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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest Event
Reported): September 30, 1998
BEAR STEARNS ASSET BACKED SECURITIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 333-43091 13-3836437
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(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
245 Park Avenue
New York, New York 10167
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(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code (212) 272-4095
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Item 5. Other Events.
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Filing of Pooling and Servicing Agreement and MBIA Insurance Corporation Policy
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In connection with the offering of the Champion Home Equity Loan Trust
1998-1 Home Equity Loan Asset-Backed Certificates, Series 1998-1, on September
30, 1998, Bear Stearns Asset Backed Securities, Inc. (the "Depositor") entered
into a Pooling and Servicing Agreement dated as of September 1, 1998 (the
"Pooling and Servicing Agreement"), by and among the Depositor, as depositor,
Champion Mortgage Co., Inc., as seller and servicer, and Harris Trust and
Savings Bank, as trustee. The Pooling and Servicing Agreement is annexed
hereto as Exhibit 99.
The Depositor is filing the certificate guaranty insurance policy which
was issued by MBIA Insurance Corporation (the "Policy") in connection with
Champion Home Equity Loan Trust 1998-1 Home Equity Loan Asset-Backed
Certificates, Series 1998-1. The Policy is attached hereto as Exhibit 10.
Item 7. Financial Statements, Pro Forma Financial
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(c) Exhibits
The following are filed herewith. The exhibit
numbers correspond with Item 601(b) of Regulations S-K.
Exhibit No. Description
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10 MBIA Insurance Corporation Policy
99 Pooling and Servicing Agreement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
BEAR STEARNS ASSET BACKED
SECURITIES, INC.
By: /s/ Matthew E. Perkins
--------------------------
Name: Matthew E. Perkins
Title: Vice President
Dated: October 14, 1998
Exhibit Index
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Exhibit Page
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10
99
Exhibit 10
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EXECUTION COPY
MBIA INSURANCE CORPORATION
FINANCIAL GUARANTY INSURANCE POLICY
SEPTEMBER 30, 1998
POLICY NO. 27650
RE: CHAMPION HOME EQUITY LOAN TRUST 1998-1 (THE
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"TRUST"), CLASS A-1 CERTIFICATES (THE "CLASS A-1
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CERTIFICATES") AND CLASS A-2 (COLLECTIVELY, THE
"CLASS A CERTIFICATES")
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INSURED OBLIGATION: OBLIGATION OF THE TRUST TO PAY UP TO $300,000,000
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IN AGGREGATE PRINCIPAL AMOUNT OF THE CLASS A-1
CERTIFICATES, PLUS ACCRUED AND UNPAID INTEREST ON
THE CLASS A CERTIFICATES
BENEFICIARY: HARRIS TRUST AND SAVINGS BANK AND ITS PERMITTED
SUCCESSORS AND ASSIGNS, AS TRUSTEE OF THE TRUST
For consideration received, MBIA INSURANCE CORPORATION ("MBIA"), hereby
----
unconditionally and irrevocably guarantees to the Beneficiary, payment of the
Insured Obligation, subject to the terms of this policy (the "Policy"). MBIA
agrees to pay to the Beneficiary an amount (the "Payment Amount") equal to the
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sum of:
(a) on any Distribution Date, the amount by which the aggregate of
the Class Interest Distributions with respect to the Class A
Certificates for such Distribution Date exceeds the amount on
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deposit in the Distribution Account available to be distributed
therefor (excluding Insured Payments) on such Distribution Date
--------------------------
pursuant to Section 5.01(a)(2) of the Pooling and Servicing
Agreement (as defined herein), plus
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(b) on any Distribution Date other than the Final Scheduled
Distribution Date, the amount by which the Class A-1 Principal
Balance as of such Distribution Date (after taking into account
distributions (excluding Insured Payments) allocable to principal on
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such Distribution Date pursuant to Sections 5.01(a)(3) and
5.01(a)(5) of the Pooling and Servicing Agreement)
exceeds the Pool Principal Balance at the end of the related Due Period;
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(c) on the Final Scheduled Distribution Date, an amount equal to the
Class A-1 Principal Balance (after taking into account distributions
(excluding Insured Payments) allocable to principal on such
Distribution Date).
(the amount set forth in (a), the "Guaranteed Interest Payment Amount") and
(the sum of the amounts set forth in (b) and (c) the "Guaranteed Principal
Payment Amount").
If a payment of the Insured Obligation is voided (a "Preference Event")
----------------
under any applicable bankruptcy, insolvency, receivership or similar law in an
Insolvency Proceeding, and, as a result of such a Preference Event, the
Beneficiary is required to return such voided payment, or any portion of such
voided payment, made in respect of the Certificates (an "Avoided Payment"),
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MBIA will pay on the guarantee described in the first paragraph hereof, an
amount equal to such Avoided Payment, irrevocably, absolutely and
unconditionally and without the assertion of any defenses to payment,
including fraud in inducement or fact or any other circumstances that would
have the effect of discharging a surety in law or in equity, upon receipt by
the Fiscal Agent from the Beneficiary of (x) a certified copy of a final order
of a court exercising jurisdiction in such Insolvency Proceeding to the effect
that the Beneficiary is required to return any such payment or portion thereof
prior to the Termination Date (as defined below) of this Policy because such
payment was voided under applicable law, with respect to which order the
appeal period has expired without an appeal having been filed (the "Final
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Order"), (y) an assignment, in form reasonably satisfactory to MBIA,
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irrevocably assigning to MBIA all rights and claims of such Beneficiary
relating to or arising under such Avoided Payment and (z) a Notice for Payment
in the form of Exhibit A hereto appropriately completed and executed by the
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Beneficiary. Such payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Final Order and not
to the Beneficiary directly (unless a Certificateholder has previously paid
such amount to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Final Order in which case such payment shall be
disbursed to the Beneficiary for distribution to such Certificateholder upon
proof of such payment reasonably satisfactory to MBIA).
Notwithstanding the foregoing, in no event shall MBIA be obligated to
make any payment in respect of any Avoided Payment, which payment represents a
payment of the principal amount of the Class A-1 Certificates, prior to the
time MBIA would have been required to make a payment in respect of such
principal pursuant to the first paragraph of this Policy.
MBIA shall make payments due in respect of Avoided Payments prior to 1:00
p.m. New York City time on the second Business Day following the Fiscal
Agent's receipt of the documents required under clauses (x) through (z) of the
second preceding paragraph. Any such documents received by the Fiscal Agent
after 3:00 p.m. New York City time on any Business Day or on any day that is
not a Business Day shall be deemed to have been received by the Fiscal Agent
prior to 3:00 p.m. on the next succeeding Business Day. All payments made by
MBIA hereunder in respect of Avoided Payments will be made with MBIA's own
funds.
In no event shall MBIA be obligated to make any payments in respect of
principal on the Class A-1 Certificates pursuant to any Notice for Payment (as
defined below) presented hereunder in an amount in excess of $300,000,000 LESS
----
the sum of all amounts theretofore paid in respect of principal on the Class
A-1 Certificates pursuant to all Notices for Payment hereunder.
Capitalized terms used herein and not otherwise defined herein shall have
the meanings assigned to them in the Pooling and Servicing Agreement, dated as
of September 1, 1998, by and among Bear Stearns Asset Backed Securities, Inc.,
as Depositor, Champion Mortgage Co., Inc., as Seller and as Servicer and
Harris Trust and Savings Bank, as Trustee (the "Pooling and Servicing
---------------------
Agreement").
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"Insolvency Proceeding" means the commencement, after the date hereof, of
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any bankruptcy, insolvency, readjustment of debt, reorganization, marshalling
of assets and liabilities or similar proceedings by or against the Seller, the
Servicer, the Depositor or the Trust, or the commencement, after the date
hereof, of any proceedings by or against the Seller, the Servicer, the
Depositor or the Trust, for the winding up or liquidation of its affairs, or
the consent after the date hereof to the appointment of a trustee,
conservator, receiver or liquidator in any bankruptcy, insolvency,
readjustment of debt, reorganization, marshalling of assets and liabilities or
similar proceedings of or relating to the Seller, the Servicer, the Depositor
or the Trust.
MBIA will pay or cause to be paid to the Beneficiary, irrevocably and
unconditionally and without the prior assertion of any defenses to payment,
including fraud in inducement or fact, the amount demanded in a Notice for
Payment (as defined below), not to exceed the Payment Amount on the
Distribution Date relating to such Notice for Payment, in immediately
available funds on the later of (a) 11:00 a.m. New York City time on the
Business Day immediately preceding a Distribution Date and, (b) 11:00 a.m. New
York City time on the second Business Day next succeeding presentation to
State Street Bank and Trust Company, N.A., as Fiscal Agent for MBIA or any
successor fiscal agent appointed by MBIA (the "Fiscal Agent") (as hereinafter
provided) of a notice for payment in the form of Exhibit A hereto ("Notice for
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Payment"), appropriately completed and executed by the Beneficiary.
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A Notice for Payment under this Policy must be received by the Fiscal
Agent by 2:00 p.m. New York City time on any Business Day by (a) delivery of
the original Notice for Payment to the Fiscal Agent at its address set forth
below, or (b) facsimile transmission of the original Notice for Payment to the
Fiscal Agent at its facsimile number set forth below. If presentation is made
by facsimile transmission, the Beneficiary shall (i) simultaneously confirm
transmission by telephone to the Fiscal Agent at its telephone number set
forth below, and (ii) as soon as reasonably practicable, deliver the original
Notice for Payment to the Fiscal Agent at its address set forth below. Any
Notice for Payment received by the Fiscal Agent after 2:00 p.m. New York City
time, on a Business Day, or on any day that is not a Business Day, will be
deemed to be received by the Fiscal Agent at 9:00 a.m., New York City time, on
the next succeeding Business Day.
If any Notice for Payment received by the Fiscal Agent is not in proper
form or is otherwise insufficient for the purpose of making a claim hereunder,
it shall be deemed not to have been received by the Fiscal Agent, and MBIA or
the Fiscal Agent, as the case may be, shall promptly so advise the Trustee,
and the Trustee may submit an amended Notice for Payment.
The Fiscal Agent is the agent of MBIA only, and the Fiscal Agent shall in
no event be liable to Class A Certificateholders for any acts of the Fiscal
Agent or any failure of MBIA to deposit or cause to be deposited sufficient
funds to make payments due under this Policy.
MBIA shall be subrogated to the rights of each Class A Certificateholder
to receive payments under the Class A Certificateholders to the extent of any
payment by MBIA hereunder.
MBIA hereby waives and agrees not to assert any and all rights to require
the Beneficiary to make demand on or to proceed against any person, party or
security prior to demanding payment under this Policy.
No defenses, set-offs and counterclaims of any kind available to MBIA so
as to deny payment of any amount due in respect of this Policy will be valid
and MBIA hereby waives and agrees not to assert any and all such defenses,
set-offs and counterclaims, including, without limitation, any such rights
acquired by subrogation, assignment or otherwise. Any rights of subrogation
acquired by MBIA as a result of any payment made under this Policy shall, in
all respects, be subordinate and junior in right of payment to the prior
indefeasible payment in full of all amounts due the Trustee on account of
payments due under the Class A Certificates.
This Policy is neither transferable nor assignable, except in whole, but
not in part, to a successor Trustee duly appointed and qualified under the
Pooling and Servicing Agreement. Such transfer and assignment shall be
effective upon receipt by MBIA of a copy of the instrument effecting such
transfer and assignment signed by the transferor and by the transferee, and a
certificate, properly completed and signed by the transferor and the
transferee, in the form of Exhibit B hereto (which shall be conclusive
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evidence of such transfer and assignment), and, in such case, the transferee
instead of the transferor shall, without the necessity of further action, be
entitled to all the benefits of and rights under this Policy in the
transferor's place, provided that, in such case, the Notice for Payment
presented hereunder shall be a certificate of the transferee and shall be
signed by one who states therein that he is a duly authorized officer of the
transferee.
All notices, presentations, transmissions, deliveries and communications
made by the Beneficiary to MBIA with respect to this Policy shall specifically
refer to the number of this Policy and shall be made to MBIA at:
MBIA Insurance Corporation
113 King Street
Armonk, N.Y. 10504
Attention: Insured Portfolio Management,
Structured Finance
Telephone: (914) 273-4949
Facsimile: (914) 765-3163
or such other address, officer, telephone number or facsimile number as MBIA
may designate to the Beneficiary in writing from time to time. Each such
notice, presentation, delivery and communication shall be effective only upon
actual receipt by MBIA.
Any notice hereunder delivered to the Fiscal Agent of MBIA may be made at
the address listed below for the Fiscal Agent of MBIA or such other address as
MBIA shall specify in writing to the Trustee.
The notice address of the Fiscal Agent is 61 Broadway, 15th Floor, New
York, New York 10006 Attention: Municipal Registrar and Paying Agency, or such
other address as the Fiscal Agent shall specify to the Trustee in writing.
The obligations of MBIA under this Policy are irrevocable, primary,
absolute and unconditional (except as expressly provided herein) and neither
the failure of the Beneficiary, the Seller, the Servicer, the Depositor or any
other person to perform any covenant or obligation in favor of MBIA (or
otherwise), nor the failure or omission to make a demand permitted hereunder,
nor the commencement of any bankruptcy, debtor or other insolvency proceeding
by or against the Beneficiary, the Seller, the Servicer, the Depositor or any
other person shall in any way affect or limit MBIA's obligations under this
Policy. If an action or proceeding to enforce this Policy is brought, the
Beneficiary shall be entitled to recover from MBIA costs and expenses
reasonably incurred, including without limitation reasonable fees and expenses
of counsel.
There shall be no acceleration payment due under this Policy unless such
acceleration is at the sole option of MBIA.
This Policy and the obligations of MBIA hereunder shall terminate upon
the date (the "Termination Date") which is one year and one day following the
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earliest to occur of: (i) the Distribution Date occurring in September 2028,
(ii) the Business Day following the date MBIA receives written notice from the
Seller terminating this Policy as a result of (a) a downgrade of its claims
paying ability rating by any Rating Agency which results in a downgrading of
the Class A Certificates or (b) the occurrence of a Certificate Insurer
Default, provided, however, that no termination under this clause (ii) shall
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be effective until (I) all amounts owed to MBIA under the Insurance Agreement
on the date such written notice is received by MBIA are paid in full in cash
and (II) the original of this Policy is received by MBIA and (iii) the
Distribution Date upon which final distribution on the Class A Certificates is
made; provided that, if an Insolvency Proceeding is existing by or against the
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Trust, the Seller, the Servicer or the Depositor during such one year and one
day period, then this Policy and MBIA's obligations hereunder shall terminate
on the date of the conclusion or dismissal of such Insolvency Proceeding
without continuing jurisdiction by the court in such Insolvency Proceeding;
provided further that this Policy shall not terminate prior to the date on
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which MBIA has made all payments required to be made under the terms of this
Policy in respect of such Avoided Payments.
This Policy shall be returned to MBIA upon the expiration of its term.
This Policy is not covered by the property/casualty insurance fund
specified in Article Seventy-six of the New York State insurance law.
This Policy sets forth in full the undertaking of MBIA, and shall not be
modified, altered or affected by any other agreement or instrument, including
any modification or amendment to any other agreement or instrument, or by the
merger, consolidation or dissolution of the Trust or any other Person and may
not be canceled or revoked prior to the time it is terminated in accordance
with the express terms hereof.
THIS POLICY SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, MBIA has caused this Policy to be executed on the
date first written above.
MBIA INSURANCE CORPORATION
By /s/ Thomas J. Koslovsky
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Thomas J. Koslovsky
Vice President
EXHIBIT A TO POLICY NO. 27650
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Insured Portfolio Management,
Structured Finance
NOTICE FOR PAYMENT
UNDER POLICY NO. 27650
The undersigned individual, a duly authorized officer of , as
----------------
Trustee (the "Beneficiary"), hereby certifies to MBIA Insurance Corporation
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("MBIA"), with reference to the Policy No. 27650 dated September 30, 1998 (the
----
"Policy"), as follows:
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1. The Beneficiary is the Trustee under the Pooling and Servicing
Agreement, dated as of September 1, 1998, by and among Bear Stearns Asset
Backed Securities, Inc., as Depositor, Champion Mortgage Co., Inc., as Seller
and as Servicer and the Beneficiary, as Trustee (the "Pooling and Servicing
---------------------
Agreement").
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2. This notice relates to the [insert date] Distribution Date.
3. The Beneficiary demands payment of $ , which is the Payment Amount,
----
as calculated pursuant to the Policy. The Payment Amount consists of: (check
as appropriate)
[the Guaranteed Interest Payment Amount] in the amount of $___________
[the Guaranteed Principal Payment Amount] in the amount of $___________.
4. The Available Funds (net of Insured Payments, the Servicing Fee, the
Premium Amount and the Trustee Fee) for the related Distribution Date is equal
to $ .
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[For a Notice for Payment in respect of an Avoided Payment use the
following paragraphs 4 and 5.]
4. The Trustee hereby represents and warrants, based upon information
available to it, that (i) the amount entitled to be drawn under the Policy on
the date hereof in respect of Avoided Payments is the amount paid or to be
paid simultaneously with such draw on the Policy, by all Certificateholders on
account of a Preference Event [$ ] (the "Avoided Payment Amount"), (ii) each
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Certificateholder with respect to which the drawing is being made under the
Policy has paid or simultaneously with such draw on the Policy will pay such
Avoided Payment, and (iii) the documents required by the Policy to be
delivered in connection with such Avoided Payment and Avoided Payment Amount
have previously been presented to MBIA or are attached hereto.
5. The amount demanded is to be paid in immediately available funds by
wire transfer to [ ].
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to them in the Pooling and Servicing Agreement and the
Policy, as the case may be.
IN WITNESS WHEREOF, this notice has been executed this day of
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, .
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_________________, as Trustee
By:
Name:
Title:
EXHIBIT B TO POLICY NO. 27650
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
Attention: Insured Portfolio Management,
Structured Finance
Dear Sirs:
Reference is made to that certain Policy No. 27650 dated September 30,
1998 (the "Policy") which has been issued by MBIA Insurance Corporation in
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favor of Harris Trust and Savings Bank, as Trustee.
The undersigned [Name of Transferor] has transferred and assigned (and
hereby confirms to you said transfer and assignment) all of its rights in and
under said Policy to [Name of Transferee] and confirms that [Name of
Transferor] no longer has any rights under or interest in said Policy.
Transferor and Transferee have indicated on the face of said Policy that
it has been transferred and assigned to Transferee.
Transferee hereby certifies that it is a duly authorized transferee under
the terms of said Policy and is accordingly entitled, upon presentation of the
document(s) called for therein, to receive payment thereunder.
[Name of Transferor]
By:
[Name and Title of
Authorized Officer of
Transferor
[Name of Transferee]
By:
[Name and Title of
Authorized Officer of
Transferee]
Exhibit 99
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EXECUTION COPY
BEAR STEARNS ASSET BACKED SECURITIES, INC.,
as Depositor
and
CHAMPION MORTGAGE CO., INC.
as Seller and Servicer
and
HARRIS TRUST AND SAVINGS BANK,
as Trustee
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POOLING AND SERVICING AGREEMENT
Dated as of September 1, 1998
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Champion Home Equity Loan Asset-Backed Certificates
Series 1998-1
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
Definitions
Section 1.01. Definitions...............................................1
Section 1.02. Interest Calculations....................................23
ARTICLE II
Conveyance of Mortgage Loans;
Original Issuance of Certificates; Tax Treatment
Section 2.01. Conveyance of Mortgage Loans...............................23
Section 2.02. Acceptance by Trustee......................................26
Section 2.03. Representations and Warranties Regarding the Seller
and the Servicer..........................................27
Section 2.04. Representations and Warranties of the Seller Regarding
the Mortgage Loans........................................29
Section 2.05. Representations and Warranties of the Depositor............37
Section 2.06. Substitution of Mortgage Loans.............................37
Section 2.07. Execution and Authentication of Certificates...............39
Section 2.08. Designation of Interests in the Master and Subsidiary
REMICs....................................................39
Section 2.09. Designation of Start-up Day................................42
Section 2.10. REMIC Certificate Maturity Date............................42
Section 2.11. Tax Returns and Reports to Certificateholders..............42
Section 2.12. Tax Matters Person.........................................43
Section 2.13. REMIC Related Covenants....................................43
ARTICLE III
Administration and Servicing of Mortgage Loans
Section 3.01. The Servicer...............................................45
Section 3.02. Collection of Certain Mortgage Loan Payments...............48
Section 3.03. Withdrawals from the Collection Account....................50
Section 3.04. Maintenance of Hazard Insurance; Property Protection
Expenses.................................................51
Section 3.05. Maintenance of Mortgage Impairment Insurance Policy........51
Section 3.06. Fidelity Bond..............................................52
Section 3.07. Management and Realization Upon Defaulted Mortgage Loans...52
Section 3.08. Trustee to Cooperate.......................................53
Section 3.09. Servicing Compensation; Payment of Certain Expenses by
Servicer..................................................54
Section 3.10. Annual Statement as to Compliance..........................54
Section 3.11. Annual Servicing Report....................................55
Section 3.12. Access to Certain Documentation and Information
Regarding the Mortgage Loans..............................55
Section 3.13. Maintenance of Certain Servicing Insurance Policies........55
Section 3.14. Reports to the Securities and Exchange Commission..........55
Section 3.15. Reports of Foreclosures and Abandonments of Mortgaged
Properties, Returns Relating to Mortgage Interest
Received from Individuals and Returns Relating to
Cancellation of Indebtedness..............................56
Section 3.16. Advances by the Servicer...................................56
Section 3.17. Superior Liens.............................................56
Section 3.18. Assumption Agreements......................................57
Section 3.19. Payment of Taxes, Insurance and Other Charges..............58
Section 3.20. Optional Purchase of Defaulted Mortgage Loans..............58
ARTICLE IV
Certificate Insurance Policy
Section 4.01. Certificate Insurance Policy...............................59
Section 4.02. [RESERVED].................................................60
Section 4.03. Replacement Certificate Insurance Policy...................60
Section 4.04. Payments Under the Support Agreement.......................60
ARTICLE V
Payments and Statements to Certificateholders;
Rights of Certificateholders
Section 5.01. Distributions..............................................61
Section 5.02. Compensating Interest......................................62
Section 5.03. Statements.................................................62
Section 5.04. Distribution Account.......................................66
Section 5.05. Investment of Accounts.....................................66
ARTICLE VI
The Certificates
Section 6.01. The Certificates...........................................67
Section 6.02. Registration of Transfer and Exchange of Certificates......68
Section 6.03. Mutilated, Destroyed, Lost or Stolen Certificates..........72
Section 6.04. Persons Deemed Owners......................................73
Section 6.05. Appointment of Paying Agent................................73
ARTICLE VII
The Seller, the Servicer and the Depositor
Section 7.01. Liability of the Seller, the Servicer and the Depositor....74
Section 7.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Seller, the Servicer or the
Depositor.................................................74
Section 7.03. Limitation on Liability of the Servicer and Others.........74
Section 7.04. Servicer Not to Resign.....................................75
Section 7.05. Delegation of Duties.......................................75
Section 7.06. Indemnification of the Trust by the Servicer...............75
ARTICLE VIII
Default
Section 8.01. Events of Default..........................................76
Section 8.02. Trustee to Act; Appointment of Successor...................78
Section 8.03. Waiver of Defaults.........................................79
Section 8.04. Notification to Certificateholders.........................79
ARTICLE IX
The Trustee
Section 9.01. Duties of Trustee..........................................79
Section 9.02. Certain Matters Affecting the Trustee......................81
Section 9.03. Trustee Not Liable for Certificates or Mortgage Loans......85
Section 9.04. Trustee May Own Certificates...............................86
Section 9.05. Servicer to Pay Trustee Fees and Expenses..................86
Section 9.06. Eligibility Requirements for Trustee.......................87
Section 9.07. Resignation or Removal of Trustee..........................87
Section 9.08. Successor Trustee..........................................88
Section 9.09. Merger or Consolidation of Trustee.........................88
Section 9.10. Appointment of Co-Trustee or Separate Trustee..............88
Section 9.11. Limitation of Liability....................................89
Section 9.12. Trustee May Enforce Claims Without Possession of
Certificates; Inspection..................................90
Section 9.13. Suits for Enforcement......................................90
ARTICLE X
Termination
Section 10.01. Termination...............................................90
Section 10.02. Additional Termination Requirements.......................92
ARTICLE XI
Miscellaneous Provisions
Section 11.01. Amendment.................................................93
Section 11.02. Recordation of Agreement..................................94
Section 11.03. Limitation on Rights of Certificateholders................95
Section 11.04. Governing Law.............................................95
Section 11.05. Notices...................................................95
Section 11.06. Severability of Provisions................................97
Section 11.07. Assignment................................................97
Section 11.08. Certificates Nonassessable and Fully Paid.................97
Section 11.09. Third-Party Beneficiaries.................................97
Section 11.10. Counterparts..............................................97
Section 11.11. Effect of Headings and Table of Contents..................97
EXHIBIT A-1 FORM OF CLASS A-1 CERTIFICATE...........................A-1
EXHIBIT A-2 FORM OF CLASS A CERTIFICATE.............................A-1
EXHIBIT B - [RESERVED]..............................................B-1
EXHIBIT C - FORM OF CLASS R CERTIFICATE.............................C-1
EXHIBIT D - MORTGAGE LOAN SCHEDULE..................................D-1
EXHIBIT E - MONTHLY INFORMATION DELIVERED TO TRUSTEE................E-1
EXHIBIT F - FORM OF MORTGAGE NOTE...................................F-1
EXHIBIT G - FORM OF MORTGAGE........................................G-1
EXHIBIT H - TRANSFER AFFIDAVIT......................................H-1
EXHIBIT I - TRANSFEROR'S CERTIFICATE................................I-1
EXHIBIT J - FORM OF REQUEST FOR RELEASE.............................J-1
EXHIBIT K - FORM OF INVESTMENT LETTER...............................K-1
EXHIBIT L - SPECIMEN OF THE CERTIFICATE INSURANCE POLICY............L-1
EXHIBIT M - FORM OF OFFICER'S CERTIFICATE OF SERVICER...............M-1
EXHIBIT N - IDENTIFIED SUBSEQUENT MORTGAGE LOAN SCHEDULE............N-1
EXHIBIT O - FORM OF LIQUIDATION REPORT..............................O-1
EXHIBIT P - LIST OF SERVICING OFFICERS..............................P-1
<PAGE>
This Pooling and Servicing Agreement, dated as of September 1, 1998,
among Bear Stearns Asset Backed Securities, Inc., as Depositor (the
"Depositor"), Champion Mortgage Co., Inc., as Seller (the "Seller") and as
Servicer (the "Servicer"), and Harris Trust and Savings Bank, as Trustee (the
"Trustee").
PRELIMINARY STATEMENT
The Depositor is the owner of the Trust that is hereby conveyed to the
Trustee in return for the Certificates. As provided herein, the Trustee shall
elect that the Trust be treated for federal income tax purposes as three
separate real estate mortgage investment conduits (each a "REMIC" or, in the
alternative, "REMIC 1," "REMIC 2," and "REMIC 3", REMIC 3 also being referred
to as the "Master REMIC" and each of REMIC 1 and REMIC 2 being referred to as
"Subsidiary REMICs"). The Class A-1 and the Class A-2 Certificates represent
ownership of all of the "regular interests" in REMIC 3. Each of the Class R1,
R2, and R3 Certificates represents the sole class of "residual interest" in
REMIC 1, REMIC 2, and REMIC 3, respectively, for purposes of the REMIC
Provisions. There are also two classes of uncertificated REMIC 1 Regular
Interests issued under this Agreement (the Class T1-1, and Class T1-2
Interests), each of which will constitute regular interests in REMIC 1, four
classes of uncertificated REMIC 2 Regular Interests (the Class T2-1, Class
T2-2, Class T2-3, and Class T2-4 Interests), each of which will constitute
regular interests in REMIC 2. The REMIC 1 Regular Interests will be held as
assets of REMIC 2, the REMIC 2 Regular Interests will be held as assets of
REMIC 3. The "latest possible maturity date" for federal income tax purposes of
all interests created hereby will be the REMIC Certificate Maturity Date.
In consideration of the mutual agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
Definitions
Section 1Definitions. Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the meanings
specified in this Article.
Accounts: Collectively, the Collection Account and the Distribution
Account.
Accreted Interest: Accrued interest on the Class T2-1 Interests in an
amount equal to 50% of the increase in the O/C Amount for the Mortgage Loans
for the Distribution Date which is distributed as principal on the Class T2-2.
Adjusted Weighted Average Net Rate: As to any Distribution Date, the
percentage equivalent of a fraction, (1) the numerator of which is equal to (a)
the weighted average of the monthly interest rates in respect of the Class T1-1
and Class T1-2 Interests (calculated by dividing their respective monthly
entitlements to interest at the Weighted Average Net Rate by their respective
principal balances), less (b) the sum of (i) the Servicing Fee payable on such
Distribution Date, (ii) the Trustee Fee payable on such Distribution Date,
(iii) the Premium Amount payable on such Distribution Date and (iv) the Class
Monthly Interest Distributable Amount of the Class A-2 Certificates and (2) the
denominator of which is the Pool Principal Balance as of the first day of the
related Due Period.
Affiliate: With respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of
a Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise and "controlling" and "controlled" shall
have meanings correlative to the foregoing.
Agreement: This Pooling and Servicing Agreement and all amendments
hereof and supplements hereto.
Appraised Value: The appraised value of the Mortgaged Property based
upon the appraisal made by or for the originator at the time of the origination
of the related Mortgage Loan.
Assignment of Mortgage: With respect to any Mortgage, an assignment,
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the sale of the Mortgage to the Trustee, which assignment,
notice of transfer or equivalent instrument may be in the form of one or more
blanket assignments covering the Mortgage Loans secured by Mortgaged Properties
located in the same jurisdiction.
Available Funds: As to any Distribution Date, the sum of (A) the sum
of all amounts described in clauses (i) through (vii) inclusive, of Section
3.02(b) received by the Servicer (including any amounts paid by the Servicer
and the Seller and excluding (a) any amounts not required to be deposited in
the Collection Account pursuant to Section 3.02(b) and (b) any amounts paid to
the Servicer or withdrawn by the Servicer pursuant to Sections 3.03(ii), (iii),
(iv), (v), (vi) and (vii) in respect of the Mortgage Loans as of the related
Determination Date) during the related Due Period and deposited into the
Collection Account as of the Determination Date, (B) Insured Payments, if any,
and (C) any Termination Price with respect to the Mortgage Loans deposited to
the Distribution Account pursuant to Section 10.01(a). No amount included in
this definition by virtue of being described by any component of the definition
thereof shall be included twice by virtue of also being described by any other
component or otherwise.
Balloon Loans: Any Mortgage Loan that provided on the date of
origination for scheduled monthly payment in level amounts substantially lower
than the amount of the final scheduled payment.
Base O/C Amount: With respect to any Distribution Date, an amount
equal to the product of (x) the Base O/C Percentage and (y) the Cut-Off Date
Pool --------------- Principal Balance.
Base O/C Percentage: 1.75%.
BIF: The Bank Insurance Fund, as from time to time constituted,
created under the Financial Institutions Reform, Recovery and Enhancement Act
of 1989, or, if at any time after the execution of this Agreement the Bank
Insurance Fund is not existing and performing duties now assigned to it, the
body performing such duties on such date.
Book-Entry Certificate: Any Class A Certificate registered in the
name of the Depository or its nominee, ownership of which is reflected on the
books of the Depository or on the books of a Person maintaining an account with
such Depository (directly or as an indirect participant in accordance with the
rules of such Depository).
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
day on which banking institutions in the States of New York, Illinois or New
Jersey are required or authorized by law to be closed.
Certificate: Any Class A or Class R Certificate.
Certificate Index: The rate for one month United States dollar
deposits quoted on Telerate Page 3750 as of 11:00 a.m., London time, on the
second LIBOR Business Day prior to the first day of any Interest Period
relating to the Variable Rate Certificates (or the second LIBOR Business Day
prior to the Closing Date, in the case of the first Distribution Date).
"Telerate Page 3750" means the display designated as page 3750 on the Telerate
Service (or such other page as may replace page 3750 on that service for the
purpose of displaying London interbank offered rates of major banks). If such
rate does not appear on such page (or such other page as may replace that page
on that service, or if such service is no longer offered, such other service
for displaying LIBOR or comparable rates as may be reasonably selected by the
Trustee after consultation with the Servicer), the rate will be the Reference
Bank Rate. On the second LIBOR Business Day immediately preceding each
Distribution Date, the Trustee shall determine the Certificate Rate for the
Interest Period commencing on such Distribution Date and inform the Servicer of
such rate.
Certificate Insurance Policy: The financial guaranty insurance policy
(No. 27650) with respect to the Class A Certificates dated the Closing Date,
issued by the Certificate Insurer to the Trustee for the benefit of the Holders
of each Class of Class A Certificates, a copy of which is attached hereto as
Exhibit L.
Certificate Insurer: MBIA Insurance Corporation, a New York domiciled
insurance company and any successor thereto.
Certificate Insurer Default: Any failure of the Certificate Insurer
to make a payment required under the Certificate Insurance Policy in accordance
with its terms.
Certificate Owner: The Person who is the beneficial owner of a
Book-Entry Certificate.
Certificate Rate: With respect to the Class A-1 Certificates, the
lesser of (A) the Class A-1 Formula Rate and (B) the Net Funds Cap for such
Distribution Date. With respect to the Class A-2 Certificates, 8.12% per annum.
On any Distribution Date on which the O/C Amount exceeds the Class A-1
Principal Balance, the Certificate Rate on the Class A-1 Certificates may not
exceed twice the weighted average net rates on the Mortgage Loans (adjusted to
account for any Class Interest Distribution due on the Class A-2 Certificates).
Certificate Register and Certificate Registrar: The register
maintained and the registrar appointed pursuant to Section 6.02.
