<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended January 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
----------------- ------------------------
Commission File No. 33-98644
MCA FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Michigan 38-3014001
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
23999 Northwestern Hwy.
Southfield, Michigan 48075
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (810) 358-5555
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the registrant's outstanding voting stock held by
non-affiliates as of April 1, 1997, computed by reference to the book value of
the Company's common stock as of January 31, 1997 (because there is no market
for the Registrant's common stock) was $1,314,870.
At April 1, 1997, there were outstanding 523,283 shares of the registrant's
common stock (including shares subject to forfeiture).
Documents Incorporated By Reference: None.
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ITEM 1. BUSINESS.
GENERAL
MCA Financial Corp. ("MCAFC" or the "Company") is a holding company which,
through its principal subsidiaries and certain affiliates, engages in mortgage
banking, land contract and mortgage syndication, loan originating and servicing
and real estate acquisitions, rehabilitation, leasing and sales. MCAFC is a
Michigan corporation which was formed in 1989 and was inactive until 1991 when
it became a holding company for its principal subsidiaries.
Currently, MCAFC operates through the following wholly-owned subsidiaries:
- MCA Mortgage Corporation ("MCA Mortgage") is a Michigan corporation
that was incorporated in 1985 and has conducted a mortgage banking
business since that date. It was known as Primary Mortgage
Corporation until that date and was known as Mortgage Corporation of
America from August 1985 until March 1993.
- Mortgage Corporation of America ("MCA") is a Michigan corporation that
was incorporated in 1984 and has conducted a mortgage banking business
since that date. It was known as First American Mortgage Corporation,
Inc. until September 1989 and as First American Mortgage Associates,
Inc. from September 1989 until October 1993.
- RIMCO Realty & Mortgage Company, doing business as MCA Realty
Corporation ("MCA Realty"), is a Michigan corporation that was
incorporated in 1993 and was acquired by MCAFC on January 31, 1995.
MCA Realty is engaged in the purchase and sale of residential real
estate.
- Mortgage Corporation of America, Inc. ("MCA-Ohio") is an Ohio
Corporation that was incorporated in 1993 and has conducted a mortgage
banking business, emphasizing non-conforming loans, since that date.
It was known as Charter 1st Mortgage Banc, Inc. from May 1993 until
July 1995 when it was acquired by MCA.
MCAFC has two other subsidiaries, Complete Financial Corporation and
Securities Corporation of America, both Michigan corporations, which are
currently inactive. Unless otherwise indicated, MCAFC and its subsidiaries are
hereinafter collectively referred to as the "Company."
MORTGAGE BANKING
Mortgage banking is the business of acting as a financial intermediary in
the origination of mortgage loans, the holding or warehousing of such loans,
the subsequent marketing of such loans to investors and the ongoing management
or servicing of such loans during the repayment term. Mortgage bankers earn
revenue in each of the four phases of the mortgage banking process:
origination, warehousing, marketing, and servicing.
Origination. The origination of mortgage loans produces revenue through
fees paid by the borrower upon applying for a loan and at the loan closing.
The origination process involves providing competitive mortgage loan rates,
soliciting loan applications, performing title and credit review and funding
loans at closing. The Company originates mortgage loans through direct
solicitation of borrowers by its own sales force and through referrals from
real estate brokers, builder-developers and others (commonly referred to as
retail origination). In connection with the origination of each loan, the
Company prepares mortgage documentation, conducts credit checks, has the
property appraised by independent appraisers and closes the loan. The
Company's underwriting standards and procedures with respect to loans it
originates, as described above, conform to the requirements of its mortgage
loan investors. Referrals from real estate
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brokers account for the largest portion of the Company's originated loans. In
addition, advertising is used in the local markets where offices are located
and generates additional origination activity.
The following tables set forth the aggregate amount of retail loans and
the percentage of such retail loans that related to properties in the various
states in which the Company operates.
<TABLE>
<CAPTION>
Year State $ Amount of Retail Loans Percentage of Retail Loans
- ---- ----- ------------------------ --------------------------
<S> <C> <C> <C>
1997 Michigan $247 million 40%
Indiana 72 million 12%
Florida 103 million 17%
Ohio 35 million 6%
Illinois 82 million 13%
</TABLE>
<TABLE>
<CAPTION>
Year State $ Amount of Retail Loans Percentage of Retail Loans
- ---- ----- ------------------------ --------------------------
<S> <C> <C> <C>
1996 Michigan $193 million 39%
Indiana 57 million 11%
Florida 85 million 17%
Ohio 46 million 9%
Illinois 55 million 11%
</TABLE>
<TABLE>
<CAPTION>
Year State $ Amount of Retail Loans Percentage of Retail Loans
- ---- ----- ------------------------ --------------------------
<S> <C> <C> <C>
1995 Michigan $234 million 59%
Indiana 51 million 13%
Washington 31 million 8%
Ohio 48 million 12%
</TABLE>
The remaining retail loans for fiscal 1997, 1996 and 1995 related to
properties located in various other states.
The Company currently purchases a substantial portion of its originated
mortgage loans through "wholesale" operations. Wholesale operations involve
the origination of loans by unrelated mortgage companies which prepare the
necessary documentation, but leave the credit evaluation, property appraisal
and loan funding functions for the Company to perform. The standards of loan
documentation by such unrelated mortgage company originators may not be as
stringent as the standards applied by the Company on its own direct
originations. For each wholesale loan the Company's credit evaluation and
property appraisal procedures are the same as for its retail originations.
The following tables set forth the aggregate amount of wholesale loans and
the percentage of such wholesale loans that related to properties in the
various states in which the Company operates.
<TABLE>
<CAPTION>
Year State $ Amount of Wholesale Loans Percentage of Wholesale Loans
- ---- ----- --------------------------- -----------------------------
<S> <C> <C> <C>
1997 Florida $ 33 million 17%
Michigan 61 million 31%
Illinois 34 million 18%
Ohio 41 million 21%
</TABLE>
<TABLE>
<CAPTION>
Year State $ Amount of Wholesale Loans Percentage of Wholesale Loans
- ---- ----- --------------------------- -----------------------------
<S> <C> <C> <C>
1996 Florida $ 11 million 8%
Michigan 66 million 47%
Illinois 28 million 20%
Ohio 25 million 18%
</TABLE>
<TABLE>
<CAPTION>
Year State $ Amount of Wholesale Loans Percentage of Wholesale Loans
- ---- ----- --------------------------- -----------------------------
<S> <C> <C> <C>
1995 Florida $ 45 million 33%
Michigan 35 million 25%
Indiana 17 million 12%
Oregon 9 million 7%
</TABLE>
The remaining wholesale loans for fiscal 1997, 1996 and 1995 related to
properties located in various other states.
The Company is engaged in the origination of conventional mortgage loans,
secured by one- to four-family residential properties (including condominiums),
that conform to the requirements for sale to either the Federal National
Mortgage Association ("Fannie Mae") or the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). The Company also originates non-conforming
conventional loans that exceed the maximum amounts qualifying for sale to
Freddie Mac or Fannie Mae (currently $214,600) but that otherwise conform to
their requirements ("jumbo loans"). The Company's principal mortgage banking
subsidiary, MCA Mortgage, is an approved seller/servicer for Freddie Mac, the
Government National Mortgage Association ("Ginnie Mae") and Fannie Mae, while
its other principal subsidiary, MCA, is an approved seller/servicer for Freddie
Mac. In addition, MCA Mortgage and MCA are qualified to originate mortgage
loans insured by the Federal Housing Administration ("FHA") and mortgage loans
partially guaranteed by the Veterans Administration ("VA"), which qualify for
pooling by Ginnie Mae and qualify for sale to other institutional investors.
The Company also originates loans which do not conform to Freddie Mac or Fannie
Mae requirements. These "non-conforming" loans are typically made to
self-employed individuals and others unable to meet the underwriting standards
for conventional lending. Generally, these loans carry higher interest rates
and fees
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commensurate with the additional credit risk. These loans are typically sold
on the secondary market to a different group of investors than the conventional
loans originated by the Company. The Company expanded its originations in this
market through the acquisition of MCA-Ohio in July 1995, a company which has
been engaged in this type of lending since 1993.
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The following table sets forth for the periods indicated the number,
dollar volume and percentage of total volume of the Company's loan production
(dollars in thousands except Average Loan Balances):
<TABLE>
<CAPTION>
Fiscal Year ended January 31,
----------------------------------
1997 1996 1995
RETAIL LOANS
- ------------
<S> <C> <C> <C>
Conventional Loans:
Number of Loans. . . . . . . . . . . . 3,076 2,715 2,241
Volume of Loans. . . . . . . . . . . . $272,943 $243,154 $186,452
Percent of Total Volume 33.71% 38.47% 33.04%
FHA/VA Loans:
Number of Loans. . . . . . . . . . . . 3,765 2,669 2,681
Volume of Loans. . . . . . . . . . . . $291,601 $202,803 $186,136
Percent of Total Volume. . . . . . . . 36.01% 32.07% 32.99%
Non-Conforming Loans:
Number of Loans. . . . . . . . . . . . 418 581 1,425
Volume of Loans. . . . . . . . . . . . $ 32,012 $ 34,133 $ 42,301
Percent of Total Volume. . . . . . . . 3.96% 5.40% 7.50%
Jumbo Loans
Number of Loans. . . . . . . . . . . . 68 40 41
Volume of Loans. . . . . . . . . . . . 17,491 $ 11,478 $ 11,397
Percent of Total Volume. . . . . . . . 2.16% 1.81% 2.02%
Average Loan Balance . . . . . . . . . . . $ 83,806 $ 81,860 $ 66,732
Total Volume of Loans . . . . . . . . . . . $614,047 $491,568 $426,286
<CAPTION>
WHOLESALE LOANS(1)
- ------------------
<S> <C> <C> <C>
Conventional Loans:
Number of Loans. . . . . . . . . . . . 546 617 655
Volume of Loans. . . . . . . . . . . . $ 48,048 $ 60,590 $ 54,740
Percent of Total Volume. . . . . . . . 5.93% 9.58% 9.70%
FHA/VA Loans:
Number of Loans. . . . . . . . . . . . 427 309 1,059
Volume of Loans. . . . . . . . . . . . $ 37,904 $ 27,158 $ 73,746
Percent of Total Volume. . . . . . . . 4.68% 4.30% 13.07%
Non-Conforming Loans:
Number of Loans. . . . . . . . . . . . 1,803 995 122
Volume of Loans. . . . . . . . . . . . $108,928 $ 52,485 $ 9,463
Percent of Total Volume. . . . . . . . 13.45% 8.30% 1.68%
Jumbo Loans
Number of Loans. . . . . . . . . . . . 4 2 *
Volume of Loans. . . . . . . . . . . . $ 829 $ 480 *
Percent of Total Volume. . . . . . . . .10% .07% *
Average Loan Balance . . . . . . . . . . . $ 70,400 $ 73,174 $ 75,136
Total Volume of Loans(1) . . . . . . . . . $195,709 $140,713 $137,949
<CAPTION>
TOTAL LOANS
- -----------
<S> <C> <C> <C>
Number of Loans . . . . . . . . . . . . . . 10,107 7,928 8,224
Volume of Loans . . . . . . . . . . . . . . $809,756 $632,281 $564,235
Average Loan Balance . . . . . . . . . . . $ 80,118 $ 79,753 $ 68,608
</TABLE>
*Indicates that these types of loans were not originated by the Company during
the applicable period.
(1) During fiscal 1997, no single company was responsible for greater than 10%
of the Company's wholesale originations. During fiscal 1996, Watson Financial
Group ("Watson") was responsible for 13% of the Company's wholesale
originations. Watson is not affiliated with the Company. During fiscal 1995,
no single company was responsible for greater than 10% of the Company's
wholesale originations.
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At January 31, 1997, the Company had applications in process for
approximately 2,022 mortgage loans, aggregating approximately $154 million. At
January 31, 1996, the Company had applications in process for approximately
1,947 mortgage loans, aggregating approximately $186 million. Based on
experience, the Company anticipates that 75% to 80% of the loan applications
will close within 45 to 90 days.
Warehousing. Warehousing is the term used to describe the process of
holding mortgage loans pending their sale to investors (typically financial
institutions) or into the secondary market. During the warehousing period the
Company earns income equal to the difference between the interest received on
the mortgage loans and the interest paid on short-term advances from banks
which are used typically to fund the mortgage loans. During periods when
short-term warehouse borrowing rates exceed long-term mortgage lending rates,
the warehousing of mortgage loans can result in a loss.
Pending sale and delivery to investors, the Company's mortgage loans are
funded almost entirely by borrowings under warehousing lines of credit from
banks. The Company typically holds mortgage loans for a period of up to 60
days after closing in order to prepare them for sale. Borrowed funds are
repaid when the Company receives payment upon the sale of the loans.
Accordingly, the Company is dependent on loan sales to free warehousing credit
lines in order that new loans can be closed.
Among its short-term financing sources, the Company maintains a loan
agreement with Texas Commerce Bank N.A. and a mortgage loan agreement with
Paine Webber Real Estate Securities. As is customary in the industry, these
credit facilities can be terminated on demand or upon relatively short notice.
In such an event, the Company would seek replacement or new credit facilities
from other lenders for these existing lines of credit on terms at least as
favorable. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
Marketing. The offering, sale, packaging and delivery of closed mortgage
loans to investors is the activity which distinguishes a mortgage banker as a
financial intermediary from a portfolio lender or permanent investor.
Marketing mortgage loans is the most complex aspect (both financially and
operationally) of the mortgage banking business. It requires matching the
needs of the retail origination market (consisting of home buyers and
homeowners seeking new mortgages) with the needs of the secondary market for
mortgage loans (consisting of securities broker-dealers, depository
institutions, insurance companies, pension funds and other investors).
Conventional mortgage loans (i.e., those not guaranteed or insured by agencies
of the federal government), which are secured by one-to-four family residential
properties (including condominiums) and which comply with applicable
requirements, are packaged for direct sale to mortgage investors. In addition,
there is an active private market for mortgage loans which have not been pooled
or securitized.
Factors which may influence the market value of packaged loans include the
general level of interest rates, the types of loans (e.g., conventional
mortgage loans or larger jumbo loans), interest payment and principal
amortization schedules (e.g., self-amortizing or balloon, fixed-rate or indexed
adjustable-rate, equal monthly payment or adjustable payment), type of
mortgaged property (e.g., one-to four family detached, row or townhouse,
condominium or planned unit development), ratio of loan proceeds to appraised
property value, property location, credit profile, and whether loans are
packaged into pools (represented by securities) or sold separately on a whole
loan basis.
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The following table sets forth for the periods indicated, the Company's
loan production by type of interest payment and principal amortization schedule
as well as loan to value ratio information (dollars in thousands):
<TABLE>
<CAPTION>
Year ended January 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
30-year Fixed Rate:
Number of Loans . . . . . . . . . . . . 6,092 5,349 4,569 5,084 818
Volume of Loans . . . . . . . . . . . . $492,949 $424,994 $339,394 $448,762 $ 94,297
Percent of Total Volume . . . . . . . . 60.88% 67.22% 60.15% 65.28% 46.43%
15-year Fixed Rate:
Number of Loans . . . . . . . . . . . . 785 611 844 1,953 678
Volume of Loans . . . . . . . . . . . . $ 49,149 $ 40,137 $ 49,536 $142,340 $ 50,985
Percent of Total Volume . . . . . . . . 6.07% 6.35% 8.78% 20.70% 25.11%
Adjustable Rate ("ARMS"):
Number of Loans . . . . . . . . . . . . 1,487 1,239 1,217 299 248
Volume of Loans . . . . . . . . . . . . $143,453 $114,619 $108,983 $ 34,073 $ 26,534
Percent of Total Volume . . . . . . . . 17.71% 18.13% 19.32% 4.96% 13.07%
Other (1):
Number of Loans . . . . . . . . . . . . 0 69 352 194 245
Volume of Loans . . . . . . . . . . . . 0 $ 5,225 $ 6,154 $ 3,121 $ 3,408
Percent of Total Volume . . . . . . . . 0% 0.82% 1.09% 0.45% 1.68%
Balloon Payment:
Number of Loans . . . . . . . . . . . 1743 660 1,242 1,380 464
Volume of Loans . . . . . . . . . . . $124,205 $ 47,306 $ 60,167 $ 59,188 $ 27,863
Percent of Total Volume . . . . . . . . 15.34% 7.48% 10.66% 8.61% 13.71%
Total Number of Loans . . . . . . . . . 10,107 7,928 8,224 8,910 2,448
Total Volume . . . . . . . . . . . . . . $809,756 $632,281 $564,235 $687,484 $203,087
Total Loan to Value Percent. . . . . . . 84.13% 83.8% 90.5% 94.5% n/a*
</TABLE>
- -------------------
*n/a = not available for this period.
(1) This category represents mortgages and land contracts with other than 15 or
30 year terms, which have no balloon payment.
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The following table sets forth for the periods indicated, the number,
dollar volume and percent of total volume of the Company's loan production by
occupancy status and type of mortgaged property (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended January 31
-------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Detached - Single Family
- ------------------------
<S> <C> <C> <C> <C> <C>
Owner Occupied:
Number of Loans . . . . . . . . . . . . . 8,939 6,943 6,916 7,441 1,864
Volume of Loans . . . . . . . . . . . . . $724,011 $578,154 $506,714 $636,440 $178,515
Percent of Total Volume 89.41% 91.44% 89.81% 92.58% 87.90%
Non-owner occupied:
Number of Loans. . . . . . . . . . . . . 442 133 947 1,088 447
Volume of Loans $ 20,733 $ 6,121 $ 28,603 $ 23,441 $ 14,427
Percent of Total Volume 2.56% 0.97% 5.07% 3.41% 7.11%
Other (1):
Number of Loans. . . . . . . . . . . . . 76 66 39 64 9
Volume of Loans. . . . . . . . . . . . . $ 6,022 $ 5,929 $ 3,310 $ 4,894 698
Percent of Total Volume. . . . . . . . . 0.75% 0.94% 0.59% 0.71% 0.34%
Multi-Unit and Commercial
- -------------------------
Owner Occupied:
Number of Loans. . . . . . . . . . . . . . 523 360 262 265 101
Volume of Loans. . . . . . . . . . . . . . $ 52,489 $ 28,919 $ 19,909 $ 18,895 $ 7,655
Percent of Total Volume. . . . . . . . . . 6.48% 4.57% 3.53% 2.75% 3.77%
Non-owner occupied:
Number of Loans. . . . . . . . . . . . . . 127 426 60 52 27
Volume of Loans. . . . . . . . . . . . . . $ 6,501 $ 13,158 $ 5,699 $ 3,814 $ 1,792
Percent of Total Volume. . . . . . . . . . 0.80% 2.08% 1.00% 0.55% 0.88%
</TABLE>
- -----------------
(1) Includes second homes and vacant land.
The sale of mortgage loans produces a net gain or loss equal to the sum of
(i) the difference between the principal amount of the loans and the net price
at which the loans are sold (the cash gain or loss on sales) and (ii) the
present value of the difference (the "premium on sale of mortgage loans"), if
any, between the stated interest rate collected by the mortgage banker from the
mortgage loan borrowers and the interest rate paid by the mortgage banker to
the purchasers of the loans, net of a normal servicing fee.
The Company typically holds its mortgage loans for up to 60 days before
selling them to investors. The Company sells conforming loans either directly
on a loan-by-loan basis to Freddie Mac, Fannie Mae or other financial
institutions, or by a process of "securitization" of loan pools. Conforming
loans and loans qualifying for securitization through Ginnie Mae programs may
be grouped in pools and assigned to Freddie Mac, Fannie Mae or Ginnie Mae, as
applicable, which issues a mortgage-backed security ("MBS") representing an
undivided interest in the loan pool. For issuing the MBS, Freddie Mac, Fannie
Mae or Ginnie Mae receives an annual fee, up to .50% of the declining principal
amount of the loan pool. The Company, through investment bankers, may then
sell these MBSs to investors or hold them for investment.
Loan pools may be sold to Freddie Mac or Fannie Mae, or securitized in the
form of Ginnie Mae mortgaged-backed securities and sold to institutional
investors with or without recourse in the event of default by the borrowers.
If a loan pool is sold without recourse, Freddie Mac will typically charge a
fee for issuing the MBS which is .05% to
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.07% higher than if such loan pool were sold with recourse. The Company
decides to sell loan pools with or without recourse based primarily upon
capital market conditions and perceived risks of the terms of such mortgage
loan documents. To date all of the loan pools sold by the Company to Freddie
Mac or Fannie Mae or through Ginnie Mae programs have been sold on a
non-recourse basis.
Mortgage loans are also sold on a loan-by-loan basis to banks, mortgage
companies and other private investors and, in the case of conforming loans, may
be sold to Freddie Mac or Fannie Mae. Such individual loan sales are typically
made by the Company on a non-recourse basis. During fiscal 1997, 1996 and
1995, the Company made $809.8 million, $632.3 million and $564.2 million of
non-recourse loans, respectively, and did not sell any loans with recourse.
Loans underwritten and sold may be subject to repurchase if the underwriting
standards of the investor are not met, potentially resulting in actual loss
and/or the limitation of the Company's liquidity.
The Company packages substantially all of its FHA-insured and
VA-guaranteed mortgage loans into pools of loans sold in the form of
pass-through mortgage-backed securities guaranteed by Ginnie Mae. With respect
to loans secured through Ginnie Mae programs, the Company is insured against
foreclosure loss by the FHA or partially guaranteed against foreclosure loss by
the VA (at present generally 25% to 100% of the loan). Since the Company is
not an end investor in these types of loans, its risk with respect to these
loans is minimal. FHA-insured and VA-guaranteed mortgage loans represent
approximately 33% of the Company's originations in any given year. The
discontinuance of these programs would have a limited impact upon the Company
due to the Company's ability to originate a substantial volume of conventional
loans which enables the Company to market mortgage loans to Freddie Mac, Fannie
Mae or other investors.
The Company commits to sell loans in an amount equal to the closed loans
held in inventory, plus a portion of the loans that the Company has committed
to make but has not yet closed. This enables the Company to mitigate the
interest rate risk resulting from the fact that market interest rates may
change between the time that the Company commits to make or purchase a loan and
the time the Company commits to sell or sells such loans. The portion of loans
that have not yet closed which the Company commits to sell depends on numerous
factors, including the total amount of the Company's outstanding commitments to
make loans, the portion of such loans that is likely to close, the timing of
such closings and anticipated changes in interest rates. The Company
constantly monitors these factors and adjusts its commitments position
accordingly. The Company's commitment position may consist of mandatory
forward commitments on mortgage-backed securities or mortgage loans, options on
mortgage-backed securities or treasury futures contracts, or outright futures
contracts. See Note 9 of Notes to Consolidated Financial Statements for a
discussion of financial instruments with off-balance-sheet risk.
Non-conforming loans are sold to a different group of investors. They are
typically packaged with other similar loans and sold servicing released, in
bulk, to obtain a more favorable price. In the fourth quarter, the Company
entered into an agreement with another party to sell substantial portions of
the Company's non-conforming production for purposes of securitization. This
entitles the Company to the difference between the weighted average coupon rate
of the loan it originated and the security's stated yield, less a normal
servicing fee and certain other fees.
Servicing. At January 31, 1997, the Company owned servicing rights for
mortgages with outstanding balances of approximately $1.48 billion and to land
contracts with outstanding net balances of approximately $117 million. The
Company intends to increase significantly its servicing of residential mortgage
loans, and to maintain a mortgage and land contract servicing system that
emphasizes cash management and compliance with investor servicing requirements.
To this end, the Company intends to purchase conventional mortgage loan
servicing rights from other unaffiliated loan servicers.
The Company also obtains additional servicing through the retention of
servicing with respect to mortgages and land contracts that it originates and
sells to others. For residential mortgage loans which it originates, the
Company retains the servicing related to most of these loans temporarily, then
sells the servicing rights from time to time on the open market. The Company
intends to restrict its purchases of mortgage servicing to servicing that can
be purchased at a price that provides targeted rates of return, and is
compatible with the Company's systems and processes. During fiscal 1997, the
Company purchased servicing with respect to approximately $830 million of
mortgage loans and has sold servicing with respect to approximately $1.8
billion of mortgage loans.
A loan servicing portfolio creates an earning asset in the form of income
created from servicing fees, which range generally from 0.25% to 0.50% per year
for mortgage loans and from 0.25% to 2.5% per year for land contracts, based
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on the declining principal balance of the mortgage loans or the declining net
principal balances of land contracts serviced, and the potential interest
earnings on escrow funds held until the time payment for taxes and insurance
must be made. Based upon current market conditions, the Company estimates that
servicing rights for residential mortgage loans and land contracts have a
market value from 1.25% to 2.5% and from 1.25% to 4.0%, respectively, of the
principal balance of the mortgage loans and the declining net principal
balances of land contracts serviced.
One of the Company's strategies is to build and retain its servicing
portfolio. The Company believes that it has developed systems that enable it
to service mortgage and land contract loans efficiently and therefore enhance
the returns it can earn from investments in servicing rights. In addition, the
Company believes that the earnings from its servicing portfolio may to some
extent offset the effect of interest rate fluctuations on loan origination
revenue. In general, the value of the Company's loan servicing portfolio may
be adversely affected as mortgage interest rates decline and expected loan
prepayments increase. Income generated from the Company's loan servicing
portfolio also may decline in such an environment. On the other hand, these
effects may be offset somewhat by an increase in originations and servicing
income attributable to new loans which historically increase in periods of
declining mortgage interest rates. However, there can be no assurance that low
mortgage rates will result in increased loan originations, particularly during
periods of slow or negative economic growth. As of January 31, 1997, the
weighted average rate on mortgages serviced by the Company but owned by others
was 8.04% and the weighted average rate on mortgages and land contracts
serviced by the Company but owned by MCA Mortgage or MCA-sponsored pass-through
pools was 10.98%.
The following table sets forth information about the Company's retail and
wholesale loan origination and servicing activities:
<TABLE>
<CAPTION>
Year Ended January 31
-------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------
(dollars in thousands, except average loan balance)
<S> <C> <C> <C> <C> <C>
Beginning loan
servicing portfolio . . . . . . . . . . . . . $2,206,460 $1,303,628 $1,105,534 $ 234,743 $ 44,380
Add:
Loans purchased and
originated by the
Company for resale. . . . . . . . . . . . 727,007 632,281 536,881 687,484 203,087
Loans purchased by the
Company for syndication. . . . . . . . 20,849 25,597 27,354 19,188 16,475
Mortgage servicing
purchased (net of sales) (862,569) 618,780 (166,577) 471,587 98,808
---------- ---------- ---------- ---------- ---------
$2,091,747 $2,580,286 $1,503,192 $1,413,002 $ 362,750
Less:
Amortization . . . . . . . . . . . . . . . . . . (53,761) (43,491) (43,228) (36,832) (1,146)
Prepayments of loans. . . . . . . . . . . . (237,196) (172,100) (107,571) (210,305) (7,773)
Loans sold with
servicing sold. . . . . . . . . . . . . . . . . (199,748) (158,235) (48,765) (60,331) (119,088)
---------- ---------- ---------- ---------- ---------
Ending loan servicing
portfolio. . . . . . . . . . . . . . . . . . . $1,601,042 $2,206,460 $1,303,628 $1,105,534 $ 234,743
========== ========== ========== ========== =========
Number of loans serviced
(end of period). . . . . . . . . . . . . . 21,248 27,357 16,372 15,900 4,063
Average loan balance. . . . . . . . . . . . $ 75,350 $ 80,650 $ 79,625 $ 69,530 $ 57,776
</TABLE>
10
<PAGE> 11
The following table sets forth, for the periods indicated, the mortgage
delinquency rate of the Company's loan servicing portfolio and information
relating to foreclosed properties:
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Delinquent mortgage loans at
Period end:
30 days:
Number of loans . . . . . . . . . . . . . 838 227 359 259 157
Percent of total loans 3.94% 0.83% 2.19% 1.87% 3.86%
60 days:
Number of loans . . . . . . . . . . . . . 216 49 97 77 26
Percent of total loans 1.02% 0.18% 0.59% 0.56% 0.64%
90 days or more:
Number of loans . . . . . . . . . . . . . 367 75 143 43 45
Percent of total loans 1.73% 0.27% 0.87% 0.31% 1.11%
Total delinquencies:
Number of loans . . . . . . . . . . . . . 1421 351 599 379 228
Percent of total loans 6.69% 1.28% 3.65% 2.74% 5.61%
Foreclosed Properties:
Beginning inventory . . . . . . . . . . . 122 84 83 84 34
Properties acquired . . . . . . . . . . . 106 136 89 122 162
Ending inventory . . . . . . . . . . . . 113 122 84 83 84
Aggregate carrying
value, net (-000's) . . . . . . . . . . . $ 2,576 $ 2,288 $ 1,500 $ 1,495 $ 1,701
Average carrying value . . . . . . . . . . $22,798 $18,754 $17,854 $18,012 $20,246
</TABLE>
OTHER BUSINESS ACTIVITIES
Securitization and Syndication of Real Estate Interests. The Company is
involved in marketing real estate interests in the form of pass-through
securities which represent the ownership of undivided fractional interests in a
defined pool of real estate related loans and loan participations. The
Company's primary objective in marketing these securities is to provide
investors with consistent high income without undue risk of loss. To
accomplish this, the Company has developed a program of acquiring for resale
real estate related investments consisting primarily of land contract seller's
interests and real estate mortgage notes. The Company emphasizes investments
in land contract seller's interests because of the traditional absence of
competition from financial institutions in this market, which generally results
in higher yields, and the belief that legal rights and remedies available to
land contract sellers are more flexible and lead to collection of delinquent
accounts with greater success than can be realized with respect to mortgage
notes. In addition, a land contract may be used only as an instrument
facilitating the sale and exchange of real property. Therefore, the nature of
the debt owed by the land contract purchaser is a result of the purchaser's
desire to own, through installment payments, the realty involved.
11
<PAGE> 12
Through January 31, 1997, the Company had sponsored 114 offerings of
pass-through certificates. For each offering, a subsidiary acts as the sponsor
and servicing agent for the land contracts, mortgages and other real estate
interests which are held for the benefit of the certificate holders. Pursuant
to the master pooling and servicing agreement relating to the pools, the
sponsor is obligated to purchase all outstanding participation certificates
held by investors in that pass-through pool at such time as the aggregate net
receivable balance of each pass-through pool is less than 10% of the original
face amount. At January 31, 1997, the maximum amount of these future purchase
commitments totaled approximately $9.4 million. The sponsor can satisfy its
repurchase obligation for such a paid-down pool by arranging a purchase of the
underlying real estate interests by another pass-through pool or a mortgage
investor.
The following table shows the growth of the Company's originations and
purchases of loans for syndication in pass-through pools during the fiscal
years indicated:
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of Land Contracts
purchased for syndication . . . . . . . . 855 933 1,002 798 308
Average balance . . . . . . . . . . . . . . $ 24,418 $ 23,485 $ 22,453 $ 17,759 $ 31,413
Total amount of Land
Contracts purchased for
syndication. . . . . . . . . . . . . . . . 20,877,360 $21,911,707 $22,498,079 $14,172,104 $ 9,675,388
Number of Mortgage Notes
purchased for syndication . . . . . . . . 46 78 212 344 260
Average loan balance. . . . . . . . . . . . $ 62,930 $ 47,246 $ 22,906 $ 14,580 $ 26,152
Total amount of Mortgage
Notes purchased for
syndication . . . . . . . . . . . . . . . $ 2,894,797 $ 3,685,207 $ 4,856,239 $ 5,015,723 $ 6,799,612
Total number of loans
purchased for syndication . . . . . . . . 901 1,011 1,214 1,142 568
Average loan balance . . . . . . . . . . . $ 26,384 $ 25,318 $ 22,513 $ 16,802 $ 29,005
Total amount purchased for
syndication . . . . . . . . . . . . . . . $23,772,157 $25,596,914 $27,354,318 $19,187,827 $16,475,000
</TABLE>
Purchase and Resale of Real Property. The Company purchases and sells
income-producing real estate, with sales made primarily to limited partnerships
for which an affiliated company acts as general partner. This activity
produces income to the Company in the form of gains on the sale of such real
estate. In addition, MCA Realty purchases distressed residential real estate,
which is rehabilitated and sold to non-related individuals. During the year
ended January 31, 1997, the Company acquired and sold 820 single family homes
for a total gain of $8.2 million, $7.5 million of which represented sales to
the limited partnerships described above. During fiscal 1996, 1995, and 1994,
the Company acquired and sold 723, 735, and 415 single-family homes for total
gains of $7.3 million, $7.4 million, and $4.9 million, respectively, of which
$6.5 million, $7.3 million and $4.8 million, respectively, represented sales to
related parties. See Note 14 of Notes to Consolidated Financial Statements for
a summary of selected consolidated segment financial information.
The income producing real estate which is purchased by the Company and its
affiliates is acquired through the assistance of both affiliated and
unaffiliated real estate brokers. Approximately 60% and 40%, respectively, is
acquired through affiliated and nonaffiliated brokers. There appears to be
increased competition for these income-producing real estate properties as real
estate values continue to escalate and the economy continues to grow.
12
<PAGE> 13
Most of the income-producing real estate is sold by the Company and its
affiliates on land contracts to limited partnerships controlled by an affiliate
of the Company. These transactions are not arm's length transactions with
independent third party appraisals. The land contracts are then sold by the
Company to real estate pass-through pools of which MCA is the sponsor of the
pools. The remaining balance of income-producing real estate is sold to
unrelated third parties.
Because most of the income-producing real estate sales are directed to
affiliated partnerships, the normal real estate concerns associated with
purchasers and fluctuating market values are not applicable. These
partnerships are engaged in the business of renting income producing properties
to individuals. The day-to-day real estate rental concerns are those of the
syndicated real estate limited partnerships of the affiliates and not those of
the Company. However, the payments to the Company pursuant to the land
contract receivables are dependent upon the ability of these partnerships to
generate rental income.
Other. During fiscal 1996, the Company made a common stock investment of
approximately $1.0 million in a Delaware Limited Liability Company. This
start-up company participates in the used vehicle retail industry through
providing floor plan financing and joint venture activities with existing
dealers. The Company's investment in the Class B Securities issued by this
Limited Liability Company provides it the right to participate in earnings and
distributions, if any, subject to the preferential right of certain other
shareholders.
COMPETITION
The Company competes with other mortgage bankers, state and national
banks, thrift institutions and insurance companies for loan originations and
purchases. While there are several dominant competitors in the industry, the
Company believes it is a mid-range mortgage company in its markets. Many of
its competitors have substantially greater resources than the Company.
However, the Company believes that it offers a more diversified and, in some
cases, unique product line to its customers. The Company competes, in part,
through print and electronic media advertising campaigns, by motivating its
sales force through incentive compensation based on volume of loan
originations, by maintaining a network of branch locations designed to provide
sales support for its originators and by maintaining close relationships with
real estate brokers and builder-developers.
REGULATION
The Company is subject to the rules and regulations of, and examinations
by, Freddie Mac, Fannie Mae, Ginnie Mae and the Department of Housing and Urban
Development ("HUD") with respect to the processing, origination and purchase,
sale and servicing of mortgage loans and contracts. These rules and
regulations prohibit discrimination, provide for inspection and appraisals of
properties, require credit reports on prospective borrowers and, in some cases,
fix maximum interest rates, fees and loan amounts. The Company is required to
meet certain financial requirements and to submit certified financial
statements to these agencies annually. Mortgage loan origination activities
are subject to the Equal Credit Opportunity Act, Federal Truth-in-Lending Act,
Real Estate Settlement Procedures Act and the regulations promulgated
thereunder which prohibit discrimination and require the disclosure of certain
information to borrowers concerning credit and settlement costs. Mortgage
loans, other than first mortgages, are also subject to the usury statutes of
the states in which the Company does business. Additionally, there are various
state laws affecting the Company's mortgage banking operations, including
licensing requirements and substantive limitations on the interest and fees
that may be charged. MCA Mortgage and MCA are registered with the Commissioner
of the Michigan Financial Institutions Bureau under the Michigan Mortgage
Brokers, Lenders, and Servicers Licensing Act and are subject to the provisions
of such law. MCA Realty is a licensed real estate broker in the state of
Michigan. Expansion of the Company's operations has subjected it to similar
regulations in the states of Indiana, Illinois, Idaho, Kentucky, Maryland,
Ohio, Florida, West Virginia, California, North Carolina and Pennsylvania.
13
<PAGE> 14
EMPLOYEES
At January 31, 1997, 452 individuals were employed by the Company, of
which 433 were full-time employees, including 157 mortgage and land contract
originators and mortgage and land contract servicers. The remaining full-time
employees are administrative and management personnel. None of the Company's
employees is represented by a bargaining agent. The Company believes its
relations with its employees are good.
ITEM 2. PROPERTIES.
The Company's executive and administrative offices and its mortgage
banking and real estate operations are located in approximately 39,000 square
feet of leased office space in Southfield, Michigan. The basic annual rent for
the Southfield office space is approximately $482,000. The lease for this
office expires on September 30, 1999. The Company believes that its offices are
adequate for present purposes and for any foreseeable increase in its business
activities. As of January 31, 1997, the Company leased office space in 29 other
locations: 12 in Michigan, 4 in Indiana, 5 in Florida, 3 in Ohio, 2 in Illinois
and one in each of Kentucky, North Carolina and California. These locations are
used by certain of the Company's mortgage and land contract originators.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to various routine legal proceedings arising out
of the ordinary course of its business. Management believes that none of these
actions, individually or in the aggregate will have a material adverse effect on
the financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the security holders
during the fourth quarter of the fiscal year ended January 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
There is no established public trading market for any class of common
equity of the Company. As of April 1, 1997, there were 67 shareholders of
record of the Company's common stock. The Company has never paid a dividend on
its common stock and has no present plans to pay dividends in the future. The
Company is restricted in its ability to pay dividends under the terms of
Indentures with respect to its outstanding 11% Asset-Backed Subordinated
Debentures, Series 1994 due June 30, 2000 and its 11% Subordinated Debentures,
Series 1996 due June 30, 2002.
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical financial data of the
Company for each of the periods indicated in the five-year period ended January
31, 1997, which were derived from the audited consolidated financial statements
of the Company. The audited consolidated financial statements of the Company
for each of the periods in the three-year period ended January 31, 1997 are
included elsewhere in this Annual Report on Form 10-K. This table should be
read in conjunction with the audited consolidated financial statements of the
Company and the notes thereto.
<TABLE>
<CAPTION>
Year ended January 31,
------------------------------------------------------------
Income Data: 1997 1996 1995 1994 1993
----- ----- ----- ----- -----
Revenues: (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Gain on sale of land contracts. . . . . . . . . . . $ 3,438 $ 2,981 $ 2,983 $ 1,753 $ 1,433
Gain on sale of real estate. . . . . . . . . . . . . 708 751 -- 67 299
Gain on sale of real
estate-related parties. . . . . . . . . . . . . . . 7,539 6,529 7,365 4,811 3,249
Gain on bulk sales of
servicing rights . . . . . . . . . . . . . . . . . 5,231 4,726 7,475 5,579 997
Mortgage origination fees and gain on . . . . . . . 24,862 14,339 5,584 11,282 6,280
sale of mortgages
Servicing fees . . . . . . . . . . . . . . . . . . . 8,499 6,244 4,617 1,917 851
Interest income. . . . . . . . . . . . . . . . . . . 8,168 5,903 5,106 3,948 856
Other. . . . . . . . . . . . . . . . . . . . . . . . 481 478 241 177 428
-------- ------- -------- --------- -------
Total revenues. . . . . . . . . . . . . . . . . . 58,926 41,951 33,371 29,534 14,393
Expenses . . . . . . . . . . . . . . . . . . . . . . 57,522 40,823 33,547 28,562 13,477
-------- ------- -------- --------- -------
Income (loss) before
federal income taxes. . . . . . . . . . . . . . . . 1,404 1,128 (176) 972 916
Provision for federal
income taxes . . . . . . . . . . . . . . . . . . . . 639 512 102 421 330
-------- ------- -------- --------- -------
Net income (loss) . . . . . . . . . . . . . . . . $ 765 $ 616 $ (278) $ 551 $ 586
======== ======= ======== ========= =======
Net income (loss) per share. . . . . . . . . . . . . $ 1.61 $ 1.44 $ (.69) $ 1.60 $ 2.15
Ratio of earnings over fixed charges (2) . . . . . . 1.11x 1.13x -- 1.20x 1.82x
Earnings (deficiency of earnings) over
fixed charges. . . . . . . . . . . . . . . . . . . . 1,404 1,128 (176) 972 916
</TABLE>
<TABLE>
<CAPTION>
Year ended January 31,
Balance Sheet Data: ----------------------------------------------------
Assets: 1997 1996 1995 1994 1993
------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Cash. . . . . . . . . . . . . . . . . . . . . . . . $ 3,097 $ 2,730 $ 2,931 $ 4,782 $ 3,699
Mortgages held for resale.. . . . . . . . . . . . . 54,430 63,306 15,702 39,250 14,084
Other.. . . . . . . . . . . . . . . . . . . . . . . 87,465 69,155 58,479 32,813 10,849
-------- -------- ------- ------- -------
Total assets . . . . . . . . . . . . . . . . . . $144,992 $135,191 $77,112 $76,845 $28,632
======== ======== ======= ======= =======
Liabilities:
Notes payable(3). . . . . . . . . . . . . . . . . . $ 83,975 $ 86,598 $44,843 $54,549 $13,824
11% Subordinated Debentures
due 1997, 2000 and 2002 . . . . . . . . . . . . . . 15,542 9,174 4,938 4,938 3,171
10% Subordinated Notes Payable. . . . . . . . . . . 15,000 -- -- -- --
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C> <C> <C> <C> <C>
Other. . . . . . . . . . . . . . . . . . . . 19,570 29,258 18,041 8,495 6,465
-------- -------- ------- ------- -------
Total liabilities . . . . . . . . . . . . $134,087 $125,030 $67,822 $67,982 $23,460
Redeemable Common Stock(4) . . . . . . . . . 256 -- -- 300 300
Stockholders' equity . . . . . . . . . . . . 10,649 10,161 9,290 8,563 4,872
-------- -------- ------- ------- -------
Total liabilities and
stockholders' equity. . . . . . . . . . . . $144,992 $135,191 $77,112 $76,845 $28,632
======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year ended January 31,
---------------------------------------------
Operating Data: 1997 1996 1995 1994 1993
---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loan production:
Number of loans originated 10,107 7,928 8,224 8,910 2,448
Average loan balance. . . . . . . . . . . . . . . . $ 80 $ 80 $ 69 $ 77 $ 83
Total loans originated. . . . . . . . . . . . . . . $809,756 $632,281 $564,235 $687,484 $203,087
Number of full-time
employees. . . . . . . . . . . . . . . . . . . . . . 433 412 336 448 202
</TABLE>
(1) On July 19, 1994 the Company purchased substantially all of the revenue
producing activities of Liberty National Mortgage Corporation. See Note
15 of Notes to Consolidated Financial Statements.
(2) The ratio of earnings to fixed charges was computed by dividing (a) net
income (loss) for the period plus fixed charges by (b) fixed charges,
which consist of interest expense, amortization of debt expense and that
portion of rentals that represents interest. The ratio of earnings over
fixed charges and preferred dividends was 1.12x, 1.12x, 1.19x, and 1.79x
for the years ended January 31, 1997, 1996, 1994, 1993, respectively.
Earnings were insufficient to cover fixed charges for the year ended
January 31, 1995. The deficiency of earnings over fixed charges and
preferred dividends was $.6 million for the year ended January 31, 1995.
(3) See Note 3 of Notes to Consolidated Financial Statements.
(4) See Note 5 of Notes to Consolidated Financial Statements
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary financing needs are for mortgage banking
activities, loan funding activities, operating cash flows and the purchase of
mortgage servicing rights.
Loan funding activities are primarily financed through the use of
mortgage warehouse lines of credit with commercial banks. See Note 3 of Notes
to Consolidated Financial Statements. The Company also provides funding for
loans by using a technique known as "table funding," which is common in the
mortgage banking industry. In this case, funds are advanced directly to the
title company for closing from a third party source of funds, typically another
mortgage bank or a financial institution. This technique avoids the use of the
Company's warehouse lines of credit, but proves less profitable as a result of
fees charged by the third party provider of funds. For the past year, the
Company financed approximately 95% of its mortgage originations using its
warehouse lines of credit and approximately 5% with table funding sources.
The Company currently has a $115 million loan agreement with Texas
Commerce Bank N.A. This revolving warehousing line of credit provides financing
for funding and originating a variety of residential mortgage loans including,
but not limited to, conforming mortgages, non-conforming mortgages and land
16
<PAGE> 17
contracts. Interest on bank borrowings are based on LIBOR plus .85 to 2.5%
depending on the type of loan. Mortgage loans held for resale are pledged as
collateral. This facility is scheduled to expire on September 3, 1997.
The Company also has a $10 million warehousing line of credit with
Paine Webber Real Estate Securities, Inc. ("Paine Webber"). Interest on
borrowings under this facility are based on Libor plus 1.5%. This facility is
scheduled to expire on November 1, 1997. The Company expects to renew these
warehousing lines of credit upon their respective expirations. At January 31,
1997 a total of $52.8 million was outstanding under these facilities.
The Company also has a $15 million loan and financing agreement with
the Board of Trustees of the Policeman and Firemen Retirement System of the City
of Detroit. This subordinated term loan has been provided to expand the
Company's non-conforming lending business. Interest on this borrowing is 10%
and is payable quarterly. Commencing July 1, 2001 equal quarterly installments
of principal and interest will be paid until the loan terminates and is repaid
in full on June 30, 2006. Under conditions of this agreement, the lender was
issued 30,197 shares of the Company's common stock. This represented 6% of the
outstanding unrestricted shares at July 18, 1996. As part of the agreement the
lender has the right to "put" these shares back to the Company on August 1, 2006
or upon default under a number of different scenarios.
