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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): November 25, 1997
Chevy Chase Bank, F.S.B. (as Transferor and Servicer under a
Pooling and Servicing Agreement providing for the issuance of Capitol Revolving
Home Equity Loan Asset Backed Certificates, Series 1997-1)
Chevy Chase Bank, F.S.B.
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(Exact Name of Registrant as Specified in Charter)
United States of America 333-33733 52-0897004
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(State or Other Jurisdiction (Commission File (I.R.S. Employer
of Incorporation) Number) Identification Number)
c/o Stephen R. Halpin, Jr., 8401 Connecticut Avenue, Chevy Chase, Maryland 20815
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code (301) 986-7000
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(Former Name or Former Address, if Changed Since Last Report)
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Exhibit List is located on page 4
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Item 5. Other Events
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Chevy Chase Bank, F.S.B. ("Chevy Chase"), as transferor (the "Transferor")
and as servicer (the "Servicer") registered issuances of up to $700,000,000
principal amount of asset-backed certificates on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Act"),
by a Registration Statement on Form S-3 (Registration File No. 333-33733) (as
amended, the "Registration Statement"). Pursuant to the Registration Statement,
the Transferor caused Capitol Revolving Home Equity Loan Trust 1997-1 to issue
$178,024,000 principal amount of Capitol Revolving Home Equity Loan Asset Backed
Certificates, Series 1997-1 (the "Certificates") on November 25, 1997 (the
"Closing Date").
The Certificates were issued pursuant to a pooling and servicing agreement
(the "Pooling and Servicing Agreement"), dated as of November 1, 1997 (the
"Initial Cut-Off Date"), among Chevy Chase Bank, F.S.B. ("Chevy Chase"), as
Transferor and as Servicer and U.S. Bank National Association, as trustee (the
"Trustee") and custodial agent (the "Custodial Agent").
This Current Report on Form 8-K is being filed to file a copy of (i) the
Pooling and Servicing Agreement, (ii) the Underwriting Agreement entered into
among Chevy Chase, Smith Barney Inc. and Credit Suisse First Boston Corporation,
and (iii) the Certificate Insurance Policy issued by Ambac Assurance
Corporation.
Capitalized terms used but not defined herein have the meanings assigned to
such terms in the Pooling and Servicing Agreement attached hereto as Exhibit
4.2.
2
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(a) Not applicable
(b) Not applicable
(c) Exhibits
1.1 Underwriting Agreement dated November 20, 1997 among Chevy
Chase, Smith Barney Inc. and Credit Suisse First Boston Corporation.
4.2 Pooling and Servicing Agreement dated as of November 1, 1997
among the Transferor, the Servicer, the Trustee and the Custodial Agent.
4.4 Certificate Insurance Policy issued by Ambac Assurance
Corporation.
3
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EXHIBIT INDEX
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Exhibit No. Description
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1.1 Underwriting Agreement dated November 20, 1997 among Chevy Chase,
Smith Barney Inc. and Credit Suisse First Boston Corporation.
4.1 Pooling and Servicing Agreement dated as of November 1, 1997 among the
Transferor, the Servicer, the Trustee and the Custodial Agent.
4.4 Certificate Insurance Policy issued by Ambac Assurance Corporation.
4
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SIGNATURES
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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.
CAPITOL REVOLVING HOME EQUITY LOAN TRUST
1997-1
By: Chevy Chase Bank, F.S.B., as Transferor and Servicer
By: /s/ Stephen R. Halpin, Jr.
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Stephen R. Halpin, Jr.
Executive Vice President
Date: December 4, 1997
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EXHIBIT 1.1
EXECUTION COPY
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$178,024,000
CHEVY CHASE BANK, F.S.B.
Capitol Revolving Home Equity Loan Asset Backed Certificates,
Series 1997-1, Investor Certificates
UNDERWRITING AGREEMENT
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November 20, 1997
SMITH BARNEY INC.
390 Greenwich Street
New York, New York 10013
CREDIT SUISSE FIRST BOSTON CORPORATION
Eleven Madison Avenue
New York, New York 10010
Dear Sirs:
1. Introduction. Chevy Chase Bank, F.S.B., a federally chartered stock
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savings bank ("Chevy Chase"), has authorized the issuance and sale of Capitol
Revolving Home Equity Loan Asset Backed Certificates, Series 1997-1, Investor
Certificates (the "Investor Certificates"), and of Capitol Revolving Home Equity
Loan Asset Backed Certificates, Series 1997-1, Transferor Certificates (the
"Transferor Certificates" and together with the Investor Certificates, the
"Certificates"), evidencing interests in the Capitol Revolving Home Equity Loan
Trust 1997-1 (the "Trust") consisting primarily of the Cut-Off Date Trust
Balances of a pool of revolving credit line home equity loans conveyed to the
Trust on the Closing Date (the "Initial Mortgage Loans") and, to the extent of
the availability thereof, the Cut-Off Date Trust Balances of such other
revolving credit line home equity loans to be conveyed to the Trust on or before
August 20,
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1998 (the "Subsequent Mortgage Loans") (the Subsequent Mortgage Loans and the
Initial Mortgage Loans and any substitutions therefor, collectively the
"Mortgage Loans" or the "Mortgage Loan Pool") and any additional balances
thereon ("Additional Balances" and together with the Cut-Off Date Trust
Balances, the "Trust Balances"). The Mortgage Loans are secured by first, second
or third deeds of trust or mortgages on one-to-four family residential
properties.
The Certificates will be issued under a pooling and servicing agreement
(the "Pooling and Servicing Agreement"), dated as of November 1, 1997 between
Chevy Chase, as transferor and servicer, and U.S. Bank National Association, as
trustee (the "Trustee") and custodial agent (the "Custodial Agent"). The
Certificates will evidence fractional undivided interests in the Mortgage Loan
Pool and certain other property held in trust for the holders of such
Certificates (collectively, the "Trust Fund"). The aggregate undivided interest
in the Trust Fund represented by the Investor Certificates will initially be
equal to $178,024,000 which is approximately 98% of (i) the Cut-Off Date Trust
Balances of the Initial Mortgage Loans and (ii) the Original Pre-Funded Amount.
The Trustee, on behalf of the holders of the Investor Certificates will have the
benefit of an irrevocable certificate guaranty insurance policy (the
"Certificate Insurance Policy") issued by Ambac Assurance Corporation (the
"Certificate Insurer") pursuant to an insurance and indemnity agreement dated as
of November 25, 1997 (the "Insurance Agreement") among the Certificate Insurer,
Chevy Chase, in its individual capacity and as Transferor and Servicer, and the
Trustee. The forms of the Pooling and Servicing Agreement and the Certificate
Insurance Policy will be filed on a timely basis as exhibits to the Registration
Statement (as such term is hereinafter defined).
The Investor Certificates are more fully described in a Registration
Statement which Chevy Chase has furnished to each of you (together the
"Underwriters," and each of you an "Underwriter"). Capitalized terms used but
not defined herein shall have the meanings given to them in the Pooling and
Servicing Agreement.
The offering of the Investor Certificates will be made by you, and Chevy
Chase understands that you propose to make a public offering of the Investor
Certificates as soon after the date hereof as you deem advisable.
2. Representations and Warranties of Chevy Chase. Chevy Chase represents
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and warrants to, and agrees with, each of the Underwriters that:
(a) Chevy Chase has filed with the Securities and Exchange Commission
(the "Commission") registration statements (Nos. 333-1682 and 333-33733) on Form
S-3, including a prospectus, relating to the Investor Certificates, which have
become effective. Such registration statements, as amended as of the date of
this Agreement, are hereinafter referred to as the "Registration Statement," and
the prospectus included in such Registration Statement, as supplemented by a
prospectus supplement (the "Prospectus Supplement") to reflect the terms of the
Investor Certificates as first filed with the Commission after the date of this
Agreement pursuant to and in accordance with Rule 424(b) ("Rule 424(b)") under
the Securities Act of 1933, as amended (the "1933 Act"), including all material
incorporated by reference therein, is hereinafter referred to as the
"Prospectus." A "preliminary prospectus" means any form of
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prospectus, including any prospectus supplement, relating to the Investor
Certificates used prior to the date of this Agreement that is subject to
completion.
(b) On the effective date of the Registration Statement, such
Registration Statement conformed in all material respects to the requirements of
the 1933 Act and the rules and regulations of the Commission thereunder (the
"Rules and Regulations") and did not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and on the date of this
Agreement the Registration Statement and the preliminary prospectus conform, and
at the time of the filing of the Prospectus in accordance with Rule 424(b), the
Registration Statement and the Prospectus will conform, in all respects to the
requirements of the 1933 Act and the Rules and Regulations, and neither of such
documents 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 (and with respect to the Prospectus, in the light of the
circumstances under which they were made) not misleading, except that the
foregoing does not apply to statements in or omissions from any of such
documents based upon written information furnished to Chevy Chase by any
Underwriter through Smith Barney Inc. as representative of the Underwriters (the
"Representative") specifically for use therein (it being understood that the
only such information is the Underwriter Information, as defined in Section
8(a)(i)).
(c) Chevy Chase meets the requirements for use of Form S-3 under the
Act.
(d) The documents incorporated by reference in the Registration
Statement and the Prospectus, at the time they were or hereafter are filed with
the Commission, complied and will comply in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder; provided,
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however that no representation or warranty is made with respect to any financial
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statements of the Certificate Insurer.
(e) Since the respective dates as of which information is given in
the Prospectus, or the Prospectus as amended and supplemented, there has not
been any material adverse change in the general affairs, management, or results
of operations of Chevy Chase or of its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus or the Prospectus as amended and supplemented,
nor has there been any adverse change in the general affairs, management, or
results of operations of any other affiliate of Chevy Chase which could have a
material adverse effect on the general affairs, management or results of
operations of Chevy Chase or its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus or the Prospectus as amended and supplemented.
(f) Chevy Chase is a federally chartered stock savings bank duly
organized and validly existing under the laws of the United States of America,
and has full corporate power, authority and legal right to own its properties
and conduct its business as such properties are presently owned and such
business is presently conducted, and to execute, deliver and perform its
obligations under this Agreement, the Pooling and Servicing Agreement, the
Insurance Agreement and the Custodial Agreement, dated the Closing Date (the
"Custodial Agreement")
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among Chevy Chase, the Trustee, the Custodial Agent and Norwest Bank Minnesota,
National Association, as Document Custodian, and to cause the Certificates to be
issued. Chevy Chase has conducted and is conducting its business so as to comply
in all material respects with all applicable statutes and all regulations,
including, without limitation, all regulations, decisions, directives and orders
of, as applicable, the Office of Thrift Supervision and the Federal Home Loan
Bank of Atlanta.
(g) Except as set forth in the Prospectus, or the prospectus as
amended and supplemented, (i) there are no legal, governmental or regulatory
proceedings pending to which Chevy Chase is a party or of which any of its
property is the subject, which, if determined adversely to Chevy Chase, would
individually or in the aggregate have a material adverse effect on the
performance by Chevy Chase of this Agreement, the Pooling and Servicing
Agreement, the Insurance Agreement or the Custodial Agreement or the
consummation of the transactions contemplated hereunder or thereunder and (ii)
to the best of its knowledge, no such proceedings are threatened or contemplated
by governmental or regulatory authorities or threatened by others.
(h) This Agreement has been duly authorized and validly executed and
delivered by Chevy Chase and constitutes a valid and binding agreement of Chevy
Chase, enforceable against Chevy Chase in accordance with its terms, except to
the extent that (i) the enforceability hereof may be subject to insolvency,
reorganization, moratorium, receivership, conservatorship, or other similar
laws, regulations or procedures of general applicability now or hereafter in
effect relating to or affecting creditors', or other obligees', rights generally
or the rights of creditors or obligees of federally chartered stock savings
banks, the deposits of which are insured by the Federal Deposit Insurance
Corporation (the "FDIC"), (ii) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought
and (iii) rights to indemnification and contribution under this Agreement may be
limited by state or federal securities laws or the policies underlying such
laws.
(i) The Pooling and Servicing Agreement, the Insurance Agreement and
the Custodial Agreement have been duly authorized and, when executed and
delivered by Chevy Chase and assuming the due authorization, execution and
delivery of the Pooling and Servicing Agreement, the Insurance Agreement and the
Custodial Agreement by the other parties thereto, will constitute valid and
binding obligations of Chevy Chase enforceable against Chevy Chase in accordance
with their respective terms, except to the extent that (i) the enforceability
thereof may be subject to insolvency, reorganization, moratorium, receivership,
conservatorship, or other similar laws, regulations or procedures of general
applicability now or hereafter in effect relating to or affecting creditors', or
obligees' rights generally or the rights of creditors' or obligees' of federally
chartered stock savings banks, the deposits of which are insured by the FDIC,
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought and (iii) rights
to indemnification and contribution under the Insurance Agreement may be limited
by state or federal securities laws or the policies underlying such laws.
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(j) The issuance and delivery of the Certificates, the consummation
of any other of the transactions contemplated herein, in the Pooling and
Servicing Agreement, in the Insurance Agreement, or in the Custodial Agreement,
or the fulfillment of the terms of this Agreement, the Pooling and Servicing
Agreement, the Insurance Agreement, or the Custodial Agreement do not and will
not conflict with or violate any term or provision of the Charter or By-Laws of
Chevy Chase, any statute, order or regulation applicable to Chevy Chase of any
court, regulatory body, administrative agency or governmental body having
jurisdiction over Chevy Chase and do not and will not conflict with, result in a
breach or violation or the acceleration of or constitute a default under or
result in the creation or imposition of any lien, charge or encumbrance upon any
of the property or assets of Chevy Chase pursuant to the terms of, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which Chevy Chase is a party or by which Chevy Chase may be bound
or to which any of the property or assets of Chevy Chase may be subject except
for conflicts, violations, breaches, accelerations and defaults which would not,
individually or in the aggregate, be materially adverse to Chevy Chase or
materially adverse to the transactions contemplated by this Agreement.
(k) Arthur Andersen LLP is an independent public accountant with
respect to Chevy Chase as required by the 1933 Act and the Rules and
Regulations.
(l) The direction by Chevy Chase to the Trustee to execute,
authenticate, issue and deliver the Certificates has been duly authorized by
Chevy Chase, and, assuming the Trustee has been duly authorized to do so, when
executed, authenticated, issued and delivered by the Trustee in accordance with
the Pooling and Servicing Agreement, the Certificates will be validly issued and
outstanding and will be entitled to the benefits of the Pooling and Servicing
Agreement.
(m) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States is required for the issuance and sale of the Investor Certificates, or
the consummation by Chevy Chase of the other transactions contemplated by this
Agreement, the Pooling and Servicing Agreement, the Insurance Agreement, or the
Custodial Agreement, except the registration under the 1933 Act of the Investor
Certificates and such consents, approvals, authorizations, registrations or
qualifications as may have been obtained or effected or as may be required under
securities or Blue Sky laws in connection with the purchase and distribution of
the Investor Certificates by you.
(n) Chevy Chase possesses all material licenses, certificates,
authorities or permits issued by the appropriate state, Federal or foreign
regulatory agencies or bodies necessary to conduct the business now conducted by
it and as described in the Prospectus and Chevy Chase has not received notice of
proceedings relating to the revocation or modification of any such license,
certificate, authority or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the conduct of its business, operations, financial condition or
income.
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(o) At the time of execution and delivery of the Pooling and
Servicing Agreement, with respect to the Initial Mortgage Loans, and as of the
applicable Transfer Date, with respect to the Subsequent Mortgage Loans, Chevy
Chase (i) will have good and marketable title to the Mortgage Loans being
transferred by it to the Trustee pursuant thereto, free and clear of any lien,
mortgage, pledge, charge, encumbrance, adverse claim or other security interest
(collectively, "Liens"), except for the transfers and encumbrances for the
benefit of the Prior Trusts, (ii) will not have assigned to any person any of
its right, title or interest in such Mortgage Loans (other than such Prior
Trusts) or in the Pooling and Servicing Agreement or the Investor Certificates
and (iii) will have the power and authority to sell such Mortgage Loans to the
Trustee and to sell the Investor Certificates to you, and upon execution and
delivery of the Pooling and Servicing Agreement by the Trustee, the Trustee will
have acquired beneficial ownership of all of Chevy Chase's right, title and
interest in and to the Mortgage Loans, except for the transfers and encumbrances
for the benefit of the Prior Trusts, and upon delivery to you of the Investor
Certificates you will have good and marketable title to the Investor
Certificates, in each case free of Liens.
(p) As of the Initial Cut-Off Date, each of the Initial Mortgage
Loans will meet the eligibility criteria described in the Prospectus and as of
the related Cut-Off Date for the Subsequent Mortgage Loans and any Eligible
Substitute Mortgage Loans, each of the Subsequent Mortgage Loans and Eligible
Substitute Mortgage Loans, as applicable, will meet the eligibility criteria
described in the Prospectus.
(q) The Trust Fund created by the Pooling and Servicing Agreement is
not, and immediately following the issuance and sale of the Investor
Certificates will not be, required to be registered as an "investment company"
under the Investment Company Act of 1940, as amended (the "1940 Act"), as in
effect on the date hereof.
(r) Each of the Investor Certificates, the Pooling and Servicing
Agreement, the Insurance Agreement and the Certificate Insurance Policy conforms
in all material respects to the descriptions thereof contained in the
Prospectus.
(s) Any taxes, fees and other governmental charges in connection with
the execution, delivery and issuance of this Agreement, the Pooling and
Servicing Agreement, the Insurance Agreement and the Certificates that are
required to be paid by Chevy Chase at or prior to the Closing Date have been
paid or will be paid at or prior to the Closing Date.
(t) As of the Closing Date, the representations and warranties of
Chevy Chase in the Pooling a nd Servicing Agreement and the Insurance Agreement
will be true and correct in all material respects.
Any certificate signed by an officer of Chevy Chase and delivered to you in
connection with an offering of the Investor Certificates shall be deemed, and
shall state that it is, a representation and warranty as to the matters covered
thereby to each person to whom the representations and warranties in this
Section 2 are made.
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3. Purchase and Sale. The Underwriters' commitment to purchase the
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Investor Certificates pursuant to this Agreement shall be deemed to have been
made on the basis of the representations and warranties herein contained and
shall be subject to the terms and conditions herein set forth. Chevy Chase
agrees to instruct the Trustee to issue and agrees to sell to the Underwriters,
and the Underwriters agree, severally and not jointly, to purchase from Chevy
Chase at a purchase price set forth on Schedule 1 hereto, the principal amount
of Investor Certificates set forth opposite your respective names on Schedule 1
hereto.
4. Delivery and Payment. Payment of the purchase price for, and delivery
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of, any Investor Certificates to be purchased by you shall be made at the office
of Shaw Pittman Potts & Trowbridge, 1675 Broadway, New York, New York 10019, or
at such other place as shall be agreed upon by you and Chevy Chase, at 10:00
a.m. New York City time on November 25, 1997 (the "Closing Date"), or at such
other time or date as shall be agreed upon in writing by you and Chevy Chase.
Payment shall be made to Chevy Chase by wire transfer of same day funds payable
to the account of Chevy Chase. Delivery of the Investor Certificates shall be
made to you for your account against payment of the purchase price thereof. Such
Investor Certificates shall be in such denominations and registered in such
names as you may request in writing at least one Business Day prior to the
Closing Date. For purposes of Rule 15c6-1 under the Exchange Act, the Closing
Date (if later than the otherwise applicable settlement date) shall be the
settlement date for payment of funds and delivery of the Investor Certificates.
Such Investor Certificates, which may be in temporary form, will be made
available for examination and packaging by you no later than 3:00 p.m. on the
Business Day prior to the Closing Date.
5. Covenants of Chevy Chase. Chevy Chase covenants with each of the
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Underwriters as follows:
(a) Chevy Chase will file the Prospectus with the Commission
pursuant to and in accordance with subparagraph (2) (or, if applicable and if
consented to by the Underwriters, subparagraph (5)) of Rule 424(b) not later
than the second Business Day following the execution and delivery of this
Agreement. Chevy Chase will advise the Underwriters promptly of any such filing
pursuant to Rule 424(b).
(b) If at any time when the Prospectus as amended or supplemented is
required by the 1933 Act to be delivered in connection with sales of the
Investor Certificates by you, any event shall occur or condition exist as a
result of which it is necessary, in the opinion of counsel for Chevy Chase, to
further amend or supplement the Prospectus as then amended or supplemented in
order that the Prospectus as amended or supplemented will not include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of circumstances existing at the time
it is delivered to a purchaser, not misleading or if it shall be necessary, in
the opinion of any such counsel, at any such time to amend or supplement the
Registration Statement or the Prospectus as then amended or supplemented in
order to comply with the requirements of the 1933 Act or the Rules and
Regulations thereunder, Chevy Chase will promptly prepare and, subject to the
other provisions of this Section 5, file with the Commission such amendment or
supplement as may be necessary
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to correct such untrue statement or omission or to make the Registration
Statement comply with such requirements, and within two Business Days will
furnish to you as many copies of the Prospectus, as amended or supplemented, as
you shall reasonably request.
(c) Chevy Chase will give you reasonable notice of its intention to
file any amendment to the Registration Statement, the Prospectus or the
Prospectus as amended or supplemented, pursuant to the 1933 Act, will furnish
you with copies of any such amendment or supplement proposed to be filed a
reasonable time in advance of filing, and will not file any such amendment or
supplement to which you shall object. Neither the consent of the Underwriters
(or their Representative) to, nor the delivery by the Representative of, any
such amendment or supplement shall constitute a waiver of any of the conditions
set forth in Section 6.
(d) Chevy Chase will notify you immediately, and confirm the notice
in writing, (i) of the effectiveness of any amendment to the Registration
Statement, (ii) of the mailing or the delivery to the Commission for filing of
any supplement to the Prospectus or the Prospectus as amended or supplemented,
(iii) of the receipt and contents of any comments from the Commission with
respect to the Registration Statement or the Prospectus or the Prospectus as
amended or supplemented, (iv) of any request by the Commission for any amendment
to the Registration Statement or any amendment or supplement to the Prospectus
or for additional information and (v) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose. Chevy Chase will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible moment.
(e) Chevy Chase will deliver to you as many signed and as many
conformed copies of the Registration Statement (as originally filed) and of each
amendment thereto (including exhibits filed therewith or incorporated by
reference therein and documents incorporated by reference in the Prospectus) as
you may reasonably request.
(f) Chevy Chase will cause the Trust Fund to make generally available
to holders of the Investor Certificates, as soon as practicable, but not later
than 90 days after the close of the period covered thereby, an earnings
statement of the Trust Fund covering a period of at least 12 consecutive months
beginning not later than the first day of the first fiscal quarter following the
Closing Date and, in each case, satisfying the provisions of Section 11(a) of
the 1933 Act and the Rules and Regulations (including Rule 158).
(g) Chevy Chase will endeavor, in cooperation with you, to qualify
the Investor Certificates for offering and sale under the applicable securities
laws of such states and other jurisdictions of the United States as you may
designate, and will maintain or cause to be maintained such qualifications in
effect for as long as may be required for the distribution of the Investor
Certificates. Chevy Chase will file or cause the filing of such statements and
reports as may be required by the laws of each jurisdiction in which the
Investor Certificates have been qualified as above provided.
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(h) Chevy Chase will not, without your prior consent, publicly offer
or sell or contract to sell any mortgage pass-through certificates, mortgage
pass-through notes or collateralized mortgage obligations or other similar
securities, of which Chevy Chase is the issuer, representing interests in or
secured by other mortgage-related assets for a period of 30 days following the
commencement of the offering of the Investor Certificates to the public;
provided, however, that notwithstanding the foregoing, the Underwriters hereby
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consent to an offering by Chevy Chase of certificates in a public transaction
secured by first mortgage loans.
(i) So long as the Investor Certificates shall be outstanding, Chevy
Chase will deliver to you the annual statement as to compliance delivered to the
Trustee pursuant to Section 3.9 of the Pooling and Servicing Agreement and the
annual statement of a firm of independent public accountants furnished to the
Trustee pursuant to Section 3.10 of the Pooling and Servicing Agreement, as soon
as such statements are furnished to the Trustee.
(j) Chevy Chase will apply the net proceeds from the sale of the
Investor Certificates in the manner set forth in the Prospectus.
(k) If, between the date hereof or, if earlier, the dates as of which
information is given in the Prospectus and the Closing Date, to the knowledge of
Chevy Chase there shall have been any material change, or any development
involving a prospective material change in or affecting the general affairs,
management, financial position, shareholders' equity or results of operations of
Chevy Chase, Chevy Chase will give prompt written notice thereof to you.
(l) Chevy Chase, during the period when the Prospectus is required to
be delivered under the 1933 Act, will file promptly all documents required to be
filed with the Commission pursuant to Section 13 or 14 of the Exchange Act,
including, without limitation, a Form 8-K containing this Agreement, the Pooling
and Servicing Agreement and the Certificate Insurance Policy.
6. Conditions of the Obligations of the Underwriters. The obligations of
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the several Underwriters to purchase the Investor Certificates pursuant to this
Agreement are subject to the accuracy on and as of the Closing Date of the
representations and warranties on the part of Chevy Chase herein contained, to
the accuracy of the statements of officers of Chevy Chase made pursuant hereto,
to the performance by Chevy Chase of all of its obligations hereunder and to the
following conditions at the Closing Date:
(a) The Prospectus shall have been filed with the Commission in
accordance with the Rules and Regulations and Section 5(a) hereof. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or, to the
knowledge of Chevy Chase, threatened by the Commission.
(b) You shall have received the favorable opinion, dated the Closing
Date, of Shaw Pittman Potts & Trowbridge, counsel to Chevy Chase, in the form
attached hereto as Exhibit A.
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(c) You shall have received the favorable opinion of counsel to the
Trustee, dated the Closing Date, addressed to you and in form and scope
satisfactory to you, to the effect that:
i) The Trustee is duly organized and is validly existing and in
good standing as a national banking association under the laws of the United
States of America.
ii) The Trustee has duly authorized, executed and delivered the
Pooling and Servicing Agreement and the Insurance Agreement.
iii) The Trustee has full power and authority to execute and
deliver the Pooling and Servicing Agreement and the Insurance Agreement and to
perform its obligations thereunder and each of the Pooling and Servicing
Agreement and the Insurance Agreement constitutes the valid, legal and binding
obligation of the Trustee, enforceable against the Trustee in accordance with
its terms (subject, as to enforcement, to bankruptcy, reorganization,
insolvency, moratorium and other laws affecting creditors' rights generally and
to general equity principles).
iv) The Certificates have been duly executed and authenticated
by the Trustee.
v) The execution and delivery by the Trustee of the Pooling and
Servicing Agreement and the Insurance Agreement and the performance by the
Trustee of its duties thereunder do not conflict with or result in a violation
of (a) any law or regulation of the United States of America or the State of
Minnesota, (b) the charter or by-laws of the Trustee or (c) any order, writ,
judgment or decree.
vi) No consent, approval or authorization of, or registration,
declaration or filing with, any court or governmental agency or body of the
United States of America or any state thereof is required for the execution,
delivery or performance by the Trustee of the Pooling and Servicing Agreement
and the Insurance Agreement.
(d) You shall have received the favorable opinion, dated the Closing
Date, of counsel for the Certificate Insurer, in form and scope satisfactory to
you, to the effect that:
i) The Certificate Insurer is duly organized as a corporation
and is validly existing under the laws of the State of Wisconsin, and has the
full power and authority (corporate and other) to issue the Certificate
Insurance Policy, and to take all action required of it under, the Certificate
Insurance Policy, the Insurance Agreement and the Indemnification Agreement,
dated November 25, 1997 (the "Indemnification Agreement") between the
Certificate Insurer and the Underwriters.
ii) The execution, delivery and performance by the Certificate
Insurer of the Certificate Insurance Policy, the Insurance Agreement and the
Indemnification Agreement have been duly authorized by all necessary corporate
action on the part of the Certificate Insurer.
-10-
<PAGE>
iii) The execution, delivery and performance by the Certificate
Insurer of the Certificate Insurance Policy, the Insurance Agreement and the
Indemnification Agreement do not require the consent or approval of, the giving
of notice to, the registration with, or the taking of any other action in
respect of any state or other governmental agency or authority which has not
previously been effected.
iv) The Certificate Insurance Policy, the Insurance Agreement
and the Indemnification Agreement have been duly authorized, executed and
delivered by the Certificate Insurer and constitute legal, valid and binding
obligations of the Certificate Insurer, enforceable against the Certificate
Insurer in accordance with their terms (subject, as to enforcement, to
bankruptcy, reorganization, insolvency, moratorium and other laws affecting
creditors' rights generally and to general equity principles and to state or
federal securities laws or the policies underlying such laws).
v) The Certificate Insurance Policy is not required to be
registered under the 1933 Act.
(e) You shall have received an opinion, dated the Closing Date, of
Shaw Pittman Potts & Trowbridge, counsel to Chevy Chase, addressed to, and
satisfactory to, Standard and Poor's Ratings Services, Moody's Investors
Service, Inc. and you, relating to the perfection of a security interest in
favor of the Trustee in the Trust Balances of the Initial Mortgage Loans.
(f) You shall have received an opinion, dated the Closing Date, of
Shaw Pittman Potts & Trowbridge, counsel to Chevy Chase, addressed to, and
satisfactory to, you to the effect that the Investor Certificates will be
treated as debt for federal income tax purposes.
(g) Chevy Chase shall have furnished to you a certificate signed on
behalf of Chevy Chase by the principal accounting or principal financial officer
thereof, dated the Closing Date, as to (i) the accuracy of the representations
and warranties of Chevy Chase herein at and as of the Closing Date, (ii) the
performance by Chevy Chase of all of its obligations hereunder to be performed
at or prior to the Closing Date and (iii) such other matters as you may
reasonably request.
(h) The Trustee shall have furnished to you a certificate of the
Trustee, signed by one or more duly authorized officers of the Trustee, dated
the Closing Date, as to the due acceptance of the Pooling and Servicing
Agreement by the Trustee and the due execution and delivery of the Certificates
by the Trustee thereunder and such other matters as you shall reasonably
request.
(i) The Certificate Insurer shall have furnished to you and Chevy
Chase a certificate of the Certificate Insurer, signed by one or more duly
authorized officers of the Certificate Insurer, dated the Closing Date, to the
effect that (i) the information relating to the Certificate Insurer in the
Prospectus is true and correct in all material respects as of the dates
specified therein and (ii) there has been no change in the financial condition
of the Certificate
-11-
<PAGE>
Insurer since December 31, 1996 which could have a material adverse effect on
the Certificate Insurer's ability to meet its obligations under the Certificate
Insurance Policy.
(j) The Certificate Insurance Policy shall have been issued by the
Certificate Insurer pursuant to the Insurance Agreement.
(k) The Investor Certificates shall have been rated "AAA" by Standard
and Poor's Ratings Services or "Aaa" by Moody's Investors Service, Inc., and
such ratings shall not have been rescinded.
(l) You shall have received from Arthur Andersen LLP, or other
independent certified public accountants acceptable to you, letters, on or prior
to the date of this Agreement, delivered at such times in form satisfactory to
you, confirming that they are independent public accountants within the meaning
of the 1933 Act and the applicable published Rules and Regulations thereunder
and stating in effect that (i) they have performed certain specified procedures
as a result of which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting, financial or
statistical information derived from the general accounting records of Chevy
Chase) set forth in the Registration Statement and the Prospectus (and any
supplements thereto), agrees with the accounting records of Chevy Chase,
excluding any questions of legal interpretation, and (ii) they have performed
certain specified procedures with respect to the Mortgage Loans.
(m) Prior to the Closing Date, you shall have been furnished with
such documents and opinions as you may reasonably require in order to evidence
the accuracy and completeness of any of the representations and warranties or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by Chevy Chase in connection with the issuance and sale of the Investor
Certificates as herein contemplated shall be satisfactory in form and sub stance
to you.
(n) Since the respective dates as of which information is given in
the Prospectus, there shall not have been any change, or any development
involving a prospective change, in or affecting the general affairs, management,
financial position, shareholders' equity or results of operations of Chevy Chase
otherwise than as set forth in the Prospectus, the effect of which is in your
judgment so material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Investor Certificates on
the terms and in the manner contemplated in the Prospectus.
(o) You shall have received evidence satisfactory to you that (i) on
or before the Closing Date, UCC-1 financing statements have been filed with the
Virginia State Corporation Commission and with the Maryland State Department of
Assessments and Taxation, reflecting the interest of the Trust Fund in the
Mortgage Loans and the proceeds thereof.
-12-
<PAGE>
(p) The Representative shall have received copies of each opinion of
counsel and certificate delivered to either Rating Agency or the Certificate
Insurer, together with a letter addressed to the Representative, dated the
Closing Date, to the effect that each Underwriter may rely on each such opinion
to the same extent as if such opinion were addressed to it as of such date.
(q) Prior to the Closing Date, Chevy Chase shall have furnished to
you such further information, certificates and documents as you may reasonably
request.
If any condition specified in this Section 6 shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by you by
notice to Chevy Chase at any time at or prior to the Closing Date, and such
termination shall be without liability of any party to any other party except as
provided in Section 7.
7. Payment of Expenses. Chevy Chase agrees to pay all expenses incident
-------------------
to the performance of its obligations under this Agreement, including without
limitation those related to (i) the filing of the Registration Statement and all
amendments thereto, (ii) the duplication and delivery to you, in such quantities
as you may reasonably request, of copies of this Agreement, (iii) the
preparation, issuance and delivery of the Investor Certificates, (iv) the fees
and disbursements of Arthur Andersen LLP, accountants of Chevy Chase, and fifty
percent of the fees and disbursements of Shaw Pittman Potts & Trowbridge, the
remaining fifty percent of such fees and the remaining fifty percent of such
disbursements to be paid by the Underwriters, (v) fifty percent of the fees and
disbursements relating to the qualification of the Investor Certificates under
securities and Blue Sky laws and the determination of the eligibility of the
Investor Certificates for investment in accordance with the provisions of
subsection 5(g), including filing fees, in connection therewith and in
connection with the preparation of any Blue Sky Survey and the remaining fifty
percent of such fees and disbursements to be paid by the Underwriters, (vi) the
printing and delivery to you, in such quantities as you may reasonably request,
hereinabove stated, of copies of the Registration Statement and Prospectus and
all amendments and supplements thereto, and of any Blue Sky Survey, (vii) the
duplication and delivery to you, in such quantities as you may reasonably
request, of copies of the Pooling and Servicing Agreement and the Insurance
Agreement, (viii) the fees charged by nationally recognized statistical rating
agencies for rating the Investor Certificates, (ix) the fees and expenses of the
Trustee and its counsel; (x) the fees and expenses of the Certificate Insurer
and its counsel; and (xi) the fees and expenses of the Custodial Agent and its
counsel.
The Underwriters agree to pay (i) fifty percent of the fees and
disbursements of Shaw Pittman Potts & Trowbridge, including fees and
disbursements relating to the qualification of the Investor Certificates under
securities and Blue Sky laws and the determination of the eligibility of the
Investor Certificates for investment in accordance with the provisions of
subsection 5(g), including filing fees, in connection therewith and in
connection with the preparation of any Blue Sky Survey and (ii) other expenses
of Chevy Chase relating to the transactions contemplated hereby in an amount
equal to $44,506.00.
-13-
<PAGE>
Notwithstanding the foregoing, if this Agreement is terminated by you in
accordance with the provisions of Section 6 and Section 11(i), Chevy Chase shall
reimburse you for all reasonable out-of-pocket expenses.
8. Indemnification.
---------------
(a) Chevy Chase agrees to indemnify and hold harmless you and each
person, if any, who controls you within the meaning of the 1933 Act or the
Exchange Act, as follows:
i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment or supplement thereto), or the omission
or alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading or arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus, or any related preliminary prospectus or
preliminary prospectus supplement (or any amendment or supplement thereto) or
the omission or alleged omission therefrom of a material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading, unless such untrue statement or omission or alleged
untrue statement or omission was made in reliance upon and in conformity with
written information furnished to Chevy Chase by any Underwriter through the
Representative expressly for use in the Registration Statement (or any amendment
thereto) or the Prospectus (or any amendment or supplement thereto), it being
understood and agreed that the only such information furnished by any
Underwriter consists of the following information (collectively, the
"Underwriter Information"): (A) the first two sentences of the sixth paragraph
on the cover of the Prospectus Supplement (discussing the lack of a secondary
market); (B) the last paragraph on the cover of the Prospectus Supplement
(discussing the offering of the Investor Certificates); (C) the second paragraph
on the inside cover of the Prospectus Supplement (discussing over-allotments and
stabilization); and (D) the information contained under the heading
"Underwriting" in the Prospectus Supplement.
ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever arising out
of or based upon any such untrue statement or omission, or any such alleged
untrue statement or omission, if such settlement is effected with the written
consent of Chevy Chase; and
iii) against any and all expense whatsoever (including the fees
and disbursements of counsel chosen by you, subject to subsection 8(c)) as
reasonably incurred in investigating, preparing or defending against any
litigation, investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever arising out of or based upon
any such untrue statement or omission, to the extent that any such expense is
not paid under i) or ii) above.
-14-
<PAGE>
This indemnity agreement will be in addition to any liability which Chevy
Chase may otherwise have.
(b) Each of you agrees, severally and jointly, to indemnify and hold
harmless Chevy Chase, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls Chevy Chase within
the meaning of the 1933 Act or the Exchange Act against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) of this Section, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) or the Prospectus, or any related
preliminary prospectus or preliminary prospectus supplement (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to Chevy Chase by any Underwriter through the Representative expressly
for use therein, it being understood and agreed that the only such information
furnished by any Underwriter consists of the Underwriter Information. This
indemnity agreement will be in addition to any liability which you may otherwise
have.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it with respect to which
indemnity may be sought hereunder but failure to so notify an indemnifying party
shall not relieve it from any liability which it may have on account of this
indemnity agreement other than to the extent that such indemnifying party is
materially prejudiced by the indemnified party's failure to provide such
notification. An indemnifying party may participate at its own expense in the
defense of such action. If it so elects within a reasonable time after receipt
of such notice, an indemnifying party, jointly with any other indemnifying
parties receiving such notice, may assume the defense of such action with
counsel chosen by it and approved by the indemnified parties defendant in such
action, unless such indemnified parties reasonably object to such assumption on
the ground that there may be legal defenses available to them which are
different from or in addition to those available to such indemnifying party. If
an indemnifying party assumes the defense of such action, the indemnifying
parties shall not be liable for any fees and expenses of counsel for the
indemnified parties incurred thereafter in connection with such action other
than reasonable costs of investigation. In no event shall the indemnifying
parties be liable for the fees and expenses of more than one counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, unless (i) if the defendants in any such action
include one or more of the indemnified parties and the indemnifying party, one
or more of the indemnified parties shall have employed separate counsel after
having reasonably concluded that there may be legal defenses available to it or
them that are different from or additional to those available to the
indemnifying party or to one or more of the other indemnified parties or (ii)
the indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a reasonable
time after notice of the commencement of the action. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified
-15-
<PAGE>
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
9. Contribution. In order to provide for just and equitable contribution
------------
in circumstances in which the indemnity agreement provided for in Section 8 is
for any reason held to be unenforceable by the indemnified parties although
applicable in accordance with its terms, Chevy Chase on the one hand, and each
of you, on the other, shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by said indemnity
agreement incurred by Chevy Chase and you (i) in such proportion as is
appropriate to reflect the relative benefits received by Chevy Chase on the one
hand and each of you on the other from the offering of the Investor Certificates
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
Chevy Chase on one hand and each of you on the other in connection with the
statements or omissions which resulted in the losses, liabilities, claims,
damages and expenses. The relative benefits received by Chevy Chase on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by Chevy Chase bear to the total underwriting discounts and
commissions received by the Underwriters; 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. Relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by Chevy Chase or by you and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. Notwithstanding the
provisions of this Section 9, you shall not be required to contribute any amount
in excess of the amount by which the total price at which the Investor
Certificates underwritten by you and distributed to the public were offered to
the public exceeds the amount of any damages which you may have otherwise been
required to pay in respect of such losses, liabilities, claims, damages and
expenses. For purposes of this Section 9, each person, if any, who controls you
within the meaning of the 1933 Act or the Exchange Act shall have the same
rights to contribution as each of you and each director of Chevy Chase, each
officer of Chevy Chase who signed the Registration Statement, and each person,
if any, who controls Chevy Chase within the meaning of the 1933 Act or the
Exchange Act shall have the same rights to contribution as Chevy Chase.
10. Representations, Warranties and Agreements to Survive Delivery. All
--------------------------------------------------------------
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of Chevy Chase submitted pursuant hereto
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of you or controlling person of you, or by or
on behalf of Chevy Chase and shall survive delivery of any Investor Certificates
to you.
-16-
<PAGE>
11. Termination of Agreement. You may terminate this Agreement,
------------------------
immediately upon notice to Chevy Chase, at any time at or prior to the Closing
Date (i) if there has occurred any outbreak of hostilities or other calamity or
crisis the effect of which on the financial market of the United States of
America is such as to make it, in your judgment, impracticable to market the
Investor Certificates or enforce contracts for the sale of the Investor
Certificates, or (ii) if trading generally on either the New York Stock Exchange
or the American Stock Exchange has been suspended, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices for securities have
been required, by either of such exchanges or by order of the Commission or any
other governmental authority, or if a banking moratorium has been declared by
either Federal or New York State authorities. In the event of any such
termination, the covenant set forth in subsection 5(d), the provisions of
Section 7, the indemnity agreement set forth in Section 8, the contribution
provisions set forth in Section 9 and the provisions of Sections 10 and 13 shall
remain in effect.
12. Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given if mailed or transmitted by
any standard form of telecommunication. Notices to Smith Barney Inc. shall be
directed to the address set forth on the first page hereof, or sent by facsimile
machine which produces an electronic confirmation of receipt to 212/723-8904,
attention: Fixed Income Syndicate Operations. Notices to Credit Suisse First
Boston Corporation shall be directed to the address set forth on the first page
hereof, or sent by facsimile machine which produces an electronic confirmation
of receipt to 212/318-0532, attention: Investment Banking Department,
Transactions Advisory Group. Notices to Chevy Chase shall be directed to Chevy
Chase Bank, F.S.B., 8401 Connecticut Avenue, Chevy Chase, Maryland 20815, or
sent by facsimile machine which produces an electronic confirmation of receipt
to 301/986-7401, attention: Stephen R. Halpin, Jr.
