EXHIBIT 4.1
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NOVASTAR MORTGAGE, INC.,
as Servicer,
[NAME OF INDENTURE TRUSTEE]
as Indenture Trustee,
and
NOVASTAR MORTGAGE FUNDING TRUST, SERIES ______,
as Issuer
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SERVICING AGREEMENT
Dated as of ___________, 199_
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Fixed and Adjustable-Rate Mortgage Loans
NovaStar Mortgage Funding Trust, Series ______
Collateralized Mortgage Obligation Bonds
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TABLE OF CONTENTS
Page
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ARTICLE I Definitions.................................................. 1
Section 1.01. Definitions................................... 1
Section 1.02. Other Definitional Provisions................. 1
Section 1.03. Interest Calculations......................... 2
ARTICLE II Representations and Warranties............................... 2
Section 2.01 Representations and Warranties Regarding the
Servicer...................................... 2
Section 2.02. Existence..................................... 3
Section 2.03. Enforcement of Representations and
Warranties.................................... 3
ARTICLE III Administration and Servicing of Mortgage Loans............... 5
Section 3.01. Servicer to Assure Servicing.................. 5
Section 3.02. Subservicing Agreements Between Servicer and
Subservicers.................................. 6
Section 3.03. Successor Subservicers........................ 7
Section 3.04. Liability of the Servicer..................... 7
Section 3.05. Assumption or Termination of Subservicing
Agreements by Indenture Trustee............... 8
Section 3.06. Collection of Mortgage Loan Payments.......... 8
Section 3.07. Withdrawals from the Collection Account....... 10
Section 3.08. Collection of Taxes, Assessments and Similar
Items; Servicing Accounts..................... 12
Section 3.09. Access to Certain Documentation and
Information Regarding the Mortgage Loans...... 13
Section 3.10. Reserved...................................... 13
Section 3.11. Maintenance of Hazard Insurance and Fidelity
Coverage...................................... 13
Section 3.12. Due-on-Sale Clauses; Assumption Agreements.... 15
Section 3.13. Realization Upon Defaulted Mortgage Loans..... 16
Section 3.14. Indenture Trustee to Cooperate; Release of
Mortgage Files................................ 17
Section 3.15. Servicing Compensation........................ 18
Section 3.16. Annual Statements of Compliance............... 19
Section 3.17. Annual Independent Public Accountants'
Servicing Report.............................. 19
Section 3.18. Optional Purchase of Defaulted Mortgage
Loans......................................... 20
Section 3.19. Information Required by the Internal Revenue
Service Generally and Reports of Foreclosures
and Abandonments of Mortgaged Property........ 20
ARTICLE IV Remittance Reports........................................... 20
Section 4.01. Remittance Reports............................ 20
Section 4.02. Advances...................................... 21
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Section 4.03. Compensating Interest Payments................ 21
ARTICLE V The Servicer................................................. 21
Section 5.01. Liability of the Servicer..................... 21
Section 5.02. Merger or Consolidation of, or Assumption
of the Obligations of, the Servicer........... 21
Section 5.03. Limitation on Liability of the Servicer and
Others........................................ 22
Section 5.04. Servicer Not to Resign........................ 23
Section 5.05. Delegation of Duties.......................... 23
Section 5.06. Servicer to Pay Indenture Trustee's and Owner
Trustee's Fees and Expenses; Indemnification.. 23
ARTICLE VI Default...................................................... 25
Section 6.01. Servicing Default............................. 25
Section 6.02. Indenture Trustee to Act; Appointment of
Successor..................................... 28
Section 6.03. Notification to Bondholders................... 29
Section 6.04. Waiver of Defaults............................ 29
ARTICLE VII Miscellaneous Provisions..................................... 29
Section 7.01. Amendment..................................... 29
Section 7.02. Governing Law................................. 30
Section 7.03. Notices....................................... 30
Section 7.04. Severability of Provisions.................... 31
Section 7.05. Third-Party Beneficiaries..................... 31
Section 7.06. Counterparts.................................. 32
Section 7.07. Effect of Headings and Table of Contents...... 32
Section 7.08. Termination................................... 32
Section 7.09. No Petition................................... 32
Section 7.10. No Recourse................................... 32
ARTICLE VIII Administrative Duties of the Servicer........................ 32
Section 8.01. Administrative Duties......................... 32
Section 8.02. Records....................................... 34
Section 8.03. Additional Information to be Furnished........ 34
EXHIBIT A - MORTGAGE LOAN SCHEDULE........................................ A-1
EXHIBIT B - FORM OF REQUEST FOR RELEASE................................... B-1
EXHIBIT C - FORM OF LIQUIDATION REPORT.................................... C-1
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This Servicing Agreement, dated as of ________________, 199 , among
NovaStar Mortgage, Inc., as Servicer (the "Servicer"),
_________________________, as Indenture Trustee, and NovaStar Mortgage Funding
Trust, Series ______, as Issuer (the "Issuer").
W I T N E S S E T H T H A T:
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WHEREAS, pursuant to the terms of the Mortgage Loan Purchase
Agreement, the Seller will sell to the Company the Mortgage Loans on the Closing
Date;
WHEREAS, the Company will sell the Mortgage Loans and transfer all of
its rights under the Mortgage Loan Purchase Agreement to the Issuer on the
Closing Date;
WHEREAS, pursuant to the terms of the Trust Agreement, the Issuer will
issue and transfer to or at the direction of the Company, the Certificates;
WHEREAS, pursuant to the terms of the Indenture, the Issuer will issue
and transfer to or at the direction of the Company, the Bonds; and
WHEREAS, pursuant to the terms of this Servicing Agreement, the
Servicer will service the Mortgage Loans directly or through one or more
Subservicers;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE I
Definitions
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Section 1.01. Definitions. For all purposes of this Servicing Agreement,
except as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Definitions contained in Appendix A to the
Indenture dated as of ___________, 199 (the "Indenture") between the Issuer and
the Indenture Trustee, which Definitions are incorporated by reference herein.
All other capitalized terms used herein shall have the meanings specified
herein.
Section 1.02. Other Definitional Provisions. (a) All terms defined in this
Servicing Agreement shall have the defined meanings when used in any certificate
or other document made or delivered pursuant hereto unless otherwise defined
therein.
(b) As used in this Servicing Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Servicing Agreement or in any such certificate or other
document, and accounting terms partly defined in this Servicing Agreement or in
any such certificate or other document, to the extent not defined, shall have
the
respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this
Servicing Agreement or in any such certificate or other document are
inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained in this Servicing Agreement or in any such
certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar import
when used in this Servicing Agreement shall refer to this Servicing Agreement as
a whole and not to any particular provision of this Servicing Agreement; Section
and Exhibit references contained in this Servicing Agreement are references to
Sections and Exhibits in or to this Servicing Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation".
(d) The definitions contained in this Servicing Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
Section 1.03. Interest Calculations. All calculations of interest hereunder
that are made in respect of the Principal Balance of a Mortgage Loan shall be
made in accordance with the terms of the related Mortgage Note and Mortgage. The
calculation of the Servicing 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 ▇▇▇▇▇ with one-half of one ▇▇▇▇▇ being rounded
up.
ARTICLE II
Representations and Warranties
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Section 2.01. Representations and Warranties Regarding the Servicer. The
Servicer represents and warrants to the Issuer and for the benefit of the
Indenture Trustee, as pledgee of the Mortgage Loans, the Bond Insurer and the
Bondholders, as of the Closing Date, that:
(i) The Servicer is a corporation duly organized, validly existing and
in good standing under the laws of the State of Virginia and has the
corporate power to own its assets and to transact the business in which it
is currently engaged. The Servicer is duly qualified to do business as a
foreign corporation 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 to so
qualify would have a material adverse effect on the
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business, properties, assets, or condition (financial or other) of the
Servicer or the validity or enforceability of the Mortgage Loans;
(ii) The Servicer has the corporate power and authority to make,
execute, deliver and perform this Servicing Agreement and all of the
transactions contemplated under this Servicing Agreement, and has taken all
necessary corporate action to authorize the execution, delivery and
performance of this Servicing Agreement. When executed and delivered, this
Servicing Agreement will constitute the legal, valid and binding obligation
of the Servicer enforceable in accordance with its terms, except as
enforcement of such terms may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally and
by the availability of equitable remedies;
(iii) The Servicer is not required to obtain the consent of any other
Person 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 Servicing Agreement, except for such consent,
license, approval or authorization, or registration or declaration, as
shall have been obtained or filed, as the case may be;
(iv) The execution and delivery of this Servicing Agreement and the
performance of the transactions contemplated hereby by the Servicer will
not violate any provision of any existing law or regulation or any order or
decree of any court applicable to the Servicer or any provision of the
certificate of incorporation or bylaws of the Servicer, or constitute a
material breach of any mortgage, indenture, contract or other agreement to
which the Servicer is a party or by which the Servicer may be bound; and
(v) No litigation or administrative proceeding of or before any court,
tribunal or governmental body is currently pending, or to the knowledge of
the Servicer threatened, against the Servicer or any of its properties or
with respect to this Servicing Agreement or the Bonds or the Certificates
which, to the knowledge of the Servicer, has a reasonable likelihood of
resulting in a material adverse effect on the transactions contemplated by
this Servicing Agreement.
The foregoing representations and warranties shall survive any termination
of the Servicer hereunder.
Section 2.02. Existence. The Issuer will keep in full effect its existence,
rights and franchises as a business trust under the laws of the State of
Delaware and will obtain and preserve its qualification to do business in each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability of this Servicing Agreement.
Section 2.03. Enforcement of Representations and Warranties. The Servicer,
on behalf of and subject to the direction of the Indenture Trustee, as pledgee
of the Mortgage Loans, or the Bond
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Insurer, shall enforce the representations and warranties and related
obligations for breaches thereof of the Seller pursuant to the Mortgage Loan
Purchase Agreement. Upon the discovery by the Seller, the Servicer, the
Indenture Trustee, the Issuer, the Owner Trustee, the Bond Insurer or the
Company of a breach of any of the representations and warranties made in the
Mortgage Loan Purchase Agreement, in respect of any Mortgage Loan which
materially and adversely affects the value of the related Mortgage Loan or the
interests of the Bondholders or the Certificateholders or the Bond Insurer, the
party discovering such breach shall give prompt written notice to the other
parties. The Servicer shall promptly notify the Seller of such breach and
request that, pursuant to the terms of the Mortgage Loan Purchase Agreement, the
Seller either (i) cure such breach in all material respects or (ii) purchase
such Mortgage Loan, in each instance in accordance with the Mortgage Loan
Purchase Agreement; provided that the Seller shall, subject to the conditions
set forth in the Mortgage Loan Purchase Agreement, have the option to substitute
an Eligible Substitute Mortgage Loan or Eligible Substitute Mortgage Loans for
such Mortgage Loan. Monthly Payments due with respect to Eligible Substitute
Mortgage Loans in the month of substitution shall not be part of the Trust
Estate and will be retained by the Servicer and remitted by the Servicer to the
Seller on the next succeeding Payment Date. For the month of substitution,
distributions to the Payment Account pursuant to the Servicing Agreement will
include the Monthly Payment due on a Deleted Mortgage Loan for such month and
thereafter the Seller shall be entitled to retain all amounts received in
respect of such Deleted Mortgage Loan. The Servicer shall amend or cause to be
amended the Mortgage Loan Schedule to reflect the removal of such Mortgage Loan
and the substitution of the Eligible Substitute Mortgage Loans and the Servicer
shall promptly deliver the amended Mortgage Loan Schedule to the related
Subservicer, if any, the Bond Insurer, the Owner Trustee and the Indenture
Trustee.
