, terminate this Agreement on any
date on which the related Pool Principal Balance is less than 10% of the Maximum
Collateral Amount (if the holders of the Class RL Certificates exercise this
option) or is less than 5% of the Maximum Collateral Amount (if the Servicer or
the Certificate Insurer exercises this option), by purchasing, on the next
succeeding Distribution Date, all of the outstanding Mortgage Loans and REO
Properties at a price equal to the sum of (i) the greater of (x) 100% of the
aggregate Principal Balance of each Outstanding Mortgage Loan and each REO
Property and (y) the fair market value (disregarding accrued interest) of the
Mortgage Loans and REO Properties, determined as the average of three written
bids (copies of which are to be delivered to the Trustee and the Certificate
Insurer by the Servicer and the reasonable cost of which may be deducted from
the final purchase price PROVIDED THAT such deduction will not cause a draw on
the Certificate Insurance Policy) made by nationally recognized dealers
acceptable to the Certificate Insurer and based on a valuation process which
would be used to value comparable mortgage loans and REO property, (ii) the
greater of (x) the aggregate amount of accrued and unpaid interest on the
Mortgage Loans through the related Collection Period and (y) 30 days' accrued
interest thereon at a rate equal to the Mortgage Interest Rate, (iii) and in the
event the Holders of the Residual Certificates or the Certificate Insurer
exercises such option, plus any unpaid and accrued Servicing Fees or in the
event the Servicer exercises such option, net of the Servicing Fee, and (iv) any
unreimbursed amounts due to the Servicer hereunder and the Certificate Insurer
hereunder or under the Certificate Insurance Agreement (the "Termination
Price"). Any such purchase shall be accomplished by deposit into the Certificate
Account of the Termination Price. No such termination is permitted without the
prior written consent of the Certificate Insurer (i) if it would result in a
draw on the Certificate Insurance Policy and (ii) unless the Servicer shall have
delivered to the Certificate Insurer an Opinion of Counsel reasonably
satisfactory to the Certificate Insurer stating that no amounts paid hereunder
are subject to recapture as preferential transfers under the United States
Bankruptcy Code, 11 U.S.C. ss. ss. 101 ET SEQ., as amended.
(c) If on any Distribution Date, the Servicer determines that there
are no Outstanding Mortgage Loans and no other funds or assets in the Trust Fund
other than funds in the Certificate Account, the Servicer shall send a final
distribution notice promptly to the Certificate Insurer and to each such
Certificateholder in accordance with paragraph (d) below.
(d) Notice of any termination, specifying the Distribution Date upon
which the Trust Fund will terminate and the Certificateholders shall surrender
their Certificates to the Trustee for payment of the final distribution and
cancellation, shall be given promptly by the Servicer by letter to the
Certificate Insurer and to each of the Certificateholders identified to the
Servicer by the Trustee as the Certificateholders of record as of the most
recent Record Date, and shall be mailed during the month of such final
distribution before the Servicer Distribution Date in such month, specifying (i)
the Distribution Date upon which final payment of the Certificates will be made
upon presentation and surrender of Certificates at the office of the Trustee
therein designated, (ii) the amount of any such final payment and (iii) that the
Record Date otherwise applicable to such Distribution Date is not applicable,
payments being made only upon presentation and surrender of the Certificates at
the office of the Trustee therein specified. The Servicer shall give such notice
to the Trustee therein specified. The Servicer shall give such notice to the
Trustee at the time such notice is given to Certificateholders. The rights of
the Certificate Insurer hereunder shall terminate (i) upon the deposit by the
Servicer with the Trustee of a sum sufficient to purchase all of the Mortgage
Loans and REO Properties as set forth above and when the Class A Principal
Balance has been reduced to zero and (ii) when the Certificate Insurer has
received all amounts owing to it hereunder and under the Certificate Insurance
Agreement.
(e) In the event that all of the Certificateholders shall not
surrender their Certificates for cancellation within six months after the time
specified in the above-mentioned written notice, the Trustee shall give a second
written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within six months after the second notice, all of the Certificates
shall not have been surrendered for cancellation, the Trustee may take
appropriate steps, or may appoint an agent to take appropriate steps, to contact
the remaining Certificateholders concerning surrender of their Certificates and
the cost thereof shall be paid out of the funds and other assets which remain
subject hereto. If within nine months after the second notice all the
Certificates shall not have been surrendered for cancellation, the Residual
Certificateholders shall be entitled to all unclaimed funds and other assets
which remain subject hereto and the Trustee upon transfer of such funds shall be
discharged of any responsibility for such funds and the Certificateholders shall
look only to the Residual Certificateholders for payment. Such funds shall
remain uninvested.
Section 8.2 ADDITIONAL TERMINATION REQUIREMENTS. (a) In the event that
the Class RL Certificateholders, the Servicer or the Certificate Insurer (any of
which, an "Exercising Party") exercises its purchase option as provided in
Section 8.1, the Trust Fund shall be terminated in accordance with the following
additional requirements, unless the Trustee and the Certificate Insurer have
been furnished with an Opinion of Counsel to the effect that the failure of the
Trust Fund to comply with the requirements of this Section 8.2 will not (i)
result in the imposition of taxes on "prohibited transactions" of the Upper-Tier
REMIC or Lower-Tier REMIC as defined in Section 860F of the Code or (ii) cause
the Upper-Tier REMIC or Lower- Tier REMIC to fail to qualify as a REMIC at any
time that any Class A Certificates are outstanding:
(i) within 90 days prior to the final Distribution
Date the Trustee shall adopt and the Trustee shall sign, a
plan of complete liquidation of each of the Upper-Tier REMIC
or Lower-Tier REMIC meeting the requirements of a "Qualified
Liquidation" under Section 860F of the Code and any
regulations thereunder;
(ii) at or after the time of adoption of such a plan
of complete liquidation, which plan shall include a
description of the method for such liquidation and the price
to be conveyed for all of the assets of the Trust Fund at the
time of such liquidation, and at or prior to the final
Distribution Date, the Trustee shall sell all of the assets of
the Trust Fund to the Exercising Party for cash; and
(iii) at the time of the making of the final payment
on the Certificates, the Trustee shall distribute or credit,
or cause to be distributed or credited (A) to the Class A
Certificateholders, the Class A Principal Balance, plus one
month's interest thereon at the Class A Pass-Through Rate, (B)
to the Certificate Insurer, all amounts due to it hereunder
and under the Certificate Insurance Agreement, (C) to the
Class B Certificateholders, any Class B Principal Balance then
remaining unpaid, and (D) to the Class RL and Class RU
Certificateholders, respectively, all of the Lower-Tier
REMIC's and the Upper-Tier REMIC's respective cash on hand
after such payment to the Class A and Class B
Certificateholders and the Certificate Insurer, and the Trust
Fund shall terminate at such time.
(b) By their acceptance of the Certificates, the Holders thereof
hereby agree to appoint the Trustee as their attorney-in-fact to: (i) adopt such
a plan of complete liquidation (and the Certificateholders hereby appoint the
Trustee as their attorney-in-fact to sign such plan) as appropriate or upon the
written request of the Certificate Insurer and (ii) to take such other action in
connection therewith as may be reasonably required to carry out such plan of
complete liquidation all in accordance with the terms hereof.
Section 8.3 ACCOUNTING UPON TERMINATION OF Servicer. Upon termination
of the Servicer, the Servicer shall, at its expense:
(a) deliver to its successor or, if none shall yet have been
appointed, to the Trustee, the funds in any Account;
(b) deliver to its successor or, if none shall yet have been
appointed, to the Trustee all Mortgage Files and related documents and
statements held by it hereunder and a Mortgage Loan portfolio computer tape;
(c) deliver to its successor or, if none shall yet have been
appointed, to the Trustee, the Certificate Insurer and, upon request, to the
Certificateholders a full accounting of all funds, including a statement showing
the Monthly Payments collected by it and a statement of monies held in trust by
it for the payments or charges with respect to the Mortgage Loans; and
(d) execute and deliver such instruments and perform all acts
reasonably requested in order to effect the orderly and efficient transfer of
servicing of the Mortgage Loans to its successor and to more fully and
definitively vest in such successor all rights, powers, duties,
responsibilities, obligations and liabilities of the "Servicer" under this
Agreement.
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ARTICLE IX
THE TRUSTEE
Section 9.1 DUTIES OF TRUSTEE. (a) The Trustee, prior to the
occurrence of an Event of Default and after the curing of all Events of Default
which may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement. If an Event of Default has
occurred and has not been cured or waived, the Trustee shall exercise such of
the rights and power vested in it by this Agreement, and use the same degree of
care and skill in its exercise as a prudent person would exercise or use under
the circumstances in the conduct of such person's own affairs.
(b) The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform on their face to the requirements of this Agreement; PROVIDED, HOWEVER,
that the Trustee shall not be responsible for the accuracy or content of any
resolution, certificate, statement, opinion, report, document, order or other
instrument furnished by the Servicer or the Seller hereunder. If any such
instrument is found not to conform on its face to the requirements of this
Agreement, the Trustee shall take action as it deems appropriate to have the
instrument corrected and, if the instrument is not corrected to the Trustee's
satisfaction, the Trustee will, at the expense of the Servicer, notify the
Certificate Insurer and request written instructions as to the action it deems
appropriate to have the instrument corrected, and if the instrument is not so
corrected, the Trustee will provide notice thereof to the Certificate Insurer
who shall then direct the Trustee as to the action, if any, to be taken.
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct; PROVIDED, HOWEVER, that:
(i) Prior to the occurrence of an Event of Default,
and after the curing of all such Events of Default which may
have occurred, the duties and obligations of the Trustee shall
be determined solely by the express provisions of this
Agreement, the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically
set forth in this Agreement, no implied covenants or
obligations shall be read into this Agreement against the
Trustee and, in the absence of bad faith on the part of the
Trustee, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Agreement;
(ii) The Trustee shall not be personally liable
for an error of judgment made in good faith by a
Responsible Officer or other officers of the Trustee,
unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts;
(iii) The Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken
by it in good faith in accordance with the direction of the
Certificate Insurer or with the consent of the Certificate
Insurer, the Class A Certificateholders holding Class A
Certificates evidencing Percentage Interests of at least 25%,
relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee,
under this Agreement;
(iv) The Trustee shall not be required to take notice
or be deemed to have notice or knowledge of any default or
Event of Default (except an Event of Default with respect to
the nonpayment of any amount described in Section 7.1(a)),
unless a Responsible Officer of the Trustee shall have
received written notice thereof. In the absence of receipt of
such notice, the Trustee may conclusively assume that there is
no default or Event of Default (except a failure to make a
Delinquency Interest Advance);
(v) The Trustee shall not be required to expend or
risk its own funds or otherwise incur financial liability for
the performance of any of its duties hereunder or the exercise
of any of its rights or powers if there is reasonable ground
for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably
assured to it and none of the provisions contained in this
Agreement shall in any event require the Trustee to perform,
or be responsible for the manner of performance of, any of the
obligations of the Servicer under this Agreement except during
such time, if any, as the Trustee shall be the successor to,
and be vested with the rights, duties powers and privileges
of, the Servicer in accordance with the terms of this
Agreement; and
(vi) Subject to the other provisions of this
Agreement and without limiting the generality of this Section,
the Trustee shall have no duty (A) to see to any recording,
filing, or depositing of this Agreement or any agreement
referred to herein or any financing statement or continuation
statement evidencing a security interest, or to see to the
maintenance of any such recording or filing or depositing or
to any rerecording, refiling or redepositing of any thereof,
(B) to see to any insurance, (C) to see to the payment or
discharge of any tax, assessment, or other governmental charge
or any lien or encumbrance of any kind owing with respect to,
assessed or levied against, any part of the Trust, the Trust
Fund, the Certificateholders or the Mortgage Loans, (D) to
confirm or verify the contents of any reports or certificates
of the Servicer delivered to the Trustee pursuant to this
Agreement believed by the Trustee to be genuine and to have
been signed or presented by the proper party or parties.
Section 9.2 CERTAIN MATTERS AFFECTING THE TRUSTEE. (a) Except as
otherwise provided in Section 9.1:
(i) the Trustee may rely and shall be protected
in acting or refraining from acting upon any
resolution, Officers' Certificate, Opinion of Counsel,
certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order,
appraisal, bond or other paper or document believed by it to
be genuine and to have been signed or presented by the proper
party or parties;
(ii) the Trustee may consult with counsel and any
Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken or suffered or
omitted by it hereunder in good faith and in accordance with
such opinion of counsel;
(iii) the Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by this
Agreement or to institute, conduct or defend by litigation
hereunder or in relation hereto at the request, or direction
of the Certificate Insurer or any of the Certificateholders,
pursuant to the provisions of this Agreement, unless such
Certificateholders or the Certificate Insurer, as
applicable, shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby; nothing
contained herein shall, however, relieve the Trustee of the
obligation, upon the occurrence of an Event of Default (which
has not been cured), to exercise such of the rights and powers
vested in it by this Agreement, and to use the same degree of
care and skill in its exercise as a prudent person would
exercise or use under the circumstances in the conduct of such
person's own affairs;
(iv) the Trustee shall not be personally liable for
any action taken, suffered or omitted by it in good faith and
believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Agreement;
(v) prior to the occurrence of an Event of Default
hereunder and after the curing of all Events of Default which
may have occurred, the Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing to do so
by the Certificate Insurer or Holders of Class A Certificates
evidencing Percentage Interests aggregating not less than 25%;
PROVIDED, HOWEVER, that if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to
it by the terms of this Agreement, the Trustee may require
reasonable indemnity against such expense or liability as a
condition to taking any such action;
(vi) the right of the Trustee to perform any
discretionary act enumerated in this Agreement shall not be
construed as a duty, and the Trustee shall not be answerable
for other than its negligence or willful misconduct in the
performance of such act;
(vii) the Trustee shall not be required to
give any bond or surety in respect of the execution
of the Trust Fund created hereby or the powers granted
hereunder; and
(viii) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys.
(b) Following the Startup Day, the Trustee shall not knowingly accept
any contribution of assets to the Trust Fund, unless the Trustee and the
Certificate Insurer shall have received an Opinion of Counsel (at the expense of
the Servicer) to the effect that the inclusion of such assets in the Trust Fund
will not cause the Upper-Tier REMIC or Lower-Tier REMIC to fail to qualify as a
REMIC at any time that any Certificates are outstanding or subject the
Upper-Tier REMIC or Lower-Tier REMIC to any tax under the REMIC Provisions or
other applicable provisions of federal, state and local law or ordinances. The
Trustee agrees to indemnify the Trust Fund, the Certificate Insurer and the
Servicer for any taxes and costs, including any attorney's fees, imposed or
incurred by the Trust Fund, the Certificate Insurer or the Servicer as a result
of the breach of the Trustee's covenants set forth within this subsection (b).
Section 9.3 NOT LIABLE FOR CERTIFICATES OR MORTGAGE LOANS. The
recitals contained herein (other than the certificate of authentication on the
Certificates) shall be taken as the statements of the Seller and the Trustee
assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Agreement or of any
Mortgage Loan or related document. The Trustee shall not be accountable for the
use or application of any funds paid to the Servicer in respect of the Mortgage
Loans or deposited in or withdrawn from the Collection Account by the Servicer.
The Trustee shall not be responsible for the legality or validity of the
Agreement or the validity, priority, perfection or sufficiency of the security
for the Certificates issued or intended to be issued hereunder.
Section 9.4 TRUSTEE MAY OWN CERTIFICATES. The Trustee in its
individual or any other capacity may become the owner or pledgor of Certificates
with the same rights it would have if it were not Trustee, and may otherwise
deal with the parties hereto.
Section 9.5 PAYMENT OF TRUSTEE FEES. The Trustee shall withdraw from
the Certificate Account on each Distribution Date and pay to itself the Trustee
Fee. Except as otherwise provided in this Agreement, the Trustee and any
director, officer, employee or agent of the Trustee shall be indemnified by the
Trust Fund and held harmless against any loss, liability or "unanticipated
out-of-pocket" expense incurred or paid to third parties (which expenses shall
not include salaries paid to employees, or allocable overhead, of the Trustee)
in connection with the acceptance or administration of its trusts hereunder, the
Certificate Insurance Agreement or the Certificates, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties hereunder. The provisions of this Section
9.5 shall survive the termination of this Agreement and the removal or
resignation of the Trustee.
The Servicer covenants and agrees to indemnify the Trustee and the
Certificate Insurer and any director, officer, employee or agent of either
against any losses, liabilities, damages, claims or expenses (including
reasonable legal fees and such related expenses) that may be sustained by the
Trustee in connection with this Agreement and the Certificate Insurance
Agreement related to the willful misfeasance, bad faith or negligence in the
performance of the Servicer's duties hereunder.
Section 9.6 ELIGIBILITY REQUIREMENTS FOR TRUSTEE. The Trustee
hereunder shall at all times be (a) a banking association organized and doing
business under the laws of any state or the United States of America subject to
supervision or examination by federal or state authority, (b) authorized under
such laws to exercise corporate trust powers, including taking title to the
Trust Fund assets on behalf of the Certificateholders (c) having a combined
capital and surplus of at least $50,000,000, (d) whose long-term deposits, if
any, shall be rated at least BBB by S&P and Baa3 by Moody's (except as provided
herein) or such lower long-term deposit rating as may be approved in writing by
the Certificate Insurer, (e) whose short-term deposits rating is rated A-1 + by
S&P and P-1 by Moody's, and (f) reasonably acceptable to the Certificate Insurer
as evidenced in writing. If such banking association publishes reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section shall be deemed to be its combined capital and surplus as set forth in
its most recent report of condition so published. In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, the Trustee shall resign immediately in the manner and with the effect
specified in Section 9.7.
Section 9.7 RESIGNATION AND REMOVAL OF THE Trustee. (a) The Trustee
may at any time resign and be discharged from the trusts hereby created by
giving at least 30 days' prior written notice thereof to the Servicer, the
Certificate Insurer and to all Certificateholders. Upon receiving such notice of
resignation, the Certificate Insurer may appoint a successor trustee and if the
Certificate Insurer fails to appoint a successor trustee, the Servicer shall
promptly appoint a successor trustee acceptable to the Certificate Insurer
(which acceptance shall not be unreasonably withheld) by written instrument, in
duplicate, which instrument shall be delivered to the resigning Trustee and to
the successor trustee. A copy of such instrument shall be delivered to the
Depositor, the Certificateholders, the Certificate Insurer and the Seller by the
Servicer. Unless a successor trustee shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee.
(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 9.6 and shall fail to resign after
written request therefor by the Servicer or the Certificate Insurer, or if at
any time the Trustee shall become incapable of acting, or shall be adjudged
bankrupt or insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Certificate Insurer may appoint a successor trustee and if
the Certificate Insurer fails to appoint a successor trustee, the Servicer or
the Certificate Insurer may remove the Trustee and the Servicer shall, within 30
days after such removal, appoint, subject to the approval of the Certificate
Insurer, which approval shall not be unreasonably delayed, a successor trustee
by written instrument, in duplicate, which instrument shall be delivered to the
Trustee so removed and to the successor trustee. A copy of such instrument shall
be delivered to the Depositor, the Certificateholders, the Certificate Insurer
and the Seller by the Servicer.
(c) If the Trustee fails to perform in accordance with the terms of
this Agreement, the Majority Certificateholders (with the consent of the
Certificate Insurer, which consent shall not be unreasonably withheld) or the
Certificate Insurer may remove the Trustee and appoint a successor trustee
acceptable to the Certificate Insurer by written instrument or instruments, in
triplicate, signed by such Holders or their attorneys-in-fact duly authorized,
one complete set of which instruments shall be delivered to the Servicer and the
Certificate Insurer, one complete set to the Trustee so removed and one complete
set to the successor Trustee so appointed.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 9.8.
(e) Upon any termination of, or appointment of any successor to the
Trustee hereunder, the Trustee shall promptly transfer all of the Residual
Interest (as defined under the Code) of the Trust Fund to the successor Trustee.
Section 9.8 SUCCESSOR TRUSTEE. Any successor trustee appointed as
provided in Section 9.7 shall execute, acknowledge and deliver to the Depositor,
the Certificate Insurer, the Seller, the Servicer and to its predecessor trustee
an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with the like effect as if originally named as trustee
herein. The predecessor trustee shall deliver to the successor trustee all
Mortgage Files and related documents and statements held by it hereunder, and
the Servicer and the predecessor trustee shall execute and deliver such
instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor trustee all such
rights, powers, duties and obligations. No successor trustee shall accept
appointment as provided in this Section unless at the time of such acceptance
such successor trustee shall be eligible under the provisions of Section 9.6.
Upon acceptance of appointment by a successor trustee as provided in this
Section, the Servicer shall mail notice of the succession of such trustee
hereunder to all Holders of Certificates at their addresses as shown in the
Certificate Register (such Certificate Register shall be provided to the
Servicer by the Successor Trustee) and to each of the Rating Agencies. If the
Servicer fails to mail such notice within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Servicer.
Section 9.9 MERGER OR CONSOLIDATION OF TRUSTEE. Any Person into which
the Trustee may be merged or converted or with which it may be consolidated or
any corporation or national banking association resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation or national banking association succeeding to the business of the
trustee, shall be the successor of the Trustee hereunder, provided such
corporation or national banking association shall be eligible under the
provisions of Section 9.6, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
Section 9.10 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE. (a)
Notwith standing any other provisions hereof, at any time, for the purpose of
meeting any legal requirements of any jurisdiction in which any part of the
Trust Fund or property securing the same may at the time be located, the
Servicer and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or
separate trustee or separate trustees, of all or any part of the Trust Fund, and
to vest in such Person or Persons, in such capacity, such title to the Trust
Fund, or any part thereof, and, subject to the other provisions of this Section
9.10, such powers, duties, obligations, rights and trusts as the Servicer and
the Trustee may consider necessary or desirable. If the Servicer shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, or in case an Event of Default shall have occurred and be continuing,
the Trustee alone shall have the power to make such appointment. No co-trustee
or separate trustee hereunder shall be required to meet the terms of eligibility
as a successor trustee under Section 9.6 hereunder and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 9.8 hereof.
(b) In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 9.10, all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Servicer hereunder), the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights, powers,
duties and obligations (including the holding of title to the Trust Fund or any
portion thereof in any such jurisdiction) shall be exercised and performed by
such separate trustee or co-trustee at the direction of the Trustee.
(c) Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article IX. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee.
(d) Any separate trustee or co-trustee may, at any time, constitute
the Trustee, its agent or attorney-in-fact, with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. The Trustee shall not be
responsible for any action or inaction of any such separate trustee or
co-trustee, PROVIDED THAT the Trustee appointed such separate trustee or
co-trustee with due care. If any separate trustee or co-trustee shall die,
become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
Section 9.11 RETIREMENT OF CERTIFICATES. The Trustee shall, upon the
retirement of the Certificates pursuant hereto or otherwise, furnish to the
Certificate Insurer a notice of such retirement, and, upon retirement of the
Class A Certificates shall surrender the Certificate Insurance Policy to the
Certificate Insurer for cancellation.