13. Parties. This Agreement shall inure to the benefit of and be binding
-------
upon you and Chevy Chase, and their respective successors. Nothing expressed or
mentioned in this Agreement is intended nor shall it be construed to give any
person, firm or corporation, other than the parties hereto or thereto and their
respective successors and the controlling persons and officers and directors
referred to in Sections 8 and 9 and their heirs and legal representatives, any
legal or equitable right, remedy or claim under or with respect to this
Agreement or any provision herein contained. This Agreement and all conditions
and provisions hereof are intended to be for the sole and exclusive benefit of
the parties and their respective successors and said controlling persons and
officers and directors and their heirs and legal representatives (to the extent
of their rights as specified herein and therein) and except as provided above
for the benefit of no other person, firm or corporation. No purchaser of
Investor Certificates from you shall be deemed to be a successor by reason
merely of such purchase.
-17-
<PAGE>
14. Representation of Underwriters. The Representative will act for the
------------------------------
several Underwriters in connection with this financing, and any action taken by
the Representative under this Agreement will be binding upon all the
Underwriters.
15. Governing Law and Time. This Agreement shall be governed by the laws
----------------------
of the State of New York and shall be construed in accordance with such laws.
Specified times of day refer to New York City time.
16. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed to be an original, but together they shall constitute but
one instrument.
-18-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement between you and
Chevy Chase in accordance with its terms.
Very truly yours,
CHEVY CHASE BANK, F.S.B.
By: /s/ Mark A. Holles
-----------------------------
Name: Mark A. Holles
Title: Vice President
CONFIRMED AND ACCEPTED, as of the
date first above written:
SMITH BARNEY INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
By: SMITH BARNEY INC.,
as Representative
By: /s/ Joseph M. Donovan
----------------------------------
Name: Joseph M. Donovan
Title: Managing Director
-19-
<PAGE>
Schedule 1
Underwriting
------
<TABLE>
<CAPTION>
Purchase Price Proceeds to
Underwriter Percentage Principal Amount Chevy Chase /1/
----------- --------------- ---------------- -----------
<S> <C> <C> <C>
Smith Barney Inc. 99.70% $89,012,000 $88,744,964
Credit Suisse First Boston 99.70% $89,012,000 $88,744,964
Corporation
</TABLE>
/1/ Excludes accrued interest.
-20-
<PAGE>
EXHIBIT 4.2
EXECUTION COPY
--------------
- --------------------------------------------------------------------------------
CHEVY CHASE BANK, F.S.B,
as Transferor and Servicer
and
U.S. BANK NATIONAL ASSOCIATION,
as Trustee and Custodial Agent
------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of November 1, 1997
------------------------------
Capitol Revolving Home Equity Loan
Asset Backed Certificates
Series 1997-1
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS................................................................ 1
Section 1.1 Definitions............................................................. 1
-----------
Section 1.2 Other Definitional Provisions........................................... 24
-----------------------------
Section 1.3 Interest Calculations................................................... 24
---------------------
ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF CERTIFICATES........... 25
Section 2.1 Conveyance of Initial Mortgage Loans.................................... 25
------------------------------------
Section 2.2 Acceptance by Custodial Agent; Reassignment of Mortgage Loans;
-------------------------------------------------------------
Substitution of Eligible Substitute Mortgage Loans................................. 28
--------------------------------------------------
Section 2.3 Representations and Warranties Regarding the Servicer................... 31
-----------------------------------------------------
Section 2.4 Representations and Warranties of the Transferor Regarding the
--------------------------------------------------------------
Mortgage Loans; Removal and Substitution Obligations............................... 32
----------------------------------------------------
Section 2.5 Official Record......................................................... 35
---------------
Section 2.6 Retransfers of Mortgage Loans at Election of Transferor................. 35
-------------------------------------------------------
Section 2.7 Tax Treatment........................................................... 37
-------------
Section 2.8 Conveyance of Subsequent Mortgage Loans................................. 37
---------------------------------------
ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS........................... 39
Section 3.1 The Servicer............................................................ 39
------------
Section 3.2 Collection of Certain Mortgage Loan Payments............................ 41
--------------------------------------------
Section 3.3 Permitted Withdrawals from the Certificate Account...................... 43
--------------------------------------------------
Section 3.4 Maintenance of Hazard Insurance; Property Protection Expenses........... 44
-------------------------------------------------------------
Section 3.5 Assumption and Modification Agreements.................................. 45
--------------------------------------
Section 3.6 Realization Upon Defaulted Mortgage Loans............................... 45
-----------------------------------------
Section 3.7 Trustee to Cooperate.................................................... 46
--------------------
Section 3.8 Servicing Compensation; Payment of Certain Expenses by Servicer......... 47
---------------------------------------------------------------
Section 3.9 Annual Statement as to Compliance....................................... 48
---------------------------------
Section 3.10 Annual Independent Public Accountants' Servicing Report................ 48
-------------------------------------------------------
Section 3.11 Access to Certain Documentation and Information Regarding the
-------------------------------------------------------------
Mortgage Loans..................................................................... 48
--------------
Section 3.12 Maintenance of Certain Servicing Policies.............................. 49
-----------------------------------------
Section 3.13 Reports to the Securities and Exchange Commission...................... 49
-------------------------------------------------
Section 3.14 Information Required by the Internal Revenue Service Generally and
------------------------------------------------------------------
Reports of Foreclosures and Abandonments of Mortgaged Property..................... 49
--------------------------------------------------------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 3.15 Tax Returns............................................................ 49
-----------
ARTICLE IV SERVICING CERTIFICATE; CERTIFICATE INSURANCE POLICY; SPREAD ACCOUNT....... 50
Section 4.1 Servicing Certificate................................................... 50
---------------------
Section 4.2 Certificate Insurance Policy............................................ 52
----------------------------
Section 4.3 Replacement Certificate Insurance Policy................................ 53
----------------------------------------
Section 4.4 Spread Account.......................................................... 53
--------------
ARTICLE V PAYMENTS AND STATEMENTS TO CERTIFICATEHOLDERS; RIGHTS OF
CERTIFICATEHOLDERS.................................................................. 54
Section 5.1 Distributions........................................................... 54
-------------
Section 5.2 Calculation of the Investor Certificate Rate............................ 57
--------------------------------------------
Section 5.3 Statements to Certificateholders........................................ 57
--------------------------------
Section 5.4 Rights of Certificateholders............................................ 59
----------------------------
Section 5.5 Rights of the Certificate Insurer To Exercise Rights of Investor
----------------------------------------------------------------
Certificateholders................................................................. 59
------------------
ARTICLE VI THE CERTIFICATES.......................................................... 60
Section 6.1 The Certificates........................................................ 60
----------------
Section 6.2 Registration of Transfer and Exchange of Investor Certificates;
--------------------------------------------------------------
Restrictions on Transfer........................................................... 61
------------------------
Section 6.3 Mutilated, Destroyed, Lost or Stolen Certificates....................... 63
-------------------------------------------------
Section 6.4 Persons Deemed Owners................................................... 63
---------------------
Section 6.5 Restrictions on Transfer of Transferor Certificates..................... 64
---------------------------------------------------
Section 6.6 Appointment of Paying Agent............................................. 65
---------------------------
Section 6.7 Access to List of Certificateholders' Names and Addresses............... 65
---------------------------------------------------------
Section 6.8 Actions of Certificateholders........................................... 66
-----------------------------
ARTICLE VII THE SERVICER AND THE TRANSFEROR.......................................... 66
Section 7.1 Liability of the Servicer............................................... 66
-------------------------
Section 7.2 Merger or Consolidation of, or Assumption of the obligations of, the
--------------------------------------------------------------------
Servicer or Transferor............................................................. 66
----------------------
Section 7.3 Limitation on Liability of the Servicer and Others...................... 67
--------------------------------------------------
Section 7.4 Delegation of Duties.................................................... 68
--------------------
Section 7.5 Servicer Not to Resign.................................................. 68
-----------------------
Section 7.6 Limitation on Liability of Certain Persons.............................. 69
------------------------------------------
Section 7.7 Liability of Transferor................................................. 70
-----------------------
Section 7.8 Transferor May Own Certificates......................................... 70
-------------------------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIII DEFAULT................................................................. 70
Section 8.1 Events of Default....................................................... 70
-----------------
Section 8.2 Trustee to Act; Appointment of Successor................................ 73
----------------------------------------
Section 8.3 Notification to Investor Certificateholders............................. 74
-------------------------------------------
Section 8.4 Waiver of Past Events of Default........................................ 74
--------------------------------
ARTICLE IX THE TRUSTEE............................................................... 74
Section 9.1 Duties of Trustee....................................................... 74
-----------------
Section 9.2 Certain Matters Affecting the Trustee................................... 76
-------------------------------------
Section 9.3 Trustee Not Liable for Certificates or Mortgage Loans................... 77
-----------------------------------------------------
Section 9.4 Trustee May Own Certificates............................................ 78
----------------------------
Section 9.5 Servicer to Pay Trustee's Fees and Expenses............................. 78
-------------------------------------------
Section 9.6 Eligibility Requirements for Trustee.................................... 78
------------------------------------
Section 9.7 Resignation or Removal of Trustee....................................... 79
---------------------------------
Section 9.8 Successor Trustee....................................................... 80
-----------------
Section 9.9 Merger or Consolidation of Trustee...................................... 80
----------------------------------
Section 9.10 Appointment of Co-Trustee or Separate Trustee.......................... 80
---------------------------------------------
Section 9.11 Waiver of Bond Requirement............................................. 82
--------------------------
Section 9.12 Waiver of Inventory, Accounting and Appraisal Requirement.............. 82
---------------------------------------------------------
Section 9.13 Streit Act............................................................. 82
----------
ARTICLE X TERMINATION................................................................ 82
Section 10.1 Termination............................................................ 82
-----------
ARTICLE XI RAPID AMORTIZATION EVENTS................................................. 84
Section 11.1 Rapid Amortization Events.............................................. 84
-------------------------
Section 11.2 Additional Rights Upon the Occurrence of Certain Events................ 86
-------------------------------------------------------
ARTICLE XII MISCELLANEOUS PROVISIONS................................................. 87
Section 12.1 Amendment.............................................................. 87
---------
Section 12.2 Recordation of Agreement............................................... 89
------------------------
Section 12.3 Limitation on Rights of Certificateholders............................. 89
------------------------------------------
Section 12.4 Application of Certain Provisions of this Agreement.................... 90
---------------------------------------------------
Section 12.5 Governing Law.......................................................... 90
-------------
Section 12.6 Notices................................................................ 91
-------
Section 12.7 Severability of Provisions............................................. 91
--------------------------
Section 12.8 Assignment............................................................. 91
----------
Section 12.9 Certificates Nonassessable and Fully Paid.............................. 92
-----------------------------------------
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
Section 12.10 Counterparts.......................................................... 92
------------
Section 12.11 Effect of Headings and Table of Contents.............................. 92
----------------------------------------
Section 12.12 Third Party Beneficiary............................................... 92
-----------------------
Section 12.13 Merger and Integration................................................ 92
----------------------
</TABLE>
-iv-
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Exhibit A Form of Investor Certificate....................................... A-1
Exhibit B Form of Transferor Certificate..................................... B-1
Exhibit C Form of Certificate Insurance Policy............................... C-1
Exhibit D Reserved........................................................... D-1
Exhibit E Form of Document Custodian Certificate as to Mortgage Files........ E-1
Exhibit F Form of Document Custodian Certificate as to Mortgage Assignments.. F-1
Exhibit G Form of Trust Assignment of Mortgage Loan.......................... G-1
Exhibit H Form of Servicer Certificate as to Payment of Trust Balance........ H-1
Exhibit I Form of Trust Receipt for Release of Mortgage Files to Servicer.... I-1
Exhibit J Form of Servicing Certificate...................................... J-1
Exhibit K Form of Monthly Certificateholders' Statement...................... K-1
Exhibit L Form of Depository Agreement....................................... L-1
</TABLE>
-i-
<PAGE>
POOLING AND SERVICING AGREEMENT, dated as of November 1, 1997, between
CHEVY CHASE BANK, F.S.B., a federal savings bank organized under the laws of the
United States, as Transferor and Servicer, and U.S. Bank National Association,
doing business as First Bank National Association, as Trustee and Custodial
Agent,
W I T N E S S E T H T H A T:
------------------------------
In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
-----------
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
Article.
Accrual Period: As to any Distribution Date other than the first
--------------
Distribution Date, the period beginning on the immediately preceding
Distribution Date and ending on the day immediately preceding such Distribution
Date, and with respect to the first Distribution Date, the period beginning on
the Closing Date and ending on the day immediately preceding the first
Distribution Date.
Additional Balance: As to any Mortgage Loan (other than 90-1 Mortgage
------------------
Loans and 92-1 Mortgage Loans) and day, the unpaid balance of any principal
advanced under the terms of the Loan Agreement after the date and time as of
which the Cut-Off Date Trust Balance is calculated.
Aggregate Investor Liquidation Loss Amount: With respect to any
------------------------------------------
Distribution Date, the sum of the Daily Investor Liquidation Loss Amounts for
the related Collection Period.
Agreement: This Pooling and Servicing Agreement and all amendments hereof
---------
and supplements hereto.
Alternative Principal Payment: As to any Distribution Date, the greater of
-----------------------------
(x) 1% of the Investor Certificate Principal Balance immediately prior to such
Distribution Date and (y) the amount (but not less than zero) equal to the
aggregate amount of Principal Collections received during the related Collection
Period less the aggregate amount of Draws made during the related Collection
Period.
Appointment Day: As defined in Section 11.2.
---------------
1
<PAGE>
Appraised Value: As to any Mortgaged Property and time referred to herein,
---------------
the appraised value of the Mortgaged Property based upon the drive-by appraisal
or other estimate of value made at the time the related Loan Agreement was
executed.
Available Funds: As to any Distribution Date, the aggregate amount on
---------------
deposit in the Certificate Account reduced by any withdrawals permitted to be
made pursuant to clauses (ii) and (iii) of Section 3.3(a).
Basic Spread Account Amount: With respect to any date of determination ,
---------------------------
the lesser of (i) $6,675,900 and (ii) the sum of (A) the lesser of (x) 1% of the
Original Investor Certificate Principal Balance and (y) 2% of the Investor
Certificate Principal Balance as of such date of determination, (B) 25% of the
Investor Certificateholders' Floating Allocation Percentage of the Trust
Balances which are 60-89 days delinquent and (C) 75% of the Investor
Certificateholders' Floating Allocation Percentage of the Trust Balances which
are 90 days or more delinquent; provided, however, that if Chevy Chase has been
-------- -------
replaced as Servicer and the Servicing Fee Rate increases up to a maximum rate
of 0.75%, then the rates in subclauses (A)(x) and (A)(y) shall increase by an
equal amount of up to a maximum amount of 0.25%.
Basis Risk Payment: As to any Accrual Period, an amount which is equal to
------------------
the sum of (a) the amount of interest accrued on the Investor Certificate
Principal Balance as of the first day of such Accrual Period (after giving
effect to the distributions made on the first day of such Accrual Period) at a
rate equal to the excess , if any, stated as a per annum rate, of (i) the
Investor Certificate Rate calculated without giving effect to the proviso to the
definition thereof over (ii) the Maximum Rate and (b) any previous Basis Risk
Payment not paid pursuant to Section 5.1(a)(x), Section 4.4(f) or Section
4.4(c) plus interest accrued thereon at the Investor Certificate Rate (without
giving effect to the proviso in the definition thereof); and which is payable to
Investor Certificateholders from the following sources and in the following
priority: (A) from Investor Interest Collections pursuant to Section 5.1(a)(x),
(B) from the Spread Account pursuant to Section 4.4(f) and (C) from net
investment income on the Spread Account pursuant to Section 4.4(c).
BIF: The Bank Insurance Fund, as from time to time constituted, created
---
under the Financial Institutions Reform, Recovery, and Enhancement Act of 1989,
or if at any time after the execution of this instrument the Bank Insurance Fund
is not existing and performing duties now assigned to it, the body performing
such duties on such date.
Book-Entry Certificate: Any Investor Certificate registered in the name of
----------------------
the Depository, Foreign Depository or the nominee of either the Depository or
Foreign Depository, beneficial ownership of which is reflected on the books of
the Depository or the Foreign Depository or on the books of a person maintaining
an account with such Depository or Foreign Depository (directly or as an
indirect participant in accordance with the rules of such Depository or Foreign
Depository).
Business Day: Any day other than a Saturday, a Sunday or a day on which
------------
banking institutions in New York, New York, Chevy Chase, Maryland or the city in
which the Corporate
2
<PAGE>
Trust Office or the main business office of the Paying Agent is located are
obligated or authorized by law or executive order to be closed.
Capitalized Interest Account: The account maintained with the Trustee for
----------------------------
the benefit of the Certificateholders pursuant to Section 5.6(a). The
Capitalized Interest Account shall be an Eligible Account.
Capitalized Interest Requirement: With respect to any Distribution Date
--------------------------------
occurring during the Pre-Funding Period, an amount equal to the excess, if any,
of (a) the sum of (i) the amount of interest accrued on the Investor
Certificates during the related Accrual Period at the Investor Certificate Rate
on 98% of the Pre-Funded Amount (excluding any Pre-Funding Earnings) immediately
following the preceding Distribution Date (or, in the case of the first
Distribution Date, as of the Closing Date) and (ii) the product of (x) the
Premium Rate divided by twelve and (y) 98% of the Pre-Funded Amount (excluding
any Pre-Funding Earnings) immediately following the preceding Distribution Date
(or, in the case of the first Distribution Date, as of the Closing Date) over
(b) the amount of Pre-Funding Earnings on deposit in the Pre-Funding Account on
such Distribution Date.
Certificate: Any Investor Certificate or Transferor Certificate.
-----------
Certificate Account: The trust account or accounts created and maintained
-------------------
in the name of the Trustee for the benefit of the Certificateholders and the
Certificate Insurer pursuant to Section 3.2(b). The Certificate Account shall be
an Eligible Account.
Certificate Insurance Draw Amount: As to any Distribution Date, an amount
---------------------------------
equal to (after application of amounts on deposit in the Spread Account pursuant
to Section 4.4) the sum of (x) the amount by which the amount to be distributed
to Investor Certificateholders pursuant to Section 5.1(a)(ii) and (a)(iii)
exceeds the amount of Investor Interest Collections on deposit in the
Certificate Account on the Business Day preceding such Distribution Date that is
available to be applied therefor and (y) the amount, if any, required to reduce
the Investor Certificate Principal Balance (after giving effect to all other
amounts distributable and allocable to principal on the Investor Certificates on
such Distribution Date) to the Invested Amount following such Distribution Date.
Notwithstanding the foregoing, as to the earlier of the Stated Maturity Date or
the Dissolution Distribution Date, the Certificate Insurance Draw Amount shall
equal an amount equal to the sum of (i) any amount calculated pursuant to the
preceding sentence and (ii) an amount equal to the remaining Investor
Certificate Principal Balance after giving effect to all other amounts
distributed to Investor Certificateholders in reduction of the Investor
Certificate Principal Balance.
Certificate Insurance Policy: The certificate insurance policy number
----------------------------
AB0131BE dated as of the Closing Date, issued by the Certificate Insurer to the
Trustee for the benefit of the Investor Certificateholders.
3
<PAGE>
Certificate Insurer: Ambac Assurance Corporation, any successor thereto or
-------------------
any replacement credit enhancer substituted pursuant to Section 4.3.
Certificate Insurer Default: The occurrence and continuance of the failure
---------------------------
of the Certificate Insurer to make a payment required under the Certificate
Insurance Policy or a Certificate Insurer Insolvency.
Certificate Insurer Insolvency: The Certificate Insurer shall voluntarily
------------------------------
go into liquidation, consent to the appointment of a conservator or receiver or
liquidator or similar person in any insolvency, readjustment of debt, marshaling
of assets and liabilities or similar proceedings of or relating to the
Certificate Insurer or of or relating to all or substantially all of its
property, or a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a conservator,
receiver, liquidator or similar person in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings, or for the winding-
up or liquidation of its affairs, shall have been entered against the
Certificate Insurer and such decree or order shall have remained in force
undischarged or unstayed for a period of 60 days; or the Certificate Insurer
shall admit in writing its inability to pay its debts generally as they become
due, file a petition to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of its creditors or
voluntarily suspend payment of its obligations.
Certificate Owner: With respect to an Investor Certificate, the Person who
-----------------
is the beneficial owner of a Book-Entry Certificate.
Certificate Register and Certificate Registrar: The register maintained
----------------------------------------------
and the registrar appointed pursuant to Section 6.2(a).
Certificateholder or Holder: The Person in whose name a Certificate is
---------------------------
registered in the Certificate Register, except that, solely for the purpose of
the giving of any consent, waiver, request or demand pursuant to this Agreement,
unless all Certificates are then so held, any Certificate registered in the name
of the Transferor or the Servicer or any affiliate of either shall be deemed not
to be outstanding and the Percentage Interest evidenced thereby shall not be
taken into account in determining whether the requisite amount of Percentage
Interests necessary to effect any such consent, waiver, request or demand shall
have been obtained; provided, however, that in determining whether the Trustee
-------- -------
shall be protected in relying upon any such consent, waiver, request or demand,
only Certificates which a Responsible Officer of the Trustee assigned to matters
under this Agreement actually knows to be so owned shall not be so taken into
account.
Chevy Chase: Chevy Chase Bank, F.S.B., a federal savings bank organized
-----------
under the laws of the United States, or its permitted successor in interest.
Closing Date: November 25, 1997.
------------
4
<PAGE>
Code: The Internal Revenue Code of 1986, as the same may be amended from
----
time to time, any successor statutes thereto, and the applicable Department of
the Treasury temporary or final regulations thereunder.
Collection Period: As to any Distribution Date, the calendar month
-----------------
immediately preceding the calendar month in which such Distribution Date occurs.
Combined Loan-to-Value Ratio: As of any date and as to any Mortgage Loan,
----------------------------
the fraction, expressed as a percentage, the numerator of which is the sum of
(i) the Credit Limit of such Mortgage Loan as of such date and (ii) the unpaid
principal balance (as of the date of execution of the Loan Agreement for such
Mortgage Loan) of the mortgage loan, if any, that is senior in priority to such
Mortgage Loan and which is secured by the same Mortgaged Property, and the
denominator of which is the Appraised Value of the related Mortgaged Property.
Common Mortgage Loans: The Trust 1990 Common Mortgage Loans, the
---------------------
Reacquired 1991 Common Mortgage Loans, the Trust 1992 Common Mortgage Loans, the
Trust 1993 Common Mortgage Loans, the Trust 1994 Common Mortgage Loans and, in
the event that 90-1 Mortgage Loans and 92-1 Mortgage Loans are transferred to
the Trust during the Pre-Funding Period, the Trust 1995 Common Mortgage Loans
and the Trust 1996 Common Mortgage Loans.
Corporate Trust Office: The office of the Trustee at which at any
----------------------
particular time its corporate trust business shall be principally administered,
which office at the date of execution of this Agreement is located at the
address set forth in Section 12.6.
Credit Limit: As to any Mortgage Loan, the maximum Loan Balance permitted
------------
under the terms of the related Loan Agreement and the Servicer's normal and
customary servicing procedures.
Custodial Agent: As defined in Section 2.1(a).
---------------
Custodial Agreement: The custodial agreement dated November 25, 1997 among
-------------------
the Transferor, the Servicer, the Trustee, the Custodial Agent and the Document
Custodian including any amendments or supplements thereto.
Cut-Off Date: With respect to each Initial Mortgage Loan, the opening of
------------
business on November 1, 1997 and, with respect to each Subsequent Mortgage Loan
or Eligible Substitute Mortgage Loan, the opening of business on the first day
of the month in which such Subsequent Mortgage Loan or Eligible Substitute
Mortgage Loan, respectively, was transferred to the Trust.
Cut-Off Date Pool Balance: The aggregate of the Cut-Off Date Trust
-------------------------
Balances of the Initial Mortgage Loans.
Cut-Off Date Trust Balance: As to any Mortgage Loan, the unpaid principal
--------------------------
balance thereof as of the applicable Cut-Off Date (excluding any portion of the
outstanding balance of a
5
<PAGE>
Common Mortgage Loan transferred to a Prior Trust and not subsequently
transferred to the Trust).
Cycle Date: As to any Mortgage Loan, the day of the month on which the
----------
related billing cycle for such Mortgage Loan ends.
Daily Investor Interest Collections: As to any day, an amount equal to the
-----------------------------------
product of (i) the amount of Trust Interest received by the Servicer for such
day and (ii) the Investor Certificateholders' Floating Allocation Percentage on
such day.
Daily Investor Liquidation Loss Amount: With respect to any day, the
--------------------------------------
amount equal to the product of the Investor Certificateholders' Floating
Allocation Percentage for such day and the Liquidation Loss Amounts for such
day.
Daily Investor Principal Collections: As to any day, an amount equal to
------------------------------------
the aggregate amount of Principal Collections received on such day.
Defective Mortgage Loan: Any Mortgage Loan which is required to be removed
-----------------------
or replaced by the Transferor pursuant to Section 2.2(c) or 2.4(b) or purchased
or replaced by the Servicer pursuant to Section 3.1.
Definitive Certificates: As defined in Section 6.2(d).
-----------------------
Depository: The initial Depository shall be The Depository Trust Company,
----------
the nominee of which is CEDE & Co., as the registered Holder of one or more
Investor Certificates evidencing the aggregate principal amount of the Investor
Certificates. The Depository at all times shall be a "clearing corporation" as
defined in Section 8-102 of the Uniform Commercial Code of the State of New York
and an organization registered as a "clearing agency" pursuant to Section 17A of
the Securities Exchange Act of 1934, as amended. The Transferor, the Servicer,
the Trustee and the initial Depository shall enter into a Depository Agreement
substantially in the form of Exhibit L.
Depository Participant: A broker, dealer, bank or other financial
----------------------
institution or other Person for whom from time to time a Depository or foreign
Depository effects book-entry transfers and pledges of securities deposited with
the Depository or foreign Depository.
Determination Date: With respect to any Distribution Date, the fifth (5th)
------------------
Business Day prior thereto.
Dissolution Distribution Date: The date on which the proceeds from the
-----------------------------
sale, disposition or liquidation of the Trust Balances of the Mortgage Loans
pursuant to Section 11.2 are received and distributed to Certificateholders.
Distribution Date: December 22, 1997 and the 20th day of each month
-----------------
thereafter (or, if such day is not a Business Day, the next succeeding Business
Day).
6
<PAGE>
Document Custodian: Norwest Bank Minnesota, National Association or its
------------------
successor in interest under Section 3.8 of the Custodial Agreement, and any
Person that is appointed as successor document custodian in accordance with the
terms of the Custodial Agreement.
Draw: With respect to any Mortgage Loan (other than 90-1 Mortgage Loans
----
and 92-1 Mortgage Loans), an increase in the Loan Balance subsequent to the
related Cut-Off Date in accordance with the related Loan Agreement.
Electronic Ledger: The electronic master record of home equity revolving
-----------------
credit line loan accounts (including the Mortgage Loans) maintained by the
Servicer.
Eligible Account: An account that is (i) maintained with a depository
----------------
institution which has a short-term certificate of deposit rating at the time of
any deposit therein in the highest short-term debt rating category by the Rating
Agencies, (ii) one or more accounts with a depository institution whose accounts
are fully insured by either SAIF or BIF of the Federal Deposit Insurance
Corporation with a minimum long-term unsecured debt rating of Baa3, (iii) a
trust account maintained with the Trustee in its corporate trust department or
(iv) otherwise acceptable to each Rating Agency as evidenced by a letter from
such Rating Agency to the Trustee, without reduction or withdrawal of their then
current ratings of the Certificates, and acceptable to the Certificate Insurer.
Eligible Substitute Mortgage Loan: A Mortgage Loan proposed to be
---------------------------------
substituted by the Transferor for a Defective Mortgage Loan which, on the date
of such substitution, shall (i) have an outstanding Loan Balance (except as
provided below) not less than 95% of the Trust Balance of such Defective
Mortgage Loan on the date of such substitution; (ii) have a Loan Rate not less
than the current Loan Rate of such Defective Mortgage Loan and not more than one
hundred (100) basis points in excess of the current Loan Rate of such Defective
Mortgage Loan; (iii) have a Margin that is not less than the Margin of such
Defective Mortgage Loan and not more than one hundred (100) basis points higher
than the Margin of such Defective Mortgage Loan; (iv) have a remaining term to
maturity not later than nor more than six months earlier than the remaining term
to maturity of such Defective Mortgage Loan; (v) comply with each representation
and warranty set forth in Section 2.4(a) as if made on the date of such
substitution; (vi) other than in the case referred to in clause (vii) below,
have a Combined Loan-to-Value Ratio not greater than the Combined Loan-to-Value
Ratio of such Defective Mortgage Loan as of the related Cut-Off Date; (vii) in
the case of an Eligible Substitute Mortgage Loan substituted for a Mortgage Loan
pursuant to Section 3.1(c), have a Combined Loan-to-Value Ratio of not more than
80% (rounded to the nearest whole percent); (viii) have a maximum Loan Rate not
lower than the maximum Loan Rate applicable to such Defective Mortgage Loan;
(ix) have an index based on a "prime rate"; (x) be secured by a Mortgaged
Property that is subject to the same use (owner-occupied, second home or rental
property) and that has the same structural characteristic (attached or
detached) as the Mortgaged Property securing such Defective Mortgage Loan,
provided, however, that an owner-occupied Mortgaged Property and a detached
- -------- -------
Mortgaged Property shall satisfy the applicable requirements of this clause (x)
in all cases; and (xi) have a Mortgage in a lien position not junior to the lien
position of the Mortgage of such Defective Mortgage Loan. If more than one
7
<PAGE>
Mortgage Loan is substituted for Defective Mortgage Loans on any substitution
date, the requirements of clause (i) of this definition shall be satisfied if
such Mortgage Loans shall have aggregate Loan Balances not less than 95% of the
aggregate Trust Balances of such Defective Mortgage Loans on the date of
substitution. If balances under a Mortgage Loan substituted for a Defective
Mortgage Loan have been transferred to any Prior Trust or to any other Person,
the requirements of clause (i) of this definition shall be satisfied if the
unpaid principal balance of such Mortgage Loan transferred to the Trust is not
less than 95% of the Trust Balance of such Defective Mortgage Loan on the date
of substitution.
Event of Default: As defined in Section 8.1.
----------------
Excess Spread Conditions: With respect to any day, (a) the average of the
------------------------
Excess Spread Percentages for the preceding three Collection Periods equals or
exceeds 1.5% and (b) the average of the Excess Spread Percentages for the
preceding six Collection Periods equals or exceeds 2%.
Excess Spread Percentage: With respect to any Collection Period, an amount
------------------------
equal to the percentage equivalent of a fraction, (a) the numerator of which is
the product of (x) Investor Interest Collections with respect to such Collection
Period remaining after making the distributions pursuant to Section 5.1(a)(i)
through (iv) on the following Distribution Date and (y) a fraction, the
numerator of which is the number of days in the year and the denominator of
which is the number of days in the Collection Period, and (b) the denominator of
which is the average daily Investor Certificate Principal Balance with respect
to such Collection Period.
Foreclosure Proceedings: Proceedings or action for foreclosure, deed in
-----------------------
lieu of foreclosure or trustee's sale with respect to any Mortgage Loan and the
related Mortgaged Property.
Initial Mortgage Loan: Each Mortgage Loan that is transferred and assigned
---------------------
to the Trust on the Closing Date pursuant to Section 2.1.
Insolvency Event: As defined in Section 11.1(c).
----------------
Insurance Agreement: The insurance and indemnity agreement dated November
-------------------
25, 1997 among Chevy Chase Bank, F.S.B., in its individual capacity, the
Transferor, the Servicer, the Certificate Insurer and the Trustee, including any
amendments or supplements thereto, and from and after the date any replacement
certificate insurance policy or other credit enhancement arrangements are
substituted for the Certificate Insurance Policy pursuant to Section 4.3, the
agreement relating to such replacement surety bonds or other credit enhancement
arrangements.
Insurance Proceeds: Proceeds paid to the Servicer by any insurer other
------------------
than the Certificate Insurer pursuant to any insurance policy covering a
Mortgage Loan, net of any component thereof covering any reasonable expenses
incurred by or on behalf of the Servicer in connection with obtaining such
Insurance Proceeds.
8
<PAGE>
Insured Amount: With respect to any Distribution Date, the Certificate
--------------
Insurance Draw Amount for such Distribution Date.
Interest Period: As to any payment of interest on a Mortgage Loan, the
---------------
period ending on a Cycle Date during which the interest covered by such payment
accrued.
Invested Amount: With respect to any day, an amount equal to the Original
---------------
Invested Amount minus the sum of (i) the amount of Investor Principal
Collections previously distributed to Investor Certificateholders, (ii) any
amounts distributed as principal to Certificateholders at the end of the Pre-
Funding Period from funds on deposit in the Pre-Funding Account pursuant to
Sections 5.1(b) and 5.6(e), and (iii) an amount equal to the Aggregate Investor
Liquidation Loss Amounts as to any prior Distribution Date.
Investment Officer: Any officer of the Servicer responsible for
-------------------
designating the investments with respect to funds on deposit in the Certificate
Account, the Spread Account, the Pre-Funding Account and the Capitalized
Interest Account whose name appears on an Officer's Certificate furnished to the
Trustee and the Certificate Insurer by the Servicer, as such list may be amended
from time to time.
Investor Certificate: Any certificate executed and authenticated by the
--------------------
Trustee substantially in the form set forth in Exhibit A hereto.
Investor Certificate Interest: With respect to any Distribution Date,
-----------------------------
interest for the related Accrual Period at the applicable Investor Certificate
Rate on the Investor Certificate Principal Balance on the first day of such
Accrual Period (after giving effect to the distributions made on the first day
of such Accrual Period).
Investor Certificate Principal Balance: With respect to any date: (a) the
--------------------------------------
Original Investor Certificate Principal Balance less (b) the aggregate of
----
amounts actually distributed as principal on the Investor Certificates.
Investor Certificate Rate: With respect to the first Accrual Period,
-------------------------
5.9075%, and for any subsequent Accrual Period, the sum of (a) LIBOR and (b)
0.22%; provided, however, that in no event shall the Investor Certificate Rate
-------- -------
with respect to any Accrual Period exceed the Maximum Rate.
Investor Certificateholder: The Holder of an Investor Certificate.
--------------------------
Investor Certificateholders' Floating Allocation Percentage: With respect
-----------------------------------------------------------
to any day, the percentage equivalent of a fraction, the numerator of which is
the Invested Amount on the end of the preceding day and the denominator of which
is the Pool Balance on the end of the preceding day (but not more than 100%).
9
<PAGE>
Investor Fixed Allocation Percentage: As to any day, the greater of (x)
------------------------------------
98% and (y) the percentage equivalent of a fraction, the numerator of which is
the Invested Amount on the end of the preceding day and the denominator of which
is the Pool Balance on the end of the preceding day (but not more than 100%).
Investor Insurance Proceeds: As to any Mortgage Loan and day, the product
---------------------------
of (i) the Investor Certificateholders' Floating Allocation Percentage on such
day and (ii) Trust Insurance Proceeds received by the Servicer on such day.
Investor Interest Collections: As to any Distribution Date, an amount
-----------------------------
equal to the sum of (i) aggregate amount of Daily Investor Interest Collections
for the related Collection Period and (ii) amounts deposited in the Certificate
Account pursuant to Sections 5.6(f) and 5.6(g).
Investor Liquidation Proceeds: As to any Mortgage Loan and day, the
-----------------------------
product of (i) the Investor Certificateholders' Floating Allocation Percentage
on such day and (ii) Net Trust Liquidation Proceeds received by the Servicer on
such day.
Investor Loss Reduction Amount: With respect to any Distribution Date, the
------------------------------
portion, if any, of the Aggregate Investor Liquidation Loss Amount for such
Distribution Date and all prior Distribution Dates that has not been (a)
distributed to Investor Certificateholders on such Distribution Date pursuant to
Sections 5.1(a)(v) or 5.1(a)(vi), (b) funded by withdrawals from the Spread
Account or (c) funded by the Certificate Insurance Draw Amount.
Investor Principal Collections: As to any Distribution Date and the
------------------------------
related Collection Period, the aggregate amount of Daily Investor Principal
Collections on deposit in the Certificate Account pursuant to Section 3.2 in
respect of such Distribution Date.
LIBOR: As to the initial Accrual Period, 5.6875%. As to any subsequent
-----
Accrual Period, the rate for one month U.S. dollar deposits quoted on Telerate
Page 3750 as of 11:00 A.M., London time, on the second LIBOR Business Day prior
to the first day of such Accrual Period. If such rate does not appear on such
page (or such other page as may replace that page on the Telerate Service or, if
such service is no longer offered, such other service for displaying LIBOR or
comparable rates as may be selected by the Servicer), LIBOR will be the
Reference Bank Rate. If no Reference Bank Rate is available at such time, LIBOR
will be the rate in effect for the previous Accrual Period.
LIBOR Business Day: Any Business Day other than a day on which banking
------------------
institutions in the State of New York or the City of London, England are
required or authorized by law to be closed.
Liquidated Mortgage Loan: As to any Distribution Date, any Mortgage Loan
------------------------
which was not previously a Liquidated Mortgage Loan, was in default during the
Collection Period related to such Distribution Date and in respect of which the
Servicer has determined as of the end of such
10
<PAGE>
Collection Period that all amounts which it expects to recover from or on
account of such Mortgage Loan have been recovered.
Liquidation Expenses: Expenses which are incurred by the Servicer in
--------------------
connection with the liquidation of any Mortgage Loan and not recovered under any
insurance policy or from any Mortgagor, including, without limitation, legal
fees and expenses, title fees and expenses, any unreimbursed amount expended by
the Servicer pursuant to Section 3.6 with respect to such Mortgage Loan
(including, without limitation, amounts advanced to cure defaults on any
mortgage loan which is senior to such Mortgage Loan or to pay in full any such
senior mortgage loan) and any related and unreimbursed expenditures for real
estate property taxes or for property restoration, preservation or insurance
against casualty loss or damage as are customary in the residential mortgage
loan servicing industry.
Liquidation Loss Amount: With respect to any Distribution Date and any
-----------------------
Mortgage Loan that becomes a Liquidated Mortgage Loan during the related
Collection Period, the unrecovered Trust Balance thereof at the end of such
Collection Period, after giving effect to the Net Trust Liquidation Proceeds
applied in reduction of such Trust Balance.
Liquidation Proceeds: Cash (including Insurance Proceeds) received in
--------------------
connection with the liquidation of Liquidated Mortgage Loans, whether through
Foreclosure Proceedings or otherwise.
Loan Agreement: As to any Mortgage Loan, the related loan agreement
--------------
executed by the Mortgagor.
Loan Balance: As to any Mortgage Loan and day, the unpaid principal
------------
balance of such Mortgage Loan upon which interest accrued for such day was
calculated.
Loan Rate: As to any Mortgage Loan and day, the current per annum rate of
---------
interest applicable to the calculation of interest for such day on the Loan
Balance.
Managed Amortization Period: The period from and including the Closing
---------------------------
Date to and including the earlier of (a) the last day of the Collection Period
related to the Distribution Date in November 2003 and (b) the day prior to the
occurrence of a Rapid Amortization Event.
Margin: As to any Mortgage Loan, the margin of such Mortgage Loan as set
------
forth in the related Loan Agreement.
Maximum Principal Payment: With respect to any Distribution Date, the
-------------------------
product of the aggregate amount of Principal Collections for the related
Collection Period and the Certificateholders' Fixed Allocation Percentage as of
the first day of such Collection Period.
Maximum Rate: As to any Accrual Period, a rate equal to the Weighted
------------
Average Net Loan Rate for the related Collection Period (adjusted to an
effective rate reflecting accrued interest
11
<PAGE>
calculated on the basis of the actual number of days in the Accrual Period and a
year assumed to consist of 360 days).
Minimum Monthly Payment: With respect to any Mortgage Loan and any month,
-----------------------
the minimum amount required to be paid by the related Mortgagor pursuant to the
related Loan Agreement.
Moody's: Moody's Investors Service, Inc. or its successor in interest.
-------
Mortgage: The mortgage, deed of trust or other instrument creating a
--------
first, second or third lien on an estate in fee simple interest in real property
securing a Mortgage Loan.
Mortgage File: The mortgage documents listed in Section 2.1(b) pertaining
-------------
to a particular Mortgage Loan and any additional documents required to be added
to such Mortgage File pursuant to this Agreement.
Mortgage Loan Schedule: As of any date, the schedule of Mortgage Loans
----------------------
included in the Trust Fund on such date. Initially references to "Mortgage Loan
Schedule" shall refer to the printed list, magnetic tape or other electronic
medium delivered to the Trustee and the Custodial Agent by the Transferor on the
Closing Date, which sets forth as to each Initial Mortgage Loan, as of the Cut-
Off Date (i) the Cut-Off Date Trust Balance, (ii) the Cut-Off Date Credit Limit,
(iii) the stated maturity upon which any outstanding Loan Balance is due and
payable, (iv) the Cycle Date and (v) the name and address of the Mortgagor. The
Trustee and the Custodial Agent shall hold in confidence the portion of the
Mortgage Loan Schedule relating to the names and addresses of the Mortgagors and
shall not release such information except with the consent of the Transferor.
Thereafter, "Mortgage Loan Schedule" shall refer to such schedule as amended
from time to time in accordance with Sections 2.2(c), 2.4(b), 2.6, 2.8(b), 3.1
or 3.7 hereof.
Mortgage Loans: Each Initial Mortgage Loan, Subsequent Mortgage Loan and
--------------
Eligible Substitute Mortgage Loan identified on the Mortgage Loan Schedule. Any
capitalized reference in this Agreement (including, without limitation, any
reference in Section 2.1(a), 2.2(c), 2.4(b), 2.6, 2.8 or 3.1) to a Mortgage Loan
transferred to, or removed, from, the Trust or as constituting part of the Trust
Fund shall mean such Mortgage Loan to the extent of the related balance owned by
the Trust.
Mortgaged Property: The underlying property securing a Mortgage Loan.
------------------
Mortgagor: The obligor or obligors under a Loan Agreement.
---------
Net Liquidation Proceeds: As to any Mortgage Loan which has been
------------------------
liquidated, Liquidation Proceeds net of Liquidation Expenses.
