- --------------------------------------------------------------------------------
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 (Date of earliest event reported) October 15, 1996
Prudential Securities Secured Financing Corporation
(Exact name of registrant as specified in its charter)
Delaware 33-91148 13-3526694
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
One New York Plaza
New York, New York 10292
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code (212) 214-7435
No Change
(Former name or former address, if changed since last report)
- --------------------------------------------------------------------------------
<PAGE>
Item 2. Acquisition or Disposition of Assets
Description of the Certificates and the Mortgage Loans
Prudential Securities Secured Financing Corporation registered issuances of
up to $500,000,000 principal amount of Mortgage Pass-Through Certificates on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Act"), by the Registration Statements on Form S-3
(Registration File No. 33-91148) (as amended, the "Registration Statement").
Pursuant to the Registration Statement, Irwin Home Equity Corporation Trust
1996-1 (the "Trust") issued approximately $140,000,000 in aggregate principal
amount of its Mortgage Pass-Through Certificates, Series 1996-1 (the
"Certificates"), on October 15, 1996. This Current Report on Form 8-K is being
filed to satisfy an undertaking to file copies of certain agreements executed in
connection with the issuance of the Certificates, the forms of which were filed
as Exhibits to the Registration Statement.
The Certificates were issued pursuant to a Pooling and Servicing Agreement
(the "Pooling and Servicing Agreement") attached hereto as Exhibit 4.1, dated as
of October 1, 1996, between Prudential Securities Secured Financing Corporation,
Irwin Home Equity Corporation, in its capacity as servicer (the "Servicer"), and
The Chase Manhattan Bank, in its capacity as trustee (the "Trustee"). The
Certificates consist of three classes of senior Certificates, the Class A-1
Certificates (the "Class A-1 Certificates"), the Class A-2 Certificates (the
"Class A-2 Certificates") and the Class A-3 Certificates (the "Class A-3
Certificates", and together with the Class A-1 Certificates and the Class A-2
Certificates, the "Class A Certificates") and one class of subordinated
Certificates (the "Class R Certificates"). Only the Class A Certificates are
being offered hereby. The Certificates initially evidence, in the aggregate,
100% of the undivided beneficial ownership interests in the Trust.
The assets of the Trust will be primarily (i) a pool of home equity
floating rate revolving credit line loans (the "HELOCs") and (ii) a pool of
closed end fexed rate home equity loans (the "HELs", and together with the
HELOCs, the "Mortgage Loans") secured in either case by mortgages on residential
one-to-four-family properties (the "Mortgaged Properties").
Interest distributions on the Class A Certificates are based on the
applicable Certificate Principal Balance and the then applicable Pass-Through
Rate. The Pass-Through Rate is adjustable for the Class A-1 Certificates, 6.65%
for the Class A-2 Certificates and 7.325% for the Class A-3 Certificates.
2
<PAGE>
The Class A-1 Certificates have an aggregate principal amount of
$76,000,000, the Class A-2 Certificates have an aggregate principal amount of
$47,000,000, and the Class A-3 Certificates have an aggregate principal amount
of $17,000,000.
As of the Closing Date, the Mortgage Loans possessed the characteristics
described in the Prospectus dated August 4, 1995 and the Prospectus Supplement
dated October 9, 1996 filed pursuant to Rule 424(b)(2) of the Act on October 10,
1996.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Not applicable
(b) Not applicable
(c) Exhibits:
1.1 Underwriting Agreement, dated October 8, 1996, between Prudential
Securities Secured Financing Corporation and Prudential Securities Incorporated.
4.1 Pooling and Servicing Agreement, dated as of October 1, 1996, between
Prudential Securities Secured Financing Corporation, Irwin Home Equity
Corporation, as servicer, and The Chase Manhattan Bank, as trustee.
4.2 Purchase and Sale Agreement, dated as of October 1, 1996, between
Prudential Securities Secured Financing Corporation, and IHE Funding Corp.
4.3 Indemnification Agreement, dated as of October 15, 1996, among
Financial Security Assurance Inc., Irwin Home Equity Corporation and Prudential
Securities Incorporated.
4.4 Class A-1 Certificate Insurance Policy.
4.5 Group II Certificate Insurance Policy.
23.1 Consent of Coopers & Lybrand L.L.P. regarding financial statements of
the Financial Security Assurance Inc. and their report.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PRUDENTIAL SECURITIES SECURED FINANCING
CORPORATION
--------------------------------------------
As Depositor and on behalf of Irwin
Home Equity Corporation Trust 1996-1
Registrant
By: /s/ Norman Chaleff
------------------------
Name: Norman Chaleff
Title: Vice President
Dated: October 29, 1996
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
----------- ----------- --------
1.1 Underwriting Agreement, dated October 7
8, 1996, between Prudential Securities
Secured Financing Corporation and
Prudential Securities Incorporated.
4.1 Pooling and Servicing Agreement, dated 30
as of October 1, 1996, between
Prudential Securities Secured
Financing Corporation, Irwin Home
Equity Corporation, as servicer, and
The Chase Manhattan Bank, as trustee.
4.2 Purchase and Sale Agreement, dated as 189
of October 1, 1996, between Prudential
Securities Secured Financing
Corporation, and IHE Funding Corp.
4.3 Indemnification Agreement, dated as of 237
October 15, 1996, among Financial
Security Assurance Inc., Irwin Home
Equity Corporation and Prudential
Securities Incorporated.
4.4 Class A-1 Certificate Insurance Policy 250
4.5 Group II Certificate Insurance Policy. 256
23.1 Consent of Coopers & Lybrand L.L.P. 262
regarding financial statements of the
Financial Security Assurance Inc. and
their report.
IRWIN HOME EQUITY
CORPORATION TRUST 1996-1
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-1
UNDERWRITING AGREEMENT
Dated as of October 8, 1996
<PAGE>
UNDERWRITING AGREEMENT
PRUDENTIAL SECURITIES INCORPORATED
One New York Plaza
New York, New York 10292
October 8, 1996
Ladies and Gentlemen:
Prudential Securities Secured Financing Corporation (the "Depositor")
proposes, subject to the terms and conditions stated herein and in the attached
Underwriting Agreement Standard Provisions, dated as of October 8, 1996 (the
"Standard Provisions"), between the Depositor and Prudential Securities
Incorporated, to issue and sell to you (the "Underwriter") the Securities
specified in Schedule I hereto (the "Offered Securities"). The Depositor agrees
that each of the provisions of the Standard Provisions is incorporated herein by
reference in its entirety, and shall be deemed to be a part of this Agreement to
the same extent as if such provisions had been set forth in full herein; and
each of the representations and warranties set forth therein shall be deemed to
have been made at and as of the date of this Underwriting Agreement. Each
reference to the "Representative" herein and in the provisions of the Standard
Provisions so incorporated by reference shall be deemed to refer to you. Unless
otherwise deemed herein, terms defined in the Standard Provisions are used
herein as therein deemed. The Prospectus Supplement and the accompanying
Prospectus relating to the Offered Securities (together, the "Prospectus") are
incorporated by reference herein.
Subject to the terms and conditions set forth herein and in the Standard
Provisions incorporated herein by reference, the Depositor agrees to issue and
sell to the Underwriter, and the Underwriter agrees to purchase from the
Depositor, at the time and place and at the purchase price to the Underwriter
and in the manner set forth in Schedule I hereto, the entire original principal
balance of the Offered Securities.
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us two counterparts hereof, and upon acceptance hereof by you, this
letter and such acceptance hereof, including the provisions of the Standard
Provisions incorporated herein by reference, shall constitute a binding
agreement between the Underwriter and the Depositor.
Very truly yours,
PRUDENTIAL SECURITIES
SECURED FINANCING
CORPORATION
By: /s/ Len Blum
---------------------
Len Blum
Vice President
Accepted as of the date hereof:
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ Brendan Keane
----------------------
Name: Brendan Keane
Title: Vice President
2
<PAGE>
SCHEDULE I
Title of Offered
Securities: Irwin Home Equity Corporation Trust 1996-1,
Mortgage Pass-Through Certificates, Series 1996-1,
Class A Certificates (the "Offered Securities").
The Trustee will simultaneously issue the Class R
and the 1996-1 Additional Certificate representing
beneficial interests in the Irwin Home Equity
Corporation Trust 1996-1 (the "Trust"). Only the
Class A Certificates are offered hereby.
Terms of Offered
Securities: The Offered Securities shall have the terms set
forth in the Prospectus Supplement and shall
conform in all material respects to the
descriptions thereof contained therein, and shall
be issued pursuant to a Pooling and Servicing
Agreement to be dated as of the Closing Date among
the Depositor, Irwin Home Equity Corporation, as
Servicer, and The Chase Manhattan Bank, as
Trustee.
Purchase Price: The purchase price for the Offered Securities
shall be 99.6424% of the aggregate principal
balance of the Class A Certificates as of the
Cut-Off Date.
Specified funds for
payment of
Purchase Price: Federal Funds (immediately available funds).
Required Ratings:
Aaa by Moody's Investors Service, Inc.
AAA by Standard & Poor's Ratings Services
Closing Date: On or about October 15, 1996 at 10:00 A.M. New
York City time or at such other time as the
Depositor and the Underwriter shall agree.
Closing Location: Offices of Dewey Ballantine, 1301 Avenue of the
Americas, New York, New York.
Name and address of
Representative: Designated Representative: Prudential Securities
Incorporated.
Address for Notices,
etc.: One New York Plaza
New York, New York 10292
Attn: Len Blum
<PAGE>
STANDARD PROVISIONS TO UNDERWRITING AGREEMENT
October 8, 1996
From time to time, Prudential Securities Secured Financing Corporation, a
Delaware corporation (the "Depositor") may enter into one or more underwriting
agreements (each, an "Underwriting Agreement") that provide for the sale of
designated securities to the several underwriters named therein (such
underwriters constituting the "Underwriters" with respect to such Underwriting
Agreement and the securities specified therein). The several underwriters named
in an Underwriting Agreement will be represented by one or more representatives
as named in such Underwriting Agreement (collectively, the "Representative").
The term "Representative" also refers to a single firm acting as sole
representative of the Underwriters and to Underwriters who act without any firm
being designated as their representative. The standard provisions set forth
herein (the "Standard Provisions") may be incorporated by reference in any
Underwriting Agreement. This Agreement shall not be construed as an obligation
of the Depositor to sell any securities or as an obligation of any of the
Underwriters to purchase such securities. The obligation of the Depositor to
sell any securities and the obligation of any of the Underwriters to purchase
any of the securities shall be evidenced by the Underwriting Agreement with
respect to the securities specified therein. An Underwriting Agreement shall be
in the form of an executed writing (which may be in counterparts), and may be
evidenced by an exchange of telegraphic communications or any other rapid
transmission device designed to produce a written record of the communications
transmitted. The obligations of the underwriters under this Agreement and each
Underwriting Agreement shall be several and not joint. Unless otherwise defined
herein, the terms defined in the Underwriting Agreement are used herein as
defined in the Prospectus and in the Pooling and Servicing Agreement referred to
below.
SECTION 1. THE OFFERED SECURITIES. Pursuant to the applicable Underwriting
Agreement, the Depositor proposes to sell to the several Underwriters named
therein certificates (the "Securities") representing beneficial ownership
interests in a trust (the "Trust"), the trust property of which consists of
separate pools of home equity revolving credit line loans and closed end home
equity loan secured by mortgages on residential one-to-four-family properties
(the "Mortgage Loans" and together with all other assets of the trust fund, the
"Trust Fund"), including (a) each Mortgage Loan which may be transferred to the
trust pursuant to the provisions of the Pooling and Servicing Agreement, dated
as of October 1, 1996 (the "Pooling and Servicing Agreement"), by and among the
Depositor, Irwin Home Equity Corporation (the "Servicer") and The Chase
Manhattan Bank, as trustee (the "Trustee"), (b) all rights of the Depositor
under the Purchase and Sale Agreement, dated as of October 1, 1996 (the
"Purchase and Sale Agreement"), between Prudential Securities Secured Financing
Corporation and IHE Funding Corp., as Seller thereunder, (c) such assets as from
time to time are identified as REO Property (as defined in the Pooling and
Servicing Agreement) and collections thereon and proceeds thereof, (d) all
assets deposited in the Accounts (as defined in the Pooling and Servicing
Agreement), including any amounts on deposit in the Accounts and invested in
Permitted Investments (as defined in the Pooling and Servicing Agreement), (e)
the Trustee's rights with respect to the Mortgage Loans under all insurance
1
<PAGE>
policies (other than the Class A-1 Certificate Insurance Policy or Group II
Certificate Insurance Policy, each as defined in the Pooling and Servicing
Agreement) required to be maintained pursuant to the Pooling and Servicing
Agreement and any Insurance Proceeds (as defined in the Pooling and Servicing
Agreement), (f) all Liquidation Proceeds (as defined in the Pooling and
Servicing Agreement) and (g) all Released Mortgaged Property Proceeds (as
defined in the Pooling and Servicing Agreement). The Securities will be issued
pursuant to the Pooling and Servicing Agreement.
The terms and rights of any particular issuance of Securities shall be as
specified in the Underwriting Agreement relating thereto and in or pursuant to
the Pooling and Servicing Agreement identified in such Underwriting Agreement.
The Securities which are the subject of any particular Underwriting Agreement
into which this Agreement is incorporated are herein referred to as the "Offered
Securities."
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (File No. 33-91148),
including a prospectus relating to the Securities under the Securities Act of
1933, as amended (the "1933 Act"). The term "Registration Statement" means such
registration statement as amended to and including the date of the Underwriting
Agreement. The term "Base Prospectus" means the prospectus included in the
Registration Statement. The term "Prospectus" means the Base Prospectus together
with the prospectus supplement specifically relating to the Offered Securities,
as first filed with the Commission pursuant to Rule 424, and as further
supplemented by the Prospectus Supplement dated October 9, 1996. The term
"Preliminary Prospectus" means a preliminary prospectus supplement specifically
relating to the Offered Securities together with the Base Prospectus.
SECTION 2. OFFERING BY THE UNDERWRITERS. Upon the execution of the
Underwriting Agreement applicable to any Offered Securities and the
authorization by the Representative of the release of such Offered Securities,
the several Underwriters propose to offer for sale to the public the Offered
Securities at the prices and upon the terms set forth in the Prospectus.
SECTION 3. PURCHASE, SALE AND DELIVERY OF THE OFFERED SECURITIES. Unless
otherwise specified in the Underwriting Agreement, payment for the Offered
Securities shall be made by certified or official bank check or checks payable
to the order of the Depositor in immediately available or next day funds, at the
time and place set forth in the Underwriting Agreement, upon delivery to the
Representative for the respective accounts of the several Underwriters of the
Offered Securities registered in definitive form and in such names and in such
denominations as the Representative shall request in writing not less than five
full business days prior to the date of delivery. The time and date of such
payment and delivery with respect to the Offered Securities are herein referred
to as the "Closing Date."
SECTION 4. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The respective
obligations of the several Underwriters pursuant to the Underwriting Agreement
shall be subject, in the discretion of the Representative, to the accuracy in
2
<PAGE>
all material respects of the representations and warranties of the Depositor
contained herein as of the date of the Underwriting Agreement and as of the
Closing Date as if made on and as of the Closing Date, to the accuracy in all
material respects of the statements of the officers of the Depositor and the
Servicer made in any certificates pursuant to the provisions hereof and of the
Underwriting Agreement, to the performance by the Depositor of its covenants and
agreements contained herein and to the following additional conditions
precedent:
(a) All actions required to be taken and all filings required to be made by
or on behalf of the Depositor under the 1933 Act and the Securities Exchange Act
of 1934, as amended (the "1934 Act") prior to the sale of the Offered Securities
shall have been duly taken or made.
(b) (i) No stop order suspending the effectiveness of the Registration
Statement shall be in effect; (ii) no proceedings for such purpose shall be
pending before or threatened by the Commission, or by any authority
administering any state securities or "Blue Sky" laws; (iii) any requests for
additional information on the part of the Commission shall have been complied
with to the Representative's reasonable satisfaction, (iv) since the respective
dates as of which information is given in the Registration Statement and the
Prospectus except as otherwise stated therein, there shall have been no material
adverse change in the condition, financial or otherwise, earnings, affairs,
regulatory situation or business prospects of the Depositor; (v) there are no
material actions, suits or proceedings pending before any court or governmental
agency, authority or body or threatened, affecting the Depositor or the
transactions contemplated by the Underwriting Agreement; (vi) the Depositor is
not in violation of its charter or its by-laws or in default in the performance
or observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which it is a party or by which it or its properties may be bound,
which violations or defaults separately or in the aggregate would have a
material adverse effect on the Depositor; and (vii) the Representative shall
have received, on the Closing Date, a certificate substantially in the form of
Exhibit A attached hereto, dated the Closing Date and signed by an executive
officer of the Depositor, to the foregoing effect.
(c) Subsequent to the execution of the Underwriting Agreement, there shall
not have occurred any of the following: (i) if at or prior to the Closing Date,
trading in securities on the New York Stock Exchange shall have been suspended
or any material limitation in trading in securities generally shall have been
established on such exchange, or a banking moratorium shall have been declared
by New York or United States authorities; (ii) if at or prior to the Closing
Date, there shall have been an outbreak or escalation of hostilities between the
United States and any foreign power, or of any other insurrection or armed
conflict involving the United States which results in the declaration of a
national emergency or war, and, in the reasonable opinion of the Representative,
makes it impracticable or inadvisable to offer or sell the Offered Securities or
(iii) if at or prior to the Closing Date, a general moratorium on commercial
banking activities in New York shall have been declared by either federal or New
York State authorities.
3
<PAGE>
(d) The Representative shall have received, on the Closing Date, a
certificate dated the Closing Date and signed by an executive officer of the
Depositor to the effect that attached thereto is a true and correct copy of the
letter from each nationally recognized statistical rating organization (as that
term is deemed by the Commission for purposes of Rule 436(g)(2) under the 1933
Act) that rated the Offered Securities and confirming that, unless otherwise
specified in the Underwriting Agreement, the Offered Securities have been rated
in the highest rating categories by each such organization and that each such
rating has not been rescinded since the date of the applicable letter.
(e) The Representative shall have received, as of the Closing Date, an
opinion of Dewey Ballantine, as special transaction counsel (the "Transaction
Counsel"), dated the Closing Date, in form and substance satisfactory to the
Representative and containing opinions substantially to the effect set forth in
Exhibit A hereto.
(f) The Representative shall have received, as of the Closing Date, an
opinion of Dewey Ballantine, special counsel for the Servicer, dated the Closing
Date, in form and substance satisfactory to the Representative and counsel for
the Underwriters and containing opinions substantially to the effect set forth
in Exhibit B-1 hereto.
(g) The Representative shall have received, as of the Closing Date, an
opinion of Matthew F. Souza, counsel to the Seller, dated the Closing Date, in
form and substance satisfactory to the Representative and the Transaction
Counsel, and containing opinions substantially to the effect set forth in
Exhibit B-2 hereto.
(h) The Representative shall have received, as of the Closing Date, an
opinion of counsel for the Trustee, dated the Closing Date, in form and
substance satisfactory to the Representative and counsel for the Underwriters
and containing opinions substantially to the effect set forth in Exhibit C
hereto.
(i) The Representative shall have received, on or prior to the date of
first use of the prospectus supplement relating to the Offered Securities, and
on the Closing Date if requested by the Representative, letters of independent
accountants of the Depositor in the form and reflecting the performance of the
procedures previously requested by the Representative.
(j) The Depositor shall have furnished or caused to be furnished to the
Representative on the Closing Date a certificate of an executive officer of the
Depositor satisfactory to the Representative as to the accuracy of the
representations and warranties of the Depositor herein at and as of such Closing
Date as if made as of such date, as to the performance by the Depositor of all
of its obligations hereunder to be performed at or prior to such Closing Date,
and as to such other matters as the Representative may reasonably request.
(k) The Servicer shall have furnished or caused to be furnished to the
Representative on the Closing Date a certificate of officers of such Servicer in
form and substance reasonably satisfactory to the Representative.
4
<PAGE>
(l) The Certificate Insurance Policies shall have been duly executed and
issued at or prior to the Closing Date and shall conform in all material
respects to the description thereof in the Prospectus Supplement.
(m) The Representative shall have received, on the Closing Date, an opinion
of counsel to MBIA Insurance Corporation ("the Certificate Insurer"), dated the
Closing Date, in form and substance satisfactory to the Representative and
counsel for the Underwriters and containing opinions substantially to the effect
set forth in Exhibit D hereto.
(n) On or prior to the Closing Date there shall not have occurred any
downgrading, nor shall any notice have been given of (i) any intended or
potential downgrading or (ii) any review or possible change in rating the
direction of which has not been indicated, in the rating accorded the
Certificate Insurer's claims paying ability by any "nationally recognized
statistical rating organization," as such term is defined for purposes of the
1933 Act.
(o) There has not occurred any change, or any development involving a
prospective change, in the condition, financial or otherwise, or in the
earnings, business or operations, since June 30, 1996, of the Certificate
Insurer, that is in the Representative's judgment material and adverse and that
makes it in the Representative's judgment impracticable to market the Offered
Securities on the terms and in the manner contemplated in the Prospectus.
(p) The Representative shall have received, on the Closing Date, a
certificate dated the Closing Date and signed by the President, a senior vice
president or a vice president or other authorized officer of the Certificate
Insurer to the effect that the signer of such certificate has carefully examined
each Certificate Insurance Policy, the Insurance Agreement dated the Closing
Date (the "Insurance Agreement") among the Servicer, the Underwriter, the
Depositor and the Certificate Insurer and the related documents and that, to the
best of his or her knowledge based on reasonable investigation:
1. There are no actions, suits or proceedings pending or threatened
against or affecting the Certificate Insurer which, if adversely
determined, individually or in the aggregate, would adversely affect the
Certificate Insurer's performance under the Certificate Insurance Policies
or the Insurance Agreement;
2. Each person who, as an officer or representative of the Certificate
Insurer, signed or signs the Certificate Insurance Policies, the Insurance
Agreement or any other document delivered pursuant hereto, on the date
thereof, or on the Closing Date, in connection with the transactions
described in this Agreement was, at the respective times of such signing
and delivery, and is now, duly elected or appointed, qualified and acting
as such officer or representative, and the signatures of such persons
appearing on such documents are their genuine signatures;
5
<PAGE>
3. The information contained in the Prospectus under the caption "THE
CERTIFICATE INSURANCE POLICIES AND THE CERTIFICATE INSURER" is true and
correct in all material respects and does not omit to state a material fact
with respect to the description of the Certificate Insurance Policies or
the ability of the Certificate Insurer to meet its payment obligations
under the Certificate Insurance Policies;
4. The tables regarding the Certificate Insurer's capitalization set
forth in the Prospectus under the heading "THE CERTIFICATE INSURANCE
POLICIES AND THE CERTIFICATE INSURER" present fairly the capitalization of
the Certificate Insurer as of the dates and for such periods as are
referenced in such tables;
5. The execution and delivery of the Insurance Agreement and the
Policies and the compliance with the terms and provisions thereof will not
conflict with, result in a breach of, or constitute a default under any of
the terms, provisions or conditions or, the Restated Charter or By-Laws of
the Insurer, or any agreement, indenture or other instrument to which the
Insurer is a party;
6. The audited balance sheet of the Certificate Insurer as of December
1994 and the related statement of income and retained earnings for the
fiscal year then ended, and the accompanying footnotes, together with an
opinion thereon dated February 1, 1995 of Coopers & Lybrand, independent
certificated public accountants, copies of which are incorporated by
reference in the Prospectus, fairly present in all material respects the
financial condition of the Certificate Insurer as of such date and for the
period covered by such statements in accordance with generally accepted
accounting principles consistently applied;
7. To the best knowledge of such officer, since no material adverse
change has occurred in the financial position of the Certificate Insurer
other than as set forth in the Prospectus; and
8. The issuance of the Certificate Insurance Policies and the
execution, delivery and performance of the Insurance Agreement have been
duly authorized by all necessary corporate proceedings. No further
approvals or filings of any kind, including, without limitation, any
further approvals of or further filing with any governmental agency or
other governmental authority, or any approval of the Certificate Insurer's
board of directors or stockholders, are necessary for the Certificate
Insurance Policies and the Insurance Agreement to constitute the legal,
valid and binding obligations of the Certificate Insurer.
(q) The Representative shall have been furnished such further information,
certificates, documents and opinions as the Representative may reasonably
request.
6
<PAGE>
SECTION 5. COVENANTS OF THE DEPOSITOR. In further consideration of the
agreements of the Underwriters contained in the Underwriting Agreement, the
Depositor covenants as follows:
(a) To furnish the Representative, without charge, copies of the
Registration Statement and any amendments thereto including exhibits and as many
copies of the Prospectus and any supplements and amendments thereto as the
Representative may from time to time reasonably request.
(b) Immediately following the execution of the Underwriting Agreement, the
Depositor will prepare a prospectus supplement setting forth the principal
amount, notional amount or stated amount, as applicable, of Offered Securities
covered thereby, the price at which the Offered Securities are to be purchased
by the Underwriters from the Depositor, either the initial public offering price
or prices or the method by which the price or prices at which the Offered
Securities are to be sold will be determined, the selling concessions and
reallowances, if any, any delayed delivery arrangements, and such other
information as the Representative and the Depositor deem appropriate in
connection with the offering of the Offered Securities, but the Depositor will
not file any amendment to the Registration Statement or any supplement to the
Prospectus of which the Representative shall not previously have been advised
and furnished with a copy a reasonable time prior to the proposed filing or to
which the Representative shall have reasonably objected. The Depositor will use
its best efforts to cause any amendment to the Registration Statement to become
effective as promptly as possible. During the time when a Prospectus is required
to be delivered under the 1933 Act, the Depositor will comply so far as it is
able with all requirements imposed upon it by the 1933 Act and the rules and
regulations thereunder to the extent necessary to permit the continuance of
sales or of dealings in the Offered Securities in accordance with the provisions
hereof and of the Prospectus, and the Depositor will prepare and file with the
Commission, promptly upon request by the Representative, any amendments to the
Registration Statement or supplements to the Prospectus which may be necessary
or advisable in connection with the distribution of the Offered Securities by
the Underwriters, and will use its best efforts to cause the same to become
effective as promptly as possible. The Depositor will advise the Representative,
promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement or any amended Registration Statement has become
effective or any supplement to the Prospectus or any amended Prospectus has been
filed. The Depositor will advise the Representative, promptly after it receives
notice or obtains knowledge thereof, of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, or the suspension of the qualification of the Offered Securities for
offering or sale in any jurisdiction, or of the initiation or threatening of any
proceeding for any such purpose, or of any request made by the Commission for
the amending or supplementing of the Registration Statement or the Prospectus or
for additional information, and the Depositor will use its best efforts to
prevent the issuance of any such stop order or any order suspending any such
qualification, and if any such order is issued, to obtain the lifting thereof as
promptly as possible.
7
<PAGE>
(c) If, at any time when a prospectus relating to the Offered Securities is
required to be delivered under the 1933 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 any 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, or if it is necessary
for any other reason to amend or supplement the Prospectus to comply with the
1933 Act, to promptly notify the Representative thereof and upon their request
to prepare and file with the Commission, at the Depositor's own expense, an
amendment or supplement which will correct such statement or omission or any
amendment which will effect such compliance.
(d) During the period when a prospectus is required by law to be delivered
in connection with the sale of the Offered Securities pursuant to the
Underwriting Agreement, the Depositor will file, on a timely and complete basis,
all documents that are required to be filed by the Depositor with the Commission
pursuant to Sections 13, 14, or 15(d) of the 1934 Act.
(e) To qualify the Offered Securities for offer and sale under the
securities or "Blue Sky" laws of such jurisdictions as the Representative shall
reasonably request and to pay all expenses (including fees and disbursements of
counsel) in connection with such qualification of the eligibility of the Offered
Securities for investment under the laws of such jurisdictions as the
Representative may designate provided that in connection therewith the Depositor
shall not be required to qualify to do business or to file a general consent to
service of process in any jurisdiction.
(f) To make generally available to the Depositor's security holders, as
soon as practicable, but in any event not later than eighteen months after the
date on which the filing of the Prospectus, as amended or supplemented, pursuant
to Rule 424 under the 1933 Act first occurs, an earnings statement of the
Depositor covering a twelve-month period beginning after the date of the
Underwriting Agreement, which shall satisfy the provisions of Section 11(a) of
the 1933 Act and the applicable rules and regulations of the Commission
thereunder (including, at the option of the Depositor, Rule 158).
(g) For so long as any of the Offered Securities remain outstanding, to
furnish to the Representative upon request in writing copies of such financial
statements and other periodic and special reports as the Depositor may from time
to time distribute generally to its creditors or the holders of the Offered
Securities and to furnish to the Representative copies of each annual or other
report the Depositor shall be required to file with the Commission.
(h) For so long as any of the Offered Securities remain outstanding, the
Depositor will, or will cause the Servicer to, furnish to the Representative, as
soon as available, a copy of (i) the annual statement of compliance delivered by
the Servicer to the Trustee under the applicable Pooling and Servicing
Agreement, (ii) the annual independent public accountants' servicing report
furnished to the Trustee pursuant to the applicable Pooling and Servicing
8
<PAGE>
Agreement, (iii) each report regarding the Offered Securities mailed to the
holders of such Securities, and (iv) from time to time, such other information
concerning such Securities as the Representative may reasonably request.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The Depositor
represents and warrants to, and agrees with, each Underwriter, as of the date of
the Underwriting Agreement, as follows:
(a) The Registration Statement including a prospectus relating to the
Securities and the offering thereof from time to time in accordance with Rule
415 under the 1933 Act has been filed with the Commission and such Registration
Statement, as amended to the date of the Underwriting Agreement, has become
effective. No stop order suspending the effectiveness of such Registration
Statement has been issued and no proceeding for that purpose has been initiated
or threatened by the Commission. A prospectus supplement specifically relating
to the Offered Securities will be filed with the Commission pursuant to Rule 424
under the 1933 Act; provided, however, that a supplement to the Prospectus
prepared pursuant to Section 5(b) hereof shall be deemed to have supplemented
the Basic Prospectus only with respect to the Offered Securities to which it
relates. The conditions to the use of a registration statement on Form S-3 under
the 1933 Act, as set forth in the General Instructions on Form S-3, and the
conditions of Rule 415 under the 1933 Act, have been satisfied with respect to
the Depositor and the Registration Statement. There are no contracts or
documents of the Depositor that are required to be filed as exhibits to the
Registration Statement pursuant to the 1933 Act or the rules and regulations
thereunder that have not been so filed.
(b) On the effective date of the Registration Statement, the Registration
Statement and the Basic Prospectus conformed in all material respects to the
requirements of the 1933 Act and the rules and regulations thereunder, 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; on the date of the Underwriting Agreement and as of the
Closing Date, the Registration Statement and the Prospectus conform, and as
amended or supplemented, if applicable, will conform in all material respects to
the requirements of the 1933 Act and the rules and regulations thereunder, and
on the date of the Underwriting Agreement and as of the Closing Date, neither of
such documents includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and neither of such documents as amended or
supplemented, if applicable, will 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; provided, however, that
the foregoing does not apply to statements or omissions in any of such documents
based upon written information furnished to the Depositor by any Underwriter
specifically for use therein.
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise stated therein,
there has been no material adverse change in the condition, financial or
9
<PAGE>
otherwise, earnings, affairs, yregulatory situation or business prospects of the
Depositor, whether or not arising in the ordinary course of the business of the
Depositor.
(d) The Depositor has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(e) The Depositor has all requisite power and authority (corporate and
other) and all requisite authorizations, approvals, orders, licenses,
certificates and permits of and from all government or regulatory officials and
bodies to own its properties, to conduct its business as described in the
Registration Statement and the Prospectus and to execute, deliver and perform
this Agreement, the Underwriting Agreement, the Pooling and Servicing Agreement
and, if applicable, the Custodial Agreement, except such as may be required
under state securities or Blue Sky laws in connection with the purchase and
distribution by the Underwriter of the Offered Securities; all such
authorizations, approvals, orders, licenses, and certificates are in full force
and effect and contain no unduly burdensome provisions; and, except as set forth
or contemplated in the Registration Statement or the Prospectus, there are no
legal or governmental proceedings pending or, to the best knowledge of the
Depositor, threatened, that would result in a material modification, suspension
or revocation thereof.
(f) The Offered Securities have been duly authorized, and when the Offered
Securities are issued and delivered pursuant to the Underwriting Agreement, the
Offered Securities will have been duly executed, issued and delivered and will
be entitled to the benefits provided by the applicable Pooling and Servicing
Agreement, subject, as to the enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium and other laws affecting the rights of
creditors generally, and to general principles of equity (regardless of whether
the entitlement to such benefits is considered in a proceeding in equity or at
law), and will conform in substance to the description thereof contained in the
Registration Statement and the Prospectus, and will in all material respects be
in the form contemplated by the Pooling and Servicing Agreement.
(g) The execution and delivery by the Depositor of this Agreement, the
Underwriting Agreement and the Pooling and Servicing Agreement are within the
corporate power of the Depositor and neither the execution and delivery by the
Depositor of this Agreement, the Underwriting Agreement and the Pooling and
Servicing Agreement nor the consummation by the Depositor of the transactions
therein contemplated, nor the compliance by the Depositor with the provisions
thereof, will conflict with or result in a breach of, or constitute a default
under, the charter or the by-laws of the Depositor or any of the provisions of
any law, governmental rule, regulation, judgment, decree or order binding on the
Depositor or its properties, or 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 will result in the creation or imposition of a lien,
charge or encumbrance upon any of its property pursuant to the terms of any such
indenture, mortgage, contract or other instrument, except such as have been
obtained under the 1933 Act and such consents, approvals, authorizations,
10
<PAGE>
registrations or qualifications as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of the Offered
Securities by the Underwriters.
(h) The Underwriting Agreement has been, and as of the Closing Date the
Pooling and Servicing Agreement will have been, duly authorized, executed and
delivered by the Depositor.
(i) As of the Closing Date, each of the Underwriting Agreement and 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 the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium and other laws affecting the
rights of creditors generally, and to general principles of equity and the
discretion of the court (regardless of whether the enforcement of such remedies
is considered in a proceeding in equity or at law).
(j) No filing or registration with, notice to, or consent, approval,
non-disapproval, authorization or order or other action of, any court or
governmental authority or agency is required for the consummation by the
Depositor of the transactions contemplated by the Underwriting Agreement or the
Pooling and Servicing Agreement, except such as have been obtained and except
such as may be required under the 1933 Act, the rules and regulations
thereunder, or state securities or "Blue Sky" laws, in connection with the
purchase and distribution of the Offered Securities by the Underwriters.
(k) The Depositor owns or possesses or has obtained all material
governmental licenses, permits, consents, orders, approvals and other
authorizations necessary to lease, own or license, as the case may be, and to
operate, its properties and to carry on its business as presently conducted and
has received no notice of proceedings relating to the revocation of any such
license, permit, consent, order or approval, which singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would materially
adversely affect the conduct of the business, results of operations, net worth
or condition (financial or otherwise) of the Depositor.
(l) Other than as set forth or contemplated in the Prospectus, there are no
legal or governmental proceedings pending to which the Depositor is a party or
of which any property of the Depositor is the subject which, if determined
adversely to the Depositor would individually or in the aggregate have a
material adverse effect on the condition (financial or otherwise), earnings,
affairs, or business or business prospects of the Depositor and, to the best of
the Depositor's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(m) Each of the Offered Securities will, when issued, be a "mortgage
related security" as such term is defined in Section 3(a)(41) of the 1934 Act.
(n) At the Closing Date or any date on which Subsequent Mortgage Loans are
transferred by the Depositor to the Trust (each, a "Subsequent Funding Date"),
as the case may be, each of the Mortgage Loans which is a subject of the Pooling
11
<PAGE>
and Servicing Agreement and all such Mortgage Loans in the aggregate will meet
the criteria for selection described in the Prospectus, and at the Closing Date
or any Subsequent Funding Date, as the case may be, the representations and
warranties made by the Depositor in such Pooling and Servicing Agreement will be
true and correct as of such date.
(o) At the time of execution and delivery of the Pooling and Servicing
Agreement and on any Subsequent Transfer Date, as the case may be, the Depositor
will have good and marketable title to the Mortgage Loans being transferred to
the Trustee pursuant to the Pooling and Servicing Agreement, free and clear of
any lien, mortgage, pledge, charge, encumbrance, adverse claim or other security
interest (collectively, "Liens"), and will not have assigned to any person any
of its right, title or interest in such Mortgage Loans or in such Pooling and
Servicing Agreement or the Offered Securities being issued pursuant thereto, the
Depositor will have the power and authority to transfer such Mortgage Loans to
the Trustee and to transfer the Offered Securities to each of the Underwriters,
and upon execution and delivery to the Trustee of the Pooling and Servicing
Agreement and delivery to each of the Underwriters of the Offered Securities,
and on any Subsequent Transfer Date, as the case may be, the Trustee will have
good and marketable title to the Mortgage Loans and each of the Underwriters
will have good and marketable title to the Offered Securities, in each case free
and clear of any Liens. Notwithstanding the foregoing, each of the Underwriters
and the Depositor agrees and understands that, in accordance with and pursuant
to the Pooling and Servicing Agreement, payments collected in respect of the
Mortgage Loans allocable to the Additional Balances on the Mortgage Loans will
not be available to the holders of the Offered Securities.
(p) The Pooling and Servicing Agreement is not required lo be qualified
under the Trust Indenture Act of 1939, as amended, and the Trust Fund (as
defined in the Pooling and Servicing Agreement) is not required to be registered
under the Investment Company Act of 1940, as amended.
(q) Any taxes, fees and other governmental charges in connection with the
execution, delivery and issuance of the Underwriting Agreement, this Agreement,
the Pooling and Servicing Agreement and the Offered Securities have been or will
be paid at or prior to the Closing Date.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Depositor agrees to indemnify and hold harmless each Underwriter
(including Prudential Securities Incorporated acting in its capacity as
Representative and as one of the Underwriters), and each person, if any, who
controls any Underwriter within the meaning of the 1933 Act, against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter or
such controlling person may become subject under the 1933 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, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
12
<PAGE>
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 or 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 untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with (1)
written information furnished to the Depositor by any Underwriter through the
Representative specifically for use therein or (2) information regarding the
Mortgage Loans except to the extent that the Depositor has been indemnified by
the Seller, under the Purchase and Sale Agreement, or the Servicer, under the
Pooling and Servicing Agreement. 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 the Depositor's directors, each of the Depositor's officers who signed the
Registration Statement and each person, if any, who controls the Depositor,
within the meaning of the 1933 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 1933 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, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or any other
prospectus relating to the Offered Securities, 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, in
each case to the extent, but only to the extent that such untrue statements 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
any Underwriter through the Representative specifically for use therein; and
each Underwriter will reimburse any legal or other expenses reasonably incurred
by the Depositor or any such director, officer or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have. The Depositor acknowledges
that the statements set forth under the caption "Plan of Distribution" in the
Prospectus Supplement constitute the only information furnished to the Depositor
by or on behalf of any Underwriter for use in the Registration Statement, any
Preliminary Prospectus or the Prospectus, and each of the several Underwriters
represents and warrants that such statements are correct as to it.
(c) Promptly after receipt by an indemnified party under this Section 7 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 7, notify the indemnifying party of the commencement thereof, but the
omission to so notify the indemnifying party will not relieve the indemnifying
13
<PAGE>
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 wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel satisfactory to
such indemnified party. 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 7 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, that the Representative shall have
the right to employ separate counsel to represent the Representative, those
other Underwriters and their respective controlling persons who may be subject
to liability arising out of any claim in respect of which indemnity may be
sought by the Underwriters against the Depositor under this Section 7 if, in the
reasonable judgment of the Representative, it is advisable for the
Representative and those Underwriters and controlling persons to be represented
by separate counsel, and in that event the fees and expenses of such separate
counsel shall be paid by the Depositor (it being understood, however, that the
Depositor shall not, in connection with any one such claim or separate but
substantially similar or related claim in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys at any time for the
Representative and those Underwriters and controlling persons).
(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 7 is for any reason held to be unavailable to or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages or liabilities (or actions in
respect thereof) referred to therein, then 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 1933 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
Depositor on the one hand, and the Underwriters on the other, from the offering
of the Offered Securities (taking into account the portion of the proceeds of
the offering realized by each), the Depositor's and the Underwriters' 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 Depositor and the Underwriters agree that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation (even if the Underwriters were treated as one entity for such
purpose). No Underwriter or person controlling such Underwriter shall be
obligated to make contribution hereunder which in the aggregate exceeds the
total public offering price of the Offered Securities purchased by such
Underwriter under the Underwriting Agreement, less the aggregate amount of any
14
<PAGE>
damages which such Underwriter and its controlling persons have otherwise been
required to pay in respect of the same or any substantially similar claim. The
Underwriters' obligation to contribute hereunder are several in proportion to
their respective underwriting obligations and not joint. For purposes of this
Section 7, each person, if any, who controls an Underwriter within the meaning
of Section 15 of the 1933 Act shall have the same rights to contribution as such
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 Section 15 of the 1933 Act, shall have the same
rights to contribution as the Depositor.
(e) The parties hereto agree that the first sentence of Section 5 of the
Indemnification Agreement (the "Indemnification Agreement") dated as of the
Closing Date among the Certificate Insurer, the Servicer, the Depositor and the
Underwriter shall not be construed as limiting the Depositor's right to enforce
its rights under Section 7 of this Agreement. The parties further agree that, as
between the parties hereto, to the extent that the provisions of Sections 4, 5
and 6 of the Indemnification Agreement conflict with Section 7 hereof, the
provisions of Section 7 hereof shall govern.