The Company also utilizes mortgage loan repurchase agreements with
Paine Webber pursuant to which Paine Webber purchases mortgage loans until such
time as the loans are pooled for resale to an end investor at which time the
Company repurchases such loans. Such agreements provide for interest payments
based on the federal funds rate. These agreements can be terminated on demand.
The Company utilizes a strategy of retaining servicing rights on a
portion of its loan originations in order to provide a steady stream of
servicing revenues and cash flow in future years and as a hedge against
inflation and rising interest rates. To help facilitate this strategy, the
Company utilizes four funding sources: proceeds from a $4.9 million debenture
offering that was completed in July 1993, a bank credit facility, which was
first made available to the Company in April 1993 and proceeds from additional
$10 million and $6 million debenture offerings. The $4.9 million and the $10.0
million series of debentures, as well as the credit facility are collateralized
by certain of the Company's servicing rights and rights to servicing income.
The debenture offering completed in April 1993 was terminated March 17, 1997.
The credit facility, which is currently at $28.5 million, is with Comerica Bank
and is enhanced by a stand-by Note Purchase Agreement between Comerica Bank and
the Policemen and Firemen Retirement System of the City of Detroit (the "Fund")
whereby the Fund has agreed to provide payment to Comerica Bank upon the
occurrence of certain events of default by the Company. This credit enhancement
permits the Company to obtain a more favorable interest rate and
collateralization terms from the lending bank. In consideration for the credit
enhancement provided, the Company agreed to pay certain fees to the Fund and
provide it with an option to purchase up to 5% of the Company's outstanding
common stock, at 70% of the public offering price per share, if the Company
completes a firm commitment underwritten sale of its common stock prior to April
30, 2000. At January 31, 1997, $28.3 million was outstanding under the Comerica
Bank credit facility.
During the years ended January 31, 1997 and 1996, mortgage servicing
rights with respect to approximately 75% and 75%, respectively, of loan
originations, or $607 million and $474 million principal amount, respectively,
were retained by the Company and financed primarily through operations, the
debenture offerings and the Comerica Bank credit facility. The Company intends
to continue the level of retained servicing and may purchase additional mortgage
servicing rights.
As in mortgage banking, the Company also has a need to finance loan
funding activities with respect to its land contract and mortgage syndication
until such time as the loans are packaged and sold to investors. The principal
sources of this financing are two limited partnerships which have been
established in order to provide up to $4 million for this purpose. These
partnerships will terminate in December 1997. The Company also has $4
17
<PAGE> 18
million available as part of its $115 million facility with Texas Commerce
Bank. The Company is considering several alternatives to extend or replace
these financing sources at the time of their respective terminations.
There is no assurance that the Company will be successful in extending or
replacing these financing sources, however.
The Company has $1.0 million available under a credit facility with a
commercial bank for the acquisition and rehabilitation of residential real
property prior to resale. At January 31, 1997, $.28 million was
outstanding under this facility. See Note 3 of Notes to Consolidated
Financial Statements.
The Company also has $1 million available under a $1.5 million credit
facility with a commercial bank which is similar in structure to a mortgage
warehouse line of credit. This portion of the credit facility is used
exclusively for the warehousing of land contracts. The additional $0.5
million is available for working capital. At January 31, 1997, $.25
million was outstanding under this facility. See Note 3 of Notes to
Consolidated Financial Statements. This facility was terminated in April
1997.
During fiscal 1997, the Company's operating activities used $23.6 million.
Of this, $15.5 million was used to fund the increase in accounts receivable -
mortgages sold. The increase in accounts receivable, primarily receivables
related to bulk sales of servicing rights, used $7.3 million. The Company used
$8.0 million to increase excess interest spread receivable and $9.5 million to
decrease accounts payable. These uses of cash were offset by a $8.9 million net
decrease in mortgages held for resale. The Company's investing activities
during fiscal 1997 provided $5.9 million. Financing activities provided the
Company $18.1 million during fiscal 1997. The Company used proceeds from notes
payable of $814.9 million to fund mortgage loans and invest in purchased
servicing rights. Proceeds from sales of mortgage loans and investments in
purchased servicing rights of $817.7 million were used to make payments on
notes payable. Sales of the Company's 11% Subordinated Debentures due June 30,
2000 and 2002 provided $6.4 million. Proceeds from subordinated notes
payable also provided $15.0 million.
RESULTS OF OPERATIONS
Revenue for the year ended January 31, 1997 increased by 40.5% to
$58.9 million. Revenue for the year ended January 31, 1996, increased by
25.7% to $42.0 million as compared to $33.4 million for the fiscal year
ended January 31, 1995. Net earnings increased by 24.3% to net earnings of
$765,338 for fiscal 1997 as compared to net earnings of $615,530 for fiscal
1996. Net earnings in fiscal 1996 had increased from a net loss of
$227,546 in fiscal 1997. In fiscal 1997 revenue increased in virtually
every revenue item. The most substantial increase, $10,522,661, occurred
in mortgage origination fees and gain on sale of mortgages. Interest
income and servicing fees increased $2,265,185 and $2,255,648,
respectively. The increase in revenue during fiscal 1996 was the result
of increased mortgage origination fees to $14.34 million in fiscal 1996 as
compared to $5.58 million in fiscal 1995. Servicing fees also increased to
$6.24 million in fiscal 1996 from $4.62 million in fiscal 1995. The only
revenue item to substantially decrease was gain on bulk sales of servicing
rights which declined to $4.73 million in fiscal 1996 as compared to $7.48
million in fiscal 1995. The increase in earnings in fiscal 1997 resulted
from increased overall revenues, specifically in non-conforming
originations. The increase in earnings during fiscal 1996 is attributable
to a general decline in interest rates during the year resulting in
increased originations, gains on loan resale and increased non-conforming
originations. The net loss during fiscal 1995 was due to significant
increases in long-term interest rates during the first six months of the
year. This severely curtailed mortgage refinancings and increased
competitive pressures in the market. The mortgage prepayment rate was
8.9%, 9.8% and 12.5% during fiscal 1995, 1996 and 1997, respectively. The
amount of refinancing activity was $173 million during fiscal 1995, $172
million during fiscal 1996, and $194 million during 1997.
Mortgage origination fees, including gains on sale from loan resale
transactions, for fiscal 1997, increased to $24.86 million as compared to
$14.34 million in fiscal 1996, an increase of 73.4%. Such mortgage
origination fees had increased in fiscal 1996 from $5.58 million in fiscal
1995. The total dollar volume of loans originated increased by 28.2% to
$810 million, for fiscal 1997, up from $632 million for fiscal 1996 which
represented a 12.1% increase from $564 million in fiscal 1995. The total
number of loans produced increased
18
<PAGE> 19
27.5% from 7,928 in fiscal 1996 to 10,107 in fiscal 1997. The total number
of loans produced decreased 3.8% from 8,224 in fiscal 1995 to 7,928 in
fiscal 1996. The average loan balance increased to $80,118 in fiscal 1997
from $79,753 in fiscal 1996 and $68,608 in fiscal 1995. Increased mortgage
originations in fiscal 1997 resulted from steady (relatively low) interest
rates, strong home buying and building markets and the continued addition of
new loan origination branches. The increase in the dollar volume of loan
originations during fiscal 1996 resulted from the general decline in long-term
interest rates and the continuity in production from branches opened in fiscal
1995 for a full year. Included in mortgage origination fees are gains and
losses on sale from loan resale transactions of $4.40 million in fiscal 1997,
$3.77 million fiscal 1996 and $(.43) million in fiscal 1995.
In fiscal 1997, wholesale originations totaled $195.71 million, in
fiscal 1996, approximately $140.71 million and in fiscal 1995,
approximately $137.95 million. The increase in wholesale originations from
fiscal 1996 to fiscal 1997 was the result of the Company focusing its
wholesale efforts on non-conforming wholesale originations which increased
from $52.49 million to $108.93 million, respectively. Non-conforming
wholesale originations in fiscal 1996 increased to $52.49 million from
$9.46 million in fiscal 1995.
Mortgage origination revenues as a percent of total mortgage
origination volume increased from 1.0% in fiscal 1995 to 2.3% in fiscal
1996 to 3.1% in fiscal 1997. The increase from fiscal 1995 to fiscal 1996
reflects an easing in the competitive pressures experienced in fiscal 1995
resulting from the decline in interest rates, increased production volume
in non-conforming mortgages, which typically have higher margins, and
increased gains from loan resale transactions. The increase in fiscal 1997
was attributable, primarily, to the continued increase in the volume of
non-conforming loan production.
The Company recorded revenues of $5.23 million related to the sale of
bulk servicing rights of $1.8 billion during fiscal 1997 as compared to
$4.73 million on bulk sales of $940 million. Gains on bulk sales as a
percent of servicing rights sold decreased to .29% for fiscal 1997 from
0.5% in fiscal 1996. This decrease was due to the net effect of an
increase of $500 million of bulk sales involving servicing previously
purchased. The gain on bulk sales of this bulk-purchased servicing is
lower because the Company's basis is much greater than in originated
mortgages. Revenues from bulk sales of servicing in fiscal 1995 were $7.48
million, 0.4% of servicing rights sold. In fiscal 1996 and fiscal 1995,
respectively, the Company sold servicing rights of $.7 billion and $1.2
billion that had previously been purchased by the Company in bulk.
Interest income increased from $5.11 million in fiscal 1995 to $5.90
million in fiscal 1996, an increase of 15.5%, and increased to $8.20
million in fiscal 1997, an increase of 39.0% as compared to fiscal 1996.
Interest income is earned primarily on loans held by the Company pending
resale in the secondary market. The increases in fiscal 1997 and fiscal
1996 resulted from increased production volumes in general and specifically
increased non-conforming production volumes which typically carry higher
interest rates.
Servicing fee revenue increased $4.62 million in fiscal 1995 to $6.24
million, an increase of 35.2%, and increased to $8.50 million in fiscal
1997, an increase of 36.2% as compared to fiscal 1996. In fiscal 1995 as
compared to fiscal 1996, the Company's servicing portfolio increased from
$1.3 billion to $2.2 billion and from 16,372 loans serviced to 27,357 loans
serviced. At the end of fiscal 1997, the Company's servicing portfolio was
$1.6 billion with $21,248 loans serviced. The Company sold $1.0 billion of
servicing at the end of fiscal 1997. Average servicing revenue per loan
remained constant at $286 per loan for fiscal 1995 and fiscal 1996 and
increased to $350 per loan for fiscal 1997. The variance was primarily due
to the timing of bulk sales. Servicing fees, measured in terms of an
average percentage applied to the amount of the outstanding mortgage, have
not materially changed from year to year.
The aggregate of gains on the sale of real estate-related parties and
gains on the sale of real estate decreased from approximately $7.4 million
in fiscal 1995 to $7.3 million in fiscal 1996 and increased in fiscal 1997
to $8.2 million. Of these amounts, gains on the sale of real
estate-related parties represented approximately $7.4 million in fiscal
1995, $6.5 million in fiscal 1996 and $7.5 million in fiscal 1997. This
reflects the Company's
19
<PAGE> 20
strategy to develop its business of real estate limited partnership
syndications through a former subsidiary. During fiscal 1997, 1996, and
1995, 820, 723, and 735 income producing properties were sold. Typically,
these properties are acquired in distressed situations, requiring
rehabilitation expenditures or having substantial tax delinquencies which
need to be paid.
Gains on the sale of land contracts were stable during fiscal 1996 and
fiscal 1995, remaining approximately $3.0 million for both years and
increased to $3.4 million in fiscal 1997. This reflects an increase in the
number of loan originators employed by the Company and increased marketing
efforts. The Company syndicated 16 pass-through pools with a total of
$20.9 million of real estate related loans in fiscal 1997. In fiscal 1996,
the Company syndicated 15 pass-through pools of real estate related loans
with a total of $21.9 million of loans, as compared to 15 pools with a
total of $22.5 million of loans in fiscal 1995. Gains as a percentage of
total syndication amounts increased from 13.3% in fiscal 1995 to 13.6 % in
fiscal 1996, and 16.3% in fiscal 1997. These percentages are consistent
with past results.
Expenses for fiscal 1997 increased by $16.7 million over fiscal 1996
from a total of $40.8 million to a total of $57.5 million, an increase of
40.9%. Expenses for fiscal 1996 increased by $7.3 million from a total of
$33.5 million in fiscal 1995 to $40.8 million in fiscal 1996, an increase
of 21.8%. These increases were in line with the overall increase in
revenue during these three years. Higher expenses directly resulted from
increases in virtually every category of revenue, reflecting the Company's
overall growth to meet increases in production levels and number of loans
serviced. As a percentage of revenue, however, payroll and commissions
dropped from 46.7% to 42.6% and 40.8% for fiscal 1995, fiscal 1996 and
fiscal 1997, respectively. These continued improvements in efficiency have
resulted from the Company's commitment to keeping up with the available
technology in the industry. Interest expense increased in fiscal 1997 to
$11.4 million from $7.6 million in fiscal 1996 and $6.0 million in fiscal
1995, following increased production levels. As a percentage of revenue,
interest expense has been 19.4%, 18.0% and 18.0% for fiscal 1997, 1996 and
1995, respectively. General and administrative expense remained consistent
at 24.8%, 24.1% and 24.4%, as a percentage of revenue for fiscal 1997, 1996
and 1995, respectively. Amortization expense increased from $1.9 million
in fiscal 1995 to $3.3 million in fiscal 1996 and $4.9 million in fiscal
1997. The increases correspond with the balances in the servicing
portfolio and the corresponding runoff and increased amortization of
certain deferred charges and other assets.
The Company is party to financial instruments with off-balance-sheet
risk in the normal course of business through the production and sale of
mortgage loans and the management of interest rate risk. These financial
instruments include commitments to extend credit and forward contracts to
deliver and sell loans to investors. The Company is exposed to credit loss
in the event of nonperformance by the counter-parties. However, the
Company does not anticipate such nonperformance and the Company's exposure
to credit risk with respect to commitments to extend credit are limited due
to the non-recourse nature of the loans upon sale to investors meeting
certain requirements. At January 31, 1995, 1996 and 1997, respectively,
the Company had approved loans that had not yet closed amounting to
approximately $23.08 million, $74.3 million and $40.1 million. See Note 9
of Notes to Consolidated Financial Statements.
INFLATION
Inflation affects the Company primarily in the mortgage banking
operations as a result of its impact on interest rates. Historically,
interest rates have increased during periods of high inflation and this has
had a negative impact on the Company's mortgage origination volume.
Conversely, during periods of low inflation interest rates have also been
low and this has had a positive impact on mortgage originations.
The total dollar volume of land contracts purchased and originated
have been consistent at $22.5 million, $21.9 million and $20.9 million for
fiscal 1995, fiscal 1996, and fiscal 1997, respectively. The Company's
land contract originations volume tends to run counter-cyclical to the
mortgage origination cycle described above. As mortgage interest rates
increase, especially above 11%, the use of land contract financing
increases and has a
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<PAGE> 21
positive impact on land contract originations. As interest rates decrease,
mortgage financing activity increases and land contract originations tend
to decrease.
The Company's strategy of increasing its servicing portfolio may also
act as an inflationary hedge. As interest rates increase, prepayments decrease,
which decreases amortization expense and increases the earnings potential of the
servicing portfolio. However, during periods of low inflation and decreasing
interest rates, prepayments increase, which increases amortization expense and
results in a decrease in the earnings potential of the servicing portfolio.
SEASONALITY
The mortgage banking industry is usually subject to an unpredictable
degree of seasonal trends. These trends reflect the general pattern of
nationwide home sales. Such sales typically peak during the spring and summer
seasons and decline to lower levels from October through January. In an effort
to mitigate this, the Company has opened eight branch offices in Florida.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this Item 8 is hereby incorporated by
reference from the Company's Consolidated Financial Statements, including the
reports of independent certified public accountants thereon, beginning at page
F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
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<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information about the directors and
executive officers of MCAFC.
<TABLE>
<CAPTION>
Name and Age Principal Position(s) Held with MCAFC
<S> <C>
Patrick D. Quinlan, 50 Chairman, Chief Executive Officer and Director
Thomas P. Cronin, 50 Vice Chairman and Director
Lee P. Wells, 36 President, Chief Operating Officer and Director
Keith D. Pietila, 47 Executive Vice President, Chief Financial Officer and Director
Alexander J. Ajemian, 33 Senior Vice President, Controller and Treasurer
James B. Quinlan, 45 Director
C. Thompson Wells, Jr., 56 Director
D. Michael Jehle, 47 Director
</TABLE>
The Board of Directors is divided into three classes, with each class
serving a three-year term. At each annual meeting of the shareholders,
directors in the class whose term expires are elected to serve a three-year
term. Lee P. Wells and Thomas P. Cronin are serving for a term ending at
the annual meeting of shareholders to be held in 1997 and Patrick D.
Quinlan, C. Thompson Wells and D. Michael Jehle are serving for a term
ending at the annual meeting of shareholders to be held in 1998. Keith D.
Pietila and James B. Quinlan are serving for a term ending at the annual
meeting of shareholders to be held in 1999.
Executive officers serve at the pleasure of the Board of Directors.
The business experience of each director and executive officer during the
past five years is described below.
PATRICK D. QUINLAN has been Chairman of the Board, Chief Executive Officer
and a director of MCAFC since its inception and served as President of
MCAFC from its inception until July 1995. Mr. Quinlan was a founder and
served as Chairman of the Board, President and a director of MCA Mortgage
from 1985 until July 1992. Mr. Quinlan is the brother of James B. Quinlan.
See Item 12 "Security Ownership of Certain Beneficial Owners and
Management."
THOMAS P. CRONIN has been Vice Chairman of MCAFC since July 1995 and a
director of MCAFC since January 1993. Mr. Cronin has been Chief Executive
Officer of MCA Mortgage since November 1993. Mr. Cronin served as
President of MCA Mortgage from October 1992 until November 1993 and has
been a director of MCA Mortgage since August 1992. From October 1990 until
October 1992, Mr. Cronin was an Executive Vice President of MCA. From 1977
until 1990, Mr. Cronin was a member of the Chicago Board of Trade and a
licensed floor broker with the Commodity Futures Trading Commission.
LEE P. WELLS has been President and Chief Operating Officer of MCAFC since
July 1995 and has been a director of MCAFC since its inception. Mr. Wells
served as Executive Vice President of MCAFC from its inception until July
1995, and served as Executive Vice President of MCA Mortgage from 1990
until November 1993 and was a director of MCA Mortgage from 1990 until July
1992. Mr. Wells is responsible for land contract originations and
syndication of land contracts and mortgages into pass-through pools which
are sold to private mortgage investors. From 1987 until 1990 Mr. Wells was
a Vice President of MCA Mortgage, and served as the Controller of MCA
Mortgage from 1987 until 1988. Mr. Wells is the son of C. Thompson Wells,
Jr. See Item 12 "Security Ownership of Certain Beneficial Owners and
Management."
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<PAGE> 23
KEITH D. PIETILA has been Executive Vice President and Chief Financial Officer
of MCAFC since July 1995 and has been a director of MCAFC since its inception.
Mr. Pietila served as Chief Operating Officer and Vice President of MCAFC from
MCAFC's inception until July 1995. Mr. Pietila also was a Vice President, Chief
Financial Officer and Chief Operating Officer and a director of MCA Mortgage
from 1990 until July 1992. Mr. Pietila has been a Director of U.S. Mutual
Financial Corporation since 1991. From 1982 until 1990, Mr. Pietila was
employed by Acorn Building Components, Inc., and served in several positions,
the last of which was as Chief Operating Officer.
ALEXANDER J. AJEMIAN has been a Senior Vice President of MCAFC since July 1995
and has been Controller and Treasurer of MCAFC since its inception. Mr. Ajemian
served as Vice President of MCAFC from its inception until July 1995, served as
Vice President of MCA Mortgage since November 1992 and has served as Treasurer
of MCA Mortgage since November 1993. Mr. Ajemian was the Controller of MCA
Mortgage from 1990 until July 1992 and was the Vice President and Assistant
Secretary of MCA Mortgage from 1991 until July 1992. From 1986 until 1990, Mr.
Ajemian was in the audit department of BDO Seidman, independent certified public
accountants. Mr. Ajemian is a Certified Public Accountant licensed in Michigan.
JAMES B. QUINLAN has been a director of MCAFC since its inception. Mr. Quinlan
is the President of Standard Home Mortgage, Inc., a residential mortgage broker
located in Grosse Pointe, Michigan. Mr. Quinlan served as Senior Vice President
of MCAFC from 1991 until August 1993. Mr. Quinlan has served as a director of
MCA Mortgage since 1985 and served as a Senior Vice President of MCA Mortgage
from 1985 until August 1993. Mr. Quinlan also served as Treasurer of MCA
Mortgage from 1985 until August 1993. Mr. Quinlan is the brother of Patrick D.
Quinlan and the brother-in-law of David C. Wells. See Item 12 "Security
Ownership of Certain Beneficial Owners and Management."
C. THOMPSON WELLS, JR., has been a director of MCAFC since its inception and
previously served in the same capacity with MCA Mortgage from 1990 until July
1992. Since 1987, Mr. Wells has been the President of Wells' System, Inc., a
consulting firm, and has been involved in child care centers as the Chief
Executive Officer of three primary entities: Discovery Learning Centers,
Discovery Learning Centers Limited Partnership and Kids at Work, operating
through 25 other related secondary entities. Of these entities four filed
bankruptcy petitions in 1991 and 1992. Two entities have completed their
liquidations and the other two entities' petitions under the Bankruptcy laws
have been dismissed. Mr. Wells is also the President and a director of Austin
Kids, Inc., which filed a bankruptcy petition in December 1994 and for which an
order confirming its plan of reorganization was entered in April 1995. C.
Thompson Wells, Jr. is the father of Lee P. Wells. See Item 12 "Security
Ownership of Certain Beneficial Owners and Management."
D. MICHAEL JEHLE has been a director of MCAFC since November 1993 and has served
as a director of MCA Mortgage since November 1993. Mr. Jehle served as
President and Chief Operating Officer of MCA Mortgage from November 1993 to
November 1994 and since March 1996 has been the Chairman-Office of Production
for MCA Mortgage. Mr. Jehle served as the President and Chief Executive Officer
of Rimco Financial Corporation from November 1994 to February 1996 and currently
serves as a director of Rimco Financial Corporation. Prior to joining the
Company, Mr. Jehle was employed by First Fidelity Thrift and Loan in San Diego,
California, from 1991 to 1993 in both loan production and servicing capacities.
From 1989 to 1991, Mr. Jehle was self-employed in both residential and
commercial loan originations and prior to that he was President of ABQ
MoneyCenter, Inc., in San Diego, California.
Certain of the directors and executive officers of MCAFC are also directors or
officers of MCAFC's other subsidiaries.
23
<PAGE> 24
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years shown, information
regarding amounts paid to or accrued for the Chief Executive Officer of MCAFC,
and the other four most highly compensated executive officers of MCAFC (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------- Other ------------
Name Annual Restricted All Other
Principal Fiscal Compen- Stock Compen-
Position Year Salary Bonus sation Awards(1) sation (2)
- -------------- ----- ------ ----- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Patrick D. Quinlan - 1997 $208,061 $ -- $-- $ -- $23,172
Chairman 1996 206,458 -- -- -- 16,048
and Chief Executive 1995 195,000 -- -- -- 16,878
Officer
Thomas P. Cronin - 1997 $224,136 $ -- $-- $ -- $ 9.670
Vice Chairman 1996 218,099 -- -- -- 9,670
1995 204,200 -- -- 110,000 9,670
Lee P. Wells - 1997 $170,000 $26,675 $-- $ -- $ 1,766
President and Chief 1996 159,583 19,500 -- -- 2,146
Operating Officer 1995 117,000 40,000 -- -- 1,766
Keith D. Pietila - 1997 $160,000 $30,000 $-- $ -- $11,640
Chief Financial 1996 153,333 25,000 -- -- 11,552
Officer and Executive 1995 124,800 22,000 -- 66,000 10,818
Vice President
Alexander J. Ajemian 1997 $100,000 $15,000 $-- $ -- $ --
Controller, 1996 94,375 10,000 -- -- --
Treasurer and 1995 69,600 -- -- 66,000 --
Sr. Vice President
</TABLE>
(1) During fiscal 1995, Mr. Pietila was awarded 6,000 shares of restricted
stock with a value of $66,000, with 2,000 shares vesting in each of fiscal
1996, 1997 and 1998. As of January 31, 1996, Mr. Pietila held 4,000 shares of
restricted stock with a value of $27,160. During fiscal 1995, Mr. Cronin was
awarded 10,000 shares of restricted stock with a value of $110,000 with 6,000
shares vesting in fiscal 1996 and 2,000 shares vesting in each of fiscal 1997
and 1998. As of January 31, 1996, Mr. Cronin held 4,000 shares of restricted
stock with a value of $27,160. During fiscal 1995, Mr. Ajemian was awarded
6,000 shares of restricted stock with a value of $66,000, with 2,000 shares
vesting in each of fiscal 1996, 1997 and 1998. As of January 31, 1996, Mr.
Ajemian held 4,000 shares of restricted stock with a value of $27,160.
Dividends are payable on the restricted stock when paid on the Company's Common
Stock.
24
<PAGE> 25
(2) Represents for each of the Named Executive Officers, premiums paid by
the Company for life insurance for the last fiscal year.
(3) Represents award of 2,000 shares of unrestricted stock valued at $9.00
per share.
For the year ended January 31, 1997, the Company paid non-employee
directors an annual fee of $20,000 and paid James B. Quinlan an additional
annual fee of $10,000 for serving on the board of MCA Mortgage. This policy is
subject to review annually.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Patrick D. Quinlan, Keith D. Pietila and Lee P. Wells served on the
Compensation Committee of the Board of Directors of the Company during the year
ended January 31, 1997. Each of Messrs. Quinlan, Pietila and Wells is a
director and executive officer of the Company. Messrs. Quinlan and Wells are
executive officers and directors of Rimco Financial Corporation and certain of
its subsidiaries and Mr. Jehle is a director of Rimco Financial Corporation.
Messrs. Wells and Pietila are also directors and officers of Property
Corporation of America ("PCA") and Mr. Quinlan is a director of PCA. Mr.
Pietila is an officer and director of U.S. Mutual Financial Corporation.
During fiscal 1997 the Company recognized a gain of $7,539,447 on the sale
of properties purchased from unrelated third parties and subsequently sold to
limited partnerships whose general partner is owned by Patrick D. Quinlan and
Lee P. Wells. During fiscal 1997, the Company paid commissions in connection
with the acquisition of these properties totaling $1,968,000 to Rimco Financial
Corp. which is owned equally by Patrick D. Quinlan, Lee P. Wells and Leroy G.
Rogers.
The Company provides accounting and administrative services to U.S. Mutual
Financial Corporation ("U.S. Mutual") and receives a base monthly fee of $3,000
plus additional amounts as periodically agreed to by the respective parties.
U.S. Mutual is a publicly-owned corporation; however Patrick D. Quinlan
together with his wife, Cheryl J. Quinlan, and James B. Quinlan, their brother
John E. Quinlan and their mother Bonnie B. Quinlan collectively own
approximately 15% of the outstanding voting stock of U.S. Mutual, and it is
therefore considered an affiliate of the Company, as defined by the Securities
and Exchange Commission. The service arrangement between the Company and U.S.
Mutual can be terminated by either party at any time. The Company earned
$36,000 in management fees for administrative services provided to U.S. Mutual
during fiscal 1997. Keith D. Pietila is a director of U.S. Mutual.
From time to time the Company has retained Consulting Services of America,
Inc. ("CSA") as a consultant for specific long range planning and other
projects. John E. Quinlan, the brother of Patrick and James Quinlan, is a
shareholder, director and executive officer of CSA. For their services, CSA
charges the Company its normal billing rate of $150 per hour, and receives a
minimum retainer of $5,000 per month. During fiscal 1997, the Company paid
$105,000 in consulting fees to CSA.
In February 1993, Patrick D. Quinlan and Lee P. Wells each purchased 500
shares of common stock of PCA for $5,000 in cash, as part of the reorganization
of PCA. In connection with such reorganization, the Company exchanged its PCA
common stock for shares of PCA non-voting preferred stock. As a result of the
reorganization, Messrs. Quinlan and Wells became the owners of all of the
outstanding voting common stock of PCA and the Company's property management
subsidiary became a wholly-owned subsidiary of PCA.
In July 1995, Janet K. Wells purchased 20,000 shares of common stock of
the Company for $30 per share in exchange for promissory notes with an
aggregate principal amount of $600,000, secured by mortgages on certain
appraised real estate. The appraisal was performed by the Real Estate
Appraisal Group, an unaffiliated licensed real estate appraisal firm, and the
value of the stock was negotiated by the parties with approval by the Company's
Board of Directors.
From time to time the Company has made working capital loans to related
entities, and these entities have entered into transactions in the ordinary
course of business with the Company pursuant to which the Company accrues net
payables to
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<PAGE> 26
these entities. At January 31, 1997, the Company's accounts receivable from
these related entities, net of accounts payable to these entities, were
$571,000 due from Rimco Financial Corp., a company owned by Patrick D. Quinlan,
Lee P. Wells and Leroy G. Rogers, and $1,674,000 due from PCA, the common stock
of which is owned by Patrick D. Quinlan and Lee P. Wells. In addition, there
is $3,384,000 due from investor pass-through pools sponsored by MCA Mortgage or
MCA and limited partnerships sponsored by other affiliates of the Company. On
January 31, 1995, MCAFC purchased all of the issued and outstanding common
stock of Rimco Realty & Mortgage Company from Rimco Financial Corp. for
$12,918. The payment for such shares was in the form of a reduction in debt
owed by Rimco Financial Corp. to MCAFC. Rimco Realty & Mortgage Company was
engaged in the purchase and sale of residential real estate and now operates as
MCA Realty Corporation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of April 1, 1997,
regarding each person known by the Company to own more than five (5%) percent
of the issued and outstanding shares of Common Stock of the Company, each
current director, each of the Named Executive Officers and all directors and
executive officers of the Company as a group. Unless otherwise noted, each
person is the record owner of the shares indicated and possesses the sole
voting and investment power with respect to such shares. Unless otherwise
noted, the address for each person is 23999 Northwestern Hwy., Southfield,
Michigan 48075.
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Beneficial of
Name and Address Ownership Class(1)
- ----------------- ------------ --------
<S> <C> <C>
Patrick D. Quinlan 112,135(2) 21.43%
James B. Quinlan 55,734(3) 10.65%
17150 Kercheval Ave.
Grosse Pointe, Michigan 48230
C. Thompson Wells, Jr. 86,200(4) 16.47%
Lee P. Wells 48,372(2) 9.24%
NML, Inc. 33,700(2) 6.44%
David C. Wells 28,347(5) 5.42%
Keith D. Pietila 28,167(6) 5.38%
Thomas P. Cronin 13,200(6) 2.52%
D. Michael Jehle 11,000(6) 2.10%
Janet K. Wells 86,200(4) 16.47%
3 Sycamore
Grosse Pointe, Michigan 48230
Alexander J. Ajemian 8,280(6) 1.58%
</TABLE>
26
<PAGE> 27
All executive officers and
directors as a group (8 persons) 397,293(2)(4)(6) 75.92%
- ----------
(1) As of April 1, 1997, there were 523,283 shares of Common Stock of the
Company outstanding. This number includes 20,002 shares of Common Stock
which are subject to forfeiture.
(2) Patrick D. Quinlan owns 50% of NML, Inc. and Lee P. Wells owns 50% of
NML, Inc.
(3) These 55,734 shares are held by Standard Home Mortgage, Inc., a
corporation wholly owned by James B. Quinlan. Of these shares, 1,334
shares are subject to forfeiture.
(4) Janet K. Wells holds 86,200 shares in a revocable trust and has voting
and investment power with respect to these shares. Ms. Wells is the wife
of C. Thompson Wells, Jr., who disclaims beneficial ownership of these
shares.
(5) Includes 1,334 shares subject to forfeiture.
(6) Includes the following shares that were issued pursuant to compensation
arrangements and are subject to forfeiture: Mr. Pietila - 2,000 shares;
Mr. Cronin - 2,000 shares; Mr. Jehle - 2,668 shares; Mr. Ajemian - 2,000
shares; and all executive officers and directors as a group - 10,002
shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
From time to time, the Company and its subsidiaries have entered into
various contracts and other transactions with affiliates of the company,
including certain officers and directors of the Company. The terms and
conditions of such transactions were not negotiated at arm's length and may not
have been as favorable to the Company as terms and conditions that would have
been obtained with unaffiliated parties. The additional disclosure provided
under Item 11 "Executive Compensation - Compensation Committee Interlocks and
Insider Participation" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
(a) Financial Statements, Schedules and Exhibits
1. The following consolidated financial statements are filed herewith:
Consolidated Balance Sheets as of January 31, 1997 and 1996.
Consolidated Statements of Operations for the years ended January
31, 1997, 1996, and 1995.
Consolidated Statements of Stockholders' Equity for the years ended
January 31,1997, 1996, and 1995.
Consolidated Statements of Cash Flows for the years ended January
31,1997, 1996, and 1995.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
3. Exhibits:
27
<PAGE> 28
The exhibits filed with this report are listed on the "Exhibit Index"
on pages E-1 through E-6.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter ended
January 31, 1997.
<PAGE> 29
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
CONSOLIDATED FINANCIAL STATEMENTS
Report of independent certified public accountants F-2
Consolidated balance sheets F-3
Consolidated statements of operations F-4
Consolidated statements of stockholders' equity F-5
Consolidated statements of cash flows F-6
Notes to consolidated financial statements F-9
F-1
<PAGE> 30
Report of Independent Certified Public Accountants
To the Board of Directors of
MCA FINANCIAL CORP.
We have audited the accompanying consolidated balance sheets of MCA Financial
Corp. and Subsidiaries as of January 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended January 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of MCA
Financial Corp. and its Subsidiaries as of January 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended January 31, 1997, in conformity
with generally accepted accounting principles.
As described in Note 1, in February 1996, the Company adopted Statement of
Financial Accounting Standards No. 122, "Accounting for Certain Mortgage
Servicing Rights".
Moore Stephens Grant Thornton LLP
Doeren Mayhew, P.C. Detroit, Michigan
April 28, 1997
Troy, Michigan
F-2
<PAGE> 31
MCA FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash $ 3,096,993 $ 2,730,408
Land contracts held-for-resale 10,351,425 11,484,877
Mortgages held-for-resale 54,430,155 63,306,372
Accounts receivable - mortgages sold 15,489,908 -
Accounts receivable 16,997,311 9,722,527
Accounts receivable - related parties 6,827,285 8,256,090
Mortgage servicing rights - net 16,324,263 27,293,358
Excess interest spread receivable 7,987,053 -
Investments 2,571,750 2,492,816
Property and office equipment 5,582,612 4,856,330
Deferred charges and other assets 5,333,058 5,047,863
------------ ------------
Total assets $144,991,813 $135,190,641
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable $ 83,975,834 $ 86,597,703
Subordinated debentures 15,542,000 9,174,000
Subordinated notes payable 15,000,000 -
Accounts payable 15,705,913 25,206,687
Accounts payable - related parties 1,043,842 1,693,311
Accrued interest and other expenses 2,419,048 2,058,080
Deferred federal income tax 400,000 300,000
------------ ------------
Total liabilities 134,086,637 125,029,781
------------ ------------
REDEEMABLE COMMON STOCK 256,373 -
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock
Authorized 3,750,000 shares at January 31,
1997 and 1996. No par, stated value $.01 each.
Issued and outstanding, 503,281 shares at
January 31, 1997 and 448,617 shares at
January 31, 1996 5,033 4,486
Preferred stock (Series A)
Authorized 350,000 shares, $10 stated value,
issued and outstanding 203,022 shares at
January 31, 1997 and 1996 2,030,220 2,030,220
Preferred stock (Series B)
Authorized 750,000 shares, $10 stated value,
issued and outstanding 336,619 shares at
January 31, 1997 and 1996 3,366,190 3,366,190
Additional paid-in capital 3,664,976 1,457,251
Retained earnings 1,582,384 1,302,713
------------ ------------
Total stockholders' equity 10,648,803 10,160,860
------------ ------------
Total liabilities and stockholder's equity $144,991,813 $135,190,641
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 32
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Gain on sale of land contracts $ 3,437,662 $ 2,981,138 $ 2,983,022
Gain on sale of real estate 707,754 750,800 --
Gain on sale of real estate - related parties 7,539,447 6,529,708 7,365,199
Gain on bulk sales of servicing rights 5,231,163 4,725,872 7,475,444
Mortgage origination fees and gain on sale
of mortgages 24,861,881 14,339,220 5,584,454
Servicing fees 8,499,396 6,243,748 4,616,738
Interest income 8,167,899 5,902,714 5,106,041
Other income 481,138 477,810 240,783
---------- ---------- ----------
Total revenues 58,926,340 41,951,010 33,371,681
---------- ---------- ----------
EXPENSES
Payroll 15,775,097 11,955,536 10,985,576
Interest 11,426,082 7,565,044 6,018,518
Commissions 8,257,703 5,929,844 4,591,079
Professional services 1,879,525 1,447,810 1,511,215
Depreciation 687,333 554,904 351,964
Amortization 4,869,475 3,259,131 1,924,872
General and administrative 14,626,787 10,111,211 8,163,619
---------- ---------- ----------
Total expenses 57,522,002 40,823,480 33,546,843
---------- ---------- ----------
INCOME (LOSS) BEFORE FEDERAL INCOME TAXES 1,404,338 1,127,530 (175,162)
PROVISION FOR FEDERAL INCOME TAXES 639,000 512,000 102,384
---------- ---------- ----------
NET INCOME (LOSS) $ 765,338 $ 615,530 $ (277,546)
========== ========== ==========
EARNINGS (LOSS) PER SHARE $ 1.61 $ 1.44 $ (.69)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 33
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED JANUARY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
PREFERRED
ADDITIONAL STOCK
COMMON PREFERRED PAID-IN RETAINED SUB-
STOCK STOCK CAPITAL EARNINGS SCRIPTIONS TOTAL
------ --------- ---------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance - February 1, 1994 $4,023 $4,698,870 $2,848,350 $1,897,815 $(886,000) $ 8,563,058
Net loss -- -- -- (277,546) -- (277,546)
Issuance of common stock 26 -- 28,211 -- -- 28,237
Issuance of preferred stock -- 697,540 (159,531) -- 886,000 1,424,009
Preferred stock dividends -- -- -- (447,446) -- (447,446)
------ ---------- ---------- ---------- ---------- -----------
Balance - January 31, 1995 4,049 5,396,410 2,717,030 1,172,823 -- 9,290,312
Net income -- -- -- 615,530 -- 615,530
Issuance of common stock 444 -- 764,300 -- -- 764,744
Repurchase of common stock (7) -- (24,079) -- -- (24,086)
Preferred stock dividends -- -- -- (485,640) -- (485,640)
------ ---------- ---------- ---------- ---------- -----------
Balance - January 31, 1996 4,486 5,396,410 3,457,251 1,302,713 -- 10,160,860
Net income -- -- -- 765,338 -- 765,338
Issuance of common stock 547 -- 207,725 -- -- 208,272
Preferred stock dividends -- -- -- (485,667) -- (485,667)
------ ---------- ---------- ---------- ---------- -----------
Balance - January 31, 1997 $5,033 $5,396,410 $3,664,976 $1,582,384 $ -- $10,648,803
====== ========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 34
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 765,338 $ 615,530 $ (277,546)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 5,556,808 3,814,035 2,276,836
Stock award compensation 207,970 165,744 28,237
Decrease (increase) in land contracts
held-for-resale 1,133,452 (2,175,379) (5,439,497)
Origination and purchase of mortgages
held-for-resale (794,266,291) (632,281,000) (564,235,000)
Sale of mortgages held-for-resale 803,142,508 585,277,031 587,782,628
Increase in accounts receivable -
mortgages sold (15,489,908) -- --
Decrease (increase) in accounts receivable (7,274,784) 4,432,277 (7,325,104)
Decrease (increase) in accounts receivable -
related parties 1,428,805 (986,951) (1,333,086)
Increase in excess interest spread receivable (7,987,053) -- --
Increase in deferred charges and other assets (1,104,199) (2,123,743) (1,538,268)
Increase (decrease) in accounts payable (9,500,774) 9,852,602 9,047,933
Increase (decrease) in accounts payable -
related parties (649,469) 193,729 194,211
Increase in accrued interest and other expenses 360,968 1,071,831 205,166
Increase in deferred Federal income taxes 100,000 100,000 20,000
------------- ----------- -----------
Net cash provided by (used in) operating activities (23,579,629) (32,044,292) 19,406,510
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 35
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Net cash provided by (used in) operating
activities - total from previous page $ (23,576,629) $(32,044,294) $ 19,406,510
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of MCA Realty Corporation - - 163,341
Investment in mortgage servicing rights-net 7,175,299 (12,125,632) (10,645,117)
Decrease (increase) in investments (78,934) 36,912 (224,702)
Capital expenditures (1,207,774) (1,073,420) (232,962)
------------- ------------ --------------
Net cash provided by (used in)
investing activities 5,888,591 (13,162,140) (10,939,440)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 814,899,838 548,960,490 529,181,111
Payments on notes payable (817,727,548) (597,680,156) (540,175,700)
Proceeds from subordinated debentures 6,368,000 4,236,000 -
Proceeds from subordinated notes payable 15,000,000 - -
Redemption of common stock - - (300,000)
Repurchase of common stock - (25,086) -
Proceeds from issuance of preferred stock - - 1,583,540
Preferred stock issuance costs - - (159,531)
Dividends on preferred stock (485,667) (485,640) (447,446)
------------- ------------ --------------
Net cash provided by (used in)
financing activities 18,054,623 45,005,608 (10,318,026)
------------- ------------ --------------
NET INCREASE (DECREASE) IN CASH 366,585 (200,826) (1,850,956)
CASH - BEGINNING 2,730,408 2,931,234 4,782,190
------------- ------------ --------------
CASH - ENDING $ 3,096,993 $ 2,730,408 $ 2,931,234
============= ============ ==============
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 36
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Cash paid during the period for:
Interest $10,950,833 $7,435,339 $5,943,047
=========== ========== ==========
Income taxes $ 412,000 $ 66,506 $ 325,878
=========== ========== ==========
</TABLE>
During the year ended January 31, 1997, the Company issued 24,467 shares of
common stock to employees and recognized $207,970 in compensation expense. The
Company also issued 30,197 shares of redeemable common stock as part of a loan
agreement with The Board of Trustees of the Policemen and Firemen Retirement
System of the City of Detroit and recorded $256,675 in deferred charges.
Capital leases totaling $205,841 were entered into for the purchase of various
property and equipment during the year ended January 31, 1997.
During the year ended January 31, 1996, the Company issued 24,410 shares of
common stock to employees and recognized $164,744 in compensation expense. The
Company also issued 20,000 shares of common stock to a shareholder/director of
the Company in exchange for $600,000 in notes receivable. Prior to January 31,
1996, the notes receivable were assigned to Investor Pass-Through Trusts in
satisfaction of amounts due the Trust by MCAFC. In December of 1995, the
Company exchanged a $1,000,000 investment in a real estate partnership acquired
from a related party in exchange for a reduction in amounts due the Company for
an interest in a limited liability company whose primary activity involves
providing financing for automobile dealerships. During the year ended January
31, 1996, capital leases totaling $474,077 were entered into for the purchase
of various property and equipment.
During the year ended January 31, 1995, the Company issued 2,567 shares of
common stock to employees and recognized $28,237 in compensation expense. The
Company also entered into capital lease arrangements for the purchase of various
property and equipment in the amount of $767,145. On January 31, 1995, the
Company acquired MCA Realty Corporation (see note 15) in a non-cash transaction.
The following assets and liabilities were acquired in exchange for a $945,117
net reduction in accounts receivable from RIMCO Financial Corporation:
<TABLE>
<S> <C>
Cash $ 163,341
Accounts receivable 414,126
Property and equipment 947,967
Deferred charges and other 18,918
Notes payable (521,634)
Accounts payable (77,601)
---------
$ 945,117
=========
</TABLE>
See accompanying notes to consolidated financial statements
F-8
<PAGE> 37
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements at January 31, 1997, 1996 and
1995 include the accounts of MCA Financial Corp. (MCAFC) and its wholly
owned subsidiaries MCA Mortgage Corp. (MCAMC), Mortgage Corporation of
America (MCA), MCA Realty Corporation (MRC) and Complete Financial
Corp. (CFC). Mortgage Corporation of America - Ohio (MCA-Ohio) is a
wholly owned subsidiary of MCA.
Intercompany accounts and transactions are eliminated in consolidation.
NATURE OF OPERATIONS
MCAFC and its subsidiaries (the Company) is a diversified mortgage
banking and real estate services enterprise. The Company generates
revenue from four primary sources including mortgage banking, land
contract syndication, loan servicing and real estate sales.
The Company originates first mortgage loans on residential properties.
Loans are delivered, primarily on a pre-sold basis, to various
institutional investors throughout the United States. These mortgage
loans are typically sold on a non-recourse basis. Loans underwritten
and sold may be subject to repurchase if the underwriting standards of
the investor are not met. These transactions are accounted for as sales
of loans since the Company is able to estimate its obligation under the
recourse provisions, which historically have been immaterial. Gains and
losses from loan sale transactions are recognized when the mortgage
loans are sold and amount to approximately $12,513,000, $6,068,000 and
$430,000 for the years ending January 31, 1997, 1996 and 1995,
respectively.
MCA purchases land contracts and mortgage notes at a discount from face
value and packages (securitizes) these real estate investments into
Investor Pass-through Trusts. MCA is the sponsor of the Trusts, which
are sold as securities to investors by independent security
broker-dealers. The Trusts hold the entire interest, including any
residual, in the transferred loans. Gain on sale is recognized when the
Trusts have broken escrow (investor funds have been received).
F-9
<PAGE> 38
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
NATURE OF OPERATIONS -- CONTINUED
--------------------
MCAMC and MCA service the land contracts and mortgages for various
investors. Servicing revenues are recognized monthly according to the
servicing contracts related to the various portfolio interests.