Net Trust Liquidation Proceeds: With respect to any Liquidated Mortgage
------------------------------
Loan, the Trust's share of Net Liquidation Proceeds, which share is equal to the
sum of (i) the Trust Percentage of Net Liquidation Proceeds not to exceed Trust
Interest with respect to the period
12
<PAGE>
from the last day on which interest was paid in full on such Liquidated Mortgage
Loan to the day on which such Liquidated Mortgage Loan became a Liquidated
Mortgage Loan and (ii) the Trust Percentage of the amount, if any, by which (A)
Net Liquidation Proceeds for such Liquidated Mortgage Loan exceed (B) the sum of
(1) the amounts in clause (i) and (2) the aggregate of the amounts payable to
the following: (a) to each Prior Trust pursuant to clause (i) of the definition
of "Net Trust Liquidation Proceeds" in each of the applicable Prior Trust
Pooling and Servicing Agreements, and (b) to the Reacquired 1991 Common Mortgage
Loan Owner.
90-1 Mortgage Loans: Certain balances of revolving credit line home equity
-------------------
loans that had been owned by Trust 1990 if subsequently reacquired by the
Transferor.
92-1 Mortgage Loans: Certain balances of revolving credit line home equity
-------------------
loans that had been owned by Trust 1992 if subsequently reacquired by the
Transferor.
Officer's Certificate: A certificate delivered to the Trustee and signed
---------------------
by the Chairman of the Board of Directors, a Vice Chairman of the Board of
Directors, the President, an Executive Vice President, a Senior Vice President
or a Vice President of the Transferor, if delivered by the Transferor, and by a
Servicing Officer, if delivered by the Servicer.
Opinion of Counsel: A written opinion of counsel acceptable to the Trustee
------------------
and the Certificate Insurer, who may be internal counsel for the Transferor or
the Servicer.
Original Invested Amount: $178,024,000.
------------------------
Original Investor Certificate Principal Balance: $178,024,000.
-----------------------------------------------
Original Pre-Funded Amount: $20,000,000.
--------------------------
Overall Minimum Amount: As defined in Section 2.6.
----------------------
Overfunded Amount: As to any Distribution Date during the Pre-Funding
-----------------
Period, the excess, if any, of (x) the amount on deposit in the Capitalized
Interest Account after giving effect to the transfer to the Certificate Account
of the Capitalized Interest Requirement, if any, on such Distribution Date
pursuant to Section 5.6(g) over (y) the aggregate Capitalized Interest
Requirements for the remaining Distribution Dates in the Pre-Funding Period,
including the August 20, 1998 Distribution Date (assuming for purposes of this
definition that (i) the Pre-Funding Period will end on August 20, 1998, (ii) no
Subsequent Mortgage Loans are purchased by the Trust and (iii) LIBOR exceeds the
rate at which interest accrues on the Pre-Funded Amount by 3%).
Ownership Interest: With respect 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.
13
<PAGE>
Paying Agent: Any Person appointed by the Trustee and acting pursuant to
------------
Section 6.6.
Percentage Interest: As to any Investor Certificate, the percentage
-------------------
obtained by dividing the principal denomination of such Investor Certificate by
the aggregate of the principal denominations of all Investor Certificates.
Permitted Investments: One or more of the following:
---------------------
(i) obligations of, or guaranteed as to the full and timely payment of
principal and interest by, the United States or any agency or
instrumentality thereof when such obligations are backed by the full
faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause (i) above
maturing not more than three months from the date of acquisition
thereof, provided that the unsecured obligations of the party
--------
agreeing to repurchase the specified obligations are at the time of
such agreement rated by each Rating Agency in its highest short-term
rating category and provided, further, that if Moody's is a Rating
-------- -------
Agency the short-term debt obligations of the party agreeing to
repurchase the specified obligations shall be rated P-1 or better;
(iii) certificates of deposit, demand deposits, time deposits and bankers'
acceptances (which, if Moody's is a Rating Agency, shall each have an
original maturity of not more than 90 days and, in the case of
bankers' acceptances, shall in no event have an original maturity of
more than 365 days) of any United States depository institution or
trust company incorporated under the laws of the United States or any
state or any branch or agency of any foreign bank licensed under the
laws of the United States or any state thereof, provided that the
--------
debt obligations of such depository institution or trust company at
the date of acquisition of such certificates, demand deposits, time
deposits or bankers' acceptances have been rated by each Rating
Agency in its highest short-term rating category and provided,
--------
further, that if Moody's is a Rating Agency, the short-term
-------
obligations of such depository institution or trust company shall be
rated P-1 or better;
(iv) commercial paper (having original maturities of not more than 270
days) of any corporation incorporated under the laws of the United
States or any state thereof which on the date of acquisition has been
rated by each Rating Agency in its highest short-term rating
category;
(v) investments in money market funds registered under the Investment
Company Act of 1940, as amended, that, at the time of the Trust's
investment or contractual commitment to invest therein, are rated in
the highest investment category or otherwise approved in writing by
each Rating Agency; and
14
<PAGE>
(vi) other obligations or securities that are acceptable to each Rating
Agency and the Certificate Insurer as a Permitted Investment hereunder
and will not result in the reduction, suspension or with drawal of the
then-current rating of the Investor Certificates without taking into
account the Certificate Insurance Policy;
provided, however, that (a) no instrument described hereunder shall evidence the
- -------- -------
right to receive only interest with respect to the obligations underlying such
instrument and (b) no instrument purchased hereunder may be a callable
investment purchased at a premium. The highest short-term rating of Standard &
Poor's for the investments specified in clauses (ii), (iii) and (iv) is A-1+ and
the highest investment category rating of Standard & Poor's for the investments
specified in clause (v) is either AAAm, or AAAm-G.
Person: Any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Pool Balance: With respect to any date, the sum of (a) the aggregate of
------------
the Trust Balances of all Mortgage Loans as of such date and (b) the Pre-Funded
Amount (excluding any Pre-Funding Earnings).
Pre-Funded Amount: The Original Pre-Funded Amount minus all amounts
-----------------
withdrawn from the Pre-Funding Account to purchase Subsequent Mortgage Loans.
Pre-Funding Account: The account created and maintained with the Trustee
-------------------
for the benefit of the Certificateholders pursuant to Section 5.6(a).
Pre-Funding Earnings: Any net investment earnings realized on the amounts
--------------------
on deposit in the Pre-Funding Account pursuant to Section 5.6(c).
Pre-Funding Period: The period commencing on the Closing Date and ending on
------------------
the earliest to occur of (i) the Distribution Date on which the aggregate
amount on deposit in the Pre-Funding Account is equal to or less than $100,000,
(ii) the commencement of the Rapid Amortization Period, or (iii) August 20,
1998.
Premium Rate: The per annum rate on which the premium payable to the
------------
Certificate Insurer is calculated, as set forth in the Insurance Agreement.
Principal Collections: For any day, shall equal (i) the Trust's share of
---------------------
principal collections received from borrowers under the Mortgage Loans on such
day after the application of the allocations described in the second paragraph
of Section 2.1(a), (ii) the principal portion of the Net Trust Liquidation
Proceeds and Trust Insurance Proceeds received by the Servicer on such day and
(iii) the principal portion of the Reassignment Deposit Amount and the
Substitution Adjustment Amount (which pursuant to Section 3.2(f) is deemed to be
received on the last day of the related Collection Period).
15
<PAGE>
Prior Trust: Any of Trust 1990, Trust 1992, Trust 1993, Trust 1994 and, in
-----------
the event that 90-1 Mortgage Loans and 92-1 Mortgage Loans are conveyed to the
Trust during the Pre-Funding Period, Trust 1995 and Trust 1996.
Prior Trust Pooling and Servicing Agreement: Any of the Trust 1990 Pooling
-------------------------------------------
and Servicing Agreement, the Trust 1992 Pooling and Servicing Agreement, the
Trust 1993 Pooling and Servicing Agreement, the Trust 1994 Pooling and Servicing
Agreement and, in the event that 90-1 Mortgage Loans and 92-1 Mortgage Loans are
conveyed to the Trust during the Pre-Funding Period, the Trust 1995 Pooling and
Servicing Agreement and the Trust 1996 Pooling and Servicing Agreement.
Prior Trust Trustee: Any of the Trust 1990 Trustee, the Trust 1992
-------------------
Trustee, the Trust 1993 Trustee, the Trust 1994 Trustee and, in the event that
90-1 Mortgage Loans and 92-1 Mortgage Loans are conveyed to the Trust during the
Pre-Funding Period, the Trust 1995 Trustee and the Trust 1996 Trustee.
Rapid Amortization Event: As defined in Section 11.1.
------------------------
Rapid Amortization Period: The period which occurs upon the earlier of a
-------------------------
Rapid Amortization Event or on the first day of the Collection Period
immediately prior to the Distribution Date in December 2003.
Rating Agency: Moody's or Standard & Poor's, at least one of which rated
-------------
the Investor Certificates at the time of the initial issuance of such
Certificates. If Moody's or Standard & Poor's or a successor is no longer in
existence or shall cease to rate the Investor Certificates, "Rating Agency"
shall be such statistical credit rating agency, or other comparable Person, as
shall be designated by the Transferor, notice of which designation shall be
given to the Trustee and the Certificate Insurer, or the successor of such
agency or Person.
Reacquired 1991 Common Mortgage Loan Owner: Chevy Chase Bank, F.S.B.
------------------------------------------
Reacquired 1991 Common Mortgage Loans: Such of the Mortgage Loans, certain
-------------------------------------
of the balances of which were reacquired by Chevy Chase upon the termination of
Trust 1991 and are currently owned by Chevy Chase.
Reassignment Deposit Amount: With respect to any Mortgage Loan required to
---------------------------
be removed on any date pursuant to Section 2.2(c), 2.4(b) or 3.1, an amount
equal to the sum of (i) the Trust Balance of such Mortgage Loan as of the last
day of the Collection Period immediately preceding the date of reassignment and
(ii) accrued and unpaid interest through the Cycle Date occurring in such
Collection Period computed on a daily basis at the Loan Rate less the Servicing
Fee Rate.
Record Date: As to any Distribution Date, the day immediately preceding
-----------
such Distribution Date; provided, however, that if Definitive Certificates are
-------- -------
issued pursuant to Section
16
<PAGE>
6.2(d), the Record Date shall be the last day of the calendar month immediately
preceding such Distribution Date.
Reference Bank Rate: The rate to be determined on the basis of the rates
-------------------
at which deposits in U.S. dollars are offered by the Reference Banks as of 11:00
A.M., London time, on the day that is two LIBOR Business Days prior to the
immediately preceding Distribution Date to prime banks in the London interbank
market for a period of one month in amounts approximately equal to the Investor
Certificate Principal Balance then outstanding. The Trustee will request the
principal London office of each of the Reference Banks to provide a quotation of
its rate. If at least two such quotations are provided, the rate will be the
arithmetic mean of the quotations. If fewer than two such quotations are
provided, the rate will be the arithmetic mean of the rates quoted by one or
more major banks in New York City, selected by the Trustee after consultation
with the Servicer, as of 11:00 A.M., New York City time, on such date for loans
in U.S. dollars to leading European banks for a period of one month in amounts
approximately equal to the Investor Certificate Principal Balance then
outstanding.
Reference Banks: Three major banks that are engaged in the London
---------------
interbank market, selected by the Servicer.
Removal Condition: As defined in Section 2.6.
-----------------
Responsible Officer: When used with respect to the Trustee, any officer
-------------------
assigned to the Corporate Trust Division (or any successor thereto), including
any Vice President, Assistant Vice President, Trust Officer, any Assistant
Secretary, any trust officer or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and having direct responsibility for the administration of this
Agreement.
Retransfer Date: As defined in Section 2.6.
---------------
Retransfer Notice Date: As defined in Section 2.6.
----------------------
SAIF: The Savings Association Insurance Fund, as from time to time
----
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this Agreement
the Savings Association Insurance Fund is not existing and performing duties now
assigned to it, the body performing such duties on such date.
Scheduled Principal Collections Distribution Amount: With respect to any
---------------------------------------------------
Distribution Date in respect of the Managed Amortization Period, the amount
equal to the lesser of (i) the Maximum Principal Payment and (ii) the
Alternative Principal Payment. With respect to any Distribution Date in respect
of the Rapid Amortization Period, the Scheduled Principal Collections
Distribution Amount shall be the Maximum Principal Payment.
17
<PAGE>
Servicer: Chevy Chase Bank, F.S.B., a federal savings bank organized under
--------
the laws of the United States or its successor in interest under Section 7.2,
and any Person that is appointed as successor servicer in accordance with the
terms of this Agreement.
Servicing Certificate: A certificate completed by and executed on behalf
---------------------
of the Servicer in accordance with Section 4.1.
Servicing Fee: As defined in Section 3.8.
-------------
Servicing Fee Rate: 0.50% per annum if Chevy Chase Bank, F.S.B. or its
------------------
successor in interest under Section 7.2 is the Servicer; up to a maximum of
0.75% per annum if another Person (including, without limitation, the Trustee)
is appointed as successor Servicer in accordance with the terms of this
Agreement.
Servicing Officer: Any officer of the Servicer involved in, or responsible
-----------------
for, the administration and servicing of the Mortgage Loans whose name appears
on a list of servicing officers annexed to an Officer's Certificate furnished to
the Trustee and the Certificate Insurer by the Servicer, as such list may be
amended from time to time.
Smith Barney Pooling and Servicing Agreement: The Pooling and Servicing
--------------------------------------------
Agreement dated as of June 1, 1997 between Chevy Chase Bank, F.S.B. as
Transferor and Servicer, and U.S. Bank National Association (formerly known as
First Bank National Association), as Trustee and Custodial Agent, relating to
Chevy Chase Mortgage Loan Trust 1997-1.
Sold Balances: With respect to any Common Mortgage Loan, any interest in
-------------
any portion of the outstanding balance of such Common Mortgage Loan transferred
to a Prior Trust and not subsequently transferred to the Trust.
Spread Account: The account created pursuant to Section 4.4 and maintained
--------------
pursuant to the Insurance Agreement.
Spread Account Amount: The amount on deposit in the Spread Account.
---------------------
Spread Account Requirement: An amount equal to the greater of (a)
--------------------------
$3,560,480; provided, however that on any date on which both of the Excess
Spread Conditions are satisfied, the amount in this clause (a) shall be the
lesser of (x) $3,560,480 and (y) 3% of the Investor Certificate Principal
Balance and (b) the Basic Spread Account Amount.
Standard & Poor's: Standard & Poor's Ratings Services, a division of The
-----------------
McGraw Hill Companies, Inc. or its successor in interest.
Stated Maturity Date: The Distribution Date in June 2030.
--------------------
18
<PAGE>
Sub-Prime Loan: Any Mortgage Loan originated under Chevy Chase's Sub-Prime
--------------
Lending Program .
Subsequent Mortgage Loan: Each mortgage loan acquired by the Trust pursuant
------------------------
to Section 2.8 with funds on deposit in the Pre-Funding Account during the Pre-
Funding Period.
Substitution Adjustment Amount: As to the Collection Period related to a
------------------------------
Distribution Date with respect to which the Transferor or the Servicer
substitutes one or more Eligible Substitute Mortgage Loans pursuant to Section
2.2(c), 2.4(b) or 3.1, the amount, if any, by which the sum of (i) the aggregate
Loan Balances at the end of such Collection Period of all such Eligible
Substitute Mortgage Loans being added to the Trust Fund is less than (ii) the
aggregate Trust Balances at the end of such Collection Period of the related
Mortgage Loans being removed from the Trust Fund, such amount to be deposited
into the Certificate Account to the extent provided in Sections 2.2(d) and
3.2(c). If balances under Eligible Substitute Mortgage Loans being added to the
Trust Fund have been transferred to any Prior Trust or to any other Person, the
amount to be deposited into the Certificate Account to the extent provided in
Section 2.2(d) and 3.2(c) shall be equal to the amount, if any, by which (i) the
sum of the unpaid principal balances of all such Eligible Substitute Mortgage
Loans being added to the Trust Fund is less, at the end of the specified
Collection Period, than (ii) the aggregate Trust Balances at the end of such
Collection Period of the related Mortgage Loans being removed from the Trust
Fund.
Telerate Page 3750: The display designated as page 3750 on the Telerate
------------------
Service (or such other page as may replace page 3750 on that service for the
purpose of displaying London interbank offered rates of major banks).
Transfer: Any direct or indirect transfer, sale, pledge, hypothecation or
--------
other form of assignment of any Ownership Interest in a Certificate.
Transfer Date: With respect to any Mortgage Loan or any Trust Balance
-------------
transferred to or removed from the Trust hereunder, the date on which such
transfer or removal is made under the terms hereof, which date shall be the
Closing Date in the case of all of the Initial Mortgage Loans originally listed
on the Mortgage Loan Schedule.
Transferee: Any Person who is acquiring by Transfer any Ownership Interest
----------
in a Certificate.
Transferor: Chevy Chase Bank, F.S.B., a federal savings bank organized
----------
under the laws of the United States, or its permitted successor in interest.
Transferor Certificateholder: The Holder of the Transferor Certificates.
----------------------------
Transferor Certificates: The certificates executed and authenticated by
-----------------------
the Trustee substantially in the form set forth in Exhibit B hereto.
19
<PAGE>
Transferor Principal Balance: As of the date of determination thereof, the
----------------------------
amount equal to (i) the Pool Balance at the end of such date of determination
less (ii) the Invested Amount at the end of such day.
Trigger Event: Any of the following events:
-------------
(i) the Servicer fails to pay any amount payable by the Servicer under
this Agreement, which failure continues unremedied for five (5)
Business Days after receipt by the Servicer of notice thereof and
results in a draw on the Certificate Insurance Policy;
(ii) the Servicer fails to make any payment required under the Insurance
Agreement, which failure continues unremedied for five (5) Business
Days after receipt by the Servicer of notice thereof;
(iii) an Event of Default; or
(iv) the Certificate Insurer determines that the performance of the
Servicer under this Agreement is not, in the reasonable opinion of
the Certificate Insurer, satisfactory.
Trust: The trust created by this Agreement and designated "Capitol
-----
Revolving Home Equity Loan Trust 1997-1."
Trust 1990: The trust created by the Trust 1990 Pooling and Servicing
----------
Agreement and designated "Cap itol Home Equity Loan Trust 1990-1."
Trust 1991: The trust, which has terminated, created by the Trust 1991
----------
Pooling and Servicing Agreement and designated "Capitol Home Equity Loan Trust
1991."
Trust 1992: The trust created by the Trust 1992 Pooling and Servicing
----------
Agreement and designated "Capitol Home Equity Loan Trust 1992-1."
Trust 1993: The trust created by the Trust 1993 Pooling and Servicing
----------
Agreement and designated "Capitol Home Equity Loan Trust 1993-1."
Trust 1994: The trust created by the Trust 1994 Pooling and Servicing
----------
Agreement and designated "Capitol Home Equity Loan Trust 1994-1."
Trust 1995: The trust created by the Trust 1995 Pooling and Servicing
----------
Agreement and designated "Capitol Revolving Home Equity Loan Trust 1995-1."
Trust 1996: The trust created by the Trust 1996 Pooling and Servicing
----------
Agreement and designated "Capitol Revolving Home Equity Loan Trust 1996-1."
20
<PAGE>
Trust 1990 Common Mortgage Loans: Such of the Mortgage Loans, certain of
--------------------------------
the balances of which were sold and assigned to the Trust 1990 Trustee pursuant
to the Trust 1990 Pooling and Servicing Agreement, until such balances are
reduced to zero.
Trust 1992 Common Mortgage Loans: Such of the Mortgage Loans, certain of
--------------------------------
the balances of which were sold and assigned to the Trust 1992 Trustee pursuant
to the Trust 1992 Pooling and Servicing Agreement, until such balances are
reduced to zero.
Trust 1993 Common Mortgage Loans: Such of the Mortgage Loans, certain of
--------------------------------
the balances of which were sold and assigned to the Trust 1993 Trustee pursuant
to the Trust 1993 Pooling and Servicing Agreement, until such balances are
reduced to zero.
Trust 1994 Common Mortgage Loans: Such of the Mortgage Loans, certain of
--------------------------------
the balances of which were sold and assigned to the Trust 1994 Trustee pursuant
to the Trust 1994 Pooling and Servicing Agreement, until such balances are
reduced to zero.
Trust 1995 Common Mortgage Loans: Such of the Mortgage Loans, certain of
--------------------------------
the balances of which were sold and assigned to the Trust 1995 Trustee pursuant
to the Trust 1995 Pooling and Servicing Agreement, until such balances are
reduced to zero.
Trust 1996 Common Mortgage Loans: Such of the Mortgage Loans, certain of
--------------------------------
the balances of which were sold and assigned to the Trust 1996 Trustee pursuant
to the Trust 1996 Pooling and Servicing Agreement, until such balances are
reduced to zero.
Trust 1990 Pooling and Servicing Agreement: The Pooling and Servicing
------------------------------------------
Agreement dated as of December 1, 1990 between Chevy Chase Bank, F.S.B., as
Seller and Servicer, and The Chase Manhattan Bank (formerly known as Chemical
Bank), as Trustee, and all amendments thereof and supplements thereto.
Trust 1991 Pooling and Servicing Agreement: The Pooling and Servicing
------------------------------------------
Agreement, which has been terminated, dated as of December 1, 1991 between Chevy
Chase Bank, F.S.B., as Seller and Servicer, and The Chase Manhattan Bank
(formerly known as Chemical Bank), as Trustee, and all amendments thereof and
supplements thereto.
Trust 1992 Pooling and Servicing Agreement: The Pooling and Servicing
------------------------------------------
Agreement dated as of December 1, 1992 between Chevy Chase Bank, F.S.B., as
Seller and Servicer, and The Chase Manhattan Bank (formerly known as Chemical
Bank), as Trustee, and all amendments thereof and supplements thereto.
Trust 1993 Pooling and Servicing Agreement: The Pooling and Servicing
------------------------------------------
Agreement dated as of September 1, 1993 between Chevy Chase Bank, F.S.B., as
Seller and Servicer, and The Chase Manhattan Bank (formerly known as Chemical
Bank), as Trustee, and all amendments thereof and supplements thereto.
21
<PAGE>
Trust 1994 Pooling and Servicing Agreement: The Pooling and Servicing
------------------------------------------
Agreement dated as of September 1, 1994 between Chevy Chase Bank, F.S.B., as
Seller and Servicer, and The Chase Manhattan Bank (formerly known as Chemical
Bank), as Trustee, and all amendments thereof and supplements thereto.
Trust 1995 Pooling and Servicing Agreement: The Pooling and Servicing
------------------------------------------
Agreement dated as of September 1, 1995 between Chevy Chase Bank, F.S.B., as
Transferor and Servicer, and The Chase Manhattan Bank (formerly known as
Chemical Bank), as Trustee, and all amendments thereof and supplements thereto.
Trust 1996 Pooling and Servicing Agreement: The Pooling and Servicing
------------------------------------------
Agreement dated as of September 1, 1996 between Chevy Chase Bank, F.S.B., as
Transferor, and The Chase Manhattan Bank, as Trustee, Custodial Agent, and Prior
Trust Trustee, and all amendments thereof and supplements thereto.
Trust 1990 Trustee: The institution executing the Trust 1990 Pooling and
------------------
Servicing Agreement as Trus tee, or its successors in interest, or any successor
trustee that has been appointed in accordance with the terms of the Trust 1990
Pooling and Servicing Agreement.
Trust 1992 Trustee: The institution executing the Trust 1992 Pooling and
------------------
Servicing Agreement as Trustee, or its successors in interest, or any successor
trustee that has been appointed in accordance with the terms of the Trust 1992
Pooling and Servicing Agreement.
Trust 1993 Trustee: The institution executing the Trust 1993 Pooling and
------------------
Servicing Agreement as Trustee, or its successors in interest, or any successor
trustee that has been appointed in accordance with the terms of the Trust 1993
Pooling and Servicing Agreement.
Trust 1994 Trustee: The institution executing the Trust 1994 Pooling and
------------------
Servicing Agreement as Trustee, or its successors in interest, or any successor
trustee that has been appointed in accordance with the terms of the Trust 1994
Pooling and Servicing Agreement.
Trust 1995 Trustee: The institution executing the Trust 1995 Pooling and
------------------
Servicing Agreement as Trustee, or its successors in interest, or any successor
trustee that has been appointed in accordance with the terms of the Trust 1995
Pooling and Servicing Agreement.
Trust 1996 Trustee: The institution executing the Trust 1996 Pooling and
------------------
Servicing Agreement as Trustee, or its successors in interest, or any successor
trustee that has been appointed in accordance with the terms of the Trust 1996
Pooling and Servicing Agreement.
Trust Balance: As to any Mortgage Loan and day, the Cut-Off Date Trust
-------------
Balance plus (i) any Additional Balance in respect of such Mortgage Loan, minus
(ii) all collections credited as principal against the Cut-Off Date Trust
Balance of any such Mortgage Loan in accordance with the related Loan Agreement.
For purposes of this definition, a Liquidated Mortgage Loan shall be deemed to
have a Trust Balance equal to the Trust Balance of the related Mortgage Loan
22
<PAGE>
immediately prior to the final recovery of related Liquidation Proceeds and a
Trust Balance of zero thereafter.
Trust Fund: The corpus of the Trust, consisting of, to the extent
----------
described herein, the following: the Trust Balance of each Mortgage Loan,
including all payments of interest and of principal (to the extent of the Trust
Balance of such Mortgage Loan), from whatever source derived, received on or
with respect to such Mortgage Loan on and after the applicable Cut-Off Date and
allocable to such Trust Balance; such assets as shall from time to time be
identified as deposited into the Certificate Account (excluding, however,
amounts on deposit in the Certificate Account required to be paid to the
Servicer or the Transferor Certificateholder pursuant to Section 3.3); the
interest of the Certificateholders to the extent of the Trust Balances of the
Mortgage Loans and interest accrued thereon in (i) any property which secured a
Mortgage Loan and which has been acquired by or on behalf of the Trustee in
Foreclosure Proceedings or otherwise, (ii) any insurance policies related to the
Mortgage Loans, and (iii) the related Mortgage, Loan Agreement and other
Mortgage File documents for each Mortgage Loan; the Spread Account; the Pre-
Funding Account; the Capitalized Interest Account and the proceeds of each of
the foregoing. The Certificateholders shall have the benefit of the Certificate
Insurance Policy.
Trust Insurance Proceeds: As to any Mortgage Loan and Collection Period,
------------------------
the Trust's share of Insurance Proceeds, which share is equal to the product of
(i) the Trust Percentage and (ii) Insurance Proceeds received during such
Collection Period which (x) are not Liquidation Proceeds, (y) are not applied or
expected to be applied to the restoration or repair of the related Mortgaged
Property or released to the related Mortgagor in accordance with the normal
servicing procedures of the Servicer and (z) will be applied by the Servicer in
reduction of the Loan Balance of such Mortgage Loan.
Trust Interest: With respect to any Mortgage Loan, an amount equal to the
--------------
product of (a) the amount allocated to interest multiplied by (b)(x) the amount
of interest accrued at the Loan Rate on the Trust Balance during the related
Interest Period divided by (y) the amount of interest accrued on the Loan
Balance at the Loan Rate during such Interest Period.
Trust Percentage: With respect to any Mortgage Loan (other than any
----------------
Liquidated Mortgage Loan) for any day, the percentage (carried to four decimal
places) obtained by dividing the Trust Balance of such Mortgage Loan for such
day by the Loan Balance of such Mortgage Loan for such day. With respect to any
Liquidated Mortgage Loan on any day, the Trust Percentage will equal the Trust
Percentage on the day such Mortgage Loan became a Liquidated Mortgage Loan.
Trustee: The institution executing this Agreement as Trustee, or its
-------
successor in interest, or any successor trustee that has been appointed in
accordance with the terms of this Agreement.
Unpaid Investor Certificate Interest Shortfall: With respect to any
----------------------------------------------
Distribution Date, the aggregate amount, if any, of Investor Certificate
Interest that was accrued in respect of a prior Distribution Date and has not be
en distributed to Investor Certificateholders.
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Updated Combined Loan-to-Value Ratio: As to any Mortgage Loan with respect
------------------------------------
to which the Servicer consents to the placement of a senior lien on the related
Mortgaged Property pursuant to Section 3.1(b), the fraction, expressed as a
percentage, the numerator of which is the sum of (i) the Credit Limit of such
Mortgage Loan immediately following such placement and (ii) the unpaid principal
balance of the related first mortgage loan immediately following such placement,
and the denominator of which is the appraised value of the related Mortgaged
Property based upon the drive-by appraisal or other estimate of value made by or
on behalf of the Transferor at the time of and in connection with such consent.
Weighted Average Net Loan Rate: As to any Accrual Period and the Investor
------------------------------
Certificates, the weighted average of the Loan Rates (rounded to the nearest
one-hundredth of a percent, with five one-thousandths of a percent rounded
upward) during the Interest Period ending on the Cycle Date occurring in the
preceding Collection Period for the related Distribution Date (adjusted to an
effective rate reflecting accrued interest calculated on the basis of the actual
number of days in the Accrual Period and a year assumed to consist of 360 days),
less the Servicing Fee Rate and the Premium Rate.
Section 1.2 Other Definitional Provisions.
-----------------------------
(a) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(b) As used herein and in any certificate or other document made or
delivered pursuant hereto or thereto, accounting terms not defined in Section
1.1, and accounting terms partly defined in Section 1.1 to the extent not
defined, shall have the respective meanings given to them under generally
accepted accounting principles or regulatory accounting principles, as
applicable. To the extent that the definitions of accounting terms herein are
inconsistent with the meanings of such terms under generally accepted accounting
principles or regulatory accounting principles, the definitions contained herein
shall control.
(c) The agreements, representations and warranties of Chevy Chase Bank,
F.S.B. in this Agreement in each of its capacities as Transferor and Servicer
shall be deemed to be the agreements, representations and warranties of Chevy
Chase Bank, F.S.B. solely in the indicated capacity for so long as the Chevy
Chase Bank, F.S.B. acts in such capacity under this Agreement.
(d) The agreements, representations and warranties of U.S. Bank
National Association in this Agreement in each of its capacities as Trustee,
Custodial Agent, Paying Agent and Certificate Registrar shall be deemed to be
the agreements, representations and warranties of U.S. National Association Bank
solely in the indicated capacity if and for so long as U.S. Bank National
Association acts in such capacity under this Agreement.
(e) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision
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of this Agreement; the word "including" when used in this Agreement is intended
to be illustrative and not exclusive; Section, subsection, paragraph, clause and
Exhibit references contained in this Agreement are references to Sections,
subsections, paragraphs, clauses and Exhibits in or to this Agreement unless
otherwise specified; and the definitions of terms set forth herein are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as the feminine and neuter genders of such terms.
Section 1.3 Interest Calculations.
---------------------
All calculations of interest on any Certificates shall be made on the basis
of the actual number of days in an Accrual Period and a year assumed to consist
of 360 days.
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.1 Conveyance of Initial Mortgage Loans.
------------------------------------
(a) In consideration of the Trustee's delivery to or upon the order of
the Transferor of the Investor Certificates and the Transferor Certificate in an
aggregate principal amount equal to the sum of (i) the Cut-Off Date Trust
Balances of the Initial Mortgage Loans and (ii) the Original Pre-Funded Amount,
the Transferor does hereby transfer, assign, set over and otherwise convey to
U.S. Bank National Association, as Custodial Agent (the "Custodial Agent") for
the Trustee, in trust for the benefit of the Certificateholders and the
Certificate Insurer, without recourse (subject to Sections 2.2 and 2.4), all of
the Transferor's right, title and interest in and to (i) each Initial Mortgage
Loan, including its Cut-Off Date Trust Balance and any Additional Balances
related thereto and all payments of interest and principal thereon, from
whatever source derived, which are received on or after the Cut-Off Date for the
Initial Mortgage Loans and are allocable to the Trust Balance thereof, and (ii)
to the extent of the Trust Balances of the Initial Mortgage Loans and interest
accrued thereon, as provided in this Agreement, (A) any Mortgaged Properties
related to the Initial Mortgage Loans converted to ownership through Foreclosure
Proceedings or otherwise, (B) any insurance policies related to the Initial
Mortgage Loans, and (C) the related Mortgages, Loan Agreements and other
Mortgage File documents for the Initial Mortgage Loans; and the proceeds of each
of the foregoing. In addition, in consideration of the foregoing, the Transferor
has obtained the Certificate Insurance Policy, which has been delivered to the
Trustee for the benefit of the Investor Certificateholders.
The Transferor and the Trustee acknowledge that the Reacquired 1991 Common
Mortgage Loan Owner and one or more of the Prior Trusts have rights, interests,
power and authority with respect to the Common Mortgage Loans and the related
Loan Agreements, Mortgages and other Mortgage File documents, in the case of the
Prior Trusts to the extent provided in the Prior Trust Pooling and Servicing
Agreements. The Servicer acknowledges that, pursuant to either (i) notices sent
to the Mortgagors at the time of the creation of the Prior Trusts or (ii) the
terms of the Loan Agreements, amounts (other than Insurance Proceeds and
Liquidation Proceeds) received from or
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<PAGE>
on behalf of the Mortgagor of a Common Mortgage Loan which, at the time of
receipt, are treated as principal collections pursuant to the related Loan
Agreement, will be applied in reduction of the principal balance of such Common
Mortgage Loan sold to one or more of the Prior Trusts (including any such
principal balances subsequently conveyed to the Trust and any such principal
balances owned by the Reacquired 1991 Common Mortgage Loan Owner) before such
collections may be applied as Principal Collections under this Agreement.
The Transferor hereby grants to the Custodial Agent for the benefit of the
Trustee for the benefit of the Certificateholders, a security interest in all of
the Transferor's right, title and interest in and to the (i) Initial Mortgage
Loans identified on the Mortgage Loan Schedule on the Cut-Off Date, (ii)
Subsequent Mortgage Loans and Eligible Substitute Mortgage Loans added to the
Mortgage Loan Schedule from time to time, and (iii) all property which is
included in the Trust Fund as collateral security to secure a loan in the amount
equal to all obligations owing on the Certificates. This Agreement shall
constitute a security agreement under applicable law.
In connection with such assignment, transfer, and conveyance, the
Transferor shall file, on or prior to the Closing Date, in the appropriate
office of any applicable state, county or other relevant jurisdiction, a UCC-1
financing statement executed by the Transferor as debtor, naming the Custodial
Agent as secured party and identifying as collateral the Mortgage Loans
identified on the Mortgage Loan Schedule (including Mortgage Loans added to such
Mortgage Loan Schedule from time to time) and all property constituting the
Trust Fund. In connection with such filing, the Transferor shall cause to be
filed all necessary continuation statements thereof and take or cause to be
taken such actions and execute such documents as are necessary to continue the
perfection and protect the Certificateholders' interest in such property.
(b) In connection with the foregoing assignment, transfer and
conveyance by the Transferor, and except as provided in the immediately
following paragraph, the Transferor shall deliver to, and deposit with, the
Custodial Agent, on or prior to the Closing Date, with respect to the Initial
Mortgage Loans and on or prior to the applicable Transfer Date, with respect to
the Subsequent Mortgage Loans and any Eligible Substitute Mortgage Loan, the
following documents or instruments with respect to each Mortgage Loan:
(i) the related Loan Agreement and any evidence of indebtedness
executed by the related Mortgagor in connection therewith;
(ii) the related Mortgage with evidence of recording indicated thereon;
and
(iii) if the assignments referred to in Section 2.1(d) are not required
to be recorded as provided in Section 2.1(d), an assignment to the
Custodial Agent of such Mortgage in recordable form.
Notwithstanding the immediately preceding sentence, the Transferor shall not be
required to deliver to, and deposit with, the Custodial Agent on or prior to the
Closing Date, with respect to the Initial Mortgage Loans and on or prior to the
applicable Transfer Date, with respect to the Subsequent Mortgage Loans and any
Eligible Substitute Mortgage Loan, as the case may be, any
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<PAGE>
of the documents or instruments identified in clauses (i) and (ii) above which
the Transferor previously has delivered and deposited pursuant to a Prior Trust
Pooling and Servicing Agreement or the Smith Barney Pooling and Servicing
Agreement and which have not subsequently been released to the Transferor;
provided, however, that the Transferor shall furnish the Custodial Agent and the
- -------- -------
Trustee with an Officer's Certificate on or prior to the Closing Date, with
respect to the Initial Mortgage Loans and on or prior to the applicable Transfer
Date, with respect to the Subsequent Mortgage Loans and any Eligible Substitute
Mortgage Loan, identifying the Mortgage Loans with respect to which such
documents or instruments previously were delivered and deposited and have not
been so released. The documents or instruments identified in such Officer's
Certificate shall be considered to be part of the Mortgage Files for all
purposes of this Agreement.
If the Transferor cannot deliver a Mortgage with evidence of recording
thereon concurrently with the execution and delivery of this Agreement, with
respect to the Initial Mortgage Loans and on or prior to the applicable Transfer
Date, with respect to the Subsequent Mortgage Loans and any Eligible Substitute
Mortgage Loan, the Transferor shall deliver to the Custodial Agent an Officer's
Certificate, with a photocopy of such Mortgage attached thereto, stating that
such Mortgage has been delivered to the appropriate public recording office for
recordation. Promptly upon receipt thereof from the applicable public recording
office, the Transferor shall deliver to the Custodial Agent either (i) such
Mortgage with evidence of recording indicated thereon or (ii) a true copy of
such Mortgage issued by such public recording office.
(c) The Transferor hereby confirms to the Trustee and the Custodial
Agent that on or prior to the Closing Date, with respect to the Initial Mortgage
Loans and on or prior to the applicable Transfer Date, with respect to the
Subsequent Mortgage Loans and any Eligible Substitute Mortgage Loan, it has
caused or will cause, as the case may be, the portions of the Electronic Ledger
relating to the Mortgage Loans to be clearly and unambiguously marked to
indicate that such Mortgage Loans (to the extent provided herein) have been
transferred and assigned to the Custodial Agent for the benefit of the Trustee
and constitute part of the Trust Fund in accordance with the terms of the trust
created hereunder.
(d) The Transferor, at its own expense, shall either (i) submit for
recordation an assignment of each Mortgage (to the extent of the Custodial
Agent's interest therein) in favor of the Custodial Agent (which may be a
blanket assignment if permitted by applicable law) in the appropriate real
property or other records not later than ninety (90) days after the Closing
Date, with respect to the Initial Mortgage Loans and not later than ninety (90)
days after the applicable Transfer Date, with respect to the Subsequent Mortgage
Loans and any Eligible Substitute Mortgage Loan or (ii) deliver to the Custodial
Agent an assignment of each Mortgage (to the extent of the Custodial Agent's
interest therein) in favor of the Custodial Agent in recordable form, together
with an opinion of Counsel to the effect that recording is not required to
perfect a first priority security interest in favor of the Custodial Agent for
the benefit of the Trustee in the related Mortgage Loan.
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<PAGE>
(e) On or prior to the Closing Date, the Transferor shall deliver the
Certificate Insurance Policy to the Trustee.
(f) The Custodial Agent hereby agrees not to transfer possession of
the loan agreement, mortgage or other mortgage file documents with respect to
any "Mortgage Loan" (as defined in this Agreement and each Prior Trust Pooling
and Servicing Agreement) which has outstanding balances under the Agreement or
any Prior Trust Pooling and Servicing Agreement to the Transferor.
Nothing in this Section 2.1(f) shall be deemed to affect the right or
obligation of the Prior Trust Trustee, the Trustee or the Custodial Agent to
release or to cause the release of the Mortgage File of any "Mortgage Loan" (as
defined in this Agreement and each Prior Trust Pooling and Servicing Agreement)
to the servicer of any Prior Trust or the Servicer to the extent permitted or
required by the applicable Prior Trust Pooling and Servicing Agreements or
hereunder.
Notwithstanding anything to the contrary contained herein, the parties
hereto agree that Norwest Bank Minnesota, National Association shall act as
Document Custodian of the documents referred to in Section 2.1(b) pursuant to
the terms and conditions of the Custodial Agreement as the agent of the
Custodial Agent. Any and all documents required to be delivered to the
Custodial Agent hereunder shall be delivered to the Document Custodian.
Section 2.2 Acceptance by Custodial Agent; Reassignment of Mortgage Loans;
--------------------------------------------------------------
Substitution of Eligible Substitute Mortgage Loans.
--------------------------------------------------
(a) The Custodial Agent acknowledges conveyance of the documents
referred to in the first paragraph of Section 2.1(b) and to be delivered to it
pursuant thereto, and declares that it does hold and shall hold such documents
and the other documents constituting a part of the Mortgage Files in trust to
the extent received by it, upon the terms herein set forth, for the benefit of
the Trustee for the use and benefit of all present and future Certificateholders
and the Certificate Insurer.
(b) Within 30 days following delivery of the Mortgage Files to the
Custodial Agent pursuant to Section 2.1(b), the Custodial Agent shall review
each Mortgage File to ascertain that all required documents referred to in the
first paragraph of Section 2.1(b) have been executed and received, and that such
documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule;
provided, however, that the Custodial Agent's review of the Mortgage File for
- -------- -------
any Common Mortgage Loan shall be restricted to review of the assignment
referred to in clause (iii) of Section 2.1(b) and provided further that the
-------- -------
Custodial Agent's review of assignments of Mortgages that have been delivered to
the applicable recording office for recordation shall be reviewed in accordance
with the provisions of the following paragraph. The Custodial Agent may rely on
the purported due execution of any such documents and genuineness of any
signature thereon. Prior to the end of such 30 day period, the Custodial Agent
shall deliver to the Transferor, the Servicer and the Certificate Insurer a
certificate substantially in the form of Exhibit E. If, as set forth in such
certificate, the Custodial Agent determines that any document
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<PAGE>
constituting a part of a Mortgage File (i) does not bear manual signatures, (ii)
has not been received or (iii) is unrelated to the Mortgage Loans identified in
the Mortgage Loan Schedule, the Transferor shall correct or cure any such
specified defect within 60 days following the Transferor's receipt of such
certificate. The Custodial Agent shall be under no duty or obligation (i) 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 or (ii) to determine whether any Mortgage File should include any of
the documents specified in Section 2.1(b).
Each original recorded assignment of Mortgage referred to in Section 2.1(d)
shall be delivered to the Custodial Agent within ten (10) days following the
date on which it is returned to the Transferor by the office with which such
assignment was filed for recording. Within ten (10) days following receipt by
the Custodial Agent of a recorded assignment, the Custodial Agent shall review
such assignment to confirm evidence of the recording thereof of the Custodial
Agent's interest. Within ten (10) days after the end of each month, the
Custodial Agent shall deliver to the Transferor, the Servicer and the
Certificate Insurer a notice, substantially in the form of Exhibit F, with
respect to any defects relating to the recording of such assignments based upon
the Custodial Agent's review. The Transferor shall have a period of sixty (60)
days following receipt of such notice to correct or cure any such defects.