In connection with the substitution of one or more Eligible Substitute
Mortgage Loans for one or more Deleted Mortgage Loans, the Servicer will
determine the amount (such amount, a "Substitution Adjustment Amount"), if any,
by which the aggregate principal balance of all such Eligible Substitute
Mortgage Loans as of the date of substitution is less than the aggregate
principal balance of all such Deleted Mortgage Loans (after application of the
principal portion of the Monthly Payments due in the month of substitution that
are to be distributed to the Payment Account in the month of substitution). The
Seller shall pay the Substitution Adjustment Amount to the Servicer and the
Servicer shall deposit such Substitution Adjustment Amount into the Collection
Account upon receipt.
It is understood and agreed that the obligation of the Seller to cure such
breach or purchase or substitute for such Mortgage Loan as to which such a
breach has occurred and is continuing shall constitute the sole remedy
respecting such breach available to the Issuer and the Indenture Trustee, as
pledgee of the Mortgage Loans, against the Seller, except as set forth in
Section 5.1 of the Mortgage Loan Purchase Agreement. In connection with the
purchase of or substitution for any such Mortgage Loan by the Seller, the Issuer
shall assign to the Seller all of its right, title and interest in respect of
the Mortgage Loan Purchase Agreement applicable to such Mortgage Loan. Upon
receipt of the Repurchase Price, or upon completion of such substitution, the
Servicer shall notify the Indenture Trustee and then the Indenture Trustee shall
deliver the Mortgage Files relating to such
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Mortgage Loan to the Servicer, together with all relevant endorsements and
assignments prepared by the Servicer which the Indenture Trustee shall execute.
ARTICLE III
Administration and Servicing of Mortgage Loans
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Section 3.01. Servicer to Assure Servicing. (a) The Servicer shall
supervise, or take such actions as are necessary to ensure, the servicing and
administration of the Mortgage Loans and any REO Property in accordance with
this Servicing Agreement and its normal servicing practices, which generally
shall conform to the standards of an institution prudently servicing mortgage
loans for its own account and shall have full authority to do anything it
reasonably deems appropriate or desirable in connection with such servicing and
administration. The Servicer may perform its responsibilities relating to
servicing through other agents or independent contractors, but shall not thereby
be released from any of its responsibilities as hereinafter set forth. The
authority of the Servicer, in its capacity as Servicer, and any Subservicer
acting on its behalf, shall include, without limitation, the power to (i)
consult with and advise any Subservicer regarding administration of a related
Mortgage Loan, (ii) approve any recommendation by a Subservicer to foreclose on
a related Mortgage Loan, (iii) supervise the filing and collection of insurance
claims and take or cause to be taken such actions on behalf of the insured
Person thereunder as shall be reasonably necessary to prevent the denial of
coverage thereunder, and (iv) effectuate foreclosure or other conversion of the
ownership of the Mortgaged Property securing a related Mortgage Loan, including
the employment of attorneys, the institution of legal proceedings, the
collection of deficiency judgments, the acceptance of compromise proposals and
any other matter pertaining to a delinquent Mortgage Loan. The authority of the
Servicer shall include, in addition, the power on behalf of the Bondholders, the
Indenture Trustee, the Bond Insurer or any of them to (i) execute and deliver
customary consents or waivers and other instruments and documents, (ii) consent
to transfer of any related Mortgaged Property and assumptions of the related
Mortgage Notes and Security Instruments (in the manner provided in this
Servicing Agreement) and (iii) collect any Insurance Proceeds and Liquidation
Proceeds. Without limiting the generality of the foregoing, the Servicer and any
Subservicer acting on its behalf may, and is hereby authorized, and empowered by
the Indenture Trustee when the Servicer believes it is reasonably necessary in
its best judgment in order to comply with its servicing duties hereunder, to
execute and deliver, on behalf of itself, the Bondholders, the Indenture
Trustee, the Bond Insurer or any of them, any instruments of satisfaction,
cancellation, partial or full release, discharge and all other comparable
instruments, with respect to the related Mortgage Loans, the Insurance Policies
and the accounts related thereto, and the Mortgaged Properties. The Servicer may
exercise this power in its own name or in the name of a Subservicer.
The Servicer, in such capacity, may not consent to the placing of a lien
senior to that of the Mortgage on the related Mortgaged Property.
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The relationship of the Servicer (and of any successor to the Servicer as
servicer under this Servicing Agreement) to the Issuer and the Indenture Trustee
under this Servicing Agreement is intended by the parties to be that of an
independent contractor and not that of a joint venturer, partner or agent.
(b) Notwithstanding the provisions of Subsection 3.01(a), the Servicer
shall not take any action inconsistent with the interests of the Indenture
Trustee, the Bond Insurer or the Bondholders or with the rights and interests of
the Indenture Trustee, the Bond Insurer or the Bondholders under this Servicing
Agreement.
(c) The Indenture Trustee shall furnish the Servicer with any powers of
attorney and other documents in form as provided to it necessary or appropriate
to enable the Servicer to service and administer the related Mortgage Loans and
REO Property and the Indenture Trustee shall not be liable for the actions of
the Servicer or any Subservicers under such powers of attorney.
Section 3.02. Subservicing Agreements Between Servicer and Subservicers.
(a) The Servicer may enter into Subservicing Agreements with Subservicers for
the servicing and administration of the Mortgage Loans and for the performance
of any and all other activities of the Servicer hereunder. Each Subservicer
shall be either (i) an institution the accounts of which are insured by the FDIC
or (ii) another entity that engages in the business of originating or servicing
mortgage loans comparable to the Mortgage Loans, and in either case shall be
authorized to transact business in the state or states in which the related
Mortgaged Properties it is to service are situated, if and to the extent
required by applicable law to enable the Subservicer to perform its obligations
hereunder and under the Subservicing Agreement. Any Subservicing Agreement
entered into by the Servicer shall include the provision that such Agreement may
be immediately terminated (i) (x) with cause and without any termination fee by
the Servicer hereunder and/or (y) without cause, in which case the Servicer
shall be solely responsible for any termination fee or penalty resulting
therefrom and (ii) at the option of the Bond Insurer upon the termination or
resignation of the Servicer hereunder, in which case the Servicer shall be
solely responsible for any termination fee or penalty resulting therefrom. In
addition, each Subservicing Agreement shall provide for servicing of the
Mortgage Loans consistent with the terms of this Servicing Agreement. The
Servicer and the Subservicers may enter into Subservicing Agreements and make
amendments to the Subservicing Agreements or enter into different forms of
Subservicing Agreements providing for, among other things, the delegation by the
Servicer to a Subservicer of additional duties regarding the administration of
the Mortgage Loans; provided, however, that any such amendments or different
forms shall be consistent with and not violate the provisions of this Servicing
Agreement, and that no such amendment or different form shall be made or entered
into which could be reasonably expected to be materially adverse to the
interests of the Bond Insurer or the Bondholders, without the consent of the
Bond Insurer or, if a Bond Insurer Default exists, the holders of at least 51%
of the aggregate Bond Principal Balance of the Outstanding Bonds.
(b) As part of its servicing activities hereunder, the Servicer, for the
benefit of the Indenture Trustee, the Bond Insurer and the Bondholders, shall
enforce the obligations of each
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Subservicer under the related Subservicing Agreement. Such enforcement,
including, without limitation, the legal prosecution of claims, termination of
Subservicing Agreements and the pursuit of other appropriate remedies, shall be
in such form and carried out to such an extent and at such time as the Servicer,
in its good faith business judgment, would require were it the owner of the
related Mortgage Loans. The Servicer shall pay the costs of such enforcement at
its own expense, but shall be reimbursed therefor only (i) from a general
recovery resulting from such enforcement only to the extent, if any, that such
recovery exceeds all amounts due in respect of the related Mortgage Loan or (ii)
from a specific recovery of costs, expenses or attorneys' fees against the party
against whom such enforcement is directed.
Section 3.03. Successor Subservicers. The Servicer shall be entitled to
terminate any Subservicing Agreement that may exist in accordance with the terms
and conditions of such Subservicing Agreement and without any limitation by
virtue of this Servicing Agreement; provided, however, that upon termination,
the Servicer shall either act as servicer of the related Mortgage Loans or enter
into an appropriate contract with a successor Subservicer reasonably acceptable
to the Indenture Trustee and the Bond Insurer pursuant to which such successor
Subservicer will be bound by all relevant terms of the related Subservicing
Agreement pertaining to the servicing of such Mortgage Loans.
Section 3.04. Liability of the Servicer. (a) Notwithstanding any
Subservicing Agreement, any of the provisions of this Servicing 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 under all circumstances remain obligated and primarily liable to the
Indenture Trustee, the Bondholders and the Bond Insurer for the servicing and
administering of the Mortgage Loans and any REO Property in accordance with this
Servicing Agreement. The obligations and liability of the Servicer shall not be
diminished by virtue of Subservicing Agreements or by virtue of indemnification
of the Servicer by any Subservicer, or any other Person. The obligations and
liability of the Servicer shall remain of the same nature and under the same
terms and conditions as if the Servicer alone were servicing and administering
the related Mortgage Loans. The Servicer shall, however, be entitled to enter
into indemnification agreements with any Subservicer or other Person and nothing
in this Servicing Agreement shall be deemed to limit or modify such
indemnification. For the purposes of this Servicing Agreement, the Servicer
shall be deemed to have received any payment on a Mortgage Loan on the date the
Subservicer received such payment; provided, however, that this sentence shall
not apply to the Indenture Trustee acting as the Servicer; provided, further,
however, that the foregoing provision shall not affect the obligation of the
Servicer if it is also the Indenture Trustee to advance amounts which are not
Nonrecoverable Advances.
(b) 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 Indenture Trustee, the Bond
Insurer and the Bondholders 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 3.05.
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Section 3.05. Assumption or Termination of Subservicing Agreements by
Indenture Trustee. (a) If the Indenture Trustee or its designee shall assume the
servicing obligations of the Servicer in accordance with Section 6.02 below, the
Indenture Trustee, to the extent necessary to permit the Indenture Trustee to
carry out the provisions of Section 6.02 with respect to the Mortgage Loans,
shall succeed to all of the rights and obligations of the Servicer under each of
the Subservicing Agreements. In such event, the Indenture Trustee or its
designee as the successor Servicer shall be deemed to have assumed all of the
Servicer's rights and obligations therein and to have replaced the Servicer as a
party to such Subservicing Agreements to the same extent as if such Subservicing
Agreements had been assigned to the Indenture Trustee or its designee as a
successor Servicer, except that the Indenture Trustee or its designee as a
successor Servicer shall not be deemed to have assumed any obligations or
liabilities of the Servicer arising prior to such assumption and the Servicer
shall not thereby be relieved of any liability or obligations under such
Subservicing Agreements arising prior to such assumption. Nothing in the
foregoing shall be deemed to entitle the Indenture Trustee or its designee as a
successor Servicer at any time to receive any portion of the servicing
compensation provided under Section 3.17 except for such portion as the Servicer
would be entitled to receive.