MCAFC, MCA and MRC purchase residential and commercial income
properties which are sold to limited partnerships. Revenues related to
limited partnership sales are recognized when the sales are closed.
Substantially all of the real estate and land contracts held by the
limited partnerships and Investor Pass-through Trusts are located in,
or relate to, properties located in the greater Detroit, Michigan
metropolitan area.
LAND CONTRACTS HELD-FOR-RESALE
------------------------------
Land contracts held-for-resale are recorded at the lower of cost or
market and consisted of the following at:
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
--------- ---------
<S> <C> <C>
Land contracts receivable $11,684,696 $12,158,775
Discount (197,796) (416,418)
Senior liens payable (1,135,475) (257,480)
----------- -----------
$10,351,425 $11,484,877
=========== ===========
</TABLE>
MORTGAGES HELD-FOR-RESALE
-------------------------
Mortgages held-for-resale are recorded at the lower of cost or market
which is determined by the aggregate method (unrealized losses are
offset by unrealized gains). Cost approximated market value,
therefore, no valuation allowance was necessary at January 31, 1997
and 1996.
F-10
<PAGE> 39
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
ACCOUNTS RECEIVABLE - MORTGAGES SOLD
Accounts receivable - mortgages sold represents amounts due from the
purchaser on sales of non-conforming mortgages. Management believes the
outstanding balance is fully collectible at January 31, 1997, and
accordingly no allowance for doubtful accounts has been provided.
ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at:
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
----------- ----------
<S> <C> <C>
Accounts receivable - sales of mortgage servicing rights $14,136,266 $5,912,243
Accrued fees and commissions 919,155 1,505,378
Accounts receivable - syndication sales 154,352 662,577
Accounts receivable - escrows on closed loans 983,971 563,061
Accounts receivable - shareholders 233,342 182,679
Accrued interest 181,420 211,843
Employee commission draws 128,178 113,799
Other 260,627 570,947
----------- ----------
$16,997,311 $9,722,527
=========== ==========
</TABLE>
Accounts receivable - related parties consist mainly of non-interest
bearing advances and other administrative charges to Investor
Pass-through Trusts and limited partnerships sponsored by the Company,
and other related entities.
Included in accounts receivable - related parties at January 31, 1997
and 1996, respectively, are approximately $571,000 and $793,000 due from
an entity owned by certain directors and shareholders of the Company;
$1,674,000 and $1,676,000 due from Property Corporation of America
(PCA), an entity owned by certain directors and shareholders of the
Company, and $3,384,000 and $4,568,000 due from investor pass-through
trusts and limited partnerships is substantially dependent upon
successful syndication of partnership interests and operating cash flows
generated by rental operations.
The Company uses the allowance method to account for possible losses of
accounts receivable, and no allowance was deemed necessary at January
31, 1997 and 1996.
F-11
<PAGE> 40
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
MORTGAGE SERVICING RIGHTS
In February 1996, the Company adopted SFAS No. 122, "Accounting for Mortgage
Servicing Rights". This requires the capitalization of a mortgage servicing
asset for every origination whether it be originated or purchased. SFAS No.
122 also dictates prescribed rules for the amortization, periodic valuation,
and the required valuation adjustment. As discussed in Note 1, the Company
adopted SFAS 122 in February 1996. The effect of the adoption was to
increase earnings by approximately $.73 million for Fiscal 1996 or $1.54
per share. Prior to adoption, a value was capitalized for purchased mortgage
servicing rights. This capitalization was in accordance with SFAS Statement
of Financial Accounting Standards No. 65, "Accounting for Certain Mortgage
Banking Practices".
The following is an analysis of the changes in mortgage servicing rights:
<TABLE>
<S> <C>
Balance - January 31, 1994 $ 8,257,305
Additions 22,145,428
Scheduled amortization (1,334,724)
Amortization due to changes in
prepayment and other assumptions --
Sales (11,500,311)
-----------
Balance - January 31, 1995 17,567,698
Additions 25,711,919
Scheduled amortization (1,991,974)
Amortization due to changes in
prepayment and other assumptions (468,007)
Sales (13,526,278)
-----------
Balance - January 31, 1996 27,293,358
Additions 10,780,600
Scheduled amortization (3,699,194)
Amortization due to changes in
prepayment and other assumptions --
Sales (18,050,501)
-----------
Balance - January 31, 1997 $16,324,263
===========
</TABLE>
F-12
<PAGE> 41
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
MORTGAGE SERVICING RIGHTS -- CONTINUED
-------------------------
Amortization of purchased servicing rights is based on the ratio of
net servicing income received in the current period to total net
servicing income projected to be realized from the purchased
servicing rights on a discounted basis. Projected net servicing income
is determined on the basis of the estimated balance of the underlying
mortgage loan portfolio, which declines over time from prepayment and
scheduled amortization. The Company estimates future prepayment rates
based on current interest rate levels and other economic conditions,
as well as relevant characteristics of the servicing portfolio, such
as loan types, interest rate stratification and recent prepayment
experience. Amortization of purchased servicing rights was $3,699,194,
$2,459,981 and $1,334,724 for the years ended January 31, 1997, 1996
and 1995, respectively. Accumulated amortization of purchased
servicing rights was $5,806,181, $2,887,705 and $427,704 at January
31, 1997, 1996 and 1995, respectively.
Properties securing the mortgage loans in the Company's servicing
portfolio are located throughout the United States.
At January 31, 1997, the net book value of the mortgage servicing
rights portfolio approximated fair value.
EXCESS INTEREST SPREAD RECEIVABLE
---------------------------------
The Company sells mortgage loans in bulk to a third party for purposes
of securitization. By agreement, the Company is entitled to the
difference between the weighted average coupon rate of the loans it
originated in the security and the security's stated yield, less a
normal servicing fee and certain other fees. The Company determines
fair value based on a discounted cash flow analysis. The analysis
takes into consideration projected prepayments, defaults, interest
rate and credit risks. Income is recognized at the time of sale and is
included in mortgage origination fees and gain on sale of mortgages.
INVESTMENTS
-----------
Partnership investments consist of partnership interests in limited
partnerships and are accounted for under the equity method. The
partnerships invest primarily in residential rental properties.
Presented below is summary unaudited financial information for the
above limited partnerships as of, and for the year ended:
F-13
<PAGE> 42
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
-------- --------
<S> <C> <C>
Total assets $8,586,116 $9,327,310
Total liabilities 2,945,782 2,885,888
Partnership equity 5,640,334 6,441,422
Net income 432,499 510,748
</TABLE>
Included in investments at January 31, 1997 and 1996 is a $1,000,000
membership interest investment in a LLC which was made in December
1995. This start-up Company participates in the used vehicle retail
industry through providing floor plan financing and participating in
joint venture activities with existing dealers. The Company's
investment in the Class B interest issued by this LLC provides it the
right to participate in earnings and distributions, if any, subject to
preferential rights of certain other members. This investment is
being accounted for on the cost method.
PROPERTY AND OFFICE EQUIPMENT
Property and office equipment are recorded at cost. Depreciation is
calculated principally using the straight-line method based upon the
estimated useful lives of the assets, ranging from seven to ten years.
Property and office equipment consisted of the following at:
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
-------- ---------
<S> <C> <C>
Property and office equipment under
capital lease $ 2,370,809 $ 2,475,010
Property and office equipment 3,729,214 2,653,472
Building and improvements 1,498,614 1,090,714
----------- -----------
7,598,637 6,219,196
Less accumulated depreciation (2,016,025) (1,362,866)
----------- -----------
$ 5,582,612 $ 4,856,330
=========== ===========
</TABLE>
Depreciation expense for the year ended January 31, 1997, 1996 and 1995
amounted to $687,313, $554,904 and $351,964, respectively.
F-14
<PAGE> 43
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
REVENUE RECOGNITION
Gains on the sale of mortgage servicing rights are recognized when title
and all risks and rewards have irrevocably passed to the buyer and there
are no significant unresolved contingencies. Mortgage origination fees
on loans held-for-sale are recognized as income at the time the loan is
sold.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statements of Financial Accounting Standards ("SFAS") No. 107 issued by
the Financial Accounting Standards Board ("FASB"), "Disclosures About
Fair value of Financial Instruments", requires the disclosure of fair
value information about financial instruments, whether or not recognized
in the statement of financial condition, where it is practicable to
estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or
other valuation techniques. SFAS 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do
not represent the underlying value of the Company.
The following methods and assumptions were used by the Company to
estimate the fair value of each class of financial instruments for which
it is practicable to estimate that value:
CASH AND CASH EQUIVALENTS
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
LAND CONTRACTS HELD-FOR-RESALE
This portfolio consists of land contracts held-for-resale underlying
single family residential properties. These are valued based on the fair
value of obligations with similar credit characteristics.
MORTGAGES HELD-FOR-RESALE
This portfolio consists of single family mortgage loans held-for-sale
and is valued using fair values attributable to similar mortgage
loans.
F-15
<PAGE> 44
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
MORTGAGE SERVICING RIGHTS
The fair value of the mortgaged servicing rights is determined using
the discounted present value of the net cash flows. Market estimates
are used for servicing costs, prepayment speeds and discount rates.
EXCESS INTEREST SPREAD RECEIVABLE
The fair value is determined by using the discounted present value
of the net cash flows. Market estimates are used for servicing
costs, prepayment spreads and discount rates.
NOTES PAYABLE, SUBORDINATED DEBENTURES AND SUBORDINATED NOTES
PAYABLE
The carrying amount for these instruments approximates fair value.
The following table sets forth the fair value of the Company's
financial instruments:
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 3,096,993 $ 3,096,993 $ 2,730,408 $ 2,730,408
Land contracts held-for-resale 10,351,425 10,351,425 11,484,877 11,484,877
Mortgage held-for-resale 54,430,155 54,430,155 63,306,372 63,306,372
Mortgage servicing rights 16,324,263 16,324,263 27,293,358 27,293,358
Excess interest spread receivable 7,987,053 7,987,053 -- --
Liabilities:
Notes payable, subordinated debentures and
subordinated notes payable 114,517,834 114,517,834 95,771,703 95,771,703
</TABLE>
F-16
<PAGE> 45
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of
common and common equivalent shares outstanding during the period. The
weighted average number of shares used in the determination of earnings
per share was 475,949, 426,762 and 403,622 for the years ended January
31, 1997, 1996 and 1995.
RECLASSIFICATION
Certain amounts in the prior year's financial statements have been
reclassified to conform to the January 31, 1997 presentation.
NEW PRONOUNCEMENTS
In June 1996, the FASB issued "SFAS No. 125 - Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities."
This statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are
secured borrowings. This statement was to have been effective
prospectively from December 31, 1996, but was deferred when the FASB
issued "SFAS No. 127 - Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125." The effective date of the
certain provisions have been deferred one year. The Company adopted
certain of the provisions for transactions entered into during
January, 1997. The effect of this adoption was not significant to net
income. Management does not believe adoption of the remaining
provisions will have a material effect on the financial statements.
F-17
<PAGE> 46
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
NEW PRONOUNCEMENTS - CONTINUED
In February 1997, the FASB issued SFAS No. 128. "Earnings Per Share,"
which replaces the presentation of primary earnings per share ("EPS")
with a presentation of basic EPS, requires dual presentation of basic
and diluted EPS on the face of the statement of earnings regardless of
whether basic and diluted EPS are the same, and requires a
reconciliation of the numerator and denominator used in computing basic
and diluted EPS. Basic EPS excludes dilution and is computed by
dividing earnings available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS
is computed similarly to fully diluted EPS pursuant to APB Opinion 15.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the entity. This Statement is
effective for financial statements issued for periods ending after
December 15, 1997, including interim periods, earlier application is
not permitted, and requires restatement of all prior period EPS data
presented.
NOTE 2 - RESTRICTED CASH
Included in cash and accounts payable are advance payments by borrowers
on loans serviced by the Company in the amount of approximately
$511,000 and $378,000, respectively, at January 31, 1997 and 1996.
F-18
<PAGE> 47
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 3 - NOTES PAYABLE
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
-------- --------
<S> <C> <C>
Note payable under $115 million mortgage
warehouse credit facility, subject to renewal on
September 3, 1997, interest is computed at LIBOR
plus .85% to 2.5% depending on type of loan and
payable monthly, principal payable upon sale of
mortgage collateral (mortgages held-for-resale)
to institutional investors $ 48,369,064 $ -
Note payable under $25 million mortgage warehouse
credit facility, interest is computed at the bank's
prime rate less 1/2% and payable monthly; principal
payable upon sale of mortgage collateral (mortgages
held-for-resale) to institutional investors or on
demand. This facility was terminated January 8, 1997 - 22,557,781
Note payable under $28.5 million revolving credit
facility, subject to renewal on October 31, 1997,
interest is computed at the Federal Funds rate plus
1.5% (6.8% at January 31, 1997), collateralized by
mortgage servicing rights 28,305,175 28,500,000
Note payable under $30 million mortgage warehouse
facility, interest is computed at the federal
funds rate plus 1.5% and deducted from the proceeds
of investor fundings, principal payable upon sale
of mortgage collateral (mortgages held-for-resale)
to institutional investors or on demand. This facility
was terminated August 31, 1996 - 26,554,708
----------- -----------
Total - this page 76,674,239 77,612,489
</TABLE>
F-19
<PAGE> 48
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 3 - NOTES PAYABLE - CONTINUED
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
-------- --------
<S> <C> <C>
Total - previous page $ 76,674,239 $ 77,612,489
Note payable under $10 million mortgage warehouse
facility, subject to renewal on November 1, 1997,
interest is computed at LIBOR plus 1.5% (6.94%
at January 31, 1997), principal payable upon sale
of mortgage collateral (mortgages held-for-resale)
to institutional investors. 4,426,335 3,729,748
Note payable under $1 million line-of-credit for
the acquisition and rehabilitation of residential
real property subject to renewal on February 1,
1998, interest is computed at the bank's prime
rate plus 1% (9.25% at January 31, 1997) collateralized
by a first security interest in residential real property 284,200 -
Revolving line-of-credit/note payable, $.5 million
credit line for working capital, $1 million note
payable for purchases of land contracts, interest
is computed at the bank's prime rate plus 1% (9.25%
at January 31, 1997). Land contracts are assigned to
the bank as collateral, personally guaranteed by
certain officers of the Company, payable upon sale
of collateral. This facility was terminated April 14, 1997 250,000 1,500,000
---------- ----------
Total-this page 81,634,774 82,842,237
</TABLE>
F-20
<PAGE> 49
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 3 - NOTES PAYABLE - CONTINUED
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
-------- --------
<S> <C> <C>
Total - previous page $ 81,634,774 $ 82,842,237
Note payable under $1.5 million line-of-credit for
the acquisition and rehabilitation of residential
real property interest is computed at 12%,
collateralized by residential real property and
personally guaranteed by certain officers of the
Company, principal payable upon sale of collateral.
This facility was terminated December 13, 1996 - 1,448,042
Note payable under $1.5 million line-of-credit for
the acquisition and rehabilitation of residential
real property, interest is computed at the bank's
prime rate plus 3/4%, collateralized by residential
real property and personally guaranteed by certain
officers of the Company, principal payable upon
sale of collateral. This facility was terminated
September 17, 1996 - 408,773
Land contracts payable to certain Investor Pass-through
Trusts sponsored by the Company for purchase of a building,
interest at 11%, collateralized by the building, principal
payable based on 30 year amortization, balloon payment
required in 10 years 452,898 542,556
Other notes payable, including obligations under capital
leases, expiring at various times through 2002 1,888,162 1,356,095
------------ ------------
$ 83,975,834 $ 86,597,703
============ ============
</TABLE>
F-21
<PAGE> 50
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 3 - NOTES PAYABLE - CONTINUED
In connection with the $28.5 million credit facility, the Company
entered into an arrangement with the Policemen and Firemen Retirement
System of the City of Detroit (The "Fund") whereby the Fund has agreed
to provide payment upon the occurrence of certain events of default by
the Company. In consideration for this, the Company pays certain fees to
the Fund, and has provided it with an option to purchase up to five
percent of the Company's outstanding common stock, at seventy percent of
the public offering price per share, if the Company completes a firm
commitment underwritten sale of its common stock prior to April 30,
2000.
The above notes payable place certain financial restrictions on the
Company. If for any reason the warehouse credit facilities are
terminated, the Company's ability to fund mortgage loans will be
adversely impacted. The Company anticipates renewal of all of its
existing credit facilities.
NOTE 4 - SUBORDINATED DEBENTURES
In December 1991, the Company began offering up to $7,500,000 of 11%
Asset-Backed Subordinated Debentures due March 15, 1997. Interest on the
Debentures is payable quarterly. The Debentures are subordinate in right
of payment to all current and future senior indebtedness of the Company.
Payment of principal and interest on the Debentures is collateralized by
a security interest in and lien upon certain existing and future
contract rights to service mortgages and land contracts. These rights
must at all times have a formula value, as determined by provisions of
the Indenture, of at lease 105% of the principal amount of Debentures
outstanding. Under certain limited conditions, the Debentures are
redeemable commencing June 15, 1993 only up to $25,000 per holder in
each calendar year and only up to an aggregate of $100,000 per calendar
year for all holders. The right of redemption does not exist if the
Company is in default under any senior indebtedness. Through January 31,
1997 there have been $17,000 in redemptions. The Debentures also place
restrictions on dividends and certain equity transactions should the
Company's consolidated retained earnings fall below $1,000,000. The
Debentures are registered with the Securities and Exchange Commission.
These debentures were redeemed in full on March 17, 1997.
Through January 31, 1997, the Company has incurred approximately
$866,000 in fees related to the debenture offering. These costs are
included in deferred charges and other assets and are being amortized
over the life of the debentures on the straight-line method. Accumulated
amortization was $840,000 and $686,000 at January 31, 1997 and 1996.
F-22
<PAGE> 51
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 4 - SUBORDINATED DEBENTURES - CONTINUED
In December 1994, the Company began offering up to $10,000,000 of 11%
Asset-Backed Subordinated Debentures due June 30, 2000. Interest on the
Debentures is payable quarterly. The Debentures are subordinate in right
of payment to all current and future senior indebtedness of the Company.
Payment of principal and interest on the Debentures is collateralized by
a security interest in and lien upon certain existing and future
contract rights to service mortgages and land contracts and specified
mortgage notes and land contract vendors' interests relating to
one-to-four family residential and commercial real estate. This
collateral must at all times have a formula value, as determined by
provisions of the Indenture, of at least 105% of the principal amount
of Debentures outstanding. Under certain limited conditions, the
Debentures are redeemable only up to $25,000 per holder in
each calendar year and only up to an aggregate of $100,000 per calendar
year for all holders. The right of redemption does not exist if the
Company is in default under any senior indebtedness. Through January
31, 1997 there have been no redemptions. The Debentures are registered
with the Securities and Exchange Commission.
Through January 31, 1997, the Company has incurred approximately
$1,513,000 in fees related to the debenture offering. These costs are
included in deferred charges and other assets and are being amortized
over the life of the debentures on the straight-line method. Accumulated
amortization was $405,000 and $109,000 at January 31, 1997 and 1996.
In June 1996, the Company began offering up to $6,000,000 of unsecured
11% subordinated debentures due June 30, 2002. Interest on the
Debentures is payable quarterly. The debentures are subordinate in right
of payment to all current and future indebtedness of the Company. Under
certain limited conditions, the Debentures are redeemable only up to
$25,000 per holder in each calendar year and only up to an aggregate of
$100,000 per calendar year for all holders. The right of redemption does
not exist if the Company is in default under any senior indebtedness.
The Debentures are registered with the Securities and Exchange
Commission.
Through January 31, 1997, the Company has incurred approximately $67,000
in fees related to the debenture offering. These costs are included in
deferred charges and other assets and are being amortized over the life
of the debentures on the straight-line method. Accumulated amortization
was $1,000 at January 31, 1997.
F-23
<PAGE> 52
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 5 -- SUBORDINATED NOTES PAYABLE
In July 1996, the Company entered into a loan and financing agreement
with The Board of Trustees of the Policemen and Firemen Retirement
System of the City of Detroit ("The Fund") to provide the Company $15
million to expand its non-conforming lending business. Interest on this
borrowing is 10% and is payable quarterly. Commencing July 1, 2001 equal
quarterly installments of principal and interest will be paid until the
loan terminates and is repaid in full on June 30, 2006. As a result of
this agreement, the Fund was issued 30,197 shares, or 6% of the
Company's common stock at the time. Anti-dilution provisions of the
agreement may require the Company to issue additional shares in the
future. The Fund has the right to "put" these redeemable shares back to
the Company, under a number of different scenarios, on August 1, 2006,
or upon an event of default with a minimum guaranteed repurchase of
$1,400,000.
NOTE 6 -- PREFERRED STOCK
In March 1992 MCAFC began offering up to 350,000 units consisting of one
share of Series A 9%, $10 stated value, cumulative convertible preferred
stock and one warrant to purchase one share of common stock of the
Company. The stock is convertible only in the event of an initial public
offering of the Company's common stock. The warrants are conditional on
an initial public offering of the Company's common stock within one year
of the redemption of the warrant holders Series A preferred stock. The
preferred stock is redeemable at any time at the option of the Company
only. Redemption prices per share increase $.20 per year from $10.20 in
1993 to $11 in 1997 and thereafter. Through January 31, 1997 there have
been no redemptions. Dividends are payable quarterly.
In June 1993, MCAFC began offering up to 750,000 units consisting of one
share of Series B 9%, $10 stated value, cumulated convertible preferred
stock. The stock is convertible only in the event of an initial public
offering of the Company's common stock. The preferred stock is
redeemable at any time on or after July 15, 1994 at the option of the
Company only at a redemption price of $10 per share. Through January 31,
1997 there have been no redemptions. Dividends are payable quarterly.
Through January 31, 1997 the Company has incurred approximately $603,000
in fees related to the preferred stock offering. These costs have been
offset against additional paid-in capital.
F-24
<PAGE> 53
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 7 -- FEDERAL INCOME TAXES
Deferred income taxes are provided for on the liability method and
reflect the net tax effects of temporary differences between the
carrying cost and amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the deferred tax liability are as follows:
<TABLE>
<CAPTION>
January 31,
1997 1996
----------- ------------
<S> <C> <C>
Depreciation of property and
office equipment $ 518,000 $ 416,000
Amortization of goodwill (120,000) (108,000)
Other 2,000 (8,000)
--------- ---------
$ 400,000 $ 300,000
========= =========
</TABLE>
Components of income tax expense are:
<TABLE>
<CAPTION>
January 31,
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Current $539,000 $412,000 $ 82,384
Deferred 100,000 100,000 20,000
-------- -------- --------
$639,000 $512,000 $102,384
======== ======== ========
</TABLE>
The income tax provision reconciled to the tax computed at the
statutory federal rate is as follows for the years ended January 31:
<TABLE>
<S> <C> <C> <C>
Tax (benefit) at statutory
rate $478,000 $383,000 $(59,000)
Non-deductible items 161,000 169,000 107,000
Adjustment of prior year
accrual -- -- 38,000
Other -- (40,000) 16,384
-------- -------- --------
$639,000 $512,000 $102,384
======== ======== ========
</TABLE>
F-25
<PAGE> 54
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company purchased various real estate parcels during the years
ended January 31, 1997, 1996 and 1995. These parcels purchased from
unrelated third parties were subsequently sold to limited partnerships,
for which PCA is the general partner. Gains totaling $7,539,447,
$6,529,708 and $7,365,199 for the years ended January 31, 1997, 1996
and 1995 were recognized on the sales, respectively.
During the years ended January 31, 1997, 1996 and 1995 the Company
agreed to pay commissions of $1,968,000, $1,735,000 and $1,315,000,
respectively for the acquisition of properties acquired from unrelated
third parties to a Company owned by three shareholders of MCAFC. These
commissions reduced "Gain on Sale of Real Estate" in the consolidated
Statements of Operations.
MCA earned $36,000 for management fees for administrative services
provided to U.S. Mutual Financial Corporation (USMFC) during each of
the years ended January 31, 1997, 1996 and 1995, respectively. Certain
shareholders of the Company are directors or major shareholders of
USMFC.
Included in accounts payable at January 31, 1997 and 1996 are
approximately $1,044,000 and $1,500,000 attributable to transactions
with partnerships, trusts and other related entities. Such transactions
include rental payments received on behalf of these entities and
disbursed in subsequent months.
F-26
<PAGE> 55
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 9 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is party to financial instruments with off-balance sheet
risk in the normal course of business through the production and sale
of mortgage loans and the management of interest rate risk. These
financial instruments include commitments to extend credit and forward
contracts to deliver and sell loans to investors.
The Company is exposed to credit loss in the event of nonperformance
by the counter-parties to the various agreements. However, the Company
does not anticipate nonperformance by the counter-parties. The
Company's exposure to credit risk with respect to commitments to
extend credit are limited due to the non-recourse nature of the loans
upon sale to investors. At January 31, 1997 and 1996, respectively,
the Company has approved loans that had not yet closed amounting to
approximately $40,081,000 and $74,259,000. The Company manages credit
risk with respect to forward contracts by entering into agreements
only with investors meeting certain requirements. In the event of
default by the counter-party the Company's exposure to credit risk is
the difference between the contract price and the current market
price.
NOTE 10 - LEASE COMMITMENTS
The Company leases office space and equipment under long-term capital
and operating leases with varying terms which expire through 2002.
Rent expense on operating leases approximated $2,282,000, $1,803,000
and $1,251,000 for the years ended January 31, 1997, 1996 and 1995,
respectively, and is included in the caption "General and
Administrative" expense in the Consolidated Statements of Operations.
F-27
<PAGE> 56
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 10 -- LEASE COMMITMENTS - CONTINUED
As of January 31, 1997, approximate future minimum lease payments under
capital leases and future minimum lease payments under operating leases
that have initial or remaining noncancelable terms in excess of one year
as of follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ----------
<S> <C> <C>
1998 $536,145 $1,314,462
1999 164,757 990,970
2000 1,555 645,592
2001 -- 32,679
2002 -- 15,000
-------- ----------
Total minimum lease payments 702,457 $2,998,703
==========
Less: amount representing interest 66,159
--------
Present value of minimum lease
payments $636,298
========
</TABLE>
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
In accordance with the terms of the investor Pass-through Trust
Participation Agreements, the Company is obligated to purchase all
outstanding participation certificates held by investors at such time as
the aggregate net receivable balances of each Trust is less than 10% of
the original face amount of the Trust. At January 31, 1997 and 1996, the
maximum amount of these future purchase commitments totaled
approximately $9,381,000 and $8,011,000.
Although the Company is approved as a correspondent with numerous
mortgage investors, three investors purchased substantially all of the
Company's mortgage loans originated during fiscal 1997, 1996 and 1995.
Management believes that the loss of these investors would have a
material adverse effect on the Company.
The Company is a party to various routine legal proceedings arising out
of the ordinary course of its business. Management believes that none of
these actions, individually or in the aggregate, will have a material
adverse affect on the financial condition or results of operations of
the Company.
F-28
<PAGE> 57
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 12 -- EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan covering substantially all its
employees. The Company has the option of making an annual
discretionary profit sharing contribution and is matching each
employee's contribution up to a predetermined limit.
The Company's combined contribution to the plan amounted to $86,000,
$22,000 and $17,000 for the years ended January 31, 1997, 1996 and
1995.
NOTE 13 -- RESTRICTED STOCK AWARDS
At the discretion of the Board of Directors, shares may be issued to
employees and non-employees as incentives for performance. The number
of shares awarded, and the terms under which such shares become
vested (nonforfeitable), are determined on an individual basis. The
Company recognizes the issuance of restricted shares when they become
vested.
As of January 31, 1997, a total of 20,002 shares have been awarded
and remain unvested. The aggregate number of shares and the years in
which they become vested in each of the periods succeeding January
31, 1997 are as follows:
1998 $12,168
1999 7,834
F-29
<PAGE> 58
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 14 - SEGMENT INFORMATION
The Company and its subsidiaries operate primarily in two business
segments. Operations in mortgage banking involve the origination and
purchase of mortgage loans in the secondary mortgage market, servicing
of mortgage loans, and the purchase and sale of mortgage servicing
rights. Operations in the real estate industry consist of the purchase
and resale and the securitization and syndication of real estate
interests. The following is a summary of selected consolidated segment
information for the mortgage banking and real estate industry segments
for the years ended:
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUE
Mortgage banking $ 46,512,944 $ 31,051,952 $22,512,856
Real estate 12,413,396 10,899,058 10,858,825
------------ ------------ -----------
Total $ 58,926,340 $ 41,951,010 $33,371,681
============ ============ ===========
INCOME (LOSS) BEFORE INCOME TAXES
Mortgage banking $ 824,964 $ (1,195,323) $(3,057,212)
Real estate 579,374 2,322,853 2,882,050
------------ ------------ -----------
Total $ 1,404,338 $ 1,127,530 $ (175,162)
============ ============ ===========
IDENTIFIABLE ASSETS
Mortgage banking $115,310,484 $104,990,975 $46,523,533
Real estate 19,256,062 27,147,572 23,238,535
Other 10,425,267 3,052,094 7,349,452
------------ ------------ -----------
Total $144,991,813 $135,190,641 $77,111,520
============ ============ ===========
</TABLE>
F-30
<PAGE> 59
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 15 -- BUSINESS ACQUISITION
On July 19, 1994, the Company purchased substantially all of the
revenue producing activities of Liberty National Mortgage Corporation
(Liberty) in a transaction accounted for using the purchase method.
These assets included certain furniture and equipment located in
Liberty branch offices in Michigan, Maryland, West Virginia and
Illinois and the right-to-process and close certain mortgage loans in
process originated by Liberty. The purchase price of the furniture
and equipment was determined by independent appraisal and payable
within 45 days of this agreement. The appraised value was $85,000. At
the closing of this agreement a down payment of $350,000 was made as
an advance against amounts due as a result of future Liberty branch
loan closings. This down payment is included in deferred charges and
other assets in the accompanying consolidated balance sheet. Liberty
was paid based on a negotiated formula tied to loan closings at
Liberty branches over an eighteen month period. The total purchase
price, was $885,000. This consists of the $85,000 referred to above
which was capitalized and amortized as furniture and equipment,
approximately $200,000 for loans-in-process, which upon closing were
capitalized and amortized as a cost of the loan origination, and
$500,000 for future branch loan closings, $150,000 of which was paid
during July and August, 1994 and $350,000, which was paid at the
closing. The benefits to be derived from the acquisition of these
production offices will extend beyond the eighteen month earn-out
period, and, accordingly have been capitalized as goodwill (included
in deferred charges and other assets on the balance sheet) and
amortized over a five year period, subject to periodic re-evaluation.
In connection with the acquisition, the Company acquired
approximately $4,000,000 of loans held-for-resale which were funded
by the Company's warehouse credit facilities and subsequently
purchased by outside investors under terms similar to any Company
originated loan.
The following unaudited pro-forma summary presents the consolidated
results of operations as if the acquisition had occurred at February
1, 1993, after giving effect to certain adjustments. These pro-forma
results have been prepared for comparative purposes and do not
purport to be indicative of what would have occurred had the
acquisition been made as of those dates or of results which may occur
in the future.
F-31
<PAGE> 60
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 15 - BUSINESS ACQUISITION - CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1995
---------------------------
MCAFC PRO-FORMA MCAFC
(HISTORICAL) ADJUSTMENTS (PRO-FORMA)
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES
Gain on sale of land contracts $ 2,983,022 $ - $ 2,983,022
Gain on sale of real estate 7,365,199 - 7,365,199
Gain on bulk sales of servicing
rights 7,475,444 1) 1,737,609 9,213,053
Mortgage origination fees 5,584,454 1) 1,862,821 7,447,275
Servicing fees 4,616,738 1) 429,081 5,045,819
Interest income 5,106,041 1) 245,634 5,351,675
Other income 240,783 128,035 368,818
----------- ---------- ----------
Total revenues 33,371,681 4,403,180 37,774,861
----------- ---------- ----------
EXPENSES
Payroll 10,985,576 1) 1,705,338 12,690,914
Interest 6,018,518 1) 171,221 6,189,739
Commissions 4,591,079 1) 836,669 5,427,748
Professional services 1,511,215 1) 80,798 1,592,013
Depreciation 351,964 1) 49,275 401,239
Amortization 1,924,872 1)2) 110,000 2,034,872
General administrative 8,163,619 843,557 9,007,176
----------- ---------- ----------
Total expenses 33,546,843 3,796,858 37,343,701
----------- ---------- ----------
INCOME (LOSS) BEFORE FEDERAL
INCOME TAXES (175,162) 606,322 431,160
Provision (credit) for
Federal income taxes 102,384 3) 206,149 308,533
----------- ---------- ----------
NET INCOME (LOSS) $ (277,546) $ 400,173 $ 122,627
=========== ========== ==========
Earnings (loss) per share $ (.69) $ .99 $ .30
=========== ========== ==========
</TABLE>
Summary of Pro-Forma Adjustments:
1) To include historical operating results of the Liberty National
Mortgage Corporation for the year ended December 31, 1993 and the
period ended May 31, 1994. (Certain amounts have been reclassified to
conform to the MCAFC historical presentation.)
2) Amortization of $500,000 of goodwill over five years.
3) Estimated Federal income tax accrual.
F-32
<PAGE> 61
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 15 - BUSINESS ACQUISITION - CONTINUED
On January 31, 1995, the Company acquired all of the issued and
outstanding common stock of RIMCO Realty & Mortgage from RIMCO Financial
Corporation (an entity owned by three shareholder of the Company) in
exchange for a $945,117 reduction in amounts due the Company. Amounts
assigned in the accompanying consolidated balance sheet to assets
purchased and liabilities assumed were based on the seller's historical
cost which is less than fair value.
<PAGE> 62
Report of Independent Certified Public Accountants
on Supplementary Information
To the Board of Directors
MCA FINANCIAL CORP.
Our audit was conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole of MCA Financial Corp. and
subsidiaries as of and for the year ended January 31, 1997, which are presented
in the preceding section of this report. The accompanying consolidated balance
sheet and statement of operations are presented for purposes of additional
analysis and are not a required part of the basic consolidated financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of the basic consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
consolidated financial statements taken as a whole.
Moore Stephens Grant Thornton LLP
Doeren Mayhew, P.C. Detroit, Michigan
April 28, 1997
Troy, Michigan
F-34
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on April 29, 1997.
MCA FINANCIAL CORP.
By: /s/ Patrick D. Quinlan
-----------------------------
Patrick D. Quinlan, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on April 29, 1997.
<TABLE>
<CAPTION>
Signature Title (Capacity)
--------- ----------------
<S> <C> <C>
/s/ Patrick D. Quinlan Chairman and Director April 29, 1997
- ---------------------- (Principal Executive Officer)
Patrick D. Quinlan
/s/ Keith D. Pietila Executive Vice President and Director April 29, 1997
- ---------------------- (Principal Financial and Accounting Officer)
Keith D. Pietila
/s/ Lee P. Wells Director April 29, 1997
- ----------------------
Lee P. Wells
Director April 29, 1997
- ----------------------
C. Thompson Wells
Director April 29, 1997
- ----------------------
Thomas P. Cronin
/s/ D. Michael Jehle Director April 29, 1997
- ----------------------
D. Michael Jehle
Director April 29, 1997
- ----------------------
James B. Quinlan
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT
TO SECTION 12 OF THE ACT.
No Annual Report or Proxy Materials have been or will be sent to security
holders.
S-1
<PAGE> 64
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
3.1 Restated Articles of Incorporation, as amended (previously filed as
Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-QSB for the
period ended April 30, 1993, and incorporated herein by reference).
3.2 Bylaws, as amended. (previously filed as Exhibit 3.2 to Amendment No. 1
to the Registrant's Registration Statement on Form SB-2, File No.
33-79190, and incorporated herein by reference).
4.1 Indenture, dated as of December 30, 1994, between the Registrant and
First Fidelity Bank, N.A., as Trustee, relating to the Registrant's 11%
Asset-Backed Subordinated Debentures Due June 30, 2000 (previously filed
as Exhibit 4.1 to the Registrant's Registration Statement on Form S-1,
File No. 33-98644, and incorporated herein by reference).
4.2 First Supplemental Indenture between the Registrant and First Fidelity
Bank, N.A. dated as of October 10, 1995.
4.3 Indenture, dated as of January 1, 1992, between the Registrant and IBJ
Schroder Bank & Trust Company relating to the Registrant's 11%
Asset-Backed Subordinated Debentures Due 1997 (previously filed as
Exhibit 4 to Amendment No. 2 to the Registrant's Registration Statement
on Form S-18, File No. 33-43765C, and incorporated herein by reference).
10.1 Lease Agreement, dated April 1, 1991, between Mortgage Corporation of
America and Multi-City Investment Company, as amended by First Amendment
(previously filed as Exhibit 10.15 to the Post-Effective Amendment No. 1
to the Registrant's Registration Statement on Form S-18, File No.
33-43765C, and incorporated herein by reference).
10.2 Second, Third, Fourth, Fifth and Sixth Amendments to Exhibit 10.1
(previously filed as Exhibit 10.12 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.3 Agreement and Plan of Reorganization by and among the Registrant, Metro
Rental Properties, Inc., Patrick D. Quinlan, Lee P. Wells and C. Thompson
Wells, Jr. (previously filed as Exhibit 10.20 to the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended January 31, 1993, and
incorporated herein by reference).
10.4 Revolving Credit Loan Agreement, dated April 30, 1993 by and among the
Registrant, MCA Mortgage Corporation, First American Mortgage
E-1
<PAGE> 65
Associates, Inc., Complete Financial Corporation, Securities Corporation
of America and Comerica Bank (previously filed as Exhibit 10.17 to the
Registrant's Registration Statement on Form SB-2, File No. 33-63206C, and
incorporated herein by reference).
10.5 First Amendment to Revolving Credit Loan Agreement, dated December 27,
1993, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America, Complete Financial Corporation, Securities
Corporation of America and Comerica Bank, amending Exhibit 10.4
(previously filed as Exhibit 10.18 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.6 Second Amendment to Revolving Credit Loan Agreement, dated February 25,
1994, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America, Complete Financial Corporation, Securities
Corporation of America and Comerica Bank, amending Exhibit 10.4
(previously filed as Exhibit 10.19 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.7 Credit Enhancement Umbrella Agreement, dated April 30, 1993, by and among
the Registrant, MCA Mortgage Corporation, First American Mortgage
Associates, Inc. and The Board of Trustees of the Policemen and Firemen
Retirement System of the City of Detroit (previously filed as Exhibit
10.18 to the Registrant's Registration Statement on Form SB-2, File No.
33-63206C, and incorporated herein by reference).
10.8 First Amendment to Credit Enhancement Umbrella Agreement, dated December
27, 1993, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America and the Board of Trustees of the Policemen and
Firemen Pension Fund of the City of Detroit, amending Exhibit No. 10.7
(previously filed as Exhibit 10.21 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.9 Piggyback Rights Agreement, dated April 30, 1993, between the Registrant
and The Board of Trustees of the Policemen and Firemen Retirement System
of the City of Detroit (previously filed as Exhibit 10.19 to the
Registrant's Registration Statement on Form SB-2, File No. 33-63206C, and
incorporated herein by reference).
10.10 Form of Stock Redemption Agreement, dated January 20, 1994, between the
Registrant and each of Patrick D. Quinlan, James B. Quinlan, Keith D.
Pietila, Thomas P. Cronin, Lee P. Wells and David C. Wells (previously
filed as Exhibit 10.24 to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended January 31, 1994, and incorporated herein by
reference).
E-2
<PAGE> 66
10.11 Agreement and Plan of Reorganization, dated January 27, 1994, by and
among the Registrant, North-Side Homes, Inc., Patrick D. Quinlan, Lee P.
Wells, Roger Smigiel, Leroy G. Rogers, David C. Wells and Janet K. Wells
(previously filed as Exhibit 10.25 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.12 Mortgage Loan Participation Agreement, dated May 19, 1993, between MCA
Mortgage Corporation and Paine Webber Real Estate Securities Inc.
(previously filed as Exhibit 10.26 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.13 Conforming Mortgage Loan Participation Agreement, dated May 19, 1993,
between MCA Mortgage Corporation and Paine Webber Real Estate Securities
Inc. (previously filed as Exhibit 10.27 to the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended January 31, 1994, and
incorporated herein by reference).
10.14 Escrow Agreement between the Registrant and Comerica Bank, as Escrow
Agent (previously filed as Exhibit 10.23 to Amendment No. 1 to the
Registrants Registration Statement on Form SB-2, File No. 33-79190, and
incorporated herein by reference).
10.15 Agreement and Plan of Acquisition and Merger dated as of June 20, 1994
among MCA Financial Corp., Complete Financial Corporation and Liberty
National Mortgage Corporation (previously filed as Exhibit 2 to the
Registrant's Current Report on Form 8-K dated July 27, 1994, and
incorporated herein by reference).
10.16 Warehousing Credit and Security Agreement dated as of July 1, 1994
between MCA Mortgage Corporation, PNC Mortgage Bank, N.A. and Marine
Midland Bank (replacing agreements previously filed as Exhibits 10.13,
10.14, 10.15 and 10.23 to Registration Statement No. 33-79190)
(previously filed as Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-QSB for the period ended July 31, 1994, and incorporated herein
by reference).
10.17 Whole loan Financing Program dated as of October 6, 1993 among MCA
Mortgage Corporation, DLJ Mortgage Capital, Inc. and Sears Savings Bank,
FSB (previously filed as Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-QSB for the period ended July 31, 1994, and
incorporated herein by reference).
10.18 Amendment to Whole loan Financing Program dated as of April 30, 1994
among MCA Mortgage Corporation and DLJ Mortgage Capital, Inc., amending
Exhibit No. 10.17 (previously filed as Exhibit 10.27 to Amendment No. 2
to the Registrant's Registration Statement on Form SB-2, File No.
33-79190, and incorporated herein by reference).
E-3
<PAGE> 67
10.19 Third Amendment to Revolving Credit Loan Agreement, dated May 26, 1994,
by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America, Complete Financial Corporation, Securities
Corporation of America and Comerica Bank, amending Exhibit 10.4
(previously filed as Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-QSB for the period ended April 30, 1994, and incorporated herein
by reference).
10.20 Fourth Amendment to Revolving Credit Loan Agreement, dated September 30,
1994, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America, Complete Financial Corporation, Securities
Corporation of America and Comerica Bank, amending Exhibit 10.4
(previously filed as Exhibit 10.29 to Amendment No. 2 to the Registrant's
Registration Statement on Form SB-2, File No. 33-79190, and incorporated
herein by reference).
10.21 Second Amendment to Credit Enhancement Umbrella Agreement, dated May 26,
1994, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America and the Board of Trustees of the Policemen and
Firemen Pension Fund of the City of Detroit, amending Exhibit No. 10.7
(previously filed as Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-QSB for the period ended April 30, 1994, and incorporated herein
by reference).
10.22 Third Amendment to Credit Enhancement Umbrella Agreement, dated September
8, 1994, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America and the Board of Trustees of the Policemen and
Firemen Pension Fund of the City of Detroit, amending Exhibit No. 10.7
(previously filed as Exhibit 10.31 to Amendment No. 2 to the Registrant's
Registration Statement on Form SB-2, File No. 33-79190, and incorporated
herein by reference).
10.23 Line of Credit Agreement, dated October 1994, among MCA Mortgage
Corporation, Rimco Financial Corp. and Sterling Bank & Trust FSB
(previously filed as Exhibit 10.32 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1995, and incorporated
herein by reference).
10.24 Stock Purchase Agreement, dated January 31, 1995, between the Registrant
and Rimco Financial Corp. (previously filed as Exhibit 10.33 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
January 31, 1995, and incorporated herein by reference).
10.25 Line of Credit Agreement, dated March 17, 1995, among MCA Financial
Corp., RIMCO Realty & Mortgage Co. and Comerica Bank (previously filed as
Exhibit 10.01 to the Registrants Quarterly Report on Form 10-Q for the
period ended April 30, 1995, and incorporated herein by reference)
10.26 First Amendment to Escrow Agreement, dated September 18, 1995, between
the Registrant and Comerica Bank, as Escrow Agent, amending
E-4
<PAGE> 68
Exhibit No. 10.14 (previously filed as Exhibit 10.26 to the Registrant's
Registration Statement on Form S-1, File No. 33-98644, and incorporated
herein by reference).
10.27 Seventh and Eighth Amendments to Exhibit 10.1.
10.28 Mortgage Loan Repurchase Agreement, dated November 1, 1995, between MCA
Mortgage Corporation, Mortgage Corporation of America and Paine Webber
Real Estate Securities Inc.
10.29 Loan and Financing Agreement, dated July 18, 1996, by and among the
Company and its subsidiaries and the Board of Trustees of the Policemen
and Firemen Retirement System of the City of Detroit. Previously filed
as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.30 Subordinated Promissory Note, dated July 18, 1996, by and among the
Company and its subsidiaries, and the Board of Trustees of the Policemen
and Firemen Retirement System of the City of Detroit. Previously filed
as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q, and
incorporated herein by reference.
10.31 Piggyback Rights Agreement, dated July 18, 1996, by and among the Company
and the Board of Trustees of the Policemen and Firemen Retirement System
of the City of Detroit. Previously filed as Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q, and incorporated herein by
reference.
10.32 Put Agreement, dated July 18, 1996, by and among the Company and the
Board of Trustees of the Policemen and Firemen Retirement System of the
City of Detroit. Previously filed as Exhibit 10.4 to the Registrant's
Quarterly Report on Form 10-Q, and incorporated herein by reference.
10.33 Escrow Agreement, dated July 18, 1996, by and among the Company and its
subsidiaries, the Board of Trustees of the Policemen and Firemen
Retirement System of the City of Detroit. Previously filed as Exhibit
10.5 to the Registrant's Quarterly Report on Form 10-Q, and incorporated
herein by reference.
10.34 Loan Agreement, dated September 3, 1996, by and among the Company, MCA
Mortgage Corporation, Mortgage Corporation of America and Texas Commerce
Bank National Association. Previously filed as Exhibit 10.6 to the
Registrant's Quarterly Report on Form 10-Q, and incorporated herein by
reference.