[Remainder of this page intentionally left blank]
<PAGE>
ARTICLE X
REMIC ADMINISTRATION AND PROVISIONS
Section 10.1 REMIC ADMINISTRATION. (a) The Trust Fund shall elect that
the Upper-Tier REMIC and the Lower-Tier REMIC shall be treated as REMICs under
Section 860D of the Code. Such elections will be made on Form 1066 or other
appropriate federal tax or information returns and any appropriate state returns
for the taxable year ending on the last day of the calendar year in which the
Certificates are issued. Any inconsistencies or ambiguities in this Agreement or
in the administration of the Trust Fund shall be resolved in a manner that
preserves the validity of such REMIC elections.
(b) The Class A Certificates and the Class B Certificates are hereby
designated as "regular interests" with respect to the Upper-Tier REMIC and the
Class RU Certificates are hereby designated as the single class of "residual
interest" with respect to the Upper-Tier REMIC. The REMIC Administrator shall
not permit the creation of any "interests" in the Trust Fund (within the meaning
of Section 860G of the Code) other than the Upper-Tier and Lower-Tier REMIC
regular interests and the interests represented by the Residual Certificates.
(c) The Lower-Tier REMIC will be evidenced by (x) the Class LT-A,
Class LT-1, Class LT-2, Class LT-3, Class LT-4, Class LT-5, Class LT-6 and Class
LT-M Certificates (the "Lower-Tier Regular Interests"), which will be
uncertificated and non-transferable and are hereby designated as the "regular
interests" in the Lower-Tier REMIC and (y) the Class RL Certificates, which are
hereby designated as the single "residual interest" in the Lower-Tier REMIC (the
Lower-Tier Regular Interests, together with the Class RL Certificates, the
"Lower- Tier Interests"). The Lower-Tier Regular Interests shall be recorded on
the records of the Lower- Tier REMIC as being issued to and held by the REMIC
Administrator on behalf of the Upper- Tier REMIC.
Any (i) Overcollateralization Deficit (including the portion of a
Class A Carryforward Amount which relates to a shortfall in a distribution of an
Overcollateralization Deficit) and (ii) any Overcollateralization Increase
Amount (without duplication of amounts described in (i)) (together, the "Turbo
Amount") that is payable from interest on the Mortgage Loans will not be paid to
the Lower-Tier Regular Interests, but a portion of the interest payable with
respect to the Class LT-M Certificate which equals 1% of the Turbo Amount will
be payable as a reduction of the principal balances of the Class LT-1, Class
LT-2, Class LT-3, Class LT-4, Class LT-5 and Class LT-6 Certificates in the same
manner in which the Turbo Amount is allocated among the Class A-1, Class A-2,
Class A-3, Class A-4, Class A-5 and Class A-6 Certificates, respectively (and
will be accrued and added to principal on the Class LT-M Certificate). Principal
payments on the Mortgage Loans shall be allocated 98% to the Class LT- A
Certificate, 1% to the Class LT-M Certificate, and 1% to the Class LT-1, Class
LT-2, Class LT-3, Class LT-4, Class LT-5 and Class LT-6 Certificates. The
aggregate amount of principal allocated to the Class LT-1, Class LT-2, Class
LT-3, Class LT-4, Class LT-5 and Class LT-6 Certificates shall be apportioned
among such Classes in the same manner in which principal is payable with respect
to the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class A-6
Certificates, respectively. Notwithstanding the above, 98% and 2% of any
principal payments on the Mortgage Loans that are attributable to an
Overcollateralization Reduction Amount shall be allocated to the Class LT-A and
Class LT-M Certificates, respectively. Similarly, 98% and 2% of any realized
losses with respect to principal on the Mortgages Loans shall be allocated to
the Class LT-A and Class LT-M Certificates, respectively, except that to the
extent such realized losses create an Overcollateralization Deficit that is not
paid from interest on the Mortgage Loans (but is paid by the Certificate
Insurer), such losses shall be allocated 98% to the Class LT-A Certificate, 1%
to the Class LT-M Certificate and 1% to the Class LT-1, Class LT-2, Class LT-3,
Class LT-4, Class LT-5 and Class LT-6 Certificates, apportioned among such Class
LT-1, Class LT-2, Class LT-3, Class LT-4, Class LT-5 and Class LT-6 Certificates
in the same manner in which the Overcollateralization Deficit is payable with
respect to the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class
A-6 Certificates, respectively. The Lower-Tier Interests will have the following
designations and pass-through rates, and distributions of principal and interest
thereon shall be allocated to the Class A Certificates in the following manner:
<TABLE>
<CAPTION>
Pass- Allocation Allocation
Lower-Tier Initial Through of of
Interests Balance Rate Principal (1) Interest (1)
<S> <C> <C> <C> <C>
LT-A $155,816,107.35 (7) (2) (3) (4),(5)
LT-1 $478,000 (2) (3) (4),(5)
LT-2 $295,000 (2) (3) (4),(5)
LT-3 $232,000 (2) (3) (4),(5)
LT-4 $506,000 (2) (3) (4),(5)
LT-5 $115,000 (2) (3) (4),(5)
LT-6 $374,000 (2) (3) (4),(5)
LT-M $3,179,920.56 (7) (2) (3) (4),(5)
RL $0 0% N/A N/A (6)
- -----------------
(1) Except as otherwise indicated, the amount of principal and interest
allocable from a Lower-Tier Interest to the Class A Certificates on any
Distribution Date shall be 100%.
(2) The pass-through rate on these Lower-Tier Regular Interests shall at
any time of determination equal the weighted average of the Net
Mortgage Interest Rates for each of the Mortgage Loans. Any
shortfalls in interest on the Lower-Tier Regular Interests that result
from Principal Prepayments on any Mortgage Loans during the
related Collection Period after accounting for any
Compensating Interest paid under Section 6.9 shall
proportionately reduce the interest accrued on the Lower-Tier Regular
Interests.
(3) Principal will be allocated to and apportioned among the
Class A-1, Class A-2, Class A- 3, Class A-4, Class A-5, and
Class A-6 Certificates in the same proportion as principal
is payable with respect to such Certificates, except that
a portion of such principal in an amount equal to the
Overcollateralization Reduction Amount shall first be
allocated to the Class B Certificates, and all principal
will be allocated to the Class B Certificates after the
Class A Principal Balance has been reduced to zero.
(4) Except as provided in footnotes, Interest will be allocated among the
Class A-1, Class A- 2, Class A-3, Class A-4, Class A-5, and Class A-6
Certificates in the same proportion as interest is payable on such
Certificates.
(5) Any interest with respect to this Lower-Tier Interest in
excess of the product of (i) two times the weighted
average coupon of the Class LT-1, Class LT-2, Class LT-3,
Class LT- 4, Class LT-5, Class LT-6 and Class LT-M
Certificates, where each of such Classes, other than the
Class LT-M Certificate, is first subject to a cap and floor
equal to the Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5 and Class A-6 Pass-Through Rate , respectively,
and the Class LT-M Certificate is subject to a cap equal to
0%, and (ii) the principal balance of this Lower-Tier
Interest, shall not be allocated to the Class A Certificates but will
be allocated to the Class B Certificates as a separate component.
(6) On each Distribution Date, available funds, if any, remaining in the
Lower-Tier REMIC after payments of interest and principal, as
designated above, will be distributed to the Class RL Certificate.
(7) The principal balances of the Class LT-A and Class LT-M Certificates
shall be increased by 98% and 2%, respectively, of the principal
balance of each Subsequent Mortgage Loan as of the related Subsequent
Cut-Off Date.
</TABLE>
(d) The Closing Date is hereby designated as the Startup Day of the
Upper- Tier REMIC and Lower-Tier REMIC within the meaning of Section 860G(a)(9)
of the Code.
(e) The REMIC Administrator shall pay out of its own funds, without
any right of reimbursement, any and all expenses relating to any tax audit of
the Trust Fund (including, but not limited to, any professional fees or any
administrative or judicial proceedings with respect thereto that involved the
Internal Revenue Service or state tax authorities), other than the expense of
obtaining any tax related Opinion of Counsel not obtained in connection with
such an audit and other than taxes, in either case except as specified herein;
PROVIDED, HOWEVER, that if such audit resulted from the negligence of the
Servicer or the Depositor, then the Servicer or the Depositor, as the case may
be, shall pay such expenses. The REMIC Administrator, as agent for the tax
matters person, shall (i) act on behalf of the Trust Fund in relation to any tax
matter or controversy involving the Trust Fund and (ii) represent the Trust Fund
in any administrative or judicial proceeding relating to an examination or audit
by any governmental taxing authority with respect thereto. The Holders of the
largest Percentage Interest in the Class RU and Class RL Certificates of the
Upper-Tier REMIC and Lower-Tier REMIC, respectively, from time to time are
hereby designated as Tax Matters Person with respect to the Upper-Tier REMIC and
Lower-Tier REMIC, respectively, and hereby irrevocably appoint and authorize the
Trustee to act as their agent to perform the duties of the Tax Matters Person
with respect to each such REMIC Fund. To the extent authorized under the Code
and the regulations promulgated thereunder, each Holder of a Residual
Certificate hereby irrevocably appoints and authorizes the REMIC Administrator
to be its attorney-in-fact for purposes of signing any Tax Returns required to
be filed on behalf of the Trust Fund.
(f) The REMIC Administrator shall prepare or cause to be prepared, and
the Trustee shall sign and file all of the Tax Returns in respect of the Trust
Fund created hereunder, other than Tax Returns required to be filed by the
Servicer pursuant to Section 5.24. The expenses of preparing and filing such
returns shall be borne by the REMIC Administrator without any right of
reimbursement therefor.
(g) The REMIC Administrator shall perform on behalf of the Trust Fund
all reporting and other compliance duties that are the responsibility of the
Trust Fund under the Code, the REMIC Provisions or other compliance guidance
issued by the Internal Revenue Service or any state or local taxing authority.
Among its other duties, as required by the Code, the REMIC Provisions or other
such compliance guidance, the REMIC Administrator shall provide (i) to any
Transferor of a Residual Certificate such information as is necessary for the
application of any tax relating to the transfer of a Residual Certificate to any
Person who is not a Disqualified Organization, (ii) to Certificateholders such
information or reports as are required by the Code or REMIC Provisions including
reports relating to interest, original issue discount and market discount or
premium (using the Prepayment Assumption) and (iii) to the Internal Revenue
Service the name, title, address and telephone number of the person who will
serve as the representative of the Trust Fund. In addition, the Depositor shall
provide or cause to be provided to the REMIC Administrator, within ten (10) days
after the Closing Date, all information or data that the REMIC Administrator
reasonably determines to be relevant for tax purposes as to the valuations and
issue prices of the Certificates, including, without limitation, the price,
yield, prepayment assumption and projected cash flow of the Certificates.
(h) The REMIC Administrator shall take such action and shall cause the
Trust Fund created hereunder to take such action as shall be necessary to create
or maintain the status of each of the Upper-Tier REMIC and the Lower-Tier REMIC
as a REMIC under the REMIC Provisions (and the Servicer shall assist it, to the
extent reasonably requested by the REMIC Administrator). Neither the Trustee nor
the REMIC Administrator shall take any action, cause the Trust Fund to take any
action or fail to take (or fail to cause to be taken) any action that, under the
REMIC Provisions, if taken or not taken, as the case may be, could (i) endanger
the status of the Upper-Tier REMIC or the Lower-Tier REMIC as a REMIC or (ii)
result in the imposition of a tax upon the Upper-Tier REMIC or the Lower-Tier
REMIC (including but not limited to the tax on prohibited transactions as
defined in Section 860F(a)(2) of the Code and the tax on contributions to a
REMIC set forth in Section 860G(d) of the Code or the tax on net income from
foreclosure property as defined in Section 860G(c) of the Code) (any such event,
an "Adverse REMIC Event") unless the REMIC Administrator and the Certificate
Insurer received an Opinion of Counsel (at the expense of the party seeking to
take such action but in no event shall such Opinion of Counsel be an expense of
the Trustee) to the effect that the contemplated action will not, with respect
to the Upper-Tier REMIC or the Lower-Tier REMIC, endanger such status or result
in an Adverse REMIC Event. The Servicer shall not take or fail to take any
action (whether or not authorized hereunder) as to which the REMIC Administrator
has advised it in writing that it has received an Opinion of Counsel (which such
Opinion of Counsel shall not be an expense of the REMIC Administrator) to the
effect that an Adverse REMIC Event could occur with respect to such action. In
addition, prior to taking any action with respect to the Trust Fund or its
assets, or causing the Trust Fund to take any action which is not expressly
permitted under the terms of this Agreement, the Servicer will consult with the
Certificate Insurer and with the REMIC Administrator or its designee, in
writing, with respect to whether such action could cause an Adverse REMIC Event
to occur with respect to the Upper-Tier REMIC or the Lower-Tier REMIC, and the
Servicer shall not take any such action or cause the Trust Fund to take any such
action as to which the REMIC Administrator or the Certificate Insurer has
advised it in writing that an Adverse REMIC Event could occur. The REMIC
Administrator may consult with counsel to make such written advice, and the cost
of same shall be borne by the party seeking to take the action not permitted by
this Agreement (but in no event shall such cost be an expense of the REMIC
Administrator). At all times as may be required by the Code, the REMIC
Administrator and the Trustee will ensure that substantially all of the assets
of the Trust Fund will consist of "qualified mortgages" as defined in Section
860G(a)(3) of the Code and "permitted investments" as defined in Section
860G(a)(5) of the Code.
(i) In the event that any tax is imposed on "prohibited transactions"
of the Upper-Tier REMIC or the Lower-Tier REMIC as defined in Section 860F(a)(2)
of the Code, on "net income from foreclosure property" of the Upper-Tier REMIC
or the Lower-Tier REMIC as defined in Section 860G(c) of the Code, on any
contributions to the Upper-Tier REMIC or the Lower-Tier REMIC after the Startup
Day therefor pursuant to Section 860G(d) of the Code, or any other tax is
imposed by the Code or any applicable provisions of state or local tax laws,
such tax shall be charged (i) to the REMIC Administrator pursuant to Section
10.3 hereof, if such tax arises out of or results from a breach by the REMIC
Administrator of any of its obligations under this Article X, (ii) to the
Trustee pursuant to Section 10.3 hereof, if such tax arises out of or results
from a breach by the Trustee of any of its obligations under Article IX or this
Article X, (iii) to the Servicer pursuant to Section 10.3 hereof, if such tax
arises out of or results from a breach by the Servicer of any of its obligations
under Article V or this Article X, or otherwise (iv) against amounts on deposit
in the Certificate Account and shall be paid by withdrawal therefrom.
(j) On or before April 15 of each calendar year, commencing April 15,
1997, the REMIC Administrator shall deliver to the Servicer, the Certificate
Insurer and each Rating Agency a Certificate from a Responsible Officer of the
REMIC Administrator stating the REMIC Administrator's compliance with this
Article X.
(k) The Servicer and the REMIC Administrator shall, for federal income
tax purposes, maintain books and records with respect to the Upper-Tier REMIC or
the Lower-Tier REMIC on a calendar year and on an accrual basis.
(l) Neither the Trustee nor the REMIC Administrator shall accept any
contributions of assets to the Trust Fund unless it and the Certificate Insurer
shall have received an Opinion of Counsel (which such Opinion of Counsel shall
not be an expense of the Trustee or the REMIC Administrator) to the effect that
the inclusion of such assets in the Trust Fund will not cause the Upper-Tier
REMIC or the Lower-Tier REMIC to fail to qualify as a REMIC at any time that any
Certificates are outstanding or subject the Upper-Tier REMIC or the Lower-Tier
REMIC to any tax under the REMIC Provisions or other applicable provisions of
federal, state and local law or ordinances.
(m) Neither the REMIC Administrator nor the Servicer shall enter into
any arrangement by which the Trust Fund will receive a fee or other compensation
for services nor permit either the Upper-Tier REMIC or the Lower-Tier REMIC to
receive any income from assets other than "qualified mortgages" as defined in
Section 860G(a)(3) of the Code or "permitted investments" as defined in Section
860G(a)(5) of the Code.
(n) Solely for purposes of satisfying Section 1.860G-l(a)(4)(iii) of
the Treasury Regulations, the "latest possible maturity date" by which the
certificate principal balances of each Class of Certificates representing a
regular interest in the Upper-Tier REMIC or the Lower-Tier REMIC would be
reduced to zero is July 25, 2026 which is the Distribution Date one year
following the latest scheduled maturity of any Mortgage Loan.
(o) Upon filing with the Internal Revenue Service, the REMIC
Administrator shall furnish to the Holders of the Residual Certificates the Form
1066 and each Form 1066Q and shall respond promptly to written requests made not
more frequently than quarterly by any Holder of Residual Certificates with
respect to the following matters:
(A) the original projected principal and interest
cash flows on the Closing Date on the regular and residual
interests created hereunder and on the Mortgage Loans, based
on the Prepayment Assumption;
(B) the projected remaining principal and interest
cash flows as of the end of any calendar quarter with respect
to the regular and residual interests created hereunder and
the Mortgage Loans, based on the Prepayment Assumption;
(C) the Prepayment Assumption and any interest rate
assumptions used in determining the projected principal and
interest cash flows described above;
(D) the original issue discount (or, in the case of
the Mortgage Loans, market discount) or premium accrued or
amortized through the end of such calendar quarter with
respect to the regular or residual interests created hereunder
and with respect to the Mortgage Loans, together with each
constant yield to maturity used in computing the same;
(E) the treatment of losses realized with respect to
the Mortgage Loans or the regular interests created hereunder,
including the timing and amount of any cancellation of
indebtedness income of the REMIC with respect to such regular
interests or bad debt deductions claimed with respect to the
Mortgage Loans;
(F) the amount and timing of any non-interest
expenses of the REMIC; and
(G) any taxes (including penalties and interest)
imposed on the REMIC, including, without limitation, taxes on
"prohibited transactions," "contributions" or "net income from
foreclosure property" or state or local income or franchise
taxes.
Section 10.2 PROHIBITED TRANSACTIONS AND Activities. Neither the
Depositor, the Servicer, the REMIC Administrator nor the Trustee shall sell,
dispose of, or substitute for any of the Mortgage Loans, except in connection
with (i) the foreclosure of a Mortgage Loan, including but not limited to, the
acquisition or sale of a Mortgaged Property acquired by deed in lieu of
foreclosure, (ii) the bankruptcy of the Trust Fund, (iii) the termination of the
Trust Fund pursuant to Article VIII of this Agreement, or (iv) a purchase of
Mortgage Loans pursuant to Article II or III of this Agreement nor acquire any
assets for the Trust Fund, nor sell or dispose of any investments in the
Certificate Accounts for gain, nor accept any contributions to the Trust Fund
after the Closing Date unless it and the Certificate Insurer has received an
Opinion of Counsel (at the expense of the party seeking to cause such sale,
disposition, substitution or acquisition but in no event shall such Opinion of
Counsel be an expense of the Trustee or the REMIC Administrator) that such sale,
disposition, substitution or acquisition will not (a) affect adversely the
status of the Upper-Tier REMIC or the Lower-Tier REMIC as a REMIC or (b) cause
the Upper-Tier REMIC or the Lower-Tier REMIC to be subject to a tax on
"prohibited transactions" or "contributions" pursuant to the REMIC Provisions .
Section 10.3 SERVICER, TRUSTEE AND REMIC ADMINISTRATOR
INDEMNIFICATION. (a) The Trustee agrees to indemnify the Trust Fund, the
Certificate Insurer, the Depositor and the Servicer for any taxes and costs
(including, without limitation, any reasonably attorneys' fees) including
without limitation, any reasonable attorneys' fees imposed on or incurred by the
Upper-Tier REMIC, the Lower-Tier REMIC, the Certificate Insurer, the Depositor,
the Servicer or the REMIC Administrator, as a result of a breach of the
Trustee's covenants set forth in this Article X.
(b) The Servicer agrees to indemnify the Trust Fund, the Certificate
Insurer, the Depositor, the REMIC Administrator and the Trustee for any taxes
and costs (including, without limitation, any reasonable attorneys' fees)
imposed on or incurred by the Upper-Tier REMIC, the Lower-Tier REMIC, the
Certificate Insurer, the Depositor, the REMIC Administrator or the Trustee, as a
result of a breach of the Servicer's covenants set forth in this Article X or in
Article V with respect to compliance with the REMIC Provisions, including,
without limitation, any penalties arising from the Trustee's execution of Tax
Returns prepared by the Servicer pursuant to Section 5.24 that contain errors or
omissions.
(c) The REMIC Administrator agrees to indemnify the Trust Fund, the
Certificate Insurer, the Depositor, the Servicer and the Trustee for any taxes
and costs (including, without imitation, any reasonable attorneys' fees) imposed
on or incurred by the Upper-Tier REMIC, the Lower-Tier REMIC, the Certificate
Insurer, the Depositor, the Servicer or the Trustee, as a result of a breach of
the REMIC Administrator's covenants set forth in this Article X with respect to
compliance with the REMIC Provisions, including, without limitation, any
penalties arising from the Trustee's execution of Tax Returns prepared by the
REMIC Administrator pursuant to this Article X that contain errors or omissions.
[Remainder of this page intentionally left blank]
<PAGE>
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1 LIMITATION ON LIABILITY OF THE DEPOSITOR AND THE
SERVICER. Neither the Depositor nor the Servicer nor any of the directors,
officers, employees or agents of the Depositor or the Servicer shall be under
any liability to the Trust, the Certificateholders or the Certificate Insurer
for any action taken, or for refraining from the taking of any action, in good
faith pursuant to this Agreement, or for errors in judgment; PROVIDED, HOWEVER,
that this provision shall not protect the Depositor or the Servicer or any such
Person against any breach of warranties or representations made herein, or
against any specific liability imposed on each such party pursuant to this
Agreement or against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations or duties hereunder. The Depositor
or the Servicer and any director, officer, employee or agent of the Depositor or
the Servicer may rely in good faith on any document of any kind which, PRIMA
FACIE, is properly executed and submitted by any appropriate Person respecting
any matters arising hereunder. The Depositor, the Servicer and any director,
officer, employee or agent of the Depositor or the Servicer shall be indemnified
and held harmless by the Trust Fund against any loss, liability or expense
incurred in connection with any legal action relating to this Agreement or the
Certificates, with respect to the Servicer, other than any loss, liability or
expense related to Servicer's servicing obligations with respect to any specific
Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense
shall be otherwise reimbursable pursuant to this Agreement) or related to the
Servicer's obligations under this Agreement, with respect to the Depositor, the
Seller, or Servicer, as the case may be, or any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Depositor, nor the Servicer shall
be under any obligation to appear in, prosecute or defend any legal action which
is not incidental to its respective duties under this Agreement and which in its
opinion may involve it in any expense or liability; PROVIDED, HOWEVER, that the
Depositor, or the Servicer may in its sole discretion undertake any such action
which it may deem necessary or desirable with respect to this Agreement and the
rights and duties of the parties hereto and the interests of the
Certificateholders hereunder. In the event the Depositor or the Servicer take
any action as described in the preceding sentence, the legal expenses and costs
of such action, if previously approved by the Certificate Insurer, which
approval shall not be unreasonably withheld, and any liability resulting
therefrom will be expenses, costs and liabilities of the Trust Fund, and the
Servicer or the Depositor, as the case may be, will be entitled to be reimbursed
therefor out of funds in the Collection Account.
Section 11.2 ACTS OF CERTIFICATEHOLDERS; CERTIFICATEHOLDERS' RIGHTS.