(b) In the event that the Indenture Trustee or its designee as successor
Servicer for the Indenture Trustee assumes the servicing obligations of the
Servicer under Section 6.02, upon the request of the Indenture Trustee or such
designee as successor Servicer, the Servicer shall at its own expense deliver to
the Indenture Trustee, or at its written request to such designee, originals or,
if originals are not available, photocopies of all documents, files and records,
electronic or otherwise, relating to the Subservicing Agreements and the related
Mortgage Loans or REO Property then being serviced and an accounting of amounts
collected and held by it, if any, and will otherwise cooperate and use its
reasonable efforts to effect the orderly and efficient transfer of the
Subservicing Agreements, or responsibilities hereunder to the Indenture Trustee,
or at its written request to such designee as successor Servicer.
Section 3.06. Collection of Mortgage Loan Payments. (a) The Servicer will
coordinate and monitor remittances by Subservicers to it with respect to the
Mortgage Loans in accordance with this Servicing Agreement.
(b) The Servicer shall make its best reasonable efforts to collect or
cause to be collected all payments required under the terms and provisions of
the Mortgage Loans and shall follow, and use its best reasonable efforts to
cause Subservicers to follow, collection procedures comparable to the collection
procedures of prudent mortgage lenders servicing mortgage loans for their own
account to the extent such procedures shall be consistent with this Servicing
Agreement. Consistent with the foregoing, the Servicer or the related
Subservicer may in its discretion (i) waive or permit to be waived any late
payment charge, prepayment charge, assumption fee, or any penalty interest in
connection with the prepayment of a Mortgage Loan and (ii) suspend or reduce or
permit to be suspended or reduced regular monthly payments for a period of up to
six months, or arrange or permit an arrangement with a Mortgagor for a scheduled
liquidation of delinquencies; provided, however, that the Servicer or the
related Subservicer may permit the foregoing only if it believes, in
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good faith, that recoveries of Monthly Payments will be maximized; provided
further, however, that the Servicer may not without the prior written consent of
the Bond Insurer permit any waiver, modification or variance which would (a)
change the loan rate, (b) forgive any payment of principal or interest, (c)
lessen the lien priority or (d) extend the final maturity date of a Mortgage
Loan past 12 months prior to the final maturity date on the Bonds. In the event
the Servicer or related Subservicer shall consent to the deferment of the due
dates for payments due on a Mortgage Note, the Servicer shall nonetheless make
an Advance or shall cause the related Subservicer to make an advance to the same
extent as if such installment were due, owing and delinquent and had not been
deferred through liquidation of the Mortgaged Property; provided, however, that
the obligation of the Servicer or the related Subservicer to make an Advance
shall apply only to the extent that the Servicer believes, in good faith, that
such advances are not Nonrecoverable Advances.
(c) Within five Business Days after the Servicer has determined that all
amounts which it expects to recover from or on account of a Mortgage Loan have
been recovered and that no further Liquidation Proceeds will be received in
connection therewith, the Servicer shall provide to (i) the Indenture Trustee a
certificate of a Servicing Officer that such Mortgage Loan became a Liquidated
Mortgage Loan as of the date of such determination and (ii) the Bond Insurer and
the Indenture Trustee a Liquidation Report in the form attached hereto as
Exhibit C.
(d) The Servicer shall establish a segregated account in the name of the
Indenture Trustee (the "Collection Account"), which shall be an Eligible
Account, in which the Servicer shall deposit or cause to be deposited any
amounts representing payments on and any collections in respect of the Mortgage
Loans received by it subsequent to the Cut-Off Date (other than in respect of
the payments referred to in the following paragraph) within two Business Days
following receipt thereof, including the following payments and collections
received or made by it (without duplication):
(i) all payments of principal of or interest on the Mortgage Loans
received by the Servicer directly from Mortgagors or from the respective
Subservicer;
(ii) the aggregate Repurchase Price of the Mortgage Loans purchased
by the Servicer pursuant to Section 3.18;
(iii) Net Liquidation Proceeds;
(iv) all proceeds of any Mortgage Loans repurchased by the Seller
pursuant to the Mortgage Loan Purchase Agreement, and all Substitution
Adjustment Amounts required to be deposited in connection with the
substitution of an Eligible Substitute Mortgage Loan pursuant to the
Mortgage Loan Purchase Agreement;
(v) Insurance Proceeds, other than Net Liquidation Proceeds,
resulting from any insurance policy maintained on a Mortgaged Property;
(vi) any Advance and any Compensating Interest payments; and
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(vii) any other amounts received by the Servicer, including all
Foreclosure Profits, assumption fees, prepayment penalties and any other
fees that are required to be deposited in the Collection Account pursuant
to this Servicing Agreement.
provided, however, that with respect to each Due Period, the Servicer shall be
permitted to retain from payments in respect of interest on the Mortgage Loans,
the Servicing Fee for such Due Period. 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 late payment charges payable by Mortgagors, as further
described in Section 3.15, or amounts received by the Subservicer for the
accounts of Mortgagors for application towards the payment of taxes, insurance
premiums, assessments and similar items. In the event any amount not required to
be deposited in the Collection Account is so deposited, the Servicer may at any
time (prior to being terminated under this Agreement) withdraw such amount from
the Collection Account, any provision herein to the contrary notwithstanding.
The Servicer shall keep records that accurately reflect the funds on deposit in
the Collection Account that have been identified by it as being attributable to
the Mortgage Loans and shall hold all collections in the Collection Account for
the benefit of the Owner Trustee, the Indenture Trustee, the Bondholders and the
Bond Insurer, as their interests may appear.
Funds in the Collection Account may be invested in Eligible Investments,
but shall not be commingled with the Servicer's own funds or general assets or
with funds respecting payments on mortgage loans or with any other funds not
related to the Bonds. Income earned on such Eligible Investments shall be for
the account of the Servicer.
(e) The Servicer will require each Subservicer to hold all funds
constituting collections on the Mortgage Loans, pending remittance thereof to
the Servicer, in one or more accounts in the name of the Indenture Trustee
meeting the requirements of an Eligible Account, and such funds shall not be
invested. The Subservicer shall segregate and hold all funds collected and
received pursuant to each Mortgage Loan separate and apart from any of its own
funds and general assets and any other funds. Each Subservicer shall make
remittances to the Servicer no later than one Business Day following receipt
thereof and the Servicer shall deposit any such remittances received from any
Subservicer within one Business Day following receipt by the Servicer.
Section 3.07. Withdrawals from the Collection Account. (a) The Servicer
shall, from time to time as provided herein, make withdrawals from the
Collection Account of amounts on deposit therein pursuant to Section 3.06 that
are attributable to the Mortgage Loans for the following purposes (without
duplication):
(i) to deposit in the Payment Account, by the fourth Business Day
prior to each Payment Date, all collections on the Mortgage Loans required
to be distributed from the Payment Account on a Payment Date;
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(ii) to the extent deposited to the Collection Account, to reimburse
itself or the related Subservicer for previously unreimbursed expenses
incurred in maintaining individual insurance policies pursuant to Section
3.11, or Liquidation Expenses, paid pursuant to Section 3.13, such
withdrawal right being limited to amounts received on particular Mortgage
Loans (other than any Repurchase Price in respect thereof) which represent
late recoveries of the payments for which such advances were made, or from
related Liquidation Proceeds;
(iii) to pay to itself out of each payment received on account of
interest on a Mortgage Loan as contemplated by Section 3.15, an amount
equal to the related Servicing Fee (to the extent not retained pursuant to
Section 3.06);
(iv) to pay to itself or the Seller, with respect to any Mortgage
Loan or property acquired in respect thereof that has been purchased by the
Seller, the Servicer or other entity, all amounts received thereon and not
required to be distributed to Bondholders as of the date on which the
related Repurchase Price is determined;
(v) to reimburse the Servicer or any Subservicer for any
unreimbursed Advance of its own funds or any unreimbursed advance of such
Subservicer's own funds, the right of the Servicer or a Subservicer to
reimbursement pursuant to this subclause (v) being limited to amounts
received on a particular Mortgage Loan (including, for this purpose, the
Repurchase Price therefor, Insurance Proceeds and Liquidation Proceeds)
which represent late payments or recoveries of the principal of or interest
on such Mortgage Loan respecting which such Advance or advance was made;
(vi) to reimburse the Servicer or any Subservicer from Insurance
Proceeds or Liquidation Proceeds relating to a particular Mortgage Loan for
amounts expended by the Servicer or such Subservicer pursuant to Section
3.13 in good faith in connection with the restoration of the related
Mortgage Property which was damaged by the uninsured cause or in connection
with the liquidation of such Mortgage Loan;
(vii) to reimburse the Servicer or any Subservicer for any
unreimbursed Nonrecoverable Advance previously made, and otherwise not
reimbursed pursuant to this Subsection 3.07(a);
(viii) to pay the Owner Trustee the Owner Trustee Fee;
(ix) to withdraw any other amount deposited in the Collection
Account that was not required to be deposited therein pursuant to Section
3.06;
(x) to reimburse the Servicer for costs associated with the
environmental report specified in Section 3.13(c);
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(xi) to clear and terminate the Collection Account upon a
termination pursuant to Section 7.08; and
(xii) to pay to the Servicer income earned on Eligible Investments in
the Collection Account.
In connection with withdrawals pursuant to clauses (ii), (iii), (iv), (v) and
(vi), the Servicer's entitlement thereto is limited to collections or other
recoveries on the related Mortgage Loan, and the Servicer shall keep and
maintain separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the
purpose of justifying any withdrawal from the Collection Account pursuant to
such clauses.
(b) Notwithstanding the provisions of this Section 3.07, the Servicer may,
but is not required to, allow the Subservicers to deduct from amounts received
by them or from the related account maintained by a Subservicer, prior to
deposit in the Collection Account, any portion to which such Subservicers are
entitled as reimbursement of any reimbursable Advances made by such
Subservicers.
Section 3.08. Collection of Taxes, Assessments and Similar Items;
Servicing Accounts. (a) The Servicer shall establish and maintain or cause the
related Subservicer to establish and maintain, one or more Servicing Accounts.
The Servicer or a Subservicer will deposit and retain therein all collections
from the Mortgagors for the payment of taxes, assessments, insurance premiums,
or comparable items as agent of the Mortgagors.
