Exhibit 99.1
EXECUTION COPY
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SALE AND SERVICING AGREEMENT
Dated as of June 20, 2002
among
HFC REVOLVING CORPORATION
(Depositor)
HOUSEHOLD HOME EQUITY LOAN TRUST 2002-2
(Trust)
HOUSEHOLD FINANCE CORPORATION
(Master Servicer)
and
BANK ONE, NATIONAL ASSOCIATION
(Indenture Trustee)
Household Home Equity Loan Trust 2002-2
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Table of Contents
Page
----
ARTICLE I. DEFINITIONS .......................................................... 2
Section 1.01 Definitions ............................................... 2
Section 1.02 Other Definitional Provisions ............................. 21
Section 1.03 Interest Calculations ..................................... 22
ARTICLE II. CONVEYANCE OF HOME EQUITY LOANS; TAX TREATMENT ...................... 23
Section 2.01 Acknowledgment; Conveyance of Home Equity Loans;
Custody of Mortgage Files ................................. 23
Section 2.02 Acceptance by Indenture Trustee; Repurchase of Home Equity
Loans; Conveyance of Eligible Substitute Home Equity Loans 27
Section 2.03 Representations, Warranties and Covenants of the Master
Servicer .................................................. 29
Section 2.04 Representations and Warranties of the Depositor Regarding
this Agreement and the Home Equity Loans; Repurchases and
Substitutions ............................................. 30
Section 2.05 Tax Treatment ............................................. 37
ARTICLE III. ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS .................. 38
Section 3.01 The Master Servicer ....................................... 38
Section 3.02 Collection of Certain Home Equity Loan Payments ........... 41
Section 3.03 Withdrawals from the Collection Account ................... 43
Section 3.04 Maintenance of Hazard Insurance; Property Protection
Expenses .................................................. 44
Section 3.05 Assumption and Modification Agreements .................... 45
Section 3.06 Realization Upon Defaulted Home Equity Loans .............. 45
Section 3.07 [Reserved] ................................................ 46
Section 3.08 Indenture Trustee to Cooperate ............................ 46
Section 3.09 Servicing Compensation; Payment of Certain Expenses by
Master Servicer ........................................... 47
Section 3.10 Annual Statement as to Compliance ......................... 47
Section 3.11 Annual Servicing Report ................................... 48
Section 3.12 Access to Certain Documentation and Information Regarding
the Home Equity Loans ..................................... 48
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Section 3.13 Maintenance of Certain Servicing Insurance Policies ....... 49
Section 3.14 Reports to the Securities and Exchange Commission ......... 49
Section 3.15 [Reserved] ................................................ 49
Section 3.16 Information Required by the Internal Revenue Service
Generally and Reports of Foreclosures and Abandonments of
Mortgaged Property ........................................ 49
Section 3.17 Additional Covenants of HFC ............................... 49
Section 3.18 Servicing Certificate ..................................... 50
ARTICLE IV. INSURER ............................................................. 54
Section 4.01 Claims upon the Note Guaranty Insurance Policy ............ 54
Section 4.02 Effect of Payments by the Insurer; Subrogation ............ 55
Section 4.03 Insurer's Rights Regarding Actions, Proceedings or
Investigations ............................................ 55
ARTICLE V. PRIORITY OF PAYMENTS; STATEMENTS TO NOTEHOLDERS; RIGHTS OF NOTEHOLDERS 58
Section 5.01 Payments .................................................. 58
Section 5.02 Calculation of LIBOR and the Formula Rate ................. 59
Section 5.03 Statements to Noteholders ................................. 61
ARTICLE VI. THE MASTER SERVICER AND THE DEPOSITOR ............................... 65
Section 6.01 Liability of the Master Servicer and the Depositor ........ 65
Section 6.02 Merger or Consolidation of, or Assumption of the
Obligations of, the Master Servicer or the Depositor ...... 65
Section 6.03 Limitation on Liability of the Master Servicer, the
Depositor and Others ...................................... 65
Section 6.04 Master Servicer Not to Resign ............................. 66
Section 6.05 Delegation of Duties ...................................... 66
ARTICLE VII. MASTER SERVICER TERMINATION ........................................ 68
Section 7.01 Master Servicer Termination Events ........................ 68
Section 7.02 Indenture Trustee to Act; Appointment of Successor ........ 70
Section 7.03 Waiver of Defaults ........................................ 71
Section 7.04 Notification to Noteholders ............................... 71
ARTICLE VIII. TERMINATION ....................................................... 72
Section 8.01 Termination ............................................... 72
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ARTICLE IX. MISCELLANEOUS PROVISIONS ............................................ 75
Section 9.01 Amendment ................................................. 75
Section 9.02 Recordation of Agreement .................................. 77
Section 9.03 Duration of Agreement ..................................... 77
Section 9.04 Governing Law ............................................. 77
Section 9.05 Notices ................................................... 77
Section 9.06 Severability of Provisions ................................ 77
Section 9.07 No Partnership ............................................ 78
Section 9.08 Counterparts .............................................. 78
Section 9.09 Successors and Assigns .................................... 78
Section 9.10 Headings .................................................. 78
Section 9.11 Indenture Trustee ......................................... 78
Section 9.12 Inconsistencies Among Transaction Documents ............... 78
Section 9.13 Rights of the Insurer to Exercise Rights of Noteholders ... 78
Section 9.14 Limitation on Voting of Preferred Stock ................... 79
Section 9.15 Perfection Representations ................................ 79
Section 9.16 Limitation of Liability ................................... 79
Section 9.17 Inspection of Mortgage Files .............................. 79
ARTICLE X. MISCELLANEOUS PROVISIONS ............................................. 80
Section 10.01 Administrative Duties ..................................... 80
Section 10.02 Records ................................................... 82
Section 10.03 Additional Information to be Furnished to the Trust ....... 82
EXHIBITS
SCHEDULE 1 Perfection Representations, Warranties and Covenants
EXHIBIT A Home Equity Loan Schedule
EXHIBIT B [Reserved]
EXHIBIT C [Reserved]
EXHIBIT D [Reserved]
EXHIBIT E Form of Notes
EXHIBIT F Specimen of the Note Guaranty Insurance Policy
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This Sale and Servicing Agreement (the "Agreement") is entered into
effective as of June 1, 2002, among Home Equity Loan Trust 2002-2, a Delaware
business trust (the "Trust"), HFC Revolving Corporation, a Delaware corporation,
as depositor (the "Depositor"), Household Finance Corporation, a Delaware
corporation, as master servicer (the "Master Servicer"), and Bank One, National
Association, a national banking association, as Indenture Trustee on behalf of
the Noteholders (in such capacity, the "Indenture Trustee").
PRELIMINARY STATEMENT
WHEREAS, the Trust desires to purchase from the Depositor a pool of Home
Equity Loans which were acquired by the Depositor from various sellers;
WHEREAS, the Depositor, concurrently with the execution of this Agreement,
purchased the Home Equity Loans from the sellers pursuant to the Home Equity
Loan Purchase Agreement;
WHEREAS, the Master Servicer is willing to service such Home Equity Loans
in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto hereby agree as follows:
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ARTICLE I.
DEFINITIONS
Section 1.01 Definitions. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
meanings specified in this Article.
Accrual Period: As to the Notes, for the initial Payment Date is the
period from and including the Closing Date through and including the day
immediately preceding the initial Payment Date, and for each Payment Date
thereafter is the period from and including the Payment Date in the month
immediately preceding the month in which the Payment Date occurs and ending on
and including the day immediately preceding the Payment Date.
Affiliate: With respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of a
Person, directly or indirectly, whether through ownership of voting securities,
by contract or otherwise and "controlling" and "controlled" shall have meanings
correlative to the foregoing.
Agreement: This Sale and Servicing Agreement and all amendments hereof and
supplements hereto.
Appraised Value: As to any Home Equity Loan, the appraised value of the
related Mortgaged Property based upon the appraisal used by the applicable
Seller at the time of origination of such Home Equity Loan (or any mortgage loan
made by the Seller on the Mortgaged Property that the Home Equity Loan
replaced); provided that if the Home Equity Loan was originated simultaneously
with or not more than 12 months after another mortgage was placed on the related
Mortgaged Property, the lesser of the Appraised Value at origination of the
other mortgage and the sales price, if any, of the related Mortgaged Property.
Assignment of Mortgage: With respect to any Mortgage, an assignment,
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the sale of the Mortgage to the Indenture Trustee, which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering the Home Equity Loans secured by
Mortgaged Properties located in the same jurisdiction.
Auction Date. As defined in Section 8.01(c).
Available Funds Cap: With respect to any Payment Date, a per annum rate
equal to the weighted average of the Net Loan Rates of each Home Equity Loan, in
each case outstanding as of the first day of the related Collection Period,
multiplied by a fraction of which the numerator is 30 and the denominator is the
number of days in the related Accrual Period.
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Available Payment Amount: As to any Payment Date, the sum of (A) the sum,
without duplication, of all amounts described in clauses (i) through (iv),
inclusive, of Section 3.02(b) received by the Master Servicer with respect to
the related Collection Period and deposited in the Collection Account, and (B)
Insured Payments, if any.
Avoided Payment: As defined in Section 4.01 hereto.
Base Targeted Overcollateralization Amount: An amount equal to 10.00% of
the Cut-Off Date Pool Balance.
BIF: The Bank Insurance Fund, as from time to time constituted, created
under the Financial Institutions Reform, Recovery and Enhancement Act of 1989,
or if at any time after the execution of this instrument the Bank Insurance Fund
is not existing and performing duties now assigned to it, the body performing
such duties on such date.
Book-Entry Note: Any Note registered in the name of the Depository or its
nominee, ownership of which is reflected on the books of the Depository or on
the books of a Person maintaining an account with such Depository (directly or
as an indirect participant in accordance with the rules of such Depository).
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day
on which banking institutions in the State of New York or Illinois are required
or authorized by law to be closed.
Charge Off Amount: As to any Charged Off Home Equity Loan and Collection
Period, an amount equal to the amount of the Principal Balance that the Master
Servicer has charged off on its servicing records during such Collection Period.
Charged Off Home Equity Loan: A defaulted Home Equity Loan that is not a
Liquidated Home Equity Loan and as to which (i) collection procedures are
ongoing and (ii) the Master Servicer has charged off all or a portion of the
related Principal Balance.
Closing Date: June 20, 2002.
Code: The Internal Revenue Code of 1986, as amended from time to time, and
Treasury Regulations promulgated thereunder.
Collection Account: The custodial account or accounts created and
maintained for the benefit of the Noteholders, the Ownership Interest and the
Insurer pursuant to Section 3.02(b). The Collection Account shall be an Eligible
Account.
Collection Period: As to any Payment Date and Home Equity Loan, the
calendar month immediately preceding the month in which such Payment Date
occurs, except that with respect to the initial Payment Date, the Collection
Period is the period from June 3, 2002 to June 30, 2002.
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Combined Loan-to-Value Ratio or CLTV: As to each Home Equity Loan, a
ratio, expressed as a percentage, the numerator of which is the sum of (a) the
original Principal Balance of the Home Equity Loan and (b) the aggregate unpaid
principal balance, at the time of origination of the Home Equity Loan, of all
other mortgage loans, if any, secured by liens senior to that Home Equity Loan
on the related Mortgaged Property, and the denominator of which is the Appraised
Value of the Mortgaged Property.
Corporate Trust Office: The principal office of the Indenture Trustee at
which at any particular time its corporate business shall be administered, which
office on the Closing Date is located at Xxx Xxxx Xxx Xxxxx, Xxxxxxx, Xxxxxxxx
00000.
Cumulative Loss Percentage: As to any Collection Period, the fraction
(expressed as a percentage) obtained by dividing (i) the Cumulative Realized
Losses, by (ii) the Cut-Off Date Pool Balance.
Cumulative Loss Percentage Trigger: As to any Collection Period, means (i)
for the first twelve (12) Collection Periods, 0.75%; (ii) for the thirteenth
(13th) Collection Period through and including the twenty-fourth (24th)
Collection Period, 2.00%; (iii) for the twenty-fifth (25th) Collection Period
through and including the thirty-sixth (36th) Collection Period, 3.50%; (iv) for
the thirty-seventh (37th) Collection Period through and including the
forty-eighth (48th) Collection Period, 5.00%; (v) for the forty-ninth (49th)
Collection Period through and including the sixtieth (60th) Collection Period,
6.50%; and (vi) for the sixty-first (61st) Collection Period and each Collection
Period thereafter, 8.00%.
Cumulative Realized Losses: With respect to the Home Equity Loans and any
Collection Period, the sum of the aggregate Realized Losses on the Home Equity
Loans from the Cut-Off Date through the last day of related Collection Period.
Current Interest: As to the Notes and any Payment Date, the interest
accrued at the Note Rate during the Accrual Period on the aggregate Note
Principal Amount as of the beginning of the Accrual Period.
Cut-Off Date: As to a Home Equity Loan, the close of business on June 2,
2002.
Cut-Off Date Pool Balance: The aggregate of the Cut-Off Date Principal
Balances of the Home Equity Loans.
Cut-Off Date Principal Balance: As to any Home Equity Loan, the unpaid
principal balance thereof as of the Cut-Off Date or, as to any Eligible
Substitute Home Equity Loan, as of the date of substitution of such Eligible
Substitute Home Equity Loan.
Defective Home Equity Loan: Any Home Equity Loan subject to repurchase or
substitution pursuant to Section 2.02 or 2.04.
Deficiency Amount: As defined in the Note Guaranty Insurance Policy, the
sum of (i) with respect to any Payment Date, the amount by which the Current
Interest plus the Interest
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Carry Forward Amount with respect to the Notes exceeds the amount on deposit in
the Collection Account available for interest payments to the Noteholders on
such Payment Date and (ii)(a) with respect to any Payment Date that is not the
Final Payment Date, the Overcollateralization Deficit Amount or (b) with respect
to the Final Payment Date, the Note Principal Amount to the extent otherwise not
paid on such date.
Definitive Notes: As defined in the Indenture.
Delaware Trustee: The Bank of New York (Delaware), as Delaware trustee
under the Trust Agreement, and any successor Delaware trustee under the Trust
Agreement appointed in accordance with the terms thereof.
Deposit Date: As to any Payment Date, the Business Day immediately
preceding such Payment Date.
Deposit Event: The lowering of the Master Servicer's short-term debt
rating below "P-1" by Xxxxx'x, "A-1" by Standard & Poor's or "F1" by Fitch or
any time in which HFC shall cease to be the Master Servicer.
Depositor: HFC Revolving Corporation, a Delaware corporation.
Depository: The initial Depository shall be The Depository Trust Company,
the nominee of which is Cede & Co., as the registered Holder of Notes evidencing
$1,290,500,000 in initial aggregate principal amount of the Notes. The
Depository shall at all times be a "clearing corporation" as defined in Section
8-102(a)(5) of the UCC of the State of New York.
Depository Participant: A broker, dealer, bank or other financial
institution or other Person for whom from time to time the Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Determination Date: As to any Payment Date, the second Business Day prior
to such Payment Date.
Distributable Excess Cashflow: As to any Payment Date, the lesser of (i)
the Excess Cashflow for such Payment Date and (ii) the Interim
Overcollateralization Deficiency, if any, for such Payment Date.
Electronic Ledger: The electronic master record of home equity loans
(including the Home Equity Loans) maintained by the Master Servicer.
Eligible Account: An account that is either (i) maintained with a
depository institution whose short-term debt obligations at the time of any
deposit therein are rated in the highest short-term debt rating category by the
Rating Agencies, (ii) an account or accounts maintained with a depository
institution with a long-term unsecured debt rating by each Rating Agency that is
at least investment grade, provided that the deposits in such account or
accounts are fully insured by either the BIF or the SAIF, (iii) a segregated
trust account maintained on the corporate trust
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side with the Indenture Trustee in its fiduciary capacity, or (iv) an account
otherwise acceptable to each Rating Agency, as evidenced by a letter to such
effect from each such Rating Agency to the Indenture Trustee and the Insurer,
without reduction or withdrawal of the then-current ratings of the Notes without
taking into account the existence of the Note Guaranty Insurance Policy.
Eligible Substitute Home Equity Loan: A Home Equity Loan substituted (a)
by the Depositor or the Master Servicer for a Defective Home Equity Loan
pursuant to Section 2.02(a) or 2.04 or (b) by the Master Servicer pursuant to
Section 2.02(b), which on the date of such substitution must
(i) have a Principal Balance not substantially greater or less than
the Principal Balance of such Defective Home Equity Loan or such elected
substituted Home Equity Loan;
(ii) have a current Loan Rate of not less than the Loan Rate of the
Defective Home Equity Loan or elected substituted Home Equity Loan and not
more than 500 basis points in excess thereof;
(iii) have a remaining term to maturity not more than six months
earlier or later than the remaining term to maturity of the Defective Home
Equity Loan or elected substituted Home Equity Loan;
(iv) comply with the representations and warranties set forth in
Section 2.04(b), to the extent such representations and warranties do not
pertain exclusively to the Home Equity Loans transferred on the Closing
Date;
(v) have a Combined Loan-to-Value Ratio that is not greater than the
Combined Loan-to-Value Ratio of the Defective Home Equity Loan or elected
substituted Home Equity Loan as of the date of origination of such
Defective Home Equity Loan or elected substituted Home Equity Loan;
(vi) have a lien position at least equal to the lien position of the
Mortgage relating to the Defective Home Equity Loan or elected substituted
Home Equity Loan; and
(vii) be the obligation of a Mortgagor whose credit profile is
substantially similar to that of the Mortgagor under the Defective Home
Equity Loan or elected substituted Home Equity Loan,
provided, however, that with respect to (i) through (vii) above, a home equity
loan may qualify as an Eligible Substitute Home Equity Loan if each of the
Rating Agencies confirms such substitution.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
Excess Cashflow: With respect to any Payment Date, the positive excess, if
any, of (a) the Available Payment Amount for such Payment Date over (b) the
aggregate of amounts
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required to be paid pursuant to subclauses (i) through (iii) of Section 5.01(a)
herein on such Payment Date.
Xxxxxx Xxx: Xxxxxx Xxx, formerly known as The Federal National Mortgage
Association, or any successor thereto.
FDIC: The Federal Deposit Insurance Corporation and any successor thereto.
Final Payment Date: The Payment Date in April 2032.
Fiscal Agent: As defined in the Note Guaranty Insurance Policy.
Fitch: Fitch, Inc., or its successor in interest.
Foreclosure Profit: As to any Liquidated Home Equity Loan, the amount, if
any, by which (i) the aggregate of its Liquidation Proceeds less Liquidation
Expenses exceeds (ii) the Principal Balance thereof immediately prior to the
final recovery of its Liquidation Proceeds, together with the sum of (x) accrued
and unpaid interest thereon at the applicable Loan Rate from the date interest
was last paid through the date of receipt of the final Liquidation Proceeds and
(y) the related Charge Off Amounts.
Formula Rate: With respect to the Notes and any Accrual Period, a per
annum rate equal to the sum of (i) LIBOR for such Accrual Period and (ii) the
Note Margin for such Accrual Period.
HFC: Household Finance Corporation, a Delaware corporation, and its
successors.
Home Equity Loan: Such of the home equity loans (together with the related
Mortgage Notes and Mortgages) transferred and assigned to the Trust pursuant to
Section 2.01 and pursuant to the Transfer Agreement, together with the Related
Documents, as from time to time are held as a part of the Trust, the home equity
loans originally so held being identified in the Home Equity Loan Schedule
delivered on the Closing Date. As applicable, the term Home Equity Loan shall be
deemed to refer to the Mortgaged Property that has been converted to ownership
by the Master Servicer prior to the final recovery of related Liquidation
Proceeds.
Home Equity Loan Purchase Agreement: The home equity loan purchase
agreement dated as of June 20, 2002 between the Depositor and the Sellers
pursuant to which the Sellers convey to the Depositor all of their right, title
and interest in and to the unpaid Principal Balance of the Home Equity Loans,
including all interest and principal payments in respect thereof received on or
after the Cut-Off Date, and certain other rights with respect to the collateral
supporting the Home Equity Loans.
Home Equity Loan Schedule: As to any date, the schedule of Home Equity
Loans, including any Eligible Substitute Home Equity Loans, included in the
Trust on such date. The initial Home Equity Loan Schedule is the schedule
delivered by the Depositor to the Indenture Trustee on the Closing Date and
delivered as Exhibit A hereto, which schedule may be in the
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form of a computer file or an electronic or magnetic tape and sets forth as to
each Home Equity Loan (i) the account number, (ii) the Cut-Off Date Principal
Balance, (iii) the Loan Rate, (iv) the lien position of the related Mortgage and
(v) the CLTV. The Home Equity Loan Schedule will be amended from time to time to
reflect the removal of Home Equity Loans and the addition of any Eligible
Substitute Home Equity Loans to the Trust, and when so amended shall include the
information set forth above with respect to each Eligible Substitute Home Equity
Loan as of its related date of substitution.
Indemnification Agreement: The Indemnification Agreement dated as of June
17, 2002 among the Master Servicer, the Depositor, the underwriters named
therein and the Insurer, including any amendments and supplements thereto in
accordance with the terms thereof.
Indenture: The Indenture dated as of June 20, 2002 between the Issuer and
the Indenture Trustee.
Indenture Trustee: Bank One, National Association, a national banking
association, as Indenture Trustee under the Indenture or any successor indenture
trustee under the Indenture appointed in accordance with such agreement.
Indenture Trustee's Statement to Noteholders: As defined in Section 5.03.
Initial Home Equity Loan: Each Home Equity Loan transferred and assigned
to the Trust on the Closing Date.
Initial Targeted Overcollateralization Amount: An amount equal to 1.00% of
the Cut-Off Date Pool Balance.
Insurance Agreement: The Insurance Agreement dated as of June 20, 2002
among the Indenture Trustee, the Master Servicer, the Depositor and the Insurer,
including any amendments and supplements thereto in accordance with the terms
thereof.
Insurance Proceeds: Proceeds paid by any insurer (other than the Insurer
pursuant to the Note Guaranty Insurance Policy) pursuant to any insurance policy
covering a Home Equity Loan, or by the Master Servicer pursuant to the last
sentence of Section 3.04, net of any component thereof covering any expenses
incurred by or on behalf of the Master Servicer in connection with obtaining
such Insurance Proceeds and exclusive of any portion thereof that is applied to
the restoration or repair of the related Mortgaged Property, released to the
Mortgagor in accordance with the Master Servicer's normal servicing procedures
or required to be paid to any holder of a mortgage senior to such Home Equity
Loan.
Insured Payment: As defined in the Note Guaranty Insurance Policy, (i) as
of any Payment Date, any Deficiency Amount and (ii) any Preference Amount.
Insurer: MBIA Insurance Corporation, a New York-domiciled stock insurance
company, and its successors and assigns.
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Insurer Default: Any failure by the Insurer to make a payment required
under the Note Guaranty Insurance Policy in accordance with its terms.
Interest Carry Forward Amount: As to the Notes and any Payment Date, the
sum of (x) the amount, if any, by which (i) the sum of the Current Interest and
all prior unpaid Interest Carry Forward Amounts for such Notes as of the
immediately preceding Payment Date exceeded (ii) the amount of the actual
payment with respect to interest made to such Notes on such Payment Date plus
(y) interest on such amount calculated for the related Accrual Period at the
Note Rate.