10.35* Securitization Access Agreement, dated November 1, 1996, by and among
MCA Financial Corp., MCA Mortgage Corporation, Mortgage Corporation of
America, Advanta Mortgage Conduit Services, Inc. and Advanta Mortgage
Corp. USA.
E-5
<PAGE> 69
10.36* Amended and Restated Securitization Access Agreement, amended as of
February 21, 1997, by and among MCA Financial Corp., MCA Mortgage
Corporation, Mortgage Corporation of America, Advanta Mortgage Conduit
Services Inc. and Advanta Mortgage Corp. USA.
12* Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of the Registrant (previously filed as Exhibit 10.21 to
the Registrant's Registration Statement on Form S-1, File No. 33-98644,
and incorporated herein by reference).
27* Financial Data Schedule
- ----------
*Filed herewith
E-6
<PAGE> 1
EXHIBIT 10.35
==============================================================================
SECURITIZATION ACCESS AGREEMENT
Dated as of November 1, 1996
by and among
MCA FINANCIAL CORP.
MCA MORTGAGE CORPORATION,
MORTGAGE CORPORATION OF AMERICA,
ADVANTA MORTGAGE CONDUIT SERVICES, INC.
and
ADVANTA MORTGAGE CORP. USA,
==============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Interest Calculations . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3. Purchases and Sales . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5. Establishment of Advanta Trusts . . . . . . . . . . . . . . . . . . . 12
Section 6. Defective Mortgage Files; Repurchase of Mortgage Loans . . . . . . . 14
Section 7. Representations and Warranties Regarding the MCA Companies, the Buyer
and the Master Servicer . . . . . . . . . . . . . . . . . . . . . . . 14
Section 8. Representations and Warranties of the MCA Companies Regarding the
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9. Application of Residual Excess Servicing . . . . . . . . . . . . . . 19
Section 10. Distribution Date Statement . . . . . . . . . . . . . . . . . . . . . 20
Section 11. Merger or Consolidation of MCA . . . . . . . . . . . . . . . . . . . 21
Section 12. Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 13. Authorized Representatives . . . . . . . . . . . . . . . . . . . . . 22
Section 14. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 15. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 16. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 17. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 18. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 19. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . 24
Section 20. No Agency; No Partnership or Joint Venture . . . . . . . . . . . . . 24
Section 21. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 22. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 23. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 24. Legal Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 25. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
Exhibit A -- Form of Conveyance Agreement
Exhibit B -- Contents of Mortgage File
Exhibit C -- Form of Mortgage Loan Schedule
Exhibit D -- Authorized Representatives
Exhibit E -- Applicable Guidelines
Exhibit F -- Representations and Warranties
Exhibit G -- Operational Procedures
Exhibit H -- Form of Opinion
Exhibit I -- Form of Synthetic Residual Certificate
Exhibit J -- Form of Tri-Party Security Agreement
<PAGE> 4
THIS SECURITIZATION ACCESS AGREEMENT, dated as of November 1,
1996, among MCA Financial Corp., as seller (the "Sponsor"), MCA Mortgage
Corporation and Mortgage Corporation of America, (each company, an "MCA
Company" and collectively, the "MCA Companies"), Advanta Mortgage Conduit
Services, Inc. ("Advanta Conduit"), Advanta Mortgage Corp. USA (the "Advanta
Mortgage" and together with Advanta Conduit, the "Buyer"), and Advanta Mortgage
Corp. USA, in its capacity as master servicer (Advanta Mortgage, in such
capacity, the "Master Servicer"),
W I T N E S S E T H T H A T :
WHEREAS, the MCA Companies originate mortgage loans which the
MCA Companies desire to include in securitization transactions sponsored by the
Buyer;
WHEREAS, the Buyer desires to include such mortgage loans in
its securitization transactions; and
WHEREAS, the MCA Companies and the Buyer desire that the
Master Servicer service such mortgage loans.
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements herein contained, the parties hereto hereby agree as follows:
Section 1. Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article.
Accumulation Pool: As of any date, all Mortgage Loans
previously sold by the Seller hereunder and which are held by the Conduit
Acquisition Trust on such date. The Accumulation Pool may represent any number
of Pools.
Additional Initial Reserve Amount: With respect to any
Securitized Loan Pool, any additional amount required to be added to the
Reserve Amount in connection with the conveyance of such Securitized Loan Pool
to the related Advanta Trust (including conveyances of any "pre-funded"
Mortgage Loans). The parties acknowledge that their expectation is that the
Additional Initial Reserve Amount will be zero.
Additional Representations and Warranties: With respect to
any Pool, the additional representations and warranties made by each MCA
Company with respect thereto, as set forth in the related Conveyance Agreement.
Advances: Together, any "Delinquency Advances" as may be
required in connection with a Securitized Loan Pool, as defined in the "Pooling
and Servicing" or similar agreement relating to the applicable Advanta Trust,
and any Servicing Advances.
Advanta Trust: Any trust which the Buyer may from time to
time sponsor for the purpose of securitizing, among other things, all or a
portion of the Mortgage Loans and selling the interests therein to investors.
<PAGE> 5
Agreement: This Securitization Access Agreement and all
amendments hereof and supplements hereto.
Applicable Guidelines: For purposes of this Agreement only
(i.e., not necessarily for purposes of the Whole Loan Agreement) those
underwriting guidelines set forth on Exhibit E hereto, as such Exhibit E may be
revised from time to time by the Buyer and the Sponsor.
Applicable Pool Balance: With respect to any Pool as of any
Distribution Date, the aggregate Principal Balances of the Mortgage Loans in
such Pool as of the opening of business on the first day of the prior calendar
month.
Applicable Rate: With respect to any Mortgage Loan included
in the Accumulation Pool, Prime. With respect to any Mortgage Loan included
in a Securitized Loan Pool, the actual "Pass-Through Rate(s)" for the related
classes of securities for the related period.
Appraised Value: The appraised value of any Mortgaged
Property based upon the appraisal or other valuation made at the time of the
origination of the related Mortgage Loan; or, in the case of a Mortgage Loan
which is a purchase money mortgage; or in the case of a home which is purchased
within the last twelve (12) months, the sale price of the Mortgaged Property at
such time of origination, if such sale price is less than such appraised value.
ARM Loan: A Mortgage Loan which bears an adjustable rate of
interest.
Bond Pricing Discount: An estimated percentage of pricing
discount on the public-offered securities to be issued by an Advanta Trust, as
determined by the Underwriter(s) selected by the Buyer. The parties
acknowledge that their expectation is that the Bond Pricing Discount will be
zero, or as close to zero as reasonably practical.
Business Day: Any day other than (a) a Saturday or a Sunday,
or (b) a day on which national banks in the states of California, or New York
and Delaware are required or authorized by law, executive order or governmental
decree to be closed.
Buyer Information: As defined in Section 5(d) hereof.
Closing Date: With respect to any Pool, the date established
as the "Closing Date" in the related Conveyance Agreement.
Combined Loan-to-Value Ratio: With respect to any First
Mortgage Loan, the percentage equal to the Original Principal Amount of the
related Note divided by the Appraised Value of the related Mortgaged Property
and with respect to any Second Mortgage Loan, the percentage equal to (a) the
sum (i) the remaining principal balance, as of origination of the Second
Mortgage Loan, of the Senior Lien note(s) relating to such Second Mortgage
Loan, and (ii) the Original Principal Amount of the Note relating to such
Second Mortgage Loan, divided by (b) the Appraised Value.
Compensating Interest: Amounts advanced by the Master
Servicer as a result of a prepayment in full by a Mortgagor on a date other
than the scheduled Due Date, and equal to the excess of (x) a full month's
interest on the related Mortgage Loan calculated at the related Coupon Rate
less the Servicing Fee Rate over (y) the interest actually paid by the related
Mortgagor for the related monthly period. The Master Servicer
2
<PAGE> 6
shall fund Compensating Interest monthly, but not in excess, in the aggregate
for any monthly period, of the aggregate Servicing Fee retained by the Master
Servicer with respect to such monthly period.
Conduit Acquisition Trust: The Conduit Acquisition Trust
created pursuant to that certain Pooling and Servicing Agreement dated as of
February 15, 1995 among the Buyer, the Master Servicer and the Trustee.
Conveyance Agreement: With respect to the purchase of a Pool,
the Conveyance Agreement in substantially the form of Exhibit A hereto executed
with respect thereto (which term includes the related "Closing Statement and
Funding Recap Summary").
Credit Enhancer: Any financial guarantor or other financial
institution which provides third-party credit enhancement with respect to an
Advanta Trust.
Cut-Off Date: With respect to any Pool, the date established
as the "Cut-Off Date" in the related Conveyance Agreement.
Cut-Off Date Principal Balance: As to any Mortgage Loan, its
Principal Balance as of the opening of business on the related Cut-Off Date.
Defective Mortgage Loan: Any Mortgage Loan which is required
to be repurchased by the MCA Companies pursuant to Section 5(b), 5(c), 6(b) or
8(c) hereof.
Distribution Date: With respect to the Accumulation Pool or
any Securitized Loan Pool, the 25th day of each month or, if such day is not a
Business Day, the Business Day immediately following such 25th day, beginning
in the month specified in the related Conveyance Agreement.
Due Date: With respect to any Mortgage Loan the fixed date in
each month on which the Mortgagor's Monthly Mortgage Payment is due.
"Excess Servicing" means:
(x) with respect to the Accumulation Pool, as of
any Distribution Date, the sum of all interest due (minus the amount
of any interest not required to be advanced by the Master Servicer as
a non-recoverable "Delinquency Advance" or as "Compensating Interest"
in excess of the Servicing Fee) with respect to the Mortgage Loans in
the Accumulation Pool during the prior calendar month (minus any
portion of such interest previously received by the MCA Companies as
part of the related Pool Purchase Price), less the sum of the
following amounts, to be deducted in the following order of priority:
(i) one-twelfth of the Servicing Fee Rate times
the related Applicable Pool Balance;
(ii) the interest, calculated at the Applicable
Rate, which accrued on the Applicable Pool
Balance which relates for the applicable
preceding interest accrual period; and
(iii) the amount of any Advances made or paid by
the Master Servicer with respect to any
Mortgage Loans included in the Accumulation
Pool or such Securitized Loan Pool during the
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prior calendar month, less the amount of any
Advances made or paid by the Master Servicer
on prior monthly periods and recovered during
the current monthly period; and
(y) with respect to any Securitized Loan Pool, as
of any Distribution Date, the sum of all interest due (minus the
amount of any interest not required to be advanced by the Master
Servicer as a non-recoverable "Delinquency Advance" or as
"Compensating Interest" in excess of the Servicing Fee) with respect
to the Mortgage Loans in such Securitized Loan Pool, during the prior
calendar month (minus any portion of such interest previously received
by the MCA Companies as part of the related Pool Purchase Price), less
the sum of the following amounts, to be deducted in the following
order of priority:
(i) one-twelfth of the 35 basis point Monthly Fee
rate times the Applicable Pool Balance of the
Accumulation Pool or such Securitized Loan
Pool;
(ii) one-twelfth of the Servicing Fee Rate times
the related Applicable Pool Balance;
(iii) the sum of (x) the interest, calculated at
the Applicable Rate for the related ARMs,
which accrued on that portion of the
Applicable Pool Balance which relates to
ARMs, plus (y) the interest, calculated at
the Applicable Rate for the related Fixed
Rate Loans, which accrued on that portion of
the Applicable Pool Balance which relates to
Fixed Rate Loans, in each case for the
applicable preceding interest accrual period;
and
(iv) the amount of any Advances made or paid by
the Master Servicer with respect to any
Mortgage Loans included in the Accumulation
Pool or such Securitized Loan Pool during the
prior calendar month, less the amount of any
Advances made or paid by the Master Servicer
on prior monthly periods and recovered during
the current monthly period; and
FDIC: The Federal Deposit Insurance Corporation and its
successors in interest.
FEMA: The Federal Emergency Management Agency and its
successors in interest.
FHLMC: The Federal Home Loan Mortgage Corporation and its
successors in interest.
First Mortgage Loan: A Mortgage Loan which constitutes a
first priority mortgage lien with respect to any Mortgaged Property.
Fixed Rate Loan: A Mortgage Loan which bears interest at a
fixed rate.
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FNMA: The Federal National Mortgage Association and its
successors in interest.
Initial Reserve Amount: With respect to any Pool, the initial
amount of Reserves relating thereto, as set forth in the related Conveyance
Agreement. The parties acknowledge that their expectation is that the Initial
Reserve Amount will be zero, or as close to zero as reasonably practical.
Insurance Policy: Any hazard, floor, title or primary
mortgage insurance policy relating to a Mortgage Loan.
Insurance Proceeds: Proceeds paid by any insurer and received
by the Master Servicer during the prior calendar month pursuant to any
insurance policy covering a Mortgage Loan or the related Mortgaged Property,
and the proceeds from any fidelity bond or errors and omission policy, net of
any component thereof covering any expenses incurred by or on behalf of the
Master Servicer.
Issuance Costs: With respect to any Securitized Loan Pool,
all costs incurred by the MCA Companies and by the Buyer in connection with the
purchase and sale of a Pool, the establishment of the related Advanta Trust and
the sale of mortgage-backed securities by such Advanta Trust, including,
without limitation, legal, accounting, printing, initial Trustee's fee,
Underwriter's discount, initial Credit Enhancer's fee, Rating Agency's fees and
other customary costs of issuance.
Second Mortgage Loan: Any Mortgage Loan secured by a Mortgage
with a lien of other than first priority.
Liquidated Mortgage Loan: As to any Distribution Date, any
Mortgage Loan as to which the Master Servicer has determined, in accordance
with its regular servicing practices during the prior calendar month, that all
Liquidation Proceeds which it expects to recover from or on account of such
Mortgage Loan have been recovered, which determination may include "charging
off" such Mortgage Loan.
Liquidation Expenses: Expenses which are incurred by the
Master Servicer in connection with the liquidation of any Mortgage Loan and not
recovered under any insurance policy or from any Mortgagor. Such expenses
shall include, without limitation, legal fees and expenses, real estate
brokerage commissions, any unreimbursed amount expended by the Master Servicer
respecting the related Mortgage Loan (including, without limitation, amounts
voluntarily advanced to correct defaults on each related Senior Lien) and any
related and previously unreimbursed Advances.
Liquidation Proceeds: Cash (other than Insurance Proceeds)
received in connection with the liquidation of any Mortgaged Property, whether
through trustee's sale, foreclosure sale or otherwise received in respect of
any Mortgage Loan foreclosed upon (including, without limitation, proceeds from
the rental of the related Mortgaged Property).
Master Commitment: The Master Commitment dated as of November
1, 1996 between the Buyer and the MCA Companies hereto.
Master Servicer: Advanta Mortgage Corp. USA, a Delaware
corporation.
Monthly Fee: As defined in Section 4(a) hereof.
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Monthly Mortgage Payment: With respect to any Mortgage Note,
the amount of each fixed monthly payment (other than final balloon payments)
payable under such Mortgage Note in accordance with its terms, net of any
portion of such monthly payment that represents late payment charges,
prepayment or extension fees or collections allocable to payments to be made by
Mortgagors for payment of insurance premiums, real estate taxes or similar
items.
Mortgage: The mortgage, deed of trust or other instrument
creating a first, second or third lien on an estate in fee simple interest in
real property securing a Mortgage Loan.
Mortgage File: With respect to any Mortgage Loan, the items
set forth on Exhibit B hereto.
Mortgage Loan: Each of the Mortgage Loans sold by the Seller
hereunder.
Mortgage Loan Rate: As to any Mortgage Loan, the per annum
rate of interest applicable to the calculation of interest thereon.
Mortgage Loan Schedule: With respect to any Pool, the
schedule of Mortgage Loans delivered by the MCA Companies with respect thereto
on the related Closing Date. Each such schedule shall be delivered in
computer-readable form on diskette or magnetic tape and physical form and shall
contain the information listed on Exhibit C hereto with respect to each
Mortgage Loan, as amended from time to time.
Mortgage Note: The note or other instrument of indebtedness
evidencing the indebtedness of a Mortgagor under the related Mortgage Loan.
Mortgaged Property: The underlying property securing a
Mortgage Loan.
Mortgagor: The obligor under a Mortgage Note.
Net Insurance Proceeds: Insurance Proceeds from any policy of
insurance covering a Mortgage Loan which (a) are applied by the Master Servicer
to reduce the Principal Balance of the related Mortgage Loan and (b) not
applied to the restoration or repair of the related Mortgaged Property or
released to the related Mortgagor in accordance with the Master Servicer's
regular servicing procedures or the terms of the related Mortgage Loan.
Net Liquidation Proceeds: As to any Mortgage Loan,
Liquidation Proceeds net of Liquidation Expenses. For all purposes of this
Agreement, Net Liquidation Proceeds shall be allocated first to accrued and
unpaid interest on the related Mortgage Loan and then to the Principal Balance
thereof.
Net Purchase Price: With respect to any Pool, the related
Pool Purchase Price minus (i) the related Initial Reserve Amount, if any, (ii)
the related Sponsor's Transaction Expenses and (iii) the related Placement Fee,
all as set forth in the related Conveyance Agreement.
Offering Document: A prospectus, placement memorandum or
other document pursuant to which an Underwriter offers mortgage-backed
securities issued by an Advanta Trust.
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Original Principal Amount: With respect to any Mortgage Note,
the original principal amount due under such Mortgage Note as of its date of
origination.
Other Expenses: Any additional expenses incurred by the Buyer
in connection with the inclusion of Mortgage Loans sold by the Seller in an
Advanta Trust, including, but not limited to the costs of (i) data integrity
review of loan files versus the servicing system, (ii) accountant's "comfort
letter" with respect to any Sponsor Information and (iii) third-party due
diligence expenses relating to on-site review of the MCA Companies or the
Mortgage Loans, to the extent over and above the Buyer's normal expenses for
such a review. The Other Expenses shall not exceed $25,000 per Securitized
Loan Pool, and in no event will exceed $50,000 in any single twelve-month
period.
Pair-Off Fee: As defined in the Master Commitment For
Corporate Finance Relationships.
Person: Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
Placement Fee: With respect to each Mortgage Loan included in
a Securitized Loan Pool and purchased by the Buyer hereunder, 0.45% times the
Principal Balance of such Mortgage Loan.
Pool: Any group of Mortgage Loans sold by the Seller
hereunder and designated as a "pool" for purposes of this Agreement. For
convenience, each Pool shall be designated by the year of its sale and numbered
sequentially, e.g., 1996-A, 1996-B, etc.
Pool Principal Balance: As of any date, the aggregate
Principal Balances of all Mortgage Loans in the related Pool as of such date.
Pool Purchase Price: With respect to any Pool, the sum of,
for each Mortgage Loan in such Pool (x) the aggregate Principal Balance of each
such Mortgage Loan as of the opening of business on the related Cut-Off Date,
(y) interest accrued on the amount described in clause (x) from and including
the date to which interest was last paid by the Mortgagor (including any
prepaid interest) to but excluding the Closing Date, calculated at the related
Mortgage Loan Rate.
Prime: The Prime Rate of interest charged from time to time
by The Chase Manhattan Bank.
Principal Balance: As to any Mortgage Loan and any date of
determination, the Principal Balance thereof as of the related Cut-Off Date,
less all amounts theretofore applied in reduction of such Principal Balance
after the related Cut-Off Date; provided, however, that a Mortgage Loan that
has become liquidated will be deemed to have a Principal Balance of zero.
Principal Payment: As to any Mortgage Loan and calendar
month, all amounts received or, deemed to have been received by the Master
Servicer from or on behalf of the related Mortgagor during such calendar month
(including Principal Prepayments) which, at the time of receipt or at the time
deemed to have been received, were applied or were required to be applied by
the Master Servicer in reduction of the Principal Balance of such Mortgage
Loan.
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Principal Prepayment: As to any Mortgage Loan and calendar
period, any Mortgagor payment or other recovery in respect of principal on a
Mortgage Loan (including Net Liquidation Proceeds) which, in the case of a
Mortgagor payment, is received in advance of its Due Date and is not
accompanied by an amount as to interest representing scheduled interest for any
month subsequent to the month of such payment or was accompanied by
instructions from the related Mortgagor directing the Master Servicer to apply
such payments to the Principal Balance of such Mortgage Loan.
Qualified Mortgage: "Qualified Mortgage" shall have the
meaning set forth from time to time in the definition thereof at Section
860G(a)(3) of the Internal Revenue Code of 1986, as amended (or any successor
statute thereto).
Qualifying Loan: Mortgage Loans which (i) conform to the
Applicable Guidelines, and (ii) which conform to all Representations and
Warranties, as defined in this Agreement and applicable to the related Mortgage
Loans.
Rating Agencies: Collectively, all nationally recognized
statistical credit rating agencies providing a rating on any class of
mortgage-backed securities issued by an Advanta Trust.
Realized Loss: As to any Liquidated Mortgage Loan, the
excess, if any, of (x) the Principal Balance thereof as of the date of
liquidation, together with all unreimbursed Advances over (y) the related Net
Liquidation Proceeds, if any.
Remaining Excess Servicing: With respect to all Securitized
Loan Pools in the aggregate as of any Distribution Date, the excess, if any, of
(x) the aggregate Excess Servicing for all Securitized Loan Pools over (y) the
aggregate Reserve Deposit for all Securitized Loan Pools.
REO Property: Any Mortgaged Property as to which title has
become vested in the Trustee, the Conduit Acquisition Trust or an Advanta Trust
as a result of foreclosure, deed in lieu of foreclosure, etc.
Representations and Warranties: As defined in Section 8(a)
hereof.
Repurchase Price: With respect to any Mortgage Loan
repurchased by the MCA Companies pursuant to the provisions hereof, an amount
equal to (i) the sum of (A) the Principal Balance of such Mortgage Loan as of
the beginning of the calendar month next preceding the Distribution Date on
which the proceeds of such repurchase or purchase are required to be
distributed, (B) interest computed at the applicable Mortgage Loan Rate on such
Principal Balance from the date to which interest was last paid by the
Mortgagor to the end of the calendar month immediately preceding such
Distribution Date on which such repurchase or purchase occurs and (C) any
previously unreimbursed Advances made on or in respect of such Mortgage Loan
less (ii) any payments of principal and interest in respect of such Mortgage
Loan, made by or on behalf of the related Mortgagor during such calendar month.
Reserve Amount: With respect to the Accumulation Pool or any
Securitized Loan Pool, as of any Distribution Date the excess of (x) the sum of
(i) the Initial Reserve Amount(s) for the related Pool(s), (ii) any Additional
Initial Reserve Amounts, (iii) the aggregate, cumulative amount of Reserve
Deposits applicable to the Accumulation Pool or such Securitized Loan Pool, as
the case may be and (iv) investment earnings at Advanta Corp.'s then-standard
reinvestment rate (which, as of the date hereof, is based on the then-
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<PAGE> 12
current 30-day commercial paper rate) over (y) the sum of (i) the aggregate,
cumulative amount of Realized Losses experienced with respect to the related
Pool(s) since their sale by the Seller, (ii) the aggregate, cumulative amount
of Reserve Release Amounts distributed to the MCA Companies on all prior
Distribution Dates and (iii) any amount described in the second sentence of
Section 9(b) hereof which are paid to the MCA Companies.
Reserve Deposit: With respect to the Accumulation Pool or any
Securitized Loan Pool, on any Distribution Date, the lesser of (x) the related
Excess Servicing for such Distribution Date or (y) any related Reserve
Shortfall for such Distribution Date.
Reserve Release Amount: As of any Distribution Date and with
respect to any Securitized Loan Pool, the excess of (x) the related Reserve
Amount on such Distribution Date, after taking into account all credits to, and
deductions therefrom on such Distribution Date over (y) the related Reserve
Requirement for such Distribution Date.
Reserve Requirement: With respect to any Securitized Loan
Pool and Distribution Date, the required amount of Reserves for such
Distribution Date. In no event shall the level of the Reserve Requirement
exceed the level that would be required by the related Credit Enhancer, if the
MCA Companies were to do a stand-alone transaction.
Reserves: The amount of any first-loss protection maintained
with respect to any Pool or group of Pools.
Reserve Shortfall: With respect to any Securitized Loan Pool,
on any Distribution Date, any excess of (x) the related Reserve Requirement for
such Distribution Date over (y) the related Reserve Amount immediately prior to
such Distribution Date.
Residual Excess Servicing: For all Securitized Loan Pools in
the aggregate, the Residual Excess Servicing for any Distribution Date shall
equal the Remaining Excess Servicing, if any, for such Distribution Date plus
the aggregate Reserve Release Amount, if any, for such Distribution Date.
Second Mortgage Loan: A Mortgage Loan which constitutes a
second priority mortgage lien with respect to the related Mortgaged Property.
Securitization Statement: Each statement delivered to the MCA
Companies by the Buyer at the time of establishment of an Advanta Trust
containing Mortgage Loans sold by the MCA Companies hereunder, which statement
shall set forth the final Reserve Requirement for the related Securitized Loan
Pool, the Pass-Through Rate(s) applicable to such Securitized Loan Pool and
related information.
Securitized Loan Pool: Any group of Mortgage Loans sold by
the Seller hereunder and held by a particular Advanta Trust, whether acquired
initially by such Advanta Trust or subsequently acquired through "pre-funded"
purchases. A Securitized Loan Pool may represent any number of Pools.
Seller: Sponsor and its affiliates, Mortgage Corporation of
America and MCA Mortgage Corporation,
Senior Lien: With respect to any Second Mortgage Loan, the
mortgage loan relating to the corresponding Mortgaged Property having a first
priority lien.
Sponsor: MCA Financial Corp., a Michigan corporation.
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Sponsor Information: As defined in Section 5(d) hereof.
Sponsor's Transaction Expenses: With respect to any Pool, the
MCA Companies' pro rata share (based upon the relative aggregate principal
balances of the Mortgage Loans sold by the Seller to the total aggregate
principal balance for all mortgage loans) of the Issuance Costs, which shall be
a minimum of 0.60% times the aggregate Principal Balance of the related
Mortgage Loans.
Servicing Advance: Any out-of-pocket costs or expenses
incurred by the Master Servicer in connection with the performance of its
servicing obligations, including, but not limited to, preservation expenses,
payments for taxes, insurance and payments made to Senior Lien holders,
enforcement and judicial proceedings, including foreclosures, the management
and liquidation of "REO" Properties, etc.
Servicing Fee: The servicing fees payable to the Master
Servicer, as set forth in the Loan Servicing Agreement dated November 1, 1996
among the Master Servicer, the Sponsor and Mortgage Corporation of America.
Total Loan-to-Value Ratio: With respect to any Mortgage Loan,
the percentage equal to the sum of (i) the Original Principal Amount of the
related Note and (ii) the remaining principal balance(s), as of origination of
such Mortgage Loan, of all other note(s) secured by liens, whether senior or
subordinate, on the related Mortgaged Property, divided by the Appraised Value
of the related Mortgaged Property.
Trustee: The trustee designated by the Buyer.
Underwriter: Collectively, any underwriters or placement
agents engaged or consulted by the Buyer in connection with the sale of
mortgage-backed securities by an Advanta Trust.
Whole Loan Agreement: The Master Loan Purchase Agreement
dated as of July 1, 1996 among the parties hereto.
Whole Loan Purchases: A pool of Mortgage Loans purchased
pursuant to a Whole Loan Agreement.
Section 2. Interest Calculations. All calculations of
interest hereunder, including, without limitation, calculations of interest at
the Mortgage Loan Rate, which are made in respect of the Principal Balance of a
Mortgage Loan shall be made on a daily basis using a 360-day year, except to
the extent that any different convention (e.g., "actual/360", "actual/365") is
used with respect to any securities issued by an Advanta Trust.
Section 3. Purchases and Sales. (a) Purchases and Sales
hereunder shall generally be governed by the terms of the Master Commitment.
(b) Purchases of Qualifying Loans under this Agreement
shall occur no more frequently than monthly, in minimal Pool sizes of
$7,500,000 aggregate Principal Balance. Offers of Pools, document review,
servicing transfer and settlement shall be performed by the parties as set
forth in Appendix G hereto, Operational Procedures, as such procedures may be
revised from time to time by the Buyer.
(c) To consummate a proposed purchase the MCA Companies and
the Buyer on behalf of the Conduit Acquisition Trust shall, on or prior to the
related Closing Date,
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execute and deliver a Conveyance Agreement with respect to the related Pool in
substantially the form of Exhibit A hereto. On the related Closing Date the
Buyer shall cause the Net Purchase Price for the related Pool to be wired to
the MCA Companies in immediately available funds.
(d) In connection with each purchase of a Pool the Conduit
Acquisition Trust shall, pursuant to the related Conveyance Agreement, purchase
all of the Seller's right, title and interest to each Mortgage Loan, including
all interest accruing thereon and principal received on or with respect to such
Mortgage Loan on or after the related Cut-Off Date.
(e) the MCA Companies agree to cause their records relating
to the Mortgage Loans to indicate that the Mortgage Loans have been sold to the
Conduit Acquisition Trust. The MCA Companies will treat each sale of a Pool as
a sale for generally accepted accounting purposes, will reflect such sale on
its accounting records, and shall furnish to the Buyer, in connection with the
execution of each Conveyance Agreement an officer's certificate certifying to
the MCA Companies' treatment of the transactions contemplated hereby as sales,
and such other matters as the Buyer may reasonably request.
(f) Prior to the purchase of the first Pool purchased
hereunder the MCA Companies shall cause to be provided to the Buyer and the
Trustee an opinion of counsel in a form approved by the Buyer (and attached as
Exhibit H) relating to the execution and delivery of this Agreement by the MCA
Companies. In connection with each subsequent execution of a Conveyance
Agreement, the MCA Companies shall provide to the Buyer and the Trustee an
officer's certificate in a form approved by the Buyer as to certain legal and
factual matters with respect to such sale.
(g) The MCA Companies shall cause at least 10% (by number of
loans) of each Pool to be reviewed in accordance with quality control
procedures which are standard in the residential mortgage loan industry. Such
review may be undertaken by employees of the MCA Companies or of the Buyer or
its affiliates. Copies of all quality control review reports shall be
furnished to the Buyer on request.
Section 4. Fees and Expenses.
(a) On each Distribution Date the Buyer shall receive a
monthly fee ("Monthly Fee"), with respect to each Securitized Loan Pool, from
cashflows on the related Pool, equal to one-twelfth of 35 basis points times
the Applicable Pool Balance as of the first day of the prior calendar month.
Any amounts due to the Buyer or to the Master Servicer
hereunder or under the Whole Loan Agreement, including, but not limited, to the
fees described above, and the Pair-Off Fee, and any hedging costs, and not paid
when due, shall remain payable by the MCA Companies. Such amounts shall bear
interest at Prime plus 1% and may be funded from any Residual Excess Servicing
otherwise due to the MCA Companies, or offset against any amounts otherwise
payable to the MCA Companies by the Buyer or the Master Servicer.
(b) The MCA Companies shall pay up to $25,000 of the fees
and expenses of Dewey Ballantine incurred in connection with the preparation of
this Agreement, at the time of execution and delivery of this Agreement.
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(c) All expenses of recording assignments of mortgage
shall be paid by the MCA Companies, provided that MCA shall be liable for no
more than one such recording fee per Mortgage Loan.
Section 5. Establishment of Advanta Trusts. (a) In
connection with the creation of an Advanta Trust the Buyer may cause the
Conduit Acquisition Trust to convey to such Advanta Trust any or all of the
Mortgage Loans then held as the Accumulation Pool. In connection with any such
conveyance to an Advanta Trust the related Pass-Through Rate(s) and Reserve
Requirement applicable to such Mortgage Loans shall be established by the
Buyer, the related Underwriter(s) and the related Credit Enhancer. Any such
Mortgage Loan so conveyed to an Advanta Trust shall cease to be a "Mortgage
Loan" within the meaning of this Agreement and the rights relating thereto
shall thenceforth be as provided in the related Advanta Pooling Agreement.
The MCA Companies shall pay the applicable Bond Pricing
Discount and the applicable Other Expenses at the time of the establishment of
the related Advanta Trust (which amounts may be offset against any amounts due
to the MCA Companies).
In connection with the conveyance of any Mortgage Loans to an
Advanta Trust the Buyer shall furnish the MCA Companies with the related
Securitization Statement.
If the inclusion in an Advanta Trust of Mortgage Loans sold
hereby would adversely impact the overall Reserve Requirements or pricing
relating to such Advanta Trust, the Buyer, after consulting with the MCA
Companies, may segregate such Mortgage Loans as a separate pool and/or "REMIC"
in such Advanta Trust, and (but shall not be required to) issue specified
classes of securities with respect to such Mortgage Loans. The parties
acknowledge their expectation that no such separate treatment should be
necessary with respect to Mortgage Loans which are Qualifying Loans. Each such
separate pool and/or "REMIC" will have its own Pass-Through Rate and its own
Reserve Requirement. Any additional costs relating to such a structure shall
constitute "Sponsor's Transaction Expenses" payable by the MCA Companies.
The MCA Companies shall have the right, prior to the "cut-off
date" for the related Advanta Trust, to substitute for any Mortgage Loan
described in the preceding paragraph a replacement Mortgage Loan of similar or
better characteristics and unpaid Principal Balance of equal or lesser amount
reasonably acceptable to the Buyer and which is eligible for inclusion in such
Advanta Trust.
(b) If, in connection with the establishment of an Advanta
Trust, any Mortgage Loan in a Securitized Loan Pool is 30 or more days
contractually delinquent and such Mortgage Loan is determined by the Buyer to
be ineligible for inclusion in such Advanta Trust, the Buyer shall promptly
inform the MCA Companies, and the MCA Companies shall have the option to
repurchase such Mortgage Loan in accordance with the provisions of this Section
5 prior to the closing date of such Advanta Trust, to substitute for such
Mortgage Loan a replacement Mortgage Loan of similar or better characteristics
and with an unpaid Principal Balance of equal or lesser amount reasonably
acceptable to the Buyer and which is eligible for inclusion in such Advanta
Trust, or to have such ineligible Mortgage Loan remain in the Accumulation
Pool. The MCA Companies shall have the further right, but not the obligation to
repurchase any Mortgage Loan in an Accumulation Pool which is 30 or more days
contractually delinquent.
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In connection with any such repurchase the MCA Companies shall
deliver the Repurchase Price to the Buyer. In connection with any such
substitution the MCA Companies shall deliver the substitute Mortgage Loan and
the items which constitute the related Mortgage File to the Trustee, and shall
deliver to the Buyer the excess of (x) the outstanding Principal Balance of the
replaced Mortgage Loan over (y) the outstanding Principal Balance of the
substitute Mortgage. In connection with any such repurchase or substitution
the Buyer shall cause the Conduit Acquisition Trust to reconvey the repurchased
or replaced Mortgage Loan to the MCA Companies in the manner described in
Section 6(b) hereof.
(c) Upon the request of the Buyer, the MCA Companies shall
supply to the Buyer access to, and information regarding, the MCA Companies,
the Mortgage Loans, the Sub-Servicer's underwriting practices, financial
condition and related matters. The MCA Companies hereby represent and warrant
to the Buyer that any such information so furnished by the MCA Companies
("Sponsor Information") shall be true, correct and complete in all material
respects. If requested by the Buyer or Underwriter's counsel, the MCA
Companies shall cause a nationally recognized accounting firm to provide the
Buyer with a letter in a form acceptable to Buyer with respect to any Sponsor
Information. The parties acknowledge their expectation that, to the extent
that the Mortgage Loans have been sold servicing-released, no accountant's
letter is expected to be required. The MCA Companies agree to comply with any
reasonable regulatory and quality control requirements requested by the Buyer
based upon the Buyer's review of any Sponsor Information and other review of
the MCA Companies' origination activities.
The MCA Companies shall indemnify and hold the Buyer harmless
from any losses suffered by the Buyer and its affiliates as a result of (i) any
misstatement in, or omission from, any Sponsor Information or (ii) any breach
by the MCA Companies of any representation or warranty set forth in Section
7(a) hereof.
The Buyer shall indemnify and hold the MCA Companies and its
affiliates harmless from any losses suffered by the MCA Companies as a result
of (i) any misstatement in, or omission from any Buyer Information or (ii) any
breach by the Buyer of any representation or warranty set forth in Section 7(b)
hereof. "Buyer Information" means any information in any Offering Document
other than Sponsor Information.
(d) Each MCA Company agrees to cooperate reasonably and in
good faith with the Buyer, its attorneys and accountants, Credit Enhancers,
Underwriters and Rating Agencies in connection with the establishment of each
Advanta Trust.
(e) The Buyer acknowledges to the MCA Companies that it is
the Buyer's present intent to sponsor Advanta Trusts quarterly; the Buyer shall
advise the MCA Companies of any change in such intent as soon as possible.
Section 6. Defective Mortgage Files; Repurchase of Mortgage
Loans. (a) If the MCA Companies are informed by the Trustee, the Master
Servicer or the Buyer that any document constituting a part of a Mortgage File
has not been executed or received or is unrelated to the Mortgage Loans
identified in the related Mortgage Loan Schedule, the MCA Companies shall have
a period of 15 days after such notice within which to correct or cure any such
defect.
(b) If the Trustee, the Master Servicer or the Buyer has
notified the MCA Companies of a defect in a Mortgage File and the defect
remains uncured to the satisfaction of the Buyer and, in the opinion of the
Buyer, such defect materially and adversely affects
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the value, collectibility or marketability of the related Mortgage Loan, the
MCA Companies shall, not later than 30 days after receipt of notice of such
defect, and provided that such defect has not been cured to the Buyer's
reasonable satisfaction, repurchase the related Mortgage Loan (including any
property acquired in respect thereof and any insurance policy or insurance
proceeds with respect thereto) at a price equal to the Repurchase Price, which
shall be accomplished by delivery of such amount by the MCA Companies to the
Buyer.
Upon receipt by the Buyer of the Repurchase Price for a
Defective Mortgage Loan, the Buyer shall cause the Conduit Acquisition Trust to
execute and deliver such instrument of transfer or assignment presented to it
by the MCA Companies, in each case without recourse, as shall be necessary to
vest in the MCA Companies legal and beneficial ownership of such repurchased
Defective Mortgage Loan (including any property acquired in respect thereof or
insurance policy or insurance proceeds with respect thereto).
(c) In the event that the MCA Companies fail, within the time
periods specified in this Agreement, to cure any material defect in a Mortgage
File, the Buyer, in addition to any rights it may have under paragraph (b)
above, shall have the right thereafter to receive any Residual Excess Servicing
otherwise payable to the MCA Companies, to the extent of any loss suffered by
the Buyer.
(d) The remedies described in paragraphs (b) and (c) above,
together with all other remedies the Buyer may have at law or in equity, shall
survive any resignation or termination of Advanta Mortgage Corp. USA as Master
Servicer.
Section 7. Representations and Warranties Regarding the MCA
Companies, the Buyer and the Master Servicer. (a) Each MCA Company hereby
represents and warrants to the Buyer, the Master Servicer and their respective
successors and assigns that, as of the date hereof:
(i) Each MCA Company is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Michigan and has all licenses and qualifications
necessary to carry on its business as now being conducted and to
perform its obligations hereunder; each MCA Company has the power
and authority to execute and deliver this Agreement and to
perform its obligations in accordance herewith; the execution,
delivery and performance of this Agreement (including any
Conveyance Agreement and any other instruments of transfer to be
delivered pursuant to this Agreement) by each MCA Company and the
consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action and
do not violate the organization documents of any MCA Companies,
contravene or violate any law or regulation applicable to any MCA
Companies or contravene, violate or result in any breach of any
provision of, or constitute a default under, or result in the
imposition of any lien on any assets of any MCA Companies
pursuant to the provisions of, any mortgage, indenture, contract,
agreement or other undertaking to which any MCA Companies is a
party or which purports to be binding upon Sponsor or any of
Sponsor's assets; this Agreement evidences the valid and binding
obligation of each MCA Company enforceable against each MCA
Company in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditor's rights generally
or the application of equitable principles in any proceeding,
whether at law or in equity;
(ii) All actions, approvals, consents, waivers,
exemptions, variances, franchises, orders, permits,
authorizations, rights and licenses required to be taken,
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given or obtained, as the case may be, by or from any federal,
state or other governmental authority or agency, that are
necessary in connection with the execution and delivery by the
MCA Companies of this Agreement, have been duly taken, given or
obtained, as the case may be, are in full force and effect, are
not subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time
within which any appeal therefrom may be taken or review thereof
may be obtained has expired or no review thereof may be obtained
or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement
on the part of the MCA Companies and the performance by the MCA
Companies of their respective obligations under this Agreement;
(iii) There is no action, suit, proceeding or
investigation pending or, to the best of the MCA Companies'
knowledge, threatened against any MCA Company which, either in
any one instance or in the aggregate, may result in any material
adverse change in the business, operations, financial condition,
properties or assets of any MCA Company or in any material
impairment of the right or ability of any MCA Company to carry on
its business substantially as now conducted, or in any material
liability on the part of any MCA Company or which would draw into
question the validity of this Agreement or the Mortgage Loans or
of any action taken or to be taken in connection with the
obligations of any MCA Company contemplated herein, or which
would be likely to impair the ability of any MCA Company to
perform under the terms of this Agreement;
(iv) Each MCA Company is not in default with
respect to any mortgage, indenture, contract, agreement or other
undertaking to which such MCA Company is a party or which
purports to be binding upon Sponsor or any of Sponsor's assets,
or with respect to any order or decree of any court or any order,
regulation or demand of any federal, state, municipal or
governmental agency, which default might have consequences that
would materially and adversely affect the condition (financial or
other) or operations of any MCA Company or its properties or
might have consequences that would adversely affect its
performance hereunder;
(v) The transfer, assignment and conveyance of
the Mortgage Loans by the MCA Companies pursuant to this
Agreement are not subject to the bulk transfer laws or any
similar statutory provisions in effect in any applicable
jurisdiction;
(vi) All information supplied by the MCA
Companies to the Buyer, the Master Servicer or the Trustee is
true and correct in all material respects, and does not omit to
state a material fact necessary to make the statements set forth
in such information not misleading; and
(vii) The MCA Companies have a consolidated
tangible net worth as determined in accordance with generally
accepted accounting principles of at least $16 million.
The representations and warranties set forth in this paragraph (a) shall
survive the sale and assignment of the Mortgage Loans by the MCA Companies
hereunder. Upon discovery of a material breach of any of the foregoing
representations and warranties, the Buyer or the Master Servicer shall give
prompt written notice to the MCA Companies. Within 30 days of
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<PAGE> 19
the earlier of its discovery or its receipt of notice of breach, the MCA
Companies shall cure such breach to the satisfaction of the Buyer.
(b) The Buyer hereby represents and warrants to the MCA
Companies and the Master Servicer that, as of the date hereof:
(i) The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware; the Buyer has the power and authority to execute and deliver
this Agreement and to perform its obligations in accordance herewith;
the execution, delivery and performance of this Agreement (including
any Conveyance Agreement executed by the Buyer on behalf of the
Conduit Acquisition Trust and any other instruments of transfer to be
delivered pursuant to this Agreement) by the Buyer and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action and do not
violate the organization documents of the Buyer, contravene or violate
any law or regulation applicable to the Buyer or contravene, violate
or result in any breach of any provision of, or constitute a default
under, or result in the imposition of any lien on any assets of the
Buyer pursuant to the provisions of, any mortgage, indenture,
contract, agreement or other undertaking to which the Buyer is a party
or which purports to be binding upon Buyer or any of Buyer's assets;
this Agreement evidences the valid and binding obligation of the Buyer
enforceable against the Buyer in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting creditor's rights
generally or the application of equitable principles in any
proceeding, whether at law or in equity;
(ii) All actions, approvals, consents, waivers,
exemptions, variances, franchises, orders, permits, authorizations,
rights and licenses required to be taken, given or obtained, as the
case may be, by or from any federal, state or other governmental
authority or agency, that are necessary in connection with the
execution and delivery by the Buyer of this Agreement, have been duly
taken, given or obtained, as the case may be, are in full force and
effect, are not subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time within
which any appeal therefrom may be taken or review thereof may be
obtained has expired or no review thereof may be obtained or appeal
therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement on the part of the Buyer
and the performance by the Buyer of its obligations under this
Agreement;
(iii) There is no action, suit, proceeding or
investigation pending or, to the best of the Buyer's knowledge,
threatened against the Buyer which, either in any one instance or
in the aggregate, may result in any material adverse change in the
business, operations, financial condition, properties or assets of the
Buyer or in any material impairment of the right or ability of the
Buyer to carry on its business substantially as now conducted, or in
any material liability on the part of the Buyer or which would draw
into question the validity of this Agreement or of any action taken or
to be taken in connection with the obligations of the Buyer
contemplated herein, or which would be likely to impair the ability of
the Buyer to perform under the terms of this Agreement; and
(iv) The Buyer is not in default with respect to
any mortgage, indenture, contract, agreement or other undertaking
to which the Buyer is a party or which purports to be binding upon
Buyer or any of Buyer's assets, or with
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respect to any order or decree of any court or any order, regulation
or demand of any federal, state, municipal or governmental agency,
which default might have consequences that would materially and
adversely affect the condition (financial or other) or operations
of the Buyer or its properties or might have consequences that would
adversely affect its performance hereunder.
The representations and warranties set forth in this paragraph (b) shall
survive the sale and assignment of the Mortgage Loans by the MCA Companies
hereunder. Upon discovery of a breach of any of the foregoing representations
and warranties which materially and adversely affects the interests of the MCA
Companies, the MCA Companies shall give prompt written notice to the Buyer.
Within 30 days of its discovery or its receipt of notice of breach, the Buyer
shall cure such breach in all material respects.