(a) Except as otherwise specifically provided herein, whenever Certificateholder
action, consent or approval is required under this Agreement, such action,
consent or approval shall be deemed to have been taken or given on behalf of,
and shall be binding upon, all Certificateholders if the Majority
Certificateholders (with the consent of the Certificate Insurer, which consent
shall not be unreasonably withheld) or the Certificate Insurer agrees to take
such action or give such consent or approval.
(b) The death or incapacity of any Certificateholder shall not operate
to terminate this Agreement or the Trust Fund, nor entitle such
Certificateholder's legal representatives or heir to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of the
Trust Fund, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
(c) No Certificateholder shall have any right to vote (except as
expressly provided for herein) or in any manner otherwise control the operation
and management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third person by reason of any action taken by the parties
to this Agreement pursuant to any provision hereof or thereof.
Section 11.3 AMENDMENT. (a) This Agreement may be amended from time to
time by the Servicer, the Depositor and the Trustee by written agreement, upon
the prior written consent of the Certificate Insurer (which consent shall not be
unreasonably withheld), without notice to or consent of the Certificateholders
to cure any ambiguity, to correct or supplement any provisions herein, to comply
with any changes in the Code, or to make any other provisions with respect to
matters or questions arising under this Agreement which shall not be
inconsistent with the provisions of this Agreement; PROVIDED, HOWEVER, that such
action shall not, as evidenced by an Opinion of Counsel, at the expense of the
party requesting the change, but in no event an expense of the Trustee,
delivered to the Trustee and the Certificate Insurer, adversely affect in any
material respect the interests of any Certificateholder; PROVIDED, FURTHER, that
the amendment shall not be deemed to adversely affect in any material respect
the interests of the Certificateholders and no Opinion of Counsel to that effect
shall be required if the person requesting the amendment obtains a letter from
Moody's or S&P stating that the amendment would not result in the downgrading or
withdrawal of the respective ratings then assigned to the Class A Certificates
without regard to the Certificate Insurance Policy; and PROVIDED, FURTHER, that
no such amendment shall reduce in any manner the amount of, or delay the timing
of, payments received on Mortgage Loans which are required to be distributed on
any Certificate without the consent of the Holder of such Certificate, or change
the rights or obligations of any other party hereto without the consent of such
party. The Trustee shall give prompt written notice to Moody's and S&P of any
amendment made pursuant to this Section 11.3 and shall promptly send copies of
any such amendment to Moody's and S&P.
(b) This Agreement may be amended from time to time by the Servicer,
the Depositor and the Trustee with the consent of the Certificate Insurer (which
consent shall not be withheld if, in the Opinion of Counsel addressed to the
Trustee and the Certificate Insurer, failure to amend would adversely affect the
interests of the Certificateholders unless such consent would adversely affect
the interests of the Certificate Insurer), the Majority Certificateholders for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or of modifying in any manner the rights
of the Holders; PROVIDED, HOWEVER, that no such amendment shall be made unless
the Trustee and the Certificate Insurer receive an Opinion of Counsel, at the
expense of the party requesting the change, that such change will not adversely
affect the status of the Upper-Tier REMIC or the Lower-Tier REMIC as a REMIC or
cause a tax to be imposed on such Upper-Tier REMIC or Lower-Tier REMIC; and
PROVIDED, FURTHER, that no such amendment shall reduce in any manner the amount
of, or delay the timing of, payments received on Mortgage Loans which are
required to be distributed on any Certificate without the consent of the Holder
of such Certificate or reduce the percentage for the Holders of which are
required to consent to any such amendment without the consent of the Holders of
100% of Certificates affected thereby.
(c) It shall not be necessary for the consent of Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent shall approve the substance thereof.
Section 11.4 RECORDATION OF AGREEMENT. To the extent permitted by
applicable law, this Agreement, or a memorandum thereof if permitted under
applicable law, is subject to recordation in all appropriate public offices for
real property records in all of the counties or other comparable jurisdictions
in which any or all of the properties subject to the Mortgages are situated, and
in any other appropriate public recording office or elsewhere, such recordation
to be effected by the Servicer at the Certificateholders' expense on direction
and at the expense of Majority Certificateholders requesting such recordation,
but only when accompanied by an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of the
Certificateholders or is necessary for the administration or servicing of the
Mortgage Loans.
Section 11.5 DURATION OF AGREEMENT. This Agreement shall continue in
existence and effect until terminated as herein provided.
Section 11.6 NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered to (i) in the case of the Depositor, Credit Suisse First Boston
Mortgage Securities Corp., 11 Madison Avenue, New York, New York 10010,
Attention: Nita S. Cherry, Asset Finance Group, (ii) in the case of the
Servicer, Advanta Mortgage Corp. USA, 16875 West Bernardo Drive, San Diego,
California 92127, Attention: Senior Vice President Loan Servicing, (iii) in the
case of the Seller, Preferred Credit Corporation, 3347 Michelson Drive, Suite
400, Irvine, California 92612, Attention: Walter Villaume, President, with an
additional copy of such notice simultaneously delivered to the Servicer, (iv) in
the case of the Trustee, Bankers Trust Company, 3 Park Plaza, 16th Floor,
Irvine, California 92614, Attention: Preferred Credit Asset-Backed Certificates
Series 1997-1, (v) in the case of the Certificateholders, as set forth in the
Certificate Register, (vi) in the case of Moody's, 99 Church Street, New York,
New York 10007 Attention: Home Equity Monitoring Department, (vii) in the case
of S&P, 26 Broadway, New York, New York 10004 Attention: Residential Mortgage
Surveillance Group, (viii) in the case of the Certificate Insurer, MBIA
Insurance Corporation, 113 King Street, Armonk, New York 10504, Attention:
Insured Portfolio Management - SF, (ix) in the case of the Fiscal Agent, to
State Street Bank and Trust Company, 61 Broadway, l5th Floor, New York, New York
10006, Attention: Municipal Registrar and Paying Agency (or such other address
as the Fiscal Agent shall specify to the Trustee in writing) and (x) in the case
of the Underwriter, Credit Suisse First Boston Corporation, 11 Madison Avenue,
New York, New York 10010, Attention: Nita S. Cherry, Asset Finance Group. Any
such notices shall be deemed to be effective with respect to any party hereto
upon the receipt of such notice by such party, except that notices to the
Certificateholders shall be effective upon mailing or personal delivery.
The parties hereto without the consent of the Owners, but with the
consent of the Certificate Insurer may agree in writing that the notices and
reports required hereunder may be provided or delivered via electronic, computer
or by any other means acceptable to the parties hereunder and the Certificate
Insurer.
Section 11.7 SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other covenants, agreements, provisions or terms of this
Agreement.
Section 11.8 NO PARTNERSHIP. Nothing herein contained shall be deemed
or construed to create a co-partnership or joint venture between the parties
hereto and the services of the Servicer shall be rendered as an independent
contractor and not as agent for the Certificateholders.
Section 11.9 COUNTERPARTS. This Agreement may be executed in one or
more counterparts and by the different parties hereto on separate counterparts,
each of which, when so executed, shall be deemed to be an original; such
counterparts, together, shall constitute one and the same agreement.
Section 11.10 SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and the Certificateholders
and their respective successors and permitted assigns.
Section 11.11 HEADINGS. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
Section 11.12 THE CERTIFICATE INSURER DEFAULT. Any right conferred to
the Certificate Insurer shall be suspended during any period in which a
Certificate Insurer Default exists. At such time as the Certificates are no
longer outstanding hereunder, and no amounts owed to the Certificate Insurer
hereunder remain unpaid, the Certificate Insurer is no longer obligated under
the Policy, the Certificate Insurer's rights hereunder shall terminate.
Section 11.13 THIRD PARTY BENEFICIARY. The parties agree that the
Certificate Insurer is intended and shall have all rights of a third-party
beneficiary of this Agreement.
Section 11.14 INTENT OF THE PARTIES. It is the intent of the Depositor
and Certificateholders that, for federal income taxes, state and local income or
franchise taxes and other taxes imposed on or measured by income, the
Certificates will be treated as evidencing beneficial ownership interests in a
REMIC. The parties to this Agreement and the holder of each Certificate, by
acceptance of its Certificate, and each beneficial owner thereof, agree to
treat, and to take no action inconsistent with the treatment of, the
Certificates in accordance with the preceding sentence for purposes of federal
income taxes, state and local income and franchise taxes and other taxes imposed
on or measured by income.
Section 11.15 GOVERNING LAW CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE
OF NEW YORK.
(b) THE SERVICER, THE DEPOSITOR, THE SELLER AND THE TRUSTEE HEREBY
SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK
AND THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW
YORK CITY, AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO
THE ADDRESS SET FORTH IN SECTION 11.6 HEREOF AND SERVICE SO MADE SHALL BE DEEMED
TO BE COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S.
MAILS, POSTAGE PREPAID. THE DEPOSITOR, THE SERVICER, THE SELLER AND THE TRUSTEE
EACH HEREBY WAIVE ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION
TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH
LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS
SECTION SHALL AFFECT THE RIGHT OF THE DEPOSITOR, THE SERVICER OR THE TRUSTEE TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT ANY OF THEIR
RIGHTS TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY OTHER
JURISDICTION.
(c) THE DEPOSITOR, THE SERVICER, THE SELLER AND THE TRUSTEE EACH
HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE WILL BE
RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
[End of Agreement.]
<PAGE>
IN WITNESS WHEREOF, the Servicer, the Trustee, the Seller and the
Depositor have caused their names to be signed hereto by their respective
officers thereunto duly authorized as of the day and year first above written.
CREDIT SUISSE FIRST BOSTON MORTGAGE
SECURITIES CORP., as Depositor
By: /s/ Joy Margolies
Name: Joy Margolies
Title: Vice President
PREFERRED CREDIT CORPORATION, as Seller
By: /s/ Todd A. Rodriguez
Name: Todd A. Rodriguez
Title: Chief Executive Officer
ADVANTA MORTGAGE CORP. USA,
as Servicer
By: /s/ William P. Garland
Name: William P. Garland
Title: Senior Vice President
BANKERS TRUST COMPANY, as Trustee
By: /s/ Holly Holland
Name: Holland Holland
Title: Officer
[Pooling and Servicing Agreement]
<PAGE>
ACCEPTED AND
AGREED TO WITH
RESPECT TO SECTION 3.5
PREFERRED MORTGAGE
SPC FUNDING CORP.
By:/s/ Todd A. Rodriguez
Name: Todd A. Rodriguez
Title President
PREFERRED MORTGAGE
SPC FUNDING CORP. II
By:/s/ Todd A. Rodriguez
Name: Todd A. Rodriguez
Title: President
Exhibit 4.2
CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP.
Depositor
and
PREFERRED CREDIT CORPORATION
Unaffiliated Seller
....................................
SALE AND PURCHASE AGREEMENT
Dated as of March 1, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE ONE DEFINITIONS...........................................1
Section 1.01. Definitions........................................1
ARTICLE TWO PURCHASE, SALE AND CONVEYANCE OF MORTGAGE
LOANS.................................................4
Section 2.01. Agreement to Purchase the Initial Mortgage Loans....4
Section 2.02. Agreement to Purchase the Subsequent Mortgage
Loans.... .........................................4
Section 2.03. Purchase Price......................................6
Section 2.04. Conveyance of Mortgage Loans; Possession of
Mortgage Files.... ................................7
Section 2.05. Delivery of Mortgage Loan Documents.................8
Section 2.06. Acceptance of Mortgage Loans.......................10
Section 2.07. Transfer of Mortgage Loans; Assignment of
Agreement.... ...................................11
Section 2.08. Examination of Mortgage Files......................12
Section 2.09. Books and Records..................................12
Section 2.10. Cost of Delivery and Recordation of Documents......12
ARTICLE THREE REPRESENTATIONS AND WARRANTIES......................13
Section 3.01. RESERVED...........................................13
Section 3.02. Representations and Warranties as to the
Unaffiliated Seller................................13
Section 3.03. Representations and Warranties Relating to the
Mortgage Loans.....................................15
Section 3.04. Representations and Warranties of the Depositor....27
Section 3.05. Repurchase Obligation for Defective Documentation
and for Breach of a Representation or Warranty.....28
ARTICLE FOUR THE UNAFFILIATED SELLER............................31
Section 4.01. Covenants of the Unaffiliated Seller...............31
Section 4.02. Merger or Consolidation............................31
Section 4.03. Costs..............................................32
Section 4.04. Indemnification....................................32
ARTICLE FIVE CONDITIONS OF CLOSING................................35
Section 5.01. Conditions of Depositor's Obligations..............35
Section 5.02. Conditions of Unaffiliated Seller's Obligations....36
Section 5.03. Termination of Depositor's Obligations.............37
ARTICLE SIX MISCELLANEOUS.........................................38
Section 6.01. Notices............................................38
Section 6.02. Severability of Provisions.........................38
Section 6.03. Agreement of Unaffiliated Seller...................39
Section 6.04. Survival...........................................39
Section 6.05. Effect of Headings and Table of Contents...........39
Section 6.06. Successors and Assigns.............................39
Section 6.07. Confirmation of Intent: Grant of Security Interest.39
Section 6.08. Miscellaneous......................................40
Section 6.09. Amendments.........................................40
Section 6.10. Third-Party Beneficiaries..........................41
Section 6.11. GOVERNING LAW, CONSENT TO JURISDICTION;
WAIVER OF JURY TRIAL...............................41
Section 6.12. Execution in Counterparts..........................42
Exhibit A - Mortgage Loan Schedule
Exhibit B - Officer's Certificate
Exhibit C - Opinion to Counsel to Unaffiliated Seller
<PAGE>
This Sale and Purchase Agreement, dated as of March 27, 1997, by and
among CREDIT SUISSE FIRST BOSTON MORTGAGE SECURITIES CORP., a Delaware
corporation, its successors and assigns (the "Depositor") and PREFERRED CREDIT
CORPORATION, a California corporation and its successors (the "Unaffiliated
Seller").
WHEREAS, Exhibit A attached hereto and made a part hereof lists
certain fixed rate first, second and third lien mortgage loans (the "Mortgage
Loans") owned by the Unaffiliated Seller and the Unaffiliated Seller desires to
sell to the Depositor and that the Depositor desires to purchase;
WHEREAS, it is the intention of the Unaffiliated Seller and the
Depositor that simultaneously with the Unaffiliated Seller's conveyance of the
Mortgage Loans to the Depositor on the Closing Date, (a) the Depositor shall
deposit the Mortgage Loans in a trust fund pursuant to a Pooling and Servicing
Agreement to be dated as of March 1, 1997 (the "Pooling and Servicing
Agreement"), to be entered into by and among the Depositor, as depositor
Preferred Credit Corporation, as seller, Advanta Mortgage Corp. USA, as
servicer, and Bankers Trust Company, as trustee (the "Trustee") and (b) the
Trustee shall issue certificates evidencing beneficial ownership interests in
tile property of the trust fund formed by the Pooling and Servicing Agreement to
the Depositor;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE ONE
DEFINITIONS
Section 1.01. DEFINITIONS. Whenever used herein, the following words
and phrases, unless the context otherwise requires, shall have the meanings
specified in this Article:
"AGREEMENT" means this Sale and Purchase Agreement, as amended or
supplemented in accordance with the provisions hereof.
"CERTIFICATE INSURER" means MBIA Insurance Corporation, a stock
insurance company organized and created under the laws of the State of New York,
and any successors thereto.
"CLOSING DATE" shall have the meaning ascribed thereto in Section
2.01(c).
"COMMISSION" means the Securities and Exchange Commission.
"CUT-OFF DATE" means, with respect to each Initial Mortgage Loan, the
Initial Cut-Off Date, and with respect to each Subsequent Mortgage Loan, the
related Subsequent Cut- Off Date.
"CUT-OFF DATE AGGREGATE PRINCIPAL BALANCE" means the aggregate unpaid
principal balance of the Mortgage Loans as of their respective Cut-Off Date.
"CUT-OFF DATE PRINCIPAL BALANCE" means as to each Mortgage Loan, its
unpaid principal balance as of the related Cut-Off Date.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"INITIAL CUT-OFF DATE" means the opening of business on March 1, 1997.
"INITIAL MORTGAGE LOANS" means the Mortgage Loans transferred and
assigned to the Depositor on the Closing Date.
"MORTGAGE" means the mortgage, deed of trust or other instrument
creating a first, second or third lien on the Mortgaged Property.
"MORTGAGE LOAN SCHEDULE" shall have the meaning ascribed thereto in
Section 2.01(b).
"POOLING AND SERVICING AGREEMENT" shall have the meaning ascribed
thereto in the recitals hereof.
"PROSPECTUS" means the Prospectus dated March 17, 1997 relating to the
offering by the Depositor from time to time of its ABS Mortgage and Manufactured
Housing Contract Pass-Through Certificates (Issuable in Series) in the form in
which it was or will be filed with the Securities Exchange Commission pursuant
to Rule 424(b) under the Securities Act with respect to the offer and sale of
the Certificates.
"PROSPECTUS SUPPLEMENT" means the Prospectus Supplement dated March
17, 1997, relating to the offering of the Class A Certificates in the form in
which it was or will be filed with the Commission pursuant to Rule 424(b) under
the Securities Act with respect to the offer and sale of the Class A
Certificates.
"QUALIFIED APPRAISER" means an appraiser, duly appointed by the
Unaffiliated Seller, who had no interest, direct or indirect, in the Mortgaged
Property or in any loan made on the security thereof, and whose compensation is
not affected by the approval or disapproval of the Mortgage Loan, and such
appraiser and the appraisal made by such appraiser both satisfy the requirements
of Title XI of the Federal Institutions Reform, Recovery and Enforcement Act of
1989 and the regulations promulgated thereunder, all as in effect on the date
the Mortgage Loan was originated.
"REGISTRATION STATEMENT" means that certain registration statement on
Form S-3, as amended (Registration No. 333-21329) relating to the offering by
the Depositor from time to time of its ABS Mortgage and Manufactured Housing
Contract Pass-Through Certificates (issuable in Series) as heretofore declared
effective by the Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TERMINATION EVENT" means the existence of any one or more of the
following conditions:
(a) a stop order suspending the effectiveness of the Registration
Statement shall have been issued or a proceeding for that purpose shall have
been initiated or threatened by the Commission; or
(b) subsequent to the execution and delivery of this Agreement, a
downgrading, or public notification of a possible change, without indication of
direction, shall have occurred in the rating afforded any of the debt securities
or claims paying ability of any person providing any form of credit enhancement
for any of the Class A Certificates, by any "nationally recognized statistical
rating organization," as that term is defined by the Commission for purposes of
Rule 436(g)(2) under the Securities Act; or
(c) subsequent to the execution and delivery of this Agreement, there
shall have occurred an adverse change in the condition, financial or otherwise,
earnings, affairs, regulatory situation or business prospects of the Certificate
Insurer or the Unaffiliated Seller reasonably determined by the Depositor to be
material; or
(d) subsequent to the date of this Agreement there shall have occurred
any of the following: (i) a suspension or material limitation in trading in
securities substantially similar to the Class A Certificates; (ii) a general
moratorium on commercial banking activities in New York declared by either
Federal or New York State authorities; or (iii) the engagement by the United
States in hostilities, or the escalation of such hostilities, or any calamity or
crisis, if the effect of any such event specified in this clause (iii) in the
reasonable judgment of the Depositor makes it impracticable or inadvisable to
proceed with the public offering or the delivery of the Class A Certificates on
the terms and in the manner contemplated in the Prospectus Supplement.
"UNAFFILIATED SELLER" means Preferred Credit Corporation, in its
capacity as Unaffiliated Seller of the Mortgage Loans under this Agreement and
any successor to Preferred Credit Corporation, whether through merger,
consolidation, purchase and assumption of Preferred Credit Corporation or all or
substantially all of its assets or otherwise.
Capitalized terms used herein that are not otherwise defined shall
have the respective meanings ascribed thereto in the Pooling and Servicing
Agreement.
ARTICLE TWO
PURCHASE, SALE AND CONVEYANCE OF MORTGAGE LOANS
Section 2.01. AGREEMENT TO PURCHASE THE INITIAL MORTGAGE LOANS. (a)
Subject to the terms and conditions of this Agreement, the Unaffiliated Seller
agrees to sell, and the Depositor agrees to purchase, the Mortgage Loans having
the Cut-Off Date Aggregate Principal Balance or, in accordance with Section
2.08, such other balance as is evidenced by the actual Cut-Off Date Aggregate
Principal Balance of the Mortgage Loans accepted by the Depositor on the Closing
Date and listed in the Mortgage Loan Schedule.
(b) Subject to Section 2.08, the Depositor and the Unaffiliated Seller
have agreed upon which of the Unaffiliated Seller's Mortgage Loans are to be
purchased by the Depositor on the Closing Date pursuant to this Agreement, and
the Unaffiliated Seller has prepared a schedule describing the Mortgage Loans
(the "Mortgage Loan Schedule") setting forth all of the Mortgage Loans to be
purchased under this Agreement, which schedule is attached hereto as Exhibit A.
The Mortgage Loan Schedule shall conform to the requirements of the Depositor
and to the definition of "Mortgage Loan Schedule" under the Pooling and
Servicing Agreement.
(c) The closing for the purchase and sale of the Mortgage Loans shall
take place at the offices of Stroock & Stroock & Lavan LLP, New York, New York,
at 10:00 a.m., New York time, on March 27, 1997 or such other place and time as
the parties shall agree (such time being herein referred to as the "Closing
Date").
Section 2.02. AGREEMENT TO PURCHASE THE SUBSEQUENT MORTGAGE LOANS. (a)
Subject to the terms and conditions of this Agreement, the Unaffiliated Seller
agrees to sell, and the Depositor agrees to purchase, Subsequent Mortgage Loans,
having an Aggregate Principal Balance of up to $40,952,472.67 as listed in the
Mortgage Loan Schedule attached to the related Addition Notice.
(b) Subject to Section 2.08, the Depositor and the Unaffiliated Seller
shall agree upon which of the Unaffiliated Seller's Mortgage Loans are to be
purchased by the Depositor on a Subsequent Transfer Date, and the Unaffiliated
Seller shall prepare a Mortgage Loan Schedule setting forth all of the
Subsequent Mortgage Loans to be purchased under the related Subsequent Transfer
Instrument.
(c) Subject to the satisfaction of the conditions set forth in
paragraph (d) below, in consideration of the Depositor's delivery on the related
Subsequent Transfer Dates to or upon the order of the Unaffiliated Seller of the
purchase price, the Unaffiliated Seller shall on any Subsequent Transfer Date
sell, transfer, assign, set over and convey to the Depositor without recourse
but subject to terms and provisions of this Agreement, all of the right, title
and interest of the Unaffiliated Seller in and to the Subsequent Mortgage Loans,
and all other assets included or to be included in the Trust Fund for the
benefit of the Certificateholders and the Certificate Insurer.
