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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
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Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 29, 1997
CHEVY CHASE BANK, F.S.B
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(Exact name of registrants as specified in governing instruments)
United States 333-1682 52-0897004
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification Nos.)
organization)
8401 Connecticut Avenue, Chevy Chase, Maryland 20815
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 986-7000
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Not Applicable
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(Former name or former address if changed since last report)
Exhibit Index located at Page 2
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Items 1 through 4 and Items 6 and 8 are not included because they are not
applicable.
Item 5. Other Events.
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On September 29, 1997, Chevy Chase Bank, F.S.B. as Seller and Servicer (the
"Seller" and "Servicer") entered into a Pooling and Servicing Agreement, dated
as of September 1, 1997 (the "Pooling and Servicing Agreement"), with U.S. Bank
National Association, as trustee (the "Trustee"). Pursuant to the Pooling and
Servicing Agreement, a Trust was created into which the Seller deposited the
Loans listed in Schedule A to the Pooling and Servicing Agreement. The Trust
issued 6.55% Home Loan Asset-Backed Certificates, Series 1997-1 (the
"Certificates"). The Underwriting Agreement between the Seller and Smith Barney
Inc., as representative of several underwriters (the "Underwriters") relating to
the sale of the Certificates, the Pooling and Servicing Agreement are attached
as Exhibits.
The aggregate Cut-off Date Scheduled Principal Balance of the Loans is
$95,000,413, as indicated in more detail in Schedule A to the Pooling and
Servicing Agreement.
Capitalized terms used herein and not defined herein have the same meaning
ascribed to such terms in the Pooling and Servicing Agreement.
Item 7. Exhibits.
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(a) Executed exhibits - The following exhibits to the S-3
Registration Statement of the Registrant have been filed:
Sequentially
Exhibit Numbered
Number Exhibit Page
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1.1 Underwriting Agreement
4.3 Pooling and Servicing Agreement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned hereunto duly authorized.
CHEVY CHASE BANK, F.S.B.
(Registrants)
September 29, 1997 By:
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Name: Stephen R. Halpin, Jr.
Title: Executive Vice President and
Chief Financial Officer
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Exhibit 1.1
EXECUTION COPY
$95,000,000
6.55% Home Loan Asset-Backed Certificates, Series 1997-1
Chevy Chase Home Loan Trust, Series 1997-1
CHEVY CHASE BANK, F.S.B.
as Seller and Servicer
UNDERWRITING AGREEMENT
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September 22, 1997
SMITH BARNEY INC., as
Representative of the several
underwriters listed on Schedule I
hereto (the "Representative")
390 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
1. Introduction. Chevy Chase Bank, F.S.B., a federally chartered
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stock savings bank ("Chevy Chase"), has authorized the issuance and sale of
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$95,000,000 aggregate principal amount of 6.55% Home Loan Asset-Backed
Certificates, Series 1997-1 (the "Certificates"), evidencing undivided ownership
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interests in Chevy Chase Home Loan Trust, Series 1997-1 (the "Trust"). The
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Trust consists of a pool of closed-end home equity loans (the "Closed-End
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Loans"), closed-end debt consolidation loans (the "Debt Consolidation Loans")
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and conventional home improvement installment sales contracts and installment
loan agreements (the "Home Improvement Contracts" and, collectively with the
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Closed-End Loans and the Debt Consolidation Loans, the "Loans"), most of which
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are secured by second or third deeds of trust or mortgages on primarily one- to
four-family residential properties, certain monies received thereunder on or
after September 1, 1997 (the "Cut-off Date") and the other property and proceeds
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thereof, as more fully described in the Pooling and Servicing Agreement (as
defined below) (collectively, the "Trust Property"). The Trust Property will be
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conveyed to U.S. Bank National Association, a national banking association,
doing business as First Bank National Association, as trustee (the "Trustee"),
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on behalf of the certificateholders pursuant to the Pooling and Servicing
Agreement to be dated as of September 1, 1997 (the "Pooling and Servicing
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Agreement") between
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Chevy Chase, as seller (the "Seller") and as servicer (the "Servicer"), and the
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Trustee. The Trustee, on behalf of the holders of the Certificates, will have
the benefit of an irrevocable financial guaranty insurance policy (the "Policy")
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to be issued by Capital Markets Assurance Corporation, a New York domiciled
monoline insurance company (the "Certificate Insurer") pursuant to an insurance
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and indemnity agreement dated as of September 29, 1997 (the "Insurance
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Agreement") among the Certificates Insurer, Chevy Chase, in its individual
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capacity and as Seller and Servicer, and the Trustee. In connection with the
transactions contemplated hereby, Smith Barney Inc., Chevy Chase and the
Certificate Insurer will enter into an Indemnification Agreement dated as of
September 22, 1997 (the "Indemnification Agreement").
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The Certificates are more fully described in a Registration Statement
which Chevy Chase has furnished to each of you (together, the "Underwriters" and
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each of you, an "Underwriter"). Capitalized terms used but not defined herein
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shall have the meanings given to them in the Pooling and Servicing Agreement.
2. Representations and Warranties of Chevy Chase. Chevy Chase
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represents and warrants to, and agrees with, the Underwriters that:
(a) Chevy Chase has filed with the Securities and Exchange Commission
(the "Commission") on February 27, 1996, a registration statement (No. 333-1682)
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on Form S-3, and on March 19, 1996, Amendment No. 1 thereto, including a
prospectus, relating to the Certificates, which has become effective. Such
registration statement, as amended as of the date of this Agreement, is
hereinafter referred to as the "Registration Statement," and the prospectus
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included in such Registration Statement, as supplemented by a prospectus
supplement (the "Prospectus Supplement") to reflect the terms of the
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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
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Securities Act of 1933, as amended (the "Act"), including all material
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incorporated by reference therein, is hereinafter referred to as the
"Prospectus". A "preliminary prospectus" means any form of prospectus,
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including any prospectus supplement, relating to the 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 respects to the requirements of the act
and the rules and regulations of the Commission thereunder (the "Rules and
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Regulations") and did not include any untrue statement of a material fact or
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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
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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 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 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)).
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(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 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
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Act"), and the rules and regulations of the Commission thereunder.
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(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 Indemnification Agreement, 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,
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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 Indemnification 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
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of equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefore 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 Indemnification 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
Indemnification 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
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of the court before which any proceeding therefore may be brought and (iii)
rights to indemnification and contribution under the Indemnification Agreement
may be limited by state or federal securities laws or the policies underlying
such laws.
(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 Indemnification Agreement, or
the fulfillment of the terms of this Agreement, the Pooling and Servicing
Agreement, the Insurance Agreement or the Indemnification Agreement, do not and
will not conflict with or violate any term or provision of the charter or bylaws
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 & Co. is an independent public accountant with
respect to Chevy Chase as required by the Act and the Rules and Regulations.
(l) The direction by Chevy Chase to the Trustee to actually
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, administration or
qualification of or with any court or governmental agency or body of the United
States is required for the issuance or sale of the 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
Indemnification Agreement, except the registration under the Act of the
Certificates and such consents, approvals, authorizations, registrations or
qualifications as may have been obtained or effected or as may be required under
state
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securities or Blue Sky laws in connections with the purchase and distribution of
the Certificates by you.
(n) Chevy Chase possesses all material licenses, certificates,
authorities and 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 any unfavorable decision, ruling or finding, would materially and
adversely affect the conduct of its business, operations, financial condition or
income.
(o) At the time of execution and delivery of the Pooling and Servicing
Agreement, Chevy Chase (i) will have good title to the 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"), (ii) will not have assigned to any person any of its
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right, title or interest in such Loans or in the Pooling and Servicing Agreement
or the Certificates and (iii) will have the power and authority to sell the
Loans to the Trustee and to sell the Certificates to you and upon execution and
delivery of the Pooling and Servicing Agreement by the Trustee, the Trustee will
have acquired legal title and beneficial ownership of all of Chevy Chase's
right, title and interest in and to the Loans and upon delivery to you of the
Certificates you will have good title to the Certificates, in each case free of
liens.
(p) As of the Closing Date, each of the Loans meets the eligibility
criteria described in the Prospectus and each Eligible Substitute Loan
transferred to the Trust will meet the eligibility criteria described in the
Prospectus.
(q) The Trust is not, and immediately following the issuance and sale
of the Certificates will not be, required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended (the "1940 Act"),
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as in effect on the date thereof.
(r) Each of the Certificates, the Pooling and Servicing Agreement, the
Insurance Agreement and the 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, the Indemnification Agreement and
the Certificates that are required to be paid by Chevy Chase at or prior to the
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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 and Servicing Agreement and the Indemnification
Agreement will be true and correct.
Any certificate signed by an officer of Chevy Chase and delivered to
you in connection with an offering of the Certificates shall be deemed, and
shall state that it is, a representation and warranty as to the matters covered
thereby to the person to whom the representations and warranties in this Section
2 are made.
3. Purchase, Sale and Delivery of the Certificates. The Underwriters'
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commitment to purchase the 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 the purchase price set forth on Schedule 1 hereto
the principal amount of Certificates set forth opposite their respective names
on Schedule 1 hereto.
Payment of the purchase price for, and delivery of, any Certificates
to be purchased by you shall be made at the office of Orrick, Herrington &
Sutcliffe LLP, 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 September 29, 1997 (the "Closing
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Date"), or at such other time or date as shall be agreed upon in writing by you
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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 Certificates
shall be made to you for your account against payment of the purchase price
therefor. Such 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 Securities Exchange Act of
1934, the Closing Date (if later than the otherwise applicable settlement date)
shall be the settlement date for payment of funds and delivery of the
Certificates. Such 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.
4. Offering. It is understood that the Underwriters severally and
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not jointly propose to offer the Certificates for sale to the public (which may
include selected dealers) on the terms set forth in the Prospectus.
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5. Covenants of Chevy Chase. Chevy Chase covenants with each of the
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Underwriters as follows:
(a) Chevy Chase shall 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) Chevy Chase shall advise the Underwriters promptly of any proposal
to amend or supplement the Registration Statement or the Prospectus, and
will not effect such amendment or supplementation without the Underwriters'
consent; and Chevy Chase will also advise the Underwriters promptly of the
effectiveness of such amendment or supplementation (if its effective time
is subsequent to the execution and delivery of this Agreement) and of any
amendment or supplementation of the Registration Statement or the
Prospectus and of the institution by the Commission of any stop order
proceedings in respect of the Registration Statement and Chevy Chase will
make every reasonable effort to prevent the issuance of any such stop order
and to obtain as soon as possible its lifting, if issued.
(c) If at any time when the Prospectus as amended or supplemented is
required by the Act to be delivered in connection with sales of the
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 the circumstances
under which they were made, not misleading at the time it is delivered to a
purchaser, 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 Act or the Rules and Regulations, 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
to correct such untrue statement or omission or to make the
Registration Statement comply with such requirements, and within two
Business Days shall furnish to you as many copies of the Prospectus, as
amended or supplemented, as you shall reasonably request.
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(d) Chevy Chase shall 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 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
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.
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(e) Chevy Chase shall 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.
(f) Chevy Chase shall deliver to you as many signed and as many
conformed copies of each Registration Statement (as originally filed) and
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.
(g) Chevy Chase shall cause the Trust to make generally available to
holders of the Certificates, as soon as practicable, but no later than
sixteen months after the date hereof, an earnings statement of the Trust
covering a period of at least twelve consecutive months beginning after the
later of (i) the effective date of the registration statement relating to
the Certificates and (ii) the effective date of the most recent post-
effective amendment to the Registration Statement to become effective prior
to the date of this Agreement and, in each case, satisfying the provisions
of Section 11(a) of the Act (including Rule 158 promulgated thereunder).
(h) Chevy Chase shall endeavor, in cooperation with you, to qualify
the Certificates for offering and sale under
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the applicable securities laws of such states and other jurisdictions of
the United States as you may designate, and shall maintain or cause to be
maintained such qualifications in effect for as long as may be required for
the distribution of the Certificates. Chevy Chase shall file or cause the
filing of such statements and reports as may be required by the laws of
each jurisdiction in which the Certificates have been qualified as above
provided.
(i) Chevy Chase shall not, without your prior consent, publicly offer
or sell or contract to sell any securities of which Chevy Chase is the
issuer, representing interests in or secured by Closed-End Loans, Debt
Consolidation Loans, Home Improvement Contracts or similar assets secured
by interests in real property or improvements thereon for a period of 30
days following the commencement of the offering of the Certificates to the
public; provided, however, that notwithstanding the foregoing, the
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Underwriters hereby consent to an offering by Chevy Chase of certificates
in a public transaction to be designated "Capitol Revolving Home Equity
Loan Trust 1997-1."
(j) So long as the Certificates are outstanding, Chevy Chase shall
deliver to you the annual statement as to compliance delivered to the
Trustee pursuant to Section 5.14 of the Pooling and Servicing Agreement and
the annual statement of a firm of independent public accountants furnished
to the Trustee pursuant to Section 5.08 of the Pooling and Servicing
Agreement as soon as such statements are furnished to the Trustee.
(k) Chevy Chase shall apply the net proceeds from the sale of the
Certificates in the manner set forth in the Prospectus.
(l) 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 is 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 shall give you prompt written notice
thereof.
(m) Chevy Chase, during the period when the Prospectus is required to
be delivered under the Act, shall 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 Policy.
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6. Conditions of the Obligations of the Underwriters. The
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obligations of the several Underwriters to purchase the 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
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order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted
or 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
(with respect to items (i) through (vii) and (xii)), and Orrick, Herrington
& Sutcliffe LLP, special counsel to Chevy Chase reasonably satisfactory to
you (with respect to items (viii) through (xii)), addressed to you and in
form and scope satisfactory to you to the effect that:
(i) Chevy Chase has been duly chartered and is validly
existing as a federally chartered stock savings bank under the
laws of the United States of America, and has full corporate
power, authority and legal right to (a) own its properties and
conduct its business as described in the Prospectus, (b) execute,
deliver and perform its obligations under this Agreement, the
Pooling and Servicing Agreement, the Insurance Agreement and the
Indemnification Agreement, (c) cause the Certificates to be
issued and (d) consummate the other transactions contemplated
under this Agreement, the Pooling and Servicing Agreement, the
Insurance Agreement and the Indemnification Agreement.
(ii) Chevy Chase has duly authorized, executed and delivered
the written order to the Trustee to execute and deliver the
Certificates. When the Certificates have been duly executed,
delivered and authenticated in accordance with the Pooling and
Servicing Agreement and delivered and paid for pursuant to this
Agreement, the Certificates will be validly issued, outstanding
and entitled to the benefits of the Pooling and Servicing
Agreement, subject as to enforceability to the effects of
applicable bankruptcy,
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insolvency, reorganization, fraudulent conveyance, moratorium and
similar laws now or hereafter in effect relating to creditors' or
other obligees' rights generally or the rights of creditors or
other obligees of institutions the deposits of which are insured
by the Federal Deposit Insurance Corporation ("FDIC") and subject
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to general principles of equity (whether applied in a proceeding
at law or in equity).
(iii) Chevy Chase has duly authorized, executed and
delivered this Agreement, the Pooling and Servicing Agreement,
the Insurance Agreement and the Indemnification Agreement, and
each of this Agreement the Pooling and Servicing Agreement, the
Insurance Agreement and the Indemnification Agreement is the
legal, valid and binding obligation of Chevy Chase, enforceable
against Chevy Chase in accordance with its terms, subject as to
enforceability (a) to the effects of applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium and
similar laws now or hereafter in effect relating to creditors' or
other obligees' rights generally or the rights of creditors or
other obligees of institutions the deposits of which are insured
by the FDIC and subject to general principles of equity (whether
applied in a proceeding at law or in equity) and (B) to
limitations on the rights to indemnification and contribution,
with respect to this Agreement and the Indemnification Agreement,
under state and federal securities laws and the policies
underlying such laws.
(iv) The execution and delivery by Chevy Chase of this
Agreement, the Pooling and Servicing Agreement, the Insurance
Agreement and the Indemnification Agreement, the transfer of the
Trust Property by Chevy Chase to the Trust, the issuance and sale
of the Certificates and the consummation by Chevy Chase of the
other transactions contemplated by this Agreement, the Pooling
and Servicing Agreement, the Insurance Agreement and the
Indemnification Agreement (A) do not and will not conflict with
or result in a violation of (1) any statute or regulation of the
United States of America or the State of Maryland, (2) the
charter or bylaws of Chevy Chase or (3) any order, writ, judgment
or decree known to us to which Chevy Chase is a party or is
subject, or (B) to our knowledge, except as contemplated in the
Agreements, do not and will not result in any lien, charge or
encumbrance upon any of the
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<PAGE>
properties or assets of Chevy Chase. Such counsel may state that
they render no opinion pursuant to clause (A) of this paragraph
(iv) with respect to any statute or regulation under which rights
to indemnity and contribution for violation of federal or state
securities laws may be limited or prohibited.
(v) To such counsel's knowledge, there are no actions,
proceedings or investigations pending against Chevy Chase or
threatened against Chevy Chase before any court, administrative
agency or other tribunal (A) asserting the invalidity of the
Certificates, the Trust, this Agreement, the Pooling and
Servicing Agreement, the Insurance Agreement or the
Indemnification Agreement, (B) seeking to prevent the issuance of
the Certificates or the consummation of any of the transactions
contemplated by this Agreement, the Pooling and Servicing
Agreement, the Insurance Agreement or the Indemnification
Agreement, (C) that could adversely affect the validity or
enforceability of this Agreement, the Pooling and Servicing
Agreement, the Insurance Agreement, the Indemnification Agreement
or the Certificates against Chevy Chase or the ability of Chevy
Chase to perform its obligations thereunder or (D) seeking to
affect adversely the federal income tax attributes of the
Certificates as described in the Prospectus and the Prospectus
Supplement under the heading "Federal Income Tax Considerations."
(vi) No consent, license, approval, authorization or order
of, or filing with, any court or governmental agency or body is
required of Chevy Chase for the consummation by Chevy Chase of
the transactions contemplated in this Agreement, the Pooling and
Servicing Agreement, the Insurance Agreement or the
Indemnification Agreement, except such consents, licenses,
approvals, authorizations or orders as have been obtained or such
filings as have been made or as may be required under state
securities or Blue Sky laws and except where the failure to
obtain the same would not have a material adverse effect upon the
rights of the Certificateholders.
(vii) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against Chevy
Chase that are required to be disclosed in the Registration
Statement and the Prospectus, other than those disclosed therein.
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<PAGE>
(viii) The Pooling and Servicing Agreement need not be
qualified under the Trust Indenture Act and the Trust is not
required to register under the 1940 Act.
(ix) To such counsel's knowledge no stop order suspending
the effectiveness of the Registration Statement or any part
thereof has been issued and no proceedings for that purpose are
pending or threatened by the Commission.
(x) Such counsel shall state that they have participated in
the preparation of the Prospectus, the Preliminary Prospectus
Supplement and the Prospectus Supplement and no facts have come
to their attention that cause them to believe that the Prospectus
as supplemented by each of the Preliminary Prospectus Supplement
and the Prospectus Supplement as of its respective date or the
Closing Date, contains any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading; provided that such counsel need
--------
not express any view with respect to (A) the information under
the heading "The Certificate Insurer", (B) the information under
the heading "The Seller", and (C) the financial or statistical
material included in the Registration Statement or the
Prospectus.
(xi) If the FDIC is appointed as a conservator or receiver
of Chevy Chase pursuant to Section 11(c)(3)(A) of the Federal
Deposit Insurance Act, as amended (the "FDIA") or pursuant to
----
Section 11(c)(4) of the FDIA, the valid perfected security
interest of the Trustee in the Loans would be enforceable against
Chevy Chase. For purposes of this paragraph (xii), such counsel
may assume that from the time of its execution the Pooling and
Servicing Agreement has been and will be an official record (as
such term is used in Sections 11(n)(4)(I)(iv) and 13(e)(4) of the
FDIA) of Chevy Chase, and may make such other assumptions as are
customary in opinions of this type.
(xii) To such counsel's knowledge, there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other
instruments to which Chevy Chase is a party that are required to
be filed as exhibits to the Registration Statement other than
those described or referred to therein
14
<PAGE>
or filed or incorporated by reference as exhibits thereto.
(c) You shall have received the favorable opinion of Shaw,
Pittman, Potts & Trowbridge with respect to those state tax matters
relating to the State of Maryland if such an opinion is requested by the
Certificate Insurer.
(d) 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 has duly authorized, executed and delivered
the Pooling and Servicing Agreement.
(ii) The Trustee has full power and authority to execute and
deliver the Pooling and Servicing Agreement and to perform its
obligations thereunder and such Agreement constitutes the valid,
legal and binding obligation of the Trustee, enforceable against
the Trustee in accordance with its terms.
(iii) The Certificates have been duly executed and
authenticated by the Trustee.
(iv) The execution and delivery by the Trustee of the
Pooling and Servicing 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 New York, (B) the charter or bylaws of
the Trustee or (C) any order, writ, judgment or decree.
(v) 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.
(e) 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 a corporation validly
existing, in good standing and licensed to
15
<PAGE>
transact the business of surety and financial guaranty insurance
under the laws of the State of New York.
(ii) The Certificate Insurer has the corporate power to
execute and deliver, and to perform its obligations under, the
Policy, the Insurance Agreement and the Indemnification
Agreement.
(iii) Each of the Policy, the Insurance Agreement and the
Indemnification Agreement has been duly authorized, executed and
delivered on behalf of the Certificate Insurer.
(iv) Except as have already been obtained, no authorization,
consent, approval, license, formal exemption or declaration from,
nor any notice to or filing with, any court or governmental
agency or body of the United States of America or the State of
New York which if not obtained would affect or impair the
validity or enforceability of the Policy, the Insurance Agreement
or the Indemnification Agreement against the Certificate Insurer
is required in connection with the execution and delivery by the
Certificate Insurer of the Policy, the Insurance Agreement, the
Indemnification Agreement or in connection with the Certificate
Insurer's performance of its obligations thereunder; such counsel
may note that (S)6905 of Article 69 of the New York State
Insurance Law, as amended, requires that policy forms and any
amendments thereto shall be filed with the Superintendent of the
New York State Insurance Department within thirty days of their
use by the insurer if not previously so filed.
(v) Each of the Policy and, assuming due authorization,
execution and delivery of the Insurance Agreement and the
Indemnification Agreement by the parties thereto (other than the
Certificate Insurer), the Insurance Agreement and the
Indemnification Agreement is the legal, valid and binding
obligation of the Certificate Insurer, enforceable against the
Certificate Insurer in accordance with its terms subject, as to
enforcement, to (a) bankruptcy, reorganization, insolvency,
moratorium and other similar laws relating to or affecting the
enforcement of creditors' rights generally, including, without
limitation, laws relating to fraudulent transfers or conveyances,
preferential transfers and equitable subordination, presently or
from time to
16
<PAGE>
time in effect and general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity
or at law), as such laws may be applied in any such proceeding
with respect to the Certificate Insurer, and (b) the
qualification that the remedy of specific performance may be
subject to equitable defenses and to the discretion of the court
before which any proceedings with respect thereto may be brought
and (c) the enforceability of rights to indemnification under the
Indemnification Agreement may be subject to limitations of public
policy under applicable securities laws.
(vi) The Policy is not required to be registered under the
Securities Act of 1933, as amended, in connection with the offer
and sale of the Certificates in the manner contemplated by the
Prospectus Supplement.
(f) You shall have received the favorable opinion, dated the
Closing Date, of Orrick, Herrington & Sutcliffe LLP, counsel to Chevy
Chase, addressed to you and in form and scope satisfactory to you, relating
to the creation, attachment and perfection of a first priority security
interest in the Loans in favor of the Trustee on behalf of the
Certificateholders. Such opinion may contain assumptions, qualifications
and limitations as are customary in opinions of this type and are
reasonably acceptable to the Underwriters. In rendering such opinion, such
counsel may state that they express no opinion as to the laws of any
jurisdiction other than specified federal laws of the United States of
America, the laws of the State of New York (with respect to the creation
and attachment of a security interest in the Loans) and the laws of the
State of Minnesota (with respect to the perfection and priority of the
security interest in the Loans).
(g) You shall have received the favorable opinion, dated the
Closing Date, of Orrick, Herrington & Sutcliffe LLP, special counsel to the
Underwriters, addressed to you and in form and scope satisfactory to you to
the effect that:
(i) The statements in the Prospectus and the Prospectus
Supplement under the headings "Summary of Terms -- Federal Income
Tax Considerations" and "Federal Income Tax Considerations," to
the extent that they constitute statements of matters of law or
legal conclusions with respect thereto, have been reviewed by
such counsel and accurately describe the material consequences to
holders of the Certificates under the Code.
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<PAGE>
(ii) The Trust should be treated as a grantor trust for
federal income tax purposes but, failing that, it will be
characterized as a partnership and not as an association taxable
as a corporation (or publicly traded partnership treated as an
association).
(iii) Such other matters as the Underwriters shall
reasonably require and the Seller shall have furnished to such
counsel such documents as they may reasonably request for the
purpose of enabling them to pass upon such matters.
(h) 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.
(i) 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.
(j) 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) Each such officer has reviewed the information with
respect to the Certificate Insurer in the section of the
Prospectus Supplement captioned "The Certificate Insurer" and
that although such information does not purport to provide the
scope of disclosure required to be included by the Act with
respect to a registrant in connection with the offer and sale of
securities of such registrant, such officer has no reason to
believe that such section of the Prospectus Supplement contains
any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under
which they are made, not misleading; and
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<PAGE>
(ii) There has been no changes in the financial condition of
the Certificate Insurer since December 31, 1996 which would have
a material adverse effect on the Certificate Insurer's ability to
meet its obligations under the Policy.
(k) The Policy shall have been issued by the Certificate Insurer
pursuant to the Insurance Agreement.