(c) The Master Servicer hereby represents and
warrants to the Buyer and the MCA Companies that, as of the date hereof:
(i) The Master Servicer is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and has all licenses and qualifications necessary to
carry on its business as now being conducted and to perform its
obligations hereunder; the Master Servicer has the power and authority
to execute and deliver this Agreement and to perform its obligations
in accordance herewith; the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary
corporate action and do not violate the organization documents of the
Master Servicer, contravene or violate any law or regulation
applicable to the Master Servicer or contravene, violate or result in
any breach of any provision of, or constitute a default under, or
result in the imposition of any lien on any assets of the Master
Servicer pursuant to the provisions of, any mortgage, indenture,
contract, agreement or other undertaking to which the Master Servicer
is a party or which purports to be binding upon Master Servicer or any
of Master Servicer's assets; this Agreement evidences the valid and
binding obligation of the Master Servicer enforceable against the
Master Servicer in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditor's rights generally or the
application of equitable principles in any proceeding, whether at law
or in equity;
(ii) All actions, approvals, consents, waivers,
exemptions, variances, franchises, orders, permits, authorizations,
rights and licenses required to be taken, given or obtained, as
the case may be, by or from any federal, state or other governmental
authority or agency, that are necessary in connection with the
execution and delivery by the Master Servicer of this Agreement, have
been duly taken, given or obtained, as the case may be, are in full
force and effect, are not subject to any pending proceedings or
appeals (administrative, judicial or otherwise) and either the time
within which any appeal therefrom may be taken or review thereof may
be obtained has expired or no review thereof may be obtained or appeal
therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement on the part of the Master
Servicer and the performance by the Master Servicer of its obligations
under this Agreement;
(iii) There is no action, suit, proceeding or
investigation pending or, to the best of the Master Servicer's
knowledge, threatened against the Master Servicer which, either
in any one instance or in the aggregate, may result in any material
adverse change in the business, operations, financial condition,
properties or assets of the
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Master Servicer or in any material impairment of the right or ability
of the Master Servicer to carry on its business substantially
as now conducted, or in any material liability on the part of the
Master Servicer or which would draw into question the validity of this
Agreement or of any action taken or to be taken in connection with the
obligations of the Master Servicer contemplated herein, or which would
be likely to impair the ability of the Master Servicer to perform
under the terms of this Agreement; and
(iv) The Master Servicer is not in default with
respect to any mortgage, indenture, contract, agreement or other
undertaking to which the Master Servicer is a party or which
purports to be binding upon Master Servicer or any of Master
Servicer's assets, or with respect to any order or decree of any court
or any order, regulation or demand of any federal, state, municipal or
governmental agency, which default might have consequences that would
materially and adversely affect the condition (financial or other) or
operations of the Master Servicer or its properties or might have
consequences that would adversely affect its performance hereunder.
The representations and warranties set forth in this paragraph (c) shall
survive the sale and assignment of the Mortgage Loans by the MCA Companies
hereunder. Upon discovery of a breach of any of the foregoing representations
and warranties which materially and adversely affects the interests of the MCA
Companies, the MCA Companies shall give prompt written notice to the Master
Servicer. Within 30 days of its discovery or its receipt of notice of breach,
the Master Servicer shall cure such breach in all material respects.
Section 8. Representations and Warranties of the MCA Companies
Regarding the Mortgage Loans. (a) Set forth in Exhibit F hereto is a listing
of representations and warranties which will be deemed to have been made by the
MCA Companies to the Buyer, the Master Servicer and the Trustee in connection
with each purchase of a Pool with respect to the Mortgage Loans in such Pool.
In addition, a Conveyance Agreement may, with respect to the Mortgage Loans in
the related Pool, delete or modify any of such representations and warranties,
or may add additional representations and warranties ("Additional
Representations and Warranties"). The representations and warranties listed in
Exhibit F hereto, together with any Additional Representations and Warranties,
are the "Representations and Warranties".
It is understood and agreed that the Representations and Warranties shall
survive the sale and assignment of the Mortgage Loans to the Conduit
Acquisition Trust and by the Conduit Acquisition Trust to an Advanta Trust.
Upon discovery by any MCA Company, the Master Servicer or the Buyer of a breach
of any of the Representations and Warranties (without regard to any limitation
set forth in such Representation or Warranty concerning the knowledge of any
MCA Company as to the facts stated therein so long as the Buyer is required to
repurchase the related Mortgage Loan or Mortgage Loans pursuant to the related
Advanta Pooling Agreement without regard to any similar limitation), which
breach, in the opinion of the Buyer, materially and adversely affects the
value, collectibility or marketability of the related Mortgage Loan or Mortgage
Loans, the party discovering such breach shall give prompt written notice to
the other party and the MCA Companies shall be required to take the remedial
actions required by Section 8(c) hereof within the time periods required
pursuant thereto.
(b) Within 30 days of the earlier of its discovery or its
receipt of notice of breach, the MCA Companies shall use all reasonable efforts
to cure such breach to the reasonable satisfaction of the Buyer. Unless, prior
to the expiration of such 30 day period, such breach has been cured or
otherwise does not exist or continue to exist, the MCA Companies shall
repurchase such Mortgage Loan (or, in the case of a Representation and
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Warranty of the nature specified in clauses (xx) and (xli), repurchase Mortgage
Loans such that, after giving effect to such repurchase, the related
Representation and Warranty would be complied with) (including any property
acquired in respect thereof and any insurance policy or insurance proceeds with
respect thereto) in the same manner and subject to the same conditions as set
forth in Section 6 hereof. Upon making any such repurchase, the MCA Companies
shall be entitled to receive an instrument of assignment or transfer from the
Trustee, without recourse to the Buyer or the Trustee, to the same extent as
set forth in Section 6 hereof with respect to the repurchase of Defective
Mortgage Loans under that Section.
(c) In the event that the MCA Companies fail, within the time
periods specified in this Agreement, to cure any material breach of a
Representation and Warranty, the Buyer shall have the right thereafter to
receive any Residual Excess Servicing otherwise payable to the MCA Companies,
to the extent of any loss suffered by the Buyer.
(d) The remedies described in paragraphs (b) and (c) above,
together with all other remedies the Buyer may have at law or in equity, shall
survive any resignation or termination of Advanta Mortgage Corp. USA as Master
Servicer.
Section 9. Application of Residual Excess Servicing. (a) All
available Excess Servicing with respect to the Accumulation Pool shall be
applied as a Reserve Deposit or to the amount payable by the MCA Companies
described in the last paragraph in Section 4(a) hereof.
(b) At the time any Pools are transferred from the
Accumulation Pool to an Advanta Trust (thereby becoming all or part of a
Securitized Loan Pool) the Reserve Amount then relating to such Pool shall be
credited against the initial Reserve Amount for the related Securitized Loan
Pool. If the initial Reserve Amount exceeds the initial Required Reserve Amount
applicable to such Securitized Loan Pool (i.e., the amount of any "initial
deposit" at securitization) the amount of such excess shall be paid by the
Buyer to the MCA Companies. Conversely, if the initial Required Reserve Amount
for such Securitized Loan Pool exceeds the actual Reserve Amount for the
related Pools the amount of such shortfall shall be paid by the MCA Companies
to the Buyer as an additional initial Reserve Amount for such Securitized Loan
Pool.
(c) Any Residual Excess Servicing relating to a Securitized
Loan Pool shall be paid by the Buyer to the Sponsor within five Business Days
of each Distribution Date, subject to offset for any amounts due to the Buyer
or to the Master Servicer from the MCA Companies, as provided herein.
(d) The Buyer's obligation to pay the Residual Excess
Servicing amounts to the Sponsor will be evidenced by the Synthetic Residual
Certificate in the form of Exhibit I hereto, which evidences a secured
corporate obligation of the Buyer, and will not represent any direct ownership
interest in any Mortgage Loans.
(e) The Master Servicer shall furnish the statements
described in Section 10 hereto to the Sub-Servicer, by facsimile on each
Distribution Date; such statements shall, inter alia, contain information
relating to the Residual Excess Servicing for such Distribution Date.
The Buyer and the Master Servicer shall permit the inspection, on
reasonable notice, by any MCA Company or their respective designees of all of
the Buyer's and the Master Servicer's books and records relating to the
Mortgage Loans and the Residual Excess
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Servicing. All calculations made by the Buyer or the Master Servicer shall be
conclusive in the absence of manifest error.
Section 10. Distribution Date Statement. A. The Master Servicer
shall, not later than each Distribution Date, furnish in writing to the MCA
Companies and the Buyer a statement setting forth the following information
with respect to the Accumulation Pool and each Securitized Loan Pool:
(i) the total amount of payments in respect of or allocable
to interest on the Mortgage Loans received or deemed to have been
received from the related Mortgagors by the Master Servicer during the
prior calendar month (including any net income from REO Properties
received during the prior calendar month);
(ii) the aggregate of all Principal Payments and Principal
Prepayments received or deemed to have been received from the related
Mortgagors by the Master Servicer during the prior calendar month;
(iii) the total amount of recoveries of delinquent principal
and interest payments received during the prior calendar month;
(iv) the total amount of prepayment penalties received
during the prior calendar month;
(v) the aggregate of any Net Insurance Proceeds received by
the Master Servicer during the prior calendar month;
(vi) the aggregate of any Net Liquidation Proceeds received
by the Master Servicer during the prior calendar month;
(vii) the total amount of Compensating Interest payments to
be paid by the Master Servicer for such Distribution Date;
(viii) the aggregate Repurchase Prices for any Mortgage Loans
which the MCA Companies are required to repurchase on or prior to such
Distribution Date pursuant to Sections 5(b), 5(c), 6(b) or 8(c) hereof;
(ix) the aggregate amount of Advances made by the Master
Servicer during or with respect to the prior calendar month;
(X) the related monthly Servicing Fee;
(xi) the aggregate amount of Advances reimbursable to the
Master Servicer for such Distribution Date and not previously reimbursed;
(xii) the weighted average Mortgage Loan Rate as of the last
day of the prior calendar month (separately for ARMs and Fixed Rate
Loans);
(xiii) the related Reserve Amount, Required Reserve Amount and
Residual Excess Servicing as of such Distribution Date; and
(xiv) the book value of any REO Properties as of the last day
of the prior calendar month.
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(b) In addition, on each Distribution Date the Master Servicer
will furnish by telecopy to the Buyer and the Sub-Servicer, the following
information with respect to the Mortgage Loans in the Accumulation Pool and
each Securitized Loan Pool as of the last day of the related prior calendar
month:
(i) the total number of Mortgage Loans and the aggregate
Principal Balances thereof, together with the number, aggregate principal
balances of such Mortgage Loans and the percentage of the aggregate
Principal Balances of such Mortgage Loans to the aggregate Principal
Balance of all Mortgage Loans (a) 30-59 delinquent, (b) 60-89 days
delinquent and (c) 90 or more days delinquent;
(ii) the number, aggregate Principal Balances of all Mortgage
Loans and percentage of the aggregate Principal Balances of such Mortgage
Loans to the aggregate Principal Balance of all Mortgage Loans in
foreclosure proceedings (and whether any such Mortgage Loans are also
included in any of the statistics described in the foregoing clause (i));
(iii) the number, aggregate Principal Balances of all Mortgage
Loans and percentage of the aggregate Principal Balances of such Mortgage
Loans to the aggregate Principal Balance of all Mortgage Loans relating
to Mortgagors in bankruptcy proceedings (and whether any such Mortgage
Loans are also included in any of the statistics described in the
foregoing clause (i)); and
(iv) the number, aggregate Principal Balances of all Mortgage
Loans and percentage of the aggregate Principal Balances of such Mortgage
Loans to the aggregate Principal Balance of all Mortgage Loans relating
to REO Properties (and whether any such Mortgage Loans are also included
in any of the statistics described in the foregoing clause (i)).
Section 11. Merger or Consolidation of MCA. Any corporation or
other entity (i) into which any MCA Company may be merged or consolidated, (ii)
which may result from any merger, conversion or consolidation to which any MCA
Company shall be a party, or (iii) which may succeed to all or substantially
all of the business of any MCA Company , which corporation or other entity
shall, in any case where an assumption shall not be effected by operation of
law, execute an agreement of assumption to perform every obligation of any MCA
Company under this Agreement, shall be the successor to any MCA Company
hereunder without the execution or filing of any document or any further act by
any of the parties to this Agreement, except that if any MCA Company in any of
the foregoing cases is not the surviving entity, then the surviving entity
shall execute and deliver to the Buyer, the Master Servicer and to the Trustee
an agreement of assumption to perform every obligation of such MCA Company
hereunder.
Section 12. Servicing. A. The Master Servicer shall service all
Mortgage Loans sold by the Seller hereby on a fully servicing-released basis,
applying the standards and requirements for servicing as described in the
Buyer's Registration Statement relating to the Buyer's mortgage loan
securitization program. Such servicing standards and requirements shall
include (i) the making of Advances, (ii) the payment of Compensating Interest
and (iii) the disposition of REO Properties within 24 months of the taking of
title. The Master Servicer also agrees to implement an industry recognized
gain/loss standard at the commencement of foreclosure proceedings and use a
standard recoverability standard with respect to the making of Advances. As
described in the Master Commitment, the parties may hereafter provide for the
retention by the MCA Companies rights, of all or any portion of the servicing
rights, duties, and obligations on a prospective basis.
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(b) The Servicing Fees shall be as set forth in the Loan Servicing
Agreement among the Master Servicer, the Sponsor and MCA Mortgage Corporation.
(c) The Master Servicer hereby represents and warrants to, and
covenants with, the MCA Companies that the Master Servicer will service the
Mortgage Loans without distinction as to the identity of the MCA Companies as
the residual, first-loss holder of the Mortgage Loans, and on the same terms by
which the Master Servicer services mortgage loans for which it or its
affiliates are the residual, first-loss holder.
(d) The Master Servicer may retain sub-servicers to perform all or
a part of its servicing duties hereunder, without the consent of or notice to
the MCA Companies, except that no retention of any sub-servicer shall release
the Master Servicer from any liability to the MCA Companies.
(e) The Master Servicer shall enter into a sub-servicing agreement
with Mortgage Corporation of America within a reasonable time after the
effectiveness of this Agreement.
Section 13. Authorized Representatives. The names of the officers
of each MCA Company, the Master Servicer and of the Buyer who are authorized to
give and receive notices, requests and instructions and to deliver certificates
and documents in connection with this Agreement on behalf of each MCA Company,
the Master Servicer and of the Buyer (the "Authorized Representatives") are set
forth on Exhibit D, along with the specimen signature of each such officer.
From time to time, each MCA Company, the Master Servicer or the Buyer may, by
delivering to the others a revised exhibit, change the information previously
given.
Section 14. Notices. All demands, notices and communications
relating to this Agreement shall be in writing and shall be deemed to have been
duly given when received by one of the Authorized Representatives of the other
party or parties at the address shown below, or such other address as may
hereafter be furnished to the other party or parties by like notice. Any such
demand, notice or communication hereunder shall be deemed to have been received
on the date delivered to or received at the premises of the addressee.
If to the MCA Companies:
MCA Financial Corp.
23999 Northwestern Highway
Suite 101
Southfield, MI 48075
Telecopy: 810-358-4639
If to the Seller:
MCA Financial Corp.
23999 Northwestern Highway
Suite 101
Southfield, MI 48075
Telecopy: 810-358-4639
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with a copy to:
Mortgage Corporation of America
23999 Northwestern Highway
Suite 101
Southfield, MI 48075
Telecopy: 810-358-4639
If to the Buyer:
Advanta Mortgage Conduit Services, Inc.
16875 West Bernardo Drive
San Diego, California 92127
Attention: Loan Servicing
Telecopy: (619) 674-3880
If to the Master Servicer:
Advanta Mortgage Corp. USA
500 Office Center Drive
Suite 400
Fort Washington, PA 19034
Telecopy: (215) 283-4280
The parties may, from time to time hereafter, by written notice,
change addresses listed above.
Section 15. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of California, without
regard to conflict of laws rules applied in the State of California.
Section 16. Assignment. No party to this Agreement may assign its
rights or delegate its obligations under this Agreement without the express
written consent of the other parties, except as otherwise set forth in this
Agreement.
Section 17. Counterparts. For the purpose of facilitating the
execution of this Agreement and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which shall be
deemed to be an original, and together shall constitute and be one and the same
instrument.
Section 18. Amendment. This Agreement may be amended from time to
time by the MCA Companies, the Buyer and the Master Servicer only by a written
instrument executed by such parties.
Section 19. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement.
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Section 20. No Agency; No Partnership or Joint Venture. None of
MCA Companies, the Master Servicer nor the Buyer is the agent or representative
of one or both of the others, and nothing in this Agreement shall be construed
to make any of the MCA Companies, the Master Servicer or the Buyer liable to
any third party for services performed by it or for debts or claims accruing to
it against the other party. Nothing contained herein nor the acts of the
parties hereto shall be construed to create a partnership or joint venture
between the Buyer, the Master Servicer and the MCA Companies.
Section 21. Arbitration. Any dispute or disagreement under this
Agreement shall be rendered by submitting such dispute or disagreement to an
independent, mutually agreed upon arbitrator. The arbitrator shall conduct the
arbitration in accordance with the Rules of the American Arbitration
Association. If the parties are unable to select an arbitrator, the arbitrator
shall be selected in accordance with the procedures of the American Arbitration
Association. The decision of the arbitrator shall be final and binding upon
the parties and non-appealable. Any decision and award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. Any
arbitration pursuant to this Agreement shall be conducted in Manhattan.
Section 22. Confidentiality. No party hereto shall disclose to
third parties, without the prior consent of the other parties, in writing, the
existence of or the terms of this Agreement, except to its accountants and
attorneys or as required by law.
Section 23. Further Assurances. The parties hereto agree to
cooperate reasonably and in good faith with one another in the performance of
this Agreement.
Section 24. Legal Costs. The parties hereto agree that in the
event of arbitration or litigation between them, the non-prevailing party shall
reimburse the prevailing party for all related legal fees and expenses of
counsel incurred by the prevailing party. The prevailing party shall be the
party in whose favor a final decision or judgment is entered, after the
conclusion of any appeals or after the time during which an appeal may be taken
shall have run. Payment of sums owning under this Section 24 shall be made
within ten (10) days following the date that the right to receive payment shall
be final.
Section 25. Term. The buy-sell provisions of this Agreement shall
terminate on the Commitment Termination Date, as defined in the Master
Commitment; the other obligations of the parties set forth herein shall
continue in full force and effect until the payment in full (or other
liquidation) of the Mortgage Loans.
24
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective officers, all as of the day and year
first above written.
MCA FINANCIAL CORP.,
By: /s/ Lee P. Wells
-------------------------------
Name: Lee P. Wells
Title: President
MORTGAGE CORPORATION OF AMERICA,
By: /s/ Lee P. Wells
---------------------------------
Name: Lee P. Wells
Title: President
MCA MORTGAGE CORPORATION,
By: /s/ Lee P. Wells
----------------------------------
Name: Lee P. Wells
Title: President
ADVANTA MORTGAGE CONDUIT SERVICES, INC.,
as Buyer
By: /s/ Mark A. Casale
-------------------------------
Name: Mark A. Casale
Title: Vice President
ADVANTA MORTGAGE CORP. USA,
as a Buyer and as Master Servicer
By: /s/ Mark A. Casale
-------------------------------
Name: Mark A. Casale
Title: Vice President
<PAGE> 29
EXHIBIT A
FORM OF CONVEYANCE AGREEMENT
MCA Financial Corp., MCA Mortgage Corporation and Mortgage
Corporation of America (the "Seller") and Conduit Acquisition Trust, as
purchaser (the "Buyer"), pursuant to the Securitization Access Agreement dated
as of November 1, 1996 among the MCA Companies, Advanta Mortgage Conduit
Services, Inc. and Advanta Mortgage Corp. USA (the "Securitization Access
Agreement"), hereby confirm their understanding with respect to the sale by the
Seller and the purchase by the Buyer of those Mortgage Loans listed on the
attached Mortgage Loan Schedule (the "Purchased Mortgage Loans").
Conveyance of Purchased Mortgage Loans. The Seller, concurrently
with the execution and delivery of this Conveyance Agreement, does hereby
irrevocably transfer, assign, set over and otherwise convey to the Buyer,
without recourse (except as otherwise explicitly provided for herein) all of
its right, title and interest in and to the Purchased Mortgage Loans, including
specifically, without limitation, the Mortgages, the Mortgage Files and all
other documents, materials and properties appurtenant thereto and the Mortgage
Notes, including all interest accruing thereon and principal received on or
with respect to such Purchased Mortgage Loans on or after the related Cut-Off
Date and all interest accruing thereon since the related Mortgagor's most
recent paid-to date (or date of origination if no payment is yet due), together
with all of its right title and interest in and to the proceeds received on or
after the related Cut-Off Date of any related insurance policies on behalf of
the Buyer. If the Seller cannot deliver the original Mortgage or mortgage
assignment with evidence of recording thereon concurrently with the execution
and delivery of this Conveyance Agreement solely because of a delay caused by
the public recording office where such original Mortgage or mortgage assignment
has been delivered for recordation, the Seller shall promptly deliver to the
Buyer's designee on behalf of the Buyer such original Mortgage or mortgage
assignment with evidence of recording indicated thereon upon receipt thereof
from the public recording official, with a copy thereof delivered to the Master
Servicer.
The costs relating to the delivery of the documents specified in
this Conveyance Agreement shall be borne by the MCA Companies.
The MCA Companies hereby additionally certifies to the Buyer:
(i) The representations and warranties of the MCA Companies contained
in the Securitization Access Agreement and all related agreements,
as of the date hereof, are true and correct, and the MCA Companies
have complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to
the date hereof in connection with the sale of the Purchased
Mortgage Loans.
(ii) There are no actions, suits or proceedings pending or threatened
against or affecting any MCA Company which if adversely determined,
individually or in the aggregate, would be reasonably likely to
adversely affect in any material way any MCA Company's obligations
under any agreement to which any MCA Company is a party. No
merger, liquidation, dissolution or bankruptcy of any MCA Company
is pending or contemplated.
A-1
<PAGE> 30
(iii) No material adverse change in the condition, financial or
otherwise, or properties of the Sponsor has occurred since the date
of the Securitization Access Agreement.
All terms and conditions of the Securitization Access Agreement are
hereby incorporated herein provided that in the event of any conflict the
provisions of this Conveyance Agreement shall control over the conflicting
provisions of the Securitization Access Agreement.
Terms capitalized herein and not defined herein shall have their
respective meanings as set forth in the Securitization Access Agreement.
A-2
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers, all as of the _____ day of
_______________.
MCA FINANCIAL CORP.,
By:____________________________
Title:_________________________
MORTGAGE CORPORATION OF AMERICA
By:_____________________________
Title:__________________________
MCA MORTGAGE CORPORATION
By:______________________________
Title:___________________________
CONDUIT ACQUISITION TRUST,
By:_____________________________
Title:__________________________
Attachments
A. Schedule of Purchased Mortgage Loans.
B. Trustee's initial exception report.
C. Sponsor's officer's certificate.
D. Closing Statement and Recap Summary.
A-3
<PAGE> 32
Closing Statement and Funding Recap Summary
MCA
Pool: ____
Date Prepared:
Sale Cut-Off Date: (Close of Business)
Sale Funding Date:
Pricing Date:
----------------------------------------------------------------------
Buyer: Advanta Mortgage Conduit
Services, Inc. on behalf
Seller: of Conduit Acquisition
Trust _________________
----------------------------------------------------------------------
Originator: _________________
Servicer: Advanta Mortgage Corp. USA
Scheduled Servicing Transfer Date:
Broker Number:
----------------------------------------------------------------------
Fixed Pool Identification Number:
ARM Pool Identification Number:
Investor Number:
Number of Loans:
----------------------------------------------------------------------
Fixed Pool Balance:
ARM Pool Balance:
Total Pool Balance:
----------------------------------------------------------------------
----------------------------------------------------------------------
Total Pool Balance
----------------------------------------------------------------------
Accrued interest from Cut-Off Date to Closing
Initial Applicable Rate ___%
----------------------------------------------------------------------
Premium in Dollars
% of Scheduled Prin. Bal.: 0.00000%
----------------------------------------------------------------------
Transaction/Initial Fees Expense:
Transaction Expense Share:
Placement Fee:
----------------------------------------------------------------------
Initial Reserve Amount:
Initial Reserve Amt. (Fixed)
Initial Reserve Amt. (ARM)
----------------------------------------------------------------------
Recordation Fees:
----------------------------------------------------------------------
Net Due Seller/Funding Transfer Amt.
----------------------------------------------------------------------
A-4
<PAGE> 33
EXHIBIT B
CONTENTS OF MORTGAGE FILE
1. Collateral File
(a) the original Note endorsed by the MCA Companies as follows: For value
received, pay to the order of "Bankers Trust Company of California, N.A.
as Custodian or Trustee", without recourse with all intervening
endorsements showing a complete chain of title from the original lender
to the MCA Companies;
(b) the original Mortgage or Deed of Trust, with evidence of recording
thereon, or, until the original Mortgage or Deed of Trust has been
received from the applicable public recording office, a copy of the
Mortgage or Deed of Trust certified by Sponsor to be a true and complete
copy of the original Mortgage or Deed of Trust submitted for recording;
(c) the Note riders signed as required;
(d) a copy of the original unrecorded assignment of the Mortgage or Deed of
Trust from Sponsor to "Bankers Trust Company of California, N.A. as
Custodian or Trustee";
(e) documentation of all intervening mortgage assignments with evidence of
recording thereon, sufficient to show a complete chain of assignment
from the originator of the Mortgage Loan to the MCA Companies;
(f) any and all assumption, modification, written assurance or substitution
agreements, where the terms or provisions of a Mortgage or Note have
been modified or such Mortgage or Note have been assumed;
(g) the title insurance policy and preliminary policy, including all
endorsements and/or riders, or until an original policy is received, a
binding commitment to issue such a policy, which contains a legal
description of the Mortgaged Property and which has been signed on the
origination date by an authorized agent of the title insurer;
2. Servicing File (using the Advanta Stacking Order as of July 1, 1995)
--------------
(a) any primary credit insurance policy or certificate of insurance;
(b) all required hazard and flood insurance policies with respect to the
Mortgage Property;
(c) (the tax service contract, where applicable;
(d) any Private Mortgage Insurance Certificate;
(e) any guaranty(s), surety agreement(s), and/or survey(s);
(f) any appraisals on the Mortgaged Property;
(g) the completed loan application signed by the Mortgagor;
(h) the signed mortgage loan settlement sheet;
B-1
<PAGE> 34
(i) all employment, deposit and mortgage verifications, credit reports and
reports and any other document relied upon in making the Mortgage Loan;
(j) any Truth-In-Lending RESPA and ECOA related documents required by law;
(k) all records, ledger cards and other documents relating to the Mortgage
Loan;
(l) LIW Loan information worksheet;
(m) Copies of all applicable transfer notifications i.e. borrower insurance,
flood, hazard, PMI
(n) the original unrecorded assignment of the Mortgage or Deed of Trust from
Sponsor to Bankers Trust Company of California, N.A, as Custodian or
Trustee.
B-2
<PAGE> 35
EXHIBIT C
FORM OF MORTGAGE LOAN SCHEDULE
C-1
<PAGE> 36
EXHIBIT D
AUTHORIZED REPRESENTATIVES
Reference is hereby made to the Securitization Access Agreement, dated as of
November 1, 1996 (the "Agreement"), among MCA Financial Corp., MCA
Mortgage Corporation and Mortgage Corporation of America (collectively, the
"MCA Companies"), Advanta Mortgage Conduit Services, Inc. and Advanta Mortgage
Corp. USA:
The following are the MCA Companies' Authorized Representatives for
purposes of the Agreement:
Name Title Specimen Signature
The following are the Buyer's Authorized Representatives for purposes of the
Agreement:
Name Title Specimen Signature
The following are the Master Servicer's Authorized Representatives for
purposes of the Agreement:
Name Title Specimen Signature
William P. Garland
D-1
<PAGE> 37
EXHIBIT E
Applicable Guidelines
(a) Each Mortgage Loan is secured by a closed-end
mortgage, in first or second lien position, to A to D credit borrowers (as
defined by Fitch Investors Service), on single family 1-4 unit properties;
(b) No less than 50% of any Pool will have been
originated with A and B credit grades;
(c) No ARM Pool will be more than 2% teased at
origination calculated on a weighted average basis;
(d) Each ARM is in a first lien position;
(e) Each ARM's interest rate will be tied to either
6 month LIBOR or 1 year CMT;
(f) Each ARM will have a 2% periodic (per annum) and a
minimum lifetime cap of 6%;
(g) No more than 25% of any Pool will consist of 2 year
fixed/1 year adjustable, 3/1 or 5/1 intermediate mortgages (Treasury based
index); and
(h) No Mortgage Loan is a simple interest loan.
(i) No more than 10% of any Pool will consist of loans
with CLTVs in excess of 90% (without mortgage insurance from a carrier
acceptable to the Master Servicer).
(j) No less than 70% of each Pool will have been
originated under a full documentation program.
(k) No loan is more than 30 days contractually delinquent
as of the securitization cut-off date.
E-1
<PAGE> 38
EXHIBIT F
REPRESENTATION AND WARRANTIES
(i) The information with respect to each Mortgage Loan set
forth in the related Mortgage Loan Schedule is true and correct as of the Cut-
Off Date.
(ii) All of the original or certified documentation required to
be delivered to the Buyer, the Master Servicer or the Buyer's designee pursuant
to the [Operational Procedures Requirements as set forth on Exhibit G] with
respect to each Mortgage Loan has been or will be delivered to the Buyer, the
Master Servicer or the Buyer's designee, as required thereby. Each Mortgage
Loan is documented on a note and mortgage form, with appropriate riders
approved by Buyer.
(iii) Each Mortgage is a valid and existing first or second lien
of record on the Mortgaged Property, (subject in the case of any Second
Mortgage Loan only to a Senior Lien on such Mortgaged Property) and subject in
all cases to the exceptions to title set forth in the title insurance policy,
if any, with respect to the related Mortgage Loan, which exceptions are
generally acceptable to banking institutions in connection with their regular
mortgage lending activities, and such other exceptions to which similar
properties are commonly subject and which do not materially and adversely
affect the benefits of the security intended to be provided by such Mortgage.
(iv) Immediately prior to the transfer and assignment herein
contemplated, the related MCA Company held good, marketable, and indefeasible
title to, and was the sole owner of, each Mortgage Loan conveyed by such
related MCA Company subject to no liens, charges, mortgages, encumbrances or
rights of others except as set forth in clause (iii) or other liens which will
be released simultaneously with such transfer and assignment and upon receipt
of each Mortgage Loan, the Buyer will hold good, marketable, and indefeasible
title to, and will be the sole owner of each Mortgage Loan, free and clear of
any liens, charges, mortgages, encumbrances, or rights of others except as set
forth in paragraph (iii) or any liens created by the Buyer.
(v) As of the related Cut-Off Date, no Mortgage Loan is thirty
(30) or more days contractually delinquent, and no Mortgage Loan has been
thirty (30) or more days contractually delinquent more than once during the
twelve (12) months preceding the related Cut-Off Date, except for those loans
Buyer reviews during due diligence and agrees to purchase with knowledge of
delinquency; there is no valid and enforceable offset, defense or counterclaim
to any Note or Mortgage, including the obligation of the related Mortgagor to
pay the unpaid principal of or interest on such Note. Except for any such
delinquencies, there is no default, breach, violation or event of acceleration
existing under any Mortgage or the related Note and no event which, with the
passage of time or with notice and the expiration of any cure period, would
constitute a default, breach, violation or event of acceleration; the Seller
has not waived any default breach, violation or event of acceleration.
(vi) There is no delinquent tax or assessment lien or mechanic's
lien, or claim for work, labor, or material on any Mortgaged Property; there is
no proceeding pending or threatened or currently occurring for the total or
partial condemnation of any Mortgaged Property to the best of Seller's
knowledge; each Mortgaged Property is free of substantial damage and is in good
repair, except for those items specifically mentioned in the appraisal, or any
applicable appraisal review of any mortgaged property.
F-1
<PAGE> 39
(vii) Each Mortgage Loan at the time it was made, and the
origination of such Mortgage Loan, complied in all material respects with all
applicable local, state and federal laws and regulations, including, without
limitation, the federal Truth-in-Lending Act, the Real Estate Settlement
Procedures Act, and other consumer protection laws, usury, equal credit
opportunity, disclosure and recording laws. Any Mortgage Loan, and the
origination thereof, which is subject to the "high cost or high fee mortgage"
provisions of the Home Ownership and Equity Protection Act of 1994, complies
with the requirements of such Act. No fraud was committed, nor was any
material misrepresentation made, by any Person, including without limitation
the related Mortgagor, in connection with the origination of such Mortgage
Loan; each Mortgage Loan is a Qualified Mortgage and is a Qualifying Loan.
(viii) With respect to each Mortgage Loan, a lender's title
insurance policy, issued in standard American Land Title Association or
California Land Title Association form by a title insurance company authorized
to transact business in the state in which the related Mortgaged Property is
situated, in an amount at least equal to the Original Principal Amount of such
Mortgage Loan insuring the mortgagee's interest under the related MortGage Loan
as the holder of a valid first or second mortgage lien of record on the real
property described in the related Mortgage, as the case may be, subject only to
exceptions of the character referred to in paragraph (iii) above, was effective
on the date of the origination of such Mortgage Loan, and, as of the Cut-Off
Date such policy will be valid and thereafter such policy shall continue in
full force and effect for the benefit of the Buyer and its assignees, in care
of the Master Servicer.
(ix) Each Mortgaged Property is improved by a single
(one-to-four) family residential dwelling, which may include condominiums and
townhouses but shall not include cooperatives; the improvements upon each
Mortgaged Property are covered by a valid and existing hazard insurance policy
with a generally acceptable carrier that provides for fire and extended
coverage representing coverage not less than the least of (A) the outstanding
principal balance of the related Mortgage Loan Together, in the case of a
Second Mortgage Loan, with the outstanding principal balance of any Senior
Liens), (B) the minimum amount required to compensate for damage or loss on a
replacement cost basis or (C) the full insurable value of the Mortgaged
Property.
(x) For all Mortgage Loans, there is in place a fully-paid life
of loan flood certification from Pinnacle Data Corporation or another vendor
approved by the Buyer, assigned in care of the Master Servicer, which provides
for notification to the Master Servicer of changes in designated flood areas
which would affect such Mortgage Loan; in addition, if any Mortgaged Property,
as of the Cut-Off Date of the related Mortgage Loan, is in an area identified
in the Federal Register by the Federal Emergency Management Agency as having
special flood hazards, a flood insurance policy in a form meeting the
requirements of the current guidelines of the Federal Insurance Administration
is in effect for the benefit of the Buyer and its assignees, in care of the
Master Servicer, with respect to such Mortgaged Property with a generally
acceptable carrier in an amount representing coverage not less than the least
of (A) the outstanding principal balance of the related Mortgage Loan
(together, in the case of a Second Mortgage Loan, with the outstanding
principal balance of any Senior Liens), (B) the minimum amount required to
compensate for damage or loss on a replacement cost basis or (C) the maximum
amount of insurance that is available under the Flood Disaster Protection Act
of 1973.
(xi) Each Mortgage and Note is the legal, valid and binding
obligation of the maker thereof and is enforceable in accordance with its
terms, except only as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other
F-2
<PAGE> 40
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether considered in a proceeding or action in
equity or at law). The maker of such Mortgage and Note had the legal capacity
to execute such Mortgage and Note at the time such Mortgage and Note were
executed.
(xii) MCA has caused and will cause to be performed any and all
acts required to be performed to preserve the rights end remedies of the Master
Servicer in any Insurance Policies applicable to any Mortgage Loans delivered
by any Seller, including any necessary notifications of insurers, assignments
of policies or interests therein, and establishments of co-insured, joint loss
payee and mortgagee rights in favor of the Buyer and its assignees in care of
the Master Servicer.
(xiii) Interest on each Note is calculated in accordance with the
actuarial method; the terms of each Note and each Mortgage have not been
impaired, altered or modified in any respect, except by a written instrument
which has been recorded, if necessary, to protect the interest of the Buyer and
which has been included in the related Funding Package to be delivered to the
Buyer. The substance of any such alteration or modification is reflected on
the related Mortgage Loan Schedule and has been approved by the primary
mortgage guaranty insurer, if any.
(xiv) Except as otherwise required by law or pursuant to the
statute under which the related Mortgage Loan was made, the related Note will
not be secured by any collateral, pledged account or other security except the
lien of the corresponding Mortgage.
(xv) No Mortgage Loan will be originated under a buydown plan:
no Mortgage Loan provides for negative amortization, has a shared appreciation
feature, or other contingent interest feature; and as of the related Cut-Off
Date, no Mortgage Loan had a Combined Loan-to-Value-Ratio or a Total
Loan-to-Value Ratio in excess of the maximum for the related product type as
set forth in the Applicable Guidelines, unless Buyer acknowledges any such
exception(s) through its due diligence, and agrees to purchase the Mortgage
Loan based on the exception(s).
(xvi) Any advances made after the date of origination of a
Mortgage Loan but prior to the Cut-Off Date, have been consolidated with the
outstanding principal amount secured by the related Mortgage, and the secured
principal amount, as consolidated, bears a single interest rate and single
repayment term reflected on the related Mortgage Loan Schedule. No Note has
been modified, except as reflected on the related Mortgage Loan Schedule, and
evidence of any modification is in the related Funding Package and has been
supplied to the Buyer. The consolidated principal amount does not exceed the
original principal amount of the related Mortgage Loan. No Note permits or
obligates the Master Servicer, any sub-servicer or the Buyer or its assignees
to make future advances to the related Mortgagor at the option of the
Mortgagor.
(xvii) Any and all requirements as to completion of any on-site or
off-site improvements and as to disbursements of any escrow funds therefor have
been complied with, subject to any escrow hold-back for improvements pending
completion. All costs, fees and expenses incurred in making, closing or
recording the Mortgage Loans were paid.
(xviii) To the best of Seller's knowledge, all of the improvements
which were included for the purposes of determining the Appraised Value of any
Mortgaged Property lie wholly within the boundaries and building restriction
lines of such Mortgaged
F-3
<PAGE> 41
Property, and are stated in the title insurance policy and affirmatively
insured; no improvement located on or being part of any Mortgaged Property is
in violation of any applicable zoning law or regulation. To the best of
Seller's knowledge, all inspections, licenses and certificates required to be
made or issued with respect to all occupied portions of each Mortgaged Property
and, with respect to the use and occupancy of the same, including out not
limited to certificates of occupancy and fire underwriting certificates, have
been made or obtained from the appropriate authorities.
(xix) With respect to each Mortgage constituting a deed of trust,
a trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in such Mortgage, and
no fees or expenses are or will become payable by the Buyer or its assignees
under the deed of trust, except in connection with a trustee's sale after
default by the related Mortgagor.
(xx) With respect to each Second Mortgage Loan, either [A) no
consent for such Mortgage Loan was required by the holder of the related Senior
Lien prior to the making of such Mortgage Loan or (B) such consent has been
obtained and is contained in the related Loan Servicing File.
(xxi) Each Mortgage contains a provision for the acceleration of
the payment of the unpaid principal balance of the related Mortgage Loan in the
event the related Mortgaged Property is sold without the prior consent of the
Mortgagee thereunder; each Mortgage contains customary and enforceable
provisions which render the rights and remedies of the holder thereof adequate
for the realization against the related Mortgaged Property of the benefits of
the security, including (A) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (B) otherwise by judicial foreclosure. Subject to
any statutory redemption rights of the Mortgagor, upon default by a Mortgagor
on a Mortgage Loan and foreclosure on, or trustee's sale of, the Mortgaged
Property, the holder of the Mortgage Loan will be able to deliver good and
marketable title to the Mortgaged Property. To the best of Seller's knowledge,
there is no homestead or other exemption available to a Mortgagor which would
interfere With the right to sell the Mortgaged Property at a trustee's sale or
the right to foreclose on the Mortgaged Property.
(xxii) No instrument of release or waiver has been executed in
connection with any Mortgage Loan, and no Mortgagor has been released, in whole
or in part, except in connection with an assumption agreement which has been
approved by the primary mortgage guaranty insurer, if and, and which has been
included in the related Funding Package delivered to the Buyer.
(xxiii) The maturity date of each Mortgage Loan which is a Second
Mortgage Loan is at least twelve (12) months prior to the maturity cats of the
related first mortgage loan if such first mortgage loan provides for a balloon
payment.
(xxiv) Each Mortgage Loan has been originated in accordance with
all required provisions of the Applicable Guidelines; a full appraisal was
performed with respect to each Mortgage Loan in compliance with the applicable
requirements set forth in the Applicable Guidelines. The fair market value of
the related Mortgaged Property was at least as stated in the appraisal, as of
the date thereof.
(xxv) As of the related Closing Date, to the best knowledge of
the Seller, there does not exist on any Mortgaged Property any hazardous
substances, hazardous wastes or solid wastes, as such terms are defined in the
Comprehensive Environmental
F-4
<PAGE> 42
Response Compensation and Liability Act, the Resource Conservation and Recovery
Act of 1976, or other federal, state or local environmental legislation.
(xxvi) Each Mortgage Loan which is a First Mortgage Loan shall be
covered by a valid and transferable tax service contract with Transamerica, or
other party approved by the Buyer.
(xxvii) No mortgage reconveyance, release, satisfaction or trustee
fees have been collected by Seller or paid by any Mortgagor. In addition, if
there is, in Buyer's reasonable judgment, a documentation problem that would
make reconveyance of satisfaction difficult, cumbersome or expensive to the
Buyer, then MCA or it's designee shall at the Buyer's request complete the
reconveyance of satisfaction of the Mortgage, including the recordation of the
necessary documentation, at MCA's sole cost and expense.
(xxviii) The Mortgage Loan is not in default, and all Monthly
Payments due prior to the related Cut-Off Date and all taxes, governmental
assessments, insurance premiums, water, sewer and municipal charges, leasehold
payments or ground rents have been paid, to the best knowledge of the Seller.
The Seller has not advanced funds, or induced or solicited any advance of funds
by a party other then the Mortgagor directly or indirectly, for the payment of
any amount required by the Mortgage Loan. The collection practices used by
each entity which has serviced the Mortgage Loan have been in all respects
legal, proper, prudent and customary in the mortgage servicing business. With
respect to escrow deposits and payments in those instances where such were
required, there exist no deficiencies in connection therewith for which
customary arrangements for repayment thereof have not been made and no escrow
deposits or payments or other charges or payments have been capitalized under
any Mortgage or the related Mortgage Note.
F-5
<PAGE> 43
EXHIBIT G
OPERATIONAL PROCEDURES
<PAGE> 44
Persons on Attached Schedule 1
November __, 1996
Page 7
EXHIBIT H
FORM OF OPINION
__________, 1996
To: The Addresses identified on "Schedule I" attached hereto
Ladies and Gentlemen:
I am general counsel to each of MCA Financial Corp., a Michigan
corporation ("MCA Financial"), MCA Mortgage Corporation, a Michigan corporation
("MCA Mortgage") and Mortgage Corporation of America, a Michigan corporation
("MCA"), and have acted as such in connection with the execution and delivery
of the following agreements:
1. The Securitization Access Agreement among MCA Financial, MCA, MCA
Mortgage (collectively, the "MCA Companies"), Advanta Mortgage Conduit
Services, Inc. ("Advanta Conduit") and Advanta Mortgage Corp. USA ("Advanta
Mortgage"), dated November 1, 1996;
2. The Master Commitment for Corporate Finance Relationships by and
among the MCA Companies, Advanta Conduit and Advanta Mortgage dated as of
November 1, 1996.
The foregoing documents are sometimes collectively referred to below as
the "Documents", and any one of them is sometimes referred to below as a
"Document".
All capitalized terms herein not otherwise defined herein shall have the
respective meanings set forth in the Pooling and Servicing Agreement.
In rendering the opinions set forth herein, I have (i) examined executed
copies of the Documents; (ii) examined originals or photostatic or certified
copies of all such corporate records of each of the MCA Companies, and such
certificates of public officials, certificates of corporate officers, and other
documents, records financial statements and papers and have made such inquiries
of officers, employees and representatives of each of the MCA Companies as I
have deemed appropriate and necessary as a basis for the opinions hereinafter
expressed, and I have further assumed the truth, accuracy and completeness of
all information provided to me by such persons; (iii) assumed the genuineness
of all signatures (other than those of the officers of each of the MCA
Companies affixed to the Documents) and the authenticity of all documents
submitted to me as originals and the conformity to original documents of all
documents submitted to me as certified or photostatic copies; and (iv) assumed
the due execution and delivery, pursuant to the due authorization, of each of
the Documents by each of the respective parties (other than each of the MCA
Companies) to each such Document.
I am qualified to practice law only in the State of Michigan, and I am
not expert in and express no opinion as to the laws of other jurisdictions
other than the federal law of the United States. In rendering the above
opinions, I have assumed that the state law(s)
H-1
<PAGE> 45
Persons on Attached Schedule 1
November __, 1996
Page 8
applicable to the Documents and under which the same are to be construed is
identical in all material respects to the law of the State of Michigan.
Furthermore, the opinions expressed herein do not purport to opine as to
applicable state "Blue Sky" laws, legal investment laws, or other state or
federal laws pertaining to any securities law issues and securities matters
relating to the transactions described in the Documents.
Based upon the foregoing, and subject to the other qualifications stated
herein, I am of the opinion that:
1. Each of the MCA Companies is a corporation duly organized, validly
existing and in good standing under the laws of the State of Michigan.