Interest Collections: As to any Payment Date, the sum, without duplication
of:
(i) the portion allocable to interest of all scheduled monthly payments on
the Home Equity Loans received during the related Collection Period, minus the
Servicing Fee for the related Collection Period;
(ii) all Net Liquidation Proceeds actually collected by the Master
Servicer during the related Collection Period (to the extent such Net
Liquidation Proceeds relate to interest and including Recovered Charge Off
Amounts);
(iii) the interest portion of the Purchase Price for any Home Equity Loan
repurchased from the Trust pursuant to the terms of this Agreement during the
related Collection Period;
(iv) the interest portion of all Substitution Adjustment Amounts with
respect to the related Collection Period; and
(v) to the extent advanced by the Master Servicer pursuant to Section
3.01(f) and not previously distributed, the amount of any Skip-A-Pay Advance
deposited by the Master Servicer into the Collection Account with respect to
such Payment Date.
Interest Payment Amount: With respect to any Payment Date and the Notes,
the sum of (a) the Current Interest for such Notes for such Payment Date, and
(b) any Interest Carry Forward Amount for such Notes for such Payment Date.
Interim Overcollateralization Amount: As to any Payment Date, the excess,
if any, of (x) the Pool Balance as of the last day of the preceding Collection
Period over (y) (i) the Note Principal Amount (before taking into account any
payments of principal on such Payment Date) less (ii) the Principal Collections
for such Payment Date.
Interim Overcollateralization Deficiency: As to any Payment Date, the
excess, if any, of (x) the Targeted Overcollateralization Amount over (y) the
Interim Overcollateralization Amount.
Issuer: Household Home Equity Loan Trust 2002-2.
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LIBOR: The per annum rate established by the Indenture Trustee in
accordance with Section 5.02.
LIBOR Business Day: Any day on which dealings in United States dollars are
transacted in the London interbank market.
LIBOR Determination Date: As to any Payment Date, the second LIBOR
Business Day before the first day of the related Accrual Period.
Lien: Any mortgage, deed of trust, pledge, conveyance, hypothecation,
assignment, participation, deposit arrangement, encumbrance, lien (statutory or
other), preference, priority right or interest or other security agreement or
preferential arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing or the filing of any financing statement under the UCC (other than any
such financing statement filed for informational purposes only) or comparable
law of any jurisdiction to evidence any of the foregoing.
Liquidated Home Equity Loan: As to any Payment Date, any Home Equity Loan
in respect of which the Master Servicer has determined as of the end of the
related Collection Period that all Liquidation Proceeds which it expects to
recover on such Home Equity Loan have been recovered (exclusive of any
possibility of a deficiency judgment).
Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead) that
are incurred by the Master Servicer in connection with the liquidation of any
Home Equity Loan and not recovered under any insurance policy, such expenses
including, without limitation, reasonable legal fees and expenses, any
unreimbursed amount expended pursuant to Section 3.06 (including, without
limitation, amounts advanced to correct defaults on any mortgage loan that is
senior to such Home Equity Loan and amounts advanced to keep current or pay off
a mortgage loan that is senior to such Home Equity Loan) with respect to the
related Home Equity Loan and any related and unreimbursed expenditures for real
estate property taxes, mechanics liens, title perfection, property management or
for property restoration, preservation or insurance against casualty loss or
damage.
Liquidation Proceeds: Proceeds (including Insurance Proceeds) received in
connection with the liquidation of any Home Equity Loan, whether through
trustee's sale, foreclosure sale or otherwise.
Loan Rate: As to any Home Equity Loan and day, the per annum rate of
interest applicable under the related Mortgage Note to the calculation of
interest for such day on the Principal Balance.
Master Servicer: HFC, or its successor in interest, or any successor
master servicer appointed as herein provided.
Master Servicer Termination Events: As defined in Section 7.01.
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Majority Noteholder: The Holder or Holders of Notes representing at least
51% of the aggregate Note Principal Amount.
MERS: Mortgage Electronic Registration Systems, Inc., a corporation
organized and existing under the laws of the State of Delaware, or any successor
thereto.
MERS(R) System: The system of recording transfers of Mortgages
electronically maintained by MERS.
MIN: The Mortgage Identification Number for Home Equity Loans registered
with MERS on the MERS(R)System.
MOM Loan: With respect to any Home Equity Loan, MERS acting as the
mortgagee of such Home Equity Loan, solely as nominee for the originator of such
Home Equity Loan and its successors and assigns, at the origination thereof.
Moody's: Xxxxx'x Investors Service, Inc., or any successor thereto.
Mortgage: The mortgage, deed of trust or other instrument creating a
first, second or third lien on an estate in fee simple interest in real property
securing a Home Equity Loan.
Mortgage File: The mortgage documents (including without limitation the
related Mortgage Note) listed in Section 2.01 pertaining to a particular Home
Equity Loan and any additional documents required to be added to the Mortgage
File pursuant to this Agreement, which documents may be physical documents or,
pursuant to the terms of Section 2.01, may be optical images or other
representations thereof.
Mortgage Note: As to a Home Equity Loan, the mortgage note or other
evidence of indebtedness under which the related Mortgagor agrees to pay the
indebtedness evidenced thereby and secured by the related Mortgage.
Mortgaged Property: The underlying property securing a Home Equity Loan.
Mortgagor: The obligor or obligors under a Mortgage.
Net Liquidation Proceeds: As to any Liquidated Home Equity Loan,
Liquidation Proceeds less Liquidation Expenses.
Net Loan Rate: As to any Home Equity Loan, the Loan Rate less (i) the
Servicing Fee Rate and (ii) the annual premium rate of the Insurer set forth in
the Insurance Agreement.
Ninety Day-Plus Delinquency Percentage: As to any Collection Period, (a)
the aggregate of the Principal Balances of all Home Equity Loans that are 90 or
more days contractually delinquent, such percentage being inclusive of all Home
Equity Loans which are in bankruptcy, in foreclosure and REO as of the end of
such Collection Period, over (b) the Pool Balance as of the end of such
Collection Period.
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Ninety Day-Plus Rolling Average: As to any Payment Date, the average of
the Ninety Day-Plus Delinquency Percentage for each of the three (3) immediately
preceding Collection Periods; provided, however, that for the initial Payment
Date, the Ninety Day-Plus Rolling Average shall equal the Ninety Day-Plus
Delinquency Percentage for the immediately preceding Collection Period and for
the Payment Date occurring in August 2002, the Ninety Day-Plus Rolling Average
shall equal the average of the Ninety Day-Plus Delinquency Percentage for each
of the two immediately preceding Collection Periods.
Note: Any Note executed by the Trust and authenticated by the Indenture
Trustee substantially in the form set forth in Exhibit E hereto.
Note Guaranty Insurance Policy: The Note Guaranty Insurance Policy (No.
38371) with respect to the Notes and all endorsements thereto, if any, dated the
Closing Date, issued by the Insurer for the benefit of the Holders of the Notes,
a copy of which is attached hereto as Exhibit F.
Note Margin: With respect to the Notes and any Accrual Period, 0.30% per
annum.
Note Owner: The Person who is the beneficial owner of a Book-Entry Note.
Note Principal Amount: With respect to any date of determination, (a) the
Original Note Principal Amount less (b) the aggregate of amounts paid as
principal to the Noteholders on previous Payment Dates pursuant to Section 5.01
hereto.
Note Rate: With respect to any Payment Date and Accrual Period, the lesser
of (i) the Formula Rate and (ii) the Available Funds Cap for such Payment Date.
Note Register and Note Registrar: As defined in the Indenture.
Noteholder or Holder: The Person in whose name a Note is registered in the
Note Register, except that, solely for the purpose of giving any consent,
direction, waiver or request pursuant to this Agreement, (x) any Note registered
in the name of the Depositor, the Master Servicer or any Person actually known
to a Responsible Officer to be an Affiliate of the Depositor (y) any Note for
which the Depositor, the Master Servicer or any Person actually known to a
Responsible Officer to be an Affiliate of the Depositor or the Master Servicer
is the Note Owner shall be deemed not to be outstanding (unless to the actual
knowledge of a Responsible Officer (i) the Master Servicer or the Depositor, or
such Affiliate, is acting as trustee or nominee for a Person who is not an
Affiliate of the Depositor or the Master Servicer and who makes the voting
decision with respect to such Note or (ii) the Depositor, or the Master
Servicer, or such Affiliate, is the Note Owner of all the Notes) and the
Percentage Interest evidenced thereby shall not be taken into account in
determining whether the requisite amount of Percentage Interests necessary to
effect any such consent, direction, waiver or request has been obtained and (z)
the Insurer shall be deemed to be the owner of 100% of the Notes so long as no
Insurer Default is then continuing.
Notice for Payment: As defined in Section 4.01.
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Officer's Certificate: A certificate signed by the President, an Executive
Vice President, a Senior Vice President, a Vice President, an Assistant Vice
President, the Treasurer, Assistant Treasurer, Controller or Assistant
Controller of the Master Servicer or the Depositor, as the case may be, and
delivered to the Indenture Trustee and the Insurer, as applicable.
Opinion of Counsel: A written opinion of counsel reasonably acceptable to
the Indenture Trustee and the Insurer, who may be in-house counsel for the
Master Servicer (or its affiliate) or the Depositor (or its affiliate).
Original Note Principal Amount: $1,290,500,000.
Overcollateralization Amount: As to any Payment Date, the excess, if any,
of (x) the Pool Balance as of the last day of the preceding Collection Period
over (y) the Note Principal Amount, calculated after taking into account all
payments in respect of principal on such Payment Date.
Overcollateralization Deficit Amount: On any Payment Date, the excess, if
any, of (i) the Note Principal Amount on such Payment Date (after taking into
account the payment to the Notes of all principal from sources other than the
Note Guaranty Insurance Policy on such Payment Date) and (ii) the Pool Balance
as of the close of business on the last day of the related Collection Period.
Overcollateralization Release Amount: As to any Payment Date, the amount
(but not in excess of the Principal Collections for such Payment Date) equal to
the excess, if any, of (i) the Interim Overcollateralization Amount over (ii)
the Targeted Overcollateralization Amount.
Owner Trustee: The Bank of New York, as owner trustee under the Trust
Agreement, and any successor owner trustee under the Trust Agreement appointed
in accordance with the terms thereof.
Ownership Interest: As defined in the Trust Agreement.
Paying Agent: Any paying agent appointed pursuant to the Indenture.
Payment Date: The 20th day of each month or, if such day is not a Business
Day, then the next Business Day, beginning in July 2002.
Percentage Interest: As to the Notes and any date of determination, the
percentage obtained by dividing the principal denomination of such Note by the
aggregate of the principal denominations of all Notes.
Perfection Representations: The representations, warranties and covenants
set forth in Schedule 1 attached hereto.
Permitted Investments: One or more of the following (excluding any
callable investments purchased at a premium):
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(i) direct obligations of, or obligations fully guaranteed as to
timely payment of principal and interest by, the United States or any
agency or instrumentality thereof, provided that such obligations are
backed by the full faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause (i)
maturing not more than three months from the date of acquisition thereof,
provided that the short-term unsecured debt obligations of the party
agreeing to repurchase such obligations are at the date of acquisition
rated by each Rating Agency in its highest short-term rating category
(which is "F1" for Fitch, "A-1+" for Standard & Poor's and "P-1" for
Moody's);
(iii) certificates of deposit, time deposits and bankers'
acceptances (which, if Xxxxx'x is a Rating Agency, shall each have an
original maturity of not more than 90 days and, in the case of bankers'
acceptances, shall in no event have an original maturity of more than 365
days) of any U.S. depository institution or trust company incorporated
under the laws of the United States or any state thereof and subject to
supervision and examination by federal and/or state banking authorities,
provided that the unsecured short-term debt obligations of such depository
institution or trust company at the date of acquisition thereof have been
rated by each of Moody's, Standard & Poor's and Fitch in its highest
unsecured short-term debt rating category;
(iv) commercial paper (having original maturities of not more than
270 days) of any corporation incorporated under the laws of the United
States or any state thereof which on the date of acquisition has been
rated by Fitch, Standard & Poor's and Moody's in their highest short-term
rating categories;
(v) short term investment funds sponsored by any trust company or
national banking association incorporated under the laws of the United
States or any state thereof which on the date of acquisition has been
rated by Fitch, Standard & Poor's and Moody's in their respective highest
rating category for long-term unsecured debt, or any other short-term
investment fund the funds in which are invested in securities rated in the
highest rating category by Fitch, Standard & Poor's and Moody's and which
mature on demand or prior to the next Payment Date;
(vi) interests in any money market fund which at the date of
acquisition has a rating of "Aaa" by Moody's and "AAA" by Fitch and
Standard & Poor's or such lower rating as will not result in the
qualification, downgrading or withdrawal of the then current rating
assigned to the Notes by each Rating Agency (without taking into account
the existence of the Note Guaranty Insurance Policy); and
(vii) other obligations or securities that are indebtedness in
registered form for U.S. federal income tax purposes and that are
reasonably acceptable to each Rating Agency and the Insurer (so long as no
Insurer Default exists and is continuing) as a Permitted Investment
hereunder and will not result in a reduction in the then-current rating of
the Notes, as evidenced by a confirmation or letter to such effect from
such Rating Agency (without taking into account the existence of the Note
Guaranty Insurance Policy);
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provided that no instrument described hereunder shall evidence either the right
to receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument if such interest and principal payments provide a
yield to maturity at par greater than 120% of the yield to maturity at par of
the underlying obligations; and provided, further, that no instrument described
hereunder may be purchased at a price greater than par if such instrument may be
prepaid or called at a price less than its purchase price prior to its stated
maturity.
Person: Any individual, corporation, partnership, joint venture, limited
partnership, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
Pool Balance: With respect to any date of determination, the aggregate of
the Principal Balances of all Home Equity Loans as of such date.
Preference Amount: As defined in Section 4.01(c).
Preferred Stock: As defined in Section 9.14.
Premium Amount: The premium payable to the Insurer pursuant to the
Insurance Agreement.
Principal Balance: As to any Home Equity Loan (other than a Liquidated
Home Equity Loan) and date, the related Cut-Off Date Principal Balance, minus
the sum of (x) all collections credited against the principal balance of such
Home Equity Loan in accordance with the terms of the related Mortgage Note and
(y) any related Charge Off Amounts credited against the principal balance of
such Home Equity Loan prior to such date. For purposes of this definition, a
Liquidated Home Equity Loan shall be deemed to have a Principal Balance equal to
the Principal Balance of the related Home Equity Loan immediately prior to the
final recovery of related Liquidation Proceeds and a Principal Balance of zero
thereafter.
Principal Collections: As to any Payment Date, the sum, without
duplication, of:
(i) the principal portion of all scheduled monthly payments on the Home
Equity Loans received by the Master Servicer during the related Collection
Period;
(ii) the principal portion of the Purchase Price for any Home Equity Loan
repurchased from the Trust pursuant to the terms of this Agreement during the
related Collection Period;
(iii) the principal portion of all Substitution Adjustment Amounts with
respect to the related Collection Period;
(iv) all Net Liquidation Proceeds (excluding Foreclosure Profits and
Recovered Charge Off Amounts) actually received by the Master Servicer during
the related Collection Period (to the extent such Net Liquidation Proceeds
relate to principal); and
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(v) the principal portion of all other unscheduled collections on the Home
Equity Loans received by the Master Servicer during the related Collection
Period (including, without limitation, full and partial prepayments of principal
made by the Mortgagors), to the extent not previously distributed.
Principal Payment Amount: As to any Payment Date, (i) the Principal
Collections for such Payment Date minus (ii) for Payment Dates occurring on and
after the Stepdown Date and for which a Trigger Event is not in effect, the
Overcollateralization Release Amount, if any.
Prospectus Supplement: The Prospectus Supplement, dated June 17, 2002, to
the Prospectus, dated May 23, 2002, relating to the offer and sale of the Notes.
Purchase Price: As to any Home Equity Loan purchased from the Trust on any
date pursuant to Section 2.02, 2.04 or 3.01 an amount equal to the sum of (i)
the Principal Balance thereof plus any related Charge Off Amount as of the end
of the related Collection Period preceding the date of repurchase, and (ii)
accrued and unpaid interest to the end of such Collection Period computed on a
daily basis at the Net Loan Rate on the Principal Balance outstanding from time
to time.
Rating Agencies: Xxxxx'x, Standard & Poor's and Fitch. If such agency or a
successor is no longer in existence, "Rating Agency" shall be such nationally
recognized statistical credit rating agency, or other comparable Person,
designated by the Depositor and reasonably acceptable to the Insurer (so long as
no Insurer Default exists and is continuing), notice of which designation shall
be given to the Indenture Trustee. References herein to the highest short term
unsecured rating category of a Rating Agency shall mean "P-1" or better in the
case of Moody's, "A-1+" or better in the case of Standard & Poor's and "F1" in
the case of Fitch and in the case of any other Rating Agency shall mean such
equivalent ratings. References herein to the highest long-term rating category
of a Rating Agency shall mean "AAA" in the case of Fitch and Standard & Poor's
and "Aaa" in the case of Moody's and in the case of any other Rating Agency,
such equivalent rating.
Realized Loss: With respect to (i) any Liquidated Home Equity Loan, the
unrecovered Principal Balance thereof at the end of the related Collection
Period in which such Home Equity Loan became a Liquidated Home Equity Loan and
(ii) any Charged-Off Home Equity Loan, the Charge Off Amount for the related
Collection Period.
Record Date: As to any Payment Date, the Business Day immediately
preceding such Payment Date; provided, however, that if any Notes become
Definitive Notes, the record date for such Notes will be the last Business Day
of the month immediately preceding the month in which the related Payment Date
occurs.
Recovered Charge Off Amount: As to any Home Equity Loan that became a
Liquidated Home Equity Loan in a Collection Period, the amount, if any, by which
(i) its Net Liquidation Proceeds that are allocable to principal in accordance
with the related Mortgage Note exceeds (ii) its Principal Balance immediately
prior to foreclosure up to an amount of all related Charge Off Amounts, but in
no event less than zero.
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Reimbursement Amount: The sum of (a) the aggregate unreimbursed amount of
any payments made by the Insurer under the Note Guaranty Insurance Policy,
together with interest on such amount from the date of payment by the Insurer
until paid in full at a rate of interest equal to the Late Payment Rate (as
defined in the Insurance Agreement), (b) all costs and expenses of the Insurer
in connection with any action, proceeding or investigation affecting the Trust
(or the assets of the Trust) or the rights or obligations of the Insurer
hereunder or under the Note Guaranty Insurance Policy or the Transaction
Documents, including (without limitation) any judgment or settlement entered
into affecting the Insurer or the Insurer's interests, together with interest
thereon at a rate equal to the Late Payment Rate and (c) any other amounts owed
to the Insurer under the Insurance Agreement, together with interest thereon at
a rate equal to the Late Payment Rate.
Related Documents: As defined in Section 2.01.
REO: A Mortgaged Property that is acquired by the Trust in a foreclosure
or by grant of deed in lieu of foreclosure.
Required Excess Cashflow: As to any Payment Date, means 2.5%, divided by
12, multiplied by the Pool Balance as of the first day of the related Collection
Period.
Responsible Officer: With respect to the Indenture Trustee, any officer
assigned to the corporate trust group (or any successor thereto), including any
vice president, assistant vice president, trust officer, assistant secretary or
any other officer of the Indenture Trustee customarily performing functions
similar to those performed by any of the above designated officers and having
direct responsibility for the administration of this Agreement. When used with
respect to the Master Servicer, the President or any Vice President, Assistant
Vice President, Treasurer, Assistant Treasurer or any Secretary or Assistant
Secretary.
SAIF: The Savings Association Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.
Sellers: Household Realty Corporation, Household Finance Corporation of
Alabama, Household Finance Corporation of California, Household Finance
Corporation II, Household Finance Corporation III, Household Finance Corporation
of West Virginia, Beneficial West Virginia, Inc., Household Finance Realty
Corporation of New York, Household Financial Center Inc., Household Finance
Realty Corporation of Nevada, Household Finance Industrial Loan Company of Iowa,
Household Finance Consumer Discount Company, Household Industrial Finance
Company and Mortgage One Corporation, doing business as HFC Mortgage Company.
Servicer: As to each Home Equity Loan, the related Seller that sold such
Home Equity Loan to the Depositor pursuant to the Home Equity Loan Purchase
Agreement.
Servicing Certificate: A certificate completed by and executed on behalf
of the Master Servicer in accordance with Section 3.18.
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Servicing Fee: The fee payable to the Master Servicer pursuant to Section
3.09, equal to 1/12th of the Servicing Fee Rate for each Home Equity Loan in the
Home Equity Loan Schedule multiplied by the outstanding Principal Balance of
such Home Equity Loan as of the first day of the related Collection Period.
Servicer Loss Test: The Servicer Loss Test is not satisfied if the
Cumulative Loss Percentage for the related Collection Period exceeds the
Cumulative Loss Percentage Trigger for such Collection Period.
Servicing Fee Rate: A rate equal to 0.50% per annum.
Servicing Officer: Any officer of the Master Servicer or other individual
designated by an officer of the Master Servicer involved in, or responsible for,
the administration and servicing of the Home Equity Loans, whose name and
specimen signature appear on a list of servicing officers furnished to the
Indenture Trustee (with a copy to the Insurer) on the Closing Date by the Master
Servicer, as such list may be amended from time to time.
Skip-A-Pay Advance: For any Collection Period, means the positive result,
if any, of the Required Excess Cashflow on the related Payment Date, minus the
Excess Cashflow on the related Payment Date. For the avoidance of doubt, if the
result of the foregoing calculation is not a positive number, the Skip-A-Pay
Advance for the related Collection Period shall be zero.
Skip-A-Pay Reimbursement Amount: As of any Payment Date means, the
positive result, if any, of the Excess Cashflow on such Payment Date, minus the
Required Excess Cashflow on such Payment Date.
Standard & Poor's: Standard & Poor's Ratings Services, a division of The
XxXxxx-Xxxx Companies, Inc., or any successor thereto.
Statistical Cut-Off Date: The close of business on June 2, 2002.
Stepdown Date: The later to occur of (a) the Payment Date in January 2005
and (b) the first Payment Date on which the Pool Balance has been reduced to
50.00% of the Cut-Off Date Pool Balance.
Subsequent Cut-Off Date: As to each Eligible Substitute Home Equity Loan,
the close of business on the day designated as the "Subsequent Cut-Off Date"
with respect to the Eligible Substitute Home Equity Loan.
Substitution Adjustment Amount: As to any Defective Home Equity Loan or
any Home Equity Loan for which the Master Servicer elects to substitute pursuant
to Section 2.02(b) and the date on which a substitution thereof occurs pursuant
to Sections 2.02 or 2.04, the sum of:
(i) the excess, if any, of (a) the Principal Balance of such
Defective Home Equity Loan or such elected Home Equity Loan plus any
related Charge Off Amount as of the end of the related Collection Period
preceding the date of substitution (after the
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application of any principal payments received on such Defective Home
Equity Loan or such elected Home Equity Loan on or before the date of the
substitution of the applicable Eligible Substitute Home Equity Loan or
Loans) over (b) the aggregate Principal Balance of the applicable Eligible
Substitute Home Equity Loan or Loans, plus
(ii) accrued and unpaid interest to the end of such Collection
Period computed on a daily basis at the Net Loan Rate on the Principal
Balance of such Defective Home Equity Loan or such elected Home Equity
Loan outstanding from time to time.