(b) The deposits in the Servicing Accounts shall be held in trust by the
Servicer or a Subservicer (and its successors and assigns) in the name of the
Indenture Trustee. Such Servicing Accounts shall be Eligible Accounts and, if
permitted by applicable law, invested in Eligible Investments held in trust by
the Servicer or a Subservicer as described above and maturing, or be subject to
redemption or withdrawal, no later than the date on which such funds are
required to be withdrawn, and in no event later than 45 days after the date of
investment; withdrawals of amounts from the Servicing Accounts may be made only
to effect timely payment of taxes, assessments, insurance premiums, or
comparable items, to reimburse the Servicer or a Subservicer for any advances
made with respect to such items, to refund to any Mortgagors any sums as may be
determined to be overages, to pay interest, if required, to Mortgagors on
balances in the Servicing Accounts or to clear and terminate the Servicing
Accounts at or any time after the termination of this Servicing Agreement.
Amounts received from Mortgagors for deposit into the Servicing Accounts shall
be deposited in the Servicing Accounts by the Servicer within two days of
receipt. The Servicer shall advance from its own funds amounts needed to pay
items payable from the Servicing Accounts if the Servicer reasonably believes
that such amounts are recoverable from the related Mortgagor. The Servicer shall
comply with all laws relating to the Servicing Accounts, including laws relating
to payment of interest on the Servicing Accounts. If interest earned by the
Servicer on the Servicing Accounts is not sufficient to pay required interest on
the Servicing Accounts, the Servicer shall pay the difference from its own
funds. The Servicing Accounts shall not be the property of the Issuer.
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Section 3.09. Access to Certain Documentation and Information Regarding
the Mortgage Loans. The Servicer shall provide, and shall cause any Subservicer
to provide, to the Indenture Trustee, the Owner Trustee and the Bond Insurer
access to the documentation regarding the related Mortgage Loans and REO
Property and to the Bondholders, the FDIC, and the supervisory agents and
examiners of the FDIC (to which the Indenture Trustee shall also provide) access
to the documentation regarding the related Mortgage Loans required by applicable
regulations, such access being afforded without charge but only upon reasonable
request and during normal business hours at the offices of the Servicer or the
Subservicers that are designated by these entities; provided, however, that,
unless otherwise required by law, the Indenture Trustee, the Servicer or the
Subservicer shall not be required to provide access to such documentation if the
provision thereof would violate the legal right to privacy of any Mortgagor;
provided, further, however, that the Indenture Trustee, the Bond Insurer and the
Owner Trustee shall coordinate their requests for such access so as not to
impose an unreasonable burden on, or cause an unreasonable interruption of, the
business of the Servicer or any Subservicer. The Servicer, the Subservicers and
the Indenture Trustee shall allow representatives of the above entities to
photocopy any of the documentation and shall provide equipment for that purpose
at a charge that covers their own actual out-of-pocket costs.
Section 3.10. Reserved.
Section 3.11. Maintenance of Hazard Insurance and Fidelity Coverage. (a)
The Servicer shall maintain and keep, or cause each Subservicer to maintain and
keep, with respect to each Mortgage Loan and each REO Property, in full force
and effect hazard insurance (fire insurance with extended coverage) equal to at
least the lesser of the Principal Balance of the Mortgage Loan or the current
replacement cost of the Mortgaged Property, and containing a standard mortgagee
clause, provided, however, that the amount of hazard insurance may not be less
than the amount necessary to prevent loss due to the application of any co-
insurance provision of the related policy. Unless applicable state law requires
a higher deductible, the deductible on such hazard insurance policy may be no
more than $1,500 or 1% of the applicable amount of coverage, whichever is less.
In the case of a condominium unit or a unit in a planned unit development, the
required hazard insurance shall take the form of a multi-peril policy covering
the entire condominium project or planned unit development, in an amount equal
to at least 100% of the insurable value based on replacement cost. If the
Servicer shall obtain and maintain a blanket policy consistent with its general
mortgage servicing activities from an insurer acceptable to the Bond Insurer
insuring against hazard losses on all of the Mortgage Loans, it shall
conclusively be deemed to have satisfied its obligations as set forth in this
Section 3.11(a), it being understood and agreed that such policy may contain a
deductible clause, in which case the Servicer shall, in the event that there
shall not have been maintained on the related Mortgaged Property a policy
complying with this Section 3.11(a) and there shall have been a loss which would
have been covered by such policy, deposit in the Collection Account the amount
not otherwise payable under the blanket policy because of such deductible clause
without any right of reimbursement. Any such deposit by the Servicer shall be
made on the last Business Day of the Due Period in the month in which payments
under any such policy would have been deposited in the Collection Account. In
connection with its activities as servicer of the Mortgage Loans, the Servicer
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agrees to present, on behalf of itself, the Issuer and the Indenture Trustee,
claims under any such blanket policy.
(b) Any amounts collected by the Servicer or a Subservicer under any such
hazard insurance policy (other than amounts to be applied to the restoration or
repair of the Mortgaged Property or amounts released to the Mortgagor in
accordance with the Servicer's or a Subservicer's normal servicing procedures,
the Mortgage Note, the Security Instrument or applicable law) shall be deposited
in the Collection Account.
(c) Any cost incurred by a Servicer or a Subservicer in maintaining any
such individual hazard insurance policies shall not be added to the amount owing
under the Mortgage Loan for the purpose of calculating monthly distributions to
Bondholders, notwithstanding that the terms of the Mortgage Loan so permit. Such
costs of maintaining individual hazard insurance policies shall be recoverable
by the Servicer or a Subservicer out of related late payments by the Mortgagor
or out of Insurance Proceeds or Liquidation Proceeds or by the Servicer from the
Repurchase Price, to the extent permitted by Section 3.07.
(d) No earthquake or other additional insurance is to be required of any
Mortgagor or maintained on property acquired with respect to a Security
Instrument other than pursuant to such applicable laws and regulations as shall
at any time be in force and shall require such additional insurance. When, at
the time of origination of the Mortgage Loan or at any subsequent time, the
Mortgaged Property is located in a federally designated special flood hazard
area, the Servicer shall use its best reasonable efforts to cause with respect
to the Mortgage Loans and each REO Property flood insurance (to the extent
available and in accordance with mortgage servicing industry practice) to be
maintained. Such flood insurance shall cover the Mortgaged Property, including
all items taken into account in arriving at the Appraised Value on which the
Mortgage Loan was based, and shall be in an amount equal to the lesser of (i)
the Principal Balance of the related Mortgage Loan and (ii) the minimum amount
required under the terms of coverage to compensate for any damage or loss on a
replacement cost basis, but not more than the maximum amount of such insurance
available for the related Mortgaged Property under either the regular or
emergency programs of the National Flood Insurance Program (assuming that the
area in which such Mortgaged Property is located is participating in such
program). Unless applicable state law requires a higher deductible, the
deductible on such flood insurance may not exceed $1,500 or 1% of the applicable
amount of coverage, whichever is less.
(e) If insurance has not been maintained complying with Subsections 3.11
(a) and (d) and there shall have been a loss which would have been covered by
such insurance had it been maintained, the Servicer shall pay, or cause the
related Subservicer to pay, for any necessary repairs without any right of
reimbursement.
(f) The Servicer shall present, or cause the related Subservicer to
present, claims under any related hazard insurance or flood insurance policy.
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(g) The Servicer shall obtain and maintain at its own expense, and shall
cause each Subservicer to obtain and maintain at its own expense, and for the
duration of this Servicing Agreement, a blanket fidelity bond and an errors and
omissions insurance policy covering the Servicer's and such Subservicer's
officers, employees and other persons acting on its behalf in connection with
its activities under this Servicing Agreement. The amount of coverage shall be
consistent with industry standards but in an amount not less than presently
maintained by the Servicer. The Servicer shall promptly notify the Indenture
Trustee and the Bond Insurer of any material change in the terms of such bond or
policy. The Servicer shall provide annually to the Indenture Trustee and the
Bond Insurer a certificate of insurance that such bond and policy are in effect.
If any such bond or policy ceases to be in effect, the Servicer shall, to the
extent possible, give the Indenture Trustee and the Bond Insurer ten days'
notice prior to any such cessation and shall use its reasonable best efforts to
obtain a comparable replacement bond or policy, as the case may be. Any amounts
relating to the Mortgage Loans collected under such bond or policy shall be
deposited in the Collection Account.
Section 3.12. Due-on-Sale Clauses; Assumption Agreements. (a) In any case
in which the Servicer is notified by any Mortgagor or Subservicer that a
Mortgaged Property relating to a Mortgage Loan has been or is about to be
conveyed by the Mortgagor, the Servicer shall enforce, or shall instruct such
Subservicer to enforce, any due-on-sale clause contained in the related Security
Instrument to the extent permitted under the terms of the related Mortgage Note
and by applicable law. The Servicer or the related Subservicer may repurchase a
Mortgage Loan at the Repurchase Price when the Servicer requires acceleration of
the Mortgage Loan, but only if the Servicer is satisfied, as evidenced by an
Officer's Certificate delivered to the Indenture Trustee and the Bond Insurer,
that such Mortgage Loan is in default or default is reasonably foreseeable. If
the Servicer reasonably believes that such due-on-sale clause cannot be enforced
under applicable law or if the Mortgage Loan does not contain a due-on-sale
clause, the Servicer is authorized, and may authorize any Subservicer, to
consent to a conveyance subject to the lien of the Mortgage, and to take or
enter into an assumption agreement from or with the Person to whom such property
has been or is about to be conveyed, pursuant to which such Person becomes
liable under the related Mortgage Note and unless prohibited by applicable state
law, such Mortgagor remains liable thereon, on condition, however, that the
related Mortgage Loan shall continue to be covered by a hazard policy. In
connection with any such assumption, no material term of the related Mortgage
Note may be changed. The Servicer shall notify the Indenture Trustee and the
Bond Insurer, whenever possible, before the completion of such assumption
agreement, and shall forward to the Indenture Trustee the original copy of such
assumption agreement, which copy shall be added by the Indenture Trustee to the
related Mortgage File and which 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.
(b) Notwithstanding the foregoing paragraph or any other provision of this
Servicing 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 conveyance by the Mortgagor of the
related Mortgaged Property or assumption of a Mortgage Loan which the Servicer
reasonably believes it may be restricted by law from preventing, for any reason
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whatsoever or if the exercise of such right would impair or threaten to impair
any recovery under any applicable insurance policy.
Section 3.13. Realization Upon Defaulted Mortgage Loans. (a) The
Servicer shall, or shall direct the related Subservicer to, foreclose upon or
otherwise comparably convert the ownership of properties securing any Mortgage
Loans that come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments pursuant to
Section 3.06, except that the Servicer shall not, and shall not direct the
related Subservicer to, foreclose upon or otherwise comparably convert a
Mortgaged Property if there is evidence of toxic waste or other environmental
hazards thereon unless the Servicer follows the procedures in Subsection (c)
below. In connection with such foreclosure or other conversion, the Servicer in
conjunction with the related Subservicer, if any, shall use its best reasonable
efforts to preserve REO Property and to realize upon defaulted Mortgage Loans in
such manner as to maximize the receipt of principal and interest by the
Bondholders, taking into account, among other things, the timing of foreclosure
and the considerations set forth in Subsection 3.13(b). The foregoing is subject
to the proviso that the Servicer shall not be required to expend its own funds
in connection with any foreclosure or towards the restoration of any property
unless it determines in good faith (i) that such restoration or foreclosure will
increase the proceeds of liquidation of the Mortgage Loan to Bondholders after
reimbursement to itself for such expenses and (ii) that such expenses will be
recoverable to it either through Liquidation Proceeds (respecting which it shall
have priority for purposes of reimbursements from the Collection Account
pursuant to Section 3.07) or through Insurance Proceeds (respecting which it
shall have similar priority). The Servicer shall be responsible for all costs
and expenses constituting Liquidation Expenses incurred by it in any such
proceedings; provided, however, that it shall be entitled to reimbursement
thereof (as well as its normal servicing compensation) as set forth in Section
3.07. Any income from or other funds (net of any income taxes) generated by REO
Property shall be deemed for purposes of this Servicing Agreement to be
Liquidation Proceeds.