SECTION 8. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The
respective representations, warranties, agreements, covenants, indemnities and
other statements of the Depositor, its officers and the several Underwriters set
forth in, or made pursuant to, the Underwriting Agreement shall remain in full
force and effect, regardless of any investigation, or statement as to the result
thereof, made by or on behalf of any Underwriter, the Depositor, or any of the
officers or directors or any controlling person of any of the foregoing, and
shall survive the delivery of and payment for the Offered Securities.
SECTION 9. TERMINATION.
(a) The Underwriting Agreement may be terminated by the Depositor by notice
to the Representative in the event that a stop order suspending the
effectiveness of the Registration Statement shall have been issued or
proceedings for that purpose shall have been instituted or threatened.
(b) The Underwriting Agreement may be terminated by the Representative by
notice to the Depositor in the event that the Depositor shall have failed,
refused or been unable to perform all obligations and satisfy all conditions to
be performed or satisfied hereunder by the Depositor at or prior to the Closing
Date.
(c) Termination of the Underwriting Agreement pursuant to this Section 9
shall be without liability of any party to any other party other than as
provided in Sections 7 and 11 hereof.
SECTION 10. DEFAULT OF UNDERWRITERS. If any Underwriter or Underwriters
defaults or default in their obligation to purchase Offered Securities which it
or they have agreed to purchase under the Underwriting Agreement and the
15
<PAGE>
aggregate principal amount of the Offered Securities which such defaulting
Underwriter or Underwriters agreed but failed to purchase is ten percent or less
of the aggregate principal amount, notional amount or stated amount, as
applicable, of the Offered Securities to be sold under the Underwriting
Agreement, as the case may be, the other Underwriters shall be obligated
severally in proportion to their respective commitments under the Underwriting
Agreement to purchase the Offered Securities which such defaulting Underwriter
or Underwriters agreed but failed to purchase. If any Underwriter or
Underwriters so defaults or default and the aggregate principal amount of the
Offered Securities with respect to which such default or defaults occurs or
occur is more than ten percent of the aggregate principal amount, notional
amount or stated amount, as applicable, of Offered Securities to be sold under
the Underwriting Agreement, as the case may be, and arrangements satisfactory to
the Representative and the Depositor for the purchase of such Offered Securities
by other persons (who may include one or more of the non-defaulting Underwriters
including the Representative) are not made within 36 hours after any such
default, the Underwriting Agreement will terminate without liability on the part
of any non-defaulting Underwriters or the Depositor except for the expenses to
be paid or reimbursed by the Depositor pursuant to Section 11 hereof. As used in
the Underwriting Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10. Nothing herein shall
relieve a defaulting Underwriter from liability for its default.
SECTION 11. EXPENSES. The Depositor agrees with the several Underwriters
that:
(a) whether or not the transactions contemplated in the Underwriting
Agreement are consummated or the Underwriting Agreement is terminated, the
Depositor will pay all fees and expenses incident to the performance of its
obligations under the Underwriting Agreement, including, but not limited to, (i)
the Commission's registration fee, (ii) the expenses of printing and
distributing the Underwriting Agreement and any related underwriting documents,
the Registration Statement, any Preliminary Prospectus, the Prospectus, any
amendments or supplements to the Registration Statement or the Prospectus, and
any Blue Sky memorandum or legal investment survey and any supplements thereto,
(iii) fees and expenses of rating agencies, accountants and counsel for the
Depositor, (iv) the expenses referred to in Section 5(e) hereof, and (v) all
miscellaneous expenses referred to in Item 30 of the Registration Statement;
(b) all out-of-pocket expenses, including counsel fees, disbursements and
expenses, reasonably incurred by the Underwriters in connection with
investigating, preparing to market and marketing the Offered Securities and
proposing to purchase and purchasing the Offered Securities under the
Underwriting Agreement will be borne and paid by the Depositor if the
Underwriting Agreement is terminated by the Depositor pursuant to Section 9(a)
hereof or by the Representative on account of the failure, refusal or inability
on the part of the Depositor to perform all obligations and satisfy all
conditions on the part of the Depositor to be performed or satisfied hereunder;
and
16
<PAGE>
(c) the Depositor will pay the cost of preparing the certificates for the
Offered Securities.
Except as otherwise provided in this Section 11, the Underwriters agree to
pay all of their expenses in connection with investigating, preparing to market
and marketing the Offered Securities and proposing to purchase and purchasing
the Offered Securities under the Underwriting Agreement, including the fees and
expenses of their counsel and any advertising expenses incurred by them in
making offers and sales of the Offered Securities.
SECTION 12. NOTICES. All communications under the Underwriting Agreement
shall be in writing and, if sent to the Underwriters, shall be mailed, delivered
or telegraphed and confirmed to the Representative at the address and to the
attention of the person specified in the Underwriting Agreement, and, if sent to
the Depositor, shall be mailed, delivered or telegraphed and confirmed to
Prudential Securities Secured Financing Corporation, 199 Water Street, 26th
Floor, New York, New York 10292, Attention: Director-Mortgage Finance Group;
provided, however, that any notice to any Underwriter pursuant to the
Underwriting Agreement shall be mailed, delivered or telegraphed and confirmed
to such Underwriter at the address furnished by it.
SECTION 13. REPRESENTATIVE OF UNDERWRITERS. Any Representative identified
in the Underwriting Agreement will act for the Underwriters of the Offered
Securities and any action taken by the Representative under the Underwriting
Agreement will be binding upon all of such Underwriters.
SECTION 14. SUCCESSORS. The Underwriting Agreement shall inure to the
benefit of and shall be binding upon the several Underwriters and the Depositor
and their respective successors and legal representatives, and nothing expressed
or mentioned herein or in the Underwriting Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or claim
under or in respect of the Underwriting Agreement, or any provisions herein
contained, the Underwriting Agreement and all conditions and provisions hereof
being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person except that (i) the
representations and warranties of the Depositor contained herein or in the
Underwriting Agreement shall also be for the benefit of any person or persons
who controls or control any Underwriter within the meaning of Section 15 of the
1933 Act, and (ii) the indemnities by the several Underwriters shall also be for
the benefit of the directors of the Depositor, the officers of the Depositor who
have signed the Registration Statement and any person or persons who control the
Depositor within the meaning of Section 15 of the 1933 Act. No purchaser of the
Offered Securities from any Underwriter shall be deemed a successor because of
such purchase. This Agreement and each Underwriting Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 15. TIME OF THE ESSENCE. Time shall be of the essence of each
Underwriting Agreement.
17
<PAGE>
SECTION 16. GOVERNING LAW. This Agreement and each Underwriting Agreement
shall be governed by and construed in accordance with the laws of the State of
New York.
18
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return two counterparts hereof.
Very truly yours,
PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION
By: /s/ Len Blum
------------------
Len Blum
Vice President
Accepted as of the date hereof:
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ Brendan Keane
--------------------------
Name: Brendan Keane
Title: Vice President
19
POOLING AND SERVICING AGREEMENT
Dated as of October 1 1996
by and among
Prudential Securities Secured Financing Corporation
(Depositor)
and
Irwin Home Equity Corporation
(Servicer)
and
The Chase Manhattan Bank
(Trustee)
Irwin Home Equity Corporation Trust 1996-1
Mortgage Pass-Through Certificates,
Series 1996-1
Class A and Class R and the Additional Certificate
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS
Section 1.1 Certain Defined Terms.......................... 1
Section 1.2 Provisions of General Application.............. 43
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...................................... 45
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....................... 50
Section 2.5 Designations under REMIC Provisions;
Designation of Startup Date.................... 53
Section 2.6 Execution of Certificates...................... 53
Section 2.7 Application of Principal and Interest.......... 53
Section 2.8 Grant of Security Interest..................... 54
Section 2.9 Further Assurances; Powers of
Attorney....................................... 54
Section 2.10 Conveyance of the Subsequent Mortgage Loans.... 55
ARTICLE III REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations of the Servicer................ 60
Section 3.2 Representations, Warranties and
Covenants of the Depositor..................... 62
Section 3.3 Purchase and Substitution...................... 64
Section 3.4 Servicer Covenants............................. 66
ARTICLE IV THE CERTIFICATES
Section 4.1 The Certificates............................... 67
Section 4.2 Registration of Transfer and Exchange
of Certificates................................ 67
Section 4.3 Mutilated, Destroyed, Lost or Stolen
Certificates................................... 76
Section 4.4 Persons Deemed Owners.......................... 76
i
<PAGE>
ARTICLE V ADMINISTRATION AND SERVICING OF THE
MORTGAGE LOANS
Section 5.1 Appointment of the Servicer.................... 78
Section 5.2 Subservicing Agreements Between the
Servicer and Subservicers...................... 81
Section 5.3 Collection of Certain Mortgage Loan
Payments; Collection Account................... 82
Section 5.4 Permitted Withdrawals from the
Collection Account and Trustee
Collection Account............................. 85
Section 5.5 Payment of Taxes, Insurance and Other
Charges........................................ 87
Section 5.6 Maintenance of Casualty Insurance.............. 87
Section 5.7 Servicer Account............................... 89
Section 5.8 Fidelity Bond; Errors and Omissions
Policy......................................... 89
Section 5.9 Collection of Taxes, Assessments and
Other Items.................................... 90
Section 5.10 Periodic Filings with the Securities
and Exchange Commission; Additional
Information.................................... 90
Section 5.11 Enforcement of Due-on-Sale Clauses;
Assumption Agreements.......................... 91
Section 5.12 Realization upon Defaulted Mortgage
Loans.......................................... 92
Section 5.13 Trustee to Cooperate; Release of
Mortgage Files................................. 95
Section 5.14 Servicing Fee; Servicing Compensation.......... 96
Section 5.15 Reports to the Trustee; Collection
Account Statements............................. 97
Section 5.16 Annual Statement as to Compliance.............. 97
Section 5.17 Annual Independent Public
Accountants' Servicing Report.................. 98
Section 5.18 Reports to be Provided by the
Servicer....................................... 98
Section 5.19 Adjustment of Servicing Compensation
in Respect of Prepaid Mortgage Loans........... 99
Section 5.20 Periodic Advances.............................. 99
Section 5.21 Indemnification; Third Party Claims............100
Section 5.22 Maintenance of Corporate Existence
and Licenses; Merger or Consolidation
of the Servicer................................101
Section 5.23 Assignment of Agreement by Servicer;
Servicer Not to Resign.........................101
ii
<PAGE>
ARTICLE VI DISTRIBUTIONS AND PAYMENTS
Section 6.1 Establishment of Certificate Account,
Additional Certificate Account,
Capitalized Interest Account and Pre-
Funding Account; Deposits to the
Certificate Account, the Additional
Certificate Account, Capitalized
Interest Account and the Pre-Funding
Account........................................103
Section 6.2 Permitted Withdrawals From the
Certificate Account and The
Additional Certificate Account.................105
Section 6.3 Collection of Money............................106
Section 6.4 The Reserve Account and the
Certificate Insurance Policies.................106
Section 6.5 Distributions..................................109
Section 6.6 Investment of Accounts.........................113
Section 6.7 Reports by Trustee.............................114
Section 6.8 Additional Reports by Trustee and by
Servicer.......................................117
Section 6.9 Compensating Interest..........................118
Section 6.10 Effect of Payments by the Certificate
Insurer; Subrogation...........................118
Section 6.11 Pre-Funding Account............................119
Section 6.12 Capitalized Interest Account...................119
ARTICLE VII DEFAULT
Section 7.1 Events of Default..............................120
Section 7.2 Trustee to Act; Appointment of
Successor......................................122
Section 7.3 Waiver of Defaults.............................124
Section 7.4 Mortgage Loans, Trust Fund and
Accounts Held for Benefit of the
Certificate Insurer............................125
ARTICLE VIII TERMINATION
Section 8.1 Termination....................................126
Section 8.2 Additional Termination Requirements............128
Section 8.3 Accounting Upon Termination of
Servicer.......................................129
ARTICLE IX THE TRUSTEE
Section 9.1 Duties of Trustee..............................130
Section 9.2 Certain Matters Affecting the Trustee..........136
Section 9.3 Not Liable for Certificates or
Mortgage Loans.................................138
Section 9.4 Trustee May Own Certificates...................138
iii
<PAGE>
Section 9.5 Trustee's Fees and Expenses;
Indemnity......................................138
Section 9.6 Eligibility Requirements for Trustee...........139
Section 9.7 Resignation and Removal of the
Trustee........................................139
Section 9.8 Successor Trustee..............................141
Section 9.9 Merger or Consolidation of Trustee.............141
Section 9.10 Appointment of Co-Trustee or Separate
Trustee........................................141
Section 9.11 Tax Returns; Old Interest Reporting............143
Section 9.12 Retirement of Certificates.....................143
ARTICLE X MISCELLANEOUS PROVISIONS
Section 10.1 Limitation on Liability of the
Depositor and the Servicer.....................144
Section 10.2 Acts of Certificateholders;
Certificateholders' Rights.....................144
Section 10.3 Amendment or Supplement........................145
Section 10.4 Recordation of Agreement.......................146
Section 10.5 Duration of Agreement..........................146
Section 10.6 Notices........................................146
Section 10.7 Severability of Provisions.....................147
Section 10.8 No Partnership.................................147
Section 10.9 Counterparts...................................147
Section 10.10 Successors and Assigns.........................148
Section 10.11 Headings.......................................148
Section 10.12 The Certificate Insurer Default................148
Section 10.13 Third Party Beneficiary........................148
Section 10.14 Intent of the Parties..........................148
Section 10.15 Appointment of Tax Matters Person..............148
Section 10.16 GOVERNING LAW CONSENT TO
JURISDICTION; WAIVER OF JURY TRIAL.............149
iv
<PAGE>
EXHIBITS
EXHIBIT A-1 Specimen Class A-1 Certificate Insurance Policy
EXHIBIT A-2 Specimen Group II Certificate Insurance Policy
EXHIBIT B-1 Specimen Class A-1 Certificate
EXHIBIT B-2 Specimen Class A-2 Certificate
EXHIBIT B-3 Specimen Class A-3 Certificate
EXHIBIT B-4 Specimen Class R Certificate
EXHIBIT B-5 Specimen Additional Certificate
EXHIBIT C Contents of Mortgage File
EXHIBIT D Mortgage Loan Schedule
EXHIBIT E Trustee's Certificate as to Mortgage Files
EXHIBIT F Form of Initial Certification of Trustee
EXHIBIT G Form of Final Certification of Trustee
EXHIBIT H Form of Request for Release of Mortgage Files
EXHIBIT I Form of Transfer Affidavit and Agreement
EXHIBIT J Form of Transferor's Certificate
EXHIBIT K Form of ERISA Investment Representation Letter
EXHIBIT L Delinquency Collection Policies and Procedures
EXHIBIT M Form of Officer's Certificate of the Seller:
Prepaid Loans
EXHIBIT N Form of Transferee's Letter
EXHIBIT O Form of Subsequent Transfer Agreement
EXHIBIT P Specimen Letters of Credit
EXHIBIT Q Instructions Regarding Letters of Credit
v
<PAGE>
This Pooling and Servicing Agreement, relating to Irwin Home Equity
Corporation Trust 1996-1, dated as of October 1, 1996 by and among Prudential
Securities Secured Financing Corporation, a Delaware corporation, in its
capacity as depositor of the Trust (the "Depositor"), Irwin Home Equity
Corporation, an Indiana corporation, in its capacity as servicer (the
"Servicer"), and The Chase Manhattan Bank, a banking corporation organized under
the laws of the State of New York, in its capacity as trustee (the "Trustee).
W I T N E S S E T H:
WHEREAS, the Depositor wishes to establish a trust which provides for the
allocation and sale of the beneficial interests therein and the maintenance and
distribution of the trust estate;
WHEREAS, the Depositor also wishes to provide for the issuance from time to
time of a separate certificate (the "Additional Certificate") representing
interests in Additional Balances (as herein defined), the rights with respect to
which will be determined pursuant to this Agreement;
WHEREAS, the Servicer has agreed to service the Mortgage Loans, which
constitute the principal assets of the trust estate;
WHEREAS, The Chase Manhattan Bank is willing to serve in the capacity of
Trustee hereunder; and
WHEREAS, MBIA Insurance Corporation (the "Certificate Insurer") is intended
to be a third-party beneficiary of this Agreement and is hereby recognized by
the parties hereto to be a third-party beneficiary of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Depositor, the Servicer and the Trustee hereby 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.
<PAGE>
"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;
provided, further, that with respect to any Mortgage Loan for which the related
Monthly Payment has not been received by the related Due Date, Accepted
Servicing Practices shall also include the policies and procedures set forth in
the Delinquency Collection Policies and Procedures.
"Account" shall mean any Eligible Account established hereunder.
"Accrual Period" shall mean (i) with respect to the Class A-1 Certificates
and any Remittance Date, the period commencing on the 15th day of the month
immediately preceding the month in which such Remittance Date occurs or, in the
case of the first Remittance Date, the Closing Date, and ending on the 14th day
of the month in which such Remittance Date occurs and (ii) with respect to the
Group II Certificates and any Remittance Date, the period commencing on the 1st
day of the month immediately preceding the month in which such Remittance Date
occurs and ending on the last day of the month immediately preceding the month
in which such Remittance Date occurs.
"Addition Notice" shall mean, with respect to the transfer of Subsequent
Mortgage Loans to the Trust pursuant to Section 2.10 of this Agreement, notice,
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 and (stating separately for the HELOCs and the
HELs) the aggregate principal balance and the weighted average Mortgage Interest
Rate and Gross Margin, if any, of such Subsequent Mortgage Loans. Such Addition
Notice shall include an electronic data file in a form agreeable to the Trustee
and the Certificate Insurer.
"Additional Balance" shall mean any amounts added, from time to time, to
the principal balance of a HELOC after the Cut-Off Date as a result of the
Mortgagor on the related Mortgage Note exercising the right to borrow additional
amounts under such Mortgage Loan. The Additional Balances shall not be part of
the 1996-1 REMIC.
2
<PAGE>
"Additional Balance Factor" shall mean, as of any date of determination,
and for any HELOC, the quotient of the Additional Balance of such HELOC and the
Principal Balance of such HELOC.
"Additional Certificate" shall mean the certificate in the form of Exhibit
B-5 issued hereunder representing an undivided interest in the Trust Fund in an
amount equal to the Additional Balances of the HELOCs. The identification of
such Additional Balances shall be indicated, from time to time, on one or more
amended Mortgage Loan Schedules delivered from time to time that shall specify
that the interest in such Additional Balances has been assigned to the
Additional Certificate.
"Additional Certificate Account" shall mean the Additional Certificate
Account(s) established in accordance with Section 6.1(b) hereof and maintained
by the Trustee.
"Additional Certificate Allocation" shall mean with respect to any payment
on, or monies collected in respect of, a HELOC, the sum of (a) Interest
Collections less the REMIC Daily Interest, plus (b) with respect to the
Principal Collections other than Liquidation Proceeds, zero, until the Trust
Balance of the related Mortgage Loan is reduced to zero, and thereafter, all
Principal Collections with respect to such Mortgage Loan, plus (c) with respect
to Liquidation Proceeds the product of such Liquidation Proceeds and the
Additional Balance Factor applicable to such HELOC plus (d) with respect to
daily interest or investment earnings on proceeds, collections, recoveries or
other amounts received in respect of a particular Mortgage Loan and on deposit
in the Collection Account or Trustee Collection Account, the product of such
day's interest or investment earnings and the Additional Balance Factor for such
HELOC.
"Additional Certificateholders" shall include any Holder of an Additional
Certificate.
"Administrative Costs" shall mean with respect to any Remittance Date, the
sum of the Trustee Fee, the applicable Certificate Insurance Premium Amount and
the Servicing Fee for such Remittance Date.
"Adverse REMIC Event" shall have the meaning set forth in Section 5.1(c).
"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
3
<PAGE>
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 in accordance
herewith.
"Aggregate Trust Balance" shall mean the aggregated sum of the Trust
Balances of each of the Mortgage Loans as of any date of determination.
"Aggregate HEL Trust Balance" shall mean the aggregated sum of the Trust
Balances of each of the HELs as of any date of determination.
"Aggregate HELOC Trust Balance" shall mean the aggregated sum of the Trust
Balance of each of the HELOCs as of any date of determination.
"Appraised Value" shall mean the appraised value of any Mortgaged Property,
based upon the appraisal made at the time the related 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, the Certificate Insurer and the
Additional Certificateholder.
"Authorized Denominations" shall mean, in the case of the Class A
Certificates, $1,000 or integral multiples of $1,000 in excess thereof;
provided, however, that one Class A-1 Certificate, one Class A-2 Certificate and
one Class A-3 Certificate each is issuable in a denomination equal to an amount
less than $1,000 such that the aggregate denomination of all Class A-1
Certificates, Class A-2 Certificates or Class A-3 Certificates, as the case may
be, shall be equal to the applicable Original Class A-1 Principal Balance,
Original Class A-2 Principal Balance or Original Class A-3 Principal Balance
and, in the case of Additional Certificate, in any denomination necessary to
reflect the then outstanding Additional Balances.
"Available Amount" shall mean each of the Group I Available Amount and the
Group II Available Amount.
4
<PAGE>
"Available Funds Excess" shall have the meaning ascribed thereto in Section
6.5.
"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, Illinois or
New York are authorized or obligated by law or executive order to be closed.
"Capitalized Interest Account" shall mean the Account created pursuant to
Section 6.1(c) hereof.
"Capitalized Interest Deposit Amount" shall mean for any Remittance Date
the sum of (i) the amount by which the product of (a) the sum of the Class A-1
Pass-Through Rate, the Class A-1 Premium Percentage and the rate at which the
Trustee Fee is calculated and (b) the Group I Pre-Funded Amount as of the first
day of the related Remittance Period exceeds investment earnings, if any on the
Group I Pre- Funded Amount and (ii) the amount by which the product of (a) the
sum of the Weighted Average Group II Pass-Through Rate, the Group II Premium
Percentage and the rate at which the Trustee Fee is calculated and (b) the Group
II Pre- Funded Amount as of the first day of the related Remittance Period
exceeds investment earnings, if any on the Group II Pre-Funded Amount.
"Capitalized Interest Requirement" shall mean the sum of the Group I
Capitalized Interest Requirement and the Group II Capitalized Interest
Requirement.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980.
"Certificate" shall mean any Series 1996-1 Class A Certificate or Series
1996-1 Class R Certificate executed by the Trustee on behalf of the Trust Fund
and authenticated by the Trustee.
"Certificate Account" shall mean the Certificate Account established in
accordance with Section 6.1(a) hereof and maintained by the Trustee.
"Certificateholder" shall mean, except as provided in Article X, each
Person in whose name a Certificate is registered in the Certificate Register,
except that, solely for the purposes of giving any consent (except any consent
required to be obtained pursuant to Section 10.2), waiver, request or demand
pursuant to this Agreement, any Certificate registered in the name of the
Servicer or any Subservicer or the Seller, or any Affiliate of any of them,
5
<PAGE>
shall be deemed not to be outstanding and the undivided interest in the related
REMIC evidenced thereby shall not be taken into account in determining whether
the requisite percentage of Certificates necessary to effect any such consent,
waiver, request or demand has been obtained. For purposes of any consent,
waiver, request or demand of Certificateholders pursuant to this Agreement, upon
the Trustee's request, the Servicer and the Seller shall provide to the Trustee
a notice identifying any of their respective Affiliates or the Affiliates of any
Subservicer that is a Certificateholder as of the date(s) specified by the
Trustee in such request. Any Certificates on which payments are made under
either 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 between
the Certificate Insurer, the Depositor and the parties named therein.
"Certificate Insurance Policy" shall mean each of the Class A-1 Certificate
Insurance Policy and the Group II Certificate Insurance Policy.
"Certificate Insurance Premium Amount" shall mean each of the Class A-1
Certificate Insurance Premium Amount and the Group II Certificate Insurance
Premium Amount.
"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).
"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 or
of any new Series issued hereunder.
"Class A Certificate" shall mean any Class A-1 Certificate, any Class A-2
Certificate or any Class A-3 Certificate.
6
<PAGE>
"Class A-1 Certificate" shall mean any Certificate designated as a "Class
A-1 Certificate" on the face thereof, in the form of Exhibit B-1 hereto, and
authenticated by the Trustee in accordance with the procedures set forth herein.
"Class A-1 Certificateholder" shall mean a Holder of a Class A-1
Certificate.
"Class A-1 Certificate Insurance Policy" shall mean the certificate
guaranty insurance policy No. 22190, and all endorsements thereto dated the
Closing Date, issued by the Certificate Insurer for the benefit of the Class A-1
Certificateholders, a copy of which is attached hereto as Exhibit A-1. The
Certificate Insurance Policy shall not benefit the Additional Certificate.
"Class A-1 Certificate Insurance Premium Amount" shall mean, the product of
the Class A-1 Premium Percentage and the Class A-1 Principal Balance for the
related Remittance Date.
"Class A-1 Credit Enhancement Distribution Amount" shall mean the excess,
if any, of the Class A-1 Formula Distribution Amount over the Group I Available
Amount.
"Class A-1 Distribution Amount" shall mean, with respect to the Class A-1
Certificates for any Remittance Date, the amount distributed to the Holders of
the Class A-1 Certificates on such Remittance Date pursuant to Sections
6.5(a)(iii) and (iv) hereof, which amount shall be the lesser of (a) the Class
A-1 Formula Distribution Amount for such Remittance Date and (b) the amount
(including any applicable portion of any Insured Payment) available for
distribution on account of the Class A-1 Certificates for such Remittance Date.
"Class A-1 Final Scheduled Maturity Date" shall mean the January 15, 2018
Remittance Date.
"Class A-1 Formula Distribution Amount" shall mean, with respect to the
Class A-1 Certificates for any Remittance Date, the sum of (a) the Class A-1
Interest Distribution Amount for such Remittance Date plus (b) the amount
described in clause (b) of the definition of Class A- 1 Principal Distribution
Amount for such Remittance Date plus (c) any Class A-1 Formula Distribution
Amount remaining unpaid from any prior Remittance Date.
"Class A-1 Insured Payment" shall mean, the sum of (i) with respect to any
Remittance Date, the related Deficiency Amount plus (ii) any unpaid Preference
Amount.
7
<PAGE>
"Class A-1 Interest Distribution Amount" shall mean, with respect to the
Class A-1 Certificates for any Remittance Date an amount equal to the aggregate
of interest accrued at the Class A-1 Pass-Through Rate during the Accrual Period
on the Class A-1 Principal Balance excluding (i) any Mortgage Loan Interest
Shortfall and (ii) any reductions in interest resulting from the application of
the Civil Relief Act, in each case as of such Remittance Date.
"Class A-1 Pass-Through Rate" with respect to any Remittance Date, will be
equal to a per annum rate (calculated on the basis of actual days elapsed
divided by 360) equal to the lesser of (a) the sum of (i) LIBOR on the Interest
Determination Date (or as of October 1, 1996, in the case of the first
Remittance Date) plus (ii) for each Remittance Date which occurs on or prior to
the date on which the Class A-1 Principal Balance is less than 10% of the
Original Class A-1 Principal Balance .25% and for each Remittance Date occurring
thereafter, .50% and (b) the Weighted Average Rate Cap.
"Class A-1 Premium Percentage" shall have the meaning assigned thereto in
the Certificate Insurance Agreement.
"Class A-1 Principal Balance" shall mean, as of any date of determination,
the Original Class A-1 Principal Balance less any amount distributed with
respect to principal on the Class A-1 Certificates on all prior Remittance
Dates.
"Class A-1 Principal Distribution Amount" shall mean, with respect to the
Class A-1 Certificates for any Remittance Date, the lesser of:
(a) the excess of the Group I Available Amount, plus any Class A-1 Insured
Payment over the Class A-1 Interest Distribution Amount; and
(b) the sum, without duplication, of:
(1) that portion of all scheduled installments of principal in
respect of the HELOCs allocable to the Trust Balances of such
HELOCs which is received (or advanced) during the related Due
Period together with all unscheduled recoveries of principal
(including Prepayments, Curtailments and Deficient Valuations)
allocable to the Trust Balances of such HELOCs actually collected
by the Servicer during the prior calendar month,
8
<PAGE>
(2) the Trust Balance of each HELOC that either was, effective on
such Remittance Date, repurchased by the Seller or by the
Depositor or purchased by the Servicer during the preceding Due
Period, but only to the extent the amount equal to such Trust
Balance is actually received by the Trustee,
(3) any Substitution Adjustment amounts delivered by the Depositor on
the related Remittance Date in connection with a substitution of
a HELOC, to the extent such Substitution Adjustments are actually
received by the Trustee,
(4) with respect to each HELOC that became a Liquidated Mortgage Loan
during the prior calendar month, the Trust Balance of such HELOC
immediately prior to the time when such HELOC became a Liquidated
Mortgage Loan,
(5) any amount allocated to Group I remaining on deposit in the
Pre-Funding Account at the end of the Pre-Funding Period, and
(6) the proceeds received by the Trust Fund following any termination
of the 1996-1 REMIC carried out in accordance with a plan of
complete liquidation pursuant to Section 8.2 hereof or pursuant
to the optional termination of any of the Trust Fund, the 1996-1
REMIC or Group I by either the Servicer or Certificate Insurer in
accordance with Section 8.1 hereof, up to the then outstanding
Class A-1 Principal Balance.
"Class A-2 Certificate" shall mean any Certificate designated as a "Class
A-2 Certificate" on the face thereof, in the form of Exhibit B-2 hereto, and
authenticated by the Trustee in accordance with the procedures set forth herein.
"Class A-2 Certificateholder" shall mean a Holder of a Class A-2
Certificate.
"Class A-2 Distribution Amount" shall mean, with respect to the Class A-2
Certificates for any Remittance Date, the amount distributed to the Holders of
the Class A-2 Certificates on such Remittance Date pursuant to Sections
6.5(a)(iii) and (iv) hereof, which amount shall be the
9
<PAGE>
lesser of (a) the portion of the Group II Formula Distribution Amount allocable
to the Class A-2 Certificates for such Remittance Date and (b) the amount
(including any applicable portion of any Insured Payment) available for
distribution on account of the Class A-2 Certificates for such Remittance Date.
"Class A-2 Final Scheduled Maturity Date" shall mean the April 15, 2005
Remittance Date.
"Class A-2 Interest Distribution Amount" shall mean, with respect to the
Class A-2 Certificates for any Remittance Date an amount equal to the aggregate
of interest accrued at the Class A-2 Pass-Through Rate during the Accrual Period
on the Class A-2 Principal Balance excluding (i) any Mortgage Loan Interest
Shortfall and (ii) any reductions in interest resulting from the application of
the Civil Relief Act, in each case as of such Remittance Date.
"Class A-2 Pass-Through Rate" with respect to any Remittance Date, will be
equal to a 6.65% per annum rate (calculated on the basis of an assumed month of
30 days and an assumed year of 360 days).
"Class A-2 Principal Balance" shall mean, as of any date of determination,
the Original Class A-2 Principal Balance less any Group II Principal
Distribution Amount distributed with respect to principal on the Class A-2
Certificates on all prior Remittance Dates.
"Class A-3 Certificate" shall mean any Certificate designated as a "Class
A-3 Certificate" on the face thereof, in the form of Exhibit B-3 hereto, and
authenticated by the Trustee in accordance with the procedures set forth herein.
"Class A-3 Certificateholder" shall mean a Holder of a Class A-3
Certificate.
"Class A-3 Distribution Amount" shall mean, with respect to the Class A-3
Certificates for any Remittance Date, the amount distributed to the Holders of
the Class A-3 Certificates on such Remittance Date pursuant to Sections
6.5(a)(iii) and (iv) hereof, which amount shall be the lesser of (a) the portion
of the Group II Formula Distribution Amount allocable to the Class A-3
Certificates for such Remittance Date and (b) the amount (including any
applicable portion of any Insured Payment) available for distribution on account
of the Class A-3 Certificates for such Remittance Date.
"Class A-3 Final Scheduled Maturity Date" shall mean the January 15, 2008
Remittance Date.
10
<PAGE>
"Class A-3 Interest Distribution Amount" shall mean, with respect to the
Class A-3 Certificates for any Remittance Date an amount equal to the aggregate
of interest accrued at the Class A-3 Pass-Through Rate during the Accrual Period
on the Class A-3 Principal Balance excluding (i) any Mortgage Loan Interest
Shortfall and (ii) any reductions in interest resulting from the application of
the Civil Relief Act, in each case as of such Remittance Date.
"Class A-3 Pass-Through Rate" with respect to any Remittance Date, will be
equal to a 7.325% per annum rate (calculated on the basis of an assumed month of
30 days and an assumed year of 360 days).
"Class A-3 Principal Balance" shall mean, as of any date of determination,
the Original Class A-3 Principal Balance less any Group II Principal
Distribution Amounts distributed with respect to principal on the Class A-3
Certificates on all prior Remittance Dates.
"Class R Certificate" shall mean any Certificate denominated as a Class R
Certificate and subordinate to the Class A Certificates in right of payment to
the extent set forth herein, which Certificate shall be in the form of Exhibit
B-3 hereto.
"Class R Certificateholder" shall mean a Holder of a Class R Certificate.
"Closing Date" shall mean October 15, 1996.
"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, the Holder
of the Additional Certificate and the Certificate Insurer pursuantto Section
5.3(a) hereof.
"Combined Loan-to-Value Ratio" shall mean, (i) the sum of (x) any
outstanding first mortgage balance as of the date of origination of the related
Mortgage Loan plus (y) the maximum available credit under the HELOC or the Trust
Balance of the HEL, as applicable as of the Cut-Off Date, divided by (ii) the
Appraised Value of such Mortgaged Property.
"Commission" shall mean the Securities and Exchange Commission.
11
<PAGE>
"Compensating Interest" shall have the meaning defined in Section 6.9
hereof.
"Curtailment" shall mean, with respect to a Mortgage Loan, any payment of
principal received during a Due Period as part of a payment that is in excess of
the amount of the Monthly Payment due for such Due Period and which is neither
intended to satisfy the Mortgage Loan in full, intended as an advance payment of
an amount due in a subsequent Due Period, nor intended to cure a delinquency.
"Custodian" shall have the meaning defined in Section 2.2(c).
"Cut-Off Date" shall mean with respect to the Mortgage Loans transferred to
the Trust on the Closing Date, the close of business on September 30, 1996 and,
with respect to Subsequent Mortgage Loans transferred to the Trust on any
Subsequent Transfer Date, the last day of the calendar month preceding such
Subsequent Transfer Date.
"Debt Service Reduction" shall mean, with respect to any Mortgage Loan, a
reduction by a court of competent jurisdiction of the Monthly Payment due on
such Mortgage Loan in a proceeding under the Bankruptcy Code, except such a
reduction that constitutes a Deficient Valuation or a permanent forgiveness of
principal.
"Deficiency Amount" shall mean, for any Remittance Date, (i) with respect
to the Class A-1 Certificates and the Class A-1 Insured Payment, the excess of
the Class A-1 Credit Enhancement Distribution Amount over the amount then on
deposit in and available to be withdrawn from the Reserve Account (including
amounts available to be drawn under any Eligible Letter of Credit) on such
Remittance Date and (ii) with respect to the Class A-2 Certificates, the Class
A-3 Certificates and the Group II Insured Payment, the excess of the Group II
Credit Enhancement Distribution Amount over the amount then on deposit in and
available to be withdrawn from the Reserve Account (including amounts available
to be drawn under any Eligible Letter of Credit) on such Remittance Date.
"Deficient Valuation" shall mean, with respect to any Mortgage Loan, a
valuation of the related Mortgaged Property by a court of competent jurisdiction
in an amount less than the then outstanding principal balance of the Mortgage
Loan, which valuation results from a proceeding initiated under the United
States Bankruptcy Code.
12
<PAGE>
"Deleted Mortgage Loan" shall mean a Mortgage Loan replaced by a Qualified
Substitute Mortgage Loan or repurchased pursuant to Sections 2.4(b) or 3.3
hereof.
"Delinquency Collection Policies and Procedures" shall mean the servicing
policies of the Servicer pertaining to delinquent mortgage loans attached hereto
as Exhibit L.
"Delinquent" shall mean a Mortgage Loan is "delinquent" if any payment due
thereon is not made by the close of business on the day such payment is
scheduled to be due. 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 last day
of such immediately succeeding month. Similarly for "60 days delinquent," "90
days delinquent" and so on.
"Depositor" shall mean Prudential Securities Secured Financing Corporation,
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 the fourth Business Day prior to the
Remittance Date.
"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.
"Due Date" shall mean the fifteenth day of each calendar month.
"Due Period" shall mean, with respect to each Remittance Date, the period
beginning on the opening of business on the fist day of the calendar month
preceding the calendar month in which such Remittance Date occurs, and ending at
the close of business on the last day of the calendar month preceding the
calendar month in which such Remittance Date occurs.
"Eligible Account" shall mean either (A) a segregated trust account or
accounts maintained with a depositary institution which is acceptable to the
Certificate Insurer and to each Rating Agency and such trust
13
<PAGE>
account shall be held in (i) the corporate trust account department of such
depositary institution or (ii) an institution with capital and surplus of not
less than $50,000,000, and a minimum unsecured debt rating of BBB by S&P or Baa3
by Moody's or (B) an account or accounts maintained with an institution
acceptable to the Certificate Insurer and whose deposits are insured by the
FDIC, the unsecured and uncollateralized debt obligations of which institution
shall be rated AA or better by S&P and Aa2 or better by Moody's and the highest
short-term rating by S&P and Moody's, 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 (including the Trustee) duly
organized, validly existing and in good standing under the applicable banking
laws of any state, (iii) a national banking association duly organized, validly
existing and in good standing under the federal banking laws, (iv) a principal
subsidiary of a bank holding company, or (v) approved in writing by the
Certificate Insurer, S&P and Moody's, having capital and surplus of not less
than $50,000,000, acting in its fiduciary capacity. Irwin Union Bank and Trust
Company and any of its affiliates will be prohibited from holding any Eligible
Account hereunder.
"Eligible Letter of Credit" shall mean a letter of credit in form,
substance and amount and from a provider acceptable to the Certificate Insurer.
"ERISA" shall have the meaning defined in Section 4.2(i)(x) hereof.
"Event of Default" shall have the meaning described in Section 7.1.
"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.
"Final Subsequent Transfer Date" shall mean with respect to Group I or
Group II the earliest to occur of (i) January 12, 1997, (ii) the occurrence of
an Event of Default and (iii) the date upon which the amount on deposit in the
Pre-Funding Account allocated to such Group is less than $100,000.
"Fiscal Agent shall mean State Street Bank and Trust Company, N.A.
14
<PAGE>
"FNMA" shall mean the Federal National Mortgage Association and any
successor thereto.
"Foreclosure Profits" shall mean, as to any Remittance Date, the excess, if
any, of (i) Net Liquidation Proceeds in respect of each Mortgage Loan that
became a Liquidated Mortgage Loan during the month immediately preceding the
month of such Remittance Date over (ii) the sum of the unpaid principal balance
of each such Liquidated Mortgage 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 Mortgage 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
5.12) to the first day of the month following the month in which such Mortgage
Loan became a Liquidated Mortgage Loan.
"Gross Margin" shall mean, as to each HELOC, the fixed percentage set forth
in the related Mortgage Note and indicated in the Mortgage Loan Schedule as the
"Gross Margin," which percentage is added to the applicable prime rate on each
Interest Adjustment Date to determine (subject to rounding, any applicable
statutory maximum interest rate, the Lifetime Floor and the Lifetime Cap) the
Mortgage Interest Rate on such HELOC until the next Interest Adjustment Date.
"Group" shall mean each of Group I and Group II.
"Group I" shall mean the segregated pool of Mortgage Loans within the Trust
and the 1996-1 REMIC consisting of the HELOCs.
"Group I Available Amount" shall mean for any Remittance Date the sum of
(i) the Servicer Remittance Amount for Group I and such Remittance Date plus
(ii) any portion of the Servicer Remittance Amount for Group II not required to
pay the Group II Formula Distribution Amount, the Trustee Fee for Group II or
the Group II Certificate Insurance Premium Amount minus (iii) the Trustee Fee
for Group I and the Class A-1 Certificate Insurance Premium Amount.
"Group I Capitalized Interest Requirement" shall mean, for any Remittance
Date, the product of (i) the Class A-1 Pass Through Rate for the first
Remittance Date plus the Class A-1 Premium Percentage plus the rate at which the
Trustee Fee is calculated minus for the Remittance Date in November 1996 2.5%,
for the Remittance Date in December 1996 1.5% and for the Remittance Date in
January 1997 .5% (ii)
15
<PAGE>
the Group I Pre-Funded Amount and (iii) the quotient of the number of days from
such Remittance Date to the Remittance Date in January of 1997 and 360.
"Group I Net Available Funds Excess" shall have the meaning assigned in the
Certificate Insurance Agreement.
"Group I Pre-Funded Amount" shall mean the Original Group I Pre-Funded
Amount minus all amounts withdrawn from the Pre-Funding Account or transferred
to the Reserve Account in connection with the transfer of HELOCs to the Trust
Fund on any Subsequent Transfer Date.
"Group II" shall mean the segregated pool of the Mortgage Loans within the
Trust and the 1996-1 REMIC consisting of the HELs.
"Group II Available Amount" shall mean for any Remittance Date the sum of
(i) the Servicer Remittance Amount for Group II and such Remittance Date plus
(ii) any portion of the Servicer Remittance Amount for Group I not required to
pay the Class A-1 Formula Distribution Amount, the Trustee Fee for Group I or
the Class A-1 Certificate Insurance Premium Amount minus (iii) the Trustee Fee
for Group II and the Group II Certificate Insurance Premium Amount."