Supplemental Interest Amount: As of any Payment Date, the sum of (i) the
excess, if any, of (a) interest due on the Notes at the Formula Rate over (b)
interest due on the Notes at an interest rate equal to the Available Funds Cap,
(ii) any Supplemental Interest Amount remaining unpaid from prior Payment Dates
and (iii) interest on the amount in clause (ii) at the Formula Rate.
Targeted Overcollateralization Amount:
(a) On the Closing Date, the Targeted Overcollateralization Amount shall
be an amount equal to the Initial Targeted Overcollateralization Amount;
(b) For each Payment Date prior to the Stepdown Date, the Targeted
Overcollateralization Amount shall be an amount equal to the Base Targeted
Overcollateralization Amount;
(c) For each Payment Date occurring on and after the Stepdown Date, and
assuming a Trigger Event is not in effect, the Targeted Overcollateralization
Amount shall be an amount equal to the greatest of (i) 20.00% of the Pool
Balance as of the end of the related Collection Period, (ii) 0.50% of the
Cut-Off Date Pool Balance and (iii) the sum of outstanding Principal Balances of
the three largest Home Equity Loans as of the end of the related Collection
Period;
provided, however, for any Payment Date occurring after the Stepdown Date, if a
Trigger Event has occurred and is continuing, the Targeted Overcollateralization
Amount shall be no less than the Targeted Overcollateralization Amount as of the
previous Payment Date; provided, further, for any Payment Date on which the
Cumulative Loss Percentage exceed the following percentages during the specified
periods
Collection Period Percentage
----------------- ----------
1-24 5.50%
25 and thereafter 11.00%
the Targeted Overcollateralization Amount shall be an amount equal to the
product of (i) 12.50% and (ii) the Cut-Off Date Pool Balance.
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The Insurer may, in its sole discretion, and at the request of Master Servicer,
modify the definition of Targeted Overcollateralization Amount, including any of
the defined terms contained therein, for the purpose of reducing or eliminating,
in whole or in part, its application, and the Indenture Trustee, the Owner
Trustee and each of the Rating Agencies shall be notified, in writing, of such
modifications prior to the related Payment Date and such modification shall not
result in a downgrading of the then-current rating on the Notes.
Termination Price: As defined in Section 8.01(b).
Transaction Documents: This Agreement, the Home Equity Loan Purchase
Agreement, the Transfer Agreement, the Insurance Agreement, the Indemnification
Agreement, the Trust Agreement and the Indenture.
Transfer Agreement: The transfer agreement dated as of June 20, 2002
between the Trust and each Seller pursuant to which the Sellers will assign to
the Trust all of their right, title and interest in and on the Transferred
Assets not otherwise transferred pursuant to the Home Equity Loan Purchase
Agreement.
Transfer Date: As to any Home Equity Loan transferred to or retransferred
from the Trust hereunder, the date on which such transfer or retransfer is made
under the terms hereof, which date shall be (i) in the case of the Home Equity
Loans originally listed on the Home Equity Loan Schedule, the Closing Date, and
(ii) in the case of any Eligible Substitute Home Equity Loan, the date on which
such Eligible Substitute Home Equity Loan is conveyed to the Trust under the
terms hereof.
Transferor: The Depositor, or any such permitted holder of the Ownership
Interest.
Transferred Assets: All aspects, rights, title or interests of, in, to or
under the Home Equity Loans that are not otherwise conveyed hereunder pursuant
to Section 2.01, including, without limitation, all agreements, instruments and
other documents evidencing or governing the Mortgagor's obligations under the
Home Equity Loans or otherwise related thereto or establishing or setting forth
the terms and conditions thereof, and any amendments or modifications thereto,
and all property and collateral securing the borrowers obligations thereunder.
Trigger Event: Any Payment Date on which either (i) the Ninety Day-Plus
Rolling Average equals or exceeds 7.00% of the Pool Balance as of the end of the
preceding Collection Period or (ii) the Cumulative Loss Percentage for the
preceding Collection Period exceeds the Cumulative Loss Percentage Trigger for
such Collection Period.
Trust: The trust created by the Trust Agreement, the corpus of which
consists of the Home Equity Loans, such assets as shall from time to time be
identified as deposited in the Collection Account (exclusive of net earnings
thereon), the Mortgage Notes and other Mortgage File documents for the Home
Equity Loans, any property that secured a Home Equity Loan and that has become
REO, the interest of the Depositor in certain hazard insurance policies
maintained by the Mortgagors or the Master Servicer in respect of the Home
Equity Loans, the
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Collection Account, the Note Guaranty Insurance Policy, the proceeds of each of
the foregoing and one share of Preferred Stock of the Depositor.
Trust Agreement: The Trust Agreement dated as of June 12, 2002, and
amended and restated as of June 20, 2002 among Household Finance Corporation,
the Depositor, Bank One, National Association, as co-trustee and not in its
individual capacity, the Delaware Trustee and the Owner Trustee.
UCC: The Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.
Section 1.02 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein have
the meanings assigned to them in the Indenture and the Trust Agreement, as
applicable.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this 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 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 Agreement or
in any such certificate or other document shall control.
(d) The words "hereof", "herein", "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Article, Section, Schedule and
Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the terms "including" and "includes" shall mean "including
without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine genders of such terms.
(f) 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.
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Section 1.03 Interest Calculations. All calculations of interest hereunder
that are made in respect of the Principal Balance of a Home Equity Loan shall be
made based on the number of days elapsed between the date that interest was last
paid on such Home Equity Loan and the date of receipt of the related Mortgagor's
most current payment. All calculations of interest on the Notes shall be made on
the basis of a 360-day year and the actual number of days in the related Accrual
Period. The calculation of the Premium Amount 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 down.
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ARTICLE II
Conveyance of Home Equity Loans; Tax Treatment
Section 2.01 Acknowledgment; Conveyance of Home Equity Loans; Custody of
Mortgage Files.
(a) The Depositor, concurrently with the execution and delivery of this
Agreement, does hereby irrevocably transfer, assign, sell, set over and
otherwise convey to the Trust for the benefit of the Noteholders and the Insurer
without recourse (subject to Sections 2.02 and 2.04) (i) all of its right, title
and interest in and to the unpaid principal balance of each Home Equity Loan and
each Eligible Substitute Home Equity Loan, including all Interest Collections
and Principal Collections in respect of any such Home Equity Loan received after
the Cut-Off Date with respect to each Initial Home Equity Loan and after the
Subsequent Cut-Off Date with respect to each Eligible Substitute Home Equity
Loan pursuant to the Home Equity Loan Purchase Agreement; (ii) property which
secured such Home Equity Loan and which has been acquired by foreclosure or deed
in lieu of foreclosure; (iii) its interest in any insurance policies in respect
of the Home Equity Loans (including any Insurance Proceeds); (iv) all other
assets included or to be included in the Trust for the benefit of the
Noteholders, the Insurer and the Transferor; (v) all proceeds of any of the
foregoing; and (vi) one share of the Depositor's Preferred Stock. In addition,
on or prior to the Closing Date, the Depositor shall cause the Insurer to
deliver the Note Guaranty Insurance Policy to the Indenture Trustee.
(b) The Depositor agrees to take, or to cause to be taken, such actions
and to execute such documents, including without limitation the filing of all
necessary continuation statements for the UCC-1 financing statement filed in the
State of Illinois and the State of Delaware, as applicable (which shall have
been filed as promptly as practicable, but in no event later than 10 days
following the effective date of this Agreement), describing the Home Equity
Loans and naming the Depositor as seller and the Trust as buyer, and any
amendments or other filings to the UCC-1 financing statement required to reflect
a change in the applicable UCC, or a change of the name or corporate structure
of the Depositor, as are necessary to perfect and protect the Noteholders' and
the Insurer's interests in the Trust created hereunder, including each Home
Equity Loan and the proceeds thereof (other than delivering to the Indenture
Trustee possession of the Mortgage Files, which possession will, subject to the
terms hereof, be maintained by the Servicers on behalf of the Master Servicer as
custodian and bailee for the Indenture Trustee). The parties hereto intend that
the transactions set forth herein constitute a sale and not a pledge by the
Depositor to the Trust of all the Depositor's right, title and interest in and
to the Home Equity Loans and other Trust property as and to the extent described
above. In the event the transactions set forth herein are characterized as a
pledge and not a sale, the Depositor hereby grants to the Trust a security
interest in all of the Depositor's right, title and interest in, to and under
the Home Equity Loans and such other Trust property, to secure all of the
Depositor's obligations hereunder, and this Agreement shall constitute a
security agreement under applicable law. With respect to the Home Equity Loans
sold by each Seller to the Depositor, the Master Servicer shall cause such
Seller to file as promptly as practicable, but in no event later than ten days
following the effective date of this Agreement, in the appropriate public filing
office or
23
offices UCC-1 financing statements and continuation statements describing such
Home Equity Loans and naming such Seller as seller and the Depositor as buyer,
to file appropriate continuation statements thereto, to file amendments thereto
in the case of a change in the applicable UCC, name change or change in
corporate structure and to file appropriate additional UCC-1 financing
statements, if any, if such Seller changes its jurisdiction of incorporation.
(c) In connection with such transfer and assignment by the Depositor and
the Master Servicer, acting through the Servicers, the Indenture Trustee and the
Master Servicer hereby acknowledge that the Servicers are holding, with respect
to the Home Equity Loans transferred on the Closing Date, and will hold, with
respect to each Eligible Substitute Home Equity Loan, on and from the applicable
Transfer Date, as custodian and bailee for the Indenture Trustee, the following
documents or instruments with respect to each such Home Equity Loan (the
"Related Documents"):
(i) the original Mortgage Note with all intervening
endorsements showing a complete chain of title from the
originator of such Home Equity Loan to the Seller or a copy of
such original Mortgage Note with an accompanying lost note
affidavit;
(ii) the original Mortgage, noting the presence of the MIN of
the Home Equity Loan, if the Mortgage is registered on the
MERS(R) System, and language indicating that the Home Equity
Loan is a MOM Loan if the Home Equity Loan is a MOM Loan, with
evidence of recording thereon, provided that if the original
Mortgage has been delivered for recording to the appropriate
public recording office of the jurisdiction in which the
Mortgaged Property is located but has not yet been returned to
the Seller by such recording office, the Seller may hold a
copy of such original Mortgage; and
(iii) originals of any amendments to the Mortgage Note or
Mortgage, any modification or assumption agreements and any
previous assignments of such Home Equity Loan;
provided, however, that as to any Home Equity Loan, if, as evidenced by an
Opinion of Counsel delivered to and in form and substance reasonably
satisfactory to the Owner Trustee, the Indenture Trustee and the Insurer, (x) an
optical image or other electronic representation of the related documents
specified in clauses (i) through (iii) above are enforceable in the relevant
jurisdictions to the same extent as the original of such document and (y) such
optical image or other representation does not impair the ability of an owner of
such Home Equity Loan to transfer its interest in such Home Equity Loan, such
optical image or other representation may be held by the Master Servicer, acting
through the Servicers, as custodian and bailee for the Indenture Trustee, in
lieu of the physical documents specified above.
(d) Except as hereinafter provided, the Master Servicer, acting through
the Servicers, shall be entitled to maintain possession of all of the foregoing
documents and instruments, shall not be required to deliver any of them to the
Indenture Trustee or the Owner Trustee and shall
24
not be required to record an Assignment of Mortgage in favor of the Indenture
Trustee or the Owner Trustee with respect to any Home Equity Loan. In the event,
however, that possession of any of such documents or instruments is required by
any Person (including the Indenture Trustee) acting as successor master servicer
pursuant to Section 6.04 or 7.02 in order to carry out the duties of Master
Servicer hereunder, then such successor shall be entitled to request delivery,
at the expense of the Master Servicer, of such documents or instruments by the
Master Servicer and to retain such documents or instruments for servicing
purposes; provided that the Indenture Trustee or such servicers shall maintain
such documents at such offices as may be required by any regulatory body having
jurisdiction over such Home Equity Loans.
(e) The Master Servicer's right to maintain possession, directly or
through the Servicers, of the Mortgage Files shall continue so long as (x) at
least two of Xxxxx'x, Standard & Poor's and Fitch assign a long-term senior
unsecured debt rating to HFC of at least "Baa3", in the case of Xxxxx'x, "BBB",
in the case of Fitch, and "BBB-", in the case of Standard & Poor's, (or such
lower rating acceptable and assigned by at least two of Xxxxx'x, Standard &
Poor's and Fitch and, so long as no Insurer Default exists and is continuing,
acceptable to the Insurer) and (y) each of the Servicers remains an Affiliate of
HFC. At such time as either of the conditions specified in the preceding
sentence is not satisfied, as promptly as practicable, but in no event more than
90 days thereafter in the case of clause (i) below and 60 days in the case of
clause (ii) below, the Master Servicer shall cause each Servicer, at such
Servicer's expense or, to the extent the Servicer fails to pay, the Master
Servicer's expense, to (i) either (x) record an Assignment of Mortgage in favor
of the Trust (which may be a blanket assignment if permitted by applicable law)
with respect to each of the Home Equity Loans being serviced by such Servicer in
the appropriate real property or other records or (y) deliver to the Indenture
Trustee the assignment of such Mortgage in favor of the Trust in form for
recordation, together with an Opinion of Counsel addressed to the Indenture
Trustee and the Insurer to the effect that recording is not required to protect
the Trust's right, title and interest in and to the related Home Equity Loan or
to perfect a first priority security interest in favor of the Trust in the
related Home Equity Loan, which Opinion of Counsel also shall be reasonably
acceptable to each of the Rating Agencies, the Owner Trustee, the Indenture
Trustee and the Insurer (as evidenced in writing), and (ii) unless an Opinion of
Counsel, reasonably acceptable to the Owner Trustee, the Indenture Trustee and
the Rating Agencies and the Insurer (as evidenced in writing), is delivered to
the Indenture Trustee and the Insurer to the effect that delivery of the
Mortgage Files is not necessary to protect the Trust's right, title and interest
in and to the related Home Equity Loans or to perfect a first priority security
interest in favor of the Trust in the related Home Equity Loans, deliver the
related Mortgage Files to the Indenture Trustee to be held by the Indenture
Trustee in trust, upon the terms herein set forth, for the use and benefit of
all present and future Noteholders and the Insurer, and the Indenture Trustee
shall retain possession thereof except to the extent the Master Servicer or
Servicers require any Mortgage Files for normal servicing as contemplated by
Section 3.08. The Master Servicer shall cause the Servicers to appoint the
Indenture Trustee their attorney-in-fact to prepare, execute and record any
assignments of Mortgages required under this Section 2.01 in the event that the
Servicers or the Master Servicer should fail to do so on a timely basis.
25
(f) Within 90 days following delivery, if any, of the Mortgage Files to
the Indenture Trustee pursuant to the preceding subsection, the Indenture
Trustee shall review each such Mortgage File to ascertain that all required
documents set forth in this Section 2.01 have been executed and received and
that such documents relate to the Home Equity Loans identified on the Home
Equity Loan Schedule, and in so doing the Indenture Trustee may rely on the
purported due execution and genuineness of any signature thereon. If within such
90-day period the Indenture Trustee finds any document constituting a part of a
Mortgage File not to have been executed or received or to be unrelated to the
Home Equity Loans identified in said Home Equity Loan Schedule or, if in the
course of its review, the Indenture Trustee determines that such Mortgage File
is otherwise defective in any material respect, the Indenture Trustee shall
promptly upon the conclusion of its review notify the Owner Trustee, the
Depositor, the Insurer and the Master Servicer, the Depositor and the Master
Servicer shall have a period of 90 days after such notice within which to
correct or cure any such defect; provided, however, that if such defect shall
not have been corrected or cured within such 90-day period due to the failure of
the related office of real property or other records to return any document
constituting a part of a Mortgage File, the Depositor or the Master Servicer
shall so notify the Owner Trustee, the Indenture Trustee and the Insurer and the
period during which such defect may be corrected or cured shall be extended for
one additional 90-day period.
(g) The Indenture Trustee shall have no responsibility for reviewing any
Mortgage File except as expressly provided in this Section 2.01. In reviewing
any Mortgage File pursuant to this Section 2.01, the Indenture Trustee shall
have no responsibility for determining whether any document is valid and
binding, whether the text of any assignment or endorsement is in proper or
recordable form (except, if applicable, to determine if the Trust is the
assignee or endorsee), whether any document has been recorded in accordance with
the requirements of any applicable jurisdiction, or whether a blanket assignment
is permitted in any applicable jurisdiction, whether any Person executing any
document is authorized to do so or whether any signature thereon is genuine, but
shall only be required to determine whether a document has been executed, that
it appears to be what it purports to be and, where applicable, that it purports
to be recorded.
(h) The Master Servicer hereby confirms to the Indenture Trustee, the
Owner Trustee and the Insurer that on or prior to the Closing Date and on or
prior to the applicable Transfer Date with respect to any Eligible Substitute
Home Equity Loan, the portions of the Electronic Ledger relating to such Home
Equity Loans have been or will have been clearly and unambiguously marked, and
the appropriate entries have been or will have been made in its general
accounting records, to indicate that such Home Equity Loans have been
transferred to the Trust and constitute part of the Trust in accordance with the
terms hereof.
(i) In connection with the assignment, pursuant to Section 2.01(e)(i), of
any Home Equity Loan registered on the MERS(R) System, the Master Servicer shall
cause each Servicer, at such Servicer's expense or, to the extent the Servicer
fails to pay, the Master Servicer's expense, at the time specified in the second
sentence of Section 2.01(e)(i), to cause the MERS(R) System to indicate that
such Home Equity Loans have been assigned to the Trust in
26
accordance with this Agreement by including (or deleting, in the case of Home
Equity Loans which are repurchased in accordance with this Agreement) in such
computer files (a) the code "[IDENTIFY TRUST SPECIFIC CODE]" in the field
"[IDENTIFY THE FIELD NAME FOR TRUST]" which identifies the Trust and (b) the
code "[IDENTIFY SERIES SPECIFIC CODE NUMBER]" in the field "Pool Field" which
identifies the series of the Notes issued in connection with such Home Equity
Loans. The Master Servicer agrees that it will not alter the codes referenced in
this paragraph with respect to any Home Equity Loan during the term of this
Agreement unless and until such Home Equity Loan is repurchased in accordance
with the terms of this Agreement, and there is filed any financing statement or
amendment thereof necessary to comply with the New York UCC or the UCC of any
applicable jurisdiction.
Section 2.02 Acceptance by Indenture Trustee; Repurchase of Home Equity
Loans; Conveyance of Eligible Substitute Home Equity Loans.
(a) The Indenture Trustee hereby acknowledges receipt, as assignee of the
Trust, of all the right, title and interest of the Depositor in and to the
assets described Section 2.01(a)(i) through (vi), and all of the right, title
and interest of the Sellers in and to the Transferred Assets pursuant to the
Transfer Agreement, including but not limited to the transfer and assignment of
the Mortgage Notes and the Mortgages, and declares that it holds and will hold
such documents and interests and all amounts received by it in trust, upon the
terms herein set forth, for the use and benefit of all present and future
Noteholders and the Insurer. If the time to cure any defect of which the
Indenture Trustee or the Insurer has notified the Depositor, the Master Servicer
and the Insurer following the Indenture Trustee's review of the Home Equity Loan
files pursuant to Section 2.01 has expired or if any loss is suffered by the
Indenture Trustee, on behalf of the Noteholders or the Insurer, in respect of
any Home Equity Loan as a result of (i) a defect in any document constituting a
part of a Mortgage File or (ii) the related Seller's retention of such Mortgage
File or an Assignment of Mortgage not having been recorded, the Depositor or, to
the extent the Depositor fails to perform, the Master Servicer shall, in the
case of a defect in such document and the Master Servicer shall, in the case of
a loss resulting from such Seller's retention of a Mortgage File or Assignment
of Mortgage not having been recorded, on the Business Day next preceding the
Payment Date in the month following the end of the Collection Period in which
the time to cure such defect expired or such loss occurred, either (i)
repurchase the related Home Equity Loan (a "Defective Home Equity Loan")
(including any property acquired in respect thereof and any insurance policy or
insurance proceeds with respect thereto) from the Trust at a price equal to the
Purchase Price which shall be accomplished by deposit by the Depositor or the
Master Servicer, as applicable, in the Collection Account pursuant to Section
3.02 on such next preceding Business Day, or (ii) remove such Defective Home
Equity Loan from the Trust and substitute in its place an Eligible Substitute
Home Equity Loan or Loans.
(b) The Master Servicer, in its sole discretion, shall have the right, but
not the obligation, to elect (by written notice sent to the Indenture Trustee
and the Owner Trustee) to substitute in the place of any Home Equity Loan an
Eligible Substitute Home Equity Loan or Loans; provided that the aggregate
Principal Balance as of the related subsequent Cut-Off Date of all Eligible
Substitute Home Equity Loans substituted pursuant to this Section shall not
exceed
27
30% of the Cut-Off Date Pool Balance; provided further that prior to any such
substitution the Master Servicer shall give prompt written notice to each Rating
Agency of any such substitution.
(c) As to any Eligible Substitute Home Equity Loan or Loans, the Master
Servicer shall cause the related Seller to deliver to the Indenture Trustee with
respect to such Eligible Substitute Home Equity Loan or Loans an acknowledgment
that the related Seller is holding as custodian for the Indenture Trustee such
documents and agreements, if any, as are permitted to be held by the related
Seller in accordance with Section 2.01. An assignment of the Mortgage in favor
of the Trust with respect to such Eligible Substitute Home Equity Loan or Loans
shall be required to be recorded in the appropriate real property or other
records or delivered to the Indenture Trustee with the Opinion of Counsel
referred to in Section 2.01 under the same circumstances that all other
assignments of Mortgage are required to be recorded hereunder. For any
Collection Period during which the Depositor or the Master Servicer substitutes
one or more Eligible Substitute Home Equity Loans, the Master Servicer shall
determine the Substitution Adjustment Amount. The Depositor or the Master
Servicer, as applicable, shall deposit the Substitution Adjustment Amount in the
Collection Account no later than the Business Day immediately preceding the
Payment Date in the month following the end of the Collection Period in which
such substitution occurs. The Master Servicer shall amend the Home Equity Loan
Schedule to reflect the removal of the Defective Home Equity Loan or Home Equity
Loan for which the Master Servicer has made a substitution election pursuant to
Section 2.02(b) from the terms of this Agreement and the substitution of the
Eligible Substitute Home Equity Loan or Loans. Upon such substitution, the
Eligible Substitute Home Equity Loan or Loans shall be subject to the terms of
this Agreement in all respects, and the Depositor shall be deemed to have made
with respect to such Eligible Substitute Home Equity Loan or Loans, as of the
date of substitution, the covenants, representations and warranties set forth in
Section 2.04(b). The Indenture Trustee shall upon satisfaction of the conditions
in this subsection immediately take any action requested by the Depositor, if
any, to effect the reconveyance of such Defective Home Equity Loan or such Home
Equity Loan for which the Master Servicer has made a substitution election so
removed from the Trust to the Depositor or the Master Servicer, as applicable.