Certificateholder or Holder: The Person in whose name a Certificate
is registered in the Certificate Register, except that, solely for the purpose
of giving any consent, direction, waiver or request pursuant to this Agreement,
(x) any Class A Certificate registered in the name of the Depositor or any
Person actually known to a Responsible Officer of the Trustee to be an
Affiliate of the Depositor and (y) any Class A Certificate for which the
Depositor or any Person actually known to a Responsible Officer of the Trustee
to be an Affiliate of the Depositor is the Certificate Owner or Holder shall be
deemed not to be outstanding (unless to the actual knowledge of a Responsible
Officer of the Trustee (i) the Depositor or such Affiliate is acting as trustee
or nominee for a Person who is not an Affiliate of the Depositor and who makes
the voting decision with respect to such Class A Certificates or (ii) the
Depositor or such Affiliate is the Certificate Owner or Holder of all the Class
A Certificates, but only with respect to the Class as to which the Depositor or
such Affiliate owns all the Certificates) and the Percentage Interest evidenced
thereby shall not be taken into account in determining whether the requisite
amount of Percentage Interests necessary to effect any such consent, direction,
waiver or request has been obtained.
Champion: Champion Mortgage Co., Inc., a New Jersey corporation, or
any successor thereto.
Civil Relief Act: The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
Civil Relief Act Interest Shortfall: With respect to any Distribution
Date, for any Mortgage Loan as to which there has been a reduction in the
amount of interest collectible thereon for the most recently ended Due Period
as a result of the application of the Civil Relief Act, the amount by which (i)
interest collectible on such Mortgage Loan during such Due Period is less than
(ii) one month's interest on the Principal Balance of such Mortgage Loan at the
Loan Rate for such Mortgage Loan before giving effect to the application of the
Civil Relief Act.
Class: With respect to each of Class A-1 and Class A-2, all of the
Certificates of such Class.
Class A Certificate: Any certificate executed and authenticated by
the Trustee substantially in the form set forth in Exhibit A and designated as
a Class A-1 or Class A-2 Certificate pursuant to Section 6.01.
Class A Certificateholder: A Holder of a Class A Certificate.
Class A-1 Guaranteed Principal Distribution Amount: With respect to
any Distribution Date, the excess, if any, of (i) the Class A-1 Principal
Balance as of such Distribution Date (after taking into account distributions
(excluding Insured Payments) allocable to principal on such Distribution Date
pursuant to Section 5.01) over (ii) the Pool Principal Balance as of the end of
the related Due Period; provided that on the Final Scheduled Distribution Date,
the Class A-1 Guaranteed Principal Distribution Amount shall equal the amount
referred to in clause (i) of this definition as of such Distribution Date.
Class A-1 Certificate: Any Certificate executed and authenticated by
the Trustee and substantially in the form attached hereto as Exhibit A-1 and
designated as a Class A-1 Certificate pursuant to Section 6.01.
Class A-1 Formula Rate: As to any Distribution Date which occurs on
or prior to the date on which the Pool Principal Balance is less than 5% of the
Cut-Off Date Pool Principal Balance, the Certificate Index plus 0.31% per
annum, and for every Distribution Date thereafter, the Certificate Index plus
0.62% per annum.
Class A-1 Monthly Principal Distributable Amount: With respect to any
Distribution Date, the amount equal to the sum of the following amounts
(without duplication) with respect to the immediately preceding Due Period: (i)
that portion of all Monthly Payments allocable to principal on Mortgage Loans,
including all full and partial principal prepayments received during the
related Due Period, (ii) the Principal Balance of all Mortgage Loans that
became Liquidated Mortgage Loans during the related Due Period, (iii) the
portion of the Purchase Price allocable to principal of all Defective Mortgage
Loans the repurchase obligation for which arose during the related Due Period
to the extent received by the Servicer, (iv) any Substitution Adjustments for
Mortgage Loans, deposited to the Distribution Account pursuant to Section 2.06
on or prior to the related Determination Date and not previously distributed,
and (v) the Distributable Excess Spread, if any.
Class A-1 Principal Balance: As of any date of determination, the
Original Class A-1 Certificate Principal Balance reduced by the sum of all
amounts previously distributed to the Class A-1 Certificateholders in respect
of principal on all previous Distribution Dates.
Class A-1 Principal Distribution: With respect to any Distribution
Date (other than the Final Scheduled Distribution Date), the excess of (A) the
sum of the Class A-1 Monthly Principal Distributable Amount for such
Distribution Date and any Class A-1 Principal Shortfall Amount over (B) the
related O/C Reduction Amount for such Distribution Date; provided, however,
that the Class A-1 Principal Distribution shall not exceed the Class A-1
Principal Balance. The "Class A-1 Principal Distribution" on the Final
Scheduled Distribution Date for the Class A-1 Certificates will equal the Class
A-1 Principal Balance as of such Distribution Date.
Class A-1 Principal Shortfall Amount: With respect to any
Distribution Date, the amount, if any, by which the Class A-1 Principal
Balance, after giving effect to all distributions of the Class A-1 Monthly
Principal Distributable Amount (exclusive of Distributable Excess Spread) and
any draws under the Certificate Insurance Policy for such Distribution Date,
exceeds the Pool Principal Balance as of the end of the related Due Period.
Class A-2 Certificate: Any Certificate executed and authenticated by
the Trustee and substantially in the form attached hereto as Exhibit A-2 and
designated as a Class A-2 Certificate pursuant to Section 6.01.
Class Interest Carryover Shortfall: With respect to any Class of
Class A Certificates and any Distribution Date, the amount by which the Class
Interest Distribution for such Class for the prior Distribution Date exceeded
the amount of interest actually distributed on such prior Distribution Date.
Class Interest Distribution: With respect to any Distribution Date
and each Class of Class A Certificates, the sum of (i) the applicable Class
Monthly Interest Distributable Amount for such Class on such Distribution Date
and (ii) the applicable Outstanding Class Interest Carryover Shortfall for such
Class on such Distribution Date.
Class Monthly Interest Distributable Amount: As to any Distribution
Date and Class of Class A Certificates, interest accrued during the related
Interest Period at the applicable Certificate Rate on the related Class A-1
Principal Balance or Notional Principal Balance, as applicable, immediately
prior to such Distribution Date.
Class R Certificate: The Class R Certificate executed by the Trustee,
and authenticated and delivered by the Certificate Registrar, substantially in
the form annexed hereto as Exhibit C-1 and evidencing the ownership of the
Class R-1 Interest, the Class R-2 Interest, and the Class R-3 Interest.
Class R Certificateholder: The Holder of a Class R Certificate.
Class R-1 Interest: The uncertificated Residual Interest in REMIC 1.
Class R-2 Interest: The uncertificated Residual Interest in REMIC 2.
Class R-3 Interest: The uncertificated Residual Interest in REMIC 3.
Class T1-1 Interest: A regular interest in REMIC 1 held as an asset
of REMIC 2 that has an initial principal balance equal to $279,034,624.10 and
bears interest at a per annum rate equal to the Weighted Average Net Rate.
Class T1-2 Interest: A regular interest in REMIC 1 held as an asset
of REMIC 2 that has an initial principal balance equal to $21,000,000, bears
interest at a per annum rate equal to the Weighted Average Net Rate.
Class T2-1 Interest: A regular interest in REMIC 2 held as an asset of
REMIC 3 that has an initial principal balance equal to the sum of (i) 50% of
the Cut-Off Date Pool Principal Balance and (ii) 50% of the initial O/C Amount,
bears interest at a per annum rate equal to Adjusted Weighted Average Net Rate.
Class T2-2 Interest: A regular interest in REMIC 2 held as an asset of
REMIC 3 that has an initial principal balance equal to 25% of the Cut-off Date
Pool Principal Balance less 50% of the initial O/C Amount, bears interest at a
per annum rate equal to the Adjusted Weighted Average Net Rate.
Class T2-3 Interest: A regular interest in REMIC 2 held as an asset of
REMIC 3 that has an initial principal balance equal to 25% of the Cut-off Date
Pool Principal Balance, bears interest at a per annum rate equal to the
Adjusted Weighted Average Net Rate.
Class T2-4 Interest: A regular interest in REMIC 2 held as an asset of
REMIC 3 that is entitled to interest at a rate of 8.12% on its notional
balance. The Class T2-4 Interest shall have a notional balance equal to the
principal balance of the Class T1-2 Interests for such date for the first 36
Distribution Dates, and a notional balance of zero for all Distribution Dates
after the 36th Distribution Date. The Class T2-4 Interest will be treated as no
longer outstanding after the 36th Distribution Date.
Class A-1 Interest: A regular interest in REMIC 3 that has an initial
principal balance of $300,034,000 and will bear interest at a rate equal to the
least of (a) the London interbank offered rate for one-month U.S. dollar
deposits plus a Pass-Through Margin of 0.31% and (b) the Net Funds Cap.
Class A-2 Interest A regular interest in REMIC 3 that shall have a
notional principal balance equal as of any date to the notional principal
balance of the Class T2-4 Interests for such date and is entitled to 100% of
the interest accruals on the Class T2-4 Interest. The Class A-2 Interest will
be treated as no longer outstanding after the 36th Distribution Date.
Closing Date: September 30, 1998.
Code: The Internal Revenue Code of 1986, as the same may be amended
from time to time (or any successor statute thereto).
Collection Account: The custodial account or accounts created and
maintained pursuant to Section 3.02(b). The Collection Account shall be an
Eligible Account.
Combined Loan-to-Value Ratio or CLTV: With respect to any Mortgage
Loan, the sum of the original principal balance of such Mortgage Loan and the
outstanding principal balance of the First Lien, if any, as of the date of
origination of the Mortgage Loan, divided by the Appraised Value.
Compensating Interest: As to any Distribution Date, the amount
calculated pursuant to Section 5.02.
Corporate Trust Office: The principal office of the Trustee at which
at any particular time its corporate business shall be administered, which
office on the Closing Date is located at 311 West Monroe Street, Chicago,
Illinois 60606, Attention: Indenture Trust Administration.
Corresponding Classes of Certificates: With respect to each Subsidiary
REMIC Regular Interest, any Class of Certificates appearing opposite such
Subsidiary REMIC Regular Interest in Section 2.08.
Curtailment: With respect to a Mortgage Loan, any payment of principal
received during a Due Period as part of a payment that is in excess of the
amount of the Monthly Payment due for such Due Period and which is not intended
to satisfy the Mortgage Loan in full, nor is intended to cure a delinquency or
to be applied for subsequent Monthly Payments as and when the same come due
pursuant to directions from the Mortgagor to such effect.
Cut-Off Date: September 1, 1998.
Cut-Off Date Pool Principal Balance: $300,034,624.10.
Cut-Off Date Principal Balance: With respect to any Mortgage Loan, the
unpaid principal balance thereof as of the Cut-Off Date (or as of the
applicable date of substitution with respect to an Eligible Substitute Mortgage
Loan pursuant to Section 2.02 or 2.04).
Defective Mortgage Loan: Any Mortgage Loan subject to repurchase or
substitution by the Seller pursuant to Section 2.02 or 2.04.
Definitive Certificates: As defined in Section 6.02(c).
Delinquency Amount: The product of the Delinquency Percentage and the
Pool Principal Balance.
Delinquency Percentage: Means the rolling three month average of the
percentage equivalent of a fraction, the numerator of which is (x) the sum of
the aggregate principal balances of all mortgage loans which are (i) 90 or more
days delinquent, (ii) mortgage loans in bankruptcy and 90 or more days
delinquent under the note, (iii) mortgage loans in foreclosure plus (iv)
mortgage loans relating to REO Properties and the denominator of which is (y)
the Pool Principal Balance.
Depositor: Bear Stearns Asset Backed Securities, Inc., a Delaware
corporation, or any successor thereto.
Depository: The initial Depository shall be The Depository Trust
Company, the nominee of which is Cede & Co., as the registered Holder of Class
A-1 and Class A-2 Certificates evidencing $300,000,000 in initial principal
amount and $21,000,000 in initial notional principal balance, respectively, of
such Certificates. The Depository shall at all times be a "clearing
corporation" as defined in Section 8-102(5) of the UCC of the State of New
York.
Depository Participant: A broker, dealer, bank or other financial
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Determination Date: With respect to any Distribution Date, the
eighteenth day of the month in which such Distribution Date occurs (or if such
day is not a Business Day, the Business Day immediately succeeding such
eighteenth day).
Distributable Excess Spread: As to any Distribution Date, the lesser
of (i) the Excess Spread for such Distribution Date and (ii) the excess, if
any, of the Specified O/C Amount for such Distribution Date over the O/C Amount
on such date.
Distribution Account: The account established by the Trustee pursuant
to Section 5.04. The Distribution Account shall be an Eligible Account.
Distribution Date: The twenty-fifth day of each month or, if such day
is not a Business Day, then the next Business Day, beginning in October 1998.
Due Date: As to any Mortgage Loan, the day of the month on which the
Monthly Payment is due from the Mortgagor.
Due Period: With respect to each Distribution Date, the calendar
month preceding the month in which such Distribution Date occurs.
Eligible Account: A segregated account that is (i) maintained with a
depository institution whose debt obligations at the time of any deposit
therein have the highest short-term debt rating by the Rating Agencies and
whose accounts are fully insured by either the SAIF or the BIF of the Federal
Deposit Insurance Corporation established by such fund with a minimum long-term
unsecured debt rating of "A2" by Moody's and "A" by Standard & Poor's, and
which is any of (A) a federal savings and loan association duly organized,
validly existing and in good standing under the federal banking laws, (B) an
institution duly organized, validly existing and in good standing under the
applicable banking laws of any state, (C) a national banking association duly
organized, validly existing and good standing under the federal banking laws,
(D) a principal subsidiary of a bank holding company, and in each case of
(A)-(D) above, approved in writing by the Certificate Insurer; (ii) a
segregated trust account maintained with the corporate trust department of a
federal or state chartered depository institution or trust company, having
capital and surplus of not less than $50,000,000, acting in its fiduciary
capacity or (iii) otherwise acceptable to each Rating Agency and the
Certificate Insurer as evidenced by a letter from each Rating Agency and the
Certificate Insurer to the Trustee, without reduction or withdrawal of the then
current ratings of the Certificates.
Eligible Investments: One or more of the following (excluding any
callable investments purchased at a premium):
(i) direct obligations of, or obligations fully guaranteed as to
timely payment of principal and interest by, the United States or any
agency or instrumentality thereof, provided that such obligations are
backed by the full faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause
(i) maturing not more than three months from the date of acquisition
thereof, provided that the short-term unsecured debt obligations of
the party agreeing to repurchase such obligations are at the time
rated by a Rating Agency in its highest short-term rating category
(which is "A-1+" for Standard & Poor's and "P-1" for Moody's);
(iii) certificates of deposit, time deposits and bankers'
acceptances (which, if Moody's is a Rating Agency, shall each have an
original maturity of not more than 90 days and, in the case of
bankers' acceptances, shall in no event have an original maturity of
more than 365 days) of any U.S. depository institution or trust
company incorporated under the laws of the United States or any state
thereof and subject to supervision and examination by federal and/or
state banking authorities, provided that the unsecured short-term
debt obligations of such depository institution or trust company at
the date of acquisition thereof have been rated by a Rating Agency in
its highest unsecured short-term debt rating category;
(iv) commercial paper (having original maturities of not more
than 90 days) of any corporation incorporated under the laws of the
United States or any state thereof which on the date of acquisition
have been rated by Standard & Poor's or Moody's in their highest
short-term rating categories;
(v) short term investment funds ("STIFS") sponsored by any trust
company or national banking association incorporated under the laws
of the United States or any state thereof which on the date of
acquisition has been rated by Standard & Poor's or Moody's in their
respective highest rating category of long term unsecured debt;
(vi) interests in any money market fund which at the date of
acquisition of the interests in such fund and throughout the time as
the interest is held in such fund has a rating of "Aaa" by Moody's or
either "AAAm" or "AAAm-G" by Standard & Poor's; and
(vii) other obligations or securities that are acceptable to
each Rating Agency and the Certificate Insurer as an Eligible
Investment hereunder and will not result in a reduction in the then
current rating of the Certificates, as evidenced by a letter to such
effect from such Rating Agency and the Certificate Insurer and with
respect to which the Servicer has received confirmation that, for tax
purposes, the investment complies with the last clause of this
definition;
provided that no instrument described hereunder shall evidence either the right
to receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described hereunder may be purchased at a price greater than
par if such instrument may be prepaid or called at a price less than its
purchase price prior to its stated maturity.
Eligible Substitute Mortgage Loan: A Mortgage Loan substituted by the
Seller for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance), not in excess of and not more than 5% less than
the Principal Balance of the Defective Mortgage Loan; (ii) have a Loan Rate not
less than the Loan Rate of the Defective Mortgage Loan and not more than 1% in
excess of the Loan Rate of such Defective Mortgage Loan; (iii) have a Mortgage
of the same or higher level of priority as the Mortgage relating to the
Defective Mortgage Loan at the time such Mortgage was transferred to the Trust;
(iv) have a remaining term to maturity not more than six months earlier and not
later than the remaining term to maturity of the Defective Mortgage Loan; (v)
comply with each representation and warranty set forth in Section 2.04 (deemed
to be made as of the date of substitution); (vi) have an original Combined
Loan-to-Value Ratio not greater than that of the Defective Mortgage Loan; and
(vii) be of the same type of Mortgaged Property as the Defective Mortgage Loan
or a detached single family residence. More than one Eligible Substitute
Mortgage Loan may be substituted for a Defective Mortgage Loan if such Eligible
Substitute Mortgage Loans meet the foregoing attributes in the aggregate and
such substitution is approved in writing in advance by the Certificate Insurer.
Event of Default: As defined in Section 8.01.
Excess O/C Amount: As to any Distribution Date, the amount by which
(i) the O/C Amount for such Distribution Date exceeds (ii) the Specified O/C
Amount for such Distribution Date.
Excess Spread: With respect to any Distribution Date, the excess, if
any, of (x) Available Funds for such Distribution Date over (y) the aggregate
of the amounts required to be distributed pursuant to Section 5.01(a)(1)-(4),
on such Distribution Date.
FDIC: The Federal Deposit Insurance Corporation or any successor
thereto.
FHLMC: The Federal Home Loan Mortgage Corporation.
Final Scheduled Distribution Date: The Distribution Date in September
2028.
First Lien: With respect to any Mortgage Loan which is a second
priority lien, the mortgage loan relating to the corresponding Mortgaged
Property having a first priority lien.
Fiscal Agent: As defined in the Policy.
Fixed Rate Certificates: The Class A-2 Certificates.
FNMA: The Federal National Mortgage Association.
Foreclosure Profits: With respect to a Liquidated Mortgage Loan, the
amount, if any, by which (i) the aggregate of its Net Liquidation Proceeds
exceeds (ii) the related Principal Balance (plus accrued and unpaid interest
thereon at the applicable Loan Rate from the date interest was last paid
through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Mortgage Loan immediately prior to the final recovery of its
Liquidation Proceeds.
Insolvency Event: As defined in the Policy.
Insurance Agreement: The Insurance and Reimbursement Agreement dated
as of September 1, 1998 among the Depositor, Key Bank USA, the Seller, the
Servicer, the Trustee and the Certificate Insurer, including any amendments and
supplements thereto.
Insurance Proceeds: Proceeds paid by any insurer (other than the
Certificate Insurer) pursuant to any insurance policy covering a Mortgage Loan
or Mortgaged Property, or amounts required to be paid by the Servicer pursuant
to Section 3.05, net of any component thereof (i) covering any expenses
incurred by or on behalf of the Servicer in connection with obtaining such
proceeds, (ii) applied to the restoration or repair of the related Mortgaged
Property, (iii) released to the Mortgagor in accordance with the Servicer's
normal servicing procedures or (iv) required to be paid to any holder of a
mortgage senior to such Mortgage Loan.
Insured Payment: With respect to any Distribution Date, an amount
equal to the sum of (a) the amount, if any, by which the aggregate of the Class
Interest Distributions with respect to the Class A Certificates for such
Distribution Date exceeds the amount on deposit in the Distribution Account
available to be distributed therefor on such Distribution Date pursuant to
Section 5.01 and (b) (i) if such Distribution Date is not the Final Scheduled
Distribution Date, the Class A-1 Guaranteed Principal Distribution Amount on
such Distribution Date or (ii) if such Distribution Date is the Final Scheduled
Distribution Date, the Class A-1 Principal Balance (taking into account
distributions allocable to principal on such Distribution Date pursuant to
Section 5.01(a)).
Interest Period: With respect to any Distribution Date and (i) the
Fixed Rate Certificates, the period from the first day of the calendar month
preceding the month of such Distribution Date through the last day of such
calendar month and (ii) the Variable Rate Certificates, the period from the
Distribution Date in the month preceding the month of such Distribution Date
(or, in the case of the initial Distribution Date, from the Closing Date)
through the day before such Distribution Date.
Interest Rate: With respect to each Subsidiary REMIC Interest, the
applicable rate set forth or calculated in the manner described in Section
2.08.
Key Bank USA: Key Bank USA, National Association, a national banking
association.
Latest Possible Maturity Date: The Distribution Date in September
2031.
LIBOR Business Day: Any day other than (i) a Saturday or a Sunday or
(ii) a day on which banking institutions in the State of New York, the State of
Illinois or in the city of London, England are required or authorized by law to
be closed.
Liquidated Mortgage Loan: As to any Distribution Date, any Mortgage
Loan in respect of which the Servicer has determined, in accordance with the
servicing procedures specified herein, as of the end of the related Due Period,
that all Liquidation Proceeds which it expects to recover with respect to the
liquidation of the Mortgage Loan or disposition of the related REO Property
have been recovered.
Liquidation Proceeds: Proceeds (including Insurance Proceeds but not
including amounts drawn under the Certificate Insurance Policy) received in
connection with the liquidation of any Mortgage Loan or related REO Property,
whether through trustee's sale, foreclosure sale or otherwise (including rental
income).
Liquidation Report: With respect to each Liquidated Mortgage Loan,
the report prepared by the Servicer in the form attached hereto as Exhibit O.
Loan Rate: With respect to any Mortgage Loan as of any day, the per
annum rate of interest applicable under the related Mortgage Note to the
calculation of interest for such day on the Principal Balance.
Majority Certificateholder: The Holder or Holders of the Class A
Certificates evidencing Voting Rights in excess of 51% in the aggregate.
Monthly Advance: An advance made by the Servicer pursuant to Section
3.16.
Monthly Payment: The scheduled monthly payment of principal and/or
interest required to be made by a Mortgagor on the related Mortgage Loan.
Moody's: Moody's Investors Service, Inc. or its successor in
interest.
Mortgage: The mortgage, deed of trust or other instrument creating a
first or second lien on an estate in fee simple interest in real property
securing a Mortgage Loan.
Mortgage File: The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement.
Mortgage Loans: The mortgage loans that are transferred and assigned
to the Trustee on behalf of the Trust pursuant to Sections 2.01, 2.06 and 2.14,
together with the Related Documents, exclusive of Mortgage Loans that are
transferred to the Seller, from time to time pursuant to Sections 2.02 and
2.06, as from time to time are held as a part of the Trust, such mortgage loans
originally so held being identified in the Mortgage Loan Schedule delivered on
the Closing Date.
Mortgage Loan Schedule: With respect to any date, the schedule of
Mortgage Loans constituting assets of the Trust. The Mortgage Loan Schedule is
the schedule set forth herein as Exhibit D, which schedule sets forth as to
each Mortgage Loan: (i) the Cut-Off Date Principal Balance, (ii) the account
number, (iii) the original principal amount, (iv) the CLTV as of the date of
the origination of the related Mortgage Loan, (v) the Due Date, (vi) the Loan
Rate as of the Cut-Off Date, (vii) the first date on which a Monthly Payment is
or was due under the Mortgage Note, (viii) the original stated maturity date of
the Mortgage Note and if the Mortgage Loan is a Balloon Loan, the amortization
terms, (ix) the remaining number of months to maturity as of the Cut-Off Date,
(x) the state in which the related Mortgaged Property is situated, (xi) the
type of property and (xii) the lien status. The Mortgage Loan Schedule will be
amended from time to time to reflect the substitution of an Eligible Substitute
Mortgage Loan for a Defective Mortgage Loan from time to time hereunder.
Mortgage Note: With respect to a Mortgage Loan, the note pursuant to
which the related Mortgagor agrees to pay the indebtedness evidenced thereby
which is secured by the related Mortgage.
Mortgaged Property: The underlying property, including real property
and improvements thereon, securing a Mortgage Loan.
Mortgagor: The obligor or obligors under a Mortgage Note.
Net Funds Cap: With respect to a Distribution Date, the percentage
equivalent of (A) a fraction, (1) the numerator of which is equal to (a) all
payments of interest due on the Mortgage Loans during the related Due Period,
less (b) the sum of (i) the Servicing Fee payable on such Distribution Date,
(ii) the Trustee Fee payable on such Distribution Date, (iii) the Premium
Amount payable on such Distribution Date and (iv) the Class Monthly Interest
Distributable Amount of the Class A-2 Certificates and (2) the denominator of
which is the Class A-1 Principal Balance as of the first day of the related Due
Period, times (B) a fraction, the numerator of which is one and the denominator
of which is the actual number of days in the Interest Period for the Class A-1
Certificates, times (C) 360. Notwithstanding the foregoing, on any Distribution
Date on which the O/C Amount exceeds the Class A-1 Principal Balance, the Net
Funds Cap may not exceed the product of (A) two and (B) the Adjusted Weighted
Average Net Rate and (C) a fraction, the numerator of which is thirty and the
denominator of which is the actual number of days in the Interest Period for
the Class A-1 Certificates. This limitation will apply on any Distribution Date
during which the O/C Amount exceeds the Class A-1 Principal Balance. For
purposes of the REMIC Provisions the Net Funds Cap shall equal (a) the product
of (x) two and (y) a fraction, the numerator of which is the product of the
Adjusted Weighted Average Net Rate and the principal balance of the Class T2-3
Interest immediately prior to such Distribution Date and the denominator of
which is the sum of the principal balances of the Class T2-2 and Class T2-3
Interest immediately prior to such Distribution Date.
Net Liquidation Proceeds: With respect to any Liquidated Mortgage
Loan, Liquidation Proceeds net of unreimbursed Servicing Fees, Servicing
Advances and Monthly Advances with respect thereto.
Net Loan Rate: With respect to any Mortgage Loan as to any day, the
Loan Rate less the Servicing Fee Rate.
Nonrecoverable Advances: With respect to any Mortgage Loan, (i) any
Servicing Advance or Monthly Advance previously made and not reimbursed
pursuant to Section 3.03(ii) or (ii) a Servicing Advance or Monthly Advance
proposed to be made in respect of a Mortgage Loan or REO Property which, in
either case, in the good faith business judgment of the Servicer, as evidenced
by an Officer's Certificate delivered to the Certificate Insurer, the Seller
and the Trustee no later than three Business Days following such determination,
would not be ultimately recoverable pursuant to Sections 3.03(ii) or 3.03(vii).
Notional Principal Balance: With respect to each of the first 36
Distribution Dates and the Class A-2 Certificates, an amount equal to the
lesser of (a) the Pool Principal Balance as of the first day of the related Due
Period and (b) $21,000,000, and with respect to each Distribution Date
thereafter, zero.
O/C Amount: As to any Distribution Date, the excess, if any, of (a)
the Pool Principal Balance as of the close of business on the last day of the
related Due Period over (b) the Class A-1 Principal Balance (after giving
effect to amounts available in respect of the Class A-1 Monthly Principal
Distributable Amount and Class A-1 Principal Shortfall Amount, if any, for such
Distribution Date).
O/C Reduction Amount: As to any Distribution Date, an amount equal to
the lesser of (i) the Excess O/C Amount for such Distribution Date and (ii) the
Principal Remittance Amount for such Distribution Date.
Officer's Certificate: A certificate signed by the President, an
Executive Vice President, a Senior Vice President, a First Vice President, a
Vice President, Assistant Vice President, the Treasurer, Assistant Treasurer,
Assistant Secretary, Controller or Assistant Controller of the Servicer and
delivered to the Trustee.
Opinion of Counsel: A written opinion of counsel reasonably
acceptable to the Trustee, who may be in-house counsel for the Servicer or its
Affiliate or the Depositor (except that any opinion relating to the
qualification of the Trust as a REMIC or compliance with the REMIC Provisions
must be an opinion of independent outside counsel) and who, in the case of
opinions delivered to each of the Certificate Insurer and the Rating Agency, is
reasonably acceptable to each of them.
Original Class A-1 Certificate Principal Balance: $300,000,000.
Outstanding Class Interest Carryover Shortfall: With respect to any
Class of Class A Certificates and any Distribution Date, the amount of Class
Interest Carryover Shortfall for such Distribution Date plus one month's
interest thereon, at the related Certificate Rate, to the extent permitted by
law.
Ownership Interest: As to any Certificate or security interest in
such Certificate, including any interest in such Certificate as the Holder
thereof and any other interest therein, whether direct or indirect, legal or
beneficial, as owner or as pledgee.
Paying Agent: Any paying agent appointed pursuant to Section 6.05.
Percentage Interest: As to any Class A Certificate, the percentage
obtained by dividing the principal or notional denomination, as applicable, of
such Certificate by the aggregate of the principal or notional denominations,
as applicable, of all Class A Certificates of the same Class. As to any Class R
Certificate, the portion of the Class evidenced thereby as stated on the face
thereof, which shall be either 99.999999% or, but only with respect to the Tax
Matters Person Residual Interest held by the Tax Matters Person, 0.000001%.
Permitted Transferee: Any Person other than (i) the United States,
any State or any political subdivision thereof or any agency or instrumentality
of any of the foregoing, (ii) a foreign government, international organization
or any agency or instrumentality of either of the foregoing, (iii) an
organization which is exempt from tax imposed by Chapter 1 of the Code
(including the tax imposed by section 511 of the Code on unrelated business
taxable income) (except certain farmers' cooperatives described in Code section
521) on any excess inclusions (as defined in Section 860E(c)(1)) with respect
to any Class R Certificate, (iv) rural electric and telephone cooperatives
described in Code section 1381(a)(2)(C), (v) a Person that is not a citizen or
resident of the United States, a corporation, partnership or other entity
treated as a corporation or partnership for federal income tax purposes created
or organized in or under the laws of the United States, any State thereof, or
the District of Columbia (unless otherwise provided in Treasury Regulations) or
an estate whose income from sources without the United States is includible in
gross income for United States federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States, or
a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust
and (vi) an "electing large partnership" within the meaning of Section 775 of
the Code, (vii) any other Person so designated by the Trustee based on an
Opinion of Counsel to the effect that any transfer to such Person may cause the
Trust to fail to qualify as a REMIC at any time the Certificates are
outstanding. The terms "United States", "State" and "international
organization" shall have the meanings set forth in Code section 7701 or
successor provisions. A corporation will not be treated as an instrumentality
of the United States or of any State or political subdivision thereof if all of
its activities are subject to tax and, with the exception of the FHLMC, a
majority of its board of directors is not selected by such governmental unit.
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Pool Principal Balance: With respect to any date, the aggregate of
the Principal Balances of all Mortgage Loans as of such date.
Premium Amount: The premium payable to the Certificate Insurer
pursuant to Section 2.03 of the Insurance Agreement.
Premium Percentage: As defined in the Insurance Agreement.
Prepayment Assumption: A conditional rate of prepayment equal to 4%
per annum in the first month of the life of the Mortgage Loans and
approximately an additional 1.45% (precisely 16/11) (expressed as a percentage
per annum) in each month thereafter until the twelfth month; beginning in the
twelfth month and in each month thereafter during the life of the Mortgage
Loans, a conditional prepayment rate of 20% per annum each month is assumed.
Prepayment Interest Shortfall: With respect to any Distribution Date,
for each Mortgage Loan that was the subject during the related Due Period of a
Principal Prepayment in full an amount equal to the excess, if any, of (i) 30
days' interest on the Principal Balance of such Mortgage Loan at the Net Loan
Rate (or at such lower rate as may be in effect for such Mortgage Loan pursuant
to application of the Civil Relief Act) over (ii) the amount of interest
actually remitted by the Mortgagor in connection with such Principal Prepayment
less the Servicing Fee for such Mortgage Loan in such month.
Principal Balance: As to any Mortgage Loan and any day, other than a
Liquidated Mortgage Loan, the related Cut-Off Date Principal Balance, minus all
collections credited against the Principal Balance of any such Mortgage Loan.
For purposes of this definition, a Liquidated Mortgage Loan shall be deemed to
have a Principal Balance equal to the Principal Balance of the related Mortgage
Loan as of the final recovery of related Liquidation Proceeds and a Principal
Balance of zero thereafter.
Principal Prepayment: Any payment or other recovery of principal on a
Mortgage Loan equal to the outstanding principal balance thereof, received in
advance of the final scheduled Due Date which is intended to satisfy a Mortgage
Loan in full.
Principal Remittance Amount: With respect to any Distribution Date,
the amount equal to the sum of the following amounts (without duplication) with
respect to the immediately preceding Due Period: (i) that portion of all
Monthly Payments allocable to principal on Mortgage Loans, including all full
and partial principal prepayments received during the related Due Period, (ii)
the Net Liquidation Proceeds allocable to principal actually collected by the
Servicer during the related Due Period, (iii) the portion of the Purchase Price
allocable to principal of all Defective Mortgage Loans that were repurchased
during the related Due Period and (iv) any Substitution Adjustments for
Mortgage Loans, deposited to the Distribution Account pursuant to Section 2.06
on or prior to the related Determination Date and not previously distributed.
Prospectus: The base prospectus of the Depositor dated September 24,
1998.
Prospectus Supplement: The prospectus supplement dated September 24,
1998, relating to the offering of the Class A Certificates.
Purchase Agreement: The Mortgage Loan Purchase Agreement, dated as of
September 1, 1998, between the Seller, as seller, and the Depositor, as
purchaser, with respect to the Mortgage Loans.
Purchase Price: As to any Mortgage Loan repurchased on any date
pursuant to Section 2.02, 2.04 or 3.20 an amount equal to the sum of (i) the
unpaid Principal Balance thereof, (ii) the greater of (a) all unpaid accrued
interest thereon to the end of the Due Period preceding the Distribution Date
on which such Purchase Price is included in Available Funds and (b) 30 days'
interest thereon, computed at the applicable Loan Rate; provided, however, that
if at the time of repurchase the Seller is the Servicer, the amount described
in clause (ii) shall be computed at a rate equal to the Net Loan Rate, (iii)
(x) if the Servicer is not the Seller, any unreimbursed Servicing Advances with
respect to such Mortgage Loan and (y) expenses reasonably incurred or to be
incurred by the Servicer or the Trustee in respect of the breach or defect
giving rise to the purchase obligation and (iv) the amount of any penalties,
fines, forfeitures, legal fees and related costs, judgments and any other
costs, fees and expenses incurred by or imposed on the Depositor, the Trustee
or the Trust or with respect to which any of them are liable arising from a
breach by the Seller of its representations and warranties in Section 2.04.