Neither the Trustee nor the Custodial Agent shall have any responsibility
for reviewing any Mortgage File except as expressly provided in this Section
2.2(b). Without limiting the effect of the preceding sentence, in reviewing any
Mortgage File, neither the Trustee nor the Custodial Agent shall have any
responsibility for determining whether any document is valid and binding,
whether the text of any assignment or endorsement is in proper or recordable
form (except to determine if the Custodial Agent is the assignee), whether any
document has been recorded in accordance with the requirements of any applicable
jurisdiction or whether a blanket assignment is permitted in any applicable
jurisdiction, but shall only be required to determine whether a document has
been executed, that it appears to be what it purports to be, and, where
applicable, that it purports to be recorded.
The foregoing notwithstanding, the parties acknowledge that the review of
the Mortgage Files will be performed by the Document Custodian as agent of the
Custodial Agent.
(c) If the time to correct or cure any defect of which the Custodial
Agent has notified the Transferor following the Custodial Agent's review of the
Mortgage Files pursuant to Section 2.2(b) has expired without any correction or
cure, the Transferor shall, on the Business Day immediately preceding the
Distribution Date in the month following the Collection Period in which the time
to correct or cure such defect expired, remove the related Mortgage Loan
(including any property acquired in respect thereof and any insurance policy or
Insurance Proceeds with respect thereto) from the Trust either (i) in exchange
for depositing in the Trust the Reassignment Deposit Amount, which amount shall
be deposited into the Certificate Account pursuant to Section 3.2 on such
immediately preceding Business Day, or (ii) by substituting in its place an
Eligible Substitute Mortgage Loan or Loans. Promptly upon receipt by the Trustee
and Custodial Agent of, (i) in the case of a payment in respect of the removed
Mortgage Loan, written
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notification signed by a Servicing Officer to the effect that the Reassignment
Deposit Amount for any such Mortgage Loan has been so deposited into the
Certificate Account or (ii) in the case of a substitution, the Mortgage File for
each related Eligible Substitute Mortgage Loan and written notification signed
by a Servicing Officer to the effect that such Mortgage Loan complies with the
definition of Eligible Substitute Mortgage Loan and that the Substitution
Adjustment Amount, if any, has been deposited into the Certificate Account as
provided in Section 2.2(d), the Custodial Agent shall release to the Transferor
the Mortgage File for the removed Mortgage Loan and shall execute and deliver to
the Transferor an assignment substantially in the form of Exhibit G, without
recourse, in order to vest in the Transferor legal and beneficial ownership of
such removed Mortgage Loan (including any property acquired in respect thereof
and any insurance policy or Insurance Proceeds with respect thereto).
Notwithstanding the immediately preceding sentence or the provisions of Sections
2.4, 3.1, 2.6, or 3.7, the Custodial Agent shall not be required to release any
Mortgage File to the Transferor if the Mortgage File is required to be retained
for the use and benefit of a Prior Trust pursuant to a Prior Trust Pooling and
Servicing Agreement. The form of assignment attached as Exhibit G may be
modified from time to time to the extent required by applicable law, as
evidenced by an Opinion of Counsel delivered to the Custodial Agent. The
obligation of the Transferor to remove (to the extent permitted herein) any
Mortgage Loan and either deposit the Reassignment Deposit Amount or substitute
an Eligible Substitute Mortgage Loan shall constitute the sole remedy with
respect to such defect available to Certificateholders, the Custodial Agent, the
Trustee (for itself or on behalf of Certificateholders) or the Certificate
Insurer against the Transferor.
Notwithstanding the immediately preceding paragraph, if any Eligible
Substitute Mortgage Loans conveyed to the Trust are Common Mortgage Loans, the
Transferor shall be required to deliver to, and deposit with, the Custodial
Agent with respect to such Common Mortgage Loans, in lieu of the documents or
instruments identified in clauses (i) and (ii) of the first paragraph of Section
2.1(b), an Officer's Certificate identifying the Eligible Substitute Mortgage
Loans with respect to which such documents or instruments previously were
delivered and deposited pursuant to a Prior Trust Pooling and Servicing
Agreement. The documents or instruments identified in such Officer's
Certificate shall be considered to be part of the Mortgage Files for all
purposes of this Agreement and shall be subject to the provisions of Section
2.1(f). The Mortgage Loan Schedule shall be amended to reflect all additions,
substitutions or deletions of Mortgage Loans provided for in this Section.
(d) Subject to Section 3.2(c), the Substitution Adjustment Amount for
any Collection Period shall be deposited into the Certificate Account on the
Business Day immediately preceding the Distribution Date occurring in the month
following such Collection Period. All amounts received in respect of the
Eligible Substitute Mortgage Loan or Loans during the Collection Period in which
the circumstances giving rise to the relevant substitution occur shall not be a
part of the Trust Fund and shall not be deposited by the Servicer into the
Certificate Account. All amounts received by the Servicer during the Collection
Period in which the circumstances giving rise to such substitution occur in
respect of any Mortgage Loan so removed from the Trust Fund shall be deposited
by the Servicer into the Certificate Account. The Servicer shall amend the
Mortgage Loan Schedule to reflect the removal of such Mortgage Loan from the
terms of this Agreement and the substitution of the Eligible Substitute Mortgage
Loan or Loans therefor. Upon such
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substitution, the Eligible Substitute Mortgage Loan or Loans shall be subject to
the terms of this Agreement in all respects, and the Transferor shall be deemed
to have entered into or made with respect to such Eligible Substitute Mortgage
Loan or Loans, as of the date of substitution, the covenants, representations
and warranties set forth in Section 2.4. The procedures applied by the
Transferor in selecting each Eligible Substitute Mortgage Loan shall not be
adverse to the interests of the Trustee, the Certificate Insurer and the
Certificateholders and shall be comparable to the selection procedures
applicable to the Mortgage Loans conveyed hereunder as of the date of this
Agreement.
The provisions of this Section 2.2(d) shall also apply to any substitution
of Eligible Substitute Mortgage Loan or Loans by the Transferor pursuant to
Section 2.4(b) and by the Servicer pursuant to Section 3.1.
The Mortgage Loan Schedule shall be amended to reflect all additions,
substitutions or deletions of Mortgage Loans provided for in this Section.
Section 2.3 Representations and Warranties Regarding the Servicer.
-----------------------------------------------------
The Servicer represents and warrants to the Trustee, the Certificate
Insurer and the Certificateholders as of the date of this Agreement and as of
the Closing Date that:
(i) The Servicer is validly existing as a federally chartered savings
bank in good standing under the laws of the United States and has
the corporate power and authority to own its assets and to
transact the business in which it is currently engaged.
(ii) The Servicer has the corporate power and authority to make,
execute, deliver and perform this Agreement and all of the
transactions contemplated under this Agreement, and has taken all
necessary corporate action to authorize the execution, delivery
and performance of this Agreement. When executed and delivered,
this Agreement will constitute the legal, valid and binding
obligation of the Servicer enforceable in accordance with its
terms, except as enforcement of such terms may be limited by
applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium or other similar laws now or hereafter
in effect affecting the enforcement of creditors' or obligees'
rights generally or the rights of creditors or obligees of
federally chartered savings banks, the deposits of which are
insured by the SAIF, and except as such enforceability may be
limited by general principles of equity (whether considered in a
proceeding at law or in equity).
(iii) The Servicer is not required to obtain the consent of any other
party or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority,
bureau or agency in connection with the execution, delivery,
performance, validity or enforceability of this Agreement, except
for any
31
<PAGE>
such consent, license, approval or authorization, or registration
or declaration, as shall have been obtained or filed, as the case
may be, prior to the Closing Date.
(iv) The execution, delivery and performance of this Agreement by the
Servicer will not violate any provision of any existing law or
regulation or any order or decree of any court applicable to the
Servicer or any provision of the charter or bylaws of the
Servicer, or constitute a material breach of any mortgage,
indenture, contract or other agreement to which the Servicer is a
party or by. which the Servicer may be bound.
(v) No litigation or administrative proceeding of or before any court,
tribunal or governmental body is currently pending, or to the
knowledge of the Servicer threatened, against the Servicer or any
of its properties or with respect to this Agreement or the
Certificates which could have a material adverse effect on the
transactions contemplated by this Agreement.
(vi) The Servicer has fully complied, and will continue to maintain
full compliance, with the provisions of Section 13(e) of the
Federal Deposit Insurance Act, as amended (12 U.S.C. (S) 1823(e)).
Upon discovery by the Transferor, the Servicer or the Trustee of a breach of any
of the representations and warranties in this Section 2.3 which materially and
adversely affects the interests of the Certificateholders, such party shall give
prompt written notice of such breach to the other parties. Within sixty (60)
days after its discovery or receipt of notice of any such breach, the Servicer
shall cure such breach in all material respects.
Section 2.4 Representations and Warranties of the Transferor Regarding the
--------------------------------------------------------------
Mortgage Loans; Removal and Substitution Obligations.
----------------------------------------------------
(a) The Transferor represents and warrants to the Trustee, the
Certificate Insurer, and the Certificateholders as of the date of this Agreement
and as of the Closing Date and as of the related Cut-Off Date for each
applicable Mortgage Loan transferred to the Trust (unless otherwise specified)
that:
(i) As of the Closing Date, with respect to the Initial Mortgage Loans
and the applicable Transfer Date, with respect to the Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loan, the
information set forth on the Mortgage Loan Schedule was true and
correct in all material respects.
(ii) Each Mortgage is a valid lien on the related Mortgaged Property,
subject only to (a) the lien of current real property taxes and
assessments, (b) the lien of the related first mortgage loan, if
any, which first mortgage loan does not contain a future advance
provision, (c) covenants, conditions and restrictions, rights of
way, easements and other matters of public record as of the date
of recording of such
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Mortgage, such exceptions appearing of record being acceptable to
mortgage lending institutions generally in the area wherein the
related Mortgaged Property is located or specifically reflected in
the appraisal obtained in connection with the origination of the
related Mortgage Loan and (d) other matters to which like
properties are commonly subject which do not materially interfere
with the benefits of the security interest intended to be provided
by such Mortgage.
(iii) Immediately prior to the transfer and assignment by the Transferor
to the Custodial Agent for the benefit of the Trustee, the
Transferor had good title to each Mortgage Loan, subject to no
prior lien, mortgage, security interest, pledge, charge or other
encumbrance, except to the extent arising under the Prior Trust
Pooling and Servicing Agreements.
(iv) The transfer to the Trust of the Mortgage Loans constitutes either
a valid sale of all right, title and interest of the Transferor in
the Mortgage Loans (to the extent provided herein), including the
Cut-Off Date Trust Balances thereof, to the Custodial Agent for
the benefit of the Trustee or the grant of a first priority
perfected security interest therein (to the extent provided
herein) to the Custodial Agent for the benefit of the Trustee.
(v) As of the applicable Cut-Off Date, no Minimum Monthly Payment on
or in respect of any Mortgage Loan is thirty (30) or more days
past due on a contractual basis.
(vi) As of the Closing Date, with respect to the Initial Mortgage Loans
and as of the applicable Transfer Date, with respect to the
Subsequent Mortgage Loans and any Eligible Substitute Mortgage
Loan, no Mortgaged Property is subject to any mechanics' lien or
claim for work, labor or material which is or may be a lien prior
to, or equal or coordinate with, the lien of the related Mortgage,
except those liens which are fully insured against by the title
insurance policy referred to in clause (xiii) below.
(vii) As of the Closing Date, with respect to the Initial Mortgage Loans
and as of the applicable Transfer Date, with respect to the
Subsequent Mortgage Loans and any Eligible Substitute Mortgage
Loan, there is no lien for any delinquent recording fee, tax or
assessment against any Mortgaged Property.
(viii) As of the Closing Date, with respect to the Initial Mortgage Loans
and as of the applicable Transfer Date, with respect to the
Subsequent Mortgage Loans and any Eligible Substitute Mortgage
Loan, no Loan Agreement or Mortgage is subject to any valid
offset, defense or counterclaim.
(ix) As of the Closing Date, with respect to the Initial Mortgage Loans
and as of the applicable Transfer Date, with respect to the
Subsequent Mortgage Loans and any
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Eligible Substitute Mortgage Loan, to the best knowledge of the
Transferor, each Mortgaged Property is free of material damage and
is in good repair.
(x) The Cut-Off Date Trust Balance for each Mortgage Loan was not less
than $0 or greater than $500,000.
(xi) As of the related Cut-Off Date for each of the Mortgage Loans, no
Mortgage Loan had a stated maturity date later than 390 months
after such Cut-Off Date.
(xii) At the time it was made, each Mortgage Loan complied in all
material respects with applicable state and federal laws,
including, without limitation, usury, equal credit opportunity and
disclosure laws, and the consummation of the transactions herein
contemplated, including, without limitation, the receipt of
interest by Certificateholders, will not violate such laws in any
material respect.
(xiii) A lender's title insurance policy or binder, or other assurance of
title customary in the relevant jurisdiction therefor (including,
without limitation, a title report), was issued on the date of the
origination of each Mortgage Loan and is valid and remains in full
force and effect with respect to each such Mortgage Loan.
(xiv) As of the Closing Date, with respect to the Initial Mortgage Loans
and as of the applicable Transfer Date, with respect to the
Subsequent Mortgage Loans and any Eligible Substitute Mortgage
Loan, the Transferor has not received a notice of default of any
senior mortgage loan related to a Mortgaged Property which has not
been cured by a party other than the Transferor.
(xv) Each Loan Agreement and each Mortgage is an enforceable obligation
of the related Mortgagor, except as enforceability may be limited
by (a) bankruptcy, insolvency or other similar laws now or
hereafter in effect relating to the enforcement of creditors'
rights generally and (b) general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or
in equity), and, to the best knowledge of the Transferor, there is
no offset, defense, claim or counterclaim to any obligation under
such Loan Agreement, as so amended, or under the Mortgage,
including the obligation of the Mortgagors to pay principal and
interest in accordance with the terms of such Loan Agreement, as
so amended.
(xvi) As of the applicable Cut-Off Date, the Combined Loan-to-Value
Ratio for each Mortgage Loan was not in excess of 115% (rounded to
the nearest whole percent).
(xvii) As of the Cut-Off Date for the Initial Mortgage Loans, the
weighted average Combined Loan-to-Value Ratio of the Initial
Mortgage Loans was 61.2%.
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(xviii) As of the Cut-Off Date for the Initial Mortgage Loans, not more
than 3.0% of the Initial Mortgage Loans by principal balance was
secured by Mortgaged Properties located in one United States zip
code.
(xix) No selection procedure reasonably believed by the Transferor to be
adverse to the interests of the Certificateholders or the
Certificate Insurer was utilized in selecting the Mortgage Loans.
(xx) The Mortgage File for each Mortgage Loan contains all required
documents referred to in the first paragraph of Section 2.1(b),
and such documents bear manual signatures and relate to such
Mortgage Loan.
(xxi) As of the Initial Cut-Off Date and each applicable Transfer Date,
not more than 5% of the Cut-Off Date Trust Balances of the
Mortgage Loans are Sub-Prime Loans.
(b) The representations and warranties set forth in Section 2.4(a)
shall survive the delivery of the Mortgage Files to the Custodial Agent. Upon
discovery by the Transferor, the Servicer, the Certificate Insurer or the
Trustee of a breach of any of the foregoing representations and warranties with
respect to any Mortgage Loan which materially and adversely affects the
interests of the Certificateholders in such Mortgage Loan, the party discovering
such breach shall give written notice thereof to the other parties within five
(5) days after such discovery. Within sixty (60) days after its discovery or its
receipt of notice of any such breach, the Transferor shall use all reasonable
efforts to cure such breach in all material respects. Unless at the expiration
of such 60-day period, such breach has been cured in all material respects or
otherwise does not exist or continue to exist, the Transferor shall, not later
than the Business Day immediately preceding the Distribution Date in the month
following the related Collection Period in which any such cure period expired,
remove such Defective Mortgage Loan (including any property acquired in respect
thereof and any insurance policy or Insurance Proceeds with respect thereto) in
exchange for either (i) deposit of the Reassignment Deposit Amount or (ii)
substitution in its place of an Eligible Substitute Mortgage Loan or Loans, in
either case in the same manner and subject to the same conditions as set forth
in Section 2.2(c). In conjunction with any removal pursuant to the foregoing,
the Transferor shall be entitled to receive an assignment of the removed
Mortgage Loan and a release of the related Mortgage File from the Custodial
Agent to the extent set forth in Section 2.2(c). The obligation of the
Transferor to remove any Mortgage Loan as to which a breach has occurred and is
continuing shall constitute the sole remedy against the Transferor with respect
to such breach available to Certificateholders, the Trustee on behalf of
Certificateholders, or the Certificate Insurer.
A breach of the representation and warranty set forth in clause (xx) of
Section 2.4(a) with respect to any Mortgage Loan shall be deemed to affect
materially and adversely the interests of the Certificateholders and the
Certificate Insurer in such Mortgage Loan. Notwithstanding the first paragraph
of this Section 2.4(b) the provisions of Section 2.2(b) shall control with
respect to notice
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and cure periods applicable to the correction of any defective Mortgage Files
and the obligations of the Transferor with respect thereto.
The Mortgage Loan Schedule shall be amended to reflect all additions,
substitutions or deletions of Mortgage Loans provided for in this Section.
Section 2.5 Official Record.
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The Transferor and the Servicer agree that, so long as the Certificates
remain outstanding, this Agreement shall remain outstanding as an official
record of the Transferor within the meaning of Section 13(e) of the Federal
Deposit Insurance Act, as amended (12 U.S.C. (S) 1823(e)).
Section 2.6 Retransfers of Mortgage Loans at Election of Transferor.
-------------------------------------------------------
Subject to the conditions set forth below, the Transferor may, but shall
not be obligated to, require the retransfer of Mortgage Loans and the related
property from the Trust to the Transferor as of the last Business Day of any
Collection Period (the "Retransfer Date"). On the 27th day of such Collection
Period or if that day is not a Business Day the next preceding Business Day (the
"Retransfer Notice Date"), the Transferor shall give the Trustee and the
Custodial Agent a notice of the proposed retransfer that contains a list of the
Mortgage Loans and the related property to be retransferred. Such retransfers
of Mortgage Loans and the related property shall be permitted upon satisfaction
of the following conditions:
(i) the Removal Condition is satisfied;
(ii) On or before the Retransfer Date, the Transferor shall have delivered
to the Trustee and Custodial Agent a revised Mortgage Loan Schedule,
reflecting the proposed retransfer;
(iii) The Transferor shall represent and warrant that no selection
procedures reasonably believed by the Transferor to be adverse to the
interests of the Investor Certificateholders or the Certificate
Insurer were utilized in selecting the Mortgage Loans to be removed
from the Trust;
(iv) Each Rating Agency shall have received on or prior to the Retransfer
Notice Date notice of such proposed retransfer of Mortgage Loans and,
prior to the Retransfer Date, shall not have notified the Transferor
in writing that such retransfer of Mortgage Loans would result in a
reduction or withdrawal of its then current rating of the Investor
Certificates without taking into account the Certificate Insurance
Policy; provided, however that with respect to the first proposed
-----------------
retransfer, each Rating Agency shall have received on or prior to the
Retransfer Notice Date notice of such proposed retransfer of Mortgage
Loans and, prior to the Retransfer Date, shall have notified the
Transferor in writing that such retransfer of Mortgage Loans
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would not result in a reduction or withdrawal of its then current
rating of the Investor Certificates without taking into account the
Certificate Insurance Policy.
(v) The Transferor shall have delivered to the Trustee and the
Certificate Insurer an Officer's Certificate certifying that the
items set forth in subparagraphs (i) through (iv), inclusive, have
been performed or are true and correct, as the case may be. The
Trustee may conclusively rely on such Officer's Certificate, shall
have no duty to make inquiries with regard to the matters set forth
therein and shall incur no liability in so relying.
The "Removal Condition" is satisfied if, on the Retransfer Date, after
giving effect to such removal the sum of the Transferor Principal Balance and
the Spread Account Amount is not less than the greater of (a) 5% of the Pool
Balance on such date and (b) 2% of the Pool Balance on the Cut-Off Date (the
"Overall Minimum Amount"); provided, however, that (1) in no event shall the
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Transferor Principal Balance, after giving effect to such removal, be less than
2% of the Pool Balance and (2) during the Rapid Amortization Period, no removal
shall occur unless (A) no Rapid Amortization Event has occurred and (B)
immediately prior to such removal, the Pool Balance is at least equal to the sum
of (x) the outstanding Investor Certificate Principal Balance and (y) the
Overall Minimum Amount.
Upon receiving the requisite information from the Transferor, the Servicer
shall perform in a timely manner those acts required of it as specified above
and shall indicate on the Electronic Ledger that the Mortgage Loans
retransferred to the Transferor are no longer in the Trust. Upon satisfaction
of the above conditions to the extent provided in Section 2.2(c), on the
Retransfer Date the Custodial Agent shall deliver to the Transferor the Mortgage
File for each Mortgage Loan being retransferred and the Custodial Agent shall
execute and deliver to the Transferor such other documents prepared by the
Transferor as shall be reasonably necessary to retransfer such Mortgage Loan and
related property to the Transferor. Any such retransfer of the Trust's right,
title and interest in and to Mortgage Loans shall be without recourse,
representation or warranty by or of the Trust to the Transferor.
The Mortgage Loan Schedule shall be amended to reflect all additions,
substitutions or deletions of Mortgage Loans provided for in this Section.
Section 2.7 Tax Treatment.
-------------
It is the intention of the Transferor and the Investor Certificateholders
(and Certificate Owners) that the Investor Certificates will be indebtedness of
the Transferor for federal, state and local income and franchise tax purposes
and for purposes of any other tax imposed on or measured by income. The
Transferor, the Trustee and each Investor Certificateholder (and Certificate
Owner) by acceptance of its Investor Certificate (or, in the case of a
Certificate Owner, by virtue of such Certificate Owner's acquisition of a
beneficial interest therein) and the Certificate Insurer agrees to treat the
Investor Certificates (or beneficial interest therein), for purposes of federal,
state and local income, as indebtedness of the Transferor secured by the Trust
Balances of the Mortgage Loans and the Pre-Funding Account and to report the
transactions contemplated by this Agreement
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on all applicable tax returns in a manner consistent with such treatment. Each
Certificateholder agrees that it will cause any Certificate Owner acquiring an
interest in an Investor Certificate through it to comply with this Agreement as
to treatment as indebtedness for federal, state and local income and franchise
tax purposes and for purposes of any other tax imposed on or measured by income.
Furthermore, the Trustee shall treat the Trust as a security device only, and
shall not file tax returns or obtain an employer identification number on behalf
of the Trust.
Section 2.8 Conveyance of Subsequent Mortgage Loans.
---------------------------------------
(a) Subject to the satisfaction of the conditions set forth in
Section 2.1 and paragraph (b) below, in consideration of the Trustee's delivery
to or upon the order of the Transferor of all or a portion of the amount on
deposit in the Pre-Funding Account net of any Pre-Funding Earnings, the
Transferor shall, to the extent of the availability thereof, on any Transfer
Date transfer, assign, set over and otherwise convey to the Trust without
recourse (subject to Sections 2.2 and 2.4) all of its right, title and interest
in and to (i) each Subsequent Mortgage Loan listed on the schedule delivered by
the Transferor on such Transfer Date, including its Cut-Off Date Trust Balance
and any Additional Balances thereon and all payments of interest and principal
thereon, from whatever source derived, which are received on or with respect to
such Subsequent Mortgage Loan on or after the related Cut-Off Date and are
allocable to the Trust Balance thereof and (ii) to the extent of the Trust
Balances of the Subsequent Mortgage Loans and interest accrued thereon, as
provided in this Agreement, (A) any Mortgaged Properties related to the
Subsequent Mortgage Loans converted to ownership through Foreclosure Proceedings
or otherwise, (B) any insurance policies related to the Subsequent Mortgage
Loans, and (C) the related Mortgages, Loan Agreements and other Mortgage File
documents for the Subsequent Mortgage Loans; and the proceeds of each of the
foregoing. 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. Upon the transfer by the Transferor of the Subsequent
Mortgage Loans hereunder, such Subsequent Mortgage Loans and all other rights
and interests with respect to such Subsequent Mortgage Loans shall be deemed for
all purposes hereunder to be part of the Trust.
(b) The obligation of the Trustee to accept the transfer of the
Subsequent Mortgage Loans and the other property and rights related thereto
described in paragraph (a) above is subject to the satisfaction of each of the
following conditions on or prior to the related Transfer Date:
(i) the Transferor shall have given the Trustee at least five (5)
Business Days notice of the transfer, which notice shall specify the Transfer
Date and the aggregate Cut-Off Date Trust Balances of the Subsequent Mortgage
Loans to be transferred on such date;
(ii) the Transferor shall have delivered to the Trustee and
Custodial Agent an amended Mortgage Loan Schedule, listing the Subsequent
Mortgage Loans;
(iii) the Transferor shall have deposited in the Certificate Account
all collections in respect of such Subsequent Mortgage Loans received on or
after the Cut-Off Date allocable to the Trust Balances of such Subsequent
Mortgage Loans;
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(iv) the representations and warranties of the Transferor in Section
2.4, to the extent such representations and warranties do not pertain
exclusively to the Initial Mortgage Loans, shall be true and correct with
respect to the Subsequent Mortgage Loans as of the related Transfer Date;
(v) the Transferor shall have delivered the related Mortgage Files
to the Custodial Agent pursuant to Section 2.1(b);
(vi) the Pre-Funding Period shall not have terminated;
(vii) the Transferor shall represent and warrant that no selection
procedures reasonably believed by the Transferor to be adverse to the interests
of the Investor Certificateholders or the Certificate Insurer were utilized in
selecting the Subsequent Mortgage Loans;
(viii) the Certificate Insurer shall have consented to such transfer
of Subsequent Mortgage Loans (which consent shall not be unreasonably withheld
or delayed);
(ix) the transfer of the Subsequent Mortgage Loans shall not result
in a reduction or withdrawal of the rating on the Investor Certificates without
regard to the Certificate Insurance Policy; and
(x) the Transferor 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).
ARTICLE III
ADMINISTRATION AND SERVICING
OF MORTGAGE LOANS
Section 3.1 The Servicer.
------------
(a) The Servicer shall service and administer the Mortgage Loans in
accordance with its customary procedures consistent with general industry
practice, provided, however, that such procedures shall be the same in all
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material respects as the procedures followed by the Servicer in the conduct of
its servicing responsibilities pursuant to the Prior Trust Pooling and Servicing
Agreements. The Servicer 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. Any
amounts received by a subservicer in respect of a Mortgage Loan shall be deemed
to have been received by the Servicer whether or not actually received by it.
Without limiting the generality of the foregoing, the Servicer shall continue,
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 and with respect to the Mortgaged Properties. The Trustee shall
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furnish the Servicer with any powers of attorney and other documents necessary
or appropriate to enable the Servicer to carry out its servicing and
administrative duties hereunder.
The relationship of the Servicer (and of any successor to the Servicer as
servicer under this Agreement) to the Trustee and Custodial Agent under this
Agreement is intended by the parties to be that of an independent contractor and
not that of a joint venturer, partner or agent.
(b) The Servicer shall not consent to the placement of a lien on the
Mortgaged Property senior to that of the related Mortgage unless (i) such action
is consistent with reasonable commercial practice and (ii) such consent is given
in any one of the following three situations:
(A) such Mortgage was in a first lien position as of the date the
related Mortgage Loan was conveyed to the Trust and is in a first lien
position immediately prior to the placement of such senior lien and the
Updated Combined Loan-to-Value Ratio of such Mortgage Loan is not greater
than the Combined Loan-to-Value Ratio of such Mortgage Loan as of the date
such Mortgage Loan was conveyed to the Trust;
(B) such Mortgage succeeded to a first lien position after the
related Mortgage Loan was conveyed to the Trust and, immediately following
the placement of such senior lien, such Mortgage is in a second lien
position and either (i) the outstanding principal amount of the mortgage
loan secured by such senior lien is no greater than the outstanding
principal amount of the first mortgage loan secured by the Mortgaged
Property as of the date the related Mortgage Loan was conveyed to the Trust
or (ii) the Updated Combined Loan-to-Value Ratio of such Mortgage Loan is
not greater than the Combined Loan-to-Value Ratio of such Mortgage Loan as
of the date such Mortgage Loan was conveyed to the Trust; or
(C) such senior lien secures a mortgage loan that refinances an
existing first mortgage loan and either (i) the outstanding principal
amount of the replacement first mortgage loan immediately following such
refinancing is not greater than the outstanding principal amount of such
existing first mortgage loan at the date of such refinancing or (ii) the
Updated Combined Loan-to-Value Ratio of the applicable Mortgage Loan is not
greater than the Combined Loan-to-Value Ratio of such Mortgage Loan as of
the date such Mortgage Loan was conveyed to the Trust.
(c) In connection with the servicing and administration of the Mortgage
Loans, the Servicer, at the request of a Mortgagor, may increase the Credit
Limit of up to 10% of the Mortgage Loans by modifying the related Loan
Agreement to provide for such additional amount. However, in the event that (i)
a new loan agreement rather than a modification of such Loan Agreement is
proposed to be entered into in connection with such increase or (ii) such Loan
Agreement is proposed to be modified to provide for an increased Credit Limit
and the Combined Loan-to-Value Ratio of such Mortgage Loan following such
increase and as a result thereof exceeds 80% (rounded to the nearest whole
percent), the Servicer, not later than the Business Day immediately preceding
the Distribution Date next following the related Collection Period, shall
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either purchase the applicable Mortgage Loan or substitute an Eligible
Substitute Mortgage Loan or Loans for such Mortgage Loan.
The Mortgage Loan Schedule shall be amended to reflect all additions,
substitutions or deletions of Mortgage Loans provided for in this Section.
(d) The Servicer may agree to changes in the terms of a Mortgage Loan,
provided, however, that such changes (i) do not materially adversely affect the
- -------- -------
interests of Certificateholders or the Certificate Insurer and (ii) are
consistent with prudent business practice; provided, further, that the Servicer
may agree to any changes in the terms of the Mortgage Loans if the Servicer, not
later than the Business Day immediately preceding the Distribution Date next
following the related Collection Period shall either remove the applicable
Mortgage Loan or substitute an Eligible Mortgage Loan or Loans for such Mortgage
Loan.
(e) Any purchase of, or substitution of an Eligible Substitute Mortgage
Loan or Loans for, a Defective Mortgage Loan by the Servicer pursuant to this
Section 3.1 shall be effected in the same manner and subject to the same
conditions as set forth in Section 2.2(c). Upon completing any such purchase or
substitution, the Servicer shall receive an assignment of such Defective
Mortgage Loan and a release of the related Mortgage File from the Custodial
Agent to the extent set forth in Section 2.2(c).
(f) The Servicer may reduce the Margin of any Mortgage Loan up to 0.25%.
Except as otherwise required by any requirement of law applicable to the
Servicer, the Servicer shall not reduce the Margin of any Mortgage Loan by more
than 0.25% per annum unless (i) the Servicer has received an opinion of counsel
that such reduction in the Margin will not materially adversely affect the
characterization of the Investor Certificates as debt for Federal income tax
purposes, (ii) the Certificate Insurer has consented to such reduction and (iii)
the Servicer has received confirmation from each Rating Agency then rating the
Investor Certificates that such reduction will not cause a reduction or
withdrawal of the rating of the Investor Certificates without regard to the
Certificate Insurance Policy; provided however that, the Servicer may reduce the
---------------------
Margin of any Mortgage Loan by more than 0.25% if the Servicer, not later than
the Business Day immediately preceding the Distribution Date following the
related Collection Period shall either remove the applicable Mortgage Loan or
substitute an Eligible Substitute Mortgage Loan or Loans for such Mortgage Loan.
(g) The Servicer may extend the maturity date on (i) any Mortgage Loan
which is then currently in default under the terms of the related Loan
Agreement, (ii) any Mortgage Loan; provided that the Servicer may only grant the
--------
extensions described in this clause (ii) in any one calendar year on Mortgage
Loans with aggregate Trust Balances of up to 2% of the Pool Balance as of the
beginning of such calendar year (net of the Pre-Funded Amount) as subsequently
adjusted for Subsequent Mortgage Loans transferred to the Trust, (iii) any
Mortgage Loan in respect of which the Servicer has delivered a certificate to
the Trustee certifying that such extension will not materially adversely affect
the interests of the Investor Certificateholders and (iv) any Mortgage Loan for
which the Servicer has not later than the Business Day immediately
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preceding the Distribution Date next following the related Collection Period
either removed the applicable Mortgage Loan or substituted an Eligible
Substitute Mortgage Loan or Loans for such Mortgage Loan; provided, however,
-------- -------
that no extension on a Mortgage Loan described in clauses (i), (ii) and (iii)
shall cause the maturity date of such Mortgage Loan to extend beyond the last
day of the Collection Period immediately preceding the Stated Maturity Date.
(h) Sections 3.1(f) and 3.1(g) shall be exclusive of and not subject to
Section 3.1(d).
Section 3.2 Collection of Certain Mortgage Loan Payments.
--------------------------------------------
(a) The Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans, and shall, to
the extent such procedures shall be consistent with this Agreement, follow such
collection procedures as it follows with respect to mortgage loans in its
servicing portfolio comparable to the Mortgage Loans. Consistent with, and
without limiting the generality of, the foregoing, the Servicer, in its
discretion, may (i) waive any late payment charge or any assumption fees or
other fees which may be collected in the ordinary course of the servicing of the
Mortgage Loans and (ii) arrange with a Mortgagor a schedule for the payment of
interest due and unpaid for a period of not more than ninety (90) days after the
date of the initial uncured delinquency thereon.
(b) On or before the Closing Date, the Trustee shall have established,
and shall thereafter maintain, a separate trust account in the name of the
Trustee for the benefit of the Certificateholders and the Certificate Insurer
(the "Certificate Account"). If such an account maintained with the Trustee
would be an Eligible Account, the Certificate Account shall be maintained with
the Trustee.
(c) On the Closing Date, the Servicer shall, subject to this Section
3.2(c), deposit into the Certificate Account any amounts representing payments
on, and any collections in respect of, the Initial Mortgage Loans allocable to
the Investor Certificateholders received on or after the Cut-Off Date for the
Initial Mortgage Loans and through the second Business Day prior to the Closing
Date. Thereafter, the Servicer shall, subject to this section 3.2(c), deposit
into the Certificate Account on a daily basis within two (2) Business Days
following receipt thereof but in any case prior to the immediately succeeding
Distribution Date relating to such deposit the following payments and
collections allocable to the Trust received or made by it:
(i) Daily Investor Interest Collections; and
(ii) subject to Section 3.2(e), Daily Investor Principal Collections.
Without limiting the generality of the preceding sentence, the Servicer shall
not be required to deposit into the Certificate Account (a) amounts representing
fees (including, without limitation, annual fees and any assumption fees payable
pursuant to Section 3.5) or late charge penalties or other charges payable by
Mortgagors, (b) amounts received by the Servicer for the accounts of Mortgagors
for application towards the payment of taxes, insurance premiums, assessments
and
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similar items or (c) any payments or proceeds (including, without limitation,
Insurance Proceeds and Liquidation Proceeds) of any Mortgage Loans removed by
the Transferor or purchased by the Servicer which are received after the
effective date of such removal or purchase or (d) amounts in respect of the
Reassignment Deposit Amounts or Substitution Adjustment Amount that are not
included in Daily Investor Interest Collections or Daily Investor Principal
Collections.
The Trustee shall deposit into the Certificate Account the Certificate
Insurance Draw Amounts received pursuant to Section 4.2.
(d) The Trustee shall hold amounts deposited into the Certificate Account
as trustee for the Certificateholders and the Certificate Insurer to the extent
of receipts in respect of the Mortgage Loans to be included in Available Funds
and as custodian for the Transferor to the extent of receipts, if any, in excess
thereof.
At the written direction (or oral direction, promptly confirmed in writing)
of an Investment Officer, the Trustee shall invest any funds in the Certificate
Account in Permitted Investments specified in such direction (including
obligations of the Trustee or any of its affiliates, if such obligations
otherwise qualify as Permitted Investments). Such direction shall designate
specific investments and shall certify that the specified investments constitute
Permitted Investments and mature at the time required hereby. Each investment
shall mature not later than the Business Day immediately preceding the
Distribution Date next following the date of such investment (unless the obligor
in respect of such investment is the Trustee and the Trustee is acting as the
Paying Agent, in which case such investment may mature on such Distribution
Date) and shall not be sold or disposed of prior to its maturity. All net
income and gain realized from any such investment of funds constituting
Available Funds shall be distributed to Certificateholders or the Certificate
Insurer pursuant to Section 5.1(a). The Trustee shall not be liable for any loss
incurred in connection with any such investment except with respect to any
investment issued or guaranteed by the Trustee in its individual capacity.
(e) With respect to the amounts required to be deposited into the
Certificate Account pursuant to item (ii) of Section 3.2(c), on any day during
the Managed Amortization Period where the amount on deposit in the Certificate
Account for the related Collection Period is greater than or equal to 1% of the
Investor Certificate Principal Balance as of the immediately prior Distribution
Date, the Servicer shall be required to deposit into the Certificate Account an
amount, but not less than zero, equal to (x) the aggregate amount of Principal
Collections for such Collection Period through such date minus the aggregate
amount of Draws for such Collection Period through such date minus (y) 1% of the
Investor Certificate Principal Balance as of the immediately prior Distribution
Date.
(f) Any amounts received pursuant to Sections 2.2(c), 2.4(b) and 3.1, in
respect of a Reassignment Deposit Amount or a Substitution Adjustment Amount
shall be deemed to be received by the Trustee and the Servicer on the last day
of the prior calendar month.
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Section 3.3 Permitted Withdrawals from the Certificate Account.
--------------------------------------------------
(a) The Trustee may, from time to time, make withdrawals from the
Certificate Account subject to the conditions and for the purposes set forth in
this Agreement, including the following:
(i) to make distributions and payments as provided in Section 5.1;
(ii) to indemnify the Servicer to the extent required or permitted
pursuant to Section 7.3(b) or 7.3(c);
(iii) to pay the Transferor or the Servicer, as applicable, amounts
received in respect of Defective Mortgage Loans during the
Collection Period occurring in the month in which such Defective
Mortgage Loans were purchased or replaced or which were otherwise
reflected in the calculation of the related Reassignment Deposit
Amount or any Substitution Adjustment Amount; and
(iv) to clear and terminate the Certificate Account in accordance with
Section 10.1.
(b) To the extent that the amounts described in item (ii) of Section
3.2(c) on deposit in the Certificate Account on the second Business Day after
the last day of a Collection Period, excluding any amounts to be withdrawn
pursuant to Section 3.3(a) allocable to such amounts, are in excess of the
Scheduled Principal Collections Distribution Amount for the following
Distribution Date, such excess shall be withdrawn from the Certificate Account
on such day by the Trustee, at the written direction of the Servicer, and paid
over to the Transferor Certificateholder. Any provision herein to the contrary
notwithstanding, if the Servicer or the Transferor deposits into the Certificate
Account any amount not required to be deposited therein pursuant to Section
3.2(c), the Servicer may at any time instruct the Trustee to withdraw such
amount from the Certificate Account and to pay such amount to the Servicer. The
Servicer shall deliver an Officer's Certificate to the Trustee which states that
it is submitted pursuant to this Section 3.3(c) and specifies any amounts
deposited in error. If the facts set forth on the face of such Officer's
Certificate indicate that amounts deposited were not required to be deposited
into the Certificate Account pursuant to Section 3.2(c), the Trustee shall
withdraw such amount and pay over such amount to the Servicer. To the extent
that any amounts withdrawn are payable to the Transferor, the Servicer shall
receive such amounts as custodian for the Transferor.
(c) Any provision herein to the contrary notwithstanding, the Servicer
may debit against any amount required to be deposited into the Certificate
Account any amount previously deposited into the Certificate Account in respect
of payments by Mortgagors made by checks subsequently returned for insufficient
funds or other reason for non-payment.
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Section 3.4 Maintenance of Hazard Insurance; Property Protection Expenses.
-------------------------------------------------------------
The Servicer, in accordance with its customary servicing procedures, shall
cause to be maintained for each Mortgage Loan hazard insurance naming the
Servicer as loss payee thereunder providing extended coverage in an amount which
is at least equal to the lesser of (i) the maximum insurable value of the
improvements securing such Mortgage Loan from time to time or (ii) the sum of
the Loan Balance of such Mortgage Loan and the principal balance of any mortgage
loan senior to such Mortgage Loan from time to time. The Servicer shall also
maintain, on property acquired in Foreclosure Proceedings, hazard insurance with
extended coverage in an amount which is at least equal to the lesser of (i) the
maximum insurable value from time to time of the improvements which are a part
of such property or (ii) the sum of the Loan Balance of such Mortgage Loan and
the principal balance of any mortgage loan senior to such Mortgage Loan at the
time of such Foreclosure Proceedings, plus accrued interest and the good-faith
estimate of the Servicer of related Liquidation Expenses to be incurred in
connection therewith. Amounts collected by the Servicer under any such policies
shall be deposited as Liquidation Proceeds or Insurance Proceeds into the
Certificate Account to the extent provided in Section 3.2(c). In cases in which
any Mortgaged Property is located in a federally designated special flood hazard
area, the hazard insurance to be maintained for the related Mortgage Loan, or on
property acquired in Foreclosure Proceedings, shall include flood insurance.
All such flood insurance shall be in an amount equal to the lesser of (i) the
maximum amount available under standard flood insurance in such designated flood
area and (ii) the sum of the Loan Balance of the applicable Mortgage Loan and
the principal balance of any mortgage loan senior to such Mortgage Loan from
time to time. The Servicer shall be under no obligation to require that any
Mortgagor maintain earthquake or other additional insurance and shall be under
no obligation itself to maintain any such additional insurance on property
acquired in respect of a Mortgage Loan, other than pursuant to such applicable
laws and regulations as shall at any time be in force and as shall require such
additional insurance.