The procedures applied by the Depositor or the Master Servicer in selecting each
Eligible Substitute Home Equity Loan shall not be adverse to the interests of
the Noteholders or, so long as no Insurer Default exists and is continuing, the
Insurer and shall be comparable to the selection procedures applicable to the
Home Equity Loans originally conveyed hereunder.
(d) Upon receipt by the Indenture Trustee of (i) in the case of a
repurchase, a Servicing Certificate to the effect that the Purchase Price for
any such Defective Home Equity Loan or such Home Equity Loan for which the
Master Servicer has made a substitution election has been so deposited in the
Collection Account or (ii) in the case of a substitution, (A) a Servicing
Certificate to the effect that the Substitution Adjustment Amount, if any, has
been so deposited in the Collection Account and (B) an Officer's Certificate
reciting the transfer and assignment of the Eligible Substitute Home Equity
Loan(s) to the Indenture Trustee and, if required at such time, that the related
Mortgage File(s) for such Eligible Substitute Home Equity Loan(s) have been
delivered to the Indenture Trustee and the assignment(s) of Mortgage have been
recorded, the Indenture Trustee shall execute and deliver such instrument of
transfer or assignment presented to it by the Master Servicer, in each case
without recourse, as shall be
28
necessary to vest in the Depositor or the Master Servicer, as applicable, legal
and beneficial ownership of such Defective Home Equity Loan or such Home Equity
Loan for which the Master Servicer has made a substitution election (including
any property acquired in respect thereof or proceeds of any insurance policy
with respect thereto). It is understood and agreed that the obligation of the
Depositor or the Master Servicer to repurchase or substitute for (to the extent
permitted herein) any Defective Home Equity Loan shall constitute the sole and
exclusive remedy respecting such defect available to Noteholders, the Insurer or
the Indenture Trustee against the Depositor or the Master Servicer, and such
obligation on the part of the Master Servicer shall survive any resignation or
termination of the Master Servicer hereunder.
Section 2.03 Representations, Warranties and Covenants of the Master
Servicer. The Master Servicer represents, warrants and covenants that as of the
Closing Date:
(a) The Master Servicer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power to own its assets and to transact the business in which it is
currently engaged. The Master Servicer is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
character of the business transacted by it or properties owned or leased by it
require such qualification 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 Master Servicer;
(b) The Master Servicer has the power and authority to make, execute,
deliver and perform its obligations under this Agreement and to perform its
obligations with respect to all of the transactions contemplated under this
Agreement, and has taken all necessary corporate action to authorize the
execution, delivery and performance of its obligations under this Agreement.
When executed and delivered, this Agreement will constitute the legal, valid and
binding obligation of the Master Servicer enforceable in accordance with its
terms, except as enforcement of such terms may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally and by the availability of equitable remedies (whether in a proceeding
at law or in equity);
(c) The Master 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
Agreement, except for such consents, licenses, approvals or authorizations, or
registrations or declarations, as shall have been obtained or filed, as the case
may be;
(d) The execution and delivery of this Agreement and the performance of
the transactions contemplated hereby by the Master Servicer will not violate any
provision of any existing law or regulation or any order or decree of any court
applicable to the Master Servicer or any provision of the Certificate of
Incorporation or Bylaws of the Master Servicer, or constitute a material breach
of any mortgage, indenture, contract or other agreement to which the Master
Servicer is a party or by which the Master Servicer may be bound; and
29
(e) No litigation or administrative proceeding of or before any court,
tribunal or governmental body is currently pending, or to the knowledge of the
Master Servicer threatened, against the Master Servicer or any of its properties
or with respect to this Agreement or the Notes which in the opinion of the
Master Servicer has a reasonable likelihood of resulting in a material adverse
effect on the transactions contemplated by this Agreement.
(f) The Master Servicer is a member of MERS in good standing, and will
comply in all material respects with the rules and procedures of MERS in
connection with the servicing of the Home Equity Loans that are registered with
MERS.
The representations and warranties set forth in this Section 2.03 shall
survive the sale and assignment of the Home Equity Loans to the Trust. Upon
discovery of a breach of any representations and warranties which materially and
adversely affects the interests of the Noteholders or the Insurer, the Person
discovering such breach shall give prompt written notice to the other parties
and the Insurer. Within 60 days (or such longer period as permitted by prior
written consent of a Responsible Officer of the Indenture Trustee) of its
discovery or its receipt of notice of such breach, the Master Servicer shall
cure such breach in all material respects.
Section 2.04 Representations and Warranties of the Depositor Regarding
this Agreement and the Home Equity Loans; Repurchases and Substitutions.
(a) The Depositor represents and warrants that as of the Closing Date:
(i) The Depositor is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and has the corporate power to own its assets and to
transact the business in which it is currently engaged. The
Depositor is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in
which the character of the business transacted by it or
properties owned or leased by it require such qualification
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 Depositor;
(ii) The Depositor has the power and authority to make,
execute, deliver and perform its obligations under this
Agreement and to perform its obligations with respect to all
of the transactions contemplated under this Agreement, and has
taken all necessary corporate action to authorize the
execution, delivery and performance of its obligations under
this Agreement. When executed and delivered, this Agreement
will constitute the legal, valid and binding obligation of the
Depositor enforceable in accordance with its terms, except as
enforcement of such terms may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of
creditors' rights generally and by the availability of
equitable remedies (whether in a proceeding at law or in
equity);
30
(iii) The Depositor 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 Agreement, except for such consents,
licenses, approvals or authorizations, or registrations or
declarations, as shall have been obtained or filed, as the
case may be;
(iv) The execution and delivery of this Agreement and the
performance of the transactions contemplated hereby by the
Depositor will not violate any provision of any existing law
or regulation or any order or decree of any court applicable
to the Depositor or any provision of the Certificate of
Incorporation or Bylaws of the Depositor, or constitute a
material breach of any mortgage, indenture, contract or other
agreement to which the Depositor is a party or by which the
Depositor 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 Depositor threatened, against the
Depositor or any of its properties or with respect to this
Agreement which in the opinion of the Depositor has a
reasonable likelihood of resulting in a material adverse
effect on the transactions contemplated by this Agreement.
(b) The Depositor represents and warrants with respect to each Home Equity
Loan that as of the Closing Date with respect to the Initial Home Equity Loans
and the applicable Transfer Date with respect to any Eligible Substitute Home
Equity Loans (or to the extent expressly stated herein as of such other time):
(i) This Agreement and the Transfer Agreement constitute a
valid transfer and assignment to the Trust of all right, title
and interest of the Depositor and the Sellers, respectively,
in and to the Home Equity Loans, all monies due or to become
due with respect thereto, all proceeds thereof, such funds as
are from time to time deposited in the Collection Account
(excluding any investment earnings thereon) and all other
property specified in the definition of "Trust" as being part
of the corpus of the Trust conveyed to the Trust by the
Depositor;
(ii) The information set forth in the Home Equity Loan
Schedule with respect to such Home Equity Loan is true and
correct in all material respects;
(iii) Immediately prior to the transfer and assignment by the
related Seller to the Depositor and the Trust pursuant to the
Home Equity Loan Purchase Agreement and the Transfer
Agreement, the Home Equity Loan has not been assigned or
pledged, and the related Seller has good and marketable title
thereto, and the related Seller is the sole owner and holder
of such
31
Home Equity Loan free and clear of any and all liens, claims,
encumbrances, participation interests, equities, pledges,
charges or security interests of any nature, and has full
right and authority, under all governmental and regulatory
bodies having jurisdiction over the ownership of such Home
Equity Loan, to transfer and assign the same pursuant to the
Home Equity Loan Purchase Agreement and the Transfer
Agreement;
(iv) Immediately prior to the transfer and assignment by the
Depositor to the Trust pursuant to this Agreement, the Home
Equity Loan has not been assigned or pledged, and the
Depositor has good and marketable title thereto, and the
Depositor is the sole owner and holder of such Home Equity
Loan free and clear of any and all liens, claims,
encumbrances, participation interests, equities, pledges,
charges or security interests of any nature, and has full
right and authority, under all governmental and regulatory
bodies having jurisdiction over the ownership of such Home
Equity Loan, to transfer and assign the same pursuant to this
Agreement;
(v) The related Mortgage is a valid and existing first or
second lien, as set forth on the Home Equity Loan Schedule
with respect to such Home Equity Loan, on the property therein
described, and the related Mortgaged Property is free and
clear of all encumbrances and liens having priority over the
first or second lien, as applicable, of such Mortgage except
for liens for (a) real estate taxes and special assessments
not yet delinquent; (b) any first and, if applicable, second
mortgage loan secured by such Mortgaged Property and specified
on the Home Equity Loan Schedule; (c) covenants, conditions
and restrictions, rights of way, easements and other matters
of public record as of the date of recording that are
acceptable to mortgage lending institutions generally; and (d)
other matters to which like properties are commonly subject
which do not materially interfere with the benefits of the
security intended to be provided by such Mortgage;
(vi) To the best knowledge of the Depositor, each Mortgage is
not subject to any offset, defense, right of rescission or
counterclaim by any obligor under the Mortgage and there are
no proceedings threatened or pending by any obligor or
governmental agency which allege the Mortgage is illegal or
unenforceable;
(vii) To the best knowledge of the Depositor, there is no
delinquent recording or other tax or fee or assessment lien or
any other governmental charge against the related Mortgaged
Property;
(viii) To the best knowledge of the Depositor, there is no
proceeding pending or threatened for the total or partial
condemnation of the related
32
Mortgaged Property, and such property is free of material
damage and is in good repair;
(ix) There are no mechanics' or similar liens or claims which
have been filed for work, labor or material affecting the
related Mortgaged Property which are, or may be, liens prior
or equal to the lien of the related Mortgage, except (a) liens
which are fully insured against by the title insurance policy
referred to in clause (xiii) or (b) liens which do not
materially interfere with the collection of the Home Equity
Loan upon foreclosure or otherwise;
(x) As of the Cut-Off Date for the Initial Home Equity Loans
(or as of the applicable Transfer Date for any Eligible
Substitute Home Equity Loan), no scheduled monthly payment is
more than 30 days delinquent (measured on a contractual
basis);
(xi) The related Mortgage File contains each of the documents
and instruments specified to be included therein (including,
if applicable, an appraisal (which may be an appraisal
prepared using a statistical data base));
(xii) The related Mortgage Note and the related Mortgage at
the time they were made complied in all material respects with
applicable local, state and federal laws, excluding usury,
truth-in-lending, real estate settlement procedures, consumer
credit protection, equal credit opportunity or disclosure laws
applicable to the Home Equity Loan;
(xiii) A lender's title insurance policy or binder was issued
on the date of origination of each Home Equity Loan for home
equity loans in excess of $50,000 (in excess of $75,000 in
Oklahoma), and each such policy is valid and remains in full
force and effect, and a title search or other assurance of
title customary in the relevant jurisdiction was obtained with
respect to each Home Equity Loan as to which no title
insurance policy or binder was issued;
(xiv) The related Mortgaged Property is not a mobile home or a
manufactured housing unit that is not permanently attached to
its foundation;
(xv) The Principal Balance of which, when included in the Pool
Balance (in each case for the Initial Home Equity Loans as of
the Statistical Cut-Off Date), would not cause the aggregate
Principal Balance of the Initial Home Equity Loans that are
secured by Mortgaged Properties located in one United States
postal zip code to exceed 0.25%;
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(xvi) As of the Statistical Cut-Off Date, the Combined
Loan-to-Value Ratio for each Initial Home Equity Loan was not
in excess of 115%;
(xvii) No selection procedure adverse to the interests of the
Noteholders or the Insurer was utilized in selecting the Home
Equity Loan;
(xviii) The Depositor has not transferred the Home Equity
Loans to the Trust with any intent to hinder, delay or defraud
any of its creditors;
(xix) Each Mortgage Note and each Mortgage is in substantially
the form previously provided to the Indenture Trustee by the
Depositor and each Home Equity Loan is an enforceable
obligation of the related Mortgagor;
(xx) The Depositor has not received a notice of default of any
senior mortgage loan with respect to the related Mortgaged
Property that has not been cured by a party other than the
related Seller;
(xxi) The Initial Home Equity Loan does not have an original
term to maturity in excess of 360 months; and the Principal
Balance of which, when included in the Pool Balance (in each
case for the Initial Home Equity Loans as of the Statistical
Cut-off Date), would not cause the weighted average remaining
term to maturity of the Initial Home Equity Loans on a
contractual basis to be greater than 299 months;
(xxii) The related Mortgaged Property consists of a single
parcel of real property with a one-to-four unit single family
residence erected thereon, or an individual condominium unit,
planned unit development unit or townhouse;
(xxiii) The Principal Balance of which, when included in the
Pool Balance (in each case for the Initial Home Equity Loans
as of the Statistical Cut-Off Date), would not cause the
average Principal Balance of such Home Equity Loans to be
greater than $98,062;
(xxiv) The Principal Balance of which, when included in the
Pool Balance (in each case for the Initial Home Equity Loans
as of the Cut-Off Date), would not cause the weighted average
percentage of the Initial Home Equity Loans secured by first
liens to be less than 87.60%; and would not cause the weighted
average percentage of the Initial Home Equity Loans secured by
second liens to be greater than 12.40%;
(xxv) The Mortgaged Property is free from any and all toxic or
hazardous substances and there exists no violation of any
local, state or federal environmental law, rule or regulation;
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(xxvi) The related Mortgage Note and the related Mortgage at
the time they were made complied in all respects with
applicable local, state and federal laws relating to usury,
truth-in-lending, real estate settlement procedures, consumer
credit protection, equal credit opportunity and disclosure
laws applicable to the Home Equity Loan and with respect to
each Home Equity Loan which is a "mortgage" as such term is
defined in 15 U.S.C. ss.1602 (aa), no obligor has or will have
a claim or defense under such Home Equity Loan;
(xxvii) Each Home Equity Loan conforms, and all of the Home
Equity Loans in the aggregate conform, in all material
respects to the description thereof set forth in the
Prospectus Supplement;
(xxviii) The Seller of each Home Equity Loan, is (or, during
any period in which it held or disposed such interest, was) in
material compliance with any and all applicable licensing
requirements of the laws of the state in which the Mortgaged
Property is located;
(xxix) No Mortgage has been satisfied, canceled, subordinated
or rescinded, in whole or in part, and the Mortgaged Property
has not been released from the lien of the Mortgage, in whole
or in part, nor has any instrument been executed that would
have effect any such release, cancellation, subordination or
rescission.
(xxx) All of the Home Equity Loans were either originated or
underwritten in accordance with the guidelines of HFC or
acceptable to HFC and such guidelines conform in all material
respects with the description thereof set forth in the
Prospectus Supplement;
(xxxi) At origination, each Mortgaged Property securing a Home
Equity Loan was covered by fire and casualty insurance with a
standard mortgage clause and extended coverage in an amount at
least equal to the lesser of (a) 100% of the insurable value
of the Mortgaged Property or (b) the combined principal
balance owing on such Home Equity Loan and any mortgage loan
senior to such Home Equity Loan;
(xxxii) With respect to each Home Equity Loan, there is only
one originally executed Mortgage Note not stamped as a
duplicate;
(xxxiii) As of the Cut-Off Date or any Subsequent Cut-Off
Date, except for payment waivers pursuant to a restructuring
program, with respect to each Home Equity Loan, the terms of
the Mortgage Note and the Mortgage have not been impaired,
waived, altered or modified in any respect, except by written
instrument which has been recorded, if necessary, to protect
the interests of the Trust and the Insurer; and
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(xxxiv) Each Mortgage contains customary and enforceable
provisions such as to render the rights and the remedies of
the holder thereof adequate for the realization against the
Mortgaged Property of the benefits of the security provided
thereby;
(xxxv) Each Mortgage contains a provision for the acceleration
of the payment of the unpaid Principal Balance of the related
Home Equity Loan in the event the Mortgaged Property securing
such Home Equity Loan is sold or transferred without the prior
written consent of the Mortgagee thereunder.
(c) It is understood and agreed that the representations and warranties
set forth in this Section 2.04 shall survive the transfer and assignment of the
Home Equity Loans to the Trust and the pledge of the Home Equity Loans to the
Indenture Trustee. Upon discovery by the Depositor, the Master Servicer, the
Insurer, the Owner Trustee or the Indenture Trustee of a breach of any of the
representations and warranties set forth in this Section 2.04, without regard to
any limitation set forth in such representation or warranty concerning the
knowledge of the Depositor as to the facts stated therein, which materially and
adversely affects the interests of the Noteholders (it being understood that any
breach of the representations or warranties contained in clause (xxvi) of
Section 2.04(b) shall be deemed to materially and adversely affect the interest
of the Noteholders, the Insurer and the Transferor), the Insurer or the
Transferor in respect of the Ownership Interest in the related Home Equity Loan,
the person discovering such breach shall give prompt written notice to the other
parties, the Insurer and each Rating Agency. Within 60 days of its discovery or
its receipt of notice of such breach, or, with the prior written consent of a
Responsible Officer of the Indenture Trustee and the Insurer (so long as no
Insurer Default exists and is continuing), such longer period not to exceed 90
days specified in such consent, the Depositor or, as necessary, the Master
Servicer shall cure such breach in all material respects. With regard to any
such breach of the representations and warranties set forth in Section 2.04(b),
unless, at the expiration of such 60 day or longer period, such breach has been
cured in all material respects or otherwise does not exist or continue to exist,
the Depositor or the Master Servicer shall, not later than the Business Day next
preceding the Payment Date in the month following the end of the Collection
Period in which any such cure period expired, either (i) repurchase such
Defective Home Equity Loan (including any property acquired in respect thereof
and any insurance policy or insurance proceeds with respect thereto) or (ii)
remove such Home Equity Loan from the Trust and substitute in its place an
Eligible Substitute Home Equity Loan or Loans, in the same manner and subject to
the same conditions as set forth in Section 2.02. Upon making any such
repurchase or substitution the Depositor or the Master Servicer, as applicable,
shall be entitled to receive an instrument of assignment or transfer from the
Indenture Trustee to the same extent as set forth in Section 2.02 with respect
to the repurchase or replacement of Home Equity Loans under that Section.
Subject to Section 2.04(d) and, with respect to the Insurer, subject to Section
3.04 of the Insurance Agreement, it is understood and agreed that the obligation
of the Depositor or the Master Servicer to purchase or substitute for any such
Defective Home Equity Loan (or property acquired in respect thereof) shall
constitute the sole and exclusive remedy against the Depositor or the Master
Servicer respecting such breach of the foregoing representations or warranties
available to Noteholders, the Transferor in
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respect of the Ownership Interest, the Insurer, the Owner Trustee or the
Indenture Trustee against the Depositor or the Master Servicer, and such
obligation on the part of the Master Servicer shall survive any resignation or
termination of the Master Servicer hereunder.
(d) The Depositor and the Master Servicer, jointly and not severally,
agree to indemnify and hold harmless the Trust against any and all out-of-pocket
financial losses, claims, expenses, damages or liabilities to which the Trust
may become subject, insofar as such out-of-pocket financial losses, claims,
expenses, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any representation or warranty made by the Depositor in this
Section 2.04 on which the Trust has relied, being, or alleged to be, untrue or
incorrect in any material respect (it being understood that any breach of the
representations and warranties in clause (xxvi) of Section 2.04(b) shall be
deemed a material breach). This indemnity will be in addition to any liability
which the Depositor or the Master Servicer may otherwise have.
(e) Promptly after receipt by the Trust of notice of the commencement of
any action or proceeding in any way relating to or arising from this Agreement,
the Owner Trustee will notify the Indenture Trustee, the Depositor, the Insurer
and the Master Servicer of the commencement thereof, but the omission so to
notify the party from whom indemnification is sought (the "Indemnifying Party")
will not relieve the Indemnifying Party from any liability which it may have to
the party seeking indemnification (the "Indemnified Party") except to the extent
that the Indemnifying Party is materially adversely affected by the lack of
notice. In case any such action is brought against the Indemnified Party, and it
notifies the Indemnifying Party of the commencement thereof, the Indemnifying
Party will be entitled to participate in the defense (with the consent of the
Indemnified Party which shall not be unreasonably withheld) of such action at
the Indemnifying Party's expense subject to Section 4.03 of this Agreement.
Section 2.05 Tax Treatment. It is the intention of the Depositor and the
Noteholders that the Notes will be indebtedness for federal, state and local
income and franchise tax purposes and for purposes of any other tax imposed on
or measured by income. The terms of this Agreement shall be interpreted to
further the intent of the parties hereto. The Depositor, the Indenture Trustee
and each Noteholder (or Note Owner) by acceptance of its Note (or, in the case
of a Note Owner, by virtue of such Note Owner's acquisition of a beneficial
interest therein) agrees to treat the Note (or beneficial interest therein), for
purposes of federal, state and local income or franchise taxes and any other tax
imposed on or measured by income, as indebtedness secured by the Trust Estate
and to report the transactions contemplated by this Agreement on all applicable
tax returns in a manner consistent with such treatment. Each Noteholder agrees
that it will cause any Note Owner acquiring an interest in a Note through it to
comply with this Agreement as to treatment of the Notes as indebtedness for
federal, state and local income and franchise tax purposes and for purposes of
any other tax imposed on or measured by income. The Indenture Trustee will
prepare and file all tax reports required hereunder on behalf of the Trust.
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ARTICLE III
ADMINISTRATION AND SERVICING OF HOME EQUITY LOANS
Section 3.01 The Master Servicer.