(l) The Certificates shall have been rated "AAA" by Standard and
Poor's Ratings Group and "Aaa" by Moody's Investors Service, Inc., and such
ratings shall not have been rescinded.
(m) You shall have received from Arthur Andersen & Co., 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 Act and the Rules and Regulations 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 accounts.
(n) 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 Certificates as herein contemplated shall be satisfactory
in form and substance to you.
(o) Since the respective dates 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
19
<PAGE>
delivery of the Certificates on the terms and in the manner contemplated in
the Prospectus.
(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 and certificate to the same extent as though
such opinion was addressed to each as of its 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 Certificates, (iv) 50% of the fees and
disbursements of Orrick, Herrington & Sutcliffe LLP, special counsel to Chevy
Chase, the remaining 50% to be paid by the Underwriters, and the fees and
disbursements of Arthur Andersen & Co., accountants of Chevy Chase, and (v) 50%
of the fees relating to the qualification of the Certificates under securities
and Blue Sky laws and the determination of the eligibility of the Certificates
for investment in accordance with the provisions of Section 5(h), including
------------
filing fees and all fees and disbursements of Orrick, Herrington & Sutcliffe LLP
in connection therewith and in connection with the preparation of any Blue Sky
Survey, (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, the
Insurance Agreement and the Indemnification Agreement, (viii) the fees charged
by nationally recognized statistical rating agencies for rating the
Certificates, (ix) the fees and expenses of the Trustee and its counsel and (x)
the fees and expenses of the Certificate Insurer and its counsel. The
Underwriters agree to pay (i) 50% of the fees and disbursements of Orrick,
Herrington & Sutcliffe LLP, including 50% of the fees
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<PAGE>
relating to the qualification of the Certificates under securities and Blue Sky
laws and the determination of the eligibility of the Certificates for investment
in accordance with the provisions of Section 5(h), including filing fees and all
------------
fees and disbursements of Orrick, Herrington & Sutcliffe LLP 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 $27,793.00
If this Agreement is terminated by you in accordance with the
provisions of Section 6 or Section 11(i), Chevy Chase shall reimburse you for
--------- -------------
all reasonable out-of-pocket expenses including without limitation all fees and
disbursements of Orrick, Herrington & Sutcliffe LLP.
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
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, the Prospectus, or any
amendment or supplement thereto, or any related preliminary prospectus
or preliminary prospectus supplement, 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 (in the case
of the Prospectus or any amendment or supplement thereto, in the light
of the circumstances under which they were made); provided, however,
-------- -------
that Chevy Chase will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement in or
omission or alleged omission from any of such documents in reliance
upon and in conformity with written information furnished to Chevy
Chase by any Underwriter through the Representative specifically for
use therein, it being understood and agreed that the only such
information furnished by any Underwriters consists of the following
information (collectively, the "Underwriter Information"):
(w) the sixth paragraph on the cover of the Prospectus
(discussing the offering of the Certificates);
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<PAGE>
(x) the second paragraph on the cover of the Prospectus
(discussing the risk of a lack of secondary trading);
(y) the fourth paragraph on the inside cover of the
Prospectus (discussing over-allotments and stabilization);
and
(z) the information contained under the caption
"Underwriting" in the Prospectus;
(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, or 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
Section 8(c)) as reasonably incurred in investigating, preparing
------------
or defending against any litigation, or 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;
provided such indemnity with respect to the Prospectus or any preliminary
- --------
prospectus shall not inure to the benefit of the Underwriter (or person
controlling such Underwriter) from whom the person suffering any such loss,
claim, damage or liability purchased the Certificates which are the subject
thereof if such person did not receive a copy of the Prospectus at or prior to
the confirmation of the sale of such Certificates to such person in any case
where such delivery is required by the Act and the untrue statement or omission
of a material fact contained in any preliminary prospectus was corrected in the
Prospectus and the Prospectus was delivered to such Underwriter in a timely
manner in accordance with Section 5(c). 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
22
<PAGE>
of the Act or the Exchange Act against any and all loss, liability, claim,
damage and expense described in the indemnity contained in Section 8(a), but
------------
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement, the Prospectus, or
any amendment or supplement thereto or any related preliminary prospectus or
preliminary prospectus supplement 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
23
<PAGE>
in respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party unless such
settlement includes an unconditional release of such indemnified party from all
liability from 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 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 the 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 Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. Relative fault shall be determined by
references 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
relative intent of the parties, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. Notwithstanding the
provisions of this Section 9, no Underwriter shall be required to contribute any
amount in excess of the amount of the underwriting discounts and commissions
received by such Underwriter. For purposes of this Section 9, each person, if
any, who controls you within the meaning of the 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 Act or
the Exchange Act shall have the same rights to contribution as Chevy Chase.
24
<PAGE>
10. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
All representatives, 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 any controlling person of you, or
by or on behalf of Chevy Chase and shall survive delivery of any Certificates to
you.
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 or escalation 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 Certificates or enforce contracts for the sale of the 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 Section 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 Section 10 and Section 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) 723-8855,
Attention: Asset Finance Group. Notices to Credit Suisse First Boston
Corporation shall be directed to Credit Suisse First Boston Corporation, 11
Madison Avenue, 6th Floor, New York, New York 10010, or sent by facsimile
machine which produces an electronic confirmation of receipt to (212) 325-8259
Attention: Randall White. 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 Section 8 and
---------
25
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Section 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 Certificates from you shall
be deemed to be a successor by reason merely of such purchase.
14. Representation of Underwriters. Smith Barney Inc. will act for
------------------------------
the several Underwriters in connection with this Offering of Certificates, and
any action taken by the Underwriters 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 without regard to principles of conflicts of 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.
26
<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:
--------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED, as of the
date first above written:
By: SMITH BARNEY INC.,
as Representative of the
several Underwriters listed
on Schedule I hereto
By:
-------------------------------
Name:
Title:
27
<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:
--------------------------------------
Name: Mark A. Holles
Title: Vice President
CONFIRMED AND ACCEPTED, as of the
date first above written:
By: SMITH BARNEY INC.,
as Representative of the
several Underwriters listed
on Schedule I hereto
By:
-----------------------------
Name:
Title:
28
<PAGE>
Schedule 1
Underwriting
<TABLE>
<CAPTION>
Principal Proceeds to
Underwriter Purchase Price Amount Chevy Chase*
- ----------- -------------- --------- ------------
<S> <C> <C> <C>
Smith Barney Inc. 99.618750% $47,500,000 $47,318,906.25
Credit Suisse 99.618750% 47,500,000 47,318,906.25
----------- --------------
First Boston
TOTAL $95,000,000 $94,637,812.50
=========== ==============
</TABLE>
* Price excludes accrued interest.
29
<PAGE>
Exhibit 4.3
EXECUTION COPY
================================================================================
POOLING AND SERVICING AGREEMENT
between
CHEVY CHASE BANK, F.S.B.,
as Seller and Servicer,
and
U.S. BANK NATIONAL ASSOCIATION,
as trustee
Dated as of September 1, 1997
CHEVY CHASE HOME LOAN TRUST 1997-1
6.55% Home Loan Asset-Backed Certificates, Series 1997-1
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
Definitions
<S> <C> <C>
SECTION 1.01. Definitions.................................................. 1
SECTION 1.02. Other Definitional Provisions................................ 17
ARTICLE II
Establishment of Trust
SECTION 2.01. Creation of Trust............................................ 19
SECTION 2.02. Acceptance by Trustee........................................ 19
SECTION 2.03. Powers....................................................... 19
ARTICLE III
Transfer of Loans
SECTION 3.01. Transfer of Loans............................................ 20
SECTION 3.02. Acceptance by Trustee; Reassignment of Loans; Substitution
of Eligible Substitute Loans................................. 22
ARTICLE IV
The Loans
SECTION 4.01. Representations and Warranties of the Seller Regarding the
Loans; Removal and Substitution Obligations.................. 26
SECTION 4.02. Official Record.............................................. 30
ARTICLE V
Administration and Servicing of Loans
SECTION 5.01. The Servicer and the Seller.................................. 31
SECTION 5.02. Collection of Certain Loan Payments.......................... 32
SECTION 5.03. Maintenance of Hazard Insurance; Property Protection
Expenses..................................................... 32
SECTION 5.04. Assumption and Modification Agreements....................... 33
SECTION 5.05. Realization Upon Liquidated Loans............................ 34
SECTION 5.06. Servicing Fee................................................ 35
SECTION 5.07. Servicer's Certificate....................................... 35
SECTION 5.08. Annual Independent Public Accountants' Servicing Report...... 35
SECTION 5.09. Access to Certain Documentation and Information Regarding
the Loans.................................................... 36
SECTION 5.10. Maintenance of Certain Servicing Policies.................... 36
SECTION 5.11. Reports to the Securities and Exchange Commission............ 37
SECTION 5.12. Information Required by the Internal Revenue Service
Generally and Reports of
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Foreclosures and Abandonments of Mortgaged Property.......... 37
SECTION 5.13. Servicer Expenses............................................ 37
SECTION 5.14. Annual Statement as to Compliance............................ 37
SECTION 5.15. Recordation of Assignments of Mortgage....................... 37
SECTION 5.16. Tax Treatment................................................ 38
ARTICLE VI
Accounts; Collections; Allocations; Distributions;
Statements to Certificateholders
SECTION 6.01. Establishment of Accounts.................................... 39
SECTION 6.02. Collections.................................................. 39
SECTION 6.03. Application of Collections................................... 40
SECTION 6.04. Additional Deposits.......................................... 40
SECTION 6.05. Permitted Withdrawals from the Collection Account............ 40
SECTION 6.06. Allocations and Deposits..................................... 41
SECTION 6.07. Distributions................................................ 42
SECTION 6.08. Reserve Fund................................................. 43
SECTION 6.09. Statements to Certificateholders............................. 44
SECTION 6.10. Tax Returns.................................................. 45
ARTICLE VII
The Policy
SECTION 7.01. The Policy................................................... 47
SECTION 7.02. Claims Under Policy.......................................... 47
SECTION 7.03. Surrender of Policy.......................................... 49
SECTION 7.04. Replacement Policy........................................... 49
ARTICLE VIII
THE CERTIFICATES
SECTION 8.01. The Certificates............................................. 50
SECTION 8.02. Authentication of Certificates............................... 50
SECTION 8.03. Registration of Transfer and Exchange of Certificates........ 50
SECTION 8.04. Mutilated, Destroyed, Lost or Stolen Certificates............ 51
SECTION 8.05. Persons Deemed Owners........................................ 51
SECTION 8.06. Access to List of Certificateholders' Names and Addresses.... 52
SECTION 8.07. Maintenance of Office or Agency.............................. 52
SECTION 8.08. Book-Entry Certificates...................................... 52
SECTION 8.09. Notices to Clearing Agency................................... 53
SECTION 8.10. Replacement Certificates..................................... 53
SECTION 8.11. Temporary Certificates....................................... 54
ARTICLE IX
The Seller and Servicer
SECTION 9.01. Representations of the Seller and Servicer................... 55
SECTION 9.02. Liability of the Servicer.................................... 56
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 9.03. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer or Seller....................... 56
SECTION 9.04. Limitation on Liability of the Servicer and Others........... 56
SECTION 9.05. Delegation of Duties......................................... 58
SECTION 9.06. Servicer Not to Resign....................................... 58
SECTION 9.07. Limitation on Liability of Certain Persons................... 59
SECTION 9.08. Liability of Seller.......................................... 59
SECTION 9.09. Seller May Own Certificates.................................. 60
ARTICLE X
Default
SECTION 10.01. Events of Default............................................ 61
SECTION 10.02. Trustee to Act; Appointment of Successor..................... 63
SECTION 10.03. Notification to Certificateholders........................... 64
SECTION 10.04. Waiver of Past Defaults...................................... 64
SECTION 10.05. Effect of Insolvency......................................... 64
ARTICLE XI
The Trustee
SECTION 11.01. Duties of Trustee............................................ 66
SECTION 11.02. Certain Matters Affecting Trustee............................ 67
SECTION 11.03. Trustee Not Liable for Certificates or Loans................. 68
SECTION 11.04. Trustee May Own Certificates................................. 68
SECTION 11.05. Trustee's Fees and Expenses.................................. 68
SECTION 11.06. Eligibility Requirements for Trustee......................... 69
SECTION 11.07. Resignation or Removal of Trustee............................ 69
SECTION 11.08. Successor Trustee............................................ 70
SECTION 11.09. Merger or Consolidation of Trustee........................... 71
SECTION 11.10. Appointment of Co-Trustee or Separate Trustee................ 71
SECTION 11.11. Representations and Warranties of Trustee.................... 72
SECTION 11.12. No Bankruptcy Petition....................................... 73
SECTION 11.13. Trustee's Certificate........................................ 73
SECTION 11.14. Trustee's Assignment of Loans................................ 73
SECTION 11.15. Appointment of Paying Agent.................................. 74
SECTION 11.16. Limitation of Liability of Trustee........................... 74
SECTION 11.17. Streit Act................................................... 74
ARTICLE XII
Termination
SECTION 12.01. Termination.................................................. 76
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE XIII
Miscellaneous Provisions
<S> <C> <C>
SECTION 13.01. Amendment.................................................... 78
SECTION 13.02. Recordation of Agreement..................................... 80
SECTION 13.03. Limitation on Rights of Certificateholders................... 80
SECTION 13.04. Protection of Title to Trust................................. 81
SECTION 13.05. Separate Counterparts........................................ 83
SECTION 13.06. Governing Law................................................ 83
SECTION 13.07. Notices...................................................... 83
SECTION 13.08. Severability of Provisions................................... 83
SECTION 13.09. Assignment................................................... 84
SECTION 13.10. Certificates Nonassessable and Fully Paid.................... 84
SECTION 13.11. Counterparts................................................. 84
SECTION 13.12. Effect of Headings and Table of Contents..................... 84
SECTION 13.13. Third Party Beneficiary...................................... 85
SECTION 13.14. Merger and Integration....................................... 85
SECTION 13.15. Certificate Insurer as Controlling Party..................... 85
SECTION 13.16. Representation of Certificateholders......................... 85
SECTION 13.17. Grant of Security Interest................................... 85
</TABLE>
<TABLE>
<S> <C>
Exhibit A Form of Certificate
Exhibit B Form of Depository Agreement
Exhibit C-1 Form of Trustee's Initial Certification
Exhibit C-2 Form of Trustee's Certification
Exhibit D [Reserved]
Exhibit E-1 Form of Trustee's Certificate - Assignment to Servicer
Exhibit E-2 Form of Trustee's Certificate - Assignment to Seller
Exhibit E-1A Form of Assignment of Eligible Substitute Loans to Trustee
Exhibit F Form of Servicer's Certificate
Exhibit G Power of Attorney
SCHEDULE A Schedule of Loans
</TABLE>
iv
<PAGE>
POOLING AND SERVICING AGREEMENT dated as of September 1, 1997, between
CHEVY CHASE BANK, F.S.B., a federal savings bank organized under the laws of the
United States, as seller and servicer (the "Seller" and "Servicer,"
------ --------
respectively), and U.S. BANK NATIONAL ASSOCIATION, a national banking
association, doing business as First Bank National Association, as trustee (the
"Trustee").
-------
WHEREAS, the Seller owns and wishes to transfer to the Trust (as
hereinafter defined) certain closed-end home equity loans (the "Home Equity
-----------
Loans"), certain closed-end debt consolidation loans (the "Debt Consolidation
- ----- ------------------
Loans") and certain conventional home improvement installment sales contracts
- -----
and certain installment loan agreements (the "Home Improvement Contracts")
--------------------------
identified in the Loan Schedule attached hereto as Schedule A; and
----------
WHEREAS, the Seller, the Servicer and the Trustee wish to set forth
the terms and conditions pursuant to which the Trust will acquire Home Equity
Loans, Debt Consolidation Loans and Home Improvement Contracts and certain
related property from the Seller and the Servicer will service such loans and
contracts on behalf of the Trust;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the Seller, the Servicer and the Trustee agree
as follows:
ARTICLE I
Definitions
SECTION 1.01. Definitions. Whenever used in this Agreement, the
-----------
following words and phrases shall have the following meanings:
"Affiliate" means, with respect to any specified Person, any other
---------
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect
to any Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" means this Pooling and Servicing Agreement between Chevy
---------
Chase Bank, F.S.B., as Seller and Servicer, and the Trustee, dated as of
September 1, 1997.
"Assignment of Mortgage" means, with respect to each Mortgage, an
----------------------
assignment, notice of transfer, or equivalent instrument sufficient under the
laws of the jurisdiction in which the Mortgaged Property is located to record
the sale of the
<PAGE>
related Mortgage to the Trustee for the benefit of the Certificateholders and
the Certificate Insurer.
"Avoided Payment" has the meaning set forth in Section 7.02(d).
--------------- ---------------
"Base Servicing Fee" means, with respect to any Monthly Collection
------------------
Period, the fee payable to the Servicer for services rendered during such
Monthly Collection Period, which shall be equal to one-twelfth of the Servicing
Fee Rate multiplied by the Pool Balance as of the first day of such Monthly
Collection Period.
"BIF" means 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 Certificates" means a beneficial interest in the
-----------------------
Certificates, ownership and transfers of which shall be registered through book
entries by a Clearing Agency as described in Section 8.08.
------------
"Business Day" means any day other than a Saturday, a Sunday or a day
------------
on which banking institutions in the States of Minnesota, New York or Maryland
(or such other state in which the Corporate Trust Office of the Trustee or the
main office of the Paying Agent is located) are required or authorized to be
closed.
"Certificate" means a 6.55% Home Loan Asset-Backed Certificate, Series
-----------
1997-1, evidencing a beneficial interest in the Trust, substantially in the form
of Exhibit A.
---------
"Certificateholder" or "Holder" means a 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 Seller or the Servicer or any affiliate of either
shall be deemed not be outstanding and any such Certificates shall not be taken
into account in determining whether the requisite amount of Certificateholders
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 an officer of the Trustee assigned to matters under this
Agreement actually knows to be so owned shall not be so taken into account.
"Certificate Insurer" means Capital Markets Assurance Corporation, a
-------------------
monoline insurance corporation domiciled in the State of New York, or any
successor thereto.
2
<PAGE>
"Certificate Owner" means, with respect to a Book-Entry Certificate,
-----------------
the Person who is the beneficial owner of such Book-Entry Certificate, as
reflected on the books of the Clearing Agency or on the books of a Person
maintaining an account with such Clearing Agency (directly as a Clearing Agency
Participant or as an indirect participant, in each case in accordance with the
rules of such Clearing Agency).
"Certificate Principal Balance" means, as of any date of
-----------------------------
determination, the Initial Certificate Principal Balance, reduced by all amounts
previously distributed to Holders of Certificates and allocable to principal.
"Certificate Register" and "Certificate Registrar" mean the register
-------------------- ---------------------
maintained and the registrar appointed pursuant to Section 8.03.
------------
"Certificateholders' Interest Carryover Shortfall" means, with respect
------------------------------------------------
to any Distribution Date, the excess of the Interest Distributable Amount for
------
the preceding Distribution Date over the amount of interest that actually was
----
distributed to Certificateholders on such preceding Distribution Date, plus
interest on such excess, to the extent permitted by law, at the Pass-Through
Rate from and including such preceding Distribution Date to but excluding the
current Distribution Date.
"Chevy Chase" means Chevy Chase Bank, F.S.B., a federal savings bank
-----------
organized under the laws of the United States, or its permitted successor in
interest.
"Clearing Agency" means an organization registered as a "clearing
---------------
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended.
"Clearing Agency Participant" means a broker, dealer, bank, other
---------------------------
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closed-end Home Equity Loan" means a closed-end home equity loan
---------------------------
originated or acquired by Chevy Chase and secured by a Mortgage.
"Closing Date" means September 29, 1997.
------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collection Account" means the account designated as such, established
------------------
and maintained pursuant to Section 6.01(a).
---------------
"Corporate Trust Office" means the principal corporate trust office of
----------------------
the Trustee, which at the time of execution of this Agreement is located at 180
East Fifth Street, St. Paul, Minnesota 55101 (facsimile: (612) 244-0089),
Attention:
3
<PAGE>
Structured Finance/Chevy Chase HLT 97-1; or at such other address as the Trustee
may designate from time to time by notice to Certificateholders, the Certificate
Insurer, the Seller and the Servicer, or the principal corporate trust office of
any successor Trustee (of which address such successor Trustee shall notify the
Certificateholders, the Seller and Servicer).
"Cut-off Date" means September 1, 1997.
------------
"Debt Consolidation Loan" has the meaning set forth in the Preamble.
-----------------------
"Defective Loan" means any Loan which is required to be removed or
--------------
replaced by the Seller pursuant to Section 3.02 or Section 4.01 or removed or
------------ ------------
replaced by the Servicer pursuant to Section 5.01(d).
---------------
"Deferral Loan" means a Loan for which the related Obligor has elected
-------------
to extend the contractual period between the Loan's funding date and the Loan's
first scheduled due date for 90 or 180 days in accordance with the Seller's
underwriting guidelines.
"Deposit Date" means, with respect to each Distribution Date, the
------------
Business Day preceding such Distribution Date.
"Depository Agreement" means the agreement dated September 29, 1997,
--------------------
among the Trustee, the Servicer and The Depository Trust Company, as the initial
Clearing Agency, substantially in the form attached as Exhibit B.
---------
"Determination Date" means, with respect to a Monthly Collection
------------------
Period, the third Business Day prior to the related Distribution Date.
"Direct Home Improvement Loan" means an installment loan agreement
----------------------------
originated by Chevy Chase in connection with the financing of the construction
of home improvements, which loan may be secured by a Mortgage.
"Distribution Date" means the 20th day of each month or, if such day
-----------------
is not a Business Day, the next succeeding Business Day, commencing October 20,
1997.
"Electronic Ledger" means the electronic master record of Home Loans
-----------------
and Home Equity Loans (including the Loans) maintained by the Servicer.
"Eligible Account" means 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 each Rating Agency, (ii) maintained with a depository institution whose
accounts are fully insured by either the SAIF or the BIF of the Federal Deposit
Insurance Corporation with a minimum long-term
4
<PAGE>
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 without reduction or withdrawal of their then current ratings of the
Certificates, as evidenced by a letter from such Rating Agency to the Trustee,
and acceptable to the Certificate Insurer.
"Eligible Substitute Loan" means a Loan proposed to be substituted by
------------------------
the Seller for a Defective Loan which, on the date of such substitution, (i) has
an outstanding principal balance (except as provided below) of not less than 95%
of the outstanding principal balance of such Defective Loan on the date of such
substitution; (ii) has a Loan Rate not less than the Loan Rate of such Defective
Loan and not more than one hundred (100) basis points in excess of the Loan Rate
of such Defective Loan; (iii) has a remaining term to maturity not later than
nor more than six months earlier than the remaining term to maturity of such
Defective Loan; (iv) if applicable, is secured by a Mortgage in a lien position
not junior to the lien position of the Mortgage of such Defective Loan; (v) had
a "FICO" score not less than 640 within three months prior to the date of
substitution; and (vi) complies with each representation and warranty set forth
in Section 4.01 as if such representation and warranty were made on the date of
------------
such substitution. If more than one Loan is substituted for a Defective Loan on
any substitution date, the requirements of clause (i) of this definition shall
be satisfied if such Loans shall have an aggregate principal balance of not less
than 95% of the aggregate principal balance of such Defective Loans on the date
of substitution.
"Excess Interest" means, with respect to any Monthly Collection
---------------
Period, Interest Collections for such Monthly Collection Period remaining after
allocation of the amounts described in clauses (i), (ii), (iii) and (iv) of
Section 6.06(a).
- ---------------
"Expense Distribution Account" means the subaccount of the Collection
----------------------------
Account designated as such, established and maintained pursuant to
Section 6.01(a)(ii).
- -------------------
"FDIC" means the Federal Deposit Insurance Corporation or any
----
successor.
"Final Distribution Date" means the Distribution Date in May 2018.
-----------------------
"Final Order" has the meaning set forth in Section 7.02(d).
----------- ---------------
"Foreclosure Proceedings" means proceedings or actions for
-----------------------
foreclosure, deed in lieu of foreclosure or trustee's sale with respect to any
Secured Loan and the related Mortgaged Property.
5
<PAGE>
"Home Equity Loan" has the meaning set forth
----------------
in the Preamble.
"Home Improvement Contract" has the meaning set forth in the Preamble.
-------------------------
"Home Loans" means, collectively, Indirect Debt Consolidation Loans,
----------
Indirect Home Improvement Loans and Direct Home Improvement Loans.
"Indemnification Agreement" means the Indemnification Agreement by and
-------------------------
among Chevy Chase in its individual capacity and as the Seller and Servicer,
Smith Barney Inc., Credit Suisse First Boston and the Certificate Insurer dated
September 22, 1997.
"Indirect Debt Consolidation Loan" means a closed-end home equity loan
--------------------------------
originated by a third party and acquired by Chevy Chase in connection with the
consolidation of obligations of the related Obligor.
"Indirect Home Improvement Loan" means an installment sales contract
------------------------------
or installment loan agreement originated by a third party in connection with
home improvements and subsequently acquired by Chevy Chase.
"Initial Certificate Principal Balance" means $95,000,000.
-------------------------------------
"Initial Reserve Fund Deposit" means $3,562,515.48.
----------------------------
"Insolvency Proceeding" means the commencement, after the Closing
---------------------
Date, of any bankruptcy, insolvency, readjustment of debt, reorganization,
marshalling of assets and liabilities or similar proceedings by or against any
Person, or the commencement, after the Closing Date, of any proceedings by or
against any Person for the winding up or liquidation of its affairs, or the
consent after the date hereof to the appointment of a trustee, conservator,
receiver or liquidator in any bankruptcy, insolvency, readjustment of debt,
reorganization, marshalling of assets and liabilities or similar proceedings of
or relating to any Person.