If the Servicer shall obtain and maintain a blanket policy issued by an
insurer acceptable to the Rating Agencies insuring against hazard losses on all
of the Mortgage Loans, it shall conclusively be deemed to have satisfied its
obligations as set forth in the first sentence of this Section 3.4. Any such
blanket policy may contain a deductible clause. In the event that there shall
have been a loss which would otherwise have been covered by such blanket policy
if such blanket policy did not contain a deductible clause, the Servicer shall
deposit into the Certificate Account to the extent provided for in Section
3.2(c) the Trust proportion (computed on the basis of the ratio of the Trust
Balance to the Loan Balance at the time of deposit) of the amount not otherwise
payable under the blanket policy because of such deductible clause.
Section 3.5 Assumption and Modification Agreements.
--------------------------------------
In any case in which a Mortgaged Property has been or is about to be
conveyed by the Mortgagor, the Servicer shall exercise its right to accelerate
the maturity of the Mortgage Loan secured thereby unless it is prohibited from
doing so by applicable law. If the Servicer is prevented from enforcing such
right by applicable law, the Servicer (so long as such action
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conforms with the Servicer's underwriting standards at the time for new
originations) is authorized to take or enter into an assumption and modification
agreement from or with the Person to whom such Mortgaged Property has been or is
about to be conveyed, pursuant to which such Person becomes liable under the
Loan Agreement and, to the extent permitted by applicable law, the Mortgagor
remains liable thereon. No change in the terms of the related Loan Agreement may
be made by the Servicer in connection with any such assumption or modification
to the extent that such change would not be permitted to be made in respect of
the original Loan Agreement pursuant to Section 3.1. The Servicer shall notify
the Trustee that any assumption and modification agreement has been completed by
delivering to the Trustee (i) an Officer's Certificate certifying that such
agreement is in compliance with this Section 3.5 and (ii) a manually executed
copy of such assumption and modification agreement. Any such assumption and
modification agreement shall, for all purposes, be considered a part of the
related Mortgage File to the same extent as all other documents and instruments
constituting a part thereof. Any fee collected by the Servicer for entering into
any such agreement shall be retained by the Servicer as additional servicing
compensation.
Section 3.6 Realization Upon Defaulted Mortgage Loans.
-----------------------------------------
The Servicer shall use its best efforts to foreclose upon or otherwise
comparably convert to ownership Mortgaged Properties securing such of the
Mortgage Loans as come into and continue in default when, in the opinion of the
Servicer based upon the practices and procedures referred to in the following
sentence, no satisfactory arrangements can be made for collection of delinquent
payments. In connection with such foreclosure or other conversion, the Servicer
shall follow such practices (including, in the case of any default on a related
senior mortgage loan, the advancing of funds to correct such default or to pay
in full such senior mortgage loan) and procedures as it shall deem necessary or
advisable and as shall be normal and usual in its general junior mortgage
servicing activities. Notwithstanding the foregoing, the Servicer shall not be
required to foreclose upon or otherwise take any action with respect to any
defaulted Mortgage Loan which would result in the Trust's acquisition of title
to the related Mortgaged Property if, in the reasonable judgment of the
Servicer, such Mortgaged Property is subject to toxic waste or other
environmental hazards that could subject the owner of such Mortgaged Property to
liability under applicable law in excess of the reasonable liquidation value of
such Mortgaged Property. 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 towards the correction of any default on a related senior
mortgage loan or restoration of any Mortgaged Property unless it shall
determine, in its discretion, that such foreclosure, correction or restoration
will increase Net Liquidation Proceeds.
In the event that title to any Mortgaged Property securing a Mortgage Loan
is acquired in Foreclosure Proceedings, the deed or certificate of sale shall be
issued to the Custodial Agent, on behalf of Certificateholders to the extent of
their interest therein. With respect to any Common Mortgage Loan with an
outstanding balance owned by a Prior Trust, in the event that the Trust acquires
any Mortgaged Property as aforesaid or otherwise in connection with a default or
imminent default on a Mortgage Loan, such Mortgaged Property shall be disposed
of by or on behalf of the Trust within two (2) years after its acquisition by
the Trust, which shall not be at the expense of the trustee, unless the Trustee
shall have received an Opinion of Counsel, which shall
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not be at the expense of the Trustee, to the effect that the holding by the
Trust of such Mortgaged Property subsequent to two (2) years after its
acquisition will not result in the imposition of taxes on "prohibited
transactions" of the applicable Prior Trust as defined in section 860F of the
Code or cause the applicable Prior Trust to fail to qualify as a REMIC at any
time that any Certificates are outstanding.
Liquidation Expenses incurred by the Servicer in connection with a
defaulted Mortgage Loan shall be recoverable by the Servicer solely out of
Liquidation Proceeds received in respect of the same defaulted Mortgage Loan,
and shall be recovered at the time that such defaulted Mortgage Loan becomes a
Liquidated Mortgage Loan. The Servicer's failure to claim reimbursement for
Liquidation Expenses out of Liquidation Proceeds received in respect of the
related Liquidated Mortgage Loan for any one or more Collection Periods shall
not in any way be deemed a waiver of its right in the future to seek
reimbursement for such Liquidation Expenses or additional Liquidation Expenses
out of Liquidation Proceeds received in respect to the related Mortgage Loan for
subsequent Collection Periods.
Section 3.7 Trustee to Cooperate.
--------------------
Upon the payment in full of the Trust Balance of any Mortgage Loan or the
distribution of all Investor Liquidation Proceeds with respect to any Mortgage
Loan, the Servicer shall promptly so notify the Trustee or the Custodial Agent
by a certification, substantially in the form of Exhibit H, of a Servicing
Officer. Such certification shall include a statement to the effect that all
amounts received in connection with such payment which are required to be
deposited into the Certificate Account pursuant to Section 3.2(c) have been so
deposited. Upon any such payment or distribution, (i) the Servicer is
authorized to execute, pursuant to the authorization contained in Section
3.1(a), if the Loan Balance of such Mortgage Loan equals zero, an instrument of
satisfaction regarding the related Mortgage, which instrument of satisfaction
shall be recorded by the Servicer if required by applicable law and delivered to
the Person entitled thereto, and (ii) the Custodial Agent shall release the
related Mortgage File to the Transferor. No expenses incurred in connection
with such instrument of satisfaction or assignment shall be reimbursed from
amounts at the time on deposit in the Certificate Account, the Pre-Funding
Account, the Spread Account or the Capitalized Interest Account. No certificate
or expense incurred pursuant to this Section 3.7 shall be at the expense of the
Trustee.
From time to time and as appropriate for the servicing or foreclosure of
any Mortgage Loan, the Custodial Agent or the Trustee shall, upon request and at
the expense of the Servicer and upon delivery to the Custodial Agent or the
Trustee of a trust receipt substantially in the form of Exhibit I signed by a
Servicing Officer, release the related Mortgage File to the Servicer solely for
the purposes specified in the Servicer's request, and the Custodial Agent shall
execute such documents prepared by and at the expense of the Servicer as shall
be necessary to the prosecution of any such proceedings or the taking of other
servicing actions by the Servicer. Such trust receipt shall obligate the
Servicer to return the Mortgage File to the Custodial Agent or 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 that hereinabove specified stating that the Investor
Liquidation Proceeds with respect to such Mortgage Loan have
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been deposited into the Certificate Account pursuant to Section 3.2(c), the
trust receipt shall be released by the Custodial Agent to the Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
Mortgage Loan that is in default, the Custodial Agent shall, if so requested in
writing by the Servicer, assign such Mortgage Loan without recourse for the
purpose of collection to the Servicer or its designee. Any such assignment
shall be prepared by the Servicer and shall unambiguously indicate that the
assignment is for the purpose of collection only. Upon such assignment, such
assignee for collection shall thereupon bring all required actions in its own
name and otherwise enforce the terms of the Mortgage Loan, and the Servicer
shall deposit the Investor Liquidation Proceeds received with respect thereto
into the Certificate Account to the extent provided in Section 3.2(c). In the
event that all delinquent payments due under any such Mortgage Loan are paid by
the Mortgagor and any other defaults are cured, the assignee for collection
shall promptly reassign such Mortgage Loan to the Custodial Agent.
Section 3.8 Servicing Compensation; Payment of Certain Expenses by Servicer.
---------------------------------------------------------------
(a) As compensation for its services hereunder, the Servicer shall
receive on each Distribution Date, a monthly fee (the "Servicing Fee") equal to
the product of (x) the Servicing Fee Rate divided by 12 and (y) the Invested
Amount less 98% of the Pre-Funded Amount (excluding any Pre-Funding Earnings) as
of the opening of business on the first day of the preceding Collection Period
or, with respect to the first Distribution Date, as of the Closing Date. For any
Distribution Date, such fee shall be payable monthly in arrears in accordance
with Section 5.1(a). Additional servicing compensation in the form of fees, late
payment charges or otherwise shall be retained by the Servicer as additional
servicing compensation.
(b) The Servicer shall be required to pay all expenses incurred by it
in connection with its activities under this Agreement, including fees and
disbursements of the independent accountants referred to in Section 3.10, taxes
imposed on the Servicer, expenses incurred in connection with distributions and
reports to Certificateholders, all Trustee fees and expenses payable to the
Trustee pursuant to Section 9.5, and all other fees and expenses not expressly
stated hereunder to be for the account of the Certificateholders (including,
without limitation, the cost of obtaining Opinions of Counsel required under
this Agreement, except as otherwise provided herein), and shall not be entitled
to reimbursement therefor except to the extent that such expenses constitute
Liquidation Expenses or as otherwise specifically provided herein.
Section 3.9 Annual Statement as to Compliance.
---------------------------------
The Servicer shall deliver to the Trustee and the Certificate Insurer, on
or before December 31 of each year, beginning with December 31, 1998, an
Officer's Certificate signed by an officer of the Servicer stating that (i) a
review of the activities of the Servicer during the preceding twelve (12) months
ended September 30 (or, in the case of the first such Certificate, the
applicable period ended September 30) 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
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Servicer has fulfilled all its material obligations under this Agreement
throughout such year or applicable period, or, if there has been a default in
the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof.
Section 3.10 Annual Independent Public Accountants' Servicing Report.
-------------------------------------------------------
The Servicer, at its expense, shall cause a firm of independent public
accountants (who shall be a member of the American Institute of Certified Public
Accountants and may also render other services to the Servicer or the
Transferor) to furnish a statement to the Trustee and the Certificate Insurer on
or before December 31 of each year, beginning with December 31, 1998, to the
effect that such firm has examined certain documents and records relating to the
servicing of the Mortgage Loans by the Servicer under this Agreement during the
preceding twelve (12) months ended September 30 (or, in the case of the first
such Certificate, the applicable period ended September 30) and that such
examination, which has been conducted substantially in accordance with (i) the
audit guide for audits of non-supervised mortgagees approved by the Department
of Housing and Urban Development for use by independent public accountants or
(ii) the requirements of the Uniform Single Audit Program for Mortgage Bankers
(to the extent that the procedures in such audit guide or audit program are
applicable to the servicing obligations hereunder), has disclosed no items of
noncompliance with the provisions of this Agreement which, in the opinion of
such firm, are material, except for such items of noncompliance as shall be set
forth in such report.
Section 3.11 Access to Certain Documentation and Information Regarding the
-------------------------------------------------------------
Mortgage Loans.
--------------
(a) The Servicer and the Transferor shall provide to the
Certificateholders which are federally insured savings and loan associations,
the Office of Thrift Supervision (successor to the Federal Home Loan Bank
Board), the Federal Deposit Insurance Corporation and the supervisory agents and
examiners of the Office of Thrift Supervision, access to the documentation
regarding the Mortgage Loans to the extent required by applicable regulations of
the Office of Thrift Supervision and the Federal Deposit Insurance Corporation
(acting as operator of the SAIF or the BIF). The Servicer and the Transferor
shall provide to the Trustee, and the Servicer, the Transferor and the Trustee
shall provide to the Certificate Insurer, access to the documentation regarding
the Mortgage Loans. Such access in all cases shall be afforded without charge,
but only upon reasonable request and during normal business hours at the offices
of the Servicer, the Transferor or the Trustee, as the case may be. Nothing in
this Section 3.11(a) shall derogate from the obligation of the Transferor or the
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Mortgagors, and the failure of the Transferor or the Servicer to
provide access as provided in this Section 3.11(a) as a result of such
obligation shall not constitute a breach of this Section 3.11(a).
(b) The Servicer shall supply information in such form as the Trustee
shall reasonably request to the Paying Agent and the Trustee, on or before the
Determination Date preceding the related Distribution Date, as is required in
the Trustee's reasonable judgment to enable the Paying
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Agent or the Trustee, as the case may be, to make required distributions and to
furnish the required reports to Certificateholders and to make any drawing under
the Certificate Insurance Policy.
Section 3.12 Maintenance of Certain Servicing Policies.
-----------------------------------------
The Servicer shall during the term of its service as Servicer maintain in
force (i) a policy or policies of insurance covering errors and omissions in the
performance of its obligations as servicer hereunder and (ii) a fidelity bond in
respect of its officers, employees or agents. Each such policy or policies and
bond shall, together, comply with the requirements from time to time of the
Federal National Mortgage Association for persons performing servicing for
mortgage loans purchased by such Association.
Section 3.13 Reports to the Securities and Exchange Commission.
-------------------------------------------------
The Servicer shall, on behalf of the Trust, cause to be filed with the
Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and the
rules, regulations or orders of the Securities and Exchange Commission
thereunder.
Section 3.14 Information Required by the Internal Revenue Service Generally and
------------------------------------------------------------------
Reports of Foreclosures and Abandonments of Mortgaged Property.
--------------------------------------------------------------
In addition to the requirements set forth in Section 3.1, the Servicer
shall prepare and file, or cause to be prepared and filed, and shall file or
cause to be filed, all federal and state information reports when and as
required by all applicable state and federal income tax laws, including, without
limitation, reports required by Section 6050J of the Code.
Section 3.15 Tax Returns.
-----------
In accordance with Section 2.7 hereof, the Trustee shall not file any
Federal or State income tax return for the Trust or apply for a taxpayer
identification number on behalf of the Trust. The Transferor shall treat the
Trust Balances of the Mortgage Loans as its property for all Federal and State
tax purposes and shall report all income earned thereon (including amounts
payable as fees to the Servicer) as its income for federal income tax purposes.
In the event the Trust shall be required pursuant to an audit or administrative
proceeding or change in applicable regulations to file Federal or State tax
returns, the Trustee shall prepare and file or shall cause to be prepared and
filed any tax returns required to be filed by the Trust; the Trustee shall
promptly sign such returns and deliver such returns after signature to the
Servicer and such returns shall be filed by the Servicer provided, however, that
actions taken by the Trustee pursuant to this Section 3.15 shall not be at the
expense of the Trustee. The Servicer shall also prepare or shall cause to be
prepared all tax information required by and to be distributed to
Certificateholders. Except as provided otherwise herein with respect to the
Transferor, in no event shall the Trustee or the Servicer be liable for any
liabilities, costs or expenses of the Trust, the Certificateholders or the
Certificate Owners in connection with or arising under any tax law, including
without limitation
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federal, state or local income or excise taxes or any other tax imposed on or
measured by income (or any interest or penalty with respect thereto or arising
from a failure to comply therewith).
ARTICLE IV
SERVICING CERTIFICATE; CERTIFICATE INSURANCE POLICY; SPREAD ACCOUNT
Section 4.1 Servicing Certificate.
---------------------
With respect to each Distribution Date, the Servicer shall, not later than
the related Determination Date, deliver to the Trustee, to the Certificate
Insurer and to the Rating Agencies a Servicing Certificate substantially in the
form of Exhibit J stating the related Collection Period, the designation of the
Certificates, the date of this Agreement, and the following information:
(i) the aggregate amount of collections received on the Mortgage Loans
on or prior to the Determination Date in respect of such
Collection Period;
(ii) the aggregate amount of (a) Trust Interest and (b) Principal
Collections for such Collection Period:
(iii) the Investor Certificateholder's Floating Allocation Percentage
and the Investor Fixed Allocation Percentage as of the last day of
such Collection Period;
(iv) the Investor Interest Collections for such Collection Period;
(v) the Investor Principal Collections for such Collection Period;
(vi) the aggregate amount of (a) Trust Interest and (b) Principal
Collections paid to the Transferor Certificateholder for such
Collection Period;
(vii) Investor Certificate Interest and the Investor Certificate Rate
for the related Accrual Period;
(viii) the amount, if any, of such Investor Certificate Interest that is
not payable on account of insufficient Investor Interest
Collections, funds on deposit in the Spread Account, and amounts
under the Certificate Insurance Policy;
(ix) the portion of the Unpaid Investor Certificate Interest Shortfall,
if any, plus interest thereon at the Certificate Rate applicable
from time to time (separately stated) to be distributed on such
Distribution Date;
(x) the Unpaid Investor Certificate Interest Shortfall, if any, to
remain after the distribution on such Distribution Date;
(xi) the Scheduled Principal Collections Distribution Amount;
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(xii) the sum of (x) the aggregate Reassignment Deposit Amount for any
Mortgage Loans which are required to be removed on the Business
Day immediately preceding such Distribution Date pursuant to
Section 2.2(c), 2.4(b) or 3.1 and (y) any Substitution Adjustment
Amounts required to be deposited into the Certificate Account on
the Business Day immediately preceding such Distribution Date
pursuant to Section 2.2(c), 2.4(b) or 3.1;
(xiii) the aggregate amount, if any, of Investor Loss Reduction Amounts
for previous Distribution Dates that have not been previously
reimbursed to Investor Certificateholders pursuant to Section
5.1(a)(vi);
(xiv) the aggregate Trust Balance of the Mortgage Loans, as of the end
of the preceding Collection Period and the end of the second
preceding Collection Period;
(xv) the Pool Balance as of the end of the preceding Collection Period
and the Pool Balance as of the end of the second preceding
Collection Period;
(xvi) the Invested Amount as of the end of such Collection Period;
(xvii) the Investor Certificate Principal Balance prior to and after
giving effect to the distribution on such Distribution Date;
(xviii) the Transferor Principal Balance as of the end of such Collection
Period;
(xix) the aggregate amount of Additional Balances created during such
Collection Period;
(xx) the aggregate of the Trust Balances as of the end of such
Collection Period of all Mortgage Loans which became Liquidated
Mortgage Loans for such Distribution Date;
(xxi) whether a Rapid Amortization Event has occurred since the prior
Determination Date, specifying each such Rapid Amortization Event
if one has occurred;
(xxii) whether an Event of Default has occurred since the prior
Determination Date, specifying each such Event of Default if one
has occurred;
(xxiii) the amount to be distributed to the Certificate Insurer pursuant
to Section 5.1(a)(iv);
(xxiv) the amount to be distributed to the Spread Account pursuant to
Section 5.1(a)(viii);
(xxv) the Certificate Insurance Draw Amount, if any, for such
Distribution Date;
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(xxvi) the amount to be distributed to the Transferor Certificateholder
pursuant to Section 5.1(a)(xi);
(xxvii) the Pre-Funded Amount as of such Distribution Date;
(xxviii)the amount of Pre-Funding Earnings, if any, to be deposited in the
Certificate Account for such Distribution Date;
(xxix) the amount of funds on deposit in the Spread Account and the
applicable Spread Account Requirement;
(xxx) the aggregate of the Trust Balances of the Subsequent Mortgage
Loans purchased during such Collection Period;
(xxxi) the amount on deposit in the Capitalized Interest Account as of
such Distribution Date;
(xxxii) the Capitalized Interest Requirement to be deposited in the
Certificate Account for such Distribution Date;
(xxxiii)the amount of any Basis Risk Payment then due.
Section 4.2 Certificate Insurance Policy.
----------------------------
(a) The Trustee shall submit, if necessary, the Notice of Nonpayment
and Demand for Payment of Insured Amounts (as defined in and in the form
specified by the Certificate Insurance Policy) in the amount of the Certificate
Insurance Draw Amount to the Certificate Insurer no later than 12:00 noon, New
York City time, on the second Business Day prior to each Distribution Date. Upon
receipt of such Certificate Insurance Draw Amount in accordance with the terms
of the Certificate Insurance Policy, the Trustee shall deposit such Certificate
Insurance Draw Amount in the Certificate Account for distribution to the
Investor Certificateholders on the related Distribution Date.
(b) Subject only to the priority of payment provisions of this
Agreement, each of the Transferor, the Servicer and the Trustee acknowledges
that, to the extent of any payment made by the Certificate Insurer pursuant to
the Certificate Insurance Policy, the Certificate Insurer is to be fully
subrogated to the extent of such payment (as described in Section 5.1(a)(vii)
and (ix)) and any additional interest due on any late payment, to the rights of
the Investor Certificateholders under this Agreement or otherwise. Each of the
Transferor, the Servicer and the Trustee agrees to such subrogation and,
further, agrees to execute such instruments and to take such actions as, in the
sole judgment of the Certificate Insurer, as evidenced in writing to the
Transferor, the Servicer and the Trustee, are necessary to evidence such
subrogation and, subject to the priority of payment
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provision of this Agreement, to perfect the rights of the Certificate Insurer to
receive any moneys paid or payable in respect of the Investor Certificates under
this Agreement or otherwise.
Section 4.3 Replacement Certificate Insurance Policy.
----------------------------------------
In the event the rating of the Certificate Insurer is downgraded by any
Rating Agency, such that the rating of the Investor Certificates is reduced,
suspended or withdrawn, the Servicer shall be permitted, in accordance with the
terms of the Insurance Agreement, but shall not be obligated, to substitute a
new certificate insurance policy for the Certificate Insurance Policy or may
arrange for any other form of credit enhancement; provided, however, that, in
-------- -------
each case, the rating of the Investor Certificates following any such
substitution shall be the highest rating available from each of the Rating
Agencies and provided further that the Certificate Insurer is reimbursed for all
amounts due under this Agreement and the Insurance Agreement. It shall be a
condition to substitution of any such new certificate insurance policy or other
form of credit enhancement that there be delivered to the Trustee (i) an
Officer's Certificate by the Servicer stating that the conditions to such
substitution set forth in this Section 4.3 (other than in clause (ii)) have been
satisfied and (ii) a legal opinion, acceptable in form to the Trustee, from
counsel to the provider of such certificate insurance policy or other form of
credit enhancement with respect to the enforceability thereof and such other
matters as the Trustee may require. Upon receipt of written notice of any such
substitution from the Servicer and the taking of physical possession of the
replacement certificate insurance policy or other form of credit enhancement,
the Trustee shall, within five (5) Business Days following receipt of such
notice and such taking of physical possession, deliver the Certificate Insurance
Policy to the Certificate Insurer and the Certificate Insurer will have no
further liability under the Certificate Insurance Policy.
Section 4.4 Spread Account.
--------------
(a) On or before the Closing Date, the Trustee shall have established,
and shall thereafter maintain with itself in the name of the Trustee for the
benefit of the Certificateholders a segregated trust account (the "Spread
Account") which shall be an Eligible Account.
(b) At the written direction (or oral direction, promptly confirmed in
writing) of an Investment Officer, the Trustee shall invest any funds in the
Spread Account in Permitted Investments specified in such direction (including
obligations of the Trustee or any of its affiliates, if such obligations
otherwise qualify as Permitted Investments). Such direction shall designate
specific investments and shall certify that the specified investments constitute
Permitted Investments and mature at the time required hereby. Each investment
shall mature not later than the Business Day immediately preceding the next
Distribution Date.
(c) On each Distribution Date, all interest and other investment
income on funds on deposit in the Spread Account shall be withdrawn from the
Spread Account by the Trustee and paid in the following order of priority: (i)
to Investor Certificateholders in payment of any Basis Risk Payment then due and
not paid pursuant to Sections 5.1(a)(x) and 4.4(f)(i) and (ii) to the
Transferor.
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(d) On each Determination Date, the Trustee shall determine (i) the
extent to which Investor Interest Collections applied in the order specified in
Section 5.1(a) are insufficient to make distributions as provided in clauses
(ii) and (iii) of Section 5.1(a) on the following Distribution Date and (ii) the
amount by which the Investor Certificate Principal Balance exceeds the Invested
Amount after giving effect to all other amounts allocable and distributable to
principal on such Distribution Date. On each Distribution Date the Trustee shall
withdraw from the Spread Account and deposit into the Certificate Account the
lesser of the amount on deposit in the Spread Account and an amount equal to the
sum of the amounts, if any, determined in clauses (i) and (ii) of the preceding
sentence for distribution to the Investor Certificateholders on such
Distribution Date.
(e) Following the termination of the Trust pursuant to Section 10.1 or
11.2 hereof, amounts then on deposit in the Spread Account shall be paid to the
Transferor.
(f) If on any Distribution Date the amount on deposit in the Spread
Account exceeds the Spread Account Requirement, the Trustee shall withdraw such
excess and distribute it in the following order of priority:
(i) to Investor Certificateholders in payment of any Basis Risk Payment
then due and not paid pursuant to Section 5.1(a)(x); and
(ii) to the Transferor.
ARTICLE V
PAYMENTS AND STATEMENTS TO CERTIFICATEHOLDERS;
RIGHTS OF CERTIFICATEHOLDERS
Section 5.1 Distributions.
-------------
(a) Distributions of Investor Interest Collections and Investment
-------------------------------------------------------------
Proceeds.
- --------
On each Distribution Date, the Trustee shall distribute out of the
Certificate Account to the extent of the sum of (i) Investor Interest
Collections, (ii) net income, if any, realized from the investment of Available
Funds pursuant to Section 3.2(d) collected or earned during the related
Collection Period, (iii) amounts, if any, transferred from the Spread Account
relating to interest pursuant to Section 4.4(b)(i) and (iv) the portion of the
Certificate Insurance Draw Amount, if any, relating to interest pursuant to
clause (x) of the definition thereof, the following amounts in the following
order of priority to the following Persons (based solely on the information set
forth in the Servicing Certificate):
(i) the Servicing Fee to the Servicer;
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(ii) the Investor Certificate Interest for such Distribution Date to the
Investor Certificateholders (other than any Basis Risk Payment);
(iii) the Unpaid Investor Certificate Interest Shortfall, if any, for such
Distribution Date to the Investor Certificateholders plus, to the
extent legally permissible, interest thereon at the Investor
Certificate Rate;
(iv) the premium due under the Certificate Insurance Policy to the
Certificate Insurer;
(v) the Aggregate Investor Liquidation Loss Amount for such Distribution
Date to the Investor Certificateholders as principal in reduction of
the Investor Certificate Principal Balance;
(vi) to Investor Certificateholders as principal in reduction of the
Investor Certificate Principal Balance the aggregate amount of the
Investor Loss Reduction Amounts, if any, for previous Distribution
Dates that have not been previously reimbursed to Investor
Certificateholders pursuant to this clause (vi);
(vii) to reimburse the Certificate Insurer for previously unreimbursed
Certificate Insurance Draw Amounts together with interest thereon at
the applicable rate set forth in the Insurance Agreement;
(viii) to the Trustee for deposit to the Spread Account up to the Spread
Account Requirement;
(ix) to the Certificate Insurer for any amounts owed to the Certificate
Insurer pursuant to the Insurance Agreement, excluding amounts paid
pursuant to Sections 5.1(a)(iv) and 5.1(a)(vii) hereof;
(x) to the Investor Certificateholders for any Basis Risk Payment that has
not previously been paid;
(xi) any remaining amount to the Transferor Certificateholder.
(b) Distribution of Investor Principal Collections. On each Distribution
----------------------------------------------
Date (other than the Stated Maturity Date), the Trustee shall distribute out of
the Certificate Account to the Investor Certificateholders, based solely upon
the information set forth in the Servicing Certificate, the Scheduled Principal
Collections Distribution Amount (together with amounts transferred to the
Certificate Account from the Spread Account pursuant to Section 4.4(d) in
respect of the amount determined pursuant to Section 4.4(d)(ii) and amounts
transferred to the Certificate Account pursuant to Section 4.2(a) in respect of
the principal portion of the Certificate Insurance Draw Amount) but not in
excess of the Investor Certificate Principal Balance. On the Distribution Date
immediately following the end of the Pre-Funding Period (or if the last day of
the Pre-Funding Period is a Distribution Date, on such Distribution Date), to
the extent any funds
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are deposited into the Certificate Account pursuant to Section 5.6(e), the
Trustee shall distribute such funds to Investor Certificateholders in respect of
principal on the Investor Certificates. On the Stated Maturity Date, the Trustee
shall distribute to Investor Certificateholders Investor Principal Collections
up to the Investor Certificate Principal Balance.
(c) [Reserved]
(d) Method of Distribution. The Trustee shall make distributions in
----------------------
respect of a Distribution Date to each Investor Certificateholder of record on
the related Record Date (other than as provided in Section 10.1 respecting the
final distribution) by check or money order mailed to such Investor
Certificateholder at the address appearing in the Certificate Register, or upon
written request by an Investor Certificateholder delivered to the Trustee at
least five Business Days prior to such Record Date, by wire transfer (but only
if such Certificateholder is the Depository or such Certificateholder owns of
record one or more Investor Certificates having principal denominations
aggregating at least $5,000,000), or by such other means of payment as such
Investor Certificateholder and the Trustee shall agree. Distributions among
Investor Certificateholders shall be made in proportion to the Percentage
Interests evidenced by the Investor Certificates held by such Investor
Certificateholders.
(e) Distributions on Book-Entry Certificates. Each distribution with
----------------------------------------
respect to a Book-Entry Certificate shall be paid to the Depository, which shall
credit the amount of such distribution to the accounts of its Depository
Participants in accordance with its normal procedures. Each Depository
Participant shall be responsible for disbursing such distribution to the
Certificate Owners that it represents and to each indirect participating
brokerage firm (a "brokerage firm" or "indirect participating firm") for which
it acts as agent. Each brokerage firm shall be responsible for disbursing funds
to the Certificate Owners that it represents. All such credits and
disbursements with respect to a Book-Entry Certificate are to be made by the
Depository and the Depository Participants in accordance with the provisions of
the Investor Certificates. None of the Trustee, the Paying Agent, the
Certificate Registrar, the Transferor or the Servicer shall have any
responsibility therefor except as otherwise provided by applicable law. To the
extent applicable and not contrary to the rules of the Depository, the Trustee
shall comply with the provisions of the form of Investor Certificate as set
forth in Exhibit A.
(f) Distributions of Interest to the Transferor Certificateholder. On
-------------------------------------------------------------
each day on which the Transferor Principal Balance is greater than zero, the
Servicer shall distribute to the Transferor Certificateholder Trust Interest
to the extent not deposited into the Certificate Account pursuant to Section
3.2(c) on such day.
(g) Distributions of Principal to the Transferor Certificateholder. On
--------------------------------------------------------------
each day on which the Transferor Principal Balance is greater than zero, the
Servicer shall distribute to the Transferor Certificateholder Principal
Collections to the extent not deposited into the Certificate Account pursuant to
Section 3.2(c) on such day.
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Section 5.2 Calculation of the Investor Certificate Rate.
--------------------------------------------
On the second LIBOR Business Day preceding each Accrual Period after the
initial Accrual Period, the Trustee shall determine LIBOR for such Accrual
Period. The Trustee shall promptly advise the Servicer of such determination by
tested telex or telefax to the address set forth in Section 12.6. The
determination of LIBOR by the Trustee for each such Accrual Period shall (in the
absence of manifest error) be final, conclusive and binding upon the
Certificateholders, the Servicer and any of their respective partners,
beneficiaries, agents, officers, directors, employees or successors or assigns.
Section 5.3 Statements to Certificateholders.
--------------------------------
Concurrently with each distribution to Investor Certificateholders, the
Servicer shall forward to the Trustee for mailing to each such Investor
Certificateholder and the Certificate Insurer a statement with respect to such
distribution substantially in the form of Exhibit K and setting forth:
(i) the Investor Certificateholder's Floating Allocation Percentage for
the last day of the preceding Collection Period;
(ii) the Investor Certificate distribution amount;
(iii) the amount of Investor Certificate Interest included in such
distribution, the related Investor Certificate Rate and the portion
thereof attributable to collections in respect of the Mortgage
Loans;
(iv) the amount, if any, of Unpaid Investor Certificate Interest
Shortfall included in such distribution (and the amount of interest
thereon);
(v) the amount, if any, of the remaining Unpaid Investor Certificate
Interest Shortfall after giving effect to such distribution;
(vi) the amount, if any, of principal included in such distribution,
separately stating the components thereof (including the portion
thereof attributable to collections in respect of the Mortgage
Loans);
(vii) the amount, if any, of the reimbursement of previous Investor Loss
Reduction Amounts included in such distribution;
(viii) the amount, if any, of the aggregate unreimbursed Investor Loss
Reduction Amounts after giving effect to such distribution;
(ix) the Servicing Fee for such Distribution Date;
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(x) the Invested Amount and the Investor Certificate Principal
Balance, each after giving effect to such distribution;
(xi) the Spread Account Amount, if any, and the amount, if any,
transferred from the Spread Account in respect of such
Distribution Date;
(xii) the Pool Balance as of the end of the preceding Collection Period
and the number and aggregate of the Trust Balances of the Mortgage
Loans as to which the minimum monthly payment is delinquent for
30-59 days, 60-89 days and 90 or more days, respectively, at the
close of business on the last day of the related Collection
Period;
(xiii) the Certificate Insurance Draw Amount, if any;
(xiv) the aggregate Liquidation Loss Amount for all Mortgage Loans that
became Liquidated Mortgage Loans in the preceding Collection
Period;
(xv) the Trust Balance of any Mortgage Loan, the related Mortgaged
Property of which is acquired by the Trust through foreclosure;
(xvi) the Pre-Funded Amount;
(xvii) the aggregate Cut-Off Date Trust Balances of the Subsequent
Mortgage Loans purchased during the preceding Collection Period;
(xviii) the amount on deposit in the Capitalized Interest Account;
(xix) the amount of any Basis Risk Payment included in such
distribution.
In the case of information furnished pursuant to clauses (ii), (iii), (iv)
and (vi) above, the amounts shall be expressed as a dollar amount per Investor
Certificate with a $1,000 denomination.
Within 90 days after the end of each calendar year, the Servicer shall
prepare or cause to be prepared and shall forward to the Trustee the information
set forth in clauses (iii) and (vi) above aggregated for such calendar year.
Such obligation of the Servicer shall be deemed to have been satisfied to the
extent that substantially comparable information shall be provided by the
Trustee pursuant to any requirements of the Code.
The Trustee shall prepare or cause to be prepared (in a manner consistent
with the treatment of the Investor Certificates as indebtedness of the
Transferor) Internal Revenue Service Form 1099 (or any successor form) and any
other tax forms required to be filed or furnished to
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Certificateholders (including Form 8811) in respect of distributions by the
Trustee (or the Paying Agent) on the Investor Certificates and shall file and
distribute such forms as required by law.
Section 5.4 Rights of Certificateholders.
----------------------------
The Investor Certificates shall represent fractional undivided interests in
the Trust, including the benefits of the Certificate Account, the Pre-Funding
Account, the Spread Account and the Capitalized Interest Account and the right
to receive Investor Interest Collections, Investor Principal Collections and
other amounts at the times and in the amounts specified in this Agreement; the
Transferor Certificates shall represent the remaining interest in the Trust.
Section 5.5 Rights of the Certificate Insurer To Exercise Rights of Investor
----------------------------------------------------------------
Certificateholders.
------------------
By accepting its Investor Certificate, each Investor Certificateholder
agrees that unless a Certificate Insurer Default exists, the Certificate Insurer
shall have its rights as set forth in this Agreement.
Section 5.6 Pre-Funding Account and the Capitalized Interest Account
--------------------------------------------------------
(a) On or before the Closing Date, the Trustee shall have established,
and shall thereafter maintain with itself in the name of the Trustee for the
benefit of the Certificateholders (i) a segregated trust account (the "Pre-
Funding Account") and (ii) a segregated trust account (the "Capitalized Interest
Account"), each of which shall be an Eligible Account.
(b) On the Closing Date, the Transferor shall cause to be deposited in
the Pre-Funding Account the Original Pre-Funded Amount and shall cause to be
deposited the amount of $556,934.00 in the Capitalized Interest Account.
(c) At the written direction (or oral direction, promptly confirmed in
writing) of an Investment Officer, the Trustee shall invest any funds in the
Pre-Funding Account and the Capitalized Interest Account in Permitted
Investments specified in such direction (including obligations of the Trustee or
any of its affiliates, if such obligations otherwise qualify as Permitted
Investments); provided, however that funds on deposit in the Pre-Funding Account
shall be invested in the Permitted Investments specified in clause (iv) of the
definition thereof or such other investments approved by the Certificate
Insurer. Such direction shall designate specific investments and shall certify
that the specified investments constitute Permitted Investments and mature at
the time required hereby. Each investment shall mature not later than the
Business Day immediately preceding the Distribution Date next following the date
of such investment (unless the obligor in respect of such investment is the
Trustee and the Trustee is acting as the Paying Agent, in which case such
investment may mature on such Distribution Date) and shall not be sold or
disposed of prior to its maturity. The Trustee shall not be liable for any loss
incurred in connection with any such investment except with respect to any
investment issued or guaranteed by the Trustee in its individual capacity.
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(d) On any Distribution Date during the Pre-Funding Period, upon
satisfaction of the conditions set forth in Section 2.8(b), the Trustee shall
withdraw from the Pre-Funding Account an amount equal to 100% of the aggregate
Cut-Off Date Trust Balances of the Subsequent Mortgage Loans sold to the Trust
on such date and pay such amount to or upon the order of the Transferor.
(e) In the event the Pre-Funded Amount has not been reduced to zero
by the end of the Pre-Funding Period, the Trustee shall withdraw from the Pre-
Funding Account the Investor Fixed Allocation Percentage of the amount on
deposit in the Pre-Funding Account (excluding any Pre-Funding Earnings) on the
next Distribution Date, or if the last day of the Pre-Funding Period is a
Distribution Date, on such Distribution Date, and deposit such amount into the
Certificate Account for distribution to the Investor Certificateholders. Any
amounts remaining in the Pre-Funding Account following such withdrawal and
following the transfer in Section 5.6(f) shall be paid to the Transferor
Certificateholder and the Pre-Funding Account shall be closed.
(f) On each Distribution Date during the Pre-Funding Period, the
Trustee shall transfer from the Pre-Funding Account to the Certificate Account
for distribution as Investor Interest Collections in accordance with Section
5.1(a), the Pre-Funding Earnings, if any, applicable to such Distribution Date.
(g) On each Distribution Date during the Pre-Funding Period, the
Trustee shall transfer from the Capitalized Interest Account to the Certificate
Account the Capitalized Interest Requirement, if any, for such Distribution
Date. In addition, on each Distribution Date during the Pre-Funding Period, the
Trustee shall withdraw any Overfunded Amount from the Capitalized Interest
Account and pay such amount to the Transferor Certificateholder. On the last day
of the Pre-Funding Period or, if such date is not a Distribution Date, on the
following Distribution Date, the Trustee shall withdraw any amounts remaining in
the Capitalized Interest Account, after giving effect to any withdrawals from
the Capitalized Interest Account on such Distribution Date, and pay such amounts
to the Transferor Certificateholder and the Capitalized Interest Account shall
be closed.
ARTICLE VI
THE CERTIFICATES
Section 6.1 The Certificates.
----------------
The Investor Certificates and Transferor Certificates shall be
substantially in the forms set forth in Exhibits A and B, respectively, and
shall, on original issue, be executed, authenticated and delivered by the
Trustee to or upon the order of the Transferor concurrently with the transfer of
the Initial Mortgage Loans to the Trustee of the Trust. The Investor
Certificates shall be initially evidenced by one or more certificates
representing the entire Original Investor Certificate Principal Balance and
shall be held in minimum dollar denominations of $1,000 and integral dollar
multiples in excess thereof. The sum of the denominations of all outstanding
Investor Certificates shall equal the Original Investor Certificate Principal
Balance. The Transferor Certificates shall be
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issuable as one or more certificates representing the entire interest in the
assets of the Trust other than that represented by the Investor Certificates and
shall initially be issued to the Transferor.
The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee by an authorized officer under its seal imprinted thereon.
Certificates bearing the manual or facsimile signatures of individuals who were,
at the time when such signatures were affixed, authorized to sign on behalf of
the Trustee shall bind the Trustee, notwithstanding that such individuals or any
of them have ceased to be so authorized prior to the authentication and delivery
of such Certificates or did not hold such offices at the date of such
Certificate. No Certificate shall be entitled to any benefit under this
Agreement, or be valid for any purpose, unless such Certificate shall have been
manually authenticated by the Trustee substantially in the form provided for
herein, and such authentication upon any Certificate shall be conclusive
evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication. Subject to Section 6.2(d), the Investor Certificates
shall be Book-Entry Certificates. The Transferor Certificates shall not be
Book-Entry Certificates.
Section 6.2 Registration of Transfer and Exchange of Investor Certificates;
---------------------------------------------------------------
Restrictions on Transfer.
------------------------
(a) The Trustee shall cause to be kept at the Corporate Trust Office a
Certificate Register in which, subject to such reasonable regulations as it may
prescribe, the Trustee shall provide for the registration of Certificates and of
Transfers of registered ownership of Certificates and exchanges of Certificates
as herein provided. The Trustee shall initially serve as Certificate Registrar
for the purpose of registering Certificates and Transfers and exchanges of
Certificates as herein provided.
Upon surrender for registration of Transfer of any Investor Certificate at
the Corporate Trust Office maintained for such purpose pursuant to the foregoing
paragraph, the Trustee shall execute, authenticate and deliver, in the name of
the designated Transferee or Transferees, one or more new Investor Certificates
of the same aggregate Percentage Interest.
At the option of the Investor Certificateholders, Investor Certificates may
be exchanged for other Investor Certificates of authorized denominations of the
same aggregate Percentage Interest, upon surrender of the Investor Certificates
to be exchanged at any such office or agency. Whenever any Certificates are so
surrendered for exchange, the Trustee shall execute, authenticate and deliver
the Investor Certificates which the Investor Certificateholder making the
exchange is entitled to receive. Every Investor Certificate presented or
surrendered for Transfer or exchange shall (if so required by the Trustee or the
Certificate Registrar) be duly endorsed by, or be accompanied by a written
instrument of Transfer in form satisfactory to, the Trustee and the Certificate
Registrar and shall be duly executed by the Holder thereof or his attorney duly
authorized in writing.
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No service charge shall be made for any Transfer or exchange of Investor
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 Investor Certificates.
All Certificates surrendered for Transfer and exchange shall be disposed of
by the Certificate Registrar in accordance with its customary procedures.