"Group II Capitalized Interest Requirement" shall mean,for any Remittance
Date, the product of (i) the Weighted Average Group II Pass-Through Rate plus
the Group II Premium Percentage plus the rate at which the Trustee Fee is
calculated minus 2.5%, (ii) the Group II Pre-Funded Amount and (iii) the
quotient of the number of Remittance Dates from such Remittance Date to the
Remittance Date in January of 1997 and 12.
"Group II Certificate Insurance Policy" shall mean the certificate guaranty
insurance policy No. 22191, and all endorsements thereto dated the Closing Date,
issued by the Certificate Insurer for the benefit of the Class A-2
Certificateholders and the Class A-3 Certificateholders, a copy of which is
attached hereto as Exhibit A-2. The Group II Certificate Insurance Policy shall
not benefit the Additional Certificate.
"Group II Certificate Insurance Premium Amount" shall mean, the product of
(i) the Group II Premium Percentage and (ii) the sum of the Class A-2 Principal
Balance and the Class A-3 Principal Balance for the related Remittance Date.
16
<PAGE>
"Group II Certificates" shall mean each of the Class A-2 Certificates and
the Class A-3 Certificates.
"Group II Credit Enhancement Distribution Amount" shall mean the excess, if
any, of the Group II Formula Distribution Amount over the Group II Available
Amount.
"Group II Formula Distribution Amount" shall mean, with respect to the
Class A-2 Certificates and the Class A-3 Certificates for any Remittance Date,
the sum of (a) the Class A-2 Interest Distribution Amount for such Remittance
Date plus (b) the Class A-3 Interest Distribution Amount for such Remittance
Date plus (c) the amount described in clause (b) of the definition of Group II
Principal Distribution Amount for such Remittance Date plus (d) any Group II
Formula Distribution Amount remaining unpaid from any prior Remittance Date.
"Group II Insured Payment" shall mean, the sum of (i) with respect to any
Remittance Date, the related Deficiency Amount plus (ii) any unpaid Preference
Amount.
"Group II Net Available Funds Excess" shall have the meaning assigned in
the Certificate Insurance Agreement.
"Group II Pre-Funded Amount" shall mean the Original Group II Pre-Funded
Amount minus all amounts withdrawn from the Pre-Funding Account or transferred
to the Reserve Account in connection with the transfer of HELs to the Trust Fund
on any Subsequent Transfer Date.
"Group II Premium Percentage" shall have the meaning assigned thereto in
the Certificate Insurance Agreement.
"Group II Principal Distribution Amount" shall mean, with respect to the
Class A-2 Certificates or after the Class A-2 Principal Balance has been reduced
to zero, the Class A-3 Certificates for any Remittance Date, the lesser of:
(a) the excess of the Group II Available Amount, plus any Group II Insured
Payment over the sum of the Class A-2 Interest Distribution Amount and
the Class A-3 Interest Distribution Amount; and
(b) the sum, without duplication, of:
(1) that portion of all scheduled installments of principal in
respect of the HELs allocable to the Trust Balances of such
17
<PAGE>
HELs which is received (or advanced) during the related Due
Period together with all unscheduled recoveries of principal
(including Prepayments, Curtailments and Deficient Valuations)
allocable to the Trust Balances of such HELs actually collected
by the Servicer during the prior calendar month,
(2) the Trust Balance of each HEL that either was, effective on such
Remittance Date, repurchased by the Seller or by the Depositor or
purchased by the Servicer during the preceding Due Period, but
only to the extent the amount equal to such Trust Balance is
actually received by the Trustee,
(3) any Substitution Adjustment amounts delivered by the Depositor on
the related Remittance Date in connection with a substitution of
a HEL, to the extent such Substitution Adjustments are actually
received by the Trustee,
(4) with respect to each HEL that became a Liquidated Mortgage Loan
during the prior calendar month, the Trust Balance of such HEL
immediately prior to the time when such HEL became a Liquidated
Mortgage Loan,
(5) any amount allocated to Group II remaining on deposit in the
Pre-Funding Account at the end of the Pre-Funding Period, and
(6) the proceeds received by the Trust Fund following any termination
of the 1996-1 REMIC carried out in accordance with a plan of
complete liquidation pursuant to Section 8.02 hereof or pursuant
to the optional termination of any of the Trust Fund, the 1996-1
REMIC or Group II by either the Servicer or Certificate Insurer
in accordance with Section 8.1 hereof, up to the sum of the then
outstanding Class A-2 Principal Balance and Class A-3 Principal
Balance.
Hazardous Materials" shall mean any dangerous, toxic or hazardous
pollutants, chemical wastes or substances, including, without limitation, those
identified
18
<PAGE>
pursuant to CERCLA or any other federal, state or local environmental related
laws now existing or hereafter enacted.
"HEL" shall mean (i) each fixed rate closed end home equity loan identified
on the Mortgage Loan Schedule on the Closing Date, (ii) any additional such
fixed rate home equity closed end 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 transfer of the Subsequent Mortgage Loans which are HELs,
the deletion of the Deleted Mortgage Loans which are HELs and the substitution
of Qualified Substitute Mortgage Loans which are HELs for Deleted Mortgage Loans
(iii) each Mortgage Note evidencing any loan referred to in (i) or (ii) above,
including all amounts now or hereafter due under such Mortgage Notes whether
relating to such loans or other loans which may be made from time to time and
(iv) the related Mortgage.
"HELOC" shall mean (i) each adjustable rate home equity revolving credit
line loan identified on the Mortgage Loan Schedule on the Closing Date, (ii) any
additional such home equity revolving credit line 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 transfer of the Subsequent
Mortgage Loans which are HELOCs, the deletions of Deleted Mortgage Loans which
are HELOCs and the substitution of Qualified Substitute Mortgage Loans which are
HELOCs for Deleted Mortgage Loans (iii) each Mortgage Note evidencing any credit
line loan referred to in (i), (ii) or (iii) above, including all amounts now or
hereafter due under such Mortgage Notes whether relating to such credit line
loans or other loans which may be made from time to time and (iv) the related
Mortgage.
"Holder" shall mean each Person in whose name a Certificate, or an
Additional Certificate is registered in the Certificate Register, except that
solely for the purposes of giving any consent (except any consent required to be
obtained pursuant to Section 10.2), waiver, request or demand pursuant to this
Agreement, any Certificate, or Additional Certificate registered in the name of
the Servicer or any Subservicer or the Seller, or any Affiliate of any of them,
shall be deemed not to be outstanding and in the case of any Certificate, the
undivided interest in the Trust Fund evidenced thereby shall not be taken into
account in determining whether the requisite percentage of Certificates
necessary to effect any such consent, waiver, request or demand has been
obtained. For purposes of any consent, waiver, request or demand of the Holders
19
<PAGE>
of the Additional Certificate pursuant to this Agreement, upon the Trustee's
request, the Servicer and the Seller shall provide to the Trustee a notice
identifying any of their respective Affiliates or the Affiliates of any
Subservicer that is a Holder of an Additional Certificate as of the date(s)
specified by the Trustee in such request.
"Indirect Participant" shall mean any financial institution for whom any
Direct Participant holds an interest in a Class A Certificate.
"Insured Payment" shall mean each of any Class A-1 Insured Payment and any
Group II Insured Payment.
"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.
"Insurance Proceeds" do not include "Insured Payments."
"Interest Adjustment Date" shall mean with respect to a HELOC, the date on
which the Mortgage Interest Rate is or may be adjusted with respect to such
HELOC.
"Interest Collections" shall mean all amounts (including, without
limitation, Monthly Payments (or Periodic 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.
"Interest Determination Date" shall mean, with respect to any Accrual
Period applicable to the Class A-1 Certificates, the second London Business Day
preceding the first day of such Accrual Period.
"Late Payment Rate" shall have the meaning assigned thereto in the
Certificate Insurance Agreement.
"LIBOR" shall mean, with respect to any Accrual Period applicable to the
Class A-1 Certificates, the rate determined by the Trustee on the related
Interest Determination Date on the basis of the offered rates of the Reference
Banks for one-month U.S. dollar deposits, as such rates appear on the Reuters
Screen LIBO Page, as of 11:00 a.m. (London time) on such Interest Determination
Date. On each Interest Determination Date, LIBOR for the related Accrual Period
applicable to the Class A-1 Certificates will be established by the Trustee as
follows:
20
<PAGE>
(i) If on such Interest Determination Date two or more Reference
Banks provide such offered quotations, LIBOR for the related Due
Period shall be the arithmetic mean of such offered quotations
(rounded upwards if necessary to the nearest whole multiple of
0.0625%).
(ii) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, LIBOR for the related Due
Period shall be the higher of (i) LIBOR as determined on the
previous Interest Determination Date and (ii) the Reserve
Interest Rate.
"Lifetime Cap" shall mean, as to any HELOC, the maximum Mortgage Interest
Rate set forth in the related Mortgage Note and indicated in the Mortgage Loan
Schedule.
"Lifetime Floor" shall mean, as to any HELOC, the minimum Mortgage Interest
Rate set forth in the related Mortgage Note and indicated in the Mortgage Loan
Schedule.
"Liquidated Mortgage Loan" shall mean a Mortgage Loan (i) with respect to
which the related Mortgaged Property has been acquired, liquidated and/or
foreclosed upon by the Servicer or (ii) which the Servicer has elected to write
down the outstanding Principal Balance of such Mortgage Loan that has been
delinquent for a period equal to or greater than 270 days to zero and, in either
case, with respect to which the Servicer determines that all Liquidation
Proceeds which it expects to recover have been recovered.
"Liquidated Loan Loss" shall mean, with respect to any Remittance Date and
Group, the aggregate of the amount of losses with respect to each HELOC in the
case of Group I and each HEL in the case of Group II which became a Liquidated
Mortgage Loan in the Due Period prior to such Remittance Date, equal to the
excess of (i) the unpaid principal balance of each such Liquidated Mortgage
Loan, plus accrued interest thereon in accordance with the amortization schedule
at the time applicable thereto at the applicable Mortgage Interest Rate from the
Due Date as to which interest was last paid with respect thereto through the
last day of the month in which such Mortgage Loan became a Liquidated Mortgage
Loan, over (ii) Net Liquidation Proceeds with respect to such Liquidated
Mortgage Loan.
"Liquidation Expenses" shall mean expenses incurred by the Servicer in
connection with the liquidation of any defaulted Mortgage Loan, REO Mortgage
21
<PAGE>
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 5.12 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 received (or in the case of
Liquidated Mortgage Loans written-down by the Servicer, amounts deposited) by
the Servicer (including Insurance Proceeds) in connection with the liquidation
of defaulted or written-down 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.
"Loan Repurchase Price" shall have the meaning defined in Section 2.4(b).
"Loan-to-Value Ratio" or "LTV" shall mean, with respect to any Mortgage
Loan, the fraction, expressed as a percentage, the numerator of which in the
case of a HEL is 100% of the Trust Balance of such Mortgage Loan and in the case
of a HELOC is the maximum available credit with respect to such Mortgage Loan,
in either case, as of the Cut-Off Date, and the denominator of which is the
Appraised Value of the related Mortgaged Property, reduced by the value of any
lien superior to the lien of the Mortgage Loan.
"London Business Day" shall mean any day in which banks in the City of
London are open and conducting transactions in U.S. dollars.
"Majority Certificateholders" shall mean, with respect to the 1996-1 REMIC,
the Holder or Holders of Class A Certificates evidencing an undivided beneficial
ownership interest in the REMIC 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 proposed Treasury regulations, by which the
Certificates representing a regular interest in the 1996-1 REMIC would be
reduced to zero as determined under a hypothetical scenario
22
<PAGE>
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 Seller and the Servicer 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
1996-1 REMIC, and (d) the HELOCs have an original term to maturity of 240 months
and, on a latest maturing loan basis, a remaining term to maturity of 240 months
and the HELs have an original term of maturity of 120 months and, on a latest
maturing loan basis, a remaining term to maturity of 120 months.
"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 (after adjustment for any Curtailments and
Deficient Valuations occurring prior to such Due Date but before any adjustment
to such amortization schedule by reason of any bankruptcy, other than Deficient
Valuations or similar proceeding or any moratorium or similar waiver or grace
period). With respect to any Monthly Payment made by or on behalf of a Mortgagor
and received by the Servicer, 100% of the principal payment portion of such
Monthly Payment shall be applied to the outstanding Trust Balance until such
Trust Balance shall be reduced to zero; the interest payment portion of such
Monthly Payment shall be appropriately allocated to the Trust Balance and the
Additional Balance of such Mortgage Loan as provided for herein.
"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 lien on the Mortgaged Property to secure the Mortgage Loan.
"Mortgage File" shall include the Mortgage Loan documents described in
Section 2.3 hereof and such documents as are applicable from those listed on
Exhibit C attached hereto.
"Mortgage Interest Rate" shall mean, as to any Mortgage Loan, the per annum
rate at which interest accrues
23
<PAGE>
on the unpaid principal balance thereof, as adjusted from time to time, in the
case of a HELOC, in accordance with the provisions of the related Mortgage Note.
"Mortgage Loan" shall mean each HELOC and each HEL. 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
Remittance Date, as to any Mortgage Loan, any Prepayment Interest Shortfall for
which no payment of Compensating Interest is paid.
"Mortgage Loan Sale Agreement" shall mean the Mortgage Loan Sale Agreement
dated as of October 1, 1996, between Irwin Union Bank and Trust Company, as
seller thereunder, and IHE Funding Corp., as purchaser thereunder, as such
agreement may be amended, modified or supplemented from time to time.
"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 D (and also provided to the Certificate Insurer and
the Trustee on a computer readable magnetic tape or disk) and any Subsequent
Mortgage Loans transferred to the Trustee pursuant to any Subsequent Transfer
Agreement and attached to such Subsequent Transfer Agreement as an Exhibit (and
also provided to the Certificate Insurer and the Trustee on a computer readable
magnetic tape or disk). The identification of such Mortgage Loans shall be
amended, from time to time, in order to specify the interest in, and allocation
of the Principal Balance of a Mortgage Loan between the Trust Balance of such
Mortgage Loan and any Additional Balance assigned to the Additional
Certificates. 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) whether such Mortgage Loan is a HEL or a HELOC;
(iii) the Principal Balance of the Mortgage Loan and the allocation of
such Principal Balance between the Trust Balance and any
Additional Balance for such Mortgage Loan:
(iv) the city, state and zip code of the Mortgaged Property;
24
<PAGE>
(v) the type of property;
(vi) the current Monthly Payment as of the related Cut-Off Date;
(vii) the original number of months to maturity;
(viii) the scheduled maturity date;
(ix) the Trust Balance of such Mortgage Loan as of the related Cut-Off
Date;
(x) the Loan-to-Value Ratio at origination and the Combined Loan-to-
Value Ratio as of the Cut-Off Date;
(xi) the Mortgage Interest Rate as of the Cut-Off Date;
(xii) with respect to HELOCs, the Gross Margin;
(xiii) with respect to HELOCs, the first possible Interest Adjustment Date
after the Cut-Off Date;
(xiv) with respect to HELOCs, the Lifetime Cap;
(xv) with respect to HELOCs, the Lifetime Floor;
(xvi) the Appraised Value;
(xvii) the documentation type (as described in the Underwriting
Guidelines);
(xviii) the loan classification (as described in the Underwriting
Guidelines); and
(xix) 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 Trust Balance as of the 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
or the Certificate Insurer from time to time.
25
<PAGE>
"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 Available Funds Excess" shall mean, as of any Remittance Date, the
excess, if any, of (x) the Available Funds Excess for such Remittance Date over
(y) the Reimbursement Amount for such Remittance Date, but in no event less than
zero.
"Net Foreclosure Profits" shall mean, as to any Remittance Date and Group,
the excess, if any, of (i) the aggregate Foreclosure Profits with respect to
HELOCs in the case of Group I and HELs in the case of Group II and for such
Remittance Date over (ii) the Liquidated Loan Loss with respect to HELOCs in the
case of Group I and HELs in the case of Group II and for such Remittance Date.
"Net Liquidation Proceeds" shall mean, as to any Liquidated Mortgage Loan,
Liquidation Proceeds net of Liquidation Expenses and net of any unreimbursed
Periodic Advances made by the Servicer. 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. Such
Net Liquidation Proceeds shall be applied on a pro rata basis to the outstanding
Trust Balance and the Additional Balance of such Mortgage Loan as provided for
herein.
"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 rates (computed on an annualized
basis) used to determine the related Administrative Costs. 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.
26
<PAGE>
"1996-1 REMIC" shall mean the segregated pool of assets subject hereto, and
to be administered hereunder, consisting of: (a) the Trust Balances of such
Mortgage Loans as from time to time are subject to this Agreement, together with
the Mortgage Files relating thereto and all collections thereon and proceeds
thereof, (b) such assets as from time to time are identified as REO Property of
the 1996-1 REMIC and collections thereon and proceeds thereof, (c) assets
deposited in the Certificate Account and assets deposited in the Reserve
Account, including any such amounts on deposit in the Certificate Account or the
Reserve Account invested in Permitted Investments or available to be drawn under
an Eligible Letter of Credit, (d) the Trustee's rights with respect to the
Mortgage Loans under all insurance policies (other than the Certificate
Insurance Policy) required to be maintained pursuant to this Agreement and any
Insurance Proceeds, (e) with respect to each Mortgage Loan that becomes a
Liquidated Mortgage Loan and the Trust Balance of which has been assigned to the
1996-1 REMIC, Liquidation Proceeds allocable to such Trust Balance and (f) with
respect to each Mortgage Loan the Trust Balance of which has been assigned to
the 1996-1 REMIC, Released Mortgaged Property Proceeds allocable to such Trust
Balance.
"Nonrecoverable Advance" shall mean, with respect to any Mortgage Loan, (a)
any Periodic Advance previously made and not reimbursed from late collections
pursuant to Section 5.4(b), or (b) a Periodic 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 no later than the Business
Day following such determination, 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 1996-1 REMIC as a REMIC or (b)
compliance with the REMIC
27
<PAGE>
Provisions must be an opinion of counsel who (i) is in fact independent of the
Seller, the Servicer and the Trustee, (ii) does not have any direct financial
interest or any material indirect financial interest in the Seller or the
Servicer or the Trustee or in an Affiliate thereof, (iii) is not connected with
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 Series 1996-1
Certificates.
"Original Class A-1 Principal Balance" shall mean, as of the Startup Date
and as to the Class A-1 Certificates, the aggregate principal balance of the
HELOCs as of the CutOff Date together with the Original Group I Pre-Funded
Amount equal to $76,000,000.00.
"Original Class A-2 Principal Balance" shall mean, as of the Startup Date
and as to the Class A-2 Certificates $47,000,000.00.
"Original Class A-3 Principal Balance" shall mean, as of the Startup Date
and as to the Class A-3 Certificates $17,000,000.00.
"Original Group I Pre-Funded Amount" shall mean $32,706,484.03.
"Original Group II Pre-Funded Amount" shall mean $27,357,839.25.
"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 Liquidated Mortgage Loan prior to such Due
Date and which was not repurchased by the Seller prior to such Due Date pursuant
to Section 2.4.
"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, secondary or vacation residence at the origination of the
Mortgage Loan, and (b) the Seller has no actual knowledge that such Residential
Dwelling is not so occupied.
28
<PAGE>
"Percentage Interest" shall mean, with respect to a Class A-1 Certificate,
Class A-2 Certificate or Class A-3 Certificate, the portion of the total
beneficial ownership interest in the related Group 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 Original Class A-1 Principal
Balance, the Original Class A-2 Principal Balance or the Original Class A-3
Principal Balance as applicable. With respect to a Class R Certificate, the
portion evidenced thereby as stated on the face of such Certificate. With
respect to an Additional Certificate, the portion of the total beneficial
ownership interest in the Additional Balances on the HELOCs held by the Trust as
stated on the face of such Additional Certificate.
"Periodic Advance" shall mean the aggregate of the advances required to be
made by the Servicer on any Servicer Remittance Date pursuant to Section 5.20
hereof, the amount of any such advances being equal to the sum of: (i) all
Monthly Payments (net of the related Servicing Fee and any amount excluded from
the Servicer Remittance Amount pursuant to clauses (a)-(i) of the definition of
"Servicer Remittance Amount") on the Mortgage Loans that are not received by the
Servicer as of the close of business on the day preceding the related
Determination Date and have not been determined by the Servicer to be
Nonrecoverable Advances, plus (ii) with respect to each REO Property which was
acquired during or prior to the related Due Period and as to which an REO
Disposition did not occur during the related Due Period, an amount equal to the
excess, if any, of (a) interest on the Trust Balance of the related REO Mortgage
Loan at the related Mortgage Interest Rate, net of the Servicing Fee, for the
most recently ended Due Period for the related Mortgage Loan over (b) the net
income from the REO Property transferred to the Certificate Account for such
Remittance Date.
"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
29
<PAGE>
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 S&P, Moody's 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) the United
States, any State or political subdivision thereof, or any agency or
instrumentality of any of the foregoing, (b) a foreign government, International
Organization or any agency or instrumentality of either of the foregoing, (c) an
organization (except certain farmers' cooperatives described in Section 521 of
the Code) which is exempt from tax imposed by Chapter I of the Code (including
the tax imposed by Section 511 of the Code on unrelated business taxable income)
30
<PAGE>
on any excess inclusions (as defined in Section 860E(c)(1) of the Code) with
respect to any Class R Certificate, (d) rural electric and telephone
cooperatives described in Section 1381(a)(2)(C) of the Code and (e) any other
Person so designated by the Trustee based upon an Opinion of Counsel to the
Trustee and the Certificate Insurer that the transfer of an Ownership Interest
in a Class R Certificate to such Person may cause either (i) the 1996-1 REMIC to
fail to qualify as a REMIC at any time that the Class A Certificates are
outstanding or (ii) the 1996-1 REMIC of the Trust Fund or any Person having an
Ownership Interest in any Class of Certificates, other than such Person, to
incur a liability for any federal tax imposed under the Code that would not
otherwise be imposed but for the Transfer of an Ownership Interest in a Class R
Certificate to such Person. The terms "United States," "State" and
"International Organization" shall have the meanings set forth in Section 7701
of the Code or successor provisions. A corporation will not be treated as an
instrumentality of the United States or of any State or political subdivision
thereof for these purposes if all of its activities are subject to tax and, with
the exception of FHLMC, a majority of its board of directors is not selected by
such governmental unit.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock 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)(x).
"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(g).
"Pre-Funding Account" shall mean the account established pursuant to
Section 6.1(c) hereof.
"Pre-Funding Period" shall mean the period from the Closing Date until,
with respect to Group I or Group II, as applicable, the earliest of (i) the date
on which the amount on deposit in the Pre-Funding Account is less than $100,000,
31
<PAGE>
(ii) the date on which an Event of Default occurs or (iii) January 12, 1997.
"Prepayment Assumption" shall mean a constant prepayment rate of 26%, used
solely for determining the accrual of original issue discount and market
discount on the Certificates for federal income tax purposes.
"Prepayment Interest Shortfall" shall mean, with respect to any Remittance
Date, for each Mortgage Loan that was the subject during the related Due Period
of a Principal Prepayment or Curtailment, an amount equal to the excess, if any,
of (a) 30 days' interest on the Trust Balance of such Mortgage Loan at a per
annum rate equal to the Mortgage Interest Rate (or at such lower rate as may be
in effect for such Mortgage Loan pursuant to application of the Civil Relief
Act, any Deficient Valuation and/or any Debt Service Reduction) 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
or Curtailment less any portion of such interest allocable to any Additional
Balance outstanding on such Mortgage Loan.
"Principal Balance" shall mean, as to any Mortgage Loan and Remittance
Date, the outstanding principal balance of such Mortgage Loan as of the last day
of the Due Period related to such Remittance Date after giving effect to
Principal Prepayments received and payments of principal collected during such
Due Period, Additional Balances drawn in such Due Period, Deficient Valuations
incurred prior to the Due Date in such Due Period and any Curtailments applied
by the Servicer in reduction of the unpaid principal balance of such Mortgage
Loan as of such Due Date.
"Principal Collections" shall mean all amounts collected with respect to a
Mortgage Loan, including, without limitation, Monthly Payments (or Periodic
Advances made in respect thereof), any Loan Repurchase Price and Substitution
Adjustments allocable to principal pursuant to the terms of the related Mortgage
Note, or, if no provision for allocation is made therein, in accordance with the
terms hereof.
"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. With respect to any Principal
Prepayment made by or on behalf of a Mortgagor and received by the Servicer,
100% of the principal payment portion of such Principal Prepayment shall
32
<PAGE>
be applied to the outstanding Trust Balance until such Trust Balance shall be
reduced to zero and thereafter to the Additional Balance of such Mortgage Loan
as provided for herein.
"Prospectus Supplement" shall mean the Prospectus Supplement dated October
9, 1996, as amended and supplemented, relating to the Class A Certificates and
filed with the Commission in connection with the Registration Statement
heretofore filed or to be filed with the Commission pursuant to Rule 424(b)(2)
or 424(b)(5).
"Purchase and Sale Agreement" shall mean the Purchase and Sale Agreement,
dated as of the date hereof, between the Seller and the Depositor and relating
to the sale of the Mortgage Loans to the Depositor.
"Qualified Appraiser" shall mean an appraiser, duly appointed by the
Servicer, 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.
"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 (a) if a home equity line of credit loan, uses or use the prime rate
as its base interest rate and has or have a margin over such base interest rate
and, where applicable, maximum interest rate, at least equal to those applicable
to the Deleted Mortgage Loan for which it is to be substituted, (b) if a closed
end home equity loan, has an interest rate at least equal to the Deleted
Mortgage Loan for which it is to be substituted (c) 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, (d) 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, (e) has or have a Combined Loan-to-Value Ratio or Combined
33
<PAGE>
Loan-to-Value Ratios at the time of such substitution no higher than the
Combined Loan-to-Value Ratio of the Deleted Mortgage Loan for which it is to be
substituted, (f) has or have a principal balance or principal balances (after
application of all payments received on or prior to the date of substitution)
not substantially less and not more than the Trust Balance of the Deleted
Mortgage Loan for which it is to be substituted as of such date, (g) 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), (h) 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
(i) complies or comply as of the date of substitution with each representation
and warranty set forth in Sections 3.1 and 3.2 of the Purchase and Sale
Agreement.
"Rating Agency" shall mean S&P or Moody's.
"Record Date" shall mean, with respect to any Remittance Date, the close of
business on the last day of the calendar month immediately preceding the month
in which such Remittance Date occurs. The Record Date for the first Distribution
Date shall be the Closing Date.
"Reference Banks" shall mean Bankers Trust Company, Barclay's Bank PLC, The
Bank of Tokyo and National Westminster Bank PLC; provided that if any of the
foregoing banks are not suitable to serve as a Reference Bank, then any leading
banks selected by the Trustee which are engaged in transactions in Eurodollar
deposits in the international Eurocurrency market (i) with an established place
of business in London, (ii) not controlling, under the control of or under
common control with the [Depositor] or any affiliate thereof, (iii) whose
quotations appear on the Reuters Screen LIBO Page on the relevant Interest
Determination Date and (iv) which have been designated as such by the Trustee.
"Reimbursement Amount" shall mean, as of any Remittance Date, the sum of
(i) all Insured Payments previously paid by the Certificate Insurer and in each
case not previously repaid to the Certificate Insurer pursuant to Section
6.5(a)(v) hereof plus (ii) interest accrued on such Insured Payments not
previously repaid calculated at the Late Payment Rate from the date such Insured
Payment was paid, plus (iii) 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 (iv) interest on such amounts at the Late
34
<PAGE>
Payment Rate. 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 Change of Law" shall mean any proposed, temporary or final
regulation, revenue ruling, revenue procedure or other official announcement or
interpretation relating to the REMIC and the REMIC Provisions issued after the
Closing Date.
"REMIC Daily Interest" shall mean, with respect to any payment on a
Mortgage Loan made by or on behalf of the related Mortgagor, the portion of such
payment equal to the aggregate sum of the daily product (calculated for each day
in the Due Period) of (x) the outstanding Trust Balance of such Mortgage Loan on
such day and (y) the Mortgage Interest Rate applicable to such Mortgage Loan.
"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.
"Remittance Date" shall mean the 15th day of any month or if such 15th day
is not a Business Day, the first Business Day immediately following, commencing
on November 15, 1996.
"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
Mortgage Loan and as to which the indebtedness evidenced by the related Mortgage
35
<PAGE>
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 5.12.
"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 H hereto.
"Required Reserve Account Level" shall be determined in accordance with the
Certificate Insurance Agreement.
"Reserve Account" shall mean that Eligible Account more fully described in
Section 6.4 established by the Servicer for the benefit of the Trust, the
Certificateholders and the Certificate Insurer, from which withdrawals will be
made for the payment of the Class A-1 Credit Enhancement Distribution Amounts,
Group II Credit Enhancement Distribution Amounts and Reimbursement Amounts. The
Reserve Account shall not benefit any Additional Certificate.
"Reserve Interest Rate" shall mean, with respect to any Interest
Determination Date, the rate per annum that the Trustee determines to be either
(i) the arithmetic mean (rounded upwards if necessary to the nearest whole
multiple of 0.0625%) of the one-month U.S. dollar lending rates which New York
City banks selected by the Trustee are quoting on the relevant Interest
Determination Date to the principal London offices of leading banks in the
London interbank market or (ii) in the event that the Trustee can determine no
such arithmetic mean, the lowest one-month U.S. dollar lending rate which New
York City banks selected by the Trustee are quoting on such Interest
Determination Date to leading European banks.
"Residential Dwelling" shall mean a one -to four-family dwelling, a unit in
a planned unit development,
36
<PAGE>
a unit in a condominium development, a townhouse or a manufactured housing unit
which is non-mobile.
"Responsible Officer" shall mean, when used with respect to the Trustee,
any officer assigned to the Corporate Trust Division (or any successor thereto),
including any 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, 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.
"Seller" shall mean IHE Funding Corp., a Delaware corporation.
"Series" shall mean any designated Series of certificates issued hereunder
and governed by this Agreement. When used herein, "this Series" shall refer to
the Mortgage Pass-Through Certificates, Series 1996-1.
"Servicer" shall mean Irwin Home Equity Corporation, an Indiana
corporation, or any successor appointed as herein provided.
"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 and a Group, an amount equal to the sum of (i) all unscheduled
collections of principal and interest on the HELOCs in the case of Group I and
the HELs in the case of Group II (including Principal Prepayments, Curtailments,
Net REO Proceeds and Net Liquidation Proceeds, if any, and any amounts deposited
in the Collection Account or Trustee Collection Account in connection with a
repurchase of the HELOCs in the case of Group I and the HELs in the case of
Group II) collected by the Servicer during the Due Period and all scheduled
Monthly Payments due on the Due Date and received by the Servicer on
37
<PAGE>
or prior to the Business Day preceding the related Determination Date, plus (ii)
all Periodic Advances made by the Servicer with respect to payments due to be
received on the HELOCs in the case of Group I and HELs in the case of Group II
on the related Due Date plus (iii) the amount of Compensating Interest due with
respect to HELOCs in the case of Group I and the HELs in the case of Group II
with respect to the related Due Period, plus (iv) either (A) for each Remittance
Date prior to the Final Subsequent Transfer Date, the amount transferred to the
Certificate Account with respect to such Group pursuant to Section 6.11 hereof,
or (B) for the Remittance Date immediately following the Final Subsequent
Transfer Date, any amount remaining on deposit in the Pre-Funding Account, plus
(v) any other amounts required to be placed in the Collection Account with
respect to HELOCs in the case of Group I and the HELs in the case of Group II by
the Servicer pursuant to this Pooling and Servicing Agreement but excluding,
without duplication, the following:
(a) amounts received on particular HELOCs in the case of Group I and
HELs in the case of Group II as late payments of principal or interest and
respecting which the Servicer has previously made an unreimbursed Periodic
Advance;
(b) the portion of Liquidation Proceeds used to reimburse any
unreimbursed Periodic Advances by the Servicer with respect to HELOCs in
the case of Group I and the HELs in the case of Group II;
(c) those portions of each payment of interest on a particular HELOC
in the case of Group I and the HEL in the case of Group II which represent
the Servicing Fee;
(d) that portion of Liquidation Proceeds and REO Proceeds with respect
to HELOCs in the case of Group I and the HELs in the case of Group II 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 with respect to HELOCs in the case of Group I and the
HELs in the case of Group II, including (i) as provided in Section 5.4
38
<PAGE>
hereof; and (ii) any unreimbursed and accrued Liquidation Expenses;
provided that the exclusion of any such amounts pursuant to this subsection
(g) on a particular Remittance Date shall not thereby create a claim for an
Insured Payment;
(h) the portion of Net Foreclosure Profits with respect to HELOCs in
the case of Group I and the HELs in the case of Group II representing any
unpaid Servicing Fee; and
(i) All amounts collected with respect to any HELOC allocable to the
Additional Balance of such HELOC pursuant to the definition of "Additional
Certificate Allocation" as set forth herein.
"Servicer Remittance Date" shall mean, with respect to any Remittance Date,
the 14th day of the month in which such Remittance Date occurs, or if such day
is not a Business Day, the first Business Day preceding such 14th day.
"Servicer Account" shall mean the account created and maintained pursuant
to Section 5.7.
"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 or second 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 (including
indemnification obligations) under Sections 5.2 (limited solely to the
reasonable and customary out-of-pocket expenses of the Subservicer), 5.5, 5.7,
5.9 or 5.10 (as related to Section 9.5), 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 5.10.
"Servicing Compensation" shall mean the Servicing Fee and other amounts to
which the Servicer is entitled pursuant to Section 5.14.
"Servicing Fee" shall mean, as to each Mortgage Loan, the annual fee
payable to the Servicer, which is calculated as an amount equal to the product
of (a) 1.00% per annum, or up to 1.00% in the event that Irwin Home
39
<PAGE>
Equity Corporation is succeeded by the Trustee or any other successor servicer
appointed as herein provided, and (b) the Principal Balance thereof. Such fee
shall be calculated and payable monthly only on amounts actually received in
respect of interest on such Mortgage Loan and shall be computed on the basis of
the same principal amount and for the period respecting which any related
interest payment on a Mortgage Loan is computed. 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 Date" shall mean the day designated as such pursuant to Section
2.5 hereof.
"Subsequent Mortgage Loans" shall mean those fixed rate closed end home
equity loans and adjustable rate home equity line of credit loans transferred to
the Trust Fund after the Closing Date as contemplated by Section 2.10 hereof.
"Subsequent Transfer Agreement" shall mean each Subsequent Transfer
Agreement dated as of a Subsequent Transfer Date executed by the Trustee and the
Depositor substantially in the form of Exhibit O hereto, by which Subsequent
Mortgage Loans are sold and assigned to the Trust.
"Subsequent Transfer Date" shall mean any date on which Subsequent Mortgage
Loans are transferred to the Trust pursuant to Section 2.10 hereof.
"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
40
<PAGE>
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) are
less than the aggregate of the Trust Balances of the related Deleted Mortgage
Loans together with 30 days' interest thereon at the Mortgage Interest Rate.
"Tax Matters Person" shall mean the Person or Persons appointed pursuant to
Section 10.15 from time to time to act as the "tax matters person" (within the
meaning of the REMIC Provisions) of the 1996-1 REMIC.
"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 its classification 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.
"Total Expected Losses" shall mean, for any Remittance Date, the sum of the
Liquidated Loan Loss and the Delinquency Calculation Amount.
"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(i)(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" shall mean Irwin Home Equity Corporation Trust 1996-1, the trust
created hereunder.
"Trust Balance" shall mean, with respect to any Mortgage Loan, (i) its
original Trust Balance as shown on the Mortgage Loan Schedule on the Cut-Off
Date minus all payments of or in respect of principal allocated to the Trust
Balance of such Mortgage Loan, or (ii) from and after
41
<PAGE>
the date of substitution of a Qualified Substitute Mortgage Loan for a Deleted
Mortgage Loan, the Principal Balance of the Qualified Substitute Mortgage Loan
on the date of such substitution minus all payments of or in respect of
principal allocated to the Trust Balance of such Mortgage Loan after the date of
substitution. On and after the date upon which a Mortgage Loan becomes a
Liquidated Mortgage Loan, the Trust Balance for such Mortgage Loan shall equal
zero.
"Trust Fund" shall mean (a) each Mortgage Loan, including each Subsequent
Mortgage Loan, transferred to the Trust pursuant to the provisions hereof, (b)
all rights of or assigned to the Depositor under the Purchase and Sale Agreement
(and exclusive of any of its obligations), (c) such assets as from time to time
are identified as REO Property and collections thereon and proceeds thereof, (d)
all assets deposited in the Accounts, including any amounts on deposit in the
Collection Account, the Trustee Collection Account, the Additional Certificate
Account, the Certificate Account and the Reserve Account and all amounts in the
Accounts invested in Permitted Investments, (e) the Trustee's rights with
respect to the Mortgage Loans under all insurance policies (other than the
Certificate Insurance Policy) required to be maintained pursuant to this
Agreement and any Insurance Proceeds, (f) all Liquidation Proceeds and (g) all
Released Mortgaged Property Proceeds and (h) all rights against the Seller
arising under the Purchase and Sale Agreement.
"Trustee" shall mean The Chase Manhattan Bank, or its successor in
interest, or any successor trustee appointed as herein provided.
"Trustee Collection Account" shall mean the Eligible Account established
and maintained by the Trustee for the benefit of the Certificateholders and the
Holders of the Additional Certificate pursuant to Section 5.3(a) hereof.
"Trustee Fee" shall mean, as to any Remittance 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 .005% of the Trust Balance of each Mortgage Loan as of the
immediately preceding Due Date.
"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.
42
<PAGE>
"Underwriter" shall mean Prudential Securities Incorporated.
"Underwriting Guidelines" shall mean the underwriting guidelines of the
Seller, Irwin Union Bank and Trust Company and of the Servicer, a copy of which
is attached as an exhibit to the Purchase and Sale Agreement.
"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, or an
estate or trust 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.
"Unpaid REO Amortization" shall mean, as to any REO Mortgage Loan and any
month, the aggregate of the installments of principal and accrued interest
deemed to be due in such month and in any prior months that remain unpaid,
calculated in accordance with Section 5.12.
"Weighted Average Rate Cap" shall mean with respect to the HELOC's and the
Class A-1 Certificates, on any Remittance Date, that maximum interest rate
computed to equal one-twelfth the weighted average Mortgage Interest Rate for
the HELOC's, net of the Class A-1 Premium Percentage and the rates at which the
Servicing Fee and the Trustee's Fee are calculated.
"Weighted Average Group II Pass Through Rate" shall mean the sum of (i) the
Class A-2 Pass Through Rate times the Class A-2 Principal Balance divided by the
sum of the Class A-2 Principal Balance and the Class A-3 Principal Balance and
(ii) the Class A-3 Pass Through Rate times the Class A-3 Principal Balance
divided by the sum of the Class A-2 Principal Balance and the Class A-3
Principal Balance.
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.
43
<PAGE>
(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 relating to the Class A-1 Certificates
(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
relating to the Group II Certificates (other than with respect to the Mortgage
Loans, or as otherwise specifically set forth herein) provided for herein, shall
be made on the of an assumed year of 360 days consisting of twelve 30 day
months. All calculations of interest with respect to any Mortgage Loan provided
for herein shall be made in accordance with the terms of the related Mortgage
Note and Mortgage or, if such documents do not specify the basis upon which
interest accrues thereon, on the basis of dividing actual days elapsed by a 365
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 Mortgage Note and Mortgage to reduce the outstanding
principal balance of such Mortgage Loan on which interest accrues.
[Remainder of this page intentionally left blank]
44
<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 does
hereby sell, transfer, assign, set over and convey to the Trust for the benefit
of the Certificateholders and the Additional Certificateholder 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 2.6 of the
Purchase and Sale Agreement, the Depositor does hereby also irrevocably
transfer, assign, set over and otherwise convey to the Trustee all of its rights
(exclusive of its obligations) under the Purchase and Sale Agreement, including,
without limitation, its right to exercise the remedies created by Sections 2.5
and 3.4 of the Purchase and Sale Agreement for breaches of representations and
warranties, agreements and covenants of the Seller contained in Sections 3.1 and
3.2 of the Purchase and Sale Agreement.
(b) The rights of the Certificateholders and the Additional
Certificateholder to receive payments with respect to the Mortgage Loans in
respect of the Certificates and the Additional Certificates and all ownership
interests of the Certificateholders, shall be as set forth in this Agreement. In
this regard, all rights of the Class R Certificateholders to receive payments in
respect of the Class R Certificates, 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
receive the Reimbursement Amount. In accordance with the foregoing, the
ownership interest of the Class R Certificateholders in amounts deposited in the
Certificate Account or the Reserve Account from time to time shall not vest
unless and until such amounts are distributed in respect of the Class R
Certificates in accordance with the terms of this Agreement.
(c) The Depositor does hereby establish, pursuant to the further provisions
of this Agreement and the laws of the State of New York, an express trust to be
known, for convenience, as "Irwin Home Equity Corporation Trust 1996-1"
45
<PAGE>
and does hereby appoint The Chase Manhattan Bank as Trustee in accordance with
the provisions of this Agreement.
Section 2.2 Possession of Mortgage Files; Access to Mortgage Files. (a)
Upon the issuance of the Certificates and any Additional 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 Additional Certificateholders and the
Certificate Insurer, as their respective interests may, from time to time,
appear.
(b) Pursuant to Section 2.4 of the Purchase and Sale Agreement, the
Depositor has delivered or caused to be delivered the Trustee's Mortgage File
related to each Mortgage Loan to the Trustee.