"Insurance Agreement" means the Insurance and Indemnity Agreement
-------------------
dated as of September 29, 1997 among the Certificate Insurer, Chevy Chase in its
individual capacity and as the Seller and Servicer, and the Trustee.
"Insurance Proceeds" means, with respect to any Loan and a Monthly
------------------
Collection Period, proceeds paid to the Seller or the Servicer pursuant to any
insurance policy with respect to such Loan or the related Mortgaged Property,
reduced by related expenses, which proceeds (x) are not Liquidation Proceeds and
(y) are not applied or expected to be applied to the restoration or repair of
the related Mortgaged Property or released to the
6
<PAGE>
related Obligor in accordance with the normal servicing procedures of the
Servicer.
"Insurer Default" means the occurrence of either of the following
---------------
events:
(a) the Certificate Insurer shall fail to pay when due, as and
in the amounts required, any amount payable under the Policy; or
(b) (i) the Superintendent of Insurance of the State of New
York (or any Person succeeding to the duties of such Superintendent)
(for the purpose of this paragraph (b), the "Superintendent") shall
apply for any order (A) pursuant to Section 7402 of the New York
Insurance Law (or any successor provisions thereto), directing him to
rehabilitate the Certificate Insurer, (B) pursuant to Section 7404 of
the New York Insurance Law (or any successor provision thereto),
directing him to liquidate the business of the Certificate Insurer or
(C) pursuant to Section 7416 of the New York Insurance Law (or any
successor provision thereto), dissolving the corporate existence of
the Certificate Insurer which application is not dismissed or
withdrawn during a period of 60 consecutive days or from which relief
is not sought; (ii) the Superintendent shall determine that the
Certificate Insurer is insolvent within the meaning of Section 1309 of
the New York Insurance Law; (iii) the Certificate Insurer shall
commence a voluntary case or other proceeding seeking rehabilitation,
liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief
or to the appointment of or taking possession by any such official in
an involuntary case or other proceeding commenced against it, or shall
make a general assignment for the benefit of creditors; or (iv) an
involuntary case or other proceeding shall be commenced against the
Certificate Insurer seeking rehabilitation, liquidation,
reorganization or other relief with respect to it or its debts under a
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property and such case or proceeding is not dismissed or otherwise
terminated within a period of 60 consecutive days or a court of
competent jurisdiction enters an order granting the relief sought in
such case or proceeding.
7
<PAGE>
"Interest Collections" means, for any Distribution Date, (i) interest
--------------------
collections received from or on behalf of Obligors during the related Monthly
Collection Period, calculated in accordance with the Simple Interest Method and
otherwise in accordance with this Agreement (less the Servicing Fee and, with
respect to any Loan for which a Servicer Advance has been made and not
previously reimbursed, such interest collections allocable to pay any such
unreimbursed Servicer Advance), (ii) late fees received from or on behalf of
Obligors during the related Monthly Collection Period, (iii) the interest
portion of Net Liquidation Proceeds and Insurance Proceeds received during the
related Monthly Collection Period calculated in accordance with the Simple
Interest Method and otherwise in accordance with this Agreement, (iv) Recoveries
received during the related Monthly Collection Period, (v) the interest portion
of the Repurchase Deposit Amount received in respect of the related Monthly
Collection Period and (vi) Investment Earnings on amounts on deposit in the
Collection Account for the related Monthly Collection Period.
"Interest Deficiency Draw Amount" means, with respect to any
-------------------------------
Distribution Date, the amount, if any, by which the Interest Distributable
Amount for such Distribution Date exceeds all amounts on deposit in the
Collection Account and Reserve Fund which the Trustee is required to transfer,
allocate or deposit to the Interest Distribution Account on the related Deposit
Date pursuant to Section 6.05(a)(i).
------------------
"Interest Distributable Amount" means, with respect to any
-----------------------------
Distribution Date, the sum of (i) interest accrued during the related Interest
---
Period at the Pass-Through Rate on the Certificate Principal Balance immediately
preceding such Distribution Date plus (ii) the Certificateholders' Interest
----
Carryover Shortfall, in each case calculated on the basis of a 360-day year
comprised of twelve 30-day months.
"Interest Distribution Account" means the subaccount of the Collection
-----------------------------
Account designated as such, established and maintained pursuant to Section
-------
6.01(a)(ii).
- -----------
"Interest Period" means the period from and including the Closing Date
---------------
(in the case of the first Distribution Date) or from and including the most
recent Distribution Date on which interest has been paid, to but excluding the
following Distribution Date.
"Investment Earnings" means, with respect to any Distribution Date,
-------------------
the investment earnings (net of losses and investment expenses) on amounts on
deposit in the accounts established pursuant to Section 6.01 and the Reserve
------------
Fund.
"Liquidated Loan" means, with respect to any Determination Date, a
---------------
Loan (i) with respect to which the Obligor is contractually delinquent for 180
days as of the end of the most recently completed Monthly Collection Period or
(ii) as to
8
<PAGE>
which the Servicer has determined in accordance with its customary servicing
practices that eventual payment of the scheduled payments is unlikely.
"Liquidation Expenses" means expenses incurred by the Servicer in
--------------------
connection with the liquidation of any Loan and not recovered under any
insurance policy or from the related Obligor, including, without limitation,
legal fees and expenses, the cost of recordation of assignments, title fees and
expenses, any unreimbursed amount expended by the Servicer pursuant to Section
-------
5.05 with respect to such Loan (including, without limitation, amounts advanced
- ----
to cure defaults on any mortgage loan which is senior to such 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" means, with respect to any Liquidated Loan,
-----------------------
the unrecovered principal balance thereof at the end of the Monthly Collection
Period in which such Loan became a Liquidated Loan, after giving effect to the
application of the principal portion of Net Liquidation Proceeds in connection
therewith.
"Liquidation Proceeds" means proceeds (excluding any amounts drawn
--------------------
from the Reserve Fund or on the Policy) received in connection with the
liquidation of a Liquidated Loan.
"Loan" means, as of any date, any Home Equity Loan, Debt Consolidation
----
Loan or Home Improvement Contract identified on the Loan Schedule as of such
date.
"Loan File" has the meaning set forth in Section 3.01(b)(iii).
--------- --------------------
"Loan Rate" means, with respect to any Loan, the specified annual per
---------
annum interest rate at which interest accrues on such Loan.
"Loan Schedule" means, as of any date, the schedule of Home Equity
-------------
Loans, Debt Consolidation Loans and Home Improvement Contracts included in the
Trust Property on such date, which sets forth, as of the Cut-off Date with
respect to each Loan and as of the last day of the Monthly Collection Period
during which the time to correct or cure the defect in the related Loan has
expired with respect to each Eligible Substitute Loan, (i) the principal balance
of each such Loan, (ii) the stated maturity date on which full and complete
payment of the principal balance of each such Loan is due and payable, (iii) the
name and address of the related Obligor and (iv) whether such Loan is a Secured
Loan. Initially, references to "Loan Schedule" shall refer to (x) with respect
to items (i) through (iii), the magnetic tape delivered to the Trustee by the
Seller on or prior to the Closing Date and (y) with respect to item (iv), the
Officer's Certificate
9
<PAGE>
delivered to the Trustee within five Business Days of the Closing Date;
thereafter, "Loan Schedule" shall refer to such schedule as amended from time to
time in accordance with Section 3.02, Section 4.01 and Section 5.01(d).
------------ ------------ ---------------
"Material Subsidiary" means any subsidiary of the Seller with total
-------------------
consolidated assets in excess of $100,000,000.
"Monthly Allocable Principal" means, with respect to each Distribution
---------------------------
Date, an amount equal to the sum of (i) the Principal Collections deposited in
---
the Principal Distribution Account for such Distribution Date, (ii) any Excess
Interest to the extent deposited in the Principal Distribution Account pursuant
to Section 6.06(a)(v) for such Distribution Date, (iii) any Reserve Fund
------------------
Principal Transfer Amount drawn from the Reserve Fund pursuant to Section
-------
6.06(c)(ii) for such Distribution Date and (iv) any Principal Deficiency Draw
- -----------
Amount made under the Policy for such Distribution Date.
"Monthly Collection Period" means, for any Distribution Date, the
-------------------------
calendar month preceding such Distribution Date.
"Moody's" means Moody's Investors Service, Inc., or its successor.
-------
"Mortgaged Property" means any property, real, personal or mixed,
------------------
encumbered by the Mortgage that secures a Note, fixed rate home equity loan
agreement, sales contract or installment loan agreement evidencing a Secured
Loan.
"Mortgage" means any first, second or third lien mortgage or deed of
--------
trust securing a Secured Loan.
"Net Liquidation Proceeds" means, with respect to any Liquidated Loan,
------------------------
Liquidation Proceeds reduced by related Liquidation Expenses.
"Note" means the promissory note or other evidence of indebtedness
----
evidencing the indebtedness of an Obligor under a Loan.
"Obligor" on a Loan means the obligor or obligors who owe payments
-------
under the Loan or any guarantor or surety of such person.
"Officer" means any of 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 Seller.
"Officer's Certificate" means a certificate delivered to the Trustee
---------------------
and signed by an Officer of the Seller, if delivered by the Seller, and by a
Servicing Officer, if delivered by the Servicer.
10
<PAGE>
"Opinion of Counsel" means one or more written opinions of counsel,
------------------
who may be an employee of or counsel to the Seller or the Servicer, which
counsel shall be acceptable to the Trustee, the Certificate Insurer or Rating
Agencies, as applicable.
"Original Pool Balance" means the Pool Balance as of the Cut-off Date.
---------------------
"Pass-Through Rate" means 6.55% per annum.
-----------------
"Paying Agent" means any Person appointed by the Trustee pursuant to
------------
Section 11.15.
- -------------
"Permitted Investments" means 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 whose 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 one month 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 de posits 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; and
11
<PAGE>
(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
(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 withdrawal of the then-current rating
of the Cer tificates without taking into account the 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" means any legal person, including any individual,
------
corporation, partnership, limited liability company, joint venture, estate,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof, or any other entity.
"Policy" means the financial guaranty insurance policy number SB 12159
------
issued by the Certificate Insurer to the Trustee for the benefit of the
Certificateholders, including any endorsements thereto.
"Policy Premium Rate" means the per annum rate on which the premium
-------------------
payable to the Certificate Insurer is calculated, based on the outstanding
Certificate Principal Balance, as set forth in the Insurance Agreement.
"Pool Balance" means, as of any Distribution Date, an amount equal to
------------
the aggregate unpaid principal balance of the Loans as of the last day of the
related Monthly Collection Period other than Loans which became Liquidated Loans
during or prior to such Monthly Collection Period and other than Loans that have
been repurchased by the Seller or purchased by the Servicer prior to such
Distribution Date.
"Preference Event" has the meaning set forth in Section 7.02(d).
---------------- ---------------
"Principal Collections" means, for any Distribution Date, (i) the
---------------------
principal portion of payments received from Obligors on the Loans during the
related Monthly Collection Period calculated in accordance with the Simple
Interest Method and otherwise in accordance with the applicable fixed-rate home
equity loan agreement, sales contract or installment loan
12
<PAGE>
agreement (less, with respect to any Loan for which a Servicer Advance has been
made and not reimbursed from Interest Collections relating to such Loan,
principal collections relating to such Loan for such Monthly Collection Period
to the extent necessary to pay any remaining portion of such unreimbursed
Servicer Advance), (ii) the principal portion of the Net Liquidation Proceeds
and Insurance Proceeds received during the related Monthly Collection Period and
(iii) the principal portion of the Repurchase Deposit Amount and the
Substitution Adjustment Amount for any repurchased or substituted Loans received
in respect of the related Monthly Collection Period.
"Principal Deficiency Draw Amount" means, for any Distribution Date,
--------------------------------
(i) if such Distribution Date is prior to the Final Distribution
Date, the amount, if any, by which the Principal Distributable Amount
for such Distribution Date exceeds the amount on deposit in the
Principal Distribution Account for such Distribution Date (calculated
after giving effect to the allocation and deposit of any Reserve Fund
Principal Transfer Amount that the Trustee is required to transfer
from the Reserve Fund on or prior to the related Deposit Date pursuant
to Section 6.06(c)(ii)); and
-------------------
(ii) if such Distribution Date is the Final Distribution Date,
the amount, if any, by which the Certificate Principal Balance exceeds
the amount on deposit in the Principal Distribution Account for such
Distribution Date (calculated after giving effect to the allocation
and deposit of any Reserve Fund Principal Transfer Amount that the
Trustee is required to transfer from the Reserve Fund on or prior to
the related Deposit Date pursuant to Section 6.06(c)(ii)).
-------------------
"Principal Distributable Amount" means, with respect to any
------------------------------
Distribution Date, an amount equal to the lesser of (a) the sum of (i) the
------ ---
Principal Collections for such Distribution Date plus (ii) any Liquidation Loss
----
Amount for the related Monthly Collection Period plus (iii) any portion of the
----
Principal Distributable Amount for any prior Distribution Date that was not
previously distributed and (b) the outstanding Certificate Principal Balance of
the Certificates; provided, however, that on the Final Distribution Date, the
-------- -------
Principal Distributable Amount shall equal the Certificate Principal Balance;
and provided further, however, that in no event shall the aggregate amount
---------------- -------
distributed to Certificateholders in respect of principal exceed the Initial
Certificate Principal Balance.
"Principal Distribution Account" means the subaccount of the
------------------------------
Collection Account designated as such and established and maintained pursuant to
Section 6.01(a)(ii).
- -------------------
13
<PAGE>
"Rating Agency" means Moody's and Standard & Poor's. If no such
-------------
organization or successor maintains a rating on the Certificates, "Rating
Agency" shall mean any nationally recognized statistical rating organization or
other comparable Person designated by the Seller and acceptable to the
Certificate Insurer (so long as an Insurer Default shall not have occurred and
be continuing), notice of which designation shall be given to the Trustee and
the Servicer.
"Record Date" means, with respect to each Distribution Date, the day
-----------
immediately preceding such Distribution Date if the Certificates are Book-Entry
Certificates, and the last day of the month preceding the month of the related
Distribution Date if Replacement Certificates are issued.
"Recordation Fees" means the fees and expenses incurred by the Trustee
----------------
in connection with the recordation of Assignments of Mortgages pursuant to
Section 5.15.
- ------------
"Recoveries" means, with respect to any Liquidated Loan and a Monthly
----------
Collection Period, any amount that was previously recognized as a loss but
subsequently has been collected with respect to such Loan from whatever source
(other than from withdrawals from the Reserve Fund or from draws on the Policy)
in a Monthly Collection Period following the Monthly Collection Period during
which such Loan became a Liquidated Loan, reduced by related expenses incurred
by the Servicer and not previously reimbursed from Liquidation Proceeds or
otherwise in connection with the liquidation of such Loan or the related
Mortgaged Property (including, without limitation, any Servicer Advances, costs
of recording assignments and any amount advanced in respect of the repayment of
a senior mortgage).
"Replacement Certificates" has the meaning set forth in Section 8.08.
------------------------ ------------
"Repurchase Deposit Amount" means, with respect to a Loan to be
-------------------------
repurchased by the Seller or purchased by the Servicer, the unpaid principal
balance thereof as of the end of the Monthly Collection Period immediately
preceding the date of repurchase or purchase, plus accrued and unpaid interest
thereon at the Loan Rate less, for so long as Chevy Chase is the Servicer, the
Servicing Fee Rate through the end of the Monthly Collection Period in which the
repurchase occurs.
"Reserve Fund" means the account designated as such and established
------------
and maintained pursuant to the Insurance Agreement and this Agreement as set
forth in Section 6.08.
------------
"Reserve Fund Interest Transfer Amount" means, with respect to any
-------------------------------------
Deposit Date, an amount equal to the lesser of (a) the excess of (i) the
------ ------
Interest Distributable Amount for the related Distribution Date over (ii) all
----
amounts on deposit in the
14
<PAGE>
Interest Distribution Account on such Deposit Date before giving effect to any
transfer from the Reserve Fund and (b) the amount on deposit in the Reserve
Fund on such Deposit Date.
"Reserve Fund Principal Transfer Amount" means, with respect to each
--------------------------------------
Deposit Date, an amount equal to the lesser of (a) the excess of (i) the
------ ------
Principal Distributable Amount for the related Distribution Date over (ii) the
----
amount on deposit in the Principal Distribution Account before giving effect to
such transfer from the Reserve Fund and (b) the amount remaining on deposit in
the Reserve Fund on such Deposit Date after giving effect to the withdrawal of
any Reserve Fund Interest Transfer Amount from the Reserve Fund on such Deposit
Date.
"SAIF" means 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
instrument the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.
"Secured Loan" means any Loan secured by a Mortgaged Property.
------------
"Seller" means Chevy Chase Bank, F.S.B. and its successors in interest
------
to the extent permitted hereunder.
"Servicer" means Chevy Chase as the servicer of the Loans, and each
--------
successor Servicer pursuant to Section 9.03 or Section 10.02.
------------ -------------
"Servicer Advance" has the meaning ascribed thereto in Section 5.05.
---------------- ------------
"Servicer's Certificate" means an Officer's Certificate of the
----------------------
Servicer delivered pursuant to Section 5.07, substantially in the form of
------------
Exhibit F.
- ---------
"Servicing Fee" means the fee payable to the Servicer for services
-------------
rendered during each Monthly Collection Period, determined pursuant to Section
-------
5.06.
- ----
"Servicing Fee Rate" means 0.75% per annum.
------------------
"Servicing Officer" means any officer of the Servicer involved in, or
-----------------
responsible for, the administration and servicing of the 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.
"Simple Interest Loan" means any Loan under which the portion of a
--------------------
payment allocable to interest and the portion
15
<PAGE>
allocable to principal is determined in accordance with the Simple Interest
Method.
"Simple Interest Method" means the method of allocating a fixed level
----------------------
monthly payment to principal and interest, pursuant to which (a) the portion of
such payment allocated to interest is equal to the product of the fixed per
-------
annum rate at which interest accrues on the loan times the outstanding principal
-----
balance of such loan times the number of days elapsed since the preceding
-----
payment of interest was made (in some states assuming 30 day months), divided by
-------
the actual number of days in a year (360 days in states which assume 30 day
months) and (b) the portion of such payment allocable to principal is equal to
the excess of such monthly payment over the amount allocated to interest
------ ----
pursuant to clause (a).
"Specified Reserve Fund Requirement" has the meaning specified in the
----------------------------------
Insurance Agreement.
"Standard & Poor's" means Standard & Poor's Ratings Services, a
-----------------
division of The McGraw-Hill Companies, Inc., or its successor.
"Substitution Adjustment Amount" means, as to the Monthly Collection
------------------------------
Period related to any Distribution Date with respect to which the Seller
substitutes one or more Eligible Sub stitute Loans pursuant to Section 3.02,
------------
Section 4.01 or Section 5.01(d), the amount, if any, by which the sum of (i) the
- ------------ ---------------
aggre gate principal balance of all such Eligible Substitute Loans being added
to the Trust at the end of such Monthly Collection Period is less than (ii) the
aggregate principal balance of the related Loans being removed from the Trust at
the end of such Monthly Collection Period, plus any accrued but unpaid interest
thereon to the date of substitution, such amount to be deposited into the
Collection Account when and to the extent provided in Section 3.02, Section 4.01
------------ ------------
or Section 5.01(d).
---------------
"Trust" has the meaning set forth in Section 2.01.
----- ------------
"Trust Property" means the property and proceeds of every description
--------------
conveyed pursuant to Section 3.01, the Policy, amounts on deposit in the
------------
Collection Account, any financial assets or investment property (as defined in
the UCC) or other investments purchased with such funds, and any proceeds
thereof or other amounts payable with respect thereto, all other rights,
property and interests in property granted to the Trustee under this Agreement
for the benefit of the Certificateholders and/or the Certificate Insurer and any
and all products and proceeds of the foregoing.
"Trustee" means U.S. Bank National Association, a national banking
-------
association, doing business as First Bank
16
<PAGE>
National Association, its successors in interest and any successor Trustee
hereunder.
"Trustee Fee Rate" means .00625% per annum.
----------------
"Trustee Officer" means the chairman or vice-chairman of the board of
---------------
directors, the chairman or vice-chairman of the executive committee of the board
of directors, the president, any vice president, the secretary, any assistant
secretary, the treasurer, any assistant treasurer, the cashier, any assistant
cashier, any trust officer or assistant trust officer, the controller and any
assistant controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
"Trustee's Fee" means, with respect to any Monthly Collection Period,
-------------
the fee payable to the Trustee for services rendered during such Monthly
Collection Period, equal to one-twelfth of the Trustee Fee Rate multiplied by
the Certificate Principal Balance as of the last day of such Monthly Collection
Period.
"UCC" means the Uniform Commercial Code as in effect in the State of
---
New York on the date hereof.
SECTION 1.02. Other Definitional Provisions. (a) All terms defined
-----------------------------
in this Agreement shall have the meanings defined herein when used in any
certificate or other document made or delivered pursuant hereto or thereto
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 herein or in
any such certificate or other document, and accounting terms partly defined
herein or in any such certificate or other document to the extent not defined,
shall have the respective meanings given to them under generally accepted
accounting principles. To the extent that the definitions of accounting terms
herein or in any such certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained herein in any such certificate or other document shall
control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used herein shall refer to this Agreement as a whole and not to any
particular provision of this Agreement; Article, Section, Schedule and Exhibit
references contained in this Agreement are references to Articles, Sections,
Schedules and Exhibits in or to this Agreement, as appropriate;
17
<PAGE>
and the term "including" shall mean "including without limitation".
(d) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
[End of Article I]
18
<PAGE>
ARTICLE II
Establishment of Trust
SECTION 2.01. Creation of Trust. Upon the execution of this
-----------------
Agreement by the parties hereto, there is hereby created a separate trust, which
shall be known as Chevy Chase Home Loan Trust 1997-1 (the "Trust"). The Trust
-----
shall be administered pursuant to the provisions of this Agreement for the
benefit of the Certificateholders and the Certificate Insurer.
SECTION 2.02. Acceptance by Trustee. The Trustee hereby accepts the
---------------------
Loans and other Trust Property transferred by the Seller pursuant to Section
-------
3.01 and declares that it will hold the Loans and other Trust Property upon the
- ----
trusts set forth herein for the benefit of the Certificateholders and the
Certificate Insurer, subject to the terms and provisions of this Agreement.
SECTION 2.03 Powers. Except as expressly provided herein, the Trust
------
shall not engage in any activity that is inconsistent with the classification of
the Trust as a grantor trust for federal income tax purposes. Further, the
Trust shall not (i) acquire any additional assets or (ii) modify (or agree to
the modification of) or dispose of any of its assets other than pursuant to the
terms hereof. The Trust shall not take any action (or fail to take any action)
that would cause it (by the taking or the failure to take, as the case may be)
to be classified as other than a grantor trust for federal income tax purposes.
[End of Article II]
19
<PAGE>
ARTICLE III
Transfer of Loans
SECTION 3.01. Transfer of Loans. (a) In consideration of the
-----------------
Trustee's delivery on the Closing Date to or upon the order of the Seller of
Certificates in an aggregate principal amount equal to the Initial Certificate
Principal Balance, the Seller does hereby transfer, assign, set over and
otherwise transfer to the Trustee in trust for the benefit of the
Certificateholders and the Certificate Insurer, without recourse (subject to the
obligations set forth herein), all right, title and interest of the Seller in
and to:
(1) the Loans, and all moneys received thereon (including any
interest and any payments in respect of delinquent or defaulted
obligations thereunder) on and after the Cut-off Date;
(2) the Mortgages and the security interests in the Mortgaged
Properties and any other properties or interests in properties granted
by Obligors pursuant to the Loans and/or Mortgages and any other
interest of the Seller in such Mortgaged Properties or such other
properties or interests in properties granted by the Obligor in
connection with the Loans;
(3) any proceeds with respect to the Loans from claims on any
insurance policies covering the Mortgaged Properties, or any other
properties or interests in properties granted by the Obligors thereof
pursuant to any of the Loans or the Mortgages;
(4) any proceeds from the liquidation of the Loans or any of the
related Mortgaged Properties or any other properties or interests in
properties granted by the Obligors thereof pursuant to any of the
Loans or the Mortgages;
(5) the related Loan Files;
(6) the Policy; and
(7) the proceeds of any and all of the foregoing.
It is the intention of the Seller that the transfer and assignment
contemplated by this Agreement shall constitute a sale of the Loans and other
Trust Property in which it has an interest from the Seller to the Trust and the
beneficial interest in and title to the Loans and the other Trust Property shall
not be part of the Seller's estate in the event a conservator, receiver,
liquidator or similar person is appointed in any insolvency,
20
<PAGE>
readjustment of debt, marshalling of assets and liabilities or similar
proceedings with respect to the Seller.
If and to the extent that such transfer is deemed not to be a sale or
if for any reason any Loan is held to be property of the Seller, then the Seller
shall be deemed to have hereby granted to the Trustee a first priority perfected
security interest in all of the Seller's right, title and interest whether now
owned or hereafter acquired in, to and under the Loans until the termination of
the Trust, all moneys due or to become due with respect to such Loans, all
proceeds of such Loans, all Insurance Proceeds relating to such Loans and all
proceeds thereof, and this Agreement shall constitute a security agreement under
applicable law.
In connection with such assignment and transfer, the Seller 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 Seller as debtor, naming the Trustee as secured party,
for the benefit of the Certificateholders and the Certificate Insurer, and
identifying as collateral the Loans identified on the Loan Schedule and all
property transferred by the Seller to the Trust constituting part of the Trust
Property. In connection with such filing, the Seller 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 Trustee's interest in such property for the benefit of the
Certificateholders and the Certificate Insurer.