2. Each of the MCA Companies is a corporation duly organized, validly
existing and in good standing under the laws of the State of Michigan and has
all licenses and qualifications necessary to carry on its business as now being
conducted and to perform its obligations hereunder; the MCA Companies have the
power and authority to execute and deliver this Agreement and to perform its
obligations in accordance herewith; the execution, delivery and performance of
this Agreement (including any Conveyance Agreement and any other instruments of
transfer to be delivered pursuant to this Agreement) by the MCA Companies and
the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action and do not violate the
organization documents of the MCA Companies, contravene or violate any law or
regulation applicable to the MCA Companies or contravene, violate or result in
any breach of any provision of, or constitute a default under, or result in the
imposition of any lien on any assets of the MCA Companies pursuant to the
provisions of, any mortgage, indenture, contract, agreement or other
undertaking to which any MCA Company is a party or which purports to be binding
upon Sponsor or any of Sponsor's assets; this Agreement evidences the valid and
binding obligation of any MCA Company enforceable against each MCA Company in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditor's rights generally or the application of equitable principles in any
proceeding, whether at law or in equity;
3. All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency, that are necessary in connection with
the execution and delivery by the MCA Companies of this Agreement, have been
duly taken, given or obtained, as the case may be, are in full force and
effect, are not subject to any pending proceedings or appeals (administrative,
judicial or otherwise) and either the time within which any appeal therefrom
may be taken or review thereof may be obtained has expired or no review thereof
may be obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement on the part of
the MCA Companies and the performance by the MCA Companies of their respective
obligations under this Agreement;
4. There is no action, suit, proceeding or investigation pending or,
to the best of the MCA Companies' knowledge, threatened against any MCA Company
which, either in any one instance or in the aggregate, may result in any
material adverse change in the business, operations, financial condition,
properties or assets of any MCA Company or in any material impairment of the
right or ability of any MCA Company to carry on its business
H-2
<PAGE> 46
Persons on Attached Schedule 1
November __, 1996
Page 9
substantially as now conducted, or in any material liability on the part of any
MCA Company or which would draw into question the validity of this Agreement or
the Mortgage Loans or of any action taken or to be taken in connection with the
obligations of any MCA Company contemplated herein, or which would be likely to
impair the ability of any MCA Company to perform under the terms of this
Agreement;
5. Each of the MCA Companies is not in default with respect to any
mortgage, indenture, contract, agreement or other undertaking to which any MCA
Company is a party or which purports to be binding upon Sponsor or any of
Sponsor's assets, or with respect to any order or decree of any court or any
order, regulation or demand of any federal, state, municipal or governmental
agency, which default might have consequences that would materially and
adversely affect the condition (financial or other) or operations of any MCA
Company or its properties or might have consequences that would adversely
affect its performance hereunder;
6. The execution and delivery of each of the Documents to which each
of the MCA Companies is a party, and its respective performance of its
obligations thereunder, will not (i) require any action by or in respect of, or
filing with, any governmental body, agency or official (other than the filing
of Uniform Commercial Code financing statements), or (ii) contravene, or
constitute a default under, any provision of applicable law or regulation or of
its Certificate (or Articles) of Incorporation or Bylaws or of any agreement,
judgment, injunction, order, decree or other instrument binding upon such
company.
The foregoing opinions are being rendered for the benefit only of the
Addressees listed on the attachment and may not be disclosed to, quoted to or
relied upon by any other person or entity without the prior written consent of
the undersigned.
Very truly yours,
_____________________________
Title: General Counsel
H-3
<PAGE> 47
Persons on Attached Schedule 1
November __, 1996
Page 10
SCHEDULE 1
Advanta Mortgage Corp. USA
500 Office Center Drive
Suite 400
Fort Washington, PA 19034
Advanta Mortgage Conduit Services, Inc.
16875 West Bernardo Drive
San Diego, CA 92127
H-4
<PAGE> 48
Persons on Attached Schedule 1
November __, 1996
Page 11
EXHIBIT I
FORM OF SYNTHETIC RESIDUAL CERTIFICATE
This Synthetic Residual Certificate (this "Certificate") has been
issued in accordance with Section 9(d) of the Securitization Access Agreement
dated as of November 1, 1996 (the "Securitization Access Agreement") by and
among MCA Financial Corp. (the "Sponsor"), MCA Mortgage Corporation, and
Mortgage Corporation of America, Advanta Mortgage Conduit Services, Inc. (the
"Buyer") and Advanta Mortgage Corp. USA (the "Master Servicer"). This
Certificate is the Synthetic Residual Certificate referenced in Section 2 of
the Tri-Party Security Agreement dated as of November 1, 1996 (the "Security
Agreement") by and among the Buyer, the Master Servicer (the Buyer and the
Master Servicer together are referred to herein as the "Pledgors"), MCA
Financial Corp. and Bankers Trust Company of California, N.A., as trustee.
Unless otherwise indicated, terms used herein but not defined shall have the
respective meanings given to such terms in the Securitization Access Agreement.
This Certificate evidences the secured corporate obligation of the
Pledgors to pay the Residual Excess Servicing amounts to the Sponsor as
required by Section 9(c) of the Securitization Access Agreement. To secure
such obligation, the Pledgors have granted a security interest in the
Collateral (as such term is defined in the Security Agreement) to the Sponsor
pursuant to the Security Agreement. This Certificate does not represent any
direct ownership interest in any Mortgage Loans.
THIS CERTIFIES THAT MCA Financial Corp. is the owner of this
Certificate. This Certificate is not transferrable.
IN WITNESS WHEREOF, the Pledgors have caused this Certificate to be
signed, manually or in facsimile by its authorized officer.
Dated: November __, 1996
ADVANTA MORTGAGE CONDUIT SERVICES, INC.
By:______________________
Name:
Title:
ADVANTA MORTGAGE CORP. USA
By:______________________
Name:
Title:
I-1
<PAGE> 49
EXHIBIT J
______________________________________________________________________________
TRI-PARTY SECURITY AGREEMENT
By and Among
ADVANTA MORTGAGE CONDUIT SERVICES, INC.,
ADVANTA MORTGAGE CORP. USA,
MCA FINANCIAL CORP.
and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
Dated as of November 1, 1996
______________________________________________________________________________
<PAGE> 50
TRI-PARTY SECURITY AGREEMENT
This TRI-PARTY SECURITY AGREEMENT (this "Agreement"), dated as of
November 1, 1996 by and among ADVANTA MORTGAGE CONDUIT SERVICES, INC.
("Advanta Mortgage Conduit"), ADVANTA MORTGAGE CORP. USA ("Advanta Mortgage
Corp.", together with Advanta Mortgage Conduit, the "Pledgors"), MCA FINANCIAL
CORP. (the "Secured Party") and BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as
trustee (the "Trustee").
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, the parties hereto agree as follows:
Section 1. Definitions. In addition to the terms defined
elsewhere in this Agreement, the following terms shall have the following
meanings when used in this Agreement:
"Collateral" means the Pledgors' rights to receive payments of Residual
Excess Servicing in connection with each and every Securitized Loan Pool.
"Securitization Access Agreement" means the Securitization Access
Agreement dated as of November 1, 1996 by and among the Secured Party, MCA
Mortgage Corporation, Mortgage Corporation of America and the Pledgors, as
amended from time to time.
Capitalized terms used and not otherwise defined herein shall for all purposes
of this Agreement have the respective meanings specified therefor in the
Securitization Access Agreement.
Section 2. Pledge and Security.
Each Pledgor hereby pledges all of its respective right, title, and
interest in and to, and grants a first lien on, and security interest in, the
Collateral to the Secured Party to secure the obligation of the Pledgors to
make payments of Residual Excess Servicing to the Secured Party in accordance
with Section 9(c) of the Securitization Access Agreement, which obligation is
evidenced by the Synthetic Residual Certificate in the form of Exhibit I to the
Securitization Access Agreement.
Section 3. Financing Statement.
The Pledgors covenant that, on the date of execution of this
Agreement, the Pledgors shall cause to be filed a financing statement (Form
UCC-1) with the Secretary of State of California to perfect by filing thereof
the security interest in the Collateral granted by the Pledgors herein. The
Pledgors covenant to file in other jurisdictions upon the reasonable request of
the MCA Companies.
Section 4. Events of Default. Each of the following shall
constitute an "Event of Default" hereunder:
(a) Failure of the Pledgors to make any payment of Residual
Excess Servicing, owing to the Secured Party under Section 9(c) of the
Securitization Access Agreement, to the Secured Party which failure is not
remedied within five Business Days after written notice to the Pledgors
thereof.
1
<PAGE> 51
(b) The filing against either Pledgor of a petition for
liquidation, reorganization, arrangement or adjudication as a bankrupt or
similar relief under the bankruptcy, insolvency or similar laws of the United
States or any state or territory thereof or of any foreign jurisdiction as to
which such Pledgor fails to secure dismissal within 60 days of such filing.
Appointment of a receiver, conservator, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of either Pledgor or of any
substantial part of its property, the ordering of the winding-up or liquidation
of its affairs, or the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of either Pledgor in any involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect.
(c) Commencement by either Pledgor of a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or the consent by either Pledgor to the entry of an order for relief in
an involuntary case under any such law or to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of either Pledgor or of any
substantial part of its property, or the making by either Pledgor of any
general assignment for the benefit of creditors, or the failure of either
Pledgor generally to pay its debts as such debts become due, or the taking of
corporate action by either Pledgor in furtherance of any of the foregoing.
Section 5. Remedy Upon Default. Upon the happening of one or more
Events of Default, the Secured Party shall have the right to collect and
receive all further payments of Residual Excess Servicing due to it under
Section 9(c) of the Securitization Access Agreement directly from the Trustee.
The parties hereto agree that, upon the happening of one or more Events of
Default, the Trustee shall calculate the amounts, if any, owed by the Pledgors
to the Secured Party pursuant to Section 9(c) of the Securitization Access
Agreement and shall pay any and all such amounts from the Residual Excess
Servicing related to the Securitized Loan Pools that would otherwise be payable
to either Pledgor directly to the account of the Secured Party at _____
___________________________________ or to such other account of the Secured
Party identified by the Secured Party from time to time to the Trustee. The
Pledgors and the Secured Party acknowledge that the Secured Party has no
recourse against the Collateral upon the happening of an Event of Default,
other than as described in this Section 5. Notwithstanding the security
interest granted hereby, the Synthetic Residual Certificate represents a
general corporate liability of the Pledgors.
Section 6. Notices. All demands, notices and communications
relating to this Agreement shall be in writing and shall be deemed to have been
duly given when received by the other party or parties at the address shown
below, or such other address as may hereafter be furnished to the other party
or parties by like notice. Any such demand, notice or communication hereunder
shall be deemed to have been received on the date delivered to or received at
the premises of the addressee.
If to the Pledgors:
Mark A. Casale
Advanta Mortgage Corp. USA
500 Office Center Drive
Suite 400
Fort Washington, PA 19034
Telecopy: (215) 444-4743
2
<PAGE> 52
If to the Secured Party:
MCA Financial Corp.
23999 Northwestern Highway
Suite 101
Southfield, MI 48075
Telecopy: 810-358-4639
If to the Trustee:
Bankers Trust Company of California, N.A.
3 Park Plaza, 16th Floor
Irvine, CA 92714
Telecopy: (714) 253-8289
Section 7. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement.
Section 8. Assignment; Successors and Assigns. No party to this
Agreement may assign its rights or delegate its obligations under this
Agreement without the express written consent of the other parties, except as
otherwise set forth in this Agreement. This Agreement shall be binding upon
the successors and assigns of the parties hereto.
Section 9. Counterparts. For the purpose of facilitating the
execution of this Agreement and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which shall be
deemed to be an original, and together shall constitute and be one and the same
instrument.
Section 10. Amendment. This Agreement may be amended from time to
time by the parties hereto only by a written instrument executed by such
parties.
Section 11. Governing Law; Agreement Constitutes Security
Agreement. This Agreement is intended by the parties hereto to be governed by,
and construed in accordance with, California law, without regard to conflict of
laws rules applied in California, and to constitute a security agreement within
the meaning of the California Uniform Commercial Code.
3
<PAGE> 53
IN WITNESS WHEREOF, the parties have executed this TRI-PARTY
SECURITY AGREEMENT as of the day and year first above written.
ADVANTA MORTGAGE CONDUIT SERVICES, INC.
By:___________________________________________________
Name:
Title:
ADVANTA MORTGAGE CORP. USA
By:___________________________________________________
Name:
Title:
MCA FINANCIAL CORP.
By:___________________________________________________
Name:
Title:
BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as
Trustee
By:___________________________________________________
Name:
Title:
4
<PAGE> 1
EXHIBIT 10.36
EXECUTION COPY
===============================================================================
AMENDED AND RESTATED SECURITIZATION ACCESS AGREEMENT
Amended as of February 21, 1997
by and among
MCA FINANCIAL CORP.
MCA MORTGAGE CORPORATION,
MORTGAGE CORPORATION OF AMERICA,
ADVANTA MORTGAGE CONDUIT SERVICES, INC.
and
ADVANTA MORTGAGE CORP. USA,
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page
<S> <C> <C>
Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Interest Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3. Purchases and Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5. Establishment of Advanta Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6. Defective Mortgage Files; Repurchase of Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7. Representations and Warranties Regarding the MCA Companies, the Buyer and the Master Servicer . . . . . . 16
Section 8. Representations and Warranties of the MCA Companies Regarding the Mortgage Loans . . . . . . . . . . . . . 20
Section 9. Application of Residual Excess Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 10. Distribution Date Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 11. Merger or Consolidation of MCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 12. Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 13. Authorized Representatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 14. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 15. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 16. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 17. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 18. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 19. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 20. No Agency; No Partnership or Joint Venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 21. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 22. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 23. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 24. Legal Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 25. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
<PAGE> 3
Exhibits
Exhibit A -- Form of Conveyance Agreement
Exhibit B -- Contents of Mortgage File
Exhibit C -- Authorized Representatives
Exhibit D -- Applicable Guidelines
Exhibit E -- Representations and Warranties
Exhibit F -- Form of Opinion
Exhibit G -- Form of Synthetic Residual Certificate
Exhibit H -- Form of Multi-Party Security Agreement
Exhibit I -- Mutual Confidentiality Agreement
<PAGE> 4
THIS AMENDED AND RESTATED SECURITIZATION ACCESS AGREEMENT, dated as of
February 21, 1997, among MCA Financial Corp., as seller (the "Seller"), MCA
Mortgage Corporation and Mortgage Corporation of America, (each company, an
"MCA Company" and collectively, the "MCA Companies"), Advanta Mortgage Conduit
Services, Inc. ("Advanta Conduit"), Advanta Mortgage Corp. USA (the "Advanta
Mortgage" and together with Advanta Conduit, the "Buyer"), and Advanta Mortgage
Corp. USA, in its capacity as master servicer (Advanta Mortgage, in such
capacity, the "Master Servicer"),
W I T N E S S E T H T H A T :
WHEREAS, the MCA Companies originate mortgage loans which the MCA
Companies desire to include in securitization transactions sponsored by the
Buyer;
WHEREAS, the Buyer desires to include such mortgage loans in its
securitization transactions; and
WHEREAS, the MCA Companies and the Buyer desire that the Master
Servicer service such mortgage loans.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto hereby agree as follows:
Section 1. Definitions. Whenever used in this Agreement, the
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article.
Accepted Servicing Practices: As defined in the Pooling and Servicing
Agreement or similar agreement relating to an Advanta Trust.
Accumulation Pool: As of any date, all Mortgage Loans previously sold
by the Seller hereunder and which are held by the Conduit Acquisition Trust on
such date. The Accumulation Pool may represent any number of Pools.
Additional Initial Reserve Amount: With respect to any Securitized
Loan Pool, any additional amount required to be added to the Reserve Amount in
connection with the conveyance of such Securitized Loan Pool to the related
Advanta Trust (including conveyances of any "pre-funded" Mortgage Loans). The
parties acknowledge that their expectation is that the Additional Initial
Reserve Amount will be zero.
Additional Representations and Warranties: With respect to any Pool,
the additional representations and warranties made by each MCA Company with
respect thereto, as set forth in the related Conveyance Agreement.
Advances: Any "Delinquency Advances" as may be required in connection
with a Securitized Loan Pool, as defined in the "Pooling and Servicing" or
similar agreement relating to the applicable Advanta Trust, and any Servicing
Advances.
<PAGE> 5
Advanta Trust: Any trust which the Buyer may from time to time sponsor
for the purpose of securitizing, among other things, all or a portion of the
Mortgage Loans and selling the interests therein to investors.
Aggregate Overadvance Amount: As of the closing date of any Advanta
Securitization, the sum of all Overadvance Amounts previously paid to the
Seller and not theretofore repaid, plus interest thereon (calculated from the
date the related Overadvance Amount was paid) at Prime.
Agreement: This Amended and Restated Securitization Access Agreement
and all amendments hereof and supplements hereto.
Applicable Guidelines: For purposes of this Agreement only (i.e., not
necessarily for purposes of the Whole Loan Agreement) those underwriting
guidelines set forth on Exhibit D hereto, as such Exhibit D may be revised from
time to time by the Buyer and the Seller.
Applicable Pool Balance: With respect to any Pool as of any
Distribution Date, the aggregate Principal Balances of the Mortgage Loans in
such Pool as of the opening of business on the first day of the prior calendar
month.
Applicable Rate: With respect to any Mortgage Loan included in the
Accumulation Pool, Prime. With respect to any Mortgage Loan included in a
Securitized Loan Pool, the "Pass-Through Rate(s)" for the related classes of
securities for the related period; such "Pass-Through Rate(s)" may be either
the actual rates or, in the case of a derivative, such derivative hedged
rate(s).
Appraised Value: The appraised value of any Mortgaged Property based
upon the appraisal or other valuation made at the time of the origination of
the related Mortgage Loan; or, in the case of a Mortgage Loan which is a
purchase money mortgage; or in the case of a home which is purchased within the
last twelve (12) months, the sale price of the Mortgaged Property at such time
of origination, if such sale price is less than such appraised value.
ARM Loan: A Mortgage Loan which bears an adjustable rate of interest.
Bond Pricing Discount: An estimated percentage of pricing discount on
the publicly-offered securities to be issued by an Advanta Trust, as determined
by the Underwriter(s) selected by the Buyer. The parties acknowledge that
their expectation is that the Bond Pricing Discount will be zero, or as close
to zero as reasonably practicable.
Business Day: Any day other than (a) a Saturday or a Sunday, or (b) a
day on which national banks in the states of California, or New York and
Delaware are required or authorized by law, executive order or governmental
decree to be closed.
Buyer Information: As defined in Section 5(d) hereof.
Carry-Forward Amount: With respect to any Identified Securitized Loan
Pool and any Distribution Date, the excess, if any, of (x) the amount described
in clause (y) of the definition of "Deferred Premium Payment" for such
Distribution Date over (y) the Residual Excess Servicing for such Identified
Securitized Loan Pool for such Distribution Date.
2
<PAGE> 6
Closing Date: With respect to any Pool, the date established as the
"Closing Date" in the related Conveyance Agreement.
Combined Loan-to-Value Ratio: With respect to any First Mortgage Loan,
the percentage equal to the Original Principal Amount of the related Note
divided by the Appraised Value of the related Mortgaged Property and with
respect to any Second Mortgage Loan, the percentage equal to (a) the sum (i)
the remaining principal balance, as of origination of the Second Mortgage Loan,
of the Senior Lien note(s) relating to such Second Mortgage Loan, and (ii) the
Original Principal Amount of the Note relating to such Second Mortgage Loan,
divided by (b) the Appraised Value.
Compensating Interest: Amounts advanced by the Master Servicer as a
result of a prepayment in full by a Mortgagor on a date other than the
scheduled Due Date, and equal to the excess of (x) a full month's interest on
the related Mortgage Loan calculated at the related Coupon Rate less the
Servicing Fee Rate over (y) the interest actually paid by the related Mortgagor
for the related monthly period. The Master Servicer shall fund Compensating
Interest monthly, but not in excess, in the aggregate for any monthly period,
of the aggregate Servicing Fee retained by the Master Servicer with respect to
such monthly period.
Conduit Acquisition Trust: The Conduit Acquisition Trust created
pursuant to that certain Pooling and Servicing Agreement dated as of February
15, 1995 among the Buyer, the Master Servicer and the Trustee.
Conveyance Agreement: With respect to the purchase of a Pool, the
Conveyance Agreement in substantially the form of Exhibit A hereto executed
with respect thereto (which term includes the related "Closing Statement and
Funding Recap Summary").
Credit Enhancer: Any financial guarantor or other financial
institution which provides third-party credit enhancement with respect to an
Advanta Trust.
Cut-Off Date: With respect to any Pool, the date established as the
"Cut-Off Date" in the related Conveyance Agreement.
Cut-Off Date Principal Balance: As to any Mortgage Loan, its Principal
Balance as of the opening of business on the related Cut-Off Date.
Defective Mortgage Loan: Any Mortgage Loan which is required to be
repurchased by the MCA Companies pursuant to Section 5(b), 5(c), 6(b) or 8(c)
hereof.
Deferred Premium Payment: With respect to any Identified Securitized
Loan Pool and any Distribution Date, the excess, if any, of (x) 100% of the
Residual Excess Servicing for such Distribution Date over (y) the sum of (i)
the related Initial Premium Amortization Current Amount plus (ii) the related
Initial Premium Fee plus (iii) the related Carry-Forward Amount, if any, for
the immediately preceding Distribution Date.
Delinquency Advances: For each remittance period for the related
Securitization, an amount equal to the sum of the interest portions (net of the
Servicing Fees) due, but not collected, with respect to delinquent Mortgage
Loans, which the Master Servicer advances to the Trust. The Master Servicer is
only required to make Delinquency Advances if the Master Servicer believes, in
its good faith business judgment, that such amount will ultimately be recovered
from the related Mortgage Loan.
3
<PAGE> 7
Distribution Date: With respect to the Accumulation Pool or any
Securitized Loan Pool, the 25th day of each month or, if such day is not a
Business Day, the Business Day immediately following such 25th day, beginning
in the month specified in the related Conveyance Agreement.
Due Date: With respect to any Mortgage Loan the fixed date in each
month on which the Mortgagor's Monthly Mortgage Payment is due.
"Excess Servicing" means:
(x) with respect to the Accumulation Pool, as of any Distribution
Date, the sum of all interest due (minus the amount of any interest not
required to be advanced by the Master Servicer as a non-recoverable
"Delinquency Advance" or as "Compensating Interest" in excess of the Servicing
Fee) with respect to the Mortgage Loans in the Accumulation Pool during the
prior calendar month (minus any portion of such interest previously received by
the MCA Companies as part of the related Pool Purchase Price), less the sum of
the following amounts, to be deducted in the following order of priority:
(i) one-twelfth of the Servicing Fee Rate times the related
Applicable Pool Balance;
(ii) the interest, calculated at the Applicable Rate, which
accrued on the Applicable Pool Balance which relates for
the applicable preceding interest accrual period; and
(iii)the amount of any Advances, including, but not limited to,
any Nonrecoverable Advances, made or paid by the Master
Servicer with respect to any Mortgage Loans included in the
Accumulation Pool or such Securitized Loan Pool during the
prior calendar month, less the amount of any Advances made
or paid by the Master Servicer in prior monthly periods and
recovered during the current monthly period; and
(y) with respect to any Securitized Loan Pool, as of any Distribution
Date, the sum of all interest due with respect to the Mortgage Loans in such
Securitized Loan Pool (minus the amount of any interest not required to be
advanced by the Master Servicer as a non-recoverable "Delinquency Advance" or
as "Compensating Interest" in excess of the Servicing Fee), during the prior
calendar month (minus any portion of such interest previously received by the
MCA Companies as part of the related Pool Purchase Price), less the sum of the
following amounts, to be deducted in the following order of priority:
(i) one-twelfth of the applicable Monthly Fee rate times the
Applicable Pool Balance of the Securitized Loan Pool;
(ii) one-twelfth of the Servicing Fee Rate times the related
Applicable Pool Balance;
(iii) the sum of (x) the interest, calculated at the Applicable
Rate for the related ARMs, which accrued on that portion of
the Applicable Pool Balance which relates to ARMs, plus (y)
the interest, calculated at the Applicable Rate for the
related
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Fixed Rate Loans, which accrued on that portion of the
Applicable Pool Balance which relates to Fixed Rate Loans,
in each case for the applicable preceding interest accrual
period; and
(iv) the amount of any Advances, including, but not limited to,
any Nonrecoverable Advances, made or paid by the Master
Servicer with respect to any Mortgage Loans included in the
Accumulation Pool or such Securitized Loan Pool during the
prior calendar month, less the amount of any Advances made
or paid by the Master Servicer on prior monthly periods and
recovered during the current monthly period; and
FDIC: The Federal Deposit Insurance Corporation and its successors in
interest.
FEMA: The Federal Emergency Management Agency and its successors in
interest.
FHLMC: The Federal Home Loan Mortgage Corporation and its successors
in interest.
First Mortgage Loan: A Mortgage Loan which constitutes a first
priority mortgage lien with respect to any Mortgaged Property.
Fixed Rate Loan: A Mortgage Loan which bears interest at a fixed rate.
FNMA: The Federal National Mortgage Association and its successors in
interest.
Identified Securitized Loan Pool: Any Securitized Loan Pool sold by
the Seller hereunder and held by a particular Advanta Trust which has been
identified on the closing date of the related Securitization in the Buyer's
Securitization Statement as participating in the Buyer's deferred premium
program.
Initial Premium Amortization Amount Schedule: With respect to any
Identified Securitized Loan Pool, a schedule setting forth all Initial Premium
Amortization Current Amounts for each Distribution Date.
Initial Premium Amortization Current Amount: With respect to any
Identified Securitized Loan Pool (i) for each Distribution Date occurring
during the amortization period (which shall in no event be less than 36 months
or greater than 48 months) set forth in the related Securitization Statement,
the amount set forth with respect to such Distribution Date in the Initial
Premium Amortization Amount Schedule attached to the related Securitization
Statement and (ii) with respect to each Distribution Date thereafter, the
related Unamortized Initial Premium Amount immediately prior to such
Distribution Date.
Initial Premium Fee: With respect to any Identified Securitized Loan
Pool and any Distribution Date, the product of (i) one-twelfth of the sum of
(a) LIBOR plus (b) 2.00% and (ii) the related Unamortized Initial Premium
Amount immediately prior to such Distribution Date.
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Initial Premium Payment: An amount paid to the Seller on the closing
date of the related Advanta Securitization equal to the product of (i) the
related Initial Premium Percentage and (ii) the Synthetic Residual Value.
Initial Premium Percentage: With respect to each Identified
Securitized Loan Pool, the percentage indicated as the Initial Premium
Percentage in the related Securitization Statement, which percentage shall not
be less than 50%.
Initial Reserve Amount: With respect to any Pool, the initial amount
of Reserves relating thereto, as set forth in the related Conveyance Agreement.
The parties acknowledge that their expectation is that the Initial Reserve
Amount will be zero, or as close to zero as reasonably practicable.
Insurance Policy: Any hazard, flood, title or primary mortgage
insurance policy relating to a Mortgage Loan.
Insurance Proceeds: Proceeds paid by any insurer and received by the
Master Servicer during the prior calendar month pursuant to any insurance
policy covering a Mortgage Loan or the related Mortgaged Property, and the
proceeds from any fidelity bond or errors and omission policy, net of any
component thereof covering any expenses incurred by or on behalf of the Master
Servicer.
Issuance Costs: With respect to any Securitized Loan Pool, all costs
incurred by the MCA Companies and by the Buyer in connection with the purchase
and sale of a Pool, the establishment of the related Advanta Trust and the sale
of mortgage-backed securities by such Advanta Trust, including, without
limitation, legal, accounting, printing, initial Trustee's fee, Underwriter's
discount, initial Credit Enhancer's fee, Rating Agency's fees and other
customary costs of issuance.
Second Mortgage Loan: Any Mortgage Loan secured by a Mortgage with a
lien of other than first priority.
Liquidated Mortgage Loan: As to any Distribution Date, any Mortgage
Loan as to which the Master Servicer has determined, in accordance with its
regular servicing practices during the prior calendar month, that all
Liquidation Proceeds which it expects to recover from or on account of such
Mortgage Loan have been recovered, which determination may include "charging
off" such Mortgage Loan.
Liquidation Expenses: Expenses which are incurred by the Master
Servicer in connection with the liquidation or foreclosure of any Mortgage Loan
and not recovered under any insurance policy or from any Mortgagor. Such
expenses shall include, without limitation, legal fees and expenses, real
estate brokerage commissions, any unreimbursed amount expended by the Master
Servicer respecting the related Mortgage Loan (including, without limitation,
amounts voluntarily advanced to correct defaults on each related Senior Lien)
and any related and previously unreimbursed Advances.
Liquidation Proceeds: Cash (other than Insurance Proceeds) received in
connection with the liquidation of any Mortgaged Property, whether through
trustee's sale, foreclosure sale or otherwise received in respect of any
Mortgage Loan foreclosed upon (including, without limitation, proceeds from the
rental of the related Mortgaged Property).
Master Commitment: The Master Commitment dated as of November 1, 1996
between the Buyer and the MCA Companies hereto.
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Master Servicer: Advanta Mortgage Corp. USA, a Delaware corporation.
Monthly Fee: As defined in Section 4(a) hereof.
Monthly Mortgage Payment: With respect to any Mortgage Note, the
amount of each fixed monthly payment (other than final balloon payments)
payable under such Mortgage Note in accordance with its terms, net of any
portion of such monthly payment that represents late payment charges,
prepayment or extension fees or collections allocable to payments to be made by
Mortgagors for payment of insurance premiums, real estate taxes or similar
items.
Mortgage: The mortgage, deed of trust or other instrument creating a
first, second or third lien on an estate in fee simple interest in real
property securing a Mortgage Loan.
Mortgage File: With respect to any Mortgage Loan, the items set forth
on Exhibit B hereto.
Mortgage Loan: Each of the Mortgage Loans sold by the Seller
hereunder.
Mortgage Loan Rate: As to any Mortgage Loan, the per annum rate of
interest applicable to the calculation of interest thereon.
Mortgage Loan Schedule: With respect to any Pool, the schedule of
Mortgage Loans delivered by the MCA Companies with respect thereto on the
related Closing Date. Each such schedule shall be delivered in
computer-readable form on diskette or magnetic tape and in physical form, as
amended from time to time.
Mortgage Note: The note or other instrument of indebtedness evidencing
the indebtedness of a Mortgagor under the related Mortgage Loan.
Mortgaged Property: The underlying property securing a Mortgage Loan.
Mortgagor: The obligor under a Mortgage Note.
Net Insurance Proceeds: Insurance Proceeds from any policy of
insurance covering a Mortgage Loan which (a) are applied by the Master Servicer
to reduce the Principal Balance of the related Mortgage Loan and (b) not
applied to the restoration or repair of the related Mortgaged Property or
released to the related Mortgagor in accordance with the Master Servicer's
regular servicing procedures or the terms of the related Mortgage Loan.
Net Liquidation Proceeds: As to any Mortgage Loan, Liquidation
Proceeds net of Liquidation Expenses. For all purposes of this Agreement, Net
Liquidation Proceeds shall be allocated first to accrued and unpaid interest on
the related Mortgage Loan and then to the Principal Balance thereof.
Net Purchase Price: With respect to any Pool, the related Pool
Purchase Price minus (i) the related Initial Reserve Amount, if any, (ii) the
related Seller's Transaction Expenses and (iii) the related Placement Fee, all
as set forth in the related Conveyance Agreement.
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Nonrecoverable Advances: With respect to any Mortgage Loan, any
Delinquency Advance or any Servicing Advance previously made and not reimbursed
which, in the good faith business judgment of the Master Servicer, would not be
ultimately recoverable.
Offering Document: A prospectus, placement memorandum or other
document pursuant to which an Underwriter offers mortgage-backed securities
issued by an Advanta Trust.
Original Principal Amount: With respect to any Mortgage Note, the
original principal amount due under such Mortgage Note as of its date of
origination.
Other Expenses: Any additional expenses incurred by the Buyer in
connection with the inclusion of Mortgage Loans sold by the Seller in an
Advanta Trust, including, but not limited to the costs of (i) data integrity
review of loan files versus the servicing system, (ii) accountant's "comfort
letter" with respect to any Seller Information and (iii) third-party due
diligence expenses relating to on-site review of the MCA Companies or the
Mortgage Loans, to the extent over and above the Buyer's normal expenses for
such a review. The Other Expenses shall not exceed $25,000 per Securitized Loan
Pool, and in no event will exceed $50,000 in any single twelve-month period.
Overadvance Amount: With respect to any Pool Purchase Price, the
excess, if any, of (i) the sum of (a) the amount described in clause (x) of the
definition of "Pool Purchase Price" and (b) the amount described in clause (y)
of the definition of "Pool Purchase Price" over (ii) the sum of (a) the amount
described in clause (x)(i) of the definition of "Pool Purchase Price" and (b)
the amount described in clause (y) of the definition of "Pool Purchase Price,
calculated for this purpose only using par.
Overadvance Percentage: The premium, if any, paid by the Buyer in
connection with the purchase of any Pool, expressed as a percentage.
Pair-Off Fee: As defined in the Master Commitment.
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Placement Fee: With respect to each Mortgage Loan included in a
Securitized Loan Pool and purchased by the Buyer hereunder, 0.45% times the
Principal Balance of such Mortgage Loan.
Pool: Any group of Mortgage Loans sold by the Seller hereunder and
designated as a "pool" for purposes of this Agreement. For convenience, each
Pool shall be designated by the year of its sale and lettered sequentially,
e.g., 1996-A, 1996-B, etc.
Pool Principal Balance: As of any date, the aggregate Principal
Balances of all Mortgage Loans in the related Pool as of such date.
Pool Purchase Price: With respect to any Pool, the sum of (x) the sum
of (i) the aggregate Principal Balance of each Mortgage Loan in such Pool as of
the opening of business on the related Cut-Off Date and (ii) the product of the
Overadvance Percentage times the amount described in clause (i) of this
definition and (y) for each Mortgage Loan, interest accrued on the amount
described in clause (x) from and including the date to which
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<PAGE> 12
interest was last paid by the Mortgagor (including any prepaid interest) to but
excluding the Closing Date, calculated at the related Mortgage Loan Rate.
Prime: The Prime Rate of interest charged from time to time by The
Chase Manhattan Bank.
Principal Balance: As to any Mortgage Loan and any date of
determination, the Principal Balance thereof as of the related Cut-Off Date,
less all amounts theretofore applied in reduction of such Principal Balance
after the related Cut-Off Date; provided, however, that a Mortgage Loan that
has become liquidated will be deemed to have a Principal Balance of zero.
Principal Payment: As to any Mortgage Loan and calendar month, all
amounts received or, deemed to have been received by the Master Servicer from
or on behalf of the related Mortgagor during such calendar month (including
Principal Prepayments) which, at the time of receipt or at the time deemed to
have been received, were applied or were required to be applied by the Master
Servicer in reduction of the Principal Balance of such Mortgage Loan.
Principal Prepayment: As to any Mortgage Loan and calendar period, any
Mortgagor payment or other recovery in respect of principal on a Mortgage Loan
(including Net Liquidation Proceeds) which, in the case of a Mortgagor payment,
is received in advance of its Due Date and is not accompanied by an amount as
to interest representing scheduled interest for any month subsequent to the
month of such payment or was accompanied by instructions from the related
Mortgagor directing the Master Servicer to apply such payments to the Principal
Balance of such Mortgage Loan.
Qualified Mortgage: "Qualified Mortgage" shall have the meaning set
forth from time to time in the definition thereof at Section 860G(a)(3) of the
Internal Revenue Code of 1986, as amended (or any successor statute thereto).
Qualifying Loan: Mortgage Loans which (i) conform to Seller's
Applicable Guidelines, and (ii) which conform to all Representations and
Warranties, as defined in this Agreement and applicable to the related Mortgage
Loans.
Rating Agencies: Collectively, all nationally recognized statistical
credit rating agencies providing a rating on any class of mortgage- backed
securities issued by an Advanta Trust.
Realized Loss: As to any Liquidated Mortgage Loan, the excess, if any,
of (x) the Principal Balance thereof as of the date of liquidation, together
with all unreimbursed Advances over (y) the related Net Liquidation Proceeds,
if any.
Related Conduit Agreements: As defined in the Master Commitment.
Remaining Excess Servicing: With respect to any Securitized Loan Pools
in the aggregate as of any Distribution Date, the excess, if any, of (x) the
Excess Servicing for such Securitized Loan Pool over (y) the Reserve Deposit
for such Securitized Loan Pool.
REO Property: Any Mortgaged Property as to which title has become
vested in the Trustee, the Conduit Acquisition Trust or an Advanta Trust as a
result of foreclosure, deed in lieu of foreclosure, etc.
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Representations and Warranties: As defined in Section 8(a) hereof.
Repurchase Price: With respect to any Mortgage Loan repurchased by the
MCA Companies pursuant to the provisions hereof, an amount equal to (i) the sum
of (A) the Principal Balance of such Mortgage Loan as of the beginning of the
calendar month next preceding the Distribution Date on which the proceeds of
such repurchase or purchase are required to be distributed, (B) interest
computed at the applicable Mortgage Loan Rate on such Principal Balance from
the date to which interest was last paid by the Mortgagor to the end of the
calendar month immediately preceding such Distribution Date on which such
repurchase or purchase occurs and (C) any previously unreimbursed Advances made
on or in respect of such Mortgage Loan less (ii) any payments of principal and
interest in respect of such Mortgage Loan, made by or on behalf of the related
Mortgagor during such calendar month.
Reserve Amount: With respect to the Accumulation Pool or any
Securitized Loan Pool, as of any Distribution Date the excess of (x) the sum of
(i) the Initial Reserve Amount(s) for the related Pool(s), (ii) any Additional
Initial Reserve Amount and (iii) the aggregate, cumulative amount of Reserve
Deposits applicable to the Accumulation Pool or such Securitized Loan Pool, as
the case may be and (iv) investment earnings at Advanta Corp.'s then-standard
reinvestment rate (which, as of the date hereof, is based on the then-current
30-day commercial paper rate) over (y) the sum of (i) the aggregate, cumulative
amount of Realized Losses experienced with respect to the related Pool(s) since
their sale by the Seller reduced by any amounts described in clause (Y) of
Section 9(e) hereof which have previously been applied in respect of such
Realized Losses, (ii) the aggregate, cumulative amount of Reserve Release
Amounts distributed to the MCA Companies on all prior Distribution Dates and
(iii) any amount described in the second sentence of Section 9(b) hereof which
are paid to the MCA Companies.
Reserve Deposit: With respect to the Accumulation Pool or any
Securitized Loan Pool, on any Distribution Date, the lesser of (x) the related
Excess Servicing for such Distribution Date or (y) any related Reserve
Shortfall for such Distribution Date.
Residual Excess Servicing: With respect to any Securitized Loan Pools,
as of any Distribution Date an amount equal to the Remaining Excess Servicing,
if any, for such Distribution Date plus the aggregate Reserve Release Amount,
if any, for such Distribution Date plus any prepayment fees collected for such
Distribution Date.
Reserve Release Amount: As of any Distribution Date and with respect
to any Securitized Loan Pool, the excess of (x) the related Reserve Amount on
such Distribution Date, after taking into account all credits to, and
deductions therefrom on such Distribution Date over (y) the related Reserve
Requirement for such Distribution Date.
Reserve Requirement: With respect to any Securitized Loan Pool and
Distribution Date, the required amount of Reserves for such Distribution Date.
In no event shall the level of the Reserve Requirement exceed the level that
would be required by the related Credit Enhancer, if the MCA Companies were to
do a stand-alone transaction.
Reserves: The amount of any first-loss protection maintained with
respect to any Pool or group of Pools.
Reserve Shortfall: With respect to any Securitized Loan Pool, on any
Distribution Date, any excess of (x) the related Reserve Requirement for such
Distribution Date over (y) the related Reserve Amount immediately prior to such
Distribution Date.
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Second Mortgage Loan: A Mortgage Loan which constitutes a second
priority mortgage lien with respect to the related Mortgaged Property.
Securitization: A periodic securitization of Mortgage Loans by the
Buyer.
Securitization Statement: Each statement delivered to the MCA
Companies by the Buyer at the time of establishment of an Advanta Trust
containing Mortgage Loans sold by the MCA Companies hereunder, which statement
shall set forth the final Reserve Requirement for the related Securitized Loan
Pool, the Pass-Through Rate(s) applicable to such Securitized Loan Pool and
related information.
Securitized Loan Pool: Any group of Mortgage Loans sold by the Seller
hereunder and held by a particular Advanta Trust, whether acquired initially by
such Advanta Trust or subsequently acquired through "pre-funded" purchases. A
Securitized Loan Pool may represent any number of Pools and includes Identified
Securitized Loan Pools.
Seller: Seller and its affiliates, Mortgage Corporation of America and
MCA Mortgage Corporation.
Seller's Applicable Guidelines: The guidelines used by the Seller to
underwrite Mortgage Loans.
Seller Information: As defined in Section 5(d) hereof.
Seller's Transaction Expenses: With respect to any Pool, the MCA
Companies' pro rata share (based upon the relative aggregate principal balances
of the Mortgage Loans sold by the Seller to the total aggregate principal
balance for all mortgage loans) of the Issuance Costs, which shall be a minimum
of 0.60% times the aggregate Principal Balance of the related Mortgage Loans.
Senior Lien: With respect to any Second Mortgage Loan, the mortgage
loan relating to the corresponding Mortgaged Property having a first priority
lien.
Servicing Advance: Any out-of-pocket costs or expenses incurred by the
Master Servicer in connection with the performance of its servicing
obligations, including, but not limited to, preservation expenses, payments for
taxes, insurance and payments made to Senior Lien holders, enforcement and
judicial proceedings, including foreclosures, the management and liquidation of
"REO" Properties, etc.
Servicing Fee: The servicing fees payable to the Master Servicer, as
set forth in the Loan Servicing Agreement dated November 1, 1996 among the
Master Servicer, the Seller and Mortgage Corporation of America. Servicer will
be entitled to retain additional servicing compensation for incidental fees or
charges provided for in the applicable Note and/or Mortgage that are
customarily collected from the Mortgagor by the Servicer in the ordinary course
of performing its obligations herein, including, but not limited to, late
payment charges, assumption, processing charges and assumption fees,
modification charges, demand fees, insufficient funds fees, reconveyance
charges, tax service fees, fees for statement of account or payoff of Mortgage
Loans.
Synthetic Residual Value: With respect to any Identified Securitized
Loan Pool, a lump-sum, dollar amount, equal to the present value of the related
expected
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Residual Excess Servicing on each future Distribution Date determined by the
Buyer as set forth on the related Securitization Statement.
Total Loan-to-Value Ratio: With respect to any Mortgage Loan, the
percentage equal to the sum of (i) the Original Principal Amount of the related
Note and (ii) the remaining principal balance(s), as of origination of such
Mortgage Loan, of all other note(s) secured by liens, whether senior or
subordinate, on the related Mortgaged Property, divided by the Appraised Value
of the related Mortgaged Property.
Trustee: The trustee designated by the Buyer.
Unamortized Initial Premium Amount: With respect to any Identified
Securitized Loan Pool and any Distribution Date, the original related Initial
Premium Amount minus (i) the aggregate, cumulative amount of the related
Residual Excess Servicing applied in respect of the amortization thereof on
previous Distribution Dates pursuant to Section 9(d) hereof and minus (ii) the
aggregate, cumulative amounts applied in respect of the amounts described in
clause (Z) of Section 9(e) hereof on previous Distribution Dates).
Underwriter: Collectively, any underwriters or placement agents
engaged or consulted by the Buyer in connection with the sale of mortgage-
backed securities by an Advanta Trust.
Whole Loan Agreement: The Master Loan Purchase Agreement dated as of
July 1, 1996 among the parties hereto.
Whole Loan Purchases: A pool of Mortgage Loans purchased pursuant to a
Whole Loan Agreement.
Section 2. Interest Calculations. All calculations of interest
hereunder, including, without limitation, calculations of interest at the
Mortgage Loan Rate, which are made in respect of the Principal Balance of a
Mortgage Loan shall be made on a daily basis using a 360-day year, except to
the extent that any different convention (e.g., "actual/360", "actual/365") is
used with respect to any securities issued by an Advanta Trust.
Section 3. Purchases and Sales. (a) Purchases and sales hereunder
shall generally be governed by the terms of the Master Commitment.
(b) Purchases of Qualifying Loans under this Agreement shall occur no
more frequently than monthly, in minimal Pool sizes of $7,500,000 aggregate
Principal Balance. Offers of Pools, document review, servicing transfer and
settlement shall initially be performed by following the same procedures set
forth in the Whole Loan Agreement, as such procedures may be revised from time
to time by the Buyer.
(c) To consummate a proposed purchase the MCA Companies and the Buyer
on behalf of the Conduit Acquisition Trust shall, on or prior to the related
Closing Date, execute and deliver a Conveyance Agreement with respect to the
related Pool in substantially the form of Exhibit A hereto. On the related
Closing Date the Buyer shall cause the Net Purchase Price for the related Pool
to be wired to the MCA Companies in immediately available funds.
(d) In connection with each purchase of a Pool the Conduit Acquisition
Trust shall, pursuant to the related Conveyance Agreement, purchase all of the
Seller's right, title and interest to each Mortgage Loan, including all
interest accruing thereon and
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principal received on or with respect to such Mortgage Loan on or after the
related Cut-Off Date.
(e) The MCA Companies agree to cause their records relating to the
Mortgage Loans to indicate that the Mortgage Loans have been sold to the
Conduit Acquisition Trust. The MCA Companies will treat each sale of a Pool as
a sale for generally accepted accounting purposes, will reflect such sale on
its accounting records, and shall furnish to the Buyer, in connection with the
execution of each Conveyance Agreement an officer's certificate certifying to
the MCA Companies' treatment of the transactions contemplated hereby as sales,
and such other matters as the Buyer may reasonably request.
(f) Prior to the purchase of the first Pool purchased hereunder the
MCA Companies shall cause to be provided to the Buyer and the Trustee an
opinion of counsel in a form approved by the Buyer (and attached hereto as
Exhibit F) relating to the execution and delivery of this Agreement by the MCA
Companies. In connection with each subsequent execution of a Conveyance
Agreement, the MCA Companies shall provide to the Buyer and the Trustee an
officer's certificate in a form approved by the Buyer as to certain legal and
factual matters with respect to such sale.
(g) The MCA Companies shall cause at least 10% (by number of loans) of
each Pool to be reviewed in accordance with quality control procedures which
are standard in the residential mortgage loan industry. Such review may be
undertaken by employees of the MCA Companies or of the Buyer or its affiliates.
Copies of all quality control review reports shall be furnished to the Buyer on
request.