(d) The Subsequent Mortgage Loans and the other property and rights
related thereto described in paragraph (c) above shall be transferred by the
Unaffiliated Seller to the Depositor and by the Depositor to the Trust Fund only
upon the satisfaction of each of the following conditions on or prior to the
related Subsequent Transfer Date:
(i) the Unaffiliated Seller shall have provided the
Trustee, the Rating Agencies and the Certificate Insurer with a timely
Addition Notice in no event later than five Business Days prior to the
Subsequent Transfer Date and shall have provided any other information
reasonably requested by any of the foregoing with respect to the
Subsequent Mortgage Loans, to be transferred on such Subsequent
Transfer Date;
(ii) the Unaffiliated Seller shall have delivered to the
Trustee a duly executed Subsequent Transfer Instrument, which shall
include a Mortgage Loan Schedule listing the Subsequent Mortgage Loans;
(iii) the Unaffiliated Seller shall have deposited or
cause to have deposited in the Collection Account all collections of
(x) principal in respect of the Subsequent Mortgage Loans received on
and after the related Subsequent Cut-Off Date and (y) interest due on
the Subsequent Mortgage Loans on and after the related Subsequent Cut-
Off Date;
(iv) as of each Subsequent Transfer Date, the
Unaffiliated Seller was not insolvent nor will be made insolvent by
such transfer nor is the Unaffiliated Seller aware of any pending
insolvency;
(v) such sale and transfer will not result in a
material adverse tax consequence to the Trust Fund or the
Holders of the Certificates;
(vi) the Pre-Funding Period shall not have
terminated;
(vii) in connection with the final Subsequent Transfer
Date only, the Unaffiliated Seller shall have delivered to the
Depositor such information as is necessary to permit the Depositor to
file a Form 8-K with the Commission containing tabular descriptions of
all the Mortgage Loans acquired by the Trust Fund as of their
respective Cut-Off Dates compared to those contained under the heading
"Description of the Mortgage Loan" in the Prospectus Supplement;
(viii) in connection with the final Subsequent Transfer
Date only, the Unaffiliated Seller shall cause to be furnished to the
Depositor, together with the information required to be furnished
pursuant to Section 2.02(d)(vii) above, in form and substance
acceptable to the Depositor and its counsel, prepared by KPMG Peat
Marwick, independent certified public accountants, stating in effect
that such independent certified public accountants have performed
certain specified procedures, all of which have been agreed to by the
Depositor, and that they have verified or confirmed, as appropriate,
the financial, numerical or statistical information to be filed by the
Depositor as part of the Form 8-K referred to in Section 2.02(d)(vii)
above and have found such information to be accurate without exception.
(ix) in connection with the final Subsequent Transfer
Date only, the Unaffiliated Seller shall cause to be delivered to the
Depositor a letter, in form and substance acceptable to the Depositor
and its counsel, prepared by KPMG Peat Marwick, independent certified
public accountants, regarding the numerical information required to be
furnished pursuant to Section 2.02(d)(vii) above.
(x) the Unaffiliated Seller shall have delivered to the
Trustee an Officer's Certificate confirming the satisfaction of each
condition precedent specified in this paragraph (d) and that the
Subsequent Mortgage Loans comply with the provisions of Section 2.9 of
the Pooling and Servicing Agreement; and
(xi) there shall have been delivered to the Certificate
Insurer, the Rating Agencies and the Trustee, independent Opinions of
Counsel addressed to such Persons with respect to the transfer of the
Subsequent Mortgage Loans substantially in the form of the Opinions of
Counsel delivered to the Certificate Insurer and the Trustee on the
Startup Day (bankruptcy, corporate and tax opinions).
(e) The obligation of the Depositor to purchase a Subsequent Mortgage
Loan on any Subsequent Transfer Date is subject to the requirements set forth in
Section 2.9 of the Pooling and Servicing Agreement.
Section 2.03. PURCHASE PRICE. On the Closing Date, as full
consideration for the Unaffiliated Seller's sale of the Initial Mortgage Loans
to the Depositor, the Depositor will deliver to the Unaffiliated Seller (i) an
amount in cash equal to the sum of (A) 99.578866% of the aggregate principal
balance as of the Closing Date of the Class A-1 Certificates, 99.950928% of the
aggregate principal balance as of the Closing Date of the Class A-2
Certificates, 99.983919% of the aggregate principal balance as of the Closing
Date of the Class A-3 Certificates, 99.989569% of the aggregate principal
balance as of the Closing Date of the Class A-4 Certificates, 99.952618% of the
aggregate principal balance as of the Closing Date of the Class A-5
Certificates, 99.990304% of the aggregate principal balance as of the Closing
Date of the Class A-6 Certificates, and (B) accrued interest on the principal
balances of such Certificates at the rate of 6.20% per annum for the Class A-1
Certificates, 6.71% per annum for the Class A-2 Certificates, 6.91% per annum
for the Class A-3 Certificates, 7.15% per annum for the Class A-4 Certificates,
7.39% per annum for the Class A-5 Certificates and 7.59% per annum for the Class
A-6 Certificates, in each case from (and including) March 1, 1997 to (but not
including) March 27, 1997, payable by wire transfer of same day funds and (ii)
the Class B and Class R Certificates to be issued pursuant to the Pooling and
Servicing Agreement.
Section 2.04. CONVEYANCE OF MORTGAGE LOANS; POSSESSION OF MORTGAGE
FILES. (a) On the Closing Date and on each Subsequent Transfer Date, the
Unaffiliated Seller shall sell, transfer, assign, set over and convey to the
Depositor, without recourse but subject to the terms of this Agreement, all
right, title and interest in and to the applicable Mortgage Loans, together with
the Mortgage Files relating thereto and the insurance policies relating to each
such Mortgage Loan and all right, title and interest in and to all collections
thereon and the proceeds thereof on and after the Cut-Off Date. Upon payment of
the purchase price for such Mortgage Loans as provided in Section 2.03 of this
Agreement, the Unaffiliated Seller shall have hereby, and shall be deemed to
have, relinquished all rights with respect to, and to have sold, transferred,
assigned, set over and conveyed such Mortgage Loans together with the Mortgage
Files relating thereto and the insurance policies relating to each such Mortgage
Loan and all right, title and interest in and to all collections thereon and the
proceeds thereof on and after the Cut-Off Date, and shall have no right to sell,
pledge ________ or otherwise dispose of such Mortgage Loans..
In connection with the sale, transfer, assignment and conveyance from
the Unaffiliated Seller to the Depositor, the Unaffiliated Seller has filed, or
shall cause to be filed, in the appropriate office or offices in the States of
California and New York, a UCC-1 financing statement executed by the
Unaffiliated Seller as debtor, naming the Depositor as secured party and listing
the Mortgage Loans and the other property described above as collateral. The
characterization of the Unaffiliated Seller as a debtor and the Depositor as the
secured party in such financing statements is solely for protective purposes and
shall in no way be construed as being contrary to the interest of the parties
that this transaction be treated as a sale of the Unaffiliated Seller's entire
right, title and interest in the Mortgage Loans to the Depositor. In connection
with such filing, the Unaffiliated Seller agrees that it shall cause to be filed
all necessary continuation statements thereof and to take or cause to be taken
such actions and execute such documents as are necessary to perfect and protect
the Trustee's, the Certificateholders' and the Certificate Insurer's interests
in the Mortgage Loans.
(b) Upon the sale of such Mortgage Loans, the ownership of each
related Mortgage Note, each related Mortgage and the contents of the related
Mortgage File shall immediately vest in the Depositor and the ownership of all
related records and documents with respect to each Mortgage Loan prepared by or
which come into the possession of the Unaffiliated Seller shall immediately vest
in the Depositor. The contents of any Mortgage File in the possession of the
Unaffiliated Seller at any time after such sale, and any payments of principal
on the Mortgage Loans received by the Unaffiliated Seller on and after the
Cut-off Date, and interest on the Mortgage Loan due on and after the Cut-Off
Date and received by the Unaffiliated Seller, shall be held in trust by the
Unaffiliated Seller for the benefit of the Trustee (as assignee of the Depositor
pursuant to the Pooling and Servicing Agreement), and shall be promptly
delivered by the Unaffiliated Seller to or upon the order of the Trustee.
(c) Pursuant to the Pooling and Servicing Agreement, the Depositor
shall, on the Closing Date, assign all of its right, title and interest in and
to the applicable Mortgage Loans to the Trustee for the benefit of the
Certificateholders and the Certificate Insurer.
Section 2.05. DELIVERY OF MORTGAGE LOAN DOCUMENTS. (a) On or prior to
the Closing Date or Subsequent Transfer Date, as applicable, the Unaffiliated
Seller shall deliver to the Trustee (as assignee of the Depositor pursuant to
the Pooling and Servicing Agreement), each of the following documents for each
applicable Mortgage Loan:
(i) The original Mortgage Note, bearing all intervening
endorsements showing a complete chain of endorsements from the
originator of such Mortgage Loan to the Unaffiliated Seller endorsed by
the Unaffiliated Seller without recourse in the following form: "Pay to
the order of Bankers Trust Company, as Trustee for the benefit of the
Certificateholders and the Certificate Insurer for Preferred Credit
Asset-Backed Certificates, Series 1997-1, without recourse" and signed
in the name of the Unaffiliated Seller by an authorized officer;
(ii) The original Mortgage with evidence of recording
indicated thereon or if such Mortgage has not been returned from the
applicable recording office, a copy of the Mortgage certified by an
authorized officer of the Unaffiliated Seller (such original recorded
Mortgage shall be delivered when so returned);
(iii) An original assignment of the original Mortgage, in
suitable form for recordation in the jurisdiction in which the related
Mortgaged Property is located, in the name of the Unaffiliated Seller
signed by an authorized officer (with evidence of submission for
recordation of such assignment in the appropriate real estate recording
office for such Mortgaged Property); provided, however, that
assignments of mortgages shall not be required to be submitted for
recording with respect to any Mortgage Loan which relates to the
Trustee's Mortgage File if the Trustee, each of the Rating Agencies and
the Certificate Insurer shall have received an opinion of counsel at
the expense of the Unaffiliated Seller satisfactory to the Trustee,
each of the Rating Agencies and the Certificate Insurer stating that,
in such counsel's opinion, the failure to record such assignment of
Mortgage shall not have a materially adverse effect on the security
interest of the Trustee in the Mortgage; PROVIDED, FURTHER, that any
assignment of Mortgage for which an opinion has been delivered shall be
recorded by the Unaffiliated Seller upon the earlier to occur of (i)
receipt by the Trustee of the Certificate Insurer's written direction
to record such Mortgage, (ii) the occurrence of any Event of Default,
as such term is defined in the Pooling and Servicing Agreement, or
(iii) a bankruptcy or insolvency proceeding involving the Mortgagor is
initiated or foreclosure proceedings are initiated against the
Mortgaged Property as a consequence of an event of default under the
Mortgage Loan; PROVIDED, FURTHER, that if the related Mortgage has not
been returned from the applicable recording office, then a copy of such
Mortgage certified by an authorized officer of the Unaffiliated Seller
shall be delivered (such original assignment shall be delivered when
so returned);
(iv) The original of any intervening assignments of the
Mortgage with evidence of recording thereon showing a complete chain of
assignment from the originator of such Mortgage Loan to the
Unaffiliated Seller;
(v) The original of any assumption, modification,
consolidation or extension agreements with evidence of
recording thereon; and
(vi) The title report or policy of title insurance (or a
commitment for title insurance if the policy is being held by the title
insurance company pending recordation of the Mortgage) issued with
respect to such Mortgage Loan;
PROVIDED, HOWEVER, that in the case of any Mortgage Loans which have been
prepaid in full after the Cut-Off Date and prior to the date of the execution of
this Agreement, the Unaffiliated Seller, in lieu of delivering the above
documents, hereby delivers to the Depositor a certification of an officer of the
Unaffiliated Seller of the nature set forth in Exhibit N attached to the Pooling
and Servicing Agreement; and PROVIDED, FURTHER, HOWEVER, that as to certain
Mortgages or assignments thereof which have been delivered or are being
delivered to recording offices for recording and have not been returned to the
Unaffiliated Seller in time to permit their delivery hereunder at the time of
such transfer, in lieu of delivering such original documents, the Depositor is
delivering to the Trustee a true copy thereof with a certification by the
Unaffiliated Seller on the face of such copy substantially as follows:
"certified true and correct copy of original which has been transmitted for
recordation." The Unaffiliated Seller agrees that it will deliver such original
documents, together with any related title report or policy of title insurance
not previously delivered, on behalf of the Depositor to the Trustee promptly
after they are received, and no later than 120 days after the Closing Date;
PROVIDED, HOWEVER, that in those instances where the public recording office
retains the original Mortgage or assignment of Mortgage after it has been
recorded or such original document has been lost by the recording office, the
Unaffiliated Seller shall be deemed to have satisfied its obligations hereunder
if it shall have delivered to the Trustee a copy of such original Mortgage or
assignment of Mortgage certified by the public recording office to be a true
copy of the recorded original thereof. The Unaffiliated Seller agrees, at its
own expense, to record (or to provide the Trustee with evidence of recordation
thereof) each assignment within 60 days of the Closing Date in the appropriate
public office for real property records, provided that such assignments are
redelivered by the Trustee to the Unaffiliated Seller upon the Unaffiliated
Seller's written request and at the Unaffiliated Seller's expense, unless the
Unaffiliated Seller (at its expense) furnishes to the Trustee, the Certificate
Insurer and the Rating Agencies an Opinion of Counsel reasonably acceptable to
the Trustee and the Certificate Insurer to the effect that recordation of such
assignment is not necessary under applicable state law to preserve the Trustee's
interest in the related Mortgage Loan against the claim of any subsequent
transferee of such Mortgage Loan or any successor to, or creditor of the
Unaffiliated Seller.
Within a period of 21 days from the Closing Date, the Trustee, at the
Unaffiliated Seller's expense, shall also complete each assignment of Mortgage
such that the final assignment of Mortgage appears in the following form:
"Bankers Trust Company, as Trustee for the benefit of
the Certificateholders and the Certificate Insurer
for Preferred Credit Asset-Backed Certificates Series
1997- 1."
(b) In the event that any additional original documents are required
pursuant to the terms of this Section 2.05 to be a part of a Mortgage File, the
Unaffiliated Seller or the Depositor, respectively, shall promptly deliver
written notice to the Trustee that such additional original documents are
required hereunder and deliver such original documents to the Trustee. In acting
as custodian of any such original document, the Servicer agrees further that it
does not and will not have or assert any beneficial ownership interest in the
Mortgage Loans or the Mortgage Files.
(c) In the event that any Mortgage Note required to be delivered
pursuant to this Section 2.05 is conclusively determined by any of the
Unaffiliated Seller, the Servicer or the Trustee to be lost, stolen or destroyed
the Unaffiliated Seller shall, within 14 days of the Closing Date, deliver to
the Trustee a "lost note affidavit" in form and substance acceptable to the
Trustee, and shall simultaneously therewith request the obligor on such Mortgage
Note to execute and return a replacement Mortgage Note, and shall further agree
to hold the Trustee and the Certificate Insurer harmless from any loss or damage
resulting from any action taken in reliance on the delivery and possession by
the Trustee of such lost note affidavit. Upon the receipt of such replacement
Mortgage Note, the Trustee shall return the lost note affidavit. Delivery by the
Unaffiliated Seller of such lost note affidavit shall not affect the obligations
of the Unaffiliated Seller hereunder with respect to the related Mortgage Loan.
(d) Promptly after the Closing Date, the Unaffiliated Seller shall,
with respect to each Mortgage Loan, cause to be recorded in the appropriate
public office for real property records, where permitted by applicable law and
where applicable law does not require that a subordinate mortgagee be named as a
party defendant in foreclosure or comparable proceedings in order to foreclose
or otherwise preempt such mortgagee's equity of redemption, a request for notice
of any action by or on behalf of any mortgagee under the related senior lien.
Section 2.06. ACCEPTANCE OF MORTGAGE LOANS (a) Pursuant to the Pooling
and Servicing Agreement, the Trustee has agreed to execute and deliver on or
prior to the Closing Date an acknowledgment of receipt of' each Mortgage Loan,
the original Mortgage Note with respect to each Mortgage Loan (with any
exceptions noted), in the form attached as Exhibit D to the Pooling and
Servicing Agreement and declares that it will hold such documents and any
amendments, replacements or supplements thereto, as well as any other assets
included in the definition of Trust Fund in the Pooling and Servicing Agreement
and delivered to the Trustee, as Trustee in trust upon and subject to the
conditions set forth in the Pooling and Servicing Agreement for the benefit of
the Certificateholders and the Certificate Insurer. Pursuant to the Pooling and
Servicing Agreement, the Trustee has agreed, for the benefit of the
Certificateholders and the Certificate Insurer, to review (or cause to be
reviewed) each Trustee's Mortgage File within 30 days after the Closing Date
(or, with respect to any Subsequent Mortgage Loan or Qualified Substitute
Mortgage Loan, within 30 days after the receipt by the Trustee thereof) and to
deliver to the initial Certificateholders, the Unaffiliated Seller, the Servicer
and the Certificate Insurer a final certification in the form attached to the
Pooling and Servicing Agreement as Exhibit F to the effect that, as to each
Mortgage Loan listed in the Mortgage Loan Schedule (other than any Mortgage Loan
paid in full or any Mortgage Loan specifically identified in such certification
as not covered by such certification), (i) all documents required to be
delivered to it pursuant to Section 2.3(a)(i) of the Pooling and Servicing
Agreement are in its possession, (ii) each such document has been reviewed by
it, has been, to the extent required, executed and has not been mutilated,
damaged, torn or otherwise physically altered (handwritten additions, changes or
corrections shall not constitute physical alteration if initialed by the
Mortgagor), appears regular on its face and relates to such Mortgage Loan, and
(iii) based on its examination and only as to the foregoing documents, the
information set forth on the Mortgage Loan Schedule accurately reflects the
information set forth in the Trustee's Mortgage File delivered on such date.
Pursuant to the Pooling and Servicing Agreement, the Trustee shall be under no
duty or obligation to inspect, review or examine any such documents,
instruments, certificates or other papers to determine that they are genuine,
enforceable, or appropriate for the represented purpose or that they are other
than what they purport to be on their face.
(b) The Pooling and Servicing Agreement provides that, if the
Certificate Insurer or the Trustee during the process of reviewing the Trustee's
Mortgage Files finds any document constituting a part of a Trustee's Mortgage
File which is not executed, has not been received, is unrelated to the Mortgage
Loan identified in the Mortgage Loan Schedule, or does not conform to the
requirements of Section 2.05 or the description thereof as set forth in the
Mortgage Loan Schedule, the Trustee or the Certificate Insurer, as applicable,
shall promptly so notify the Servicer, the Unaffiliated Seller, the Certificate
Insurer and the Trustee. The Unaffiliated Seller agrees that in performing any
such review, the Trustee may conclusively rely on the Unaffiliated Seller as to
the purported genuineness of any such document and any signature thereon. The
Unaffiliated Seller agrees to use reasonable efforts to remedy a material defect
in a document constituting part of a Mortgage File of which it is notified. If,
however, within 60 days after such notice the Unaffiliated Seller has not
remedied the defect and the defect materially and adversely affects the interest
of the Certificateholders in the related Mortgage Loan or the interests of the
Certificate Insurer, then the Unaffiliated Seller shall either substitute in
lieu of such Mortgage Loan a Qualified Substitute Mortgage Loan or purchase such
Mortgage Loan in the manner and subject to the conditions set forth in Section
3.05.
(c) The failure of the Trustee or the Certificate Insurer to give any
notice contemplated herein within the time periods specified above shall not
affect or relieve the Unaffiliated Seller's obligation to repurchase for any
Mortgage Loan pursuant to this Section 2.06 or Section 3.05 of this Agreement.
Section 2.07. TRANSFER OF MORTGAGE LOANS; ASSIGNMENT OF AGREEMENT. The
Unaffiliated Seller hereby acknowledges and agrees that the Depositor may assign
its interest under this Agreement to the Trustee as may be required to effect
the purposes of the Pooling and Servicing Agreement, without further notice to,
or consent of, the Unaffiliated Seller, and the Trustee shall succeed to such of
the rights and obligations of the Depositor hereunder as shall be so assigned.
The Depositor shall, pursuant to the Pooling and Servicing Agreement, assign all
of its right, title and interest in and to the Mortgage Loans and its right to
exercise the remedies created by Sections 2.06 and 3.05 hereof for breaches of
the representations, warranties, agreements and covenants of the Unaffiliated
Seller contained in Sections 2.05, 2.06, 3.02 and 3.03 hereof to the Trustee for
the benefit of the Certificateholders and the Certificate Insurer. The
Unaffiliated Seller agrees that, upon such assignment to the Trustee, such
representations, warranties, agreements and covenants will run to and be for the
benefit of the Trustee and the Trustee may enforce, without joinder of the
Depositor, the repurchase obligations of the Unaffiliated Seller set forth
herein with respect to breaches of such representations, warranties, agreements
and covenants.
Section 2.08. EXAMINATION OF MORTGAGE FILES. Prior to the Closing Date
and each Subsequent Transfer Date, as applicable, the Unaffiliated Seller shall
make the related Mortgage Files available to the Depositor or its designee for
examination at the Unaffiliated Seller's offices or at such other place as the
Unaffiliated Seller shall reasonably specify. Such examination may be made by
the Depositor or its designee at any time on or before the Closing Date or
Subsequent Transfer Date, as the case may be. If the Depositor or its designee
makes such examination prior to the Closing Date or Subsequent Transfer Date, as
the case may be, and identifies any Mortgage Loans that do not conform to the
requirements of the Depositor as described in this Agreement, such Mortgage
Loans shall be deleted from the Mortgage Loan Schedule and may be replaced,
prior to the Closing Date or Subsequent Transfer Date, as the case may be, by
substitute Mortgage Loans acceptable to the Depositor. The Depositor may, at its
option and without notice to the Unaffiliated Seller, purchase all or part of
the Mortgage Loans without conducting any partial or complete examination. The
fact that the Depositor or the Trustee has conducted or has failed to conduct
any partial or complete examination of the Mortgage Files shall not affect the
rights of the Depositor or the Trustee to demand repurchase or other relief as
provided in this Agreement.
Section 2.09. BOOKS AND RECORDS. The sale of each Mortgage Loan shall
be reflected on the Unaffiliated Seller's accounting and other records, balance
sheet and other financial statements as a sale of assets by the Unaffiliated
Seller to the Depositor. The Unaffiliated Seller shall be responsible for
maintaining, and shall maintain, a complete set of books and records for each
Mortgage Loan which shall be clearly marked to reflect the ownership of each
Mortgage Loan by the Trustee for the benefit of the Certificateholders and the
Certificate Insurer. The Seller shall respond to any inquiries from third
parties with respect to ownership of a Mortgage Loan by stating that is not the
owner of such Mortgage Loan and that ownership of such Mortgage Loan is held by
the Trustee on behalf of the Trust Fund.