(b) In connection with the foregoing assignment and transfer by the
Seller, and except as provided in the immediately following paragraph, the
Seller shall deliver to, and deposit with, the Trustee on or before the Closing
Date, with respect to each Loan:
(i) The original Note, fixed-rate home equity loan agreement,
sales contract or installment loan agreement, as applicable, a copy of
such original Note, agreement or contract or a "lost-note affidavit,"
with, in the case of a Note, any intervening endorsements and/or
assignments evidencing a complete chain of title from the originator
thereof to the Seller and, in the case of a Note which is a promissory
note, endorsed in blank and signed, by facsimile or manual signature,
in the name of the Seller by an Officer thereof;
(ii) With respect to each Secured Loan, either: (i) the original
Mortgage with evidence of recording thereon, (ii) a copy of the
Mortgage certified as a true copy by an Officer of the Seller, if the
original has been transmitted for recording but has not, at the
21
<PAGE>
Closing Date, been returned or (iii) a copy of the Mortgage certified
by the public recording office in those instances where the original
recorded Mortgage has been lost or has been retained by the public
recording office; and
(iii) Originals of all assumption and modification agreements, if
any, or a copy certified as a true copy by an Officer of the Seller if
the original has been transmitted for recording until such time as the
original is returned by the public recording office (such documents,
along with the items in (i) and (ii) above and, with respect to each
Secured Loan, the related Assignment of Mortgage referred to in
subsection (d) below, being referred to herein with respect to each
Loan as the "Loan File").
---------
(c) The Seller hereby confirms to the Trustee that it has caused the
portions of the Electronic Ledger relating to the Loans to be clearly and
unambiguously marked to indicate that such Loans have been transferred and
assigned to the Trustee and constitute part of the Trust in accordance with the
terms of the trust created hereunder.
(d) The Seller, at its own expense, shall deliver to the Trustee
within 180 days of the Closing Date an Assignment of Mortgage for each Loan
which is a Secured Loan in blank in recordable form. Any such assignment may be
made by blanket assignments for Secured Loans located in the same county, if
permitted by applicable law. Any such Assignment of Mortgage shall be required
to be recorded only under the circumstances described in Section 5.15.
------------
SECTION 3.02. Acceptance by Trustee; Reassignment of Loans;
---------------------------------------------
Substitution of Eligible Substitute Loans.
- -----------------------------------------
(a) The Trustee acknowledges receipt of the documents identified in
the Initial Certification in the form annexed hereto as Exhibit C-1 and declares
that it does hold and shall hold such files and the documents constituting a
part of the Loan Files in trust to the extent received by it, upon the terms
herein set forth, for the use and benefit of all present and future
Certificateholders and the Certificate Insurer. The Trustee acknowledges that
it shall maintain possession of the Loan Files in the State of Minnesota unless
and until (x) 15 days prior notice has been given to the Rating Agencies and the
Certificate Insurer and (y) all measures necessary to perfect (or continue the
perfection in) the interest of the Trustee in such Loan Files in the
jurisdiction to which the Loan Files are to be moved have been taken to the
satisfaction of the Certificate Insurer.
22
<PAGE>
(b) The Trustee shall review each document delivered to it pursuant to
Section 3.01(b) and Section 3.01(d) to ascertain that all required documents
- --------------- ---------------
referred to therein have been executed and received, and that such documents
relate to the Loans identified on the Loan Schedule. The Trustee may rely on
the purported due execution of any such documents and genuineness of any
signature thereon. Not later than 30 days following the Closing Date, the
Trustee shall deliver to the Seller and the Servicer a certificate substantially
in the form of Exhibit C-2 with respect to the Loan File for each Loan. If, as
-----------
set forth in such certificate, the Trustee determines that it does not have a
Loan File for a Loan or any document constituting a part of a Loan File (other
than the Assignment of Mortgage for any Secured Loan) (i) does not bear the
required signatures, (ii) has not been received or (iii) is unrelated to the
Loans identified in the Loan Schedule on the Closing Date, the Seller shall
correct or cure any such specified defect within 30 days of receipt of notice of
such defect. Not later than 210 days following the Closing Date, the Trustee
shall deliver to the Seller and the Servicer a certificate substantially in the
form of Exhibit C-2 with respect to the Assignment of Mortgage for each Secured
-----------
Loan. If, as set forth in such certificate, the Trustee determines that an
Assignment of Mortgage for any Secured Loan (i) does not bear the required
signatures, (ii) has not been received or (iii) is unrelated to the Secured
Loans identified in the Loan Schedule on the Closing Date, the Seller shall
correct or cure any such specified defect within 30 days of receipt of notice of
such defect. In addition, within fifteen (15) days following the substitution
of any Eligible Substitute Loan, (i) the Trustee shall review the Loan File for
such Eligible Substitute Loan (which shall include, at the time of delivery, an
Assignment of Mortgage in recordable form if such Eligible Substitute Loan is a
Secured Loan) for the purpose and to the extent set forth above in this
paragraph, and (ii) shall deliver to the Seller, the Servicer and the
Certificate Insurer a certificate specifying any defect with respect to such
Loan, as described above. The Seller shall have a period of thirty (30) days
after receipt from the Trustee of such certificate to correct or cure such
defect. The Trustee shall be under no duty or obligation to inspect, review or
examine any such documents, instruments, certificates or other papers to
determine that they are genuine, enforceable, or appropriate for the represented
purpose or that they are other than what they purport to be on their face.
The Trustee shall have no responsibility for reviewing any Loan except
as expressly provided in this Section 3.02(b). Without limiting the effect of
the preceding sentence, in reviewing any Loan File, the Trustee shall have no
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 that such endorsement is in blank), whether any
document has been recorded in accordance with the requirements of any applicable
jurisdiction or whether a
23
<PAGE>
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.
(c) If the time to correct or cure any defect of which the Trustee has
notified the Seller pursuant to Section 3.02(b) has expired without any
---------------
correction or cure, the Seller shall, on the Business Day immediately preceding
the Determination Date in the month following the Monthly Collection Period in
which the time to correct or cure such defect expired, remove the related 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 Repurchase Deposit Amount, which amount shall be
deposited into the Collection Account pursuant to Section 6.04 on such Business
------------
Day, or (ii) by substituting in its place an Eligible Substitute Loan or Loans,
delivering to the Trustee an assignment substantially in the form of Exhibit E-
---------
1A, without recourse, in order to vest in the Trustee all right, title and
- --
interest of the Seller in and to such Eligible Substitute Loan as of the last
day of the Monthly Collection Period in which the time to correct or cure such
defect expired, and depositing in the Collection Account any related
Substitution Adjustment Amount. Promptly upon receipt by the Trustee of (i) in
the case of a payment in respect of the removed Loan, written notification
signed by a Servicing Officer to the effect that the Repurchase Deposit Amount
for any such Loan has been so deposited into the Collection Account or (ii) in
the case of a substitution, the Loan for each related Eligible Substitute Loan
and written notification signed by a Servicing Officer (a copy of which shall
be forwarded to each Rating Agency along with written notification of the loan
type (i.e. debt consolidation, home equity, etc.) of such Eligible Substitute
Loan) to the effect that such Loan complies wit the definition of Eligible
Substitute Loan and that the Substitution Adjustment Amount, if any, has been
deposited into the Collection Account as provided in Section 6.04, the Trustee
------------
shall release to the Seller the Loan File forthe removed Loan and shall execute
an deliver to the Seller an assignment substantially in the form of Exhibit E-1,
-----------
without recourse, in order to vest in the Seller all right, title and interest
of the Trustee in and to such removed Loan (including any property acquired in
respect thereof and any insurance policy or Insurance Proceeds with respect
thereto). The form of assignment attached as Exhibit E-1 and Exhibit E-1A may be
----------- ------------
modified from time to time to the extent required by applicable law. The
obligation of the Seller to remove (to the extent permitted herein) any Loan and
either (x) deposit the Repurchase Deposit Amount or (y) substitute an Eligible
Substitute Loan and deposit of the related Substitution Adjustment Amount, if
any, shall constitute the sole remedy with respect to such defect available to
Certificateholders, the Trustee (for itself or on behalf of Certificate-
24
<PAGE>
holders and the Certificate Insurer) or the Certificate Insurer against the
Seller.
(d) The Substitution Adjustment Amount for any Monthly Collection Period shall
be deposited into the Collection Account on the Business Day immediately
preceding the Determination Date occurring in the month following such Monthly
Collection Period. All amounts received in respect of the Eligible Substitute
Loan or Loans on or prior to the date of substitution shall not be a part of the
Trust and shall not be deposited by the Servicer into the Collection Account,
and all amounts received in respect of such Eligible Substitute Loan or Loans
from and after the date of substitution shall be deposited by the Servicer into
the Collection Account. All amounts received by the Servicer on or prior to the
date of substitution in respect of any Loan so removed from the Trust shall be
deposited by the Servicer into the Collection Account, and all amounts received
by the Servicer after the date of substitution in respect of any such Loan shall
not be a part of the Trust and shall not be deposited by the Servicer into the
Collection Account. The Servicer shall amend the Loan Schedule to reflect the
removal of such Loan from the terms of this Agreement and the substitution of
the Eligible Substitute Loan or Loans therefor as of the last day of the Monthly
Collection Period during which the time to correct or cure the defect has
expired. Upon such substitution, the Eligible Substitute Loan or Loans shall be
subject to the terms of this Agreement in all respects, and the Seller shall be
deemed to have entered into or made with respect to such Eligible Substitute
Loan or Loans, as of the date of substitution, the covenants, representations
and warranties set forth in Section 4.01 as of the first day of the Monthly
------------
Collection Period in which such substitution occurred. The procedures applied by
the Seller in selecting each Eligible Substitute Loan shall not be adverse to
the interests of the Trustee, the Certificate Insurer or the Certificateholders
and shall be comparable to the selection procedures applicable to the Loans
conveyed hereunder as of the date of this Agreement.
The provisions of Section 3.02(c) and Section 3.02(d) also shall apply
--------------- ---------------
to any substitution of Eligible Substitute Loan or Loans by the Seller pursuant
to Section 4.01.
------------
[End of Article III]
25
<PAGE>
ARTICLE IV
The Loans
SECTION 4.01. Representations and Warranties of the Seller Regarding
------------------------------------------------------
the Loans; Removal and Substitution Obligations. (a) The Seller 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 in the case of the
Loans, that:
(i) The information set forth on the Loan Schedule with respect to
the Loans was true and correct in all material respects at the date or dates as
of which such information was furnished by the Seller.
(ii) Each Note and each Mortgage is genuine and each is the legal,
valid and binding obligation of the Obligor thereof, enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting creditors' rights in
general and by general principles of equity. All parties to each Note and, if
applicable, each related Mortgage had legal capacity to enter into the related
Loan and to execute and deliver such Note and, if applicable, such Mortgage, and
such Note and, if applicable, such Mortgage have been duly and properly executed
by such parties.
(iii) As of the Closing Date, each Mortgage securing a Secured Loan 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 senior
mortgage loans or deeds of trust, if any, (c) covenants, conditions and
restrictions, rights of way, easements and other matters of public record as of
the date of recording of such Mortgage, such exceptions appearing of record
being acceptable to mortgage lending institutions generally in the area wherein
the related Mortgaged Property is located or specifically reflected in the
appraisal obtained in connection with the origination of the related Loan
obtained by the Seller 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.
(iv) As of the Cut-off Date, the proceeds of each Loan have been fully
disbursed and there is no requirement for future advances thereunder; all costs,
fees and expenses incurred in making or closing such Loan and the recording of
the related Mortgage, if any, were disbursed; the Obligor thereon is not
entitled to any refund of any amounts paid or due under any related Note,
installment sales contract or installment loan agreement, or any related
Mortgage; and any and all requirements
26
<PAGE>
set forth in any documents relating to such Loan have been complied with.
(v) Each Mortgage contains customary and enforceable provisions such
as to render the rights and remedies of the holder thereof adequate for the
realization against the related Mortgaged Property of the benefits of the
security provided thereby, including (i) in the case of a Mortgage designated as
a deed of trust, by trustee's sale and (ii) otherwise, by judicial foreclosure.
(vi) Each Loan is an Indirect Debt Consolidation Loan, an Indirect
Home Improvement Loan, a Direct Home Improvement Loan or a Closed-end Home
Equity Loan, and was underwritten by the Seller or was required to have been
underwritten by its originator in accordance with the Seller's then current
underwriting guidelines for such type of Loan.
(vii) No Obligor has notified the Seller, and the Seller has no
knowledge, of any relief requested or allowed to an Obligor under the Soldiers'
and Sailors' Civil Relief Act of 1940, as amended.
(viii) Immediately prior to the transfer and assignment referred to in
Section 3.01(a), the Seller had good title to each Loan, subject to no prior
- ---------------
lien, mortgage, security interest, pledge, charge or other encumbrance.
(ix) As of the Closing Date, the transfer to the Trust of the Loans
constitutes either a valid sale of all right, title and interest of the Seller
in the Loans (to the extent provided herein) to the Trustee or the grant of a
first priority perfected ownership interest or security interest therein (to the
extent provided herein) to the Trustee for the benefit of the Certificateholders
and the Certificate Insurer.
(x) As of the Cut-off Date, no payment on or in respect of any Loan
is 30 or more days past due on a contractual basis.
(xi) As of the Closing Date, there is no lien for any delinquent
recording fee, tax or assessment against any Mortgaged Property.
(xii) As of the Closing Date, no Mortgaged Property relating to a
Secured Loan 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 a title insurance policy.
(xiii) As of the Closing Date, to the knowledge of the Seller, each
Mortgaged Property relating to a Secured Loan is free of material damage and is
in good repair.
27
<PAGE>
(xiv) Each Loan complied at the time it was made 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 the Certificateholders, will not violate such laws in any material
respect.
(xv) As of the Closing Date, the Seller has not received a notice of
default of any senior mortgage loan on a Mortgaged Property relating to a
Secured Loan which has not been cured by a party other than the Seller.
(xvi) Each Note (if applicable) and each Mortgage relating to a
Secured Loan is an enforceable obligation of the related Obligor, 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
knowledge of the Seller as of the Closing Date, there is no offset, defense,
claim or counterclaim to any obligation under such Note or, with respect to each
Secured Loan, under the related Mortgage, including the obligation of the
Obligor to pay principal and interest in accordance with the terms of such Note.
(xvii) No selection procedure reasonably believed by the Seller to be
adverse to the interests of the Certificateholders or the Certificate Insurer
was used in selecting the Loans.
(xviii) Each Home Equity Loan was originated by the Seller or acquired
by the Seller from a mortgage company, duly licensed in the relevant
jurisdiction.
(xix) The Loan File for each Loan contains all required documents
referred to in Section 3.01(b) other than the related Assignment of Mortgage for
---------------
each Secured Loan, and (except in the case of any documents represented by lost-
note affidavits) such documents bear manual signatures of the related Obligor
and relate to such Loan.
(xx) 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 origination of each
Secured Loan and is valid and remains in full force and effect with respect to
each such Secured Loan.
(b) The representations and warranties set forth in Section 4.01(a)
---------------
shall survive the sale, transfer and assignment of the Loans on the Closing Date
and shall survive the delivery of the related Loan Files to or on behalf of the
Trustee. Upon discovery by the Seller, the Servicer, the Certificate Insurer or
28
<PAGE>
the Trustee of a breach of any of the representations and warranties with
respect to any Loan made pursuant to Section 4.01(a) of this Agreement or a
---------------
breach of the Servicer of Section 5.01, which in each case materially and
------------
adversely affects the interests of the Certificateholders or the Certificate
Insurer in such Loan, the party discovering such breach shall give written
notice thereof to the other parties and the Certificate Insurer within 5 days
after such discovery; provided, however, that failure to give such notice within
-------- -------
such five day period shall not relieve the Seller or the Servicer, as the case
may be, of any of their corresponding obligations. Within 30 days after its
discovery or its receipt of notice of any such breach, the Seller or the
Servicer, as applicable, shall use all reasonable efforts to cure such breach in
all material respects. Unless at the expiration of such 30-day period, such
breach has been cured in all material respects or otherwise does not exist or
continue to exist, the Seller or the Servicer, as applicable, shall, not later
than the Business Day preceding the Determination Date immediately preceding the
Distribution Date in the month following the related Monthly Collection Period
in which any such cure period expired, remove such Defective Loan (including any
property acquired in respect thereof and any insurance policy or Insurance
Proceeds with respect thereto) in exchange for (i) deposit of the Repurchase
Deposit Amount or (ii) in the case of the Seller only, substitution in its place
of an Eligible Substitute Loan or Loans, in any case in the same manner and
subject to the same conditions as set forth in Section 3.02(c). In conjunction
---------------
with any removal pursuant to the foregoing, the Seller or the Servicer, as
applicable, shall be entitled to receive an assignment of the removed Loan and
a release of the related Loan File from the Trustee to the extent set forth in
Section 3.02(c). Any such Defective Loan shall be deemed to have been purchased
- ---------------
as of the last day of the Monthly Collection Period immediately preceding date
on which such purchase occurred. The obligation of the Seller and the Servicer
to remove any Loan as to which a breach has occurred and is continuing shall
constitute the sole remedy against the Seller and the Servicer 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 (xix)
of Section 4.01 with respect to any Loan shall be deemed to affect materially
------------
and adversely the interests of the Certificateholders and the Certificate
Insurer in such Loan. Notwithstanding the first paragraph of this Section
4.01(b), the provisions of Section 3.02(b) shall control with respect to notice
---------------
and cure periods applicable to the correction of any defective Loan Files and
the obligations of the Seller with respect thereto.
Any purchase of a Defective Loan by the Servicer pursuant to Section
-------
5.01 shall be effected in the same manner and subject to the same conditions as
- ----
set forth in Section 3.02(c).
---------------
29
<PAGE>
Upon completing any such purchase, the Servicer shall receive an assignment of
such Defective Loan and a release of the related Loan File from the Trustee to
the extent set forth in Section 3.02(c).
---------------
The Loan Schedule shall be amended to reflect all additions,
substitutions or deletions of Loans provided for in this Section 4.01(b) with
respect to Eligible Substitute Loans and Defective Loans, as provided in Section
-------
3.02(d) .
- -------
SECTION 4.02. Official Record. The Seller and the Servicer agree
---------------
that, so long as the Certificates remain outstanding and/or amounts remain owing
to the Certificate Insurer, this Agreement, the Insurance Agreement, the
Indemnification Agreement and all related agreements, documents, instruments and
certificates delivered hereunder or thereunder shall remain outstanding as an
official record of the Seller within the meaning of Section 13(e) of the Federal
Deposit Insurance Act, as amended (12 U.S.C. (S)1823(e)).
[End of Article IV]
30
<PAGE>
ARTICLE V
Administration and Servicing of Loans
SECTION 5.01. The Servicer and the Seller. (a) The Servicer shall
---------------------------
service and administer the Loans in accordance with its customary procedures
consistent with general industry practice, taking into account that the Trust is
a grantor trust for tax purposes; provided, however, that (subject to the
-------- -------
Servicer's taking into account that the Trust is a grantor trust) such
procedures shall be the same in all material respects as the procedures followed
by the Servicer with respect to Closed-end Home Equity Loans and Home Loans held
in its own portfolio. The Servicer shall have full power and authority to do
any and all things in connection with such servicing and administration which it
may deem necessary or desirable as to maximize the receipt of principal and
interest on such Loans and Net Liquidation Proceeds with respect to Liquidated
Loans. 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, the Certificate Insurer
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 Loans and, with respect to Secured
Loans, the related Mortgaged Properties. The Trustee shall furnish the Servicer
a power of attorney in the form attached hereto as Exhibit G 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 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 any
Mortgaged Property senior to that of the related Mortgage unless such action is
consistent with reasonable commercial practice.
(c) The Servicer shall not modify or amend any Loan (or waive any term
of any Loan other than waiving a late payment fee in connection with a late
payment on a Loan), other than to evidence an assumption, unless: (a) the Loan
is in default or a payment default with respect to such Loan is reasonably
foreseeable by the Servicer, (b) the amendment or modification of the Loan would
not cause the Loan to be considered to be "exchanged" for the modified loan
under section 1001 of the Internal Revenue Code or (c) the modification or
amendment would not cause the Trust to fail to qualify as a grantor trust for
federal income tax purposes. Notwithstanding the foregoing, the
31
<PAGE>
Servicer may not extend or modify a Loan such that the stated final maturity
date of such Loan would extend beyond the last day of the Monthly Collection
Period preceding the Stated Maturity Date.
(d) The Servicer may agree to extend the final maturity date of any
Loan beyond the last day of the Monthly Collection Period preceding the Final
Distribution Date if the Servicer, not later than the Business Day immediately
preceding the Determination Date next following the Monthly Collection Period in
which any such extension is made shall remove the applicable Loan and remit to
the Trustee the applicable Repurchase Deposit Amount.
(e) Any removal of Loan or Loans pursuant to subsection (d) shall be
effected in the same manner and subject to the same conditions as set forth in
Section 3.02(c), and the Loan Schedule shall be amended to reflect such removal.
- ---------------
Upon completing any such transfer the Servicer shall receive an assignment of
the related Loan and a release of the related Loan File from the Trustee to the
extent set forth in Section 3.02(c).
---------------
SECTION 5.02. Collection of Certain Loan Payments.
-----------------------------------
(a) The Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Loans, and shall, to the extent
such procedures shall be consistent with this Agreement, follow such collection
procedures as it follows with respect to Closed-end Home Equity Loans and Home
Loans in its servicing portfolio comparable to the Loans. Consistent with, and
without limiting the generality of, the foregoing, the Servicer, in its
discretion, may 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
Loans.
(b) The Seller shall transfer any payments it receives with respect to
a Loan to the Servicer within two Business Days following receipt thereof.
SECTION 5.03. Maintenance of Hazard Insurance; Property Protection
----------------------------------------------------
Expenses. The Servicer, in accordance with its customary servicing procedures,
- --------
shall cause to be maintained for each Secured 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 Loan from time to time or (ii) the principal balance
of such Loan. The Servicer also shall 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
principal balance of such Loan at the time of such Foreclosure Proceedings, plus
accrued interest and the good-faith
32
<PAGE>
estimate of the Servicer of related 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 Collection
Account to the extent provided in Section 6.02. In cases in which any Mortgaged
------------
Property securing a Secured Loan is located in a federally designated special
flood hazard area, the hazard insurance to be maintained for the related 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 principal balance of the applicable Loan and
the principal balance of any mortgage loan senior to such Loan from time to
time. The Servicer shall be under no obligation to require that any Obligor
maintain earthquake or other additional insurance and the Servicer shall be
under no obligation itself to maintain any such additional insurance on property
acquired in respect of a 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 Loans, it shall conclusively be deemed to have satisfied its obligations
as set forth in the first sentence of this Section 5.03. Any such blanket
policy may contain a deductible clause. In the event that there shall not have
been maintained on the related Mortgaged Property a policy complying with the
first sentence of this Section 5.03, and there shall have been a loss which
would have been covered by such policy, the Servicer shall deposit into the
Collection Account the amount not otherwise payable under the blanket policy
because of such deductible clause.
The Servicer shall apply all Insurance Proceeds received with respect
to a Loan in reduction of the unpaid principal balance of such Loan.
SECTION 5.04. Assumption and Modification Agreements. In any case in
--------------------------------------
which a Mortgaged Property securing a Secured Loan has been or is about to be
conveyed by the Obligor, the Servicer shall exercise its right to accelerate the
maturity of the Loan secured thereby unless (a) such enforcement is prohibited
by law, (b) there exists substantial doubt regarding the enforceability of such
acceleration clause or (c) in the light of the costs of enforcement and the
principal balance of the Loan it would be uneconomic to enforce such
acceleration clause. If the Servicer is prevented from enforcing such right by
applicable law or elects not to exercise such right, the Servicer (so long as
such action 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,
33
<PAGE>
pursuant to which such Person becomes liable under the related Loan and, to the
extent permitted by applicable law, the Obligor remains liable thereon. No
change in the terms of the related Loan 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
pursuant to Section 5.01(c). The Servicer shall notify the Trustee and the
---------------
Certificate Insurer 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 5.04 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 Loan 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 5.05. Realization Upon Liquidated Loans. The Servicer may,
---------------------------------
but is not required to, foreclose upon or otherwise comparably convert to
ownership Mortgaged Properties securing such of the Secured 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 servicing activities in connection
with Closed-end Home Equity Loans and Home Loans in its portfolio.
Notwithstanding the foregoing, if the Servicer has actual knowledge or
reasonably believes that any Mortgaged Property is contaminated by hazardous or
toxic wastes or substances, then the Servicer shall not cause the Trust to
acquire title to such Mortgaged Property in a foreclosure or similar proceeding
if such acquisition in the reasonable opinion of the Servicer is not
commercially reasonable. The foregoing is subject to the proviso that the
Servicer shall not be required to advance its own funds in connection with any
foreclosure or restoration of any Mortgaged Property unless it reasonably
believes, consistent with its customary servicing practices, that such advance
will be recoverable and will maximize the receipt of principal and interest on
the related Loan (including Liquidation Proceeds with respect to such Loan)
after taking into account the Servicer's recovery of such advance (any such
advance, a "Servicer Advance"). The Servicer shall be entitled to retain out of
----------------
payments made by the Obligor on a Loan on which a Servicer Advance was made an
amount equal to such Servicer Advance.
34
<PAGE>
Liquidation Expenses incurred by the Servicer in connection with a
Liquidated Loan shall be recoverable by the Servicer solely out of Liquidation
Proceeds and Recoveries received in respect of the same Liquidated Loan. The
Servicer's failure to claim reimbursement for Liquidation Expenses out of
Liquidation Proceeds or Recoveries received in respect of the related Liquidated
Loan for any one or more Monthly 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 Recoveries
received with respect to the related Liquidated Loan for subsequent Monthly
Collection Periods.