Section 4. Fees and Expenses.
(a) On each Distribution Date the Buyer shall receive a monthly fee
("Monthly Fee"), with respect to each Identified Securitized Loan Pool, from
cashflows on the related Pool, equal to one-twelfth of 60 basis points times
the Applicable Pool Balance as of the first day of the prior calendar month
provided, that, such Monthly Fee shall equal one-twelfth of 35 basis points
times the Applicable Pool Balance beginning on the Distribution Date following
the calendar month in which the Buyer distributes the final Deferred Premium
Payment with respect to an Identified Securitized Loan Pool to the Seller. The
Monthly Fee with respect to each Securitized Loan Pool, other than the
Identified Securitized Loan Pool, shall also equal one-twelfth of 35 basis
points times the Applicable Pool Balance as of the first day of the prior
calendar month.
Any amounts due to the Buyer or to the Master Servicer hereunder or
under the Whole Loan Agreement, including, but not limited, to the fees
described above, and the Pair-Off Fee, and any hedging costs, and not paid when
due, shall remain payable by the MCA Companies. Such amounts shall bear
interest at 1% and may be funded from any Remaining Excess Servicing or
Deferred Premium Payments otherwise due to the MCA Companies, or offset against
any amounts otherwise payable to the MCA Companies by the Buyer or the Master
Servicer.
(b) The MCA Companies shall pay up to $25,000 of the fees and expenses
of Dewey Ballantine incurred in connection with the preparation of this
Agreement, at the time of execution and delivery of this Agreement.
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(c) All expenses of recording assignments of mortgage shall be paid by
the MCA Companies, provided that MCA shall be liable for no more than one such
recording fee per Mortgage Loan.
Section 5. Establishment of Advanta Trusts. (a) In connection with
the creation of an Advanta Trust the Buyer may cause the Conduit Acquisition
Trust to convey to such Advanta Trust any or all of the Mortgage Loans then
held as the Accumulation Pool. In connection with any such conveyance to an
Advanta Trust the related Pass-Through Rate(s) and Reserve Requirement
applicable to such Mortgage Loans shall be established by the Buyer, the
related Underwriter(s) and the related Credit Enhancer. Any such Mortgage Loan
so conveyed to an Advanta Trust shall cease to be a "Mortgage Loan" within the
meaning of this Agreement and the rights relating thereto shall thenceforth be
as provided in the related Advanta Pooling Agreement.
The MCA Companies shall pay the applicable Bond Pricing Discount and
the applicable Other Expenses at the time of the establishment of the related
Advanta Trust (which amounts may be offset against any amounts due to the MCA
Companies).
In connection with the conveyance of any Mortgage Loans to an Advanta
Trust the Buyer shall furnish the MCA Companies with the related Securitization
Statement.
If the inclusion in an Advanta Trust of Mortgage Loans sold hereby
would adversely impact the overall Reserve Requirements or pricing relating to
such Advanta Trust, the Buyer, after consulting with the MCA Companies, may
segregate such Mortgage Loans as a separate pool and/or "REMIC" in such Advanta
Trust, and (but shall not be required to) issue specified classes of securities
with respect to such Mortgage Loans. The parties acknowledge their expectation
that no such separate treatment should be necessary with respect to Mortgage
Loans which are Qualifying Loans. Each such separate pool and/or "REMIC" will
have its own Pass-Through Rate and its own Reserve Requirement. Any additional
costs relating to such a structure shall constitute "Seller's Transaction
Expenses" payable by the MCA Companies.
The MCA Companies shall have the right, prior to the "cut-off date" for
the related Advanta Trust, to substitute for any Mortgage Loan described in the
preceding paragraph a replacement Mortgage Loan of similar or better
characteristics and unpaid Principal Balance of equal or lesser amount
reasonably acceptable to the Buyer and which is eligible for inclusion in such
Advanta Trust.
(b) If, in connection with the establishment of an Advanta Trust, any
Mortgage Loan in a Securitized Loan Pool is 30 or more days contractually
delinquent and such Mortgage Loan is determined by the Buyer to be ineligible
for inclusion in such Advanta Trust, the Buyer shall promptly inform the MCA
Companies, and the MCA Companies shall have the option to repurchase such
Mortgage Loan in accordance with the provisions of this Section 5 prior to the
closing date of such Advanta Trust, to substitute for such Mortgage Loan a
replacement Mortgage Loan of similar or better characteristics and with an
unpaid Principal Balance of equal or lesser amount reasonably acceptable to the
Buyer and which is eligible for inclusion in such Advanta Trust, or to have
such ineligible Mortgage Loan remain in the Accumulation Pool. The MCA
Companies shall have the further right, but not the obligation to repurchase
any Mortgage Loan in an Accumulation Pool which is 30 or more days
contractually delinquent.
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In connection with any such repurchase the MCA Companies shall deliver
the Repurchase Price to the Buyer. In connection with any such substitution
the MCA Companies shall deliver the substitute Mortgage Loan and the items
which constitute the related Mortgage File to the Trustee, and shall deliver to
the Buyer the excess of (x) the outstanding Principal Balance of the replaced
Mortgage Loan over (y) the outstanding Principal Balance of the substitute
Mortgage. In connection with any such repurchase or substitution the Buyer
shall cause the Conduit Acquisition Trust to reconvey the repurchased or
replaced Mortgage Loan to the MCA Companies in the manner described in Section
6(b) hereof.
(c) Upon the request of the Buyer, the MCA Companies shall supply to
the Buyer access to, and information regarding, the MCA Companies, the Mortgage
Loans, the Sub-Servicer's underwriting practices, financial condition and
related matters. The MCA Companies hereby represent and warrant to the Buyer
that any such information so furnished by the MCA Companies ("Seller
Information") shall be true, correct and complete in all material respects. If
requested by the Buyer or Underwriter's counsel, the MCA Companies shall cause
a nationally recognized accounting firm to provide the Buyer with a letter in a
form acceptable to Buyer with respect to any Seller Information. The parties
acknowledge their expectation that, to the extent that the Mortgage Loans have
been sold servicing-released, no accountant's letter is expected to be
required. The MCA Companies agree to comply with any reasonable regulatory and
quality control requirements requested by the Buyer based upon the Buyer's
review of any Seller Information and other review of the MCA Companies'
origination activities.
The MCA Companies shall indemnify and hold the Buyer harmless from any
losses suffered by the Buyer and its affiliates as a result of (i) any
misstatement in, or omission from, any Seller Information or (ii) any breach by
the MCA Companies of any representation or warranty set forth in Section 7(a)
hereof.
The Buyer shall indemnify and hold the MCA Companies and its affiliates
harmless from any losses suffered by the MCA Companies as a result of (i) any
misstatement in, or omission from any Buyer Information or (ii) any breach by
the Buyer of any representation or warranty set forth in Section 7(b) hereof.
"Buyer Information" means any information in any Offering Document other than
Seller Information.
(d) Each MCA Company agrees to cooperate reasonably and in good faith
with the Buyer, its attorneys and accountants, Credit Enhancers, Underwriters
and Rating Agencies in connection with the establishment of each Advanta
Trust.
(e) The Buyer acknowledges to the MCA Companies that it is the Buyer's
present intent to sponsor Advanta Trusts quarterly; the Buyer shall advise the
MCA Companies of any change in such intent as soon as possible.
(f) The Seller acknowledges that, to the extent it, at or prior to the
time of the formation of a Securitized Loan Pool, elects not to repurchase any
Mortgage Loan pursuant to its repurchase options set forth in this Section 5 or
as required under Section 6, the Reserve requirements and/or the Initial
Reserve Amount applicable to the related Securitized Loan Pool is likely to
increase substantially.
Section 6. Defective Mortgage Files; Repurchase of Mortgage Loans.
(a) If the MCA Companies are informed by the Trustee, the Master Servicer or
the Buyer that any document constituting a part of a Mortgage File has not been
executed or received or is unrelated to the Mortgage Loans identified in the
related Mortgage Loan Schedule, the MCA
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Companies shall have a period of 15 days after such notice within which to
correct or cure any such defect.
(b) If the Trustee, the Master Servicer or the Buyer has notified the
MCA Companies of a defect in a Mortgage File and the defect remains uncured to
the satisfaction of the Buyer and, in the opinion of the Buyer, such defect
materially and adversely affects the value, collectibility or marketability of
the related Mortgage Loan, the MCA Companies shall, not later than 30 days
after receipt of notice of such defect, and provided that such defect has not
been cured to the Buyer's reasonable satisfaction, repurchase the related
Mortgage Loan (including any property acquired in respect thereof and any
insurance policy or insurance proceeds with respect thereto) at a price equal
to the Repurchase Price, which shall be accomplished by delivery of such amount
by the MCA Companies to the Buyer.
Upon receipt by the Buyer of the Repurchase Price for a Defective
Mortgage Loan, the Buyer shall cause the Conduit Acquisition Trust to execute
and deliver such instrument of transfer or assignment presented to it by the
MCA Companies, in each case without recourse, as shall be necessary to vest in
the MCA Companies legal and beneficial ownership of such repurchased Defective
Mortgage Loan (including any property acquired in respect thereof or insurance
policy or insurance proceeds with respect thereto).
(c) In the event that the MCA Companies fail, within the time periods
specified in this Agreement, to cure any material defect in a Mortgage File,
the Buyer, in addition to any rights it may have under paragraph (b) above,
shall have the right thereafter to receive any Residual Excess Servicing
otherwise payable to the MCA Companies, to the extent of any loss suffered by
the Buyer.
(d) The remedies described in paragraphs (b) and (c) above, together
with all other remedies the Buyer may have at law or in equity, shall survive
any resignation or termination of Advanta Mortgage Corp. USA as Master
Servicer.
Section 7. Representations and Warranties Regarding the MCA Companies,
the Buyer and the Master Servicer. (a) Each MCA Company hereby represents and
warrants to the Buyer, the Master Servicer and their respective successors and
assigns that, as of the date hereof:
(i) Each MCA Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Michigan
and has all licenses and qualifications necessary to carry on its
business as now being conducted and to perform its obligations
hereunder; each MCA Company has the power and authority to execute and
deliver this Agreement or the Related Conduit Agreements and to
perform its obligations in accordance herewith; the execution,
delivery and performance of this Agreement (including any Conveyance
Agreement and any other instruments of transfer to be delivered
pursuant to this Agreement or the Related Conduit Agreements) by each
MCA Company and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary
corporate action and do not violate the organization documents of any
MCA Companies, contravene or violate any law or regulation applicable
to any MCA Companies or contravene, violate or result in any breach of
any provision of, or constitute a default under, or result in the
imposition of any lien on any assets of any MCA Companies pursuant to
the provisions of, any mortgage, indenture, contract, agreement or
other undertaking to which any MCA Companies is a party or which
purports to be binding upon Seller or any of Seller's assets; this
Agreement or the Related Conduit Agreements evidence the valid and
binding
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obligation of each MCA Company enforceable against each MCA Company in
accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to
or affecting creditor's rights generally or the application of equitable
principles in any proceeding, whether at law or in equity;
(ii) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, as the case may be,
by or from any federal, state or other governmental authority or
agency, that are necessary in connection with the execution and
delivery by the MCA Companies of this Agreement or the Related Conduit
Agreements, have been duly taken, given or obtained, as the case may
be, are in full force and effect, are not subject to any pending
proceedings or appeals (administrative, judicial or otherwise) and
either the time within which any appeal therefrom may be taken or
review thereof may be obtained has expired or no review thereof may be
obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement on the
part of the MCA Companies and the performance by the MCA Companies of
their respective obligations under this Agreement or the Related
Conduit Agreements;
(iii) There is no action, suit, proceeding or investigation
pending or, to the best of the MCA Companies' knowledge, threatened
against any MCA Company which, either in any one instance or in the
aggregate, may result in any material adverse change in the business,
operations, financial condition, properties or assets of any MCA
Company or in any material impairment of the right or ability of any
MCA Company to carry on its business substantially as now conducted,
or in any material liability on the part of any MCA Company or which
would draw into question the validity of this Agreement or the Related
Conduit Agreements or the Mortgage Loans or of any action taken or to
be taken in connection with the obligations of any MCA Company
contemplated herein, or which would be likely to impair the ability of
any MCA Company to perform under the terms of this Agreement or the
Related Conduit Agreements;
(iv) Each MCA Company is not in default with respect to any
mortgage, indenture, contract, agreement or other undertaking to which
such MCA Company is a party or which purports to be binding upon
Seller or any of Seller's assets, or with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which default might have
consequences that would materially and adversely affect the condition
(financial or other) or operations of any MCA Company or its
properties or might have consequences that would adversely affect its
performance hereunder;
(v) The transfer, assignment and conveyance of the Mortgage
Loans by the MCA Companies pursuant to this Agreement or any Related
Conduit Agreements are not subject to the bulk transfer laws or any
similar statutory provisions in effect in any applicable jurisdiction;
(vi) All information supplied by the MCA Companies to the
Buyer, the Master Servicer or the Trustee is true and correct in all
material respects, and does not omit to state a material fact
necessary to make the statements set forth in such information not
misleading; and
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(vii) The MCA Companies have a consolidated tangible net
worth as determined in accordance with generally accepted accounting
principles of at least $16 million.
The representations and warranties set forth in this paragraph (a) shall
survive the sale and assignment of the Mortgage Loans by the MCA Companies
hereunder. Upon discovery of a material breach of any of the foregoing
representations and warranties, the Buyer or the Master Servicer shall give
prompt written notice to the MCA Companies. Within 30 days of the earlier of
its discovery or its receipt of notice of breach, the MCA Companies shall cure
such breach to the satisfaction of the Buyer.
(b) The Buyer hereby represents and warrants to the MCA Companies
and the Master Servicer that, as of the date hereof:
(i) The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware;
the Buyer has the power and authority to execute and deliver this
Agreement and to perform its obligations in accordance herewith; the
execution, delivery and performance of this Agreement (including any
Conveyance Agreement executed by the Buyer on behalf of the Conduit
Acquisition Trust and any other instruments of transfer to be
delivered pursuant to this Agreement or the Related Conduit Agreement)
by the Buyer and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary
corporate action and do not violate the organization documents of the
Buyer, contravene or violate any law or regulation applicable to the
Buyer or contravene, violate or result in any breach of any provision
of, or constitute a default under, or result in the imposition of any
lien on any assets of the Buyer pursuant to the provisions of, any
mortgage, indenture, contract, agreement or other undertaking to which
the Buyer is a party or which purports to be binding upon Buyer or any
of Buyer's assets; this Agreement and the Related Conduit Agreement
evidence the valid and binding obligation of the Buyer enforceable
against the Buyer in accordance with its terms, subject to the effect
of bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditor's rights generally or
the application of equitable principles in any proceeding, whether at
law or in equity;
(ii) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and
licenses required to be taken, given or obtained, as the case may be,
by or from any federal, state or other governmental authority or
agency, that are necessary in connection with the execution and
delivery by the Buyer of this Agreement and the Related Conduit
Agreement, have been duly taken, given or obtained, as the case may
be, are in full force and effect, are not subject to any pending
proceedings or appeals (administrative, judicial or otherwise) and
either the time within which any appeal therefrom may be taken or
review thereof may be obtained has expired or no review thereof may be
obtained or appeal therefrom taken, and are adequate to authorize the
consummation of the transactions contemplated by this Agreement and
the Related Conduit Agreement on the part of the Buyer and the
performance by the Buyer of its obligations under this Agreement and
the Related Conduit Agreements;
(iii) There is no action, suit, proceeding or investigation
pending or, to the best of the Buyer's knowledge, threatened against
the Buyer which, either in any one instance or in the aggregate, may
result in any material adverse change in the business, operations,
financial condition, properties or assets of the Buyer or
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in any material impairment of the right or ability of the Buyer to carry
on its business substantially as now conducted, or in any material
liability on the part of the Buyer or which would draw into question the
validity of this Agreement and the Related Conduit Agreements or of any
action taken or to be taken in connection with the obligations of the
Buyer contemplated herein, or which would be likely to impair the ability
of the Buyer to perform under the terms of this Agreement and the Related
Conduit Agreements; and
(iv) The Buyer is not in default with respect to any mortgage,
indenture, contract, agreement or other undertaking to which the Buyer is a
party or which purports to be binding upon Buyer or any of Buyer's assets,
or with respect to any order or decree of any court or any order,
regulation or demand of any federal, state, municipal or governmental
agency, which default might have consequences that would materially and
adversely affect the condition (financial or other) or operations of the
Buyer or its properties or might have consequences that would adversely
affect its performance hereunder.
The representations and warranties set forth in this paragraph (b) shall
survive the sale and assignment of the Mortgage Loans by the MCA Companies
hereunder. Upon discovery of a breach of any of the foregoing representations
and warranties which materially and adversely affects the interests of the MCA
Companies, the MCA Companies shall give prompt written notice to the Buyer.
Within 30 days of its discovery or its receipt of notice of breach, the Buyer
shall cure such breach in all material respects.
(c) The Master Servicer hereby represents and warrants to the
Buyer and the MCA Companies that, as of the date hereof:
(i) The Master Servicer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
has all licenses and qualifications necessary to carry on its business as
now being conducted and to perform its obligations hereunder; the Master
Servicer has the power and authority to execute and deliver this Agreement
and the Related Conduit Agreements to which it is a party and to perform
its obligations in accordance herewith; the execution, delivery and
performance of this Agreement and the Related Conduit Agreements to which
it is a party and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action and
do not violate the organization documents of the Master Servicer,
contravene or violate any law or regulation applicable to the Master
Servicer or contravene, violate or result in any breach of any provision
of, or constitute a default under, or result in the imposition of any lien
on any assets of the Master Servicer pursuant to the provisions of, any
mortgage, indenture, contract, agreement or other undertaking to which the
Master Servicer is a party or which purports to be binding upon Master
Servicer or any of Master Servicer's assets; this Agreement evidences the
valid and binding obligation of the Master Servicer enforceable against the
Master Servicer in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditor's rights generally or the application of
equitable principles in any proceeding, whether at law or in equity;
(ii) All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, by or from any
federal, state or other governmental authority or agency, that are
necessary in connection with the execution and delivery by the Master
Servicer of this Agreement and the Related Conduit
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Agreements to which it is a party, have been duly taken, given or
obtained, as the case may be, are in full force and effect, are not
subject to any pending proceedings or appeals (administrative, judicial or
otherwise) and either the time within which any appeal therefrom may be
taken or review thereof may be obtained has expired or no review thereof
may be obtained or appeal therefrom taken, and are adequate to authorize
the consummation of the transactions contemplated by this Agreement and
the Related Conduit Agreements to which it is a party on the part of the
Master Servicer and the performance by the Master Servicer of its
obligations under this Agreement and the Related Conduit Agreements to
which it is a party;
(iii) There is no action, suit, proceeding or investigation
pending or, to the best of the Master Servicer's knowledge, threatened
against the Master Servicer which, either in any one instance or in the
aggregate, may result in any material adverse change in the business,
operations, financial condition, properties or assets of the Master
Servicer or in any material impairment of the right or ability of the
Master Servicer to carry on its business substantially as now conducted,
or in any material liability on the part of the Master Servicer or which
would draw into question the validity of this Agreement and the Related
Conduit Agreements to which it is a party or of any action taken or to be
taken in connection with the obligations of the Master Servicer
contemplated herein, or which would be likely to impair the ability of the
Master Servicer to perform under the terms of this Agreement and the
Related Conduit Agreements to which it is a party; and
(iv) The Master Servicer is not in default with respect to any
mortgage, indenture, contract, agreement or other undertaking to which the
Master Servicer is a party or which purports to be binding upon Master
Servicer or any of Master Servicer's assets, or with respect to any order
or decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which default might have
consequences that would materially and adversely affect the condition
(financial or other) or operations of the Master Servicer or its
properties or might have consequences that would adversely affect its
performance hereunder.
The representations and warranties set forth in this paragraph (c) shall
survive the sale and assignment of the Mortgage Loans by the MCA Companies
hereunder. Upon discovery of a breach of any of the foregoing representations
and warranties which materially and adversely affects the interests of the MCA
Companies, the MCA Companies shall give prompt written notice to the Master
Servicer. Within 30 days of its discovery or its receipt of notice of breach,
the Master Servicer shall cure such breach in all material respects.
Section 8. Representations and Warranties of the MCA Companies
Regarding the Mortgage Loans. (a) Set forth in Exhibit E hereto is a listing
of representations and warranties which will be deemed to have been made by the
MCA Companies to the Buyer, the Master Servicer and the Trustee in connection
with each purchase of a Pool with respect to the Mortgage Loans in such Pool.
In addition, a Conveyance Agreement may, with respect to the Mortgage Loans in
the related Pool, delete or modify any of such representations and warranties,
or may add additional representations and warranties ("Additional
Representations and Warranties"). The representations and warranties listed in
Exhibit E hereto, together with any Additional Representations and Warranties,
are the "Representations and Warranties".
It is understood and agreed that the Representations and Warranties shall
survive the sale and assignment of the Mortgage Loans to the Conduit
Acquisition Trust and by the Conduit Acquisition Trust to an Advanta Trust.
Upon discovery by any MCA Company, the Master Servicer or the Buyer of a breach
of any of the Representations and Warranties (without regard
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to any limitation set forth in such Representation or Warranty concerning the
knowledge of any MCA Company as to the facts stated therein so long as the
Buyer is required to repurchase the related Mortgage Loan or Mortgage Loans
pursuant to the related Advanta Pooling Agreement without regard to any similar
limitation), which breach, in the opinion of the Buyer, materially and
adversely affects the value, collectibility or marketability of the related
Mortgage Loan or Mortgage Loans, the party discovering such breach shall give
prompt written notice to the other party and the MCA Companies shall be
required to take the remedial actions required by Section 8(c) hereof within
the time periods required pursuant thereto.
(b) Within 30 days of the earlier of its discovery or its
receipt of notice of breach, the MCA Companies shall use all reasonable efforts
to cure such breach to the reasonable satisfaction of the Buyer. Unless, prior
to the expiration of such 30 day period, such breach has been cured or
otherwise does not exist or continue to exist, the MCA Companies shall
repurchase such Mortgage Loan (or, in the case of a Representation and Warranty
of the nature specified in clauses (xx) and (xli), repurchase Mortgage Loans
such that, after giving effect to such repurchase, the related Representation
and Warranty would be complied with) (including any property acquired in
respect thereof and any insurance policy or insurance proceeds with respect
thereto) in the same manner and subject to the same conditions as set forth in
Section 6 hereof. Upon making any such repurchase, the MCA Companies shall be
entitled to receive an instrument of assignment or transfer from the Trustee,
without recourse to the Buyer or the Trustee, to the same extent as set forth
in Section 6 hereof with respect to the repurchase of Defective Mortgage Loans
under that Section.
(c) In the event that the MCA Companies fail, within the time
periods specified in this Agreement, to cure any material breach of a
Representation and Warranty, the Buyer shall have the right thereafter to
receive any Residual Excess Servicing otherwise payable to the MCA Companies,
to the extent of any loss suffered by the Buyer.
(d) The remedies described in paragraphs (b) and (c) above,
together with all other remedies the Buyer may have at law or in equity, shall
survive any resignation or termination of Advanta Mortgage Corp. USA as Master
Servicer.
Section 9. Application of Residual Excess Servicing. (a) On
each Distribution Date, all available Excess Servicing with respect to the
Accumulation Pool shall be applied as a Reserve Deposit or to the amount
payable by the MCA Companies, if any, described in the last paragraph in
Section 4(a) hereof.
(b) At the time any Pools are transferred from the
Accumulation Pool to an Advanta Trust (thereby becoming all or part of a
Securitized Loan Pool) the Reserve Amount then relating to such Pool shall be
credited against the initial Reserve Amount for the related Securitized Loan
Pool. If the initial Reserve Amount exceeds the initial Reserve Requirement
applicable to such Securitized Loan Pool (i.e., the amount of any "initial
deposit" at securitization) the amount of such excess shall be paid by the
Buyer to the MCA Companies. Conversely, if the initial Reserve Requirement for
such Securitized Loan Pool exceeds the actual Reserve Amount for the related
Pools the amount of such shortfall shall be paid by the MCA Companies to the
Buyer as an Additional initial Reserve Amount for such Securitized Loan Pool.
(c) On the closing date of the related Advanta
Securitization, (i) the Aggregate Overadvance Amount then outstanding shall
become immediately due and payable by the Seller and (ii) the Buyer shall pay
to the Seller the Initial Premium Payment with respect
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to the Identified Securitized Loan Pools; such amounts may be offset as a
single net amount. Any Residual Excess Servicing relating to a Securitized
Loan Pool, other than an Identified Securitized Loan Pool, shall be paid by the
Buyer to the Sponsor within five Business Days of each Distribution Date,
subject to offset for any amounts due to the Buyer or to the Master Servicer
from the Seller, as provided in paragraph (e) below.
(d) On each Distribution Date, 100% of the Residual Excess
Servicing with respect to any individual Identified Securitized Loan Pool shall
first be applied, to the extent of the related Initial Premium Amortization
Current Amount, as a reduction in the related Unamortized Initial Premium
Amount. On each Distribution Date, the Master Servicer will distribute to the
Seller, on behalf of the Buyer, the Deferred Premium Payment if any, then due.
(e) Notwithstanding the foregoing, the Master Servicer shall
be entitled to withhold from any distribution of any Residual Excess Servicing
(with respect to any Securitized Loan Pool which is not an Identified
Securitized Loan Pool) or any Deferred Premium Payment (with respect to any
Identified Securitized Loan Pool) and pay over to the Buyer, the following
amounts:
(X) any amounts described in the second paragraph of
Section 4(a) hereof;
(Y) the amount, if any, by which (i) the aggregate,
cumulative amount of Realized Losses with
respect to any other Securitized Loan Pool
exceeds (ii) the aggregate, cumulative amount of
Reserve Deposits with respect to such other
Securitized Loan Pool; and
(Z) the amount of any Unamortized Initial Premium
Amount with respect to any other Identified
Securitized Loan Pool which remains outstanding
after 48 months.
(f) The Buyer's obligation to pay the Residual Excess
Servicing and the Deferred Premium Payments to the Seller will be a secured
corporate obligation of the Buyer, and will not represent any direct ownership
interest in any Mortgage Loans.
(g) The Master Servicer shall furnish the statements
described in Section 10 hereto to the Sub-Servicer, by facsimile on each
Distribution Date; such statements shall, inter alia, contain information
relating to the Residual Excess Servicing and the Deferred Premium Payments for
such Distribution Date.
The Buyer and the Master Servicer shall permit the inspection, on
reasonable notice, by any MCA Company or their respective designees of all of
the Buyer's and the Master Servicer's books and records relating to the
Mortgage Loans and the Residual Excess Servicing. All calculations made by the
Buyer or the Master Servicer shall be conclusive in the absence of manifest
error.
Section 10. Distribution Date Statement. (a) The Master
Servicer shall, not later than each Distribution Date, furnish in writing to
the MCA Companies and the Buyer a statement setting forth the following
information with respect to the Accumulation Pool and each Securitized Loan
Pool:
(i) the total amount of payments in respect of or allocable to
interest on the Mortgage Loans received or deemed to have been
received from the related
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Mortgagors by the Master Servicer during the prior calendar month
(including any net income from REO Properties received during the prior
calendar month);
(ii) the aggregate of all Principal Payments and Principal Prepayments
received or deemed to have been received from the related Mortgagors by the
Master Servicer during the prior calendar month;
(iii) the total amount of recoveries of delinquent principal and
interest payments received during the prior calendar month;
(iv) the total amount of prepayment penalties received during the
prior calendar month;
(v) the aggregate of any Net Insurance Proceeds received by the Master
Servicer during the prior calendar month;
(vi) the aggregate of any Net Liquidation Proceeds received by the
Master Servicer during the prior calendar month;
(vii) the total amount of Compensating Interest payments to be paid by
the Master Servicer for such Distribution Date;
(viii) the aggregate Repurchase Prices for any Mortgage Loans which
the MCA Companies are required to repurchase on or prior to such
Distribution Date pursuant to Sections 5(b), 5(c), 6(b) or 8(c) hereof;
(ix) the aggregate amount of Advances made by the Master Servicer
during or with respect to the prior calendar month;
(x) the related monthly Servicing Fee;
(xi) the aggregate amount of Advances reimbursable to the Master
Servicer for such Distribution Date and not previously reimbursed;
(xii) the weighted average Mortgage Loan Rate as of the last day of
the prior calendar month (separately for ARMs and Fixed Rate Loans);
(xiii) the related Reserve Amount, Reserve Requirement, Residual
Excess Servicing as of such Distribution Date; and
(xiv) the book value of any REO Properties as of the last day of the
prior calendar month; and
(xv) the Residual Excess Servicing for each Securitized Loan Pool,
other than an Identified Securitized Loan Pool, the Residual Excess
Servicing for each Identified Securitized Loan Pool, the Deferred Premium
Payment, the Initial Premium Amortization Current Amount, the Carry-Forward
Amount for each Pool, the Initial Premium Amortization Current Amounts and
the Unamortized Initial Premium Amounts.
(b) In addition, on each Distribution Date the Master Servicer will
furnish by telecopy to the Buyer and the Sub-Servicer, the following information
with respect to the Mortgage Loans in the Accumulation Pool and each Securitized
Loan Pool as of the last day of the related prior calendar month:
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(i) the total number of Mortgage Loans and the aggregate Principal
Balances thereof, together with the number, aggregate principal balances of
such Mortgage Loans and the percentage of the aggregate Principal Balances
of such Mortgage Loans to the aggregate Principal Balance of all Mortgage
Loans (a) 30-59 delinquent, (b) 60-89 days delinquent and (c) 90 or more
days delinquent;
(ii) the number, aggregate Principal Balances of all Mortgage Loans
and percentage of the aggregate Principal Balances of such Mortgage Loans
to the aggregate Principal Balance of all Mortgage Loans in foreclosure
proceedings (and whether any such Mortgage Loans are also included in any
of the statistics described in the foregoing clause (i));
(iii) the number, aggregate Principal Balances of all Mortgage Loans
and percentage of the aggregate Principal Balances of such Mortgage Loans
to the aggregate Principal Balance of all Mortgage Loans relating to
Mortgagors in bankruptcy proceedings (and whether any such Mortgage Loans
are also included in any of the statistics described in the foregoing
clause (i)); and
(iv) the number, aggregate Principal Balances of all Mortgage Loans
and percentage of the aggregate Principal Balances of such Mortgage Loans
to the aggregate Principal Balance of all Mortgage Loans relating to REO
Properties (and whether any such Mortgage Loans are also included in any of
the statistics described in the foregoing clause (i)).
Section 11. Merger or Consolidation of MCA. Any corporation or other
entity (i) into which any MCA Company may be merged or consolidated, (ii) which
may result from any merger, conversion or consolidation to which any MCA
Company shall be a party, or (iii) which may succeed to all or substantially all
of the business of any MCA Company , which corporation or other entity shall, in
any case where an assumption shall not be effected by operation of law, execute
an agreement of assumption to perform every obligation of any MCA Company under
this Agreement, shall be the successor to any MCA Company hereunder without the
execution or filing of any document or any further act by any of the parties to
this Agreement, except that if any MCA Company in any of the foregoing cases is
not the surviving entity, then the surviving entity shall execute and deliver to
the Buyer, the Master Servicer and to the Trustee an agreement of assumption to
perform every obligation of such MCA Company hereunder.
Section 12. Servicing. (a) The Master Servicer agrees to service,
the Mortgage Loans sold by the Seller to the Buyer in accordance with Accepted
Servicing Practices, but without regard to: (i) any relationship that Master
Servicer or any of its affiliates may have with any Borrower or affiliates or
manager thereof, (ii) Master Servicer's obligations to make advances or to incur
servicing expenses with respect to the Mortgage Loans, or (iii) the Master
Servicer's right to receive compensation for its services hereunder. Such
servicing standards and requirements shall, subject to the requirements of
paragraph (d) below, include (i) the making of Advances, (ii) the advancing of
Compensating Interest to be reimbursed by the Residual Excess Servicings due to
the Seller and (iii) the disposition of REO Properties within 24 months of the
taking of title.
(b) Subject to the provisions of this Section 12, the Master
Servicer shall have full power and authority to do and cause to be done any and
all things in connection with the servicing and administration of the Mortgage
Loans which Master Servicer may reasonably deem necessary or desirable. The
Seller will provide the Master Servicer, upon request, with
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<PAGE> 28
any powers of attorney necessary or appropriate to enable the Master Servicer
to carry out its servicing and administrative duties under this Agreement.
(c) The Master Servicer shall and is hereby authorized and
empowered by the Seller to (i) execute and deliver, on behalf of the Seller,
any and all instruments of satisfaction or cancellation, or of partial or full
release or discharge and all other comparable instruments, with respect to the
Mortgage Loans and with respect to the Mortgaged Properties, (ii) consent to
any modification of the terms of the Note if the effect of any such
modification will not materially or adversely affect the security afforded by
the related Mortgaged Property and such modification does not reduce the
accrued interest or the interest rate payable by a Borrower without Seller's
prior written consent, (iii) institute foreclosure proceedings or obtain a
deed-in-lieu of foreclosure on behalf of the Seller, and (iv) take title in the
name of the Seller to any Mortgaged Property upon such foreclosure or delivery
of deed in lieu of foreclosure.
(d) (i) From time to time as appropriate in the servicing of any
Mortgage Loan, including without limitation, the payment in full of any
Mortgage Loan, notification that payment in full will be escrowed, foreclosures
or other comparable conversion of a mortgage or collection under any applicable
insurance policy, the Seller, upon request of the Master Servicer, shall
release or cause the release and delivery of the related Mortgage Loan
Documents to the Master Servicer, if the Mortgage Loan Documents have not
previously been delivered by the Seller to the Buyer.
(ii) The Master Servicer shall promptly notify the Seller if a
claim is made by a third party with respect to any Mortgage Loans and the
Seller at its option may assume the defense of any such claim. The Seller
shall, within ten (10) business days of receiving a statement of amounts
advanced by the Master Servicer in connection with the defense of any such
claim, reimburse the Master Servicer for all amounts advanced by it in
connection with such defense, except to the extent that such claim is a result
of the Master Servicer's negligent failure to service the Mortgage Loans in
compliance with the terms of the Mortgage Loans or of this Agreement. Seller
shall have no obligation to reimburse the Master Servicer for claims made with
respect to any Mortgage Loans purchased by the Buyer.
(e) Master Servicer, shall, at its own expense, maintain at
all times, policies of fidelity, theft, forgery and errors and omissions
insurance. Such policies shall be for responsible amounts with acceptable
standard coverages in accordance with prudent mortgage industry standards.
(f) The Servicing Expenses shall be as follows:
(i) in the event no "lifetime" tax contracts are
presently in force which are assignable to Master Servicer, Seller agrees to
reimburse the Master Servicer for the cost of purchasing a tax contract for
each Mortgage Loan in this category.
(ii) Seller agrees to reimburse the Master Servicer
and/or the Buyer for any recordation fees the Master Servicer and/or the Buyer
incurs pursuant to this Agreement and the Related Conduit Agreements upon
purchase of the Mortgage Loans from the Seller.
(g) The Master Servicer hereby represents and warrants to,
and covenants with the Seller that the Master Servicer will service the
Mortgage Loans without distinction as to the identity of the Seller as the
residual, first-loss holder of the Mortgage Loans, and on the same terms by
which the Master Servicer services mortgage loans for which it or its
affiliates are the residual, first-loss holder.
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<PAGE> 29
(h) The Master Servicer may retain sub-servicers to perform
all or a part of its servicing duties hereunder, with the prior, written
consent of the Seller (which consent shall not be unreasonably withheld),
except that no retention of any sub-servicer shall release the Master Servicer
from any liability to the Seller.
(i) The Seller shall indemnify and hold the Master Servicer,
its affiliates and each of their officers, directors, employees and agents
harmless from and shall reimburse the Master Servicer or such other indemnified
person for any losses, damages, deficiencies, claims, penalties, forfeitures,
causes of action or expenses of any nature (including reasonable attorneys'
fees) incurred by any of them which arise out of or result from:
(i) the inaccuracy of any representation of the Seller
contained in this Agreement or material breach of any
warranty, covenant or agreement made or to be performed
by the Seller pursuant to this Agreement;
(ii) the failure of the originator of any Mortgage Loan to
originate such Mortgage Loan in accordance with
applicable law;
(iii) the failure of any prior servicer to service the Mortgage
Loan in accordance with applicable law and any agreement
under which it may have serviced such Mortgage Loan;
(iv) any matters that occurred prior to the transfer date for
the servicing of the Mortgage Loan involved or any
incomplete or incorrect Mortgage Loan data, records, or
information provided in connection with the origination
or prior servicing of any Mortgage Loans;
(v) any matters resulting from the Seller's preventing,
hampering or impeding Master Servicer's performance of
its duties and responsibilities under this Agreement; or
(vi) any litigation or claim with respect to the Mortgage
Loans not arising out of, or resulting from, the Master
Servicer's failure to observe the terms and covenants of
the Mortgage Loans or this Agreement.
Section 13. Authorized Representatives. The names of the
officers of each MCA Company, the Master Servicer and of the Buyer who are
authorized to give and receive notices, requests and instructions and to
deliver certificates and documents in connection with this Agreement on behalf
of each MCA Company, the Master Servicer and of the Buyer (the "Authorized
Representatives") are set forth on Exhibit C, along with the specimen signature
of each such officer. From time to time, each MCA Company, the Master Servicer
or the Buyer may, by delivering to the others a revised exhibit, change the
information previously given.
Section 14. Notices. All demands, notices and communications
relating to this Agreement shall be in writing and shall be deemed to have been
duly given when received by one of the Authorized Representatives of the other
party or parties at the address shown below, or such other address as may
hereafter be furnished to the other party or parties by like notice. Any such
demand, notice or communication hereunder shall be deemed to have been received
on the date delivered to or received at the premises of the addressee.
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<PAGE> 30
If to the MCA Companies:
MCA Financial Corp.
23999 Northwestern Highway
Suite 101
Southfield, MI 48075
Telecopy: 810-358-4639
If to the Seller:
MCA Financial Corp.
23999 Northwestern Highway
Suite 101
Southfield, MI 48075
Telecopy: 810-358-4639
with a copy to:
Mortgage Corporation of America
23999 Northwestern Highway
Suite 101
Southfield, MI 48075
Telecopy: 810-358-4639
If to the Buyer:
Advanta Mortgage Conduit Services, Inc.
16875 West Bernardo Drive
San Diego, California 92127
Attention: Loan Servicing
Telecopy: (619) 674-3880
If to the Master Servicer:
Advanta Mortgage Corp. USA
500 Office Center Drive
Suite 400
Fort Washington, PA 19034
Telecopy: (215) 283-4280
The parties may, from time to time hereafter, by written notice,
change addresses listed above.
Section 15. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of California, without
regard to conflict of laws rules applied in the State of California.
Section 16. Assignment. No party to this Agreement may assign
its rights or delegate its obligations under this Agreement without the express
written consent of the other parties, except as otherwise set forth in this
Agreement.
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<PAGE> 31
Section 17. Counterparts. For the purpose of facilitating the
execution of this Agreement and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which shall be
deemed to be an original, and together shall constitute and be one and the same
instrument.
Section 18. Amendment. This Agreement may be amended from time
to time by the MCA Companies, the Buyer and the Master Servicer only by a
written instrument executed by such parties.
Section 19. Severability of Provisions. If any one or more of
the covenants, agreements, provisions or terms of this Agreement shall be for
any reason whatsoever held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement.
Section 20. No Agency; No Partnership or Joint Venture. None of
MCA Companies, the Master Servicer nor the Buyer is the agent or representative
of one or both of the others, and nothing in this Agreement shall be construed
to make any of the MCA Companies, the Master Servicer or the Buyer liable to
any third party for services performed by it or for debts or claims accruing to
it against the other party. Nothing contained herein nor the acts of the
parties hereto shall be construed to create a partnership or joint venture
between the Buyer, the Master Servicer and the MCA Companies.
Section 21. Arbitration. Any dispute or disagreement under this
Agreement shall be rendered by submitting such dispute or disagreement to an
independent, mutually agreed upon arbitrator. The arbitrator shall conduct the
arbitration in accordance with the Rules of the American Arbitration
Association. If the parties are unable to select an arbitrator, the arbitrator
shall be selected in accordance with the procedures of the American Arbitration
Association. The decision of the arbitrator shall be final and binding upon
the parties and non- appealable. Any decision and award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. Any
arbitration pursuant to this Agreement shall be conducted in Manhattan.
Section 22. Confidentiality. No party hereto shall disclose to
third parties, without the prior consent of the other parties, in writing, the
existence of or the terms of this Agreement, except to its accountants and
attorneys or as required by law.
Section 23. Further Assurances. The parties hereto agree to
cooperate reasonably and in good faith with one another in the performance of
this Agreement.
Section 24. Legal Costs. The parties hereto agree that in the
event of arbitration or litigation between them, the non- prevailing party
shall reimburse the prevailing party for all related legal fees and expenses of
counsel incurred by the prevailing party. The prevailing party shall be the
party in whose favor a final decision or judgment is entered, after the
conclusion of any appeals or after the time during which an appeal may be taken
shall have run. Payment of sums owning under this Section 24 shall be made
within ten (10) days following the date that the right to receive payment shall
be final.
Section 25. Term. The buy-sell provisions of this Agreement
shall terminate on the Commitment Termination Date, as defined in the Master
Commitment; the other obligations of the parties set forth herein shall
continue in full force and effect until the payment in full (or other
liquidation) of the Mortgage Loans.
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<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective officers, all as of the day and year
first above written.
MCA FINANCIAL CORP.,
By: /s/ Lee P. Wells
----------------------------
Name: Lee P. Wells
Title: President
MORTGAGE CORPORATION OF AMERICA,
By: /s/ Lee P. Wells
-----------------------------
Name:Lee P. Wells
Title:President
MCA MORTGAGE CORPORATION,
By: /s/ Lee P. Wells
------------------------------
Name:Lee P. Wells
Title:President
ADVANTA MORTGAGE CONDUIT SERVICES, INC.,
as Buyer
By:/s/ Mark A. Casale
-------------------------------
Name:Mark A. Casale
Title:Vice President
ADVANTA MORTGAGE CORP. USA,
as a Buyer and as Master Servicer
By:/s/ Mark A. Casale
--------------------------------
Name:Mark A. Casale
Title:Vice President
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<PAGE> 33
EXHIBIT A
FORM OF CONVEYANCE AGREEMENT
MCA Financial Corp., MCA Mortgage Corporation and Mortgage
Corporation of America (the "Seller") and Conduit Acquisition Trust, as
purchaser (the "Buyer"), pursuant to the Amended and Restated Securitization
Access Agreement amended as of February 21, 1997 among the MCA Companies,
Advanta Mortgage Conduit Services, Inc. and Advanta Mortgage Corp. USA (the
"Securitization Access Agreement"), hereby confirm their understanding with
respect to the sale by the Seller and the purchase by the Buyer of those
Mortgage Loans listed on the attached Mortgage Loan Schedule (the "Purchased
Mortgage Loans").
Conveyance of Purchased Mortgage Loans. The Seller, concurrently
with the execution and delivery of this Conveyance Agreement, does hereby
irrevocably transfer, assign, set over and otherwise convey to the Buyer,
without recourse (except as otherwise explicitly provided for herein) all of
its right, title and interest in and to the Purchased Mortgage Loans, including
specifically, without limitation, the Mortgages, the Mortgage Files and all
other documents, materials and properties appurtenant thereto and the Mortgage
Notes, including all interest accruing thereon and principal received on or
with respect to such Purchased Mortgage Loans on or after the related Cut-Off
Date and all interest accruing thereon since the related Mortgagor's most
recent paid-to date (or date of origination if no payment is yet due), together
with all of its right title and interest in and to the proceeds received on or
after the related Cut-Off Date of any related insurance policies on behalf of
the Buyer. If the Seller cannot deliver the original Mortgage or mortgage
assignment with evidence of recording thereon concurrently with the execution
and delivery of this Conveyance Agreement solely because of a delay caused by
the public recording office where such original Mortgage or mortgage assignment
has been delivered for recordation, the Seller shall promptly deliver to the
Buyer's designee on behalf of the Buyer such original Mortgage or mortgage
assignment with evidence of recording indicated thereon upon receipt thereof
from the public recording official, with a copy thereof delivered to the Master
Servicer.
The costs relating to the delivery of the documents specified in
this Conveyance Agreement shall be borne by the MCA Companies.
The MCA Companies hereby additionally certifies to the Buyer and
the Master Servicer:
(i) The representations and warranties of the MCA Companies contained
in the Securitization Access Agreement and all related
agreements, as of the date hereof, are true and correct, and the
MCA Companies have complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or
prior to the date hereof in connection with the sale of the
Purchased Mortgage Loans.
(ii) There are no actions, suits or proceedings pending or threatened
against or affecting any MCA Company which if adversely
determined, individually or in the aggregate, would be reasonably
likely to adversely affect in any material way any MCA Company's
obligations under any agreement to which any MCA Company is a
party. No merger, liquidation, dissolution or bankruptcy of any
MCA Company is pending or contemplated.
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<PAGE> 34
(iii) No material adverse change in the condition, financial or
otherwise, or properties of the Seller has occurred since the
date of the Securitization Access Agreement.
All terms and conditions of the Securitization Access Agreement
are hereby incorporated herein provided that in the event of any conflict the
provisions of this Conveyance Agreement shall control over the conflicting
provisions of the Securitization Access Agreement.
Terms capitalized herein and not defined herein shall have their
respective meanings as set forth in the Securitization Access Agreement.