(a) The Master Servicer shall, or shall cause the Servicers to, service
and administer the Home Equity Loans in a manner consistent with the terms of
this Agreement and with general industry practice and shall have full power and
authority, acting alone or through the Servicers, to do any and all things in
connection with such servicing and administration which it may deem necessary or
desirable, it being understood, however, that the Master Servicer shall at all
times remain responsible to the Indenture Trustee, the Noteholders and the
Insurer (so long as no Insurer Default exists and is continuing) for the
performance of its duties and obligations hereunder in accordance with the terms
hereof. Any amounts received by the related Servicer in respect of a Home Equity
Loan shall be deemed to have been received by the Master Servicer whether or not
actually received by it. Without limiting the generality of the foregoing, the
Master Servicer shall continue, and is hereby authorized and empowered by the
Indenture Trustee, (i) in its own name or in the name of any Servicer, when the
Master Servicer or the Servicer, as the case may be, believes it appropriate in
its best judgment to register any Home Equity Loan on the MERS(R) System, or
cause the removal from the registration of any Home Equity Loan on the MERS(R)
System, to execute and deliver, on behalf of the Trust, any and all instruments
of assignment and other comparable instruments with respect to such assignment
or re-recording of a Mortgage in the name of MERS, solely as nominee for the
Trust and its successors and assigns, and (ii) to execute and deliver, on behalf
of itself, the Noteholders and the Indenture Trustee or any of them, any and all
instruments of satisfaction or cancellation, or of partial or full release or
discharge and all other comparable instruments, with respect to the Home Equity
Loans and with respect to the Mortgaged Properties. Upon the written request of
the Master Servicer, the Depositor and the Indenture Trustee shall furnish the
Master Servicer with any powers of attorney and other documents necessary or
appropriate to enable the Master Servicer to carry out its servicing and
administrative duties hereunder. The Master Servicer in such capacity may also
consent to the placing of a proposed lien senior to that of the Mortgage on the
related Mortgaged Property, provided that such proposed lien is not secured by a
note providing for negative amortization and:
(x) (i) the Mortgage relating to the Home Equity Loan was in a first
lien position as of the Cut-Off Date and was in a first lien position
immediately prior to the placement of the proposed senior lien, and (ii)
the ratio of (a) the sum of the Principal Balance of the Home Equity Loan
and the principal balance of the mortgage loan to be secured by the
proposed senior lien to (b) the Appraised Value of the Mortgaged Property
at the time the Home Equity Loan was originated is not greater than (1)
with respect to Home Equity Loans with an original CLTV of 85% or less,
85%, (2) with respect to Home Equity Loans with an original CLTV in excess
of 85% and not greater than 95%, 95% and (3) with respect to Home Equity
Loans with an original CLTV in excess of 95% and not greater than 115%,
115%;
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(y) (i) the Mortgage relating to the Home Equity Loan was in a first
or second lien position at the time the related Home Equity Loan was
conveyed to the Trust and, immediately following the placement of such
proposed senior lien, such Mortgage will be in a second or, if such
Mortgage was in a second lien position at the time the related Home Equity
Loan was conveyed to the Trust, a third lien position and (ii) the
principal balance of the mortgage loan to be secured by the proposed
senior lien and the rate at which interest accrues thereon are no greater
than those of the related Home Equity Loan as of the date it was first
conveyed to the Trust; or
(z) the Mortgage relating to the Home Equity Loan was in a second
lien position as of the Cut-Off Date and the proposed senior lien secures
a mortgage loan that refinances an existing first mortgage loan and the
outstanding principal amount of such mortgage loan immediately following
such refinancing and the rate at which interest accrues thereon are not
greater than that of such existing first mortgage loan at the date the
mortgage loan was originated.
(b) If (i) foreclosure proceedings are commenced with respect to any Home
Equity Loan with respect to which the Master Servicer has consented to the
placing of a subsequent senior lien pursuant to clause (x) in Section 3.01(a),
or (ii) any loss is suffered by the Indenture Trustee on behalf of the
Noteholders, the Insurer or the Transferor in respect of the Ownership Interest
in respect of any Home Equity Loan as a result of (x) a failure to file on or
within ten days following the effective date of this Agreement the UCC-l
financing statements referred to in Section 2.01 or (y) a failure to publish on
or prior to the Closing Date such notices reflecting the sale of the Home Equity
Loans as are described in Section 3440.1(h) of the California Civil Code, then
the Master Servicer shall repurchase or substitute for any adversely affected
Home Equity Loan on the Business Day preceding the next Payment Date following
the end of the Collection Period during which such foreclosure proceedings were
commenced or such losses were suffered. Such repurchase or substitution shall be
accomplished in the same manner and subject to the same conditions as set forth
in Section 2.02. Upon making any such repurchase or substitution the Master
Servicer shall be entitled to receive an instrument of assignment or transfer
from the Indenture Trustee to the same extent as set forth in Section 2.02.
(c) Upon the request of a Mortgagor or at the Master Servicer's own
initiative, the Master Servicer (or the related Servicer on behalf of the Master
Servicer) may waive, modify or vary any term of any Home Equity Loan or consent
to the postponement of strict compliance with any such term or in any manner
grant indulgence to any Mortgagor if:
(i) in the Master Servicer's (or such Servicer's) good faith
determination such waiver, modification, postponement or
indulgence will enhance recovery with respect to such Home
Equity Loan; and
(ii) the Mortgagor is in default with respect to the Home
Equity Loan, or such default is, in the judgment of the Master
Servicer (or such Servicer) imminent.
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(d) Subject to subparagraph (e) below, in addition to the circumstances
described under Section 3.01(c), the Master Servicer (or the related Servicer on
behalf of the Master Servicer) may waive, modify or vary any term of any Home
Equity Loan, if the purpose of such action is to reduce the likelihood of
prepayment or of default of such Home Equity Loan, to increase the likelihood of
repayment or repayment upon default of such Home Equity Loan, to increase the
likelihood of repayment in full of or recoveries under such Home Equity Loan, or
to otherwise benefit the Noteholders, the Insurer and the Transferor in respect
of the Ownership Interest, all in the reasonable judgment of the Master
Servicer.
(e) Notwithstanding any provision in this Agreement to the contrary, the
Master Servicer may not defer the scheduled monthly interest and principal
payment on any Home Equity Loan that is not in default or (in the judgment of
the Master Servicer (or the related Servicer on behalf of the Master Servicer))
for which default is not imminent unless (i) the Master Servicer elects to make
a Skip-A-Pay Advance pursuant to subparagraph (f) below or (ii) each Rating
Agency advises that as a result of such deferment the then current rating of the
Notes without taking into account the existence of the Note Guaranty Insurance
Policy will not be withdrawn, suspended or reduced; provided, however, that the
Master Servicer may not defer the scheduled monthly payment on any Home Equity
Loan in reliance on clause (i) above unless the Master Servicer determines, in
its good faith judgment, that such Skip-A-Pay Advance will be recoverable from
future payments on the Home Equity Loans.
(f) If during any Collection Period the Master Servicer deferred the
scheduled monthly payment on any Home Equity Loan that was not in default or for
which default was not imminent in reliance on clause (i) of subparagraph (e)
above, no later than 12:00 noon Chicago time on each Deposit Date, the Master
Servicer shall deposit into the Collection Account an amount equal to the
Skip-A-Pay Advance for such Collection Period. On each Payment Date, the Master
Servicer shall be entitled to reimburse itself for all previously unreimbursed
Skip-A-Pay Advances from funds on deposit in the Collection Account, before
making any payments to Noteholders pursuant to Section 5.01, up to an amount
equal to the Skip-A-Pay Reimbursement Amount on such Payment Date; provided,
however, that the Skip-A-Pay Reimbursement Amount that the Master Servicer is
entitled to receive on such Payment Date shall be reduced by the portion of such
amount, if any, that was applied to reduce the amount of funds that the Master
Servicer was required to deposit or to cause to be deposited into the Collection
Account on the preceding Deposit Date pursuant to Section 3.02(b).
(g) The relationship of the Master Servicer (and of any successor to the
Master Servicer as master servicer under this Agreement) to the Indenture
Trustee under this Agreement is intended by the parties to be that of an
independent contractor and not that of a joint venturer, partner or agent.
(h) In the event that the rights, duties and obligations of the Master
Servicer are terminated hereunder, any successor to the Master Servicer in its
sole discretion may, to the extent permitted by applicable law, terminate the
existing subservicer arrangements with any Servicer or assume the terminated
Master Servicer's rights under such subservicing arrangements which termination
or assumption will not violate the terms of such arrangements.
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(i) Any expenses incurred in connection with the actions described in
Section 3.01(a)(i) shall be borne by the Master Servicer in accordance with
Section 3.09, with no right of reimbursement; provided that if, as a result of
MERS discontinuing or becoming unable to continue operations in connection with
the MERS System, it becomes necessary to remove any Home Equity Loan from
registration on the MERS System and to arrange for the assignment of the related
Mortgages to the Trust, then any related expenses shall be reimbursable to the
Master Servicer.
Section 3.02 Collection of Certain Home Equity Loan Payments.
(a) The Master Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Home Equity Loans, and
shall, to the extent such procedures shall be consistent with this Agreement,
follow such collection procedures as it follows with respect to home equity
loans in its servicing portfolio comparable to the Home Equity Loans. Consistent
with, and without limiting the generality of, the foregoing, the Master Servicer
may in its discretion (i) waive any late payment charge or any assumption fees
or other fees that may be collected in the ordinary course of servicing the Home
Equity Loans, (ii) arrange with a Mortgagor a schedule for the payment of
delinquent amounts, so long as such arrangement is consistent with the Master
Servicer's policies with respect to the home equity loans it owns, (iii) sell
the Home Equity Loan at its fair market value to a third party for collection
activity or (iv) treat a Home Equity Loan as current if the Mortgagor has made
two scheduled payment (which, for the purposes of this Section 3.02(a)(iv) only,
is in accordance with the Master Servicer's customary servicing practices and
may be less than 100% of the scheduled payment) to cure the delinquency status
of such Home Equity Loan.
(b) The Master Servicer shall establish and maintain with the Indenture
Trustee a separate trust account (the "Collection Account") titled "Bank One,
National Association, as Indenture Trustee, in trust for the registered holders
of Household Home Equity Loan Asset Backed Notes, Series 2002-2". In the event
that a successor Indenture Trustee is appointed as provided in Section 6.8 of
the Indenture, a new Collection Account shall be promptly established at and
maintained by such successor Indenture Trustee, and the title of the new
Collection Account shall be "[Successor Indenture Trustee], as Indenture
Trustee, in trust for the registered holders of Household Home Equity Loan Asset
Backed Notes, Series 2002-2", and any amounts in the old Collection Account
shall be transferred to the new Collection Account. The Collection Account shall
be an Eligible Account. No later than 12:00 noon Chicago time on each Deposit
Date (or, if a Deposit Event has occurred and the Master Servicer has not
provided credit enhancement reasonably acceptable to each of the Rating Agencies
and, so long as no Insurer Default exists and is continuing, the Insurer, within
two (2) Business Days following receipt thereof by the Servicers), the Master
Servicer shall deposit or cause to be deposited into the Collection Account the
following payments and collections received or made by it with respect to the
Home Equity Loans (without duplication):
(i) Interest Collections (net of any Servicing Fee) on the
Home Equity Loans;
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(ii) Principal Collections on the Home Equity Loans;
(iii) Insurance Proceeds (including, for this purpose, any
amount required to be paid by the Master Servicer pursuant to
Section 3.04 and excluding any portion thereof constituting
Principal Collections); and
(iv) amounts required to be paid by the Master Servicer in
connection with the termination of the Trust pursuant to
Section 8.01;
provided, however, that so long as a Deposit Event has not occurred (unless the
Master Servicer has provided credit enhancement reasonably acceptable to each of
the Rating Agencies and the Insurer), the amount of funds that the Master
Servicer is required to deposit or to cause to be deposited into the Collection
Account on or before such Deposit Date shall be reduced by the Skip-A-Pay
Reimbursement Amount the Master Servicer is entitled to receive on the next
Payment Date.
The foregoing requirements respecting deposits to the Collection Account
are exclusive, it being understood that, without limiting the generality of the
foregoing, fees (including annual fees) or late charge penalties payable by
Mortgagors, prepayment penalties, or amounts received by the Master Servicer or
a Servicer for the accounts of Mortgagors for application towards the payment of
taxes, insurance premiums, assessments and similar items for the account of the
related Servicer, if any, need not be deposited in the Collection Account.
(c) The Indenture Trustee shall hold amounts deposited in the Collection
Account as trustee for the Noteholders, the Insurer and the Transferor in
respect of the Ownership Interest. In addition, the Master Servicer shall notify
the Indenture Trustee in writing on each Determination Date of the amount of
payments and collections to be deposited in the Collection Account with respect
to the related Payment Date.
(d) The Master Servicer may cause the institution maintaining the
Collection Account to invest any funds in the Collection Account in Permitted
Investments (including obligations of the Master Servicer or of any of its
affiliates, if such obligations otherwise qualify as Permitted Investments),
which shall mature or otherwise be available not later than the Business Day
next preceding the Payment Date or on the Payment Date next following the date
of such investment as long as such action does not result in a withdrawal or
downgrading of the then current ratings on the Notes by the Rating Agencies
without taking into account the existence of the Note Guaranty Insurance Policy
(except that any investment in an obligation of the institution with which the
Collection Account is maintained may mature on or before 12:00 noon, Chicago
time, on such Payment Date) and shall not be sold or disposed of prior to its
maturity. In the event the Indenture Trustee is at any time maintaining the
Collection Account, any request by the Master Servicer to invest funds on
deposit in the Collection Account shall be in writing, shall be delivered to the
Indenture Trustee at or before 10:30 A.M., Chicago time, if such investment is
to be made on such day, and shall certify that the requested investment is a
Permitted Investment that matures at or prior to the time required hereby. Any
such investment shall be registered in the name of or controlled by the
Indenture Trustee as trustee hereunder or in the name of its nominee and to the
extent such investments are certificated they shall be maintained in the
42
possession or control of the Indenture Trustee in the state of its Corporate
Trust Office. Except as provided above, all income and gain realized from any
such investment shall be for the benefit of the Master Servicer and shall be
subject to its withdrawal or order from time to time. The amount of any losses
incurred in respect of the principal amount of any such investments shall be
deposited in the Collection Account by the Master Servicer out of its own funds
immediately as realized.
(e) The Indenture Trustee is hereby authorized to execute purchases and
sales of Permitted Investments as directed by the Master Servicer through the
facilities of its own trading or capital markets operations. The Indenture
Trustee shall send to the Master Servicer statements reflecting the monthly
activity for each such purchase and sale made for the preceding month. Although
the Master Servicer recognizes that it may obtain a broker confirmation or
written monthly statement containing comparable information at no additional
cost, the Master Servicer hereby agrees that confirmations of investments are
not required to be issued by the Indenture Trustee for each month in which a
monthly statement is rendered. No statement need be rendered pursuant to the
provision of this subsection if no activity occurred in the account for such
month.
Section 3.03 Withdrawals from the Collection Account.
(a) The Indenture Trustee shall withdraw or cause to be withdrawn funds
from the Collection Account for the following purposes:
(i) On each Payment Date, to make distributions and payments
to the Insurer, Noteholders and the Transferor in respect of
the Ownership Interest pursuant to Section 5.01;
(ii) From time to time, to make investments in Permitted
Investments and to pay to the Master Servicer all income and
gain earned in respect of Permitted Investments or on funds
deposited in the Collection Account; (iii) To reimburse the
Depositor or the Master Servicer to the extent permitted by
Section 6.03;
(iv) To withdraw any funds deposited in the Collection Account
that were not required to be deposited therein or were
deposited therein in error and to pay such funds to the
appropriate Person;
(v) To pay to the party legally entitled by a final order of a
court of competent jurisdiction in an insolvency proceeding an
amount equal to any preference claim made with respect to
amounts paid with respect to the Home Equity Loans; provided
that, if any such amount is later determined not to be a
preference by such court of competent jurisdiction and is
returned to the Master Servicer or any Servicer, such amount
shall be redeposited into the Collection Account by the Master
Servicer;
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(vi) to clear and terminate the Collection Account upon the
termination of this Agreement and to pay any amounts remaining
therein to the Transferor in respect of the Ownership
Interest; and
(vii) to reimburse the Master Servicer for Skip-A-Pay Advances
to the extent permitted by Section 3.01(f).
(b) If the Master Servicer deposits in the Collection Account any amount
not required to be deposited therein or credited thereto or any amount in
respect of payments by Mortgagors made by checks subsequently returned for
insufficient funds or other reason for non-payment, it may at any time withdraw
such amount from the Collection Account pursuant to Section 3.03(a)(iv), and any
such amounts shall not be included in Interest Collections and Principal
Collections, any provision herein to the contrary notwithstanding. Any
withdrawal or debit permitted by Section 3.03(a) may be accomplished by
delivering an Officer's Certificate to the Indenture Trustee which describes the
purpose of such withdrawal (including, without limitation, that any such amount
was deposited in the Collection Account in error or, in the case of returned
checks, that such amounts were properly debited, respectively). Upon receipt of
any such Officer's Certificate, the Indenture Trustee shall withdraw such amount
for the account of the Master Servicer. All funds deposited by the Master
Servicer in the Collection Account shall be held by the Indenture Trustee in
trust for the Noteholders, the Insurer and the Transferor in respect of the
Ownership Interest, until disbursed in accordance with Section 5.01 or withdrawn
or debited in accordance with this Section.
Section 3.04 Maintenance of Hazard Insurance; Property Protection
Expenses. Each Home Equity Loan requires that the borrower thereunder maintain
hazard insurance naming the Master Servicer or the related Servicer as loss
payee providing extended coverage in an amount which is at least equal to the
lesser of (i) 100% of the insurable value of the Mortgaged Property or (ii) the
combined principal balance owing on such Home Equity Loan and any mortgage loan
senior to such Home Equity Loan from time to time. The Master Servicer
represents and warrants that it or the applicable Seller verified the existence
of such hazard insurance at the origination of the Home Equity Loan. The Master
Servicer shall also maintain on property acquired upon foreclosure, or by grant
of deed in lieu of foreclosure, hazard insurance with extended coverage in an
amount which is at least equal to the lesser of (i) 100% of the insurable value
of the Mortgaged Property or (ii) the combined unpaid principal balance owing on
such Home Equity Loan and any mortgage loans senior to such Home Equity Loans at
the time of such foreclosure or grant of deed in lieu of foreclosure plus
accrued interest thereon. Amounts collected by the Master Servicer under any
such policies shall be deposited in the Collection Account to the extent called
for by Section 3.02. In cases in which any Mortgaged Property is located in a
federally designated flood area, the hazard insurance to be maintained for the
related Home Equity Loan shall include flood insurance. All such flood insurance
shall be in such amounts as are required under applicable guidelines of Xxxxxx
Xxx. The Master Servicer shall be under no obligation to require that any
Mortgagor maintain earthquake or other additional insurance and shall be under
no obligation itself to maintain any such additional insurance on property
acquired in respect of a Home Equity Loan, other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. As
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to Mortgaged Properties acquired by the Master Servicer as provided herein, the
Master Servicer may satisfy its obligation set forth in the first sentence of
this Section 3.04 by self insuring Mortgaged Properties for which the aggregate
unpaid principal balance of the related Home Equity Loans plus the outstanding
balance of any mortgage loans senior to such Home Equity Loans at the time title
was acquired, plus accrued interest (the "Combined Exposure"), was less than
$500,000 (or such other amount as the Master Servicer may in good faith
determine from time to time) and by causing hazard policies to be maintained
with respect to Mortgaged Properties for which the Combined Exposure equals or
exceeds the self insurance threshold established from time to time by the Master
Servicer by maintaining a blanket policy consistent with prudent industry
standards insuring against hazard losses on the Mortgaged Properties. Such
policy may contain a deductible clause, in which case the Master Servicer shall,
in the event that there shall not have been maintained on the related Mortgaged
Property a policy complying with the first sentence of this Section 3.04, 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.
Section 3.05 Assumption and Modification Agreements. In any case in which
a Mortgaged Property has been or is about to be conveyed by the Mortgagor, the
Master Servicer shall exercise or refrain from exercising its right to
accelerate the maturity of such Home Equity Loan consistent with the
then-current practice of the Master Servicer and without regard to the inclusion
of such Home Equity Loan in the Trust and not in the Master Servicer's
portfolio. If it elects not to enforce its right to accelerate or if it is
prevented from doing so by applicable law, the Master Servicer (so long as such
action conforms with the Master Servicer's underwriting standards at the time
for new originations) is authorized to take or enter into an assumption and
modification agreement from or with the Person to whom such Mortgaged Property
has been or is about to be conveyed, pursuant to which such Person becomes
liable under the Mortgage Note and, to the extent permitted by applicable law,
the Mortgagor remains liable thereon. The Master Servicer shall notify the
Indenture Trustee that any assumption and modification agreement has been
completed by delivering to the Indenture Trustee (with a copy to the Insurer) an
Officer's Certificate certifying that such agreement is in compliance with this
Section and by forwarding to the applicable Servicer on behalf of the Depositor
or the Indenture Trustee, as applicable, the original copy of such assumption
and modification agreement. Any such assumption and modification agreement
shall, for all purposes, be considered a part of the related Mortgage File to
the same extent as all other documents and instruments constituting a part
thereof. No change in the terms of the related Mortgage Note may be made by the
Master Servicer in connection with any such assumption to the extent that such
change would not be permitted to be made in respect of the original Mortgage
Note pursuant to Section 3.01 unless the conditions specified in Section 3.01
are satisfied. Any fee collected by the Master Servicer for entering into any
such agreement will be retained by the Master Servicer as additional servicing
compensation.
Section 3.06 Realization Upon Defaulted Home Equity Loans.
(a) The Master Servicer (or the Master Servicer together with the related
Seller as called for by the Home Equity Loan Purchase Agreement) shall foreclose
upon or otherwise comparably convert to ownership Mortgaged Properties securing
such of the Home Equity Loans
45
as come into and continue in default when, in the opinion of the Master Servicer
based upon the practices and procedures referred to in the following sentence,
no satisfactory arrangements can be made for collection of delinquent payments
pursuant to Section 3.02; provided that if the Master Servicer has actual
knowledge or reasonably believes that any Mortgaged Property is affected by
hazardous or toxic wastes or substances and that the acquisition of such
Mortgaged Property would not be commercially reasonable, then the Master
Servicer will not cause the Trust to acquire title to such Mortgaged Property in
a foreclosure or similar proceeding. In connection with such foreclosure or
other conversion, the Master Servicer shall follow such practices (including, in
the case of any default on a related senior mortgage loan, the advancing of
funds to correct such default) and procedures as it shall deem necessary or
advisable and as shall be normal and usual in its general mortgage servicing
activities. The foregoing is subject to the proviso that the Master Servicer
shall not be required to expend its own funds in connection with any foreclosure
or towards the correction of any default on a related senior mortgage loan or
restoration of any property unless it shall determine that such expenditure will
increase Net Liquidation Proceeds. The Master Servicer will be reimbursed out of
Liquidation Proceeds for advances of its own funds to pay Liquidation Expenses
before any Net Liquidation Proceeds are deposited in the Collection Account.
(b) 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 (i) so long as at least two of Xxxxx'x, Standard & Poor's and Fitch assign
a long-term unsecured debt rating to the Master Servicer of at least "Baa3", in
the case of Xxxxx'x, "BBB", in the case of Fitch, and "BBB-" in the case of
Standard & Poor's, be issued in the name of the related Servicer or (ii) if the
rating requirements in clause (i) are not satisfied, be issued to the Indenture
Trustee, or to its nominee on behalf of Noteholders.
Section 3.07 [Reserved].
Section 3.08 Indenture Trustee to Cooperate.
(a) Upon any payment in full of the Principal Balance of any Home Equity
Loan, the Master Servicer is authorized to execute, pursuant to the
authorization contained in Section 3.01, if the assignments of Mortgage have
been recorded as required hereunder, an instrument of satisfaction regarding the
related Mortgage or written evidence of cancellation thereon and to cause the
removal from the registration on the MERS(R) System of such Mortgage, which
instrument of satisfaction shall be recorded by the Master Servicer if required
by applicable law and be delivered to the Person entitled thereto. It is
understood and agreed that no expenses incurred in connection with such
instrument of satisfaction or transfer shall be reimbursed from amounts
deposited in the Collection Account. If the Indenture Trustee is holding the
Mortgage Files, from time to time and as appropriate for the servicing or
foreclosure of any Home Equity Loan, the Indenture Trustee shall, upon request
of the Master Servicer and delivery to the Indenture Trustee of a trust receipt
signed by a Servicing Officer, release the related Mortgage File to the Master
Servicer, and the Indenture Trustee shall execute such documents as shall be
necessary to the prosecution of any such proceedings or the taking of other
servicing actions. Such trust receipt shall obligate the Master Servicer to
return the Mortgage File to the Indenture
46
Trustee when the need therefor by the Master Servicer no longer exists unless
the Home Equity Loan shall be liquidated, in which case, upon receipt of an
Officer's Certificate of the Master Servicer, the trust receipt shall be
released by the Indenture Trustee to the Master Servicer.