Any subsequent collections with respect to any Liquidated Mortgage Loan
shall be deposited to the Collection Account. For purposes of determining the
amount of any Liquidation Proceeds or Insurance Proceeds, or other unscheduled
collections, the Servicer may take into account any estimated additional
Liquidation Expenses expected to be incurred in connection with the related
defaulted Mortgage Loan.
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 Indenture Trustee, who shall hold the same on behalf of
the Issuer in accordance with the Indenture. Notwithstanding any such
acquisition of title and cancellation of the related Mortgage Loan, such
Mortgaged Property shall (except as otherwise expressly provided herein) be
considered to be an outstanding Mortgage Loan held as an asset of the Issuer
until such time as such property shall be sold.
(b) The Servicer shall not acquire any real property (or any personal
property incident to such real property) on behalf of the Trust Estate except in
connection with a default or reasonably foreseeable default of a Mortgage Loan.
In the event that the Servicer acquires any real property (or
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personal property incident to such real property) on behalf of the Trust Estate
in connection with a default or imminent default of a Mortgage Loan, such
property shall be disposed of by the Servicer on behalf of the Trust Estate
within two years after its acquisition on behalf of the Trust Estate.
(c) With respect to any Mortgage Loan as to which the Servicer or a
Subservicer has received notice of, or has actual knowledge of, the presence of
any toxic or hazardous substance on the Mortgaged Property, the Servicer shall
promptly notify the Indenture Trustee, the Owner Trustee and the Bond Insurer
and shall act in accordance with any such directions and instructions provided
by the Bond Insurer, or if a Bond Insurer Default exists, by the Indenture
Trustee, as pledgee of the Issuer. Notwithstanding the preceding sentence of
this Section 3.13(c), with respect to any Mortgage Loan described by such
sentence, the Servicer shall, if requested by the Bond Insurer, obtain and
deliver to the Issuer, the Indenture Trustee and the Bond Insurer an
environmental audit report prepared by a Person who regularly conducts
environmental audits using customary industry standards. The Servicer shall be
entitled to reimbursement for such report pursuant to Section 3.07. If the Bond
Insurer or Indenture Trustee, as applicable, has not provided directions and
instructions to the Servicer in connection with any such Mortgage Loan within 30
days of a request by the Servicer for such directions and instructions, then the
Servicer shall take such action as it deems to be in the best economic interest
of the Trust Estate (other than proceeding against the Mortgaged Property) and
is hereby authorized at such time as it deems appropriate to release such
Mortgaged Property from the lien of the related Mortgage. The parties hereto
acknowledge that the Servicer shall not obtain on behalf of the Issuer a deed as
a result or in lieu of foreclosure, and shall not otherwise acquire possession
of or title to, or commence any proceedings to acquire possession of or title
to, or take any other action with respect to, any Mortgaged Property, if the
Owner Trustee could reasonably be considered to be a responsible party for any
liability arising from the presence of any toxic or hazardous substance on the
Mortgaged Property, unless the Owner Trustee has been indemnified to its
reasonable satisfaction against such liability.
Section 3.14. Indenture Trustee to Cooperate; Release of Mortgage Files.
(a) Upon payment in full of any Mortgage Loan, the Servicer will immediately
notify the Indenture Trustee by a certification signed by a Servicing Officer
(which certification shall include a statement to the effect that all amounts
received in connection with such payment which are required to be deposited in
the Collection Account have been so deposited) and shall request delivery to the
Servicer or Subservicer, as the case may be, of the Mortgage File. Upon receipt
of such certification and request, the Indenture Trustee shall promptly release
the related Mortgage File to the Servicer or Subservicer and execute and deliver
to the Servicer, without recourse, the request for reconveyance, deed of
reconveyance or release or satisfaction of mortgage or such instrument releasing
the lien of the Security Instrument (furnished by the Servicer), together with
the Mortgage Note with written evidence of cancellation thereon.
(b) From time to time as is appropriate, for the servicing or foreclosure
of any Mortgage Loan or collection under an insurance policy, the Servicer may
deliver to the Indenture Trustee a Request for Release signed by a Servicing
Officer on behalf of the Servicer in substantially the form attached as Exhibit
B hereto. Upon receipt of the Request for Release, the Indenture Trustee shall
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deliver the Mortgage File or any document therein to the Servicer or
Subservicer, as the case may be, as bailee for the Indenture Trustee.
(c) The Servicer shall cause each Mortgage File or any document therein
released pursuant to Subsection 3.14(b) to be returned to the Indenture Trustee
when the need therefor no longer exists, and in any event within 21 days of the
Servicer's receipt thereof, unless the Mortgage Loan has become a Liquidated
Mortgage Loan and the Liquidation Proceeds relating to the Mortgage Loan have
been deposited in the Collection Account or such Mortgage File is being used to
pursue foreclosure or other legal proceedings. Prior to return of a Mortgage
File or any document to the Indenture Trustee, the Servicer, the related insurer
or Subservicer to whom such file or document was delivered shall retain such
file or document in its respective control as bailee for the Indenture Trustee
unless the Mortgage File or such document has been delivered to an attorney, or
to a public trustee or other public official as required by law, to initiate or
pursue legal action or other proceedings for the foreclosure of the Mortgaged
Property either judicially or non-judicially, and the Servicer has delivered to
the Indenture Trustee a certificate of a Servicing Officer certifying as to the
name and address of the Person to which such Mortgage File or such document was
delivered and the purpose or purposes of such delivery. If a Mortgage Loan
becomes a Liquidated Mortgage Loan, the Indenture Trustee shall deliver the
Request for Release with respect thereto to the Servicer upon deposit of the
related Liquidation Proceeds in the Collection Account.
(d) The Indenture Trustee shall execute and deliver to the Servicer any
court pleadings, requests for trustee's sale or other documents necessary to (i)
the foreclosure or trustee's sale with respect to a Mortgaged Property; (ii) any
legal action brought to obtain judgment against any Mortgagor on the Mortgage
Note or Security Instrument; (iii) obtain a deficiency judgment against the
Mortgagor; or (iv) enforce any other rights or remedies provided by the Mortgage
Note or Security Instrument or otherwise available at law or equity. Together
with such documents or pleadings the Servicer shall deliver to the Indenture
Trustee a certificate of a Servicing Officer in which it requests the Indenture
Trustee to execute the pleadings or documents. The certificate shall certify and
explain the reasons for which the pleadings or documents are required. It shall
further certify that the Indenture Trustee's execution and delivery of the
pleadings or documents will not invalidate any insurance coverage under the
insurance policies or invalidate or otherwise affect the lien of the Security
Instrument, except for the termination of such a lien upon completion of the
foreclosure or trustee's sale.
Section 3.15. Servicing Compensation. (a) As compensation for its
activities hereunder, the Servicer shall be entitled to receive the Servicing
Fee from full payments of accrued interest on each Mortgage Loan. The Servicer
shall be solely responsible for paying any and all fees with respect to a
Subservicer and the Trust Estate shall not bear any fees, expenses or other
costs directly associated with any Subservicer.
(b) The Servicer may retain additional servicing compensation in the form
of late payment charges, to the extent such charges are collected from the
related Mortgagors and investment earnings on the Collection Account. The
Servicer shall be required to pay all expenses it incurs in
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connection with servicing activities under this Servicing Agreement and shall
not be entitled in connection with servicing activities under this Servicing
Agreement to reimbursement except as provided in this Servicing Agreement.
Expenses to be paid by the Servicer without reimbursement under this Subsection
3.15(b) shall include payment of the expenses of the accountants retained
pursuant to Section 3.17.
Section 3.16. Annual Statements of Compliance. Within 120 days after
December 31 of each year, the Servicer at its own expense shall deliver to the
Indenture Trustee, with a copy to the Bond Insurer and the Rating Agencies, an
Officer's Certificate stating, as to the signer thereof, that (i) a review of
the activities of the Servicer during the preceding calendar year and of
performance under this Servicing Agreement has been made under such officer's
supervision, (ii) to the best of such officer's knowledge, based on such review,
the Servicer has fulfilled its obligations under this Servicing Agreement in all
material respects for such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof including the steps being taken by the
Servicer to remedy such default; (iii) a review of the activities of each
Subservicer during the Subservicer's most recently ended calendar year and its
performance under its Subservicing Agreement has been made under such officer's
supervision; and (iv) to the best of the Servicing Officer's knowledge, based on
his review and the certification of an officer of the Subservicer (unless the
Servicing Officer has reason to believe that reliance on such certification is
not justified), either each Subservicer has performed and fulfilled its duties,
responsibilities and obligations under this Servicing Agreement and its
Subservicing Agreement in all material respects throughout the year, or, if
there has been a default in performance or fulfillment of any such duties,
responsibilities or obligations, specifying the nature and status of each such
default known to the Servicing Officer. Copies of such statements shall be
provided by the Servicer to the Bondholders upon request or by the Indenture
Trustee at the expense of the Servicer should the Servicer fail to provide such
copies.
Section 3.17. Annual Independent Public Accountants' Servicing Report.
(a) Within 120 days after December 31 of each year, the Servicer, at its
expense, shall cause a firm of Independent public accountants who are members of
the American Institute of Certified Public Accountants and who are either
(or a successor thereof) or are otherwise acceptable to the Bond Insurer to
furnish a statement to the Servicer, which will be provided to the Indenture
Trustee, the Bond Insurer and the Rating Agencies, to the effect that, in
connection with the firm's examination of the Servicer's financial statements as
of the end of such calendar year, nothing came to their attention that indicated
that the Servicer was not in compliance with Sections 3.06, 3.07 and 3.08 except
for (i) such exceptions as such firm believes to be immaterial and (ii) such
other exceptions as are set forth in such statement.
(b) Within 120 days after December 31 of each year, the Servicer, at its
expense, shall, and shall cause each Subservicer to cause, a nationally
recognized firm of independent certified public accountants to furnish to the
Servicer or such Subservicer, as the case may be, a report stating that (i) it
has obtained a letter of representation regarding certain matters from the
management of the Servicer or such Subservicer, as the case may be, which
includes an assertion that the Servicer or such
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Subservicer, as the case may be, has complied with certain minimum mortgage loan
servicing standards identified in the Uniform Single Attestation Program for
Mortgage Bankers established by the Mortgage Bankers Association of America with
respect to the servicing of first lien conventional single family mortgage loans
during the most recently completed calendar year and (ii) on the basis of an
examination conducted by such firm in accordance with standards established by
the American Institute of Certified Public Accountants, such representation is
fairly stated in all material respects, subject to such exceptions and other
qualifications that may be appropriate. Immediately upon receipt of such report,
the Servicer shall or shall cause each Subservicer to furnish a copy of such
report to the Indenture Trustee, the Rating Agencies and the Bond Insurer.