A-2
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers, all as of the _____ day of
_______________.
MCA FINANCIAL CORP.,
By:____________________________
Title:_________________________
MORTGAGE CORPORATION OF AMERICA
By:_____________________________
Title:__________________________
MCA MORTGAGE CORPORATION
By:______________________________
Title:___________________________
CONDUIT ACQUISITION TRUST,
By:_____________________________
Title:__________________________
Attachments
A. Schedule of Purchased Mortgage Loans.
B. Trustee's initial exception report.
C. Seller's officer's certificate.
D. Closing Statement and Recap Summary.
A-3
<PAGE> 36
Closing Statement and Funding Recap Summary
MCA
Pool: ____
<TABLE>
<S> <C>
Date Prepared:
Sale Cut-Off Date: (Close of Business)
Sale Funding Date:
Pricing Date:
Buyer: Advanta Mortgage Conduit
Services, Inc. on behalf of Conduit
Seller: Acquisition Trust
-----------------
Originator:
Servicer:
Scheduled Servicing Transfer Date:
Broker Number: ------------------
Advanta Mortgage Corp. USA
Fixed Pool Identification Number:
ARM Pool Identification Number:
Investor Number:
Number of Loans:
Fixed Pool Balance:
ARM Pool Balance:
Total Pool Balance:
Total Pool Balance
Accrued interest from Cut-Off Date to Closing
Initial Applicable Rate ___%
Premium in Dollars
% of Scheduled Prin. Bal.: 0.00000%
Transaction/Initial Fees Expense:
Transaction Expense Share:
Placement Fee:
Initial Reserve Amount:
Initial Reserve Amt. (Fixed)
Initial Reserve Amt. (ARM)
Recordation Fees:
Net Due Seller/Funding Transfer Amt.
</TABLE>
A-4
<PAGE> 37
EXHIBIT B
CONTENTS OF MORTGAGE FILE
1. Collateral File
(a) the original Note endorsed by the MCA Companies as follows: For value
received, pay to the order of "Bankers Trust Company of California, N.A.
as Custodian or Trustee", without recourse with all intervening
endorsements showing a complete chain of title from the original lender to
the MCA Companies;
(b) the original Mortgage or Deed of Trust, with evidence of recording
thereon, or, until the original Mortgage or Deed of Trust has been
received from the applicable public recording office, a copy of the
Mortgage or Deed of Trust certified by Seller to be a true and complete
copy of the original Mortgage or Deed of Trust submitted for recording;
(c) the Note riders signed as required;
(d) a copy of the original unrecorded assignment of the Mortgage or Deed of
Trust from Seller to "Bankers Trust Company of California, N.A. as
Custodian or Trustee";
(e) documentation of all intervening mortgage assignments with evidence of
recording thereon, sufficient to show a complete chain of assignment from
the originator of the Mortgage Loan to the MCA Companies;
(f) any and all assumption, modification, written assurance or substitution
agreements, where the terms or provisions of a Mortgage or Note have been
modified or such Mortgage or Note have been assumed;
(g) the title insurance policy and preliminary policy, including all
endorsements and/or riders, or until an original policy is received, a
binding commitment to issue such a policy, which contains a legal
description of the Mortgaged Property and which has been signed on the
origination date by an authorized agent of the title insurer;
2. Servicing File (using the Advanta Stacking Order as of July 1, 1995)
(a) any primary credit insurance policy or certificate of insurance;
(b) all required hazard and flood insurance policies with respect to the
Mortgage Property;
(c) (the tax service contract, where applicable;
(d) any Private Mortgage Insurance Certificate;
(e) any guaranty(s), surety agreement(s), and/or survey(s);
(f) any appraisals on the Mortgaged Property;
(g) the completed loan application signed by the Mortgagor;
(h) the signed mortgage loan settlement sheet;
B-1
<PAGE> 38
(i) all employment, deposit and mortgage verifications, credit reports and
reports and any other document relied upon in making the Mortgage Loan;
(j) any Truth-In-Lending RESPA and ECOA related documents required by law;
(k) all records, ledger cards and other documents relating to the Mortgage
Loan;
(l) LIW Loan information worksheet;
(m) Copies of all applicable transfer notifications i.e. borrower insurance,
flood, hazard, PMI
(n) the original unrecorded assignment of the Mortgage or Deed of Trust from
Seller to Bankers Trust Company of California, N.A, as Custodian or
Trustee.
B-2
<PAGE> 39
EXHIBIT C
AUTHORIZED REPRESENTATIVES
Reference is hereby made to the Amended and Restated
Securitization Access Agreement, dated as of February 21, 1997 (the
"Agreement"), among MCA Financial Corp., MCA Mortgage Corporation and Mortgage
Corporation of America (collectively, the "MCA Companies"), Advanta Mortgage
Conduit Services, Inc. and Advanta Mortgage Corp. USA:
The following are the MCA Companies' Authorized Representatives
for purposes of the Agreement:
Name Title Specimen Signature
- ---- ----- ------------------
The following are the Buyer's Authorized Representatives for
purposes of the Agreement:
Name Title Specimen Signature
- ---- ----- ------------------
Mark A. Casale Vice-President,
Corporate Finance
Services
The following are the Master Servicer's Authorized
Representatives for purposes of the Agreement:
Name Title Specimen Signature
- ---- ----- ------------------
Mark A. Casale Vice President
C-1
<PAGE> 40
EXHIBIT D
APPLICABLE GUIDELINES
(a) Each Mortgage Loan is secured by a closed-end mortgage,
in first or second lien position, to A to D credit borrowers (as defined
by Advanta Mortgage Conduit Services, Inc.), on single family 1-4 unit
properties;
(b) No less than 50% of any Pool will have been originated
with A and B credit grades;
(c) No ARM Pool will be more than 2% teased at origination
calculated on a weighted average basis;
(d) Each ARM is in a first lien position;
(e) Each ARM's interest rate will be tied to either
6 month LIBOR or 1 year CMT;
(f) Each ARM will have a 2% periodic (per annum) and a
minimum lifetime cap of 6%;
(g) No more than 25% of any Pool will consist of 2 year
fixed/1 year adjustable, 3/1 or 5/1 intermediate mortgages (Treasury based
index); and
(h) No Mortgage Loan is a simple interest loan.
(i) No more than 10% of any Pool will consist of loans with
CLTVs in excess of 90% (without mortgage insurance from a carrier
acceptable to the Master Servicer).
(j) No less than 70% of each Pool will have been originated
under a full documentation program.
(k) No loan is more than 30 days contractually delinquent
as of the securitization cut-off date.
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<PAGE> 41
EXHIBIT E
REPRESENTATION AND WARRANTIES
(i) The information with respect to each Mortgage Loan
set forth in the related Mortgage Loan Schedule is true and correct as of the
Cut-Off Date.
(ii) All of the original or certified documentation
required to be delivered to the Buyer, the Master Servicer or the Buyer's
designee pursuant to the documentation requirements as set forth on the
attached Exhibit B, with respect to each Mortgage Loan has been or will be
delivered to the Buyer, the Master Servicer or the Buyer's designee, as
required thereby. Each Mortgage Loan is documented on a note and mortgage
form, with appropriate riders approved by Buyer.
(iii) Each Mortgage is a valid and existing first or
second lien of record on the Mortgaged Property, (subject in the case of any
Second Mortgage Loan only to a Senior Lien on such Mortgaged Property) and
subject in all cases to the exceptions to title set forth in the title
insurance policy, if any, with respect to the related Mortgage Loan, which
exceptions are generally acceptable to banking institutions in connection with
their regular mortgage lending activities, and such other exceptions to which
similar properties are commonly subject and which do not materially and
adversely affect the benefits of the security intended to be provided by such
Mortgage.
(iv) Immediately prior to the transfer and assignment
herein contemplated, the related MCA Company held good, marketable, and
indefeasible title to, and was the sole owner of, each Mortgage Loan conveyed
by such related MCA Company subject to no liens, charges, mortgages,
encumbrances or rights of others except as set forth in clause (iii) or other
liens which will be released simultaneously with such transfer and assignment
and upon receipt of each Mortgage Loan, the Buyer will hold good, marketable,
and indefeasible title to, and will be the sole owner of each Mortgage Loan,
free and clear of any liens, charges, mortgages, encumbrances, or rights of
others except as set forth in paragraph (iii) or any liens created by the
Buyer.
(v) As of the related Cut-Off Date, no Mortgage Loan
is thirty (30) or more days contractually delinquent, and no Mortgage Loan has
been thirty (30) or more days contractually delinquent more than once during
the twelve (12) months preceding the related Cut-Off Date, except for those
loans Buyer reviews during due diligence and agrees to purchase with knowledge
of delinquency; there is no valid and enforceable offset, defense or
counterclaim to any Note or Mortgage, including the obligation of the related
Mortgagor to pay the unpaid principal of or interest on such Note. Except for
any such delinquencies, there is no default, breach, violation or event of
acceleration existing under any Mortgage or the related Note and no event
which, with the passage of time or with notice and the expiration of any cure
period, would constitute a default, breach, violation or event of acceleration;
the Seller has not waived any default breach, violation or event of
acceleration.
(vi) There is no delinquent tax or assessment lien or
mechanic's lien, or claim for work, labor, or material on any Mortgaged
Property; there is no proceeding pending or threatened or currently occurring
for the total or partial condemnation of any Mortgaged Property to the best of
Seller's knowledge; each Mortgaged Property is free of substantial damage and
is in good repair, except for those items specifically mentioned in the
appraisal, or any applicable appraisal review of any mortgaged property.
E-1
<PAGE> 42
(vii) Each Mortgage Loan at the time it was made, and
the origination of such Mortgage Loan, complied in all material respects with
all applicable local, state and federal laws and regulations, including,
without limitation, the federal Truth-in-Lending Act, the Real Estate
Settlement Procedures Act, and other consumer protection laws, usury, equal
credit opportunity, disclosure and recording laws. Any Mortgage Loan, and the
origination thereof, which is subject to the "high cost or high fee mortgage"
provisions of the Home Ownership and Equity Protection Act of 1994, complies
with the requirements of such Act. No fraud was committed, nor was any
material misrepresentation made, by any Person, including without limitation
the related Mortgagor, in connection with the origination of such Mortgage
Loan; each Mortgage Loan is a Qualified Mortgage and is a Qualifying Loan.
(viii) With respect to each Mortgage Loan, a lender's
title insurance policy, issued in standard American Land Title Association or
California Land Title Association form by a title insurance company authorized
to transact business in the state in which the related Mortgaged Property is
situated, in an amount at least equal to the Original Principal Amount of such
Mortgage Loan insuring the mortgagee's interest under the related Mortgage Loan
as the holder of a valid first or second mortgage lien of record on the real
property described in the related Mortgage, as the case may be, subject only to
exceptions of the character referred to in paragraph (iii) above, was effective
on the date of the origination of such Mortgage Loan, and, as of the Cut-Off
Date such policy will be valid and thereafter such policy shall continue in
full force and effect for the benefit of the Buyer and its assignees, in care
of the Master Servicer.
(ix) Each Mortgaged Property is improved by a single
(one-to-four) family residential dwelling, which may include condominiums and
townhouses but shall not include cooperatives; the improvements upon each
Mortgaged Property are covered by a valid and existing hazard insurance policy
with a generally acceptable carrier that provides for fire and extended
coverage representing coverage not less than the least of (A) the outstanding
principal balance of the related Mortgage Loan (together, in the case of a
Second Mortgage Loan, with the outstanding principal balance of any Senior
Liens), (B) the minimum amount required to compensate for damage or loss on a
replacement cost basis or (C) the full insurable value of the Mortgaged
Property.
(x) For all Mortgage Loans, there is in place a
fully-paid life of loan flood certification from Pinnacle Data Corporation or
another vendor approved by the Buyer, assigned in care of the Master Servicer,
which provides for notification to the Master Servicer of changes in designated
flood areas which would affect such Mortgage Loan; in addition, if any
Mortgaged Property, as of the Cut-Off Date of the related Mortgage Loan, is in
an area identified in the Federal Register by the Federal Emergency Management
Agency as having special flood hazards, a flood insurance policy in a form
meeting the requirements of the current guidelines of the Federal Insurance
Administration is in effect for the benefit of the Buyer and its assignees, in
care of the Master Servicer, with respect to such Mortgaged Property with a
generally acceptable carrier in an amount representing coverage not less than
the least of (A) the outstanding principal balance of the related Mortgage Loan
(together, in the case of a Second Mortgage Loan, with the outstanding
principal balance of any Senior Liens), (B) the minimum amount required to
compensate for damage or loss on a replacement cost basis or (C) the maximum
amount of insurance that is available under the Flood Disaster Protection Act
of 1973.
(xi) Each Mortgage and Note is the legal, valid and
binding obligation of the maker thereof and is enforceable in accordance with
its terms, except only as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other
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similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether considered in a proceeding or action in
equity or at law). The maker of such Mortgage and Note had the legal capacity
to execute such Mortgage and Note at the time such Mortgage and Note were
executed.
(xii) MCA has caused and will cause to be performed any
and all acts required to be performed to preserve the rights and remedies of
the Master Servicer in any Insurance Policies applicable to any Mortgage Loans
delivered by any Seller, including any necessary notifications of insurers,
assignments of policies or interests therein, and establishments of co-insured,
joint loss payee and mortgagee rights in favor of the Buyer and its assignees
in care of the Master Servicer.
(xiii) Interest on each Note is calculated in accordance
with the actuarial method; the terms of each Note and each Mortgage have not
been impaired, altered or modified in any respect, except by a written
instrument which has been recorded, if necessary, to protect the interest of
the Buyer and which has been included in the related Mortgage File to be
delivered to the Buyer. The substance of any such alteration or modification
is reflected on the related Mortgage Loan Schedule and has been approved by the
primary mortgage guaranty insurer, if any.
(xiv) Except as otherwise required by law or pursuant to
the statute under which the related Mortgage Loan was made, the related Note
will not be secured by any collateral, pledged account or other security except
the lien of the corresponding Mortgage.
(xv) No Mortgage Loan will be originated under a
buydown plan: no Mortgage Loan provides for negative amortization, has a shared
appreciation feature, or other contingent interest feature; and as of the
related Cut-Off Date, no Mortgage Loan had a Combined Loan-to-Value-Ratio or a
Total Loan-to-Value Ratio in excess of the maximum for the related product type
as set forth in the Seller's Applicable Guidelines, as amended by the Pool
Parameters attached hereto as Exhibit D, unless Buyer acknowledges any such
exception(s) through its due diligence, and agrees to purchase the Mortgage
Loan based on the exception(s).
(xvi) Any advances made after the date of origination of
a Mortgage Loan but prior to the Cut-Off Date, have been consolidated with the
outstanding principal amount secured by the related Mortgage, and the secured
principal amount, as consolidated, bears a single interest rate and single
repayment term reflected on the related Mortgage Loan Schedule. No Note has
been modified, except as reflected on the related Mortgage Loan Schedule, and
evidence of any modification is in the related Mortgage File and has been
supplied to the Buyer. The consolidated principal amount does not exceed the
original principal amount of the related Mortgage Loan. No Note permits or
obligates the Master Servicer, any sub-servicer or the Buyer or its assignees
to make future advances to the related Mortgagor at the option of the
Mortgagor.
(xvii) Any and all requirements as to completion of any
on-site or off-site improvements and as to disbursements of any escrow funds
therefor have been complied with, subject to any escrow hold-back for
improvements pending completion. All costs, fees and expenses incurred in
making, closing or recording the Mortgage Loans were paid.
(xviii) To the best of Seller's knowledge, all of the
improvements which were included for the purposes of determining the Appraised
Value of any Mortgaged
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<PAGE> 44
Property lie wholly within the boundaries and building restriction lines of
such Mortgaged Property, and are stated in the title insurance policy and
affirmatively insured; no improvement located on or being part of any Mortgaged
Property is in violation of any applicable zoning law or regulation. To the
best of Seller's knowledge, all inspections, licenses and certificates required
to be made or issued with respect to all occupied portions of each Mortgaged
Property and, with respect to the use and occupancy of the same, including but
not limited to certificates of occupancy and fire underwriting certificates,
have been made or obtained from the appropriate authorities.
(xix) With respect to each Mortgage constituting a deed
of trust, a trustee, duly qualified under applicable law to serve as such, has
been properly designated and currently so serves and is named in such Mortgage,
and no fees or expenses are or will become payable by the Buyer or its
assignees under the deed of trust, except in connection with a trustee's sale
after default by the related Mortgagor.
(xx) With respect to each Second Mortgage Loan, either
[A) no consent for such Mortgage Loan was required by the holder of the related
Senior Lien prior to the making of such Mortgage Loan or (B) such consent has
been obtained and is contained in the related Loan Servicing File.
(xxi) Each Mortgage contains a provision for the
acceleration of the payment of the unpaid principal balance of the related
Mortgage Loan in the event the related Mortgaged Property is sold without the
prior consent of the Mortgagee thereunder; each Mortgage contains customary and
enforceable provisions which render the rights and remedies of the holder
thereof adequate for the realization against the related Mortgaged Property of
the benefits of the security, including (A) in the case of a Mortgage
designated as a deed of trust, by trustee's sale and (B) otherwise by judicial
foreclosure. Subject to any statutory redemption rights of the Mortgagor, upon
default by a Mortgagor on a Mortgage Loan and foreclosure on, or trustee's sale
of, the Mortgaged Property, the holder of the Mortgage Loan will be able to
deliver good and marketable title to the Mortgaged Property. To the best of
Seller's knowledge, there is no homestead or other exemption available to a
Mortgagor which would interfere with the right to sell the Mortgaged Property
at a trustee's sale or the right to foreclose on the Mortgaged Property.
(xxii) No instrument of release or waiver has been
executed in connection with any Mortgage Loan, and no Mortgagor has been
released, in whole or in part, except in connection with an assumption
agreement which has been approved by the primary mortgage guaranty insurer, if
and, and which has been included in the related Mortgage File delivered to the
Buyer.
(xxiii) The maturity date of each Mortgage Loan which is a
Second Mortgage Loan is at least twelve (12) months prior to the maturity date
of the related first mortgage loan if such first mortgage loan provides for a
balloon payment.
(xxiv) Each Mortgage Loan has been originated in
accordance with all required provisions of the Seller's Applicable Guidelines
as amended by the Pool Parameters attached hereto as Exhibit D; a full
appraisal was performed with respect to each Mortgage Loan in compliance with
the applicable requirements set forth in the Applicable Guidelines. The fair
market value of the related Mortgaged Property was at least as stated in the
appraisal, as of the date thereof.
(xxv) As of the related Closing Date, to the best
knowledge of the Seller, there does not exist on any Mortgaged Property any
hazardous substances, hazardous
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<PAGE> 45
wastes or solid wastes, as such terms are defined in the Comprehensive
Environmental Response Compensation and Liability Act, the Resource
Conservation and Recovery Act of 1976, or other federal, state or local
environmental legislation.
(xxvi) Each Mortgage Loan which is a First Mortgage Loan
shall be covered by a valid and transferable tax service contract with
Transamerica, or other vendors approved by the Buyer in its sole discretion.
(xxvii) No mortgage reconveyance, release, satisfaction or
trustee fees have been collected by Seller or paid by any Mortgagor. In
addition, if there is, in Buyer's reasonable judgment, a documentation problem
that would make reconveyance of satisfaction difficult, cumbersome or expensive
to the Buyer, then MCA or it's designee shall at the Buyer's request complete
the reconveyance of satisfaction of the Mortgage, including the recordation of
the necessary documentation, at MCA's sole cost and expense.
(xxviii) The Mortgage Loan is not in default, and all
Monthly Payments due prior to the related Cut-Off Date and all taxes,
governmental assessments, insurance premiums, water, sewer and municipal
charges, leasehold payments or ground rents have been paid, to the best
knowledge of the Seller. The Seller has not advanced funds, or induced or
solicited any advance of funds by a party other than the Mortgagor directly or
indirectly, for the payment of any amount required by the Mortgage Loan. The
collection practices used by each entity which has serviced the Mortgage Loan
have been in all respects legal, proper, prudent and customary in the mortgage
servicing business. With respect to escrow deposits and payments in those
instances where such were required, there exist no deficiencies in connection
therewith for which customary arrangements for repayment thereof have not been
made and no escrow deposits or payments or other charges or payments have been
capitalized under any Mortgage or the related Mortgage Note.
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EXHIBIT F
FORM OF OPINION
__________, 1997
To: The Addresses identified on "Schedule I" attached hereto
Ladies and Gentlemen:
I am general counsel to each of MCA Financial Corp., a Michigan
corporation ("MCA Financial"), MCA Mortgage Corporation, a Michigan corporation
("MCA Mortgage") and Mortgage Corporation of America, a Michigan corporation
("MCA"), and have acted as such in connection with the execution and delivery
of the following agreements:
1. The Amended and Restated Securitization Access Agreement among
MCA Financial, MCA, MCA Mortgage (collectively, the "MCA Companies"), Advanta
Mortgage Conduit Services, Inc. ("Advanta Conduit") and Advanta Mortgage Corp.
USA ("Advanta Mortgage"), amended as of February 21, 1997;
2. The Master Commitment for Corporate Finance Relationships by
and among the MCA Companies, Advanta Conduit and Advanta Mortgage dated as of
November 1, 1996.
3. The Mutual Confidentiality Agreement among the MCA Companies
and Advanta Conduit dated as of February 21, 1997.
4. The Multi-Party Security Agreement by and among Advanta
Mortgage, Advanta Conduit, MCA Financial and Bankers Trust Company of
California dated as of February 21, 1997.
The foregoing documents are sometimes collectively referred to below
as the "Documents", and any one of them is sometimes referred to below as a
"Document".
All capitalized terms herein not otherwise defined herein shall have
the respective meanings set forth in the Amended and Restated Securitization
Access Agreement and the Master Commitment.
In rendering the opinions set forth herein, I have (i) examined
executed copies of the Documents; (ii) examined originals or photostatic or
certified copies of all such corporate records of each of the MCA Companies,
and such certificates of public officials, certificates of corporate officers,
and other documents, records financial statements and papers and have made such
inquiries of officers, employees and representatives of each of the MCA
Companies as I have deemed appropriate and necessary as a basis for the
opinions hereinafter expressed, and I have further assumed the truth, accuracy
and completeness of all information provided to me by such persons; (iii)
assumed the genuineness of all signatures (other than those of the officers of
each of the MCA Companies affixed to the Documents) and the authenticity of all
documents submitted to me as originals and the conformity to original documents
of all documents submitted to me as certified or photostatic copies; and (iv)
assumed the due execution and delivery, pursuant to the due authorization, of
each of the Documents by each of the respective parties (other than each of the
MCA Companies) to each such Document.
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<PAGE> 47
Persons on Attached Schedule 1
January __, 1997
Page 7
I am qualified to practice law only in the State of Michigan, and I am
not expert in and express no opinion as to the laws of other jurisdictions
other than the federal law of the United States. In rendering the above
opinions, I have assumed that the state law(s) applicable to the Documents and
under which the same are to be construed is identical in all material respects
to the law of the State of Michigan. Furthermore, the opinions expressed
herein do not purport to opine as to applicable state "Blue Sky" laws, legal
investment laws, or other state or federal laws pertaining to any securities
law issues and securities matters relating to the transactions described in the
Documents.
Based upon the foregoing, and subject to the other qualifications
stated herein, I am of the opinion that:
1. Each of the MCA Companies is a corporation duly organized,
validly existing and in good standing under the laws of the State of Michigan.
2. Each of the MCA Companies is a corporation duly organized,
validly existing and in good standing under the laws of the State of Michigan
and has all licenses and qualifications necessary to carry on its business as
now being conducted and to perform its obligations hereunder; the MCA Companies
have the power and authority to execute and deliver this Agreement and to
perform its obligations in accordance herewith; the execution, delivery and
performance of this Agreement (including any Conveyance Agreement and any other
instruments of transfer to be delivered pursuant to this Agreement) by the MCA
Companies and the consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action and do not
violate the organization documents of the MCA Companies, contravene or violate
any law or regulation applicable to the MCA Companies or contravene, violate or
result in any breach of any provision of, or constitute a default under, or
result in the imposition of any lien on any assets of the MCA Companies
pursuant to the provisions of, any mortgage, indenture, contract, agreement or
other undertaking to which any MCA Company is a party or which purports to be
binding upon Seller or any of Seller's assets; this Agreement evidences the
valid and binding obligation of any MCA Company enforceable against each MCA
Company in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditor's rights generally or the application of equitable
principles in any proceeding, whether at law or in equity;
3. All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, by or from any
federal, state or other governmental authority or agency, that are necessary in
connection with the execution and delivery by the MCA Companies of this
Agreement, have been duly taken, given or obtained, as the case may be, are in
full force and effect, are not subject to any pending proceedings or appeals
(administrative, judicial or otherwise) and either the time within which any
appeal therefrom may be taken or review thereof may be obtained has expired or
no review thereof may be obtained or appeal therefrom taken, and are adequate
to authorize the consummation of the transactions contemplated by this
Agreement on the part of the MCA Companies and the performance by the MCA
Companies of their respective obligations under this Agreement;
4. There is no action, suit, proceeding or investigation pending
or, to the best of the MCA Companies' knowledge, threatened against any MCA
Company which, either in
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<PAGE> 48
Persons on Attached Schedule 1
January __, 1997
Page 8
any one instance or in the aggregate, may result in any material adverse change
in the business, operations, financial condition, properties or assets of any
MCA Company or in any material impairment of the right or ability of any MCA
Company to carry on its business substantially as now conducted, or in any
material liability on the part of any MCA Company or which would draw into
question the validity of this Agreement or the Mortgage Loans or of any action
taken or to be taken in connection with the obligations of any MCA Company
contemplated herein, or which would be likely to impair the ability of any MCA
Company to perform under the terms of this Agreement;
5. Each of the MCA Companies is not in default with respect to
any mortgage, indenture, contract, agreement or other undertaking to which any
MCA Company is a party or which purports to be binding upon Seller or any of
Seller's assets, or with respect to any order or decree of any court or any
order, regulation or demand of any federal, state, municipal or governmental
agency, which default might have consequences that would materially and
adversely affect the condition (financial or other) or operations of any MCA
Company or its properties or might have consequences that would adversely
affect its performance hereunder;
6. The execution and delivery of each of the Documents to which
each of the MCA Companies is a party, and its respective performance of its
obligations thereunder, will not (i) require any action by or in respect of, or
filing with, any governmental body, agency or official (other than the filing
of Uniform Commercial Code financing statements), or (ii) contravene, or
constitute a default under, any provision of applicable law or regulation or of
its Certificate (or Articles) of Incorporation or Bylaws or of any agreement,
judgment, injunction, order, decree or other instrument binding upon such
company.
The foregoing opinions are being rendered for the benefit only of the
Addressees listed on the attachment and may not be disclosed to, quoted to or
relied upon by any other person or entity without the prior written consent of
the undersigned.
Very truly yours,
----------------------
Title: General Counsel
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<PAGE> 49
Persons on Attached Schedule 1
January __, 1997
Page 9
SCHEDULE 1
Advanta Mortgage Corp. USA
500 Office Center Drive
Suite 400
Fort Washington, PA 19034
Advanta Mortgage Conduit Services, Inc.
16875 West Bernardo Drive
San Diego, CA 92127
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<PAGE> 50
EXHIBIT G
FORM OF SYNTHETIC RESIDUAL CERTIFICATE
This Synthetic Residual Certificate (this "Certificate") has
been issued in accordance with Section 9(d) of the Amended and Restated
Securitization Access Agreement amended as of February 21, 1997 (the
"Securitization Access Agreement") by and among MCA Financial Corp. (the
"Seller"), MCA Mortgage Corporation, and Mortgage Corporation of America,
Advanta Mortgage Conduit Services, Inc. (the "Buyer") and Advanta Mortgage
Corp. USA (the "Master Servicer"). This Certificate is the Synthetic Residual
Certificate referenced in Section 2 of the Multi-Party Security Agreement dated
as of February 21, 1997 (the "Security Agreement") by and among the Buyer, the
Master Servicer (the Buyer and the Master Servicer together are referred to
herein as the "Pledgors"), MCA Financial Corp. and Bankers Trust Company of
California, N.A., as trustee. Unless otherwise indicated, terms used herein
but not defined shall have the respective meanings given to such terms in the
Securitization Access Agreement.
This Certificate evidences the secured corporate obligation of
the Pledgors to pay the Residual Excess Servicing amounts to the Seller as
required by Section 9(d) of the Securitization Access Agreement. To secure
such obligation, the Pledgors have granted a security interest in the
Collateral (as such term is defined in the Security Agreement) to the Seller
pursuant to the Security Agreement. This Certificate does not represent any
direct ownership interest in any Mortgage Loans.
THIS CERTIFIES THAT MCA Financial Corp. is the owner of this
Certificate. This Certificate is not transferrable.
IN WITNESS WHEREOF, the Pledgors have caused this Certificate
to be signed, manually or in facsimile by its authorized officer.
Dated: February 21, 1997
ADVANTA MORTGAGE CONDUIT
SERVICES, INC.
By:
----------------------
Name:
Title:
ADVANTA MORTGAGE CORP. USA
By:
----------------------
Name:
Title:
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<PAGE> 51
EXHIBIT H
==============================================================================
MULTI-PARTY SECURITY AGREEMENT
By and Among
ADVANTA MORTGAGE CONDUIT SERVICES, INC.,
ADVANTA MORTGAGE CORP. USA,
MCA FINANCIAL CORP.
and
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
Dated as of February 21, 1997
==============================================================================
<PAGE> 52
MULTI-PARTY SECURITY AGREEMENT
This Multi-Party Security Agreement (this "Agreement"), dated
as of February 21, 1997 by and among ADVANTA MORTGAGE CONDUIT SERVICES, INC.
("Advanta Mortgage Conduit"), ADVANTA MORTGAGE CORP. USA ("Advanta Mortgage
Corp.", together with Advanta Mortgage Conduit, the "Pledgors"), MCA FINANCIAL
CORP. (the "Secured Party") and BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as
trustee (the "Trustee").
NOW, THEREFORE, in consideration of the covenants and
agreements contained herein, the parties hereto agree as follows:
Section 1. Definitions. In addition to the terms defined
elsewhere in this Agreement, the following terms shall have the following
meanings when used in this Agreement:
"Collateral" means the Pledgors' rights to receive payments of
Residual Excess Servicing in connection with each and every Securitized Loan
Pool.
"Securitization Access Agreement" means the Amended and Restated
Securitization Access Agreement amended as of February 21, 1997 by and among
the Secured Party, MCA Mortgage Corporation, Mortgage Corporation of America
and the Pledgors, as amended from time to time.
Capitalized terms used and not otherwise defined herein shall for all purposes
of this Agreement have the respective meanings specified therefor in the
Securitization Access Agreement.
Section 2. Pledge and Security.
Each Pledgor hereby pledges all of its respective right,
title, and interest in and to, and grants a first lien on, and security
interest in, the Collateral to the Secured Party to secure the obligation of
the Pledgors to make payments of Deferred Premium Payments to the Secured Party
in accordance with Section 9(d) of the Securitization Access Agreement, which
obligation is evidenced by the Synthetic Residual Certificate in the form of
Exhibit I to the Securitization Access Agreement.
Section 3. Financing Statement.
The Pledgors covenant that, on the date of execution of this
Agreement, the Pledgors shall cause to be filed a financing statement (Form
UCC-1) with the Secretary of State of California to perfect by filing thereof
the security interest in the Collateral granted by the Pledgors herein. The
Pledgors covenant to file in other jurisdictions upon the reasonable request of
the MCA Companies.
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Section 4. Events of Default. Each of the following shall
constitute an "Event of Default" hereunder:
(a) Failure of the Pledgors to make any payment of
Deferred Premium Payments, owing to the Secured Party under Section 9(d) of the
Securitization Access Agreement, to the Secured Party which failure is not
remedied within five Business Days after written notice to the Pledgors
thereof.
(b) The filing against either Pledgor of a petition for
liquidation, reorganization, arrangement or adjudication as a bankrupt or
similar relief under the bankruptcy, insolvency or similar laws of the United
States or any state or territory thereof or of any foreign jurisdiction as to
which such Pledgor fails to secure dismissal within 60 days of such filing.
Appointment of a receiver, conservator, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of either Pledgor or of any
substantial part of its property, the ordering of the winding-up or liquidation
of its affairs, or the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of either Pledgor in any involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect.
(c) Commencement by either Pledgor of a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or the consent by either Pledgor to the entry of an order
for relief in an involuntary case under any such law or to the appointment of
or taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of either Pledgor or of any
substantial part of its property, or the making by either Pledgor of any
general assignment for the benefit of creditors, or the failure of either
Pledgor generally to pay its debts as such debts become due, or the taking of
corporate action by either Pledgor in furtherance of any of the foregoing.
Section 5. Remedy Upon Default. Upon the happening of one or
more Events of Default, the Secured Party may give written notice to the
Trustee stating the date and the nature of the Event of Default, and
identifying the appropriate Advanta Trust or Trusts relating to the Securitized
Loan Pools. The Secured Party shall have the right to direct the Trustee to
make all further payments of Residual Excess Servicing and Deferred Premium
Payments due to it under Section 9(d) of the Securitization Access Agreement
directly from the Certificate Account into an account designated by the Secured
Party in such notice, before payments may be made to the Pledgors under the
terms of the Securitization Access Agreement. The parties hereto agree that,
upon the happening of one or more Events of Default and notice to the Trustee,
the Trustee shall calculate the amounts, if any, owed by the Pledgors to the
Secured Party pursuant to Section 9(d) of the Securitization Access Agreement
and shall pay any and all such amounts from the Residual Excess Servicing
related to the Securitized Loan Pools that would otherwise be payable to either
Pledgor directly to the account of the Secured Party as identified by the
Secured Party from time to time to the Trustee. The Pledgors and the Secured
Party acknowledge that the Secured Party has no recourse against the Collateral
upon the happening of an Event of Default, other than as described in this
Section 5.
Section 6. Trustee's Duties. (a) The Trustee (i) 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,
may conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished
pursuant to and conforming to the requirements of this Agreement.
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<PAGE> 54
(b) No provision of this Agreement shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct, except that:
(i) this subsection shall not be construed to limit the
effect of subsection (a) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by an authorized officer
of the Trustee, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good
faith in accordance with the direction of the Secured
Party or the Pledgors or 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,
provided, that, any such action taken
or omission taken is consistent with the terms of
this Agreement.
Additionally, the Trustee is permitted to rely and shall be
protected in acting or refraining from acting upon any certificates, statement,
instrument opinion, report, request, direction, consent, order, bond, note,
notices, or other paper or document delivered hereunder believed by it to be
genuine and to have been signed or presented by the proper party or parties.
(c) Whether or not therein expressly so provided, every
provision of this Agreement relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section.
(d) No provision of this Agreement shall require the Trustee
to expend or risk its own funds or otherwise incur any 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 for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) The Trustee shall be under no obligation to institute any
suit, or to take any remedial proceeding under this Agreement, or to take any
steps in the execution of the trusts hereby created or in the enforcement of
any rights and powers hereunder until it shall be indemnified to its
satisfaction against any and all costs and expenses, outlays and counsel fees
and other reasonable disbursements and against all liability, except liability
which is adjudicated to have resulted from its negligence or willful
misconduct, in connection with any action so taken.
(f) The Pledgors agree to indemnify the Trustee, and its
officers, directors, employees and agents and hold it harmless against, any and
all losses, liabilities, damages, claims or expenses (including reasonable
legal fees and expenses), that may be imposed on, incurred by or asserted
against the Trustee in any way relating to or arising out of this Agreement or
any action taken by the Trustee pursuant to this Agreement, unless such
liabilities, obligations, losses, expenses, legal fees or disbursements were
imposed on, incurred by, or asserted against the Trustee as a result of the
Trustee's own
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<PAGE> 55
negligence or bad faith or willful misconduct. The foregoing indemnification
shall survive any termination of this Agreement or the resignation of or
removal of the Trustee.
Section 7. Notices. All demands, notices and communications
relating to this Agreement shall be in writing and shall be deemed to have been
duly given when received by the other party or parties at the address shown
below, or such other address as may hereafter be furnished to the other party
or parties by like notice. Any such demand, notice or communication hereunder
shall be deemed to have been received on the date delivered to or received at
the premises of the addressee.
If to the Pledgors:
Mark A. Casale
Advanta Mortgage Corp. USA
500 Office Center Drive
Suite 400
Fort Washington, PA 19034
Telecopy: (215) 444-4743
If to the Secured Party:
MCA Financial Corp.
23999 Northwestern Highway
Suite 101
Southfield, MI 48075
Telecopy: 810-358-4639
If to the Trustee:
Bankers Trust Company of California, N.A.
3 Park Plaza, 16th Floor
Irvine, CA 92714
Telecopy: (714) 253-8289
Section 8. Severability of Provisions. If any one or more
of the covenants, agreements, provisions or terms of this Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Agreement and shall in no way affect
the validity or enforceability of the other provisions of this Agreement.
Section 9. Assignment; Successors and Assigns. No party to
this Agreement may assign its rights or delegate its obligations under this
Agreement without the express written consent of the other parties, except as
otherwise set forth in this Agreement. This Agreement shall be binding upon
the successors and assigns of the parties hereto.
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<PAGE> 56
Section 10. Counterparts. For the purpose of facilitating
the execution of this Agreement and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which shall be
deemed to be an original, and together shall constitute and be one and the same
instrument.
Section 11. Amendment. This Agreement may be amended from
time to time by the parties hereto only by a written instrument executed by
such parties.
Section 12. Governing Law; Agreement Constitutes Security
Agreement. This Agreement is intended by the parties hereto to be governed by,
and construed in accordance with, California law, without regard to conflict of
laws rules applied in California, and to constitute a security agreement within
the meaning of the California Uniform Commercial Code.
5
<PAGE> 57
IN WITNESS WHEREOF, the parties have executed this
MULTI-PARTY SECURITY AGREEMENT as of the day and year first above written.
ADVANTA MORTGAGE CONDUIT SERVICES, INC.
By:
--------------------------
Name:
Title:
ADVANTA MORTGAGE CORP. USA
By:
---------------------------
Name:
Title:
MCA FINANCIAL CORP.
By:
---------------------------
Name:
Title:
BANKERS TRUST COMPANY OF CALIFORNIA, N.A., as Trustee
By:
----------------------------
Name:
Title:
6
<PAGE> 58
EXHIBIT I
MUTUAL CONFIDENTIALITY AGREEMENT
THIS CONFIDENTIALITY AGREEMENT ("Agreement") is entered into
this 21 day of February, 1997, by and among MCA Financial Corp. ("MCA CORP"),
MCA Mortgage Corporation of America ("MCA Mortgage") and Mortgage Corporation
of America ("MCA America" together with MCA CORP and MCA Mortgage, "MCA"),
Advanta Mortgage Conduit Services, Inc. ("CONDUIT").
WHEREAS, MCA and CONDUIT are contemplating entering into a
Master Commitment for Corporate Finance Relationships, the Amended and Restated
Securitization Access Agreement and the Multi-Party Security Agreement (the
"Conduit Agreements").
WHEREAS, during the course of this arrangement, CONDUIT may
give MCA access to, or MCA may learn about various information and material
relating to the financial status, marketing strategies, business practices,
products, customers, potential customers, procedures, methods, models,
materials, technical knowledge and the like of CONDUIT, its affiliates and
subsidiaries (the "Confidential Data") all of which CONDUIT considers to be of
a proprietary nature and MCA may give CONDUIT access to, or CONDUIT may learn
about various information and material relating to the financial status,
marketing strategies, business practices, products, customers, potential
customers, procedures, methods, models, materials, technical knowledge and the
like, which MCA considers to be of a proprietary nature and all of which are
referred to herein as "Confidential Data."
WHEREAS, MCA and CONDUIT agree that the Conduit Agreements and
this Agreement are confidential arrangements (the "Confidential Agreements")
that may not be disclosed to any third parties except as provided below.
NOW, THEREFORE, intending to be legally bound hereby, MCA and
CONDUIT agree as follows:
(1) All Confidential Data shall be deemed proprietary.
(2) Each party acknowledges that Confidential Data is
considered proprietary and acknowledges that the unauthorized use or disclosure
of any Confidential Data could be detrimental to the other party.
(3) No party shall distribute, disclose or convey to
third parties any Confidential Data without the prior written approval of the
other Party.
(4) Except to each party's respective attorneys,
accountants and other agents and except, where disclosure is required by
governmental or regulatory authorities or in connection with any due diligence
conducted by any potential purchaser of MCA or any potential purchaser of
CONDUIT or their respective affiliates, MCA and CONDUIT agree to keep the terms
and conditions of the Confidential Agreements confidential and not to disclose
the terms and conditions to any third parties, unless agreed to by both parties
in writing; provided, however, that (a) MCA may disclose the Confidential
Agreements in order to maintain or obtain a warehouse line of
I-1
<PAGE> 59
credit or if such disclosure is directly in connection with capital raising
activities and (b) CONDUIT may disclose the general terms hereof to any third
party without disclosing the identity of MCA in connection therewith.
(5) Each party agrees that:
a. Only employees, with a defined "need to know" basis shall
be granted access to any Confidential Data;
b. No party shall distribute, disclose or convey
Confidential Data to any consultant or subcontractor, except upon
prior written approval of the other party;
c. Each party shall protect the confidentiality of the
Confidential Data of the other party in the same manner in which it
protects the confidentiality of its own proprietary and confidential
data of like kind. Access to the Confidential Data shall be
restricted to those engaged in a use permitted hereby;
d. No party shall copy or reproduce any Confidential Data,
except as necessary to complete the scope of its work in providing
services to the other;
e. All Confidential Data made available to each party,
including copies thereof, shall be returned upon the earlier of the
completion of the scope of work identified above or a request of the
other party;
f. Nothing is this Agreement shall prohibit or limit the
parties use of information (including, but not limited to, financial
data and financial strategies and methodologies), (i) previously known
to it, (ii) acquired by it from a third party which is not under an
obligation not to disclose such information, or (iii) which is or
becomes publicly available through no breach of this Agreement; and
g. No party shall make use of any of the Confidential Data
for its own independent benefit.
(6) Each party agrees that, should a third party request
it to submit Confidential Data pursuant to a subpoena, summons, search warrant,
court or governmental order, the party receiving the subpoena (the "Subpoenaed
Party") will notify the other Party promptly upon receipt of such request. If
the other party objects to the release of the Confidential Data, the Subpoenaed
Party will permit counsel chosen by the other party to represent the Subpoenaed
Party in order to resist release of the Confidential Data. The other party
will pay the Subpoenaed Party for any reasonable expenses incurred by the
Subpoenaed Party in connection with resisting the release of the Confidential
Data.
(7) Each party acknowledges and agrees that any violation
of the terms of this Agreement relating to the disclosure, dissemination or use
of Confidential Data of the other party or the terms and provisions of the
Confidential Agreement may result in irreparable injury and damage to the other
party that may not be adequately compensable in money damages, and for which
the other party will have no adequate remedy at law. Each party therefore
consents and agrees that the other party may obtain injunctions, orders or
decrees as may be necessary to protect such Confidential Data or the terms and
provisions of the Confidential Agreements, which rights shall be
I-2
<PAGE> 60
cumulative and in addition to any other rights or remedies to which the other
party may be entitled.
(8) All the terms, rights, duties and conditions
contained in this Agreement shall merge into any future agreement between the
parties. In the event that any specific terms of any future agreement between
the parties regarding confidentiality directly conflicts with the terms of this
Agreement, such future agreement's terms shall supersede the terms herein.
(9) This Agreement is binding on the parties and their
successors and assigns, and is provisions may be waived or modified by written
agreement of the parties.
(10) This Agreement is executed and delivered in
California, and shall be governed by the laws of the State of California.
I-3
<PAGE> 61
IN WITNESS WHEREOF, the parties have hereto caused this Mutual
Confidentiality Agreement to be duly executed by their respective officers, all
as of the day and year first above written.
MCA MORTGAGE CORPORATION
By: -----------------------------------
Name:
-----------------------------
Title:
-----------------------------
MCA FINANCIAL CORP.
By: ----------------------------------
Name:
----------------------------
Title:
----------------------------
MORTGAGE CORPORATION OF AMERICA
By: ----------------------------------
Name:
Title:
ADVANTA MORTGAGE CONDUIT SERVICES, INC.
By: ---------------------------------
Name:
Title:
I-4
<PAGE> 1
EXHIBIT 12
MCA FINANCIAL CORP.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year ended January 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Income (Loss) Before Federal
Income Taxes ................. $ 1,404,338 $1,127,530 $ (175,162) $ 972,185 $ 915,602
Add:
Portion of Rents
Representative of
the Interest Factor .......... 273,840 216,360 134,075 72,234 57,265
Interest on Indebtedness ...... 11,426,082 7,565,044 6,018,518 4,428,925 962,439
Amortization of
Debt Expense ................. 957,956 687,390 421,189 286,009 102,675
----------- ---------- ---------- ---------- ----------
$14,062,216 $9,596,324 $6,398,620 $5,759,353 $2,037,981
=========== ========== ========== ========== ==========
Fixed Charges:
Portion of Rents
Representative of
the Interest Factor .......... $ 273,840 $ 216,360 $ 134,075 $ 72,234 $ 57,265
Interest on Indebtedness ...... 11,426,082 7,565,044 6,018,518 4,428,925 962,439
Amortization of Debt Expense .. 957,956 687,390 421,189 286,009 102,675
----------- ---------- ---------- ---------- ----------
$12,657,878 $8,468,794 $6,573,782 $4,787,168 $1,122,379
=========== ========== ========== ========== ==========
Ratio of Earnings
to Fixed Charges ............. 1.11 1.13 --- 1.20 1.82
Deficiency of Earnings
over Fixed Charges ........... $ -- $ -- $ (175,162) $ -- $ ---
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 3,097
<SECURITIES> 0
<RECEIVABLES> 39,315
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,599
<DEPRECIATION> 2,016
<TOTAL-ASSETS> 144,992
<CURRENT-LIABILITIES> 0
<BONDS> 15,542
0
5,396
<COMMON> 5
<OTHER-SE> 5,248
<TOTAL-LIABILITY-AND-EQUITY> 144,992
<SALES> 0
<TOTAL-REVENUES> 58,926
<CGS> 0
<TOTAL-COSTS> 57,522
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,426
<INCOME-PRETAX> 1,404
<INCOME-TAX> 639
<INCOME-CONTINUING> 765
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 765
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.61
</TABLE>