(b) In order to facilitate the foreclosure of the Mortgage securing any
Home Equity Loan that is in default following recordation of the assignments of
Mortgage in accordance with the provisions hereof, the Indenture Trustee shall,
if the Master Servicer so requests in writing and supplies the Indenture Trustee
with appropriate forms therefor, assign such Home Equity Loan for the purpose of
collection to the Master Servicer or to the related Servicer (any such
assignment shall unambiguously indicate that the assignment is for the purpose
of collection only), and, upon such assignment, such assignee for collection
will thereupon bring all required actions in its own name and otherwise enforce
the terms of the Home Equity Loan and deposit or credit the Net Liquidation
Proceeds received with respect thereto in the Collection Account. In the event
that all delinquent payments due under any such Home Equity Loan are paid by the
Mortgagor and any other defaults are cured then the assignee for collection
shall promptly reassign such Home Equity Loan to the Indenture Trustee and
return it to the place where the related Mortgage File was being maintained.
Section 3.09 Servicing Compensation; Payment of Certain Expenses by Master
Servicer. The Master Servicer shall be entitled to receive the Servicing Fee as
compensation for its services in connection with servicing the Home Equity
Loans. The Servicing Fee for each Collection Period shall be paid to the Master
Servicer out of Interest Collections prior to their deposit in the Collection
Account and shall not be the responsibility or liability of the Trust, the Owner
Trustee, the Indenture Trustee, the Insurer, the Noteholders or the Transferor
in respect of the Ownership Interest. Additional servicing compensation in the
form of late payment charges or other receipts not required to be deposited in
the Collection Account shall be retained by the Master Servicer. The Master
Servicer shall be required to pay all expenses incurred by it in connection with
its activities hereunder (including payment of Owner Trustee, Delaware Trustee
and Indenture Trustee fees, expenses and indemnifications due to the Indenture
Trustee under Section 6.7 of the Indenture and all other fees and expenses not
expressly stated hereunder to be for the account of the Noteholders and the
Transferor in respect of the Ownership Interest) and shall not be entitled to
reimbursement therefor except as specifically provided herein.
Section 3.10 Annual Statement as to Compliance.
(a) The Master Servicer will deliver to the Indenture Trustee and a copy
to each of the Rating Agencies and the Insurer, on or before March 31 of each
year, beginning March 31, 2003, an Officer's Certificate stating that (i) a
review of the activities of the Master Servicer during the preceding calendar
year (or in the case of the Officer's Certificate delivered in 2003, from the
Closing Date) and of its performance under this Agreement has been made under
such officer's supervision and (ii) to the best of such officer's knowledge,
based on such review, the Master Servicer has fulfilled all its material
obligations under this Agreement throughout such year (or in the case of the
Officer's Certificate delivered in 2003, from the Closing Date), 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. Copies of
such Officer's Certificate
47
shall be provided by the Master Servicer to any Noteholder upon written request
at the Master Servicer's expense.
(b) The Master Servicer shall deliver to the Indenture Trustee and a copy
to each of the Rating Agencies and the Insurer, promptly after having obtained
knowledge thereof, but in no event later than five Business Days thereafter,
written notice by means of an Officer's Certificate of any event which with the
giving of notice or the lapse of time or both, would become a Master Servicer
Termination Event.
Section 3.11 Annual Servicing Report. On or before March 31 of each year,
beginning March 31, 2003, the Master Servicer at its expense shall cause a firm
of nationally recognized independent public accountants (who may also render
other services to the Master Servicer) to furnish a report to the Indenture
Trustee and a copy to each of the Rating Agencies and the Insurer to the effect
that such firm has examined certain documents and records relating to the
servicing of home equity loans by the Master Servicer during the most recent
calendar year (or in the case of the report delivered in 2003, from the Closing
Date) then ended under pooling and servicing agreements or sale and servicing
agreements (including this Agreement) substantially similar to this Agreement
and that such examination, which has been conducted substantially in compliance
with the audit guide for audits of non-supervised mortgagees approved by the
Department of Housing and Urban Development for use by independent public
accountants (to the extent that the procedures in such audit guide are
applicable to the servicing obligations set forth in such agreements), has
disclosed no items of noncompliance with the provisions of this Agreement which,
in the opinion of such firm, are material, except for such items of
noncompliance as shall be set forth in such report.
Section 3.12 Access to Certain Documentation and Information Regarding the
Home Equity Loans.
(a) The Master Servicer and the Servicers shall provide to the Indenture
Trustee, the Owner Trustee, the Insurer, the Transferor in respect of the
Ownership Interest, the Noteholders that are federally insured savings and loan
associations, the Office of Thrift Supervision, the successor to the Federal
Home Loan Bank Board, the FDIC and the supervisory agents and examiners of the
Office of Thrift Supervision access to the documentation regarding the Home
Equity Loans required by applicable regulations of the Office of Thrift
Supervision and the FDIC (acting as operator of the SAIF or the BIF), such
access being afforded without charge but only upon reasonable request and during
normal business hours at the offices of the Master Servicer or the Servicers.
Nothing in this Section shall derogate from the obligation of the Master
Servicer to observe any applicable law prohibiting disclosure of information
regarding the Mortgagors, and the failure of the Master Servicer to provide
access as provided in this Section as a result of such obligation shall not
constitute a breach of this Section.
(b) No later than the Determination Date preceding the related Payment
Date, the Master Servicer shall supply information in such form as the Indenture
Trustee shall reasonably request to the Indenture Trustee and the Paying Agent
as is required in the Indenture Trustee's reasonable judgment to enable the
Paying Agent or the Indenture Trustee, as the case may be, to
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make the required payments and to furnish the required reports to Noteholders
and the Insurer on such Payment Date.
Section 3.13 Maintenance of Certain Servicing Insurance Policies. The
Master Servicer shall during the term of its service as master servicer maintain
in force (i) a policy or policies of insurance covering errors and omissions in
the performance of its obligations as master servicer hereunder and (ii) a
fidelity bond in respect of its officers, employees or agents. Each such policy
or policies and bond shall, together, comply with the requirements from time to
time of Xxxxxx Xxx for Persons performing servicing for mortgage loans purchased
by such association.
Section 3.14 Reports to the Securities and Exchange Commission. The Master
Servicer shall, on behalf of the Trust, cause to be filed with the Securities
and Exchange Commission any periodic reports required to be filed under the
provisions of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Securities and Exchange Commission thereunder.
Section 3.15 [Reserved].
Section 3.16 Information Required by the Internal Revenue Service
Generally and Reports of Foreclosures and Abandonments of Mortgaged Property.
The Master Servicer shall prepare and deliver, or cause to be prepared, mailed
and filed all federal and state information reports for the Home Equity Loans
when and as required by all applicable state and federal income tax laws
including, to the extent applicable, returns reporting a cancellation of
indebtedness as prescribed by Section 6050P of the Code. In particular, with
respect to the requirement under Section 6050J of the Code, to the effect that a
lender shall be required to report foreclosures and abandonments of any
mortgaged property for each year beginning in 2003, the Master Servicer shall
prepare, mail and file in a timely fashion each year as required by law
information statements in accordance with the reporting requirements imposed by
Section 6050J with respect to each instance occurring during the previous
calendar year in which the Master Servicer or any Servicer (i) on behalf of the
Indenture Trustee acquired an interest in any Mortgaged Property through
foreclosure or other comparable conversion in full or partial satisfaction of a
Home Equity Loan or (ii) knew or had reason to know that any Mortgaged Property
has been abandoned. The information statements from the Master Servicer shall be
in form and substance sufficient to meet the reporting requirements imposed by
Section 6050J of the Code.
Section 3.17 Additional Covenants of HFC. HFC hereby agrees that:
(a) it will maintain its books and records to clearly note the separate
corporate existence of the Depositor, each Servicer and the Master Servicer;
(b) the Depositor, the Servicers and HFC will share certain overhead
expenses, although the amount the Depositor will be charged for such use will be
based on actual use to the extent practicable and, to the extent such allocation
is not practicable, on a basis reasonably related to use;
49
(c) separate financial records will be maintained to reflect the assets
and liabilities of the Depositor, HFC and each Servicer, which financial records
are and will be subject to audit by independent public accountants at the
reasonable request of the Board of Directors of the Depositor, HFC or such
Servicer, as the case may be;
(d) except as permitted hereunder, there will be no commingling of the
assets of the Depositor with the assets of HFC or any Servicer. All demand
deposit accounts and other bank accounts of the Depositor will be maintained
separately from those of HFC and the Servicers. Monetary transactions between
the Depositor and HFC or any Servicer are and will continue to be properly
reflected in their respective financial records;
(e) HFC at all times will recognize, and will take all steps within its
power to maintain, the corporate existence of the Depositor and Servicers as
being separate and apart from its own corporate existence and will not refer to
the Depositor or any Servicer as a department or division of HFC; and
(f) Except as otherwise expressly provided herein, the Depositor and HFC
will not guaranty or advance the proceeds for payment of any obligations of the
Trust.
Section 3.18 Servicing Certificate. Not later than each Determination
Date, the Master Servicer shall deliver to the Indenture Trustee, the Paying
Agent, the Insurer and each Rating Agency a Servicing Certificate containing the
information set forth below with respect to the Home Equity Loans on an
aggregate basis as of the end of the preceding Collection Period and such other
information as the Indenture Trustee shall reasonably require (in written form
or the form of computer readable media or such other form as may be agreed to by
the Indenture Trustee, the Master Servicer and (so long as no Insurer Default
exists and is continuing) the Insurer), together with an Officer's Certificate
to the effect that such Servicing Certificate is true and correct in all
material respects, stating the related Collection Period, Payment Date, the
series number of the Notes, the date of this Agreement, and:
(i) the Available Payment Amount for such Payment Date,
separately stating the amount of Interest Collections and
Principal Collections;
(ii) the amount of the payments to Holders of the Notes for
such Payment Date, separately stating the portions thereof
allocable to interest and allocable to principal;
(iii) the amount of any Interest Carry Forward Amount and
Supplemental Interest Amount for the Notes paid on such
Payment Date and the amount of any Interest Carry Forward
Amount or Supplemental Interest Amount for the Notes remaining
after giving effect to the payments on such Payment Date;
(iv) the Note Principal Amount, the Pool Balance as reported
in the prior Indenture Trustee's Statement to Noteholders or,
in the case of the first
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Determination Date, the Original Note Principal Amount and the
Cut-Off Date Pool Balance;
(v) the number and aggregate Principal Balance of any Home
Equity Loan purchased or substituted by the Depositor or the
Master Servicer with respect to the related Collection Period
pursuant to Section 2.02;
(vi) the number and aggregate Principal Balance of any Home
Equity Loan purchased or substituted by the Depositor or the
Master Servicer with respect to the related Collection Period
pursuant to Section 2.04;
(vii) the number and aggregate Principal Balance of any Home
Equity Loan purchased or substituted by the Depositor or the
Master Servicer with respect to the related Collection Period
pursuant to Section 3.01;
(viii) the number and aggregate Principal Balance of any Home
Equity Loan that the Master Servicer has consented to the
placement of a senior lien during the related Collection
Period pursuant to Section 3.01(a);
(ix) the amount of any Substitution Adjustment Amounts for
such Payment Date;
(x) the amount of the Insured Payments, if any, to be made on
the related Payment Date;
(xi) the amount to be paid to the Transferor in respect of the
Ownership Interest for the related Payment Date pursuant to
Section 5.01(a)(viii);
(xii) the Note Principal Amount after giving effect to the
payment to be made on the related Payment Date;
(xiii) the Servicing Fee for the related Collection Period and
any accrued amounts thereof that remain unpaid for previous
Collection Periods;
(xiv) the amount of all payments or reimbursements to the
Master Servicer pursuant to Sections 3.03;
(xv) the Overcollateralization Amount, the Interim
Overcollateralization Amount, the Interim
Overcollateralization Deficiency, the Overcollateralization
Release Amount, the Targeted Overcollateralization Amount, the
Excess Cashflow and the Distributable Excess Cashflow for such
Payment Date;
(xvi) the amount of Distributable Excess Cashflow to be paid
to the Noteholders on such Payment Date pursuant to Section
5.01(a)(iv) on such Payment Date;
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(xvii) the number of Home Equity Loans outstanding at the
beginning and at the end of the related Collection Period;
(xviii) the Pool Balance as of the end of the related
Collection Period;
(xix) the number and aggregate Principal Balances of Home
Equity Loans (x) as to which the scheduled monthly payment is
contractually delinquent for 30-59 days, 60-89 days and 90 or
more days, respectively, and (y) that have become REO, in each
case as of the end of such Collection Period;
(xx) the unpaid principal amount of all Home Equity Loans that
became Liquidated Home Equity Loans during such Collection
Period;
(xxi) the Net Liquidation Proceeds received during such
Collection Period;
(xxii) the Cumulative Realized Losses on the Home Equity
Loans;
(xxiii) the book value (within the meaning of 12 X.X.X.xx.
571.13 or comparable provision) of any real estate acquired
through foreclosure or grant of a deed in lieu of foreclosure;
(xxiv) the Ninety Day-Plus Delinquency Percentage for the
related Collection Period;
(xxv) the Ninety Day-Plus Rolling Average for such Payment
Date;
(xxvi) LIBOR for such Payment Date;
(xxvii) whether a Master Servicer Termination Event has
occurred since the prior Determination Date, specifying each
such Master Servicer Termination Event if one has occurred;
(xxviii) whether an Event of Default has occurred and is
continuing;
(xxix) the Formula Rate, the Available Funds Cap and the Note
Rate for such Payment Date;
(xxx) the amount of any Skip-A-Pay Advances for the related
Collection Period;
(xxxi) the Skip-A-Pay Reimbursement Amount for such Payment
Date;
(xxxii) the Cumulative Loss Percentage; and
(xxxiii) the sum of outstanding Principal Balances of the
three largest Home Equity Loans as of the end of the related
Collection Period.
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The Indenture Trustee shall conclusively rely upon the information
contained in a Servicing Certificate for purposes of making payments pursuant to
Section 5.01, shall have no duty to inquire into such information and shall have
no liability in so relying. The format and content of the Servicing Certificate
may be modified by the mutual agreement of the Master Servicer, the Indenture
Trustee and, so long as no Insurer Default exists and is continuing, the Insurer
or as may be required by the rules and regulations of the Securities and
Exchange Commission. The Master Servicer shall give notice of any such change to
the Rating Agencies and the Insurer.
53
ARTICLE IV
INSURER
Section 4.01 Claims upon the Note Guaranty Insurance Policy. (a) As soon
as possible, and in no event later than 10:00 a.m. New York City time on the
second Business Day immediately preceding the Payment Date, the Indenture
Trustee shall furnish the Insurer, the Fiscal Agent and the Master Servicer with
a completed notice in the form set forth as Exhibit A to the Note Guaranty
Insurance Policy (the "Notice for Payment") in the event that the Insured
Payment for such Payment Date is equal to an amount greater than zero. The
Notice for Payment shall specify the amount of Insured Payment and shall
constitute a claim for an Insured Payment pursuant to the Note Guaranty
Insurance Policy. Upon receipt of an Insured Payment on behalf of the Holders of
the Notes under the Note Guaranty Insurance Policy, the Indenture Trustee shall
deposit such Insured Payment in the Collection Account and shall distribute such
Insured Payments pursuant to Section 5.01.
(b) The Indenture Trustee shall keep a complete and accurate record of the
amount of interest and principal paid in respect of the Notes from moneys
received under the Note Guaranty Insurance Policy. So long as no Insurer Default
exists and is continuing, the Insurer shall have the right to inspect such
records at reasonable times during normal business hours upon four Business
Day's prior written notice to the Indenture Trustee.
(c) If a payment to the Noteholders which is guaranteed pursuant to the
Note Guaranty Insurance Policy is voided (a "Preference Amount") under any
applicable bankruptcy, insolvency, receivership or similar law, and, as a
result, the Indenture Trustee is required to return such voided payment, or any
portion of such voided payment, made in respect of the Notes (an "Avoided
Payment"), the Indenture Trustee shall furnish to the Insurer (i) a certified
copy of a final nonappealable order of a court having competent jurisdiction
ordering the recovery by a trustee in bankruptcy as a voidable preference amount
included in previous payments under Section 5.01 of this Agreement to any
Noteholder pursuant to the United States Bankruptcy Code, 11 U.S.C. ss.ss.101 et
seq, as amended, (ii) an opinion of counsel satisfactory to the Insurer upon
which the Insurer is entitled to rely, stating that such order is final and not
subject to appeal, (iii) an assignment, in form reasonably satisfactory to the
Insurer, irrevocably assigning to the Insurer all rights and claims of the
Indenture Trustee, the Master Servicer and any Noteholder relating to or arising
under the Home Equity Loans against the debtor which made such preference
payment or otherwise with respect to such Preference Amount, (iv) a Notice for
Payment appropriately completed and executed by the Indenture Trustee, and (v)
appropriate instruments to effect (when executed by the affected party) the
appointment of the Insurer as agent for the Indenture Trustee and any Noteholder
in any legal proceeding relating to such preference payment being in the form
satisfactory to the Insurer. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Final
Order and not to the Indenture Trustee directly (unless a Noteholder has
previously paid such amount to the receiver, conservator, debtor-in-possession
or trustee in bankruptcy named in the Final Order in which case such payment
shall be disbursed to the Beneficiary for payment to such Noteholder upon proof
of such payment reasonably satisfactory to Insurer). The Indenture
54
Trustee is not permitted to make a claim on the Trust or on any Noteholder for
payments made to any Noteholder which are characterized as preference payments
by any bankruptcy court having jurisdiction over any bankrupt Mortgagor unless
ordered to do so by such bankruptcy court.
(d) Any amounts received by the Indenture Trustee pursuant to the Note
Guaranty Insurance Policy in respect of the Notes shall be deposited to the
Collection Account for payment pursuant to Section 5.01.
Section 4.02 Effect of Payments by the Insurer; Subrogation. Anything
herein to the contrary notwithstanding, solely for the purposes of determining
the Insurer's reimbursement rights as subrogee, any payment with respect to
principal of or interest on any of the Notes which are made with moneys received
pursuant to the terms of the Note Guaranty Insurance Policy, but only to the
extent that such payment has not been reimbursed to the Insurer pursuant to
Section 5.01(a)(v), shall not be considered payment of such Notes, as
applicable, from the Trust and shall not result in the payment of or the
provision for the payment of the principal of or interest on such Notes, as
applicable, within the meaning of Section 5.01 herein. The Master Servicer and
the Indenture Trustee acknowledge, and each Holder by its acceptance of a Note
agrees, that without the need for any further action on the part of the Insurer,
the Depositor, the Master Servicer, the Indenture Trustee or the Note Registrar
(a) to the extent the Insurer makes payments, directly or indirectly, on account
of principal of or interest on any Notes to the Holders of such Notes, the
Insurer will be fully subrogated to the rights of such Holders to receive such
principal and interest, as applicable, from the Trust in accordance with the
priorities of payment set forth in Section 5.01, and (b) the Insurer shall be
paid such principal and interest but only from the sources and in the manner
provided herein and in the Insurance Agreement for the payment of such principal
and interest.
So long as no Insurer Default exists and is continuing, the Indenture
Trustee and the Master Servicer shall cooperate in all respects with any
reasonable request by the Insurer for action to preserve or enforce the
Insurer's rights or interests under this Agreement without limiting the rights
or affecting the interests of the Holders of the Notes as otherwise set forth
herein.
Section 4.03 Insurer's Rights Regarding Actions, Proceedings or
Investigations. Until the Notes have been paid in full, all amounts owed to the
Insurer have been paid in full, the Insurance Agreement has terminated and the
Note Guaranty Insurance Policy has been returned to the Insurer for
cancellation, so long as no Insurer Default exists and is continuing the
following provisions shall apply:
(a) Notwithstanding anything contained herein or in the other Transaction
Documents to the contrary, the Insurer shall have the right to participate in,
to direct the enforcement or defense of, and, at the Insurer's sole option, to
institute or assume the defense of on behalf of the Trust, any action,
proceeding or investigation that could adversely affect the Trust, or the rights
or obligations of the Insurer hereunder or under the Note Guaranty Insurance
Policy or this Agreement or the other Transaction Documents, including (without
limitation) any insolvency or bankruptcy proceeding in respect of the Trust.
Following notice to the Indenture Trustee and the
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Owner Trustee, the Insurer shall have exclusive right to determine, in its sole
discretion, the actions necessary to preserve and protect the Trust. All costs
and expenses of the Insurer in connection with such action, proceeding or
investigation, including (without limitation) any judgment or settlement entered
into affecting the Insurer or the Insurer's interests, shall be included in
Reimbursement Amount.
(b) In connection with any action, proceeding or investigation that could
adversely affect the Trust or the rights or obligations of the Insurer hereunder
or under the Note Guaranty Insurance Policy, this Agreement or the other
Transaction Documents, including (without limitation) any insolvency or
bankruptcy proceeding in respect of the Trust, the Trust hereby agrees to
cooperate with, and to take such action as directed by, the Insurer, including
(without limitation) entering into such agreements and settlements as the
Insurer shall direct, in its sole discretion, without the consent of any
Noteholders and the Transferor. Notwithstanding any other provision herein or in
any of the other Transaction Documents, the Trust shall not require any bond or
indemnification from any Person for taking of any action at the direction of the
Insurer, and the Owner Trustee shall not be liable to the Insurer or any
Noteholders and the Transferor for any such action that conforms to the
direction of the Insurer. The Owner Trustee's reasonable out-of-pocket costs and
expenses (including attorneys' fees and expenses) with respect to any such
action shall be reimbursed pursuant to Section 8.1 of the Trust Agreement.
(c) Any judgment or settlement entered against or affecting the Trust or
the Owner Trustee, on behalf of the Noteholders, in connection with any action,
proceeding or investigation shall be paid by the Trust pursuant to Section 5.01.
(d) The Trust hereby agrees to provide to the Insurer prompt written
notice of any action, proceeding or investigation that names the Trust or the
Owner Trustee as a party or that could adversely affect the Trust or the rights
or obligations of the Insurer hereunder or under the Note Guaranty Insurance
Policy, this Agreement or the other Transaction Documents, including (without
limitation) any insolvency or bankruptcy proceeding in respect of the Master
Servicer, the Depositor, any of the Servicers, the Trust or any affiliate
thereof.
(e) Notwithstanding anything contained herein or in any of the other
Transaction Documents to the contrary, neither the Trust nor the Owner Trustee
shall, without the Insurer's prior written consent (which shall not be
unreasonably withheld) or unless directed by the Insurer, undertake or join any
litigation or agree to any settlement of any action, proceeding or investigation
affecting the Trust or the rights or obligations of the Insurer hereunder or
under the Note Guaranty Insurance Policy or the Transaction Documents.
