EXECUTION COPY
_________________________________________________________________
NOVASTAR MORTGAGE, INC.
as Servicer,
FIRST UNION NATIONAL BANK
as Indenture Trustee,
and
NOVASTAR MORTGAGE FUNDING TRUST, SERIES 1998-2
as Issuer
______________________
SERVICING AGREEMENT
Dated as of August 1, 1998
______________________
Fixed and Adjustable-Rate Mortgage Loans
NovaStar Mortgage Funding Trust, Series 1998-2
NovaStar Home Equity Loan Asset-Backed Bonds, Series 1998-2
_________________________________________________________________
TABLE OF CONTENTS
Page
ARTICLE I Definitions. . . . . . . . . . . . . . . . . . . . . .1
Section 1.01. Definitions. . . . . . . . . . . . . . . . .1
Section 1.02. Other Definitional Provisions. . . . . . . .2
Section 1.03. Interest Calculations. . . . . . . . . . . .2
ARTICLE II Representations and Warranties. . . . . . . . . .3
Section 2.01. Representations and Warranties Regarding the
Servicer . . . . . . . . . . . . . . . . . .3
Section 2.02. Existence. . . . . . . . . . . . . . . . . .4
Section 2.03. Enforcement of Representations and
Warranties . . . . . . . . . . . . . . . . .4
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 . . . . . . . . . . . . . . . .7
Section 3.03. Successor Subservicers . . . . . . . . . . .8
Section 3.04. Liability of the Servicer. . . . . . . . . .8
Section 3.05. Assumption or Termination of Subservicing
Agreements by Indenture Trustee. . . . . . .8
Section 3.06. Collection of Mortgage Loan Payments . . . .9
Section 3.07. Withdrawals from the Collection Account. . 11
Section 3.08. Collection of Taxes, Assessments and Similar
Items; Servicing Accounts. . . . . . . . . 13
Section 3.09. Access to Certain Documentation and
Information Regarding the Mortgage Loans . 14
Section 3.10. Servicing and Administration of the CAP
Agreements and the ML&Co Guaranty. . . . . 14
Section 3.11. Maintenance of Hazard Insurance and Fidelity
Coverage . . . . . . . . . . . . . . . . . 15
Section 3.12. Due-on-Sale Clauses; Assumption Agreements 17
Section 3.13. Realization Upon Defaulted Mortgage Loans. 18
Section 3.14. Indenture Trustee to Cooperate; Release of
Mortgage Files . . . . . . . . . . . . . . 19
Section 3.15. Servicing Compensation . . . . . . . . . . 21
Section 3.16. Annual Statements of Compliance. . . . . . 21
Section 3.17. Annual Independent Public Accountants'
Servicing Report . . . . . . . . . . . . . 22
Section 3.18. Optional Purchase of Defaulted Mortgage
Loans. . . . . . . . . . . . . . . . . . . 22
Section 3.19. Information Required by the Internal Revenue
Service Generally and Reports of Foreclosures
and Abandonments of Mortgaged Property . . 22
Section 3.20. Purchase of Converted Mortgage Loans . . . 23
Section 3.21. Superior Liens . . . . . . . . . . . . . . 23
Section 3.22. Servicing and Administrating of the PMI
Policies . . . . . . . . . . . . . . . . . 24
ARTICLE IV Remittance Reports. . . . . . . . . . . . . . . 26
Section 4.01. Remittance Reports . . . . . . . . . . . . 26
Section 4.02. Advances . . . . . . . . . . . . . . . . . 26
Section 4.03. Compensating Interest Payments . . . . . . 27
ARTICLE V The Servicer . . . . . . . . . . . . . . . . . . . . 27
Section 5.01. Liability of the Servicer. . . . . . . . . 27
Section 5.02. Merger or Consolidation of, or Assumption of
the Obligations of, the Servicer. . . . . 27
Section 5.03. Limitation on Liability of the Servicer and
Others . . . . . . . . . . . . . . . . . . 27
Section 5.04. Servicer Not to Resign . . . . . . . . . . 28
Section 5.05. Delegation of Duties . . . . . . . . . . . 29
Section 5.06. Servicer to Pay Indenture Trustee's and Owner
Trustee's Fees and Expenses;
Indemnification. . . . . . . . . . . . . . 29
ARTICLE VI Default . . . . . . . . . . . . . . . . . . . . 30
Section 6.01. Servicing Default. . . . . . . . . . . . . 30
Section 6.02. Indenture Trustee to Act; Appointment of
Successor. . . . . . . . . . . . . . . . . 34
Section 6.03. Notification to Bondholders. . . . . . . . 35
Section 6.04. Waiver of Defaults . . . . . . . . . . . . 35
ARTICLE VII Miscellaneous Provisions. . . . . . . . . . . . 35
Section 7.01. Amendment. . . . . . . . . . . . . . . . . 35
Section 7.02. Governing Law. . . . . . . . . . . . . . . 36
Section 7.03. Notices. . . . . . . . . . . . . . . . . . 36
Section 7.04. Severability of Provisions . . . . . . . . 37
Section 7.05. Third-Party Beneficiaries. . . . . . . . . 37
Section 7.06. Counterparts . . . . . . . . . . . . . . . 37
Section 7.07. Effect of Headings and Table of Contents . 37