Section 2.10. COST OF DELIVERY AND RECORDATION OF DOCUMENTS. The costs
relating to the delivery and recordation of the documents specified in this
Article Two in connection with the Mortgage Loans shall be borne by the
Unaffiliated Seller.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
Section 3.01. RESERVED
Section 3.02. REPRESENTATIONS AND WARRANTIES AS TO THE UNAFFILIATED
SELLER. The Unaffiliated Seller hereby represents and warrants to the Depositor,
as of the Closing Date, that:
(a) The Unaffiliated Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
all licenses necessary to carry on its business as now being conducted and is
licensed, qualified and in good standing in each state where a Mortgaged
Property is located if the laws of such state require licensing or qualification
in order to conduct business of the type conducted by the Unaffiliated Seller
and to perform its obligations as the Unaffiliated Seller hereunder and under
the Pooling and Servicing Agreement, and in any event the Unaffiliated Seller is
in compliance with the laws of any such state to the extent necessary to ensure
the enforceability of the related Mortgage Loan; the Unaffiliated Seller has the
full power and authority, corporate and otherwise, to execute and deliver this
Agreement and the Pooling and Servicing Agreement and to perform in accordance
herewith and therewith; the execution, delivery and performance of this
Agreement (including all instruments of transfer to be delivered pursuant to
this Agreement and the Pooling and Servicing Agreement) and the Pooling and
Servicing Agreement by the Unaffiliated Seller and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized; each of this Agreement and the Pooling and Servicing Agreement
evidences the valid, binding and enforceable obligation of the Unaffiliated
Seller; and all requisite corporate action has been taken by the Unaffiliated
Seller to make this Agreement and the Pooling and Servicing Agreement valid and
binding upon the Unaffiliated Seller in accordance with its terms;
(b) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Unaffiliated Seller of or compliance by the Unaffiliated
Seller with the Pooling and Servicing Agreement, this Agreement or the sale of
the Mortgage Loans pursuant to the terms of this Agreement or the consummation
of the transactions contemplated by this Agreement and the Pooling and Servicing
Agreement, or if required, such approval has been obtained prior to the Closing
Date;
(c) Neither the execution and delivery of this Agreement or the
Pooling and Servicing Agreement, the acquisition or origination of the Mortgage
Loans by the Unaffiliated Seller or the transactions contemplated hereby or
thereby, nor the fulfillment of or compliance with the terms and conditions of
this Agreement or the Pooling and Servicing Agreement, has or will conflict with
or result in a breach of any of the terms, conditions or provisions of the
Unaffiliated Seller's charter or by-laws or any legal restriction or any
agreement or instrument to which the Unaffiliated Seller is now a party or by
which it is bound or to which its property is subject, or constitute a default
or result in an acceleration under any of the foregoing, or result in the
violation of any law, rule, regulation, order, judgment or decree to which the
Unaffiliated Seller or its property is subject, or impair the ability of the
Trustee (or the Servicer as the agent of the Trustee) to realize on the Mortgage
Loans, or impair the value of the Mortgage Loans;
(d) None of this Agreement, the Pooling and Servicing Agreement or the
information contained in the Prospectus Supplement under the captions
"Description of the Mortgage Loans," "The Unaffiliated Seller" nor any
statement, report or other document prepared by the Unaffiliated Seller and
furnished or to be furnished pursuant to this Agreement, the Pooling and
Servicing Agreement or in connection with the transactions contemplated hereby
or thereby contains any untrue statement or alleged untrue statement of any
material fact or omits to state a material fact necessary to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading;
(e) There is no action, suit, proceeding or investigation pending or,
to the knowledge of the Unaffiliated Seller, threatened before a court,
administrative agency or government tribunal against the Unaffiliated Seller
which, either in any one instance or in the aggregate, may result in any
material adverse change in the business, operations, financial condition,
properties or assets of the Unaffiliated Seller, or in any material impairment
of the right or ability of the Unaffiliated Seller to carry on its business
substantially as now conducted, or in any material liability on the part of the
Unaffiliated Seller, or which would draw into question the validity of this
Agreement, the Pooling and Servicing Agreement, the Mortgage Loans, or of any
action taken or to be taken in connection with the obligations of the
Unaffiliated Seller contemplated herein or therein, or which would impair
materially the ability of the Unaffiliated Seller to perform under the terms of
this Agreement or the Pooling and Servicing Agreement or that might prohibit its
entering into this Agreement, the Pooling and Servicing Agreement, or the
consummation of any of the transactions contemplated hereby;
(f) The Unaffiliated Seller is not in violation of or in default with
respect to, and the execution and delivery of this Agreement and the Pooling and
Servicing Agreement by the Unaffiliated Seller and its performance of and
compliance with the terms hereof and thereof will not constitute a violation or
default with respect to, any order or decree of any court or any order,
regulation or demand of any federal, state, municipal or governmental agency,
which violation or default might have consequences that would materially and
adversely affect the condition (financial or other) or operations of the
Unaffiliated Seller or its properties or might have consequences that would
materially and adversely affect its performance hereunder or under the Pooling
and Servicing Agreement;
(g) Upon the receipt of each Trustee's Mortgage File by the Depositor
under this Agreement, the Depositor will have good title on behalf of the Trust
Fund to each related Mortgage Loan and such other items comprising the corpus of
the Trust Fund free and clear of any lien created by the Unaffiliated Seller
(other than liens which will be simultaneously released);
(h) The consummation of the transactions contemplated by this
Agreement and the Pooling and Servicing Agreement are in the ordinary course of
business of the Unaffiliated Seller, and the transfer, assignment and conveyance
of the Mortgage Notes and the Mortgages by the Unaffiliated Seller pursuant to
this Agreement are not subject to the bulk transfer or any similar statutory
provisions in effect in any applicable jurisdiction;
(i) With respect to any Mortgage Loan purchased by the Unaffiliated
Seller, the Unaffiliated Seller acquired title to the Mortgage Loan in good
faith, without notice of any adverse claim;
(j) The Unaffiliated Seller does not believe, nor does it have any
reason or cause to believe, that it cannot perform each and every one of its
covenants contained in this Agreement and in the Pooling and Servicing
Agreement. The Unaffiliated Seller is solvent and the sale of the Mortgage Loans
by the Unaffiliated Seller pursuant to the terms of this Agreement will not
cause the Unaffiliated Seller to become insolvent. The sale of the Mortgage
Loans by the Unaffiliated Seller pursuant to the terms of this Agreement was not
undertaken with the intent to hinder, delay or defraud any of the Unaffiliated
Seller's creditors;
(k) The Mortgage Loans are not intentionally selected in a manner so
as to affect adversely the interests of the Depositor or of any transferee of
the Depositor (including the Trustee);
(l) The Unaffiliated Seller has determined that it will treat the
disposition of the Mortgage Loans pursuant to this Agreement as a sale for
accounting and tax purposes;
(m) The Unaffiliated Seller has not dealt with any broker or agent or
anyone else that may be entitled to any commission or compensation in connection
with the sale of the Mortgage Loans to the Depositor other than to the Depositor
or an Affiliate thereof; and
(n) The consideration received by the Unaffiliated Seller upon the
sale of the Mortgage Loans under this Agreement constitutes fair consideration
and reasonably equivalent value for the Mortgage Loans.
Section 3.03. REPRESENTATIONS AND WARRANTIES RELATING TO THE MORTGAGE
LOANS. The Unaffiliated Seller represents to the Depositor that, as of the
Closing Date, as to each Initial Mortgage Loan, and as of the Subsequent
Transfer Date, as to each Subsequent Mortgage Loan to be transferred on such
Subsequent Transfer Date, immediately prior to the sale and transfer of such
Mortgage Loan by the Unaffiliated Seller to the Depositor:
(a) The Mortgage Loans had, as of the Initial Cut-Off Date, an
aggregate Principal Balance equal to $159,047,527.33, and all of the information
set forth in the Mortgage Loan Schedule is complete, true and correct;
(b) All payments required to be made up to the Cut-Off Date for the
Mortgage Loan under the terms of the Mortgage Note have been made and credited,
except, unless otherwise specified on the Mortgage Loan Schedule, no payment
required under the Mortgage Loan is more than 30 days Delinquent nor has any
payment under the Mortgage Loan been Delinquent for more than 30 days more than
once in the 12 months preceding the Cut-Off Date;
(c) Except as described in clause (b) above, there are no defaults in
complying with the terms of the Mortgage, and all taxes, governmental
assessments, insurance premiums, water, sewer and municipal charges which have
become liens against the Mortgaged Property, leasehold payments or ground rents
which previously became due and owing have been paid. The Unaffiliated Seller
has not advanced funds, or induced, solicited or knowingly received any advance
of funds by a party other than the Mortgagor, directly or indirectly, for the
payment of any amount required under the Mortgage Loan;
(d) The terms of the Mortgage Note and Mortgage have not been
impaired, waived, altered or modified in any respect, except by a written
instrument which has been recorded, if necessary, to protect the interests of
the Trustee on behalf of the Certificateholders and the Certificate Insurer and
which has been delivered to the Trustee. The substance of any such 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 Mortgagor has been released, in whole or in part, except in
connection with an assumption agreement, which assumption agreement is part of
the Mortgage File delivered to the Trustee and the terms of which are reflected
in the Mortgage Loan Schedule;
(e) The Mortgage Loan is not subject to any 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 right
of rescission, set-off, recoupment, counterclaim or defense, including, without
limitation, the defense of usury, and no such right of rescission, set-off,
recoupment, counterclaim or defense has been asserted with respect thereto, and
no Mortgagor was a debtor in any state or federal bankruptcy or insolvency
proceeding at the time the Mortgage Loan was originated;
(f) Pursuant to the terms of the Mortgage, the Mortgaged Property is
subject to fire and casualty insurance with a standard mortgagee clause and
extended coverage which provides guaranteed replacement value of the
improvements securing such Mortgage Loan, or coverage in the amount of the full
replacement value of the improvements securing such Mortgage Loan or the amount
of the unpaid principal balance of the first mortgage plus the unpaid principal
balance of the Mortgage Loan, whichever is less. The fire and casualty insurance
is standard in the industry for property similar (in terms of property type,
value and location) to the Mortgage Loans. If the Mortgaged Property is in an
area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards (and such flood insurance has been made
available), a flood insurance policy is in effect with respect to the Mortgaged
Property meeting the requirements of the current guidelines of the Federal
Insurance Administration with a generally acceptable insurance carrier, in an
amount representing coverage not less than the least of (i) the unpaid principal
balance of the Mortgage Loan, (ii) the full insurable value of the Mortgaged
Property or (iii) the maximum amount of insurance available under the Flood
Disaster Protection Act of 1973. To the best of the Unaffiliated Seller's
knowledge, all such insurance policies (collectively, the "hazard insurance
policy") meet the requirements of the current guidelines of the Federal
Insurance Administration, conform to the requirements of the FNMA Sellers' Guide
and the FNMA Servicers' Guide, and are a standard policy of insurance for the
locale where the Mortgaged Property is located. It is understood and agreed that
such insurance is with insurers approved by the Servicer and that no earthquake
or other additional insurance is to be required of any Mortgagor or to be
maintained on property acquired in respect of a defaulted loan, other than
pursuant to such applicable laws and regulations as shall at any time be in
force and as shall require such additional insurance. The hazard insurance
policy names the Mortgagor as the insured and contains a standard mortgage loss
payable clause in favor of the Unaffiliated Seller, and its successors and
assigns. The Unaffiliated Seller has caused and will cause to be performed any
and all acts required to be performed to preserve the rights and remedies of the
Trustee in any hazard insurance policies applicable to the Mortgage Loans
including, without limitation, any necessary notifications of insurers and
assignments of policies or interests therein. The Mortgage obligates the
Mortgagor thereunder to maintain the hazard insurance policy at the Mortgagor's
cost and expense, and on the Mortgagor's failure to do so, authorizes the holder
of the Mortgage to obtain and maintain such insurance at such Mortgagor's cost
and expense, and to seek reimbursement therefor from the Mortgagor; PROVIDED,
however, that the addition of any such cost shall not be taken into account for
purposes of calculating the principal amount of the Mortgage Note or the
Mortgage Loan secured by the Mortgage Note. Where required by state law or
regulation, the Mortgagor has been given an opportunity to choose the carrier of
the required hazard insurance, provided the policy is not a "master" or
"blanket" hazard insurance policy covering a condominium or the common
facilities of a planned unit development. To the best of Seller's knowledge, the
hazard insurance policy is the valid and binding obligation of the insurer, is
in full force and effect, and will be in full force and effect and inure to the
benefit of the Trustee upon the consummation of the transactions contemplated by
this Agreement. The Unaffiliated Seller has not engaged in, and has no knowledge
of the Mortgagor's or any Subservicer's having engaged in, any act or omission
which would impair the coverage of any such policy, the benefits of the
endorsement provided for herein, or the validity and binding effect of either.
To the best of Seller's knowledge, in connection with the issuance of the hazard
insurance policy, no unlawful fee, commission, kickback or other unlawful
compensation or value of any kind has been or will be received, retained or
realized by any attorney, firm or other person or entity, and no such unlawful
items have been received, retained or realized by the Unaffiliated Seller;
(g) Any and all requirements of any federal, state or local law,
including, without limitation, usury, truth-in-lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity or disclosure
laws applicable to the Mortgage Loan have been complied with and the
consummation of the transactions contemplated hereby will not involve the
violation of any such laws;
(h) The Mortgage has not been satisfied, canceled, subordinated (other
than in connection with a refinancing of the first mortgage on the Mortgaged
Property) or rescinded, in whole or in part, 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. The Unaffiliated Seller has not waived the
performance by the Mortgagor of any action, if the Mortgagor's failure to
perform such action would cause the Mortgage Loan to be in default, nor has the
Unaffiliated Seller waived any default resulting from any action or inaction by
the Mortgagor;
(i) The Mortgaged Property is located in the state identified in the
Mortgage Loan Schedule and consists of a fee simple estate in a one or more
parcels of real property improved by a one- to four-family residential dwelling;
(j) The Mortgage is a valid, subsisting, enforceable and perfected
lien on the Mortgaged Property, including all buildings on the Mortgaged
Property and all installations and mechanical, electrical, plumbing, heating and
air conditioning systems located in or annexed to such buildings, and all
additions, alterations and replacements made at any time with respect to the
foregoing. The lien of the Mortgage is subject only to:
(i) in the case of Mortgage Loans in a second
priority lien position, a first mortgage;
(ii) in the case of Mortgage Loans in a third priority
position, a first and second mortgage;
(iii) the lien of current real property taxes and
assessments not yet due and payable;
(iv) covenants, conditions and restrictions, rights of way,
easements and other matters of the public record as of the date of
recording acceptable to prudent mortgage lending institutions generally
and specifically referred to in the lender's title report delivered to
the originator of the Mortgage Loan and referred to or otherwise
considered in the appraisal made for the originator of the Mortgage
Loan; and
(v) other matters to which like properties are
commonly subject which do not materially interfere with
the benefits of the security intended to be provided by the
Mortgage or the use, enjoyment, value or marketability of the related
Mortgaged Property.
Any security agreement, chattel mortgage or equivalent document related to and
delivered in connection with the Mortgage Loan establishes and creates a valid,
subsisting and enforceable junior lien and junior priority security interest on
the property described therein and immediately prior to the sale of such
Mortgage Loan to the Depositor pursuant to this Agreement, the Seller had full
right to sell and assign the same to the Depositor; as of the date of
origination of the Mortgage Loan, the Mortgage Property was not subject to a
Mortgage, deed of trust, deed to secure debt or other security instrument
creating a lien subordinate to the lien of the Mortgage.
(k) The Mortgage Note and the Mortgage and every other agreement, if
any, executed and delivered by the Mortgagor in connection with the Mortgage
Loan are genuine, and each is the legal, valid and binding obligation of the
maker thereof enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, receivership, or other
similar laws of general applicability relating to or affecting creditors' rights
generally. All parties to the Mortgage Note and the Mortgage and any other
related agreement had legal capacity to enter into the Mortgage Loan and to
execute and deliver the Mortgage Note, the Mortgage and such other related
agreements, and the Mortgage Note and the Mortgage and such other related
agreements have been duly and properly executed by such parties. The
Unaffiliated Seller has reviewed, or has caused to be reviewed, all of the
documents constituting the Mortgage File and have made such inquiries as it
deems necessary to make and confirm the accuracy of the representations set
forth herein;
(l) The Mortgage Loan has been closed and any proceeds of the Mortgage
Loan drawn by the Mortgagor as of the Cut-Off Date have been fully disbursed and
there is no requirement for future advances thereunder. All costs, fees and
expenses incurred in making or closing the Mortgage Loan and the recording of
the Mortgage were paid or will be paid, and the Mortgagor is not entitled to any
refund of any amounts paid or due under the Mortgage Note or Mortgage;
(m) At the time of the sale of the Mortgage Loan to the Depositor
under this Agreement, (i) the Unaffiliated Seller was the sole owner and holder
of the Mortgage Loan, (ii) the Mortgage Loan was not assigned to any Person
other than the Trustee on behalf of the Trust Fund, or pledged, unless such
assignment or pledge has been duly released, (iii) the Unaffiliated Seller had
good, indefeasible and marketable title thereto, (iv) the Unaffiliated Seller
had full right to transfer and sell the Mortgage Loan therein to the Depositor
free and clear of any encumbrance, equity interest, participation interest,
lien, pledge, charge, claim or security interest, and (v) the Unaffiliated
Seller had full right and authority subject to no interest or participation of,
or agreement with, any other party, to sell and assign each Mortgage Loan to the
Depositor under this Agreement, and following the sale of each Mortgage Loan,
the Depositor will own such Mortgage Loan free and clear of any encumbrance,
equity interest, participation interest, lien, pledge, charge, claim or security
interest;
(n) All parties which had any interest in the Mortgage Loan, whether
as mortgagee, assignee, pledgee or otherwise, and including, without limitation,
the Unaffiliated Seller, are (or, during the period in which they held and
disposed of such interest, were) (i) in compliance with any and all applicable
licensing requirements of the laws of the state wherein the Mortgaged Property
is located to the extent required to avoid a material adverse effect to the
interest of the Trustee on behalf of the Certificateholders and the Certificate
Insurer, and (ii) (1) organized under the laws of such state, or (2) qualified
to do business in such state, or (3) federal savings and loan associations,
savings banks, or national banks having principal offices in such state, or (4)
not doing business in such state;
(o) The Mortgage Loan has an original Combined Loan-to-Value Ratio
(calculated at the time of origination by dividing the outstanding principal
amount of the first and second Mortgage Loan by the appraised value of the
Mortgaged Property) equal to or less than 125%;
(p) Each Mortgage Loan was originated pursuant to a title report or a
limited liability lender's title insurance policy or other generally acceptable
form of policy of insurance issued by a title insurer qualified to do business
in the jurisdiction, where the Mortgaged Property is located, evidencing the
Unaffiliated Seller, its successors and assigns, of the priority of its lien of
the Mortgage in the original principal amount of the Mortgage Loan, and subject
only to the exceptions contained in clauses (i), (ii), (iii) and (iv) of
paragraph (j) above. Where required by state law or regulation, the Mortgagor
has been given the opportunity to choose the carrier of the required mortgage
title insurance. Immediately prior to the sale of the Mortgage Loan to the
Depositor under the terms of this Agreement, the Unaffiliated Seller, its
successors and assigns were the sole insurers of such lender's title insurance
policy. 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
Unaffiliated Seller, has done, by act or omission, anything which would impair
the coverage of such lender's title insurance policy. In connection with the
issuance of such lender's title insurance policy, no unlawful fee, commission,
kickback or other unlawful compensation or value of any kind has been or will be
received, retained or realized by any attorney, firm or other person or entity,
and no such unlawful items have been received, retained or realized by the
Unaffiliated Seller;
(q) Except as described in clause (b) above, there is no default,
breach, violation or event of acceleration existing under the Mortgage or the
Mortgage Note and no event which, with the passage of time or with notice and
the expiration of any grace or cure period, would constitute a default, breach,
violation or event of acceleration, and neither the Unaffiliated Seller nor its
predecessors have waived any default, breach, violation or event of
acceleration;
(r) To the best of the Unaffiliated Seller's knowledge, there are no
mechanics' or similar liens or claims which 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 related Mortgaged Property which are or may be liens
prior to, or equal or coordinate with, the lien of the related Mortgage;
(s) To the best of the Unaffiliated Seller's knowledge, all
improvements which 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. To the best of Seller's knowledge, no
improvement located on or being part of the Mortgaged Property is in violation
of any applicable zoning law or regulation; provided, that in no event shall a
legal nonconforming use of the Mortgaged Property be considered a violation of
any such zoning law or regulation;
(t) The Mortgage Note is payable on the day specified in such Mortgage
Note;
(u) The Mortgage contains customary and enforceable provisions such as
to render the rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the security
provided thereby, including, (i) in the case of a Mortgage designated as a deed
of trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. Upon
default by a Mortgagor on a Mortgage Loan and foreclosure on, or trustee's sale
of, the Mortgaged Property pursuant to the proper procedures, the holder of the
Mortgage Loan will be able to deliver good and merchantable title to the
Mortgaged Property. There is no homestead or other exemption available to the
Mortgagor which would interfere with the right to sell the Mortgaged Property at
a trustee's sale or the right to foreclose the Mortgage subject to applicable
federal and state laws and judicial precedent with respect to bankruptcy and
right of redemption;
(v) To the best of Seller's knowledge, all inspections, licenses and
certificates required to be made are issued with respect to all occupied
portions of the Mortgaged Property and with respect to the use and occupancy of
the same, including, but not limited to, certificates of occupancy and fire
underwriting certificates, have been made or obtained from the appropriate
authorities;
(w) The Mortgage Note is not and has not been secured by any
collateral except the lien of the corresponding Mortgage and the security
interest of any applicable security agreement or chattel mortgage referred to in
(j) above;
(x) No fees or expenses are or will become payable by the Trustee out
of the assets of the Trust Fund to the trustee under the deed of trust, except
in connection with a trustee's sale after default by the Mortgagor, provided
that this representation and warranty shall in no way obligate the Trustee to
pay any such amounts;
(y) The Mortgage Note, the Mortgage, the related Assignment of
Mortgage and any other documents required to be delivered by the Unaffiliated
Seller have been delivered to the Trustee in accordance with the Pooling and
Servicing Agreement. The Trustee is in possession of a complete, true and
accurate Mortgage File in accordance with the Pooling and Servicing Agreement;
(z) The Mortgage contains a 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, at the option of the Mortgagee;
(aa) Each of the Mortgage and the Assignment of Mortgage is in
recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Mortgaged Property is located:
(ab) The Mortgage Loan does not contain provisions pursuant to which
Monthly Payments are paid or partially paid with funds deposited in any separate
account established by the Unaffiliated Seller, the Mortgagor or anyone on
behalf of the Mortgagor, or paid by any source other than the Mortgagor, nor
does it contain any other similar provisions currently in effect which may
constitute a "buydown" provision. 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;
(ac) There is no proceeding pending or, to the best of Seller's
knowledge, threatened, for the total or partial condemnation of the Mortgaged
Property; the Mortgaged Property is undamaged by waste, fire, earthquake or
earth movement, windstorm, flood, tornado, other types of water damage, or other
casualty so as to affect adversely the value of the Mortgaged Property as
security for the Mortgage Loan or the use for which the premises were intended
and each Mortgaged Property is in good repair; and there have not been any
condemnation proceedings with respect to the Mortgaged Property and the
Unaffiliated Seller has no knowledge of any such proceedings in the future;
(ad) The origination and collection practices with respect to the
Mortgage Loan have been, and in all respects are in accordance with Accepted
Servicing Practices, and with all applicable laws and regulations;
(ae) The Mortgage File contains an appraisal of the related Mortgage
Property of the Mortgage Loan application by an independent appraiser acceptable
to the Unaffiliated Seller;
(af) The Mortgagor has not notified the Unaffiliated Seller, and the
Unaffiliated Seller has no knowledge of any relief requested or allowed to the
Mortgagor under the Soldiers' and Sailors' Civil Relief Act of 1940;
(ag) There exists no violation of any local, state, or federal
environmental law, rule or regulation in respect of the Mortgaged Property which
violation has or could have a material adverse effect on the market value of
such Mortgaged Property. There is no pending action or proceeding directly
involving the related Mortgaged Property in which compliance with any
environmental law, rule or regulation is in issue; and nothing further remains
to be done to satisfy in full all requirements of each such law, rule or
regulation constituting a prerequisite to the use and employment of such
Mortgaged Property;
(ah) Any and all requirements of any federal, state or local law,
including, without limitation, usury, truth-in-lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity or disclosure
laws, applicable to the Mortgage Loan have been complied with, and the
Unaffiliated Seller has and shall maintain its possession, available for the
Trustee's inspection, and shall deliver to the Trustee upon demand, evidence of
compliance with all such requirements;
(ai) The Mortgage Loans are representative of the mortgage loans in
the Unaffiliated Seller's portfolio of closed-end fixed rate loans secured by
one-to-four family residential properties;
(aj) All information regarding the Mortgage Loans which could
reasonably be expected to adversely affect the value or the marketability of any
Mortgaged Property or Mortgage Loan and of which the Unaffiliated Seller is
aware has been provided by the Unaffiliated Seller to the Depositor and the
Certificate Insurer;
(ak) The Mortgage Loan was originated in accordance with the
underwriting criteria of the Unaffiliated Seller and was underwritten in
accordance therewith. The documents, instruments and agreements submitted for
loan underwriting and the documents constituting a part of the Mortgage File
were not falsified by or with the knowledge of the Unaffiliated Seller and
contain no untrue statement of material fact and do not omit to state a material
fact required to be stated therein or necessary to make the information and
statements therein not misleading. The Unaffiliated Seller has not made any
representations to the Mortgagor that are inconsistent with the mortgage
instruments used;
(al) All amounts, with respect to the Mortgage Loans, received after
the Cut- Off Date and to which the Unaffiliated Seller is not entitled, have
been deposited into the Collection Account;
(am) After due inquiry, there is no delinquent recording or other tax
or assessment lien on the Mortgage Property;
(an) The Unaffiliated Seller has performed or directed the Servicer to
perform any and all acts required to be performed to preserve the rights and
remedies of the Trustee in any insurance policies applicable to the Mortgage
Loan, including, without limitation, any necessary notification of insurers,
assignments of policies (other than the title policy) or interests therein, and
establishment of co-insurer, joint loan payer and mortgagee rights in favor of
the Trustee;
(ao) The Mortgage Loan conforms, and all such Mortgage Loans in the
aggregate conform, to the description thereof set forth in the Prospectus
Supplement;
(ap) As of the Cut-Off Date, no more than 2.00% of the Mortgage Loans
will be secured by Mortgaged Properties located within any single zip code area;
(aq) Each Mortgage Loan constitutes a Qualified Mortgage;
(ar) Each Mortgaged Property does not include cooperatives or mobile
homes attached to a foundation or otherwise and does not constitute other than
real property under state law;
(as) With respect to each Mortgage Loan, there is only one originally
executed Mortgage Note not stamped as a duplicate;
(at) As of the Closing Date, there is no valid offset, defense or
counterclaim to any Mortgage, including, without limitation, any offset,
defense, or counterclaim against the obligation to pay principal and interest in
accordance with the Mortgage;
(au) As of the Closing Date, each Mortgage Loan and Mortgage is an
enforceable obligation of the related Mortgagor, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting the enforcement of
creditors' rights in general and except as such enforceability may be limited by
general principles of equity (whether considered in a proceeding at law or in
equity); no instrument of release or waiver has been executed in connection with
any Mortgage Loan and no Mortgagor has been released, in whole or in part;
(av) The Mortgage Loans are not being transferred with any intent to
hinder, delay or defraud any creditors;
(aw) As of the Closing Date, the Unaffiliated Seller has not received,
and is not aware of, a notice of default of any senior mortgage loan related to
a Mortgaged Property which has not been cured;
(ax) No selection procedure reasonably believed by the Unaffiliated
Seller to be materially adverse to the interests of the Certificateholders or
the Certificate insurer was utilized in selecting the Mortgage Loans; and
(ay) Each Mortgage was recorded or will be recorded (if necessary) and
all subsequent assignments of the original Mortgage have been recorded in the
appropriate jurisdictions wherein such recordation is necessary to perfect the
lien thereof as against creditors of the Unaffiliated Seller.