(f) Each Noteholder, by acceptance of its Note, the Trust, and the Owner
Trustee agree that Insurer shall have such rights as set forth in this Section,
which are in addition to any rights of the Insurer pursuant to the other
provisions of the Transaction Documents, that the rights set forth in this
Section may be exercised by the Insurer, in its sole discretion, without the
need for the consent or approval of any Noteholder, the Trust or the Owner
Trustee, notwithstanding any other provision contained herein or in any of the
other Transaction
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Documents, and that nothing contained in this Section shall be deemed to be an
obligation of the Insurer to exercise any of the rights provided for herein.
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ARTICLE V
PRIORITY OF PAYMENTS; STATEMENTS TO
NOTEHOLDERS; RIGHTS OF NOTEHOLDERS
Section 5.01 Payments.
(a) Payments of Interest and Principal Collections. Pursuant to Section
3.1 of the Indenture, on each Payment Date, the Indenture Trustee, with respect
to the Notes, and the Paying Agent, with respect to the Ownership Interest,
shall distribute out of the Collection Account, to the extent of the Available
Payment Amount (except that amounts paid under the Note Guaranty Insurance
Policy shall only be available for payment to Noteholders), the following
amounts and in the following order of priority to the following Persons (based
on the information set forth in the Servicing Certificate):
(i) to the Insurer, the Premium Amount (to the extent not
previously paid by the Master Servicer);
(ii) to the holders of the Notes, an amount equal to the
Interest Payment Amount for the Notes for such Payment Date;
(iii) to the holders of the Notes, the Principal Payment
Amount for such Payment Date until the Note Principal Amount
has been reduced to zero;
(iv) to the holders of the Notes, to the extent of the
Available Payment Amount remaining, the Distributable Excess
Cashflow for such Payment Date until the Note Principal Amount
has been reduced to zero;
(v) to the Insurer, any Reimbursement Amounts due and owing to
the Insurer under the Insurance Agreement;
(vi) to the Notes, the Supplemental Interest Amount for such
Payment Date;
(vii) to the Owner Trustee on behalf of the Trust, an amount
sufficient to pay any judgment or settlement affecting the
Trust; and
(viii) to the Transferor in respect of the Ownership Interest,
the balance provided, however, that on any Payment Date after
the earlier of (i) the date on which the first auction
conducted by the Indenture Trustee pursuant to Section 8.01(c)
does not produce any bid at least equal to the Termination
Price or (ii) the June 2012 Payment Date, any remaining amount
available for payment pursuant to this Section 5.01(a)(viii)
shall instead be paid to the Notes in reduction of the Note
Principal Amount;
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provided, that in the event that on a Payment Date an Insurer Default shall have
occurred and be continuing, then the priorities of payments described above will
be adjusted such that payments of any amounts to be paid to the Insurer will not
be paid until the full amount of interest and principal in accordance with
clauses (ii) through (iv) above that are due and required to be paid by the
Issuer on the Notes on such Payment Date have been paid; provided, further that
so long as an Insurer Default has occurred and is continuing the Premium Amount
shall be zero; provided, further, that on the Final Payment Date, the amount to
be paid pursuant to clause (iii) above shall be equal to the Note Principal
Amount immediately prior to such Payment Date; and provided, further, that if
the Indenture Trustee collects any money or property pursuant to Article V of
the Indenture, the Indenture Trustee and the Paying Agent shall pay out the
money or property as provided in Section 5.4(b) of the Indenture.
(b) Method of Payment. The Indenture Trustee shall make payments in
respect of a Payment Date to each Noteholder of record on the related Record
Date (other than as provided in Section 8.01 respecting the final payment) by
check or money order mailed to such Noteholder at the address appearing in the
Note Register, or upon written request by a Noteholder delivered to the
Indenture Trustee at least five Business Days prior to such Record Date, by wire
transfer (but only if such Noteholder is the Depository or such Noteholder owns
of record one or more Notes having principal denominations aggregating at least
$1,000,000), or by such other means of payment as such Noteholder and the
Indenture Trustee shall agree. Payments among Noteholders shall be made in
proportion to the Percentage Interests evidenced by the Notes held by such
Noteholders. The Indenture Trustee, acting in its capacity as Paying Agent,
shall make payments in respect of a Payment Date to the Transferor of record on
the related Record Date, in respect of the Ownership Interest by wire transfer
or by such other means of payment as the Transferor and the Paying Agent shall
agree.
(c) Payments on Book-Entry Notes. Each payment with respect to a
Book-Entry Note shall be paid to the Depository, which shall credit the amount
of such payment to the accounts of its Depository Participants in accordance
with its normal procedures. Each Depository Participant shall be responsible for
disbursing such payment to the Note Owners that it represents and to each
indirect participating brokerage firm (a "brokerage firm" or "indirect
participating firm") for which it acts as agent. Each brokerage firm shall be
responsible for disbursing funds to the Note Owners that it represents. All such
credits and disbursements with respect to a Book-Entry Note are to be made by
the Depository and the Depository Participants in accordance with the provisions
of the Notes. None of the Indenture Trustee, the Paying Agent, the Note
Registrar, the Insurer, the Trust or the Master Servicer shall have any
responsibility therefor except as otherwise provided by applicable law.
Section 5.02 Calculation of LIBOR and the Formula Rate.
(a) Calculation of the Formula Rate. On or prior to each LIBOR
Determination Date, the Indenture Trustee shall determine the applicable Formula
Rate for the related Payment Date.
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(b) Calculation of LIBOR. Until the Principal Balance of each of the Notes
has been reduced to zero, the Indenture Trustee shall establish LIBOR on each
LIBOR Determination Date as follows:
(i) If on such LIBOR Determination Date a rate for United
States dollar deposits for one month appears on the Dow Xxxxx
Telerate System, page 3750, LIBOR for the next Accrual Period
shall be equal to such rate as of 11:00 A.M., London time;
(ii) If such rate does not appear on such page (or such other
page as may replace that page on that service, or if such
service is no longer offered, such other service for
displaying LIBOR or comparable rates as may be selected by the
Indenture Trustee after consultation with the Master
Servicer), the rate shall be determined as follows:
(x) The Indenture Trustee on the LIBOR
Determination Date will request the principal London
offices of each of four major reference banks in the
London interbank market, as selected by the Indenture
Trustee, to provide the Indenture Trustee with its
offered quotation for deposits in United States dollars
for the upcoming one-month period, commencing on the
second LIBOR Business Day immediately following such
LIBOR Determination Date, to prime banks in the London
interbank market at approximately 11:00 a.m. London time
on such LIBOR Determination Date and in a principal
amount that is representative for a single transaction
in United States dollars in such market at such time. If
at least two such quotations are provided, LIBOR
determined on such LIBOR Determination Date will be the
arithmetic mean of such quotations.
(y) If fewer than two quotations are provided,
LIBOR determined on such LIBOR Determination Date will
be the arithmetic mean of the rates quoted at
approximately 11:00 a.m. in New York City on such LIBOR
Determination Date by three major banks in New York City
selected by the Indenture Trustee for one-month United
States dollar loans to leading European banks, in a
principal amount that is representative for a single
transaction in United States dollars in such market at
such time; provided, however, that if the banks so
selected by the Indenture Trustee are not quoting as
mentioned in this sentence, LIBOR determined on such
LIBOR Determination Date will continue to be LIBOR as
then currently in effect on such LIBOR Determination
Date.
(iii) The establishment of LIBOR on each LIBOR Determination
Date by the Indenture Trustee and the Indenture Trustee's
calculation of the rate of
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interest applicable to the Notes for the related Accrual
Period shall (in the absence of manifest error) be final and
binding. The Indenture Trustee shall, upon determination of
LIBOR for the relevant Accrual Period, inform the Master
Servicer (at the facsimile number given to the Indenture
Trustee in writing) of such rates.
Section 5.03 Statements to Noteholders. (a) On each Payment Date, the
Indenture Trustee shall deliver a copy of the applicable Servicing Certificate
delivered to the Indenture Trustee pursuant to Section 3.18 to each Noteholder
(other than entries (xxii), (xxix) and (xxx) below, which shall only be
delivered to the Insurer) concurrently with each payment to Noteholders (the
"Indenture Trustee's Statement to Noteholders") containing the information set
forth below with respect to such Payment Date:
(i) the Available Payment Amount for such Payment Date,
separately stating the amount of Interest Collections and
Principal Collections;
(ii) the amount of the payments to Holders of the Notes for
such Payment Date, separately stating the portions thereof
allocable to interest and allocable to principal;
(iii) the amount of any Interest Carry Forward Amount and
Supplemental Interest Amount for the Notes paid on such
Payment Date and the amount of any Interest Carry Forward
Amount or Supplemental Interest Amount for the Notes remaining
after giving effect to the payments on such Payment Date;
(iv) the Note Principal Amount, the Pool Balance as reported
in the prior Indenture Trustee's Statement to Noteholders or,
in the case of the first Determination Date, the Original Note
Principal Amount and the Cut-Off Date Pool Balance;
(v) the number and aggregate Principal Balance of any Home
Equity Loans purchased by the Depositor or the Master Servicer
with respect to the related Collection Period pursuant to
Sections 2.02, 2.04 and 3.01;
(vi) the amount of any Substitution Adjustment Amounts for
such Payment Date;
(vii) the amount of the Insured Payment, if any, to be made on
the related Payment Date;
(viii) the amount to be paid to the Transferor in respect of
the Ownership Interest for the related Payment Date pursuant
to Section 5.01(a)(viii);
(ix) the Note Principal Amount after giving effect to the
payment to be made on the related Payment Date;
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(x) the Servicing Fee for the related Collection Period and
any accrued amounts thereof that remain unpaid for previous
Collection Periods;
(xi) the amount of all payments or reimbursements to the
Master Servicer pursuant to Sections 3.03;
(xii) the Overcollateralization Amount, the Interim
Overcollateralization Amount, the Interim
Overcollateralization Deficiency, the Overcollateralization
Release Amount, the Targeted Overcollateralization Amount, the
Excess Cashflow and the Distributable Excess Cashflow for such
Payment Date;
(xiii) the amount of Distributable Excess Cashflow to be paid
to the Noteholders on such Payment Date pursuant to Section
5.01(a)(iv) on such Payment Date;
(xiv) the number of Home Equity Loans outstanding at the
beginning and at the end of the related Collection Period;
(xv) the Pool Balance as of the end of the related Collection
Period;
(xvi) the number and aggregate Principal Balances of Home
Equity Loans (x) as to which the scheduled monthly payment is
contractually delinquent for 30-59 days, 60-89 days and 90 or
more days, respectively, and (y) that have become REO, in each
case as of the end of such Collection Period;
(xvii) the unpaid principal amount of all Home Equity Loans
that became Liquidated Home Equity Loans during such
Collection Period;
(xviii) the Net Liquidation Proceeds received during such
Collection Period;
(xix) the Cumulative Realized Losses on the Home Equity Loans;
(xx) the book value (within the meaning of 12 X.X.X.xx. 571.13
or comparable provision) of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xxi) the Ninety Day-Plus Delinquency Percentage for the
related Collection Period;
(xxii) the Ninety Day-Plus Rolling Average for such Payment
Date;
(xxiii) LIBOR for such Payment Date;
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(xxiv) whether a Master Servicer Termination Event has
occurred since the prior Determination Date, specifying each
such Master Servicer Termination Event if one has occurred;
(xxv) whether an Event of Default has occurred and is
continuing;
(xxvi) the Formula Rate, the Available Funds Cap and the Note
Rate for such Payment Date;
(xxvii) the amount of any Skip-A-Pay Advances for the related
Collection Period;
(xxviii) the Skip-A-Pay Reimbursement Amount for such Payment
Date;
(xxix) the Cumulative Loss Percentage; and
(xxx) the sum of outstanding Principal Balances of the three
largest Home Equity Loans as of the end of the related
Collection Period.
In the case of information furnished pursuant to clauses (i) and (ii)
above, the amounts shall be expressed, in a separate section of the report, as a
dollar amount for each Note for each $1,000 original dollar amount as of the
Cut-Off Date.
To the extent that there are inconsistencies between the telecopy of the
Indenture Trustee's Statement to Noteholders and the hard copy thereof, the
Master Servicer may rely upon the latter.
The Indenture Trustee will make the reports referred to in this section
(and, at its option, any additional files containing the same information in an
alternative format) available each month to Noteholders and other parties to
this Agreement via the Indenture Trustee's website, which is presently located
at xxx.xxx.xxxxxxx.xxx. Persons that are unable to use the above website are
entitled to have a paper copy mailed to them via first class mail by calling the
Indenture Trustee at (000) 000-0000. The Indenture Trustee shall have the right
to change the way the reports referred to in this section are distributed in
order to make such distribution more convenient and/or more accessible to the
above parties and to the Noteholders. The Indenture Trustee shall provide timely
and adequate notification to all above parties and to the Noteholders regarding
any such change.
(b) The Indenture Trustee shall prepare or cause to be prepared (in a
manner consistent with the treatment of the Notes as indebtedness of the Trust,
or as may be otherwise required by Section 3.16 herein) Internal Revenue Service
Form 1099 (or any successor form) and any other tax forms required to be filed
or furnished to Noteholders in respect of payments by the Indenture Trustee (or
the Paying Agent) on the Notes and shall file and distribute such forms as
required by law.
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(c) Reports and computer tapes furnished by the Master Servicer pursuant
to this Agreement shall be deemed confidential and of a proprietary nature, and
shall not be copied or distributed except to the extent provided in this
Agreement and to the extent required by law or to the Rating Agencies, the
Depositor, the Insurer's reinsurers, parent, regulators, liquidity providers and
auditors and to the extent the Seller instructs the Indenture Trustee in writing
to furnish information regarding the Trust or the Home Equity Loans to
third-party information providers. No Person entitled to receive copies of such
reports or tapes or lists of Noteholders shall use the information therein for
the purpose of soliciting the customers of the Seller or for any other purpose
except as set forth in this Agreement.
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ARTICLE VI
THE MASTER SERVICER AND THE DEPOSITOR
Section 6.01 Liability of the Master Servicer and the Depositor. The
Master Servicer shall be liable in accordance herewith only to the extent of the
obligations specifically imposed upon and undertaken by the Master Servicer
herein. The Depositor shall be liable in accordance herewith only to the extent
of the obligations specifically imposed upon and undertaken by the Depositor
herein.
Section 6.02 Merger or Consolidation of, or Assumption of the Obligations
of, the Master Servicer or the Depositor. Any corporation into which the Master
Servicer or Depositor may be merged or consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Master
Servicer or the Depositor shall be a party, or any corporation succeeding to the
business of the Master Servicer or the Depositor, shall be the successor of the
Master Servicer or the Depositor, as the case may be, hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto so long as such entity is investment grade rated, anything herein
to the contrary notwithstanding.
Section 6.03 Limitation on Liability of the Master Servicer, the Depositor
and Others. None of the Master Servicer, the Depositor, or any director,
officer, employee or agent of the Master Servicer or the Depositor shall be
under any liability to the Trust or the Noteholders for any action taken or for
refraining from the taking of any action by the Master Servicer or the
Depositor, as applicable, in good faith pursuant to this Agreement, or for
errors in judgment; provided, however, that this provision shall not protect the
Master Servicer, the Depositor or any such person against any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties hereunder, and that this provision shall not be construed
to entitle the Master Servicer to indemnity in the event that amounts advanced
by the Master Servicer to retire any senior Lien exceed Net Liquidation Proceeds
realized with respect to the related Home Equity Loan. The Master Servicer, the
Depositor and any director, officer, employee or agent of the Master Servicer or
the Depositor 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 Master Servicer, the Depositor and any director, officer,
employee or agent of the Master Servicer or the Depositor shall be indemnified
by the Trust and held harmless against any loss, liability or expense incurred
in connection with any legal action relating to this Agreement or the Notes,
other than any loss, liability or expense related to any specific Home Equity
Loan or Home Equity Loans (except as any such loss, liability or expense shall
be otherwise reimbursable pursuant to this Agreement) and any loss, liability or
expense incurred by reason of willful misfeasance, bad faith or gross negligence
in the performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Master Servicer nor the Depositor
shall be under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its respective duties under this Agreement, and which
in its opinion may involve it in any expense or liability; provided, however,
that the Master Servicer or the Depositor may, in its sole discretion, undertake
any such action which it
65
may deem necessary or desirable in respect of this Agreement and the rights and
duties of the parties hereto and the interests of the Noteholders and the
Insurer hereunder. In such event, the reasonable legal expenses and costs of
such action and any liability resulting therefrom and any claims by the Master
Servicer or the Depositor hereunder for indemnification shall be expenses, costs
and liabilities of the Trust, and the Master Servicer or the Depositor, as the
case may be, shall be entitled to be reimbursed therefor and indemnified
pursuant to the terms hereof from amounts deposited in the Collection Account as
provided by Section 3.03. The Master Servicer's and the Depositor's right to
indemnity or reimbursement pursuant to this Section shall survive any
resignation or termination of the Master Servicer pursuant to Section 6.04 or
7.01 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). The Master Servicer shall have no claim
(whether by subrogation or otherwise) or other action against any Noteholder or
the Insurer for any amounts paid by the Master Servicer pursuant to any
provision of this Agreement.
Section 6.04 Master Servicer Not to Resign. Subject to the provisions of
Section 6.02, the Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (i) upon determination that the performance
of its obligations or duties hereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities carried on by it or its subsidiaries or Affiliates, the other
activities of the Master Servicer so causing such a conflict being of a type and
nature carried on by the Master Servicer or its subsidiaries or Affiliates at
the date of this Agreement or (ii) upon satisfaction of the following
conditions: (a) the Master Servicer has proposed a successor servicer to the
Indenture Trustee in writing and such proposed successor servicer is reasonably
acceptable to the Indenture Trustee and, so long as no Insurer Default exists
and is continuing, the Insurer; (b) each Rating Agency shall have confirmed to
the Indenture Trustee that the appointment of such proposed successor servicer
as Master Servicer hereunder will not result in the reduction or withdrawal of
the then-current rating of the Notes without taking into account the existence
of the Note Guaranty Insurance Policy; and (c) such proposed successor servicer
has agreed in writing to assume the obligations of Master Servicer hereunder and
the Master Servicer has delivered to the Indenture Trustee and the Insurer an
Opinion of Counsel to the effect that all conditions precedent to the
resignation of the Master Servicer and the appointment of and acceptance by the
proposed successor servicer have been satisfied; provided, however, that in the
case of clause (i) above no such resignation by the Master Servicer shall become
effective until the Indenture Trustee shall have assumed the Master Servicer's
responsibilities and obligations hereunder or the Indenture Trustee shall have
designated a successor servicer in accordance with Section 7.02. Any such
resignation shall not relieve the Master Servicer of responsibility for any of
the obligations specified in Sections 7.01 and 7.02 as obligations that survive
the resignation or termination of the Master Servicer. Any such determination
permitting the resignation of the Master Servicer pursuant to clause (i) above
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Indenture Trustee and the Insurer.
Section 6.05 Delegation of Duties. In the ordinary course of business, the
Master Servicer at any time may delegate any of its duties hereunder to any
Person, including any of its Affiliates, who agrees to conduct such duties in
accordance with standards comparable to those
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with which the Master Servicer complies pursuant to Section 3.01. Such
delegation shall not relieve the Master Servicer of its liabilities and
responsibilities with respect to such duties and shall not constitute a
resignation within the meaning of Section 6.04. The Master Servicer shall
provide each Rating Agency, the Insurer and the Indenture Trustee with written
notice prior to the delegation of any of its duties to any Person other than any
of the Master Servicer's Affiliates or their respective successors and assigns.
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ARTICLE VII
MASTER SERVICER TERMINATION
Section 7.01 Master Servicer Termination Events.
If any one of the following events ("Master Servicer Termination Events")
shall occur and be continuing:
(a) Any failure by the Master Servicer to deposit in the Collection
Account any deposit required to be made under the terms of this Agreement which
continues unremedied for a period of five (5) Business Days after the date upon
which written notice of such failure shall have been given to the Master
Servicer by the Indenture Trustee or the Depositor, or to the Master Servicer,
the Depositor and the Indenture Trustee by (i) the Insurer, so long as no
Insurer Default exists and is continuing, or (ii) during the existence of an
Insurer Default, the Majority Noteholder (without the consent of the Insurer so
long as an Insurer Default is continuing); or
(b) Any failure on the part of the Master Servicer duly to observe or
perform in any material respect any other covenants or agreements of the Master
Servicer set forth in the Notes or in this Agreement, which failure (A)
materially and adversely affects the interests of Noteholders or, so long as no
Insurer Default exists and is continuing, the Insurer and (B) continues
unremedied for a period of sixty (60) days after the date on which written
notice of such failure, requiring the same to be remedied, shall have been given
to the Master Servicer by the Indenture Trustee or the Depositor, or to the
Master Servicer, the Depositor and the Indenture Trustee by (i) the Insurer, so
long as no Insurer Default exists and is continuing, or (ii) during the
existence of an Insurer Default, the Majority Noteholder (without the consent of
the Insurer so long as an Insurer Default is continuing); or
(c) The entry against the Master Servicer of a decree or order by a court
or agency or supervisory authority having jurisdiction in the premises for the
appointment of a trustee, conservator, receiver or liquidator in any insolvency,
conservatorship, receivership, readjustment of debt, marshalling of assets and
liabilities or similar proceedings, or for the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in effect
for a period of 60 consecutive days; or
(d) The consent by the Master Servicer to the appointment of a trustee,
conservator, receiver or liquidator in any insolvency, conservatorship,
receivership, readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Master Servicer or of or relating to
substantially all of its property; or the Master 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
(e) the Ninety Day-Plus Rolling Average exceeds 7.00% of the Pool Balance
as of the end of the related Collection Period; or
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(f) the Servicer Loss Test is not satisfied;
then, and in each and every case, so long as a Master Servicer Termination Event
shall not have been remedied by the Master Servicer, either the Indenture
Trustee, the Insurer, so long as no Insurer Default is continuing or the
Depositor may, and at the direction of (i) the Insurer, so long as no Insurer
Default is existing, or (ii) the Majority Noteholder (without the consent of the
Insurer so long as Insurer Default exists and is continuing), the Indenture
Trustee shall, by notice then given in writing to the Master Servicer, the
Depositor, the Insurer and the Indenture Trustee, as applicable, terminate all
of the rights and obligations of the Master Servicer as master servicer under
this Agreement; provided, however, that the responsibilities and duties of the
initial Master Servicer with respect to the purchase of Home Equity Loans
pursuant to Sections 2.02, 2.04(c) and 3.01 shall not terminate. Any such notice
to the Master Servicer shall also be given to each Rating Agency. On or after
the receipt by the Master Servicer of such written notice, all authority and
power of, and all benefits accruing to, the Master Servicer under this
Agreement, whether with respect to the Notes or the Home Equity Loans or
otherwise, shall pass to and be vested in the Indenture Trustee or, if a
successor Master Servicer has been appointed under Section 7.02, such successor
Master Servicer pursuant to and under this Section 7.01; and, without
limitation, the Indenture Trustee is hereby authorized and empowered to execute
and deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise,
any and all documents and other instruments, and to do or accomplish all other
acts or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of each Home
Equity Loan and related documents, or otherwise. The Master Servicer agrees to
cooperate with the Indenture Trustee in effecting the termination of the
responsibilities and rights of the Master Servicer hereunder, including, without
limitation, the transfer to the Indenture Trustee for the administration by it
of all cash amounts that shall at the time be held by the terminated Master
Servicer and to be deposited by it in the Collection Account, or that have been
deposited by the terminated Master Servicer in the Collection Account or
thereafter received by the terminated Master Servicer with respect to the Home
Equity Loans, and the recordation of Assignments of Mortgages to the Trust if
MERS is not the mortgagee of a Home Equity Loan or otherwise in accordance with
Section 7.02(c).