Purchaser: The Depositor in its capacity as purchaser under the
Purchase Agreement.
Rating Agency: Any statistical credit rating agency, or its
successor, that rated the Class A Certificates at the request of the Depositor
at the time of the initial issuance of the Certificates.
If such agency or a successor is no longer in existence, "Rating Agency" shall
be such statistical credit rating agency, or other comparable Person,
designated by the Depositor, notice of which designation shall be given to the
Trustee. References herein to the highest short term unsecured rating category
of a Rating Agency shall mean "A-1+" or better in the case of Standard & Poor's
and "P-1" or better in the case of Moody's and in the case of any other Rating
Agency shall mean such equivalent ratings. References herein to the highest
long-term rating category of a Rating Agency shall mean "AAA" in the case of
Standard & Poor's and "Aaa" in the case of Moody's and in the case of any other
Rating Agency, such equivalent rating.
Realized REMIC Losses: With respect to each Mortgage Loan (or REO
Property) which has been converted to a Liquidated Mortgage Loan, an amount
(not less than zero) equal to (i) the Principal Balance of the Mortgage Loan
(or REO Property) as of the such date, plus (ii) interest at the Loan Rate from
the Due Date as to which interest was last paid or advanced to the
Certificateholder up to the last day of the month in which such Mortgage Loan
(or REO Property) has been converted to a Liquidated Mortgage Loan on the
Principal Balance of such Mortgage Loan (or REO Property) outstanding during
each Due Period that such interest was not paid or advanced, minus (iii) the
proceeds, if any, received during the month in which such Mortgage Loan (or REO
Property) has been converted to a Liquidated Mortgage Loan, to the extent
applied as recoveries of interest at the Loan Rate and to principal of the
Mortgage Loan.
Record Date: With respect to (i) the Fixed Rate Certificates, the
last Business Day of the month immediately preceding the month in which the
related Distribution Date occurs and (ii) the Variable Rate Certificates, the
Business Day immediately preceding such Distribution Date; provided, however,
that if any Variable Rate Certificate becomes a Definitive Certificate, the
record date for such Variable Rate Certificate will be the last Business Day of
the month immediately preceding the month in which the related Distribution
Date occurs.
Reference Bank Rate: As to any Interest Period relating to the
Variable Rate Certificates as follows: the arithmetic mean (rounded upwards, if
necessary, to the nearest one sixteenth of a percent) of the offered rates for
United States dollar deposits for one month which are offered by the Reference
Banks as of 11:00 a.m., London time, on the second LIBOR Business Day prior to
the first day of such Interest Period to prime banks in the London interbank
market for a period of one month in amounts approximately equal to the Class
A-1 Principal Balance of the Variable Rate Certificates; provided that at least
two such Reference Banks provide such rate. If fewer than two offered rates
appear, the Reference Bank Rate will be the arithmetic mean of the rates quoted
by one or more major banks in New York City, selected by the Trustee after
consultation with the Servicer, as of 11:00 a.m., New York City time, on such
date for loans in U.S. Dollars to leading European Banks for a period of one
month in amounts approximately equal to the Class A-1 Principal Balance of the
Variable Rate Certificates. If no such quotations can be obtained, the
Reference Bank Rate shall be the Reference Bank Rate applicable to the
preceding Interest Period.
Reference Banks: Three major banks that are engaged in the London
interbank market, selected by the Trustee after consultation with the Servicer.
Regular Certificates: The Class A Certificates.
Related Documents: As defined in Section 2.01.
Released Mortgaged Property Proceeds: As to any Mortgage Loan,
proceeds received by the Servicer in connection with (a) a taking of an entire
Mortgaged Property by exercise of the power of eminent domain or condemnation
or (b) any release of part of the Mortgaged Property from the lien of the
related Mortgage, whether by partial condemnation, sale or otherwise, which are
not released to the Mortgagor in accordance with applicable law, mortgage
servicing standards the Servicer would use in servicing mortgage loans for its
own account and the Pooling and Servicing Agreement.
REMIC: A "real estate mortgage investment conduit" within the meaning
of Section 860D of the Code.
REMIC Certificate Maturity Date: The "latest possible maturity date"
of the Regular Certificates as that term is defined in Section 2.10.
REMIC Change of Law: Any proposed, temporary or final regulation,
revenue ruling, revenue procedure or other official announcement or
interpretation relating to the REMIC and the REMIC Provisions issued after the
Closing Date.
REMIC Provisions: Provisions of the federal income tax law relating
to real estate mortgage investment conduits, which appear at Sections 860A
through 860G of Subchapter M of Chapter 1 of the Code, and related provisions,
and regulations promulgated thereunder, as the foregoing may be in effect from
time to time.
REO Property: A Mortgaged Property that is acquired by the Trustee in
foreclosure or by deed in lieu of foreclosure.
Residential Dwelling: A one- to four-family dwelling, a unit in a
planned unit development, a unit in a condominium development or a townhouse.
Responsible Officer: When used with respect to the Trustee, any
officer of the Trustee within the Corporate Trust Office of the Trustee
including any vice president or assistant vice president, assistant treasurer,
assistant secretary or, any other officer to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject. When used with respect to the Seller or Servicer, the President or any
Vice President, Assistant Vice President, Treasurer of Assistant Treasurer or
any Secretary or Assistant Secretary.
SAIF: The Savings Association Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989 or, if at any time after the execution of this
Agreement the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.
Seller: Champion, as seller under the Purchase Agreement.
Servicer: Champion as servicer, or any successor hereunder.
Servicing Advances: All reasonable and customary unanticipated "out
of pocket" costs and expenses incurred in the performance by the Servicer of
its servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of the Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of the REO Property, including reasonable fees paid
to any independent contractor in connection therewith, (iv) compliance with the
obligations under Sections 3.04, 3.07 or 3.19 and (v) in connection with the
liquidation of a Mortgage Loan, expenditures relating to the purchase or
maintenance of the First Lien pursuant to Section 3.17, all of which reasonable
and customary unanticipated out-of-pocket costs and expenses are reimbursable
to the Servicer to the extent provided in Sections 3.03(ii) and 3.03(vii) and
3.07.
Servicing Certificate: A certificate completed and executed by a
Servicing Officer on behalf of the Servicer.
Servicing Fee: As to each Distribution Date and each Mortgage Loan,
the monthly fee payable to the Servicer, which subject to Section 5.02 is
calculated as an amount equal to the product of the Servicing Fee Rate and the
Principal Balance thereof at the beginning of the related Due Period.
Servicing Fee Rate: 0.40% per annum (or if Champion is no longer the
Servicer, 0.50% per annum).
Servicing Officer: Any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name and specimen signature appear on a list of servicing officers furnished to
the Trustee (with a copy to the Certificate Insurer) by the Servicer, as such
list may be amended from time to time, initially set forth in Exhibit P hereto.
Specified O/C Amount: With respect to any Distribution Date prior to
the Step Down Date the greater of (i) the Base O/C Amount and (ii) the
Delinquency Amount and, with respect to any Distribution Date occurring on or
after the Step Down Date, the greatest of:
(i) two times the product of the Base O/C Percentage and the
Pool Principal Balance as of the close of business on the last day of
the related Due Period;
(ii) the Delinquency Amount;
(iii) the product of (x) .50% and (y) the Cut-Off Date Pool
Principal Balance; and
(iv) three times the Principal Balance of the largest Mortgage
Loan as of the end of the related Due Period.
Standard & Poor's: Standard & Poor's Ratings Service, or its
successor in interest.
Start-up Day: The day designated as such pursuant to Section 2.09.
Step Down Date: The later to occur of (A) the first Distribution Date
on which the Pool Principal Balance is less than the product of (x) 50% and the
Cut-Off Date Pool Principal Balance and (B) the thirtieth Distribution Date.
Subservicer: Any Person with whom the Servicer has entered into a
Subservicing Agreement and who satisfies the requirements set forth in Section
3.01(b) in respect of the qualification of a Subservicer.
Subservicing Agreement: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of certain Mortgage
Loans as provided in Section 3.01(b), a copy of which shall be delivered, along
with any modifications thereto, to the Trustee and the Certificate Insurer.
Subsidiary REMIC: As described in Section 2.08.
Substitution Adjustment: As to any date on which a substitution
occurs pursuant to Section 2.06, the sum of (a) the excess of (i) the aggregate
Principal Balances of all Defective Mortgage Loans to be replaced by Eligible
Substitute Mortgage Loans (after application of principal payments received on
or before the date of substitution of any Eligible Substitute Mortgage Loans as
of the date of substitution) over (ii) the Principal Balance of such Eligible
Substitute Mortgage Loans and (b) the greater of (x) accrued and unpaid
interest (accruing at the Loan Rate for such Defective Mortgage Loan)on such
excess through the Due Period relating to the Distribution Date for which such
Substitution Adjustment will be included as part of Available Funds and (y) 30
days' interest on such excess calculated on a 360-day year in each case at the
Loan Rate (or Net Loan Rate if the Seller is the Servicer) and (c) if the
Servicer is not the Seller, the amount of any unreimbursed Servicing Advances
made by the Servicer with respect to such Defective Mortgage Loan and (d) the
amount referred to in clause (iv) of the definition of Purchase Price in
respect of such Defective Mortgage Loan.
Supplemental Mortgage Loan Schedule: As defined in Section 2.06(b).
Support Agreement: The Agreement between the Depositor and Key Bank
USA dated as of September 1, 1998, pursuant to which Key Bank USA ensures
performance by the Servicer of the obligation to deposit certain amounts in the
Collection Account pursuant to Section 4.04.
Tax Matters Person: As defined in Section 2.12.
Tax Matters Person Residual Interest: A 0.000001% interest in the
Class R Certificates, which shall be issued to and held by the Trustee.
Termination Price: As defined in Section 10.01(a).
Transfer Date: The Closing Date.
Trust: The trust created by this Agreement, the corpus of which
consists of the Mortgage Loans, such assets as shall from time to time be
deposited in the Collection Account and the Distribution Account in accordance
with this Agreement, property that secured a Mortgage Loan and that has become
REO Property, the Certificate Insurance Policy, certain hazard insurance
policies maintained by the Mortgagors or the Servicer in respect of the
Mortgage Loans and an assignment of the Depositor's rights under the Purchase
Agreement and the Support Agreement and all proceeds of each of the foregoing.
Trustee Fee: The fee owed to the Trustee pursuant to a letter
agreement between the Servicer and the Trustee.
Trustee Fee Rate: The per annum rate at which the Trustee Fee is
calculated.
UCC: The Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
Variable Rate Certificates: The Class A-1 Certificates.
Voting Rights: The portion of the aggregate voting rights of all the
Certificates evidenced by a Certificate. At all times during the term of this
Agreement, 98% of the Voting Rights shall be allocated among Holders of the
Class A-1 Certificates and 2% of the Voting Rights shall be allocated among the
Holders of the Class A-2 Certificates. Voting Rights allocated to a Class of
Certificates shall be allocated among the Certificates of each such Class in
accordance with their respective Percentage Interests. The Holders of the Class
R Certificates shall have no Voting Rights.
Weighted Average Net Rate: As to any Distribution Date will equal,
the percentage equivalent of (A) a fraction, (1) the numerator of which is
equal to (a) all payments of interest due on the Mortgage Loans during the
related Due Period, less (b) the sum of (i) the Servicing Fee payable on such
Distribution Date, (ii) the Trustee Fee payable on such Distribution Date, and
(iii) and the Premium Amount payable on such Distribution Date and (2) the
denominator of which is the Pool Principal Balance as of the first day of the
related Due Period, times (B) a fraction, the numerator of which is one and the
denominator of which is the actual number of days in the Interest Period for
the Class A-1 Certificates, times (C) 360.
Section 1.02. Interest Calculations. All calculations of interest
that are made in respect of the Principal Balance of a simple interest Mortgage
Loan shall be made on the basis of a 365-day year and the actual number of days
elapsed. All calculations of interest that are made in respect of the Principal
Balance of an actuarial Mortgage Loan shall be made on the basis of a 360-day
year consisting of twelve 30-day months. The Certificate Rate for the Variable
Rate Certificates shall be calculated on the basis of a 360-day year and the
actual number of days elapsed. The Certificate Rate for the Fixed Rate
Certificates shall be calculated on the basis of a 360-day year consisting of
twelve 30-day months. The calculation of the Servicing Fee and the Trustee Fee
shall be made on the basis of a 360-day year consisting of twelve 30-day
months. All dollar amounts calculated hereunder shall be rounded to the nearest
penny with one-half of one penny being rounded down.
ARTICLE II
Conveyance of Mortgage Loans;
Original Issuance of Certificates;
Tax Treatment
Section 2.01. Conveyance of Mortgage Loans. (a) The Depositor,
concurrently with the execution and delivery of this Agreement, does hereby
transfer, assign, sell, set over and otherwise convey to the Trust without
recourse (subject to Sections 2.02 and 2.04)(i) all of its right, title and
interest in and to each Mortgage Loan, including the Cut-Off Date Principal
Balance, and all collections in respect of interest and principal received
after the Cut-Off Date; (ii) property which secured such Mortgage Loan and
which has been acquired by foreclosure or deed in lieu of foreclosure; (iii)
its interest in any insurance policies in respect of the Mortgage Loans; (iv)
the rights of the Depositor under the Support Agreement; (v) the Collection
Account and the Distribution Account; (vi) all proceeds of any of the
foregoing; and (vii) the Depositor's rights under the Purchase Agreement,
including, without limitation, the representations and warranties of the Seller
thereunder together with all rights of the Depositor to require the Seller to
cure any breach thereof or to repurchase or substitute for any affected
Mortgage Loan in accordance with the Purchase Agreement. In addition, on or
prior to the Closing Date, the Depositor shall cause the Certificate Insurer to
deliver the Certificate Insurance Policy to the Trustee.
In connection with such transfer, assignment and conveyance by the
Depositor, the Seller shall deliver to the Trustee, on or before the Transfer
Date, the following documents or instruments with respect to each Mortgage Loan
(the "Related Documents") and the Mortgage Loan Schedule in computer readable
format:
(i) the original Mortgage Note, endorsed in blank, with all
intervening endorsements showing a complete chain of title from the
originator of such Mortgage Loan to the Seller;
(ii) the original Mortgage, with evidence of recording thereon,
provided that if the original Mortgage has been delivered for
recording to the appropriate public recording office of the
jurisdiction in which the Mortgaged Property is located but has not
yet been returned to the Seller by such recording office, the Seller
shall deliver to the Trustee a certified true copy of such original
Mortgage so certified by the Seller, together with a certificate of
the Seller certifying that such original Mortgage has been so
delivered to such recording office; in all such instances, the Seller
shall deliver or cause to be delivered the original recorded Mortgage
to the Trustee promptly upon receipt of the original recorded
Mortgage;
(iii) the original Assignment of Mortgage, from the Seller to
"Harris Trust and Savings Bank, as Trustee for Champion Home Equity
Loan Trust 1998-1", which assignment shall be in form and substance
acceptable for recording;
(iv) the original attorney's opinion of title or the original
policy of title insurance, provided that if any such original policy
of title insurance has not yet been received by the Seller, the
Seller may have delivered to the Trustee a copy of such policy or a
title insurance binder or commitment for the issuance of such policy;
(v) originals of all intervening assignments of Mortgage, with
evidence of recording thereon, showing a complete chain of title from
the originator to the Seller, provided that if any such original
intervening assignment of Mortgage has been delivered for recording
to the appropriate public recording office of the jurisdiction in
which the Mortgaged Property is located but has not yet been returned
to the Seller by such recording office, the Seller may have delivered
to the Trustee a certified true copy of such original assignment of
Mortgage so certified by the Seller, together with a certificate of
the Seller certifying that such original assignment of Mortgage has
been so delivered to such recording office; in all such instances,
the Seller shall deliver or cause to be delivered any such original
assignments to the Trustee promptly upon receipt thereof; and
(vi) originals of all assumption and modification agreements, if
any.
The Seller hereby confirms to the Trustee that it has made the
appropriate entries in its general accounting records, to indicate that such
Mortgage Loans have been transferred to the Trustee and constitute part of the
Trust in accordance with the terms of the trust created hereunder.
Within 30 days of the Closing Date, the Seller, at its expense, shall
send or cause to be sent for recording the Assignments of Mortgage in favor of
the Trustee in the appropriate real property or other records (which may be a
blanket assignment if permitted by applicable law), except as to those
non-recordation states referred to in the third succeeding sentence. The
Trustee shall be required to retain a copy of each Assignment of Mortgage
submitted for recording. In the event that any such Assignment of Mortgage is
lost or returned unrecorded because of a defect therein, the Seller, at its own
expense, shall promptly prepare a substitute Assignment of Mortgage or cure
such defect, as the case may be, and thereafter the Seller shall be required to
submit each such Assignment of Mortgage for recording. With respect to any
non-recordation state, the Seller may provide to the Trustee and the
Certificate Insurer (and to each Rating Agency, in the case of any state in
which 10% or more by Principal Balance as of the Cut-Off Date of the Mortgaged
Properties are located), an opinion of counsel in a form reasonably acceptable
to the Trustee and the Certificate Insurer (and, where applicable, to each
Rating Agency), to the effect that, as to any Mortgage Loan with respect to
which the related Mortgaged Property is located in such state, recordation of
an Assignment of Mortgage in such state is not necessary to transfer title to
the related Mortgage Note to the Trust or to pledge to the Trustee the issuer's
rights under such Mortgage Note in respect of which the Mortgaged Property is
located in such state; provided, however, if the Servicer is terminated
pursuant to Section 8.01, any Assignments of Mortgage that have not been
previously recorded in favor of the Trustee shall be submitted for recordation
at the expense of the Seller within 30 days of such termination. Any failure of
the Seller to comply with this Section shall result in the obligation of the
Seller to purchase such Mortgage Loans pursuant to the provisions of Section
2.02 or substitute for the related Mortgage Loans pursuant to the provisions of
Section 2.06.
(b) The parties hereto intend that the transaction set forth herein
be a sale by the Depositor to the Trust or the Seller to the Trust, as
applicable of all its right, title and interest in and to the Mortgage Loans
and other property described above. In the event the transaction set forth
herein is deemed not to be a sale, the Depositor or Seller, as applicable,
hereby grants to the Trust a security interest in all of its right, title and
interest in, to and under the Mortgage Loans and other property described
above; and this Agreement shall constitute a security agreement under
applicable law.
The Seller agrees to prepare, execute and file UCC-1 financing
statements with the Secretary of State in the States of New Jersey and New York
(which shall have been delivered for filing on or before the Closing Date with
respect to the Mortgage Loans) describing the applicable Mortgage Loans and
naming the Seller as debtor and, with respect to the Mortgage Loans, the
Purchaser (and indicating that such loans have been assigned to the Trustee)
and the Trustee, as secured party and any amendments to the UCC-1 financing
statements required to reflect a change in the name or corporate structure of
the Seller or the filing of any additional UCC-1 financing statements due to
the change in the principal office of the Seller, as are necessary to perfect
and protect the Trustee's interest in each Mortgage Loan and the proceeds
thereof.
The Seller, the Depositor, the Servicer and the Trustee shall, to the
extent consistent with this Agreement, take such actions as may be necessary to
ensure that, if this Agreement were deemed to create a security interest in the
Mortgage Loans, such security interest would be deemed to be a perfected
security interest of first priority under applicable law and will be maintained
as such throughout the term of this Agreement.
(c) The Trustee agrees to execute and deliver on the Closing Date an
acknowledgment of receipt of, for each Mortgage Loan, the items required to be
delivered by the Seller pursuant to Section 2.01(a) (i) through (vi). The
Trustee agrees, for the benefit of Certificateholders, within 30 days after
execution and delivery of this Agreement, to review the Mortgage Files to
ascertain that all required documents set forth in paragraphs (i) - (vi) of
Section 2.01(a) have been executed and received, and that such documents relate
to the Mortgage Loans identified on the Mortgage Loan Schedule and that the
Mortgage Notes have been endorsed as set forth in Section 2.01(a), and in so
doing the Trustee may rely on the purported due execution and genuineness of
any signature thereon. If within such 30-day period the Trustee finds any
document constituting a part of a Mortgage File not to have been executed or
received or to be unrelated to the Mortgage Loans identified in said Mortgage
Loan Schedule or, if in the course of its review, the Trustee determines that
such Mortgage File is otherwise defective in any material respect, the Trustee
shall promptly upon the conclusion of such review notify the Seller, the
Depositor and the Certificate Insurer, and the Seller shall have a period of 90
days after such notice within which to correct or cure any such defect;
provided, however, that if such defect shall not have been corrected or cured
within such 90-day period due primarily to the failure of the related office of
real property or other records to return any document constituting a part of a
Mortgage File, the Seller shall so notify the Trustee in writing and the period
during which such defect may be corrected or cured shall be extended until such
time as any such documents are returned from such related office (in no event,
however, will such period extend beyond one (1) year from the date of discovery
of such defect); provided that prior to any such extension the Seller shall
deliver to the Trustee a true copy of such document certified by the Seller to
be a true and correct copy, the original of which has been transmitted for
recordation.
The Trustee shall have no responsibility for reviewing any Mortgage
File except as expressly provided in this Section 2.01. In reviewing any
Mortgage File pursuant to this Section, the Trustee shall have no
responsibility for determining whether any document is valid and binding,
whether the text of any assignment or endorsement is in proper or recordable
form (except, if applicable, to determine if the Trustee is the assignee or
endorsee), whether any document has been recorded in accordance with the
requirements of any applicable jurisdiction, or whether a blanket assignment is
permitted in any applicable jurisdiction, whether any Person executing any
document is authorized to do so or whether any signature thereon is genuine,
but shall only be required to determine whether a document has been executed,
that it appears to be what it purports to be, and, where applicable, that it
purports to be recorded.
Section 2.02 Acceptance by Trustee. The Trustee hereby acknowledges
its receipt of the Certificate Insurance Policy and the sale and assignment of
the Mortgage Loans, and, subject to the review and period for delivery provided
for in Section 2.01, the Mortgage Files, and declares that the Trustee will
hold such documents and all amounts received by it thereunder and hereunder in
trust, upon the terms herein set forth, for the use and benefit of all present
and future Certificateholders and the Certificate Insurer. If the Seller is
given notice under Section 2.01(c) and if the Seller does not correct or cure
such omission or defect within the 90-day period specified in Section 2.01(c),
the Seller shall purchase such Mortgage Loan from the Trust or substitute an
Eligible Substitute Mortgage Loan for such Mortgage Loan (i) on the
Determination Date in the month following the month in which such 90-day period
expired at the Purchase Price of such Mortgage Loan or in accordance with
Section 2.06, as applicable or (ii) upon the expiration of such 90-day period
if the omission or defect would result in the related Mortgage Loan not being a
Qualified Mortgage Loan for purposes of Section 860G(a)(3) of the Code. The
Purchase Price for the purchased Mortgage Loan shall be deposited in the
Collection Account on the Determination Date immediately following such 90-day
period or on the Business Day on or immediately following the date on which
such period expires, as applicable; provided that the Trustee shall remit to
the Depositor or the Certificate Insurer, as applicable, the portion of the
amount, if any, of the Purchase Price referred to in clause (iv) of the
definition thereof to the extent such amount is incurred by or imposed on the
Depositor or the Certificate Insurer and, upon receipt by the Trustee of
written notification of such deposit signed by an officer of the Seller, the
Trustee shall release to the Seller the related Mortgage File and the Trustee
shall execute and deliver such instruments of transfer or assignment, prepared
by and at the expense of the Seller, in each case without recourse,
representation or warranty as shall be necessary to vest in the Seller or its
designee any Mortgage Loan released pursuant hereto. It is understood and
agreed that the obligation of the Seller to purchase any Mortgage Loan or
substitute an Eligible Substitute Mortgage Loan for such Mortgage Loan as to
which a material defect in or omission of a constituent document exists shall
constitute the sole remedy against the Seller respecting such defect or
omission available to the Certificate Insurer, the Certificateholders or the
Trustee on behalf of Certificateholders. An Opinion of Counsel to the effect
set forth in Section 2.06(d) shall be delivered to the Trustee and the
Certificate Insurer in connection with any such repurchase.
The Servicer, promptly following the transfer of (i) a Defective
Mortgage Loan from or (ii) an Eligible Substitute Mortgage Loan to the Trust
pursuant to this Section and Section 2.06, as the case may be, shall amend the
Mortgage Loan Schedule and make appropriate entries in its general account
records to reflect such transfer and the addition of any Eligible Substitute
Mortgage Loan, if applicable.
Section 2.03. Representations and Warranties Regarding the Seller and
the Servicer. (a) The Seller and the Servicer each represent and warrant each
as to itself that, as of the Transfer Date:
(i) Each of the Seller and the Servicer is duly organized,
validly existing and in good standing under the laws of its state of
incorporation and has the power and authority to own its assets and
to transact the business in which it is currently engaged. Each of
the Seller and the Servicer is duly qualified to do business and is
in good standing in each jurisdiction in which the character of the
business transacted by it or properties owned or leased by it
requires such qualification and in which the failure so to qualify
would have a material adverse effect on (a) its business, properties,
assets or condition (financial or other), (b) its performance of its
obligations under this Agreement, (c) the value or marketability of
the Mortgage Loans or (d) the ability to foreclose on the related
Mortgaged Properties;
(ii) Each of the Seller and the Servicer has the power and
authority to make, execute, deliver and perform this Agreement and to
consummate all of the transactions contemplated under this Agreement,
and has taken all necessary action to authorize the execution,
delivery and performance of this Agreement. When executed and
delivered, this Agreement will constitute its legal, valid and
binding obligation enforceable in accordance with its terms, except
as enforcement of such terms may be limited by bankruptcy,
insolvency, reorganization, receivership, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by the
availability of equitable remedies;
(iii) Each of the Seller and the Servicer holds all necessary
licenses, certificates and permits from all government authorities
necessary for conducting its business as it is presently conducted.
It is not required to obtain the consent of any other party or any
consent, license, approval or authorization from, or registration or
declaration with, any governmental authority, bureau or agency in
connection with the execution, delivery, performance, validity or
enforceability of this Agreement, except for such consents, licenses,
approvals or authorizations, or registrations or declarations, as
shall have been obtained or filed, as the case may be, prior to the
related Transfer Date;
(iv) The execution, delivery and performance of this Agreement
by it will not conflict with or result in a breach of, or constitute
a default under, any provision of any existing law or regulation or
any order or decree of any court applicable to the Seller or the
Servicer or any of its properties or any provision of its Articles of
Incorporation or Bylaws, or constitute a material breach of, or
result in the creation or imposition of any lien, charge or
encumbrance upon any of its properties pursuant to, any mortgage,
indenture, contract or other agreement to which it is a party or by
which it may be bound;
(v) No certificate of an officer, statement furnished in writing
or report delivered pursuant to the terms hereof by the Seller or the
Servicer contains any untrue statement of a material fact or omits to
state any material fact necessary to make the certificate, statement
or report not misleading;
(vi) The transactions contemplated by this Agreement are in the
ordinary course of the Seller's and the Servicer's business;
(vii) Neither the Seller nor the Servicer is insolvent, nor will
the Seller or the Servicer be made insolvent by the transfer of the
Mortgage Loans, nor is the Seller or the Servicer aware of any
pending insolvency;
(viii) Neither the Seller nor the Servicer is in violation of,
and the execution and delivery of this Agreement by it and its
performance and compliance with the terms of this Agreement will not
constitute a violation with respect to, any order or decree of any
court or any order or regulation of any federal, state, municipal or
governmental agency having jurisdiction, which violation would
materially and adversely affect the Seller's and the Servicer's
condition (financial or otherwise) or operations or any of the
Seller's and the Servicer's properties or materially and adversely
affect the performance of any of its duties hereunder;
(ix) There are no actions or proceedings against, or
investigations of it, pending or, to its knowledge, threatened,
before any court, administrative agency or other tribunal (A) that,
if determined adversely, would prohibit the Seller or the Servicer
from entering into this Agreement, (B) seeking to prevent the
consummation of any of the transactions contemplated by this
Agreement or (C) that, if determined adversely, would prohibit or
materially and adversely affect the Seller's and the Servicer's
performance of any of their respective obligations under, or the
validity or enforceability of, this Agreement;
(x) The Servicer represents and warrants that the collection
practices used by the Servicer with respect to the Mortgage Loans
have been, in all material respects, legal, proper, prudent and
customary in the home equity mortgage servicing business;
(xi) The Servicer represents and warrants that it believes that
the Servicing Fee Rate provides a reasonable level of base
compensation to the Servicer for servicing the Mortgage Loans on the
terms set forth herein;
(xii) The Seller represents and warrants that it did not sell
the Mortgage Loans to the Depositor as Purchaser under the Purchase
Agreement with any intent to hinder, delay or defraud any of its
creditors; and the Seller will not be rendered insolvent as a result
of the sale of the Mortgage Loans to the Depositor as Purchaser under
the Purchase Agreement;
(xiii) The Seller represents and warrants that it acquired title
to the Mortgage Loans in good faith, without notice of any adverse
claim; and
(xiv) The Seller represents and warrants that the transfer,
assignment and conveyance of the Mortgage Notes and the Mortgages by
the Seller pursuant to the Purchase Agreement and this Agreement are
not subject to the bulk transfer laws or any similar statutory
provisions in effect in any applicable jurisdiction.
(b) The representations and warranties set forth in this Section
shall survive the sale and assignment of the Mortgage Loans to the Trust. Upon
discovery of a breach of any representations and warranties which materially
and adversely affects the interests of the Certificateholders or the
Certificate Insurer, the Person discovering such breach shall give prompt
written notice to the other parties and to the Certificate Insurer. Within 60
days of its discovery or its receipt of notice of breach or, with the prior
written consent of a Responsible Officer of the Trustee and the Certificate
Insurer, such longer period specified in such consent, the Seller or the
Servicer, as appropriate, shall cure such breach in all material respects.
Section 2.04. Representations and Warranties of the Seller Regarding
the Mortgage Loans. (a) The Seller represents and warrants to the Trust, the
Trustee on behalf of the Certificateholders and the Certificate Insurer as
follows as of the Transfer Date:
(i) The information with respect to each Mortgage Loan set forth
in the Mortgage Loan Schedule is complete, true and correct in all
material respects as of the Transfer Date;
(ii) As of the Transfer Date, for each Mortgage Loan, the
related Mortgage File contains each of the documents and instruments
specified to be included therein;
(iii) Each Mortgaged Property is improved by a Residential
Dwelling, which does not include cooperatives or mobile homes and
does not constitute other than real property under state law;
(iv) Each Mortgage Loan is being serviced by the Servicer or one
or more Subservicers;
(v) Each Mortgage Loan is a closed-end home equity loan and all
amounts due under the related Mortgage Note have been advanced.