SECTION 5.06. Servicing Fee. The Servicing Fee for a Distribution
-------------
Date shall equal the Base Servicing Fee, plus any reimbursement pursuant to
Section 9.04.
- ------------
SECTION 5.07. Servicer's Certificate. (a) On each Determination
----------------------
Date, the Servicer shall deliver to the Trustee, the Certificate Insurer and
each Rating Agency a Servicer's Certificate containing, among other things, (i)
all information necessary to enable the Trustee to make any withdrawal, deposit
and set-off required by Section 6.04, Section 6.05 or Section 6.06, to give any
------------ ------------ ------------
notice required by Section 7.01 and make the distributions required by Section
------------ -------
6.07, (ii) all information necessary to enable the Trustee to send the
- ----
statements to Certificateholders and the Certificate Insurer required by Section
-------
6.09 and (iii) a listing of any Loans to be purchased or repurchased on the
- ----
related Distribution Date, identifying the Loans to be purchased. Loans
purchased by the Servicer or repurchased by the Seller and each Loan which
became a Liquidated Loan or which was paid in full during the related Monthly
Collection Period shall be identified by account number (as set forth in the
Loan Schedule). A copy of such certificate may be obtained by any
Certificateholder by a request in writing to the Trustee addressed to the
Corporate Trust Office. The Trustee shall not be under any obligation to
confirm or reconcile the information provided pursuant to Section 5.07.
------------
(b) If the Servicer's Certificate contains a manifest error, the
Certificate Insurer's written notice to the Servicer and the Trustee containing
the corrected information shall be deemed to amend such Servicer's Certificate.
SECTION 5.08. Annual Independent Public Accountants' Servicing Report.
-------------------------------------------------------
The Servicer, at its expense, shall cause a firm of independent public
accountants (who shall be (i)(A) recognized as a "big six" accounting firm or
(B) approved by the Certificate Insurer and (ii) a member of the American
Institute of Certified Public Accountants and may also render other services to
the Servicer or the Seller) 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
35
<PAGE>
that such firm has examined certain documents and records relating to the
servicing of the Loans by the Servicer under this Agreement during the preceding
twelve (12) months ended September 30 (or, in the case of the first such
Statement, 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 Attestation 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 5.09. Access to Certain Documentation and Information
-----------------------------------------------
Regarding the Loans. The Servicer and the Seller 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 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 Seller shall
provide to the Trustee, and the Servicer, the Seller and the Trustee shall
provide to the Certificate Insurer or its nominee, access to the documentation
regarding the 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 Seller or the Trustee, as the case may be. Nothing in this
Section 5.09 shall derogate from the obligation of the Seller or the Servicer to
observe any applicable law prohibiting disclosure of information regarding the
Obligors, and the failure of the Seller or the Servicer to provide access as
provided in this Section 5.09 as a result of such obligation shall not
constitute a breach of this Section 5.09.
SECTION 5.10. 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.
36
<PAGE>
SECTION 5.11. 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 5.12. Information Required by the Internal Revenue Service
-----------------------------------------------------
Generally and Reports of Foreclosures and Abandon ments of Mortgaged Property.
- -----------------------------------------------------------------------------
Consistent with Section 5.16, 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
Sections 6050J, 6050H and 6050P of the Code.
SECTION 5.13. Servicer Expenses. Except as expressly provided in this
-----------------
Agreement, the Servicer shall be required to pay all expenses incurred by it in
connection with its activities hereunder, including fees and disbursements of
independent accountants, taxes imposed on the Servicer and expenses incurred in
connection with distributions and reports to Certificateholders and the
Certificate Insurer.
SECTION 5.14. 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
a Servicing Officer 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 Servicing Officer's
supervision and (ii) to the best of such Servicing Officer's knowledge, based on
such review, the 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 Servicing Officer and the nature and status thereof.
SECTION 5.15. Recordation of Assignments of Mortgage. An Assignment
--------------------------------------
of Mortgage shall be submitted for recordation by the Servicer if (x) the
Servicer determines in its reasonable judgment that such recordation is
necessary to foreclose upon a Mortgaged Property related to a Liquidated Loan
and that foreclosing upon such Mortgaged Property will maximize the receipt of
Net Liquidation Proceeds or Recoveries with respect to such Liquidated Loan, in
which case the Trustee shall record all or any portion of such Assignments of
Mortgage as and when directed by the Servicer, or (y) the Seller is less than
adequately capitalized, as determined pursuant to the regulations
37
<PAGE>
of the Office of Thrift Supervision, in which case the Trustee shall record all
or any portion of such Assignments of Mortgage if, as and when directed by the
Certificate Insurer, the costs and expenses incurred by the Trustee in
connection with any such recordation being referred to herein as the
"Recordation Fees."
- -----------------
SECTION 5.16. Tax Treatment. (a) It is the intention of the Seller,
-------------
the Servicer and the Trustee that the Trust will be treated as a grantor trust
for federal, state and local income and franchise tax purposes and for purposes
of any other tax imposed on or measured by income. The Seller, the Servicer,
the Trustee and each Certificateholder by acceptance of its Certificates agree
to treat the Certificates, for purposes of federal, state and local income tax,
as interests in a grantor trust and to report the transactions contemplated by
this Agreement on all tax returns in a manner consistent with such treatment.
(b) In the event that the Trust is not treated as a grantor trust for
federal income tax purposes, it is the intention of the Seller, the Servicer,
the Trustee, and each Certificateholder that all Certificateholders (and any
other person that is deemed to have an interest in the Trust) will elect out
(under Section 761 of the Code) of partnership accounting for federal income tax
purposes. Each Certificateholder, by its acceptance of its Certificate (and
each other person deemed to have an interest in the Trust) agrees to make such
election and to report the transactions contemplated by this Agreement on all
tax returns in a manner consistent with such election.
[End of Article V]
38
<PAGE>
ARTICLE VI
Accounts; Collections; Allocations; Distributions;
Statements to Certificateholders
SECTION 6.01. Establishment of Accounts. (a)(i) The Servicer, for the
-------------------------
benefit of the Certificateholders and the Certificate Insurer, shall establish
and maintain in the name of, and under the sole dominion and control of, the
Trustee an Eligible Account (the "Collection Account"), bearing a designation
------------------
clearly indicating that the funds deposited therein are held for the benefit of
the Certificateholders and the Certificate Insurer. The Collection Account
shall initially be held with the Trustee.
(ii) The Servicer, for the benefit of the Certificateholders and the
Certificate Insurer, shall establish and maintain within the Collection Account
three administrative subaccounts (the "Interest Distribution Account," the
-----------------------------
"Principal Distribution Account" and the "Expense Distribution Account,"
- ------------------------------- ----------------------------
respectively).
(b) Funds on deposit in the Collection Account and the Reserve Fund
shall be invested by the Trustee (or any custodian with respect to funds on
deposit in any such account) in Permitted Investments selected in writing or by
telephone (which shall be promptly confirmed in writing) by the Servicer
(pursuant to standing instructions or otherwise); provided, however, it is
-------- -------
understood and agreed that the Trustee shall not be liable for any loss arising
from such investment in Permitted Investments. Permitted Investments may be
purchased by or through the Trustee or any of its affiliates. All such
Permitted Investments shall be held by or on behalf of the Trustee for the
benefit of the Certificateholders and the Certificate Insurer. Other than as
permitted by the Rating Agencies and the Certificate Insurer, funds on deposit
in the Collection Account and the Reserve Fund shall be invested in Permitted
Investments that will mature so that such funds will be available at the close
of business on the Business Day immediately preceding the next Distribution
Date; provided, however, that funds invested in Permitted Investments which are
-------- -------
obligations of the Trustee may mature on such Distribution Date. Funds
deposited in the Collection Account and the Reserve Fund upon the maturity of
any Permitted Investments on the day immediately preceding a Distribution Date
are not required to be invested overnight.
SECTION 6.02. Collections. The Servicer shall remit within two
-----------
Business Days of receipt thereof to the Collection Account all payments by or on
behalf of the Obligors with respect to the Loans (other than Loans repurchased
by the Seller or purchased by the Servicer) and all Net Liquidation Proceeds,
Recoveries and Insurance Proceeds, in each case as collected during each Monthly
Collection Period less any payments owed
39
<PAGE>
thereon to the Servicer. For purposes of this Article VI the phrase "payments
by or on behalf of Obligors" shall mean payments made with respect to the Loans
by Persons other than the Servicer or the Seller.
SECTION 6.03. Application of Collections. All collections for each
--------------------------
Monthly Collection Period shall be applied by the Servicer as follows:
With respect to each Loan (other than a Loan repurchased by the Seller
or purchased by the Servicer), payments by or on behalf of the Obligor shall be
applied to interest and principal in accordance with the Simple Interest Method
and the terms of such Loan.
SECTION 6.04. Additional Deposits. The Servicer and the Seller shall
-------------------
deposit or cause to be deposited in the Collection Account the aggregate
Repurchase Deposit Amount with respect to Loans repurchased by the Seller or
purchased by the Servicer and the aggregate Substitution Adjustment Amount with
respect to the transfer by the Seller of Eligible Substitute Loans. The interest
portion of the Repurchase Deposit Amount will be treated as Interest Collections
by the Trustee as set forth in the Servicer's Certificate and allocated
accordingly, and the principal portion of the Repurchase Deposit Amount and any
Substitution Adjustment Amount will be allocated as Principal Collections and
treated accordingly, in each case with respect to the Monthly Collection Period
for which such amounts are deposited.
SECTION 6.05. Permitted Withdrawals from the Collection Account. (a)
-------------------------------------------------
The Trustee may, from time to time, make withdrawals from the Collection Account
subject to the conditions and for the purposes set forth in this Agreement,
including the following:
(i) to make the allocations, deposits, distributions and payments as
provided in Section 6.06 and Section 6.07;
------------ ------------
(ii) to indemnify the Servicer to the extent required or permitted
pursuant to Section 9.04.
------------
(iii) to pay the Seller or the Servicer, as applicable, amounts received
in respect of Defective Loans during the Monthly Collection Period in which such
Defective Loans were purchased or replaced or which were otherwise reflected in
the calculation of the related Repurchase Deposit Amount or any Substitution
Adjustment Amount;
(iv) to clear and terminate the Collection Account in accordance with
Section 12.01.
- -------------
40
<PAGE>
(b) Any provision herein to the contrary notwithstanding, if the
Servicer or the Seller deposits into the Collection Account any amount not
required to be deposited therein pursuant to Section 6.02, the Servicer may at
------------
any time instruct the Trustee to withdraw such amount from the Collection
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 6.05(b) 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 Collection Account pursuant
to Section 6.02, 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
Seller, the Servicer shall receive such amounts as custodian for the Seller.
(c) Any provision herein to the contrary notwithstand ing, the Servicer
may debit against any amount required to be deposited into the Collection
Account as set forth in the Servicer's Certificate any amount previously
deposited into the Collection Account in respect of payments by Obligors made by
checks subsequently returned for insufficient funds or other reason for non-
payment, where the Servicer had deposited such amounts to the Collection Account
in anticipation of, and prior to receiving, good funds in respect of such check
or other item of payment.
SECTION 6.06. Allocations and Deposits. On each Deposit Date, the
------------------------
Trustee shall make the following allocations and deposits to the indicated
accounts based on the information contained in the Servicer's Certificate:
(a) from Interest Collections for the related Monthly Collection
Period to the extent available in the following order of priority:
(i) subject to Section 5.06, to the Expense Distribution Account,
------------
an amount equal to the Servicing Fee for the related Monthly Collection
Period and all accrued and unpaid Servicing Fees for prior Monthly
Collection Periods (to the extent not previously retained by the
Servicer from Interest Collections);
(ii) to the Expense Distribution Account, an amount equal to the
Trustee's Fee for the related Monthly Collection Period and all accrued
and unpaid Trustee's Fees for prior Monthly Collection Periods;
(iii) to the Interest Distribution Account, first, an amount
equal to that portion of the Interest Distributable Amount allocable to
accrued interest for the related Distribution Date and second, an
amount equal to that portion of the Interest Distributable
41
<PAGE>
Amount allocable to any Certificateholder's Interest Carryover
Shortfall to be paid on such Distribution Date;
(iv) to the Expense Distribution Account, an amount equal to the
monthly premium for the Policy;
(v) to the Principal Distribution Account, an amount equal to the
aggregate Liquidation Loss Amounts with respect to each Loan which
became a Liquidated Loan during the related Monthly Collection Period;
(vi) to the Expense Distribution Account, an amount equal to all
prior unreimbursed draws made on the Policy together with interest
accrued thereon and any other amounts owed to the Certificate Insurer
pursuant to the Insurance Agreement;
(vii) to the Reserve Fund, an amount sufficient to satisfy the
Specified Reserve Fund Requirement; and
(viii) to the Seller, any remaining amounts;
The Trustee shall provide written notification to the Servicer within one (1)
Business Day of the Deposit Date if any amounts required to be deposited by the
Servicer in the Collection Account in order to make allocations and deposits
based on information contained in the Servicer's Certificate have not been
received on the Deposit Date.
(b) from Principal Collections for the related Monthly Collection
Period to the extent available in the following order of priority:
(i) to the Principal Distribution Account, an amount up to the
Principal Distributable Amount for the related Distribution Date; and
(ii) to the Seller, any remaining amounts;
(c) from the amount on deposit for such Monthly Collection Period in
the Reserve Fund in the following order of priority:
(i) an amount equal to the Reserve Fund Interest Transfer Amount
for such Deposit Date to the Interest Distribution Account; and
(ii) an amount equal to the Reserve Fund Principal Transfer Amount for
such Deposit Date to the Principal Distribution Account.
42
<PAGE>
SECTION 6.07. Distributions. (a) On each Distribution Date, the
-------------
Trustee shall cause to be made the following distributions from the following
accounts (after giving effect to all deposits therein, including amounts
transferred from the Reserve Fund and paid under the Policy) in the amounts set
forth in the Servicer's Certificate for such Distribution Date:
(i) from amounts deposited in the Expense Distribution Account
pursuant to Section 6.06(a)(i), (ii), (iv) and (vi), in the following order:
------------------ ---- ---- ----
First, to the Servicer, the aggregate Servicing Fee for the
-----
related Monthly Collection Period, and any unpaid Servicing Fee for prior
Monthly Collection Periods,
Second, to the Trustee, the Trustee's Fee for the related Monthly
------
Collection Period and any unpaid Trustee's Fee for prior Monthly Collection
Periods, and
Third, to the Certificate Insurer, for (i) the monthly premium
-----
payable in connection with the Policy and (ii) all other amounts then due and
owing the Certificate Insurer;
(ii) from the Interest Distribution Account, to the Certificateholders
of record as of the previous Record Date, the Interest Distributable Amount;
(iii) from the Principal Distribution Account, to the
Certificateholders of record as of the previous Record Date, the Principal
Distributable Amount; and
(iv) from the Principal Distribution Account to the Seller, any
remaining amounts.
(b) Distributions to Certificateholders, except in the case of
distributions under Section 12.01, shall be made by check mailed by the Trustee
-------------
to each Certificateholder's respective address of record on the Certificate
Register (or, where a Clearing Agency is the Certificateholder, by delivery of
immediately available funds) and distributions to the Servicer, the Certificate
Insurer or the Seller shall be made by wire transfer of immediately available
funds.
SECTION 6.08. Reserve Fund. (a) In order to assure that sufficient
------------
amounts to make required distributions to Certificateholders will be available,
the Servicer shall establish and maintain in accordance with the Insurance
Agreement an Eligible Account (the "Reserve Fund") with the Trustee, under the
------------
sole dominion and control of the Trustee, bearing a designation clearly
indicating that the funds deposited therein are held in trust for the benefit of
the Certificateholders and the Certificate Insurer. The Reserve Fund will
include the money and other property deposited and held therein pursuant to
Section
- -------
43
<PAGE>
6.06(a)(vii) and this Section. Subject to the provisions hereof and of the
- ------------
Insurance Agreement and for so long as the Trust remains outstanding, the Seller
hereby pledges its right, title and interest in the Reserve Fund to the Trustee
for the benefit of the Certificateholders and the Certificate Insurer.
(b) On or prior to the Closing Date, the Seller shall deposit an amount
equal to the Initial Reserve Fund Deposit into the Reserve Fund.
(c) Funds on deposit in the Reserve Fund shall be invested in Permitted
Investments as set forth in Section 6.01(b).
---------------
(d) Following the payment in full of the Certificate Principal Balance
and of all other amounts owing or to be distributed under this Agreement to
Certificateholders and any Person other than the Certificate Insurer who is
entitled to payment by the Trust, any amount remaining on deposit in the Reserve
Fund shall be allocated to the Expense Distribution Account and distributed to
the Certificate Insurer to the extent of amounts payable and unpaid to the
Certificate Insurer hereunder or under the Insurance Agreement. Any amount
remaining in the Reserve Fund after such allocation to the Expense Distribution
Account and the termination of the Trust shall be distributed to the Seller.
(e) Notwithstanding anything to the contrary contained herein, the
Reserve Fund shall be the property of the Seller for federal income tax
purposes. Further, all payments to the Reserve Fund are deemed to be made to
the Seller and then deposited by the Seller into the Reserve Fund. Subject to
the consent of the Certificate Insurer and confirmation by each Rating Agency
that such action will not result in the reduction, suspension or withdrawal of
the then-current rating of the Certificates, the Seller may instruct the Trustee
to distribute to it all funds contained in the Reserve Fund in consideration for
the Seller's substituting acceptable collateral in its place.
SECTION 6.09. Statements to Certificateholders. On each Determination
--------------------------------
Date, the Servicer shall provide to the Certificate Insurer, the Rating Agencies
and the Trustee for the Trustee to forward on each Distribution Date to each
Certificateholder of record as of the most recent Record Date, a statement
substantially in the form of Exhibit F setting forth at least the following
---------
information as to the Certificates:
(i) the amount being distributed to Certificateholders;
(ii) the amount of interest included in such distribution and the
portion thereof attributable to Interest Collections;
44
<PAGE>
(iii) the amount, if any, of any Certificateholders' Interest
Carryover Shortfall included in such distribution (and the amount of interest
thereon);
(iv) the amount, if any, of the remaining Certificateholders'
Interest Carryover Shortfall after giving effect to such distribution;
(v) the amount, if any, of principal included in such distribution and
the portion thereof attributable to Principal Collections;
(vi) the amount, if any, of the reimbursement of previous Liquidation
Loss Amounts included in such distribution;
(vii) the amount, if any, of the aggregate unreimbursed Liquidation
Loss Amounts after giving effect to such distribution;
(viii) the Servicing Fee for such Distribution Date;
(ix) the Certificate Principal Balance after giving effect to such
distribution;
(x) the Specified Reserve Fund Requirement and the amount on deposit
in the Reserve Fund, if any, after giving effect to such distribution;
(xi) the Pool Balance as of the end of the related Monthly Collection
Period;
(xii) the Reserve Fund Interest Transfer Amount and the Reserve Fund
Principal Transfer Amount for such Distribution Date, if any;
(xiii) the number and aggregate principal balance of the Loans which
are delinquent for 30-59 days, 60-89 days and 90 or more days, respectively, as
of the end of the related Monthly Collection Period;
(xiv) the aggregate Liquidation Loss Amount for all Loans that became
Liquidated Loans in the related Monthly Collection Period; and
(xv) the amount of any draws on the Policy.
Each amount set forth pursuant to subclauses (i), (ii), (iii), (iv) and (v)
above shall be expressed as a dollar amount per $1,000 of original principal
balance of Certificate.
SECTION 6.10. Tax Returns. (a) Within thirty days after the end of
-----------
each calendar year, the Trustee shall furnish to each Person who at any time
during such calendar year was a
45
<PAGE>
Certificateholder of record and received any payment thereon (i) a report as to
the aggregate of amounts reported pursuant to clauses (i) through (vii) of
Section 6.09 for such calendar year or applicable portion thereof during which
- ------------
such person was a Certificateholder and (ii) such information as may be
necessary pursuant to the Code and regulations thereunder to enable such
Certificateholders to prepare their Federal and State income tax returns. The
obligation of the Trustee set forth in this Section 6.10 shall be deemed to have
been satisfied to the extent that substantially comparable information shall be
provided by the Servicer pursuant to any requirements of the Code. Except as
absolutely required by the Code and regulations thereunder, the Trustee shall
not be required to furnish information to the Seller as holder of the Seller's
interest of excess amounts, if any, to be distributed to the Seller.
(b) The Servicer at its own expense shall prepare, or shall cause a
firm of nationally recognized accountants to prepare, any tax returns required
to be filed by the Trust, and the Trustee shall execute and file such returns if
requested to do so by the Servicer. The Trustee, upon request, shall furnish
the Servicer with all such information known to the Trustee as may be reasonably
required in connection with the preparation of all tax returns of the Trust.
(c) Notwithstanding any other provision of this Agreement, the Trustee
shall comply with all federal withholding requirements with respect to payments
to Certificateholders that the Trustee reasonably believes are applicable under
the Code; provided, however, that the Trustee shall not accept from any non-
-------- -------
United States Person any forms intended to reduce such withholding (including,
without limitation, a Form W-8, Form 1001, or Form 4224), and shall deduct and
withhold 30% of all distributions to any person that is not a United States
Person. For these purposes, a United States Person means a citizen or resident
of the United States, a corporation, partnership, or other entity created or
organized in, or under the laws of, the United States or any political
subdivision thereof (except, in the case of a partnership, to the extent
regulations provide that any partnership is not a United States Person under the
Code), or an estate or trust that is described in Section 7701(a)(30)(D) and (E)
of the Code, respectively.
[End of Article VI]
46
<PAGE>
ARTICLE VII
The Policy
SECTION 7.01. The Policy. The Servicer and the Seller agree,
----------
simultaneously with the execution and delivery of this Agreement, to cause the
Certificate Insurer to issue the Policy to the Trustee for the benefit of the
Trust in accordance with the terms thereof.
SECTION 7.02. Claims Under Policy. (a)(i) If on any Determination
-------------------
Date the Servicer has reported to the Trustee in the Servicer's Certificate that
the Servicer has determined (A) that for such Monthly Collection Period the
amount to be on deposit in the Interest Distribution Account, including any
Reserve Fund Interest Transfer Amount to be transferred on the related Deposit
Date, is insufficient to provide for the Interest Distributable Amount on such
Distribution Date or the amount to be on deposit in the Principal Distribution
Account, including any Reserve Fund Principal Transfer Amount to be transferred
on the related Deposit Date, is insufficient to provide for the Principal
Distributable Amount on such Distribution Date, then prior to 1.00 p.m. New York
City time on the next Business Day the Trustee shall furnish the Certificate
Insurer and the Servicer with a completed notice in the form set forth as
Exhibit A to the Policy (the "Notice for Payment"). The Notice for Payment
------------------
shall specify the amount of the Interest Deficiency Draw Amount and/or the
Principal Deficiency Draw Amount and shall constitute a claim pursuant to the
Policy. Upon receipt of any payments on behalf of the Certificateholders under
the Policy, the Trustee shall deposit any Interest Deficiency Draw Amount in the
Interest Distribution Account and deposit any Principal Deficiency Draw Amount
in the Principal Distribution Account. Such amounts shall be distributed
pursuant to Section 6.07.
------------
(ii) If on the Determination Date preceding the Final Distribution
Date the Servicer has reported to the Trustee in the Servicer's Certificate that
the Servicer has determined that an Interest Deficiency Draw Amount will exist
or the Certificate Principal Balance will not be reduced to zero on the Final
Distribution Date after giving effect to the transfer of any amounts to be made
pursuant to Section 6.06(b)(i) on the Deposit Date preceding the Final
------------------
Distribution Date, then no later than 11:00 a.m. Central Standard Time on the
next Business Day the Trustee shall furnish the Certificate Insurer and the
Servicer with a Notice for Payment specifying the amount of the Interest
Deficiency Draw Amount and/or the Principal Deficiency Draw Amount which shall
constitute a claim pursuant to the Policy. Upon receipt of any payments on
behalf of the Certificateholders under the Policy, the Trustee shall deposit any
Interest Deficiency Draw Amount in the Interest Distribution Account and deposit
any Principal Deficiency Draw Amount in the Principal
47
<PAGE>
Distribution Account, and distribute such amounts to Certificateholders on the
related Distribution Date.
(b) The Trustee shall receive, as attorney-in-fact of each
Certificateholder, any payment from the Certificate Insurer and disburse the
same to each Certificateholder, for the purposes and in the respective amounts
required in accordance with the provisions of Section 6.07.
------------
(c) The Trustee shall keep complete and accurate records of the amount
of payments received from the Certificate Insurer and the Certificate Insurer
shall have the right to inspect such records at reasonable times upon one
Business Day's prior notice to the Trustee.
(d) If any payment of principal and/or interest to Certificateholders
is voided (a "Preference Event") under any applicable bankruptcy, insolvency,
----------------
receivership or similar law in an Insolvency Proceeding and, as a result of such
a Preference Event, the Trustee or such Certificateholder is required to return
such voided payment, or any portion of such voided payment, in its possession
made in respect of the Certificates (an "Avoided Payment"), the Trustee shall
---------------
furnish to the Certificate Insurer (x) a certified copy of a final order of a
court exercising jurisdiction in such Insolvency Proceeding to the effect that
the Trustee or such Certificateholder is required to return any such payment or
portion thereof during the term of the Policy because such payment was voided
under applicable law, with respect to which order the appeal period has expired
without an appeal having been filed (the "Final Order"), (y) an assignment, in
-----------
form reasonably satisfactory to the Certificate Insurer, irrevocably assigning
to the Certificate Insurer all rights and claims of the Trustee or such
Certificateholder relating to or arising under such Avoided Payment and (z) a
Notice for Payment appropriately completed and executed by the Trustee. Such
payment shall be disbursed to the receiver, conservator, debtor-in-possession or
trustee in bankruptcy named in the Final Order and not to the Trustee directly,
unless a Certificateholder or the Trustee on behalf of the Certificateholder has
previously paid such amounts pursuant to a court order or otherwise, in which
case the Certificate Insurer will pay the Trustee or the Trustee on behalf of
the Certificateholder, as the case may be, subject to delivery of (a) the items
referred to in clauses (x), (y) and (z) above to the Certificate Insurer and (b)
evidence satisfactory to the Certificate Insurer that payment has been made to
such receiver, conservator, debtor in possession or trustee in bankruptcy named
in the Final Order. The Trustee is not permitted to make a claim on the Trust
or on any Certificateholder for payments made to Certificateholders which are
characterized as preference payments by any bankruptcy court having jurisdiction
over any bankrupt Person unless ordered to do so by such bankruptcy court.