Section 3.18. Optional Purchase of Defaulted Mortgage Loans. The Servicer
may repurchase any Mortgage Loan delinquent in payment for a period of 90 days
or longer for a price equal to the Repurchase Price. The procedure for such
repurchase shall be the same as for repurchase by the Seller under the Mortgage
Loan Purchase Agreement. Notwithstanding the foregoing, the Indenture Trustee,
whether acting as Indenture Trustee or in the capacity of successor Servicer,
shall have no obligation to repurchase any Mortgage Loan.
Section 3.19. Information Required by the Internal Revenue Service
Generally and Reports of Foreclosures and Abandonments of Mortgaged Property.
The Servicer shall prepare and deliver all federal and state information reports
when and as required by all applicable state and federal income tax laws. In
particular, with respect to the requirement under Section 6050J of the Code to
the effect that the Servicer or Subservicer shall make reports of foreclosures
and abandonments of any mortgaged property for each year beginning in 1997, the
Servicer or Subservicer shall file reports relating to each instance occurring
during the previous calendar year in which the Servicer (i) 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 or Subservicer shall be in form and substance sufficient to meet the
reporting requirements imposed by Section 6050J, Section 6050H (reports relating
to mortgage interest received) and Section 6050P of the Code (reports relating
to cancellation of indebtedness).
ARTICLE IV
Remittance Reports
------------------
Section 4.01. Remittance Reports. On the second Business Day following
each Determination Date, the Servicer shall deliver to the Indenture Trustee a
report, prepared as of the close of business on the Determination Date (the
"Determination Date Report"), and shall forward to the Indenture Trustee in the
form of computer readable electromagnetic tape or disk of such report. The
Determination Date Report and any written information supplemental thereto shall
include such information with respect to the Mortgage Loans that is reasonably
available to the Servicer and that is required by the Indenture Trustee for
purposes of making the calculations and
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providing the reports referred to in the Indenture, as set forth in written
specifications or guidelines issued by the Indenture Trustee from time to time.
Such information shall include the aggregate amounts required to be withdrawn
from the Collection Account and deposited into the Payment Account pursuant to
Section 3.07. The Servicer agrees to cooperate with the Indenture Trustee in
providing all information as is reasonably requested by the Indenture Trustee to
prepare the reports required under the Indenture. Upon written request by the
Bond Insurer, the Servicer shall deliver the Determination Date Report to the
Bond Insurer.
The determination by the Servicer of such amounts shall, in the absence of
obvious error, be presumptively deemed to be correct for all purposes hereunder
and the Owner Trustee and Indenture Trustee shall be protected in relying upon
the same without any independent check or verification.
Section 4.02. Advances. If any Monthly Payment (together with any
advances from the Subservicers) on a Mortgage Loan that was due on the
immediately preceding Due Date and delinquent on the Determination Date is
delinquent other than as a result of application of the Relief Act, the Servicer
will deposit in the Collection Account not later than the fourth Business Day
immediately preceding the related Payment Date an amount equal to such
deficiency net of the related Servicing Fee for such Mortgage Loan, except to
the extent the Servicer determines any such advance to be nonrecoverable from
Liquidation Proceeds, Insurance Proceeds or future payments on such Mortgage
Loan. Subject to the foregoing and in the absence of such a determination, the
Servicer shall continue to make such advances through the date that the related
Mortgaged Property has, in the judgment of the Servicer, been completely
liquidated. If applicable, on the fourth Business Day preceding each Payment
Date, the Servicer shall present an Officer's Certificate to the Indenture
Trustee and the Bond Insurer (i) stating that the Servicer elects not to make an
Advance in a stated amount and (ii) detailing the reason it deems the advance to
be nonrecoverable. The Indenture Trustee shall forward a copy of such Officer's
Certificate to the Bond Insurer.
Section 4.03. Compensating Interest Payments. The Servicer shall deposit
in the Collection Account not later than the fourth Business Day preceding the
Payment Date an amount equal to the Compensating Interest related to the related
Determination Date. The Servicer shall not be entitled to any reimbursement of
any Compensating Interest payment.
ARTICLE V
The Servicer
------------
Section 5.01. Liability of the Servicer. The Servicer shall be liable in
accordance herewith only to the extent of the obligations specifically imposed
upon and undertaken by the Servicer herein.
Section 5.02. Merger or Consolidation of, or Assumption of the Obligations
of, the Servicer. Any corporation into which the Servicer 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
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Servicer shall be a party, or any corporation succeeding to the business of the
Servicer, shall be, with the consent of the Bond Insurer, the successor of the
Servicer, 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.
The Servicer may fully assign all of its rights and delegate its duties and
obligations under this Servicing Agreement; provided, that the Person accepting
such assignment or delegation shall be a Person which is reasonably satisfactory
to the Indenture Trustee (as pledgee of the Mortgage Loans), the Company and the
Bond Insurer (in its sole discretion), is willing to service the Mortgage Loans
and executes and delivers to the Indenture Trustee and the Issuer an agreement,
in form and substance reasonably satisfactory to the Bond Insurer, the Indenture
Trustee and the Issuer, which contains an assumption by such Person of the due
and punctual performance and observance of each covenant and condition to be
performed or observed by the Servicer under this Servicing Agreement; provided,
further, that each Rating Agency's rating of the Bonds in effect immediately
prior to such assignment and delegation will not be qualified, reduced, or
withdrawn as a result of such assignment and delegation (as evidenced by a
letter to such effect from each Rating Agency) without taking into account the
Bond Insurance Policy.
Section 5.03. 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 Issuer, the Owner Trustee, the
Indenture Trustee, the Bond Insurer or the Bondholders for any action taken or
for refraining from the taking of any action in good faith pursuant to this
Servicing Agreement, 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 its duties hereunder or by reason of its reckless disregard of
its obligations and duties hereunder. 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 Issuer and held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to this Servi cing Agreement or the Bonds, including any
amount paid to the Owner Trustee or the Indenture Trustee pursuant to Section
5.06(b), 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 Servicing Agreement) and any
loss, liability or expense incurred by reason of its willful misfeasance, bad
faith or negligence in the performance of its duties hereunder or by reason of
its reckless disregard of its obligations and duties hereunder. The Servicer
shall not be under any obligation to appear in, prosecute or defend any legal
action which is not incidental to its duties to service the Mortgage Loans in
accordance with this Servicing Agreement, and which in its opinion may involve
it in any expense or liability; provided, however, that the Servicer may in its
sole discretion undertake any such action which it may deem necessary or
desirable in respect of this Servicing Agreement, and the rights and duties of
the parties hereto and the interests of the Bondholders 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 Issuer, and
the Servicer
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shall be entitled to be reimbursed therefor. The Servicer's right to indemnity
or reimbursement pursuant to this Section 5.03 shall survive any resignation or
termination of the Servicer pursuant to Section 5.04 or 6.01 with respect to any
losses, expenses, costs or liabilities arising prior to such resignation or
termination (or arising from events that occurred prior to such resignation or
termination). Any reimbursements or indemnification to the Servicer from the
Issuer pursuant to this Section 5.03 shall be payable in the priority set forth
in Section 3.05(a)(ix) of the Indenture.
Section 5.04. Servicer Not to Resign. Subject to the provisions of
Section 5.02, 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 (ii) upon satisfaction of the following conditions: (a) the Servicer has
proposed a successor servicer to the Issuer, the Bond Insurer and the Indenture
Trustee in writing and such proposed successor servicer is reasonably acceptable
to the Issuer and the Indenture Trustee; (b) each Rating Agency shall have
delivered a letter to the Issuer, the Bond Insurer and the Indenture 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 Bonds or the then
current rating of the Bonds without taking into account the Bond Insurance
Policy; and (c) such proposed successor servicer is acceptable to the Bond
Insurer, as evidenced by a letter to the Issuer, the Servicer and the Indenture
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
Indenture Trustee, as pledgee of the Mortgage Loans, shall have assumed the
Servicer's responsibilities and obligations hereunder or the Indenture Trustee,
as pledgee of the Mortgage Loans, shall have designated a successor servicer in
accordance with Section 6.02. Any such resignation shall not relieve the
Servicer of responsibility for any of the obligations specified in Sections 6.01
and 6.02 as obligations that survive the resignation or termination of the
Servicer. The Servicer shall have no claim (whether by subrogation or
otherwise) or other action against any Bondholder or the Bond Insurer for any
amounts paid by the Servicer pursuant to any provision of this Servicing
Agreement. Any such determination permitting the resignation of the Servicer
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Indenture Trustee and the Bond Insurer.
Section 5.05. 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 the same standards with which the Servicer complies pursuant to 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 5.04.
Section 5.06. Servicer to Pay Indenture Trustee's and Owner Trustee's Fees
and Expenses; Indemnification. (a) The Servicer covenants and agrees to pay to
the Owner Trustee, the Indenture Trustee and any co-trustee of the Indenture
Trustee from time to time, and the Owner Trustee, the Indenture Trustee and any
such co-trustee shall be entitled to, reasonable compensation, including all
indemnification payments (which shall not be limited by any provision of law in
regard to the
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compensation of a trustee of an express trust) for all services rendered by each
of them in the execution of the trusts created under the Trust Agreement and the
Indenture and in the exercise and performance of any of the powers and duties
under the Trust Agreement or the Indenture, as the case may be, of the Owner
Trustee, the Indenture Trustee and any co-trustee of the Indenture Trustee, and
the Servicer will pay or reimburse the Indenture Trustee and any co-trustee upon
request for all reasonable expenses, disbursements and advances incurred or made
by the Indenture Trustee or any co-trustee of the Indenture Trustee in
accordance with any of the provisions of this Servicing Agreement except any
such expense, disbursement or advance as may arise from its negligence or bad
faith.
(b) The Servicer agrees to indemnify the Indenture Trustee and the Owner
Trustee for, and to hold the Indenture Trustee and the Owner Trustee, as the
case may be, harmless against, any claim, tax, penalty, loss, liability or
expense of any kind whatsoever, incurred without negligence or willful
misconduct on its part, arising out of, or in connection with, the failure by
the Servicer to perform its duties in compliance with this Servicing Agreement,
including the reasonable costs and expenses (including reasonable legal fees and
expenses) of defending itself against any claim in connection with the exercise
or performance of any of its powers or duties under any Basic Document, provided
that:
(i) with respect to any such claim, the Indenture Trustee or Owner
Trustee, as the case may be, shall have given the Servicer written notice
thereof promptly after the Indenture Trustee or Owner Trustee, as the case
may be, shall have actual knowledge thereof;
(ii) while maintaining control over its own defense, the Indenture
Trustee or Owner Trustee, as the case may be, shall cooperate and consult
fully with the Servicer in preparing such defense; and
(iii) notwithstanding anything in this Servicing Agreement to the
contrary, the Servicer shall not be liable for settlement of any claim by
the Indenture Trustee or the Owner Trustee, as the case may be, entered
into without the prior consent of the Servicer, which consent shall not be
unreasonably withheld.