(c) The Trustee may enter into a custodial agreement pursuant to which the
Trustee will appoint a custodian (a "Custodian") to hold the Mortgage Files in
trust for the benefit of the Trustee; provided, however, that the custodian so
appointed shall in no event be the Depositor or the Servicer or any Person known
to a Responsible Officer of the Trustee to be an Affiliate of any of them.
(d) The Custodian shall 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 Custodian.
Section 2.3 Delivery of Mortgage Loan Documents. (a) In connection with
each conveyance pursuant to Section 2.1, 2.2 or 2.10 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, endorsed by the holder of record
without recourse in the following form: "Pay to the order of , without
recourse" and signed in the name of an authorized officer of the holder of
record, Irwin Union Bank and Trust Company, and if by the Seller, by an
authorized officer;
(ii) The original Mortgage with evidence of recording indicated
thereon; provided, however, that if
46
<PAGE>
such Mortgage has not been returned from the applicable recording office,
then such recorded Mortgage shall be delivered when so returned;
(iii) An 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 holder of record of the Mortgage Loan by an
authorized officer (with evidence of submission for recordation of such
assignment in the appropriate real estate recording office for such
Mortgaged Property to be received by the Trustee within 45 days of the
Closing Date or, with respect to Subsequent Mortgage Loans, the Subsequent
Transfer Date); 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 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 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, then such assignment shall be delivered when so returned (and a
blanket assignment with respect to each unrecorded Mortgage shall be
delivered on the Closing Date or, with respect to Subsequent Mortgage
Loans, the Subsequent Transfer Date);
(iv) Any intervening Assignments of the Mortgage with evidence of
recording thereon;
(v) Any assumption, modification, consolidation or extension
agreements; and
(vi) The policy of title insurance (or a commitment for title
insurance, if the policy is being held by the title insurance company
47
<PAGE>
pending recordation of the Mortgage) and the certificate of primary
mortgage guaranty insurance, if any, issued with respect to such Mortgage
Loan; provided, however, that Mortgage Loans with a Principal Balance under
$15,000 which are not in a first lien position and have been submitted for
review of title after July 10, 1995 shall be exempt from this requirement
and provided, further, that Mortgage Loans with a Principal Balance under
$25,000 which are not in a first lien position, which have a second lien
ratio of less than 25% and have been submitted for review of title after
September 1, 1996 shall be exempt from this requirement;
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 M 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 has
agreed pursuant to the Purchase and Sale Agreement, 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 has agreed pursuant to the Purchase and Sale Agreement, at
its own expense, to record (or to provide the Trustee with evidence of
recordation thereof) each assignment within 45 days of the Closing Date or, with
respect to Subsequent Mortgage Loans, the Subsequent Transfer 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
48
<PAGE>
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
unqualified Opinion of Counsel reasonably acceptable to the Trustee 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 Seller.
On or prior to the Closing Date, or, with respect to Subsequent Mortgage
Loans, the Subsequent Transfer Date, the Servicer, at its own expense shall
complete the endorsement of each Mortgage Note such that the final endorsement
appears in the following form:
"Pay to the order of _________, without recourse, Irwin Union Bank and
Trust Company.
The Servicer, at its own expense shall also complete each Assignment of
Mortgage such that the final Assignment of Mortgage appears in the following
form:
"The Chase Manhattan Bank, as Trustee for Irwin Home Equity
Corporation Trust 1996-1 formed pursuant to the Pooling and Servicing
Agreement dated October 1, 1996, between Prudential Securities Secured
Financing Corporation as Depositor, Irwin Home Equity Corporation as
Servicer and The Chase Manhattan Bank, as Trustee"
(b) Without diminution of the requirements of Sections 2.2(c) and this
Section 2.3, all original documents relating to the Mortgage Loans that are not
delivered to the Trustee are and shall be delivered to the Servicer by the
Seller on behalf of the Depositor pursuant to the Purchase and Sale Agreement,
and shall be held by the Servicer in trust for the benefit of the Trustee on
behalf of the Certificateholders and the Certificate Insurer. In the event that
any such original document is required pursuant to the terms of this Section 2.3
to be a part of a Mortgage File, the Servicer shall promptly deliver such
original document 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. Promptly upon the Depositor's and the Trust's acquisition thereof and the
Servicer's receipt thereof, the Servicer on behalf of the Trust shall mark
conspicuously each original document not delivered to the Trustee, and the
Seller's master data processing records evidencing each Mortgage Loan
49
<PAGE>
with a legend, acceptable to the Trustee and the Certificate Insurer, evidencing
that the Trust has purchased the Mortgage Loans and all right and title thereto
and interest therein pursuant to the Purchase and Sale Agreement and this
Agreement.
(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, the Custodian or the Trustee to be lost, stolen or destroyed the
Seller shall, within 14 days of the Closing Date or the later date upon which
such Mortgage Note has been conclusively determined to be lost, 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 under the Purchase and Sale Agreement with respect to the related
Mortgage Loan.
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 Certificate Insurance
Policies and, with respect to each initial Mortgage Loan, the original Mortgage
Note (with any exceptions noted), in the form attached as Exhibit E 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 to execute and deliver to the
Depositor, the Certificate Insurer, the Servicer and the Seller on or prior to
any Subsequent Transfer Date an acknowledgement of receipt of original Mortgage
Note with respect to each Subsequent Mortgage Loan, in the form attached as
Exhibit E 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 and subject to the conditions set forth herein for the benefit
of the Certificateholders and the Certificate Insurer.
50
<PAGE>
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 within 45 Business Days after the Closing Date or, with respect to
Subsequent Mortgage Loans, the Subsequent Transfer Date and to deliver to the
Seller, the Servicer, the Depositor and the Certificate Insurer a certification
in the form attached hereto as Exhibit F 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 documents required to be
delivered to it pursuant to Section 2.3 hereof and the Purchase and Sale
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 initialled 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.
On or prior to the first anniversary of the Closing Date, 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 G to the effect that, as to each Mortgage Loan and Subsequent 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 in an exception
included in the Trustee's initial certification, (i) all documents required to
be delivered to it pursuant to Section 2.3 hereof and the Purchase and Sale
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 initialled 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
51
<PAGE>
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 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.
Pursuant to the Purchase and Sale Agreement, the Seller has agreed 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 (in either
case in the reasonable determination of the Certificate Insurer), the Trustee
shall enforce the Seller's obligation pursuant to the Purchase and Sale
Agreement to either (i) substitute in lieu of such Mortgage Loan a Qualified
Substitute Mortgage Loan in the manner and subject to the conditions set forth
in Section 3.3 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 unreimbursed Servicing Advances made by the Servicer with
respect to such Mortgage Loan, which purchase price shall be deposited in the
Trustee 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 or
Trustee 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.
52
<PAGE>
(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, and the deposit of the amounts
described above into the Trustee Collection Account (which certification shall
be in the form of Exhibit H 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 notify the Certificate Insurer if the Seller fails to repurchase
or substitute for a Mortgage Loan in accordance with the foregoing.
Section 2.5 Designations under REMIC Provisions; Designation of Startup
Date. (a) The Class A Certificates are hereby designated as the "regular
interests", and the Class R Certificates are designated the single class of
"residual interests" in the 1996-1 REMIC for the purposes of the REMIC
Provisions. The 1996-1 REMIC shall be designated as the "Irwin Home Equity
Corporation Trust 1996-1 REMIC."
(b) The Closing Date will be the "startup day" of the 1996-1 REMIC within
the meaning of Section 860G(a)(9) of the Code.
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 and the Additional
Certificate duly authenticated by the Trustee, and, in the case of the Class A
Certificates, 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.
53
<PAGE>
Section 2.8 Grant of Security Interest. (a) It is the intention of the
parties hereto that the conveyance by the Depositor of the Trust Fund to the
Trustee on behalf of the Trust shall constitute a purchase and sale of such
Trust Fund and not a loan. In the event, however, that a court of competent
jurisdiction were to hold that the transaction evidenced hereby constitutes a
loan and not a purchase and sale, it is the intention of the parties hereto that
this Agreement shall constitute a security agreement under applicable law, and
that the Depositor shall be deemed to have granted and hereby grants to the
Trustee, on behalf of the Trust, a first priority perfected security interest in
all of the Depositor's right, title and interest in, to and under the Trust Fund
to secure a loan in an amount equal to the purchase price of the Mortgage Loans.
The conveyance by the Depositor of the Trust Fund to the Trustee on behalf of
the Trust shall not constitute and are not intended to result in an assumption
by the Trustee, the Certificate Insurer or any Certificateholder or the Holder
of the Additional Certificate of any obligation of the Seller or any other
Person in connection with the Trust Fund, including, but not limited to, the
obligation to advance additional amounts pursuant to the terms of the Mortgage
Note.
(b) 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. 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.
Section 2.9 Further Assurances; Powers of Attorney. (a) The Servicer agrees
that, from time to time, at its expense, it shall cause the Seller and Irwin
Union Bank and Trust Company (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 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 and the Depositor will, upon the
request of the Servicer or of the Trustee execute and file (or cause to be
54
<PAGE>
executed and filed) such real estate filings, financing or continuation
statements, or amendments thereto or assignments thereof, and such other
instruments or notices, as may be necessary or appropriate.
(b) The Depositor hereby grants to the Servicer and the Trustee powers of
attorney to execute all documents on its behalf under this Agreement and the
Purchase and Sale Agreement as may be necessary or desirable to effectuate the
foregoing.
Section 2.10 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 transfer, assign, set over and otherwise convey without recourse, to the
Trust (i) with respect to Group I, all of its right, title and interest in and
to each Subsequent Mortgage Loan that is a HELOC and with respect to Group II
all of its right, title and interest in and to each Subsequent Mortgage Loan
that is a HEL, in each case listed on the Mortgage Loan Schedule delivered by
the Depositor to the Trustee on such Subsequent Transfer Date, (ii) all its
right, title and interest in and to principal collected and interest accruing on
each such Subsequent Mortgage Loan on and after the related Cut-Off Date; (iii)
all its right, title and interest in and to all Insurance Policies and 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; and (iv)
all its rights under each Subsequent Transfer Agreement; provided, however, that
the Depositor and/or Seller reserves and retains all its right, title and
interest in and to principal (including Prepayments) collected and interest
accruing on each such Subsequent Mortgage Loan prior to the related Cut-Off
Date. The transfer to the Trust by the Depositor of the Subsequent Mortgage
Loans set forth in the Mortgage Loan Schedule shall be absolute and shall be
intended by the Depositor, the Certificateholders, the Additional
Certificateholder and all parties hereto to constitute and to be treated as a
sale by the Depositor. The related Mortgage File for each Subsequent Mortgage
Loan shall be delivered to the Trustee prior to the Subsequent Transfer Date.
The amount released from the Pre-Funding Account shall be one-hundred
percent (100%) of the aggregate Principal Balances of the Subsequent Mortgage
Loans so transferred of which 9.0% of the aggregate Principal Balances of
Subsequent Mortgage Loan which are HELOCs and 7.3% of the aggregate Principal
55
<PAGE>
Balance of Subsequent Mortgage Loans which are HELs shall be transferred to the
Reserve Fund unless on or prior to the related Subsequent Transfer Date the
Servicer shall have provided an Eligible Letter of Credit in such amount to the
Trustee.
(b) The Depositor shall transfer to the Trust the Subsequent Mortgage Loans
and the other property and rights related thereto described in paragraph (a)
above only upon the satisfaction of each of the following conditions on or prior
to the related Subsequent Transfer Date:.
(i) At least 5 Business Days prior to the Subsequent Transfer Date,
the Depositor shall have provided the Trustee, the Certificate Insurer,
Moody's and Standard & Poor's with an Addition Notice and shall have
provided any information in an electronic data file form as reasonably
requested by any of the foregoing with respect to the Subsequent Mortgage
Loans;
(ii) the Depositor shall have delivered to the Trustee and the
Custodian a duly executed written assignment (including an acceptance by
the Trustee) in substantially the form of Exhibit O (the "Subsequent
Transfer Agreement"), which shall include the Mortgage Loans Schedules,
listing the Subsequent Mortgage Loans and any other exhibits listed
thereon;
(iii) the Depositor shall have deposited in the Collection Account all
collections in respect of the Subsequent Mortgage Loans received on or
after the related Cut-Off Date;
(iv) as of each Subsequent Transfer Date, none of the Seller, the
Servicer or the Depositor was insolvent nor will any of them have been made
insolvent by such transfer nor is any of them aware of any pending
insolvency;
(v) such addition will not result in a material adverse tax
consequence to the Trust or the Holders of the Certificates;
(vi) the Pre-Funding Period shall not have terminated;
(vii) the Depositor shall have delivered to the Trustee and the
Certificate Insurer an Officer's Certificate confirming the satisfaction of
each condition precedent specified in this paragraph (b) and paragraphs (c)
and (d) below, and in the related Subsequent Funding Transfer Agreement;
56
<PAGE>
(viii) the Depositor shall have delivered to the Certificate Insurer,
the Rating Agencies and the Trustee Opinions of Counsel 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 Date (bankruptcy, corporate and tax opinions); 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 Agreement 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) (i) the obligation of the Trust to purchase a Subsequent Mortgage Loan
on any Subsequent Transfer Date for assignment to Group I is subject to the
following requirements: (i) such Subsequent Mortgage Loan may not be 30 or more
days contractually Delinquent as of the related Cut-Off Date, (ii) each such
Subsequent Mortgage Loan shall be interest only for the first 10 years and then
fully amortizing with level payments over a term to maturity of not less than 10
years and indexed to prime, (iii) such Subsequent Mortgage Loan will have a
Combined Loan-to-Value Ratio of not more than 100%, (iv) such Subsequent
Mortgage Loan shall have a Gross Margin of at least 1.5%, (v) will not have any
Subsequent Mortgage Loan with a Principal Balance in excess of $170,000, (vi)
such Subsequent Mortgage Loan will have a Mortgage Interest Rate of at Least
9.60%; (vii) each Subsequent Mortgage Loan shall be secured by a single family
residence, (viii) each Subsequent Mortgage Loan shall be underwritten in
accordance with the Underwriting Guidelines, and (ix) no such Subsequent
Mortgage Loan shall be associated with the purchase of a home; and following the
purchase of such Subsequent Mortgage loans by the Trust, the HELOCs (including
the Subsequent Mortgage Loans) (a) will have a weighted average Gross Margin of
at least 4.45%, (b) will have a weighted average Mortgage Interest Rate of
approximately 12.81%, (c) Subsequent Mortgage Loans with classifications of "E"
will represent at least 94% of the HELOCs and Subsequent Mortgage Loans with
classifications of "G" and "F" will represent no more than 5% and 1% of the
HELOCs respectively, (d) will have a weighted average remaining term to stated
maturity of not more than 238 months, (e) will have a weighted average second
mortgage ratio of approximately 27%, (f) will have a weighted average Combined
Loan-to-Value Ratio of not greater than 92%, (g) no more than 2.0% of the HELOCs
(including the Subsequent Mortgage Loans) shall be secured by Mortgage
57
<PAGE>
Properties located in any one zip code, (h) no more than 1.2% of the HELOCs will
be secured by Mortgage Properties that are not Owner Occupied Mortgaged
Properties, (i) the HELOCs (including the Subsequent Mortgage Loans) shall have
a weighted average Credit Bureau Score of at least 665 and a weighted average
debt-to-income ratio of no more than 42.00.
(ii) The obligation of the Trust to purchase a Subsequent Mortgage Loan on
any Subsequent Transfer Date for assignment to Group II is subject to the
following requirements: (i) such Subsequent Mortgage Loan may not be 30 or more
days contractually Delinquent as of the related Cut-Off Date, (ii) the remaining
term to maturity of such Subsequent Mortgage Loan may not be less than 10 years,
(iii) such Subsequent Mortgage Loan will have a Combined Loan-to-Value Ratio of
not more than 100%, (iv) such Subsequent Mortgage Loan shall have a Mortgage
Interest Rate of at least 10%, (v) will not have any Subsequent Mortgage Loan
with a Principal Balance in excess of $170,000, (vi) each Subsequent Mortgage
Loan shall be secured by a single family residence, (vii) each Subsequent
Mortgage Loan shall be underwritten in accordance with the Underwriting
Guidelines, and (viii) no such Subsequent Mortgage Loan shall be associated with
the purchase of a home; and following the purchase of such Subsequent Mortgage
loans by the Trust, the HELs (including the Subsequent Mortgage Loans) (a) will
have a weighted average Mortgage Interest Rate of at least 13.54%, (b) will have
a weighted average remaining term to stated maturity of not more than 119
months, (c) will have a weighted average Combined Loan-to- Value Ratio of not
greater than 92%, (d) no more than 2.0% of the HELs (including the Subsequent
Mortgage Loans) shall be secured by Mortgage Properties located in any one zip
code, (e) no more than 1.2% of the HELs will be secured by Mortgage Properties
that are not Owner Occupied Mortgaged Properties, (f) the HELs with
classifications of "E" will represent at least 95.5% of the HELs and Subsequent
Mortgage Loans with classifications of "G" and "F" will represent no more than
4% and .5% of the HELs, respectively, (g) the HELs will have a weighted-average
second mortgage ratio of approximately 26.50%, (h) the HELs (including the
Subsequent Mortgage Loans) shall have a weighted average Credit Bureau Score of
at least 670 and a weighted average debt-to-income ratio of no more than 42.00.
(d) The obligation of the Trust to purchase a Subsequent Mortgage Loan on
any Subsequent Transfer Date is subject to the following additional
requirements, any of which may be waived or modified in any respect by the
Certificate Insurer by a written instrument executed by the Certificate Insurer;
58
<PAGE>
(1) The obligation of the Trust to purchase a Subsequent Mortgage Loan
on any Subsequent Transfer Date is subject to the following additional
requirements: (i) no such Subsequent Mortgage Loan may have a Loan-to-Value
Ratio greater than 100%; (ii) no such Mortgage Loan is secured by a
Mortgaged Property which, at the time of the origination of such Mortgage
Loan, had an Appraised Value greater than $1,000,000; (iii) the first
payment on each such Subsequent Mortgage Loan may be due no later than
January 15, 1997 and (iv) no Subsequent Mortgage Loan that is a HEL may
have a Mortgage Interest Rate lower than 10.0%.
(2) After giving effect to the Trust's purchase of any such Subsequent
Mortgage Loan (i) the weighted average Gross Margins of all HELOCs shall be
no less than 4.45%; (ii) the weighted average Mortgage Interest Rates of
all HELs shall be no less than 13.54% (iii) no more than 2.0% of the
Mortgage Loans held by the Trust shall be concentrated in any single zip
code; (iv) the HELOCs and the HELs shall each have weighted average
Loan-to-Value Ratio no greater than 92%; (v) no more than 1.2% of the
Mortgage Loans by aggregate Principal Balance related to Mortgaged
Properties that are not Owner Occupied Mortgaged Properties.
(e) In connection with each Subsequent Transfer Date and on the Payment
Dates occurring in November and December of 1996 and January of 1997 the
Depositor shall determine, and the Trustee shall co-operate with the Depositor
in determining (i) the amount and correct dispositions of the Capitalized
Interest Requirements and the Capitalized Interest Deposit Amounts and the
amount then on deposit in the Pre-Funding Account, and (ii) any other necessary
matters in connection with the administration of the Pre-Funding Account and of
the Capitalized Interest Account. In the event that any amounts are incorrectly
released to the Owners of the Class R Certificates from the Pre-Funding Account
or from the Capitalized Interest Account, such Owners or the Depositor shall
immediately repay such amounts to the Trustee.
(f) Any requirements or conditions set forth in clauses (c) and (d) above
my be waived or modified in writing by the Certificate Insurer; provided that,
as a condition to any such waiver or modification, the Certificate Insurer, in
its sole discretion, may modify the definition of Required Reserve Account Level
without the consent of any party hereto or any Certificateholder or Additional
Certificateholder.
59
<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 and during the term of this Agreement:
(a) The Servicer is a duly organized corporation, validly existing and
in good standing under the laws of the state of its incorporation and has
all licenses necessary to carry on its business as now being conducted and
is licensed, qualified and in good standing in each Mortgaged Property
State if the laws of such state require licensing or qualification in order
to conduct business of the type conducted by the Servicer, and in any event
the Servicer is in compliance with the laws of any such state to the extent
necessary to ensure the enforceability of the related Mortgage Loan and the
servicing of such Mortgage Loan in accordance with 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 (including all
instruments of transfer to be delivered pursuant to this Agreement) by the
Servicer and the consummation of the transactions contemplated hereby have
been duly and validly authorized; this Agreement evidences the valid,
binding and enforceable obligation of the 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) The consummation of the transactions contemplated by this
Agreement are in the ordinary course of business of the Servicer;
(c) Neither the execution and delivery of this Agreement, nor the
performance 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
60
<PAGE>
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) The Servicer does not believe, nor does it have any reason or
cause to believe, that it cannot perform each and every covenant contained
in this Agreement;
(e) Except as previously disclosed to the Depositor, the Trustee and
the Certificate Insurer, 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 in any material liability on
the part of the Servicer, or which would draw into question the validity of
this Agreement or the Mortgage Loans 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;
(f) 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 sale of the Mortgage Loans to the Depositor in accordance
with the Purchase and Sale Agreement, or the consummation of the
transactions contemplated by this Agreement, except for those consents,
approvals or authorization which have been obtained prior to the Closing
Date;
(g) 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 fact
regarding the Servicer or omits to state a fact necessary to make the
statements regarding the Servicer contained herein or therein not
misleading;
(h) The Servicer has delivered to the Depositor unaudited financial
statements as to its last complete fiscal year and any quarter subsequent
thereto ended more than 60 days prior to the execution of this
61
<PAGE>
Agreement. All such financial statements fairly present the pertinent
results of operations and changes in financial position at the end of each
such period of the Servicer and its subsidiaries and have been prepared in
accordance with generally accepted accounting principles ("GAAP")
consistently applied throughout the periods involved, except as set forth
in the notes thereto. There has been no change in the business, operations,
financial condition, properties or assets of the Servicer since the date of
the Servicer's financial statements that would have a material adverse
effect on its ability to perform its obligations under this Agreement; and
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 and the Certificate Insurer.
Section 3.2 Representations, Warranties and Covenants of the Depositor. The
Depositor hereby represents, warrants and covenants to the Trustee that as of
the date of this Agreement or as of such date specifically provided herein:
(a) The Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware;
(b) The Depositor has the corporate power and authority to convey the
Mortgage Loans and to execute, deliver and perform, and to enter into and
consummate transactions contemplated by, this Agreement;
(c) This Agreement has been duly and validly authorized, executed and
delivered by the Depositor, all requisite corporate action having been
taken, and, assuming the due authorization, execution and delivery hereof
by the 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);
(d) No consent, approval, authorization or order of, or registration
or filing with, or notice to, any governmental authority or court is
62
<PAGE>
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;
(e) None of the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby or thereby, or the
fulfillment of or compliance with the terms and conditions of this
Agreement, (i) conflicts or will conflict with or results or will result in
a breach of, or constitutes or will constitute a default or results or will
result in an acceleration under (A) the charter or bylaws of the Depositor,
or (B) of any term, condition or provision of any material indenture, deed
of trust, contract or other agreement or instrument to which the Depositor
or any of its subsidiaries is a party or by which it or any of its
subsidiaries is bound; (ii) results or will result in a violation of any
law, rule, regulation, order, judgment or decree applicable to the
Depositor of any court or governmental authority having jurisdiction over
the Depositor or its subsidiaries; or (iii) results in the creation or
imposition of any lien, charge or encumbrance which would have a material
adverse effect upon the Mortgage Loans or any documents or instruments
evidencing or securing the Mortgage Loans;
(f) There are no actions, suits or proceedings before or against or
investigations of, the Depositor pending, or to the knowledge of the
Depositor, threatened, before any court, administrative agency or other
tribunal, and no notice of any such action, which, in the Depositor's
reasonable judgment, might materially and adversely affect the performance
by the Depositor of its obligations under this Agreement, or the validity
or enforceability of this Agreement; and
(g) The Depositor is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency that would materially and adversely
affect its performance hereunder.
It is understood and agreed that the representations, warranties and covenants
set forth in this Section 3.2 shall survive delivery of the respective Mortgage
Files to the Trustee or to a custodian, as the case may be, and shall inure to
the benefit of the Trustee and the Certificate Insurer.
63
<PAGE>
Section 3.3 Purchase and Substitution. (a) It is understood and agreed that
the representations and warranties set forth in Sections 3.1 and 3.2 of the
Purchase and Sale Agreement shall survive delivery of the Certificates to the
Certificateholders. Pursuant to the Purchase and Sale Agreement, with respect to
any representation or warranty contained in Sections 3.1 or 3.2 of the Purchase
and Sale Agreement that is made to the best of the Seller's knowledge, if it is
discovered by the Servicer, any Subservicer, the Trustee, the Certificate
Insurer or any Certificateholder that the substance of such representation and
warranty was inaccurate as of the Closing Date and such inaccuracy materially
and adversely affects the value of the related Mortgage Loan, then
notwithstanding the Seller's lack of knowledge with respect to the 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 Servicer, any Subservicer, the Trustee or the Certificate
Insurer of a breach of any of such 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 3.3, within 60 days of the earlier of its discovery or its receipt
of notice of any breach of a representation or warranty, pursuant to the
Purchase and Sale Agreement, 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 Date, in the manner and at the price
specified in Section 2.4(b) (in which case the Mortgage Loan shall become a
Deleted Mortgage Loan), (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, that, such
substitution is effected not later than the date which is two years after the
Startup Date 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 1996-1 REMIC to fail to qualify as a REMIC at any time any
Certificates are outstanding. Pursuant to the Purchase and Sale Agreement, any
64
<PAGE>
such substitution shall be accompanied by payment by the Seller of the
Substitution Adjustment, if any, to the Servicer to be deposited in the Trustee
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
pursuant to the Purchase and Sale Agreement to effect such substitution by
delivering to the Trustee a certification in the form attached hereto as Exhibit
H, 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 payments
received in connection with such Qualified Substitute Mortgage Loan or Loans
after the date of such substitution. Monthly Payments received with respect to
Qualified Substitute Mortgage Loans on or before the date of substitution will
be retained by the Seller. The Trust Fund will own all payments received on the
Deleted Mortgage Loan on or before the date of substitution, and the Seller
shall thereafter be entitled to retain all amounts subsequently received in
respect of such Deleted Mortgage Loan. The Servicer shall give written notice to
the 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.
(d) It is understood and agreed that the obligations of the Seller set
forth in Sections 2.5 and 3.4 of the Purchase and Sale Agreement to cure,
purchase, substitute or otherwise pay amounts to the Trust or the Certificate
Insurer for a defective Mortgage Loan as provided in such Sections 2.5 and 3.4
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 3.1 and 3.2 of the Purchase and
Sale Agreement. The Trustee shall give prompt written notice to the Certificate
Insurer, Moody's and S&P of any repurchase or substitution made pursuant to this
Section 3.3 or Section 2.4(b) hereof.
(e) Upon discovery by the Servicer, the Trustee, the Certificate Insurer or
any Certificateholder that any Mortgage Loan does not constitute a Qualified
Mortgage, the Person discovering such fact shall promptly (and in any event
within 5 days of the discovery) give written notice thereof to the others of
65
<PAGE>
such Persons. In connection therewith, pursuant to the Purchase and Sale
Agreement, 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 3.1 or 3.2 of
the Purchase and Sale 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 3.1 or 3.2 of the Purchase and
Sale Agreement.
Section 3.4 Servicer Covenants. The Servicer hereby covenants to the
Trustee, the Depositor and the Certificate Insurer and the Certificateholders
that as of the Closing Date and during the term of this Agreement:
(a) The Servicer shall deliver on the Closing Date an opinion from the
general counsel or the corporate counsel of the Servicer as to general
corporate matters in form and substance reasonably satisfactory to
Underwriter's counsel and counsel to the Certificate Insurer.
(b) The Servicer may in its discretion (i) waive any prepayment
charge, assumption fee, late payment charge or other charge in connection
with a Mortgage Loan, and (ii) arrange a schedule, running for no more than
180 days after the Due Date for payment of any installment on any Mortgage
Note, for the liquidation of delinquent items; provided, that the Servicer
shall not agree to the modification or waiver of any provision of a
Mortgage Loan at a time when such Mortgage Loan is not in default or such
default is not imminent, if such modification or waiver would be treated as
a taxable exchange under Code Section 1001, unless such exchange would not
be considered a "prohibited transaction" under the REMIC Provisions.
It is understood and agreed that the covenants set forth in this Section 3.4
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 and the
Certificate Insurer.
[Remainder of this page intentionally left blank]
66
<PAGE>
ARTICLE IV
The Certificates
Section 4.1 The Certificates. The Certificates and the Additional
Certificate shall be substantially in the forms annexed hereto as, in the case
of the Class A-1 Certificate, Exhibit B-1, in the case of the Class A-2
Certificate, Exhibit B-2, in the case of the Class A-3 Certificate, Exhibit B-3,
in the case of the Class R Certificate, Exhibit B-4 and in the case of the
Additional Certificate, Exhibit B-5. All Certificates and the Additional
Certificate 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 and any Additional
Certificate 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 Additional Certificates or
did not hold such offices at the date of such Certificates. All Certificates and
the Additional Certificate 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
Additional Certificate and the registration of transfer of Certificates and the
Additional Certificate. The Trustee is hereby appointed registrar for the
purpose of registering and transferring Certificates and the Additional
Certificate, 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 and the Additional Certificate during
normal business hours upon reasonable notice.
(b) All Certificates and the Additional Certificate issued upon any
registration of transfer or exchange of Certificates and the Additional
Certificate shall be valid evidence of the same ownership interests in the Trust
and entitled to the same benefits under this Agreement as the Certificates and
the Additional Certificate surrendered upon such registration of transfer or
exchange.
67
<PAGE>
(c) Every Certificate and Additional 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 Certificate shall include a statement of insurance
provided by the Certificate Insurer.
(d) No service charge shall be made to a Holder or holder for any
registration of transfer or exchange of Certificates and the Additional
Certificate, 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 and the Additional
Certificate; any other expenses in connection with such transfer or exchange
shall be an expense of the Trust.
(e) 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-1 Certificates shall, except as otherwise provided in the
next paragraph, be initially issued in the form of a single fully registered
Class A-1 Certificate with a denomination equal to the Original Class A-1
Principal Balance. The Class A-2 Certificates shall, except as otherwise
provided in the next paragraph, be initially issued in the form of a single
fully registered Class A-2 Certificate with a denomination equal to the Original
Class A-2 Principal Balance. The Class A-3 Certificates shall, except as
otherwise provided in the next paragraph, be initially issued in the form of a
single fully registered Class A-3 Certificate with a denomination equal to the
Original Class A-3 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.,
68
<PAGE>
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
mane "Cede & Co." in this Agreement shall refer to such new nominee of the
Depository.
(f) In the event that (i) the Depository or the Servicer advises the
Trustee in writing that the Depository is no longer willing or able to discharge
properly its responsibilities as nominee and depository with respect to the
Class A Certificates and the Servicer 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 Servicer may determine that the Class A Certificates shall be
registered in the name of and deposited with a successor depository operating a
global book-entry system, as may be acceptable to the Servicer, or such
depository's agent or designee but, if the Servicer 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;
provided, however, that any such reregistration shall be at the expense of the
Servicer.
(g) 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.
69
<PAGE>
(h) No transfer, sale, pledge or other disposition of any Class R
Certificate shall be made unless such disposition is made pursuant to an
effective registration statement under the Securities Act of 1933, as amended
and effective registration or qualification under applicable state securities
laws or "Blue Sky" laws, or is made in a transaction that does not require such
registration or qualification. None of the Servicer, the Depositor, the Seller
or the Trustee is obligated under this Agreement to register the Certificates
under the Securities Act of 1933, as amended or any other securities law or to
take any action not otherwise required under this Agreement to permit the
transfer of the Class R Certificates without such registration or qualification.
Any such Certificateholder desiring to effect such transfer shall, and does
hereby agree to, indemnify the Trustee, the Depositor, the Seller, the Servicer
and the Certificate Insurer against any liability that may result if the
transfer is not exempt or is not made in accordance with such applicable federal
and state laws. Promptly after receipt by an indemnified party under this
paragraph 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 paragraph, notify the indemnifying party in writing 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 than under this paragraph. 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 appoint counsel
reasonably satisfactory to such indemnified party to represent the indemnified
party in such action; provided, however, that 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 and/or other indemnified parties which are in conflict
with or contrary to the interests of the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to defend such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election so to
appoint counsel to defend such action and approval by the indemnified party of
such counsel, the indemnifying party will not be liable to such indemnified
party under this paragraph for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso of the next preceding sentence (it being understood, however, that the
70
<PAGE>
indemnifying party shall not be liable for the expenses of more than one
separate counsel for any indemnified party), (ii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party. Under no
circumstances shall the indemnified party enter into a settlement agreement with
respect to any lawsuit, claim or other proceeding without the prior written
consent of the indemnifying party.
(i) Each Person who has or who acquires any Ownership Interest in a Class R
Certificate shall be deemed by the acceptance or acquisition of such Ownership
Interest to have agreed to be bound by the following provisions and to have
irrevocably appointed the Servicer 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 Class R Certificate are expressly subject to the
following provisions:
(i) Each Person holding or acquiring any Ownership Interest in a Class
R Certificate shall be a Permitted Transferee and a United States Person
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 Class R Certificate, the Trustee shall require delivery to
it, and shall not register the Transfer of any Class R Certificate until
its receipt of, an affidavit and agreement (a "Transfer Affidavit and
Agreement") attached hereto as Exhibit I 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 Class R 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
Class R Certificate, it will endeavor to remain a Permitted Transferee, and
71
<PAGE>
that it has reviewed the provisions of this Section 4.2(i) 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 the Trustee
has actual knowledge that the proposed Transferee is not a Permitted
Transferee, no Transfer of an Ownership Interest in a Class R Certificate
to such proposed Transferee shall be effected.
(iv) Each Person holding or acquiring any Ownership Interest in a
Class R 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 Class R Certificate and (y) not to transfer its
Ownership Interest unless it provides a certificate (attached hereto as
Exhibit J) 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 Class
R 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 Class R Certificate, if it is, or is holding an Ownership
Interest in a Class R Certificate on behalf of, a "pass-through interest
holder."
(vi) The Trustee will register the Transfer of any Class R Certificate
only if it shall have received the Transfer Affidavit and Agreement. In
addition, no Transfer of a Class R Certificate shall be made unless the
Trustee shall have received a representation letter, the form of which is
attached hereto as Exhibit N from the Transferee of such Certificate to the
effect that such Transferee is a United States Person 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 Class R 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.
72
<PAGE>
If any purported transferee shall become a Holder of a Class R 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 Class R
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 Class R 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 Class R 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 Class R 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 Class R 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 Class R
Certificate in violation of the restrictions in this Section 4.2, then the
Servicer or its designee shall have the right, without notice to the Holder
or any prior Holder of such Class R Certificate, to sell such Class R
Certificate to a purchaser selected by the Servicer or its designee on such
reasonable terms as the Servicer or its designee may choose. Such purchaser
may be the Servicer itself or any Affiliate of the Servicer. The proceeds
of such sale, net of commissions, expenses and taxes due, if any, will be
remitted by the Servicer to the last preceding purported transferee of such
Class R Certificate, except that in the event that the Servicer determines
that the Holder or any prior Holder of such Class R Certificate may be
73
<PAGE>
liable for any amount due under this Section 4.2 or any other provision of
this Agreement, the Servicer 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 Servicer or its designee, and it shall not be liable to any Person
having an Ownership Interest in a Class R Certificate as a result of its
exercise of such discretion.
(ix) The provisions of Section 4.2(i) 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 1996-1 REMIC to cease to qualify as a REMIC and will not cause
(x) the 1996-1 REMIC to be subject to an entity-level tax caused by the
Transfer of any Ownership Interest in a Class R 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 Class R Certificate to a Percentage
that is not a Permitted Transferee.
(x) No transfer of a Class R Certificate or any interest therein shall
be made to any employee benefit plan or other retirement arrangement,
including individual retirement accounts and annuities, Keogh plans and
collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, that is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or the Code
(each, a "Plan"), unless the prospective transferee of such Class R
Certificate provides the Servicer and the Trustee with a certification of
facts and, at the prospective transferee's expense, an Opinion of Counsel
which establish to the satisfaction of the Servicer and the Trustee that
such transfer will not result in a violation of Section 406 of ERISA or
Section 4975 of the Code or cause the Servicer or the Trustee to be deemed
a fiduciary of such Plan or result in the imposition of an excise tax under
Section 4975 of the Code. In the absence of their having received the
certification of facts or Opinion of Counsel contemplated by the preceding
sentence, the Trustee and the Servicer shall require the
74
<PAGE>
prospective transferee of any Class R Certificate to certify (in the form
of Exhibit K hereto) that (A) it is neither (i) a Plan nor (ii) a Person
who is directly or indirectly purchasing a Class R Certificate on behalf
of, as named fiduciary of, as trustee of, or with assets, of a Plan and (B)
all funds used by such transferee to purchase such Certificates will be
funds held by it in its general account which it reasonably believes do not
constitute "plan assets" of any Plan.
(xi) 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, in the
case of a Class A-1 Certificate, Class A-2 Certificate or Class A-3
Certificate, the same Percentage Interest, and in any other case, the
equivalent undivided beneficial ownership interest in the related REMIC 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.
(j) Upon reasonable request of the holder of the Additional Certificate,
not more frequently than twice annually, and with the consent of the Certificate
Insurer and the Rating Agencies, the Trustee shall authenticate and deliver one
or more certificates or other instruments representing the right to receive
distributions in respect of Additional Balances drawn under the HELOCs to the
date of such request or any portion thereof. The rights of any holders of such
certificates or other instruments shall have
75
<PAGE>
the same priority, be in lieu of and in no event exceed the rights of the Holder
of the Additional Certificate immediately prior to such authentication and
delivery. Following such authentication and delivery, rights reserved to the
Holder of the Additional Certificate hereunder, shall be allocated among the
holders of such certificates or other instruments and the Holder of the
Additional Certificate hereunder as determined by an executed written agreement
between such parties and the Trustee approved by the Certificate Insurer. Other
than in connection with such a transfer, the Holder of the Additional
Certificate may not transfer its Ownership Interest or any portion thereof in
such Additional Certificate and the Holder of the Additional Certificate shall
retain its obligation under the HELOCs to advance Additional Balances to the
related Mortgagors.
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 Servicer, 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
Servicer, 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 Servicer and the Trustee may require the payment 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 X, 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
76
<PAGE>
whatsoever, and the Servicer, the Depositor, the Seller, the Certificate Insurer
and the Trustee shall not be affected by notice to the contrary.
[Remainder of this page intentionally left blank]
77
<PAGE>
ARTICLE V
Administration and Servicing of the Mortgage Loans
Section 5.1 Appointment of the Servicer.
(a) Irwin Home Equity Corporation 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 make any Mortgage Interest Rate adjustments on each
Interest Adjustment Date in compliance with applicable regulatory adjustable
mortgage loan requirements and the Mortgage Notes. The Servicer shall establish
procedures to monitor the Interest Adjustment Dates in order to assure that it
uses a published interest rate in determining an interest rate change, and it
will comply with those procedures. In the event a published interest rate is no
longer available, the Servicer shall choose a new comparable published interest
rate in accordance with the provisions hereof, of the applicable Mortgage Note
and of Accepted Servicing Practices, and shall provide the Mortgagor, the
Trustee and the Certificate
78
<PAGE>
Insurer with notice of the new published interest rate sufficient under law and
the Mortgage Note. The Servicer shall execute and deliver all appropriate
notices required by the applicable adjustable mortgage loan laws and regulations
and the Mortgage Loan Documents regarding such Mortgage Interest Rate
adjustments.
If the Servicer fails to make a timely Mortgage Interest Rate adjustment in
accordance with the terms of the related Mortgage Notes, the Servicer shall use
its own funds to satisfy any shortage in the Mortgagor's remittance so long as
such shortage shall continue; any such amount paid by the Servicer shall be
reimbursable to it from any subsequent amounts collected on account of the
related Mortgage Loan with respect to such adjustments.
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 5.4. 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 Sections 5.1(b)
and 5.1(c).
(c) It is intended that the 1996-1 REMIC formed hereunder shall constitute,
and that the affairs of the REMIC 1995-2 shall be conducted so as to qualify it
as, a "real estate mortgage investment conduit" ("REMIC") as defined in and in
accordance with the REMIC Provisions. In furtherance of such intentions, the
Servicer covenants and agrees that it shall not take any action or omit to take
any action reasonably within the Servicer's control and the scope of its duties
more specifically set forth herein that would (i) result in a taxable event to
the Holders of the Certificates or endanger the REMIC status of the 1996-1 REMIC
or (ii) result in the imposition on the 1996-1 REMIC or the Trust Fund of a tax
on "prohibited transactions" (either clause (i) or (ii) shall be an "Adverse
REMIC Event.") The Servicer shall not take any action or fail to take any action
(whether or not authorized hereunder) as to which the Trustee has advised it in
writing that it has received an Opinion of Counsel to the effect that an Adverse
REMIC Event could occur with respect to such action, and the Servicer shall have
no liability hereunder for any action taken by it in accordance with the written
79
<PAGE>
instruments of the Trustee. In addition, prior to taking any action with respect
to the Trust Fund that is not expressly permitted under the terms of this
Agreement, the Servicer will consult with the Trustee or its designee and the
Certificate Insurer, in writing, with respect to whether such action could cause
an Adverse REMIC Event to occur. The Trustee 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. At all times as may be required
by the Code, the Servicer shall use its best efforts to ensure that
substantially all of the assets of the Trust 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. In the event any
specified time period or other requirement set forth in this Agreement in
respect of compliance with the REMIC Provisions becomes inconsistent with the
REMIC Provisions as the same may be amended, such specified time period or other
requirement shall also be deemed amended to comply with the requirements of this
Section, unless such amended time period or other requirements shall be less
protective of the interests of the Certificateholders and the Certificate
Insurer, in which case, to the extent consistent with the REMIC Provisions, the
former time period or requirement shall continue in force.