48
<PAGE>
SECTION 7.03. Surrender of Policy. The Trustee shall surrender the
-------------------
Policy to the Certificate Insurer for cancellation upon its expiration in
accordance with the terms thereof.
SECTION 7.04. Replacement Policy. In the event the rating of the
------------------
Certificate Insurer is downgraded by any Rating Agency such that the rating of
the 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
Policy or may arrange for any other form of credit enhancement; provided,
--------
however, that, in each case, the rating of the Certificates following any such
- -------
substitution shall be the highest rating available for 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 7.04 (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 Policy marked
"Cancelled" to the Certificate Insurer, and the Certificate Insurer will have no
further liability under the Policy.
[End of Article VII]
49
<PAGE>
ARTICLE VIII
THE CERTIFICATES
SECTION 8.01. The Certificates. Unless otherwise specified in the
----------------
Agreement, the Certificates shall be issued in fully registered form in minimum
denominations of $1,000 and integral multiples thereof, except that one
Certificate may be issued in a different denomination. The Certificates shall
be executed on behalf of the Trust by manual or facsimile signature of an
authorized officer of the Trustee. Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust shall be validly issued
and entitled to the benefits of this Agreement, notwithstanding that such
individuals or any of them shall 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 authentication and delivery of such Certificates.
A transferee of a Certificate shall become a Certificateholder and
shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Certificate
duly registered in such transferee's name pursuant to Section 8.03.
------------
SECTION 8.02. Authentication of Certificates. The Trustee shall cause
------------------------------
the Certificates to be executed on behalf of the Trust, authenticated and
delivered to or upon the written order of the Seller, signed by its chairman of
the board, its president, any vice president, secretary, or assistant treasurer,
without further corporate action by the Seller, in authorized denominations,
pursuant to this Agreement. No Certificate shall entitle its Holder to any
benefit under this Agreement or shall be valid for any purpose unless there
shall appear on such Certificate a certificate of authentication substantially
in the form set forth in Exhibit A, executed by the Trustee by manual signature.
---------
Such authentication shall constitute conclusive evidence that such Certificate
shall have been duly authenticated and delivered hereunder. All Certificates
shall be dated the date of their authentication.
SECTION 8.03. Registration of Transfer and Exchange of Certificates.
-----------------------------------------------------
The Certificate Registrar shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 8.07, 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 and exchanges of
Certificates as herein provided. Unless otherwise specified in this Agreement,
the Trustee shall be the initial Certificate Registrar.
50
<PAGE>
Upon surrender for registration of transfer of any Certificate at the
Corporate Trust Office, the Trustee shall execute, authenticate and deliver, in
the name of the designated transferee or transferees, one or more new
Certificates in authorized denominations of a like aggregate amount dated the
date of authentication by the Trustee. At the option of a Holder, Certificates
may be exchanged for other Certificates of authorized denominations of a like
aggregate amount upon surrender at the Corporate Trust Office of the
Certificates to be exchanged.
Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Trustee and the Certificate Registrar duly executed by the
Holder or such Holder's attorney duly authorized in writing. Each Certificate
surrendered for registration of transfer and exchange shall be canceled and
subsequently disposed of by the Trustee in accordance with its customary
procedures.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
SECTION 8.04. Mutilated, Destroyed, Lost or Stolen Certificates. If
-------------------------------------------------
(a) any mutilated Certificate shall be surrendered to the Certificate Registrar,
or if the Certificate Registrar shall receive evidence to its satisfaction of
the destruction, loss or theft of any Certificate and (b) there shall be
delivered to the Certificate Registrar, the Trustee and (unless an Insurer
Default shall have occurred and be continuing) the Certificate Insurer such
security or indemnity as may be required by them to save each of them harmless,
then in the absence of notice that such Certificate has been acquired by a bona
fide purchaser, the Trustee on behalf of the Trust shall execute, and the
Trustee shall 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 denomination. In connection with the issuance of any new Certificate
under this Section, the Trustee and the Certificate Registrar may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith. Any duplicate Certificate issued
pursuant to this Section shall constitute conclusive evidence of ownership in
the Trust, as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.
SECTION 8.05. Persons Deemed Owners. Prior to due presentation of a
---------------------
Certificate for registration of transfer, the Trustee or the Certificate
Registrar may treat the Person in whose name any Certificate shall be registered
as the owner of
51
<PAGE>
such Certificate for the purpose of receiving distributions pursuant to Section
-------
6.07 and for all other purposes whatsoever, and neither the Trustee, the
- ----
Certificate Insurer, the Certificate Registrar nor any agent of the Trustee,
Certificate Insurer or Certificate Registrar shall be bound by any notice to the
contrary.
SECTION 8.06. Access to List of Certificateholders' Names and
-----------------------------------------------
Addresses. The Trustee shall furnish or cause to be furnished to the Servicer,
- ---------
and (unless an Insurer Default shall have occurred and be continuing) the
Certificate Insurer, within 15 days after receipt by the Trustee of a request
therefor from such party in writing, a list, in such form as such party may
reasonably require, of the names and addresses of the Certificateholders as of
the most recent Record Date. If three or more Certificateholders, or one or
more Holders of Certificates evidencing in the aggregate not less than 25% of
the Certificate Principal Balance 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 shall be accompanied by a copy of the
communication that such applicants propose to transmit, then the Trustee shall,
within five Business Days after the receipt for such application, afford such
applicants access during normal business hours to the current list of
Certificateholders. Each Holder, by receiving and holding a Certificate, shall
be deemed to have agreed to hold neither the Servicer nor the Trustee
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.
SECTION 8.07. Maintenance of Office or Agency. The Trustee shall
-------------------------------
maintain in the City of St. Paul, Minnesota an office or offices or agency or
agencies where Certificates may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Trustee in respect of the
Certificates and this Agreement may be served. The Trustee initially designates
its office at 180 East Fifth Street, St. Paul, Minnesota 55101 as its office for
such purposes. The Trustee shall give prompt written notice to the Servicer and
to Certificateholders of any change in the location of the Certificate Register
or any such office or agency.
SECTION 8.08. Book-Entry Certificates. The Certificates may be issued
-----------------------
in the form of one or more typewritten Certificates representing Book-Entry
Certificates, to be delivered by, or on behalf of, the Seller to the initial
Clearing Agency, which, unless otherwise specified in this Agreement, shall be
The Depository Trust Company. In such case, the Certificates delivered to the
Depository Trust Company shall initially be registered on the Certificate
Register in the name of Cede & Co., the nominee of the initial Clearing Agency,
and no Certificate Owner will receive a definitive certificate
52
<PAGE>
representing such Certificate Owner's interest in the Certificates, except as
provided in Section 8.10. Unless and until definitive, fully registered
------------
Certificates (the "Replacement Certificates") have been issued to such
------------------------
Certificate Owners pursuant to Section 8.10:
------------
(i) the provisions of this Section shall be in full force and effect;
(ii) the Seller, the Servicer, the Certificate Insurer, the
Certificate Registrar and the Trustee may deal with the Clearing Agency for all
purposes (including the making of distributions on such Certificates) as the
sole Holder of such Certificates and shall have no obligation to the related
Certificate Owners;
(iii) to the extent that the provisions of this Section conflict with
any other provisions of this Agreement, the provisions of this Section shall
control;
(iv) the rights of such Certificate Owners shall be exercised only
through the Clearing Agency and shall be limited to those established by law and
agreements between such Certificate Owners and the Clearing Agency and/or the
Clearing Agency Participants. Pursuant to the Depository Agreement, unless and
until Replacement Certificates are issued pursuant to Section 8.10, the initial
------------
Clearing Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit distributions of principal and interest on
such Certificates to such Clearing Agency Participants; and
(v) whenever this Agreement requires or permits actions to be taken
based upon instructions or directions of Holders of Certificates evidencing a
specified percentage of the Certificate Principal Balance, the Clearing Agency
shall be deemed to represent such percentage only to the extent that it has
received instructions to such effect from Certificate Owners and/or Clearing
Agency Participants owning or representing, respectively, such required
percentage of the beneficial interest in such Certificates and has delivered
such instructions to the Trustee.
SECTION 8.09. Notices to Clearing Agency. Whenever notice or other
--------------------------
communication to the Certificateholders is required under this Agreement, unless
and until Replacement Certificates shall have been issued to Certificate Owners
pursuant to Section 8.10, the Trustee and the Servicer shall give all such
------------
notices and communications specified herein to be given to Certificate Owners to
the Clearing Agency.
SECTION 8.10. Replacement Certificates. If (i) the Seller advises the
------------------------
Trustee in writing that The Depository Trust Company is no longer willing or
able to discharge properly its
53
<PAGE>
responsibilities under the Depository Agreement and the Seller is unable to
locate a qualified successor, (ii) the Seller at its option advises the Trustee
in writing that it elects to terminate the book-entry system through the
Clearing Agency or (iii) after the occurrence of an Event of Default Certificate
Owners having certificates evidencing no less than 51% of the Certificate
Principal Balance together advise the Trustee and the Clearing Agency in writing
that the continuation of a book-entry system to the exclusion of any physical
certificate being issued to Certificate Owners is no longer in the best
interests of the Certificate Owners, then the Clearing Agency shall notify all
Certificate Owners and the Trustee of the occurrence of such event and of the
availability of Replacement Certificates to Certificate Owners requesting the
same. Upon surrender to the Trustee of the typewritten Certificates
representing the Book-Entry Certificates by the Clearing Agency, accompanied by
registration instructions, the Trustee shall execute and authenticate the
Replacement Certificates in accordance with the instructions of the Clearing
Agency. None of the Seller, the Certificate Registrar or 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 Replacement Certificates, the Trustee shall recognize the Holders of the
Replacement Certificates as Certificateholders hereunder. The Replacement
Certificates shall be printed, lithographed or engraved or may be produced in
any other manner as is reasonably acceptable to the Trustee, as evidenced by its
execution thereof.
SECTION 8.11. Temporary Certificates. In the event that this
----------------------
Agreement provides that the Certificates are not to be issued in book-entry form
pursuant to Section 8.08, pending the preparation of definitive Certificates,
------------
the Trustee, on behalf of the Trust, may execute, authenticate and deliver,
temporary Certificates that are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Certificates in lieu of which they are issued. If
temporary Certificates are issued, the Seller shall cause definitive
Certificates to be prepared without unreasonable delay. After the preparation
of definitive Certificates, the temporary Certificates shall be exchangeable for
definitive Certificates upon surrender of the temporary Certificates at the
office or agency to be maintained as provided in Section 8.07, without charge to
------------
the Holder. Upon surrender for cancellation of any one or more temporary
Certificates, the Trustee shall execute, authenticate and deliver in exchange
therefor a like principal amount of definitive Certificates in authorized
denominations. Until so exchanged, the temporary Certificates shall in all
respects be entitled to the same benefits under this Agreement as definitive
Certificates.
[End of Article VIII]
54
<PAGE>
ARTICLE IX
The Seller and Servicer
SECTION 9.01. Representations of the Seller and Servicer. Chevy
------------------------------------------
Chase, in its capacity as Seller and Servicer, makes the following
representations on which the Certificate Insurer shall be deemed to have relied
in executing and delivering the Policy and on which the Trustee shall be deemed
to have relied in accepting the Loans in trust and executing and authenticating
the Certificates. The representations speak as of the execution and delivery of
this Agreement and as of the Closing Date, in the case of the Loans, and shall
survive the sale of the Loans to the Trust.
(i) Chevy Chase 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) Chevy Chase 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 Chevy Chase 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) Chevy Chase 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 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
Chevy Chase will not violate any provision of any existing law or regulation or
any order or decree of any court applicable to Chevy Chase or any provision of
the charter or bylaws of Chevy Chase, or constitute a material breach of any
55
<PAGE>
mortgage, indenture, contract or other agreement to which Chevy Chase is a party
or by which Chevy Chase 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 Chevy
Chase threatened, against Chevy Chase 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) Chevy Chase 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 Seller, the Servicer, the Certificate Insurer or the
Trustee of a breach of any of the representations and warranties in this Section
9.01 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, or, with the prior written consent of an officer of
the Trustee and the Certificate Insurer, within such longer period specified in
such consent, the Servicer shall cure such breach in all material respects.
SECTION 9.02. 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 9.03. Merger or Consolidation of, or Assumption of the
------------------------------------------------
Obligations of, the Servicer or Seller. Any corporation into which the Servicer
- --------------------------------------
or Seller may be merged or consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Servicer or Seller shall be a
party, or any corporation succeeding to the business of the Servicer or Seller
by any sale or transfer by the Servicer or Seller of all or substantially all of
its property and assets to such corporation, shall be the successor of the
Servicer or Seller 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 Seller
under this Agreement.
SECTION 9.04. 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
56
<PAGE>
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 other than for the
willful misconduct or bad faith of any such person; it being expressly
understood that this Agreement and the obligations issued hereunder are solely
corporate obligations, and that no such personal liability whatsoever 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 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 6.05. The Servicer's right to reimbursement
------------
pursuant to this Section 9.04(b) shall survive any resignation or termination of
the Servicer pursuant to Section 9.06 or Section 10.01 with respect to any
------------ -------------
losses, expenses, costs or liabilities arising
57
<PAGE>
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 Loan or 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 6.05. The Servicer's right to indemnity pursuant to this
------------
Section 9.04(c) shall survive any resignation or termination of the Servicer
pursuant to Section 9.06 or Section 10.01 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 9.04(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 9.05. Delegation of Duties. In the ordinary course of
--------------------
business 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 5.01.
------------
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 9.06. 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.
SECTION 9.06. Servicer Not to Resign. Subject to the provisions of
----------------------
Section 9.03 and the last sentence of this Section 9.06, the Servicer shall not
- ------------
resign from the obligations and duties hereby imposed on it 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
58
<PAGE>
nature carried on by the Servicer or such subsidiaries or other affiliates at
the date of this Agreement.
Any resignation under this Section 9.06 shall not relieve the Servicer
of responsibility for any of the obligations specified in Section 10.01 and
-------------
Section 10.02 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
-------
10.02. 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 9.07. Limitation on Liability of Certain Persons. Except as
------------------------------------------
provided in Section 9.08 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
Seller or of any successor corporation, either directly or through the Seller,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise other than for the willful
misconduct or bad faith of any such person; 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 Seller, 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, 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 Seller and any director, officer,
employee or agent of the Seller 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 9.08. Liability of Seller. Notwithstanding Section 9.07 (and
------------------- ------------
notwithstanding any other provisions of this
59
<PAGE>
Agreement) the Seller by entering into this Agreement, by its acceptance
thereof, agrees to be liable, directly to the Trustee or any other injured
party, for the entire amount of any losses, claims, damages or liabilities
(other than those that would be incurred by a Certificateholder as an investor
in the Certificates if the Certificates were notes secured by the Loans
including, but not limited to, as a result of the performance of the Loans,
market fluctuations, a shortfall or failure to make payment under the 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 Servicer taken pursuant hereto including those
due to environmental liabilities relating to the Loans (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
Seller was a general partner. The rights created by this Section 9.08 shall run
directly to and be enforceable by the injured party subject to the limitations
hereof.
SECTION 9.09. Seller May Own Certificates. The Seller and any Person
---------------------------
controlling, controlled by or under common control with the Seller may in its
individual or any other capacity become the owner or pledgee of Certificates
with the same rights as it would have if it were not the Seller or such an
affiliate thereof, except as otherwise provided in the definition of the term
"Certificateholder" specified in Section 1.01. Certificates so owned by or
------------
pledged to the Seller 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 1.01.
------------
[End of Article IX]
60
<PAGE>
ARTICLE X
Default
SECTION 10.01. Events of Default. If any one of the following events
-----------------
("Events of Default") shall occur and be continuing:
-----------------
(i) any failure by the Servicer to deposit into the Collection Account
any deposit required to be made under the terms of this Agreement which
continues unremedied for a period of four (4) Business Days after the date upon
which written notice of such failure shall have been given to the Servicer and
the Certificate Insurer 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 Certificates evidencing in the aggregate not less than 51% of
the Certificate Principal Balance; 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 breach (A) materially and
adversely affect the interests of Certificateholders or the Certificate Insurer
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 and the Trustee by the Certificate Insurer, or to the Servicer,
the Certificate Insurer and the Trustee by the Holders of Certificates
evidencing in the aggregate not less than 51% of the Certificate Principal
Balance; 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;
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then, and in each and every such case, so long as an Event of Default shall not
have been remedied by the Servicer, either the Certificate Insurer (so long as
no Insurer Default has occurred and is continuing) or the Trustee or Holders of
Certificates evidencing not less than 51% of the Certificate Principal Balance
with the consent of the Certificate Insurer (if no Insurer Default has occurred
and is continuing) by notice then given in writing to the Servicer (and to the
Trustee if given by the Certificate Insurer or the Certificateholders), may, and
at the direction of the Certificate Insurer (so long as no Insurer Default has
occurred and is continuing) or the Holders of Certificates evidencing in the
aggregate no less than 51% of the aggregate Certificate Principal Balance shall,
terminate all of the rights and obligations of the Servicer as servicer under
this Agreement.
Any written notice of termination provided to the Servicer pursuant to
this Section 10.01 shall be simultaneously provided to the Certificate Insurer
and the Rating Agencies. On or after the delivery to 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
Loans or otherwise, shall pass to and be vested in the Trustee or such successor
Servicer as may be appointed under Section 10.02 pursuant to and under this
-------------
Section 10.01; 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 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 held
by the predecessor Servicer for deposit, or that shall thereafter be received by
the Servicer with respect to the Loans.
No Holder of 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 Certificates evidencing in the aggregate
not less than 25% of the Certificate Principal Balance 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
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hereunder or to institute, conduct or defend any litigation hereunder or in
relation hereto at the request, order or direction of any of the Holders of
Certificates or the Certificate Insurer covered by this Agreement, unless such
Holders of 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 10.02. Trustee to Act; Appointment of Successor. (a) Upon
----------------------------------------
the Servicer's receipt of notice of termination pursuant to Section 10.01 or the
-------------
Servicer's resignation in accordance with the terms of Section 9.06, 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 Loans pursuant to Section
-------
4.01 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 Servicing Fee as compensation. Notwithstanding the above, if
the Trustee is unable or unwilling to act as successor Servicer, the Certificate
Insurer shall appoint a successor Servicer. If an Insurer Default shall have
occurred and is continuing, or the Certificate Insurer fails to make such
appointment within 60 days after receiving notice from the Trustee that it is
unable or unwilling to act as Servicer, the Trustee shall 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. In connection with such appointment and
assumption, the Trustee may make such arrangements for the compensation of such
successor out of payments on Loans as it and such successor shall agree, which
in no event shall be based on a servicing fee rate greater than 1.00% of the
outstanding Pool Balance. The Trustee and such successor shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any
such succession (including, without limitation, the transfer or replacement of
hazard insurance required pursuant to Section 5.03 hereof). Any successor
------------
Servicer shall execute and deliver to the Certificate Insurer an undertaking to
be bound by the terms of the Insurance 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,
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employees and agents to the same extent as the Servicer is so required pursuant
to Section 5.10.
------------
The Servicer that has been terminated shall, at the request of the
Trustee but at the expense of such Servicer, deliver to the successor Servicer
all documents and records relating to each Loan and an accounting of amounts
collected and held by it and otherwise shall use its best efforts to effect the
orderly and efficient transfer of servicing to the successor Servicer. The
Servicer shall cooperate with the Trustee and any successor Servicer in
effecting the termination of the Servicer's responsibilities and rights
hereunder. Neither the Trustee nor any other successor Servicer shall be deemed
to be in default hereunder by reason of any failure to make, or any delay in
making, any distribution hereunder or any portion thereof caused by (a) the
failure of the Servicer to (i) deliver, or any delay in delivering cash,
documents or records to it, (ii) to cooperate as required by this Agreement or
(iii) deliver any Loan data to the Trustee as required by this Agreement or (b)
restrictions imposed by any regulatory authority having jurisdiction over the
Servicer.
SECTION 10.03. Notification to Certificateholders. Upon any
----------------------------------
termination or appointment of a successor to the Servicer pursuant to this
Article X, the Trustee shall give prompt written notice thereof to
Certificateholders at their respective addresses appearing in the Certificate
Register and to the Certificate Insurer and the Rating Agencies.
SECTION 10.04. Waiver of Past Defaults. So long as no Insurer Default
-----------------------
shall have occurred and be continuing, the Certificate Insurer (or, if an
Insurer Default shall have occurred and be continuing, the Holders of
Certificates evidencing in the aggregate not less than 51% of the Certificate
Principal Balance) may, on behalf of all Holders of Certificates, waive any
default by the Servicer in the performance of its obligations hereunder and its
consequences. Upon any such waiver of a past default, such default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been remedied for every purpose of this Agreement. No such waiver shall extend
to any subsequent or other default or impair any right consequent thereon.
SECTION 10.05 Effect of Insolvency. Upon any appointment of a
--------------------
receiver or conservator for the Seller, the Trustee shall sell the Loans (unless
otherwise instructed by 51% of the Certificateholders and any person designated
by the Seller to the Trustee (which designated person shall include the Seller
and the Servicer) prior to the time such receiver or conservator was appointed),
and the Trust shall terminate pursuant to Section 12.01. Unless a Certificate
-------------
Insurer Default has occurred, the Certificate Insurer shall have the right to so
instruct the
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Trustee on behalf of the Certificateholders and such person designated by the
Seller.
[End of Article X]
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ARTICLE XI
The Trustee
SECTION 11.01. Duties of Trustee. (a) If an Event of Default has
-----------------
occurred and is continuing, the Trustee shall exercise 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 person would exercise or use under the circumstances
in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement and no implied covenants or
obligations shall be read into this Agreement against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Agreement; provided, however,
-------- -------
that the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Agreement.
(c) The Trustee shall take and maintain custody of the Loan Schedule
included as an exhibit to this Agreement and shall retain all Servicer's
Certificates identifying Loans that are repurchased by the Seller or purchased
by the Servicer, Liquidated Loans, and Defective Loans which have been replaced
by Eligible Substitute Loans.
(d) The Trustee shall not be liable with respect to any action taken,
suffered or omitted to be taken in good faith in accordance with this Agreement
or at the direction of the Certificate Insurer or at the direction of Holders of
Certificates evidencing in the aggregate not less than 25% of the Certificate
Principal Balance relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee under this Agreement;
(e) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of clause (d) of this
Section;
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(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Trustee Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received by
it pursuant to this Agreement.
(f) No provision of this Agreement shall require the Trustee 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 it shall have reasonable grounds to believe that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
SECTION 11.02. Certain Matters Affecting Trustee. Except as
---------------------------------
otherwise provided in Section 11.01:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in any such document.
(b) The Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters or relating to this Agreement or the
Certificates shall be full and complete authorization and protection from
liability in respect of any action taken, suffered or omitted by it under this
Agreement in good faith and in accordance with such advice or opinion of such
counsel.
(c) 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 under this Agreement at the request, order or direction of
the Certificate Insurer or any of the Certificateholders pursuant to the
provisions of this Agreement, unless the Certificate Insurer or such
Certificateholders, as the case may be, shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby.
(d) The Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith which it believes to be authorized or within its
rights or powers conferred upon it by this Agreement; provided, that such
conduct does not constitute willful misconduct, bad faith or negligence on the
part of the Trustee.
(e) The Trustee may execute any of the trusts or powers or perform any
duties hereunder either directly or by or through
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agents or attorneys or a custodian, and the Trustee shall not be responsible for
any misconduct or negligence of any such agent, attorney or custodian appointed
with due care by it hereunder.
SECTION 11.03. Trustee Not Liable for Certificates or Loans. The
--------------------------------------------
recitals contained herein and in the Certificates (other than the certificate of
authentication on the Certificates) shall be taken as the statements of the
Seller or the Servicer, as the case may be, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee shall make no
representations as to the validity or sufficiency of this Agreement or of the
Certificates (other than the certificate of authentication on the Certificates),
or of any Loan or related document. The Trustee shall at no time have any
responsibility or liability for or with respect to any offering materials used
in connection with the sale of the Certificates, the legality, validity and
enforceability of any Loan, or the perfection and priority of any security
interest created by any Loan in any Mortgaged Property or the maintenance of any
such perfection and priority, or for or with respect to the efficacy of the
Trust, the representations, warranties and covenants of the Trust or its ability
to generate the payments to be distributed to Certificateholders under this
Agreement, including, without limitation: the existence, condition and ownership
of any Mortgaged Property; the existence and enforceability of any insurance
thereon; the existence and contents of any Loan or any computer or other record
thereof; the validity of the assignment of any Loan to the Trust or of any
intervening assignment; the completeness of any Loan; the performance or
enforcement of any Loan; the compliance by the Seller or the Servicer with any
covenant, warranty or representation made under this Agreement or in any related
document and the accuracy of any such covenant, warranty or representation or
any action of the Servicer taken in the name of the Trustee.
SECTION 11.04. 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 Seller and the Servicer in banking transactions with the
same rights as it would have if it were not Trustee.