Mortgage Loans constituting not more than approximately 32.77% of the
Cut-Off Date Pool Principal Balance are Balloon Loans. Each Balloon
Loan has an original term to maturity of 15 years and an amortization
schedule based on 30 years. Each other Mortgage Note provides for
Monthly Payments which, if timely paid on the Due Date therefor, are
sufficient to fully amortize the principal balance of such Mortgage
Note on or before its maturity date;
(vi) The Mortgage Note related to each Mortgage Loan bears a
fixed Loan Rate and there is only one original of each Mortgage Note;
(vii) No Mortgage Loan is a construction loan;
(viii) Each Mortgage is a valid and subsisting first or second
lien of record on the Mortgaged Property subject, in the case of any
second Mortgage Loan, only to a First Lien on such Mortgaged Property
and subject in all cases to the exceptions to title set forth in the
title insurance policy with respect to the related Mortgage Loan,
which exceptions are generally acceptable to second mortgage lending
companies, and such other exceptions to which similar properties are
commonly subject and which do not individually, or in the aggregate,
materially and adversely affect the benefits of the security intended
to be provided by such Mortgage;
(ix) Except with respect to liens released immediately prior to
the transfer herein contemplated, each Mortgage Note and related
Mortgage have not been assigned or pledged and immediately prior to
the transfer and assignment herein contemplated, the Seller held
good, marketable and indefeasible title to, and was the sole owner
and holder of, each Mortgage Loan subject to no liens, charges,
mortgages, claims, participation interests, equities, pledges or
security interests of any nature, encumbrances or rights of others
(collectively, a "Lien"); the Seller has full right and authority
under all governmental and regulatory bodies having jurisdiction over
the Seller, subject to no interest or participation of, or agreement
with, any party, to sell and assign the same pursuant to this
Agreement; and immediately upon the transfer and assignment herein
contemplated, the Seller shall have transferred all of its right,
title and interest in and to each Mortgage Loan to the Purchaser (or
its assignee) and the Purchaser (or its assignee) will hold good,
marketable and indefeasible title, to, and be the sole owner of, each
Mortgage Loan subject to no Liens;
(x) None of the Mortgage Loans was 30 or more days delinquent as
of the Cut-Off Date;
(xi) To the best of its knowledge, there is no delinquent tax,
fee or assessment lien on any Mortgaged Property, and each Mortgaged
Property is free of material damage and is in good repair;
(xii) No Mortgage Loan is subject to any right of rescission,
set-off, counterclaim or defense, including the defense of usury, nor
will the operation of any of the terms of any Mortgage Note or
Mortgage, or the exercise of any right thereunder, render either the
Mortgage Note or the Mortgage unenforceable in whole or in part, or
subject to any right of rescission, set-off, counterclaim or defense,
including the defense of usury, and no such right of rescission,
set-off, counterclaim or defense has been asserted with respect
thereto;
(xiii) There is no mechanics' lien or claim for work, labor or
material affecting any Mortgaged Property which is or may be a lien
prior to, or equal or coordinate with, the lien of the related
Mortgage, and no rights are outstanding that under law could give
rise to such a lien except those which are insured against by the
title insurance policy referred to in paragraph (xv) below;
(xiv) Each Mortgage Loan at the time it was made complied with,
and each Mortgage Loan at all times was serviced in compliance with,
in each case, in all material respects, applicable state and federal
laws and regulations, including, without limitation, usury, equal
credit opportunity, consumer credit, truth-in-lending and disclosure
laws;
(xv) 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, or other form acceptable
in a particular jurisdiction, by a title insurance company authorized
to transact business in the state in which the related Mortgaged
Property is situated, together with a condominium endorsement, if
applicable, in an amount at least equal to the original principal
balance of such Mortgage Loan insuring the Seller and its successor's
and assignees' 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 Mortgage, subject only to the exceptions of
the character referred to in paragraph (viii) above, was valid and in
full force and effect on the date of the origination of such Mortgage
Loan and as of the Transfer Date;
(xvi) 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 described in Sections 3.04 and 3.05;
(xvii) A flood insurance policy is in effect with respect to
each Mortgaged Property with a generally acceptable carrier in an
amount representing coverage described in Sections 3.04 or 3.05, if
and to the extent required by Sections 3.04 or 3.05;
(xviii) Each Mortgage and Mortgage Note is the legal, valid and
binding obligation of the related Mortgagor and is enforceable in
accordance with its terms, except only as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or
other 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), and all parties to each
Mortgage Loan and the Mortgagee had full legal capacity to execute
all Mortgage Loan documents and to convey the estate therein
purported to be conveyed. The Mortgagor is a natural person who is a
party to the Mortgage Note and the Mortgage in an individual
capacity, and not in the capacity of a trustee or otherwise;
(xix) The Seller has directed the Servicer to perform any and
all acts required to be performed to preserve the rights and remedies
of the Trustee in any insurance policies applicable to the Mortgage
Loans including, without limitation, 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 Trustee;
(xx) No more than 1.00% of the Mortgage Loans (by the Cut-Off
Date Pool Principal Balance) are secured by Mortgaged Properties
located within any single zip code area. At least 94.00% of the
Cut-Off Date Pool Principal Balance is secured by Mortgaged
Properties that are owner-occupied residences, based on
representations by the related Mortgagors;
(xxi) The terms of the Mortgage Note and the Mortgage have not
been impaired, altered or modified in any material respect, except by
a written instrument which has been recorded or is in the process of
being recorded, if necessary, to protect the interests of the
Certificateholders and the Certificate Insurer and which has been or
will be delivered to the Trustee. The substance of any such
alteration or modification is reflected on the related Mortgage Loan
Schedule and was approved, if required, by the related primary
mortgage guaranty insurer, if any. Each original Mortgage was
recorded, and all subsequent assignments of the original Mortgage
have been recorded in the appropriate jurisdictions wherein such
recordation is necessary to perfect the lien thereof as against
creditors of the Seller, or, subject to Section 2.3 of the Purchase
Agreement, are in the process of being recorded;
(xxii) No instrument of release or waiver has been executed in
connection with the Mortgage Loan, and no Mortgagor has been
released, in whole or in part;
(xxiii) Other than delinquencies as described in paragraph (x)
above, there are no defaults in complying with the terms of the
Mortgage, and either (1) any taxes, governmental assessments,
insurance premiums, water, sewer and municipal charges or ground
rents which previously became due and owing have been paid, or (2) an
escrow of funds has been established in an amount sufficient to pay
for every such item which remains unpaid and which has been assessed
but is not yet due and payable. Except for payments in the nature of
escrow payments, including without limitation, taxes and insurance
payments, the Seller has not advanced funds, or induced, solicited or
knowingly received any advance of funds by a party other than the
Mortgagor, directly or indirectly, for the payment of any amount
required by the Mortgage Note, except for interest accruing from the
date of the Mortgage Note or date of disbursement of the Mortgage
proceeds, whichever is later, to the day which precedes by one month
the Due Date of the first installment of principal and interest;
(xxiv) There is no proceeding pending or threatened for the
total or partial condemnation of any Mortgaged Property, nor is such
a proceeding currently occurring;
(xxv) To the best of the Seller's knowledge, all of the
improvements which were included for the purpose of determining the
appraised value of the Mortgaged Property lie wholly within the
boundaries and building restriction lines of such property, and no
improvements on adjoining properties encroach upon the Mortgaged
Property;
(xxvi) To the best of the Seller's knowledge, no improvement
located on or being part of the Mortgaged Property is in violation of
any applicable zoning law or regulation. All inspections, licenses
and certificates required to be made or issued with respect to all
occupied portions of the Mortgaged Property and, with respect to the
use and occupancy of the same, including but not limited to
certificates of occupancy and fire underwriting certificates, have
been made or obtained from the appropriate authorities and the
Mortgaged Property is lawfully occupied under applicable law;
(xxvii) The proceeds of each Mortgage Loan have been fully
disbursed, and there is no obligation on the part of the mortgagee to
make future advances thereunder. 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.
All costs, fees and expenses incurred in making or closing or
recording the Mortgage Loans were paid;
(xxviii) Each Mortgage Note is not and has not been secured by
any collateral, pledged account or other security except the lien of
the corresponding Mortgage;
(xxix) [RESERVED];
(xxx) There is no obligation on the part of the Seller or any
other party to make payments in addition to those made by the
Mortgagor;
(xxxi) 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 Certificateholders to the trustee under the deed of
trust, except in connection with a trustee's sale after default by
the Mortgagor;
(xxxii) No Mortgage Loan has a shared appreciation feature, or
other contingent interest feature;
(xxxiii) The related First Lien, if any, requires equal monthly
payments, unless such First Lien is a graduated payment mortgage loan
or a balloon loan, or if it bears an adjustable interest rate, the
monthly payments for the related First Lien may be adjusted no more
frequently than monthly;
(xxxiv) Either (i) no consent for the Mortgage Loan is required
by the holder of the related First Lien or (ii) such consent has been
obtained and is contained in the Mortgage File;
(xxxv) To the best of the Seller's knowledge, no Mortgaged
Property was, as of the related Cut-Off Date, located within a
one-mile radius of any site listed in the National Priorities List as
defined under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, or on any similar state list
of hazardous waste sites which are known to contain any hazardous
substance or hazardous waste;
(xxxvi) The maturity date of the Mortgage Loan is prior to the
maturity date of the related First Lien, if any, if such First Lien
provides for a balloon payment. No Mortgage Loan provides for
negative amortization;
(xxxvii) All parties which have had any interest in the Mortgage
Loan, whether as originator, mortgagee, assignee, pledgee, servicer
or otherwise, are (or, during the period in which they held and
disposed of such interest, were) (1) in compliance with any and all
applicable licensing requirements of the laws of the state wherein
the Mortgaged Property is located, and (2)(A) organized under the
laws of such state, or (B) qualified to do business in such state, or
(C) federal savings and loan associations or national banks having
principal offices in such state, or (D) not doing business in such
state so as to require qualification or licensing;
(xxxviii) The Mortgage contains a customary provision for the
acceleration of the payment of the unpaid principal balance of the
Mortgage Loan in the event the related security for the Mortgage Loan
is sold without the prior consent of the mortgagee thereunder;
(xxxix) Any future advances made prior to the related Cut-Off
Date have been consolidated with the outstanding principal amount
secured by the Mortgage, and the secured principal amount, as
consolidated, bears a single interest rate and single repayment term
reflected on the related Mortgage Loan Schedule. The consolidated
principal amount does not exceed the original principal amount of the
Mortgage Loan. The Mortgage Note does not permit or obligate the
Seller to make future advances to the Mortgagor at the option of the
Mortgagor;
(xl) The Mortgage contains customary and enforceable provisions
which render the rights and remedies of the holder thereof adequate
for the realization against the Mortgaged Property of the benefits of
the security, including, (i) in the case of a Mortgage designated as
a deed of trust, by trustee's sale, and (ii) otherwise by judicial or
non-judicial foreclosure. There is no homestead or other exemption
available to the Mortgagor which would materially interfere with the
right to sell the Mortgaged Property at a trustee's sale or the right
to foreclose the Mortgage;
(xli) There is no default, breach, violation or event of
acceleration existing under any Mortgage or the related Mortgage Note
and no event which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default,
breach, violation or event of acceleration; and the Seller has not
waived any default, breach, violation or event of acceleration;
(xlii) All parties to the Mortgage Note and the Mortgage had
legal capacity to execute the Mortgage Note and the Mortgage and each
Mortgage Note and Mortgage have been duly and properly executed by
such parties;
(xliii) All amounts received after the Cut-Off Date with respect
to the Mortgage Loans to which the Seller is not entitled have been
deposited into the Collection Account and are, as of the Transfer
Date, in the Collection Account;
(xliv) All of the Mortgage Loans were originated in accordance
with the underwriting criteria set forth in the Prospectus
Supplement;
(xlv) Each Mortgage Loan conforms, and all such Mortgage Loans
in the aggregate conform in all material respects to the description
thereof set forth in the Prospectus Supplement; each Mortgage Note
and Mortgage is in substantially one of the forms attached as Exhibit
F and Exhibit G hereto;
(xlvi) The Mortgage Loans were not selected by the Seller for
inclusion in the Trust on any basis intended to adversely affect the
Trust or the Certificate Insurer;
(xlvii) A full appraisal on forms approved by FNMA or FHLMC was
performed in connection with the origination of each Mortgage Loan.
Each appraisal meets guidelines that would be generally acceptable to
prudent mortgage lenders that regularly originate or purchase
mortgage loans comparable to the Mortgage Loans for sale to prudent
investors in the secondary market that invest in mortgage loans such
as the Mortgage Loans;
(xlviii) Each hazard insurance policy required to be maintained
under Section 3.04 with respect to the Mortgage Loan is a valid,
binding, enforceable and subsisting insurance policy of its
respective kind and is in full force and effect;
(xlix) Each Mortgage Loan was originated by the Seller or an
Affiliate of the Seller or purchased by the Seller; (l) Each
Mortgaged Property is located in the state identified on the related
Mortgage Loan Schedule and consists of a single parcel of real
property with a one-family residence erected thereon, or an attached
or detached or semi-detached two- to four-family dwelling, or an
individual condominium unit in a low-rise condominium, or an
individual unit in a planned unit development. With respect to the
Mortgage Loans (a) no more than 11.00% of the Mortgage Loans (by
Cut-Off Date Principal Balances), are secured by real property
improved by two- to four-family dwellings, (b) no more than 3.00% of
the Mortgage Loans (by Cut-Off Date Principal Balance), are secured
by real property improved by individual condominium units and units
in a planned unit development, (c) at least 78.00% of the Mortgage
Loans (by Cut-Off Date Principal Balance), are secured by real
property with a detached one-family residence erected thereon and (d)
no more than 8.35% of the Mortgage Loans (by Cut-Off Date Principal
Balance), are secured by real property with an attached one-family
residence erected thereon;
(li) No Mortgage Loan had a Combined Loan-to-Value Ratio at the
time of origination of more than 90%;
(lii) No more than 6.0% of the Mortgage Loans (by Cut-Off Date
Principal Balance), are secured by Mortgaged Properties that are
non-owner occupied properties. The Mortgaged Property is lawfully
occupied under applicable law;
(liii) Each Mortgage Loan was originated after October 1, 1997;
(liv) As of the Transfer Date, the Seller has not received a
notice of default of a First Lien which has not been cured;
(lv) None of the Mortgage Loans are subject to a bankruptcy
proceeding;
(lvi) Each Mortgage Loan constitutes a "qualified mortgage"
within the meaning of Section 860G(a)(3) of the Code; and
(lvii) Each of the documents and instruments included in a
Mortgage File is duly executed and in due and proper form and each
such document or instrument is in a form generally acceptable to
prudent institutional mortgage lenders that regularly originate or
purchase mortgage loans similar to the Mortgage Loans.
With respect to the representations and warranties set forth in this
Section that are made to the best of the Seller's knowledge or as to which the
Seller has no knowledge, if it is discovered by the Depositor, the Seller, the
Servicer, the Certificate Insurer or the Trustee that the substance of such
representation and warranty is inaccurate and such inaccuracy materially and
adversely affects the value of the related Mortgage Loan then, notwithstanding
the Seller's lack of knowledge with respect to the substance of such
representation and warranty being inaccurate at the time the representation or
warranty was made, such inaccuracy shall be deemed a breach of the applicable
representation or warranty.
(b) It is understood and agreed that the representations and
warranties set forth in this Section shall survive delivery of the respective
Mortgage Files to the Trustee and the termination of the rights and obligations
of the Servicer pursuant to Section 7.04 or 8.01. Upon discovery by the
Depositor, the Seller, the Servicer, the Certificate Insurer or the Trustee of
a breach of any of the foregoing representations and warranties, without regard
to any limitation set forth therein concerning the knowledge of the Seller as
to the facts stated therein, which materially and adversely affects the value
of the related Mortgage Loan, the party discovering such breach shall give
prompt written notice to the other parties and the Certificate Insurer. Within
60 days of its discovery or its receipt of notice of breach, the Seller shall
use all reasonable efforts to cure such breach in all material respects or
shall purchase such Mortgage Loan from the Trust or substitute an Eligible
Substitute Mortgage Loan as provided in Section 2.06 for such Mortgage Loan.
Any such purchase by the Seller shall be at the Purchase Price and in each case
shall be accomplished in the manner set forth in Section 2.02. It is understood
and agreed that the obligation of the Seller to cure, substitute or purchase
any Mortgage Loan as to which such a breach has occurred and is continuing
shall constitute the sole remedies against the Seller respecting such breach
available to Certificateholders or the Trustee on behalf of Certificateholders.
An Officer's Certificate and Opinion of Counsel to the effect set forth in
Section 2.06(d) shall be delivered to the Trustee in connection with any such
repurchase.
Section 2.05. Representations and Warranties of the Depositor. (a)
The Depositor represents and warrants to the Trust, the Trustee on behalf of
the Certificateholders and the Certificate Insurer as follows:
(i) This Agreement constitutes a legal, valid and binding
obligation of the Depositor, enforceable against the Depositor in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting the
enforcement of creditors' rights in general and except as such
enforceability may be limited by general principles of equity
(whether considered in a proceeding at law or in equity);
(ii) Immediately prior to the sale and assignment by the
Depositor to the Trustee on behalf of the Trust of each Mortgage
Loan, the Depositor had good and marketable title to each Mortgage
Loan (insofar as such title was conveyed to it by the Seller) subject
to no prior lien, claim, participation interest, mortgage, security
interest, pledge, charge or other encumbrance or other interest of
any nature;
(iii) As of the Closing Date, the Depositor has transferred all
right, title and interest in the Mortgage Loans to the Trustee on
behalf of the Trust; and
(iv) The Depositor has not transferred the Mortgage Loans to the
Trustee on behalf of the Trust with any intent to hinder, delay or
defraud any of its creditors.
Section 2.06. Substitution of Mortgage Loans. (a) On a Determination
Date within two years following the Closing Date and which is on or before the
date on which the Seller would otherwise be required to repurchase a Mortgage
Loan under Section 2.02 or 2.04, the Seller may deliver to the Trustee one or
more Eligible Substitute Mortgage Loans in substitution for any one or more of
the Defective Mortgage Loans which the Seller would otherwise be required to
repurchase pursuant to Sections 2.02 or 2.04. In connection with any such
substitution, the Seller shall calculate the Substitution Adjustment, if any,
and shall deposit such amount to the Collection Account by 2:00 p.m. New York
City time on the third Business Day prior to the Distribution Date in the month
succeeding the calendar month during which the related Mortgage Loan became
required to be purchased or replaced hereunder.
(b) The Seller shall notify the Servicer and the Trustee in writing
not less than five Business Days before the related Determination Date which is
on or before the date on which the Seller would otherwise be required to
repurchase such Mortgage Loan pursuant to Section 2.02 or 2.04 of its intention
to effect a substitution under this Section 2.06. On such Determination Date
(the "Substitution Date"), the Seller shall deliver to the Trustee (1) the
Eligible Substitute Mortgage Loans to be substituted for the Defective Mortgage
Loans, (2) a list of the Defective Mortgage Loans to be substituted for by such
Eligible Substitute Mortgage Loans, (3) an Officer's Certificate (A) stating
that no failure by the Servicer described in Section 8.01 shall have occurred
and be continuing, (B) stating that the aggregate Principal Balance of all
Eligible Substitute Mortgage Loans (determined with respect to each Eligible
Substitute Mortgage Loan as of the Determination Date on which it was
substituted) including the principal balance of Eligible Substitute Mortgage
Loans being substituted on such Determination Date does not exceed an amount
equal to 5% of the Pool Principal Balance as of the Closing Date, (C) stating
that all conditions precedent to such substitution specified in subsection (a)
have been satisfied and attaching as an exhibit a supplemental Mortgage Loan
schedule (the "Supplemental Mortgage Loan Schedule") setting forth the same
type of information as appears on the Mortgage Loan Schedule and representing
as to the accuracy thereof and (D) confirming that the representations and
warranties contained in Section 2.04 are true and correct in all material
respects with respect to the Eligible Substitute Mortgage Loans on and as of
such Determination Date, provided that remedies for the inaccuracy of such
representations are limited as set forth in Sections 2.02, 2.04 and this
Section 2.06, (4) an Opinion of Counsel to the effect set forth below and (5) a
certificate stating that cash in the amount of the related Substitution
Adjustment, if any, has been deposited to the Collection Account; provided that
the Trustee shall remit to the Depositor or the Certificate Insurer, as
applicable, the portion of the amount, if any, of the Substitution Adjustment
referred to in clause (d) of the definition thereof to the extent such amount
is incurred by or imposed on the Depositor or the Certificate Insurer. Upon
receipt of the foregoing, the Trustee shall release such Defective Mortgage
Loans to the Seller without recourse, representation or warranty.
(c) Concurrently with the satisfaction of the conditions set forth in
Sections 2.06(a) and (b) above and the transfer of such Eligible Substitute
Mortgage Loans to the Trustee on behalf of the Trust pursuant to Section
2.06(a), Exhibit D to this Agreement shall be deemed to be amended to exclude
all Mortgage Loans being replaced by such Eligible Substitute Mortgage Loans
and to include the information set forth on the Supplemental Mortgage Loan
Schedule with respect to such Eligible Substitute Mortgage Loans, and all
references in this Agreement to Mortgage Loans shall include such Eligible
Substitute Mortgage Loans and be deemed to be made on or after the related
Substitution Date, as the case may be, as to such Eligible Substitute Mortgage
Loans.
(d) In connection with any Mortgage Loan that the Seller is required
to purchase or replace, the Seller shall deliver to the Trustee an Opinion of
Counsel to the effect that such purchase or substitution will not cause (x) any
federal tax to be imposed on any REMIC, including, without limitation, any
Federal tax imposed on "prohibited transactions" under Section 860F(a)(1) of
the Code or on "contributions after the start-up day" under Section 860G(d)(1)
of the Code or (y) any REMIC to fail to qualify as a REMIC at any time that any
Certificate is outstanding. In the event that such opinion indicates that a
repurchase or substitution will result in the imposition of a prohibited
transaction tax, give rise to net taxable income or be deemed a contribution to
either Subsidiary REMIC or the Master REMIC after the Start-up Day, the Seller
shall not be required to repurchase or replace any such Mortgage Loan unless
and until the Servicer has determined there is an actual or imminent default
with respect thereto or that such defect or breach adversely affects the
enforceability of such Mortgage Loan. Section 2Execution and Authentication of
Certificates. The Trustee on behalf of the Trust shall cause to be executed,
authenticated and delivered on the Closing Date to or upon the order of the
Depositor, in exchange for the Mortgage Loans, concurrently with the sale,
assignment and conveyance to the Trustee of the Mortgage Loans, each Class of
Regular Certificates in authorized denominations and the Class R Certificates,
together evidencing the ownership of the entire Trust.
Section 2.08. Designation of Interests in the Master and Subsidiary
REMICs. The Preliminary Statement sets forth the designations and "latest
possible maturity date" for federal income tax purposes of all interests
created hereby. The "tax matters person" with respect to each REMIC hereunder
shall be the Trustee and the Trustee shall hold the Tax Matters Person Residual
Interest. Each REMIC's fiscal year shall be the calendar year.
(a) Tier One REMIC
A Subsidiary REMIC (the "Tier One REMIC") shall be created with the
following uncertificated interests:
Class Initial Balance Interest Rate
T1-1 (1) $279,034,624.10 (1)
T1-2 $ 21,000,000 (2)
R-1 $ 0 (3)
(1) The initial principal balance of the Class T1-1 Interest shall
equal the principal balance of the Mortgage Loans as of the Cut-Off Date less
the initial principal balance of the Class T1-2 Interest. The Class T1-1
Interest shall bear interest at the Weighted Average Net Rate in effect at the
beginning of the related Due Period on the Mortgage Loans. The Class T1-1
Interest shall receive all principal payments from the Mortgage Loans until its
principal balance has been reduced to zero and shall be allocated any Realized
REMIC Losses and any principal prepayment shortfalls not covered by
Compensating Interest from the Mortgages.
(2) The Class T1-2 Interest shall have an initial principal balance
of $21,000,000 and bear interest at the Weighted Average Net Rate in effect at
the beginning of the related Due Period on the Mortgage Loans. The Class T1-2
Interest shall receive all principal payments and be allocated all Realized
REMIC Losses after the principal balance of the Class T1-1 has been reduced to
zero.
(3) The Class R-1 Interest shall not have a principal balance and
shall not bear interest. It shall be entitled to any money from Mortgage Loans
not otherwise required to pay fees, principal or interest on the Class T1-1 and
Class T1-2 Interests.
The assets of the Tier One REMIC shall consist of the Mortgage Loans.
In addition, the funds in the Collection Account shall be assets of the Tier
One REMIC. The Servicing Fee and the Trustee Fee shall be paid by the Tier One
REMIC. Class T1-1 and Class T1-2 interests shall be paid by the Tier One REMIC.
Class T1-1 and Class T1-2 Interests shall be designated as regular interests
(within the meaning of Code Section 860G(a)(1)) of the Tier One REMIC and the
Class R-1 Interest, the beneficial ownership of which is represented by the
Class R Certificate, shall be designated as the sole class of residual interest
in the Tier One REMIC. The start-up day of the Tier One REMIC shall be the
Closing Date and the latest possible maturity date of the Class T1-1 and Class
T1-2 Interests shall be the Latest Possible Maturity Date.
(b) Tier Two
A Subsidiary REMIC (the "Tier Two REMIC") shall be created with the
following classes:
Class Initial Balance Interest Rate
T2-1 (1) (2)
T2-2 (1) (2)
T2-3 (1) (2)
T2-4 (3) 8.12%
R-2 $ 0.00 (4)
(1) The Class T2-1 Interest shall have an initial balance equal to
the sum of: (1) 50% of the Pool Principal Balance as of the Cut-Off Date and
(ii) 50% of the initial O/C Amount. The T2-2 Interest shall have an initial
principal balance equal to 25% of the Cut-Off Date Pool Principal Balance less
50% of the initial O/C Amount. The Class T2-3 Interest shall have an initial
principal balance equal to 25% of the Cut-off Date Pool Principal Balance. For
purposes of Section 2.08(b)(1), the O/C Amount will equal the Cut-off Date Pool
Principal Balance less the Class A-1 Principal Balance as of the Closing Date.
The Class T2-4 Interest has a notional balance equal to the principal balance
of the Class T1-2 Interests for such date.
(2) The Class T2-1, Class T2-2 and Class T2-3 Interests shall bear
interest at the Adjusted Weighted Average Net Rate in effect at the beginning
of the related Due Period. Interest on the Class T2-1 Interest will accrue in
an amount equal to 50% of the increase in the O/C Amount (such interest defined
as "Accreted Interest") for the Mortgage Loans for the Distribution Date over
its balance on the prior Distribution Date. Accreted Interest will be used to
pay principal on the Class T2-2 Interests.
(3) The Class T2-4 shall not have a principal balance, but shall have
a notional principal balance equal to the principal balance of the Class T1-2
Interest until the thirty-sixth Distribution Date and thereafter zero. The
Class T2-4 Interest will not be outstanding after the 36th Distribution Date.
(4) The Class R-2 Interest shall not have a principal balance and
shall not bear interest. It shall be entitled to any money from the Tier Two
REMIC regular interests not otherwise required to pay principal and interest on
the regular interests issued by the Tier Three REMIC.
("Principal Balance Declines") will consist of Principal Payments,
and Realized REMIC Losses. "Principal Balance Declines" will be allocated
(proportionately from Realized REMIC Losses and Principal Payments) in the
following manner (the "General Rule"): (i) the Class T2-1 Interest will be
reduced by an amount equal to the sum of (a) 50% of the "Principal Balance
Declines" and (b) 50% of the O/C Reduction Amount (ii) the Class T2-2 will be
reduced by an amount equal to (a) 25% of the "Principal Balance Declines" less
(b) 50% of the O/C Reduction Amount (iii) the Class T2-3 Interest will be
reduced by 25% of the "Principal Balance Declines".
Notwithstanding the foregoing, on any Distribution Date (such date, an
"Alternate Date") on which the "Principal Balance Declines" are less than twice
the O/C Reduction Amount, Principal Balance Declines will be allocated to the
Class T2-3 Interest until the Class T2-3 principal balance is equal to the
product of (a) the Class T2-2 principal balance and (b) a fraction the
numerator of which is the Pool Principal Balance and the denominator of which
is the Pool Principal Balance less the product of (x) two and (y) the O/C
Amount. On an Alternate Date, any excess Principal Balance Declines shall be
allocated to the Class T2-1 Interest. This allocation will be used until the
sum of the Principal Balance Declines arising on or after the Alternate Date
("Cumulative Principal Balance Declines") exceed the product of (a) two and (b)
the sum of all of the O/C Reductions arising on or after the Alternate Date
("Cumulative O/C Reduction Amount") (such date, a "General Rule Date").
Following a General Rule Date, Principal Balance Declines will be allocated
according to the "General Rule".
Notwithstanding the foregoing, for any Distribution Date during or
after which the Class T2-2 Interest has been reduced to zero, Principal Balance
Declines will be allocated to the Class T2-1 Interest and Class T2-3 Interest
in proportion to their principal balances until the Class T2-1 Interest and
Class T2-3 Interest are reduced to zero.
The assets of the Tier Two REMIC shall consist of the regular
interests issued by the Tier One REMIC. Class T2-1, Class T2-2 and Class T2-3,
and Class T2-4 shall be designated as regular interests (within the meaning of
Code Section 860G(a)(1)) of the Tier Two REMIC and the Class R-2 Interest, the
beneficial ownership of which is represented by the Class R Certificate, shall
be designated as the sole class of residual interest in the Tier Two REMIC. The
start-up day of the Tier Two REMIC shall be the Closing Date and the latest
possible maturity date of each regular interest issued by the Tier Two REMIC
shall be the Latest Possible Maturity Date.
(c) Third Tier
The Master REMIC (the "Tier Three REMIC") shall be created with the
following uncertificated interests:
Corresponding
Class Initial Balance Interest Rate Class
A-1 $300,034,000.00 (1) A-1
A-2 (2) (2) A-2
R-3 $ 0 (3)
(1) A rate equal to the least of (a) the London interbank offered
rate for one-month U.S. dollar deposits plus a Pass-Through Margin of 0.31% and
(b) the (i) the product of (x) two and (y) a fraction, the numerator of which
is the product of the Adjusted Weighted Average Net Rate and the principal
balance of the Class T2-3 Interest immediately prior to such Distribution Date
and the denominator of which is the sum of the principal balances of the Class
T2-2 and Class T2-3 Interests immediately prior to such Distribution Date and
(c) the product of (x) two and (y) the Adjusted Weighted Average Net Rate for
such Distribution Date.
(2) The Class A-2 Interest will have a notional balance equal to the
notional balance of the Class T2-4 Interest and shall be entitled to 100% of
the amounts due on the Class T2-4 Interest.
(3) The Class R-3 Interest shall not have a principal balance and
shall not bear interest. It shall be entitled to any money from the Tier Two
REMIC regular interests not otherwise required to pay principal and interest on
the regular interests issued by the Tier Three REMIC.
The assets of the Tier Three REMIC shall consist of the regular
interests issued by the Tier Two REMIC. The Class A-1, and Class A-2 Interests
shall be designated as regular interests (within the meaning of Code Section
860G(a)(1)) of the Tier Three REMIC and the Class R-3 interest, the beneficial
ownership of which is represented by the Class R Certificate, shall be
designated as the sole class of residual interest in the Tier Three REMIC. The
start-up day of the Tier Three REMIC shall be the Closing Date and the latest
possible maturity date of each regular interest issued by the Tier Three REMIC
shall be the Latest Possible Maturity Date.
Section 2.09. Designation of Start-up Day. The Closing Date is hereby
designated as the "start-up day" of each of the REMICs created hereunder within
the meaning of Section 860G(a)(9) of the Code.
Section 2.10. REMIC Certificate Maturity Date. Solely for purposes of
satisfying Section 1.860G-1(a)(4)(iii) of the Treasury Regulations, the "latest
possible maturity date" of each of the REMICs created hereunder is the
Distribution Date in September, 2031.
Section 2.11. Tax Returns and Reports to Certificateholders. (a) For
federal income tax purposes, the Trust shall have a calendar year and shall
maintain its books on the accrual method of accounting.
(b) The Trustee shall prepare, or cause to be prepared, execute and
deliver to the Servicer or Certificateholders, as applicable, any income tax
information returns for each taxable year with respect to the Trust containing
such information at the times and in the manner as may be required by the Code
or state or local tax laws, regulations, or rules, and shall furnish or cause
to be furnished to the Trust and the Certificateholders the schedules,
statements or information at such times and in such manner as may be required
thereby. Within thirty (30) days of the Closing Date, the Trustee shall furnish
or cause to be furnished to the Internal Revenue Service, on Form 8811 or as
otherwise required by the Code, the name, title, address and telephone number
of the person that Holders of the Certificates may contact for tax information
relating thereto, together with such additional information at the time or
times and in the manner required by the Code. Such federal, state or local
income tax or information returns shall be signed by the Trustee or such other
Person as may be required to sign such returns by the Code or state or local
tax laws, regulations or rules.
(c) In the first federal income tax return of the Trust for its short
taxable year ending December 31, 1998, a REMIC election shall be made with
respect to each of the Master REMIC and each of the Subsidiary REMICs for such
taxable year and all succeeding taxable years.
(d) The Trustee will maintain or cause to be maintained such records
relating to the Trust, including, but not limited to, the income, expenses,
assets and liabilities of the Trust, and the fair market value and adjusted
basis of the Trust property and assets determined at such intervals as may be
required by the Code, as may be necessary to prepare the foregoing returns,
schedules, statements or information.
(e) The Servicer, upon request, shall promptly furnish the Trustee
with all such information as may be required in connection with the Trustee's
REMIC reporting obligations pursuant to this Agreement. Section 2Tax Matters
Person. The tax matters person with respect to each of the Master REMIC and
each of the Subsidiary REMICs shall be the Trustee (the "Tax Matters Person").
The Trustee shall at all times hold the Tax Matters Person Residual Interest
and shall have the same duties with respect to the Trust as those of a "tax
matters partner" under Subchapter C of Chapter 63 of Subtitle F of the Code.
Each holder of a Class R Certificate shall be deemed to have agreed, by
acceptance thereof, to be bound by this Section.
Section 2.13. REMIC Related Covenants. For as long as each of the
Master REMIC and the Subsidiary REMIC shall exist, the Trustee shall act in
accordance herewith to assure continuing treatment of the Trust as a REMIC and
avoid the imposition of tax on the Trust. In particular:
(a) The Trustee shall not create, or permit the creation of, any
"interests" in each of the Master REMIC and the Subsidiary REMIC within the
meaning of Code Section 860D(a)(2) other than the interests represented by the
Subsidiary REMIC Regular Certificates, the Regular Certificates and the Class R
Certificates.
(b)Except as otherwise provided in the Code, neither the Depositor
nor the Seller shall grant and the Trustee shall not accept property unless (i)
substantially all of the property held in each of the Master REMIC and the
Subsidiary REMIC constitutes either "qualified mortgages" or "permitted
investments" as defined in Code Sections 860G(a)(3) and (5), respectively and
(ii) no property shall be contributed to the Master REMIC or any Subsidiary
REMIC after the Start-up Day unless such grant would not subject either the
Master REMIC or any Subsidiary REMIC to the tax on contributions to a REMIC
after the Start-up Day imposed by Code Section 860G(d).
(c) The Trustee shall not accept on behalf of the Master REMIC or any
Subsidiary REMIC any fee or other compensation for services (other than as
otherwise provided herein) and shall not accept on behalf of the Master REMIC
or any Subsidiary REMIC any income from assets other than those permitted to be
held by a REMIC.
(d) The Trustee shall not sell or permit the sale of all or any
portion of the Mortgage Loans (other than in accordance with Section 2.02 or
2.04, unless such sale is pursuant to a "qualified liquidation" as defined in
Code Section 860F(a)(4)(A) and in accordance with Article VIII.
(e) The Trustee shall maintain books with respect to the REMIC on a
calendar year and on an accrual basis.
(f) Upon filing with the Internal Revenue Service, the Trustee shall
furnish to the Holders of the Class R Certificates the Form 1066 and each Form
1066Q for each REMIC and shall respond promptly to written requests made not
more frequently than quarterly by any Holder of Class R Certificates with
respect to the following matters:
(i) The original projected principal and interest cash flows on the
Closing Date on each class of regular and residual interests created hereunder
and on the Mortgage Loans, based on 115% of the Prepayment Assumption;
(ii) The projected remaining principal and interest cash flows as of
the end of any calendar quarter with respect to each class of regular and
residual interests created hereunder and the Mortgage Loans, based on 115% of
the Prepayment Assumption;
(iii) The Prepayment Assumption and any interest rate assumptions
used in determining the projected principal and interest cash flows described
above;
(iv) The original issue discount (or, in the case of the Mortgage
Loans, market discount) or premium accrued or amortized through the end of such
calendar quarter with respect to each class of regular or residual interests
created hereunder and with respect to the Mortgage Loans, together with each
constant yield to maturity used in computing the same;
(v) The treatment of losses realized with respect to the Mortgage
Loans or the regular interests created hereunder, including the timing and
amount of any cancellation of indebtedness income of the Master REMIC or any
Subsidiary REMIC with respect to such regular interests or bad debt deductions
claimed with respect to the Mortgage Loans;
(vi) The amount and timing of any non-interest expenses of either the
Master REMIC or Subsidiary REMICs; and
(vii) Any taxes (including penalties and interest) imposed on either
the Master REMIC or any Subsidiary REMIC, including, without limitation, taxes
on "prohibited transactions," "contributions" or "net income from foreclosure
property" or state or local income or franchise taxes.