Section 7.08. Termination. . . . . . . . . . . . . . . . 38
Section 7.09. No Petition. . . . . . . . . . . . . . . . 38
Section 7.10. No Recourse. . . . . . . . . . . . . . . . 38
ARTICLE VIII Administrative Duties of the Servicer . . . . . 38
Section 8.01. Administrative Duties. . . . . . . . . . . 38
Section 8.02. Records. . . . . . . . . . . . . . . . . . 40
Section 8.03. Additional Information to be Furnished . . 40
EXHIBIT A - MORTGAGE LOAN SCHEDULE . . . . . . . . . . . . . .A-1
EXHIBIT B - FORM OF REQUEST FOR RELEASE. . . . . . . . . . . .B-1
EXHIBIT C - FORM OF LIQUIDATION REPORT . . . . . . . . . . . .C-1
THIS SERVICING AGREEMENT, dated as of August 1, 1998,
among NovaStar Mortgage, Inc., as Servicer (the "Servicer"),
First Union National Bank, as Indenture Trustee (the "Indenture
Trustee"), and NovaStar Mortgage Funding Trust, Series 1998-2, as
Issuer (the "Issuer").
W I T N E S E T H T H A T:
WHEREAS, pursuant to the terms of the Mortgage Loan
Purchase Agreement, the Seller will sell (i) the Initial Mortgage
Loans to the Company on the Closing Date and (ii) the Subsequent
Mortgage Loans to the Company on each Subsequent Transfer Date,
who will then sell the Subsequent Mortgage Loans to the Issuer on
each Subsequent Transfer Date;
WHEREAS, pursuant to the terms of the Trust Agreement,
the Company will sell the Initial 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 the Company the
Certificates on the Closing Date;
WHEREAS, pursuant to the terms of the Indenture, the
Issuer will issue the Bonds on the Closing Date;
WHEREAS, pursuant to the terms of the Certificates Sale
Agreement, the Company will sell and transfer to NCFC the
Certificates on the Closing Date;
WHEREAS, pursuant to the terms of the Master Assignment
Agreement, NCFC will pledge and transfer the Certificates to
MLMCI on the Closing Date; 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
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 August 1, 1998 (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 certifi-
cate 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 xxxxx with
one-half of one xxxxx being rounded up.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
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 juris-
diction in which the character of the business transacted by
it or properties owned or leased by it requires such quali-
fication and in which the failure to so qualify would have a
material adverse effect on the 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 enforce-
ment 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 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 or the Bond Insurer 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 6.1 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 by certification signed by a Servicing Officer (which
certification shall include a statement to the effect that the
Repurchase Price has been deposited in the Collection Account)
and then the Indenture Trustee shall deliver the Mortgage Files
relating to such 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
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 will not waive any prepayment penalties without the
consent of the Bond Insurer.
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 other than any first lien which is prior to
the Mortgage Loan on the related Mortgaged Property as of the
Cut-off Date or Subsequent Cut-off Date, as applicable. If the
Mortgage relating to a Mortgage Loan had a lien senior to the
Mortgage Loan on the related Mortgaged Property as of the Cut-off
Date, or the Subsequent Cut-off Date in the case of a Subsequent
Mortgage Loan, then the Servicer, in such capacity, may consent
to the refinancing of the prior senior lien; provided that (i)
the resulting Combined Loan-to-Value Ratio of such Mortgage Loan
is no higher than the combined Loan-to-Value Ratio prior to such
refinancing, (ii) the interest rate for the loan evidencing the
refinanced senior lien is no higher than the interest rate on the
loan evidencing the existing senior lien immediately prior to the
date of such refinancing; provided however if the loan evidencing
the existing senior lien prior to the date of refinancing has an
adjustable rate and the loan evidencing the refinanced senior
lien has a fixed rate, then the loan evidencing the refinanced
senior lien may be up to 2.0% higher than the then current
mortgage rate of the loan evidencing the existing senior lien and
(iii) the loan evidencing the refinanced senior lien is not
subject to negative amortization.