(az) The Mortgage Note related to each Mortgage Loan bears a fixed
coupon rate of at least 10.0% per annum.
(ba) No Mortgage Loan requires a balloon payment at the end of its
term except with respect to certain Mortgage Loans which at the end of their
amortization period, the remaining balance is less than one month's schedule
payment.
(bb) No more than 5% of the Mortgage Loans are secured by
condominiums, townhouse or planned unit developments.
(bc) None of the Mortgage Loans are secured by investor-owned
properties.
(bd) Approximately all of the Mortgage Loans are junior mortgage
loans.
(be) With respect to each Mortgage Loan that is not a first mortgage
loan, either (i) no consent for the Mortgage Loan is required by the holder of
the related prior lien or (ii) such consent has been obtained and has been
delivered to the Trustee.
(bf) No Mortgage Loan has a remaining term in excess of 360 months.
(bg) No Mortgage Loan was made in connection with (i) the construction
of a Mortgaged Property or (ii) facilitating the trade-in or exchange or a
Mortgaged Property.
(bh) None of the Mortgage Loans are second homes and none of the
Mortgage Loans are non-owner occupied.
(bi) No funds provided to a borrower from a second Mortgage Loan were
used as a down payment for a first mortgage loan of the same Mortgaged Property.
(bj) The Unaffiliated Seller further represents and warrants to the
Trustee and the Certificateholders that as of the Subsequent Cut-Off Date all
representations and warranties set forth in clauses (a) through (bi) above will
be correct in all material respects as to each Subsequent Mortgage Loan and the
representations so made in this subsection (bj) as to the following matters will
be deemed to be correct if: (i) such Subsequent Mortgage Loan may not be more
than 30 days Delinquent as of the related Subsequent Cut-Off Date; (ii) such
Subsequent Mortgage Loan has a Mortgage Interest Rate of at least 10%; (iii)
such Subsequent Mortgage Loan in the aggregate have a weighted average Combine
Loan-to-Value Ratio (based on the original appraisal) no greater than 125%; (iv)
such Subsequent Mortgage Loan is a fully amortizing loan with level payments
generally over 15 years; (v) such Subsequent Mortgage Loan is secured by a
Residential Dwelling; (vi) the related Trustee's Mortgage File with respect to
such Subsequent Mortgage Loan shall have been delivered to the Trustee; (vii) no
such Subsequent Mortgage Loan is secured by an investor property or associated
with the purchase of a home; (viii) the Subsequent Mortgage Loans in the
aggregate have a weighted average Principal Balance no greater than $37,765;
(ix) the Subsequent Mortgage Loans in the aggregate have a weighted average
remaining term to stated maturity of no greater than 182 months; (x) such
Subsequent Mortgage Loan may not have a DTI greater than 50%; (xi) such
Subsequent Mortgage Loan has a Credit Bureau Risk Score of at least 620; and
(xii) following the purchase of such Subsequent Mortgage Loans by the Trust
Fund, the Mortgage Loans (including the Subsequent Mortgage Loans) (a) will have
a weighted average Mortgage Interest Rate of at least 14.03%; (b) will have a
weighted average Combine Loan-to-Value Ratio (based on the original appraisal)
of not more than 118%; (c) will have no Subsequent Mortgage Loan with a
Principal Balance in excess of $88,000; (d) will not have any non-owner occupied
properties; (e) will have a weighted average Subordinate Mortgage Ratio of not
more than 30%; (f) will not have a concentration in a single zip code in excess
of 2.0% by aggregate Principal Balance; (g) will not have a concentration in Los
Angeles County, California in excess of 10% by aggregate Principal Balance; (h)
will not have concentration in any other county in excess of 8% by aggregate
Principal Balance; (i) the concentration of Credit Bureau Risk Scores by
aggregate Principal Balance shall be the following: (1) between 620-639 shall
not exceed 16%; (2) between 640-659 shall not exceed 23%; (3) between 660-669
shall [not exceed] [be at least] 13%; (4) between 670-689 shall be at least 18%;
(5) between 690-709 shall be at least 15%; and (6) 710 or more shall be at least
14%; (j) will not have a concentration of Mortgage Loans with self employed
mortgagors in excess of 4% by aggregate Principal Balances; (k) will have a
weighted average Credit Bureau Risk Score of at least 673 and a weighted average
DTI of no more than 38%; (l) will have a concentration of Mortgage Loans secured
by single family residences of at least 100% by aggregate Principal Balances;
and (n) the concentration of Combined Loan-to-Value Ratios by aggregate
Principal Balance shall be the following (1) greater than 80% shall not exceed
96%; (2) greater than 115% and less than 120% shall not exceed 18%; and (3)
greater than 120% and less than 125% shall not exceed 61%; (o) will not have a
concentration in the State of California in excess of 38% by aggregate Principal
Balance; (p) will not have a concentration of Mortgage Loans secured by
condominiums in excess of 5% and (q) except as modified by this clause (bj),
such Subsequent Mortgage Loan satisfies the representations and warranties set
forth in this Section 3.03. The Pooling and Servicing Agreement will provide
that any of such requirements may be waived or modified in any respect upon
prior written consent of the Certificate Insurer and certain other parties.
(bk) The Mortgage Loans constitute "obligations principally secured by
an interest in real property" for the purpose of Code Section 860G(a)(3)(A) and
Treasury Regulations ss.1.860G-2 issued thereunder. For this purpose a Mortgage
Loan constitutes "obligations principally secured by an interest in real
property" if such Mortgage Loan satisfies either of the following:
(1) The 80-percent test. An obligation is
principally secured by an interest in real
property if the fair market value of the interest
in real property securing the obligation
A. was at least equal to 80 percent of the
adjusted issue price of the obligation at
the time the obligation was originated (or,
if later, but before the Closing Date or
Subsequent Transfer Date, as applicable,
the time the obligation was significantly
modified, as such term is defined in
Treasury Regulations ss. 1.860G-2,); or
B. is at least equal to 80 percent of the
adjusted issue price of the obligation on
the Closing Date or Subsequent Transfer
Date, as applicable.
For purposes of this paragraph (1), the fair market value of
the real property interest must be first reduced by the amount
of any lien on the real property interest that is senior to
the obligation being tested, and must be further reduced by a
proportionate amount of any lien that is in parity with the
obligation being tested, in each case before the percentages
set forth in (1)(A) and (1)(B) are determined. The adjusted
issue price of an obligation is its issue price plus the
amount of accrued original issue discount, if any, as of the
date of determination.
(2) Alternative test. An obligation is principally
secured by an interest in real property if
substantially all of the proceeds of the
obligation were used to acquire or to improve
or protect an interest in real property that, at
the origination date, is the only security for
the obligation. For purposes of this test, loan
guarantees made by the United States or any state
(or any political subdivision, agency, or
instrumentality of the United States or of any
state), or other third party credit enhancement
are not viewed as additional security for a
loan. An obligation is not considered to be
secured by property other than real property
solely because the obligor is personally liable
on the obligation. For this purpose only
"substantially all of the proceeds of the
obligation" can reasonably be concluded to mean
at least 80 percent of the gross proceeds.
Section 3.04. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The
Depositor hereby represents, warrants and covenants to the Unaffiliated Seller,
as of the date of execution of this Agreement and the Closing Date, that:
(a) The Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware;
(b) The Depositor has the corporate power and authority to purchase
each Mortgage Loan and to execute, deliver and perform, and to enter into and
consummate all the transactions contemplated by this Agreement;
(c) This Agreement has been duly and validly authorized, executed and
delivered by the Depositor, and, assuming the due authorization, execution and
delivery hereof by the Unaffiliated Seller, constitutes the legal, valid and
binding agreement of the Depositor, enforceable against the Depositor in
accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law);
(d) No consent, approval, authorization or order of or registration or
filing with, or notice to, any governmental authority or court is required for
the execution, delivery and performance of or compliance by the Depositor with
this Agreement or the consummation by the Depositor of any of the transactions
contemplated hereby, except such as have been made on or prior to the Closing
Date;
(e) The Depositor has filed or will file the Prospectus and Prospectus
Supplement with the Commission in accordance with Rule 424(b) under the
Securities Act; and
(f) Following the final Subsequent Transfer Date, the Depositor will
file a Form 8-K with the Commission containing a description of the Mortgage
Loans acquired by the Trust Fund as of their respective Cut-Off Dates.
(g) None of the execution and delivery of this Agreement, the purchase
of the Mortgage Loans from the Unaffiliated Seller, the consummation of the
other transactions contemplated hereby, or the fulfillment of or compliance with
the terms and conditions of this Agreement, (i) conflicts or will conflict with
the charter or bylaws of the Depositor or conflicts or will conflict with or
results or will result in a breach of, or constitutes or will constitute a
default or results or will result in an acceleration under, any term, condition
or provision of any indenture, deed of trust, contract or other agreement or
other instrument to which the Depositor is a party or by which it is bound and
which is material to the Depositor, or (ii) results or will result in a
violation of any law, rule, regulation, order, judgment or decree of any court
or governmental authority having jurisdiction over the Depositor.
(h) There are no actions, suits or proceedings before or against or
investigations of, the Depositor pending, or to the knowledge of the Depositor,
threatened, before any court, administrative agency or other tribunal, and no
notice of any such action, which, in the Depositor's reasonable judgment, might
materially and adversely affect the performance by the Depositor of its
obligations under this Agreement, or the validity or enforceability of this
Agreement; and
(i) The Depositor is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal, state,
municipal or governmental agency that would materially and adversely affect its
performance hereunder.
Section 3.05. REPURCHASE OBLIGATION FOR DEFECTIVE DOCUMENTATION AND
FOR BREACH OF A REPRESENTATION OR WARRANTY. (a) Each of the representations and
warranties contained in Sections 3.01, 3.02 and 3.03 shall survive the purchase
by the Depositor of the Mortgage Loans and the subsequent transfer thereof by
the Depositor to the Trustee and shall continue in full force and effect,
notwithstanding any restrictive or qualified endorsement on the Mortgage Notes
and notwithstanding subsequent termination of this Agreement or the Pooling and
Servicing Agreement.
(b) With respect to any representation or warranty contained in
Sections 3.02 or 3.03 hereof that is made to the best of the Unaffiliated
Seller's knowledge, if it is discovered by the Servicer, any Subservicer, the
Trustee, the Certificate Insurer, the Depositor or any Certificateholder that
the substance of such representation and warranty was inaccurate as of the
Closing Date (or in the case of the Subsequent Mortgage Loans, as of the
respective Subsequent Transfer Date) and such inaccuracy materially and
adversely affects the value of the related Mortgage Loan or the interest of the
Certificate Insurer, then notwithstanding the Unaffiliated Seller's lack of
knowledge with respect to the inaccuracy at the time the representation or
warranty was made, such inaccuracy shall be deemed a breach of the applicable
representation or warranty. Upon discovery by the Unaffiliated Seller, the
Depositor, the Servicer, any Subservicer, the Trustee, the Certificate Insurer
or any Certificateholder of a breach of any of such representations and
warranties which materially and adversely affects the value of Mortgage Loans or
the interest of the Certificateholders, or which materially and adversely
affects the interests of the Certificate Insurer or the Certificateholders in
the related Mortgage Loan in the case of a representation and warranty relating
to a particular Mortgage Loan (notwithstanding that such representation and
warranty was made to the Unaffiliated Seller's best knowledge), the party
discovering such breach shall give pursuant to Section 3.4 of the Pooling and
Servicing Agreement prompt written notice to the others. Subject to the next to
last paragraph of this Section 3.05, within 60 days of the earlier of its
discovery or its receipt of notice of any breach of a representation or
warranty, the Unaffiliated Seller shall (a) promptly cure such breach in all
material respects, (b) purchase such Mortgage Loan on the next succeeding
Servicer Remittance Date at a purchase price equal to the Principal Balance of
such Mortgage Loan as of the date of purchase, plus the greater of (i) all
accrued and unpaid interest on such Principal Balance and (ii) 30 days' interest
on such Principal Balance, computed at the Mortgage Interest Rate, plus the
amount of any unpaid and accrued Servicing Fees, plus the amount of any
unreimbursed Delinquency Interest Advances and Servicing Advances made by the
Servicer with respect to such Mortgage Loan, or (c) remove such Mortgage Loan
from the Trust Fund (in which case it shall become a Deleted Mortgage Loan) and
substitute one or more Qualified Substitute Mortgage Loans; provided, that, such
substitution is effected not later than the date which is two years after the
Startup Day or at such later date, if the Trustee and the Certificate Insurer
receive an Opinion of Counsel to the effect that such substitution will not
constitute a prohibited transaction for the purposes of the REMIC provisions of
the Code or cause the Upper Tier REMIC or the Lower Tier REMIC to fail to
qualify as a REMIC at any time any Certificates are outstanding; provided,
however, that with respect to any Mortgage Loan for which the representation in
Section 3.03(ac) is breached solely as a result of flood conditions in the
states of Indiana, Kentucky and Ohio, during the period December 1996 through
February 1997, the Unaffiliated Seller shall use its best efforts to substitute
a Qualified Mortgage Loan for each such Mortgage Loan. Any such substitution
shall be accompanied by payment by the Unaffiliated Seller of the Substitution
Adjustment, if any, to the Servicer be deposited in the Collection Account
pursuant to the Pooling and Servicing Agreement.
(c) As to any Deleted Mortgage Loan for which the Unaffiliated Seller
substitutes a Qualified Substitute Mortgage Loan or Loans, the Unaffiliated
Seller shall effect such substitution by delivering to the Trustee a
certification in the form attached to the Pooling and Servicing Agreement as
Exhibit G, executed by a Servicing Officer and the documents described in
Section 2.05(a) for such Qualified Substitute Mortgage Loan or Loans. Pursuant
to the Pooling and Servicing Agreement, upon receipt by the Trustee of a
certification of a Servicing Officer of such substitution or purchase and, in
the case of a substitution, upon receipt of the related Trustee's Mortgage File,
and the deposit of certain amounts in the Collection Account pursuant to Section
2.4 of the Pooling and Servicing Agreement (which certification shall be in the
form of Exhibit G to the Pooling and Servicing Agreement), the Trustee shall be
required to release to the Servicer for release to the Unaffiliated Seller the
related Trustee's Mortgage File and shall be required to execute, without
recourse, and deliver such instruments of transfer furnished by the Unaffiliated
Seller as may be necessary to transfer such Mortgage Loan to the Unaffiliated
Seller.
(d) Pursuant to the Pooling and Servicing Agreement, the Servicer
shall deposit in the Collection Account all payments received in connection with
such Qualified Substitute Mortgage Loan or Loans after the date of such
substitution, or related Cut-Off Date, as applicable, set forth in the
Certification delivered to the Trustee. Monthly Payments received with respect
to Qualified Substitute Mortgage Loans on or before the date of substitution or
Cut- Off Date, as applicable, will be retained by the Unaffiliated Seller. The
Trust Fund will own all payments received on the Deleted Mortgage Loan on or
before the date of substitution or Cut-Off Date, as applicable, and the
Unaffiliated Seller shall thereafter be entitled to retain all amounts
subsequently received in respect of such Deleted Mortgage Loan after the date of
substitution or the related Cut-Off Date, as applicable. Pursuant to the Pooling
and Servicing Agreement, the Servicer shall be required to give written notice
to the Trustee and the Certificate Insurer that such substitution has taken
place and shall amend the Mortgage Loan Schedule to reflect the removal of such
Deleted Mortgage Loan from the terms of the Pooling and Servicing Agreement and
the substitution of the Qualified Substitute Mortgage Loan. The parties hereto
agree to amend the Mortgage Loan Schedule accordingly. Upon such substitution,
such Qualified Substitute Mortgage Loan or Loans shall be subject to the terms
of the Pooling and Servicing Agreement and this Agreement in all respects, and
the Unaffiliated Seller shall be deemed to have made with respect to such
Qualified Substitute Mortgage Loan or Loans, as of the date of substitution, the
representations and warranties set forth in Sections 3.02 and 3.03 herein. On
the date of such substitution, the Unaffiliated Seller will remit to the
Servicer and pursuant to the Pooling and Servicing Agreement the Servicer will
deposit into the Collection Account an amount equal to the Substitution
Adjustment, if any.
(e) It is understood and agreed that the obligations of the
Unaffiliated Seller set forth in Section 2.06 and this Section 3.05 to cure,
purchase or substitute for a defective Mortgage Loan as provided in Section 2.06
and this Section 3.05 constitute the sole remedies of the Depositor, the
Trustee, the Certificate Insurer and the Certificateholders respecting a breach
of the foregoing representations and warranties (other than the representation
and warranty set forth in Section 3.03(g) to the extent of any fines, penalties,
costs or other damages or losses except for the lost economic value of the
Mortgage Loan, the value of which the remedies provided for in Section 2.06 and
this Section 3.05 shall be deemed adequate).
(f) Any cause of action against the Unaffiliated Seller relating to or
arising out of the breach of any representations and warranties or covenants
made in Sections 2.06, 3.02 or 3.03 shall accrue as to any Mortgage Loan upon
(i) discovery of such breach by any party and notice thereof to the Unaffiliated
Seller, (ii) failure by the Unaffiliated Seller to cure such breach or purchase
or substitute such Mortgage Loan as specified above, and (iii) demand upon the
Unaffiliated Seller by the Trustee for all amounts payable in respect of such
Mortgage Loan.
(g) Notwithstanding any contrary provision of this Agreement, with
respect to any Mortgage Loan which is not in default or as to which no default
is imminent, no purchase, or substitution pursuant to Section 2.06(b) or this
Section 3.05 shall be made unless the Unaffiliated Seller provides to the
Trustee and the Certificate Insurer an Opinion of Counsel to the effect that
such purchase or substitution would not (i) result in the imposition of taxes on
"prohibited transactions" of the REMIC, as defined in Section 860F of the Code
or a tax on contributions to the Upper Tier REMIC or Lower Tier REMIC under the
REMIC Provisions, or (ii) cause the Upper Tier REMIC or Lower Tier REMIC to fail
to qualify as an Upper Tier REMIC or Lower Tier REMIC at any time that any
Certificates are outstanding. Any Mortgage Loan as to which purchase or
substitution was delayed pursuant to this paragraph shall be purchased or
substituted (subject to compliance with Section 2.06 and this Section 3.05) upon
the earlier of (a) the occurrence of a default or imminent default with respect
to such loan and (b) receipt by the Trustee and the Certificate Insurer of an
Opinion of Counsel to the effect that such purchase or substitution will not
result in the events described in clauses (i) and (ii) of the preceding
sentence.
(h) Pursuant to the Pooling and Servicing Agreement, upon discovery by
the Unaffiliated Seller, the Servicer, the Trustee, the Certificate Insurer or
any Certificateholder that any Mortgage Loan does not constitute a Qualified
Mortgage, the party discovering such fact shall promptly (and in any event
within 5 days of the discovery) give written notice thereof to the other parties
and the Certificate Insurer. In connection therewith, the Unaffiliated Seller
shall repurchase or substitute a Qualified Substitute Mortgage Loan for the
affected Mortgage Loan within 60 days of the earlier of such discovery by any of
the foregoing parties, or the Trustee's or the Unaffiliated Seller's receipt of
notice, in the same manner as it would a Mortgage Loan for a breach of
representation or warranty contained in Sections 3.02 or 3.03. Pursuant to the
Pooling and Servicing Agreement the Trustee shall reconvey to the Unaffiliated
Seller the Mortgage Loan to be released pursuant hereto in the same manner, and
on the same terms and conditions, as it would a Mortgage Loan repurchased for
breach of a representation or warranty contained in Sections 3.02 or 3.03.