In the event that any tax is imposed on "prohibited transactions" of
the Trust as defined in Section 860F(a)(2) of the Code, on the "net income from
foreclosure property" of the Master REMIC or any Subsidiary REMIC as defined in
Section 860G(c) of the Code, on any contribution to the Master REMIC or any
Subsidiary REMIC after the Start-up Day pursuant to Section 860G(d) of the
Code, or any other tax is imposed, such tax shall be paid by (i) the Trustee,
if such tax arises out of or results from a breach by the Trustee of any of its
obligations under this Agreement, (ii) the Servicer, if such tax arises out of
or results from a breach by the Servicer of any of its obligations under this
Agreement or otherwise or (iii) otherwise by the Holders of the Class R
Certificates in proportion to their Percentage Interests. To the extent any tax
is chargeable against the Holders of the Class R Certificates, notwithstanding
anything to the contrary contained herein, the Trustee is hereby authorized to
retain from amounts otherwise distributable to the Holders of the Class R
Certificates on any Distribution Date sufficient funds to reimburse the Trustee
for the payment of such tax (to the extent that the Trustee has not been
previously reimbursed or indemnified therefor).
The Trustee shall not engage in a "prohibited transaction" (as defined
in Code Section 860F(a)(2)), except that, with the prior written consent of the
Depositor, the Trustee may engage in the activities otherwise prohibited by the
foregoing clauses (b), (c) and (d), provided that the Seller shall have
delivered to the Trustee and the Certificate Insurer an Opinion of Counsel to
the effect that such transaction will not result in the imposition of a
contribution or prohibited transaction tax on the Trust and will not disqualify
the Master REMIC or either of the Subsidiary REMICs from treatment as a REMIC;
and provided that the Seller shall have demonstrated to the satisfaction of the
Trustee and the Certificate Insurer that such action will not adversely affect
the rights of the holders of the Certificates, the Certificate Insurer and the
Trustee and that such action will not adversely impact the rating of the
Certificates.
(g) ______ The Trustee shall pay out of its own funds, without any right of
reimbursement, any and all tax related expenses of the Trust (including, but
not limited to, tax return preparation and filing expenses and any professional
fees or expenses related to audits or any administrative or judicial
proceedings with respect to the Trust that involve the Internal Revenue Service
or state tax authorities), other than the expense of obtaining any Opinion of
Counsel required pursuant to Sections 2.06(d), 2.13(f), 9.02(b) and 10.02 and
other than taxes except as specified herein.
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. The Servicer. (a) It is intended that the Trust formed
hereunder shall constitute, and that the affairs of the Trust shall be
conducted so as to qualify the Master REMIC and the Subsidiary REMICs as, a
"real estate mortgage investment conduit" ("REMIC") as defined in and in
accordance with the REMIC Provisions. In furtherance of such intentions, the
Servicer covenants and agrees that it shall not knowingly or intentionally take
any action or omit to take any action that would cause the termination of the
status of either of the Master REMIC or any Subsidiary REMIC as REMICs.
(b) The Servicer, as independent contract servicer, shall service and
administer the Mortgage Loans and shall have full power and authority, acting
alone, to do any and all things in connection with such servicing and
administration which the Servicer may deem necessary or desirable and
consistent with the terms of this Agreement. The Servicer may enter into
Subservicing Agreements for any servicing and administration of Mortgage Loans
with any institution which (i) is in compliance with the laws of each state
necessary to enable it to perform its obligations under such Subservicing
Agreement and (ii) (x) has been designated an approved Seller-Servicer by FHLMC
or FNMA for first and second mortgage loans or (y) is an Affiliate of the
Servicer or (z) is otherwise approved by the Certificate Insurer. The Servicer
shall give written notice to the Certificate Insurer and the Trustee of the
appointment of any Subservicer. Any such Subservicing Agreement shall be
consistent with and not violate the provisions of this Agreement. The Servicer
shall be entitled to terminate any Subservicing Agreement in accordance with
the terms and conditions of such Subservicing Agreement and either itself
directly service the related Mortgage Loans or enter into a Subservicing
Agreement with a successor subservicer which qualifies hereunder.
(c) Notwithstanding any Subservicing Agreement or any of the
provisions of this Agreement relating to agreements or arrangements between the
Servicer and a Subservicer or reference to actions taken through a Subservicer
or otherwise, the Servicer shall remain obligated and primarily liable for the
servicing and administering of the Mortgage Loans in accordance with the
provisions of this Agreement without diminution of such obligation or liability
by virtue of such Subservicing Agreements or arrangements or by virtue of
indemnification from the Subservicer and to the same extent and under the same
terms and conditions as if the Servicer alone were servicing and administering
the Mortgage Loans. For purposes of this Agreement, the Servicer shall be
deemed to have received payments on Mortgage Loans when the Subservicer has
received such payments. The Servicer shall be entitled to enter into any
agreement with a Subservicer for indemnification of the Servicer by such
Subservicer, and nothing contained in this Agreement shall be deemed to limit
or modify such indemnification.
(d) Any Subservicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Subservicer
in its capacity as such and not as an originator shall be deemed to be between
the Subservicer and the Servicer alone, and the Trustee and Certificateholders
shall not be deemed parties thereto and shall have no claims, rights,
obligations, duties or liabilities with respect to the Subservicer except as
set forth in Section 3.01(e). The Servicer shall be solely liable for all fees
owed by it to any Subservicer irrespective of whether the Servicer's
compensation pursuant to this Agreement is sufficient to pay such fees.
(e) In the event the Servicer shall for any reason no longer be the
Servicer (including by reason of an Event of Default), the Trustee or its
designee approved by the Certificate Insurer shall thereupon assume all of the
rights and obligations of the Servicer under each Subservicing Agreement that
the Servicer may have entered into, unless the Trustee or designee approved by
the Certificate Insurer elects to terminate any Subservicing Agreement. Any fee
payable in connection with such a termination will be payable by the outgoing
Servicer. If the Trustee does not terminate a Subservicing Agreement, the
Trustee, its designee or the successor servicer for the Trustee shall be deemed
to have assumed all of the Servicer's interest therein and to have replaced the
Servicer as a party to each Subservicing Agreement to the same extent as if the
Subservicing Agreements had been assigned to the assuming party, except that
the Servicer shall not thereby be relieved of any liability or obligations
under the Subservicing Agreements with regard to events that occurred prior to
the date the Servicer ceased to be the Servicer hereunder. The Servicer, at its
expense and without right of reimbursement therefor, shall, upon the request of
the Trustee, deliver to the assuming party all documents and records relating
to each Subservicing Agreement and the Mortgage Loans then being serviced and
an accounting of amounts collected and held by it and otherwise use its best
efforts to effect the orderly and efficient transfer of the Subservicing
Agreements to the assuming party.
(f) Consistent with the terms of this Agreement, the Servicer may
waive, modify or vary any term of any Mortgage Loan or consent to the
postponement of strict compliance with any such term or in any manner grant
indulgence to any Mortgagor if in the Servicer's good faith determination such
waiver, modification, postponement or indulgence is not materially adverse to
the interests of the Certificateholders and the Certificate Insurer, provided,
however, that (unless (x) the Mortgagor is in default with respect to the
Mortgage Loan, or such default is, in the judgment of the Servicer, imminent,
and (y) with respect to any modification lowering the Loan Rate or effecting
the forgiveness of any amount owed under the Mortgage Note, or extending the
final maturity date on such Mortgage Loan, the Certificate Insurer has
consented to such modification and (z) such waiver, modification, postponement
or indulgence would not cause the Master REMIC or any Subsidiary REMIC to be
disqualified or otherwise cause a tax to be imposed on either the Master REMIC
or a Subsidiary REMIC) the Servicer may not permit any modification with
respect to any Mortgage Loan that would change the Loan Rate, defer or forgive
the payment of any principal or interest (unless in connection with the
liquidation of the related Mortgage Loan) or extend the final maturity date on
the Mortgage Loan. No costs incurred by the Servicer or any Subservicer in
respect of Servicing Advances shall, for the purposes of distributions to
Certificateholders, be added to the amount owing under the related Mortgage
Loan. Without limiting the generality of the foregoing, the Servicer shall
continue, and is hereby authorized and empowered to execute and deliver on
behalf of the Trustee and each Certificateholder, all instruments of
satisfaction or cancellation, or of partial or full release, discharge and all
other comparable instruments with respect to the Mortgage Loans and with
respect to the Mortgaged Properties. If reasonably required by the Servicer,
the Trustee shall furnish the Servicer with limited powers of attorney and
other documents necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties under this Agreement.
Notwithstanding anything to the contrary contained herein, the
Servicer, in servicing and administering the Mortgage Loans, shall employ or
cause to be employed procedures (including collection, foreclosure and REO
Property management procedures) and exercise the same care that it customarily
employs and exercises in servicing and administering mortgage loans for its own
account, in accordance with accepted mortgage servicing practices of prudent
lending institutions servicing mortgage loans similar to the Mortgage Loans and
giving due consideration to the Certificate Insurer's and the
Certificateholders' reliance on the Servicer.
(g) On and after such time as the Trustee receives the resignation
of, or notice of the removal of, the Servicer from its rights and obligations
under this Agreement, and with respect to resignation pursuant to Section 7.04,
after receipt by the Trustee and the Certificate Insurer of the Opinion of
Counsel required pursuant to Section 7.04, the Trustee or its designee approved
by the Certificate Insurer shall assume all of the rights and obligations of
the Servicer, subject to Section 8.02. The Servicer shall, upon request of the
Trustee but at the expense of the Servicer, deliver to the Trustee all
documents and records relating to the Mortgage Loans and an accounting of
amounts collected and held by the Servicer and otherwise use its best efforts
to effect the orderly and efficient transfer of servicing rights and
obligations to the assuming party.
(h) The Servicer shall deliver a list of Servicing Officers to the
Trustee and the Certificate Insurer on or before the Closing Date and shall
revise such list from time to time, as appropriate, and shall deliver all
revisions promptly to the Trustee and the Certificate Insurer. (i) Consistent
with the terms of this Agreement, the Servicer may consent to the placing of a
lien senior to that of the Mortgage on the related Mortgaged Property; provided
that such senior lien secures a mortgage loan that refinances a First Lien and
the combined loan-to-value ratio of the related Mortgage Loan immediately
following the refinancing (based on the outstanding principal balance of the
Mortgage Loan and the original principal balance of such refinanced mortgage
loan) is not greater than the Combined Loan-to-Value Ratio of such Mortgage
Loan as of the related Cut-Off Date.
Section 3.02. Collection of Certain Mortgage Loan Payments. (a) The
Servicer shall make reasonable efforts to collect all payments called for under
the terms and provisions of the Mortgage Loans and shall, to the extent such
procedures shall be consistent with this Agreement, follow such collection
procedures as it follows with respect to mortgage loans in its servicing
portfolio comparable to the Mortgage Loans. Consistent with the foregoing, and
without limiting the generality of the foregoing, the Servicer may in its
discretion (i) waive any prepayment penalty or late payment charge or any
assumption fees or other fees which may be collected in the ordinary course of
servicing such Mortgage Loan and (ii) arrange with a Mortgagor a schedule for
the payment of interest due and unpaid; provided that such arrangement is
consistent with the Servicer's policies with respect to the mortgage loans it
owns or services; provided, further, that notwithstanding such arrangement such
Mortgage Loans will be included in the monthly information delivered by the
Servicer to the Trustee pursuant to Section 5.03.
(b) The Servicer shall establish and maintain with Harris Trust and
Savings Bank a separate trust account (the "Collection Account") titled "Harris
Trust and Savings Bank, as Trustee, of Champion Home Equity Loan Trust 1998-1
Collection Account." The Collection Account shall be an Eligible Account. The
Servicer shall on the Transfer Date deposit any amounts representing payments
on and any collections in respect of the Mortgage Loans received for each
Mortgage Loan after the related Cut-Off Date for each Mortgage Loan and prior
to the Transfer Date, and thereafter, subject to Section 3.02(d), deposit
within two Business Days following receipt thereof, the following payments and
collections received or made by it with respect to each Mortgage Loan (without
duplication):
(i) all payments received after the Cut-Off Date on account of
principal on the Mortgage Loans and all Principal Prepayments and Curtailments
collected on and after the Cut-Off Date;
(ii) all payments received after the Cut-Off Date on account of
interest on the Mortgage Loans;
(iii) all Net Liquidation Proceeds net of related Foreclosure
Profits;
(iv) all Insurance Proceeds;
(v) any amounts payable in connection with the repurchase of any
Mortgage Loan and the amount of any Substitution Adjustment pursuant to
Sections 2.02, 2.04 and 2.06;
(vi) all Released Mortgaged Property Proceeds; and
(vii) any amount required to be deposited in the Collection Account
pursuant to Sections 3.05, 3.07, 3.20, 5.02 or 5.05(e); provided, however, that
with respect to each Due Period, the Servicer shall be permitted to retain (x)
from payments in respect of interest on the Mortgage Loans, the Servicing Fee
for such Due Period and (y) from payments from Mortgagors, Liquidation
Proceeds, Insurance Proceeds and Released Mortgaged Property Proceeds, any
unreimbursed Servicing Advances and Monthly Advances related thereto. The
foregoing requirements respecting deposits to the Collection Account are
exclusive, it being understood that, without limiting the generality of the
foregoing, the Servicer need not deposit in the Collection Account amounts
representing Foreclosure Profits, fees (including annual fees) or late charge
penalties payable by Mortgagors or amounts received by the Servicer for the
accounts of Mortgagors for application toward the payment of taxes, insurance
premiums, assessments and similar items.
(c) All funds in the Collection Account shall be held (i) uninvested
or (ii) invested at the written direction of the Servicer in Eligible
Investments. Any investments of funds in the Collection Account shall mature or
be withdrawable at par on or prior to three Business Days preceding the
immediately succeeding Distribution Date. Any investment earnings on funds held
in the Collection Account shall be for the account of the Servicer and may be
withdrawn from the Collection Account by the Servicer at any time. Any
investment losses on funds held in the Collection Account shall be for the
account of the Servicer and promptly upon the realization of such loss shall be
contributed by the Servicer to the Collection Account. Any references herein to
amounts on deposit in the Collection Account shall refer to amounts net of such
investment earnings.
(d) Notwithstanding anything contained in Section 3.02(b) to the
contrary, the Servicer shall be permitted to remit the collections specified in
Section 3.02(b), net of any amount permitted to be retained by the Servicer as
set forth in the proviso to such Section, to the Collection Account in
immediately available funds no later than 2:00 p.m. New York City time on the
third Business Day prior to each Distribution Date but only for so long as (a)
(i) the Servicer shall be Champion, (ii) Key Bank USA has a rating with respect
to short-term deposit obligations of at least "A-1" by S&P and "P-1" by
Moody's, (iii) no Event of Default shall have occurred and be continuing, and
(iv) the Support Agreement shall be entered into and in effect.
If the Servicer shall fail to make the deposit pursuant to this
Section 3.02(d), the Trustee shall immediately notify, but in any event no
later than 4:00 p.m. New York City time on the third Business Day prior to the
Distribution Date, by facsimile or telephone, Key Bank USA of such failure by
the Servicer.
Section 3.03 Withdrawals from the Collection Account. The Trustee
shall withdraw or cause to be withdrawn funds from the Collection Account for
the following purposes:
(i) on each Distribution Date, to deposit the portion of the
Available Funds then in the Collection Account to the Distribution Account;
(ii) to reimburse the Servicer for any accrued unpaid Servicing Fees
and for unreimbursed Monthly Advances and Servicing Advances. The Servicer's
right to reimbursement for unpaid Servicing Fees and unreimbursed Servicing
Advances shall be limited to late collections on the related Mortgage Loan,
including Liquidation Proceeds, Insurance Proceeds and such other amounts as
may be collected by the Servicer from the related Mortgagor or otherwise
relating to the Mortgage Loan in respect of which such reimbursed amounts are
owed. The Servicer's right to reimbursement for unreimbursed Monthly Advances
shall be limited to late collections of interest on any Mortgage Loan and to
Liquidation Proceeds and Insurance Proceeds on related Mortgage Loans;
(iii) to withdraw any amount received from a Mortgagor that is
recoverable and sought to be recovered as a voidable preference by a trustee in
bankruptcy pursuant to the United States Bankruptcy Code in accordance with a
final, nonappealable order of a court having competent jurisdiction;
(iv) subject to Section 5.05 hereof, to make investments in Eligible
Investments and to pay to the Servicer interest earned in respect of Eligible
Investments or on funds deposited in the Collection Account;
(v) to withdraw any funds deposited in the Collection Account that
were not required to be deposited therein or were deposited therein in error
and to pay such funds to the appropriate Person;
(vi) to pay the Servicer servicing compensation pursuant to Section
3.09 to the extent not retained or paid pursuant to Section 3.02(b);
(vii) to reimburse the Servicer for Nonrecoverable Advances that are
not, with respect to aggregate Servicing Advances on any single Mortgage Loan
or REO Property, in excess of the Principal Balance thereof and expenses
incurred pursuant to Section 7.03;
(viii) to withdraw funds necessary for the conservation and
disposition of REO Property pursuant to Section 3.07 to the extent not advanced
by the Servicer; and
(ix) to clear and terminate the Collection Account upon the
termination of this Agreement and to pay any amounts remaining therein to the
Class R Certificateholders.
Section 3.05 Maintenance of Hazard Insurance; Property Protection
Expenses. The Servicer shall cause to be maintained for each Mortgage Loan fire
and hazard insurance naming the Servicer as loss payee thereunder providing
extended coverage in an amount which is at least equal to the lesser of (i) the
maximum insurable value of the improvements securing such Mortgage Loan from
time to time, (ii) the combined principal balance owing on such Mortgage Loan
and any mortgage loan senior to such Mortgage Loan and (iii) the minimum amount
required to compensate for damage or loss on a replacement cost basis. The
Servicer shall also maintain on property acquired upon foreclosure, or by deed
in lieu of foreclosure, hazard insurance with extended coverage in an amount
which is at least equal to the lesser of (i) the maximum insurable value from
time to time of the improvements which are a part of such property, (ii) the
combined principal balance owing on such Mortgage Loan and any mortgage loan
senior to such Mortgage Loan and (iii) the minimum amount required to
compensate for damage or loss on a replacement cost basis at the time of such
foreclosure, fire and or deed in lieu of foreclosure plus accrued interest and
the good-faith estimate of the Servicer of related Servicing Advances to be
incurred in connection therewith. Amounts collected by the Servicer under any
such policies shall be deposited in the Collection Account to the extent called
for by Section 3.02. In cases in which any Mortgaged Property is located in a
federally designated flood area, the hazard insurance to be maintained for the
related Mortgage Loan shall include flood insurance to the extent such flood
insurance is available and the Servicer has determined such insurance to be
necessary in accordance with accepted second mortgage loan servicing standards.
All such flood insurance shall be in amounts equal to the least of (A) the
amount in clause (i) above, (B) the amount in clause (ii) above and (C) the
maximum amount of insurance available under the National Flood Insurance Act of
1968, as amended. The Servicer shall be under no obligation to require that any
Mortgagor maintain earthquake or other additional insurance and shall be under
no obligation itself to maintain any such additional insurance on property
acquired in respect of a Mortgage Loan, other than pursuant to such applicable
laws and regulations as shall at any time be in force and as shall require such
additional insurance.
Section 3.05. Maintenance of Mortgage Impairment Insurance Policy. In
the event that the Servicer shall obtain and maintain a blanket policy
consistent with prudent industry standards, insuring against fire and hazards
of extended coverage on all of the Mortgage Loans, then, to the extent such
policy names the Servicer as loss payee and provides coverage in an amount
equal to the aggregate unpaid principal balance on the Mortgage Loans without
co-insurance, and otherwise complies with the requirements of Section 3.04, the
Servicer shall be deemed conclusively to have satisfied its obligations with
respect to fire and hazard insurance coverage under Section 3.04, it being
understood and agreed that such blanket policy may contain a deductible clause,
in which case the Servicer shall, in the event that there shall not have been
maintained on the related Mortgaged Property a policy complying with Section
3.04, and there shall have been a loss which would have been covered by such
policy, deposit in the Collection Account the difference, if any, between the
amount that would have been payable under a policy complying with Section 3.04
and the amount paid under such blanket policy. Upon the request of the
Certificate Insurer or the Trustee, the Servicer shall cause to be delivered to
the Certificate Insurer or the Trustee, as the case may be, a certified true
copy of such policy. In connection with its activities as administrator and
servicer of the Mortgage Loans, the Servicer agrees to prepare and present, on
behalf of itself, the Trustee, the Certificate Insurer and Certificateholders,
claims under any such policy in a timely fashion in accordance with the terms
of such policy.
Section 3.06. Fidelity Bond. The Servicer shall maintain with a
responsible company, and at its own expense, a blanket fidelity bond and an
errors and omissions insurance policy, in a minimum amount acceptable to FNMA
or FHLMC or otherwise in an amount as is commercially available at a cost that
is not generally regarded as excessive by industry standards, with broad
coverage on all officers, employees or other persons acting in any capacity
requiring such persons to handle funds, money, documents or papers relating to
the Mortgage Loans ("Servicer Employees"). Any such fidelity bond and errors
and omissions insurance shall protect and insure the Servicer against losses,
including losses resulting from forgery, theft, embezzlement, fraud, errors and
omissions and negligent acts of such Servicer Employees. Such fidelity bond
shall also protect and insure the Servicer against losses in connection with
the release or satisfaction of a Mortgage Loan without having obtained payment
in full of the indebtedness secured thereby. No provision of this Section
requiring such fidelity bond and errors and omissions insurance shall diminish
or relieve the Servicer from its duties and obligations as set forth in this
Agreement. Upon the request of the Trustee, the Certificate Insurer or any
Certificateholder, the Servicer shall cause to be delivered to the Trustee,
such Certificateholder or the Certificate Insurer a certified true copy of such
fidelity bond and insurance policy.
Section 3.07. Management and Realization Upon Defaulted Mortgage
Loans. The Servicer shall manage, conserve, protect and operate each REO
Property for the Certificateholders solely for the purpose of its prudent and
prompt disposition and sale. The Servicer shall, either itself or through an
agent selected by the Servicer, manage, conserve, protect and operate the REO
Property in the same manner that it manages, conserves, protects and operates
other foreclosed property for its own account, and in the same manner that
similar property in the same locality as the REO Property is managed. The
Servicer shall attempt to sell the same (and may temporarily rent the same) on
such terms and conditions as the Servicer deems to be in the best interest of
the Certificate Insurer and the Certificateholders.
The Servicer shall cause to be deposited, within the time period
specified in Section 3.02(b) or 3.02(d), as applicable, in the Collection
Account all revenues received with respect to the related REO Property and
shall retain, or cause the Trustee to withdraw therefrom, funds necessary for
the proper operation, management and maintenance of the REO Property and the
fees of any managing agent acting on behalf of the Servicer.
The disposition of REO Property shall be carried out by the Servicer
for cash at such price, and upon such terms and conditions, as the Servicer
deems to be in the best interest of the Certificateholders and, as soon as
practicable thereafter, the expenses of such sale shall be paid. The cash
proceeds of the sale of the REO Property shall be deposited in the Collection
Account pursuant to Section 3.02(b) or 3.02(d), as applicable, net of
Foreclosure Profits and of any related unreimbursed Servicing Advances, accrued
and unpaid Servicing Fees and unreimbursed Monthly Advances payable to the
Servicer in accordance with Section 3.03, for distribution to the
Certificateholders in accordance with Section 5.01.
The Servicer shall foreclose upon or otherwise comparably convert to
ownership Mortgaged Properties securing such of the Mortgage Loans as come into
and continue in default when no satisfactory arrangements can be made for
collection of delinquent payments pursuant to Section 3.01 subject to the
provisions contained in the last paragraph of this Section.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Trustee or its nominee on behalf of Certificateholders
and the Certificate Insurer.
In the event any Mortgaged Property is acquired as aforesaid or
otherwise in connection with a default or imminent default on a Mortgage Loan,
the Servicer shall dispose of such Mortgaged Property (i) within three years
after the year of its acquisition or (ii) prior to the expiration of any
extension to such three-year grace period which is requested on behalf of the
Trust by the Servicer (at the expense of the Trust) more than 60 days prior to
the end of such three-year grace period and granted by the Internal Revenue
Service, if the Servicer shall have received an Opinion of Counsel to the
effect that the holding of such Mortgaged Property subsequent to three years
after its acquisition will not result in the imposition of taxes on "prohibited
transactions" as defined in Section 860F of the Code or cause either the Master
REMIC or any Subsidiary REMIC to fail to qualify as a REMIC at any time that
any Subsidiary Regular Interests or Regular Certificates are outstanding.
Notwithstanding any other provision of this Agreement, (i) no Mortgaged
Property acquired by the Servicer pursuant to this Section shall be rented (or
allowed to continue to be rented) or otherwise used for the production of
income by or on behalf of the Trust and (ii) no construction shall take place
on such Mortgaged Property in such a manner or pursuant to any terms, in either
case, that would cause such Mortgaged Property to fail to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code or
result in the receipt by the Trust of any "net income from foreclosure
property" which is subject to taxation within the meaning of Sections 860G(c)
and 857(b)(4)(B) of the Code. If a period greater than three years is permitted
under this Agreement and is necessary to sell any REO Property, the Servicer
shall give appropriate notice to the Trustee, the Certificate Insurer and the
Certificateholders and shall report monthly to the Trustee and the Certificate
Insurer as to the progress being made in selling such REO Property.
On each Distribution Date, the Servicer shall provide to the
Certificate Insurer the Liquidation Report with respect to each Mortgage Loan
that became a Liquidated Mortgage Loan during the preceding Due Period.
Section 3.08. Trustee to Cooperate. Upon any Principal Prepayment in
full, the Servicer is authorized to execute, pursuant to the authorization
contained in Section 3.01(f), if the related Assignment of Mortgage has been
recorded as required hereunder, an instrument of satisfaction regarding the
related Mortgage, which instrument of satisfaction shall be recorded by the
Servicer if required by applicable law and be delivered to the Person entitled
thereto. It is understood and agreed that no expenses incurred in connection
with such instrument of satisfaction or transfer shall be reimbursed from
amounts deposited in the Collection Account. If the Trustee is holding the
Mortgage Files, from time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, the Trustee shall, upon request of the
Servicer and delivery to the Trustee of a Request for Release, in the form
attached hereto as Exhibit J, signed by a Servicing Officer, release the
related Mortgage File to the Servicer, and the Trustee shall execute such
documents, in the forms provided by the Servicer, as shall be necessary for the
prosecution of any such proceedings or the taking of other servicing actions.
Such Request for Release shall obligate the Servicer to return the Mortgage
File to the Trustee when the need therefor by the Servicer no longer exists
unless the Mortgage Loan shall be liquidated, in which case, upon receipt of a
certificate of a Servicing Officer similar to that hereinabove specified, the
Request for Release shall be released by the Trustee to the Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
Mortgage Loan that is in default following recordation of the related
Assignment of Mortgage in accordance with the provisions hereof, the Trustee
shall, if so requested in writing by the Servicer, execute an appropriate
assignment in the form provided to the Trustee by the Servicer to assign such
Mortgage Loan for the purpose of collection to the Servicer (any such
assignment shall unambiguously indicate that the assignment is for the purpose
of collection only) and, upon such assignment, such assignee for collection
will thereupon bring all required actions in its own name and otherwise enforce
the terms of the Mortgage Loan and deposit the Net Liquidation Proceeds,
exclusive of Foreclosure Profits, received with respect thereto in the
Collection Account. In the event that all delinquent payments due under any
such Mortgage Loan are paid by the Mortgagor and any other defaults are cured
then the assignee for collection shall promptly reassign such Mortgage Loan to
the Trustee and return it to the place where the related Mortgage File was
being maintained.
Section 3.09. Servicing Compensation; Payment of Certain Expenses by
Servicer. Subject to Section 5.02, the Servicer shall be entitled to retain the
Servicing Fee in accordance with Section 3.02 as compensation for its services
in connection with servicing the Mortgage Loans. Moreover, additional servicing
compensation in the form of prepayment penalties or late payment charges or
other receipts not required to be deposited in the Collection Account,
including, without limitation, Foreclosure Profits and, subject to Section
3.02(b), investment income on the Collection Account shall be retained by the
Servicer. The Servicer shall be required to pay all expenses incurred by it in
connection with its activities hereunder (including payment of all other fees
and expenses not expressly stated hereunder to be for the account of the Trust
or the Certificateholders) and shall not be entitled to reimbursement therefor
except as specifically provided herein.
Section 3.10. Annual Statement as to Compliance. (a) The Servicer
will deliver to the Trustee, the Certificate Insurer and the Rating Agencies,
on or before the last day of the fifth month following the end of the
Servicer's fiscal year ended September 30, beginning in 1999, an Officer's
Certificate stating that (i) a review of the activities of the Servicer during
the preceding fiscal year (or such shorter period as is applicable in the case
of the first report) and of its performance under this Agreement has been made
under such officer's supervision and (ii) to the best of such officer's
knowledge, based on such review, the Servicer has fulfilled all its material
obligations under this Agreement throughout such fiscal year or, if there has
been a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof. The Servicer
shall promptly notify the Certificate Insurer, the Depositor, the Trustee, S&P
and Moody's upon any change in the basis on which its fiscal year is
determined. (b) The Servicer shall deliver to the Trustee, the Certificate
Insurer, the Depositor and each of the Rating Agencies, promptly after having
obtained knowledge thereof, but in no event later than five Business Days
thereafter, written notice by means of an Officer's Certificate of any event
which, with the giving of notice or the lapse of time or both, would become an
Event of Default.
Section 3.11 Annual Servicing Report. On or before the last day of
the fifth month following the end of the Servicer's fiscal year, beginning in
1999, the Servicer, at its expense, shall cause a firm of independent public
accountants reasonably acceptable to the Depositor and the Certificate Insurer
to furnish a letter or letters to the Certificate Insurer, the Depositor, the
Trustee, S&P and Moody's to the effect that such firm has, with respect to the
Servicer's overall servicing operations, examined such operations in accordance
with the requirements of the Uniform Single Attestation Program for Mortgage
Bankers, and stating such firm's conclusions relating thereto. In the event
such firm requires the Trustee to agree to the procedures performed by such
firm, the Servicer shall direct the Trustee in writing to so agree; it being
understood and agreed that the Trustee will deliver such letter of agreement in
conclusive reliance upon the direction of the Servicer, and the Trustee makes
no independent inquiry or investigation as to, and shall have no obligation or
liability in respect of, the sufficiency, validity or correctness of such
procedures.
Section 3.12. Access to Certain Documentation and Information
Regarding the Mortgage Loans. The Servicer shall provide to the Trustee, the
Certificate Insurer, Certificateholders which are federally insured savings and
loan associations, the Office of Thrift Supervision, the FDIC and the
supervisory agents and examiners of the Office of Thrift Supervision access to
the documentation regarding the Mortgage Loans required by applicable
regulations of the Office of Thrift Supervision and the FDIC (acting as
operator of the SAIF or the BIF), such access being afforded without charge but
only upon reasonable request and during normal business hours at the offices of
the Servicer. Nothing in this Section shall derogate from the obligation of the
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Mortgagors and the failure of the Servicer to provide access as
provided in this Section as a result of such obligation shall not constitute a
breach of this Section.
Section 3.13. Maintenance of Certain Servicing Insurance Policies.
The Servicer shall during the term of its service as servicer maintain in force
a policy or policies of insurance covering errors and omissions in the
performance of its obligations as servicer hereunder. Such policy or policies
shall, together, comply with the requirements from time to time of FNMA for
persons performing servicing for mortgage loans purchased by FNMA.
Section 3.14. Reports to the Securities and Exchange Commission. The
Trustee shall, on behalf of the Trust, cause to be filed with the Securities
and Exchange Commission any periodic reports required to be filed under the
provisions of the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Securities and Exchange Commission thereunder. Upon the
request of the Trustee, each of the Seller, the Servicer and the Depositor
shall cooperate with the Trustee in the preparation of any such report and
shall provide to the Trustee in a timely manner all such information or
documentation as the Trustee may reasonably request in connection with the
performance of its duties and obligations under this Section.
Section 3.15. Reports of Foreclosures and Abandonments of Mortgaged
Properties, Returns Relating to Mortgage Interest Received from Individuals and
Returns Relating to Cancellation of Indebtedness. The Servicer shall make
reports of foreclosures and abandonments of any Mortgaged Property for each
year beginning with 1998. The Servicer shall file reports relating to each
instance occurring during the previous calendar year in which the Servicer (i)
on behalf of the Trust acquires an interest in any Mortgaged Property through
foreclosure or other comparable conversion in full or partial satisfaction of a
Mortgage Loan or (ii) knows or has reason to know that any Mortgaged Property
has been abandoned. The reports from the Servicer shall be in form and
substance sufficient to meet the reporting requirements imposed by Sections
6050J, 6050H and 6050P of the Code.
Section 3.16. Advances by the Servicer. (a) Not later than 2:00 p.m.
New York City time on the third Business Day prior to each Distribution Date,
the Servicer shall remit to the Trustee for deposit in the Distribution Account
an amount to be distributed on such Distribution Date pursuant to Section 5.01,
equal to the interest accrued on each Mortgage Loan through the related Due
Date, but not received as of the close of business on the last day of the
related Due Period (net of the Servicing Fee); such amount being defined herein
as the "Monthly Advance". The Servicer may fund all or a portion of the Monthly
Advance with respect to the Mortgage Loans by instructing the Trustee on such
Determination Date to use funds deposited in the Collection Account which are
not part of Available Funds for the related Distribution Date; provided that if
such funds are so used the Servicer shall replace such funds on or before any
subsequent Determination Date on which such funds are required to be part of
the Available Funds.
(b) Notwithstanding anything herein to the contrary, no Servicing
Advance or Monthly Advance shall be required to be made hereunder if the
Servicer determines, and provides the Trustee with a Servicing Certificate to
the effect, that such Servicing Advance or Monthly Advance would, if made,
constitute a Nonrecoverable Advance.
Section 3.17 Superior Liens. The Servicer shall file (or cause to be
filed) a request for notice of any action by a superior lienholder under a
First Lien for the protection of the Trustee's interest, where permitted by
local law and whenever applicable state law does not require that a junior
lienholder be named as a party defendant in foreclosure proceedings in order to
foreclose such junior lienholder's equity of redemption.