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 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 3.15.
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 3.15 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 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 PMI Insurer and 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 Liquidated 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 after the Cut-Off Date or, with respect to the
Subsequent Mortgage Loans, the Subsequent 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 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 Sections 3.18 or
3.20;
(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, and PMI Insurance Proceeds resulting from any
insurance policy maintained on a Mortgaged Property;
(vi) any Advance and any Compensating Interest
payments;
(vii) all payments received from the CAP Providers
under the CAP Agreements or from ML&Co pursuant to the ML&Co
Guaranty pursuant to the terms thereof; and
(viii) 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 Mort-
gagors 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 Servicing 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;
(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);
(xi) to clear and terminate the Collection Account upon
a termination pursuant to Section 7.08;
(xii) to pay to the Servicer income earned on
Eligible Investments in the Collection Account;
(xiii) to make regular scheduled payments (but not
termination payments) due to the First and Second CAP
Provider under the First and Second CAP Agreements in
accordance with the terms thereof;
(xiv) to deposit in the Payment Account, by the
fourth Business Day prior to each Payment Date, all payments
received from the CAP Providers under the CAP Agreements or
from ML&Co pursuant to the ML&Co Guaranty; and
(xv) to pay to the PMI Insurer the monthly PMI Premium
due under each PMI Policy from payments received (or
Advances made) on account of interest due on the related
Mortgage Loan;
Withdrawals made pursuant to clause (xv) shall be made on a first
priority basis. 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. The Servicer shall
not use any payments received under the CAP Agreements or the
ML&Co Guaranty and deposited in the Collection Account to make
any of the foregoing payments, other than pursuant to clause
(xiv) above.
(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.
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. Servicing and Administration of the CAP
Agreements and the ML&Co Guaranty. (a) The Servicer shall take
all such actions on behalf of the Issuer as are necessary to
service and administer the CAP Agreements and the ML&Co Guaranty
and to perform the Issuer's obligations and enforce the Issuer's
rights under the CAP Agreements and the ML&Co Guaranty which
actions shall conform to the standards of an institution
prudently administering the CAP Agreements and the ML&Co Guaranty
for its own account. Except as expressly set forth herein, the
Servicer shall have full authority on behalf of the Issuer to do
anything it reasonably deems appropriate or desirable in
connection with the servicing and administration of the CAP
Agreements and the ML&Co Guaranty. The Servicer shall make its
best reasonable efforts to collect or cause to be collected from
the CAP Providers or ML&Co all payments due to the Issuer under
the CAP Agreements and the ML&Co Guaranty.
(b) The Servicer shall deposit into the Collection Account
pursuant to Section 3.06(d)(vii) hereof all payments received
from the CAP Providers and ML&Co under the terms of the CAP
Agreements and the ML&Co Guaranty. The Servicer shall (i)
withdraw from the Collection Account and pay to the First and
Second CAP Provider, pursuant to Section 3.07(a)(xiii) hereof,
regular scheduled payments due to the First and Second CAP
Provider under the First and Second CAP Agreements in accordance
with the terms thereof and (ii) withdraw from the Collection
Account and deposit in the Payment Account, pursuant to Section
3.07(a)(xiv), all regular scheduled payments received under the
CAP Agreements or the ML&Co Guaranty required to be deposited in
the Payment Account.
(c) Notwithstanding the provisions of Subsection 3.10(a)
and (b), the Servicer shall not take any action in regard to the
CAP Agreements 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; provided, however,
that payments to the First and Second CAP Provider pursuant to
Subsection 3.10(b) above and Section 3.07(a)(xiii) hereof shall
be deemed not to be inconsistent with such interests.
(d) The Issuer and 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 CAP Agreements; provided, however,
that the Indenture Trustee shall not be liable for the actions of
the Servicer under such powers of attorney.
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 combined Principal Balance owing on such Mortgage Loan
and any mortgage loan senior to such 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 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.
(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, with the consent of the PMI
Insurer, if applicable, 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 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 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 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 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.
(c) To further compensate the Servicer for its activities
hereunder, the Servicer shall have the right and the obligation
to purchase each Converted Mortgage Loan pursuant to Section 3.20
hereof.