(b) Intentionally Omitted
(c) Except as provided in Section 6.2(d), the Book-Entry Certificates
shall at all times remain registered in the name of the Depository or its
nominee, and at all times: (i) registration of the Book-Entry Certificates may
not be transferred by the Trustee except to another Depository or its nominee,
or to another nominee of the current Depository; (ii) the Depository or Foreign
Depository, as the case may be, shall maintain book-entry records with respect
to the Certificate Owners and with respect to ownership and transfers of such
Investor Certificates; (iii) ownership and transfers of registration of Investor
Certificates on the books of the Depository shall be governed by applicable
rules established by the Depository; (iv) the Depository may collect its usual
and customary fees, charges and expenses from its Depository Participants; (v)
the Trustee shall deal with the Depository as representative of the Certificate
Owners of the Investor Certificates for purposes of exercising the rights of
Holders under this Agreement, and requests and directions for and votes of such
representatives shall not be deemed to be inconsistent if they are made with
respect to different Certificate Owners; and (vi) the Trustee may rely and shall
be fully protected in relying upon information furnished by the Depository with
respect to directions or consents or other acts of the Certificate Owners.
All transfers by Certificate Owners of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository Participant
or brokerage firm representing such Certificate Owner. Each Depository
Participant shall only transfer Book-Entry Certificates of Certificate Owners it
represents or of brokerage firms for which it acts as agent in accordance with
the Depository or Foreign Depository's normal procedures.
Whenever notice or other communication to the Investor Certificateholders
is required under this Agreement, unless and until Definitive Certificates shall
have been issued to Certificate Owners pursuant to Section 6.2(d), the Trustee
shall give to the Depository all such notices and communications specified
herein to be given to Certificateholders.
(d) If (x)(i) the Transferor advises the Trustee in writing that the
Depository is no longer willing or able properly to discharge its
responsibilities as Depository and nominee with respect to the Investor
Certificates, and (ii) the Transferor is unable to locate a qualified successor,
(y) the Transferor at its option advises the Trustee in writing that it elects
to terminate the book-entry system through the Depository, or (z) after the
occurrence of an Event of Default, Certificate Owners representing Percentage
Interests aggregating not less than 51% of the aggregate Percentage Interests of
the Investor Certificates advise the Trustee and the Depository through the
Depository Participants in writing that the continuation of a book-entry system
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through the Depository (or a successor thereto, provided that such successor
maintains a system that qualifies as a book-entry system for purposes of causing
the Investor Certificates to be in registered form for purposes of the Code) to
the exclusion of any physical certificates being issued to Certificate Owners is
no longer in the best interests of the Certificate Owners, the Trustee shall
notify all Certificate Owners, through the Depository, of the occurrence of any
such event and of the availability of definitive, fully registered Investor
Certificates (the "Definitive Certificates") to Certificate Owners requesting
the same. Upon surrender to the Trustee of the Investor Certificates by the
Depository, accompanied by registration instructions from the Depository for
registration, the Trustee shall issue the Definitive Certificates. Neither the
Transferor nor the Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions. Upon the issuance of Definitive Certificates, the Trustee
shall recognize the Holders of the Definitive Certificates as Investor
Certificateholders hereunder.
Section 6.3 Mutilated, Destroyed, Lost or Stolen Certificates.
-------------------------------------------------
If (i) any mutilated Certificate is surrendered to the Certificate
Registrar or the Certificate Registrar receives evidence to its satisfaction of
the destruction, loss or theft of any Certificate, and (ii) there is delivered
to the Trustee, the Servicer, the Transferor and the Certificate Registrar such
security or indemnity as may be required by them to save each of them harmless,
then, in the absence of notice to the Trustee or the Certificate Registrar 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 Percentage Interest. Upon the issuance of any new Certificate under
this Section, 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
any other expenses (including the fees and expenses of the Trustee and the
Certificate Registrar) connected therewith. Any duplicate Certificate issued
pursuant to this Section shall constitute complete and indefeasible evidence of
ownership in the Trust Fund, as if originally issued, whether or not the lost,
stolen or destroyed Certificate shall be found at any time.
Section 6.4 Persons Deemed Owners.
---------------------
Prior to due presentation of a Certificate for registration of Transfer,
the Servicer, the Transferor, the Trustee, the Certificate Insurer, the
Certificate Registrar and any agent of the Servicer, the Transferor, the
Trustee, the Certificate Insurer or the Certificate Registrar may treat the
Person in whose name any Certificate is registered as the owner of such
Certificate for the purpose of receiving distributions pursuant to Section 5.1
and for all other purposes whatsoever, and none of the Servicer, the Transferor,
the Trustee, the Certificate Insurer, the Certificate Registrar or any agent of
the Servicer, the Transferor, the Trustee, the Certificate Insurer or the
Certificate Registrar shall be affected by notice to the contrary.
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Section 6.5 Restrictions on Transfer of Transferor Certificates.
---------------------------------------------------
(a) The Transferor Certificates shall be assigned, transferred,
exchanged, pledged, financed, hypothecated, participated or otherwise conveyed
(collectively, for purposes of this Section 6.5 and any other Section referring
to the Transferor Certificates, "transferred" or a "transfer") only in
accordance with this Section 6.5.
(b) No transfer of a Transferor Certificate shall be made unless such
transfer is exempt from the registration requirements of the Securities Act of
1933, as amended, and any applicable state securities laws or is made in
accordance with said Act and laws. The Trustee shall require a written Opinion
of Counsel acceptable to and in form and substance satisfactory to the Trustee
and the Transferor that such transfer may be made pursuant to an exemption,
describing the applicable exemption and the basis therefor, from such Act and
laws or is being made pursuant to said Act and laws, which Opinion of Counsel
shall not be an expense of the Trustee, and the Trustee shall require the
transferee to execute an investment letter acceptable to and in form and
substance satisfactory to the Trustee certifying to the Trustee the facts
surrounding such transfer, which investment letter shall not be an expense of
the Trustee. The Holder of a Transferor Certificate desiring to effect such
transfer shall, and does hereby agree to, indemnify the Transferor and the
Certificate Insurer against any liability that may result if the transfer is not
so exempt or is not made in accordance with such federal and state laws.
(c) The Transferor Certificates and any interest therein shall not be
transferred except upon satisfaction of the following conditions precedent: (i)
the Person that acquires a Transferor Certificate shall (A) be organized and
existing under the laws of the United States of America or any state or the
district of Columbia thereof (B) expressly assume, by an agreement supplemental
hereto, executed and delivered to the Trustee, the performance of every covenant
and obligation of the Transferor hereunder with respect to the assets evidenced
by the Transferor Certificates, and (C) as part of its acquisition of a
Transferor Certificate, acquire all rights of the related Transferor or any
transferee under this Section 6.5(c) to amounts payable to such Transferor or
such transferee hereunder; (ii) the Transferor shall deliver to the Trustee an
Officer's Certificate stating that such transfer and such supplemental agreement
comply with this Section 6.5(c) and that all conditions precedent provided by
this Section 6.5(c) have been complied with and an Opinion of Counsel stating
that all conditions precedent provided by this Section 6.5(c) have been complied
with, and the Trustee may conclusively rely on such Officer's Certificate, shall
have no duty to make inquiries with regard to the matters set forth therein and
shall incur no liability in so relying; (iii) the Transferor shall deliver to
the Trustee a letter from each Rating Agency confirming that its rating of the
Investor Certificates, after giving effect to such transfer without taking into
account the Certificate Insurance Policy, will not be reduced or withdrawn; (iv)
the Transferor shall deliver to the Trustee an Opinion of Counsel to the effect
that (a) such transfer will not adversely affect the treatment of the Investor
Certificates after such transfer as debt for federal and applicable state income
tax purposes, (b) such transfer will not result in the Trust being subject to
tax at the entity level for federal or applicable state tax purposes, (c) such
transfer will not have any material adverse impact on the federal or applicable
state income taxation of an Investor Certificateholder or any Certificate Owner
and (d) such transfer will not result in the arrangement created by this
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agreement, or any "portion" of the Trust Fund, being treated as a taxable
mortgage pool as defined in Section 7701(i) of the Code; (v) all filings and
other actions necessary to continue the perfection of the interest of the Trust
in the Mortgage Loans and the other property conveyed hereunder shall have been
taken or made and (vi) the transferee shall have assumed the obligations of the
Transferor pursuant to Section 7.7 hereof. Notwithstanding the foregoing, the
requirement set forth in subclause (i)(A) of this Section 6.5(c) shall not apply
in the event the Trustee shall have received a letter from each Rating Agency
confirming that its rating of the Investor Certificates, after giving effect to
a proposed transfer to a Person that does not meet the requirement set forth in
subclause (i)(A) without taking into account the Certificate Insurance Policy,
shall not be reduced or withdrawn.
Section 6.6 Appointment of Paying Agent.
---------------------------
The Trustee is empowered to appoint a Paying Agent for the purpose of
making distributions to Certificateholders pursuant to Section 5.1. Any Paying
Agent appointed hereunder must satisfy the eligibility requirements for the
Trustee as set forth in Section 9.6, and if such Paying Agent subsequently shall
fail to satisfy such eligibility requirements, then, unless such Paying Agent
shall promptly resign as such, the Trustee, if a Responsible Officer of the
Trustee has been notified in writing or otherwise has actual knowledge of such
failure, shall terminate the appointment of such Paying Agent. The Trustee
hereby appoints itself as Paying Agent.
The Trustee shall cause such Paying Agent other than itself to execute and
deliver to the Trustee an instrument in which such Paying Agent shall agree with
the Trustee that such Paying Agent shall hold all sums held by it for the
payment to Certificateholders in trust for the benefit of the Certificateholders
entitled thereto until such sums shall be paid to such Certificateholders.
Section 6.7 Access to List of Certificateholders' Names and Addresses.
---------------------------------------------------------
The Certificate Registrar shall furnish or cause to be furnished to the
Servicer or the Certificate Insurer (unless a Certificate Insurer Default shall
have occurred and be continuing), within fifteen (15) days after receipt by the
Certificate Registrar of a request therefor from the Servicer or the Certificate
Insurer in writing, a list, in such form as the Servicer or the Certificate
Insurer may reasonably require, of the names and addresses of the
Certificateholders as of the most recent Record Date. If three or more Investor
Certificateholders whose aggregate Percentage Interests evidence not less than
25% of the aggregate Percentage Interests of the Investor Certificates, apply in
writing to the Trustee, and such application states that the applicants desire
to communicate with other Certificateholders with respect to their rights under
this Agreement or under the Certificates, and such application is accompanied by
a copy of the communication that such applicants propose to transmit, then the
Certificate Registrar shall, within five (5) Business Days after the receipt of
such application, afford such applicants access during normal business hours to
the current list of Certificateholders or shall itself cause such communication
to be distributed to Certificateholders. Each Holder, by receiving and holding
a Certificate, shall be deemed to have agreed to hold none of the Servicer, the
Trustee or the Certificate Registrar
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accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.
Section 6.8 Actions of Certificateholders.
-----------------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Certificateholders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Certificateholders in person or by
their agent duly appointed in writing; and except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee and, where required, to the Transferor, the
Certificate Insurer or the Servicer. Proof of execution of any such instrument
or of a writing appointing any such agent shall be sufficient for any purpose of
this Agreement and conclusive in favor of the Trustee, the Transferor, the
Certificate Insurer and the Servicer, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any Certificateholder of any
such instrument or writing may be proved in any reasonable manner which the
Trustee deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other action by a Certificateholder shall bind every Holder of every
Certificate issued upon the registration of Transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be done,
by the Trustee, the Transferor or the Servicer in reliance thereon, whether or
not notation of such action is made upon such Certificate.
(d) The Trustee may require such additional proof of any matter
referred to in this Section as it shall deem necessary.
(e) The ownership of Certificates shall be proved by the Certificate
Register.
ARTICLE VII
THE SERVICER AND THE TRANSFEROR
Section 7.1 Liability of the Servicer.
-------------------------
The Servicer shall be liable in accordance herewith only to the extent of
the obligations specifically imposed upon and undertaken by the Servicer herein.
Section 7.2 Merger or Consolidation of, or Assumption of the obligations of,
----------------------------------------------------------------
the Servicer or Transferor.
--------------------------
Any corporation into which the Servicer or Transferor may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Servicer or
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Transferor shall be a party, or any corporation succeeding to the business of
the Servicer or Transferor by any sale or transfer by the Servicer or Transferor
of all or substantially all of its property and assets to such corporation,
shall be the successor of the Servicer or Transferor hereunder, and shall
execute and deliver to the Trustee and the Certificate Insurer an agreement in
form reasonably satisfactory to the Trustee and the Certificate Insurer which
contains an assumption by such successor entity of the due and punctual
performance and observance of each covenant and condition to be performed or
observed by the Servicer or Transferor under this Agreement.
Section 7.3 Limitation on Liability of the Servicer and Others.
--------------------------------------------------
(a) No recourse under or upon any obligation or covenant of this
Agreement, or of any Certificate, or for any claim based thereon or otherwise in
respect thereof, shall be had against any incorporator, shareholder, officer or
director, as such, past, present or future, of the Servicer, either directly or
through the Servicer, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise; it being
expressly understood that this Agreement and the obligations issued hereunder
are solely corporate obligations, and that no such personal liability whatever
shall attach to, or is or shall be incurred by the incorporators, shareholders,
officers or directors, as such, of the Servicer or of any successor corporation,
or any of them, because of the issuance of the Certificates, or under or by
reason of the obligations, covenants or agreements contained in this Agreement
or in any of the Certificates or implied therefrom; and that any and all such
personal liability, either at common law or in equity or by constitution or
statute, of, and any and all such rights and claims against, every such
incorporator, shareholder, officer or director, as such, because of the issuance
of the Certificates, or under or by reason of the obligations or covenants
contained in this Agreement or in any of the Certificates or implied therefrom,
are hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Agreement and the issuance of the
Certificates. The Servicer and any director, officer, employee or agent of the
Servicer may rely in good faith on any document of any kind prima facie properly
----- -----
executed and submitted by any Person respecting any matters arising hereunder.
(b) The Servicer shall not be under any liability to the Trust or the
Certificateholders for taking any action or for refraining from taking any
action pursuant to this Agreement, or for errors in judgment; provided, however,
-------- -------
that this provision shall not protect the Servicer against any liability which
would otherwise be imposed upon the Servicer by reason of its willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties as Servicer
hereunder. The Servicer shall not be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its duties to
service the Mortgage Loans in accordance with this Agreement which in its
reasonable opinion may involve it in any expense or liability; provided,
--------
however, that the Servicer, in its sole discretion, may undertake any such
- -------
action which it may deem necessary or desirable in respect of this Agreement,
and the rights and duties of the parties hereto and the interests of the
Certificateholders hereunder. In such event, the reasonable legal expenses and
costs of such action and any liability resulting therefrom shall be expenses,
costs and liabilities of the Trust, and the Servicer shall be entitled to be
reimbursed therefor pursuant to Section 3.3. The Servicer's right to
reimbursement pursuant to this Section 7.3(b) shall survive any resignation or
termination of the
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Servicer pursuant to Section 7.5 or 8.1 with respect to any losses, expenses,
costs or liabilities arising prior to such resignation or termination, or
arising from events that occurred prior to such resignation or termination.
(c) The Servicer and any director, officer, employee or agent of the
Servicer shall be indemnified by the Trust and held harmless to the extent
provided herein against any loss, liability or expense incurred in connection
with any legal action relating to this Agreement or the Certificates, other than
any loss, liability or expense related to any specific Mortgage Loan or Mortgage
Loans (except as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Agreement) and any loss, liability or expense
incurred by the Servicer by reason of willful misfeasance, bad faith or gross
negligence by the Servicer in the performance of its duties hereunder or by
reason of its reckless disregard of its obligations and duties hereunder. The
Servicer and any director, officer, employee or agent of the Servicer shall be
entitled to such indemnity pursuant to Section 3.3. The Servicer's right to
indemnity pursuant to this Section 7.3(c) shall survive any resignation or
termination of the Servicer pursuant to Section 7.5 or 8.1 with respect to any
losses, expenses, costs or liabilities arising prior to such resignation or
termination, or arising from events that occurred prior to such resignation or
termination. Any claims under this Section 7.3(c) by or on behalf of the
Certificateholders or the Trust shall be made only against the Servicer who
shall be liable to the extent provided herein with respect to its own acts and
omissions as well as the acts and omissions of its directors, officers,
employees and agents.
Section 7.4 Delegation of Duties.
--------------------
(a) In the ordinary course of business, and subject to the
requirements of Section 7.4(b), the Servicer at any time may, with the consent
of the Certificate Insurer, delegate any of its duties hereunder to any Person,
including any of its affiliates, who agrees to conduct such duties in accordance
with standards comparable to those with which the Servicer complies pursuant to
Section 3.1. Such delegation shall not relieve the Servicer of its liabilities
and responsibilities with respect to such duties and shall not constitute a
resignation within the meaning of Section 7.5. The Servicer shall provide each
Rating Agency, the Trustee and the Certificate Insurer with written notice prior
to the delegation of any of its duties to any Person other than any of the
Servicer's affiliates or their respective successors and assigns.
(b) The parties hereto intend that, for so long as the Trust holds
Trust Balances of one or more Common Mortgage Loans, the Person acting as
Servicer under this Agreement shall at all times be the same as the Person
acting as servicer under the Prior Trust Pooling and Servicing Agreements
applicable to such Common Mortgage Loans. Accordingly, the Servicer shall
delegate its duties pursuant to Section 7.4(a) to the extent that, but only to
those Persons to which, it has delegated its duties as servicer under the
applicable Prior Trust Pooling and Servicing Agreements, and otherwise the
Servicer shall not be authorized to delegate any of its duties hereunder.
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Section 7.5 Servicer Not to Resign.
----------------------
Subject to the provisions of Section 7.2 and the last sentence of this
paragraph, the Servicer shall not resign from the obligations and duties hereby
imposed on it (i) for so long as the Trust holds Trust Balances of one or more
Common Mortgage Loans, unless it has resigned from its obligations and duties as
servicer under all Prior Trust Pooling and Servicing Agreements applicable to
such Common Mortgage Loans or (ii) except upon determination that the
performance of its obligations or duties hereunder is no longer permissible
under applicable law or is in material conflict by reason of applicable law with
any other activities carried on by it or its subsidiaries or other affiliates,
the other activities of the Servicer so causing such a conflict being of a type
and nature carried on by the Servicer or such subsidiaries or other affiliates
at the date of this Agreement. For so long as the Trust holds Trust Balances of
one or more Common Mortgage Loans, the determination set forth in clause (ii)
shall provide the basis for the Servicer's resignation only if the Servicer
simultaneously resigns from its obligations and duties as servicer under the
Prior Trust Pooling and Servicing Agreements applicable to such Common Mortgage
Loans. For so long as the Trust holds Trust Balances of one or more Common
Mortgage Loans, the Servicer shall resign from its obligations and duties
hereunder promptly upon any resignation from its obligations and duties as
servicer under the Prior Trust Pooling and Servicing Agreements applicable to
such Common Mortgage Loans.
Any resignation under Section 7.5 shall not relieve the Servicer of
responsibility for any of the obligations specified in Sections 8.1 and 8.2 as
obligations that survive the resignation or termination of the Servicer;
provided, however, that no resignation by the Servicer shall become effective
- -------- -------
until the Trustee or a successor servicer shall have assumed the
responsibilities and obligations of the Servicer in accordance with Section 8.2.
The Servicer shall have no claim (whether by subrogation or otherwise) or other
action against any Certificateholder for any amounts paid by the Servicer
pursuant to any provision of this Agreement. Any determination permitting the
resignation of the Servicer shall be evidenced by an opinion of Counsel to such
effect delivered to the Trustee and the Certificate Insurer.
Section 7.6 Limitation on Liability of Certain Persons.
------------------------------------------
Except as provided in Section 7.7 hereof, no recourse under or upon any
obligation or covenant of this Agreement, or of any Certificate, or for any
claim based thereon or otherwise in respect thereof, shall be had against any
incorporator, shareholder, officer or director, as such, past, present or
future, of the Transferor or of any successor corporation, either directly or
through the Transferor, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise; it
being expressly understood that this Agreement and the obligations issued
hereunder are solely corporate obligations, and that no such personal liability
whatever shall attach to, or is or shall be incurred by the incorporators,
shareholders, officers or directors, as such, of the Transferor, or any of them,
because of the issuance of the Certificates, or under or by reason of the
obligations, covenants or agreements contained in this Agreement or in any of
the Certificates or implied therefrom; and that any and all such personal
liability, either at common law or in equity or by constitution or statute, of,
and any and all such
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rights and claims against, every such incorporator, shareholder, officer or
director, as such, because of the issuance of the Certificates, or under or by
reason of the obligations, covenants or agreements contained in this Agreement
or in any of the Certificates or implied therefrom, are hereby expressly waived
and released as a condition of, and as a consideration for, the execution of
this Agreement and the issuance of the Certificates. The Transferor and any
director, officer, employee or agent of the Transferor may rely in good faith on
any document of any kind prima facie properly executed and submitted by any
----- -----
Person respecting any matters arising hereunder.
Section 7.7 Liability of Transferor.
-----------------------
Notwithstanding Section 7.6 (and notwithstanding any provisions of this
Agreement), the Transferor by entering into this Agreement, by its acceptance
thereof, agrees to be liable, directly to the injured party, for the entire
amount of any losses, claims, damages or liabilities (other than those that
would be incurred by an Investor Certificateholder as an investor in the
Certificates if the Certificates were notes secured by the Mortgage Loans
including, but not limited to, as a result of the performance of the Mortgage
Loans, market fluctuations, a shortfall or failure to make payment under the
Certificate Insurance Policy or other similar market or investment risks
associated with ownership of the Certificates) arising out of or based on the
arrangement created by this Agreement or the actions of the Transferor taken
pursuant hereto (to the extent that, if the Trust assets at the time the claim
is made were used to pay in full all outstanding Certificates, the Trust assets
that would remain after the Certificateholders were paid in full would be
insufficient to pay any such losses, claims, damages or liabilities) as though
this Agreement created a partnership under the New York Revised Uniform
Partnership Act in which the Transferor was a general partner. The rights
created by this Section 7.7 shall run directly to and be enforceable by the
injured party subject to the limitations hereof.
Section 7.8 Transferor May Own Certificates.
-------------------------------
The Transferor and any Person controlling, controlled by or under common
control with the Transferor may in its individual or any other capacity become
the owner or pledgee of Investor Certificates with the same rights as it would
have if it were not the Transferor or such an affiliate thereof, except as
otherwise provided in the definition of the term "Certificateholder" specified
in Section 1.1. Investor Certificates so owned by or pledged to the Transferor
or such controlling or commonly controlled Person shall have an equal and
proportionate benefit under the provisions of this Agreement, without
preference, priority or distinction as among all of the Certificates, except as
otherwise provided in the definition of the term "Certificateholder" specified
in Section 1.1.
ARTICLE VIII
DEFAULT
Section 8.1 Events of Default.
-----------------
If any one of the following events ("Events of Default") shall occur and be
continuing:
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(i) any failure by the Servicer to deposit into the Certificate
Account any deposit required to be made under the terms of this
Agreement which continues unremedied for a period of five (5)
Business Days after the date upon which written notice of such
failure shall have been given to the Servicer by the Trustee or to
the Servicer and the Trustee by the Certificate Insurer or to the
Servicer, the Trustee and the Certificate Insurer by the Holders
of Investor Certificates evidencing not less than 51% of the
aggregate Percentage Interests of the Investor Certificates; or
(ii) failure on the part of the Servicer duly to observe or perform in
any material respect any other covenants or agreements of the
Servicer set forth in the Insurance Agreement or in this
Agreement, which failure (A) materially and adversely affects the
rights of Certificateholders and (B) continues unremedied for a
period of sixty (60) days after the date on which written notice
of such failure, requiring the same to be remedied, shall have
been given to the Servicer and the Certificate Insurer by the
Trustee, or to the Servicer, the Certificate Insurer and the
Trustee by the Holders of Certificates evidencing not less than
51% of the aggregate Percentage Interests of the Investor
Certificates; or
(iii) the entry against the Servicer 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, marshaling of
assets and liabilities or similar proceedings, or for the winding
up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of one hundred
twenty (120) days; or
(iv) the consent by the Servicer to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings of or
relating to the Servicer or of or relating to substantially all of
its property; or any action by the Servicer to admit in writing
its inability to pay its debts generally as they become due, to
file a petition to take advantage of any applicable insolvency or
reorganization statute or to make an assignment for the benefit of
its creditors;
then, and in each and every such case, so long as an Event of Default shall not
have been remedied by the Servicer, and subject to the proviso below, either the
Trustee, the Certificate Insurer (unless there is currently existing a
Certificate Insurer Default) or the Holders of Investor Certificates evidencing
not less than 51% of the aggregate Percentage Interests of the Investor
Certificates with the consent of the Certificate Insurer (if there exists no
Certificate Insurer Default) by notice then given in writing to the Servicer
(and to the Trustee if given by the Certificate Insurer or the Investor
Certificateholders), may and at the direction of the Holders of Investor
Certificates evidencing no less than 51% of the aggregate Percentage Interests
of the Investor Certificates, the Trustee shall, terminate all of the rights and
obligations of the Servicer as servicer under this Agreement; provided, however,
-------- -------
that, for so long as the Trust holds Trust Balances of one or more Common
Mortgage Loans under which Sold Balances are owned by Trust 1990, Trust 1992,
Trust
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1993, Trust 1994, Trust 1995 or Trust 1996, the Servicer may not be terminated
in such circumstances, if and for so long as, the Servicer continues to act as
servicer under the Prior Trust Pooling and Servicing Agreements applicable to
such Common Mortgage Loans, as the case may be. Upon such termination, for so
long as the Trust holds Trust Balances of one or more Common Mortgage Loans
under which Sold Balances are owned by Trust 1990, Trust 1992, Trust 1993, Trust
1994, Trust 1995, or Trust 1996 and if and for so long as the Trustee also acts
as servicer of Trust 1990, Trust 1992, Trust 1993, Trust 1994, Trust 1995, or
Trust 1996, as the case may be, the Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under this Agreement,
pursuant to Section 8.2. If the Servicer is terminated as servicer under the
Prior Trust Pooling and Servicing Agreements, for so long as the Trust holds
Trust Balances of one or more Common Mortgage Loans under which Sold Balances
are owned by Trust 1990, Trust 1992, Trust 1993, Trust 1994, Trust 1995, or
Trust 1996, and whether or not there is any Event of Default hereunder, the
Trustee shall promptly deliver a notice of termination to the Servicer and shall
appoint as successor Servicer pursuant to Section 8.2 the same Person appointed
to succeed the Servicer as servicer under such Prior Trust Pooling and Servicing
Agreements.
Subject to the proviso below, if a Trigger Event shall have occurred, the
Certificate Insurer (unless there is currently existing a Certificate Insurer
Default) may require the Trustee to deliver a notice of termination to the
Servicer and to appoint a successor Servicer pursuant to Section 8.2; provided,
--------
however, that, for so long as the Trust holds Trust Balances of one or more
- -------
Common Mortgage Loans under which Sold Balances are owned by Trust 1990, Trust
1992, Trust 1993, Trust 1994, Trust 1995, or Trust 1996, the Certificate Insurer
may not require the Trustee to deliver such notice of termination and appoint a
successor Servicer in such circumstances if, and for so long as the Servicer
continues to act as servicer under any Prior Trust Pooling and Servicing
Agreement applicable to such Common Mortgage Loans.
Any written notice of termination provided to the Servicer pursuant to this
Section 8.1 shall be simultaneously provided to the Certificate Insurer and the
Rating Agencies. On or after the receipt by the Servicer of such written
notice, all authority and power of, and all benefits accruing to, the Servicer
under this Agreement, whether with respect to the Certificates or the Mortgage
Loans or otherwise, shall pass to and be vested in the Trustee or such successor
Servicer as may be appointed under Section 8.2 pursuant to and under this
Section 8.1; and, without limitation, the Trustee is hereby authorized and
empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact
or otherwise, any and all documents and other instruments, and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, whether to complete the transfer and
endorsement of the Mortgage Loans and related documents, or otherwise. The
predecessor Servicer shall cooperate with the successor Servicer and the Trustee
in effecting the termination of the responsibilities and rights of the Servicer
hereunder, including, without limitation, the transfer to the successor Servicer
for the administration by it of all cash amounts that shall at the time be owned
by the predecessor Servicer for deposit, or that shall thereafter be received by
the Servicer with respect to the Mortgage Loans.
The Certificate Insurer (unless there is currently existing a Certificate
Insurer Default) may notify the Trustee of the occurrence of a Trigger Event and
request termination of the rights and obligations of the Servicer hereunder
because of such occurrence; provided, however, that the
-------- -------
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Trustee shall incur no liability for voluntarily complying with such request;
and, provided, further, that, for so long as the Trust holds Trust Balances of
-------- -------
one or more Common Mortgage Loans, the Trustee may not so terminate the Servicer
for so long as the Servicer continues to act as servicer under any Prior Trust
Pooling and Servicing Agreement applicable to such Common Mortgage Loans.
No Holder of Investor Certificates will have any right under this Agreement
to institute any proceeding in its name with respect to this Agreement unless
such holder previously has given to the Trustee and the Certificate Insurer
written notice of default and unless holders of Investor Certificates evidencing
not less than 25% of the aggregate Percentage Interests of the Investor
Certificates with the consent of the Certificate Insurer have made written
request upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity, and the Trustee
for 60 days has neglected or refused to institute any such proceeding. The
Trustee will be under no obligation to exercise any of the trusts or powers
vested in it by this Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the Holders of
Investor Certificates or the Certificate Insurer covered by this Agreement,
unless such Holders of Investor Certificates or the Certificate Insurer have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities that may be incurred therein or thereby.
Section 8.2 Trustee to Act; Appointment of Successor.
----------------------------------------
(a) Upon the Servicer's receipt of notice of termination pursuant to
Section 8.1 or the Servicer's resignation in accordance with the terms of
Section 7.5, and, for so long as the Trust holds Trust Balances of one or more
Common Mortgage Loans (and if and for so long as the Trustee also acts as
servicer under a Prior Trust Pooling and Servicing Agreement applicable to such
Common Mortgage Loans), 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
predecessor Servicer by the terms and provisions hereof; provided, however, that
-------- -------
the responsibilities and duties of the predecessor Servicer with respect to the
removal of Mortgage Loans pursuant to Section 3.1 shall not terminate with
regard to actions taken prior to the appointment of the successor Servicer. As
compensation therefor, the Trustee shall be entitled to the compensation of a
successor Servicer as set forth in the definition of Servicing Fee Rate.
Notwithstanding the above, if the Trustee is unable to act as successor Servicer
the Trustee shall appoint, with the consent of the Certificate Insurer, or
petition a court of competent Jurisdiction to appoint, any established housing
and home finance institution having a net worth of not less than $10,000,000 as
the successor to the predecessor Servicer hereunder; provided, however, that,
-------- -------
for so long as the Trust holds Trust Balances of one or more Common Mortgage
Loans under which Sold Balances are owned by any Prior Trust, any such successor
Servicer shall be the same Person that is then acting as, or has been designated
to act as, servicer under the Prior Trust Pooling and Servicing Agreements
applicable to such Common Mortgage Loans; and provided, further, that the
-------- -------
appointment of any such successor Servicer shall not result in the reduction,
suspension or withdrawal of the ratings assigned to the Investor Certificates by
any Rating Agency without
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taking into account the Certificate Insurance Policy. Pending appointment of a
successor Servicer hereunder, unless the Trustee is prohibited by law from so
acting, 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 Trust
Balances of Mortgage Loans as it, the Certificate Insurer (unless there
currently exists a Certificate Insurer Default) and such successor shall agree;
provided, however, that such successor shall be entitled to the compensation of
- -------- -------
a successor Servicer as set forth in the definition of Servicing Fee Rate. The
Trustee and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession. Any
successor Servicer appointed pursuant to this Section 8.2 shall be bound by the
provisions of the Custodial Agreement.
(b) Any successor Servicer, including the Trustee during the term of
its service as Servicer, shall maintain in force (i) a policy or policies of
insurance covering errors and omissions in the performance of its obligations as
Servicer hereunder, and (ii) a fidelity bond in respect of its officers,
employees and agents to the same extent as the Servicer is so required pursuant
to Section 3.12.
Section 8.3 Notification to Investor Certificateholders.
-------------------------------------------
Upon any termination or appointment of a successor to the Servicer pursuant
to this Article VIII, the Trustee shall give prompt written notice thereof to
Investor Certificateholders at their respective addresses appearing in the
Certificate Register and to the Certificate Insurer and the Rating Agencies.
Section 8.4 Waiver of Past Events of Default.
--------------------------------
The Holders of Investor Certificates evidencing not less than 51% of the
aggregate Percentage Interests of the Investor Certificates together, with the
consent of the Certificate Insurer, may, on behalf of all Holders of
Certificates, waive any Event of Default by the Servicer in the performance of
its obligations hereunder and its consequences, except a default in making any
required deposits to or payments from the Certificate Account in accordance with
this Agreement. Upon any such waiver of a past Event of Default, such Event of
Default shall cease to exist and 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 thereon.
ARTICLE IX
THE TRUSTEE
Section 9.1 Duties of Trustee.
-----------------
The Trustee, prior to the occurrence of an Event of Default of which a
Responsible Officer of the Trustee shall have actual knowledge 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
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in this Agreement. If an Event of Default has occurred of which a Responsible
Officer of the Trustee shall have actual knowledge (which has not been cured or
waived), the Trustee shall exercise such of the rights and powers vested in it
by this Agreement, and use the same degree of care and skill in their exercise,
as a prudent man would exercise or use under the circumstances in the conduct of
his own affairs. The appointment of a successor Servicer (including the Trustee)
hereunder shall for purposes of this Article be deemed a cure of an Event of
Default.
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 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 to the Trustee hereunder. If any such instrument is found not to
conform in any material respect to the requirements of this Agreement, the
Trustee shall notify the Investor Certificateholders of such instruments, in the
event that the Trustee, after so requesting, does not receive a satisfactorily
corrected instrument.
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 of which a
Responsible Officer of the Trustee shall have actual knowledge,
and after the curing of all such Events of Default which may have
occurred, the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Agreement, the
Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this
Agreement, no implied covenants or obligations shall be read into
this Agreement against the Trustee and, in the absence of bad
faith on the part of the Trustee, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Trustee and conforming to the requirements of
this Agreement;
(ii) the Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible officer 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 this Agreement, at the direction of Holders of
Investor Certificates evidencing not less than 51% of the
aggregate Percentage Interests of the Investor Certificates
together or at the direction of the Certificate Insurer to the
extent provided in Section 8.1 with respect to the time, method
and place of conducting any proceeding for any remedy
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available to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Agreement; and
(iv) the Trustee shall not be charged with knowledge of any failure by the
Servicer to comply with the obligations of the Servicer referred to in
clauses (i) and (ii) of Section 8.1 or of any Trigger Event unless a
Responsible Officer of the Trustee assigned to and working in the
Trustee's Corporate Trust Office obtains actual knowledge of such
failure or Trigger Event or the Trustee receives written notice of
such failure or Trigger Event from the Servicer, the Certificate
Insurer or the Holders of Investor Certificates evidencing not less
than 25% of the aggregate Percentage Interests of the Investor
Certificates.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground to believe that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of performance of, any
of the obligations of the Servicer under this Agreement, except during such
time, if any, as the Trustee shall be the successor to, and be vested with the
rights, duties, powers and privileges of, the Servicer in accordance with the
terms of this Agreement. The Trustee shall provide prior written notice to the
Certificate Insurer of any decision which it has made pursuant to this
paragraph.
Subject to the other provisions of this Agreement and without limiting the
generality of this Section 9.1, 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 Fund
from funds available in the Certificate Account, (D) to confirm or verify the
contents of any reports or certificates of the Servicer delivered to the Trustee
pursuant to this Agreement believed by the Trustee to be genuine and to have
been signed or presented by the proper party or parties.
Section 9.2 Certain Matters Affecting the Trustee.
-------------------------------------
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, Officer's Certificate, 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;
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(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
rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation hereunder or in relation hereto, at
the request, order or direction of any of the Certificateholders,
pursuant to the provisions of this Agreement, unless such
Certificateholders 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 obligations, upon the
occurrence of an Event of Default of which a Responsible Officer of
the Trustee shall have actual knowledge (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 their
exercise as a prudent man would exercise or use under the
circumstances in the conduct of his 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 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 documents, unless requested in writing to do so by the
Certificate Insurer or Holders of Investor Certificates evidencing
not less than 25% of the aggregate Percentage Interests of the
Investor Certificates with the consent of the Certificate Insurer;
provided, however, that if the payment within a reasonable time to
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the Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion
of the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Agreement, the Trustee may
require reasonable indemnity against such cost, expense or liability
as a condition to such proceeding. The reasonable expense of every
such examination shall be paid by the Servicer or, if paid by the
Trustee, shall be reimbursed by the Servicer upon demand. Nothing in
this clause (v) shall derogate from the obligation of the Servicer to
observe any applicable law prohibiting disclosure of information
regarding the Mortgagors;
(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;
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(vii) The Trustee shall not be required to give any bond or surety in
respect of the execution of the Trust Fund created hereby or the
powers granted hereunder; and
(viii) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through
agents or attorneys or a custodian and shall not be liable for any
acts or omissions of such agents, attorneys or custodians appointed
by it with due care hereunder.
Section 9.3 Trustee Not Liable for Certificates or Mortgage Loans.
-----------------------------------------------------
The recitals contained herein and in the Certificates (other than the
signature and authentication of the Trustee on the Certificates) shall be taken
as the statements of the Transferor and the Servicer, respectively, and the
Trustee assumes no responsibility for the correctness of such recitals. The
Trustee makes no representations as to the validity or sufficiency of this
Agreement or of the Certificates (other than the signature and authentication of
the Trustee on the Certificates) or of any Mortgage Loan or related document.
The Trustee shall not be accountable for the use or application by the
Transferor of any of the Certificates or of the proceeds of such Certificates,
or for the use or application of any funds paid to the Transferor or the
Servicer in respect of the Mortgage Loans or deposited into or withdrawn from
the Certificate Account by the Servicer or the Transferor, and shall have no
responsibility for filing any financing or continuation statement in any public
office at any time or otherwise to perfect or maintain the perfection of any
security interest or lien granted to it hereunder or to prepare or file any tax
returns or Securities and Exchange Commission filings for the Trust or to record
this Agreement except as required by law. The Trustee shall not be responsible
for the legality or validity of this 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
pledgee of Certificates and may deal with the Transferor and the Servicer in
banking transactions with the same rights as it would have if it were not
Trustee.
Section 9.5 Servicer to Pay Trustee's Fees and Expenses.
-------------------------------------------
The Servicer shall pay to the Trustee from time to time, and the Trustee
shall be entitled to, reasonable compensation (which shall not be limited by any
provision of law in regard to the compensation of a trustee of an express trust)
for all services rendered by it in the execution of the trusts hereby created
and in the exercise and performance of any of the powers and duties hereunder of
the Trustee, and the Servicer shall pay or reimburse the Trustee upon its
request for all reasonable expenses, disbursements and advances incurred or made
by the Trustee in accordance with any of the provisions of this Agreement,
except any such expense, disbursement or advance as may arise from its
negligence or bad faith or which is the responsibility of a Certificateholder or
Certificateholders hereunder. If the Trustee is appointed as successor Servicer
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pursuant to Section 8.2, the provisions of this Section 9.5 shall not apply to
expenses, disbursements or advances made or incurred by the Trustee in its
capacity as successor Servicer. The Servicer shall indemnify the Trustee for,
and hold it harmless against, any loss, liability or expense incurred without
negligence or bad faith on the Trustee's part, arising out of or in connection
with the acceptance or administration by the Trustee of the trust or trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder. If and for so long as the successor Servicer is the
Trustee, all references in this Section 9.5 to the Servicer shall be deemed to
refer to Chevy Chase Bank, F.S.B. notwithstanding the appointment of such
successor Servicer.
Section 9.6 Eligibility Requirements for Trustee.
------------------------------------
The Trustee hereunder at all times shall be a corporation (i) having its
principal office in the same state as that in which the initial Trustee under
this Agreement has its principal office and organized and doing business under
the laws of the United States of America or a state of the United States of
America; (ii) authorized under such laws to exercise corporate trust powers;
(iii) having a combined capital and surplus of at least $50,000,000 and subject
to supervision or examination by federal or state authority; and (iv) if Moody's
is a Rating Agency, having a rating with respect to its long-term unsecured debt
obligations of at least Baa3 from Moody's (or such lower rating to which Moody's
may agree). If such corporation 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 9.6, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 9.6, the Trustee shall resign
immediately in the manner and with the effect specified in Section 9.7.
Section 9.7 Resignation or Removal of Trustee.
---------------------------------
The Trustee may at any time resign and be discharged from the trusts hereby
created by giving written notice thereof to the Transferor and the Certificate
Insurer. Upon receiving such notice of resignation, the Transferor, with the
written consent of the Certificate Insurer, shall promptly appoint a successor
Trustee. Such appointment shall be by written instrument, in duplicate, one
copy of which instrument shall be delivered to the resigning Trustee and one
copy to the successor Trustee. Any such successor Trustee shall be approved in
writing by the Servicer, which shall not withhold such approval if the proposed
successor Trustee satisfies the eligibility requirements set forth herein. If
no successor Trustee shall have been so appointed and have accepted appointment
within thirty (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.
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 Transferor or the Certificate Insurer, or if at any time the
Trustee shall be legally unable to act, or shall be adjudged a bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer
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shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, the Transferor may
remove the Trustee. If the Transferor removes the Trustee under the authority of
the immediately preceding sentence, the Transferor shall promptly appoint a
successor Trustee. Such appointment will be by written instrument, in duplicate,
one copy of which instrument shall be delivered to the Trustee so removed and
one copy to the successor Trustee. A copy of such instrument shall be delivered
to the Certificate Insurer.
Any resignation or removal of the Trustee and appointment of a successor
Trustee pursuant to any of the provisions of this Section 9.7 shall not become
effective until acceptance of appointment by the successor Trustee as provided
in Section 9.8.
Section 9.8 Successor Trustee.
-----------------
Any successor Trustee appointed as provided in Section 9.7 shall execute,
acknowledge and deliver to the Transferor, the Certificate Insurer 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 like effect as if originally
named as Trustee. The Transferor, 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
9.8 unless at the time of such acceptance such successor Trustee shall be
eligible under the provisions of Section 9.6. The predecessor Trustee shall
notify the Certificate Insurer and each Rating Agency of the appointment of any
successor Trustee.