If the Servicer is notified that any superior lienholder has
accelerated or intends to accelerate the obligations secured by the First Lien,
or has declared or intends to declare a default under the mortgage or the
promissory note secured thereby, or has filed or intends to file an election to
have the Mortgaged Property sold or foreclosed, the Servicer shall take, on
behalf of the Trust, whatever actions are necessary to protect the interests of
the Certificateholders and the Certificate Insurer, and/or to preserve the
security of the related Mortgage Loan, subject to the application of the REMIC
Provisions in accordance with the terms of this Agreement. The Servicer shall
immediately notify the Trustee and the Certificate Insurer in writing of any
such action or circumstances. The Servicer shall advance the necessary funds to
cure the default or reinstate the superior lien, if such advance is in the best
interests of the Certificate Insurer and the Certificateholders which the
Servicer may establish by seeking approval from the Certificate Insurer as
evidenced by written instruction from the Certificate Insurer. Any action or
inaction on the part of the Servicer in accordance with such written
instructions shall be deemed to be in the best interests of the Certificate
Insurer and the Certificateholders. If no written response is received within
five (5) Business Days of receipt by the Certificate Insurer of such request
for approval, the Servicer may advance or not advance in accordance with the
second preceding sentence without liability to the Certificateholders or the
Certificate Insurer. The Servicer shall not make such an advance except to the
extent that it determines in its reasonable good faith judgment that the
advance would be recoverable from Liquidation Proceeds on the related Mortgage
Loan and in no event in an amount that is greater than the Principal Balance of
the related Mortgage Loan, except with the consent of the Certificate Insurer,
which consent shall not be unreasonably withheld. The Servicer shall thereafter
take such action as is necessary to recover the amount so advanced.
Notwithstanding the foregoing, the Servicer may change, modify or
amend any or all of the foregoing procedures if such change, modification or
amendment is applicable to the Mortgage Loans and all other mortgage loans
serviced by the Servicer and is otherwise in accordance with Section 3.01.
Section 3.18 Assumption Agreements. When a Mortgaged Property has
been or is about to be conveyed by the Mortgagor, the Servicer shall, to the
extent it has knowledge of such conveyance or prospective conveyance, exercise
its right to accelerate the maturity of the related Mortgage Loan under any
"due-on-sale" clause contained in the related Mortgage or Mortgage Note;
provided, however, that the Servicer shall not exercise any such right if the
"due-on-sale" clause, in the reasonable belief of the Servicer, is not
enforceable under applicable law. In such event, the Servicer shall enter into
an assumption and modification agreement with the person to whom such property
has been or is about to be conveyed, pursuant to which such person shall become
liable under the Mortgage Note and, unless prohibited by applicable law, the
Mortgagor shall remain liable thereon. The Servicer, in accordance with
accepted mortgage loan servicing standards for mortgage loans similar to the
Mortgage Loans, is also authorized to enter into a substitution of liability
whereby such person is substituted as mortgagor and becomes liable under the
Mortgage Note. The Servicer shall notify the Trustee and the Certificate
Insurer that any such substitution or assumption agreement has been completed
by forwarding to the Trustee the original of such substitution or assumption
agreement, which original shall be added by the Trustee to the related Mortgage
File and shall, for all purposes, be considered a part of such Mortgage File to
the same extent as all other documents and instruments constituting a part
thereof. In connection with any assumption or substitution agreement entered
into pursuant to this Section, the Servicer shall not change the Loan Rate or
the Monthly Payment, defer or forgive the payment of principal or interest,
reduce the outstanding principal amount or extend the final maturity date on
such Mortgage Loan.
Notwithstanding the foregoing paragraph or any other provision of
this Agreement, the Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any assumption of
a Mortgage Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.
Section 3.19 Payment of Taxes, Insurance and Other Charges. With
respect to each Mortgage Loan, the Servicer shall maintain accurate records
reflecting fire and hazard insurance coverage.
With respect to each Mortgage Loan as to which the Servicer maintains
escrow accounts, the Servicer shall maintain accurate records reflecting the
status of ground rents, taxes, assessments, water rates and other charges which
are or may become a lien upon the Mortgaged Property and the status of primary
mortgage guaranty insurance premiums, if any, and fire and hazard insurance
coverage and shall obtain, from time to time, all bills for the payment of such
charges (including renewal premiums) and shall effect payment thereof prior to
the applicable penalty or termination date and at a time appropriate for
securing maximum discounts allowable, employing for such purpose deposits of
the Mortgagor in any escrow account which shall have been estimated and
accumulated by the Servicer in amounts sufficient for such purposes, as allowed
under the terms of the Mortgage. To the extent that a Mortgage does not provide
for escrow payments, the Servicer shall, if it has received notice of a default
or deficiency, monitor such payments to determine if they are made by the
Mortgagor.
Section 3.2O Optional Purchase of Defaulted Mortgage Loans. The
Servicer, in its sole discretion, shall have the right to elect (by written
notice sent to the Trustee and the Certificate Insurer) to purchase for its own
account from the Trust any Mortgage Loan which is 90 days or more delinquent in
the manner and at the price specified in Section 2.02. The Purchase Price for
any Mortgage Loan purchased hereunder shall be deposited in the Collection
Account pursuant to Section 3.02(b) or 3.02(d), as applicable, provided that
the Trustee shall remit to the Depositor or the Certificate Insurer, as
applicable the portion of the amount, if any, of the Purchase Price referred to
in clause (iv) of the definition thereof to the extent such amount is incurred
by or imposed on the Depositor or the Certificate Insurer. The Trustee, upon
receipt of such deposit, shall release or cause to be released to the purchaser
of such Mortgage Loan the related Mortgage File and shall execute and deliver
such instruments of transfer or assignment prepared by the purchaser of such
Mortgage Loan, in each case without recourse, as shall be necessary to vest in
the purchaser of such Mortgage Loan any Mortgage Loan released pursuant hereto
and the purchaser of such Mortgage Loan shall succeed to all the Trust's right,
title and interest in and to such Mortgage Loan and all security and documents
related thereto. Such assignment shall be an assignment outright and not for
security. The purchaser of such Mortgage Loan shall thereupon own such Mortgage
Loan, and all security and documents, free of any further obligation to the
Trustee, the Certificate Insurer or the Certificateholders with respect
thereto.
Notwithstanding the foregoing, unless the Certificate Insurer
consents, the Servicer may only exercise its option pursuant to this Section
3.20 with respect to the Mortgage Loan or Mortgage Loans that have been
delinquent for the longest period at the time of such repurchase. Any request
by the Servicer to the Certificate Insurer for consent to repurchase Mortgage
Loans that are not the most delinquent shall be accompanied by a description of
the Mortgage Loans that have been delinquent longer than the Mortgage Loan or
Mortgage Loans which the Servicer proposes to repurchase.
ARTICLE IV
Certificate Insurance Policy
Section 4.01 Certificate Insurance Policy. (a) As soon as possible,
and in no event later than 2:00 p.m. New York City time on the second Business
Day immediately preceding the Distribution Date, the Trustee shall furnish the
Certificate Insurer, the Fiscal Agent and the Servicer with a completed notice
in the form set forth as Exhibit A to the Certificate Insurance Policy (the
"Notice for Payment") in the event that the Insured Payment for such
Distribution Date is equal to an amount greater than zero. The Notice for
Payment shall specify the amount of Insured Payment and shall constitute a
claim for an Insured Payment pursuant to the Certificate Insurance Policy. Upon
receipt of Insured Payment on behalf of the Holders of the affected Class of
Class A Certificates under the Certificate Insurance Policy, the Trustee shall
deposit such Insured Payment in the Distribution Account and shall distribute
such Insured Payments pursuant to Section 5.01.
(b) The Trustee shall receive, as attorney-in-fact of each Holder of
the Class A Certificates, any Insured Payment from the Certificate Insurer and
disburse the same to each Holder of the affected Class of Certificates in
accordance with the provisions of Section 5.01.
(c) The Trustee shall keep complete and accurate records of the
amount of Insured Payments and the Certificate Insurer shall have the right to
inspect such records at reasonable times upon one Business Day's prior notice
to the Trustee.
(d) If a payment to the Class A Certificateholders which is
guaranteed pursuant to the Certificate Insurance Policy is voided (a
"Preference Event") under any applicable bankruptcy, insolvency, receivership
or similar law in an Insolvency Proceeding, and, as a result of such a
Preference Event, the Trustee is required to return such voided payment, or any
portion of such voided payment, made in respect of a Class of Class A
Certificates (an "Avoided Payment"), the Trustee shall furnish to the
Certificate Insurer (x) a certified copy of a final order of a court exercising
jurisdiction in such Insolvency Proceeding to the effect that the Trustee is
required to return any such payment or portion thereof during the term of the
Certificate Insurance Policy because such payment was voided under applicable
law, with respect to which order the appeal period has expired without an
appeal having been filed (the "Final Order"), (y) an assignment, in form
reasonably satisfactory to the Certificate Insurer, irrevocably assigning to
the Certificate Insurer all rights and claims of the Trustee relating to or
arising under such Avoided Payment and (z) a Notice for Payment appropriately
completed and executed by the Trustee. Such payment shall be disbursed to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Final Order and not to the Trustee directly (unless a Certificateholder has
previously paid such amount to the receiver, conservator, debtor-in-possession
or trustee in bankruptcy named in the Final Order in which case such payment
shall be disbursed to the Beneficiary for distribution to such
Certificateholder upon proof of such payment reasonably satisfactory to
Certificate Insurer). The Trustee is not permitted to make a claim on the Trust
or on any Certificateholder for payments made to Certificateholders which are
characterized as preference payments by any bankruptcy court having
jurisdiction over any bankrupt Mortgagor unless ordered to do so by such
bankruptcy court. (e) The Trustee hereby agrees that on behalf of each Class A
Certificateholder (and each Class A Certificateholder, by its acceptance of its
Certificates, hereby agrees) for the benefit of the Certificate Insurer that
the Trustee shall recognize that to the extent the Certificate Insurer makes a
payment under the Certificate Insurance Policy, either directly or indirectly
(as by paying through the Trustee), to the Class A Certificateholders, the
Insurer will be subrogated to the rights of the Class A Certificateholders to
the extent of such payments. Any rights of subrogation acquired by the
Certificate Insurer as a result of any payment made under the Certificate
Insurance Policy shall, in all respects, be subordinate and junior in right of
payment to the prior indefeasible payment in full of all amounts due the
Trustee on account of payments due under the Class A Certificates pursuant to
Section 5.01 hereof.
Section 4.02 [RESERVED]
Section 4.03 Replacement Certificate Insurance Policy. In the event
of a Certificate Insurer Default or if the claims paying ability rating of the
Certificate Insurer is downgraded and such downgrade results in a downgrading
of the then current rating of the Class A Certificates (in each case, a
"Replacement Event"), the Seller may, in accordance with and upon satisfaction
of the conditions set forth in the Certificate Insurance Policy and the
Insurance Agreement and payment in full of all amounts owed to the Certificate
Insurer, but shall not be required to, substitute a new certificate insurance
policy or certificate insurance policies for the existing Certificate Insurance
Policy, or may arrange for any other form of credit enhancement; provided,
however, that in each case the Class A Certificates shall be rated no lower
than the rating assigned by each Rating Agency to the Class A Certificates
immediately prior to such Replacement Event. It shall be a condition to
substitution of any new credit enhancement that there be delivered to the
Trustee (i) a legal opinion, acceptable in form and substance to the Trustee,
from counsel to the provider of such new credit enhancement with respect to the
enforceability thereof and such other matters as the Trustee may require and
(ii) an Opinion of Counsel to the effect that such substitution would not
adversely affect the qualification of that portion of the Trust consisting of
the REMIC Pool as a REMIC. Upon receipt of the items referred to above and the
taking of physical possession of the new credit enhancement, the Trustee shall,
within five Business Days following receipt of such items and such taking of
physical possession, deliver the replaced Certificate Insurance Policy to the
Certificate Insurer.
Section 4.04 Payments Under the Support Agreement. In the event that
the Servicer does not, on or before 2:00 p.m. New York City time on the third
Business Day preceding a Distribution Date, remit to the Trustee for deposit in
the Collection Account the respective amounts required to be remitted by it
pursuant to Section 3.02(b) and 3.16, the Trustee, no later than 4:00 p.m. on
such day, shall make a written demand pursuant to the Support Agreement upon
Key Bank USA for any and all amounts (including any Monthly Advances) required
to be deposited in the Collection Account by it pursuant thereto.
To the extent of any payment by Key Bank USA under the Support
Agreement, Key Bank USA shall have all rights of the Servicer under this
Agreement to be reimbursed for such payment made by Key Bank USA, including,
without limitation, rights in and to any Mortgage Loan or payment with respect
to any Mortgage Loan or the proceeds thereof. In addition, Key Bank USA shall
be subrogated to the rights of Class A Certificateholders to the extent of
payments under the Support Agreement. Each of the Depositor, the Servicer and
the Trustee agrees to such subrogation and, further, agrees to execute such
instruments and to take such actions as, in the sole judgment of Key Bank USA,
as evidenced in writing to the Depositor, the Servicer and the Trustee, are
necessary to evidence such subrogation.
ARTICLE V
Payments and Statements to Certificateholders;
Rights of Certificateholders
Section 5.01 Distributions. (a) On each Distribution Date, the
Trustee shall withdraw from the Distribution Account the Available Funds and
investment earnings on amounts on deposit in the Distribution Account, if any,
and make distributions thereof as described below and to the extent of the
Available Funds (including any Monthly Advances made pursuant to Sections 3.16
and 4.04) in the following order of priority:
(1) to the Trustee, the Trustee Fee and so long as no
Certificate Insurer Default shall have occurred and be
continuing to the Certificate Insurer the Premium Amount for
such Distribution Date;
(2) concurrently to the Holders of each Class of
Class A Certificates, an amount equal to the related Class
Interest Distribution for such Distribution Date, any shortfall
being allocated pro rata among such Classes based on the amount
of interest each such Class is entitled to receive in the
absence of such shortfall;
(3) to the Holders of the Class A-1 Certificates until the
Class A-1 Principal Balance is reduced to zero, the Class A-1
Principal Distribution (other than the portion constituting
Distributable Excess Spread);
(4) to the Certificate Insurer, the amount owing to the
Certificate Insurer under the Insurance Agreement for
reimbursement for draws made on the Policy.
(5) to the Holders of the Class A-1 Certificates until the
Class A-1 Principal Balance is reduced to zero, to the extent of
the Available Funds remaining, the Distributable Excess Spread
for such Distribution Date.
(6) to the Servicer, the amount of any accrued and unpaid
Servicing Fee;
(7) to the Servicer, the amount of Nonrecoverable Advances
not previously reimbursed;
(8) to the Certificate Insurer, any amounts owing to the
Certificate Insurer under the Insurance Agreement; and
(9) to the Class R Certificateholders, the balance, if any.
(b) Method of Distribution. The Trustee shall make distributions in
respect of a Distribution Date to each Certificateholder of record on the
related Record Date (other than as provided in Section 10.01 respecting the
final distribution), in the case of Class A Certificateholders, by check or
money order mailed to such Certificateholder at the address appearing in the
Certificate Register, or, upon written request by a Class A Certificateholder
delivered to the Trustee at least five Business Days prior to such Record Date,
by wire transfer (but only if such Class A Certificateholder is the Depository
or such Class A Certificateholder owns of record one or more Class A-1
Certificates aggregating at least $5,000,000 Original Class A-1 Certificate
Principal Balance and, in the case of Class R Certificateholders, by wire
transfer. Distributions among Certificateholders shall be made in proportion to
the Percentage Interests evidenced by the Certificates held by such
Certificateholders.
(c) Distributions on Book-Entry Certificates. Each distribution with
respect to a Book-Entry Certificate shall be paid to the Depository, which
shall credit the amount of such distribution to the accounts of its Depository
Participants in accordance with its normal procedures. Each Depository
Participant shall be responsible for disbursing such distribution to the
Certificate Owners that it represents and to each indirect participating
brokerage firm (a "brokerage firm" or "indirect participating firm") for which
it acts as agent. Each brokerage firm shall be responsible for disbursing funds
to the Certificate Owners that it represents. All such credits and
disbursements with respect to a Book-Entry Certificate are to be made by the
Depository and the Depository Participants in accordance with the provisions of
the Certificates. None of the Trustee, the Paying Agent, the Certificate
Registrar, the Depositor, the Servicer or the Seller shall have any
responsibility therefor except as otherwise provided by applicable law.
Section 5.02 Compensating Interest. Not later than 2:00 p.m. New York
City time on the third Business Day prior to each Distribution Date, the
Servicer shall remit to the Trustee for deposit to the Collection Account an
amount equal to the lesser of (A) the aggregate of the Prepayment Interest
Shortfalls for the related Distribution Date resulting from Principal
Prepayments during the related Due Period and (B) its aggregate Servicing Fees
received in the related Due Period. The Servicer shall not have the right to
reimbursement for any amounts deposited to the Collection Account pursuant to
this Section.
Section 5.03. Statements. (a) Not later than 12:00 noon, New York
City time, on each Determination Date, the Servicer shall deliver to the
Trustee a computer tape (or such other report in a form and format mutually
agreeable to the Servicer and the Trustee) containing the information set forth
in Exhibit E hereto as to each Mortgage Loan as of the end of the preceding Due
Period and such other information as the Trustee shall reasonably require. On
the Business Day preceding the Distribution Date, the Trustee shall deliver to
the Servicer, the Depositor and to the Certificate Insurer, by telecopy, with a
hard copy thereof to be delivered on such
Distribution Date, a statement (the "Trustee's Remittance Report") (based
solely on the information contained on the computer tape) containing the
information set forth below with respect to such Distribution Date:
(i) The Available Funds and each Class' Certificate Rate for the
related Distribution Date;
(ii) The Class A-1 Principal Balance, the Notional Principal
Balance of the Class A-2 Certificates, the Pool Principal Balance as
reported in the prior Trustee's Remittance Report or, in the case of
the first Determination Date, the Original Class A-1 Certificate
Principal Balance and the Cut-Off Date Pool Principal Balance;
(iii) The aggregate amount of collections received on the
Mortgage Loans on or prior to such Determination Date in respect of
the preceding Due Period, separately stating the amounts received in
respect of principal and interest;
(iv) The number and Principal Balances of all Mortgage Loans
that were the subject of Principal Prepayments during the related Due
Period;
(v) The amount of all Curtailments that were received during the
Due Period;
(vi) The principal portion of all Monthly Payments received
during the Due Period;
(vii) The interest portion of all Monthly Payments received on
the Mortgage Loans during the Due Period;
(viii) The amount required to be paid by the Seller (reported
separately) pursuant to Sections 2.02, 2.04 or 2.06;
(ix) The amount of the Monthly Advances and the Compensating
Interest payment to be made with respect to such Distribution Date;
(x) the Certificate Rate on the Variable Rate Certificates and
the Certificate Index;
(xi) The Class A-1 Principal Distribution and the Class Interest
Distribution for the related Distribution Date to be distributed on
each Class of Class A Certificates;
(xii) The amount, if any, of the Outstanding Class Interest
Carryover Shortfall and Class A-1 Principal Shortfall Amount after
giving effect to the distributions on the related Distribution Date;
(xiii) The amount of the Insured Payments, if any, to be made on
the related Distribution Date;
(xiv) The amount to be distributed to the Class R
Certificateholders for the related Distribution Date;
(xv) The Class A-1 Principal Balance after giving effect to the
distribution to be made on the related Distribution Date; (xvi) The
weighted average remaining term to maturity of the Mortgage Loans and
the weighted average Loan Rate;
(xvii) The Servicing Fee to be paid to the Servicer pursuant to
Section 5.01(a)(6) and the amounts to be paid to the Certificate
Insurer, separately stated, pursuant to Sections 5.01(a)(4) and
5.01(a)(8);
(xviii) The Premium Amount to be paid to the Certificate Insurer
pursuant to Section 5.01;
(xix) The amount of all payments or reimbursements to the
Servicer pursuant to Section 3.03;
(xx) The O/C Amount, the O/C Reduction Amount, the Excess O/C
Amount and the Specified O/C Amount for the Distribution Date and the
Excess Spread for such Distribution Date;
(xxi) The amount paid to Class R Certificateholders pursuant to
Section 5.01(a)(9);
(xxii) The amount of Distributable Excess Spread to be
distributed to the Class A-1 Certificateholders on such Distribution
Date pursuant to Section 5.01(a)(5) on such Distribution Date;
(xxiii) The number of Mortgage Loans outstanding at the
beginning and at the end of the related Due Period;
(xxiv) The Pool Principal Balance as of the end of the Due
Period related to such Distribution Date;
(xxv) The number and aggregate Principal Balances of Mortgage
Loans (w) as to which the Monthly Payment is delinquent for 30-59
days, 60-89 days and 90 or more days, respectively, (x) that have
become REO Properties, in each case as of the end of the preceding
Due Period, (y) that are in foreclosure and (z) the Mortgagor of
which is the subject of any bankruptcy or insolvency proceeding;
(xxvi) The unpaid principal amount of all Mortgage Loans that
became Liquidated Mortgage Loans during such Due Period;
(xxvii) The Net Liquidation Proceeds received during such Due
Period;
(xxviii) The cumulative losses on the Mortgage Loans;
(xxix) The book value (within the meaning of 12 C.F.R. ss.
571.13 or comparable provision) of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xxx) Such other information as is required by the Code and
regulations thereunder to be made available to Holders of the Class A
Certificates.
The Trustee shall forward such report to the Servicer, the Depositor,
the Certificate Insurer (at 113 King Street, Armonk, New York 10504, Attention:
Insured Portfolio Management, Structured Finance), the Certificateholders, the
Rating Agencies, Bloomberg (at 499 Park Avenue, New York, New York 10022,
Attention: Mike Geller) and Intex Solutions (at 35 highland Circle, Needham,
Massachusetts 02144, Attention: Harold Brennman) on the related Distribution
Date. The Trustee may fully rely upon and shall have no liability with respect
to information provided by the Servicer.
To the extent that there are inconsistencies between the telecopy of
the Trustee's Remittance Report and the hard copy thereof, the Servicer may
rely upon the latter.
In the case of information furnished pursuant to subclauses (ii),
(xii) and (xvii) above, the amounts shall be expressed in a separate section of
the report as a dollar amount for each Class for each $1,000 original dollar
amount as of the Cut-Off Date.
(b) Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each Person who at any time during the
calendar year was a Class A Certificateholder, if requested in writing by such
Person, such information as is reasonably necessary to provide to such Person a
statement containing the information set forth in subclause (xi) above,
aggregated for such calendar year or applicable portion thereof during which
such Person was a Certificateholder. Such obligation of the Trustee shall be
deemed to have been satisfied to the extent that substantially comparable
information shall be prepared and furnished by the Trustee to
Certificateholders pursuant to any requirements of the Code as are in force
from time to time.
(c) On each Distribution Date, the Trustee shall forward to the Class
R Certificateholders a copy of the reports forwarded to the Class A
Certificateholders in respect of such Distribution Date and a statement setting
forth the amounts actually distributed to the Class R Certificateholders on
such Distribution Date together with such other information as the Trustee
deems necessary or appropriate.
(d) Within a reasonable period of time after the end of each calendar
year, the Trustee shall deliver to each Person who at any time during the
calendar year was a Class R Certificateholder, if requested in writing by such
Person, such information as is reasonably necessary to provide to such Person a
statement containing the information provided pursuant to the previous
paragraph aggregated for such calendar year or applicable portion thereof
during which such Person was a Class R Certificateholder. Such obligation of
the Trustee shall be deemed to have been satisfied to the extent that
substantially comparable information shall be prepared and furnished to
Certificateholders by the Trustee pursuant to any requirements of the Code as
from time to time in force.
(e) The Servicer and the Trustee shall furnish to each
Certificateholder and to the Certificate Insurer (if requested in writing),
during the term of this Agreement, such periodic, special or other reports or
information, whether or not provided for herein, as shall be necessary,
reasonable or appropriate with respect to the Certificateholder or the
Certificate Insurer, as the case may be, or otherwise with respect to the
purposes of this Agreement, all such reports or information to be provided by
and in accordance with such applicable instructions and directions (if
requested in writing) as the Certificateholder or the Certificate Insurer, as
the case may be, may reasonably require; provided that the Servicer and the
Trustee shall be entitled to be reimbursed by such Certificateholder or the
Certificate Insurer, as the case may be, for their respective fees and actual
expenses associated with providing such reports, if such reports are not
generally produced in the ordinary course of their respective businesses or
readily obtainable.
(f) Reports and computer tapes furnished by the Servicer pursuant to
this Agreement shall be deemed confidential and of a proprietary nature, and
shall not be copied or distributed except to the extent provided in this
Agreement and to the extent required by law or to the Rating Agencies, the
Depositor, the Certificate Insurer's reinsurers, parent, regulators, liquidity
providers and auditors and to the extent the Seller instructs the Trustee in
writing to furnish information regarding the Trust or the Mortgage Loans to
third-party information providers. No Person entitled to receive copies of such
reports or tapes or lists of Certificateholders shall use the information
therein for the purpose of soliciting the customers of the Seller or for any
other purpose except as set forth in this Agreement.
Section 5.04. Distribution Account. The Trustee shall establish with
Harris Trust and Savings Bank, a separate trust account (the "Distribution
Account") titled "Harris Trust and Savings Bank, as Trustee, of Champion Home
Equity Loan Trust 1998-1 Distribution Account". The Distribution Account shall
be an Eligible Account. The Trustee shall deposit any amounts representing
payments on and any collections in respect of the Mortgage Loans received by it
immediately following receipt thereof, including, without limitation, all
amounts withdrawn from the Collection Account pursuant to Section 3.03 for
deposit to the Distribution Account. Amounts on deposit in the Distribution
Account may be invested in Eligible Investments pursuant to Section 5.05.
Section 5.05. Investment of Accounts. (a) So long as no Event of
Default shall have occurred and be continuing, and consistent with any
requirements of the Code, all or a portion of any Account held by the Trustee
shall be invested and reinvested by the Trustee, as directed in writing by the
Servicer, in one or more Eligible Investments bearing interest or sold at a
discount. If an Event of Default shall have occurred and be continuing or if
the Servicer does not provide investment directions, the Trustee shall invest
all Accounts in Eligible Investments described in paragraph (vi) of the
definition of Eligible Investments. No such investment in any Account shall
mature later than the Business Day immediately preceding the next Distribution
Date (except that (i) if such Eligible Investment is an obligation of the
Trustee, then such Eligible Investment shall mature not later than such
Distribution Date and (ii) any other date as may be approved by the Rating
Agencies and the Certificate Insurer).
(b) If any amounts are needed for disbursement from any Account held
by the Trustee and sufficient uninvested funds are not available to make such
disbursement, the Trustee shall cause to be sold or otherwise converted to cash
a sufficient amount of the investments in such Account.
(c) The Trustee shall not in any way be held liable for the selection
of Eligible Investments or by reason of any investment loss or charge or any
insufficiency in any Account held by the Trustee resulting from any investment
loss on any Eligible Investment included therein unless the Trustee's failure
to perform in accordance with this Section is the cause of such loss or charge
(except to the extent that the Trustee is the obligor and has defaulted thereon
or as provided in subsection (b) of this Section). The Trustee shall have no
liability in respect of losses incurred as a result of the liquidation of any
Eligible Investment prior to its stated maturity or the failure of the Servicer
to provide timely written investment direction. In the absence of written
investment direction, the Trustee shall invest funds in the Accounts in the
Eligible Investment described in clause (vi) of the definition thereof.
(d) The Trustee shall invest and reinvest funds in the Accounts held
by the Trustee, to the fullest extent practicable, in such manner as the
Servicer shall from time to time direct as set forth in Section 5.05(a), but
only in one or more Eligible Investments.
(e) So long as no Event of Default shall have occurred and be
continuing, all net income and gain realized from investment of, and all
earnings on, funds deposited in the Collection Account and the Distribution
Account shall be for the benefit of the Servicer as servicing compensation (in
addition to the Servicing Fee), and shall be subject to withdrawal on or before
the first Business Day of the month following the month in which such income or
gain is received. The Servicer shall deposit in the Collection Account or the
Distribution Account, as the case may be, the amount of any loss incurred in
respect of any Eligible Investment held therein which is in excess of the
income and gain thereon immediately upon realization of such loss from its own
funds, without any right to reimbursement therefore.
ARTICLE VI
The Certificates
Section 6.01. The Certificates. Each of the Class A Certificates and
Class R Certificates shall be substantially in the forms set forth in Exhibits
A and B hereto, respectively, and shall, on original issue, be executed,
authenticated and delivered by the Trustee to or upon the order of the
Depositor concurrently with the sale and assignment to the Trustee of the
Trust. Each Class of Class A Certificates shall be initially evidenced by one
or more certificates representing a fraction of the Original Class A-1
Certificate Principal Balance or Notional Principal Balance, as applicable, and
shall be held in minimum dollar denominations of $25,000 and $1,000 dollar
multiples in excess thereof, except that one of each of the Class A Certificate
may be in a different denomination.
The Certificates shall be executed on behalf of the Trust by manual
or facsimile signature on behalf of the Trustee by a Responsible Officer.
Certificates bearing the manual or facsimile signatures of individuals who
were, at the time when such signatures were affixed, authorized to sign on
behalf of the Trustee shall bind the Trust, notwithstanding that such
individuals or any of them have ceased to be so authorized prior to the
authentication and delivery of such Certificates or did not hold such offices
at the date of such Certificate. No Certificate shall be entitled to any
benefit under this Agreement or be valid for any purpose, unless such
Certificate shall have been manually authenticated by the Trustee substantially
in the form provided for herein, and such authentication upon any Certificate
shall be conclusive evidence, and the only evidence, that such Certificate has
been duly authenticated and delivered hereunder. All Certificates shall be
dated the date of their authentication. Subject to Section 6.02(c), the Class A
Certificates shall be Book-Entry Certificates. The Class R Certificates shall
not be Book-Entry Certificates.
Section 6.02 Registration of Transfer and Exchange of Certificates.
(a) The Certificate Registrar shall cause to be kept at the Corporate Trust
Office a Certificate Register in which, subject to such reasonable regulations
as it may prescribe, the Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges of Certificates as
herein provided. The Trustee shall initially serve as Certificate Registrar for
the purpose of registering Certificates and transfers and exchanges of
Certificates as herein provided.
Upon surrender for registration of transfer of any Certificate at any
office or agency of the Certificate Registrar maintained for such purpose
pursuant to the foregoing paragraph and, in the case of a Class R Certificate,
upon satisfaction of the conditions set forth below, the Trustee on behalf of
the Trust shall execute, authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Certificates of the same
aggregate Percentage Interest.
At the option of the Certificateholders, Certificates may be
exchanged for other Certificates in authorized denominations and the same
aggregate Percentage Interests, upon surrender of the Certificates to be
exchanged at any such office or agency. Whenever any Certificates are so
surrendered for exchange, the Trustee shall execute on behalf of the Trust and
authenticate and deliver the Certificates which the Certificateholder making
the exchange is entitled to receive. Every Certificate presented or surrendered
for registration of transfer or exchange shall (if so required by the Trustee
or the Certificate Registrar) be duly endorsed by, or be accompanied by a
written instrument of transfer satisfactory to the Trustee and the Certificate
Registrar duly executed by, the Holder thereof or his attorney duly authorized
in writing.
(b) Except as provided in paragraph (c) below, the Book-Entry
Certificates shall at all times remain registered in the name of the Depository
or its nominee and at all times: (i) registration of such Certificates may not
be transferred by the Trustee except to another Depository; (ii) the Depository
shall maintain book-entry records with respect to the Certificate Owners and
with respect to ownership and transfers of such Certificates; (iii) ownership
and transfers of registration of such Certificates on the books of the
Depository shall be governed by applicable rules established by the Depository;
(iv) the Depository may collect its usual and customary fees, charges and
expenses from its Depository Participants; (v) the Trustee shall deal with the
Depository as representative of the Certificate Owners of the Certificates for
purposes of exercising the rights of Holders under this Agreement, and requests
and directions for and votes of such representative shall not be deemed to be
inconsistent if they are made with respect to different Certificate Owners; and
(vi) the Trustee may rely and shall be fully protected in relying upon
information furnished by the Depository with respect to its Depository
Participants and furnished by the Depository Participants with respect to
indirect participating firms and Persons shown on the books of such indirect
participating firms as direct or indirect Certificate Owners; and (vii) the
direct participants of the Depository shall have no rights under this Agreement
under or with respect to any of the Certificates held on their behalf by the
Depository, and the Depository may be treated by the Trustee and its agents,
employees, officers and directors as the absolute owner of the Certificates for
all purposes whatsoever.
All transfers by Certificate Owners of Book-Entry Certificates shall
be made in accordance with the procedures established by the Depository
Participant or brokerage firm representing such Certificate Owners. Each
Depository Participant shall only transfer Book-Entry Certificates of
Certificate Owners that it represents or of brokerage firms for which it acts
as agent in accordance with the Depository's normal procedures. The parties
hereto are hereby authorized to execute a Letter of Representations with the
Depository or take such other action as may be necessary or desirable to
register a Book-Entry Certificate to the Depository. In the event of any
conflict between the terms of any such Letter of Representation and this
Agreement the terms of this Agreement shall control.
(c) If (i) (x) the Depository or the Depositor advises the Trustee in
writing that the Depository is no longer willing or able to discharge properly
its responsibilities as Depository and (y) the Trustee or the Depositor is
unable to locate a qualified successor, (ii) the Depositor, at its sole option,
with the consent of the Trustee, elects to terminate the book-entry system
through the Depository or (iii) after the occurrence of an Event of Default,
the Certificate Owners of each Class of Class A Certificates representing
Percentage Interests aggregating not less than 51% advises the Trustee and
Depository through the Financial Intermediaries and the Depository Participants
in writing that the continuation of a book-entry system through the Depository
to the exclusion of definitive, fully registered certificates (the "Definitive
Certificates") to Certificate Owners is no longer in the best interests of the
Certificate Owners, upon surrender to the Certificate Registrar of each Class
of Class A Certificates by the Depository, accompanied by registration
instructions from the Depository for registration, the Trustee shall, at the
Depositor's expense, in the case of (ii) above, or the Seller's expense, in the
case of (i) and (iii) above, execute on behalf of the Trust and authenticate
the Definitive Certificates. Neither the Depositor nor the Trustee shall be
liable for any delay in delivery of such instructions and may conclusively rely
on, and shall be protected in relying on, such instructions. Upon the issuance
of Definitive Certificates, the Trustee, the Certificate Registrar, the
Servicer, any Paying Agent and the Depositor shall recognize the Holders of the
Definitive Certificates as Certificateholders hereunder.