(d) The parties acknowledge that the Servicer's rights and
obligations under Section 3.20 hereof to purchase Converted
Mortgage Loans were taken into consideration when the Servicing
Fee was established.
Section 3.16. Annual Statements of Compliance. Within 90
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 90 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 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 90 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 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).
Section 3.20. Purchase of Converted Mortgage Loans. (a)
Within 30 days after the applicable Conversion Date, the Servicer
shall purchase and the Issuer shall sell each Converted Mortgage
Loan for a purchase price equal to the Repurchase Price. The
procedure for such purchase shall be the same as for repurchase
by the Seller under the Mortgage Loan Purchase Agreement (but
such purchase shall be made by the Servicer or its assignee). If
the Servicer resells any such Converted Mortgage Loan, the
Servicer shall do so for a good faith purchase price.
Notwithstanding the foregoing, the Indenture Trustee, whether
acting as Indenture Trustee or in the capacity as successor
Servicer, shall have no obligation to purchase any Converted
Mortgage Loan.
(b) The Servicer shall retain all conversion fees paid by
the Mortgagor upon conversion of a Convertible Mortgage Loan.
(c) The Servicer's right and obligation to purchase each
Converted Mortgage Loan may be assigned and delegated by the
Servicer, on an aggregate or a loan by loan basis; provided,
however, that (i) notwithstanding any such assignment or
delegation, the Servicer shall remain liable for the performance
of its purchase obligation under this Section 3.20; (ii) the
Servicer shall not assign or delegate its right and obligation to
purchase Converted Mortgage Loans to the Seller; and (iii) if the
Servicer assigns and delegates such rights and obligations, it
shall do so on the condition that the assignee agrees that if the
assignee resells any such Converted Mortgage Loans, it will do so
for a good faith purchase price.
Section 3.21. Superior Liens. If the Servicer is
notified that any lienholder under a Superior Lien has
accelerated or intends to accelerate the obligations secured by
such Superior Lien, or has declared or intends to declare a
default under the related mortgage or the promissory note secured
thereby, or has filed or intends to file an election to have any
Mortgaged Property sold or foreclosed, the Servicer shall take,
on behalf of the Issuer, the Bond Insurer and the Indenture
Trustee, reasonable actions to protect the interests of the
Securityholders and the Bond Insurer and/or to preserve the
security of the related Mortgage Loan consistent with the
requirements of this Servicing Agreement, provided that the
Servicer shall not be required to make any Servicing Advances to
cure the default or reinstate the Superior Lien. The Servicer
shall promptly notify the Issuer, and the Bond Insurer and the
Indenture Trustee if it takes any such action.
Section 3.22. Servicing and Administrating of the PMI
Policies. (a) The Servicer shall take all such actions on
behalf of the Issuer as are necessary to service, maintain and
administer the PMI Policies and to perform the Issuer's
obligations and enforce the Issuer's rights under the PMI
Policies, which actions shall conform to the standards of an
institution prudently administering PMI Policies for its own
account. Except as expressly set forth herein, the Servicer
shall have full authority on behalf of the Issuer to do anything
it reasonably deems appropriate or desirable in connection with
the servicing, maintenance and administration of the PMI
Policies. The Servicer shall make its best reasonable efforts to
file all insured claims under the PMI Policies and collect from
the PMI Insurer all Insurance Proceeds due to the Issuer under
the PMI Policies. The Servicer shall not take, or permit any
subservicer to take, any action which would result in non-
coverage under any applicable PMI Policy of any loss which, but
for the actions of the Servicer or Subservicer, would have been
covered thereunder. To the extent coverage is available, the
Servicer shall keep or cause to be kept in full force and effect
each such PMI Policy for the life of the Mortgage Loan; provided,
however, that if a PMI Insurer Insolvency Event has occurred and
is continuing, the Servicer shall, at the direction of the Bond
Insurer, or, if a Bond Insurer Default has occurred and is
continuing, may, terminate the PMI Policy on any Mortgage Loan
that is not then past due. Unless a Bond Insurer Default has
occurred and is continuing, neither the Servicer nor the
Indenture Trustee shall terminate the PMI Policy with respect to
any Mortgage Loan without the prior written consent of the Bond
Insurer. The Servicer shall cooperate with the PMI Insurer and
shall use its best efforts to furnish all reasonable aid,
evidence and information in the possession of the Servicer or to
which the Servicer has access with respect to any Mortgage Loan.