(d) Subject to Section 5.12, 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, each Certificateholder and 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.
(e) 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 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
80
<PAGE>
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.
(f) 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 (except as between the Servicer and the Trustee, as Subservicer), enter
into Subservicing Agreements with Subservicers for the servicing and
administration of the Mortgage Loans and for the performance of any and all
other activities of the Servicer hereunder. 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 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, any of the provisions of
this Agreement relating to agreements or arrangements between the Servicer and a
Subservicer or reference to actions taken through a Subservicer or otherwise,
the Servicer shall remain obligated and primarily liable 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 or by virtue of indemnification from the
Subservicer and to the same extent and under the same terms and conditions as if
the Servicer alone were servicing and administering the Mortgage Loans.
81
<PAGE>
For purposes of this Agreement, the Servicer shall be deemed to have received
payments on Mortgage Loans when the Subservicer 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 shall establish and maintain in the name of the Trustee one or
more Collection Accounts (collectively, the "Collection Account"), in trust for
the benefit of the Holders of the Certificates, the Additional Certificates and
the Certificate Insurer, one of which shall be established and maintained with
the Trustee (the "Trustee Collection Account"). 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. Each
Collection Account shall be established and maintained as an Eligible Account
and one Collection Account may be maintained at the Bank of the West, provided,
that all amounts deposited in the Collection Account maintained at the Bank of
the West must be transferred to the Trustee Collection Account within 7 days of
such deposit; provided further, that the Certificate Insurer in its sole
discretion, may direct the Servicer to close such Collection Account and to
establish and maintain a replacement Collection Account that is an Eligible
Account. Neither the Collection Account nor the Trustee Collection Account
constitute assets of the 1996-1 REMIC.
On the Closing Date, the Servicer shall deposit in the Trustee Collection
Account any amounts representing the principal portion of Monthly Payments on
the Mortgage Loans made in respect of the October 15, 1996 Due Date and received
82
<PAGE>
on or prior to September 30, 1996. On the third Business Day prior to the first
Remittance Date, the Servicer shall have deposited into the Trustee Collection
Account all of the following collections and payments received or made by the
Servicer in respect of monies due under the Mortgage Loans (other than in
respect of interest on the Mortgage Loans accrued on or before the Due Date
immediately preceding the Cut-Off Date), and shall, on a daily basis thereafter
(except as otherwise provided herein), deposit such collections and payments
into the Collection Account:
(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 3.3 hereof; and
(vii) any amount expressly required to be deposited in the Collection
Account or Trustee Collection Account in accordance with certain provisions
of this Agreement, including, without limitation amounts in respect of the
termination of the Trust Fund (which shall be deposited in the Trustee
Collection Account), and amounts referenced in Sections 2.4(b), 3.3(a),
3.3(c), 5.6, and 6.6(d) of this Agreement;
provided, however, that the Servicer shall be entitled, at its election, either
(a) to withhold and to pay to itself the applicable Servicing Fee from any
payment on account of interest or other recovery (including Net REO Proceeds) as
received and prior to deposit of such payments in the Collection Account or (b)
83
<PAGE>
to withdraw the applicable Servicing Fee from the Collection Account after the
entire payment or recovery has been deposited therein; provided, further, that
with respect to any payment of interest received by the Servicer in respect of a
Mortgage Loan (whether paid by the Mortgagor or received as Liquidation
Proceeds, Insurance Proceeds or otherwise) which is less than the full amount of
interest then due with respect to such Mortgage Loan, only that portion of such
payment that bears the same relationship to the total amount of such payment of
interest as the rate used to determine the Servicing Fee bears to the Mortgage
Interest Rate borne by such Mortgage Loan shall be allocated to the Servicing
Fee with respect to such Mortgage Loan. All other amounts shall be deposited in
the Collection Account not later than the Business Day following the day of
receipt and posting by the Servicer. All amounts collected in respect of the
Mortgage Loans and on deposit in the Collection Account shall be transferred on
a regular weekly basis into the Trustee Collection Account, provided, that
notwithstanding any regularly scheduled transfer of funds to the Trustee
Collection Account the Servicer shall, not later than 3 Business Days prior to
each Remittance Date transfer to the Trustee Collection Account all funds in the
Collection Account that are to be included in the Servicer Remittance Amount on
the Servicer Remittance Date immediately preceding the Remittance Date.
The Servicer may direct, in writing, the institution maintaining the
Collection Account or the Trustee Collection Account to invest the funds in the
Collection Account or Trustee Collection Account, as the case may be, 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
(at the Servicer's expense) that such sale or disposition will not cause the
Trust Fund to be subject to the tax on income from prohibited transactions
imposed by Code Section 860F(a)(1), otherwise subject the Trust Fund to tax or
cause the 1996-1 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 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 5.14 and payments in the nature of
84
<PAGE>
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, and the Servicer shall have
the right at all times to transfer funds from the Collection Account to the
Trustee Collection Account. All funds deposited by the Servicer in the
Collection Account and the Trustee 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. All
such funds shall be held by the Servicer 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 to a different depository so long as such
transfer is to an Eligible Account.
Section 5.4 Permitted Withdrawals from the Collection Account and Trustee
Collection Account. The Servicer is hereby authorized by the Trustee (such
authorization to be revocable by the Trustee at any time), from time to time, to
make withdrawals from the Collection Account or, as applicable, the Trustee
Collection Account but only for the following purposes:
(a) to reimburse itself from any funds in the Collection Account and the
Trustee Collection Account for any accrued unpaid Servicing Fees and for
unreimbursed Periodic Advances and Servicing Advances. The Servicer's right to
reimbursement for unpaid Servicing Fees and unreimbursed Servicing Advances
shall be limited to late collections on the related Mortgage Loan, including
Liquidation Proceeds, Released Mortgaged Property Proceeds, Insurance Proceeds
and such other amounts on deposit in the Collection Account as may be collected
by the Servicer from the related Mortgagor or otherwise relating to the Mortgage
Loan in respect of which such unreimbursed amounts are owed. The Servicer's
right to reimbursement for unreimbursed Periodic Advances shall be limited to
late collections of interest on any Mortgage Loan and to Liquidation Proceeds
and Insurance Proceeds on related Mortgage Loans;
85
<PAGE>
(b) to reimburse itself for any Periodic Advances determined in good faith
to have become Nonrecoverable Advances, such reimbursement to be made from any
funds in the Collection Account and the Trustee Collection Account;
(c) to withdraw from the Collection Account or the Trustee Collection
Account any Preference Amount received from a Mortgagor;
(d) to withdraw any funds deposited in the Collection Account or Trustee
Collection Account that were not required to be deposited therein;
(e) to withdraw from the Collection Account or the Trustee Collection
Account any funds needed to pay itself Servicing Compensation pursuant to
Section 5.14 hereof to the extent not retained or paid pursuant to Section 5.3,
5.4 or 5.14;
(f) to withdraw from the Collection Account or the Trustee 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 3.3 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 deposited into the
Collection Account or the Trustee Collection Account as a result of such
repurchase or replacement;
(g) subject to the provisions of Section 5.20, to reimburse itself from the
Collection Account or the Trustee Collection Account for (i) Nonrecoverable
Advances that are not, with respect to aggregate Servicing Advances on any
single Mortgage Loan or REO Property, in excess of the Trust Balance thereof and
(ii) for amounts to be reimbursed to the Servicer pursuant to Section 5.21;
(h) to withdraw from the Collection Account or the Trustee Collection
Account to pay to the Seller with respect to each Mortgage Loan the excess, if
any, of (i) interest accrued and unpaid on such Mortgage Loan on the Cut-Off
Date, over (ii) interest on such Mortgage Loan from the Due Date for such
Mortgage Loan immediately preceding the Cut-Off Date to the Cut-Off Date;
(i) to transfer funds from the Collection Account into the Trustee
Collection Account and to withdraw funds from the Collection Account and the
Trustee Collection Account necessary to make deposits to the Certificate
86
<PAGE>
Account (which shall include the Trustee Fee) in the amounts and in the manner
provided for in Section 6.1 hereof;
(j) to pay itself any interest earned on or investment income earned with
respect to funds in the Collection Account or Trustee Collection Account;
(k) to withdraw from the Collection Account, any amount deposited therein
that is allocable to an Additional Balance and deposit such amount into the
Additional Certificate Account; and
(l) to clear and terminate the Collection Account and Trustee Collection
Account upon the termination of this Agreement.
The Servicer shall keep and maintain a separate accounting for each
Mortgage Loan for the purpose of accounting for withdrawals from the Collection
Account pursuant to subclause (a).
Section 5.5 Payment of Taxes, Insurance and Other Charges. With respect to
each Mortgage Loan, the Servicer shall maintain accurate records reflecting
casualty insurance coverage.
With respect to each Mortgage Loan as to which the Servicer maintains
escrow accounts, the Servicer shall maintain accurate records reflecting the
status of ground rents, taxes, assessments, water rates and other charges which
are or may become a lien upon the Mortgaged Property and the status of primary
mortgage guaranty insurance premiums, if any, and 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. 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
87
<PAGE>
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 or (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 plus
accrued interest and related Liquidation Expenses. 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) 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
88
<PAGE>
Mortgage Loans, it shall conclusively be deemed to have satisfied its obligation
as set forth in the first sentence 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
first sentence 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 advances not otherwise
required to be made from 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
89
<PAGE>
fidelity bond and errors and omissions insurance shall diminish or relieve the
Servicer from its duties and obligations as set forth in this Agreement. Upon
the request of the Trustee, the Certificate Insurer or any Certificateholder,
the Servicer shall cause to be delivered to the Trustee, such Certificateholder
or the Certificate Insurer a certified true copy of such fidelity bond and
insurance policy. On the Closing Date, such bond and insurance is maintained
with certain underwriters as may be specified in writing to the Certificate
Insurer and the Trustee, from time to time. Any such fidelity bond or insurance
policy shall not be canceled or modified in a materially adverse manner without
written notice to the Trustee and the Certificate Insurer.
(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. 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. Any such Fidelity Bond and Errors and
Omissions Policy shall not be canceled or modified in a materially adverse
manner without written notice to the Certificate Insurer.
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 Collection
Account. Withdrawals from the Collection 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. 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, 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 5.3 out of
Liquidation Proceeds, Insurance Proceeds or otherwise.
Section 5.10 Periodic Filings with the Securities and Exchange Commission;
Additional Information. The Trustee shall prepare or cause to be prepared for
filing with the Commission (other than the initial Current Report
90
<PAGE>
on Form 8-K to be filed by the Depositor in connection with the issuance of the
Certificates) any and all reports, statements and information respecting the
Trust and/or the Certificates required to be filed (as set forth in written
instructions received from the Depositor within 10 Business Days of the Closing
Date), and shall solicit any and all proxies of the Certificateholders whenever
such proxies are required to be solicited, pursuant to the Securities Exchange
Act of 1934, as amended. The Depositor shall promptly file, and exercise its
best efforts to obtain a favorable response to, no-action requests with, or
other appropriate exemptive relief from, the Commission seeking the usual and
customary exemption from such reporting requirements granted to issuers of
securities similar to the Certificates. Fees and expenses incurred by the
Trustee in connection with the foregoing shall be reimbursed pursuant to Section
9.5 and shall not be paid by the Trust.
Section 5.11 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
91
<PAGE>
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 5.12 Realization upon Defaulted Mortgage Loans. Except as provided
in the last two paragraphs of this Section 5.12, the Servicer shall, on behalf
of the Trust, foreclose upon or otherwise comparably convert the ownership of
properties securing such of the Mortgage Loans as come into and continue in
default and as to which no satisfactory arrangements can be made for collection
of delinquent payments pursuant to Section 5.3. In connection with such
foreclosure or other conversion, the Servicer shall follow Accepted Servicing
Practices. The foregoing is subject to the proviso that the Servicer shall not
be required to 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 and the Trustee Collection Account with respect thereto are permitted
under Section 5.3.
92
<PAGE>
The Servicer may foreclose against the Mortgaged Property securing a
defaulted Mortgage Loan either by foreclosure, by sale or by strict foreclosure,
and in the event a deficiency judgment is available against the Mortgagor or any
other person, may proceed for the deficiency.
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 on behalf
of the Trustee and the Certificateholders. 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 applicable REMIC of the
Trust Fund until such time as the related Mortgaged Property shall be sold and
such REO Mortgage Loan becomes a Liquidated Mortgage 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) 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 of the
applicable REMIC of the Trust Fund, 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.
93
<PAGE>
(iii) The Net REO Proceeds allocated to the payment of a related
Servicing Fee shall be limited to an amount equal to the product of (x) the
total amount of Net REO Proceeds allocable to interest multiplied by (y)
the fraction, the numerator of which is the interest rate at which the
Servicing Fee is determined and the denominator of which is the Mortgage
Interest Rate borne by such Mortgage Loan.
In the event that a REMIC of 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
such REMIC within two years after its acquisition thereby unless (a) the
Servicer shall have provided to the Trustee an Opinion of Counsel to the effect
that the holding by such REMIC of 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 such REMIC to be subject to the tax on prohibited transactions imposed by
Code Section 860F(a)(1), otherwise subject such REMIC or the Trust Fund to tax
or cause the applicable 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
Servicer'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 applicable REMIC of
the Trust Fund of any income from non-permitted assets as described in Code
Section 860F(a)(2)(B), and that such REMIC does not derive any "net income from
foreclosure property" within the meaning of Code Section 860G(c)(2) with respect
to such property.
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 underwriting guidelines with respect to
mortgage loans owned by the Servicer. In connection with any such assumption,
94
<PAGE>
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 commence
foreclosure proceedings or accept a deed-in-lieu of foreclosure for such
Mortgaged Property without obtaining the consent of the Certificate Insurer.
Section 5.13 Trustee to Cooperate; Release of Mortgage Files. 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 attached hereto as
Exhibit H (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 applicable 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,
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
95
<PAGE>
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(d). 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 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
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 hereinabove specified, the Mortgage File
shall be delivered by the Trustee to the Servicer.
Section 5.14 Servicing Fee; Servicing Compensation. (a) The Servicer shall
be entitled, at its election, either (i) to pay itself the Servicing Fee out of
any Mortgagor payment on account of interest or Net REO Proceeds actually
collected prior to the deposit of such payment in the Collection Account or (ii)
to withdraw from the Collection Account or Trustee Collection Account such
Servicing Fee pursuant to Section 5.4. The Servicer shall also be entitled, at
its election, either (a) to pay itself the Servicing Fee in respect of each
delinquent Mortgage Loan out of Liquidation Proceeds in respect of such Mortgage
Loan or other recoveries with respect thereto to the extent permitted in Section
5.3(a) or (b) to withdraw from the Collection Account the Servicing Fee in
respect of each such Mortgage Loan to the extent of such Liquidation Proceeds or
other recoveries, to the extent permitted by Section 5.4(a).
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 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.
96
<PAGE>
(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 5.15 Reports to the Trustee; Collection Account Statements. Not
later than 15 days after each Remittance Date, the Servicer shall provide to the
Trustee and the Certificate Insurer a statement, certified by a Servicing
Officer, setting forth the status of the Collection Account and the Trustee
Collection Account as of the close of business on the related Servicer
Remittance Date, 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 and the Trustee
Collection Account for each category of deposit specified in Section 5.3 and
each category of withdrawal specified in Section 5.4, the allocation of such
amounts between principal and interest collected on the Trust Balances and any
Additional Balances and the aggregate of deposits into the Certificate Account
and the Additional Certificate Account as specified in Sections 6.1(e) and
6.1(f), respectively. Such statement shall also state the aggregate unpaid
principal balance of all the Mortgage Loans as of the close of business on the
last day of the month preceding the month in which such Remittance Date occurs
and the allocation of such aggregated balances between the Trust Balances and
the Additional Balances. Copies of such statement shall be provided by the
Trustee to any Certificateholder upon request.
Section 5.16 Annual Statement as to Compliance. The Servicer will deliver
to the Trustee, the Certificate Insurer, S&P and Moody's not later than the last
day of the fifth month subsequent to the end of the Servicer's fiscal year, 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. The first such Officers' Certificate shall be delivered in May 1997.
97
<PAGE>
Such Officers' Certificate shall be accompanied by the statement described in
Section 5.17 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 5.17 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, 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, S&P and Moody's 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. The first such statement shall be delivered in May 1997.
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 5.18 Reports to be Provided by the Servicer. (a) In connection with
the transfer of the Certificates, the Trustee on behalf of any Certificateholder
may request that the Servicer make available to any prospective
Certificateholder annual unaudited financial statements of the Servicer (or,
upon request, audited annual financial statements of the Servicer's ultimate
parent corporation) for one or more of the most recently completed fiscal years
for which such statements are available, which request shall not be unreasonably
denied or unreasonably delayed. Such annual unaudited financial statements also
shall be made available to the Certificate Insurer upon request.
(b) The Servicer also agrees to make available on a reasonable basis to the
Certificate Insurer or any prospective Certificateholder a knowledgeable
98
<PAGE>
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 or any
prospective Certificateholder to inspect the Servicer's servicing facilities
during normal business hours for the purpose of satisfying the Certificate
Insurer or such prospective Certificateholder 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
Remittance Date shall be offset on such Remittance 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 Due Period applicable to
such Remittance Date. The amount of any offset against the aggregate Servicing
Fee with respect to any Remittance Date under this Section 5.19 shall be limited
to the aggregate amount of the Servicing Fees otherwise payable to the Servicer
(without adjustment on account of Prepayment Interest Shortfalls) with respect
to (i) scheduled payments having the Due Date occurring in the Due Period
applicable to such Remittance Date received by the Servicer prior to the
Servicer Remittance Date, and (ii) Principal Prepayments, Curtailments and
Liquidation Proceeds received in the Due Period applicable to such Remittance
Date, and the rights of the Certificateholders to the offset of the aggregate
Prepayment Interest Shortfalls shall not be cumulative.
Section 5.20 Periodic Advances. If, on any Determination Date, the Servicer
determines that any Monthly Payments due on the Due Date immediately preceding
such Determination Date have not been received as of the close of business on
such Determination Date, the Servicer shall determine the amount of any Periodic
Advance required to be made with respect to such unpaid Monthly Payments on the
related Servicer Remittance Date. The Servicer shall, one Business Day after
such Determination Date, certify and deliver a magnetic tape or diskette to the
Trustee indicating the payment status of each Mortgage Loan as of such
Determination Date and shall cause to be deposited in the Trustee Collection
Account an amount equal to the Periodic Advance for the related Servicer
Remittance Date, which deposit may be made in whole or in part from funds in the
Collection Account being held for future distribution or withdrawal on or in
connection with Remittance Dates in subsequent months. Any funds being held for
99
<PAGE>
future distribution to Certificateholders and so used shall be replaced by the
Servicer from its own funds by deposit into the Trustee Collection Account on or
before the Determination Date corresponding to any such future Servicer
Remittance Date to the extent that funds in the Trustee Collection Account on
such future Determination Date shall otherwise be less than the amount required
to be transferred to the Certificate Account in respect of payments to
Certificateholders required to be made on the Remittance Date related to such
future Determination Date.
The Servicer shall designate on its records the specific Mortgage Loans and
related installments (or portions thereof) as to which such Periodic Advance
shall be deemed to have been made, such designation, except in cases of manifest
error, being conclusive for purposes of withdrawals from the Collection Account
or Trustee Collection Account pursuant to Section 5.4.
Section 5.21 Indemnification; Third Party Claims. (a) Each of the Servicer,
the Depositor, and the Seller (solely for the purpose of this Section 5.21, the
"Indemnifying Parties") agrees to indemnify and to hold each of the Servicer,
the Depositor, the Trustee, the Seller, the Certificate Insurer and each
Certificateholder (solely for the purpose of this Section 5.21, the "Indemnified
Parties") 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 Indemnified Parties may, respectively, sustain in any way
related to the failure of any one or more of the Indemnifying Parties to perform
its respective duties in compliance with the terms of this Agreement. Each
Indemnified Party and the Servicer shall immediately notify the other
Indemnified Parties if a claim is made by a third party with respect to this
Agreement, and the Servicer shall with the consent of the Certificate Insurer,
such consent not to be unreasonably withheld, assume the defense of any such
claim and pay all expenses in connection therewith, including reasonable counsel
fees approved by the Certificate Insurer, and promptly pay, discharge and
satisfy any judgment or decree which may be entered against the Indemnified
Parties in respect of such claim. The Trustee shall, out of the assets of the
Trust Fund, reimburse the Servicer in accordance with Section 5.14 hereof for
all amounts advanced by it pursuant to the preceding sentence except when the
claim relates directly to the failure of the Servicer to service and administer
the Mortgages in compliance with the terms of this Agreement; provided, that the
Servicer's indemnity hereunder shall not be in any manner conditioned on the
availability of funds for such reimbursement.
100
<PAGE>
(b) The Trustee, at the written request of the Servicer (which the Trustee
may conclusively rely on) may, if necessary, reimburse the Servicer from amounts
otherwise distributable on the Class R Certificates for all amounts advanced by
the Servicer pursuant to Section 4.4(a)(ii) of the Purchase and Sale Agreement,
except when the claim relates directly to the failure of the Servicer, if it is,
or is an Affiliate of, the Seller, to perform its obligations to service and
administer the Mortgages in compliance with the terms of the Purchase and Sale
Agreement, or the failure of the Seller to perform its duties in compliance with
the terms of this Agreement.
(c) The Trustee, at the written request of the Servicer (which the Trustee
may conclusively rely on) shall reimburse the Seller from amounts otherwise
distributable on the Class R Certificates for all amounts advanced by the Seller
pursuant to the second sentence of Section 4.4(a)(ii) of the Purchase and Sale
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 Purchase and
Sale Agreement.
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
101
<PAGE>
duties hereby imposed on it except by mutual written consent of the Servicer,
the Seller, 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, Moody's and S&P and the Certificate Insurer with 30 days prior
written notice of its intention to resign pursuant to this Section 5.23.
Section 5.24 Servicer Purchase of Certain Mortgage Loans. On and after the
date upon which the Trust Balance of any HELOC has been reduced to zero, the
Servicer may purchase the related Mortgage Loan by depositing an amount equal to
the then outstanding Additional Balance with respect to such Mortgage Loan into
the Additional Certificate Account. After the deposit of such amount the Trustee
shall release such Mortgage Loan and the related Mortgage File to or at the
direction of the Servicer.
[Remainder of this page intentionally left blank]
102
<PAGE>
ARTICLE VI
Distributions and Payments
Section 6.1 Establishment of Certificate Account, Additional Certificate
Account, Capitalized Interest Account and Pre-Funding Account; Deposits to the
Certificate Account, the Additional Certificate Account, Capitalized Interest
Account and the Pre-Funding Account. (a) The Trustee shall establish and
maintain the Certificate Account which shall be titled "Certificate Account, The
Chase Manhattan Bank, as trustee for the registered holders of Mortgage
Pass-Through Certificates, Series 1996-1, Class A and Class R" 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) The Trustee shall establish and maintain the Additional Certificate
Account which shall be titled "Additional Certificate Account, The Chase
Manhattan Bank,
as trustee for the registered holders of Mortgage Pass-Through
Certificates, Series 1996-1, Additional Certificates." Notice of the
establishment of the Additional Certificate Account shall be promptly provided
in writing to each of the Servicer, the Certificate Insurer and the Holder of
the Additional Certificate.
(c) The Trustee shall establish and maintain the Pre-Funding Account which
shall be titled "Pre-Funding Account, The Chase Manhattan Bank, as trustee for
the registered holders of Mortgage Pass-Through Certificates, Series 1996-1,
Class A" and which shall be an Eligible Account. The Trustee shall deposit the
Original Group I Pre-Funded Amount from the proceeds of the sale of the Class
A-1 Certificates and the Original Group II Pre-Funded Amount from the proceeds
of the sale of the Group II Certificates into the Pre-Funding Account on the
Closing Date.
The Trustee shall establish and maintain the Capitalized Interest Account
which shall be titled "Capitalized Interest Account, The Chase Manhattan Bank,
as trustee for the registered holders of Mortgage Pass-Through Certificates,
Series 1996-1, Class A" and which shall be an Eligible Account. The Trustee
shall deposit the Capitalized Interest Requirement from the proceeds of the sale
of the Class A Certificates into the Capitalized Interest Account on the Closing
Date unless an Eligible Letter of Credit with respect to such amount has been
delivered to the Trustee on the Closing Date.
103
<PAGE>
(d) The Servicer may direct the Trustee in writing to invest the funds in
the Certificate Account, the Pre-Funding Account and the Capitalized Interest
Account only in Permitted Investments which mature not later than the Business
Day prior to the Remittance Date. No Permitted Investment shall be sold or
disposed of at a gain prior to maturity unless the Servicer has delivered to the
Trustee an Opinion of Counsel (at the Servicer's expense) that such sale or
disposition will not cause the Trust Fund to be subject to the tax on income
from prohibited transactions imposed by Code Section 860F(a)(1), otherwise
subject the Trust Fund to tax or cause the 1996-1 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 or such income from amounts on deposit in
the Pre- Funding Account) realized from any such Permitted Investment of amounts
on deposit in the Certificate Account 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.
(e) On each Servicer Remittance Date, the Servicer shall cause to be
deposited in the Certificate Account (i) from funds on deposit in the Trustee
Collection Account, an amount equal to the Servicer Remittance Amount with
respect to Group I (net of the amount to be deposited pursuant to clause (ii)
below) and the Servicer Remittance Amount with respect to Group II (net of the
amount to be deposited pursuant to clause (ii) below), (ii) from funds on
deposit in the Collection Account or the Trustee Collection Account, the Net
Foreclosure Profits for the related Group, if any with respect to the related
Remittance Date, minus any portion thereof payable to the Servicer pursuant to
Section 5.3, net of the Additional Certificate Allocation, (iii) from funds on
deposit in the Capitalized Interest Account, the Capitalized Interest Deposit
Amount for such Remittance Date and (iv) from funds on deposit in the Pre-
Funding Account, any such amount that constitutes a portion of the Servicer
Remittance Amount.
(f) On the Business Day prior to each Remittance Date, the Trustee shall
transfer funds on deposit in the Trustee Collection Account into the Certificate
Account in the amount specified by the Servicer pursuant to Section 6.4(d)
hereof. On the Business Day prior to each Remittance Date, the Trustee shall
transfer funds on deposit in the Capitalized Interest Account equal to the
Capitalized Interest Deposit Amount to the Certificate Account. On the Business
Day prior to the Remittance Date immediately following the end of the
104
<PAGE>
Pre-Funding Period the Trustee shall transfer all amounts then on deposit in the
Pre- Funding Account to the Certificate Account.
(g) On each Servicer Remittance Date, the Servicer shall cause to be
deposited in the Additional Certificate Account, all amounts on deposit in the
Trustee Collection Account and the Collection Account allocable to the
Additional Certificate in accordance with the definition of Servicer Remittance
Amount and the definition of Additional Certificate Allocation hereof. All funds
herein required to be deposited in the Additional Certificate Account shall be
allocated at the direction of the Holder of the Additional Certificate.
Section 6.2 Permitted Withdrawals From the Certificate Account and The
Additional 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
(a) funds from the Certificate Account for the following purposes:
(i) to effect the distributions described in Section 6.5(a);
(ii) to pay to or upon the direction of 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 3.3 or to pay to the
Servicer with respect to each Mortgage Loan or property acquired in respect
thereof that has been purchased all amounts received thereon deposited in
the related Certificate Account that do not constitute property of the
Trust Fund;
(iii) to pay the Servicer any interest earned on or investment income
earned with respect to funds in the Certificate Account;
(iv) to return to the Trustee Collection Account any amount deposited
in the Certificate Account that was not required to be deposited therein;
and
(v) to clear and terminate the related Certificate Account upon
termination of the Trust Fund or any Group thereof pursuant to Article
VIII.
The Trustee shall keep and maintain a separate accounting for withdrawals
from the Certificate Account pursuant to each of subclauses (a)(i) through
(a)(v) listed above.
105
<PAGE>
(b) funds from the Additional Certificate Account, for the following
purposes:
(i) to effect the distributions described in Section 6.5(b);
(ii) to pay to the Servicer any interest earned on or investment
income earned with respect to funds in the Additional Certificate Account;
(iii) to return to the Trustee Collection Account or the Collection
Account any amount deposited in the Additional Certificate Account that was
not required to be deposited therein; and
(iv) to clear and terminate the Additional Certificate Account upon
termination of the Trust Fund pursuant to Article VIII hereof.
The Trustee shall keep and maintain a separate accounting for withdrawals
from the Additional Certificate Account pursuant to each of subclauses (b)(i)
through (b)(v).
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 Reserve Account and the Certificate Insurance Policies. (a)
On the Closing Date, the Trustee shall establish the Reserve Account entitled
"Reserve Account, The Chase Manhattan Bank, as trustee for the registered
holders of Mortgage Pass-Through Certificates, Series 1996-1, Class A and Class
R" for the benefit of the Trust, the Certificateholders and the Certificate
Insurer. The Trustee shall have exclusive control over such Reserve Account and
the sole right of withdrawal from such Account. On the Closing Date, the
Depositor shall make available under an Eligible Letter of Credit or, from the
proceeds of the offering of the Certificates, shall deposit an amount equal to
$6,571,294.17 in such Reserve Account, which represents the sum of 9.0% of the
Aggregate HELOC Trust Balance of the Cut-Off Date and 7.3% of the Aggregate HEL
106
<PAGE>
Trust Balance as of the Cut-Off Date. The Trustee shall maintain the Reserve
Account at the Required Reserve Account Level as described in Section 6.5
hereof. If the amount in the Reserve Account decreases below the Required
Reserve Account Level, then on the next Remittance Date, the Trustee shall, to
the extent of the Available Funds Excess, transfer from the Certificate Account
the amount described in Section 6.5(a)(vi) and deposit such amount into the
Reserve Account. On any Remittance Date, any amount in the Reserve Account in
excess of the Required Reserve Account Level after the required distributions
described in Sections 6.5(a)(i)-(vi) shall be withdrawn from the Reserve Account
and paid to the Holders of the Class R Certificates pro rata in proportion to
their undivided beneficial ownership interest in the 1996-1 REMIC. Funds held in
the Reserve Account shall be invested in Permitted Investments at the written
direction of the Holders of the Class R Certificates that mature prior to the
Business Day prior to the next Servicer Remittance Date. No Permitted Investment
shall be sold prior to its maturity. The Holders of the Class R Certificates
shall be liable for any losses occurring with respect to the Permitted
Investments held in the Reserve Account.
(b) Not later than two Business Days prior to the Servicer Remittance Date,
the Trustee, based on the information provided to it by the Servicer pursuant to
Section 6.5 hereof, shall determine with respect to the immediately following
Remittance Date the amount to be on deposit in the Certificate Account (such
amount the result of the Servicer's remittance of the Servicer Remittance Amount
for Group I and the Servicer Remittance Amount for Group II) reduced by (x) the
sum of the amounts described in clauses (i) and (ii) of Section 6.5(a) for the
related Remittance Date, and further not including (y) any Insured Payment.
(c) (i) Not later than 12:00 noon New York City time on the second Business
Day preceding each Remittance Date, the Trustee shall, if the Trustee determines
that the Group I Available Amount plus any amount available to be transferred to
the Certificate Account from the Reserve Account (or drawn under an Eligible
Letter of Credit) for the related Remittance Date is less than the Class A-1
Formula Distribution Amount for such Remittance Date, complete a Notice in the
form of Exhibit A to the Class A-1 Certificate Insurance Policy and submit such
notice to the Certificate Insurer and such notice shall serve as a claim for an
Insured Payment in an amount equal to the Insured Payment due with respect to
the Class A-1 Certificates for and on such Remittance Date. Unless the Class A-1
Credit Enhancement Distribution Amount is transferred to the Certificate Account
107
<PAGE>
prior to the related Remittance Date, the Insured Payment shall be deposited
directly into the Certificate Account in accordance with the Notice and the
Class A-1 Certificate Insurance Policy.
(ii) Not later than 12:00 noon New York City time on the second Business
Day preceding each Remittance Date, the Trustee shall, if the Trustee determines
that the Group II Available Amount plus any amount available to be transferred
to the Certificate Account from the Reserve Account (or drawn under an Eligible
Letter of Credit) for the related Remittance Date is less than the Group II
Formula Distribution Amount for such Remittance Date, complete a Notice in the
form of Exhibit A to the Group II Certificate Insurance Policy and submit such
notice to the Certificate Insurer and such notice shall serve as a claim for an
Insured Payment in an amount equal to the Insured Payment due with respect to
the Group II Certificates for and on such Remittance Date. Unless the Group II
Credit Enhancement Distribution Amount is transferred to the Certificate Account
prior to the related Remittance Date, the Insured Payment shall be deposited
directly into the Certificate Account in accordance with the Notice and the
Group II Certificate Insurance Policy.
(d) On the Business Day prior to each Remittance Date, (i) for which an
Insured Payment is required, the Trustee shall withdraw all funds on deposit in
the Reserve Account and draw all amounts available to be drawn under the
Eligible Letter of Credit in accordance with the letter of instructions
addressed to the Trustee dated October 15, 1996 attached hereto as Exhibit Q and
deposit such amount in the Certificate Account and (ii) for which no Insured
Payment is required, the Trustee shall withdraw from the Reserve Account and if
the amounts on deposits in the Reserve Account are insufficient shall draw upon
the Eligible Letter of Credit in accordance with the letter of instructions
addressed to the Trustee dated October 15, 1996 attached hereto as Exhibit Q, in
an aggregate amount equal to the Class A-1 Credit Enhancement Distribution
Amount and the GroupII Credit Enhancement Distribution Amount and deposit such
amount in the Certificate Account to be used to make distributions to the
related Certificateholders on the related Remittance Date.
(e) The Trustee shall keep a complete and accurate record of the amount of
interest and principal paid in respect of any Certificate from moneys received
under either 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.
108
<PAGE>
(f) 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, the Trustee shall so notify the Certificate Insurer, shall comply with the
provisions of the related 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
Certificateholders of the affected Certificates that, in the event any
Certificateholder's amount distributed is so recovered, such Certificateholder
will be entitled to payment pursuant to the related 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.
(g) 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 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 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 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
Determination Date, the Servicer shall deliver to the Trustee and to the
109
<PAGE>
Certificate Insurer a report in computer-readable form specifying (x) the
outstanding Trust Balances and Additional Balances, if any, of each of the
Mortgage Loans as of the last day of the calendar month immediately preceding
the Due Period applicable to such Servicer Remittance Date, (y) such of the
information included in Section 6.7(c) as to the Mortgage Loans as the Trustee
may reasonably require or the Certificate Insurer may reasonably request and (z)
such information as to each Mortgage Loan as of the Record Date immediately
preceding such Servicer Remittance Date and such other information as the
Trustee shall reasonably require or the Certificate Insurer may reasonably
request. The Servicer shall include written direction to the Trustee (with a
copy delivered to the Certificate Insurer) specifying the following information
(which need not be in computer-readable form): (A) each amount to be transferred
by the Trustee from the Trustee Collection Account and/or the Collection Account
(i) to the Certificate Account, including (a) the Servicer Remittance Amount for
Group I and the Servicer Remittance Amount for Group II, (b) the Net Foreclosure
Profits for Group I (net of any portion payable to the Servicer and net of the
Additional Certificate Allocation portion thereof) and the Net Foreclosure
Profits for Group II (net of any portion payable to the Servicer) and (c) the
Periodic Advances for such Remittance Date; and (ii) to the Additional
Certificate Account(s), pursuant to Section 6.1(g); (B) instructions to the
Trustee regarding the amounts to be withdrawn from the Reserve Account and
deposited into the Certificate Account pursuant to Section 6.4(d) hereof; (C)
instructions to the Trustee regarding amounts to be drawn under the Eligible
Letter of Credit and (D) instructions to the Trustee specifying the amounts to
be withdrawn from the Certificate Account pursuant to Section 6.2(a) (including
therein an itemization of the amounts to be distributed pursuant to Section
6.2(a)(i) as specified in Section 6.5(a)(i)-(vii) and the amounts to be
withdrawn from the Additional Certificate Account(s) pursuant to Section 6.2(b)
(including therein an itemization of the amounts to be distributed pursuant to
Section 6.5(b)(i)-(ii)). The information with respect to the Remittance Date
provided by the Servicer to the Trustee and the Certificate Insurer on the
Determination Date shall also include the Class A-1 Formula Distribution Amount,
the Group II Formula Distribution Amount, the Class A-1 Pass-Through Rate, the
Weighted Average Rate Cap, the Weighted Average Group II Pass-Through Rate the
Class A-1 Premium Percentage and the Group II Premium Percentage, the aggregate
Class A-1 Principal Balance, the aggregate Class A-2 Principal Balance, the
aggregate Class A-3 Principal Balance, the Aggregate HELOC Trust Balance, the
Aggregate HEL Trust Balance, the Class A-1 Credit Enhancement Distribution
110
<PAGE>
Amount, the Group II Credit Enhancement Distribution Amount and the Required
Reserve Account Level. The Servicer shall also calculate and provide the Group I
Available Amount, the Group II Available Amount, the Available Funds Excess, the
Group I Net Available Funds Excess, the Group II Net Available Funds Excess, if
any, the amount of any Deficiency Amount with respect to the Class A-1
Certificates, the amount of any Deficiency Amount with respect to the Group II
Certificates and any Insured Payment with respect to the Class A-1 Certificates
and any Insured Payment with respect to the Group II Certificates and the amount
required to be deposited into the Reserve Account to bring the amount remaining
on deposit in the Reserve Account together with the amount available to be drawn
under any Eligible Letter of Credit (after any withdrawal by the Trustee, and
subsequent transfer to the Certificate Account) equal to the Required Reserve
Account Level. Simultaneous with the delivery of the foregoing information to
the Trustee, the Servicer shall provide the Trustee and the Certificate Insurer
with a report including information specified in each of Sections 6.7(a)(i)-(xi)
and in Section 6.7(c)(i)-(vii).
(a) With respect to the Certificate Account (including, if deposited into
such Certificate Account, any withdrawals from the Reserve Account or any
Insured Payments), on each Remittance Date, the Trustee shall make the following
allocations, disbursements and transfers in the following order of priority, in
accordance with the information received pursuant to the immediately preceding
paragraph 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 Premium
Amount;
(ii) to the Trustee, an amount equal to the Trustee Fees then due to
it;
(iii) to the Class A-1 Certificateholders from the Group I Available
Amount an amount equal to the Class A-1 Interest Distribution Amount, to
the Class A- 2 Certificateholders from the Group II Available Amount an
amount equal to the Class A-2 Interest Distribution Amount and to the Class
A-3 Certificateholders from the Group II Available Amount an amount equal
to the Class A-3 Interest Distribution Amount;
(iv) from the Group I Available Amount to the Class A-1
Certificateholders an amount equal to the
111
<PAGE>
Class A-1 Principal Distribution Amount until the Class A-1 Principal
Balance has been reduced to zero and from the Group II Available Amount to
the Class A-2 Certificateholders an amount equal to the Group II Principal
Distribution Amount until the Class A-2 Principal Balance has been reduced
to zero and from the Group II Available Amount after the Class A-2
Principal Balance has been reduced to zero to the Class A-3
Certificateholders an amount equal to the Group II Principal Distribution
Amount until the Class A-3 Principal Balance has been reduced to zero;
(v) to the Certificate Insurer the lesser of (x) the excess of (i) the
amount in the Certificate Account (excluding Insured Payments) over (ii)
the amount of Insured Payments for such Remittance Date and (y) the
outstanding Reimbursement Amount, if any, as of such Remittance Date;
(vi) to the Reserve Account, an amount equal to the lesser of (x) any
amount then remaining in the Certificate Account after the applications
described in clauses (i) through (v) above (the "Available Funds Excess")
and (y) the amount necessary to bring the amount on deposit in the Reserve
Account together with the amount available to be drawn under any Eligible
Letter of Credit to the Required Reserve Account Level; and
(vii) to the Holders of the Class R Certificates, the amount remaining
in the Certificate Account on such Remittance Date, if any.
(b) With respect to the Additional Certificate Account, on each Remittance
Date, the Trustee shall make the following disbursements and transfers in the
following order of priority, in accordance with the information received
pursuant to the first paragraph of this Section 6.5 and each such disbursement
or transfer shall be treated as having occurred only after all preceding
disbursements and transfers have occurred:
(i) to the Servicer, any amounts representing interest earned on or
investment income earned with respect to funds on deposit in the Additional
Certificate Account; and
(ii) to or upon the direction of the Holder(s) of the Additional
Certificate(s) and the Additional Certificate(s), the corresponding
Percentage Interest of each such certificate of the amount remaining on
112
<PAGE>
deposit on such Remittance Date in the Additional Certificate Account after
each of the foregoing distributions have occurred.
Notwithstanding the foregoing, the aggregate amounts distributed on all
Remittance Dates to the Holders of the Class A-1 Certificates, the Holders of
the Class A-2 Certificates and the Holders of the Class A-3 Certificates on
account of principal shall not exceed the Original Class A-1 Principal Balance,
Original Class A-2 Principal Balance or Original Class A-3 Principal Balance, as
applicable.
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 Reserve Account) held
by the Trustee shall be invested and reinvested by the Trustee, as directed in
writing by the Servicer, 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 does 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 Remittance Date (except that if such Permitted Investment is an obligation
of the Trustee, then such Permitted Investment shall mature not later than such
Remittance Date). Notwithstanding anything to the contrary in this Section
6.6(a), all amounts received under the Certificate Insurance Policies shall
remain uninvested.