Upon acceptance of appointment by a successor Trustee as provided in this
Section 9.8, the Servicer shall mail notice of the succession of such Trustee
hereunder to the Certificate Insurer and all holders of Certificates at their
addresses as shown in the Certificate Register. If the Servicer fails to mail
such notice within ten (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.
Notwithstanding anything to the contrary contained herein, the appointment
of any successor trustee pursuant to any provision of this Agreement will be
subject to the prior written consent of the Certificate Insurer.
Section 9.9 Merger or Consolidation of Trustee.
----------------------------------
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation or banking association
resulting from any merger, conversion or consolidation to which the Trustee
shall be a party, or any corporation or banking association succeeding to all or
substantially all of the trust business of the Trustee, shall be the successor
of
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the Trustee hereunder, provided such corporation or 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.
---------------------------------------------
Notwithstanding any other provisions of this Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust Fund or any Mortgaged Property may at the time be located, the
Transferor 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 and for the benefit of the
Certificateholders, 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 Transferor and the Trustee may consider
necessary or desirable. If the Transferor shall not have joined in such
appointment within fifteen (15) days after the receipt by it of a request so to
do, or in the 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 and no notice to Certificateholders of
the appointment of any co-trustee or separate trustee shall be required under
Section 9.8.
Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or imposed upon
the Trustee shall be conferred or imposed upon and exercised or
performed by the Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee
is not authorized to act separately without the Trustee joining in
such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee hereunder or as successor to the Servicer
hereunder), the Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties
and obligations (including the holding of title to the Trust Fund or
any portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely
at the direction of the Trustee;
(ii) no trustee hereunder shall be held personally liable by reason of any
act or omission of any other trustee hereunder; and
(iii) the Transferor and the Trustee acting jointly may at any time accept
the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the then-separate trustees and co-trustees, as
effectively as if given to each of
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them. Every instrument appointing any separate trustee or co-trustee shall refer
to this Agreement and the conditions of this Article IX. Each separate trustee
and co-trustee, upon its acceptance of the trusts conferred, shall be vested
with the estates or property specified in its instrument of appointment, either
jointly with the Trustee or separately, as may be provided therein, subject to
all the provisions of this Agreement, specifically including every provision of
this Agreement relating to the conduct of, affecting the liability of, or
affording protection to, the Trustee. Every such instrument shall be filed with
the Trustee and a copy thereof given to the Transferor.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
Section 9.11 Waiver of Bond Requirement.
--------------------------
The Trustee shall be relieved of, and each Certificateholder hereby waives,
any requirement of any jurisdiction in which the Trust Fund, or any part
thereof, may be located that the Trustee post a bond or other surety with any
court, agency or body whatsoever.
Section 9.12 Waiver of Inventory, Accounting and Appraisal Requirement.
---------------------------------------------------------
The Trustee shall be relieved of, and each Certificateholder hereby waives,
any requirement of any jurisdiction in which the Trust Fund, or any part
thereof, may be located that the Trustee file any inventory, accounting or
appraisal of the Trust Fund with any court, agency or body at any time or in any
manner whatsoever.
Section 9.13 Streit Act.
----------
Any provisions required to be contained in this Agreement by Section 126 of
Article 4-A of the New York Real Property Law are hereby incorporated, and such
provisions shall be in addition to those conferred or imposed by this Agreement;
provided, however, that to the extent that such Section 126 shall not apply to
- -------- -------
this Agreement, such Section 126 shall not have any effect, and if such Section
126 should at any time be repealed or cease to apply to this Agreement, or be
construed by judicial decision to be inapplicable, such Section 126 shall cease
to have any further effect upon the provisions of this Agreement. In case of a
conflict between the provisions of this Agreement and any mandatory provision of
Article 4-A of the New York Real Property Law, such mandatory provisions of such
Article 4-A shall prevail, provided, however, that if such Article 4-A shall not
-------- -------
apply to this Agreement, or be construed by judicial decision to be
inapplicable, such mandatory provisions of such Article 4-A shall cease to have
any further effect upon the provisions of this Agreement.
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ARTICLE X
TERMINATION
Section 10.1 Termination.
-----------
(a) The respective obligations and responsibilities of the Servicer, the
Transferor and the Trustee created hereby (other than the obligation of the
Trustee to make certain payments to Certificateholders after the final
Distribution Date and the obligation of the Servicer to send certain notices as
hereinafter set forth) shall terminate upon the last action required to be taken
by the Trustee on the final Distribution Date pursuant to this Article X
following the later of (A) the earlier of (i) payment in full of all amounts
owing to the Certificate Insurer and (ii) the final payment or other liquidation
of the last Mortgage Loan in the Trust and (B) the earliest of (i) the
retransfer, under the conditions specified in Section 10.1(b), to the Transferor
of the Investor Certificateholders' interest in each Mortgage Loan and all
property acquired in respect of any Mortgage Loan remaining in the Trust for an
amount equal to the sum of (A) the Investor Certificate Principal Balance, (B)
accrued and unpaid Investor Certificate Interest through the day preceding the
final Distribution Date plus any Basis Risk Payment then due, and (C) any Unpaid
Investor Certificate Interest Shortfall, (ii) the day following the Distribution
Date on which the distribution made to Investor Certificateholders has reduced
the Investor Certificate Principal Balance to zero, (iii) the final payment or
other liquidation of the last Mortgage Loan remaining in the Trust (including
without limitation the disposition of the Mortgage Loans pursuant to Section
11.2) or the disposition of all property acquired upon foreclosure or deed in
lieu of foreclosure of any Mortgage Loan, (iv) the Stated Maturity Date;
provided, however, notwithstanding anything herein to the contrary the Trust
- -------- -------
shall terminate on September 30, 2030. Upon termination in accordance with this
Section 10.1, the Trustee and Custodial Agent shall execute such documents and
instruments of transfer presented by the Transferor and take such other actions
as the Transferor may reasonably request to effect the retransfer of the
Mortgage Loans and the related property to the Transferor.
(b) The Transferor shall have the right to exercise the option to effect
the retransfer to the Transferor of each Mortgage Loan pursuant to Section
10.1(a) above on any Distribution Date on or after the Distribution Date
immediately prior to which the Investor Certificate Principal Balance is less
than or equal to five percent (5%) of the Original Investor Certificate
Principal Balance and all amounts due and owing to the Certificate Insurer for
unpaid premiums and unreimbursed draws on the Certificate Insurance Policy,
together with interest thereon as provided under the Insurance Agreement, have
been paid.
(c) Notice of any termination, specifying the Distribution Date (which
shall be a date that would otherwise be a Distribution Date) upon which the
Investor Certificateholders may surrender their Investor Certificates to the
Trustee for payment of the final distribution and cancellation, shall be given
promptly by the Trustee (upon receipt of written directions from the Servicer
given not later than the tenth (10th) day of the month immediately preceding the
month of such final distribution) by letter to Investor Certificateholders and
the Certificate Insurer mailed not later than the twentieth (20th) day of the
month immediately preceding the month of such final
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distribution. Such notice shall specify (i) the Distribution Date upon which
final distribution of the Investor Certificates will be made upon presentation
and surrender of Investor Certificates at the office or agency of the Trustee
therein designated, (ii) the amount of any such final distribution and (iii)
that the Record Date otherwise applicable to such Distribution Date is not
applicable, distributions being made only upon presentation and surrender of the
Investor Certificates at the office or agency of the Trustee therein specified.
(d) Upon presentation and surrender of the Investor Certificates, the
Trustee shall cause to be distributed to the holders of Investor Certificates on
the Distribution Date for such final distribution, in proportion to the
Percentage Interests of their respective Investor Certificates, an amount equal
to (i) if such final distribution is not being made pursuant to the retransfer
to the Transferor pursuant to Section 10.1(a)(B)(i), the amount required to be
distributed to Investor Certificateholders pursuant to Section 5.1 for such
Distribution Date and (ii) if such final distribution is being made pursuant to
such retransfer, the amount specified in Section 10.1(a)(B)(i). The distribution
on such final Distribution Date pursuant to a retransfer pursuant to Section
10.1(a)(B)(i) shall be in lieu of the distribution otherwise required to be made
on such Distribution Date in respect of the Certificates. On the final
Distribution Date prior to having made the distributions called for above, the
Trustee will withdraw from the Certificate Account and remit to the Certificate
Insurer the lesser of (x) the amount available for distribution on such final
Distribution Date, net of any portion thereof necessary to pay the amounts
described in clauses (d)(i) and (ii) above and (y) the unpaid amounts due and
owing to the Certificate Insurer for unpaid premiums and unreimbursed draws on
the Certificate Insurance Policy, together with interest thereon as provided
under the Insurance Agreement.
(e) In the event that all of the Investor Certificateholders shall not
surrender their Investor Certificates for final payment and cancellation on or
before such final Distribution Date, the Trustee shall on such date cause all
funds in the Certificate Account not distributed in final distribution to the
Certificate Insurer or Investor Certificateholders to be withdrawn therefrom and
credited to the remaining Investor Certificateholders by depositing such funds
in a separate escrow account for the benefit of such Investor Certificateholders
and the Transferor (if the Transferor has exercised its right to retransfer the
Mortgage Loans) or the Trustee (in any other case) and shall give a second
written notice to the remaining Investor Certificateholders to surrender their
Investor Certificates for cancellation and receive the final distribution with
respect thereto. If within one year after the second notice all the Investor
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 Investor Certificateholders concerning surrender of their
Investor Certificates, and the cost thereof shall be paid out of the funds on
deposit in such escrow account.
ARTICLE XI
RAPID AMORTIZATION EVENTS
Section 11.1 Rapid Amortization Events.
-------------------------
If any one of the following events shall occur during the Managed
Amortization Period:
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(a) failure on the part of the Transferor (i) to make any payment or
deposit required by the terms of this Agreement, on or before the date occurring
five Business Days after the date such payment or deposit is required to be made
herein, or (ii) to record assignments when required, or (iii) duly to observe or
perform in any material respect the covenants of the Transferor set forth in
Section 2.4(b) or (iv) duly to observe or perform in any material respect any
other covenants or agreements of the Transferor set forth in this Agreement,
which failure, in each case, materially and adversely affects the interests of
the Certificateholders or the Certificate Insurer and which, in the case of
clause (iv), continues unremedied and continues to affect materially and
adversely the interests of the Certificateholders for a period of 60 days after
the date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Transferor by the Trustee, or to the
Transferor and the Trustee by the Certificate Insurer or the Holders of Investor
Certificates evidencing Percentage Interests aggregating not less than 51%;
(b) any representation or warranty made by the Transferor in this
Agreement shall prove to have been incorrect in any material respect when made
and as a result of which the interests of the Investor Certificateholders or the
Certificate Insurer are materially and adversely affected and which continues to
be incorrect in any material respect and continues to affect materially and
adversely the interests of the Investor Certificateholders or the Certificate
Insurer for a period of 60 days after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to the
Transferor by the Trustee, or to the Transferor and the Trustee by either the
Certificate Insurer or the Holders of Investor Certificates evidencing
Percentage-Interests aggregating not less than 51%; provided, however, that a
Rapid Amortization Event pursuant to this subparagraph (b) shall not be deemed
to have occurred hereunder if the Transferor shall have accepted retransfer of
the related Mortgage Loans or all Mortgage Loans if applicable during such
period (or such longer period (not to exceed an additional 60 days) as the
Trustee may specify) in accordance with the provisions hereof;
(c) the Transferor shall voluntarily go into liquidation, consent to the
appointment of a conservator or receiver or liquidator or similar person in any
insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceedings of or relating to the Transferor or of or relating to all or
substantially all of its property, or a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises for the appointment of
a conservator, receiver, liquidator or similar person in any insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall have
been entered against the Transferor and such decree or order shall have remained
in force undischarged or unstayed for a period of 60 days; or the Transferor
shall admit in writing its inability to pay its debts generally as they become
due, file a petition to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of its creditors or
voluntarily suspend payment of its obligations (any such event, an "Insolvency
Event");
(d) the Trust shall become subject to registration as an "investment
company" under the Investment Company Act of 1940, as amended;
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(e) any Event of Default or Trigger Event (other than the event
described in clause (iv) of the definition thereof) shall occur;
(f) the aggregate of Certificate Insurance Draw Amounts exceeds 1% of
the Pool Balance as of the Initial Cut-Off Date; or
(g) if at any time, Liquidation Loss Amounts incurred by the Trust
exceed $4,450,600 and either (i) there exists any unreimbursed draw under the
Certificate Insurance Policy for a period of six months or (ii) either of the
Excess Spread Conditions is not satisfied;
then, in the case of any event described in subparagraph (a), (b) or (e) after
the applicable grace period, if any, set forth in such subparagraphs, either the
Certificate Insurer, the Trustee or the Holders of Investor Certificates
evidencing Percentage Interests aggregating more than 51%, by notice given in
writing to the Servicer (and to the Trustee, if given by either the Certificate
Insurer or the Investor Certificateholders) may declare that an early
amortization event (a "Rapid Amortization Event") has occurred as of the date of
such notice, and in the case of any event described in subparagraphs (c), (d),
(f) or (g), a Rapid Amortization Event shall occur without any notice or other
action on the part of the Trustee, the Certificate Insurer or the Investor
Certificateholders, immediately upon the occurrence of such event.
Section 11.2 Additional Rights Upon the Occurrence of Certain Events.
-------------------------------------------------------
(a) If an Insolvency Event occurs with respect to the Transferor, the
arrangement among the Investor Certificateholders and the Transferor shall
dissolve and the Trust shall be liquidated in accordance with the following
procedures. The Transferor shall on the day of such Insolvency Event (the
"Appointment Day") immediately cease to transfer Subsequent Mortgage Loans and
Additional Balances to the Trust and shall promptly give notice to the Trustee
thereof. Notwithstanding any cessation of the transfer to the Trust of
Subsequent Mortgage Loans and Additional Balances, Subsequent Mortgage Loans and
Additional Balances transferred to the Trust prior to the occurrence of such
Insolvency Event and Daily Investor Principal Collections and Daily Investor
Interest Collections, whenever created, accrued in respect of such Mortgage
Loans shall continue to be a part of the Trust, and shall continue to be
allocated and paid in accordance with Article V. Within 15 days of the
Appointment Day, the Trustee shall publish a notice in an Authorized Newspaper
that an Insolvency Event has occurred and that the Trustee intends to sell,
dispose of or otherwise liquidate the Trust Balances of the Mortgage Loans as
described below. The Trustee shall obtain a position listing from the
Depository as of the record date established by the Trustee and make a
reasonable attempt to solicit Investor Certificateholders with respect to such
proposed sale. Unless within 75 days from the day the notice above is given,
the Trustee shall have received written instructions from Holders of Investor
Certificates evidencing more than 50% of the aggregate Percentage Interests of
Investor Certificates and the Person, if any, designated by the Transferor prior
to such Insolvency Event to the effect that such Investor Certificateholders and
such Person, if any, disapprove of the liquidation of the Trust Balances of the
Mortgage Loans, the Trustee shall sell, dispose of or otherwise liquidate the
Trust Balances of the Mortgage Loans in a commercially reasonable manner and on
commercially reasonable terms,
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which shall include the solicitation of competitive bids. By accepting its
interest in an Investor Certificate hereunder, each Investor Certificateholder
hereby delegates to the Certificate Insurer its right to give such instructions
to the Trustee, unless a Certificate Insurer Default has occurred and is
continuing. Any attempted designation of a Person for such purposes by the
Transferor prior to an Insolvency Event which does not, by its terms, include an
irrevocable written delegation to the Certificate Insurer of the designee's
right to give such instructions to the Trustee shall be null and void and of no
force and effect (unless a Certificate Insurer Default shall have occurred and
be continuing prior to any such attempted designation). Unless a Certificate
Insurer Default shall have occurred and be continuing, the Certificate Insurer
may make such instruction on behalf of the Investor Certificateholders and such
Person, if any, designated by the Transferor prior to such Insolvency Event. The
Trustee may obtain a prior determination from any such conservator, receiver or
liquidator that the terms and manner of any proposed sale, disposition or
liquidation are commercially reasonable. The provisions of Sections 9.1 and 9.2
shall not be deemed to be mutually exclusive.
(b) The proceeds from the sale, disposition or liquidation of the
Trust Balances of the Mortgage Loans pursuant to subsection (a) above (net of
the Trustee's fees and expenses, including the fees and expenses of its counsel)
shall be treated as collections on the Trust Balances of the Mortgage Loans and
shall be allocated and deposited in accordance with the provisions of Article V;
provided, however, that the Trustee shall determine conclusively in its sole
- -------- -------
discretion the amount of such proceeds which are allocable to Trust Interest and
the amount of such proceeds which are allocable to Principal Collections. Such
proceeds shall be distributed on the Distribution Date following the date such
proceeds are received (the "Dissolution Distribution Date"). If the Certificate
Insurer has elected to cause a termination of the Trust pursuant to subsection
(a) above, the Certificate Insurance Policy will be available to cover the
payment of the then-accrued and unpaid interest on the outstanding Investor
Certificate Principal Balance at the Investor Certificate Rate, as well as the
outstanding Investor Certificate Principal Balance, on the Dissolution
Distribution Date, after giving effect to all other amounts distributed to
Investor Certificateholders on or prior to such Dissolution Distribution Date.
On the day following the Dissolution Distribution Date, the Trust shall
terminate.
(c) The Trustee may appoint an agent or agents to assist with its
responsibilities pursuant to this Article XI with respect to competitive bids.
The Trustee may recover its reasonable actual third party expenses from the
Trust Fund (in an amount not to exceed $10,000) if Investor Certificateholders
evidencing more than 50% of the aggregate Percentage Interests of Investor
Certificates and the Person designated by the Transferor prior to an Insolvency
Event, or the Certificate Insurer, on their behalf, vote not to sell the Trust
Balances of the Mortgage Loans.
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ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1 Amendment.
---------
This Agreement may be amended from time to time by the Servicer, the
Transferor and the Trustee, without the consent of any of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct any defective
provisions or to correct or supplement any provisions herein which may be
inconsistent with any other provisions herein, (iii) to add or delete any other
provisions not inconsistent herewith with respect to matters or questions
arising under this Agreement, including provisions relating to the Trust's
ownership of Trust Balances of Common Mortgage Loans and issuance of definitive
Certificates to Certificate Owners in the event that book-entry registration of
Investor Certificates is no longer permitted, (iv) to add or amend any
provisions herein as required by the Rating Agencies in order to maintain or
improve the rating of the Investor Certificates (it being understood that, after
obtaining the ratings in effect on the Closing Date, neither the Transferor nor
the Servicer is obligated to obtain, maintain or improve any such rating) or (v)
to add any other provisions herein with respect to matters or questions arising
hereunder; provided, however, that, as evidenced by an Opinion of Counsel, in
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each case such action shall not adversely affect in any material respect the
interests of any Certificateholder or the Certificate Insurer (and provided that
any such amendment will be deemed not to materially and adversely affect the
Investor Certificateholders if the person requesting such amendment obtains a
letter from each Rating Agency stating that such amendment would not result in a
downgrading or withdrawal of the rating of the Investor Certificates and
provided further that any such amendment will be deemed not to materially and
adversely affect the Certificate Insurer if each Rating Agency has confirmed
that such amendment would not result in a reduction below investment grade of
the Investor Certificates without regard to the Certificate Insurance Policy).
This Agreement may also be amended from time to time by the Servicer, the
Transferor and the Trustee, with the consent of the Certificate Insurer (unless
there currently exists a Certificate Insurer Default) and the Holders of
Investor Certificates evidencing Percentage Interests aggregating not less than
51%, and the Servicer, the Trustee and the Certificate Insurer may from time to
time consent to the amendment of the Certificate Insurance Policy for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or the Certificate Insurance Policy, as the
case may be, or of modifying in any manner the rights of the Investor
Certificateholders; provided, however, that no such amendment shall (i) reduce
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in any manner the amount of, or delay the timing of, collections of payments on
Mortgage Loans or distributions or payments under the Certificate Insurance
Policy which are required to be made on any Investor Certificate, without the
consent of the Holder of such Investor Certificate, (ii) reduce the aforesaid
percentage required to consent to any such amendment, without the consent of the
Holder of each Investor Certificate then outstanding, or (iii) adversely affect
in any material respect the interests of the Certificate Insurer without the
consent of the Certificate Insurer.
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Notwithstanding the foregoing, the provisions relating to the Spread
Account (including the definitions of "Spread Account Requirement" and "Basic
Spread Account Amount") may be amended in any respect by the Transferor, the
Servicer and the Trustee (with the consent of the Certificate Insurer) without
the consent of, or notice to, the Certificateholders. Such amendment could
reduce or eliminate the funding requirements of the Spread Account or release
such funds for the benefit of persons other than the Certificateholders.
Notwithstanding the foregoing, the Agreement may not be amended unless, in
connection with such amendment, an Opinion of Counsel is furnished to the
Trustee that such amendment will not (i) adversely affect the status of the
Investor Certificates as debt; (ii) result in the Trust being taxed at the
entity level; or (iii) result in the Trust (or any portion thereof) being taxed
as a taxable mortgage pool (as defined in Section 7701(i) of the Code).
Prior to the execution of any such amendment made with the consent of the
Investor Certificateholders, the Trustee shall furnish written notification of
the substance of such amendment to each Rating Agency. Promptly after the
execution of any such amendment made with the consent of the Investor
Certificateholders, the Trustee shall furnish written notification of the
substance of such amendment to each Investor Certificateholder and fully
executed original counterparts of the instruments effecting any such amendment
to the Certificate Insurer.
It shall not be necessary for the consent of Investor Certificateholders
under this Section 12.1 to approve the particular form of any proposed amendment
or consent, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Investor Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
The Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Trustee's own rights, duties or immunities under
this Agreement or otherwise.
In connection with any amendment pursuant to this Section 12.1, the Trustee
shall be entitled to receive and rely on an Opinion of Counsel to the effect
that such amendment is authorized or permitted by this Agreement.
Section 12.2 Recordation of Agreement.
------------------------
This Agreement is subject to recordation in all appropriate public offices
for real property records in all 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 and at its expense on direction by the Trustee,
but only upon direction of the Trustee accompanied by an Opinion of Counsel to
the effect that such recordation materially and beneficially affects the
interests of Certificateholders.
For the purpose of facilitating the recordation of this Agreement as herein
provided and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts,
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each of which counterparts shall be deemed to be an original, and such
counterparts shall constitute but one and the same instrument.
Section 12.3 Limitation on Rights of Certificateholders.
------------------------------------------
The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust, nor entitle such Certificateholder's
legal representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust,
nor otherwise affect the rights, obligations and liabilities of the parties
hereto or any such party.
Except as expressly provided herein, no Investor Certificateholder shall
have any right to vote or in any manner otherwise control the operation and
management of the Trust, or the obligations of the parties hereto, nor shall any
Investor 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.
No Investor Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless such Holder previously shall have given to the Trustee a written notice
of default and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of Investor Certificates evidencing not less than 25% of the
aggregate Percentage Interests of the Investor Certificates shall have made
written request upon the Trustee to institute such action, suit or proceeding in
its own name as Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee, for sixty (60)
days after its receipt of such notice, request and offer of indemnity, shall
have neglected or refused to institute any such action, suit or proceeding; it
being understood and intended, and being expressly covenanted by each
Certificateholder with every other Certificateholder and the Trustee, that no
one or more Holders of Certificates shall have any right in any manner whatever
by virtue or by availing itself or themselves of any provisions of this
Agreement to affect, disturb or prejudice the rights of the Holders of any other
of the Certificates, or to obtain or seek to obtain priority over or preference
to any other such Holder, or to enforce any right under this Agreement, except
in the manner herein provided and for the equal, ratable and common benefit of
all Certificateholders. For the protection and enforcement of the provisions of
this Section 12.3, each and every Certificateholder and the Trustee shall be
entitled to such relief as can be given either at law or in equity.
Section 12.4 Application of Certain Provisions of this Agreement.
---------------------------------------------------
Sections 7.4, 7.5, 8.1 and 8.2 of this Agreement provide that, if and for
so long as the Trust holds Trust Balances of Common Mortgage Loans, the Servicer
shall be the same Person that is then acting, or is designated to act, as the
servicer of the Prior Trusts applicable to such Common Mortgage Loans. The
parties acknowledge that such provisions are intended to enable the Trust to
meet applicable legal requirements. Notwithstanding any such provision in
Section 7.4, 7.5, 8.1 or 8.2 to the contrary, and subject to the condition
specified in the immediately following sentence,
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the parties agree that, in the event that the implementation of such provisions
shall prove impracticable, such Sections shall be construed and applied as if
such Sections did not contain such provisions. It shall be a condition to the
non-application of such provisions that the Trustee receive an Opinion of
Counsel to the effect that the non-application of such provisions will not (i)
adversely affect the status of the Investor Certificates as debt; (ii) result in
the Trust being taxed at the entity level; (iii) result in the Trust being taxed
as a taxable mortgage pool (as defined in Section 7701(i) of the Code); (iv)
will not violate any requirement of applicable law or subject the Trust to
compliance with any law, rule or regulation to which it otherwise would not be
subject; and (v) will not adversely affect in any material respect the legal
rights of the Certificateholders or the Certificate Insurer.
Section 12.5 Governing Law.
-------------
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS; PROVIDED, HOWEVER, THAT THE
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IMMUNITIES AND STANDARD OF CARE OF THE TRUSTEE IN THE ADMINISTRATION OF ITS
TRUST HEREUNDER SHALL BE GOVERNED BY THE LAWS OF THE JURISDICTION IN WHICH ITS
PRINCIPAL PLACE OF BUSINESS IS LOCATED.
Section 12.6 Notices.
-------
All demands, notices and communications hereunder shall be in writing and
personally delivered, mailed by certified mail, return receipt requested, or
telecopied, and shall be deemed to have been duly given upon receipt, (a) in the
case of the Transferor or the Servicer, c/o Chevy Chase Bank, F.S.B., 8401
Connecticut Avenue, Chevy Chase, Maryland 20815, Attention: Stephen R. Halpin,
Jr., Executive Vice President and Chief Financial officer, telecopy: (301) 986-
7401, (b) in the case of the Trustee, to U.S. Bank National Association, 180
East Fifth Street, St. Paul, Minnesota 55101, Attention: Structured
Finance/Capitol HEL 97-1, telecopy (612) 244-0089, (c) in the case of the
Certificate Insurer, Ambac Assurance Corporation, One State Street Plaza, New
York, New York 10004, Attention: Structured Finance Department, (d) in the case
of Moody's, ABS Monitoring Department, 4th Floor, 99 Church Street, New York,
New York 10007, telecopy: (212) 553-4773 and (e) in the case of Standard &
Poor's, Mortgage-Backed Securities Surveillance Department, 25 Broadway, New
York, New York 10004, telecopy: (212) 412-0323, or, as to each party, at such
other address or telecopy number as shall be designated by such party in a
written notice to each other party. Any notice required or permitted to be
mailed to a Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register.
Any notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice. The Trustee has agreed herein to
provide notices to the Rating Agencies as a matter of courtesy and accommodation
and shall incur no liability to any Person for any failure to provide any such
notices.
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Section 12.7 Severability of Provisions.
--------------------------
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, 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 provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.
Section 12.8 Assignment.
----------
Notwithstanding anything to the contrary contained herein, except as
provided in Sections 6.5, 7.2 and 7.5, this Agreement may not be assigned by the
Transferor or the Servicer without the prior written consent of the Certificate
Insurer.
If the Servicer or Transferor converts from one form of depository
institution charter to another form of depository institution charter, the
resulting entity shall be the Servicer or Transferor, respectively, for all
purposes under this Agreement. Consistent with the preceding sentence, if the
Servicer or Transferor converts from one form of depository institution charter
to another form of depository institution charter, such action shall not be
considered: (i) an "assignment" or "transfer" or otherwise be considered a
"conveyance" of the Transferor Certificates (or an interest therein) for
purposes of Section 6.5; (ii) a "merger," "conversion," "assumption of
obligations" or "consolidation" of the Servicer or Transferor for purposes of
Section 7.2; (iii) a "resignation" of the Servicer for purposes of Section 7.5;
or (iv) an "assignment" by the Servicer or Transferor for purposes of Section
12.8.
Section 12.9 Certificates Nonassessable and Fully Paid.
-----------------------------------------
The parties agree that the Certificateholders shall not be personally
liable for obligations of the Trust, that the beneficial ownership interests
represented by the Certificates shall be nonassessable for any losses or
expenses of the Trust or for any reason whatsoever, and that Certificates upon
execution, authentication and delivery thereof by the Trustee pursuant to
Section 6.1 are and shall be deemed fully paid.
Section 12.10 Counterparts.
------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
Section 12.11 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.
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Section 12.12 Third Party Beneficiary.
-----------------------
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, and, in addition, shall inure to the benefit of
Certificateholders and, to the extent provided herein, the Certificate Insurer
and their respective successors and permitted assigns. Except as otherwise
provided in this Agreement, no other Person shall have any right or obligation
hereunder.
Section 12.13 Merger and Integration.
----------------------
Except as specifically stated otherwise herein, this Agreement sets forth
the entire understanding of the parties relating to the subject matter hereof,
and all prior understandings, written or oral, and all contemporaneous oral
understandings, are superseded by this Agreement. This Agreement may not be
modified, amended, waived or supplemented except as provided herein.
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IN WITNESS WHEREOF, the Servicer, the Transferor, the Trustee and the
Custodial Agent have caused this Agreement to be duly executed by their
respective officers and their respective seals, duly attested, to be hereunto
affixed, all as of the day and year first above written.
CHEVY CHASE BANK, F.S.B.,
as Transferor and Servicer
By: /s/ Mark A. Holles
------------------------------
Name: Mark A. Holles
Title: Vice President
U.S. BANK NATIONAL ASSOCIATION
as Trustee and Custodial Agent
By: /s/ Edward Kachinski
------------------------------
Name: Edward Kachinski
Title: Vice President
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EXHIBIT A
---------
[FORM OF INVESTOR CERTIFICATE]
THIS CERTIFICATE MAY NOT BE ACQUIRED OR HELD BY OR FOR THE ACCOUNT OF A BENEFIT
PLAN (AS DEFINED BELOW).
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
Certificate No. ________
Variable Certificate Rate
Date of Pooling and Servicing Agreement: Denomination
November 1, 1997 $________________
Cut-Off Date: November 1, 1997 Aggregate Denominations of all
Investor Certificates: $________
First Distribution Date:
December 22, 1997
CUSIP No. _____________
CAPITOL
REVOLVING HOME EQUITY LOAN ASSET BACKED CERTIFICATES
SERIES 1997-1, INVESTOR CERTIFICATE
evidencing a Percentage Interest in the distributions allocable to the Investor
Certificates and evidencing an undivided interest in a Trust Fund consisting
primarily of a pool of certain revolving credit line home equity mortgage loans
originated or acquired, serviced and transferred by
CHEVY CHASE BANK, F.S.B.
A-3
<PAGE>
This Investor Certificate does not evidence a savings account or deposit or
other obligation of, or an interest in, and is not guaranteed by Chevy Chase
Bank, F.S.B. (the "Transferor") or the Trustee referred to below or any of their
affiliates. Neither this Investor Certificate nor the underlying Mortgage Loans
are guaranteed or insured by any governmental agency or instrumentality.
This certifies that ____________ is the registered owner of the ____%
Percentage Interest evidenced by this Investor Certificate in certain monthly
distributions with respect to a Trust Fund consisting primarily of a pool of
certain revolving credit line home equity mortgage loans (the "Mortgage Loans")
transferred by the Transferor and serviced by Chevy Chase Bank, F. S. B. (in
such capacity, the " Servicer, " with the term Servicer including any successor
Servicer under the Pooling and Servicing Agreement referred to below). The
Trust was created pursuant to a Pooling and Servicing Agreement dated as
specified above (the "Pooling and Servicing Agreement") among the Transferor,
the Servicer, U.S. Bank National Association, as trustee (the "Trustee") and, as
Custodial Agent (the "Custodial Agent").
To the extent not defined herein, capitalized terms used herein have the
meanings assigned to such terms in the Pooling and Servicing Agreement. This
Investor Certificate is issued under and is subject to the terms, provisions and
conditions of the Pooling and Servicing Agreement, as amended from time to time,
to which Pooling and Servicing Agreement, as so amended, the Investor
Certificateholder by virtue of the acceptance hereof, and to which any
beneficial owner, by acquiring a beneficial interest herein, assents and by
which the Investor Certificateholder and any such beneficial owner is bound.
Although this Investor Certificate summarizes certain provisions of the Pooling
and Servicing Agreement, this Investor Certificate does not purport to summarize
the Pooling and Servicing Agreement, and reference is made to the Pooling and
Servicing Agreement for information with respect to the interests, rights,
benefits, obligations and duties evidenced hereby and the rights, duties and
obligations of the Trustee. In the event of any inconsistency or conflict
between the terms of this Investor Certificate and the terms of the Pooling and
Servicing Agreement, the terms of the Pooling and Servicing Agreement shall
control. A copy of the Pooling and Servicing Agreement may be obtained from the
Trustee by writing to U.S. Bank National Association, 180 East Fifth Street, St.
Paul, Minnesota 55101, Attention: Structured Finance/Capitol HEL 97-1.
Pursuant to the terms of the Pooling and Servicing Agreement, a
distribution shall be made on the 20th day of each month or, if such day is not
a Business Day, on the next succeeding Business Day (the "Distribution Date"),
commencing on the first Distribution Date specified above, to the Person in
whose name this Investor Certificate is registered at the close of business on
the day immediately preceding such Distribution Date (except in certain limited
circumstances, as provided in the Pooling and Servicing Agreement), in an amount
equal to the product of the Percentage Interest evidenced by this Investor
Certificate and the amount to be distributed to Holders of the Investor
Certificates on such Distribution Date.
Distributions on this Investor Certificate shall be made by the Trustee by
check or money order mailed to the Person entitled thereto at the address
appearing in the Certificate Register, or,
A-4
<PAGE>
if the conditions specified in the Pooling and Servicing Agreement are met, upon
written request by the Investor Certificateholder delivered to the Trustee at
least fifteen (15) days prior to the applicable Distribution Date, by wire
transfer or by such other means of payment as such Person and the Trustee shall
agree. Notwithstanding the above, the final distribution on this Investor
Certificate shall be made after due notice by the Trustee of the pendency of
such distribution and only upon presentation and surrender of this Investor
Certificate at the office or agency maintained for that purpose in New York, New
York.
This Investor Certificate is entitled to the benefits of a Certificate
Insurance Policy issued by the Certificate Insurer. The obligation of the
Certificate Insurer under the Certificate Insurance Policy is unconditional and
irrevocable. The Certificate Insurance Policy is held by the Trustee and is
available for inspection at its corporate trust offices.
This Investor Certificate shall not be entitled to any benefit under the
Pooling and Servicing Agreement or be valid for any purpose unless manually
authenticated by any authorized officer of the Trustee.
This Investor Certificate is one of the Investor Certificates of a duly
authorized issue of Investor Certificates designated as Capitol Revolving Home
Equity Loan Asset Backed Certificates, Series 1997-1, and representing a
beneficial ownership interest, to the extent provided in the Pooling and
Servicing Agreement, in the Trust Balance of each Mortgage Loan, including
payments on or in respect of such Trust Balance received on or after the
applicable Cut-Off Date; such assets as shall from time to time be identified as
deposited into the Certificate Account (excluding, however, amounts on deposit
in the Certificate Account required to be paid to the Transferor or the Servicer
pursuant to the Pooling and Servicing Agreement); the interest of the Investor
Certificateholders in (i) any property which secured a Mortgage Loan and which
has been acquired by or on behalf of the Trustee in Foreclosure Proceedings or
otherwise, (ii) any insurance policies related to the Mortgage Loans and (iii)
the related Mortgage, Loan Agreement and other Mortgage File documents for each
Mortgage Loan; the Pre-Funding Account; the Spread Account; the Capitalized
Interest Account; and the proceeds of each of the foregoing. The Holder of this
Investor Certificate also is entitled to the benefit of the Certificate
Insurance Policy, as described above.
The Investor Certificates are limited in right of distribution to certain
payments on and collections in respect of the Mortgage Loans, all as more
specifically set forth in the Pooling and Servicing Agreement. The Investor
Certificateholder, by its acceptance of this Investor Certificate, agrees that
it shall look solely to the funds on deposit in the Certificate Account and
payments made under the Certificate Insurance Policy for payment hereunder and
that the Trustee in its individual capacity is not personally liable to the
Investor Certificateholders for any amount distributable under this Investor
Certificate or the Pooling and Servicing Agreement or, except as expressly
provided in the Pooling and Servicing Agreement, subject to any liability under
the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement permits, with certain exceptions
therein provided, the amendment thereof and the modification of the rights and
obligations of the Transferor and
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the Servicer and the rights of the Investor Certificateholders under the Pooling
and Servicing Agreement at any time by the Transferor, the Servicer and the
Trustee with the consent (i) of the Holders of Investor Certificates evidencing
Percentage Interests aggregating not less than 51 % and (ii) the Certificate
Insurer. Any such consent by the Holder of this Investor Certificate shall be
conclusive and binding on such Holder and upon all future Holders of this
Investor Certificate and of any Investor Certificate issued upon the transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent is made upon this Investor Certificate. The Pooling and Servicing
Agreement also permits the amendment thereof, in certain limited circumstances,
without the consent of the Holders of any of the Investor Certificates.
As provided in the Pooling and Servicing Agreement and subject to certain
limitations therein set forth, the transfer of this Investor Certificate is
registrable in the Certificate Register of the Trustee upon surrender of this
Investor Certificate for registration of transfer at the office or agency
maintained for such purpose by the Trustee, accompanied by a written instrument
of transfer in form satisfactory to the Servicer, the Trustee and the
Certificate Registrar duly executed by the Holder hereof or such Holder's
attorney duly authorized in writing, and thereupon one or more new Investor
Certificates of authorized denominations evidencing the same aggregate
fractional undivided interest in the Trust Fund shall be issued to the
designated Transferee or Transferees.
The Investor Certificates are issuable only as registered Investor
Certificates without coupons in denominations specified in the Pooling and
Servicing Agreement. As provided in the Pooling and Servicing Agreement and
subject to certain limitations therein set forth, Investor Certificates are
exchangeable for new Investor Certificates of the same authorized denominations
evidencing the same aggregate Percentage Interest, as requested by the Holder
surrendering the same. No service charge shall be made for any such
registration of transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
This Certificate may not be acquired or held by or for the account of any
employee benefit plan, trust or account, including an individual retirement
account, that is subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as
amended, or an entity whose underlying assets include plan assets of any such
plan, trust or account by reason of its investment in such entity (a "Benefit
Plan"). By accepting and holding this Certificate, the Holder hereof shall be
deemed to have represented and warranted that it is not a Benefit Plan. By
acquiring any interest in this Certificate, the applicable Certificate Owner or
Owners shall be deemed to have represented and warranted that it or they are not
Benefit Plans. The restrictions contained in the foregoing representations and
warranties shall not apply to a Certificate acquired with the assets of the
general account of an insurance company to the extent that the acquisition or
holding thereof, respectively, is permissible under Section 401(c) of ERISA and
final regulations thereunder or other exemptions under ERISA and does not result
in the contemplated operations of the Trust being treated as violations of the
prohibited transaction rules.
A-6
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Prior to due presentment of this Investor Certificate for registration of
transfer, the Trustee, the Servicer, the Transferor, the Certificate Insurer and
the Certificate Registrar and any agent of the Trustee, the Servicer, the
Transferor, the Certificate Insurer or the Certificate Registrar may treat the
Person in whose name this Investor Certificate is registered as the owner hereof
for all purposes, and none of the Trustee, the Servicer, the Transferor, the
Certificate Insurer and the Certificate Registrar or any such agent shall be
affected by any notice to the contrary.
The obligations and responsibilities created by the Pooling and Servicing
Agreement and the Trust created thereby shall terminate upon distribution to the
Investor Certificateholders, or provision therefor, of the amount required to be
so distributed in accordance with the Pooling and Servicing Agreement upon the
later of (A) the earlier of (i) payment in full of all amounts owing to the
Certificate Insurer and (ii) the final payment or other liquidation of the last
Mortgage Loan in the Trust and (B) the earliest of (i) the retransfer, under the
conditions specified in Section 10.1(b) of the Pooling and Servicing Agreement,
to the Transferor of the Investor Certificateholders' interest in each Mortgage
Loan and all property acquired in respect of any Mortgage Loan remaining in the
Trust for an amount equal to the sum of (A) the Investor Certificate Principal
Balance, (B) accrued and unpaid Investor Certificate Interest through the day
preceding the final Distribution Date plus any Basis Risk Payment then due, and
(C) any Unpaid Investor Certificate Interest Shortfall, (ii) the day following
the Distribution Date on which the distribution made to Investor
Certificateholders has reduced the Investor Certificate Principal Balance to
zero, (iii) the final payment or other liquidation of the last Mortgage Loan
remaining in the Trust (including without limitation the disposition of the
Mortgage Loans pursuant to Section 11.2 of the Pooling and Servicing Agreement)
or the disposition of all property acquired upon foreclosure or deed in lieu of
foreclosure of any Mortgage Loan, (iv) the Stated Maturity Date; provided,
--------
however, notwithstanding anything in the Pooling and Servicing Agreement to the
- -------
contrary the Trust shall terminate on September 30, 2030. The Transferor may
effect an early retirement of the Investor Certificates by paying the price and
accepting the Investor Certificates pursuant to the terms of the Pooling and
Servicing Agreement on any Distribution Date after the Investor Certificate
Principal Balance is less than or equal $8,901,200 (5% of the Original Investor
Certificate Principal Balance). Upon retirement of the Investor Certificates in
accordance with Section 10.1 of the Pooling and Servicing Agreement, the Trustee
shall execute such documents and instruments of transfer presented by the
Transferor and take such other actions as the Transferor may reasonably request
to effect the retransfer of the Trust Balances of the Mortgage Loans to the
Transferor.
A-7
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Investor Certificate to be
duly executed under its corporate seal.
DATED: U.S. BANK NATIONAL ASSOCIATION, not in
its individual capacity but solely as
Trustee
[SEAL] By:
-----------------------------------
Authorized Officer
Authenticated:
By:
-----------------------------------
Authorized Officer of U.S. Bank National
Association, not in its individual
capacity but solely as Trustee
A-8
<PAGE>
EXHIBIT B
---------
[FORM OF TRANSFEROR CERTIFICATE]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 6.5 OF THE POOLING AND SERVICING AGREEMENT REFERRED TO
HEREIN.