(d) Except with respect to the initial transfer of the Class R
Certificates by the Depositor, no transfer, sale, pledge or other disposition
of any Class R Certificate shall be made unless such disposition is exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and any applicable state securities laws or is made in accordance
with the 1933 Act and laws. In the event of any such transfer, other than the
transfer of the Tax Matters Person Residual Interest to the Trustee (i) unless
such transfer is made in reliance upon Rule 144A (as evidenced by the
investment letter delivered to the Trustee, in substantially the form attached
hereto as Exhibit K) under the 1933 Act, the Trustee and the Depositor shall
require a written Opinion of Counsel (which may be in-house counsel) acceptable
to and in form and substance reasonably satisfactory to the Trustee and the
Depositor that such transfer may be made pursuant to an exemption, describing
the applicable exemption and the basis therefor, from the 1933 Act or is being
made pursuant to the 1933 Act, which Opinion of Counsel shall not be an expense
of the Trustee or the Depositor or (ii) the Trustee shall require the
transferor to execute a transferor certificate (in substantially the form
attached hereto as Exhibit I) and the transferee to execute an investment
letter (in substantially the form attached hereto as Exhibit K) acceptable to
and in form and substance reasonably satisfactory to the Depositor and the
Trustee certifying to the Depositor and the Trustee the facts surrounding such
transfer, which investment letter shall not be an expense of the Trustee or the
Depositor. The Holder of a Class R Certificate desiring to effect such transfer
shall, and does hereby agree to, indemnify the Trustee and the Depositor
against any liability that may result if the transfer is not so exempt or is
not made in accordance with such federal and state laws.
No transfer of a Class R Certificate shall be made unless the Trustee
shall have received either (i) a representation from the transferee of such
Certificate, acceptable to and in form and substance satisfactory to the
Trustee and the Depositor, (such requirement is satisfied only by the Trustee's
receipt of a representation letter from the transferee substantially in the
form of Exhibit H hereto, as appropriate), to the effect that such transferee
is not an employee benefit plan or arrangement subject to Section 406 of ERISA
or a plan subject to Section 4975 of the Code, nor a person acting on behalf of
any such plan or arrangement nor using the assets of any such plan or
arrangement to effect such transfer or (ii) if the purchaser is an insurance
company, a representation that the purchaser is an insurance company which is
purchasing such Certificates with funds contained in an "insurance company
general account" (as such term is defined in Section V(e) of Prohibited
Transaction Class Exemption 95-60 ("PTCE 95-60") and that the purchase and
holding of such Certificates are covered under PTCE 95-60 or (iii) in the case
of any such Class R Certificate presented for registration in the name of an
employee benefit plan subject to ERISA or a plan or arrangement subject to
Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan or any other person acting on behalf
of any such plan or arrangement or using such plan's or arrangement's assets,
an Opinion of Counsel satisfactory to the Trustee which Opinion of Counsel
shall not be an expense of either the Trustee or the Trust, addressed to the
Trustee, to the effect that the purchase or holding of such Class R Certificate
will not result in the assets of the Trust being deemed to be "plan assets" and
subject to the prohibited transaction provisions of ERISA and the Code and will
not subject the Trustee to any obligation in addition to those expressly
undertaken in this Agreement or to any liability. Notwithstanding anything else
to the contrary herein, any purported transfer of a Class R Certificate to or
on behalf of an employee benefit plan subject to ERISA or to the Code without
the delivery to the Trustee of an Opinion of Counsel satisfactory to the
Trustee as described above shall be void and of no effect.
Each Person who has or who acquires any Ownership Interest in a Class
R Certificate shall be deemed by the acceptance or acquisition of such
Ownership Interest to have agreed to be bound by the following provisions and
to have irrevocably appointed the Depositor or its designee as its
attorney-in-fact to negotiate the terms of any mandatory sale under clause (v)
below and to execute all instruments of transfer and to do all other things
necessary in connection with any such sale, and the rights of each Person
acquiring any Ownership Interest in a Class R Certificate are expressly subject
to the following provisions:
(i) Each Person holding or acquiring any Ownership Interest in a
Class R Certificate shall be a Permitted Transferee and shall
promptly notify the Trustee of any change or impending change in its
status as a Permitted Transferee.
(ii) No Person shall acquire an Ownership Interest in a Class R
Certificate unless such Ownership Interest is a pro rata undivided
interest.
(iii) In connection with any proposed transfer of any Ownership
Interest in a Class R Certificate, the Trustee shall as a condition
to registration of the transfer, require delivery to it, in form and
substance satisfactory to it, of each of the following:
(A) an affidavit in the form of Exhibit H hereto from the
proposed transferee to the effect that such transferee is a
Permitted Transferee and that it is not acquiring its Ownership
Interest in the Class R Certificate that is the subject of the
proposed transfer as a nominee, trustee or agent for any Person
who is not a Permitted Transferee; and
(B) a covenant of the proposed transferee to the effect
that the proposed transferee agrees to be bound by and to abide
by the transfer restrictions applicable to the Class R
Certificates.
(iv) Any attempted or purported transfer of any Ownership
Interest in a Class R Certificate in violation of the provisions of
this Section shall be absolutely null and void and shall vest no
rights in the purported transferee. If any purported transferee
shall, in violation of the provisions of this Section, become a
Holder of a Class R Certificate, then the prior Holder of such Class
R Certificate that is a Permitted Transferee shall, upon discovery
that the registration of transfer of such Class R Certificate was not
in fact permitted by this Section, be restored to all rights as
Holder thereof retroactive to the date of registration of transfer of
such Class R Certificate. The Trustee shall be under no liability to
any Person for any registration of transfer of a Class R Certificate
that is in fact not permitted by this Section or for making any
distributions due on such Class R Certificate to the Holder thereof
or taking any other action with respect to such Holder under the
provisions of this Agreement so long as the Trustee received the
documents specified in clause (iii). The Trustee shall be entitled to
recover from any Holder of a Class R Certificate that was in fact not
a Permitted Transferee at the time such distributions were made all
distributions made on such Class R Certificate. Any such
distributions so recovered by the Trustee shall be distributed and
delivered by the Trustee to the prior Holder of such Class R
Certificate that is a Permitted Transferee.
(v) If any Person other than a Permitted Transferee acquires any
Ownership Interest in a Class R Certificate in violation of the
restrictions in this Section, then the Trustee shall have the right
but not the obligation, without notice to the Holder of such Class R
Certificate or any other Person having an Ownership Interest therein,
to notify the Depositor to arrange for the sale of such Class R
Certificate. The proceeds of such sale, net of commissions (which may
include commissions payable to the Depositor or its Affiliates in
connection with such sale), expenses and taxes due, if any, will be
remitted by the Trustee to the previous Holder of such Class R
Certificate that is a Permitted Transferee, except that in the event
that the Trustee determines that the Holder of such Class R
Certificate may be liable for any amount due under this Section or
any other provisions of this Agreement, the Trustee may withhold a
corresponding amount from such remittance as security for such claim.
The terms and conditions of any sale under this clause (v) shall be
determined in the sole discretion of the Trustee and it shall not be
liable to any Person having an Ownership Interest in a Class R
Certificate as a result of its exercise of such discretion.
(vi) If any Person other than a Permitted Transferee acquires
any Ownership Interest in a Class R Certificate in violation of the
restrictions in this Section, then the Trustee will provide to the
Internal Revenue Service, and to the persons specified in Sections
860E(e)(3) and (6) of the Code, information needed to compute the tax
imposed under Section 860E(e)(5) of the Code on transfers of residual
interests to disqualified organizations.
The foregoing provisions of this Section shall cease to apply to transfers
occurring on or after the date on which there shall have been delivered to the
Trustee, in form and substance satisfactory to the Trustee, (i) written
notification from each Rating Agency that the removal of the restrictions on
Transfer set forth in this Section will not cause such Rating Agency to
downgrade its rating of the Certificates and (ii) an Opinion of Counsel to the
effect that such removal will not cause the Trust to fail to qualify as a
REMIC.
The Tax Matters Person Residual Interest shall at all times be
registered in the name of the Trustee.
(e) No service charge shall be made for any registration of transfer
or exchange of Certificates of any Class, but the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge
that may be imposed in connection with any transfer or exchange of
Certificates.
All Certificates surrendered for registration of transfer or exchange
shall be cancelled by the Certificate Registrar and disposed of pursuant to its
standard procedures.
Section 6.03 Mutilated, Destroyed, Lost or Stolen Certificates. If
(i) any mutilated Certificate is surrendered to the Certificate Registrar or
the Certificate Registrar receives evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (ii) there is delivered to
the Trustee, the Depositor and the Certificate Registrar such security or
indemnity as may be required by them to save each of them harmless, then, in
the absence of notice to the Trustee or the Certificate Registrar that such
Certificate has been acquired by a bona fide purchaser, the Trustee shall
execute on behalf of the Trust, authenticate and deliver, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Certificate, a new
Certificate of like tenor and Percentage Interest. Upon the issuance of any new
Certificate under this Section, the Trustee or the Certificate Registrar may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee and the Certificate Registrar)
in connection therewith. Any duplicate Certificate issued pursuant to this
Section, shall constitute complete and indefeasible evidence of ownership in
the Trust, as if originally issued, whether or not the lost, stolen or
destroyed Certificate shall be found at any time.
Section 6.04. Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Servicer, the Depositor, the
Trustee, the Certificate Registrar, the Certificate Insurer, any Paying Agent
and any agent of the Servicer, the Depositor, the Certificate Registrar, any
Paying Agent or the Trustee may treat the Person, including a Depository, in
whose name any Certificate is registered as the owner of such Certificate for
the purpose of receiving distributions pursuant to Section 5.01 and for all
other purposes whatsoever, and none of the Servicer, the Trust, the Trustee nor
any agent of any of them shall be affected by notice to the contrary.
Section 6.05. Appointment of Paying Agent. (a) The Paying Agent shall
make distributions to Certificateholders from the Distribution Account pursuant
to Section 5.01 and shall report the amounts of such distributions to the
Trustee. The duties of the Paying Agent may include the obligation to withdraw
funds from the Collection Account pursuant to Section 3.03 and for the purpose
of making the distributions referred to above and to distribute statements and
provide information to Certificateholders as required hereunder. The Paying
Agent hereunder shall at all times be a corporation duly incorporated and
validly existing under the laws of the United States of America or any state
thereof, authorized under such laws to exercise corporate trust powers and
subject to supervision or examination by federal or state authorities. The
Paying Agent shall initially be the Trustee. The Trustee may appoint a
successor to act as Paying Agent, which appointment shall be reasonably
satisfactory to the Depositor.
(b) The Trustee shall cause the Paying Agent (if other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee that such Paying Agent shall hold all
sums, if any, held by it for payment to the Certificateholders in trust for the
benefit of the Certificateholders entitled thereto until such sums shall be
paid to such Certificateholders and shall agree that it shall comply with all
requirements of the Code regarding the withholding of payments in respect of
Federal income taxes due from Certificate Owners and otherwise comply with the
provisions of this Agreement applicable to it.
ARTICLE VII
The Seller, the Servicer and the Depositor
Section 7.01. Liability of the Seller, the Servicer and the
Depositor. The Seller and the Servicer shall be liable in accordance herewith
only to the extent of the obligations specifically imposed upon and undertaken
by the Seller or Servicer, as the case may be, herein. The Depositor shall be
liable in accordance herewith only to the extent of the obligations
specifically imposed upon and undertaken by the Depositor.
Section 7.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Seller, the Servicer or the Depositor. Any corporation into
which the Seller, the Servicer or Depositor may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Seller, the Servicer or the Depositor shall be a party, or any corporation
succeeding to the business of the Seller, the Servicer or the Depositor, shall
be the successor of the Seller, the Servicer or the Depositor, as the case may
be, hereunder, without the execution or filing of any paper or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the successor Servicer shall satisfy
all the requirements of Section 8.02 with respect to the qualifications of a
successor Servicer.
Section 7.03. Limitation on Liability of the Servicer and Others.
Neither the Servicer nor any of the directors or officers or employees or
agents of the Servicer shall be under any liability to the Trust or the
Certificateholders for any action taken or for refraining from the taking of
any action by the Servicer in good faith pursuant to this Agreement, or for
errors in judgment; provided, however, that this provision shall not protect
the Servicer or any such Person against any liability which would otherwise be
imposed by reason of its willful misfeasance, bad faith or negligence in the
performance of duties of the Servicer or by reason of its reckless disregard of
its obligations and duties of the Servicer hereunder; provided, further, that
this provision shall not be construed to entitle the Servicer to indemnity in
the event that amounts advanced by the Servicer to retire any senior lien
exceed Net Liquidation Proceeds realized with respect to the related Mortgage
Loan. The preceding sentence shall not limit the obligations of the Servicer
pursuant to Section 9.05. The Servicer and any director or officer or employee
or agent of the Servicer may rely in good faith on any document of any kind
prima facie properly executed and submitted by any Person respecting any
matters arising hereunder. The Servicer and any director or officer or employee
or agent of the Servicer shall be indemnified by the Trust and held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to this Agreement or the Certificates, other than any loss,
liability or expense related to any specific Mortgage Loan or Mortgage Loans
(except as any such loss, liability or expense shall be otherwise reimbursable
pursuant to this Agreement) and any loss, liability or expense incurred by
reason of its willful misfeasance, bad faith or negligence in the performance
of duties hereunder or by reason of its reckless disregard of obligations and
duties hereunder; and such amounts shall be payable only pursuant to Section
5.01(a)(7). The Servicer may with the consent of the Certificate Insurer
undertake any such action which it may deem necessary or desirable in respect
of this Agreement, and the rights and duties of the parties hereto and the
interests of the Certificateholders hereunder. In such event, the reasonable
legal expenses and costs of such action and any liability resulting therefrom
shall be expenses, costs and liabilities of the Trust and the Servicer shall be
entitled to be reimbursed therefor only pursuant to Section 5.01(a)(7). The
Servicer's right to indemnity or reimbursement pursuant to this Section shall
survive any resignation or termination of the Servicer pursuant to Section 7.04
or 8.01 with respect to any losses, expenses, costs or liabilities arising
prior to such resignation or termination (or arising from events that occurred
prior to such resignation or termination). This paragraph shall apply to the
Servicer solely in its capacity as Servicer hereunder and in no other
capacities.
Section 7.04. Servicer Not to Resign. Subject to the provisions of
Section 7.02, the Servicer shall not resign from the obligations and duties
hereby imposed on it except (i) upon determination that the performance of its
obligations or duties hereunder are no longer permissible under applicable law
or are in material conflict by reason of applicable law with any other
activities carried on by it or its subsidiaries or Affiliates, the other
activities of the Servicer so causing such a conflict being of a type and
nature carried on by the Servicer or its subsidiaries or Affiliates at the date
of this Agreement or (ii) upon satisfaction of the following conditions: (a)
the Servicer has proposed a successor servicer to the Trustee in writing and
such proposed successor servicer is reasonably acceptable to the Trustee; (b)
each Rating Agency shall have delivered a letter to the Trustee prior to the
appointment of the successor servicer stating that the proposed appointment of
such successor servicer as Servicer hereunder will not result in the reduction
or withdrawal of the then current rating of the Class A Certificates; and (c)
such proposed successor servicer is reasonably acceptable to the Certificate
Insurer, as evidenced by a letter to the Trustee; provided, however, that no
such resignation by the Servicer shall become effective until such successor
servicer or, in the case of (i) above, the Trustee shall have assumed the
Servicer's responsibilities and obligations hereunder or the Trustee shall have
designated a successor servicer in accordance with Section 8.02. Any such
resignation shall not relieve the Servicer of responsibility for any of the
obligations specified in Sections 8.01 and 8.02 as obligations that survive the
resignation or termination of the Servicer. Any such determination permitting
the resignation of the Servicer pursuant to clause (i) above shall be evidenced
by an Opinion of Counsel to such effect delivered to the Trustee and the
Certificate Insurer. Any such determination permitting the resignation of the
Servicer shall be evidenced by an Opinion of Counsel to such effect delivered
to the Trustee and the Certificate Insurer.
Section 7.05. Delegation of Duties. In the ordinary course of
business, the Servicer at any time may delegate any of its duties hereunder to
any Person, including any of its Affiliates, who agrees to conduct such duties
in accordance with standards comparable to those set forth in Section 3.01.
Such delegation shall not relieve the Servicer of its liabilities and
responsibilities with respect to such duties and shall not constitute a
resignation within the meaning of Section 7.04. The Servicer shall provide the
Certificate Insurer and the Trustee with written notice prior to the delegation
of any of its duties to any Person other than any of the Servicer's Affiliates
or their respective successors and assigns.
Section 7.06. Indemnification of the Trust by the Servicer. The
Servicer shall indemnify and hold harmless the Trust and the Trustee and its
officers, directors, agents and employees from and against any loss, liability,
expense, damage or injury suffered or sustained by reason of the Servicer's
willful misfeasance, bad faith or negligence in the performance of its
activities in servicing or administering the Mortgage Loans pursuant to this
Agreement, including, but not limited to, any judgment, award, settlement,
reasonable fees of, counsel of its selection and other costs or expenses
incurred in connection with the defense of any actual or threatened action,
proceeding or claim related to the Servicer's misfeasance, bad faith or
negligence. Any such indemnification shall not be payable from the assets of
the Trust. The provisions of this indemnity shall run directly to and be
enforceable by an injured party subject to the limitations hereof. The
provisions of this Section 7.06 shall survive termination of the Agreement or
the earlier of the resignation or removal of the Trustee.
ARTICLE VIII
Default
Section 8.01 Events of Default. (a) If any one of the following
events ("Events of Default") shall occur and be continuing:
(i) (A) The failure by the Servicer to make any Monthly Advance;
or (B) any other failure by the Servicer to deposit in the Collection
Account or Distribution Account any deposit required to be made under
the terms of this Agreement which continues unremedied for a period
of two Business Days after the date upon which written notice of such
failure shall have been given to the Servicer by the Trustee or to
the Servicer and the Trustee by the Certificate Insurer or by any
holder of a Regular Certificate evidencing Voting Rights of at least
25%; or
(ii) The failure by the Servicer to make any required Servicing
Advance which failure continues unremedied for a period of 30 days,
or the failure by the Servicer duly to observe or perform, in any
material respect, any other covenants, obligations or agreements of
the Servicer as set forth in this Agreement, which failure continues
unremedied for a period of 30 days, after the date on which written
notice of such failure, requiring the same to be remedied, shall have
been given to the Servicer by the Trustee or to the Servicer and the
Trustee by the Certificate Insurer or by any holder of a Regular
Certificate evidencing Voting Rights of at least 25%; or
(iii) The entry against the Servicer of a decree or order by a
court or agency or supervisory authority having jurisdiction in the
premises for the appointment of a trustee, conservator, receiver or
liquidator in any insolvency, conservatorship, receivership,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and
in effect for a period of 60 consecutive days;
(iv) The Servicer shall voluntarily go into liquidation, consent
to the appointment of a conservator or receiver or liquidator or
similar person in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings of or relating to
the Servicer or of or relating to all or substantially all of its
property, or a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of
a conservator, receiver, liquidator or similar person in any
insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the
Servicer and such decree or order shall have remained in force
undischarged, unbonded or unstayed for a period of 60 days; or the
Servicer shall admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of
any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations; or
(v) So long as the Seller is the Servicer, any failure of the
Seller, to repurchase, or substitute an Eligible Substitute Mortgage
Loan for, any Mortgage Loan as required by Sections 2.02, 2.04 and
2.06; or
(vi) Any insufficiency in Available Funds, net of Insured
Payments, occurs on a Distribution Date, resulting in the need for an
Insured Payment.
(b) then, and in each and every such case, so long as an Event
of Default shall not have been remedied within the applicable grace
period, (x) subject to the succeeding paragraph, with respect solely
to clause (i) (A) above, if such Monthly Advance is not made by 4:00
P.M., New York City time, on the second Business Day following
written notice to the Servicer of such event the Trustee shall
terminate all of the rights and obligations of the Servicer under
this Agreement and the Trustee, or a successor servicer appointed in
accordance with Section 8.02, shall immediately make such Monthly
Advance and assume, pursuant to Section 8.02, the duties of a
successor Servicer and (y) in the case of (i) (B), (ii), (iii), (iv),
(v) and (vi) above, the Trustee shall, at the direction of the
Certificate Insurer or the Holders of Class A Certificates evidencing
Voting Rights aggregating not less than 51% with the consent of the
Certificate Insurer, by notice then given in writing to the Servicer
(and to the Trustee if given by Holders of Certificates), terminate
all of the rights and obligations of the Servicer as servicer under
this Agreement; provided, however, in the case of (vi) above, the
Certificate Insurer may, in its sole discretion, waive such an Event
of Default. Any such notice to the Servicer shall also be given to
each Rating Agency, Key Bank USA , the Depositor and the Certificate
Insurer. On or after the receipt by the Servicer of such written
notice, all authority and power of the Servicer under this Agreement,
whether with respect to the Certificates or the Mortgage Loans or
otherwise, shall pass to and be vested in the Trustee pursuant to and
under this Section; and, without limitation, the Trustee is hereby
authorized and empowered to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, any and all documents and
other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of each
Mortgage Loan and related documents or otherwise. The Servicer agrees
to cooperate with the Trustee in effecting the termination of the
responsibilities and rights of the Servicer hereunder, including,
without limitation, the transfer to the Trustee for the
administration by it of all cash amounts that shall at the time be
held by the Servicer and to be deposited by it in the Collection
Account, or that have been deposited by the Servicer in the
Collection Account or thereafter received by the Servicer with
respect to the Mortgage Loans. All reasonable costs and expenses
(including attorneys' fees) incurred in connection with transferring
the Mortgage Files to the successor Servicer and amending this
Agreement to reflect such succession as Servicer pursuant to this
Section shall be paid by the predecessor Servicer (or if the
predecessor Servicer is the Trustee, the initial Servicer) upon
presentation of reasonable documentation of such costs and expenses.
Section 8.02 Trustee to Act; Appointment of Successor. (a) On and
after the time the Servicer receives a notice of termination pursuant to
Section 8.01 or resigns pursuant to Section 7.04, the Trustee shall be the
successor in all respects to the Servicer in its capacity as servicer under
this Agreement and the transactions set forth or provided for herein and shall
be subject to all the responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions hereof arising on and after
its succession. As compensation therefor, the Trustee shall be entitled to such
compensation as the Servicer would have been entitled to hereunder if no such
notice of termination had been given. Notwithstanding the above, (i) if the
Trustee is unwilling to act as successor Servicer or (ii) if the Trustee is
legally unable so to act, the Trustee shall appoint or petition a court of
competent jurisdiction to appoint, any established housing and home finance
institution, bank or other mortgage loan or home equity loan servicer having a
net worth of not less than $50,000,000 as the successor to the Servicer
hereunder in the assumption of all or any part of the responsibilities, duties
or liabilities of the Servicer hereunder; provided that any such successor
Servicer shall be acceptable to the Certificate Insurer, as evidenced by the
Certificate Insurer's prior written consent which consent shall not be
unreasonably withheld and provided, further, that the appointment of any such
successor Servicer will not result in the qualification, reduction or
withdrawal of the ratings assigned to the Certificates by the Rating Agencies.
Pending appointment of a successor to the Servicer hereunder, unless the
Trustee is prohibited by law from so acting, the Trustee shall act in such
capacity as hereinabove provided. In connection with such appointment and
assumption, the successor shall be entitled to receive compensation out of
payments on Mortgage Loans in an amount equal to the compensation which the
Servicer would otherwise have received pursuant to Section 3.09 (or such lesser
compensation as the Trustee and such successor shall agree). The appointment of
a successor Servicer shall not affect any liability of the predecessor Servicer
which may have arisen under this Agreement prior to its termination as Servicer
to pay any deductible under an insurance policy pursuant to Section 3.05 or to
indemnify the Trustee pursuant to Section 7.06), nor shall any successor
Servicer be liable for any acts or omissions of the predecessor Servicer or for
any breach by such Servicer of any of its representations or warranties
contained herein or in any related document or agreement. The Trustee and such
successor shall take such action, consistent with this Agreement, as shall be
necessary to effectuate any such succession.
(b) Any successor, including the Trustee, to the Servicer as servicer
shall during the term of its service as servicer (i) continue to service and
administer the Mortgage Loans for the benefit of Certificateholders, (ii)
maintain in force a policy or policies of insurance covering errors and
omissions in the performance of its obligations as Servicer hereunder and a
fidelity bond in respect of its officers, employees and agents to the same
extent as the Servicer is so required pursuant to Section 3.06. No successor
servicer shall have the right to retain and commingle payments on, and
collections in respect of, the Mortgage Loans with its own funds pursuant to
Section 3.02(d) unless (i) consented to in writing by the Certificate Insurer
and (ii) such commingling will not result in a downgrade, qualification or
withdrawal of the then current ratings of the Class A Certificates, without
regard to the Certificate Insurance Policy, as evidenced in writing by each
Rating Agency.
Section 8.03 Waiver of Defaults. The Certificate Insurer or the
Majority Certificateholders with the consent of the Certificate Insurer may, on
behalf of all Certificateholders, waive any events permitting removal of the
Servicer as servicer pursuant to this Article VIII, provided, however, that the
Majority Certificateholders may not waive a default in making a required
distribution on a Certificate without the consent of the Holder of such
Certificate. Upon any waiver of a past default, such default shall cease to
exist and any Event of Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to
any subsequent or other default or impair any right consequent thereto except
to the extent expressly so waived. Notice of any such waiver shall be given by
the Trustee to the Rating Agencies.
Section 8.04. Notification to Certificateholders. Upon any
termination or appointment of a successor to the Servicer pursuant to this
Article VIII or Section 7.04, the Trustee shall give prompt written notice
thereof to the Certificateholders at their respective addresses appearing in
the Certificate Register, the Certificate Insurer and each Rating Agency.
ARTICLE IX
The Trustee
Section 9.01 Duties of Trustee. The Trustee, prior to the occurrence
of an Event of Default and after the curing of all Events of Default which may
have occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement. If an Event of Default has occurred
(which has not been cured) of which a Responsible Officer of the Trustee has
actual knowledge, the Trustee shall exercise such of the rights and powers
vested in it by this Agreement, and use the same degree of care and skill in
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement; provided, however, that the
Trustee shall not be responsible for the accuracy or content of any such
resolution, certificate, statement, opinion, report, document, order or other
instrument.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own misconduct; provided, however, that:
(i) prior to the occurrence of an Event of Default of which a
Responsible Officer of the Trustee shall have actual knowledge, and
after the curing of all such Events of Default which may have
occurred, the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Agreement, the
Trustee shall not be liable except for the performance of such duties
and obligations as are specifically set forth in this Agreement, no
implied covenants or obligations shall be read into this Agreement
against the Trustee and, in the absence of bad faith on the part of
the Trustee, the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein,
upon any certificates or opinions furnished to the Trustee and
conforming to the requirements of this Agreement;
(ii) the Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer of the Trustee,
unless it shall be proved that the Trustee was negligent in
ascertaining or investigating the facts related thereto;
(iii) the Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith
in accordance with the consent or direction of the Certificate
Insurer or in accordance with the direction of the Holders of Class A
Certificates evidencing Voting Rights aggregating not less than 51%
relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising or omitting to
exercise any trust or power conferred upon the Trustee, under this
Agreement; and
(iv) the Trustee shall not be charged with knowledge of any
failure by the Servicer to comply with the obligations of the
Servicer referred to in clauses (i) and (ii) of Section 8.01 unless a
Responsible Officer of the Trustee at the Corporate Trust Office
obtains actual knowledge of such failure or the Trustee receives
written notice of such failure from the Servicer, the Certificate
Insurer or the Holders of Class A Certificates evidencing Voting
Rights aggregating not less than 51%.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of performance of, any
of the obligations of the Servicer under this Agreement, except during such
time, if any, as the Trustee shall be the successor to, and be vested with the
rights, duties, powers and privileges of, the Servicer in accordance with the
terms of this Agreement.
Subject to the other provisions of this Agreement and without limiting
the generality of this Section, the Trustee shall have no duty (A) to see to
the payment or discharge of any tax, assessment, or other governmental charge
or any lien or encumbrance of any kind owing with respect to, assessed or
levied against, any part of the Trust from funds available in the Collection
Account or (B) to confirm or verify the contents of any reports or certificates
of the Servicer delivered to the Trustee pursuant to this Agreement believed by
the Trustee to be genuine and to have been signed or presented by the proper
party or parties.
Section 9.02. Certain Matters Affecting the Trustee. (a) Except as
otherwise provided in Section 9.01:
(i) the Trustee may request and conclusively rely upon, and
shall be fully protected in acting or refraining from acting upon,
any resolution, Officer's Certificate, certificate of auditors or any
other certificate, statement, instrument, opinion, report, notice,
request, consent, order, appraisal, bond or other paper or document
reasonably believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(ii) the Trustee may consult with counsel of its selection and
any written advice of such counsel or any Opinion of Counsel shall be
full and complete authorization and protection in respect of any
action taken or suffered or omitted by it hereunder in good faith and
in accordance with such advice or Opinion of Counsel;
(iii) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Agreement, or to
institute, conduct or defend any litigation hereunder or in relation
hereto, at the request, order or direction of any of the
Certificateholders or the Certificate Insurer, pursuant to the
provisions of this Agreement, unless such Certificateholders or the
Certificate Insurer shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby; the right of the Trustee to
perform any discretionary act enumerated in this Agreement shall not
be construed as a duty, and the Trustee shall not be answerable for
other than its negligence or willful misconduct in the performance of
any such act; nothing contained herein shall, however, relieve the
Trustee of the obligations, upon the occurrence of an Event of
Default (which has not been cured) of which a Responsible Officer has
actual knowledge, to exercise such of the rights and powers vested in
it by this Agreement, and to use the same degree of care and skill in
their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs;
(iv) the Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to
be authorized or within the discretion or rights or powers conferred
upon it by this Agreement;
(v) prior to the occurrence of an Event of Default and after the
curing of all Events of Default which may have occurred, the Trustee
shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or
other paper or documents, unless requested in writing to do so by
Holders of Certificates evidencing Voting Rights aggregating not less
than 51%; provided, however, that if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities likely to
be incurred by it in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Agreement, the Trustee
may require reasonable indemnity against such cost, expense or
liability as a condition to such proceeding. The reasonable expense
of every such examination shall be paid by the Servicer or, if paid
by the Trustee, shall be reimbursed by the Servicer upon demand.
Nothing in this clause (v) shall derogate from the obligation of the
Servicer to observe any applicable law prohibiting disclosure of
information regarding the Mortgagors;
(vi) the Trustee shall not be accountable, shall have no
liability and makes no representation as to any acts or omissions
hereunder of the Servicer until such time as the Trustee may be
required to act as Servicer pursuant to Section 8.02;
(vii) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents, attorneys, nominees or a custodian;
(viii) the Trustee shall not be required to give any bond or
surety in respect of the execution of the Trust created hereby or the
powers granted here; and
(ix) The right of the Trustee to perform any discretionary act
enumerated in this Agreement shall not be construed as a duty, and
the Trustee shall not be answerable for other than its negligence or
willful misconduct in the performance of such act.