(b) If any amounts are needed for disbursement from any Account (other than
the Reserve 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).
113
<PAGE>
(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 any Account (excluding the Reserve Account) shall be for the
benefit of the Servicer as servicing compensation (in addition to the Servicing
Fee). The Servicer shall deposit in the related 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 Remittance Date the Trustee
shall, provide a report delivered to it by the Servicer on the Determination
Date, as described in Section 6.5 hereof, to each Holder, to the Certificate
Insurer, to the Underwriter, to the Depositor, to the Servicer, to S&P and to
Moody's (the "Trustee Remittance Report"). Such report shall set forth the
following information:
(i) the amount of the distributions made on such Remittance Date with
respect to the Class A-1 Certificates, the Class A-2 Certificates, the
Class A-3 Certificates, the Class R Certificates, and the Additional
Certificates, including whether such distributions were made to the holder
of the corresponding certificate, or to an account held by the Trust for
the benefit of such corresponding certificate;
(ii) the amount of such distributions allocable to principal,
separately identifying the aggregate amount of any Principal Prepayments 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 included in such
distributions and the calculation thereof:
(v) the principal amount of the Class A-1 Certificates (based on a
Certificate in an original principal amount of $1,000), the principal
amount of the Class A-2 Certificates (based on a Certificate in an original
principal amount of $1,000) and the principal amount of the Class A-3
Certificates (based on a Certificate in an original principal amount of
$1,000) then outstanding, and the outstanding amount of the Trust Balances
114
<PAGE>
(stated separately for HELs and HELOCs) and the Additional Balances, in
each case after giving effect to any principal payments made on such
Remittance Date:
(vi) the amount of any Insured Payment included in the amounts
distributed to the related Class of Class A Certificateholders on such
Remittance Date;
(vii) the amount of any Available Funds Excess and any Deficiency
Amount with respect to the Class A-1 Certificates and any Deficiency Amount
with respect to the Group II Certificates on such Remittance Date:
(viii) the amount of any Class A-1 Credit Enhancement Distribution
Amount or Group II Credit Enhancement Distribution Amount withdrawn from
the Reserve Account on such Remittance Date;
(ix) the amount then on deposit in the Reserve Account together with
the current Required Reserve Account Level (indicating the calculation for
each in such report), the amount then on deposit in the Pre-Funding
Account, the amount then on deposit in the Capitalized Interest Account and
the amount available to be drawn under all Eligible Letters of Credit on
such Remittance Date, ;
(x) the total of any Substitution Adjustments and any Loan Repurchase
Price amounts included in each such distribution; and
(xi) the amounts, if any, of any related Liquidation Loan Losses for
the related Due Period. Items (i), (ii) and (iii) above shall, with respect
to the Class A 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 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) All distributions made to the Certificateholders according to Class or
type of Certificate on each Remittance Date will be made on a pro rata basis
among the Certificateholders as of the next preceding Record Date based on the
proportional beneficial ownership interest in the 1996-1 REMIC as are
115
<PAGE>
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
Certificates of the same Class which have denominations aggregating 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.
(c) In addition, on each Remittance Date the Trustee will distribute to
each Holder, to the Certificate Insurer, to the Underwriter, to the Depositor,
to S&P and to Moody's, 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 calendar month
(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 HELOCs and HELs and the aggregate Trust
Balances and Additional Balances, if any, thereof, together with the
number, aggregate principal balances of such HELOCs and HELs and the
percentage (based on the aggregate Trust Balances of the Mortgage Loans) of
the aggregate Trust Balances of such Mortgage Loans to the aggregate Trust
Balance of all Mortgage Loans in the related Group (A) 30-59 days
Delinquent, (B) 60-89 days Delinquent and (C) 90 or more days Delinquent;
(ii) the number, aggregate Trust Balances of all HELOCs and HELs and
percentage (based on the aggregate Trust Balances of the HELOCs or HELs) of
the aggregate Trust Balances of such Mortgage Loans to the aggregate Trust
Balance of all Mortgage Loans in the related Group in foreclosure
proceedings and the number, aggregate Trust Balances of all HELOCs and HELs
and percentage (based on the aggregate Trust Balances of the Mortgage
Loans) of any such HELOCs and HELs also included in any of the statistics
described in the foregoing clause (i);
(iii) the number, aggregate Trust Balances of all HELOCs and HELs and
percentage (based on the aggregate Trust Balances of the HELOCs and HELs)
of the aggregate Trust Balances of such Mortgage Loans to the
116
<PAGE>
aggregate Trust Balance of all Mortgage Loans in the related Group relating
to Mortgagors in bankruptcy proceedings and the number, aggregate Trust
Balances of all HELOCs and HELs and percentage (based on the aggregate
Trust Balances of the HELOCs and HELs) of any such Mortgage Loans are also
included in any of the statistics described in the foregoing clause (i);
(iv) the number, aggregate Trust Balances of all HELOCs and HELs and
percentage (based on the aggregate Trust Balances of the HELOCs and HELs)
of the aggregate Trust Balances of such Mortgage Loans to the aggregate
Trust Balance of all Mortgage Loans in the related Group relating to REO
Mortgage Loans and the number, aggregate Trust Balances of all HELOCs and
HELs and percentage (based on the aggregate Trust Balances of the HELOCs
and HELs) of any such Mortgage Loans that are also included in any of the
statistics described in the foregoing clause (i);
(v) the weighted average of (i) the Mortgage Interest Rate for the
HELOCs and for the HELs and (ii) the Net Mortgage Interest Rate for the
HELOCs and for the HELs on the Due Date occurring in the Due Period related
to such Remittance Date;
(vi) the weighted average remaining term to stated maturity of (a) all
HELOCs and (b) all HELs; and
(vii) the book value of any REO Property.
Section 6.8 Additional Reports by Trustee and by Servicer. (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
the Purchase and Sale Agreement, the Mortgage Loan Sale Agreement or in Section
3.1 or 3.2 hereof.
(c) On a monthly basis, for so long as the Certificate Insurer shall so
require, the Servicer shall deliver to the Trustee a monthly report (which shall
117
<PAGE>
be on computer readable magnetic tape or disk) which shall include information
regarding the individual Mortgage Loans and such summary information as the
Trustee shall reasonably require in order to provide for a transition of
servicing obligations to the Successor Servicer.
Section 6.9 Compensating Interest. Not later than the close of business on
the third Business Day prior to the Remittance Date, the Servicer shall remit to
the Trustee (without right or 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 Remittance Date resulting from
Principal Prepayments during the related Due Period and (b) its aggregate
Servicing Fees received in the related Due 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 Policies shall not be
considered payment of the Certificates from the Trust. 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 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 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.
118
<PAGE>
Section 6.11 Pre-Funding Account.
(a) Funds deposited in the Pre-Funding Account shall be held in trust by
the Trustee for the Certificateholders and the Certificate Insurer for the uses
and purposes set forth herein. All income and gain realized from investment of
funds deposited in the Pre-Funding Account shall be transferred to the
Certificate Account on the Business Day immediately preceding each Remittance
Date. The Servicer shall deposit in the Pre-Funding Account the amount of any
net loss incurred in respect of any Permitted Investment immediately upon
realization of such loss, without any right of reimbursement.
(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 of the Depositor, shall release and apply amounts from the
Pre-Funding Account in accordance with Section 2.10(a) hereof upon
satisfaction of the conditions set forth in Sections 2.3 and 2.10 hereof;
and
(ii) On the Final Subsequent Transfer Date, the Trustee shall deposit
into the Certificate Account all amounts remaining in the Pre-Funding
Account.
Section 6.12 Capitalized Interest Account.
(a) Funds deposited in the Capitalized Interest Account shall be held in
trust by the Trustee for the Certificateholders and the Certificate Insurer for
the uses and purposes set forth herein. The Servicer shall deposit in the
Capitalized Interest Account the amount of any net loss incurred in respect of
Permitted Investments immediately upon realization of such loss, without any
right of reimbursement.
(b) On each of the first three Remittance Dates, the Trustee shall withdraw
from the Capitalized Interest Account (or make a drawing on the Letter of
Credit) and deposit in the Certificate Account the related Capitalized Interest
Deposit Amount.
(c) On the Remittance Date following the Final Subsequent Transfer Date,
any amount remaining on deposit in the Capitalized Interest Account after
distributions pursuant to clause (b) above shall be withdrawn by the Trustee and
paid to the Depositor.
119
<PAGE>
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
required to be made by the Servicer under the terms of this Agreement or to
deliver the report required by Section 6.5 of this Agreement;
(ii) the failure by the Servicer to make any required Servicing
Advance or Periodic Advance;
(iii) any failure on the part of the Servicer duly to observe or
perform in any material respect any other of the covenants or agreements on
the part of the Servicer contained in this Agreement, or the breach 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 after the date
on which written notice of such failure or breach, 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
120
<PAGE>
of any applicable insolvency or reorganization statute, make an assignment
for the benefit of its creditors, or voluntarily suspend payment of its
obligations;
(vii) with respect to the litigation initiated by Providian Bancorp,
Inc. against the Servicer as described in the Prospectus Supplement, a
final nonappealable judgment or ruling is entered by a court of competent
jurisdiction, or a settlement is agreed to by the Servicer, which is
materially adverse to the operation of the Servicer's business or its
ability to perform its obligations hereunder;
(viii) as of any Remittance Date prior to the 60th Remittance Date,
Total Expected Losses exceed 6.75% of the aggregate Principal Balance of
the Mortgage Loans;
(ix) as of any Remittance Date following the 60th Remittance Date but
prior to the 120th Remittance Date, Total Expected Losses exceed 10.125% of
the aggregate Principal Balance of the Mortgage Loans;
(b) then, and in each and every such case, so long as an Event of Default
shall not have been remedied with respect to (i) - (ix) above, the Trustee
shall, but only at the direction of the Certificate Insurer or the Majority
Certificateholders with the consent of the Certificate Insurer, by notice in
writing to the Servicer and a Responsible Officer of the Trustee, (x) remove the
Servicer, and in the case of any removal at the direction of the Majority
Certificateholders, and in addition to whatever rights such Certificateholders
may have at law or equity to damages, including injunctive relief and specific
performance, (y) 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; and (z) with respect to clauses (vii) through (ix) above, the Trustee
shall, but only at the direction of the Certificate Insurer, after notice in
writing to the Servicer and a Responsible Officer of the Trustee, 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
121
<PAGE>
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 thereafter received with respect to the Mortgage Loans. The Trustee
shall promptly notify the Certificate Insurer, Moody's and S&P upon receiving
notice of, or its discovery of, the occurrence of an Event of Default.
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 and the Certificate Insurer receive 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 Moody's and S&P, 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 Sections 2.4
and 3.3. 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 is obligated to make advances pursuant to
Section 5.20 unless, and only to the extent the Trustee, as Successor Servicer
determines reasonably and in good faith that such advances would not be
recoverable pursuant to Sections 5.4(b), 5.4(g) or 5.4(j), such determination to
be evidenced by a certification of a Responsible Officer of the Trustee, as
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
122
<PAGE>
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 (including the Servicing Fee as adjusted
pursuant to the definition thereof) and other funds pursuant to Section 5.14
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 Periodic 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
123
<PAGE>
should have been deposited in the Collection Account by the Servicer or that are
thereafter received with respect to the Mortgage Loans. Any collections received
by the Servicer after such removal or resignation shall be endorsed by it to the
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.
(e) Pending appointment of a successor to the Servicer hereunder, the
Trustee shall act in such capacity as hereinabove 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 5.14, 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 S&P and Moody's.
124
<PAGE>
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.
[Remainder of this page intentionally left blank]
125
<PAGE>
ARTICLE VIII
Termination
Section 8.1 Termination. (a) This Agreement shall terminate upon notice to
the Trustee of either: (i) the later of the distribution to Certificateholders
of the final payment or collection with respect to the last Mortgage Loan (or
Periodic 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 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, the Servicer may, at its option and at its sole cost and
expense (or, if the Servicer does not exercise this option, the Certificate
Insurer may, at its sole cost and expense), repurchase all of the HELOCs in
Group I or all of the HELs in Group II on any date on which the Class A-1
Principal Balance with respect to the HELOCs or the sum of the Class A-2
Principal Balance and the Class A-3 Principal Balance with respect to the HELs
is less than 10% of the Original Class A-1 Principal Balance with respect to the
HELOCs or the sum of the Original Class A-2 Principal Balance and the Original
Class A-3 Principal Balance with respect to the HELs, on the next succeeding
Remittance Date, at a price equal to the sum of (i) the greater of (A) 100% of
the Trust Balance of each outstanding Mortgage Loan and each REO Mortgage Loan,
and (B) the fair market value (disregarding accrued interest) of the Mortgage
Loans and REO Properties in the related Group, determined as the average of
three written bids (copies of which shall 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) made by nationally recognized dealers
and based on a valuation process which would be used to value comparable
mortgage loans and REO property, plus (ii) the aggregate amount of accrued and
unpaid interest on the Mortgage Loans in the related Group through the related
Due Period and 30 days' interest thereon at a rate equal to the weighted average
of the Mortgage Interest Rates for the Mortgage Loans in the related Group, in
each case net of the Servicing Fee, plus (iii) any unreimbursed amounts due to
the Certificate Insurer under this Agreement or the Certificate Insurer
Agreement (the "Termination Price"). Any such purchase shall be accomplished by
126
<PAGE>
deposit into the Certificate Account for the related Group 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 related Certificate
Insurance Policy, or (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 Remittance 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 each such Certificateholder in accordance with
paragraph (d) below.
(d) Notice of any termination, specifying the Remittance Date upon which
any Group, the Trust Fund or the 1996-1 REMIC will terminate and the related
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 each of the related 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 Remittance Date in such month, specifying (i)
the Remittance Date upon which final payment of such 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 Remittance 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 obligations
of the Certificate Insurer hereunder shall terminate 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-1 Principal
Balance, Class A-2 Principal Balance and Class A-3 Principal Balance has been
reduced to zero.
(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 Servicer shall give a second written
127
<PAGE>
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 affected 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 affected
Certificates shall not have been surrendered for cancellation, the Class R
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 Class R Certificateholders for payment. Such funds shall remain
uninvested.
Section 8.2 Additional Termination Requirements. (a) In the event that the
Servicer exercises its purchase option as provided in Section 8.1, the 1996-1
REMIC shall be terminated in accordance with the following additional
requirements, unless the Trustee has been furnished with an Opinion of Counsel
to the effect that the failure of the 1996-1 REMIC (or of any other REMIC of the
Trust Fund) to comply with the requirements of this Section 8.3 will not (i)
result in the imposition of taxes on "prohibited transactions" of such REMIC as
defined in Section 860F of the Code or (ii) cause such 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 Remittance Date the Servicer
shall adopt and the Trustee shall sign, a plan of complete liquidation of
the 1996-1 REMIC (or the applicable REMIC of the Trust Fund) 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
1996-1 REMIC at the time of such liquidation, and at or prior to the final
Remittance Date, the Trustee shall sell all of the assets of the 1996-1
REMIC (or the applicable REMIC of the Trust Fund) to the Servicer for cash;
and
128
<PAGE>
(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 related
Class A Principal Balance, plus one month's interest thereon at the related
Class A Pass-Through Rate, and (B) to the Class R Certificateholders, all
of such REMIC's cash on hand after such payment to the Class A
Certificateholders (other than cash retained to meet claims) and the 1996-1
REMIC shall terminate at such time.
(b) By their acceptance of the Certificates, the Holders thereof hereby
agree to appoint the Servicer as their attorney in fact to: (i) adopt such a
plan of complete liquidation (and the 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 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.
129
<PAGE>
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
130
<PAGE>
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, any Class of the Class A
Certificateholders holding Class A Certificates evidencing Percentage
Interests of such Class 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 Periodic 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
131
<PAGE>
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.
(d) It is intended that the 1996-1 REMIC formed hereunder shall constitute,
and that the affairs of the 1996-1 REMIC shall be conducted so as to qualify it
as, a REMIC as defined in and in accordance with the REMIC Provisions. In
furtherance of such intention, the Trustee covenants and agrees that it shall
act as agent (and the Trustee is hereby appointed to act as agent) and as Tax
Matters Person on behalf of the 1996-1 REMIC, and that in such capacities it
shall:
(i) prepare, sign and file, or cause to be prepared and filed, in a
timely manner, a U.S. Real Estate Mortgage Investment Conduit Income Tax
Return (Form 1066) and any other Tax Return required to be filed by the
1996-1 REMIC, using a calendar year as the taxable year for the 1996-1
REMIC;
(ii) make, or cause to be made, an election, on behalf of the 1996-1
REMIC, to be treated as a REMIC on the federal tax return of the 1996-1
REMIC for its first taxable year;
(iii) prepare and forward, or cause to be prepared and forwarded, to
the Trustee, the Certificateholders and to the Internal Revenue Service and
any other relevant governmental taxing authority all information returns or
reports as and when required to be provided to them in accordance with the
REMIC Provisions;
132
<PAGE>
(iv) to the extent that the affairs of the 1996-1 REMIC are within its
control, conduct such affairs of the 1996-1 REMIC at all times that any
Certificates are outstanding so as to maintain the status of the 1996-1
REMIC as a REMIC under the REMIC Provisions and any other applicable
federal, state and local laws, including, without limitation, information
reports relating to "original issue discount, as defined in the Code, based
upon the Prepayment Assumption and calculated by using the issue price of
the Certificates:
(v) not knowingly or intentionally take any action or omit to take any
action that would cause the termination of the REMIC status of the 1996-1
REMIC:
(vi) pay the amount of any and all federal, state, and local taxes
imposed on the Trust Fund, prohibited transaction taxes as defined in
Section 860F of the Code, other than any amount due as a result of a
transfer or attempted or purported transfer in violation of Section 4.2,
imposed on the Trust Fund when and as the same shall be due and payable
(but such obligation shall not prevent the Trustee or any other appropriate
Person from contesting any such tax in appropriate proceedings and shall
not prevent the Trustee from withholding payment of such tax, if permitted
by law, pending the outcome of such proceedings). The Trustee shall be
entitled to reimbursement in accordance with Sections 9.1(c) and 9.5 hereof
(vii) ensure that any such returns or reports filed on behalf of the
Trust Fund by the Trustee are properly executed by the appropriate person
and submitted in a timely manner;
(viii) represent the Trust Fund in any administrative or judicial
proceedings relating to an examination or audit by any governmental taxing
authority, request an administrative adjustment as to any taxable year of
the Trust Fund, enter into settlement agreements with any governmental
taxing agency, extend any statute of limitations relating to any item of
the Trust Fund and otherwise act on behalf of the Trust Fund in relation to
any tax matter involving the Trust Fund;
(ix) as provided in Section 5.18 hereof, make available information
necessary for the computation of any tax imposed (1) on transferrers of
residual interests to transferees that are not Permitted
133
<PAGE>
Transferees or (2) on pass-through entities, any interest in which is held
by an entity which is not a Permitted Transferee. The Trustee covenants and
agrees that it will cooperate with the Servicer in the foregoing matters
and that it will sign, as Trustee, any and all Tax Returns required to be
filed by the Trust Fund. Notwithstanding the foregoing, at such time as the
Trustee becomes the successor Servicer, the holder of the largest
percentage of the Class R Certificates shall serve as Tax Matters Person
until such time as an entity is appointed to succeed the Trustee as
Servicer:
(x) make available to the Internal Revenue Service and those Persons
specified by the REMIC Provisions all information necessary to compute any
tax imposed (A) as a result of the Transfer of an Ownership Interest in a
Class R Certificate to any Person who is not a Permitted Transferee,
including the information described in Treasury regulations sections
1.860D-1(b)(5) and 1.860E-2(a)(5)with respect to the "excess inclusions" of
such Class R Certificate and (B) as a result of any regulated investment
company, real estate investment trust, common trust fund, partnership,
trust, estate or organization described in Section 1381 of the Code that
holds an Ownership Interest in a Class R Certificate having as among its
record holders at any time any Person that is not a Permitted Transferee.
Reasonable compensation for providing such information may be accepted by
the Trustee;
(xi) pay out of its own funds, without any right of reimbursement from
the assets of the Trust Fund, any and all tax related expenses of the Trust
Fund (including, but not limited to, tax return preparation and filing
expenses and any professional fees or expenses related to audits or any
administrative or judicial proceedings with respect to the Trust Fund that
involve the Internal Revenue Service or state tax authorities), other than
the expense of obtaining any Opinion of Counsel required pursuant to
Sections 3.3, 5.10 and 8.2 and other than taxes except as specified herein;
(xii) upon filing with the Internal Revenue Service, the Trustee shall
furnish to the Holders of the Class R 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 Class R Certificates with
respect to the following matters:
134
<PAGE>
(1) 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;
(2) 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;
(3) the Prepayment Assumption and any interest rate assumptions
used in determining the projected principal and interest cash flows
described above;
(4) 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;
(5) 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 1996-1
REMIC with respect to such regular interests or bad debt deductions
claimed with respect to the Mortgage Loans;
(6) the amount and timing of any non-interest expenses of the
1996-1 REMIC: and
(7) any taxes (including penalties and interest) imposed on the
1996-1 REMIC, including, without limitation, taxes on "prohibited
transactions," "contributions" or "net income from foreclosure
property" or state or local income or franchise taxes; and
(xiii) make any other required reports in respect of interest payments
in respect of the Mortgage Loans and acquisitions and abandonments or
Mortgaged Property to the Internal Revenue Service and/or the borrowers, as
applicable.
135
<PAGE>
(e) In the event that any tax is imposed on "prohibited transactions" of
the REMIC as defined in Section 860F(a)(2) of the Code, on the "net income from
foreclosure property" of the REMIC as defined in Section 860G(c) of the Code, on
any contribution to the REMIC after the Startup Date pursuant to Section 860G(d)
of the Code, or any other tax is imposed, such tax shall be paid by (i) the
Trustee, if such tax arises out of or results from a breach by the Trustee of
any of its obligations under this Agreement, (ii) the Servicer, if such tax
arises out of or results from a breach by the Servicer of any of its obligations
under this Agreement, or otherwise (iii) the holders of the Class R Certificates
in proportion to their undivided beneficial ownership interest in the related
REMIC as are represented by such Class R Certificates. To the extent such tax is
chargeable against the holders of the Class R Certificates, notwithstanding
anything to the contrary contained herein, the Trustee is hereby authorized to
retain from amounts otherwise distributable to the Holders of the Class R
Certificates on any Remittance Date sufficient funds to reimburse the Trustee
for the payment of such tax (to the extent that the Trustee has not been
previously reimbursed or indemnified therefor).
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
136
<PAGE>
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 any Class of Class A Certificates evidencing Percentage
Interests aggregating not less than 25% of such class; 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. The reasonable expense
of every such examination shall be paid by the Servicer or, if paid by the
Trustee, shall be repaid by the Servicer upon demand from the Servicer's
own funds;
(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 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.
137
<PAGE>
(b) Following the Startup Date, the Trustee shall not knowingly accept any
contribution of assets to the Trust Fund, unless the Trustee 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 1996-1 REMIC to
fail to qualify as a REMIC at any time that any Certificates are outstanding or
subject the 1996-1 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 and the Servicer for any taxes and costs,
including any attorney's fees, imposed or incurred by the Trust Fund 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 or the Servicer, as
the case may be, 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 Trustee's Fees and Expenses; Indemnity. (a) The Trustee
acknowledges that in consideration of the performance of its duties hereunder it
is entitled to receive the Trustee Fee in accordance with the provision of
Section 6.5(a). Additionally, the Trustee hereby covenants, for the benefit of
the Depositor, that the Trustee has arranged separately with the Servicer for
the payment to the Trustee of all of the Trustee's expenses in connection with
this Agreement, including, without limitation, all of the Trustee's Fees and
expenses in connection with any actions taken by the Trustee pursuant to Section
9.12 hereof. For the avoidance of doubt, the parties hereto acknowledge that it
is the intent of the parties that the Depositor shall not pay any of the
138
<PAGE>
Trustee's fees and expenses in connection with this transaction. The Trustee
shall not be entitled to compensation for any expense, disbursement or advance
as may arise from its negligence or bad faith, and the Trustee shall have no
lien on the Trust Fund for the payment of its fees and expenses.
(b) The Trust Fund, the Trustee and any director, officer, employee or
agent of the Trustee shall be indemnified by the Servicer and held harmless
against any loss, liability, claim, damage or expense arising out of, or imposed
upon the Trust or the Trustee, other than any loss, liability or expense
incurred by reason of (i) the acts of the Trustee not authorized or required
pursuant to this Agreement or taken pursuant to written instructions received
from the Servicer, the Certificate Insurer or the Majority Holders, or (ii) by
reason of the Trustee's reckless disregard of obligations and duties hereunder.
The obligation of the Servicer under this Section 9.5 arising prior to any
resignation or termination of the Servicer hereunder shall survive termination
of the Servicer and payment of the Certificates, and shall extend to any
co-trustee appointed pursuant to this Article IX.
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, and (e) 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
written notice thereof to the Servicer, the Certificate Insurer and to all
139
<PAGE>
Certificateholders. Upon receiving such notice of resignation, the Servicer
shall promptly appoint a successor trustee 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 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 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, 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.
140
<PAGE>
(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 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 and to Moody's and S&P. 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)
Notwithstanding any other provisions hereof, at any time, for the purpose of
meeting any legal requirements of any jurisdiction in which any part of the
141
<PAGE>
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
142
<PAGE>
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 Tax Returns; Old Interest Reporting. The Servicer and the
Depositor, as applicable, upon request, will promptly furnish the Trustee with
all such information as may be reasonably required in connection with the
Trustee's preparation of all Tax Returns of the Trust Fund or for the purpose of
the Trustee responding to reasonable requests for information made by
Certificateholders in connection with tax matters and, upon request within seven
(7) Business Days after its receipt thereof, the Servicer shall (a) sign on
behalf of the Trust Fund any Tax Return that the Servicer is required to sign
pursuant to applicable federal, state or local tax laws, and (b) cause such Tax
Return to have been returned to the Trustee for filing and for distribution to
Certificateholders if required.
Section 9.12 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
Certificates and the expiration of the term of the Certificate Insurance Policy,
shall surrender the Certificate Insurance Policy to the Certificate Insurer for
cancellation.
[Remainder of this page intentionally left blank]
143
<PAGE>
ARTICLE X
Miscellaneous Provisions
Section 10.1 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.
Section 10.2 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 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
144
<PAGE>
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.
(d) The rights of the Certificateholders of Series 1996-1 will be
determined pursuant to this Agreement. The rights of the Holders of any
certificates or other instruments which may be issued by the Trustee pursuant to
Section 4.2 of this Agreement shall be determined by a supplement with respect
thereto. Such supplement may provide for any other agreements between the
parties hereto as long as such agreements do not violate, as to any Certificate,
certificates or other instruments, Section 10.3.
Section 10.3 Amendment or Supplement. (a) This Agreement may be amended or
supplemented 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 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 and such consent would not adversely
affect the interests 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; 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 10.3 or pursuant to Section 6.9 of the Purchase
and Sale Agreement.
(b) This Agreement may be amended or supplemented 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
145
<PAGE>
addressed to the Trustee and the Certificate Insurer, failure to amend would
adversely affect the interests of the Certificateholders and such consent would
not adversely affect the interests of the Certificate Insurer), the Majority
Certificateholders and the Holders of the majority of the undivided beneficial
ownership interest in the 1996-1 REMIC as is represented by the Class R
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 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 1996-1 REMIC as a REMIC or cause a
tax to be imposed on such 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 10.4 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 10.5 Duration of Agreement. This Agreement shall continue in
existence and effect until terminated as herein provided.
Section 10.6 Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
146
<PAGE>
to (i) in the case of the Servicer, Irwin Home Equity Corporation, 12677 Alcosta
Boulevard, Suite 500, San Ramon, California 94583, Attention: Spencer Carlsen,
Vice President of Operations and Edwin Corbin, Vice President of Finance (with
copies to the Seller), (ii) in the case of the Seller, IHE Funding Corp., 500
Washington Street, Columbus, Indiana 47201, Attention: Greg Ehlinger, Vice
President, with an additional copy of such notice simultaneously delivered to
the Servicer, (iii) in the case of the Trustee, The Chase Manhattan Bank, 450
West 33rd Street, New York New York 10001 Attention: Global Trust Services,
Irwin Home Equity Corporation Trust Series 1996-1, (iv) in the case of the
Certificateholders, as set forth in the Certificate Register, (v) in the case of
Moody's, 99 Church Street, New York, New York 10007 Attention: Jonathan
Lieberman, (vi) in the case of S&P, 26 Broadway, New York, New York 10004
Attention: Residential Mortgage Surveillance Group, (vii) in the case of the
Certificate Insurer, MBIA Insurance Corporation, 113 King Street, Armonk, New
York 10504, Attention: Insured Portfolio Management--Structured Finance, (viii)
in the case of the Fiscal Agent, to State Street Bank and Trust Company, 61
Broadway, 15th Floor, New York, New York 10006, Attention: Municipal Registrar
and Paying Agency (or such other address as the Fiscal Agent or the Certificate
Insurer shall specify to the Trustee in writing) and (ix) in the case of the
Depositor or the Underwriter, One New York Plaza, New York, New York 10292,
Attention: John Herbert, Associate. 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.
Section 10.7 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 10.8 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.
147
<PAGE>
Section 10.9 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 10.10 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Servicer, the Depositor, the Trustee and the
Certificateholders and their respective successors and permitted assigns.
Section 10.11 Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
Section 10.12 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's rights hereunder shall
terminate.
Section 10.13 Third Party Beneficiary. The parties agree that each of the
Seller and the Certificate Insurer is intended and shall have all rights of a
third-party beneficiary of this Agreement.
Section 10.14 Intent of the Parties. It is the intent of the 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 10.15 Appointment of Tax Matters Person. The Holders of the Class R
Certificates hereby appoint the Trustee to act as the Tax Matters Person for the
1996-1 REMIC for all purposes of the Code. The Tax Matters Person will perform,
or cause to be performed, such duties and take, or cause to be taken, such
actions as are required to be performed or taken by the Tax Matters Person under
the code. The Holders of the Class R Certificates may hereafter appoint a
different entity as their agent, or may appoint one of the Class R
Certificateholders to be the Tax Matters Person.
148
<PAGE>
Section 10.16 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 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 10.6 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 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 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.]
149
<PAGE>
IN WITNESS WHEREOF, the Servicer, the Trustee and the Depositor have caused
their names to be signed hereto by their respective officers thereunto duly
authorized as of the day and year first above written.
PRUDENTIAL SECURITIES SECURED
FINANCING CORPORATION, as
Depositor
By: /s/ Len Blum
--------------------------------
Name: Len Blum
Title: Vice President
IRWIN HOME EQUITY CORPORATION
as Servicer
By: /s/ Edwin K. Corbin
--------------------------------
Name: Edwin K. Corbin
Title: Vice President -
Finance
THE CHASE MANHATTAN BANK
as Trustee
By: /s/ Regina Bishop
--------------------------------
Name: Regina Bishop
Title: Vice President
<PAGE>
State of New York )
) ss.:
County of New York )
On the 14th day of October, 1996 before me, a Notary Public in and for the
State of New York, personally appeared Len Blum, known to me to be a Vice
President of Prudential Securities Secured Financing Corporation, the
corporation that executed the within instrument and also known to me to be the
person who executed in on behalf of said corporation, and acknowledged to me
that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunder to set my hand and affixed my official
seal the day and year in this certificate first above written.
/s/ Peter D. Austin
--------------------------
Notary Public
My Commission expires March 72, 1997
--------------
<PAGE>
State of New York )
) ss.:
County of New York )
On the 15th day of October, 1996 before me, a Notary Public in and for the
State of New York, personally appeared Edwin K. Corbin, known to me to be a Vice
President of Finance, of Irwin Home Equity Corporation, the corporation that
executed the within instrument and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunder to set my hand and affixed my official
seal the day and year in this certificate first above written.
/s/ Rosalyn Middlemark
---------------------------
Notary Public
My Commission expires March 25, 1998
---------------
<PAGE>
State of New York )
) ss.:
County of New York )
On the 15th day of October, 1996 before me, a Notary Public in and for the
State of New York, personally appeared Regina Bishop known to me to be a Vice
President of The Chase Manhattan Bank, the corporation that executed the within
instrument and also known to me to be the person who executed it on behalf of
said corporation, and acknowledged to me that such corporation executed the
within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
/s/ Rosalyn Middlemark
-----------------------------
Notary Public
My Commission expires March 25, 1998
-----------------
================================================================================
PURCHASE AND SALE AGREEMENT
PRUDENTIAL SECURITIES SECURED FINANCING CORPORATION
Depositor
and
IHE FUNDING CORP.
Seller
================================================================================
Dated as of October 1, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS............................................ 2
Section 1.1 Definitions............................................ 2
ARTICLE II PURCHASE, SALE AND CONVEYANCE OF
MORTGAGE LOANS......................................... 6
Section 2.1 Agreement to Purchase.................................. 6
Section 2.2 Purchase Price......................................... 6
Section 2.3 Conveyance of Mortgage Loans; Possession of
Mortgage Files......................................... 6
Section 2.4 Delivery of Mortgage Loan Documents.................... 7
Section 2.5 Acceptance of Mortgage Loans........................... 9
Section 2.6 Transfer of Mortgage Loans; Assignment of
Agreement.............................................. 11
Section 2.7 Examination of Mortgage Files.......................... 11
Section 2.8 Books and Records...................................... 12
Section 2.9 Cost of Delivery and Recordation of
Documents........................................... 12
ARTICLE III REPRESENTATIONS AND WARRANTIES......................... 13
Section 3.1 Representations and Warranties as to the
Seller................................................. 13
Section 3.2 Representations and Warranties Relating to the
Mortgage Loans......................................... 15
Section 3.3 Representations and Warranties of the
Depositor.............................................. 26
Section 3.4 Repurchase Obligation for Defective
Documentation and for Breach of a
Representation or Warranty............................. 27
ARTICLE IV THE SELLER............................................. 31
Section 4.1 Covenants of the Seller................................ 31
Section 4.2 Merger or Consolidation................................ 31
Section 4.3 Costs.................................................. 31
Section 4.4 Indemnification........................................ 32
i
<PAGE>
Page
ARTICLE V CONDITIONS OF CLOSING.................................. 35
Section 5.1 Conditions of Depositor's Obligations.................. 35
Section 5.2 Conditions of Seller's Obligations..................... 37
Section 5.3 Termination of Depositor's Obligations................. 37
ARTICLE VI MISCELLANEOUS.......................................... 38
Section 6.1 Notices................................................ 38
Section 6.2 Severability of Provisions............................. 38
Section 6.3 Agreement of Seller.................................... 38
Section 6.4 Survival............................................... 38
Section 6.5 Effect of Headings and Table of Contents............... 39
Section 6.6 Successors and Assigns................................. 39
Section 6.7 Confirmation of Intent; Grant of Security
Interest............................................... 39
Section 6.8 Miscellaneous.......................................... 40
Section 6.9 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
Exhibits
Exhibit A - Mortgage Loan Schedule
Exhibit B - Officer's Certificate
Exhibit C - Opinion of Counsel to Seller
ii
<PAGE>
This Purchase and Sale Agreement, dated as of October 1, 1996, by and
between Prudential Securities Secured Financing Corporation, a Delaware
corporation, its successors and assigns (the "Depositor"), and IHE Funding
Corp., a Delaware corporation and its successors (the "Seller").
W I T N E S S E T H:
WHEREAS, Exhibit A attached hereto and made a part hereof lists certain
home equity loans secured by mortgages on one- to four-family residential
properties owned by the Seller that the Seller desires to sell to the Depositor
and that the Depositor desires to purchase;
WHEREAS, it is the intention of the Seller and the Depositor that
simultaneously with the Seller's conveyance of the Mortgage Loans (as defined
herein) to Depositor on the Closing Date, (a) the Depositor shall deposit the
Mortgage Loans in a trust (the "Trust") pursuant to a Pooling and Servicing
Agreement to be dated as of October 1, 1996 (the "Pooling and Servicing
Agreement"), to be entered into by and among the Depositor, as depositor, Irwin
Home Equity Corporation, as servicer (in such capacity, the "Servicer") and The
Chase Manhattan Bank, as trustee (the "Trustee") and (b) the Trustee shall issue
certificates evidencing beneficial ownership interests in the property of the
trust fund formed by the Pooling and Servicing Agreement to the Depositor and,
at the request and pursuant to the directions of the Seller, and in recognition
of Irwin Union Bank and Trust Company's continuing obligation to fund the
Additional Balances (as defined herein) on the Mortgage Loans deposited in the
Trust, shall issue the Additional Certificate (as defined herein), representing
the beneficial interest in such Additional Balances on such Mortgage Loans, to
Irwin Union Bank and Trust Company ("IUB");
WHEREAS, as a matter of convenience and in light of the ultimate transfer
of the Mortgage Notes and the Mortgage Loans securing the obligations of each
Mortgagor under the related Mortgage Notes into the Trust, the Seller has caused
the Mortgage Notes to be endorsed in a manner suitable for the delivery to the
Trustee and has caused the assignment of the Mortgage Loans to be made directly
to the Trustee, without providing or indicating on any endorsement of the
Mortgage Notes or assignment of the Mortgage Loans the respective interim
endorsees or interim assignees, it being understood that the Trustee shall hold
the Mortgage Notes as bailee for the Depositor until the Depositor transfers the
Mortgage Notes to the Trustee pursuant to the Pooling and Servicing Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties hereto agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. Whenever used herein, the following words and
phrases, unless the context otherwise requires, shall have the meanings
specified in this Article. Capitalized terms used herein and not otherwise
defined shall have the respective meanings ascribed thereto in the Pooling and
Servicing Agreement.
"Additional Balance" shall mean any amounts added, from time to time, to
the principal balance of a Mortgage Loan after the Cut-Off Date as a result of
the Mortgagor on the related Mortgage Note exercising the right to borrow
additional amounts under such Mortgage Loan.
"Agreement" means this Purchase and Sale Agreement, as amended or
supplemented in accordance with the provisions hereof.
"Closing Date" shall have the meaning ascribed thereto in Section 2.1(c)
hereof.
"Cut-Off Date Aggregate Principal Balance" means the aggregate unpaid
Principal Balance of the Mortgage Loans as of the initial Cut-Off Date. The
Cut-Off Date Aggregate Principal Balance of the HELOCs is equal to
$43,293,515.97 and the Cut-Off Date Aggregate Principal Balance of the HELs is
equal to $36,642,160.75.
"Cut-Off Date Principal Balance" means as to each Mortgage Loan, its unpaid
Principal Balance as of the Cut-Off Date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"HEL" shall mean (i) each fixed rate closed end home equity loan identified
on the Mortgage Loan Schedule on the Closing Date, (ii) any additional such
fixed rate home equity closed end 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 transfer of the Subsequent Mortgage Loans which are HELs,
the deletion of the Deleted Mortgage Loans which are HELs and the substitution
of Qualified Substitute Mortgage Loans which are HELs for Deleted Mortgage Loans
(iii) each Mortgage Note evidencing any loan referred to in (i) or (ii) above,
including all amounts now or hereafter due under such Mortgage Notes whether
relating to such loans or other loans which may be made from time to time and
(iv) the related Mortgage; in each case other than payments of interest that
accrued on each Mortgage Loan up to and including the Due Date immediately
preceding the applicable Cut-Off Date.
"HELOC" shall mean (i) each adjustable rate home equity revolving credit
line loan identified on the Mortgage Loan Schedule on the Closing Date, (ii) any
additional such home equity revolving credit line loans identified on the
2
<PAGE>
Mortgage Loan Schedule after the Closing Date, as such schedule is amended and
supplemented from time to time to reflect the transfer of the Subsequent
Mortgage Loans which are HELOCs, the deletions of Deleted Mortgage Loans which
are HELOCs and the substitution of Qualified Substitute Mortgage Loans which are
HELOCs for Deleted Mortgage Loans (iii) each Mortgage Note evidencing any credit
line loan referred to in (i), (ii) or (iii) above, including all amounts now or
hereafter due under such Mortgage Notes whether relating to such credit line
loans or other loans which may be made from time to time and (iv) the related
Mortgage; in each case other than payments of interest that accrued on each
Mortgage Loan up to and including the Due Date immediately preceding the
applicable Cut-Off Date.
"Index" means, as to any HELOC, a rate per annum equal to the highest prime
rate published in the "Money Rates" section of The Wall Street Journal on the
last Business Day in the applicable period, or as otherwise determined in
accordance with the related Mortgage Note.
"Interest Adjustment Date" means the date on which the Mortgage Interest
Rate is or may be adjusted with respect to each HELOC.
"Mortgage Interest Rate" means, as to any Mortgage Loan, the per annum rate
at which interest accrues on the unpaid principal balance thereof, as adjusted
from time to time in accordance with the provisions of the related Mortgage
Note, which rate is (a) for each HEL the Mortgage Interest Rate for such HEL
indicated on the Mortgage Loan Schedule, (b) for each HELOC and prior to the
first Interest Adjustment Date for each such HELOC occurring after the Cut-Off
Date, the initial Mortgage Interest Rate for such Mortgage Loan indicated on the
Mortgage Loan Schedule and (c) for each HELOC and from and after such first
Interest Adjustment Date, the sum of the Index applicable to the most recent
Interest Adjustment Date, and the Gross Margin, rounded as set forth in such
Mortgage Note, subject to the Lifetime Cap and the Lifetime Floor and any
applicable statutory maximum interest rate as set forth in the related Mortgage
Note, that may be applicable to such Mortgage Loan at any time during the life
of such Mortgage Loan.