CAPITOL REVOLVING HOME EQUITY LOAN ASSET BACKED CERTIFICATES
SERIES 1997-1
TRANSFEROR CERTIFICATE
evidencing a percentage interest in the distributions allocable
to the Transferor Certificates and evidencing an interest in a
Trust Fund consisting primarily of a pool of certain revolving
credit line home equity mortgage loans originated or acquired,
serviced and transferred by
CHEVY CHASE BANK, F.S.B.
Certificate No. _____
Percentage Interest: _____
Date of Pooling and Servicing Agreement:
November 1, 1997
Cut-Off Date: November 1, 1997
First Distribution Date: December 22, 1997
This Transferor Certificate does not evidence a savings account or deposit
or other obligation of, or interest in, and is not guaranteed by Chevy Chase
Bank, F.S.B. (the "Transferor") or the Trustee referred to below or any of their
affiliates. Neither this Transferor Certificate nor the underlying Mortgage
Loans are guaranteed or insured by any governmental agency or instrumentality.
This certifies that _____________ is the registered owner of the ______%
Percentage Interest evidenced by this Transferor Certificate in certain
distributions with respect to a Trust Fund consisting primarily of a pool of
certain revolving credit line home equity mortgage loans (the "Mortgage Loans"),
transferred by the Transferor and serviced by Chevy Chase Bank, F.S.B. (in such
capacity, the " Servicer, " with the term Servicer including any successor
Servicer under
B-3
<PAGE>
the Pooling and Servicing Agreement referred to below). The Trust was created
pursuant to a Pooling and Servicing Agreement dated as specified above (the
"Pooling and Servicing Agreement") among the Transferor, the Servicer, U.S. Bank
National Association, as trustee (the "Trustee") and as Custodial Agent (the
"Custodial Agent").
To the extent not defined herein, capitalized terms used herein have the
meanings assigned to such terms in the Pooling and Servicing Agreement. This
Transferor Certificate is issued under and is subject to the terms, provisions
and conditions of the Pooling and Servicing Agreement, as amended from time to
time, to which Pooling and Servicing Agreement, as so amended, the Transferor
Certificateholder by virtue of the acceptance hereof, and to which any
beneficial owner, by acquiring a beneficial interest herein, assents and by
which the Transferor Certificateholder and any such beneficial owner is bound.
Although this Transferor Certificate summarizes certain provisions of the
Pooling and Servicing Agreement, this Transferor Certificate does not purport to
summarize the Pooling and Servicing Agreement, and reference is made to the
Pooling and Servicing Agreement for information with respect to the interests,
rights, benefits, obligations and duties evidenced hereby and the rights, duties
and obligations of the Trustee. In the event of any inconsistency or conflict
between the terms of this Transfer Certificate and the terms of the Pooling and
Servicing Agreement, the terms of the Pooling and Servicing Agreement shall
control. A copy of the Pooling and Servicing Agreement may be obtained from the
Trustee by writing to U.S. Bank National Association, 180 East Fifth Street, St.
Paul, Minnesota 55101, Attention: Structured Finance/Capitol HEL 97-1.
Distributions on this Transferor Certificate shall be made by the Trustee
by wire transfer or by such other means of payment as such Person and the
Trustee shall agree.
This Transferor Certificate shall not be entitled to any benefit under this
Pooling and Servicing Agreement or be valid for any purpose unless manually
authenticated by any authorized officer of the Trustee.
This Transferor Certificate is one of a duly authorized issue of Transferor
Certificates designated as Capitol Revolving Home Equity Loan Asset Backed
Certificates, Series 1997-1, and representing a beneficial ownership interest,
to the extent provided in the Pooling and Servicing Agreement, in the Trust
Balance of each Mortgage Loan, including payments on or in respect of such Trust
Balance received on or after the applicable Cut-Off Date and the interest of the
Transferor Certificateholders in (i) any property which secured a Mortgage Loan
and which has been acquired by or on behalf of the Trustee in Foreclosure
Proceedings or otherwise, (ii) any insurance policies related to the Mortgage
Loans and (iii) the related Mortgage, Loan Agreement and other Mortgage File
documents for each Mortgage Loan; the Pre-Funding Account; the Spread Account;
the Capitalized Interest Account and the proceeds of each of the foregoing.
This Transferor Certificate is limited in right of distribution to certain
payments on and collections in respect of the Mortgage Loans, all as more
specifically set forth in the Pooling and Servicing Agreement. The Transferor
Certificateholder, by its acceptance of this Transferor Certificate, agrees that
it shall look solely to the funds specified in the Pooling and Servicing
Agreement for payment hereunder and that the Trustee in its individual capacity
is not personally
B-4
<PAGE>
liable to the Transferor Certificateholders for any amount distributable under
this Transferor Certificate or the Pooling and Servicing Agreement or, except as
expressly provided in the Pooling and Servicing Agreement, subject to any
liability under the Pooling and Servicing Agreement.
No transfer of this Transferor Certificate shall be made unless such
transfer is exempt from the registration requirements of the Securities Act of
1933, as amended, and any applicable state securities laws or is made in
accordance with said Act and laws. The Trustee shall require a written Opinion
of Counsel acceptable to and in form and substance satisfactory to the Trustee
and the Transferor that such transfer may be made pursuant to an exemption
describing the applicable exemption and the basis therefor from which Act and
laws is being made pursuant to said Act and laws, which Opinion of Counsel shall
not be an expense of the Trustee, and the Trustee shall require the transferee
to execute an investment letter executed by the proposed transferee in form and
substance satisfactory to the Trustee certifying the facts surrounding such
Transfer, which investment letter shall not be an expense of the Trustee. The
Holder hereof desiring to effect such Transfer shall, and does hereby agree to,
indemnify the Transferor and the Certificate Insurer against any liability that
may result if the transfer is not so exempt or is not made in accordance with
such federal and state laws.
As provided in the Pooling and Servicing Agreement, subject to certain
limitations set forth therein, neither this Transferor Certificate nor any legal
or beneficial interest herein may be, directly or indirectly, purchased,
transferred, sold, pledged, assigned or otherwise disposed of, and any proposed
transferee hereof shall not become the registered Holder hereof, without the
satisfaction of the conditions set forth in Section 6.5 of the Pooling and
Servicing Agreement.
No service charge will be made for any such registration of Transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Transferor Certificate for registration of
transfer, the Trustee, the Servicer, the Transferor, the Certificate Registrar
and any agent of the foregoing may treat the Person in whose name this
Transferor Certificate is registered as the owner hereof for all purposes, and
neither the Trustee, the Servicer, the Transferor, the Certificate Registrar nor
any such agent shall be affected by any notice to the contrary.
The obligations and responsibilities created by the Pooling and Servicing
Agreement and the Trust created thereby shall terminate upon payment to the
Transferor Certificateholders, or provision therefor, in accordance with the
Pooling and Servicing Agreement upon the later of (A) the earlier of (i) payment
in full of all amounts owing to the Certificate Insurer and (ii) the final
payment or other liquidation of the last Mortgage Loan in the Trust and (B) the
earliest of (i) the retransfer, under the conditions specified in Section
10.1(b) of the Pooling and Servicing Agreement, to the Transferor of the
Investor Certificateholders' interest in each Mortgage Loan and all property
acquired in respect of any Mortgage Loan remaining in the Trust for an amount
equal to the sum of (A) the Investor Certificate Principal Balance, (B) accrued
and unpaid Investor Certificate Interest through the day preceding the final
Distribution Date plus any Basis
B-5
<PAGE>
Risk Payment then due, and (C) any Unpaid Investor Certificate Interest
Shortfall, (ii) the day following the Distribution Date on which the
distribution made to Investor Certificateholders has reduced the Investor
Certificate Principal Balance to zero, (iii) the final payment or other
liquidation of the last Mortgage Loan remaining in the Trust (including without
limitation the disposition of the Mortgage Loans pursuant to Section 11.2 of the
Pooling and Servicing Agreement) or the disposition of all property acquired
upon foreclosure or deed in lieu of foreclosure of any Mortgage Loan, (iv) the
Stated Maturity Date; provided, however, notwithstanding anything in the
-------- -------
Pooling and Servicing Agreement to the contrary the Trust shall terminate on
September 30, 2030.
IN WITNESS WHEREOF, the Trustee has caused this Transferor Certificate to
be duly executed under its corporate seal.
U.S. BANK NATIONAL ASSOCIATION, not in
its individual capacity but solely as
Trustee
Dated:
[SEAL] By:
-----------------------------------
Authorized Officer
Authenticated:
By:
------------------------------
Authorized Officer of U.S. Bank
National Association, not in its
individual capacity but solely as
Trustee
B-6
<PAGE>
EXHIBIT C
---------
FORM OF CERTIFICATE INSURANCE POLICY
C-31
<PAGE>
EXHIBIT D
---------
[RESERVED]
D-31
<PAGE>
EXHIBIT E
---------
FORM OF DOCUMENT CUSTODIAN CERTIFICATE AS TO MORTGAGE FILES
CAPITOL REVOLVING HOME EQUITY LOAN TRUST 1997-1
-----------------------------------------------
The undersigned, a duly authorized representative of Norwest Bank
Minnesota, National Association, as Document Custodian (the "Document
Custodian") as agent of U.S. Bank National Association, as Custodial Agent
pursuant to the Pooling and Servicing Agreement dated as of November 1, 1997 by
and between Chevy Chase Bank, F.S.B., a federally chartered savings bank, as
Transferor and Servicer, and U.S. Bank National Association, as Trustee and
Custodial Agent (hereinafter as such agreement may have been, or may from time
to time be, amended, supplemented or otherwise modified, the "Pooling and
Servicing Agreement"), does hereby certify as follows:
A. Capitalized terms used in this Certificate have their respective
meanings set forth in the Pooling and Servicing Agreement. References herein to
certain subsections are references to the respective subsections of the Pooling
and Servicing Agreement.
B. This Certificate is being delivered pursuant to the first paragraph of
subsection 2.2(b).
C. The undersigned is a Responsible Officer.
D. This Certificate is being delivered by the date specified in the first
paragraph of subsection 2.2(b).
E. Pursuant to and in accordance with the limitations set forth in the
third paragraph of subsection 2.2(b), the Document Custodian has reviewed the
Mortgage File with respect to each Mortgage Loan listed in the Mortgage Loan
Schedule (other than any Mortgage Loan paid in full and, to the extent permitted
by the Pooling and Servicing Agreement, any Common Mortgage Loan) and has
determined that, except as indicated on the Schedule hereto, all documents or
instruments required to be delivered to it pursuant to the first paragraph of
subsection 2.1(b) (or if the first sentence of the second paragraph of
subsection 2.1(b) is applicable, pursuant to such first sentence) with respect
to such Mortgage Loan are in its possession.
IN WITNESS WHEREOF, the Document Custodian has caused this Certificate to
be duly executed this ____ day of ___________________, 19__.
Norwest Bank Minnesota, National Association,
as Document Custodian
By:
---------------------------------------
Authorized Signatory
E-13
<PAGE>
SCHEDULE
--------
[List here with respect to each applicable Mortgage Loan, the Mortgage Loan
identification number and each document or installment (or portion thereof) that
(i) does not bear manual signatures, (ii) is missing from the related Mortgage
File or (iii) is unrelated to the applicable Mortgage Loan].
E-24
<PAGE>
EXHIBIT F
---------
FORM OF DOCUMENT CUSTODIAN CERTIFICATE AS TO MORTGAGE
ASSIGNMENTS
CAPITOL REVOLVING HOME EQUITY LOAN TRUST 1997-1
The undersigned, a duly authorized representative of Norwest Bank
Minnesota, National Association, as Document Custodian (the "Document
Custodian") as agent of U.S. Bank National Association, as Custodial Agent
pursuant to the Pooling and Servicing Agreement dated as of November 1, 1997 by
and between Chevy Chase Bank, F.S.B., a federally chartered savings bank, as
Transferor and Servicer, and U.S. Bank National Association , as Trustee and
Custodial Agent (hereinafter as such agreement may have been, or may from time
to time be, amended, supplemented or otherwise modified, the "Pooling and
Servicing Agreement"), does hereby certify as follows:
A. Capitalized terms used in this Certificate have their respective
meanings set forth in the Pooling and Servicing Agreement. Reference herein to
certain subsections are references to the respective subsections of the Pooling
and Servicing Agreement.
B. This Certificate is being delivered pursuant to subsection 2.2(b).
C. The undersigned is a Responsible Officer.
D. This Certificate is being delivered by the date specified in the second
paragraph of subsection 2.2(b).
E. This Certificate is being delivered for the month of 199__.
F. Pursuant to and in accordance with the limitations set forth in the
third paragraph of subsection 2.2(b), the Document Custodian has reviewed the
recorded assignments of Mortgage delivered to it for the period specified above
and has determined that, except as indicated on the Schedule hereto, evidence of
the recording of the Custodial Agent's interest appears on each such assignment.
IN WITNESS WHEREOF, the Document Custodian has caused this Certificate to
be duly executed this ____ day of ___________________, 19__.
Norwest Bank Minnesota, National Association,
as Document Custodian
By:
-----------------------------------------
Authorized Signatory
F-13
<PAGE>
SCHEDULE
--------
[List here with respect to each applicable Mortgage Loan, any defects
relating to the recording of the assignment of the related Mortgage]
F-24
<PAGE>
EXHIBIT G
---------
PREPARED BY AND
AFTER RECORDING,
PLEASE RETURN TO
- -------------------
- -------------------
- -------------------
- -------------------
FORM OF ASSIGNMENT OF MORTGAGES AND DEEDS OF TRUST
KNOW ALL MEN BY THESE PRESENTS:
THAT FOR VALUE RECEIVED, U.S. BANK NATIONAL ASSOCIATION (the "Assignor"), a
------------------------------
national banking association , located at 180 East Fifth Street, St. Paul,
Minnesota 55101 Attn: Structured Finance/Capitol HEL 7-1, as Custodial Agent
under that certain Pooling and Servicing Agreement dated as of November 1, 1997
(the "Agreement"), between the Assignor, as Trustee and Custodial Agent and
Chevy Chase Bank, F.S.B., as Transferor and Servicer, does hereby assign,
transfer and set over unto CHEVY CHASE BANK, F.S.B. (formerly known as CHEVY
---------------- -----
CHASE SAVINGS BANK, F.S.B. and as CHEVY CHASE SAVINGS AND LOAN, INC.), a Federal
- -------------------------- ----------------------------------
Savings Bank, located at 8401 Connecticut Avenue, Chevy Chase, Maryland 20815
(the "Assignee"), all of the Assignor's right, title and interest in and to
those certain [Mortgages] [Deeds of Trust] encumbering properties in the County
of _______________, State of ______________, executed by and recorded all as
more particularly described on Exhibit "A" attached hereto and made a part
------------
hereof, and encumbering the properties more specifically described in said
[Mortgages] [Deeds of Trust]; together with the related Loan Agreement and any
-------------
other documents, instruments or agreements executed and delivered with respect
to the loan secured by each [Mortgages] [Deed of Trust].
IN WITNESS WHEREOF, U.S. BANK NATIONAL ASSOCIATION has caused this
Assignment to be signed in its name and on its behalf as of ________________
___, 19__.
U.S. BANK NATIONAL ASSOCIATION
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
STATE OF _____________ )
) ss:
COUNTY OF ___________ )
G-13
<PAGE>
On _______________ __, 199_, before me, the undersigned, a Notary Public in
and for said County and State, personally appeared _________ ________ known to
me to be the person who executed the foregoing instrument as the ___________ of
the Assignor and acknowledged to me that the Assignor executed the foregoing
instrument pursuant to its by-laws or a resolution of its board of directors.
WITNESS my hand and official seal.
-----------------------------------
NOTARY PUBLIC
[SEAL]
My commission expires:
----------------
G-24
<PAGE>
EXHIBIT A
[Insert Mortgage Loan information]
A-1
<PAGE>
EXHIBIT H
---------
FORM OF SERVICER CERTIFICATE AS TO
PAYMENT OF TRUST BALANCE
CAPITOL REVOLVING HOME EQUITY LOAN TRUST 1997-1
The undersigned, a duly authorized representative of [INSERT NAME OF
SERVICER UNDER THE POOLING AND SERVICING AGREEMENT] (the "Servicer"), as
Servicer pursuant to the Pooling and Servicing Agreement dated as of November 1,
1997 by and between Chevy Chase Bank, F.S.B., a federally chartered savings
bank, as Transferor and Servicer, and U.S. Bank National Association, as Trustee
and Custodial Agent (hereinafter as such agreement may have been, or may from
time to time be, amended, supplemented or otherwise modified, the "Pooling and
Servicing Agreement"), does hereby certify as follows:
A. Capitalized terms used in this Certificate have their respective
meanings set forth in the Pooling and Servicing Agreement. References herein to
certain sections and subsections are references to the respective sections and
subsections of the Pooling and Servicing Agreement.
B. This Certificate is being delivered pursuant to Section 3.7.
C. The Servicer is the Servicer under the Pooling and Servicing
Agreement.
D. The undersigned is a Servicing Officer.
E. Pursuant to Section 3.7, the Servicer hereby certifies to the Trustee
that (i) the Trust Balance of each Mortgage Loan identified on the Schedule
attached hereto has been paid in full [all Net Trust Liquidation Proceeds with
respect to each Mortgage Loan identified on the Schedule attached hereto have
been distributed] in accordance with the Pooling and Servicing Agreement and
(ii) all amounts received in connection with such payment [distribution] which
are required to be deposited into the Certificate Account pursuant to subsection
3.2(c) have been so deposited.
H-31
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be duly
executed this ___ day of __________________, 19___.
[INSERT NAME OF SERVICER]
as Servicer
By:
-----------------------------------
Authorized Signatory
H-42
<PAGE>
SCHEDULE
--------
[List here each Mortgage Loan which has been paid as set forth in the
accompanying Certificate]
<PAGE>
EXHIBIT I
---------
FORM OF TRUST RECEIPT FOR RELEASE
OF MORTGAGE FILES TO SERVICER
CAPITOL REVOLVING HOME EQUITY LOAN TRUST 1997-1
-----------------------------------------------
The undersigned, a duly authorized representative of [INSERT NAME OF
SERVICER UNDER THE POOLING AND SERVICING AGREEMENT] (the "Servicer"), as
Servicer pursuant to the Pooling and Servicing Agreement dated as of November 1,
1997 by and between Chevy Chase Bank, F.S.B., a federally chartered savings
bank, as Transferor and Servicer, and U.S. Bank National Association, as Trustee
and Custodial Agent (hereinafter as such agreement may have been, or may from
time to time be, amended, supplemented or otherwise modified, the "Pooling and
Servicing Agreement"), does hereby certify as follows:
A. Capitalized terms used in this Certificate have their respective
meanings set forth in the Pooling and Servicing Agreement. References herein to
certain sections and subsections are references to the respective sections and
subsections of the Pooling and Servicing Agreement.
B. This Certificate is being delivered pursuant to Section 3.7.
C. The Servicer is the Servicer under the Pooling and Servicing
Agreement.
D. The undersigned is a Servicing Officer.
E. Pursuant to Section 3.7, the Servicer hereby requests release to
it of the Mortgage File held by the Custodial Agent with respect to the
following described Mortgage Loan for the reason indicated below.
Mortgage Loan No.:
- ------------------
Reason for Requesting Mortgage File:
- ------------------------------------
____________ 1 Foreclosure Proceedings with respect to the Mortgage
Loan are being initiated.
____________ 2 Other [Insert description of other servicing requirement].
The Servicer represents that release to it of such Mortgage File is
required for the reason herein set forth and acknowledges that the above-
referenced Mortgage File will be held by the Servicer in accordance with the
provisions of the Pooling and Servicing Agreement.
I-13
<PAGE>
IN WITNESS WHEREOF, the Servicer has caused this Certificate to be duly
executed this ___ day of __________________, 19__.
[INSERT NAME OF SERVICER]
as Servicer
By:
---------------------------
Authorized Signatory
I-24
<PAGE>
EXHIBIT J
---------
FORM OF SERVICING CERTIFICATE
CAPITOL REVOLVING HOME EQUITY LOAN TRUST 1997-1
-----------------------------------------------
Under Section 4.1 of the Pooling and Servicing Agreement dated as of
November 1, 1997 by and between Chevy Chase Bank, F.S.B., a federally chartered
savings bank, as Transferor and Servicer, and U.S. Bank National Association, as
Trustee and Custodial Agent (hereinafter as such agreement may have been, or may
from time to time be, amended, supplemented or otherwise modified, the "Pooling
and Servicing Agreement"), [INSERT NAME OF SERVICER UNDER THE POOLING AND
SERVICING AGREEMENT], as the Servicer, is required to prepare certain
information each month regarding current receipts and distributions on the
Certificates and the performance of the Capitol Revolving Home Equity Loan Trust
1997-1 (the "Trust") during the related Collection Period. The information which
is required to be prepared with respect to the distribution to Holders (the
"Certificateholders") of the Certificates, on _________________, 19__ (the
"Distribution Date") and the performance of the Trust during the month of
_________________, 19__ (the "Collection Period") is set forth under "D" below.
A. Capitalized terms used and not otherwise defined herein have the
meanings assigned them in the Pooling and Servicing Agreement referred to above.
References herein to certain subsections are references to the respective
subsections of the Pooling and Servicing Agreement.
B. The Servicer is the Servicer under the Pooling and Servicing
Agreement.
C. The undersigned is a Servicing Officer.
<TABLE>
<S> <C> <C> <C>
D. 1 The aggregate amount of collections
received on the Mortgage Loans on or
prior to the Determination Date in respect
of such Collection Period..............................................$______________
2 the aggregate amount of (a) Trust
Interest and (b) Principal Collections
for such Collection Period.............................................$______________
3 the Investor Certificateholder's Floating
Allocation Percentage and the Investor
Fixed Allocation Percentage as of the
last day of such Collection Period ....................................$______________
4 the Investor Interest Collections for
such Collection Period.................................................$______________
5 the Investor Principal Collections for such
Collection Period .....................................................$______________
</TABLE>
J-3
<PAGE>
<TABLE>
<S> <C> <C>
6 the aggregate amount of (a) Trust Interest ............................$______________
and (b) Principal Collections paid to the Transferor
Certificateholder for such Collection Period...........................$______________
7 Investor Certificate Interest and the Investor
Certificate Rate for the related Accrual Period........................$______________
8 the amount, if any, of such Investor Certificate
Interest that is not payable on account of
insufficient Investor Interest Collections, funds on
deposit in the Spread Account and amounts under the
Certificate Insurance Policy ..........................................$______________
9 the portion of the Unpaid Investor Certificate
Interest Shortfall to be distributed on such
Distribution Date......................................................$______________
10 Interest on 9 above at the Certificate Rate
to be distributed on the Distribution Date.............................$______________
11 the Unpaid Investor Certificate Interest Shortfall,
if any, to remain after the
distribution on such Distribution Date.................................$______________
12 the Scheduled Principal Collections
Distribution Amount, separately stating the
components thereof.....................................................$______________
13 the sum of (x) the aggregate Reassignment
Deposit Amount for any Mortgage Loans which
are required to be removed on the
Business Day immediately preceding
such Distribution Date pursuant to Section
2.2(c), 2.4(b) or 3.1 and (y) any Substitution
Adjustment Amounts required to be deposited
into the Certificate Account on the Business
Day immediately preceding such Distribution
Date pursuant to Section 2.2(c), 2.4(b) or 3.1.........................$______________
14 the aggregate amount, if any, of Investor Loss
Reduction Amounts for previous Distribution Dates
that have not been previously reimbursed to Investor
Certificateholders pursuant to Section 5.1(a)(vi)......................$______________
15 the aggregate Trust Balance of the Mortgage Loans, as
of the end of the preceding Collection Period and the
end of the second preceding Collection Period..........................$______________
16 a. the Pool Balance as of the end of the preceding
Collection Period..................................................$______________
</TABLE>
J-4
<PAGE>
<TABLE>
<S> <C> <C>
b. the Pool Balance as of the end of the second
preceding Collection Period........................................$______________
17 the Invested Amount as of the end of the
Collection Period......................................................$______________
18 a. the Investor Certificate Principal Balance prior to
giving effect to the distribution on such
Distribution Date......................................................$______________
b. the Investor Certificate Principal Balance after
giving effect to the distribution on such
Distribution Date......................................................$______________
19 the Transferor Principal Balance.......................................$______________
20 the aggregate amount of Additional Balances
created during the Collection Period ..................................$______________
21 the aggregate of the Trust Balances as of the end of
the related Collection Period of all Mortgage Loans
which became Liquidated Mortgage Loans
for such Distribution Date ............................................$______________
22 whether a Rapid Amortization Event has occurred since
the prior Determination Date, specifying each such
Rapid Amortization Event if one has occurred............................______________
23 whether an Event of Default has occurred since the
prior Determination Date, specifying
each such Event of Default if one has occurred..........................______________
24 the amount to be distributed to the Certificate
Insurer pursuant to Section 5.1(a) (iv)................................$______________
25 the amount to be distributed to the Spread
Account pursuant to Section 5.1(a)(viii)...............................$______________
26 the Certificate Insurance Draw Amount, if any,
for such Distribution Date ............................................$______________
27 the amount to be distributed to the Transferor Certificateholder
pursuant to Section 5.1(a)(xi).........................................$______________
28 the Pre-Funded Amount as of such Distribution Date.....................$______________
29 the amount of Pre-Funding Earnings, if any, to be
deposited in the Certificate Account for
such Distribution Date.................................................$______________
30 the amount of funds on deposit in the Spread Account
and the applicable Spread Account Maximum..............................$______________
</TABLE>
J-5
<PAGE>
<TABLE>
<S> <C> <C>
31 the aggregate of the Trust Balances of the Subsequent
Mortgage Loans purchased during such Collection
Period.................................................................$______________
32 the amount on deposit in the Capitalized
Interest Account as of such Distribution Date..........................$______________
33 the Capitalized Interest Requirement to be
deposited in the Certificate Account for such
Distribution Date......................................................$______________
34 the amount of any Basis Risk Payment then due..........................$______________
</TABLE>
E. [To be completed if the Transferor is the Servicer]. The
Servicer hereby certifies as follows [check applicable item]:
1. To the best of Servicer's knowledge, following consultation
with counsel, no filing of a financing statement under the
Uniform Commercial Code was required to be made since
_____________, 19___ [the date of the most recent previous
Servicing Certificate] to continue (i) the perfection of the
Custodial Agent's interest in the Trust Fund as required
pursuant to the last sentence of the fourth paragraph of
subsection 2.1(a).
2. The Servicer has caused the financing statement(s) attached
hereto to be filed under the Uniform Commercial Code since
_____________, 19___ [the date of the most recent previous
Servicing Certificate] for the following reason(s): [insert
description].
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
duly executed this _____ day of ________________, 19___.
[INSERT NAME OF SERVICER]
as Servicer
By:
-------------------------
Authorized Signatory
J-6
<PAGE>
EXHIBIT K
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FORM OF MONTHLY INVESTOR CERTIFICATEHOLDERS' STATEMENT
CAPITOL REVOLVING HOME EQUITY LOAN TRUST 1997-1
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Under subsection 5.3 of the Pooling and Servicing Agreement dated as of
November 1, 1997 by and between Chevy Chase Bank, F.S.B., a federally chartered
savings bank, as Transferor and Servicer, and U.S. Bank National Association, as
Trustee and Custodial Agent (hereinafter as such agreement may have been, or may
from time to time be, amended, supplemented or otherwise modified, the "Pooling
and Servicing Agreement"), [INSERT NAME OF SERVICER UNDER THE POOLING AND
SERVICING AGREEMENT], as the Servicer, is required to prepare certain
information each month regarding current distributions on the Certificates and
the performance of the Capitol Revolving Home Equity Loan Trust 1997-1 (the
"Trust") during the related Collection Period. The information that is required
to be prepared with respect to the distribution to Holders (the
"Certificateholders") of the Certificates on ___________, 19__ (the
"Distribution Date") and the performance of the Trust during the month of
___________, 19__ (the "Collection Period") is set forth below. Certain of the
information is presented on the basis of an original principal amount of $1,000
per Certificate, as the case may be. Capitalized terms used and not otherwise
defined herein have the meanings assigned them in the Pooling and Servicing
Agreement.
Information Regarding the Current Monthly Distribution to
Certificateholders
A. (Per $1,000 Original Principal Amount of a Certificate).
<TABLE>
<S> <C> <C>
1 the Investor Certificateholder's Floating
Allocation Percentage for the last day
of the preceding Collection Period ...............___________________%
2 the Investor Certificate distribution amount..........................$______________
3 the amount of Investor Certificate Interest
included in such distribution, the related Investor
Certificate Rate and the portion thereof attributable
to collections in respect of the Mortgage Loans........................$_____________
4 the amount, if any, of any Unpaid Investor
Certificate Interest Shortfall included in
such distribution (and the amount of interest thereon).................$_____________
5 the amount, if any, of the remaining Unpaid
Investor Certificate Interest Shortfall after
giving effect to such distribution.....................................$_____________
</TABLE>
K-3
<PAGE>
<TABLE>
<S> <C> <C>
6 the amount, if any, of principal included in
such distribution, separately stating the components
thereof (including the portion thereof attributable
to collections in respect of the Mortgage Loans) ......................$______________
7 the amount, if any, of the reimbursement
of previous Investor Loss Reduction
Amounts included in such distribution .................................$______________
8 the amount, if any, of the aggregate
unreimbursed Investor Loss Reduction
Amounts after giving effect to such distribution.......................$______________
9 the Servicing Fee for such Distribution Date...........................$______________
10 after giving effect to such distribution
a. the Invested Amount ...............................................$______________
b. the Investor Certificate Principal Balance.........................$______________
11 after giving effect to such distribution
a. the Spread Account Amount, if any..................................$______________
b. the amount, if any, transferred from the Spread Account............$______________
</TABLE>
K-4
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12 a. the Pool Balance as of the end of the
preceding Collection Period
b. the number and aggregate of the Trust Balances
of the Mortgage Loans as to which the minimum
monthly payment is delinquent for 30-59
days, 60-89 days and 90 or more days,
respectively, at the close of business on the
last day of the related Collection Period
<TABLE>
<CAPTION>
Number/1/ Aggregate Balance
<S> <C> <C>
30-59 days ______________ $_______________
60-89 days ______________ $_______________
90 or more days ______________ $_______________
</TABLE>
/1/ [___ Mortgage Loans should be disregarded due to double counting as a
result of the existence of 90-1 Mortgage Loans and 92-1 Mortgage Loans within
the Mortgage Loan Pool.]
Suggested footnote to be added in the event of the addition of 90-1
Mortgage Loans and 92-1 Mortgage Loans.
<TABLE>
<S> <C> <C>
13 the Certificate Insurance Draw Amount, if any..........................$______________
14 the aggregate Liquidation Loss Amount for all
Mortgage Loans that became Liquidated Mortgage
Loans in the preceding Collection Period...............................$______________
15 the Trust Balance of any Mortgage Loan,
the related Mortgaged Property of which
is acquired by the Trust through foreclosure...........................$______________
16 the Pre-Funded Amount..................................................$______________
17 the aggregate Cut-Off Date Trust Balances of the
Subsequent Mortgage Loans purchased
during the preceding Collection Period.................................$______________
18 the amount on deposit in the Capitalized Interest Account..............$______________
19 the amount of any Basis Risk Payment included in such distribution.....$__________
</TABLE>
IN WITNESS WHEREOF, the undersigned has caused this Certificate
to be duly executed this _________ day of _______________, 19___.
K-5
<PAGE>
[INSERT NAME OF SERVICER]
as Servicer
By:
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Authorized Signatory
K-6
<PAGE>
EXHIBIT L
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FORM OF DEPOSITORY AGREEMENT
L-13
<PAGE>
EXHIBIT 4.4
CERTIFICATE GUARANTY INSURANCE POLICY
Ambac Assurance Corporation
c/o CT Corporation Systems
44 East Mifflin Street, Madison, Wisconsin 53703
Administrative Office:
One State Street Plaza, New York, New York 10004
Telephone: (212) 668-0340
AMBAC
CERTIFICATE GUARANTY INSURANCE POLICY
Insured Obligations: Policy Number: AB0131BE
$178,024,000 Capitol Revolving
Home Equity Loan Trust 1997-1 Premium: As specified in the
Capitol Revolving Home Equity Loan endorsement attached hereto
Asset Backed Certificates, Series 1997-1
AMBAC ASSURANCE CORPORATION (AMBAC) A Wisconsin Stock Insurance Company in
consideration of the payment of the premium and subject to the terms of this
Policy, hereby agrees unconditionally and irrevocably to pay to the Trustee for
the benefit of the Holders of the Insured Obligations, that portion of the
Insured Amounts which shall become Due for Payment but shall be unpaid by reason
of Nonpayment.
Ambac will make such payments to the Trustee from its own funds on the later of
(a) one (1) Business Day following notification to Ambac of Nonpayment or (b)
the Business Day on which the Insured Amounts are Due for Payment. Such
payments of principal or interest shall be made only upon presentation of an
instrument of assignment in form and substance satisfactory to Ambac,
transferring to Ambac all rights under such Insured Obligations to receive the
principal of and interest on the Insured Obligation. Ambac shall be subrogated
to all the Holders' rights to payment on the Insured Obligations to the extent
of the insurance disbursements so made. Once payments of the Insured Amounts
have been made to the Trustee, Ambac shall have no further obligation hereunder
in respect of such Insured Amounts.
In the event the Trustee for the Insured Obligations has notice that any payment
of principal or interest on an Insured Obligation which has become Due for
Payment and which is made to a Holder by or on behalf of the Trustee has been
deemed a preferential transfer and theretofore recovered from its Holder
pursuant to the United States Bankruptcy Code in accordance with a final,
nonappealable order of a court of competent jurisdiction, such Holder will be
entitled to payment from Ambac to the extent of such recovery if sufficient
funds are not otherwise available.
This Policy is noncancelable by Ambac for any reason, including failure to
receive payment of any premium due hereunder. The premium on this Policy is not
refundable for any reason. This Policy does not insure against loss of any
prepayment or other acceleration payment which at any time may become due in
respect of any Insured Obligation, other than at the sole option of Ambac, nor
against any risk other that Nonpayment, including failure of the Trustee to make
any payment due Holders of Insured Amounts.
To the fullest extent permitted by applicable law, Ambac hereby waives and
agrees not to assert any and all rights and defenses, to the extent such rights
and defenses may be available to Ambac, to avoid payment of its obligations
under this Policy in accordance with the express provisions hereof.
Any capitalized terms not defined herein shall have the meaning given such terms
in the endorsement attached hereto or in the Agreement.
In witness whereof, Ambac has caused this Policy to be affixed with its
corporate seal and to be signed by its duly authorized officers in facsimile to
become effective as their original signatures and binding upon Ambac by virtue
of the countersignature of its duly authorized representative.
/s/ P. Lassiter /s/ Stephen D. Cooke
- ------------------------------- -----------------------------
President Secretary
[Seal of Ambac Assurance Corporation]
Effective Date: November 25, 1997 /s/ Laura L. Kegg
--------------------------
Authorized Representative:
<PAGE>
CERTIFICATE GUARANTY INSURANCE ENDORSEMENT
Attached to and forming Effective Date of Endorsement:
part of Policy #AB0131BE November 25, 1997
issued to:
U.S. Bank National Association
as Trustee for the Holders of
Capitol Revolving Home Equity Loan Asset Backed
Certificates, Series 1997-1
For all purposes of this Policy, the following terms shall have the
following meanings:
"Agreement" shall mean the Pooling and Servicing Agreement dated as of
November 1, 1997 between Chevy Chase Bank, F.S.B., as Transferor and Servicer,
and U.S. Bank National Association, as Trustee, as such Agreement may be
amended, modified or supplemented from time to time as set forth in the
Agreement.
"Certificate Account" shall mean the account created and maintained with
the Trustee for the benefit of the Certificateholders and the Insurer pursuant
to Section 3.2 of the Agreement.
"Certificate Insurance Draw Amount" shall mean, with respect to any
Distribution Date (after application of amounts on deposit in the Spread
Account), the sum of (a) the amount, if any, by which (i) the aggregate of the
full amounts to be distributed to the Holders of the Investor Certificates
pursuant to Sections 5.1(a)(ii) and 5.1(a)(iii) of the Agreement exceeds (ii)
the amount of Investor Interest Collections on deposit in the Certificate
Account on the Business Day preceding such Distribution Date that is available
to be applied therefor and (b) the amount, if any, required to reduce the
Investor Certificate Principal Balance
<PAGE>
(after giving effect to all other amounts distributable and allocable to
principal on the Investor Certificates on such Distribution Date) to the
Invested Amount (after giving effect to the distributions of Investor Interest
Collections and Investor Principal Collections that are allocable to principal
on the Investor Certificates on such Distribution Date) for such Distribution
Date. Notwithstanding the foregoing, on the earlier of the Stated Maturity Date
or the Dissolution Distribution Date, the Certificate Insurance Draw Amount
shall equal an amount equal to the sum of (i) any amount calculated pursuant to
the preceding sentence and (ii) an amount equal to the Investor Certificate
Principal Balance after giving effect to all other amounts distributed to
Investor Certificateholders in reduction of the Investor Certificate Principal
Balance.
"Certificate Insurance Policy" or "Policy" shall mean this Certificate
Guaranty Insurance Policy together with each and every endorsement hereto.
"Distribution Date" shall mean the 20th day of any month (or if such 20th
day is not a Business Day, the first Business Day immediately following)
beginning with the First Distribution Date.
"Due for Payment" shall mean the Business Day immediately preceding the
Distribution Date on which Insured Amounts are due.
"First Distribution Date" shall mean December 22, 1997.
"Holder" shall mean any person who is the registered owner or beneficial
owner of any Investor Certificate.
"Insurance Agreement" shall mean the Insurance and Indemnity Agreement,
dated as of November 25, 1997, among Chevy Chase Bank, F.S.B., as Transferor and
Servicer, U.S. Bank National Association, as Trustee, and Ambac Assurance
Corporation, as Insurer, as such Agreement may be amended, modified or
supplemented from time to time.
2
<PAGE>
"Insured Amounts" shall mean, with respect to any Distribution Date, the
Certificate Insurance Draw Amount for such Distribution Date.
"Insured Payments" shall mean, with respect to any Distribution Date, the
aggregate amount actually paid by the Insurer to the Trustee in respect of
Insured Amounts for such Distribution Date.
"Insurer" shall mean Ambac Assurance Corporation, or any successor thereto,
as issuer of the Certificate Insurance Policy.
"Investor Certificates" shall mean any one of the Certificates designated
as an Investor Certificate, substantially in the form set forth in Exhibit A to
the Agreement.
"Late Payment Rate" shall mean for any Distribution Date, the greater of
(i) the rate of interest, as it is publicly announced by Citibank, N.A. at its
principal office in New York, New York as its prime rate (any change in such
prime rate of interest to be effective on the date such change is announced by
Citibank, N.A.) plus 2% and (ii) the then applicable highest rate of interest on
----
the Investor Certificates. The Late Payment Rate shall be computed on the basis
of a year of 360 days and the actual number of days elapsed. In no event shall
the Late Payment Rate exceed the maximum rate permissible under any applicable
law limiting interest rates.
"Nonpayment" shall mean, with respect to any Distribution Date, a
Certificate Insurance Draw Amount, owing in respect of such Distribution Date.
"Premium Percentage" shall have the meaning set forth in the Insurance
Agreement.
"Reimbursement Amount" shall mean, as to any Distribution Date, the sum of
(x) (i) all Insured Payments paid by the Insurer, but for which the Insurer has
not been reimbursed prior to such Distribution Date pursuant to Section 5.1(a)
of the Agreement, plus (ii) interest accrued thereon, calculated at the Late
----
Payment Rate from the date the Trustee received the related Insured
3
<PAGE>
Payments, and (y) without duplication (i) any amounts then due and owing to the
Insurer under the Insurance Agreement plus (ii) interest on such amounts at the
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Late Payment Rate.
"Trustee" shall mean U.S. Bank National Association or its successor-in-
interest, in its capacity as trustee under the Agreement, or if any successor
trustee or any Co-trustee shall be appointed as provided therein, then "Trustee"
shall also mean such successor trustee or such Co-trustee, as the case may be,
subject to the provisions thereof.
Capitalized used herein and not otherwise defined shall have the meaning
assigned to them in the Agreement.
The Insurer hereby agrees that it shall be subrogated to the rights of
Holders by virtue of any previous payment under this Policy provided that no
recovery of such payment will occur unless the full amount of the Holders'
allocable distributions for such Distribution Date can be made. In so doing,
the Insurer does not waive its rights to seek full payment of all Reimbursement
Amounts owed to it under the Agreement.
The terms and provisions of the Agreement constitute the instrument of
assignment referred to in the second paragraph of the face of this Policy.
A premium will be payable on this Policy on each Distribution Date as
provided in Section 5.1(a) of the Agreement, beginning with the First
Distribution Date, in an amount equal to the product of (i) the Premium
Percentage and (ii) the Investor Certificate Principal Balance on the prior
Distribution Date (after giving effect to any distributions to be made on such
Distribution Date); provided that on the First Distribution Date, the premium
will be equal to the product of the (i) Premium Percentage and (ii) the Original
Investor Certificate Principal Balance.
The insurance provided by the Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
4
<PAGE>
The Policy to which this Endorsement is attached and of which it forms a
part is hereby amended to provide that there shall be no acceleration payment
due under the Policy unless such acceleration is at the sole option of the
Insurer. The Policy is further hereby amended, to the extent necessary, to
clarify that the reference to "loss of any prepayment or any other acceleration
payment" in the fourth paragraph of the face of the Policy does not refer to
that portion of any shortfall, if any, in interest on any mortgage loan in any
month in which such mortgage loan is paid prior to its stated maturity.
Nothing herein contained shall be held to vary, alter, waive or extend any
of the terms, conditions, provisions, agreements or limitations of the above
mentioned Policy other than as above stated.
This Policy is issued under and pursuant to, and shall be construed under,
the laws of the State of New York.
5
<PAGE>
IN WITNESS WHEREOF, the Insurer has caused this Endorsement to the Policy
to be signed by its duly authorized officers.
/s/ Jeffrey Nabi /s/ Nicola J. Ryan
- ------------------- -------------------
Vice President Assistant Secretary
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