ARTICLE FOUR
THE UNAFFILIATED SELLER
Section 4.01. COVENANTS OF THE UNAFFILIATED SELLER. The Unaffiliated
Seller covenants to the Depositor as follows:
(a) The Unaffiliated Seller shall cooperate with the Depositor and the
firm of independent certified public accountants retained with respect to the
issuance of the Certificates in making available all information and taking all
steps reasonably necessary to permit the accountants' letters required hereunder
to be delivered within the times set for delivery herein.
(b) The Unaffiliated Seller agrees to satisfy or cause to be satisfied
on or prior to the Closing Date, all of the conditions to the Depositor's
obligations set forth in Section 5.01 hereof that are within the Unaffiliated
Seller's (or its agents') control.
(c) The Unaffiliated Seller hereby agrees to do all acts,
transactions, and things and to execute and deliver all agreements, documents,
instruments, and papers by and on behalf of the Unaffiliated Seller as the
Depositor or its counsel may reasonably request in order to consummate the
transfer of the Mortgage Loans to the Depositor and the subsequent transfer
thereof to the Trustee, and the rating, issuance and sale of the Certificates.
Section 4.02. MERGER OR CONSOLIDATION. The Unaffiliated Seller will
keep in full effect its existence, rights and franchises as a corporation and
will obtain and preserve its qualification to do business as a foreign
corporation, in each jurisdiction necessary to protect the validity and
enforceability of this Agreement or any of the Mortgage Loans and to perform its
duties under this Agreement. Any Person into which the Unaffiliated Seller may
be merged or consolidated, or any corporation resulting from any merger,
conversion or consolidation to which Unaffiliated Seller shall be a party, or
any Person succeeding to the business of the Unaffiliated Seller, shall be
approved by the Certificate Insurer which approval shall not be unreasonably
withheld and in all events shall be the successor of the Unaffiliated Seller
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding. The
Unaffiliated Seller shall send notice of any such merger or consolidation to the
Trustee and the Certificate Insurer.
Section 4.03. COSTS. In connection with the transactions contemplated
under this Agreement and the Pooling and Servicing Agreement, the Unaffiliated
Seller shall promptly pay (or shall promptly reimburse the Depositor to the
extent that the Depositor shall have paid or otherwise incurred): (a) the fees
and disbursements of the Depositor's and the Underwriter's counsel; (b) the fees
of Standard & Poor's Ratings Group and Moody's Investors Service, Inc.; (c) any
of the fees of the Trustee and the fees and disbursements of the Trustee's
counsel; (d) expenses incurred in connection with printing the Prospectus, the
Prospectus Supplement, any amendment or supplement thereto, any preliminary
prospectus and the Certificates; (e) fees and expenses relating to the filing of
documents with the Securities and Exchange Commission (including without
limitation periodic reports under the Exchange Act); (f) the shelf registration
amortization fee (which fee shall equal l/33rd of l% of the amount of the
Certificates) paid in connection with the issuance of Certificates; (g) all of
the initial expenses of the Certificate Insurer including, without limitation,
legal fees and expenses, accountant fees and expenses and expenses in connection
with due diligence conducted on the Mortgage Files; and (h) all accountant's
fees incurred in connection with the accountant's review of the Prospectus
Supplement and information required to be filed in the Form 8-K pursuant to
Sections 2.02(d)(viii) and (ix). For the avoidance of doubt, the parties hereto
acknowledge that it is the intention of the parties that the Depositor shall not
pay any of the Trustee's fees and expenses in connection with the transactions
contemplated by the Pooling and Servicing Agreement. All other costs and
expenses in connection with the transactions contemplated hereunder shall be
borne by the party incurring such expenses.
Section 4.04. INDEMNIFICATION. (a) (i) The Unaffiliated Seller, agrees
to indemnify and hold harmless the Depositor, each of its directors, each of its
officers who have signed the Registration Statement, and each of its directors
and each person or entity who controls the Depositor or any such person, within
the meaning of Section 15 of the Securities Act, against any and all losses,
claims, damages or liabilities, joint and several, to which the Depositor or any
such person or entity may become subject, under the Securities Act or otherwise,
and will reimburse the Depositor and each such controlling person for any legal
or other expenses incurred by the Depositor or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Prospectus
Supplement or any amendment or supplement to the Prospectus Supplement or the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements in the Prospectus Supplement
or any amendment or supplement to the Prospectus Supplement approved in writing
by the Unaffiliated Seller, in light of the circumstances under which they were
made, not misleading, but only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission relates to the
information contained in the Prospectus Supplement referred to in Section
3.02(d). This indemnity agreement will be in addition to any liability which the
Unaffiliated Seller may otherwise have.
(ii) The Unaffiliated Seller agrees to indemnify and to hold
the Depositor harmless against any and all claims, losses, penalties,
fines, forfeitures, legal fees and related costs, judgments, and any
other costs, fees and expenses that the Depositor may sustain in any
way related to the failure of any of the Unaffiliated Seller to perform
its duties in compliance with the terms of this Agreement. The
Unaffiliated Seller shall immediately notify the Depositor if a claim
is made by a third party with respect to this Agreement, and the
Unaffiliated Seller shall assume the defense of any such claim and pay
all expenses in connection therewith, including reasonable counsel
fees, and promptly pay, discharge and satisfy any judgment or decree
which may be entered against the Depositor in respect of such claim.
Pursuant to the Pooling and Servicing Agreement, the Trustee shall
reimburse the Unaffiliated Seller in accordance with Section 3.6 of the
Pooling and Servicing Agreement for all amounts advanced by the
Unaffiliated Seller pursuant to the preceding sentence except when the
claim relates directly to the failure of the Unaffiliated Seller to
perform its duties in compliance with the terms of this Agreement.
(b) The Depositor agrees to indemnify and hold harmless the
Unaffiliated Seller, each of its directors and each person or entity who
controls the Unaffiliated Seller or any such person, within the meaning of
Section 15 of the Securities Act, against any and all losses, claims, damages or
liabilities, joint and several, to which the Unaffiliated Seller or any such
person or entity may become subject, under the Securities Act or otherwise, and
will reimburse the Unaffiliated Seller and any such director or controlling
person for any legal or other expenses incurred by such party or any such
director or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the Prospectus, the Prospectus
Supplement, any amendment or supplement to the Prospectus or the Prospectus
Supplement or the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, but
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission is other than a statement or omission relating to
the information set forth in subsection (a)(i) of this Section 4.04. This
indemnity agreement will be in addition to any liability which the Depositor may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
4.04 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party under
this Section 4.04, notify the indemnifying party in writing of the commencement
thereof, but the omission to so notify the indemnifying party will not relieve
the indemnifying party from any liability which the indemnifying party may have
to any indemnified party hereunder except to the extent such indemnifying party
has been prejudiced thereby. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. After notice from the indemnifying party to such indemnified
party of its election to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section 4.04 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation; provided,
however, if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it that are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assert such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. The indemnifying party shall not be
liable for the expenses of more than one separate counsel.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in the preceding
parts of this Section 4.04 is for any reason held to be unavailable to or
insufficient to hold harmless an indemnified party under subsection (a) or
subsection (b) of this Section 4.04 in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. In determining the amount of
contribution to which the respective parties are entitled, there shall be
considered the relative benefits received by the Unaffiliated Seller on the one
hand, and the Depositor on the other, the Unaffiliated Seller's and the
Depositor's relative knowledge and access to information concerning the matter
with respect to which the claim was asserted, the opportunity to correct and
prevent any statement or omission, and any other equitable considerations
appropriate in the circumstances. The Unaffiliated Seller and the Depositor
agree that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation. For purposes of this Section
4.04, each director of the Depositor, each officer of the Depositor who signed
the Registration Statement, and each person, if any who controls the Depositor
within the meaning of Section 15 of the Securities Act, shall have the same
rights to contribution as the Depositor, and each director of Unaffiliated
Seller, and each person, if any who controls the Unaffiliated Seller within the
meaning of Section 15 of the Securities Act, shall have the same rights to
contribution as the Unaffiliated Seller.
ARTICLE FIVE
CONDITIONS OF CLOSING
Section 5.01. CONDITIONS OF DEPOSITOR'S OBLIGATIONS. The obligations
of the Depositor to purchase the Mortgage Loans will be subject to the
satisfaction on the Closing Date of the following conditions. Upon payment of
the purchase price for the Mortgage Loans, such conditions shall be deemed
satisfied or waived.
(a) Each of the obligations of the Unaffiliated Seller required to be
performed by it on or prior to the Closing Date pursuant to the terms of this
Agreement shall have been duly performed and complied with and all of the
representations and warranties of the Unaffiliated Seller under this Agreement
shall be true and correct as of the Closing Date and no event shall have
occurred which, with notice or the passage of time, would constitute a default
under this Agreement, and the Depositor shall have received a certificate to the
effect of the foregoing signed by an authorized officer of the Unaffiliated
Seller.
(b) The Depositor shall have received a letter dated the date of this
Agreement, in form and substance acceptable to the Depositor and its counsel,
prepared by KPMG Peat Marwick, independent certified public accountants,
regarding the numerical information contained in the Prospectus Supplement under
the captions "Prepayment and Yield Considerations" and "Description of the
Mortgage Loans."
(c) The Depositor shall have received the following additional closing
documents, in form and substance satisfactory to the Depositor and its counsel:
(i) the Mortgage Loan Schedule;
(ii) the Pooling and Servicing Agreement dated as of March 1,
1997 and the Underwriting Agreement dated as of March 17, 1997 between
the Depositor and Credit Suisse First Boston Corporation and all
documents required thereunder, duly executed and delivered by each of
the parties thereto other than the Depositor;
(iii) officer's certificates of an officer of the Unaffiliated
Seller, dated as of the Closing Date, in the form of Exhibit B hereto,
and attached thereto resolutions of the board of directors and a copy
of the charter and by-laws;
(iv) copy of the Unaffiliated Seller's charter and all
amendments, revisions, and supplements thereof, certified
by a secretary of each entity;
(v) an opinion of the counsel for the Unaffiliated Seller as
to various corporate matters substantially in the form attached hereto
as Exhibit C (it being agreed that the opinion shall expressly provide
that the Trustee shall be entitled to rely on the opinion);
(vii) opinions of counsel for the Unaffiliated Seller, in forms
acceptable to the Depositor, its counsel, S&P and Moody's as to such
matters as shall be required for the assignment of a rating to the
Class A Certificates of AAA by S&P, and Aaa by Moody's (it being agreed
that such opinions shall expressly provide that the Trustee shall be
entitled to rely on such opinions);
(vii) a letter from Moody's that it has assigned a
rating of Aaa to the Class A Certificates;
(viii) a letter from S&P that it has assigned a rating
of AAA to the Class A Certificates;
(ix) an opinion of counsel for the Trustee in form and
substance acceptable to the Depositor, its counsel Moody's and S&P (it
being agreed that the opinion shall expressly provide that the
Unaffiliated Seller shall be entitled to rely on the opinion);
(x) an opinion or opinions of counsel for the Servicer, in
form and substance acceptable to the Depositor, its counsel, Moody's
and S&P (it being agreed that the opinion shall expressly provide that
the Unaffiliated Seller shall be entitled to rely on the opinion); and
(xi) an opinion or opinions of counsel for the Certificate
Insurer, in each case in form and substance acceptable to the
Depositor, its counsel, Moody's and S&P (it being agreed that the
opinion shall expressly provide that the Unaffiliated Seller shall be
entitled to rely on the opinion).
(d) The Certificate Insurance Policy shall have been duly executed,
delivered and issued with respect to the Certificates.
(e) All proceedings in connection with the transactions contemplated
by this Agreement and all documents incident hereto shall be satisfactory in
form and substance to the Depositor and its counsel.
(f) The Unaffiliated Seller shall have furnished the Depositor with
such other certificates of its officers or others and such other documents or
opinions as the Depositor or its counsel may reasonably request.
Section 5.02. CONDITIONS OF UNAFFILIATED SELLER'S OBLIGATIONS. The
obligations of the Unaffiliated Seller under this Agreement shall be subject to
the satisfaction, on the Closing Date, of the following conditions:
(a) Each of the obligations of the Depositor required to be performed
by it at or prior to the Closing Date pursuant to the terms of this Agreement
shall have been duly performed and complied with and all of the representations
and warranties of the Depositor contained in this Agreement shall be true and
correct as of the Closing Date and the Unaffiliated Seller shall have received a
certificate to that effect signed by an authorized officer of the Depositor.
(b) The Unaffiliated Seller shall have received the following
additional documents and Certificates:
(i) the Pooling and Servicing Agreement, and all
documents required thereunder, in each case executed by
the Depositor as applicable; and
(ii) a copy of a letter from Moody's to the Depositor to the
effect that it has assigned a rating of Aaa to the Class A Certificates
and a copy of a letter from S&P to the Depositor to the effect that it
has assigned a rating of AAA to the Class A Certificates.
(iii) the Class B Certificate and the R Certificate
registered in accordance with a letter of instruction from the
Unaffiliated Seller;
(iv) an opinion of counsel for the Trustee in form and
substance acceptable to the Unaffiliated Seller and its counsel;
(v) an opinion or opinions of counsel for the Certificate
Insurer, in each case in form and substance acceptable to the
Unaffiliated Seller and its counsel;
(vi) an opinion of the counsel for the Depositor as to
securities and tax matters; and
(vii) an opinion of the counsel for the Depositor as to
true sale matters.
(c) The Depositor shall have furnished the Unaffiliated Seller with
such other certificates of its officers or others and such other documents to
evidence fulfillment of the conditions set forth in this Agreement as the
Unaffiliated Seller may reasonably request.
Section 5.03. TERMINATION OF OBLIGATIONS. (a) The Depositor may
terminate its obligations hereunder by notice to the Unaffiliated Seller at any
time before delivery of and payment of the purchase price for the Mortgage Loans
if: (a) any of the conditions set forth in Section 5.01 are not satisfied when
and as provided therein; (b) there shall have been the entry of a decree or
order by a court or agency or supervisory authority having jurisdiction in the
premises for the appointment of a conservator, receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Unaffiliated Seller, or for the
winding up or liquidation of the affairs of the Unaffiliated Seller; (c) there
shall have been the consent by the Unaffiliated Seller to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or relating to
the Unaffiliated Seller or of or relating to substantially all of the property
of the Unaffiliated Seller; (d) any purchase and assumption agreement with
respect to the Unaffiliated Seller or substantially all of the assets and
properties of the Unaffiliated Seller shall have been entered into; or (e) a
Termination Event shall have occurred. The termination of the Depositor's
obligations hereunder shall not terminate the Depositor's rights hereunder or
its right to exercise any remedy available to it at law or inequity.
(b) The Unaffiliated Seller may terminate its obligations hereunder by
notice to the Depositor at any time before delivery of and payment of the
purchase price for the Mortgage Loans if: (a) any of the conditions set forth in
Section 5.02 are not satisfied when and as provided therein; (b) there shall
have been the entry of a decree or order by a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a
conservator, receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or relating to
the Depositor, or for the winding up or liquidation of the affairs of the
Depositor; (c) there shall have been the consent by the Depositor to the
appointment of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings of or relating to the Depositor or of or relating to substantially
all of the property of the Depositor; (d) any purchase and assumption agreement
with respect to the Depositor or substantially all of the assets and properties
of the Depositor shall have been entered into; or (e) a Termination Event shall
have occurred. The termination of the Unaffiliated Seller's obligations
hereunder shall not terminate the Unaffiliated Seller's rights hereunder or its
right to exercise any remedy available to it at law or inequity.
ARTICLE SIX
MISCELLANEOUS
Section 6.01. NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered in person to or mailed by registered mail, postage prepaid, or
transmitted by telex or telegraph and confirmed by a similar mailed writing, if
to the Depositor, addressed to the Depositor at Credit Suisse First Boston
Mortgage Securities Corp., 11 Madison Avenue, New York, New York 10010,
Attention: Nita S. Cherry, or to such other address as the Depositor may
designate in writing to the Unaffiliated Seller and if to the Unaffiliated
Seller, addressed to the Unaffiliated Seller at 3347 Michelson Drive, Suite 400,
Irvine, California 92612 Attention: President, or to such other address as the
Unaffiliated Seller may designate in writing to the Depositor.
Section 6.02. SEVERABILITY OF PROVISIONS. Any part, provision,
representation, warranty or covenant of this Agreement which is prohibited or
which is held to be void or unenforceable shall be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof. Any part, provision, representation, warranty or covenant of
this Agreement which is prohibited or unenforceable or is held to be void or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction as to any Mortgage Loan shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto waive any provision of law which prohibits
or renders void or unenforceable any provision hereof.
Section 6.03. AGREEMENT OF UNAFFILIATED SELLER. The Unaffiliated
Seller agrees to execute and deliver such instruments and take such actions as
the Depositor may, from time to time, reasonably request in order to effectuate
the purpose and to carry out the terms of this Agreement.
Section 6.04. SURVIVAL. The parties to this Agreement agree that the
representations, warranties and agreements made by each of them herein and in
any certificate or other instrument delivered pursuant hereto shall be deemed to
be relied upon by the other party hereto, notwithstanding any investigation
heretofore or hereafter made by such other party or on such other party's
behalf, and that the representations, warranties and agreements made by the
parties hereto in this Agreement or in any such certificate or other instrument
shall survive the delivery of and payment for the Mortgage Loans.
Section 6.05. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
Section 6.06. SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Except as expressly permitted by the terms
hereof, this Agreement may not be assigned, pledged or hypothecated by any party
hereto to a third party without the written consent of the other party to this
Agreement and the Certificate Insurer; provided, however, that the Depositor may
assign its rights hereunder without the consent of the Unaffiliated Seller.
Section 6.07. CONFIRMATION OF INTENT: GRANT OF SECURITY INTEREST. It
is the express intent of the parties hereto that the conveyance of the Mortgage
Loans and the related property by the Unaffiliated Seller to the Depositor as
contemplated by this Sale and Purchase Agreement be, and be treated for all
purposes as, a sale of the Mortgage Loans and the related property. It is,
further, not the intention of the parties that such conveyance be deemed a
pledge of the Mortgage Loans and the related property by the Unaffiliated Seller
to the Depositor to secure a debt or other obligation of the Unaffiliated
Seller. However, in the event that, notwithstanding the intent of the parties,
the Mortgage Loans and the related property are held to continue to be property
of the Unaffiliated Seller then (a) this Sale and Purchase Agreement shall also
be deemed to be a security agreement within the meaning of Articles 8 and 9 of
the New York Uniform Commercial Code; (b) the transfer of the Mortgage Loans
provided for herein shall be deemed to be a grant by the Unaffiliated Seller to
the Depositor of a security interest in all of the Unaffiliated Seller's right,
title and interest in and to the Mortgage Loans and all amounts payable on the
Mortgage Loans in accordance with the terms thereof and all proceeds of the
conversion, voluntary or involuntary, of the foregoing into cash, instruments,
securities or other property; (c) the possession by the Depositor or its
respective agents of Mortgage Notes and such other items of property as
constitute instruments, money, negotiable documents or chattel paper shall be
deemed to be "possession by the secured party" for purposes of perfecting the
security interest pursuant to Section 9-305 of the New York Uniform Commercial
Code and the Uniform Commercial Code of any other applicable jurisdiction; and
(d) notifications to persons holding such property, and acknowledgments,
receipts or confirmations from persons holding such property, shall be deemed
notifications to, or acknowledgments, receipts or confirmations from, financial
intermediaries, bailees or agents (as applicable) of the Depositor for the
purpose of perfecting such security interest under applicable law. Any
assignment of the interest of the Depositor pursuant to any provision hereof
shall also be deemed to be an assignment of any security interest created
hereby. The Unaffiliated Seller and the Depositor shall, to the extent
consistent with this Sale and Purchase Agreement, take such actions as may be
necessary to ensure that, if this Sale and Purchase Agreement were deemed to
create a security interest in the Mortgage Loans, such security interest would
be deemed to be a perfected security interest of first priority under applicable
law and will be maintained as such throughout the term of this Agreement.
Section 6.08. MISCELLANEOUS. This Agreement supersedes all prior
agreements and understandings relating to the subject matter hereof.
Section 6.09. AMENDMENTS. (a) This Agreement may be amended from time
to time by the Unaffiliated Seller and the Depositor by written Agreement, upon
the prior written consent of the Certificate Insurer, without notice to or
consent of the Certificateholders to cure any ambiguity, to correct or
supplement any provisions herein, to comply with any changes in the Code, or to
make any other provisions with respect to matters or questions arising under
this Agreement which shall not be inconsistent with the provisions of this
Agreement; provided, however, that such action shall not, as evidenced by an
Opinion of Counsel, at the expense of the party requesting the change, delivered
to the Trustee and the Certificate Insurer, adversely affect in any material
respect the interests of any Certificateholder (provided that no amendment shall
be deemed to adversely affect in any material respect the interest of any
Certificateholder, and no Opinion of Counsel to that effect shall be required,
if the Person requesting the amendment obtains a letter from Moody's and S&P
stating that such amendment would not result in the downgrading or withdrawal of
the respective ratings then assigned to the Certificates without regard to the
Certificate Insurance Policy); and provided further, that no such amendment
shall reduce in any manner the amount of, or delay the timing of, payments
received on Mortgage Loans which are required to be distributed on any
Certificate without the consent of the Holder of such Certificate, or change the
rights or obligations of any other party hereto without the consent of such
party. The Unaffiliated Seller shall give prompt written notice to Moody's and
S&P of any amendment made pursuant to this Section 6.09 and shall promptly send
copies of any such amendment to Moody's and S&P.
(b) This Agreement may be amended from time to time by the
Unaffiliated Seller and the Depositor with the consent of the Certificate
Insurer, the Majority Certificateholders and the Holders of the majority of the
Percentage Interest in each of the Class RL and Class RM Certificates for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Holders; provided, however, that no such amendment shall be made unless the
Trustee receives an Opinion of Counsel, at the expense of the party requesting
the change, that such change will not adversely affect the status of the
Upper-Tier REMIC or the Lower-Tier REMIC as a REMIC or cause a tax to be imposed
on such Upper-Tier REMIC or the Lower-Tier REMIC, and provided further, that no
such amendment shall reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be distributed on any
Certificate without the consent of the Holder of such Certificate or reduce the
percentage for each Class the Holders of which are required to consent to any
such amendment without the consent of the Holders of 100% of each Class of
Certificates affected thereby.
(c) It shall not be necessary for the consent of Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent shall approve the substance thereof.
Section 6.10. THIRD-PARTY BENEFICIARIES. The parties agree that each
of the Certificate Insurer and the Trustee is an intended third-party
beneficiary of this Agreement. The parties further agree that Credit Suisse
First Boston Corporation and each of its directors and each person or entity who
controls Credit Suisse First Boston Corporation or any such person, within the
meaning of Section 15 of the Securities Act (each, an "Underwriter Entity") is
an intended third-party beneficiary of this Agreement to the extent necessary to
obtain the benefit of the enforcement of the obligations and covenants of the
Unaffiliated Seller with respect to each Underwriter Entity under Section
4.04(a)(i) of this Agreement.
SECTION 6.11. GOVERNING LAW, CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL. (A) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE
OF NEW YORK.