"Mortgage Loan" shall mean each HELOC and each HEL. 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 Schedule" shall have the meaning ascribed thereto in the
Pooling and Servicing Agreement. The Mortgage Loan Schedule is attached hereto
as Exhibit A.
"Mortgage Loan Sale Agreement" means the Mortgage Loan Sale Agreement,
dated the date hereof, between IUB, an Indiana banking corporation, as seller
thereunder, and the Seller, as purchaser thereunder.
3
<PAGE>
"Payment Adjustment" means, with respect to any HELOC, the adjustment of
the amount of the Monthly Payment due on the HELOC in accordance with the terms
of the related Mortgage Note.
"Payment Adjustment Date" means, with respect to a HELOC, the date on which
a Payment Adjustment may occur.
"Pooling and Servicing Agreement" shall have the meaning ascribed thereto
in the recitals hereof.
"Prospectus" means the Prospectus dated August 4, 1995 relating to the
offering by the Depositor from time to time of its Pass-Through Certificates
(Issuable in Series) in the form in which it was or will be filed with the
Securities and Exchange Commission pursuant to Rule 424(b) under the Securities
Act with respect to the offer and sale of the Certificates.
"Registration Statement" means that certain registration statement on Form
S-3, as amended (Registration No. 33-91148) relating to the offering by the
Depositor from time to time of its Pass-Through Certificates (Issuable in
Series) as heretofore declared effective by the Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" means IHE Funding Corp., in its capacity as Seller of the Mortgage
Loans under this Agreement, and any successor to IHE Funding Corp., whether
through merger, consolidation, purchase and assumption of IHE Funding Corp. or
all or substantially all of its assets or otherwise.
"Servicer" means Irwin Home Equity Corporation, in its capacity as servicer
of the Mortgage Loans and as the Servicer under the Pooling and Servicing
Agreement or any successor appointed pursuant to the Pooling and Servicing
Agreement.
"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 Certificates, by any "nationally
4
<PAGE>
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 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 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 Certificates on the terms and in the manner contemplated in
the Prospectus Supplement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
ARTICLE II
PURCHASE, SALE AND CONVEYANCE OF MORTGAGE LOANS
Section 2.1 Agreement to Purchase. (a) Subject to the terms and conditions
of this Agreement, the Seller hereby sells, conveys, transfers and assigns and
the Depositor hereby purchases, the Mortgage Loans, it being understood by the
parties hereto that the Seller is transferring all rights with respect to each
Mortgage Loan but the obligation to fund any Additional Balances on the Mortgage
Loans is not transferred hereby, and that such obligation has been reserved and
retained by IUB pursuant to the Mortgage Loan Sale Agreement.
(b) Subject to Section 2.7, the Depositor and the Seller have agreed upon
which of the Seller's Mortgage Loans are purchased by the Depositor pursuant to
this Agreement, and the Seller has caused IUB to prepare the Mortgage Loan
Schedule. The Mortgage Loan Schedule is attached hereto as Exhibit A. The
Mortgage Loan Schedule shall be amended from time to time to reflect the
addition of any Additional Balances on the Mortgage Loans, the removal of
Deleted Mortgage Loans, the transfer of Subsequent Mortgage Loans or in
connection with the issuance of any Series of certificates.
(c) The closing for the purchase and sale of the Mortgage Loans shall take
place at the offices of Dewey Ballantine, New York, New York, at 10:00 a.m., New
York time, on October 15, 1996 or such other place and time as the parties shall
agree (such time being herein referred to as the "Closing Date").
Section 2.2 Purchase Price. On the Closing Date, as full consideration for
the Seller's sale of the Mortgage Loans and associated rights to the Depositor,
the Depositor will deliver to the Seller: (a) an amount in cash equal to the sum
of 100% of the aggregate principal balance as of the Closing Date of the Class A
Certificates, (b) the Class R Certificate to be issued pursuant to the Pooling
and Servicing Agreement and (c) in recognition of the IUB's continuing
obligation to fund the Additional Balances drawn by the Mortgagor under the
related Mortgage Loan and pursuant to the Seller's request, the Depositor shall,
pursuant to the Pooling and Servicing Agreement, cause the Trustee to issue the
Additional Certificate, representing the right to receive payments allocable to
the Additional Balances, to IUB.
Section 2.3 Conveyance of Mortgage Loans; Possession of Mortgage Files. (a)
Effective as of the Closing Date, the Seller hereby sells, transfers, assigns,
sets over and conveys to the Depositor, without recourse but subject to the
terms of this Agreement, all right, title and interest in and to the Mortgage
Loans, the insurance policies relating to each such Mortgage Loan, if any, and
all right, title and interest in and to the proceeds of such insurance policies
from and after the Closing Date together with all of its rights under the
Mortgage Loan Sale Agreement.
6
<PAGE>
(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 Seller shall immediately vest in the Depositor.
The contents of any Mortgage File in the possession of the Seller at any time
after such sale, and any scheduled payments of principal and interest on the
Mortgage Loans due after the Cut-Off Date and received by the Seller (excluding
any interest on or prior to the Due Date immediately preceding the Cut-Off
Date), shall be held in trust by the Seller for the benefit of the Depositor as
the owner thereof, and shall be promptly delivered by the Seller to or upon the
order of the Depositor.
(c) Pursuant to the Pooling and Servicing Agreement, the Depositor shall,
on the Closing Date, irrevocably transfer, assign, set over and otherwise convey
all of its right, title and interest in and to the applicable Mortgage Loans,
all of its rights (exclusive of any of its obligations) under this Agreement,
and any rights arising under the Mortgage Loan Sale Agreement assigned to it to
the Trustee for the benefit of the Certificateholders, the holder of the
Additional Certificate and the Certificate Insurer.
Section 2.4 Delivery of Mortgage Loan Documents. (a) On or prior to the
Closing Date or each Subsequent Transfer Date, the 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, endorsed by the holder of record
without recourse in the following form: "Pay to the order of ________,
without recourse" and signed in the name of the holder of record, and if by
the Seller, by an authorized officer;
(ii) The original Mortgage with evidence of recording indicated
thereon; provided, that if such Mortgage has not been returned from the
applicable recording office, then such recorded Mortgage shall be delivered
when so returned;
(iii) An 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 holder of record of the Mortgage Loan by an
authorized officer (with evidence of submission for recordation of such
assignment in the appropriate real estate recording office for such
Mortgaged Property to be received by the Trustee within 14 days of the
Closing Date or Subsequent Transfer Date, as applicable); provided,
however, that assignments of mortgages shall not be required to be
submitted for recording with respect to any Mortgage Loan if there shall
have been delivered on the Closing Date an opinion of counsel in form and
substance satisfactory to the Purchaser, the Depositor, the Trustee, each
7
<PAGE>
of the Rating Agencies and the Certificate Insurer stating that, in such
counsel's opinion, the failure to record such assignment shall not have a
materially adverse effect on the security interest of the Depositor or the
Trustee in the Mortgage; provided, further, that any assignment not
submitted for recordation shall be recorded 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 such assignment shall be delivered when
so returned (and a blanket assignment with respect to such unrecorded
Mortgage Loan shall be delivered on the Closing Date);
(iv) Any intervening assignments of the Mortgage with evidence of
recording thereon;
(v) Any assumption, modification, consolidation or extension
agreements; and
(vi) The 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) and the certificate of primary
mortgage guaranty insurance, if any, issued with respect to such Mortgage
Loan, provided, however, that Mortgage Loans with a principal balance under
$15,000 as of the Cut-Off Date which are not in a first lien position and
have been submitted for review of title after July 10, 1995 shall be exempt
from this requirement; and provided, further, that Mortgage Loans with a
principal balance under $25,000 as of the Cut-Off Date which are not in a
first lien position, which are submitted for review after September 1, 1996
and have a second lien ratio of less than 25% shall also be exempt from
this requirement.
(b) In the event that any such Assignment of Mortgage referred to in clause
(a)(iii) above is not in a suitable form for recording or is lost or, upon an
attempt to record such Assignment of Mortgage, is returned unrecorded because of
a defect therein, the Seller shall promptly prepare a substitute Assignment of
Mortgage or cure such defect, as the case may be.
(c) The Seller shall, within five Business Days after the receipt thereof,
and in any event, no later than 120 days after the Closing Date, deliver or
cause to be delivered to the Trustee or its designee (as assignee of the
Depositor pursuant to the Pooling and Servicing Agreement): (i) the original
recorded Mortgage and related power of attorney, if any, in those instances
where a copy thereof certified by the Seller was delivered to the Trustee (as
assignee of the Depositor pursuant to the Pooling and Servicing Agreement); (ii)
8
<PAGE>
the original recorded Assignment of Mortgage from the Seller to the Trustee (as
assignee of the Depositor pursuant to the Pooling and Servicing Agreement)
delivered pursuant to the foregoing clause (a)(iii) above, which, together with
any intervening assignments of Mortgage, evidences a complete chain of
assignment from the originator of the Mortgage Loan to the Trustee in those
instances where copies of such Assignments certified by the Seller were
delivered to the Trustee (as assignee of the Depositor pursuant to the Pooling
and Servicing Agreement); and (iii) the title insurance policy or title opinion
required in clause (a)(vi) above. Notwithstanding anything to the contrary
contained in this Section 2.4, in those instances where the public recording
office retains the original Mortgage, power of attorney, if any, assignment or
Assignment of Mortgage after it has been recorded or such original has been
lost, the Seller shall be deemed to have satisfied its obligations hereunder
upon delivery to the Trustee (as assignee of the Depositor pursuant to the
Pooling and Servicing Agreement) of a copy of such Mortgage, power of attorney,
if any, assignment or Assignment of Mortgage certified by the public recording
office to be a true copy of the recorded original thereof. From time to time the
Seller may forward or cause to be forwarded to the Trustee (as assignee of the
Depositor pursuant to the Pooling and Servicing Agreement) additional original
documents evidencing an assumption or modification of a Mortgage Loan.
(d) All original documents relating to the Mortgage Loans that are not
delivered to the Trustee (as assignee of the Depositor pursuant to the Pooling
and Servicing Agreement) as permitted by this Section 2.4 are and shall be held
by the Seller in trust for the benefit of the Trustee on behalf of the
Certificateholders and the Certificate Insurer. In the event that any such
original document is required pursuant to the terms of this Section 2.4 to be a
part of a Mortgage File, such document shall be delivered promptly to the
Trustee (as assignee of the Depositor pursuant to the Pooling and Servicing
Agreement). From and after the sale of the Mortgage Loans to the Depositor
pursuant hereto, to the extent that the Seller retains legal title of record to
any Mortgage Loans prior to the vesting of legal title in the Trustee (as
assignee of the Depositor pursuant to the Pooling and Servicing Agreement), such
title shall be retained in trust for the Depositor as the owner of the Mortgage
Loans and the Trustee, as the Depositor's assignee.
Section 2.5 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 and each Subsequent Transfer Date an acknowledgment of
receipt of, for each Mortgage Loan, the original Mortgage Note with respect to
each Mortgage Loan (with any exceptions noted), in the form attached as Exhibit
E 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
9
<PAGE>
reviewed) each Trustee's Mortgage File within 45 Business Days after the Closing
Date (or, with respect to any Qualified Substitute Mortgage Loan or Subsequent
Mortgage Loan, within 45 Business Days after the receipt by the Trustee thereof)
and to deliver to the initial Certificateholders, the Seller, the Servicer and
the Certificate Insurer a 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 the Pooling and Servicing Agreement are in its possession, and (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 initialled by the Mortgagor), appears regular on its face
and relates to such Mortgage Loan. 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.
Pursuant to the Pooling and Servicing Agreement, by October 15, 1997 the Trustee
shall be required to deliver (or cause to be delivered) to the Servicer, the
Seller, the initial Certificateholders and the Certificate Insurer a final
certification in the form attached to the Pooling and Servicing Agreement as
Exhibit G 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 in an exception included in the
Trustee's initial certification, (i) all documents required to be delivered to
it hereunder and pursuant to the Pooling and Servicing Agreement are in its
possession, and (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 initialled by the Mortgagor),
appears regular on its face and relates to such Mortgage Loan.
(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 2.4 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 Seller, the Certificate Insurer and
the Trustee. The Seller agrees that 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. The 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
Seller has not remedied the defect and the defect materially and adversely
10
<PAGE>
affects the interest of the Certificateholders in the related Mortgage Loan or
the interests of the Certificate Insurer, then the 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 3.4 hereof, and Section 3.3 of the Pooling and Servicing
Agreement.
(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 Seller's obligation to repurchase for any Mortgage Loan
pursuant to this Section 2.5 or Section 3.4 of this Agreement or the Pooling and
Servicing Agreement.
(d) In the event that any Mortgage Note required to be delivered pursuant
to Section 2.4 is conclusively determined by any of the Seller, the Servicer,
the Custodian 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 cause the originator of the Mortgage Loan related to
such Mortgage Note to request the obligor on such Mortgage Note to execute and
return a replacement Mortgage Note, and shall further agree to hold the
Purchaser, the Depositor, 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
and the Servicer shall have no further indemnification obligation with respect
to such lost note affidavit. The delivery of any such lost note affidavit shall
not affect the obligations of the Seller pursuant to this Section 2.5 or Section
3.4 of this Agreement.
Section 2.6 Transfer of Mortgage Loans; Assignment of Agreement. The Seller
hereby acknowledges and agrees that the Depositor may sell, transfer and assign
its interest under this Agreement in accordance with the Pooling and Servicing
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
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 2.5 and 3.4 hereof for breaches of the representations,
warranties, agreements and covenants of the Seller contained in Sections 2.4,
2.5, 3.1 and 3.2 hereof to the Trustee for the benefit of the Certificateholders
and the Certificate Insurer. The 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 Seller set forth
herein with respect to breaches of such representations, warranties, agreements
and covenants.
Section 2.7 Examination of Mortgage Files. Prior to the Closing Date or,
with respect to Subsequent Mortgage Loans, the Subsequent Transfer Date, the
Seller shall make the Mortgage Files available to the Depositor or its designee
11
<PAGE>
for examination at the Seller's offices or at such other place as the 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 applicable. If the Depositor or its designee makes such examination prior to
the Closing Date or Subsequent Transfer Date, as applicable 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 applicable, by substitute Mortgage Loans acceptable
to the Depositor. The Depositor may, at its option and without notice to the
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 2.8 Books and Records. The sale of each Mortgage Loan shall be
reflected on the Seller's accounting and other records, balance sheet and other
financial statements as a sale of assets by the Seller to the Depositor. The
Seller shall be responsible for maintaining, and shall cause to be maintained, 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.
Section 2.9 Cost of Delivery and Recordation of Documents. The costs
relating to the delivery and recordation of the documents specified in this
Article II in connection with the Mortgage Loans shall be borne by the Seller.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties as to the Seller. The Seller
hereby represents and warrants to the Depositor, as of the Closing Date, that:
(a) The Seller is a Delaware corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
licenses necessary to carry on its business as now being conducted and is
licensed, qualified and in good standing in each state where a Mortgaged
Property is located and is duly licensed and qualified in each state that
requires licensing or qualification in order to conduct business of the type
conducted by the Seller and to perform its obligations as the Seller hereunder,
and in any event the 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 Seller has the full power and authority, corporate and otherwise, to execute
and deliver this Agreement and to perform in accordance herewith; the execution,
delivery and performance of this Agreement (including all instruments of
transfer to be delivered pursuant to this Agreement) by the Seller and the
consummation of the transactions contemplated hereby have been duly and validly
authorized; this Agreement evidences the valid, binding and enforceable
obligation of the Seller; and all requisite corporate action has been taken by
the Seller to make this Agreement valid and binding upon the 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 Seller of or compliance by the Seller with this Agreement or
the sale of the Mortgage Loans pursuant to the terms of this Agreement or the
consummation of the transactions contemplated by this Agreement, or if required,
such approval has been obtained prior to the Closing Date;
(c) Neither the execution and delivery of this Agreement, the acquisition
or origination of the Mortgage Loans by the Seller or the transactions
contemplated hereby, nor the fulfillment of or compliance with the terms and
conditions of this Agreement, has or will conflict with or result in a breach of
any of the terms, conditions or provisions of the Seller's charter or by-laws or
any legal restriction or any agreement or instrument to which the 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 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) Neither this Agreement nor the information contained in the Prospectus
Supplement other than under the caption "Plan of Distribution" nor any
statement, report or other document prepared by the Seller and furnished or to
13
<PAGE>
be furnished pursuant to this Agreement or in connection with the transactions
contemplated hereby contains any untrue statement or alleged untrue statement of
any material fact or omits to state a material fact necessary to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading;
(e) There is no action, suit, proceeding or investigation pending or, to
the knowledge of the Seller, threatened before a court, administrative agency or
government tribunal against the 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 Seller, or in any
material impairment of the right or ability of the Seller to carry on its
business substantially as now conducted, or in any material liability on the
part of the Seller, or which would draw into question the validity of this
Agreement, the Mortgage Loans, or of any action taken or to be taken in
connection with the obligations of the Seller contemplated herein, or which
would materially impair the ability of the Seller to perform under the terms of
this Agreement or that might prohibit its entering into this Agreement or the
consummation of any of the transactions contemplated hereby;
(f) The Seller is not in violation of or in default with respect to, and
the execution and delivery of this Agreement by the Seller and its performance
of and compliance with the terms hereof will not constitute a violation or
default with respect to, any order or decree of any court or any order,
regulation or demand of any federal, state, municipal or governmental agency,
which violation or default might have consequences that would materially and
adversely affect the condition (financial or other) or operations of the Seller
or its properties or might have consequences that would materially and adversely
affect its performance hereunder;
(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 Seller (other than liens
which will be simultaneously released);
(h) The consummation of the transactions contemplated by this Agreement are
in the ordinary course of business of the Seller, and the transfer, assignment
and conveyance of the Mortgage Notes and the Mortgages by the Seller pursuant to
this Agreement are not subject to the bulk transfer or any similar statutory
provisions in effect in any applicable jurisdiction;
(i) With respect to any Mortgage Loan purchased by the Seller, the Seller
acquired title to the Mortgage Loan in good faith, without notice of any adverse
claim not otherwise disclosed to the Depositor;
(j) The Seller does not believe, nor does it have any reason or cause to
believe, that it cannot perform each and every covenant contained in this
Agreement.
14
<PAGE>
The Seller is solvent and the sale of the Mortgage Loans by the Seller pursuant
to the terms of this Agreement will not cause the Seller to become insolvent.
The sale of the Mortgage Loans by the Seller pursuant to the terms of this
Agreement was not undertaken with the intent to hinder, delay or defraud any of
the Seller's creditors;
(k) The Mortgage Loans are not intentionally selected by the Seller for
sale to the Depositor in a manner so as to affect adversely the interests of the
Depositor or of any transferee of the Depositor (including the Trustee) or the
Certificate Insurer;
(l) The 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
(m) The consideration received by the Seller upon the sale of the Mortgage
Loans under this Agreement constitutes fair consideration and reasonably
equivalent value for the Mortgage Loans.
Section 3.2 Representations and Warranties Relating to the Mortgage Loans.
The Seller represents and warrants to the Depositor as of the Closing Date that,
as to each Mortgage Loan, immediately prior to the sale and transfer of such
Mortgage Loan by the Seller to the Depositor:
(a) The HELOCs had, as of the initial Cut-Off Date, an aggregate Principal
Balance equal to $43,293,515.97 and the HELs had, as of the initial Cut-Off
Date, an aggregate Principal Balance equal to $36,642,160.75, 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.
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; and the first Monthly Payment has been
made or shall be made, as the case may be, with respect to the Mortgage Loan on
the Due Date or within the grace period;
(c) Except as previously disclosed to the Certificate Insurer, to the best
of Seller's knowledge, there are no defaults in complying with the terms of the
Mortgage, and all taxes, governmental assessments, insurance premiums, water,
sewer and municipal charges, leasehold payments or ground rents which previously
became due and owing have been paid, or an escrow of funds has been established
in an amount sufficient to pay for every such item which remains unpaid and
which has been assessed but is not yet due and payable. The Seller has not
15
<PAGE>
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 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 approved by
the title insurer, to the extent required by the policy, and 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 in an amount which is not less than the replacement value of
the improvements securing such Mortgage Loan. The fire and casualty insurance is
standard in the industry for property similar (in terms of the property type,
value and location) to the Mortgaged Property. 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 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
16
<PAGE>
laws and regulations as shall at any time be in force and as shall require such
additional insurance. The hazard insurance policy names (and will name) the
Mortgagor as the insured and contains a standard mortgagee loss payable clause
in favor of IUB, and its successors and assigns. The Seller has caused and will
cause to be performed any and all acts required to be performed to preserve the
rights and remedies of the 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. Neither IUB nor the Seller has
engaged in, has 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
Seller or IUB;
(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. Neither IUB nor the Seller has 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
Seller waived any default resulting from any action or inaction by the
Mortgagor;
17
<PAGE>
(i) The Mortgaged Property is located in the state identified in the
Mortgage Loan Schedule and consists either of a fee simple estate or, in the
case of certain Mortgage Loans secured by Mortgaged Property located in the
State of Illinois, a land trust, in a single parcel of real property improved by
a one- to four-family residential dwelling or a manufactured dwelling
(non-mobile, as defined in the FNMA Selling Guide);
(j) The Mortgage is a valid, subsisting, enforceable and perfected first or
second 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) the lien of current real property taxes and assessments not yet
due and payable;
(iii) 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 insurance policy 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
(iv) other matters to which like properties are commonly subject which
do not materially interfere with the benefits of the security intended to
be provided by the Mortgage or the use, enjoyment, value or marketability
of the related Mortgaged Property.
Except for those Mortgage Loans subject to a first mortgage Lien, 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 first lien and first 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, IUB had full right to sell and assign the
same to the Seller and the Seller had full right to sell and assign the same to
the Depositor. Except as previously disclosed to the Certificate Insurer, as of
the date of origination of the Mortgage Loan, the Mortgaged 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
18
<PAGE>
are genuine, and each is the legal, valid and binding obligation of the maker
thereof enforceable in accordance with its terms. All parties to the Mortgage
Note and the Mortgage 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. IUB and the Seller have reviewed, or have 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 (except in connection
with the Additional Balances), and any and all requirements as to completion of
any on-site or off-site improvement and as to disbursements of any escrow funds
therefor have been complied with. All costs, fees and expenses incurred in
making or closing the Mortgage Loan and the recording of the Mortgage were paid,
and the Mortgagor is not entitled to any refund of any amounts paid or due under
the Mortgage Note or Mortgage;
(m) Immediately prior to the sale of the Mortgage Loan to the Depositor
under this Agreement, (i) the 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, or pledged, (iii) the Seller had good,
indefeasible and marketable title thereto, (iv) the 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 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 Seller and IUB, to the best knowledge of the 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 (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 Loan-to-Value ratio (calculated at
the time of origination by dividing the outstanding principal amount of the
19
<PAGE>
Mortgage Loan by the appraised value of the Mortgaged Property) equal to or less
than 100%;
(p) Except for any Mortgage Loan with a credit limit or Principal Balance
of less than $15,000, originated after July 10, 1995 and which is not in a first
lien position or any Mortgage Loan originated after September 1, 1996, with a
credit limit or Principal Balance of less than $25,000 which is not in a first
lien position and which does not have a second lien ratio of 25% or higher, each
Mortgage Loan, is covered by either (i) an attorney's opinion of title and
abstract of title or (ii) an ALTA 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, insuring IUB (or Irwin Home Equity Corporation on behalf of the Seller)
or the Seller, their successors and assigns, as to 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 and against any loss by reason of the invalidity or
unenforceability of the lien resulting from the provisions of the Mortgage.
Where required by state law or regulation, the Mortgagor has been given the
opportunity to choose the carrier of the required mortgage title insurance.
Additionally, such lender's title insurance policy affirmatively insures ingress
and egress, and against encroachments by or upon the Mortgaged Property or any
interest therein. Immediately prior to the sale of the Mortgage Loan to the
Depositor under the terms of this Agreement, IUB, its successors and assigns
were the sole insureds 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 IUB or the 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 Seller;
(q) To the best of Seller's knowledge, 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 Seller nor its predecessors
have waived any default, breach, violation or event of acceleration;
(r) To the best of the 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;
20
<PAGE>
(s) To the best of 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 fifteenth day of each month. The
Mortgage Interest Rate and Monthly Payment with respect to HELOCs are adjusted
in accordance with the terms of the Mortgage Note. All required notices of
interest rate and payment amount adjustments have been sent to the Mortgagor on
a timely basis and the computations of such adjustments were properly
calculated. Installments of interest on HELOCs are subject to change due to the
adjustments to the Mortgage Interest Rate on each Interest Adjustment Date, with
interest calculated and payable in arrears, sufficient to amortize the Mortgage
Loan fully by the stated maturity date over an original term of ten years from
the closing date of the Mortgage Loan in the case of a HEL and over an original
term of twenty years from the closing date of the Mortgage Loan in the case of a
HELOC, however, the first ten years of payments on the HELOC are not required to
include principal payments but are required to include at least the current
interest due, calculated in accordance with the applicable Mortgage Interest
Rate. With respect to each HELOC, the Payment Adjustments will be such that such
HELOC will fully amortize over twenty years notwithstanding any additions to the
principal balance of the HELOC due to capitalizing interest. All Mortgage
Interest Rate adjustments and Payment Adjustments have been made in strict
compliance with state and federal law and the terms of the related Mortgage
Note. Any interest required to be paid pursuant to state and local law has been
properly paid and credited;
(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
21
<PAGE>
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) To the best of Seller's knowledge in the event the Mortgage constitutes
a deed of trust, a trustee, authorized and duly qualified under applicable law
to serve as such, has been properly designated and currently so serves and is
named in the Mortgage, and no fees or expenses are or will become payable by 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 IUB or the Seller have been
delivered to the Trustee in accordance with Section 2.4 and with Section 2.5(d).
The Trustee is in possession of a complete, true and accurate Mortgage File in
accordance with Section 2.3;
(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 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) Any future advances or drawings on the Mortgage Loan made prior to the
Cut-Off Date have been consolidated with the outstanding principal amount
secured by the Mortgage, and the secured principal amount, as consolidated,
bears a single interest rate and single repayment term. The lien of the Mortgage
securing the consolidated principal amount is expressly insured as having first
or second lien priority by a title insurance policy, an endorsement to the
policy insuring the mortgagee's consolidated interest or by other title evidence
22
<PAGE>
acceptable to the Depositor. Any such consolidated principal amount does not
exceed the original principal amount of the Mortgage Loan;
(ad) Except with respect to loan number 518185, to the best of Seller's
knowledge: there is no proceeding pending or 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 Seller has no knowledge of any such proceedings in the future;
(ae) 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. Any escrow payments
have been collected in full compliance with state and federal law. Unless
prohibited by applicable law, an escrow of funds has been established in an
amount sufficient to pay for every item which remains unpaid and which has been
assessed but is not yet due and payable, and all such escrowed funds are held in
the possession of the Servicer on behalf of the Trustee for the benefit of the
Certificateholders and the holder of the Additional Certificate, and there exist
no deficiencies in connection therewith for which customary arrangements for
repayment thereof have not been made. No escrow deposits or escrow payments or
other charges or payments due IUB or the Seller have been capitalized under the
Mortgage or the Mortgage Note;
(af) The Mortgage File contains an appraisal of the related Mortgage
Property signed prior to the approval of the Mortgage Loan application by an
appraiser acceptable to the Purchaser;
(ag) The Mortgagor has not notified IUB or the Seller, and the Seller and
IUB have no knowledge of any relief requested or allowed to the Mortgagor under
the Soldiers' and Sailors' Civil Relief Act of 1940;
(ah) To the best of the Seller's knowledge, 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. The Seller has no
knowledge of any pending action or proceeding directly involving the related
Mortgaged Property in which compliance with any environmental law, rule or
regulation is in issue; and, to the best of the Seller's knowledge, 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;
23
<PAGE>
(ai) No Mortgage Loan was made in connection with (i) the initial
construction of a Mortgaged Property or (ii) facilitating the trade-in or
exchange of a Mortgaged Property;
(aj) 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 Seller
has and shall maintain in its possession, available for the Trustee's
inspection, and shall deliver to the Trustee upon demand, evidence of compliance
with all such requirements;
(ak) The HELOCs are representative of the mortgage loans in the Seller's
portfolio of adjustable rate home equity lines of credit secured by one-to-four
family properties and the HELs are representative of the mortgage loans in the
Seller's portfolio of fixed rate closed end home equity loans secured by
one-to-four family properties;
(al) 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 Seller or IUB is aware has been
provided by the Seller to the Depositor and the Certificate Insurers;
(am) The Mortgage Loan was originated by a mortgagee which is supervised
and examined by a Federal or State authority. The Mortgage Loan was originated
in accordance with the underwriting criteria as described in the Prospectus
Supplement and was underwritten in strict accordance therewith. The documents,
instruments and agreements submitted for loan underwriting were not falsified by
or with the knowledge of the Seller and, to the best of Seller's
knowledge,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. Neither IUB nor the Seller
has made any representations to the Mortgagor that are inconsistent with the
mortgage instruments used;
(an) All amounts, with respect to the Mortgage Loans, received after the
Cut-Off Date and to which the Seller is not entitled, have been deposited into
the Trustee Collection Account;
(ao) To the best of the Seller's knowledge after due inquiry, there is no
delinquent recording or other tax or assessment lien on the Mortgage Property;
(ap) The 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
24
<PAGE>
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;
(aq) The Mortgage Loan conforms, all such Mortgage Loans in the aggregate
conform, and all HELOCs and HELs in the aggregate conform to the description
thereof set forth in the Prospectus Supplement;
(ar) With respect to any Mortgage Loan that is located in areas of
Maryland, Pennsylvania or Virginia that experienced flooding that occurred in
September of 1996, if the Seller, acting reasonably, has reason to believe that
any Mortgaged Property has been affected by flooding, the Seller will cause the
Servicer to contact the related obligor regarding the condition of the related
property. The Servicer shall be required to contact the related obligor
regarding the condition of such Mortgaged Property if such obligor shall be five
or more days late in making a payment on the Mortgage Loan;
(as) As of the Cut-Off Date, no more than 2.0% of the HELOCs and 2.0% of
the HELs will be secured by Mortgaged Properties located within any single zip
code area;
(at) Approximately 1.2% of the outstanding principal balance of the HELOCs
and 1.2% of the outstanding principal balance of the HELs are non-owner occupied
or second homes;
(au) To the best of Seller's knowledge, each Mortgage Loan constitutes a
Qualified Mortgage, as defined in the Pooling and Servicing Agreement;
(av) 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;
(aw) With respect to each Mortgage Loan, there is only one originally
executed Mortgage Note not stamped as a duplicate;
(ax) There do not exist any circumstances or conditions with respect to the
Mortgage, the Mortgaged Property, the Mortgagor or the Mortgagor's credit
standing that can reasonably be expected to cause private institutional
investors to regard the Mortgage Loan as an unacceptable investment, cause the
Mortgage Loan to become delinquent, or adversely affect the value or
marketability of the Mortgage Loan;
(ay) No statement, report or other document constituting a part of the
Mortgage File contains any untrue statement of fact or omits to state a fact
necessary to make the statements contained therein not misleading;
25
<PAGE>
(az) To the best of Seller's knowledge, at the time of the origination of
each Mortgage Loan that is not a first mortgage loan, the related prior lien was
not more than 30 days or more delinquent;
(ba) As of the Closing Date, there is no valid offset, defense or
counterclaim to any Mortgage Loan Agreement or Mortgage, including, without
limitation, any offset, defense, or counterclaim against the obligation to pay
principal and interest in accordance with the Mortgage Loan Agreement;
(bb) 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;
(bc) The Mortgage Loans are not being transferred with any intent to
hinder, delay or defraud any creditors;
(bd) As of the Closing Date, the 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;
(be) No selection procedure reasonably believed by the Seller to be
materially adverse to the interests of the Certificateholders or the Certificate
Insurer was utilized in selecting the Mortgage Loans; and
(bf) Each Mortgage was recorded, and, except for the blanket assignments
made pursuant to Section 2.3(a)(iii) of the Pooling and Servicing Agreement, all
subsequent assignments of the original Mortgage have been recorded in the
appropriate jurisdictions wherein such recordation is necessary to perfect the
lien thereof as against creditors of the Seller.
Section 3.3 Representations and Warranties of the Depositor. The Depositor
hereby represents, warrants and covenants to the 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;
26
<PAGE>
(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 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) None of the execution and delivery of this Agreement, the purchase of
the Mortgage Loans from the 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.
Section 3.4 Repurchase Obligation for Defective Documentation and for
Breach of a Representation or Warranty. (a) Each of the representations and
warranties contained in Sections 3.1 and 3.2 shall survive the purchase by the
Depositor of the Mortgage Loans and the subsequent transfer thereof by the
Depositor to the Trustee and the delivery of the Certificates to the
Certificateholders 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 Section 3.1
or 3.2 hereof that is made to the best of the Seller's knowledge, if it is
discovered by the Servicer, any subservicer, the Trustee, the Certificate
Insurer or any Certificateholder or the Holder of the Additional Certificate
that the substance of such representation and warranty was inaccurate as of the
27
<PAGE>
Closing Date and such inaccuracy materially and adversely affects the value of
the related Mortgage Loan, then notwithstanding the Seller's lack of knowledge
with respect to the 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 Servicer, any subservicer, the
Trustee, the Certificate Insurer or any Certificateholder or the Holder of the
Additional Certificate 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 the Holder of the Additional Certificate,
or which materially and adversely affects the interests of the Certificate
Insurer, the Certificateholders or the Holder of the Additional Certificate 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 Person discovering such
breach shall, pursuant to Section 3.3 of the Pooling and Servicing Agreement,
give prompt written notice to the others of such Persons. Subject to the next to
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 (i) promptly cure such breach in all material
respects, or (ii) purchase such Mortgage Loan at a purchase price equal to the
Principal Balance of such Mortgage Loan as of the date of purchase, plus the
greater of (1) all accrued and unpaid interest on such Principal Balance and (2)
30 days' interest on such Principal Balance, computed at the Mortgage Interest
Rate, plus the amount of any unreimbursed Servicing Advances made by the
Servicer with respect to such Mortgage Loan, or (iii) cause the removal of 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 2
years after the Startup Date or at such later date, if the Trustee and the
Certificate Insurer receive an Opinion of Counsel to the effect set forth below
in this Section. Any such substitution shall be accompanied by payment by the
Seller of the Substitution Adjustment, if any, to be deposited in the Collection
Account or the Trustee Collection Account pursuant to the Pooling and Servicing
Agreement.
(c) As to any Deleted Mortgage Loan for which the Seller substitutes, or
has caused to be substituted therefor, a Qualified Substitute Mortgage Loan or
Loans, the Seller shall effect, or shall cause to be effected, such substitution
by delivering, or causing the delivery, to the Trustee a certification in the
form attached to the Pooling and Servicing Agreement as Exhibit H, executed by a
Servicing Officer of the Servicer and the documents described in Section 2.4(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 the Servicer 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 Trustee Collection Account pursuant to
Section 2.4(c) of the Pooling and Servicing Agreement (which certification shall
be in the form of Exhibit H to the Pooling and Servicing Agreement), the Trustee
shall be required to release to the Servicer for release to the Seller the
related Trustee's Mortgage File and shall be required to execute, without
28
<PAGE>
recourse, and deliver such instruments of transfer furnished by the Seller as
may be necessary to transfer such Mortgage Loan to the Seller.
(d) Pursuant to the Pooling and Servicing Agreement, the Servicer has
agreed to deposit in the Trustee Collection Account all payments received in
connection with such Qualified Substitute Mortgage Loan or Loans after the date
of such substitution. Monthly Payments received with respect to Qualified
Substitute Mortgage Loans on or before the date of substitution will be retained
by the Seller. The Trust Fund will own all payments received on the Deleted
Mortgage Loan on or before the date of substitution, and the Seller shall
thereafter be entitled to retain all amounts subsequently received in respect of
such Deleted Mortgage Loan. 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 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 3.1 and 3.2 herein. On the date of such substitution, the
Seller will remit, or will cause to be remitted, to the Servicer and pursuant to
the Pooling and Servicing Agreement the Servicer will deposit into the Trustee
Collection Account an amount equal to the Substitution Adjustment, if any.
(e) It is understood and agreed that the obligations of the Seller set
forth in Section 2.5 and this Section 3.4 to cure, purchase or substitute for a
defective Mortgage Loan as provided in Section 2.5 and this Section 3.4
constitute the sole remedies of the Depositor, the Trustee, the Certificate
Insurer and the Certificateholders and the Holder of the Additional Certificate
respecting a breach of the foregoing representations and warranties (other than
the representation and warranty set forth in Section 3.2(g) to the extent of any
fines, penalties, costs, or other damages or losses other than the lost economic
value of the Mortgage Loan, the value of which the remedies provided for in
Section 2.5 and 3.4 shall be deemed adequate for).
(f) Any cause of action against the Seller relating to or arising out of
the breach of any representations and warranties or covenants made in Section
2.5, 3.1, or 3.2 or this Section 3.4 shall accrue as to any Mortgage Loan upon
(i) discovery of such breach by any party and notice thereof to the Seller, (ii)
failure by the Seller to cure such breach or purchase or substitute such
Mortgage Loan as specified above, and (iii) demand upon the 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
29
<PAGE>
imminent, no purchase, or substitution pursuant to Section 2.5(b) or this
Section 3.4 shall be made unless the 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 1996-1 REMIC, as defined in Section 860F of the Code or a
tax on contributions to the 1996-1 REMIC under the REMIC Provisions, or (ii)
cause the 1996-1 REMIC to fail to qualify as a 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 2.5 and this Section 3.4) upon
the earlier of (1) the occurrence of a default or imminent default with respect
to such loan and (2) 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
Seller, the Servicer, the Trustee, the Certificate Insurer or any
Certificateholder or the Holder of the Additional Certificate 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. In connection therewith, the 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 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 3.1 or 3.2. Pursuant to the Pooling and Servicing
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 3.1 or 3.2 hereof.
30
<PAGE>
ARTICLE IV
THE SELLER
Section 4.1 Covenants of the Seller. The Seller covenants to the Depositor
as follows:
(a) The 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 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 5.1 hereof that are within the Seller's (or its agents') control.
(c) The 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 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 4.2 Merger or Consolidation. The 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.
Section 4.3 Costs. In connection with the transactions contemplated under
this Agreement and the Pooling and Servicing Agreement, the Seller shall
promptly pay or cause the Servicer to 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 transaction counsel, Dewey
Ballantine;
(b) the initial (but not ongoing) fees of Standard & Poor's Ratings
Services and Moody's Investors Service, Inc.:
(c) any of the fees of the Trustee as provided in the letter from the
Trustee to the Depositor and the Servicer dated as of October 15, 1996 to the
extent such fees are not paid pursuant to Section 6.5 of the Pooling and
Servicing Agreement, the fees and disbursements of the Trustee's counsel, if
any, the fees and expenses of the institution (which may, but need not, be the
Servicer or the Trustee) selected as calculating agent and the fees of the
Trustee for custodial acceptance and loan deposit;
31
<PAGE>
(d) expenses incurred in connection with printing 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 and registration fees for the issuance of the
Certificates);
(f) subject to the caps set forth in the Commitment, 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
(g) (without duplication to clause (c) hereof) the Trustee's fees and
expenses, including, without limitation, all of the Trustee's fees and expenses
in connection with any actions taken by the Trustee pursuant to Section
9.2(a)(v) of the Pooling and Servicing Agreement.
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 4.4 Indemnification. (a) (i) The 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 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.l(d) hereof. This
indemnity agreement will be in addition to any liability which the Seller may
otherwise have.
32
<PAGE>
(ii) The 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 the Seller
to perform its duties in compliance with the terms of this Agreement. The Seller
shall immediately notify the Depositor if a claim is made by a third party with
respect to this Agreement, and the Seller shall have the right to assume the
defense of any such claim and will pay or cause to be paid all expenses in
connection therewith, including reasonable counsel fees, and will promptly pay
or cause to be paid, discharged and satisfied 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 Seller in
accordance with the Pooling and Servicing Agreement for all amounts advanced by
the Seller pursuant to the preceding sentence except when the claim relates
directly to the failure of the Seller to perform its duties in compliance with
the terms of this Agreement.
(b) The Depositor agrees to indemnify and hold harmless the Seller, each of
its directors and each person or entity who controls the 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
Seller or any such person or entity may become subject, under the Securities Act
or otherwise, and will reimburse the Seller and any such director or controlling
person for any legal or other expenses incurred by the Seller 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 or in the Prospectus, any amendment or
supplement to the Registration Statement or the Prospectus, 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. Such indemnity of the
Depositor does not related to any information contained in the Prospectus
Supplement. 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 4.4
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 4.4, 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
33
<PAGE>
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 4.4 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 conflict with or may be
contrary to the interests of 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 4.4 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 4.4 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 Seller on the one hand, and the Depositor on the other,
the 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 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 4.4, 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 the Seller, and each person, if any, who controls the Seller within the
meaning of Section 15 of the Securities Act, shall have the same rights to
contribution as the Seller.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
34
<PAGE>
ARTICLE V
CONDITIONS OF CLOSING
Section 5.1 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 and on each Subsequent Transfer 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 Seller required to be performed by it on
or prior to the Closing Date or such Subsequent Transfer 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 Seller under this Agreement shall
be true and correct as of the Closing Date or such Subsequent Transfer 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 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 Coopers & Lybrand, independent certified public accountants,
regarding the numerical information contained in the Prospectus Supplement.
(c) The Mortgage Loans will be acceptable to the Depositor, in its sole
discretion.