SECTION 11.05. Trustee's Fees and Expenses. The Trustee shall be
---------------------------
entitled to receive the Trustee's Fee allocated to it pursuant to Section 6.06
------------
for all services rendered by it in the execution of the trust created by this
Agreement and in the exercise and performance of any of the Trustee's powers and
duties under this Agreement. The Trustee's Fee shall be the only fee payable to
the Trustee for its services as Trustee, provided that the Trustee shall be
entitled to their out-of-pocket expenses in accordance with this Agreement. The
Trustee shall be entitled to be reimbursed by the Servicer for its reasonable
expenses under this Agreement, including the reasonable compensation, expenses
and disbursements of such agents,
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representatives, experts and counsel as the Trustee may employ in connection
with the exercise and performance of its rights and duties under this Agreement.
SECTION 11.06. Eligibility Requirements for Trustee. The Trustee
------------------------------------
shall at all times be a corporation or association having an office in the same
state as the location of the Corporate Trust Office; organized and doing
business under the laws of any state or the United States of America; authorized
under any laws to exercise corporate trust powers; having a combined capital and
surplus of at least $10,000,000 and subject to supervision or examination by
federal or state authorities; and (so long as an Insurer Default shall not have
occurred and be continuing) satisfactory to the Certificate Insurer, and having
(or having a parent that has) a rating of at least Baa3 by Moody's. If such
corporation shall publish reports of condition at least annually pursuant to law
or to the requirements of the aforesaid supervising or examining authority, then
for the purpose of this Section, 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, the Trustee shall resign immediately in the manner and with the effect
specified in Section 11.07.
-------------
SECTION 11.07. 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 Servicer and the Certificate Insurer. Upon
receiving such notice of resignation, the Servicer shall promptly appoint a
successor Trustee (consented to and approved in writing by the Certificate
Insurer, such consent not to be unreasonably withheld) by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor Trustee. If no successor Trustee shall
have been so appointed and have accepted appointment within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 11.06 and shall fail to resign after written
-------------
request therefor by the Servicer or the Certificate Insurer, or if at any time
the Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Servicer or the Certificate Insurer may remove the
Trustee. If the Servicer or the Certificate Insurer shall remove the Trustee
under the authority of the immediately preceding sentence, the Servicer
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shall (so long as an Insurer Default shall not have occurred and be continuing)
with the written consent of the Certificate Insurer, or (unless an Insurer
Default shall have occurred and be continuing) at the written request of the
Certificate Insurer, or the Certificate Insurer shall, promptly appoint a
successor Trustee (which successor Trustee, if appointed by the Certificate
Insurer, shall be subject to the prior written consent of the Servicer, which
consent shall not be unreasonably withheld) by written instrument, in duplicate,
one copy of which instrument shall be delivered to the outgoing Trustee so
removed and one copy to the successor Trustee, and the Servicer shall pay all
fees and expenses owed to the outgoing Trustee. Any successor trustee shall (so
long as an Insurer Default shall not have occurred and be continuing) be
acceptable 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 shall not
become effective until acceptance of appointment by the successor Trustee
pursuant to Section 11.08 and payment of all fees and expenses owed to the
-------------
outgoing Trustee. The Servicer shall provide notice of such resignation or
removal of the Trustee to each of the Rating Agencies.
SECTION 11.08. Successor Trustee. Any successor Trustee appointed
-----------------
pursuant to Section 11.07 shall execute, acknowledge and deliver to the Servicer
-------------
and the Certificate Insurer and to its predecessor Trustee an instrument
accepting such appointment under this Agreement as Trustee 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 under this Agreement, with like effect as if originally named as
Trustee. The predecessor Trustee shall upon payment of its fees and expenses
deliver to the successor Trustee all documents and statements and monies held by
it under this Agreement; and the Servicer and the predecessor Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Trustee all such rights, powers, duties and obligations.
No successor Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Trustee shall be
eligible pursuant to Section 11.06.
-------------
Upon acceptance of appointment by a successor Trustee pursuant to this
Section, the Servicer shall mail notice thereof to all Certificateholders, the
Certificate Insurer and the Rating Agencies. If the Servicer shall fail to mail
such notice within
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10 days after acceptance of appointment by the successor Trustee, the successor
Trustee shall cause such notice to be mailed at the expense of the Servicer.
SECTION 11.09. 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 resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be eligible pursuant to Section 11.06, without the execution
-------------
or filing of any instrument or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding. The Trustee shall mail
notice of any such merger or consolidation to the Rating Agencies and the
Certificate Insurer.
SECTION 11.10. 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 or any Mortgaged Property is located, the Servicer, the Certificate
Insurer (provided an Insurer Default shall not have occurred and be continuing)
and the Trustee 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, jointly with the Trustee, or separate trustee or separate trustees, of
all or any part of the Trust, and to vest in such Person, in such capacity and
for the benefit of the Certificateholders, such title to the Trust or any part
thereof and, subject to the other provisions of this Section, such powers,
duties, obligations, rights, and trusts as the Servicer, the Certificate Insurer
and the Trustee may consider necessary or desirable. If the Servicer and the
Certificate Insurer shall not have joined in (or rejected the entity named in
the request) such appointment within 15 days after the receipt by it of a
request so to do, the Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor Trustee pursuant to
Section 11.06 and no notice of the appointment of any co-trustee or separate
- -------------
trustee shall be required pursuant to Section 11.08.
-------------
Each 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 any such separate trustee or co-trustee shall be conferred 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
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act), except to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed, 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 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 under this Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Agreement; and
(iii) Provided no Insurer Default shall have occurred and be
continuing, the Certificate Insurer may, and, in the event an Insurer Default
shall have occurred and be continuing, then, the Servicer 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 them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article. 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. Each
such instrument shall be filed with the Trustee and a copy thereof given to the
Servicer.
Any separate trustee or co-trustee may at any time appoint 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 co-trustee or separate trustee.
SECTION 11.11. Representations and Warranties of Trustee. The Trustee
-----------------------------------------
shall make the following representations and warranties on which the Seller and
Certificateholders shall be deemed to rely:
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(i) The Trustee is a national banking association duly organized,
validly existing and in good standing under the laws of the United States.
(ii) The Trustee has full corporate power, authority and legal right
to execute and deliver, and to perform its obligations under, this Agreement as
Trustee, and shall have taken all necessary action to authorize the execution
and delivery of, and the performance of its obligations under, this Agreement.
(iii) This Agreement shall have been duly executed and delivered by the
Trustee.
SECTION 11.12. No Bankruptcy Petition. The Trustee, by entering into
----------------------
this Agreement, and each Certificateholder, by accepting a Certificate, hereby
covenant and agree that they will not at any time, prior to the date that is one
year and one day after the termination of this Agreement, institute against, or
join any other Person in instituting against, the Trust any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
similar proceedings under any federal or state bankruptcy or similar law in
connection with the Certificates or this Agreement.
SECTION 11.13. Trustee's Certificate. On or as soon as practicable
---------------------
after each date as of which Loans shall be assigned to the Seller or the
Servicer pursuant to Section 11.14, the Trustee shall execute a Trustee's
-------------
Certificate (in the form of Exhibit E-1 or Exhibit E-2, as applicable), based on
----------- -----------
the information contained in the Servicer's Certificate for the related Monthly
Collection Period, amounts deposited to the Collection Account and notices
received pursuant to the Agreement, identifying the Loans (i) repurchased by the
Seller or for which Eligible Substitute Loans have been delivered by the Seller
pursuant to Section 3.02 or Section 4.01 or (ii) purchased by the Servicer
------------ ------------
pursuant to Section 5.01(d), during such Monthly Collection Period, and shall
---------------
deliver such Trustee's Certificate, accompanied by a copy of the Servicer's
Certificate for such Monthly Collection Period, to the Seller or the Servicer,
as applicable.
SECTION 11.14. Trustee's Assignment of Loans. With respect to all
-----------------------------
Loans repurchased by the Seller or Loans for which Eligible Substitute Loans
have been delivered by the Seller pursuant to Section 3.02 or Section 4.01 or
------------ ------------
purchased by the Servicer pursuant to Section 5.01(d), the Trustee shall by a
---------------
Trustee's Certificate (in the form of Exhibit E-1 or Exhibit E-2, as applicable)
----------- -----------
assign, without recourse, representation or warranty, to the Seller or the
Servicer, as applicable, all the Trustee's right, title and interest in and to
any such Loan and the other property conveyed to the Trust with respect thereto,
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and all security and documents relating thereto, such assignment being an
assignment outright and not for security.
SECTION 11.15. Appointment of Paying Agent. The Trustee is empowered
---------------------------
to appoint a Paying Agent for the purpose of making distributions to
Certificateholders pursuant to Section 6.07. Any Paying Agent appointed
------------
hereunder must be approved by the Certificate Insurer and satisfy the
eligibility requirements for the Trustee as set forth in Section 11.06, 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 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 Certificate-
holders and the Certificate Insurer entitled thereto until such sums shall be
paid to such Certificateholders.
SECTION 11.16. Limitation of Liability of Trustee. Notwithstanding
----------------------------------
anything contained herein to the contrary (i) this Agreement has been accepted
by U.S. Bank National Association not in its individual capacity but solely as
Trustee, and in no event shall U.S. Bank National Association have any liability
for the representations, warranties, covenants, agreements or other obligations
of the Seller hereunder or in any of the certificates, notices or agreements
delivered pursuant hereto, as to all of which recourse shall be had solely to
the assets of the Trust and (ii) under no circumstances shall U.S. Bank National
Association be liable for the payment of any indebtedness or expenses of the
Trust; provided, however, nothing contained herein shall relieve U.S. Bank
-------- -------
National Association of its obligations contained herein in its capacity as
successor Servicer and as Trustee.
SECTION 11.17. 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
74
<PAGE>
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.
[End of Article XI]
75
<PAGE>
ARTICLE XII
Termination
SECTION 12.01. Termination. (a) The respective obligations and
-----------
responsibilities of the Servicer, the Seller 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 XII following the earliest of (i) the Distribution
Date on which the Certificate Principal Balance has been reduced to zero and all
amounts owing to the Certificate Insurer have been paid; (ii) the final payment
or other liquidation of the last Loan and the disposition of any amounts
received or property acquired upon liquidation of any remaining Loans and (iii)
the Final Distribution Date; provided, however, that in no event shall the trust
-------- -------
created by this Agreement continue beyond the expiration of 21 years from the
death of the last survivor of the descendants of Joseph P. Kennedy, the late
ambassador of the United States to the Court of St. James, living on the date of
this Agreement. The Servicer shall promptly notify the other parties hereto and
the Certificate Insurer of any prospective termination pursuant to this Section.
(b) The Seller shall have the right to exercise the option to effect
the repurchase by the Seller of each outstanding Loan on any Distribution Date
on or after the date on which the Pool Balance is less than or equal to
$4,750,021 (five percent (5%) of the Original Pool Balance) and all amounts due
and owing to the Certificate Insurer and unreimbursed draws on the Policy,
together with interest thereon, as provided in the Insurance Agreement, have
been paid. The purchase price shall equal the outstanding Pool Balance plus
----
accrued interest thereon at the weighted average of the Loan Rates less, for so
----
long as Chevy Chase is the Servicer, the Servicing Fee Rate, through the day
preceding the Distribution Date on which the Loans are repurchased.
(c) Notice of any termination of the Trust, specifying the
Distribution Date on which Certificateholders shall surrender their Certificates
to the Trustee for payment of the final distribution and cancellation of the
Certificates, shall, upon receipt by the Trustee from the Servicer of such
notice, be given by the Trustee by letter to Certificateholders mailed not
earlier than the 15th day and not later than the 25th day of the month next
preceding the specified Distribution Date stating (A) the Distribution Date upon
which final payment of the Certificates shall be made upon presentation and
surrender of the Certificates at the office of the Trustee therein designated,
(B) the amount of such final payment and (C) that the Record Date otherwise
76
<PAGE>
applicable to such Distribution Date is not applicable, payments being made only
upon presentation and surrender of the Certificates at the office of the Trustee
therein specified. The Trustee shall give such notice to the Certificate
Registrar (if other than the Trustee) at the time such notice is given to
Certificateholders. Upon presentation and surrender of the Certificates, the
Trustee shall cause to be distributed to Certificateholders amounts
distributable on such Distribution Date pursuant to Section 6.07.
------------
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above mentioned written notice, the Trustee shall give a second written
notice to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
one year after such second notice all of the Certificates shall not have been
surrendered for cancellation, the Trustee may take appropriate steps, or may
appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets that shall remain
subject to this Agreement. Any funds remaining in the Trust after exhaustion of
such remedies shall be distributed by the Trustee to the Seller. As soon as
practicable after the termination of the Trust, the Trustee shall surrender the
Policy to the Certificate Insurer for cancellation.
[End of Article XII]
77
<PAGE>
ARTICLE XIII
Miscellaneous Provisions
SECTION 13.01. Amendment. (a) This Agreement may be amended from
---------
time to time by the Servicer, the Seller and the Trustee with the consent of the
Certificate Insurer (which consent shall not be unreasonably withheld) 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
maintain the status of the Trust as a grantor trust for federal income tax
purposes, (iv) to add or delete any other provisions with respect to matters or
questions arising hereunder that are not inconsistent herewith, (v) to add or
amend any provisions herein as required by the Rating Agencies in order to
maintain or improve the rating of the Certificates (it being understood that,
after obtaining the ratings in effect on the Closing Date, neither the Seller
nor the Servicer is obligated to obtain, maintain or improve any such rating) or
(vi) 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 each case such action shall not adversely affect in any material
respect the interests of any Certificateholder (and provided that any such
amendment will be deemed not to materially and adversely affect the
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 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 Certificates
without regard to the Policy); provided that no such amendment shall be made
--------
unless such amendment will not, as evidenced by an Opinion of Counsel,
materially increase the likelihood of the Trust failing to be a grantor trust
for federal income tax purposes.
This Agreement may also be amended from time to time by the Servicer,
the Seller and the Trustee, with the consent of the Certificate Insurer and the
Holders of Certificates evidencing not less than 51% of the Certificate
Principal Balance, and the Servicer, the Trustee and the Certificate Insurer may
from time to time consent to the amendment of the 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 Policy, as the case may be, or of modifying
in any manner the rights of the Certificateholders; provided, however, that no
-------- -------
such amendment shall (i) reduce in any manner the amount of, or delay the timing
of, collections of payments of Loans or distributions or payments under the
Policy which are required to be made on any Certificate, without the consent of
the Holder of such
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<PAGE>
Certificate, or (ii) reduce the aforesaid percentage required to consent to any
such amendment, without the consent of the Holder of each Certificate then
outstanding.
Prior to the execution of any such amendment made with the consent of
the Certificateholders, the Trustee shall furnish written notification of the
substance of such amendment to each Rating Agency and the Certificate Insurer.
Promptly after the execution of any such amendment made with the consent of the
Certificateholders, the Trustee shall furnish written notification of the
substance of such amendment to each 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 Certificateholders under
this Section 13.01 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 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.
(b) In connection with any amendment pursuant to this Section 13.01,
as a condition precedent to the effectiveness thereof, each of the Trustee and
the Certificate Insurer shall (i) receive an Opinion of Counsel (a) that such
amendment will not adversely affect the federal income tax characterization of
the Certificates, (b) that such amendment will not cause the Trust to be treated
as an association (or publicly traded partnership) taxable as a corporation, (c)
that such amendment will not cause or constitute an event in which gain or loss
would be recognized by any Certificateholder and (d) that such amendment will
not cause adverse federal income tax consequences to the Trust or the
Certificateholders and (ii) be entitled to receive and rely on an Opinion of
Counsel to the effect that such amendment is authorized or permitted by this
Agreement.
(c) Notwithstanding anything to the contrary contained in Section
-------
13.01(a), the provisions of this Agreement relating to (i) the Reserve Fund or
- --------
the Specified Reserve Fund Requirement, and (ii) any additional sources of funds
which may
be added to the Reserve Fund or uses of funds on deposit in the Reserve Fund may
be amended in any respect by the Seller, the Servicer, the Trustee and the
Certificate Insurer without the consent of, or notice to, the
Certificateholders.
79
<PAGE>
SECTION 13.02. 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
Mortgaged Properties 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 or the Certificate Insurer, but only upon
direction of the Trustee or the Certificate Insurer accompanied by an Opinion of
Counsel to the effect that such recordation materially and beneficially affects
the interests of Certificateholders or the Certificate Insurer.
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, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
SECTION 13.03. 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.
No Certificateholder shall have any right to vote (except as provided
in Section 13.01 (subject in all events to the delegation of such voting rights
-------------
described therein)) or in any manner otherwise control the operation and
management of the Trust, or the obligations of the parties hereto, nor shall any
Certificateholder be under any liability to any third person by reason of any
action taken by the parties to this Agreement pursuant to any provision hereof.
No 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 Certificates evidencing not less than 25% of the aggregate
Certificate Principal Balance of Certificates, with the consent of the
Certificate Insurer, 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)
80
<PAGE>
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 13.03, each and every Certificateholder and the Trustee shall be
-------------
entitled to such relief as can be given either at law or in equity.
SECTION 13.04. Protection of Title to Trust. (a) The Seller shall
----------------------------
execute and file such financing statements and cause to be executed and filed
such continuation statements, all in such manner and in such places as may be
required by law fully to preserve, maintain and protect the interest of the
Certificateholders, the Certificate Insurer and the Trustee in the Loans and in
the proceeds thereof. The Seller shall deliver (or cause to be delivered) to
the Trustee and the Certificate Insurer file-stamped copies of, or filing
receipts for, any document filed as provided above, as soon as available
following such filing.
(b) Neither the Seller nor the Servicer shall change its name,
identity or corporate structure in any manner that would, could or might make
any financing statement or continuation statement filed in accordance with
paragraph (a) above seriously misleading within the meaning of Section 9-402(7)
of the UCC, unless it shall have given the Trustee and Certificate Insurer at
least 20 days' prior written notice thereof and shall have promptly filed
appropriate amendments to all previously filed financing statements or
continuation statements. Promptly upon such filing, the Seller or the Servicer,
as the case may be, shall deliver an Opinion of Counsel, in form and substance
reasonably satisfactory to the Certificate Insurer, to the effect that either
(A) all financing statements and continuation statements have been executed and
filed that are necessary fully to preserve and protect the interest of the Trust
in the portion of the Trust Property with respect to which the filing of
financing statements is sufficient to perfect a security interest, including the
Loans, and reciting the details of such filings or referring to prior Opinions
of Counsel in which such details are given, or (B) no such action shall be
necessary to preserve and protect such interest.
(c) Each of the Seller and the Servicer shall have an obligation to
give the Trustee and Certificate Insurer at least
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<PAGE>
30 days' prior written notice of any relocation of its principal executive
office if, as a result of such relocation, the applicable provisions of the UCC
would require the filing of any amendment of any previously filed financing or
continuation statement or of any new financing statement, and shall promptly
file any such amendment or new financing statement. The Servicer shall at all
times maintain its principal executive office and each office from which it
shall service Loans within the United States of America.
(d) The Servicer shall maintain accounts and records as to each Loan
accurately and in sufficient detail to permit (i) the reader thereof to know at
any time the status of such Loan, including payments and recoveries made and
payments owing (and the nature of each) and (ii) reconciliation between payments
or recoveries on (or with respect to) each Loan and the amounts from time to
time deposited in the Collection Account in respect of such Loan.
(e) The Servicer shall maintain its computer systems so that, from and
after the time of sale under this Agreement of the Loans to the Trustee, the
Servicer's Electronic Ledger (including any back-up archives) that refer to a
Loan shall indicate clearly the interest of the Trust in such Loan, and that
such Loan is owned by the Trust. Indication of the Trust's ownership of a Loan
shall be deleted from or modified on the Servicer's computer systems when, and
only when, such Loan shall have been paid in full, repurchased or substituted
for.
(f) If at any time the Seller or the Servicer shall propose to sell,
grant a security interest in, or otherwise transfer any interest in Closed-end
Home Equity Loans or Home Loans to any prospective purchaser, lender or other
transferee, the Servicer shall give to such prospective purchaser, lender or
other transferee computer tapes, records or print-outs (including any restored
from back-up archives) that, if they shall refer in any manner whatsoever to any
Loan, shall indicate clearly that such Loan has been sold and is owned by the
Trustee.
(g) The Servicer shall permit the Trustee and the Certificate Insurer
and their respective agents at any time during normal business hours to inspect,
audit and make copies of and abstracts from the Servicer's records regarding any
Loan or any other portion of the Trust Property. The preceding sentence shall
not create any duty or obligation on the part of the Trustee to perform any such
acts.
(h) Upon request, the Servicer shall furnish to the Trustee or the
Certificate Insurer, within ten Business Days, a list of all Loans (by contract
number and name of Obligor) then held as part of the Trust, together with a
reconciliation of such list to the Loan Schedule and to each of the Officer's
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<PAGE>
Certificates furnished before such request indicating removal of Loans from the
Trust.
SECTION 13.05. Separate Counterparts. This Agreement may be executed
---------------------
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 13.06. 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 WITHOUT REFERENCE TO THE CONFLICTS OF LAW PROVISIONS THEREOF;
PROVIDED, HOWEVER, THAT THE 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 13.07. 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 Seller or the Servicer, c/o
Chevy Chase Bank, F.S.B., 8401 Connecticut Avenue, Chevy Chase, Maryland 20815,
Attention: _____________________________________, telecopy: (301) ___-____, (b)
in the case of the Trustee or Paying Agent, at the Corporate Trust Office; (c)
in the case of the Certificate Insurer, to Capital Markets Assurance
Corporation, 885 Third Avenue, New York, New York 10022; Attention: Managing
Director-Consumer Structured Finance, telecopy (212) 891-1456 (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.
SECTION 13.08. 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
83
<PAGE>
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 13.09. Assignment. Notwithstanding anything to the contrary
----------
contained herein, except as provided in Section 9.03 and Section 9.06, this
------------ ------------
Agreement may not be assigned by the Seller or the Servicer without the prior
written consent of the Certificate Insurer. The Seller shall not sell, transfer
or assign any of its rights hereunder except (i) to the Certificate Insurer and
(ii) to any other third party the right to receive distributions from the
Reserve Fund (such transfer to any third party other than the Certificate
Insurer, a "Permitted Transfer"). In connection with any Permitted Transfer, as
------------------
a condition precedent to the effectiveness thereof, the Trustee shall receive an
Opinion of Counsel (a) that such Permitted Transfer will not adversely affect
the federal income tax characterization of the Certificates, (b) that such
Permitted Transfer will not cause the Trust to be treated as an association (or
publicly traded partnership) taxable as a corporation, (c) that such Permitted
Transfer will not cause or constitute an event in which gain or loss would be
recognized by any Certificateholder and (d) that such Permitted Transfer will
not cause adverse federal income tax consequences to the Trust or the
Certificateholders. Any purported sale, transfer, or assignment of the Seller's
rights hereunder, including a Permitted Transfer, in violation of the foregoing
shall be void ab initio.
-- ------
SECTION 13.10. 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 8.02 are and shall be
------------
deemed fully paid.
SECTION 13.11. 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 13.12. 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.
84
<PAGE>
SECTION 13.13. 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 13.14. 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.
SECTION 13.15. Certificate Insurer as Controlling Party. Each
----------------------------------------
Certificateholder by purchase of the Certificates held by it acknowledges that
the Trustee on behalf of the Trust, as partial consideration of the issuance of
the Policy, has agreed that the Certificate Insurer shall have certain rights
hereunder for so long as no Insurer Default shall have occurred and be
continuing. So long as an Insurer Default has occurred and is continuing, any
provision giving the Certificate Insurer the right to direct, appoint or consent
to, approve of, or take any action under this Agreement shall be inoperative
during the period of such Insurer Default and such right shall instead vest in
the Trustee acting at the direction of the Holders of Certificates. The
Certificate Insurer may disclaim any of its rights and powers under this
Agreement (but not its duties and obligations under the Policy) upon delivery of
a written notice to the Trustee. The Certificate Insurer may give or withhold
any consent hereunder in its reasonable discretion.
SECTION 13.16. Representation of Certificateholders. Each
------------------------------------
Certificateholder, by virtue of its acceptance of a Certificate, is deemed to
have represented that it is not an employee benefit plan or other retirement
arrangement subject to Title I of the Employee Retirement Income Security Act of
1974, as amended, and or Section 4975 of the Internal Revenue Code of 1986, as
amended, or an entity whose underlying assets include plan assets by reason of
such plan or account investing in such an entity (including insurance company
separate or general accounts and collective investment funds).
SECTION 13.17 Grant of Security Interest. In the event that,
--------------------------
notwithstanding the intent of the Seller, the transfer and assignment of any
Trust Property contemplated hereby is held not to be a sale, this Agreement
shall constitute a grant of a security interest to the Trustee for the benefit
of the Certificateholders and the Certificate Insurer in the property referred
to in Section 3.01, and the Eligible Account
------------
85
<PAGE>
constituting the Reserve Fund and any earnings thereon, and any investments held
therein or purchased with funds deposited therein from time to time, but
specifically excluding any rights the Seller has hereunder to distributions or
payments made from any such Eligible Account or the Trust, whether or not such
payment or distribution should be deemed to constitute "proceeds" of any such
Account or of any investment held therein or purchased with funds deposited
therein.
[End of Article XIII]
86
<PAGE>
IN WITNESS WHEREOF, the Seller, the Servicer and the Trustee have caused
this Agreement to be duly executed and delivered by their respective duly
authorized officers as of the day and the year first above written.
CHEVY CHASE BANK, F.S.B.
as Seller and Servicer,
By:
---------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION,
doing business as First Bank
National Association, as
Trustee,
By:
---------------------
Name:
Title:
<PAGE>
State of New York )
) ss.:
County of New York )
On the ___ day of September 1997, before me, a notary public in and for the
State of New York, personally appeared Mark Holles, known to me who, being by me
duly sworn, did depose and say that he is Vice President of Chevy Chase Bank,
F.S.B., a federal savings bank organized under the laws of the United States,
being among the parties that executed the foregoing instrument; and that he
signed his name thereto by like authority.