(b) It is intended that the Trust formed hereunder shall constitute,
and that the affairs of the Trust shall be conducted so as to qualify the
Master REMIC and both Subsidiary REMICs as, REMICs as defined in and in
accordance with the REMIC Provisions. In furtherance of such intention, the
Trustee covenants and agrees that it shall act as agent (and the Trustee is
hereby appointed to act as agent) and as Tax Matters Person on behalf of the
REMIC, and that in such capacities, it shall:
(i) prepare, sign and file, or cause to be prepared and filed,
in a timely manner, a U.S. Real Estate Mortgage Investment Conduit
Income Tax Return (Form 1066) and any other Tax Return required to be
filed by the Trust, using a calendar year as the taxable year for the
Trust;
(ii) make, or cause to be made, an election, on behalf of the
Master REMIC and both Subsidiary REMICs, to be treated as REMICs on
the federal tax return of such REMIC for its first taxable year;
(iii) prepare and forward, or cause to be prepared and
forwarded, to the Servicer, the Depositor, the Certificateholders and
the Internal Revenue Service and any other relevant governmental
taxing authority all information returns or reports as and when
required to be provided to them in accordance with the REMIC
Provisions;
(iv) to the extent that the affairs of the Trust are within its
control, conduct such affairs of the Trust at all times that any
Subsidiary REMIC Regular Interest or Certificates are outstanding so
as to maintain the status of the Master REMIC and both Subsidiary
REMICs as REMICs under the REMIC Provisions and any other applicable
federal, state and local laws, including, without limitation,
information reports relating to "original issue discount", as defined
in the Code, based upon 115% of the Prepayment Assumption and
calculated by using the issue price of the Certificates;
(v) not knowingly or intentionally take any action or omit to
take any action that would cause the termination of the REMIC status
of either the Master REMIC or any Subsidiary REMIC;
(vi) pay the amount of any and all federal, state and local
taxes, prohibited transaction taxes as defined in Section 860F of the
Code, other than any amount due as a result of a transfer or
attempted or purported transfer in violation of Section 6.02, imposed
on the Trust when and as the same shall be due and payable (but such
obligation shall not prevent the Trustee or any other appropriate
Person from contesting any such tax in appropriate proceedings and
shall not prevent the Trustee from withholding payment of such tax,
if permitted by law, pending the outcome of such proceedings). The
Trustee shall be entitled to reimbursement in accordance with Section
2.13;
(vii) ensure that any such returns or reports filed on behalf of
the Trust by the Trustee are properly executed by the appropriate
person;
(viii) represent the Trust in any administrative or judicial
proceedings relating to an examination or audit by any governmental
taxing authority, request an administrative adjustment as to any
taxable year of the Trust, enter into settlement agreements with any
government taxing agency, extend any statute of limitations relating
to any item of the Trust and otherwise act on behalf of the Trust in
relation to any tax matter involving the Trust;
(ix) as provided in Section 5.12, make available information
necessary for the computation of any tax imposed (1) on transferors
of residual interests to transferees that are not Permitted
Transferees or (2) on pass-through entities, any interest in which is
held by an entity which is not a Permitted Transferee. The Trustee
covenants and agrees that it will cooperate with the Servicer in the
foregoing matters and that it will sign, as Trustee, any and all Tax
Returns required to be filed by the Trust. Notwithstanding the
foregoing, at such time as the Trustee becomes the successor
Servicer, the holder of the largest percentage of the Class R
Certificates shall serve as Tax Matters Person until such time as an
entity is appointed to succeed the Trustee as Servicer;
(x) make available to the Internal Revenue Service and those
Persons specified by the REMIC Provisions all information necessary
to compute any tax imposed (A) as a result of the Transfer of an
Ownership Interest in a Class R Certificate to any Person who is not
a Permitted Transferee, including the information described in
Treasury regulations sections 1.860D-1(b)(5) and 1.860E-2(a)(5) with
respect to the "excess inclusions" of such Class R Certificate and
(B) as a result of any regulated investment company, real estate
investment trust, common trust fund, partnership, trust, estate or
organization described in Section 1381 of the Code that holds an
Ownership Interest in a Class R Certificate having as among its
record holders at any time any Person that is not a Permitted
Transferee. Reasonable compensation for providing such information
may be accepted by the Trustee;
(xi) pay out of its own funds, without any right of
reimbursement, any and all tax-related expenses of the Trust
(including, but not limited to, tax return preparation and filing
expenses and any professional fees or expenses related to audits or
any administrative or judicial proceedings with respect to the Trust
that involve the Internal Revenue Service or state tax authorities),
other than (A) the expense of obtaining any Opinion of Counsel
required pursuant to Sections 2.06(d), 2.13(f), 3.01(j), 9.02(b) and
10.02, (B) any expenses for which the Trustee is otherwise
indemnified pursuant to Section 9.05 and (C) taxes except as
specified herein; and
(xii) Upon filing with the Internal Revenue Service, the Trustee
shall furnish to the Holders of the Class R Certificates the Form
1066 and each Form 1066Q for the Master or Subsidiary REMICs and
shall respond promptly to written requests made not more frequently
than quarterly by any Holder of Class R Certificates with respect to
the following matters:
(1) The original projected principal and interest cash
flows on the Closing Date on each class of regular and residual
interests created hereunder and on the Mortgage Loans, based on
115% of the Prepayment Assumption;
(2) The projected remaining principal and interest cash
flows as of the end of any calendar quarter with respect to each
class of regular and residual interests created hereunder and
the Mortgage Loans, based on 115% of the Prepayment Assumption;
(3) The Prepayment Assumption and any interest rate
assumptions used in determining the projected principal and
interest cash flows described above;
(4) The original issue discount (or, in the case of the
Mortgage Loans, market discount) or premium accrued or amortized
through the end of such calendar quarter with respect to each
class of regular or residual interests created hereunder and
with respect to the Mortgage Loans, together with each constant
yield to maturity used in computing the same;
(5) The treatment of losses realized with respect to the
Mortgage Loans or the regular interests created hereunder,
including the timing and amount of any cancellation of
indebtedness income of the Master or Subsidiary REMICs with
respect to such regular interests or bad debt deductions claims
with respect to the Mortgage Loans;
(6) The amount and timing of any non-interest expenses of
the Master or Subsidiary REMICs;
(7) Any taxes (including penalties and interest) imposed on
the Master or Subsidiary REMICs, including, without limitation,
taxes on "prohibited transactions," "contribution" or "net
income from foreclosure property" or state or local income or
franchise taxes; and
(xiii) Following the Closing Date, and except as otherwise
provided in this Agreement, the Trustee shall not knowingly accept
any contribution of assets to the Trust unless it shall have been
provided with an Opinion of Counsel at the expense of the party
delivering such assets acceptable to it and the Certificate Insurer
to the effect that the inclusion of such assets in the Master or
Subsidiary REMICs will not cause the Master or Subsidiary REMICs to
fail to qualify as a REMIC at any time that any Certificates are
outstanding or subject the Trust to any tax under the REMIC
Provisions or other applicable provisions of federal, state and local
law or ordinances.
Section 9.03. Trustee Not Liable for Certificates or Mortgage Loans.
The recitals contained herein and in the Certificates (other than the
authentication of the Trustee on the Certificates) shall be taken as the
statements of the Seller, and the Trustee assumes no responsibility for the
correctness of the same. The Trustee makes no representations as to the
validity or sufficiency of this Agreement or of the Certificates (other than
the signature and authentication of the Trustee on the Certificates) or of any
Mortgage Loan or related document. The Trustee shall not be accountable for the
use or application by the Servicer or for the use or application of any funds
paid to the Servicer in respect of the Mortgage Loans or deposited in or
withdrawn from the Collection Account by the Servicer. The Trustee shall at no
time have any responsibility or liability for or with respect to the legality,
validity and enforceability of any Mortgage or any Mortgage Loan, or the
perfection and priority of any Mortgage or the maintenance of any such
perfection and priority, or for or with respect to the sufficiency of the Trust
or its ability to generate the payments to be distributed to Certificateholders
under this Agreement, including, without limitation: the existence, condition
and ownership of any Mortgaged Property; the existence and enforceability of
any hazard insurance thereon (other than the Trustee as Servicer if the Trustee
shall assume the duties of the Servicer pursuant to Section 8.02); the validity
of the assignment of any Mortgage Loan to the Trustee or of any intervening
assignment; the completeness of any Mortgage Loan; the performance or
enforcement of any Mortgage Loan (other than the Trustee as Servicer if the
Trustee shall assume the duties of the Servicer pursuant to Section 8.02); the
compliance by the Depositor, the Seller or the Servicer with any warranty or
representation made under this Agreement or in any related document or the
accuracy of any such warranty or representation prior to the Trustee's receipt
of notice or other discovery of any non-compliance therewith or any breach
thereof; any investment of monies by or at the direction of the Servicer or any
loss resulting therefrom, it being understood that the Trustee shall remain
responsible for any Trust property that it may hold in its individual capacity;
the acts or omissions of any of the Servicer (other than the Trustee as
Servicer if the Trustee shall assume the duties of the Servicer pursuant to
Section 8.02), any Subservicer or any Mortgagor; any action of the Servicer
(other than if the Trustee shall assume the duties of the Servicer pursuant to
Section 8.02), or any Subservicer taken in the name of the Trustee; the failure
of the Servicer or any Subservicer to act or perform any duties required of it
as agent of the Trustee hereunder; or any action by the Trustee taken at the
instruction of the Servicer (other than if the Trustee shall assume the duties
of the Servicer pursuant to Section 8.02). The Trustee shall have no
responsibility for filing any financing or continuation statement in any public
office at any time or to otherwise perfect or maintain the perfection of any
security interest or lien granted to it hereunder (unless the Trustee shall
have become the successor Servicer).
Section 9.04. Trustee May Own Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of
Certificates with the same rights as it would have if it were not Trustee and
may transact any banking and trust business with the Seller, the Servicer or
the Depositor.
Section 9.05. Servicer to Pay Trustee Fees and Expenses. The Trustee
shall be entitled to receive the Trustee Fee pursuant to Section 5.01(a)(1) and
the Servicer shall pay or reimburse, the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any of the provisions of this Agreement (including the
reasonable compensation and the expenses and disbursements of its counsel and
of all persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence or bad faith or which
is the responsibility of Certificateholders hereunder. When the Trustee incurs
expenses or renders services in connection with an Event of Default described
in Sections 8.01(a)(iii) or 8.01(a)(iv) such expenses (including the fees and
expenses of its counsel) and the compensation for such services are intended to
constitute expenses of administration under any bankruptcy law or law relating
to creditors' rights generally. In addition, except as provided in Section
2.13, the Servicer covenants and agrees to indemnify the Trustee and its
officers, directors, employees and agents from, and hold it harmless against,
any and all claims, demands, losses, penalties, liabilities, damages, injuries
or expenses including, without limitation, reasonable attorney's fees and
expenses (including, without limitation any of the foregoing relating to
Environmental Law, as hereinafter defined) (i) incurred in connection with any
legal action, proceeding or claim or threatened legal action, proceeding or
claim relating to the transactions contemplated by this Agreement, the
Insurance Agreement or the Certificates, other than any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or negligence of
the Trustee in the performance of its duties hereunder or by reason of the
Trustee's reckless disregard of its obligations and duties hereunder or (ii)
resulting from any error in any tax or information return prepared by the
Servicer. This Section shall survive termination of this Agreement or the
resignation or removal of any Trustee hereunder.
As used herein, the term Environmental Law shall mean any and all
federal, state, local and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders, decrees, permits, concessions, grants, franchises,
licenses, agreements or other governmental restrictions relating to the
environment or health or to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes into the environment including, without
limitation, ambient air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes.
Section 9.06 Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times be a corporation duly incorporated and validly
existing under the laws of the United States of America or any state thereof,
authorized under such laws to exercise corporate trust powers, have a combined
capital and surplus of at least $50,000,000 and a minimum long-term debt rating
of "Baa3" by Moody's and "BBB-" by S&P, and be subject to supervision or
examination by federal or state authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purposes of
this Section, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. The principal office of the Trustee (other
than the initial Trustee) shall be in a state with respect to which an Opinion
of Counsel has been delivered to such Trustee at the time such Trustee is
appointed Trustee to the effect that the Trust will not be a taxable entity
under the laws of such state. In case at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect specified in Section 9.07.
Section 9.07. Resignation or Removal of Trustee. The Trustee may at
any time resign and be discharged from the trusts hereby created by giving
written notice thereof to the Depositor, the Servicer, the Certificate Insurer
and each Rating Agency. Upon receiving such notice of resignation, the
Depositor shall promptly appoint a successor Trustee (approved in writing by
the Certificate Insurer, so long as such approval shall not be unreasonably
withheld) by written instrument, copies of which instrument shall be delivered
to the resigning Trustee, the successor Trustee; provided, however, that any
such successor Trustee shall be subject to the prior written approval of the
Servicer. If no successor Trustee shall have been so appointed and having
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 9.06 and shall fail to resign after written
request therefor by the Depositor or the Certificate Insurer, or if at any time
the Trustee shall be legally unable to act, or shall be adjudged a bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Depositor, the Servicer or the Certificate Insurer may
remove the Trustee. If the Depositor, the Servicer or the Certificate Insurer
removes the Trustee under the authority of the immediately preceding sentence,
the Depositor shall promptly appoint a successor Trustee (approved in writing
by the Certificate Insurer, so long as such approval is not unreasonably
withheld) by written instrument, copies of which instrument shall be delivered
to the resigning Trustee and the successor Trustee. If the Depositor, the
Servicer or the Certificate Insurer fails to appoint a successor Trustee within
30 days after the giving of such notice of removal to the Trustee, the Trustee
being removed may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor Trustee as
provided in Section 9.08.
Section 9.08 Successor Trustee. Any successor Trustee appointed as
provided in Section 9.07 shall execute, acknowledge and deliver to the
Depositor, the Servicer and to its predecessor Trustee and the Certificate
Insurer an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor Trustee shall become effective and
such successor Trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as Trustee. The
Depositor, the Servicer and the predecessor Trustee shall execute and deliver
such instruments and do such other things as may reasonably be required for
fully and certainly vesting and confirming in the successor Trustee all such
rights, powers, duties and obligations.
No successor Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Trustee shall be
eligible under the provisions of Section 9.06.
Upon acceptance of appointment by a successor Trustee as provided in
this Section, the Servicer shall mail notice of the succession of such Trustee
hereunder to all Holders of Certificates at their addresses as shown in the
Certificate Register and to each Rating Agency. If the Servicer fails to mail
such notice within 30 days after acceptance of appointment by the successor
Trustee, the successor Trustee shall cause such notice to be mailed at the
expense of the Servicer.
Section 9.09 Merger or Consolidation of Trustee. Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to substantially all of the corporate trust business of the Trustee,
shall be the successor of the Trustee hereunder, provided such corporation
shall be eligible under the provisions of Section 9.06, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto.
Section 9.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or any Mortgaged Property may at the time be located, the
Depositor and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee and the Certificate Insurer to act as co-trustee or co-trustees,
jointly with the Trustee, or separate trustee or separate trustees, of all or
any part of the Trust, and to vest in such Person or Persons, in such capacity
and for the benefit of the Certificateholders, such title to the Trust, or any
part thereof, and, subject to the other provisions of this Section, such
powers, duties, obligations, rights and trusts as the Servicer and the Trustee
may consider necessary or desirable. Any such co-trustee or separate trustee
shall be subject to the written approval of the Servicer. If the Servicer shall
not have joined in such appointment within 15 days after the receipt by it of a
request so to do, or, in the case an Event of Default shall have occurred and
be continuing, the Trustee alone shall have the power to make such appointment.
No co-trustee or separate trustee hereunder shall be required to meet the terms
of eligibility as a successor trustee under Section 9.06 and no notice to
Certificateholders of the appointment of any co-trustee or separate trustee
shall be required under Section 9.08. The Servicer shall be responsible for the
fees of any co-trustee or separate trustee appointed hereunder.
Every separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee hereunder or as successor to the Servicer
hereunder), the Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties
and obligations (including the holding of title to the Trust or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely
at the direction of the Trustee;
(ii) no trustee hereunder shall be held personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Servicer and the Trustee acting jointly may at any
time accept the resignation of or remove any separate trustee or
co-trustee except that following the occurrence of an Event of
Default, the Trustee acting alone may accept the resignation or
remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article IX. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the
provisions of this Agreement, specifically including every provision of this
Agreement relating to the conduct of, affecting the liability of, or affording
protection to, the Trustee. Every such instrument shall be filed with the
Trustee and a copy thereof given to the Depositor and the Servicer.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its
estates, properties, rights, remedies and trusts shall vest in and be exercised
by the Trustee, to the extent permitted by law, without the appointment of a
new or successor Trustee.
Section 9.11 Limitation of Liability. The Certificates are executed
by the Trustee, not in its individual capacity but solely as Trustee of the
Trust, in the exercise of the powers and authority conferred and vested in it
by this Agreement. Each of the undertakings and agreements made on the part of
the Trustee in the Certificates is made and intended not as a personal
undertaking or agreement by the Trustee but is made and intended for the
purpose of binding only the Trust.
Section 9.12. Trustee May Enforce Claims Without Possession of
Certificates; Inspection. (a) All rights of action and claims under this
Agreement or the Certificates may be prosecuted and enforced by the Trustee
without the possession of any of the Certificates or the production thereof in
any proceeding relating thereto, and such proceeding instituted by the Trustee
shall be brought in its own name or in its capacity as Trustee. Any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursement and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Certificateholders in respect of which such
judgment has been recovered. (b) The Trustee shall afford the Seller, the
Depositor, the Servicer, the Certificate Insurer and each Certificateholder
upon reasonable notice during normal business hours, access to all records
maintained by the Trustee in respect of its duties hereunder and access to
officers of the Trustee responsible for performing such duties. Upon request,
the Trustee shall furnish the Depositor, the Servicer, the Certificate Insurer
and any requesting Certificateholder with its most recent financial statements.
The Trustee shall cooperate fully with the Seller, the Servicer, the Depositor,
the Certificate Insurer and such Certificateholder and shall make available to
the Seller, the Servicer, the Depositor, the Certificate Insurer and such
Certificateholder for review and copying, at such party's sole cost and
expense, such books, documents or records as may be requested with respect to
the Trustee's duties hereunder. The Seller, the Depositor, the Servicer, the
Certificate Insurer and the Certificateholders shall not have any
responsibility or liability for any action or failure to act by the Trustee and
are not obligated to supervise the performance of the Trustee under this
Agreement or otherwise.
Section 9.13 Suits for Enforcement. In case an Event of Default or
other default by the Servicer or the Depositor hereunder shall occur and be
continuing, the Trustee, in its discretion, may proceed to protect and enforce
its rights and the rights of the Certificateholders under this Agreement by a
suit, action or proceeding in equity or at law or otherwise, whether for the
specific performance of any covenant or agreement contained in this Agreement
or in aid of the execution of any power granted in this Agreement or for the
enforcement of any other legal, equitable or other remedy, as the Trustee,
being advised by counsel, shall deem most effectual to protect and enforce any
of the rights of the Trustee and the Certificateholders.
ARTICLE X
Termination
Section 10.01 Termination. (a) The respective obligations and
responsibilities of the Seller, the Servicer, the Depositor and the Trustee
created hereby (other than the obligation of the Trustee to make certain
payments to Certificateholders after the final Distribution Date and the
obligation of the Servicer to send certain notices as hereinafter set forth)
shall terminate upon notice to the Trustee of the later of (A) payment in full
of all amounts owing to the Certificate Insurer unless the Certificate Insurer
shall otherwise consent and (B) the earliest of (i) the Distribution Date on
which the Class A-1 Principal Balance has been reduced to zero, (ii) the final
payment or other liquidation of the last Mortgage Loan in the Trust, (iii) the
optional purchase by the Servicer of the Mortgage Loans as described below and
(iv) the Distribution Date in September 2028. Notwithstanding the foregoing, in
no event shall the trust created hereby continue beyond the expiration of 21
years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States to the Court of St. James's,
living on the date hereof.
The Servicer may, at its option, terminate this Agreement on any date
on which the Pool Principal Balance is less than 5% of the Cut-Off Date Pool
Principal Balance, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
sum of the outstanding Pool Principal Balance and accrued and unpaid interest
thereon at the weighted average of the Loan Rates through the end of the Due
Period preceding the final Distribution Date together with all amounts due and
owing to the Certificate Insurer (the "Termination Price").
In connection with any such purchase pursuant to the preceding
paragraph, the Servicer shall deposit in the Distribution Account all amounts
then on deposit in the Collection Account (less amounts permitted to be
withdrawn by the Servicer pursuant to Section 3.03), which deposit shall be
deemed to have occurred immediately preceding such purchase.
Any such purchase shall be accomplished by deposit into the
Distribution Account on the Determination Date before such Distribution Date of
the Termination Price.
(b) Notice of any termination, specifying the Distribution Date
(which shall be a date that would otherwise be a Distribution Date) upon which
the Certificateholders may surrender their Certificates to the Trustee for
payment of the final distribution and cancellation, shall be given promptly by
the Trustee to the Certificate Insurer and by letter to Class A
Certificateholders mailed not earlier than the 15th day and not later than the
25th day of the month next preceding the month of such final distribution
specifying (i) the Distribution Date upon which final distribution of the Class
A Certificates will be made upon presentation and surrender of Class A
Certificates at the office or agency of the Trustee therein designated, (ii)
the amount of any such final distribution and (iii) that the Record Date
otherwise applicable to such Distribution Date is not applicable, distributions
being made only upon presentation and surrender of the Class A Certificates at
the office or agency of the Trustee therein specified.
(c) Upon presentation and surrender of the Class A Certificates, the
Trustee shall cause to be distributed to the holders of Class A Certificates on
the Distribution Date for such final distribution, in proportion to the
Percentage Interests of their respective Class A Certificates and to the extent
that funds are available for such purpose, an amount equal to the amount
required to be distributed to holders of Class A Certificates pursuant to
Section 5.01 for such Distribution Date. On the final Distribution Date, the
Trustee will withdraw from the Distribution Account and remit to the
Certificate Insurer the lesser of (x) the amount available for distribution on
such final Distribution Date, net of any portion thereof necessary to pay
holders of Class A Certificates pursuant to Section 5.01(a) and any amounts
owing to the Trustee in respect of the Trustee Fee and (y) the unpaid amounts
due and owing to the Certificate Insurer pursuant to Section 5.01(a).
(d) In the event that all of the Class A Certificateholders shall not
surrender their Class A Certificates for final payment and cancellation on or
before such final Distribution Date, the Trustee shall promptly following such
date cause all funds in the Distribution Account not distributed in final
distribution to Class A Certificateholders to be withdrawn therefrom and
credited to the remaining Class A Certificateholders by depositing such funds
in a separate escrow account for the benefit of such Class A Certificateholders
and the Servicer (if the Servicer has exercised its right to purchase the
Mortgage Loans) or the Trustee (in any other case) shall give a second written
notice to the remaining Class A Certificateholders to surrender their Class A
Certificates for cancellation and receive the final distribution with respect
thereto. If within nine months after the second notice all the Certificates
shall not have been surrendered for cancellation, the Class R Certificateholder
shall be entitled to all unclaimed funds and other assets which remain subject
hereto and the Trustee upon transfer of such funds shall be discharged of any
responsibility for such funds and the Certificateholders shall look to the
Class R Certificateholder for payment.
Section 10.02 Additional Termination Requirements. (a) In the event
that the Servicer exercises its purchase option as provided in Section 10.01,
the Trust shall be terminated in accordance with the following additional
requirements, unless the Trustee shall have been furnished with an Opinion of
Counsel to the effect that the failure of the Trust to comply with the
requirements of this Section will not (i) result in the imposition of taxes on
"prohibited transactions" of the Trust as defined in Section 860F of the Code
or (ii) cause any REMIC to fail to qualify as a REMIC at any time that any
Regular Certificates are outstanding:
(i) Within 90 days prior to the final Distribution Date, the
Servicer shall adopt and the Trustee shall sign a plan of complete
liquidation for each REMIC meeting the requirements of a "Qualified
Liquidation" under Section 860F of the Code and any regulations
thereunder;
(ii) At or after the time of adoption of such a plan of complete
liquidation and at or prior to the final Distribution Date, the
Trustee shall sell all of the assets of the Trust to the Servicer for
cash; and
(iii) At the time of the making of the final payment on the
Certificates, the Trustee shall distribute or credit, or cause to be
distributed or credited (A) to the Trustee, as holder of any of the
Subsidiary REMIC Regular Interests, the unpaid principal balance
thereof plus accrued interest thereon, (B) the Class A-1
Certificateholders the related Class A-1 Principal Balance, plus one
month's interest thereon at the applicable Certificate Rate, (C) to
the Certificate Insurer, all amounts owing to the Certificate Insurer
under this Agreement and the Insurance Agreement and (D) to the Class
R Certificateholders, all cash on hand after such payment to any
Subsidiary REMIC Regular Interest Regular Certificateholders and the
Certificate Insurer (other than cash retained to meet claims) and the
Trust shall terminate at such time. (b) By their acceptance of the
Class A Certificates, the Holders thereof hereby agree to appoint the
Trustee as their attorney in fact to: (i) adopt such a plan of
complete liquidation (and the Certificateholders hereby appoint the
Trustee as their attorney in fact to sign such plan) as appropriate
or upon the written request of the Certificate Insurer and (ii) to
take such other action in connection therewith as may be reasonably
required to carry out such plan of complete liquidation all in
accordance with the terms hereof.
ARTICLE XI
Miscellaneous Provisions
Section 11.01 Amendment. This Agreement may be amended from time to
time by the Seller, the Servicer, the Depositor and the Trustee, in each case
without the consent of any of the Certificateholders, but only with the consent
of the Certificate Insurer (which consent shall not be unreasonably withheld),
(i) to cure any ambiguity, (ii) to correct any defective provisions or to
correct or supplement any provisions herein that may be inconsistent with any
other provisions herein, (iii) to add to the duties of the Servicer, (iv) to
add any other provisions with respect to matters or questions arising under
this Agreement or the Certificate Insurance Policy, as the case may be, which
shall not be inconsistent with the provisions of this Agreement, (v) to add or
amend any provisions of this Agreement as required by any Rating Agency or any
other nationally recognized statistical rating agency in order to maintain or
improve any rating of each Class of Class A Certificates (it being understood
that, after obtaining the ratings in effect on the Closing Date, neither the
Trustee, the Seller, the Depositor nor the Servicer is obligated to obtain,
maintain or improve any such rating), (vi) to add or amend any provisions of
this Agreement to such extent as shall be necessary to maintain the
qualification of the Trust as a REMIC, or (vii) to amend the definition of
Specified O/C Amount; provided, however, that (x) as evidenced by an Opinion of
Counsel (at the expense of the requesting party) in each case such action shall
not, adversely affect in any material respect the interest of any
Certificateholder, (y) in each case, such action is necessary or desirable to
maintain the qualification of either REMIC as a REMIC or shall not adversely
affect such qualification and (z) if the opinion called for in clause (x)
cannot be delivered with regard to an amendment pursuant to clause (vi) above,
such amendment is necessary to maintain the qualification of either REMIC as a
REMIC; and provided, further, that the amendment shall not be deemed to
adversely affect in any material respect the interests of the
Certificateholders and no Opinion of Counsel to that effect shall be required
if the Person requesting the amendment obtains a letter from the Rating Agency
stating that the amendment would not result in the downgrading or withdrawal of
the respective ratings then assigned to the Class A Certificates.
This Agreement also may be amended from time to time by the Seller,
the Servicer, the Depositor and the Trustee, with the consent of the Holders of
each Class of Class A Certificates which is affected by such amendment,
evidencing Percentage Interests aggregating not less than 51% of such Class or
in the case of an amendment which affects all classes, evidencing Percentage
Interests aggregating not less than 51% of all Classes, and with the consent of
the Certificate Insurer, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of the Certificateholders; provided,
however, that no such amendment shall (i) reduce in any manner the amount of,
or delay the timing of, payments on the Certificates or distributions or
payments under the Certificate Insurance Policy which are required to be made
on any Certificate without the consent of the Holder of such Certificate or
(ii) reduce the aforesaid percentage required to consent to any such amendment,
without the consent of the Holders of all Certificates then outstanding.
Prior to the solicitation of consent of Certificateholders in
connection with any such amendment, the party seeking such amendment shall
furnish the Trustee with an Opinion of Counsel stating whether such amendment
would adversely affect the qualification of any REMIC as a REMIC and notice of
the conclusion expressed in such Opinion of Counsel shall be included with any
such solicitation. An amendment made with the consent of all Certificateholders
and executed in accordance with this Section shall be permitted or authorized
by this Agreement notwithstanding that such Opinion of Counsel may conclude
that such amendment would adversely affect the qualification of any REMIC as a
REMIC.
Prior to the execution of any such amendment, the Trustee shall
furnish written notification of the substance of such amendment to each Rating
Agency. In addition, promptly after the execution of any such amendment made
with the consent of the Certificateholders, the Trustee shall furnish written
notification of the substance of such amendment to each Certificateholder and
fully executed original counterparts of the instruments effecting such
amendment to the Certificate Insurer.
It shall not be necessary for the consent of Certificateholders under
this Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject
to such reasonable requirements as the Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, the
Trustee shall be entitled to receive and rely upon an Opinion of Counsel
stating that the execution of such amendment is authorized or permitted by this
Agreement. The Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Trustee's own rights, duties or immunities under
this Agreement.
Section 11.02 Recordation of Agreement. This Agreement is subject to
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Trustee, but only upon written direction of Certificateholders accompanied by
an Opinion of Counsel to the effect that such recordation materially and
beneficially affects the interests of Certificateholders. The
Certificateholders requesting such recordation shall bear all costs and
expenses of such recordation. The Trustee shall have no obligation to ascertain
whether such recordation so affects the interests of the Certificateholders.
Section 11.03. Limitation on Rights of Certificateholders. The death
or incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the
Trust, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
No Certificateholder shall have any right to vote (except as provided
in Sections 8.01, 9.01, 9.02 and 11.01) or in any manner otherwise control the
operation and management of the Trust, or the obligations of the parties
hereto, nor shall anything herein set forth, or contained in the terms of the
Certificates, be construed so as to constitute the Certificateholders from time
to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third person by reason of any
action taken by the parties to this Agreement pursuant to any provision hereof.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless such Holder previously shall have given to the Trustee a written notice
of default and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of Class A Certificates evidencing Voting Rights aggregating
not less than 51% shall have made written request upon the Trustee to institute
such action, suit or proceeding in its own name as Trustee hereunder and shall
have offered to the Trustee such reasonable indemnity as it may require against
the costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for 60 days after its receipt of such notice, request and offer of
indemnity, shall have neglected or refused to institute any such action, suit
or proceeding; it being understood and intended, and being expressly covenanted
by each Certificateholder with every other Certificateholder and the Trustee,
that no one or more Holders of Certificates shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provisions of
this Agreement to affect, disturb or prejudice the rights of the Holders of any
other of the Certificates, or to obtain or seek to obtain priority over or
preference to any other such Holder, or to enforce any right under this
Agreement, except in the manner herein provided and for the equal, ratable and
common benefit of all Certificateholders. For the protection and enforcement of
the provisions of this Section, each and every Certificateholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.
Section 11.04. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.
Section 11.05. Notices. (a) All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified mail, return receipt requested,
to (a) in the case of the Depositor, 245 Park Avenue, New York, New York 10167,
Attention: Timothy J. Small, (b) in the case of the Seller and Servicer, 20
Waterview Boulevard, Parsippany, New Jersey 07054 Attention: President, (c) in
the case of the Trustee, 311 West Monroe Street, Chicago, Illinois 60606,
Attention: Indenture Trust Administration, Facsimile: (312) 461-3525 (d) in the
case of the Certificate Insurer, 113 King Street, Armonk, New York 10504,
Attention: Insured Portfolio Management, Structured Finance, (e) in the case of
Moody's, Home Mortgage Loan Monitoring Group, 4th Floor, 99 Church Street, New
York, New York 10007, and (f) in the case of Standard & Poor's, 26 Broadway,
15th Floor, New York, New York 10004, Attention: Residential Mortgage Group,
or, as to each party, at such other address as shall be designated by such
party in a written notice to each other party. Any notice required or permitted
to be mailed to a Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register.
Any notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the
Certificateholder receives such notice. Any notice or other document required
to be delivered or mailed by the Trustee to any Rating Agency shall be given on
a best efforts basis and only as a matter of courtesy and accommodation and the
Trustee shall have no liability for failure to deliver such notice or document
to any Rating Agency.
(b) Notice to S&P and Moody's. The Trustee and the Servicer shall
each be obligated to use its best efforts promptly to provide notice, at the
expense of the Servicer, to S&P and Moody's with respect to each of the
following of which a Responsible Officer of the Trustee or Servicer, as the
case may be, has actual knowledge:
(i) Any material change or amendment to this Agreement;
(ii) The occurrence of any Event of Default that has not been
cured or waived;
(iii) The resignation or termination of the Servicer or the
Trustee;
(iv) The final payment to Holders of the Certificates of any
Class;
(v) Any change in the location of any Account; and (vi) Any
event that would result in the inability of the Servicer to make
Monthly Advances.
(c) In addition, (i) the Trustee shall promptly furnish to each
Rating Agency copies of the following:
(A) Each annual report to Certificateholders described in
Section 5.03; and
(B) Each Statement to Certificateholders described in
Section 5.03; and
(ii) The Servicer shall promptly furnish to each Rating Agency
copies of the following:
(A) Each annual statement as to compliance described in
Section 3.10;
(B) Each annual independent public accountants' servicing
report described in Section 3.11; and
(C) Each notice delivered pursuant to Section 8.01(b) which
relates to the fact that the Servicer has not made a Monthly
Advance.
Any such notice pursuant to this Section shall be in writing and shall be
deemed to have been duly given if personally delivered or mailed by first class
mail, postage prepaid, or by express delivery service to the addresses
specified above for each such Rating Agency.
Section 11.06 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement or of the
Certificates or the rights of the Holders thereof.
Section 11.07. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 7.02, 7.04 and 7.05 (or 3.01),
this Agreement may not be assigned by the Depositor or the Servicer without the
prior written consent of the Certificate Insurer and Holders of the
Certificates evidencing Voting Rights aggregating not less than 66 2/3%.
Section 11.08. Certificates Nonassessable and Fully Paid. The parties
agree that the Certificateholders shall not be personally liable for
obligations of the Trust, that the beneficial ownership interests represented
by the Certificates shall be nonassessable for any losses or expenses of the
Trust or for any reason whatsoever, and that the Certificates upon execution,
authentication and delivery thereof by the Trustee pursuant to Section 6.02 are
and shall be deemed fully paid.
Section 11.09. Third-Party Beneficiaries. This Agreement will inure
to the benefit of and be binding upon the parties hereto, the
Certificateholders, the Certificate Owners, the Certificate Insurer and their
respective successors and permitted assigns. Except as otherwise provided in
this Agreement, no other person will have any right or obligation hereunder.
Section 11.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 11.11 Effect of Headings and Table of Contents. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
<PAGE>
IN WITNESS WHEREOF, the Depositor, the Seller, the Servicer and the
Trustee have caused this Agreement to be duly executed by their respective
officers all as of the day and year first above written.
BEAR STEARNS ASSET BACKED SECURITIES, INC.,
as Depositor
By /s/ Matthew Perkins
-------------------------------
Name: Matthew Perkins
Title: Vice President
CHAMPION MORTGAGE CO., INC.
as Seller and as Servicer
By /s/ Daniel L. Rich
-------------------------------
Name: Daniel L. Rich
Title: Senior Vice President
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By /s/ Kieth Richardson
-------------------------------
Name: Kieth Richardson
Title: Assistant Vice President
<PAGE>
State of New York )
) ss.:
County of New York )
On the 30th day of September 1998 before me, a notary public in and
for the State of New York, personally appeared Matthew Perkins, known to me
who, being by me duly sworn, did depose and say that he is the Vice President
of Bear Stearns Asset Backed Securities, Inc., a Delaware corporation, one of
the parties that executed the foregoing instrument; that he knows the seal of
said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation; and that he signed his name thereto by like order.
/s/ Ryan O'Conner
----------------------------------
Notary Public
[Notarial Seal]
<PAGE>
State of New Jersey )
) ss.:
County of Morris )
On the 29th day of September 1998 before me, a notary public in and
for the State of New Jersey, personally appeared Daniel L. Rich, known to me
who, being by me duly sworn, did depose and say that he is the Senior Vice
President of Champion Mortgage Co., Inc., a New Jersey corporation, one of the
parties that executed the foregoing instrument; that he knows the seal of said
company; that the seal affixed to said instrument is such corporate seal; that
it was so affixed by order of the Board of Directors of said company; and that
he signed his name thereto by like order.
/s/ Patricia Keating
----------------------------------
Notary Public
[Notarial Seal]
<PAGE>
State of New York )
) ss.:
County of New York )
On the 30th day of September 1998 before me, a notary public in and
for the State of New York, personally appeared Kieth Richardson, that he is an
Assistant Vice President of Harris Trust and Savings Bank, an Illinois banking
corporation, one of the parties that executed the foregoing instrument; and
that she signed her name thereto pursuant to the by-laws of said corporation.
/s/ Ryan O'Conner
----------------------------------
Notary Public
[Notarial Seal]