(b) The Servicer shall deposit into the Collection Account
pursuant to Section 3.06(d)(v) hereof all PMI Insurance Proceeds
received from the PMI Insurer under the terms of the PMI
Policies. The Servicer shall withdraw from the Collection
Account and pay to the PMI Insurer pursuant to Section
3.07(a)(xv) hereof, the monthly PMI Premiums due to the PMI
Insurer in accordance with the terms of the PMI Insurance
Agreement.
(c) Notwithstanding the provisions of Subsection 3.22(a)
and (b), the Servicer shall not take any action in regard to the
PMI Policies 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; provided, however,
that payments of the monthly PMI Premiums to the PMI Insurer
pursuant to Subsection 3.22(b) above and Section 3.07(a)(xv)
hereof shall be deemed not to be inconsistent with such
interests.
(d) The Issuer and 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 PMI Policies; provided, however,
that the Indenture Trustee shall not be liable for the actions of
the Servicer under such powers of attorney.
(e) If at any time during the term of this Agreement, a PMI
Insurer Insolvency Event has occurred and is continuing, the
Servicer agrees to review, not less often than monthly, the
financial condition of the PMI Insurer with a view towards
determining whether recoveries under the PMI Policy are
jeopardized for reasons related to the financial condition of the
PMI Insurer. In such event, the Bond Insurer may (i) obtain, at
its own expense, for the benefit of the Indenture Trustee, the
Bondholders and the Bond Insurer, an additional PMI Policy or a
replacement PMI Policy or (ii) with the consent of the Servicer,
obtain for the benefit of the Indenture Trustee, the Bondholders
and the Bond Insurer an additional PMI Policy or a replacement
PMI Policy, the PMI Premiums on which would be paid by the
Servicer from the Collection Account pursuant to Section
3.07(a)(xv) hereof. The Servicer shall cooperate with and assist
the Bond Insurer in obtaining any replacement or additional
policy.
(f) The Servicer shall give written notice to the PMI
Insurer of all "Defaults" and "Early Defaults" (as such terms are
defined in the PMI Policy) with respect to the Mortgage Loans
within the time frames and in the manner provided in the PMI
Policy.
(g) The Servicer shall not authorize any assumption
agreement with respect to any Mortgage Loan covered by a PMI
Policy without the prior written approval of the PMI Insurer.
(h) With respect to each Mortgage Loan covered by a PMI
Policy, the Servicer shall initiate foreclosure proceedings or
other appropriate proceedings not later than 6 months after it is
permitted to do so hereunder and under the Mortgage Loan and by
applicable law, and shall provide copies of all notices and
pleadings with respect thereto.
(i) With respect to any Mortgage Loan covered by a PMI
Policy, the Servicer shall use its best efforts to obtain the PMI
Insurer's Consent with respect to any "Approved Sale" (as such
term is defined in the PMI Policy) of the related Mortgaged
Property.
(j) The Servicer shall comply with any bidding instructions
provided to it by the PMI Insurer pursuant to the PMI Policy.
(k) The Servicer shall furnish to the Bond Insurer copies
of all notices, certificates, statements, reports, information
and correspondence from PMI Insurer to the Servicer and from the
Servicer to the PMI Insurer.
(l) Following any PMI Insurer Insolvency Event, the Bond
Insurer shall consult with the Servicer regarding whether or not
to terminate the PMI Policy with respect to any Mortgage Loan
that is not then past due. The Bond Insurer shall give the
Servicer thirty (30) days prior written notice of its intention
to terminate the PMI Policy with respect to any Mortgage Loan.
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 a copy 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 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.
Such information shall also include (a) the number of Mortgage
Loans that prepaid in the previous month; (b) the loan balance of
each such Mortgage Loan; (c) whether a prepayment penalty was
applied to such Mortgage Loan; and (d) the amount of prepayment
penalty with respect to each such Mortgage Loan. 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 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) 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 assign-
ment 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 Servicing 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 accor-
dance 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 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)(xi) 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 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 gross negligence or willful mis-
conduct 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 pre-
paring 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.
(c) The Servicer agrees to indemnify the Issuer in an
amount equal to the amount of any claim made under a PMI Policy
for which coverage is denied by the PMI Insurer because (and if
the PMI Insurer's denial of coverage is contested by the
Servicer, a court or arbitrator finally determines that coverage
is not available under the PMI Policy because) of the Servicer's
failure to abide by the terms of the PMI Policy or the PMI
Insurance Agreement or the Servicer's failure to abide by the NFI
Underwriting Guidelines or the NFI Servicing Guidelines, as
attached to the PMI Insurance Agreement.