Notary Public
[Notarial Seal]
<PAGE>
State of New York )
) ss.:
County of New York )
On the ___ day of September 1997 before me, a notary public in and for
the State of New York, personally appeared _______________________, known to me
who, being by me duly sworn, did depose and say that he is a ______________ of
U.S. Bank National Association, doing business as First Bank National
Association, one of the parties that executed the foregoing instrument; and that
he signed his name thereto by authority of the Board of Directors of said Bank.
Notary Public
[Notarial Seal]
<PAGE>
EXHIBIT A
FORM OF CERTIFICATE
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.
DISTRIBUTIONS IN REDUCTION OF THE PRINCIPAL BALANCE OF THIS
CERTIFICATE WILL BE MADE IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE
OUTSTANDING PRINCIPAL AMOUNT OF THIS CERTIFICATE AT ANY TIME MAY BE LESS THAN
THE AMOUNT SHOWN ON THE FACE HEREOF.
NUMBER: 1 CUSIP NO. _______
Initial Certificate Final Distribution Date:
Balance: $95,000,000 The Distribution Date in May 2018
Pass-Through Rate: 6.55%
CHEVY CHASE HOME LOAN TRUST 1997-1
6.55% HOME LOAN ASSET BACKED CERTIFICATE, SERIES 1997-1
evidencing an undivided ownership interest in the Trust, as defined below, the
property of which includes a pool of certain closed-end home equity loans,
certain debt consolidation loans and certain conventional home improvement
installment sales contracts and installment loan agreements, most of which are
secured primarily by second or third deeds of trust on residential properties
that are primarily one-to-four family properties.
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF CHEVY CHASE
BANK, F.S.B. OR ANY OF ITS AFFILIATES.
THIS CERTIFIES THAT Cede & Co. is the registered owner of NINETY-FIVE
MILLION DOLLARS nonassessable, fully-paid, undivided ownership interest in Chevy
Chase Home Loan Trust 1997-1 (the "Trust") formed pursuant to the Pooling and
-----
Servicing Agreement (the "Agreement") dated as of September 1, 1997, between
---------
Chevy Chase Bank, F.S.B., a federal savings bank organized under the laws of the
United States, as Seller (the
A-1
<PAGE>
"Seller") and as servicer (in such capacity, the "Servicer"), and U.S. Bank
------ --------
National Association, a national banking association, doing business as First
Bank National Association, as Trustee, a summary of certain of the pertinent
provisions of which is set forth below. To the extent not otherwise defined
herein, the capitalized terms used herein have the meanings assigned to them in
the Agreement.
This Certificate is one of a duly authorized series of Certificates,
designated as the 6.55% Home Loan Asset Backed Certificates, Series 1997-1 (the
"Certificates") issued under the Agreement, to which Agreement reference is
------------
hereby made for a statement of the respective rights and obligations thereunder
of the Seller, the Servicer, the Trustee and Holders of the Certificates. The
Certificates are subject to all terms of the Agreement.
The property of the Trust includes (i) a pool of certain closed-end
home equity loans, certain debt-consolidation loans and certain conventional
home improvement installment sales contracts and installment loan agreements
transferred to the Trust on the date of the issuance of the Certificates, (the
"Loans"), most of which are secured by second or third deeds of trust or
- ------
mortgages on one-to-four family residential properties, (ii) collections in
respect of the Loans received on or after the Cut-off Date, a financial guaranty
insurance policy (the "Policy") issued by Capital Markets Assurance Corporation
------
(the "Certificate Insurer"), proceeds from claims on certain insurance policies
-------------------
and all proceeds of the foregoing.
Under the Agreement, there will be distributed (i) on the 20th day of
each month or, if such 20th day is not a Business Day, the next Business Day
(each, a "Distribution Date"), commencing on October 20, 1997 to the Person in
-----------------
whose name this Certificate is registered at the close of business on the day
immediately preceding such Distribution Date (the "Record Date"), such
-----------
Certificateholder's undivided interest in the Interest Distributable Amount to
be distributed to Certificateholders on such Distribution Date and such
Certificateholder's undivided interest in the Principal Distributable Amount to
be distributed to Certificateholders on such Distribution Date.
The "Interest Distributable Amount" means, with respect to each
-----------------------------
Distribution Date, the sum of (i) interest accrued during the related Interest
---
Period at the Pass-Through Rate on the Certificate Principal Balance immediately
preceding such Distribution Date plus (ii) any Certificateholders' Interest
----
Carryover Shortfall.
The "Principal Distributable Amount" for any Distribution Date means
an amount equal to the lesser of (a) the sum of (i) the Principal Collections
------ ---
for such Distribution Date plus (ii) any Liquidation Loss Amount for the related
----
Monthly
A-2
<PAGE>
Collection Period plus (iii) any portion of the Principal Distributable Amount
----
for any prior Distribution Date that was not previously distributed and (b) the
outstanding Certificate Principal Balance of the Certificates; provided,
--------
however, that on the Final Distribution Date, the Principal Distributable Amount
- -------
will equal the Certificate Principal Balance; and provided further, however,
-------- ------- -------
that in no event will the aggregate amount distributed to Certificateholders in
respect of principal exceed the Initial Certificate Principal Balance.
Full and complete payment of the Interest Distributable Amount and the
Principal Distributable Amount on each Distribution Date and, on the Final
Distribution Date, the payment to the Certificateholders of the outstanding
Certificate Principal Balance is unconditionally and irrevocably guaranteed
pursuant to the Policy.
It is the intent of the Seller and the Certificate holders that, for
purposes of federal income, state and local income and single business tax and
any other income taxes, the Trust will be treated as a grantor trust. The
Seller, the Servicer, the Trustee and the Certificateholders, by acceptance of
this Certificate, agree to treat, and to take no action inconsistent with the
treatment of, the Trust as a grantor trust for such tax purposes.
In the event that the Trust is not treated as a grantor trust for
federal income tax purposes, it is the intention of the Seller, the Servicer,
the Trustee and each Certificateholder that all Certificateholders (and any
other person that is deemed to have an interest in the Trust) will elect out
(under Secton 761 of the code) of partnership accounting for federal income tax
purposes. Each Certificateholder, by its acceptance of its Certificate (and
each other person deemed to have an interest in the Trust) agrees to make such
election and to report the transactions contemplated by this Agreement on all
tax returns in a manner consistent with such election.
Distributions on this Certificate will be made as provided in the
Agreement by the Trustee by check mailed to the Certificateholder of record in
the Certificate Register without the presentation or surrender of this
Certificate or the making of any notation hereon, or, if so instructed by a
holder of Certificates representing at least $5,000,000, by wire transfer,
except that with respect to Certificates registered on the Record Date in the
name of the nominee of the Clearing Agency (initially, such nominee to be Cede &
Co.), payments will be made by wire transfer in immediately available funds to
the account designated by such nominee. Except as otherwise provided in the
Agreement and notwithstanding the above, the final distribution on this
Certificate will be made after due notice by the Trustee of the pendency of such
distribution and only upon presentation and surrender of this Certificate at the
office or agency
A-3
<PAGE>
maintained for that purpose by the Trustee specified in such notice.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Trustee by manual signature, this
Certificate shall not entitle the Holder hereof to any benefit under the
Agreement or be valid for any purpose.
THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
A-4
<PAGE>
IN WITNESS WHEREOF, the Trustee, on behalf of the Trust and not in its
individual capacity, has caused this Certificate to be duly executed.
Date: __________ __, 19__
CHEVY CHASE HOME LOAN TRUST 1997-1
By: ______________________________,
not in its individual capacity
but solely as Trustee
By: ______________________________
Authorized Signatory
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned Agreement.
Date: __________________________________ as Trustee
By: ______________________________ Authorized Signatory
A-5
<PAGE>
(REVERSE OF CERTIFICATE)
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF, OR AN INTEREST
IN, THE SELLER, THE SERVICER, THE TRUSTEE OR ANY AFFILIATES OF ANY OF THEM, AND
NO RECOURSE MAY BE HAD AGAINST SUCH PARTIES OR THEIR ASSETS EXCEPT AS EXPRESSLY
SET FORTH OR CONTEMPLATED HEREIN OR IN THE AGREEMENT. IN ADDITION, THIS
CERTIFICATE IS LIMITED IN RIGHT OF PAYMENT TO CERTAIN COLLECTIONS AND RECOVERIES
WITH RESPECT TO THE LOANS (AND CERTAIN OTHER AMOUNTS) AND RIGHTS TO CERTAIN
AMOUNTS ON DEPOSITS IN THE RESERVE FUND AND CLAIMS MADE UNDER THE POLICY, ALL AS
MORE SPECIFICALLY SET FORTH HEREIN AND IN THE AGREEMENT. A copy of the Agreement
may be examined by any Certificateholder upon written request during normal
business hours at the principal office of the Seller and at such other places,
if any, designated by the Seller.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Seller, the Servicer and the Trustee and the rights of the Certificateholders at
any time by the Seller, the Servicer and the Trustee with the consent of the
Certificate Insurer and the Holders of Certificates evidencing not less than a
majority of the Certificate Principal Balance. Any such consent by the Holder
of this Certificate shall be conclusive and binding on such Holder and on all
future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange hereof or in lieu hereof, whether or not notation
of such consent is made upon this Certificate. The Agreement also permits the
amendment thereof, in certain limited circumstances, without the consent of the
Holders of any of the Certificates.
As provided in the Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Trustee in the City of St. Paul, Minnesota, accompanied by a written
instrument of transfer in form satisfactory to 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 Certificates of authorized
denominations evidencing the same aggregate interest in the Trust will be issued
to the designated transferee. The initial Certificate Registrar appointed under
the Agreement is U.S. Bank National Association.
Except as provided in the Agreement, the Certificates are issuable
only as registered certificates without coupons in a minimum denomination of
$1,000. As provided in the Agreement and subject to certain limitations therein
set forth, Certificates
A-6
<PAGE>
are exchangeable for new Certificates of authorized denominations evidencing the
same aggregate denomination, as requested by the Holder surrendering the same.
No service charge will be made for any such registration of transfer or
exchange, but the Trustee or the Certificate Registrar may require payment of a
sum sufficient to cover any tax or governmental charge payable in connection
therewith.
The Trustee, the Certificate Registrar and any agent of the Trustee
or the Certificate Registrar may treat the Person in whose name this Certificate
is registered as the owner hereof for all purposes, and none of the Trustee, the
Certificate Registrar or any such agent shall be affected by any notice to the
contrary.
The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon the payment to Certificateholders of
all amounts required to be paid to them pursuant to the Agreement and the
disposition of all property held by the Trust. The Seller may at its option
purchase the Loans at a price specified in the Agreement, and such purchase of
the Loans and other property of the Trust will effect early retirement of the
Certificates; provided, however, that such right of purchase is exercisable only
-------- -------
on any Distribution Date on or after the date on which the Pool Balance is less
than or equal to 5% of Original Pool Balance and all amounts due and owing to
the Certificate Insurer and unreimbursed draws on the Policy, together with
interest thereon, as provided in the Insurance Agreement, have been paid.
A-7
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(Please print or type name and address, including postal zip
- ---------------
code, of assignee)
- --------------------------------------------------------------------------------
the within Certificate, and all rights thereunder, hereby
- ---------------
irrevocably constituting and appointing ____________________________ to transfer
said Certificate on the books of the Certificate Registrar, with full power of
substitution in the premises.
Dated:
*/
- -------------------------------------------
Signature Guaranteed:
*/
- ----------------------------
- -----------------------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-8
<PAGE>
EXHIBIT B
---------
Depository Agreement
--------------------
[to be attached]
B-1
<PAGE>
EXHIBIT C-1
Form of Initial Certification of Trustee
----------------------------------------
Chevy Chase Bank, F.S.B. _________ __, 1997
8401 Connecticut Avenue
Chevy Chase, Maryland 20815
Ladies and Gentlemen:
In accordance with Section 3.02 of the Pooling and Servicing
Agreement (the "Agreement") dated as of September 1, 1997 between Chevy Chase
---------
Bank, F.S.B., as seller and as servicer, and U.S. Bank National Association,
doing business as First Bank National Association, as trustee (the "Trustee"),
-------
the undersigned hereby acknowledges that it is in possession of ____ Boxes said
to contain a Loan File (other than any Assignments of Mortgages in connection
with Secured Loans transferred on the date hereof) with respect to each Loan
identified in the Loan Schedule (the "Loan Schedule") to the Agreement.
-------------
The Trustee makes no representation as to: (i) the validity,
legality, enforceability, recordability or genuineness of the Loan Files
identified on the Loan Schedule or (ii) the collectability, insurability,
effectiveness or suitability of any such Loan. The Trustee has not conducted an
independent review of the Loan Files other than as specified above.
All capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Pooling and Servicing Agreement.
U.S. Bank National Association,
doing business as First Bank
National Association,
as Trustee
By:
-------------------
Name:
Title:
C-1-1
<PAGE>
EXHIBIT C-2
Form of Certification of Trustee
--------------------------------
Chevy Chase Bank, F.S.B. _____ __, 199_
8401 Connecticut Avenue
Chevy Chase, Maryland 20815
Ladies and Gentlemen:
In accordance with Section 3.02 of the Pooling and Servicing
Agreement (the "Agreement") dated as of September 1, 1997 between Chevy Chase
---------
Bank, F.S.B., as Seller and as servicer, and U.S. Bank National Association,
doing business as First Bank National Association, as trustee (the "Trustee"),
-------
the undersigned hereby certifies that as to each [Secured] Loan identified in
the Loan Schedule (the "Loan Schedule" to the Agreement other than any Loan paid
-------------
in full or indicated on the attached Schedule) [it has received each document
other than the Assignment of Mortgage] [it has received the related Assignment
of Mortgage] specified in Section [3.01(b)] [3.01(d)]of the Agreement.
---------------------------
Based on its review and examination and only as to the foregoing
documents, such documents appear regular on their face and related to each such
Loan.
The Trustee makes no representation as to: (i) the validity,
legality, enforceability, recordability or genuineness of the documents
identified above with respect to each Loan or (ii) the collectability,
insurability, effectiveness or suitability of any such Loan. The Trustee has not
conducted an independent review of the Loan Files other than as specified above.
All capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Agreement.
U.S. BANK NATIONAL ASSOCIATION,
doing business as First
Bank National Association,
as Trustee
By:
---------------------------
Name:
Title:
C-2-1
<PAGE>
EXHIBIT E-1
FORM OF TRUSTEE' CERTIFICATE - ASSIGNMENT TO SELLER
Trustee's Certificate pursuant to Section 11.14 of the Pooling and
-------------
Servicing Agreement.
U.S. Bank National Association, doing business as First Bank National
Association as trustee (the "Trustee") of Chevy Chase Home Loan Trust 1997-1,
created pursuant to the Pooling and Servicing Agreement dated as of September 1,
1997 (the "Agreement"), between Chevy Chase Bank, F.S.B., as "Seller" and
--------- ------
"Servicer" and the Trustee, does hereby sell, transfer, assign and otherwise
--------
convey to the Seller, without recourse, representation or warranty, all of the
Trustee's right, title and interest in and to all of the Loans (as defined in
the Agreement) identified in the attached Servicer's Certificate as "Repurchased
-----------
Loans," which are to be repurchased by the Seller or for which Eligible
- -----
Substitute Loans are to be transferred by the Seller pursuant to Section 3.02(c)
of the Agreement, and all security and documents relating thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this _______ day of
______________________, 199___.
U.S. BANK NATIONAL ASSOCIATION,
doing business as First
Bank National Association,
as Trustee
By:
----------------------------
Name:
Title:
E-1-1
<PAGE>
EXHIBIT E-2
FORM OF TRUSTEE' CERTIFICATE - ASSIGNMENT TO SERVICER
Trustee's Certificate pursuant to Section 11.14 of the Pooling and
-------------
Servicing Agreement.
U.S. Bank National Association, doing business as First Bank National
Association as trustee (the "Trustee") of Chevy Chase Home Loan Trust 1997-1,
-------
created pursuant to the Agreement dated as of September 1, 1997 (the
"Agreement"), between Chevy Chase Bank, F.S.B., as "Seller" and "Servicer" and
--------- ------ --------
the Trustee, does hereby sell, transfer, assign and otherwise convey to the
Servicer, without recourse, representation or warranty, all of the Trustee's
right, title and interest in and to all of the Loans (as defined in the
Agreement) identified in the attached Servicer's Certificate as "Purchased
---------
Loans," which are to be purchased by the Servicer pursuant to Section 5.01(d) of
---------------
the Agreement, and all security and documents relating thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this _______ day of
______________________, 199___.
U.S. BANK NATIONAL ASSOCIATION,
doing business as First
Bank National Association,
as Trustee
By:
----------------------------
Name:
Title:
E-2-1
<PAGE>
EXHIBIT E-1A
FORM OF SELLER CERTIFICATE - ASSIGNMENT TO TRUSTEE
Seller's Certificate pursuant to Section 3.02 of the Pooling and Servicing
------------
Agreement.
Pursuant to the Pooling and Servicing Agreement dated as of September 1,
1997 (the "Agreement") between Chevy Chase Bank, F.S.B., as the "Seller" and
--------- ------
"Servicer" and U.S. Bank National Association, doing business as First Bank
--------
National Association as trustee (the "Trustee"), the Seller does hereby sell,
-------
transfer, assign and otherwise convey to the Trustee, without recourse, all of
the Seller's right, title and interest in and to all of the Loans (as defined in
the Agreement) identified in Schedule A attached hereto as "Eligible Substitute
-------------------
Loans," which are to be transferred to the Trustee and held in trust for the
- -----
benefit of the Certificateholders and the Certificate Insurer, and all security
and documents relating thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this _______ day of
______________________, 199___.
CHEVY CHASE BANK, F.S.B.
By:
------------------
Name:
Title:
E-1A-1
<PAGE>
EXHIBIT F
FORM OF SERVICER'S CERTIFICATE
CHEVY CHASE HOME LOAN TRUST 1997-1 6.55% Asset Backed Certificates, Series
1997-1.
Distribution Date:
Monthly Collection Period:
Under the Pooling and Servicing Agreement dated as of September 1, 1997
between Chevy Chase Bank, F.S.B., as Seller and Servicer and U.S. Bank National
Association, doing business as First Bank National Association, as Trustee, the
Servicer is required to prepare certain information each month regarding current
distributions to Certificateholders and the performance of the Trust during the
previous month. The information that the Servicer is required to prepare with
respect to the Distribution Date and Monthly Collection Period listed above is
set forth below. Certain of the information is presented on the basis of an
original principal amount of $1,000 per Certificate, and certain other
information is presented based upon the aggregate amounts for the Trust as a
whole.
A. Information Regarding the Current Monthly Distribution.
1. Certificates.
(a) The aggregate amount of the
distribution to Certificateholders . . . . . $________
(b) The amount of the distribution set
forth in paragraph A.1.(a) in
respect of Interest Collections . . . . . . . $________
(c) The amount of the distribution set
forth in paragraph A.1.(a) in
respect of Certificateholders'
Interest Carryover Shortfall . . . . . . . . $________
(d) The amount of the distribution set
forth in paragraph A.1.(a) in
respect of Principal Collections . . . . . . $________
(e) The amount of the reimbursement of
previous Liquidation Loss Amounts
included in the amount set forth
in paragraph A.1(d) . . . . . . . . . . . . . $________
F-1
<PAGE>
(f) The amount of the aggregate
unreimbursed Liquidation Loss
Amounts after giving effect to
the distribution in A.1.(a) . . . . . . . . . $________
(g) The amount of the distribution set
forth in paragraph A.1.(a)
per $1,000 interest . . . . . . . . . . . . . $________
(h) The amount of the distribution set
forth in paragraph A.1.(b)
per $1,000 interest . . . . . . . . . . . . . $________
(i) The amount of the distribution set
forth in paragraph A.1.(c)
per $1,000 interest . . . . . . . . . . . . . $________
(j) The amount of the distribution set
forth in paragraph A.1.(d)
per $1,000 interest . . . . . . . . . . . . . $________
B. Information Regarding the Performance of the Trust.
1. Pool Balance and Certificate Principal Balance.
(a) The Pool Balance at the close of business on
the last day of the Monthly
Collection Period . . . . . . . . . . . . . . . $_____
(b) The Certificate Principal Balance after
giving effect to principal distributions
set forth in Paragraph A.1(d) . . . . . . . . . $_____
(c) The number and aggregated principal
balance of Loans which are delinquent
by 30-59 days, 60-89 days and 90 or
more days or at the end of the close
of business on the last day of the
preceding Monthly Collection Period:
<TABLE>
<CAPTION>
Days Delinquent Number Amount
--------------- ------ ------
<S> <C> <C>
30-59
60-89
90 or more
</TABLE>
(d) The aggregate Liquidation Loss Amount
for all Loans that became Liquidated
Loans in the Monthly Collection Period . . . . $_____
F-2
<PAGE>
2. Servicing Fee.
The aggregate amount of the Servicing
Fee paid to the Servicer with respect
to the preceding Monthly Collection Period . . $_____
3. Payment Shortfalls.
(a) The amount of the Certificateholders'
Interest Carryover Shortfall after
giving effect to the distributions set
forth in paragraph A.1(b) . . . . . . . . . . . $_____
(b) The amount of the Certificateholders'
Interest Carryover Shortfalls set
forth in paragraph B.3.(a) per
$1,000 interest . . . . . . . . . . . . . . . . $_____
4. Draws on Policy
(a) Amount of the distribution set forth
in paragraph A.1(a) in respect of a
draw on the Policy . . . . . . . . . . . . . . $_____
(b) Amount of the distribution set forth
in paragraph A.1(b) in respect of a
draw on the Policy . . . . . . . . . . . . . . $_____
(c) Amount of the distribution set forth
in paragraph A.1(d) in respect of a
draw on the Policy . . . . . . . . . . . . . . $_____
5. Reserve Fund
(a) The Specified Reserve Fund Requirement
and the amount on deposit in the Reserve
Fund after giving effect to the distribution
in paragraph A-1(a) . . . . . . . . . . . . . . $_____
(b) The Reserve Fund Interest Transfer
Amount and the Reserve Fund Principal
Transfer Amount . . . . . . . . . . . . . . . . $_____
F-3
<PAGE>
EXHIBIT G
AFTER RECORDATION,
PLEASE RETURN TO:
FORM OF POWER OF ATTORNEY
THIS POWER OF ATTORNEY, dated as of this ______ day of __________________,
1997, is granted for the purposes set forth herein, to CHEVY CHASE BANK, F.S.B.,
------------------------
whose address is 8401 Connecticut Avenue, Chevy Chase, Maryland 20815 (the
"Attorney in Fact"), by U.S. BANK NATIONAL ASSOCIATION, doing business as First
Trust National Association (the "Principal"), a national banking association,
whose address is 180 East 5th Street, St. Paul, Minnesota 55101, Attn: Corporate
Trust Office in its capacity as trustee under that certain Pooling and Servicing
Agreement dated as of September 1, 1997, between the Principal and the Attorney
in Fact (the "Agreement").
WHEREAS, U.S. Bank National Association is the trustee under the Agreement,
for the benefit of 6.55% Home Loan Asset-Backed Certificates, Series 1997-1
issued thereunder;
WHEREAS, pursuant to the Agreement, (i) the Attorney in Fact transferred
and assigned to the Principal certain right, title and interest of the Attorney
in Fact in and to certain loans (the "Loans") including but not limited to the
deeds of trust that secure the Loans (the "Deeds of Trust"); and (ii) Attorney
in Fact is to service and administer the Loans in accordance with the Agreement;
and
WHEREAS, the Principal deems it desirable to execute this Power of Attorney
for the purpose of confirming the authority of the Attorney in Fact, as
described herein.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the parties hereby agree as follows:
1. Appointment of Attorney in Fact. The Principal hereby appoints the
-------------------------------
Attorney in Fact, acting by and through its officers and employees, as Attorney
in Fact for the Principal, with full authority and power to execute and deliver
on behalf of the Principal, with respect to the Loans, and all of the following
to the extent consistent with the terms and conditions of the Agreement: (i)
instruments appointing one or more substitute trustees to act in place of the
trustees named in the Deeds of
<PAGE>
Trust; (ii) instruments of satisfaction or cancellation, or of partial or full
release or discharge, of such Deeds of Trust, as permitted by Article V of the
Agreement; (iii) instruments effecting the subordination of the liens of such
Deeds of Trust to senior liens, as permitted by Article V of the Agreement; and
(iv) all other comparable instruments.
2. Expiration. This Power of Attorney shall not be deemed to be revoked
----------
as to any particular Deed of Trust unless and until an instrument containing the
revocation is recorded in the office where the Deed of Trust is recorded.
IN WITNESS WHEREOF, the Principal has executed this Power of Attorney as of
the date first written above.
U.S. BANK NATIONAL ASSOCIATION
(Principal)
By:
-------------------------
, Trust Officer
-----------
STATE OF NEW YORK )
) ss:
COUNTY OF ______________ )
On ______________, 1997, before me, ___________________, a Notary Public in
and for said County and State, ________________, known to me to be the person
who executed the foregoing instrument, bearing the date of _______________,
1997, as a Trust Officer of U.S. Bank National Association, acknowledged that
this Power of Attorney to be the act and deed of U.S. Bank National Association
and that she delivered the same as such before me in my jurisdiction aforesaid.
WITNESS my hand and official seal.
--------------------------
Notary Public
[SEAL]
My Commission Expires:
- ------------------------
<PAGE>
SCHEDULE A
SCHEDULE OF LOANS
(To be delivered to the Trustee at Closing)