(d) 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 and an executed receipt acknowledging
delivery of the Mortgage Loans to the Trustee;
(ii) the Pooling and Servicing Agreement dated as of October 1, 1996
and the Underwriting Agreement dated as of October 8, 1996 between the
Depositor and Prudential Securities Incorporated and all documents required
thereunder, duly executed and delivered by each of the parties thereto
other than the Depositor;
(iii) an officer's certificate, dated as of the Closing Date, in the
form of Exhibit B hereto, and attached thereto resolutions of the board of
directors of the Seller and a copy of the charter and by-laws of the
Seller;
(iv) copy of the Seller's charter and all amendments, revisions, and
supplements thereof, certified by the Secretary of the Seller;
35
<PAGE>
(v) an opinion of the counsel for the 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);
(vi) opinions of counsel for the 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's Ratings Services and Aaa by Moody's Investors Service, Inc. (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 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 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 Seller shall be entitled to rely on the opinion);
(e) The Certificate Insurance Policy shall have been duly executed,
delivered and issued with respect to the Certificates.
(f) 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.
(g) The 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.
36
<PAGE>
Section 5.2 Conditions of Seller's Obligations. The obligations of the
Seller under this Agreement shall be subject to the satisfaction, on the Closing
Date and each Subsequent Transfer 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 or such Subsequent Transfer 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 or such Subsequent
Transfer Date and the Seller shall have received a certificate to that effect
signed by an authorized officer of the Depositor.
(b) The Seller shall have received the following additional documents:
(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.
(c) The Seller shall have received an executed receipt, acknowledging the
delivery of the Mortgage Loans and the Mortgage Loan Schedule to the Trustee.
(d) The Depositor shall have furnished the 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 Seller may
reasonably request.
Section 5.3 Termination of Depositor's Obligations. The Depositor may
terminate its obligations hereunder by notice to the 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 5.1 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 Seller, or for the winding up or liquidation
of the affairs of the Seller; (c) there shall have been the consent by the
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 Seller or of or relating to
substantially all of the property of the Seller; (d) any purchase and assumption
agreement with respect to the Seller or the assets and properties of the 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 in equity.
37
<PAGE>
ARTICLE VI
MISCELLANEOUS
Section 6.1 Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered 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 Prudential Securities Secured Financing
Corporation, 199 Water Street, 26th Floor, New York, New York 10292, Attention:
Mr. John Herbert, or to such other address as the Depositor may designate in
writing to the Seller and if to the Seller, addressed to the Seller c/o Irwin
Financial Corporation, 500 Washington Street, Columbus, Indiana, 47201
Attention: Mr. Matthew F. Souza, with a copy to be provided simultaneously to
Irwin Home Equity Corporation, 12677 Acosta Boulevard, Suite 500, San Ramon,
California 94583 Attention: Mr. Edwin Corbin, or to such other address as the
Seller may designate in writing to the Depositor.
Section 6.2 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 6.3 Agreement of Seller. The 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 6.4 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.
38
<PAGE>
Section 6.5 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 6.6 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 Seller.
Section 6.7 Confirmation of Intent; Grant of Security Interest. It is the
express intent of the parties hereto that the conveyance of the Mortgage Loans
by the Seller to the Depositor as contemplated by this Purchase and Sale
Agreement be, and be treated for all purposes as, a sale by the Seller to the
Depositor of the Mortgage Loans. It is, further, not the intention of the
parties that such conveyance be deemed a pledge of the Mortgage Loans by the
Seller to the Depositor to secure a debt or other obligation of the Seller.
However, in the event that, notwithstanding the intent of the parties, the
Mortgage Loans are held to continue to be property of the Seller then (a) this
Purchase and Sale Agreement shall also be deemed to be a security agreement
within the meaning of Articles 8 and 9 of the Uniform Commercial Code; (b) the
transfer of the Mortgage Loans provided for herein shall be deemed to be a grant
by the Seller to the Depositor of, and the Seller hereby does grant, a security
interest in all of the 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 to secure a loan
from the Depositor in the amount equal to the purchase price described in
Section 2.2 hereof; (c) the possession by the Depositor of Mortgage Notes and
such other items of property as constitute instruments, money, negotiable
documents or chattel paper shall be deemed to be "possession by the secured
party for purposes of perfecting the security interest pursuant to Section
9--305 of the Uniform Commercial Code; and (d) notifications to persons holding
such property, and acknowledgments, receipts or confirmations from persons
holding such property, shall be deemed notifications to, or acknowledgments,
receipts or confirmations from, financial intermediaries, bailees or agents (as
applicable) of the 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 Seller and the Depositor shall, to the
extent consistent with this Purchase and Sale Agreement, take such actions as
may be necessary to ensure that, if this Purchase and Sale 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.
39
<PAGE>
Section 6.8 Miscellaneous. This Agreement supersedes all prior agreements
and understandings relating to the subject matter hereof.
Section 6.9 Amendments. (a) This Agreement may be amended from time to time
by the Seller and the Depositor by written agreement, upon the prior written
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 amendment would adversely affect the interests 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, adversely affect in any material respect the
interests of any Certificateholder; 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.
(b) This Agreement may be amended from time to time by the Seller and the
Depositor 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 amendment would adversely affect the
interests of the Certificate Insurer), the Majority Certificateholders and the
Holders of the majority of the Percentage Interest in the Class R 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 1996-1 REMIC as a REMIC or cause a tax to be imposed on the
REMIC; and provided, further, that no such amendment shall reduce in any manner
the amount of, or delay the titling 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.
40
<PAGE>
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 to the extent necessary to enforce the rights and to obtain the
benefit of the remedies of the Depositor under this Agreement which are assigned
to the Trustee for the benefit of the Certificateholders and the Certificate
Insurer pursuant to the Pooling and Servicing Agreement and to the extent
necessary to obtain the benefit of the enforcement of the obligations and
covenants of the Seller under Sections 4.1 and 4.4(a)(ii) of this Agreement. The
parties further agree that Prudential Securities Incorporated and each of its
directors and each person or entity who controls Prudential Securities
Incorporated 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 Seller with respect to
each Underwriter Entity under Section 44(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 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 6.1 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. MAILS,
POSTAGE PREPAID. THE DEPOSITOR AND THE 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 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 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
41
<PAGE>
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.
[SIGNATURES COMMENCE ON FOLLOWING PAGE]
42
<PAGE>
IN WITNESS WHEREOF, the parties to this Purchase and Sale Agreement have
caused their names to be signed by their respective officers thereunto duly
authorized as of the date first above written.
PRUDENTIAL SECURITIES
SECURED FINANCING
CORPORATION, as Depositor
By: /s/ Len Blum
-------------------------
Name: Len Blum
Title: Vice President
IHE FUNDING CORP., as Seller
By: /s/ Gregory F. Ehlinger
-----------------------------
Name: Gregory F. Ehlinger
Title: V.P. & Treasurer
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On October 14, 1996 before me, the undersigned, a Notary Public in and for
said County and State, personally appeared Len Blum, personally known to me (or
proved to me on the basis of satisfactory evidence) to be Vice President [title]
of Prudential Securities Secured Financing Corporation, a Delaware corporation,
the corporation that executed the within Purchase and Sale Agreement on behalf
of said corporation, and acknowledged to me that said corporation executed it.
/s/ Peter Austin
--------------------------
Notary Public
My Commission expires: March 27, 1997
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On October 15, 1996 before me, the undersigned, a Notary Public in and for
said County and State, personally appeared Gregory F. Ehlinger, personally known
to me (or proved to me on the basis of satisfactory evidence) to be V.P. &
Treasurer of IHE Funding Corp., the entity that executed the within Purchase and
Sale Agreement on behalf of said corporation, and acknowledged to me that said
corporation executed it.
/s/ Rosalyn Middlemark
--------------------------
Notary Public
My Commission expires: March 25, 1998
45
- --------------------------------------------------------------------------------
MBIA INSURANCE CORPORATION,
as Insurer
IRWIN HOME EQUITY CORPORATION,
as Company
and
PRUDENTIAL SECURITIES INCORPORATED,
as Underwriter
INDEMNIFICATION AGREEMENT
IRWIN HOME EQUITY CORPORATION TRUST 1996-1
MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 1996-1
CLASS A-1, CLASS A-2 and CLASS A-3 CERTIFICATES
Dated as of October 15, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
(This Table of Contents is for convenience of reference only and shall not
be deemed to be a part of this Agreement.)
Page
Section 1. Definitions.......................................................1
Section 2. Representations and Warranties of the Insurer.....................2
Section 3. Agreements, Representations and Warranties of the
Underwriter ....................................................3
Section 4. Agreements, Representations and Warranties of
the Company ....................................................4
Section 5. Indemnification...................................................5
Section 6. Insurer Undertaking...............................................5
Section 7. Notice To Be Given Insurer........................................5
Section 8. Notice To Be Given to the Underwriter.............................6
Section 9. Notice To Be Given the Company....................................7
Section 10. Contribution......................................................8
Section 11. Notices...........................................................9
Section 12. Governing Law, Etc...............................................10
Section 13. Insurance Agreement; Pooling and Servicing Agreement.............10
Section 14. Limitations......................................................10
Section 15. Counterparts.....................................................10
TESTIMONIUM
SIGNATURES
<PAGE>
INDEMNIFICATION AGREEMENT
This Agreement, dated as of October 15, 1996, is by and among MBIA
Insurance Corporation (the "Insurer"), as the Insurer under the Certificate
Guaranty Insurance Policies (the "Policies") issued in connection th the Offered
Certificates described below, Irwin Home Equity Corporation as Company (the
"Company") and Prudential Securities Incorporated, as underwriter (the
"Underwriter").
Section 1. DEFINITIONS.Section 1. Definitions. As used in this Agreement,
the following terms shall have the respective meanings stated herein, unless the
context clearly requires otherwise, in both singular and plural form, as
appropriate. Capitalized terms used in this Agreement but not otherwise defined
herein will have the meanings ascribed to such terms in the Pooling and
Servicing Agreement (as described below).
"Act" means the Securities Act of 1933, as amended, together with all
related rules and regulations.
"Agreement" means this Indemnification Agreement by and among the
Insurer, the Company and the Underwriter.
"Company Party" means the Company and its respective parents,
subsidiaries and affiliates and any shareholder, director, officer,
employee, agent or any "controlling party" (as such term is used in the
Act") of any of the foregoing.
"Indemnified Party" means any party entitled to any indemnification
pursuant to Section 5 below, as the context requires.
"Indemnifying Party" means any party required to provide
indemnification pursuant to Section 5 below, as the context requires.
"Insurance Agreement" means the Insurance Agreement, dated as October
1, 1996, by and among the Insurer, Prudential Securities Secured Financing
Corporation, as Depositor, Irwin Home Equity Corporation, as Servicer,
Irwin Union Bank and Trust Company, as IUB, IHE Funding Corp., as Seller,
and The Chase Manhattan Bank, as Trustee.
"Insurer Party" means the Insurer and its respective parents,
subsidiaries and affiliates and any shareholder, director, officer,
employee, agent or any "controlling person" (as such term is used in the
Act) of any of the foregoing.
"Losses" means (i) any actual out-of-pocket loss paid by the party
entitled to indemnification or contribution hereunder, and (ii) any actual
<PAGE>
out-of-pocket costs and expenses paid by such party, including reasonable
fees and expenses of its counsel, to the extent not paid, satisfied or
reimbursed from funds provided by any other Person (provided that the
foregoing shall not create or imply any obligation to pursue recourse
against any such other Person).
"Offered Certificates" means the Class A Certificates issued pursuant
to the Pooling and Servicing Agreement.
"Person" means any individual, partnership, joint venture,
corporation, trust or unincorporated organization or any government or
agency or political subdivision thereof.
"Pooling and Servicing Agreement" means the Pooling and Servicing
Agreement dated as of October 1, 1996 by and among the Depositor, the
Servicer and the Trustee.
"Prospectus Supplement" means the form of final Prospectus Supplement
dated October 9, 1996 and filed with the Securities and Exchange Commission
pursuant to Rule 424(b) of the Securities Act of 1933, as amended.
"Registration Statement" means the registration statement on Form S-3
relating to the Offered Certificates.
"State Securities Law" means any state, local or foreign statute, and
any rule or regulation thereunder, regulating (i) transactions and dealings
in securities, (ii) any Person or entity engaging in such transactions or
advising with respect to securities or (iii) investment companies.
"Underwriter Party" means the Underwriter and its parents,
subsidiaries and affiliates and any shareholder, director, officer,
employee, agent or "controlling person" (as such term is used in the Act)
of any of the foregoing.
"Underwriting Agreement" means the Underwriting Agreement by and
between the Prudential Securities Secured Financing Corporation and the
Underwriter with respect to the offer and sale of the Class A Certificates,
as the same may be amended from time to time.
Section 2. REPRESENTATIONS AND WARRANTIES OF THE INSURER.Section 2.
Representations and Warranties of the Insurer. The Insurer represents and
warrants to the Underwriter and the Company as follows:
(a) Organization and Licensing. The Insurer is a duly incorporated and
existing New York stock insurance company licensed to do business in the
State of New York.
(b) Corporate Power. The Insurer has the corporate power and authority
to issue the Policies and to execute and deliver this Agreement and the
Insurance Agreement and to perform all of its obligations hereunder and
thereunder.
(c) Authorization; Approvals. The issuance of the Policies and the
execution, delivery and performance of this Agreement and the Insurance
Agreement have been duly authorized by all necessary corporate proceedings.
No further approvals or filings of any kind, including, without limitation,
any further approvals of or further filing with any governmental agency or
other governmental authority, or any approval of the Insurer's board of
2
<PAGE>
directors or stockholders, are necessary for the Policies, this Agreement
and the Insurance Agreement to constitute the legal, valid and binding
obligations of the Insurer.
(d) Enforceability. The Policies, when issued, this Agreement and the
Insurance Agreement will constitute the legal, valid and binding
obligations of the Insurer, enforceable in accordance with their terms,
subject to applicable laws affecting the enforceability of creditors'
rights generally.
(e) Financial Information. The consolidated financial statements of
the Insurer as of December 31, 1995 and December 31, 1994 and for the three
years ended December 31, 1995 incorporated by reference in the Prospectus
Supplement (the "Insurer Audited Financial Statements"), fairly present in
all material respects the financial condition of the Insurer as of such
date and for the period covered by such statements in accordance with
generally accepted accounting principles consistently applied. The
consolidated financial statements of the Insurer and its subsidiaries for
the six months ended June 30, 1996 incorporated by reference in the
Prospectus Supplement (the "Insurer Unaudited Financial Statements")
present fairly in all material respects the financial condition of the
Insurer as of such date and for the period covered by such statements in
accordance with generally accepted accounting principles applied in a
manner consistent with the accounting principles used in preparing the
Insurer Audited Financial Statements, and, since June 30, 1996 there has
been no material change in such financial condition of the Insurer which
would materially and adversely affect its ability to perform its
obligations under the Policy.
(f) Insurer Information. The information in the Prospectus Supplement
under the caption "THE CERTIFICATE INSURANCE POLICIES AND THE CERTIFICATE
INSURER" (together with the Insurer Audited Financial Statements and the
Insurer Unaudited Financial Statements, the "Insurer Information") is true
and correct in all material respects as of the date thereof and hereof, and
does not contain any untrue statement of a fact that is material to the
Insurer's ability to perform its obligations under this Agreement, the
Policies or the Insurance Agreement.
(g) No Litigation. There are no actions, suits, proceedings or
investigations pending or, to the best of the Insurer's knowledge,
threatened against it at law or in equity or before or by any court,
governmental agency, board or commission or any arbitrator which, if
decided adversely, would materially and adversely affect its condition
(financial or otherwise) or operations or would materially and adversely
affect its ability to perform its obligations under this Agreement, the
Policies or the Insurance Agreement.
Section 3. AGREEMENTS, REPRESENTATIONS AND WARRANTIES OF THE
UNDERWRITER.Section 3. Agreements, Representations and Warranties of the
Underwriter. The Underwriter represents and warrants to and agrees with the
Insurer that the statements in the Prospectus Supplement made in reliance upon
and in conformity with written information relating to the Underwriter furnished
to the Company specifically for use in the preparation of the Prospectus
Supplement (referred to herein as the "Underwriter Information") are true and
correct in all material respects.
3
<PAGE>
Section 4. AGREEMENTS, REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.Section 4. Agreements, Representations and Warranties of the Company.
The Company represents and warrants to and agree with the Insurer and the
Underwriter as follows:
(a) Registration Statement. The information in the Registration
Statement, other than the Insurer Information, is true and correct in all
material respects and does not contain any untrue statement of a material
fact or omit to state a fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(b) Organization. The Company is duly incorporated and existing under
the laws of the state of its incorporation and is in good standing as a
foreign corporation in each jurisdiction in which the nature of its
business, or the properties owned or leased by it, makes such qualification
necessary.
(c) Corporate Power. The Company has the corporate power and authority
to execute and deliver this Agreement, the Pooling and Servicing Agreement
and the Insurance Agreement and to perform all of its obligations hereunder
and thereunder.
(d) Authorization; Approvals. The execution, delivery and performance
of this Agreement, the Pooling and Servicing Agreement and the Insurance
Agreement by the Company have been duly authorized by all necessary
corporate proceedings. No further approvals or filings of any kind,
including, without limitation, any further approvals of or further filing
with any governmental agency or other governmental authority, or any
approval of the Company's board of directors or stockholders, are necessary
for this Agreement, the Underwriting Agreement, the Pooling and Servicing
Agreement and the Insurance Agreement to constitute the legal, valid and
binding obligations of the Company.
(e) Enforceability. This Agreement, the Pooling and Servicing
Agreement, and the Insurance Agreement will each constitute a legal, valid
and binding obligation of the Company, enforceable in accordance with its
terms, subject, as to the enforcement of remedies, to bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
enforceability of creditors' rights generally applicable in the event of
the bankruptcy, insolvency or reorganization of the Company and to general
principles of equity.
(f) No Litigation. Except as disclosed in the Prospectus Supplement,
there are no other actions, suits, proceedings or investigations pending
or, to the best of the Company's knowledge, threatened against the Company
at law or in equity or before any court, governmental agency, board or
commission or any arbitrator which could be reasonably expected to
materially and adversely affect the Company's (i) condition (financial or
otherwise) or operations or (ii) ability to perform its respective
obligations under this Agreement, the Pooling and Servicing Agreement or
the Insurance Agreement.
(g) Compliance With Usury Laws. The Company is not in violation of,
and will not violate, any federal or state laws, rules or regulations
relating to the maximum amount of interest permitted to be received on
account of any loan of money with respect to the Mortgage Loans.
4
<PAGE>
Section 5. INDEMNIFICATION.Section 5. Indemnification. (a) The Insurer
hereby agrees, upon the terms and subject to the conditions of this Agreement,
to indemnify, defend and hold harmless each Company Party and each Underwriter
Party against any and all Losses incurred by them with respect to the offer and
sale of any of the Offered Certificates and resulting from the Insurer's breach
of any of its representations and warranties set forth in Section 2 of this
Agreement.
(b) The Underwriter hereby agrees, upon the terms and subject to the
conditions of this Agreement, to indemnify, defend and hold harmless each
Insurer Party against any and all Losses incurred by it with respect to the
offer and sale of any of the Offered Certificates and resulting from the
Underwriter's breach of any of its representations and warranties set forth in
Section 3 of this Agreement.
(c) The Company hereby agrees, upon the terms and subject to the conditions
of this Agreement, to indemnify, defend and hold harmless each Insurer Party
against any and all Losses incurred by it with respect to the offer and sale of
any of the Offered Certificates and resulting from the breach by the Company of
any of the representations and warranties set forth in Section 4 of this
Agreement.
(d) Upon the incurrence of any Losses entitled to indemnification
hereunder, the Indemnifying Party shall reimburse the Indemnified Party promptly
upon establishment by the Indemnified Party to the Indemnifying Party of the
Losses incurred.
Section 6. INSURER UNDERTAKING.Section 6. Insurer Undertaking. The Insurer
hereby agrees that, for so long as the Underwriter is required under the Act to
deliver a prospectus in connection with the sale of any of the Offered
Certificates, the Insurer will furnish to either the Underwriter or the Company,
or both, upon written request of such party or parties and at the expense of the
Company, copies of the Insurer's most recent financial statements (annual or
interim, as the case may be) prepared in accordance with generally accepted
accounting principles (subject, as to interim statements, to normal year-end
adjustments) within a reasonable time after they are available.
Section 7. NOTICE TO BE GIVEN INSURER.Section 7. Notice To Be Given
Insurer. Except as provided in Section 10 below with respect to contribution,
the indemnification provided herein by the Insurer shall be the exclusive remedy
of each Underwriter Party or Company Party for the Losses resulting from the
Insurer's breach of a representation, warranty or agreement hereunder; provided,
however, that each Underwriter Party or Company Party shall be entitled to
pursue any other remedy at law or in equity for any such breach so long as the
damages sought to be recovered shall not exceed the Losses incurred thereby
resulting from such breach. In the event that any action or regulatory
proceeding shall be commenced or claim asserted which may entitle each
Underwriter Party or Company Party to be indemnified under this Agreement, such
party shall give the Insurer written or telegraphic notice of such action or
claim reasonably promptly after receipt of written notice thereof. The Insurer
shall be entitled to participate in the defense of any such action or claim in
reasonable cooperation with, and with the reasonable cooperation of, each
Company Party or each Underwriter Party, as the case may be. The Indemnified
Party will have the right to employ its own counsel in any such action in
addition to counsel for the Insurer, but the fees and expenses of such counsel
will be at the expense of such Indemnified Party unless (1) the employment of
counsel by the Indemnified Party at the Insurer's expense has been authorized in
writing by the Insurer, (2) the Insurer has not in fact employed counsel to
5
<PAGE>
assume the defense of such action within a reasonable time after receiving
notice of the commencement of the action or (3) the named parties to any such
action include the Insurer on the one hand and, on the other hand, the
Indemnified Party, and such Indemnified Party shall have been advised by counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the Insurer (in which case, if such
Indemnified Party notifies the Insurer in writing that it elects to employ
separate counsel at the expense of the Insurer, the Insurer shall not have the
right to assume the defense of such action or proceeding on such Indemnified
Party's behalf), in each of which cases the reasonable fees and expenses of
counsel (including local counsel) will be at the expense of the Insurer, and all
such fees and expenses will be reimbursed promptly as they are incurred but, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, the Insurer shall not be liable for the fees and expenses of more
than one counsel for all Company Parties and more than one counsel for all
Underwriter Parties. The Underwriter Parties and Company Parties shall cooperate
with the Insurer Parties in resolving any event which would give rise to an
indemnity obligation pursuant to Section 5(a) hereof in the most efficient
manner. No settlement of any such claim or action shall be entered into without
the consent of each Company Party or each Underwriter Party, as the case may be,
who is subject to such claim or action, on the one hand, and each Insurer Party
who is subject to such claim or action, on the other hand; provided, however,
that the consent of such Company Party or such Underwriter Party, as applicable,
shall not be required if such settlement fully discharges, with prejudice
against the plaintiff, the claim or action against such Company Party or
Underwriter Party. Any failure by an Company Party or Underwriter Party, as the
case may be, to comply with the provisions of this Section shall relieve the
Insurer of liability only if such failure is materially prejudicial to any legal
pleadings, grounds, defenses or remedies in respect thereof or the Insurer's
financial liability hereunder, and then only to the extent of such prejudice.
Section 8. NOTICE TO BE GIVEN TO THE UNDERWRITER.Section 8. Notice To
Be Given to the Underwriter. Except as provided below in Section 10 with respect
to contribution, the indemnification provided herein by the Underwriter shall be
the exclusive remedy of any Insurer Party for the Losses resulting from any
Underwriter's breach of a representation, warranty or agreement hereunder;
provided, however, that each Insurer Party shall be entitled to pursue any other
remedy at law or in equity for any such breach so long as the damages sought to
be recovered shall not exceed the Losses incurred thereby resulting from such
breach. In the event that any action or regulatory proceeding shall be commenced
or claim asserted which may entitle each Insurer Party to be indemnified under
this Agreement, such party shall give the Underwriter written or telegraphic
notice of such action or claim reasonably promptly after receipt of written
notice thereof. The Underwriter shall be entitled to participate in the defense
of any such action or claim in reasonable cooperation with, and with the
reasonable cooperation of, the Insurer Party. The Indemnified Party will have
the right to employ its own counsel in any such action in addition to counsel
for the Underwriter, but the fees and expenses of such counsel will be at the
expense of such Indemnified Party unless (1) the employment of counsel by the
Indemnified Party at its expense has been authorized in writing by the
Underwriter, (2) the Underwriter has not in fact employed counsel to assume the
defense of such action within a reasonable time after receiving notice of the
commencement of the action or (3) the named parties to any such action include
the Underwriter on the one hand and, on the other hand, the Indemnified Party,
and such Indemnified Party shall have been advised by counsel that there may be
one or more legal defenses available to it which are different from or
additional to those available to the Underwriter (in which case, if such
6
<PAGE>
Indemnified Party notifies the Underwriter in writing that it elects to employ
separate counsel at the expense of the Underwriter, the Underwriter shall not
have the right to assume the defense of such action or proceeding on such
Indemnified Party's behalf), in each of which cases the reasonable fees and
expenses of counsel will be at the expense of the Underwriter, and all such fees
and expenses will be reimbursed promptly as they are incurred but, in connection
with any one action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, the Underwriter shall not be liable for the fees and expenses of
more than one counsel for all Insurer Parties. The Insurer Party shall cooperate
with each Underwriter Party and each Company Party in resolving any event which
would give rise to an indemnification obligation pursuant to Section 5(b) hereof
in the most efficient manner. No settlement of any such claim or action shall be
entered into without the consent of the Insurer Party who is subject to such
claim or action, on the one hand, and each Underwriter Party who is subject to
such claim or action, on the other hand; provided, however, that the consent of
such Insurer Party shall not be required if such settlement fully discharges,
with prejudice against the plaintiff, the claim or action against such Insurer
Party. Any failure by an Insurer Party to comply with the provisions of this
Section shall relieve the Underwriter of liability only if such failure is
materially prejudicial to any legal pleadings, grounds, defenses or remedies in
respect thereof or the Underwriter's liability hereunder, and then only to the
extent of such prejudice.
Section 9. NOTICE TO BE GIVEN THE COMPANY.Section 9. Notice To Be Given the
Company. Except as provided below in Section 10 with respect to contribution,
the indemnification provided herein by the Company shall be the exclusive remedy
of any Insurer Party for the Losses resulting from the Company's breach of a
representation, warranty or agreement hereunder; provided, however, that the
Insurer Party shall be entitled to pursue any other remedy at law or in equity
for any such breach so long as the damages sought to be recovered shall not
exceed the Losses incurred thereby resulting from such breach. In the event that
any action or regulatory proceeding shall be commenced or claim asserted which
may entitle an Insurer Party to be indemnified under this Agreement, such party
shall give the Company written or telegraphic notice of such action or claim
reasonably promptly after receipt of written notice thereof. The Company shall
be entitled to participate in the defense of any such action or claim in
reasonable cooperation with, and with the reasonable cooperation of, each
Insurer Party. The Indemnified Party will have the right to employ its own
counsel in any such action in addition to counsel for the Company, but the fees
and expenses of such counsel will be at the expense of such Indemnified Party
unless (1) the employment of counsel by the Indemnified Party at its expense has
been authorized in writing by the Company, (2) the Company has not in fact
employed counsel to assume the defense of such action within a reasonable time
after receiving notice of the commencement of the action or (3) the named
parties to any such action include the Company, on the one hand, and, on the
other hand, the Indemnified Party, and such Indemnified Party shall have been
advised by counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to the Company (in
which case, if such Indemnified Party notifies the Company in writing that it
elects to employ separate counsel at the expense of the Company, the Company
shall not have the right to assume the defense of such action or proceeding on
such Indemnified Party's behalf), in which case the reasonable fees and expenses
of counsel will be at the expense of the Company, and all such fees and expenses
will be reimbursed promptly as they are incurred but, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, the
Company shall not be liable for the fees and expenses of more than one counsel
for all Insurer Parties. Each Insurer Party shall cooperate with each Company
Party and each Underwriter Party in resolving any event which would give rise to
7
<PAGE>
an indemnification obligation pursuant to Section 5(c) hereof in the most
efficient manner. No settlement of any such claim or action shall be entered
into without the consent of each Insurer Party who is subject to such claim or
action, on the one hand, and the Company Party, on the other hand; provided,
however, that the consent of such Insurer Party shall not be required if such
settlement either: (i) fully discharges, with prejudice against the plaintiff,
the claim or action against such Insurer Party, or (ii) partially discharges,
with prejudice against the plaintiff, a portion of the claim or action against
such Insurer Party, in which case the Company shall remain fully liable for the
undischarged portion of such claim or action to the extent of its liability
under this Agreement and in accordance with the provisions of this Agreement.
Any failure by an Insurer Party to comply with the provisions of this Section
shall relieve the Company of liability only if such failure is materially
prejudicial to any legal pleadings, grounds, defenses or remedies in respect
thereof or the Company's liability hereunder, and then only to the extent of
such prejudice.
Section 10. CONTRIBUTION.Section 10. Contribution. (a) To provide for just
and equitable contribution if the indemnification provided by the Insurer is
determined to be unavailable for any Underwriter Party or Company Party (other
than by reason of failure to comply with to Section 5 or 7 of this Agreement),
the Insurer shall contribute to the compensation for Losses arising from any
breach of a representation or warranty set forth in this Agreement on the basis
of the relative fault of and relative benefit to all Underwriter Parties, all
Company Parties and all Insurer Parties, respectively.
(b) To provide for just and equitable contribution if the indemnification
provided by the Company is determined to be unavailable for any Insurer Party
(other than by reason of failure to comply with Section 5 or 9 of this
Agreement), the Company agrees to contribute to the compensation for Losses
arising from any breach of a representation or warranty set forth in this
Agreement on the basis of the relative fault of and relative benefit to all
Underwriter Parties, all Company Parties and all Insurer Parties, respectively.
(c) To provide for just and equitable contribution if the indemnification
provided by the Underwriter is determined to be unavailable for any Insurer
Party (other than by reason of failure to comply with Section 5 or 8 of this
Agreement), the Underwriter shall contribute to compensation for Losses arising
from any breach of a representation or warranty set forth in this Agreement on
the basis of the relative fault of and relative benefit to all Underwriter
Parties, all Company Parties and all Insurer Parties.
(d) The relative fault of each Indemnifying Party, on the one hand, and of
each Indemnified Party, on the other hand, shall be determined by reference to,
among other things, whether the breach of, or alleged breach of, any of its
representations and warranties set forth in Section 2, 3 or 4 of this Agreement
relates to information supplied by, or action within the control of, the
Indemnifying Party or the Indemnified Party and the Parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
breach.
(e) Relative benefit with respect to the Underwriter and the Company shall
be deemed to be in the same proportions as the net proceeds from the offering of
the Offered Certificates (before deducting expenses) received by the Company and
the total underwriting discounts and commissions received by the Underwriter, in
each case as set forth on the cover of the Prospectus Supplement as amended or
8
<PAGE>
supplemented bear to the initial aggregate public offering price as set forth
thereon. Relative benefit of the Insurer shall be determined by reference to the
aggregate Premium (as defined in the Insurance Agreement) paid to the Insurer.
(f) No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
(g) The indemnity and contribution agreements contained in this Agreement
shall remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter Party, any Company Party
or any Insurer Party, (ii) the issuance of any Offered Certificates or the
Policies or (iii) any termination of this Agreement.
(h) Upon the incurrence of any Losses entitled to contribution hereunder,
the contributor shall reimburse the party entitled to contribution promptly upon
establishment by the party entitled to contribution to the contributor of the
Losses incurred.
Section 11. NOTICES.Section 11. Notices. All notices and other
communications provided for under this Agreement shall be addressed to the
address set forth below as to each party or at such other address as shall be
designated by a party in a written notice to the other party.
If to the Insurer: MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
Attention: General Counsel
If to the Company: Irwin Home Equity Corporation
12677 Alcosta Blvd., Suite 500
San Ramon, CA 945893
Attention: Edwin Corbin
If to the Underwriter: Prudential Securities Incorporated
One New York Plaza, 15th Floor
New York, NY 10292
Attention: John Herbert
Section 12. Governing Law, Etc. This Agreement shall be deemed to be a
contract under the laws of the State of New York and shall be governed by and
construed in accordance with the laws of the State of New York without regard to
its conflicts of laws provisions. This Agreement may not be assigned by any
party without the express written consent of each other party. Amendments of
this Agreement shall be in writing signed by each party. This Agreement shall
not be effective until executed by each of the Insurer, the Company and the
Underwriter.
Section 13. Insurance Agreement; Pooling and Servicing Agreement. This
Agreement in no way limits or otherwise affects the indemnification obligations
of the Company under (a) the Insurance Agreement or (b) the Pooling and
Servicing Agreement.
9
<PAGE>
Section 14. Limitations. Nothing in this Agreement shall be construed as a
representation or undertaking by the Insurer concerning maintenance of the
rating currently assigned to its claims-paying ability by Moody's Investors
Service, Inc. ("Moody's") and/or Standard & Poor's Ratings Group ("S&P") or any
other rating agency.
Section 15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall together constitute but one and the same
instrument.
10
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized, all as of the date first above written.
MBIA INSURANCE CORPORATION
By /s/ Lisa A. Wilson
---------------------------
Title Assistant Secretary
-----------------------
IRWIN HOME EQUITY CORPORATION
By /s/ Matthew F. Souza
` ----------------------------
Title Secretary
------------------------
PRUDENTIAL SECURITIES INCORPORATED
By /s/ Brendan Keane
----------------------------
Title Vice President
------------------------
EXHIBIT 4.4
CERTIFICATE GUARANTY INSURANCE POLICY
OBLIGATIONS: $76,000,000 POLICY NUMBER 22190
Irwin Home Equity Corporation Trust 1996-1
Mortgage Pass-Through Certificates
Class A-1
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 by The Chase Manhattan Bank or its successors, as trustee for the
Owners (the "Trustee"), on behalf of the Owners from the Insurer, 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 any 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, any REMIC
established by the Trust 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 if reasonably required by the Insurer, irrevocably assigning to the Insurer
all rights and claims of the Owners 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.
<PAGE>
The Insurer will pay any other amount payable hereunder no later than 12:00
noon, New York City time, on the later of (i) the Remittance Date on which the
Class A-1 Distribution Amount is due or (ii) the second 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
distributed 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 October
1, 1996 among Prudential Securities Secured Financing Corporation, as Depositor,
Irwin Home Equity Corporation, as Servicer, 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 banking institutions located in the states of New York, Illinois or
California 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.
"Class A-1 Distribution Amount" shall mean, for any Remittance Date, the
amount distributed to the Holders of the Class A-1 Certificates on such
Remittance Date pursuant to Sections 6.5(a)(iii) and (iv) of the Agreement,
which amount shall be the lesser of (a) the Class A-1 Formula Distribution
Amount for such Remittance Date and (b) the amount (including any applicable
portion of any Insured Payment) available for distribution on account of the
Class A-1 Certificates for such Remittance Date.
"Deficiency Amount" means, for any Remittance Date, the excess of the Class
A-1 Credit Enhancement Distribution Amount over the amount then on deposit in
2
<PAGE>
and available to be withdrawn from the Reserve Account (including amounts
available to be drawn on a letter of credit).
"Insured Payment" means (i) as of any Remittance 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 Remittance Date.
"Owner" means each Holder (as defined in the Agreement) who, on the
applicable Remittance 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 15th Floor, 61 Broadway, 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.
This Policy is being issued under and pursuant to, and shall be construed
under, the laws of the State of New York, without giving effect to the conflict
of laws principles 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.
3
<PAGE>
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.
IN WITNESS WHEREOF, the Insurer has caused this Policy to be executed and
attested this 15th day of October, 1996.
MBIA INSURANCE CORPORATION
By: /s/ Richard Weill
-----------------------------
President
Attest:
By: /s/ Lisa A. Wilson
-----------------------------
Assistant Secretary
4
<PAGE>
EXHIBIT A
TO CERTIFICATE GUARANTY INSURANCE POLICY
NUMBER: 22190
NOTICE UNDER CERTIFICATE GUARANTY
INSURANCE POLICY NUMBER: 22190
State Street Bank and Trust Company, N.A., as Fiscal Agent
for MBIA Insurance Corporation
15th Floor,
61 Broadway
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 [ ], as trustee
for the Owners (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:
22190 (the "Policy") issued by the Insurer in respect of the $76,000,000 Irwin
Home Equity Corporation Trust, 1996-1 Mortgage Pass- Through Certificates,
Series 1996-1 Class A-1 (the "Obligations"), that:
(i) the Trustee is the trustee under the Pooling and Servicing
Agreement dated as of October 1, 1996 (the "Agreement"), among Prudential
Securities Secured Financing Corporation, as Depositor, Irwin Home Equity
Corporation, as Servicer and The Chase Manhattan Bank, as trustee for the
Owners;
(ii) the Deficiency Amount for the Remittance Date occurring on
[ ] (the "Applicable Remittance Date") is $ ;
(iii) the amount of any Preference which remains unpaid is $
(the "Applicable Preference Amount");
(iv) the sum of the amounts listed in clauses (ii) and (iii) is $ ;
(v) the Trustee is making a claim under and pursuant to the terms of
the Policy for an Insured Payment to be applied to the payment of (iv)
above for the Applicable Remittance Date in accordance with the Agreement;
<PAGE>
(iv) 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:
[CERTIFICATE ACCOUNT].
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 Stated 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]
By: ___________________________
Title: ________________________
2
EXHIBIT 4.5
CERTIFICATE GUARANTY INSURANCE POLICY
OBLIGATIONS: $64,000,000 POLICY NUMBER 22191
Irwin Home Equity Corporation Trust 1996-1
Mortgage Pass-Through Certificates
Class A-2 and Class A-3
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 by The Chase Manhattan Bank or its successors, as trustee for the
Owners (the "Trustee"), on behalf of the Owners from the Insurer, 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 any 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, any REMIC
established by the Trust 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 if reasonably required by the Insurer, irrevocably assigning to the Insurer
all rights and claims of the Owners 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.
<PAGE>
The Insurer will pay any other amount payable hereunder no later than 12:00
noon, New York City time, on the later of (i) the Remittance Date on which the
Class A-1 Distribution Amount is due or (ii) the second 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
distributed 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 October
1, 1996 among Prudential Securities Secured Financing Corporation, as Depositor,
Irwin Home Equity Corporation, as Servicer, 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 banking institutions located in the states of New York, Illinois or
California 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.
"Group II Distribution Amount" shall mean, for any Remittance Date, the
amount distributed to the Holders of the Class A-2 Certificates and the Class
A-3 Certificates on such Remittance Date pursuant to Sections 6.5(a)(iii) and
(iv) of the Agreement, which amount shall be the lesser of (a) the Group II
Formula Distribution Amount for such Remittance Date and (b) the amount
(including any applicable portion of any Insured Payment) available for
distribution on account of the Group II Certificates for such Remittance Date.
"Deficiency Amount" means, for any Remittance Date, the excess of the Group
II Credit Enhancement Distribution Amount over the amount then on deposit in and
2
<PAGE>
available to be withdrawn from the Reserve Account (including amounts available
to be drawn on a letter of credit).
"Insured Payment" means (i) as of any Remittance 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 Remittance Date.
"Owner" means each Holder (as defined in the Agreement) who, on the
applicable Remittance 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 15th Floor, 61 Broadway, 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.
This Policy is being issued under and pursuant to, and shall be construed
under, the laws of the State of New York, without giving effect to the conflict
of laws principles 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.
3
<PAGE>
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.
IN WITNESS WHEREOF, the Insurer has caused this Policy to be executed and
attested this 15th day of October, 1996.
MBIA INSURANCE CORPORATION
By: /s/ Richard Weill
-------------------------
President
Attest:
By: /s/ Lisa A. Wilson
-------------------------
Assistant Secretary
4
<PAGE>
EXHIBIT A
TO CERTIFICATE GUARANTY INSURANCE POLICY
NUMBER: 22191
NOTICE UNDER CERTIFICATE GUARANTY
INSURANCE POLICY NUMBER: 22191
State Street Bank and Trust Company, N.A., as Fiscal Agent
for MBIA Insurance Corporation
15th Floor,
61 Broadway
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 [ ], as trustee
for the Owners (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:
22191 (the "Policy") issued by the Insurer in respect of the $64,000,000 Irwin
Home Equity Corporation Trust, 1996-1 Mortgage Pass- Through Certificates,
Series 1996-1 Class A-2 and Class A-3 (the "Obligations"), that:
(i) the Trustee is the trustee under the Pooling and Servicing
Agreement dated as of October 1, 1996 (the "Agreement"), among Prudential
Securities Secured Financing Corporation, as Depositor, Irwin Home Equity
Corporation, as Servicer and The Chase Manhattan Bank, as trustee for the
Owners;
(ii) the Deficiency Amount for the Remittance Date occurring on
[ ] (the "Applicable Remittance Date") is $ ;
(iii) the amount of any Preference which remains unpaid is $
(the "Applicable Preference Amount");
(iv) the sum of the amounts listed in clauses (ii) and (iii) is $ ;
(v) the Trustee is making a claim under and pursuant to the terms of
the Policy for an Insured Payment to be applied to the payment of (iv)
above for the Applicable Remittance Date in accordance with the Agreement;
<PAGE>
(iv) 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:
[CERTIFICATE ACCOUNT].
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 Stated 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]
By: ____________________________
Title: _________________________
2
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus Supplement of our
report dated January 22, 1996, on our audits of the consolidated financial
statements of MBIA Insurance Corporation and Subsidiaries as of December 31,
1995 and 1994 and for the three years ended December 31, 1995.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
October 15, 1996
New York, New York