No termination of this Servicing Agreement shall affect the obligations created
by this Section 5.06 of the Servicer to indemnify the Indenture Trustee and the
Owner Trustee under the conditions and to the extent set forth herein. This
section shall survive the termination of this Servicing Agreement. Any amounts
to be paid by the Servicer pursuant to this Subsection may not be paid from the
Trust Estate.
Notwithstanding the foregoing, the indemnification provided by the Servicer
in this Section 5.06 shall not pertain to any loss, liability or expense of the
Indenture Trustee or the Owner Trustee, including the costs and expenses of
defending itself against any claim, incurred in connection with any actions
taken by the Indenture Trustee or the Owner Trustee at the direction of the
Securityholders, as the case may be, pursuant to the terms of this Servicing
Agreement.
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ARTICLE VI
Default
-------
Section 6.01. Servicing Default. If any one of the following events (a
"Servicing Default") shall occur and be continuing:
(i) Any failure by the Servicer to deposit in the Collection Account
or Payment Account any deposit required to be made under the terms of this
Servicing Agreement, including any Advances and Compensating Interest,
which continues unremedied for a period of three Business Days after the
date upon which written notice of such failure shall have been given to the
Servicer by the Company, the Issuer or the Indenture Trustee or to the
Servicer, the Company, the Issuer and the Indenture Trustee by the Bond
Insurer; or
(ii) Failure on the part of the Servicer duly to observe or perform in
any material respect any other covenants or agreements of the Servicer set
forth in this Servicing Agreement, which failure, in each case, materially
and adversely affects the interests of Bondholders or the Bond Insurer or
the breach of any representation or warranty of the Servicer in this
Servicing Agreement or in the Insurance Agreement which materially and
adversely affects the interests of the Bondholders or the Bond Insurer, and
which in either case continues unremedied for a period of 30 days after the
date on which written notice of such failure, requiring the same to be
remedied, and stating that such notice is a "Notice of Default" hereunder,
shall have been given to the Servicer by the Company, the Issuer or the
Indenture Trustee or to the Servicer, the Company, the Issuer and the
Indenture Trustee by the Bond Insurer; 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, marshaling
of assets and liabilities or similar proceedings, or for the winding up or
liquidation of its affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 60 consecutive days; or
(iv) The Servicer shall voluntarily go into liquidation, consent to
the appointment of a conservator, receiver, 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,
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
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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) Any failure by the Servicer to pay when due any amount payable by
it under the terms of the Insurance Agreement which continues unremedied
for a period of three (3) Business Days after the date upon which written
notice of such failure shall have been given to the Servicer;
(vi) Failure on the part of the Seller or the Servicer to duly perform
in any material respect any covenant or agreement set forth in the
Insurance 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 Company, the Indenture
Trustee, the Seller or the Servicer, as the case may be, by the Bond
Insurer; or
(vii) So long as the Seller is an affiliate, the parent of or under
the common control with the Servicer, any failure of the Seller to
repurchase any Mortgage Loan required to be repurchased, or pay any amount
due, pursuant to the Mortgage Loan Purchase Agreement which continues
unremedied for a period of 30 days after the date upon which written notice
of such failure shall have been given to the Servicer.
(viii) (A) the Cumulative Loss Percentage for any period set forth
below exceeds the percentage set forth below.
Period Cumulative Loss Percentage
------ --------------------------
_____________ - ____________ 2%
_____________ - ____________ 3%
_____________ - ____________ 4%
_____________ - ____________ 5%
_____________ - ____________ 6%
For any period thereafter 7%
(B) Realized Losses on the Mortgage Loans over any one twelve-month
period exceed 1.25% of the aggregate Principal Balances of the Mortgage
Loans as of the Cut-Off Date, and
(C) the Rolling Delinquency Percentage exceeds 15%;
then, (a) and in every such case, other than that set forth in (v) or (vi)
hereof, so long as a Servicing Default shall not have been remedied by the
Servicer, either the Issuer, subject to
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the direction of the Indenture Trustee as pledgee of the Mortgage Loans, with
the consent of the Bond Insurer, or the Bond Insurer, or if a Bond Insurer
Default exists, the holders of at least 51% of the aggregate Bond Principal
Balance of the Bonds, by notice then given in writing to the Servicer (and to
the Indenture Trustee and the Issuer if given by the Bond Insurer) or (b) in the
case of the events set forth in (v) or (vi) hereof, the Bond Insurer or, if a
Bond Insurer Default exists, the holders of at least 51% of the aggregate Bond
Principal Balance of the Bonds, may, by notice to the Servicer, terminate all of
the rights and obligations of the Servicer as servicer under this Servicing
Agreement other than its right to receive servicing compensation and expenses
for servicing the Mortgage Loans hereunder during any period prior to the date
of such termination and the Issuer, subject to the direction of the Indenture
Trustee as pledgee of the Mortgage Loans, with the consent of the Bond Insurer,
or the Bond Insurer may exercise any and all other remedies available at law or
equity. Any such notice to the Servicer shall also be given to each Rating
Agency, the Bond Insurer and the Issuer. On or after the receipt by the Servicer
of such written notice, all authority and power of the Servicer under this
Servicing Agreement, whether with respect to the Bonds or the Mortgage Loans or
otherwise, shall pass to and be vested in the Indenture Trustee, pursuant to and
under this Section 6.01; and, without limitation, the Indenture 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 Indenture
Trustee in effecting the termination of the responsibilities and rights of the
Servicer hereunder, including, without limitation, the transfer within one
Business Day to the Indenture Trustee for the administration by it of all cash
amounts relating to the Mortgage Loans 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. In addition, the Servicer
agrees promptly (and in any event no later than five Business Days subsequent to
such notice) to provide the Indenture Trustee with all documents and records
requested by it to enable it to assume the Servicer's functions under this
Agreement. All reasonable costs and expenses (including, but not limited to,
attorneys' fees) incurred in connection with amending this Servicing Agreement
to reflect such succession as Servicer pursuant to this Section 6.01 shall be
paid by the predecessor Servicer (or if the predecessor Servicer is the
Indenture Trustee, the Servicer succeeded by the Indenture Trustee) upon
presentation of reasonable documentation of such costs and expenses. For
purposes of this Section 6.01, the Indenture Trustee shall not be deemed to have
knowledge of a Servicer Default unless a Responsible Officer of the Trustee
assigned to and working in the Indenture Trustee's Corporate Trust Office has
actual knowledge thereof or unless written notice of any event which is in fact
such a Servicer Default is received by the Trustee and such notice references
the Bonds or this Agreement.
Notwithstanding any termination of the activities of the Servicer
hereunder, the Servicer shall be entitled to receive, out of any late collection
of a payment on a Mortgage Loan which was due
-27-
prior to the notice terminating the Servicer's rights and obligations hereunder
and received after such notice, that portion to which the Servicer would have
been entitled pursuant to Sections 3.07 and 3.15 as well as its Servicing Fee in
respect thereof, and any other amounts payable to the Servicer hereunder the
entitlement to which arose prior to the termination of its activities hereunder.
The Servicer shall immediately notify the Indenture Trustee, the Bond
Insurer and the Owner Trustee in writing of any Servicing Default.
Section 6.02. Indenture Trustee to Act; Appointment of Successor. (a) On
and after the time the Servicer receives a notice of termination pursuant to
Section 6.01 or sends a notice pursuant to Section 5.04, the Indenture Trustee
on behalf of the Bondholders and the Bond Insurer shall be the successor in all
respects to the Servicer in its capacity as servicer under this Servicing
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, including but not
limited to the provisions of Article VIII. Nothing in this Servicing Agreement
shall be construed to permit or require the Indenture Trustee to (i) be
responsible or accountable for any act or omission of the Servicer prior to the
issuance of a notice of termination hereunder, (ii) require or obligate the
Indenture Trustee, in its capacity as successor Servicer, to purchase,
repurchase or substitute any Mortgage Loan, (iii) fund any losses on any
Eligible Investment directed by any other Servicer, or (iv) be responsible for
the representations and warranties of the Servicer; provided, however, that the
Indenture Trustee, as successor Servicer, shall be required to make any required
Advances to the extent that the Servicer failed to make such Advances. As
compensation therefor, the Indenture 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
Indenture Trustee is unwilling to act as successor Servicer, or (ii) if the
Indenture Trustee is legally unable so to act, the Indenture Trustee may (in the
situation described in clause (i)) or shall (in the situation described in
clause (ii)) appoint or petition a court of competent jurisdiction to appoint
any established housing and home finance institution, bank or other mortgage
loan servicer having a net worth of not less than $10,000,000 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 Bond Insurer, as
evidenced by the Bond Insurer's prior written consent 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 Bonds by
the Rating Agencies or the ratings assigned to the Bonds without taking into
account the Bond Insurance Policy. Pending appointment of a successor to the
Servicer hereunder, unless the Indenture Trustee is prohibited by law from so
acting, the Indenture 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 3.15 (or such lesser compensation as the Indenture
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 Servicing Agreement prior to its termination as Servicer (including,
without limitation, the obligation to purchase Mortgage Loans pursuant to
Section 3.01, to pay any deductible under an insurance
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policy pursuant to Section 3.11 or to indemnify the Indenture Trustee pursuant
to Section 5.06), 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 Indenture Trustee and such successor shall take such action,
consistent with this Servicing Agreement, as shall be necessary to effectuate
any such succession.
(b) Any successor, including the Indenture Trustee on behalf of the
Bondholders, to the Servicer as servicer shall during the term of its service as
servicer continue to service and administer the Mortgage Loans for the benefit
of the Bondholders and the Bond Insurer, (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 3.11.
(c) Any successor Servicer, including the Indenture Trustee on behalf of
the Bondholders and the Bond Insurer, shall not be deemed to be in default or to
have breached its duties hereunder if the predecessor Servicer shall fail to
deliver any required deposit to the Collection Account or otherwise cooperate
with any required servicing transfer or succession hereunder.
Section 6.03. Notification to Bondholders. Upon any termination or
appointment of a successor to the Servicer pursuant to this Article VI or
Section 5.04, the Indenture Trustee shall give prompt written notice thereof to
the Bondholders, the Bond Insurer, the Owner Trustee, the Company, the Issuer
and each Rating Agency.
Section 6.04. Waiver of Defaults. The Indenture Trustee shall transmit
by mail to all Bondholders and the Bond Insurer, within 5 days after the
occurrence of any Servicing Default known to the Indenture Trustee, unless such
Servicing Default shall have been cured, notice of each such Servicing Default
hereunder known to the Indenture Trustee. The Bond Insurer or, if a Bond Insurer
Default exists, the holders of at least 51% of the aggregate Bond Principal
Balance of the Bonds may waive any default by the Servicer in the performance of
its obligations hereunder and the consequences thereof, except a default in the
making of or the causing to be made any required distribution on the Bonds. No
such waiver shall extend to any subsequent or other default or impair any right
consequent thereon except to the extent expressly so waived. The Servicer shall
give notice of any such waiver to the Rating Agencies.