(B) THE DEPOSITOR AND THE UNAFFILIATED SELLER EACH HEREBY SUBMIT TO
THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE
UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK
CITY, AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO
THE ADDRESS SET FORTH IN SECTION 6.01 OF THIS AGREEMENT AND SERVICE SO MADE
SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN
DEPOSITED IN THE U.S. MAIL, POSTAGE PREPAID. THE DEPOSITOR AND THE UNAFFILIATED
SELLER EACH HEREBY WAIVE ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY
OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
COURT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE DEPOSITOR AND THE
UNAFFILIATED SELLER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR AFFECT EITHER'S RIGHT TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY
OTHER JURISDICTION.
(C) THE DEPOSITOR AND THE UNAFFILIATED SELLER EACH HEREBY WAIVE ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN
CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE
RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
Section 6.12. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their names to be
signed by their respective officers thereunto duly authorized as of the date
first above written.
CREDIT SUISSE FIRST BOSTON MORTGAGE
SECURITIES CORP.
By:/s/ Joy Margolies
Name: Joy Margolies
Title: Vice President
PREFERRED CREDIT CORPORATION
By: /s/ Todd Rodriguez
Name: Todd Rodriguez
Title: Chief Executive Officer
<PAGE>
EXHIBIT A
MORTGAGE LOAN SCHEDULE
<PAGE>
SEE ATTACHMENT TO INITIAL CERTIFICATION OF TRUSTEE
<PAGE>
EXHIBIT B
FORM OF
OFFICER'S CERTIFICATE
<PAGE>
PREFERRED CREDIT
CORPORATION
CERTIFICATE OF SECRETARY
The undersigned, Walter Villaume, Secretary of Preferred Credit
Corporation, a California corporation (the "Seller"), DOES HEREBY CERTIFY that:
l. There has been no amendment to the Articles of Incorporation,
attached hereto as Exhibit 1, of the Unaffiliated Seller.
2. There are no proceedings pending, or to the knowledge of the
undersigned contemplated, leading to the dissolution or liquidation of the
Unaffiliated Seller.
3. The Unaffiliated Seller is in good standing as a corporation in the
State of California.
4. To the best knowledge of the undersigned, after inquiry of the
officials of the Unaffiliated Seller responsible for such matters, the
Unaffiliated Seller is not delinquent in the payment of its franchise or any
other tax due in any state.
5. The By-Laws attached as Exhibit 2 to this Certificate are the
accurate and complete By-Laws of the Unaffiliated Seller in effect on the date
hereof.
6. The resolutions attached as Exhibit 3 to this Certificate were duly
adopted by the Board of Directors of the Unaffiliated Seller and such
resolutions have not been amended, modified, rescinded or revoked and are in
full force and effect on the date hereof, and are the only resolutions of said
Board relating to the Instruments referred to in paragraph 7 hereof.
7. Each of (a) the Pooling and Servicing Agreement, dated as of March
1, 1997 (the "Pooling and Servicing Agreement"), among Credit Suisse First
Boston Mortgage Securities Corp., as depositor (the "Depositor"), Advanta
Mortgage Corp. USA, as servicer (the "Servicer"), the Unaffiliated Seller, as
seller, and Bankers Trust Company, as trustee (the "Trustee"), (b) the Sale and
Purchase Agreement, dated as of March 1, 1997, between the Depositor and the
Unaffiliated Seller, (c) the Insurance Agreement, dated as of March 1, 1997,
among MBIA Insurance Corporation, as Insurer (the "Certificate Insurer"), the
Depositor, the Unaffiliated Seller, the Servicer and the Trustee, and (d) the
Indemnification Agreement dated as of March 17, 1997 among the Certificate
Insurer, Credit Suisse First Boston Corporation, the Unaffiliated Seller and the
Depositor, in each case signed or executed, as the case may be, and delivered by
the Unaffiliated Seller, was duly authorized and is in the form approved by one
of the officers of the Unaffiliated Seller who executed such Agreements in
accordance with the resolutions referred to above.
8. The persons named below have been since __________, 1996 and are as
of the date hereof duly elected and qualified officers of the Unaffiliated
Seller, each holding the respective office or offices set forth opposite their
name below, and their respective signatures are as set forth opposite their name
below.
NAME POSITION SIGNATURE
Todd A. Rodriguez Chief Executive -----------------
Officer
Walter Villaume President ------------------
and Secretary
9. The information set forth in the Mortgage Loan Schedule required to
be furnished pursuant to the Pooling and Servicing Agreement is true and correct
in all material respects.
10. All material agreements, contracts, instruments and indentures to
which the Unaffiliated Seller is a party or is bound in connection with the
purchase, sale, transfer, servicing, origination and securitization of mortgage
loans and the issuance and sale of mortgage loan asset-backed certificates have
been fully identified to our legal counsel, Stroock & Stroock & Lavan LLP, New
York, New York ("Stroock"), by the appropriate officers of the Unaffiliated
Seller.
11. All orders, judgments, writs, injunctions and decrees of any court
or governmental agency or body or other tribunal having jurisdiction over the
Unaffiliated Seller in connection with the purchase, sale, transfer, servicing,
origination and securitization of mortgage loans and the issuance and sale of
mortgage loan asset-backed certificates have been fully identified to Dewey
Ballantine by the appropriate officers of the Unaffiliated Seller.
12. Capitalized terms used herein without definition shall have the
meaning ascribed thereto in the Pooling and Servicing Agreement.
WITNESS my hand this __th day of March, 1997.
PREFERRED CREDIT CORPORATION
---------------------------------
Name: Walter Villaume
Title: Secretary
<PAGE>
EXHIBIT C
FORM OF
OPINION OF COUNSEL
TO UNAFF1LIATED SELLER
<PAGE>
March ___, 1997
To the Addressees Listed
on the Attached Annex A
Re: Preferred Credit Asset-Backed
Certificates, Series 1997-1
Ladies and Gentlemen:
I have acted as counsel to Preferred Credit Corporation, a California
corporation (the "Seller"), in connection with the execution and delivery of the
following documents:
(i) The Sale and Purchase Agreement, dated as of
March 27, 1997 (the "Sale Agreement"), between the Unaffiliated Seller
and Credit Suisse First Boston Mortgage Securities Corp. (the
"Depositor")
(ii) the Pooling and Servicing Agreement, dated as of March 1,
1997 (the "Pooling and Servicing Agreement"), among the Depositor, the
Unaffiliated Seller, as seller, Advanta Mortgage Corp. USA, as
servicer (the "Servicer"), and Bankers Trust Company, as trustee (the
"Trustee");
(iii) the Insurance Agreement, dated as of March 1, 1997 (the
"Insurance Agreement"), among MBIA Insurance Corporation ("MBIA"), the
Depositor, the Unaffiliated Seller, the Servicer and the Trustee; and
(iv) the Indemnification Agreement, dated as of March ___,
1997 (the "Indemnification Agreement"), among MBIA, the Unaffiliated
Seller, the Servicer and Credit Suisse First Boston Corporation.
Capitalized terms used herein, but not defined, shall have the
meanings assigned to them in the Pooling and Servicing Agreement.
I have examined executed copies of the Sale Agreement, the Pooling and
Servicing Agreement, the Insurance Agreement and the Indemnification Agreement
(collectively, the "Documents"). I have also examined a copy of the Class A
Certificates, the Class B Certificates and the Residual Certificates (the
"CERTIFICATES") and the Prospectus Supplement dated March ___, 1997 with respect
to the Class A Certificates (the "PROSPECTUS SUPPLEMENT").
In addition, I have examined originals or photostatic or certified
copies of all such corporate records of the Unaffiliated Seller, and such
certificates of public officials, certificates of corporate officers, and other
documents, and such questions of law, as I have deemed relevant and necessary as
a basis for the opinions hereinafter expressed. As to certain issues of fact
material to the opinions expressed herein, I have, with your consent, relied to
the extent I deemed appropriate upon certificates and representations of
officers of the Unaffiliated Seller. In making my examinations and rendering the
opinions herein expressed, I have made the following assumptions:
(1) the corporate power of each party (other than the
Unaffiliated Seller) to enter into and perform
all of its obligations under each of the
Documents;
(2) the due authorization, execution and delivery of the
Documents by all parties thereto (other than the
Unaffiliated Seller) and the validity and binding
effect on all parties (other than the Unaffiliated
Seller) of each of the Documents;
(3) the genuineness of all signatures; and
(4) the authenticity of all documents submitted to me
as originals and the conformity to originals of
all documents submitted to me as copies.
The opinion expressed in paragraph 2 below with respect to the
enforceability of the Documents is subject to the following additional
qualifications:
(a) The effect of bankruptcy, insolvency, reorganization, moratorium,
receivership, or other similar laws of general applicability relating to or
affecting creditors' rights generally.
(b) The application of general principles of equity, including, but
not limited to, the remedy of specific performance (regardless of whether
enforceability is considered in a proceeding in equity or at law).
As to Paragraph 5 below, I have assumed that the parties to the Sale
Agreement and the Pooling and Servicing Agreement have performed and will
perform their respective obligations thereunder, including the delivery to the
Trustee, or its agent, of the Mortgage Notes, properly endorsed, and
fully-executed assignments in proper, recordable form from the Unaffiliated
Seller to the Trustee of the Mortgages following payment of legal and sufficient
consideration therefor, without any such Mortgage having been satisfied or
released, or the Mortgage Note discharged, and without the Trustee having actual
or constructive notice of the existence of any claim, lien, charge, mortgage,
security interest, encumbrance or right of the Unaffiliated Seller or the
Depositor, or creditors of the Unaffiliated Seller or the Depositor or others.
Further I have assumed the absence of any defense against enforcement of, or
right of offset against, each such Mortgage Note and the related Mortgage. I
have undertaken no independent review of the Mortgage Loans, including the
Mortgage Notes and the Mortgages, and have relied solely upon the
representations of the Unaffiliated Seller that it has title to the Mortgage
Loans and that the Mortgage Loans are not subject to any liens at the time of
their sale to the Trustee.
I am admitted to the Bar of the State of California, and express no
opinion as to the laws of any other jurisdiction except as to matters that are
governed by the federal law. All opinions expressed herein are based on laws,
regulations and policy guidelines currently in force and may be affected by
future regulations. Furthermore, no opinion is expressed herein regarding the
applicable state Blue Sky, legal investment or real estate syndication laws.
Based upon the foregoing and subject to the last paragraph hereof, I
am of the opinion that:
1. The Unaffiliated Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of California and is
qualified to do business in each state necessary to enable it to perform its
obligations under the Documents. The Unaffiliated Seller has the power and
authority to execute, deliver and perform its obligations under the Documents.
2. Each of the Documents has been duly authorized, executed and
delivered by the Unaffiliated Seller and each constitutes a valid, legal and
binding agreement of the Unaffiliated Seller and is enforceable against the
Unaffiliated Seller in accordance with their terms.
3. No consent, approval, authorization or order of, registration or
filing with, or notice to, any governmental authority or court is required under
federal laws, including, without limitation, the Securities Act of 1933, as
amended, or the laws of the State of California, for the execution, delivery and
performance by the Unaffiliated Seller of the Documents, or the offer, issuance,
sale or delivery of the Certificates, except such as have been obtained.
4. Neither the sale of the Mortgage Loans to the Trust Fund, the
issuance or sale of the Certificates, nor the execution, delivery or performance
by the Unaffiliated Seller of the Documents, conflicts or will conflict with, or
results or will result in a breach of, or constitutes or will constitute a
default under (i) any term or provision of the certificate of incorporation or
by-laws of the Unaffiliated Seller, (ii) any term or provision of any material
agreement, contract, instrument or indenture to which the Unaffiliated Seller is
a party or is bound which has been identified to me by the appropriate officers
of the Unaffiliated Seller, or (iii) any law, rule or regulation of the State of
California or the federal government.
5. Immediately upon the receipt of the Mortgage Notes and the
accompanying Mortgages by the Trustee, and the receipt by the Unaffiliated
Seller of legal and sufficient consideration therefor, the Trustee shall,
pursuant to the laws of the State of California, be vested with good and
indefeasible title to, and shall be the sole owner of, and shall obtain all
right, title and interest of the Unaffiliated Seller in and to, each Mortgage
Loan, free and clear of any claim, lien, charge, mortgage, security interest,
encumbrance or rights of the Unaffiliated Seller, EXCEPT THAT until such time as
assignments of mortgage are recorded in the name of the Trustee in the
appropriate jurisdictions (x) the Trustee may not, in certain jurisdictions, be
independently able to enforce the Mortgage against the related Mortgaged
Property or the related Mortgagor, (y) the Unaffiliated Seller could record an
assignment of a Mortgage in the name of a third party or record a discharge and
satisfaction of a Mortgage and (z) any notices which may be given to the record
holder of a Mortgage would be given to the Unaffiliated Seller.
6. To the best of my knowledge, following due inquiry made of the
appropriate officers of the Unaffiliated Seller, there are no actions,
proceedings or investigations pending or, to my knowledge, threatened against
the Unaffiliated Seller before any court, governmental agency or body or other
tribunal (a) asserting the invalidity of the Documents, (b) seeking to prevent
the consummation of any of the transactions contemplated by the Documents, (c)
which would materially and adversely affect the performance by the Unaffiliated
Seller of obligations under, or the validity or enforceability of the Documents.
I have furnished this opinion as counsel to the Unaffiliated Seller
and it is solely for the benefit of the addressees hereto.
Very truly yours,
<PAGE>
ANNEX A
Credit Suisse First Boston Corporation
11 Madison Avenue
New York, New York 10010
Credit Suisse First Boston Mortgage Securities Corp.
11 Madison Avenue
New York, New York 10010
Advanta Mortgage Corp. USA
16875 West Bernardo Drive
San Diego, California 92127
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Standard & Poor's Ratings Services
25 Broadway
New York, New York 10004
Bankers Trust Company
Four Albany Street
New York, New York 10006
FORM OF
CERTIFICATE GUARANTY INSURANCE POLICY
OBLIGATIONS: $200,000,000 POLICY NUMBER: 23479
Preferred Credit Asset-Backed Certificates, Series 1997-1
Class A-l, Class A-2, Class A-3, Class A-4, Class A-5, and
Class A-6 Certificates
MBIA Insurance Corporation (the "Insurer"), in consideration of the
payment of the premium and subject to the terms of this Certificate Guaranty
Insurance Policy (this "Policy"), hereby unconditionally and irrevocably
guarantees to any Owner that an amount equal to each full and complete Insured
Payment will be received from the Insurer by Bankers Trust Company, or its
successors, as trustee for the Owners (the "Trustee"), on behalf of the Owners,
for distribution by the Trustee to each Owner of each Owner's proportionate
share of the Insured Payment. The Insurer's obligations hereunder with respect
to a particular Insured Payment shall be discharged to the extent funds equal to
the applicable Insured Payment are received by the Trustee, whether or not such
funds are properly applied by the Trustee. Insured Payments shall be made only
at the time set forth in this Policy and no accelerated Insured Payments shall
be made regardless of my acceleration of the Obligations, unless such
acceleration is at the sole option of the Insurer.
Notwithstanding the foregoing paragraph, this Policy does not cover
shortfalls, if any, attributable to the liability of the Trust Fund, any REMIC
or the Trustee for withholding taxes, if any (including interest and penalties
in respect of any such liability).
The Insurer will pay any Insured Payment that is a Preference Amount on
the Business Day following receipt on a Business Day by the Fiscal Agent (as
described below) of (i) a certified copy of the order requiring the return of a
preference payment, (ii) an opinion of counsel satisfactory to the Insurer that
such order is final and not subject to appeal, (iii) an assignment in such form
as is reasonably required by the Insurer, irrevocably assigning to the Insurer
all rights and claims of the Owner relating to or arising under the Obligations
against the debtor which made such preference payment or otherwise with respect
to such preference payment and (iv) appropriate instruments to effect the
appointment of the Insurer as agent for such Owner in any legal proceeding
related to such preference payment, such instruments being in a form
satisfactory to the Insurer, provided that if such documents are received after
12:00 noon New York City time on such Business Day, they will be deemed to be
received on the following Business Day. Such payments shall be disbursed to the
receiver or trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the Owner and not to any Owner directly
unless such Owner has returned principal or interest paid on the Obligations to
such receiver or trustee in bankruptcy, in which case such payment shall be
disbursed to such Owner.
The Insurer will pay any other amount payable hereunder no later than
12:00 noon New York City time on the later of the Distribution Date on which the
related Deficiency Amount is due or the third Business Day following receipt in
New York, New York on a Business Day by State Street Bank and Trust Company,
N.A., as Fiscal Agent for the Insurer or any successor fiscal agent appointed by
the Insurer (the "Fiscal Agent") of a Notice (as described below); provided that
if such Notice is received after 12:00 noon New York City time on such Business
Day, it will be deemed to be received on the following Business Day. If any such
Notice received by the Fiscal Agent is not in proper form or is otherwise
insufficient for the purpose of making claim hereunder it shall be deemed not to
have been received by the Fiscal Agent for purposes of this paragraph, and the
Insurer or the Fiscal Agent, as the case may be, shall promptly so advise the
Trustee and the Trustee may submit an amended Notice.
Insured Payments due hereunder unless otherwise stated herein will be
disbursed by the Fiscal Agent to the Trustee on behalf of the Owners by wire
transfer of immediately available funds in the amount of the Insured Payment
less, in respect of Insured Payments related to Preference Amounts, any amount
held by the Trustee for the payment of such Insured Payment and legally
available therefor.
The Fiscal Agent is the agent of the Insurer only and the Fiscal Agent
shall in no event be liable to Owners for any acts of the Fiscal Agent or any
failure of the Insurer to deposit, or cause to be deposited, sufficient funds to
make payments due under this Policy.
As used herein, the following terms shall have the following meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of March
1, 1997 among Credit Suisse First Boston Mortgage Securities Corp., as
Depositor, Advanta Mortgage Corp. USA, as Servicer, Preferred Credit
Corporation, formerly known as T.A.R. Preferred Mortgage Corporation, as Seller,
and the Trustee, as trustee, without regard to any amendment or supplement
thereto.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which the Insurer or banking institutions in New York City or in the city in
which the corporate trust office of the Trustee under the Agreement is located
are authorized or obligated by law or executive order to close.
"Deficiency Amount" means for any Distribution Date, an amount equal to
the sum of (a) the excess, if any, of the Class A Interest Distribution Amount
over the Available Funds for such
Distribution Date and (b) the Overcollateralization Deficit.
"Insured Payment" means (i) as of any Distribution Date any Deficiency
Amount and (ii) any Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly confirmed
in writing by telecopy substantially in the form of Exhibit A attached hereto,
the original of which is subsequently delivered by registered or certified mail,
from the Trustee specifying the Insured Payment which shall be due and owing on
the applicable Distribution Date.
"Owner" means each Holder (as defined in the Agreement) who, on the
applicable Distribution Date, is entitled under the terms of the applicable
Obligations to payment thereunder.
"Preference Amount" means any amount previously distributed to an owner
on the Obligations that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Agreement as of the date of
execution of this Policy, without giving effect to any subsequent amendment to
or modification of the Agreement unless such amendment or modification has been
approved in writing by the Insurer.
Any notice hereunder or service of process on the Fiscal Agent of the
Insurer may be made at the address listed below for the Fiscal Agent of the
Insurer or such other address as the Insurer shall specify in writing to the
Trustee.
The notice address of the Fiscal Agent is 61 Broadway, 15th Floor, New
York, New York 10006 Attention: Municipal Registrar and Paying Agency.
This Policy is being issued under and pursuant to, and shall be
construed under, the laws of the State at New York, without giving effect to the
conflict of laws principles thereof.
The insurance provided by this Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
This Policy is not cancelable for any reason. The premium on this
Policy is not refundable for any reason including payment, or provision being
made for payment, prior to maturity of the Obligations.
<PAGE>
IN WITNESS WHEREOF, the Insurer has caused this Policy to be executed
and attested this 27th day of March, 1997.
MBIA INSURANCE CORPORATION
By________________________________
President
Attest:
By________________________________
Assistant Secretary
<PAGE>
EXHIBIT A
TO CERTIFICATE GUARANTY INSURANCE POLICY
NUMBER: 23479
NOTICE UNDER CERTIFICATE GUARANTY
INSURANCE POLICY NUMBER: 23479
State Street Bank and Trust Company, N.A., as Fiscal Agent
for MBIA Insurance Corporation
61 Broadway, 15th Floor
New York, NY 10006
Attention: Municipal Registrar and
Paying Agency
MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
The undersigned, a duly authorized officer of [TRUSTEE], as trustee
(the "Trustee"), hereby certifies to State Street Bank and Trust Company, N.A.
(the "Fiscal Agent") and MBIA Insurance Corporation (the "Insurer"), with
reference to Certificate Guaranty Insurance Policy Number: 23479 (the "Policy")
issued by the Insurer in respect of the $200,000,000, Preferred Credit
Asset-Backed Certificates, Series 1997-1 Class A-l, Class A-2, Class A-3, Class
A-4, Class A-5 and Class A-6 Certificates (the "Obligations"), that:
(i) the Trustee is the trustee under the Pooling and Servicing
Agreement dated as of March 1, 1997 among Credit Suisse First Boston
Mortgage Securities Corp., as Depositor, Advanta Mortgage Corp. USA,
as Servicer, Preferred Credit Corporation, formerly known as T.A.R.
Preferred Mortgage Corporation, as Seller, and the Trustee, as trustee
for the Owners;
(ii) the amount due under clause (a) of the definition of
Deficiency Amount for the Distribution Date occurring on (the
"Applicable Distribution Date") is $ ;
(iii) the amount due under clause (b) of the definition of
Deficiency Amount for the Applicable Distribution Date is $ ;
(iv) the sum of the amounts listed in paragraphs (ii) and (iii)
above is $ (the "Deficiency Amount");
(v) the amount of previously distributed payments on the
Obligations that is recoverable and sought to be recovered as
avoidable preference by a trustee in bankruptcy pursuant to the
Bankruptcy Code in accordance with a final nonappealable order of a
court having competent jurisdiction is $ (the "Preference
Amount");
(vi) the total Insured Payment due is $ , which amount equals
the sum of the Deficiency Amount and the Preference Amount;
(vii) the Trustee is making a claim under and pursuant to the
terms of the Policy for the dollar amount of the Insured Payment set
forth in (iv) above to be applied to the payment of the Deficiency
Amount for the Applicable Distribution Date in accordance with the
Agreement and for the dollar amount of the Insured Payment set forth in
(v) above to be applied to the payment of any Preference Amount; and
(viii) the Trustee directs that payment of the Insured Payment
be made to the following account by bank wire transfer of federal or
other immediately available funds in accordance with the terms of the
Policy:
[TRUSTEE'S ACCOUNT NUMBER].
Any capitalized term used in this Notice and not otherwise defined
herein shall have the meaning assigned thereto in the Policy.
Any Person Who Knowingly And With Intent To Defraud Any Insurance
Company Or Other Person Files An Application For Insurance Or Statement Of Claim
Containing Any Materially False Information, Or Conceals For The Purpose Of
Misleading, Information Concerning Any Fact Material Thereto, Commits A
Fraudulent Insurance Act, Which Is A Crime, And Shall Also Be Subject To A Civil
Penalty Not To Exceed Five Thousand Dollars And The State Value Of The Claim For
Each Such Violation.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Notice
under the Policy as of the [ ] day of [ ], [ ].
[TRUSTEE], as Trustee
By ______________________
Title_____________________