ARTICLE VI
DEFAULT
Section 6.01. Servicing Default. If any one of the follow-
ing 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 Issuer or the
Indenture Trustee or to the Servicer, 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 cove-
nants 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
or breach, 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 Issuer or the
Indenture Trustee or to the Servicer, 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 trus-
tee, 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 liquida-
tion, consent to the appointment of a conservator, receiver,
liquidator or similar person in any insolvency, readjustment
of debt, marshaling of assets and liabilities or similar
proceedings of or relating to the Servicer or of or relating
to 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, marshaling of assets and
liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against
the Servicer and such decree or order shall have remained in
force undischarged, unbonded or unstayed for a period of 60
days; or the Servicer shall admit in writing its inability
to pay its debts generally as they become due, file a
petition to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit
of its creditors or voluntarily suspend payment of its
obligations; or
(v) 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 by the
Bond Insurer;
(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
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) Failure on the part of the Servicer (or its
assignee) to purchase any Converted Mortgage Loan pursuant
to Section 3.20 hereof.
(ix) (A) the Cumulative Loss Percentage (without
giving any effect to coverage provided by any PMI Policy)
for any period set forth below exceeds the percentage set
forth below,
Period Cumulative Loss %
July 2, 1998 July 1, 1999 1%
July 2, 1999 July 1, 2000 2%
July 2, 2000 July 1, 2001 3%
July 2, 2001 July 1, 2002 4%
July 2, 2002 July 1, 2003 5%
For any period thereafter 6%
(B) Realized Losses on the Mortgage Loans
(without giving any effect to coverage provided by any
PMI Policy) 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 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 compen-
sation and expenses for servicing the Mortgage Loans here-
under during any period prior to the date of such termina-
tion 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 com-
plete 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 Servicing 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 Indenture 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 Indenture Trustee and such notice references
the Bonds or this Servicing 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 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 to so 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 hous-
ing 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 or greater compensation as the
Indenture Trustee and such successor shall agree; provided,
however, that any greater compensation shall only be payable from
amounts that otherwise would be distributed to the
Certificateholders). 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 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 pursu-
ant 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 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 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
NEW YORK 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 communica-
tions 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.
0000 X. 00xx Xxxxx
Xxxxx 000
Xxxxxxxx, Xxxxxx 00000
Attention: Xxxxx Xxxxxx,
Senior Vice President
(b) in the case of the
Bond Insurer: MBIA Insurance Corporation
000 Xxxx Xxxxxx
Xxxxxx, Xxx Xxxx 00000
Attention: Asset-Backed IPM
(NovaStar Mortgage Funding Trust,
Series 1998-2, NovaStar Home
Equity Loan Asset-Backed Bonds,
Series 1998-2)
(c) in the case of
Rating Agencies: Xxxxx'x Investors Service Inc.
00 Xxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxx Xxxxxxxx
Standard & Poor's
00 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxx Xxxxxxx
(d) in the case of the
Owner Trustee: Wilmington Trust Company
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx Xxxxxx
(e) in the case of the
Issuer, to NovaStar c/o NovaStar Financial, Inc.
Mortgage Funding Trust, 0000 X. 00xx Xxxxx
Series 1998-2: Xxxxx 000
Xxxxxxxx, Xxxxxx 00000
Attention: Xxxxx X. Xxx,
Vice President
(f) in the case of the
Indenture Trustee: First Union National Bank
000 Xxxxx Xxxxx Xxxxxx, XX0000
0xx Xxxxx
Xxxxxxxxx, XX 00000-0000
Attention: Xxxxxx Xxxxxxxx
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.
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 the Company,
or join any institution against the Issuer or the Company, any
bankruptcy proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations of
the Issuer or the Company. 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 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;
(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
Servicing 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 Indenture 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,
Indenture Trustee 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, Indenture Trustee and the
Bond Insurer from time to time such additional information
regarding the Bonds as the Issuer, Indenture Trustee 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:
NOVASTAR MORTGAGE FUNDING TRUST,
SERIES 1998-2
as Issuer
By: WILMINGTON TRUST COMPANY, not
in its individual capacity but
solely as Owner Trustee
By:________________________________
Name:
Title:
FIRST UNION NATIONAL BANK
not in its individual capacity
but solely as
Indenture Trustee
By:_______________________________
Name:
Title:
EXHIBIT A
MORTGAGE LOAN SCHEDULE
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
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) $____________