ARTICLE VII
Miscellaneous Provisions
------------------------
Section 7.01. Amendment. This Servicing Agreement may be amended from
time to time by the parties hereto with the prior written consent of the Bond
Insurer, provided that any amendment be accompanied by a letter from the Rating
Agencies to the effect that the amendment will not result
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in the downgrading or withdrawal of the rating then assigned to the Bonds or the
rating then assigned to the Bonds without taking into account the Bond Insurance
Policy.
Section 7.02. GOVERNING LAW. THIS SERVICING AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF ________ AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.
Section 7.03. Notices. 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 Servicer: NovaStar Mortgage, Inc.
▇▇▇▇ ▇. ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Senior Vice
President
(b) in the case of the Bond Insurer: __________________________
__________________________
__________________________
__________________________
Attention: _______________
(NovaStar Mortgage Funding Trust,
Series ______ Collateralized Mortgage
Obligation Bonds)
(c) in the case of Rating Agencies: __________________________
__________________________
__________________________
__________________________
Attention: _______________
__________________________
__________________________
__________________________
__________________________
Attention: _______________
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(d) in the case of the Owner _______________________
Trustee, the Corporate _______________________
Trust Office: _______________________
_______________________
Attention: Corporate Trust Administration
(e) in the case of the Issuer, c/o NovaStar Financial, Inc.
to NovaStar Mortgage ▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇
Funding Trust, Series _____: ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇, Vice President
(f) in the case of the Indenture _______________________________
Trustee: _______________________________
_______________________________
_______________________________
Attention: ____________________
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 Bondholder shall be given by first class mail, postage prepaid, at
the address of such Bondholder as shown in the Certificate Register. Any notice
so mailed within the time prescribed in this Servicing Agreement shall be
conclusively presumed to have been duly given, whether or not the Bondholder
receives such notice. Any notice or other document required to be delivered or
mailed by the Indenture Trustee to any Rating Agency shall be given on a
reasonable efforts basis and only as a matter of courtesy and accommodation and
the Indenture Trustee shall have no liability for failure to deliver such notice
or document to any Rating Agency.
Section 7.04. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Servicing 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 Servicing Agreement and shall in no way
affect the validity or enforceability of the other provisions of this Servicing
Agreement or of the Bonds or the rights of the Bondholders thereof.
Section 7.05. Third-Party Beneficiaries. This Servicing Agreement will
inure to the benefit of and be binding upon the parties hereto, the Bondholders,
the Bond Insurer, the Owner Trustee, the Indenture Trustee and their respective
successors and permitted assigns. Except as otherwise provided in this
Servicing Agreement, no other Person will have any right or obligation
hereunder. The Indenture Trustee shall have the right to exercise all rights of
the Issuer under this Agreement.
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Section 7.06. Counterparts. This instrument may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.
Section 7.07. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
Section 7.08. Termination. Except with respect to obligations of the
Servicer relating to any representations and warranties or indemnities made by
it in this Agreement, the respective obligations and responsibilities of the
Servicer and the Issuer created hereby shall terminate upon the satisfaction and
discharge of the Indenture pursuant to Section 4.10 thereof.
Section 7.09. No Petition. The Servicer, by entering into this Servicing
Agreement, hereby covenants and agrees that it will not at any time institute
against the Issuer, or join in any institution against the Issuer, any
bankruptcy proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations of the Issuer. This section
shall survive the termination of this Servicing Agreement by one year.
Section 7.10. No Recourse. The Servicer acknowledges that no recourse may
be had against the Issuer, except as may be expressly set forth in this
Servicing Agreement.
ARTICLE VIII
Administrative Duties of the Servicer
-------------------------------------
Section 8.01. Administrative Duties.
(a) Duties with Respect to the Indenture. The Servicer shall perform all
its duties and the duties of the Issuer under the Indenture. In addition, the
Servicer shall consult with the Owner Trustee as the Servicer deems appropriate
regarding the duties of the Issuer under the Indenture. The Servicer shall
monitor the performance of the Issuer and shall advise the Owner Trustee when
action is necessary to comply with the Issuer's duties under the Indenture. The
Servicer shall prepare for execution by the Issuer or shall cause the
preparation by other appropriate Persons of all such documents, reports,
filings, instruments, certificates and opinions as it shall be the duty of the
Issuer to prepare, file or deliver pursuant to the Indenture. In furtherance of
the foregoing, the Servicer shall take all necessary action that is the duty of
the Issuer to take pursuant to the Indenture.
(b) Duties with Respect to the Issuer.
(i) In addition to the duties of the Servicer set forth in this
Servicing Agreement or any of the Basic Documents, the Servicer shall
perform such calculations and shall prepare for execution by the Issuer or
the Owner Trustee or shall cause the preparation by other
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appropriate Persons of all such documents, reports, filings, instruments,
certificates and opinions as it shall be the duty of the Issuer or the
Owner Trustee to prepare, file or deliver pursuant to this Servicing
Agreement or any of the Basic Documents or under state and federal tax and
securities laws, and at the request of the Owner Trustee or the Bond
Insurer shall take all appropriate action that it is the duty of the Issuer
to take pursuant to this Servicing Agreement or any of the Basic Documents.
In accordance with the directions of the Issuer, the Bond Insurer or the
Owner Trustee, the Servicer shall administer, perform or supervise the
performance of such other activities in connection with the Bonds
(including the Basic Documents) as are not covered by any of the foregoing
provisions and as are expressly requested by the Issuer, the Bond Insurer
or the Owner Trustee and are reasonably within the capability of the
Servicer.
(ii) Notwithstanding anything in this Servicing Agreement or any of
the Basic Documents to the contrary, the Servicer shall be responsible for
promptly notifying the Owner Trustee and the Bond Insurer in the event that
any withholding tax is imposed on the Issuer's payments (or allocations of
income) to an Owner (as defined in the Trust Agreement) as contemplated in
Section 5.03 of the Trust Agreement. Any such notice shall be in writing
and specify the amount of any withholding tax required to be withheld by
the Owner Trustee pursuant to such provision.
(iii) In carrying out the foregoing duties or any of its other
obligations under this Servicing Agreement, the Servicer may enter into
transactions with or otherwise deal with any of its Affiliates; provided,
however, that the terms of any such transactions or dealings shall be in
accordance with any directions received from the Issuer and shall be, in
the Servicer's opinion, no less favorable to the Issuer in any material
respect than with terms made available to unrelated third-parties.
(c) Tax Matters. The Servicer shall provide such services as are
reasonably necessary to assist the Issuer, the Indenture Trustee or the Owner
Trustee, as applicable, in the preparation of tax returns and information
reports as provided in Section 5.03 of the Trust Agreement.
(d) Non-Ministerial Matters. With respect to matters that in the
reasonable judgment of the Servicer are non-ministerial, the Servicer shall not
take any action pursuant to this Article VIII unless within a reasonable time
before the taking of such action, the Servicer shall have notified the Owner
Trustee, the Bond Insurer and the Indenture Trustee of the proposed action and
the Owner Trustee, the Bond Insurer and, with respect to items (A), (B), (C) and
(D) below, the Indenture Trustee shall not have withheld consent or provided an
alternative direction. For the purpose of the preceding sentence, "non-
ministerial matters" shall include:
(A) the amendment of or any supplement to the Indenture;
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(B) the initiation of any claim or lawsuit by the Issuer and the
compromise of any action, claim or lawsuit brought by or against the Issuer
(other than in connection with the collection of the Mortgage Loans);
(C) the amendment, change or modification of this Agreement or any of
the Basic Documents;
(D) the appointment of successor Certificate Paying Agents and
successor Indenture Trustees pursuant to the Indenture or the appointment
of successor Servicers or the consent to the assignment by the Certificate
Registrar, Paying Agent or Trustee of its obligations under the Indenture;
and
(E) the removal of the Indenture Trustee.
Section 8.02. Records. The Servicer shall maintain appropriate books of
account and records relating to services performed under this Servicing
Agreement, which books of account and records shall be accessible for inspection
by the Issuer and the Bond Insurer upon reasonable request and at any time
during normal business hours.
Section 8.03. Additional Information to be Furnished. The Servicer shall
furnish to the Issuer and the Bond Insurer from time to time such additional
information regarding the Bonds as the Issuer or the Bond Insurer shall
reasonably request.
IN WITNESS WHEREOF, the Servicer, the Indenture Trustee and the Issuer have
caused this Servicing Agreement to be duly executed by their respective officers
or representatives all as of the day and year first above written.
NOVASTAR MORTGAGE, INC.,
as Servicer
By:_____________________________
Name:
Title:
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NOVASTAR MORTGAGE FUNDING TRUST,
SERIES ______, as Issuer
By _____________________________, not in its
individual capacity but solely as Owner Trustee
By:_____________________________
Name:
Title:
[INDENTURE TRUSTEE],
not in its individual capacity but solely as
Indenture Trustee
By:_____________________________
Name:
Title:
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EXHIBIT A
MORTGAGE LOAN SCHEDULE
A-1
EXHIBIT B
FORM OF REQUEST FOR RELEASE
DATE:
TO:
RE: REQUEST FOR RELEASE OF DOCUMENTS
In connection with your administration of the Mortgage Loans, we request the
release of the Mortgage File described below.
Servicing Agreement Dated:
Series #:
Account #:
Pool #:
Loan #:
Borrower Name(s):
Reason for Document Request: (circle one) Mortgage Loan
Prepaid in Full
Mortgage Loan Repurchased
"We hereby certify that all amounts received or to be received in connection
with such payments which are required to be deposited have been or will be so
deposited as provided in the Servicing Agreement."
_____________________________________
[Name of Servicer]
Authorized Signature
*******************************************************************************
TO CUSTODIAN/Indenture Trustee: Please acknowledge this request, and check off
documents being enclosed with a copy of this form. You should retain this form
for your files in accordance with the terms of the Servicing Agreement.
Enclosed Documents: [ ] Promissory Note
[ ] Mortgage or Deed of Trust
[ ] Assignment(s) of Mortgage or Deed of Trust
[ ] Title Insurance Policy
[ ] Other: ___________________________
______________________________
Name
______________________________
Title
______________________________
Date
B-1
EXHIBIT C
FORM OF LIQUIDATION REPORT
Customer Name:
Account Number:
Original Principal Balance:
1. Type of Liquidation (REO disposition/charge-off/short pay-off)
Date last paid
Date of foreclosure
Date of REO
Date of REO Disposition
Property Sale Price/Estimated Market Value at disposition
2. Liquidation Proceeds
Principal Prepayment $____________
Property Sale Proceeds ____________
Insurance Proceeds ____________
Other (itemize) ____________
Total Proceeds $____________
3. Liquidation Expenses
Servicing Advances ____________
Delinquency Advances ____________
Monthly Advances ____________
Servicing Fees ____________
Other Servicing Compensation ____________
Total Advances $____________
4. Net Liquidation Proceeds $____________
(Item 2 minus Item 3)
5. Principal Balance of Mortgage Loan $____________
6. Loss, if any (Item 5 minus Item 4) $____________
C-1