Notwithstanding the foregoing, a delay in or failure of performance under
Section 7.01(a) for a period of five (5) Business Days or under Section 7.01(b)
for a period of sixty (60) days, shall not constitute a Master Servicer
Termination Event if such delay or failure could not be prevented by the
exercise of reasonable diligence by the Master Servicer and such delay or
failure was caused by an act of God, acts of declared or undeclared war, public
disorder, terrorism, rebellion or sabotage, epidemics, landslides, lightning,
fire, hurricanes, earthquakes, floods or similar causes. The preceding sentence
shall not relieve the Master Servicer from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of this Agreement,
and the Master Servicer shall provide the Indenture Trustee, the Depositor, the
Insurer and the Noteholders with an Officer's Certificate giving prompt notice
of such failure or delay by it, together with a description of its efforts to so
perform its obligations. The Master Servicer shall immediately notify the
Indenture Trustee, the Insurer and each Rating Agency in writing of any Master
Servicer Termination Events.
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Section 7.02 Indenture Trustee to Act; Appointment of Successor.
(a) On and after the time the Master Servicer receives a notice of
resignation or termination pursuant to Section 6.04 or 7.01, the Indenture
Trustee shall be the successor in all respects to the Master Servicer in its
capacity as servicer under this Agreement and the transactions set forth or
provided for herein and shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Master Servicer by the terms and
provisions hereof; provided, however, that the responsibilities and duties of
HFC as Master Servicer with respect to the purchase of the Home Equity Loans
pursuant to Sections 2.02, 2.04(c) and 3.01 shall not terminate. As compensation
therefor, the Indenture Trustee shall be entitled to such compensation as the
Master 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 Master Servicer, or (ii) if the
Indenture Trustee is legally unable so to act, the Indenture Trustee may (in the
situation described in clause (i)) or shall (in the situation described in
clause (ii)) appoint, or petition a court of competent jurisdiction to appoint,
any housing and home finance institution or other mortgage loan or home equity
loan servicer having all licenses and permits required in order to perform its
obligations hereunder and a net worth of not less than $50,000,000 as the
successor to the Master Servicer hereunder in the assumption of all or any part
of the responsibilities, duties or liabilities of the Master Servicer hereunder;
provided that the appointment of any such successor Master Servicer will not
result in the qualification, reduction or withdrawal of the then-current rating
assigned to the Notes by the Rating Agencies without taking into account the
existence of the Note Guaranty Insurance Policy, as evidenced by a writing to
such effect delivered to the Indenture Trustee and the Insurer, and (so long as
no Insurer Default exists and is continuing) any successor Master Servicer
appointed hereunder shall be reasonably acceptable to the Insurer, as evidenced
in writing to the Indenture Trustee, the Depositor and the successor Master
Servicer by the Insurer. Pending appointment of a successor to the Master
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 Home Equity Loans
in an amount equal to the compensation which the Master Servicer would otherwise
have received pursuant to Section 3.09 (or such lesser compensation as the
Indenture Trustee and such successor shall agree). The Indenture Trustee and
such successor shall take such action, consistent with this Agreement, as shall
be necessary to effectuate any such succession.
(b) Any successor, including the Indenture Trustee, to the Master Servicer
as master servicer shall during the term of its service as master servicer (i)
continue to service and administer the Home Equity Loans for the benefit of
Noteholders and (ii) maintain in force a policy or policies of insurance
covering errors and omissions in the performance of its obligations as Master
Servicer hereunder and a fidelity bond in respect of its officers, employees and
agents to the same extent as the Master Servicer is so required pursuant to
Section 3.13. The appointment of a successor Master Servicer shall not affect
any liability of the predecessor Master Servicer which may have arisen under
this Agreement prior to its termination as Master Servicer (including, without
limitation, any deductible under an insurance policy pursuant to Section 3.04),
nor shall any successor Master Servicer be liable for any acts or omissions of
the
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predecessor Master Servicer or for any breach by such Master Servicer or the
Depositor of any of their representations or warranties contained herein or in
any related document or agreement.
(c) In connection with the termination or resignation of the Master
Servicer hereunder, either (i) the successor Master Servicer, including the
Indenture Trustee if the Indenture Trustee is acting as successor Master
Servicer, shall represent and warrant that it is a member of MERS in good
standing and shall agree to comply in all material respects with the rules and
procedures of MERS in connection with the servicing of the Home Equity Loans
that are registered with MERS, in which case the predecessor Master Servicer
shall cooperate with the successor Master Servicer in causing MERS to revise its
records to reflect the transfer of servicing to the successor Master Servicer as
necessary under MERS' rules and regulations, or (ii) the predecessor Master
Servicer shall cooperate with the successor Master Servicer in causing MERS to
execute and deliver an assignment of Mortgage in recordable form to transfer the
Mortgage from MERS to the Trust and to execute and deliver such other notices,
documents and other instruments as may be necessary or desirable to effect a
transfer of such Home Equity Loan or servicing of such Home Equity Loan on the
MERS(R) System to the successor Master Servicer. The predecessor Master Servicer
shall file or cause to be filed any such assignment in the appropriate recording
office. The predecessor Master Servicer shall bear any and all fees of MERS,
costs of preparing any assignments of Mortgage, and fees and costs of filing any
assignments of Mortgage that may be required under this subsection (c). The
successor Master Servicer shall cause such assignment to be delivered to the
Indenture Trustee promptly upon receipt of the original with evidence of
recording thereon or a copy certified by the public recording office in which
such assignment was recorded.
Section 7.03 Waiver of Defaults. So long as no Insurer Default exists and
is continuing, the Insurer, or the Majority Noteholder with the consent of the
Insurer (which consent shall not be unreasonably withheld), may, on behalf of
all Noteholders, waive any events permitting removal of the Master Servicer as
master servicer pursuant to this Article VIII, provided, however, that the
Insurer and the Majority Noteholder may not waive a default in making a required
payment on a Note without the consent of the Holder of such Note. Upon any
waiver of a past default, such default shall cease to exist and any Master
Servicer Termination Event arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereto except to the
extent expressly so waived. Notice of any such waiver shall be given by the
Indenture Trustee to the Rating Agencies.
Section 7.04 Notification to Noteholders. Upon any termination or
appointment of a successor to the Master Servicer pursuant to this Article VII
or Section 6.04 above, the Indenture Trustee shall give prompt written notice
thereof to the Noteholders at their respective addresses appearing in the Note
Register, the Insurer and each Rating Agency.
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ARTICLE VIII
TERMINATION
Section 8.01 Termination.
(a) The respective obligations and responsibilities of the Depositor, the
Seller, the Master Servicer, the Trust and the Indenture Trustee created hereby
(other than the obligation of the Indenture Trustee to make certain payments to
Noteholders after the Final Payment Date and the obligation of the Master
Servicer to send certain notices as hereinafter set forth) shall terminate upon
notice to the Indenture Trustee of the later of (A) payment in full of all
amounts owing to the Insurer unless the Insurer shall otherwise consent and (B)
the earliest of (i) the final payment or other liquidation of the last Home
Equity Loan remaining in the Trust; (ii) the sale of the Home Equity Loans as
described in Section 10.2 of the Indenture and the corresponding redemption of
the Notes, (iii) the optional purchase by the Master Servicer of the Home Equity
Loans as described below and (iv) the Payment Date in April 2032.
Notwithstanding the foregoing, in no event shall the trust created hereby
continue beyond the expiration of 21 years from the date of the last survivor of
the descendants of Xxxxxx X. Xxxxxxx, the late ambassador of the United States
to the Court of St. James's, living on the date hereof.
(b) The Master Servicer may, at its option, terminate this Agreement on
any Payment Date on or after the Payment Date on which the Note Principal Amount
is less than or equal to 15% of the Original Note Principal Amount by
purchasing, on the next succeeding Payment Date, all of the outstanding Home
Equity Loans and REO Properties at a price (the "Termination Price") equal the
greatest of (A) the sum of (x) 100% of the Principal Balance of each Home Equity
Loan (other than any Home Equity Loan as to which title to the underlying
Mortgaged Property has been acquired and whose fair market value is included
pursuant to clause (y) below) as of the first day of the Collection Period
preceding the Payment Date upon which the proceeds of any repurchase are to be
paid and (y) the fair market value of such acquired property (as determined by
the Master Servicer as of the close of business on the third Business Day next
preceding the date upon which notice of any such termination is furnished to
Noteholders pursuant to Section 8.01(e)) plus, in each case, one month's
interest at the applicable Net Loan Rate on the Principal Balance of each Home
Equity Loan (including any Home Equity Loan as to which title to the underlying
Mortgaged Property has been acquired), (B) the aggregate fair market value (as
determined by the Master Servicer as of the close of business on such third
preceding Business Day) of all of the assets of the Trust, and (C) the Note
Principal Amount, together with any unpaid Interest Carry Forward Amounts and
Supplemental Interest Amounts, plus one month's interest on such Note Principal
Amount and any unpaid Interest Carry Forward Amounts and Supplemental Interest
Amounts at the Note Rate, plus all Reimbursement Amounts due and owing to the
Insurer.
Any such purchase shall be accomplished by deposit into the Collection
Account on the Determination Date before such Payment Date of the Termination
Price.
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(c) If the Master Servicer does not repurchase all of the Home Equity
Loans pursuant to Section 8.01(b) above within three (3) months of the first
Payment Date upon which such repurchase option may occur, then promptly on the
following Payment Date the Indenture Trustee shall begin a process for
soliciting bids in connection with an auction of the Home Equity Loans. The
Indenture Trustee shall provide the Master Servicer written notice of such
auction at least ten (10) Business Days prior to the date bids must be received
in such auction (the "Auction Date"). The auction shall be conducted as follows:
(i) If at least two bids are received, the Indenture Trustee shall
solicit and resolicit new bids from all participating bidders until only
one bid remains or the remaining bidders decline to resubmit bids. The
Indenture Trustee shall accept the highest of such remaining bids if it is
equal to or in excess of the Termination Price. If less than two bids are
received or the highest bid after the resolicitation process is completed
is not equal to or in excess of the Termination Price, the Indenture
Trustee shall not consummate such sale. If a bid equaling the Termination
Price is received, then the Indenture Trustee may, and if so requested by
the Master Servicer shall, consult with a financial advisor, which may be
an underwriter of the Notes, to determine if the fair market value of the
Home Equity Loans and related property has been offered.
(ii) If the first auction conducted by the Indenture Trustee does
not produce any bid at least equal to the Termination Price, then the
Indenture Trustee shall, beginning on the Payment Date occurring
approximately three months after the Auction Date for the failed first
auction, commence another auction in accordance with the requirements of
this subsection (c). If such second auction does not produce any bid at
least equal to the Termination Price, then the Indenture Trustee shall,
beginning on the Payment Date occurring approximately three months after
the Auction Date for the failed second auction, commence another auction
in accordance with the requirements of this subsection (c), and shall
continue to conduct similar auctions approximately every three months
thereafter until the earliest of (i) delivery by the Master Servicer of
notice of exercise of its repurchase option pursuant to Section 8.01(b)
above, (ii) receipt by the Indenture Trustee of a bid meeting the
conditions specified in the preceding paragraph, or (iii) the Payment Date
on which the Principal Balance of all the Home Equity Loans is reduced to
zero.
(d) If the Indenture Trustee receives a bid meeting the conditions
specified in this subsection (c), then the Indenture Trustee shall release to
the winning bidder, upon payment of the bid purchase price, the Mortgage Files
pertaining to the Home Equity Loans being purchased and take such other actions
as the winning bidder may reasonably request to effect the transfer of the Home
Equity Loans to the winning bidder.
(e) Notice of any termination, specifying the Payment Date (which shall be
a date that would otherwise be a Payment Date) upon which the Noteholders may
surrender their Notes to the Indenture Trustee for payment of the final payment
and cancellation, shall be given promptly by the Indenture Trustee (upon receipt
of written directions from the Master Servicer,
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if the Master Servicer is exercising its right to transfer of the Home Equity
Loans, given not later than the first day of the month preceding the month of
such final payment) to the Insurer and to the Master Servicer by letter to the
Noteholders mailed not earlier than the 15th day and not later than the 25th day
of the month next preceding the month of such final payment specifying (i) the
Payment Date upon which final payment of the Notes will be made upon
presentation and surrender of Notes at the office or agency of the Indenture
Trustee therein designated, (ii) the amount of any such final payment and (iii)
that the Record Date otherwise applicable to such Payment Date is not
applicable, payments being made only upon presentation and surrender of the
Notes at the office or agency of the Indenture Trustee therein specified.
(f) Upon presentation and surrender of the Notes, the Indenture Trustee
shall cause to be paid to the Holders of the Notes on the Payment Date for such
final payment, in proportion to the Percentage Interests of their respective
Notes and to the extent that funds are available for such purpose, an amount
equal to the amount required to be paid to Noteholders pursuant to Section 5.01
for such Payment Date. On the final Payment Date prior to having made the
payments called for above, the Indenture Trustee shall, based upon the
information set forth in the Servicing Certificate for such Payment Date,
withdraw from the Collection Account and remit to the Insurer the lesser of (x)
the amount available for payment on such final Payment Date, net of any portion
thereof necessary to pay the Noteholders pursuant to Section 5.01(a) and due and
unpaid Skip-A-Pay Advances and Servicing Fees, and (y) the unpaid amounts due
and owing to the Insurer pursuant to the Insurance Agreement.
(g) In the event that all of the Noteholders shall not surrender their
Notes for final payment and cancellation on or before such final Payment Date,
the Indenture Trustee shall promptly following such date cause all funds in the
Distribution Account not paid in final payment to Noteholders, to be withdrawn
therefrom and credited to the remaining Noteholders by depositing such funds in
a separate escrow account for the benefit of such Noteholders, and the Master
Servicer (if the Master Servicer has exercised its right to purchase the Home
Equity Loans) or the Indenture Trustee (in any other case) shall give a second
written notice to the remaining Noteholders to surrender their Notes for
cancellation and receive the final payment with respect thereto. If within nine
months after the second notice all the Notes shall not have been surrendered for
cancellation, (i) all unclaimed funds will be paid to the Insurer to the extent
such funds represent reimbursement of a Reimbursement Amount and (ii) the
Ownership Interest will be entitled to all remaining unclaimed funds and other
assets which remain subject hereto, and the Indenture Trustee upon transfer of
such funds shall be discharged of any responsibility for such funds and the
Noteholders shall look to the holder of the Ownership Interest for payment.
(h) Upon payment of all amounts owed under the Note Guaranty Insurance
Policy and cancellation of the Notes, the Indenture Trustee shall provide the
Insurer notice of cancellation of the Notes and surrender the Note Guaranty
Insurance Policy to the Insurer.
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ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.01 Amendment.
(a) This Agreement may be amended from time to time by the Depositor, the
Master Servicer, the Trust and the Indenture Trustee by written agreement,
without the consent of any of the Noteholders, but, so long as no Insurer
Default exists and is continuing, only with the consent of the Insurer (which
consent shall not be unreasonably withheld) (i) to cure any ambiguity, (ii) to
correct or supplement any provisions herein that may be inconsistent with any
other provisions herein or to correct any error, (iii) to add to the duties of
the Depositor, the Indenture Trustee or the Master Servicer, (iv) to add, amend
or modify any other provisions with respect to matters or questions arising
under this Agreement or the Note Guaranty Insurance Policy, as the case may be,
which shall not be inconsistent with the provisions of this Agreement, (v) to
add or amend any provisions of this Agreement as required by any Rating Agency
or any other nationally recognized statistical rating agency in order to
maintain or improve any rating of the Notes (it being understood that, after
obtaining the ratings in effect on the Closing Date, neither the Indenture
Trustee, the Depositor nor the Master Servicer is obligated to obtain, maintain
or improve any such rating), (vi) to comply with any requirement imposed by
changes in accounting policies that do not materially impact the Notes, or (vii)
to comply with any requirements imposed by the Code; provided, however, that as
evidenced by an Opinion of Counsel (at the expense of the party requesting such
amendment) in each case (other than a case arising under clause (vi) or (vii))
such action shall not adversely affect in any material respect the interest of
any Noteholder or (so long as no Insurer Default exists and is continuing) the
Insurer, and provided, further, that the amendment shall not be deemed to
adversely affect in any material respect the interests of the Noteholder or (so
long as no Insurer Default exists and is continuing) the Insurer, and no Opinion
of Counsel to that effect shall be required if the Person requesting the
amendment obtains a letter from the Rating Agency stating that the amendment
would not result in the downgrading or withdrawal of the respective ratings then
assigned to the Notes without regard to the Note Guaranty Insurance Policy.
(b) This Agreement also may be amended from time to time by the Master
Servicer, the Depositor, the Trust and the Indenture Trustee, with the consent
of the Majority Noteholder, and (so long as no Insurer Default exists and is
continuing) with the consent of the Insurer (which consent shall not be
unreasonably withheld), for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Noteholders or the Transferor in
respect of the Ownership Interest; provided, however, that no such amendment
shall (i) reduce in any manner the amount of, or delay the timing of, payments
on the Notes or distributions or payments under the Note Guaranty Insurance
Policy which are required to be made on the Notes without the consent of the
Holder of such Notes or (ii) reduce the aforesaid percentage required to consent
to any such amendment, without the consent of the Holders of all Notes then
outstanding.
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Prior to the solicitation of consent of Noteholders in connection with any
such amendment, the party seeking such amendment shall furnish the Indenture
Trustee with an Opinion of Counsel stating whether such amendment would create a
material risk of the Trust incurring taxes imposed under the Code and notice of
the conclusion expressed in such Opinion of Counsel shall be included with any
such solicitation. An amendment made with the consent of all Noteholders and the
Insurer and executed in accordance with this Section 9.01 shall be permitted or
authorized by this Agreement notwithstanding that such Opinion of Counsel may
conclude that such amendment would create a material risk of the Trust incurring
taxes imposed under the Code.
Prior to the execution of any such amendments, the Indenture Trustee shall
furnish written notification of the substance of such amendment to each Rating
Agency. In addition, promptly after the execution of any such amendment made
with the consent of the Noteholders, the Indenture Trustee shall furnish written
notification of the substance of such amendment to each Noteholder and fully
executed original counterparts of the instruments effecting such amendment to
the Insurer.
(c) It shall not be necessary for the consent of Noteholders under this
Section 9.01 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Noteholders shall be subject to such reasonable
requirements as the Indenture Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, each of the
Indenture Trustee, the Owner Trustee and the Insurer shall be entitled to
receive and conclusively rely upon an Opinion of Counsel stating that the
execution of such amendment is authorized or permitted by this Agreement and all
conditions precedent to the execution of such amendment have been met. The
Indenture Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Indenture Trustee's own rights, duties, indemnities
or immunities under this Agreement.
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Section 9.02 Recordation of Agreement. To the extent permitted by
applicable law, this Agreement, or a memorandum thereof if permitted under
applicable law, is subject to recordation in all appropriate public offices for
real property records in all of the counties or other comparable jurisdictions
in which any or all of the Mortgaged Properties are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Master Servicer at the Noteholders' expense on direction of the
Indenture Trustee or the Majority Noteholder, but only when accompanied by an
opinion of counsel delivered to the Indenture Trustee, the Owner Trustee and the
Insurer to the effect that such recordation materially and beneficially affects
the interests of the Noteholders or the Insurer (so long as no Insurer Default
exists and is continuing) or is necessary for the administration or servicing of
the Home Equity Loans.
Section 9.03 Duration of Agreement. This Agreement shall continue in
existence and effect until terminated as herein provided.
Section 9.04 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 9.05 Notices. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given if personally
delivered at or mailed by overnight mail, certified mail or registered mail,
postage prepaid, to (a) in the case of the Depositor or the Master Servicer,
0000 Xxxxxxx Xxxx, Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000, Attention: Treasurer, (b)
in the case of the Indenture Trustee, at the Corporate Trust Office, Attention:
Xxxxxx Xxxxxxx, (c) in the case of the Owner Trustee, 0 Xxxx Xxxxx, Xxx Xxxx,
Xxx Xxxx 00000, Attention: Xxxxx Xxx, (d) in the case of Moody's, ABS Monitoring
Department, 00 Xxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, (e) in the case of
Standard & Poor's, 00 Xxxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000,
Attention: Structured Finance Surveillance, (f) in the case of Fitch, Xxx Xxxxx
Xxxxxx Xxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: RMBS Surveillance
Department and (g) in the case of the Insurer, MBIA Insurance Corporation, 000
Xxxx Xxxxxx, Xxxxxx, Xxx Xxxx 00000, Attention: Insured Portfolio
Management--Structured Finance ("IPM-SF") (Household Home Equity Loan Trust
2002-2), Telephone Number (000) 000-0000 and Telecopier Number (000) 000-0000,
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 Noteholder shall be given by first class mail, postage prepaid, at
the address of such Holder as shown in the Note Register. Any notice so mailed
within the time prescribed in this Agreement shall be conclusively presumed to
have been duly given, whether or not the Noteholder receives such notice.
Section 9.06 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no
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way affect the validity or enforceability of the other covenants, agreements,
provisions or terms of this Agreement.
Section 9.07 No Partnership. Nothing herein contained shall be deemed or
construed to create any partnership or joint venture between the parties hereto
and the services of the Master Servicer shall be rendered as an independent
contractor.
Section 9.08 Counterparts. This Agreement may be executed in one or more
counterparts and by the different parties hereto on separate counterparts, each
of which, when so executed, shall be deemed to be an original; such
counterparts, together, shall constitute one and the same Agreement.
Section 9.09 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the Depositor, the Master Servicer, the Seller,
the Trust, the Indenture Trustee and the Noteholders and their respective
successors and permitted assigns. The Insurer is an express third party
beneficiary of this Agreement.
The parties hereto hereby agree that all rights of the Trust under this
Agreement are pledged by the Trust to the Indenture Trustee under the Indenture,
and that the Indenture Trustee on behalf of the Noteholders and, so long as no
Insurer Default exists and is continuing, the Insurer has the right to directly
enforce all rights of the Trust under this Agreement.
Section 9.10 Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
Section 9.11 Indenture Trustee.
(i) All privileges, rights and immunities given to the
Indenture Trustee in the Indenture are hereby extended to and
applicable to the Indenture Trustee's obligations hereunder.
Section 9.12 Inconsistencies Among Transaction Documents. In the event
certain provisions of a Transaction Document conflict with the provisions of
this Sale and Servicing Agreement, the parties hereto agree that the provisions
of this Sale and Servicing Agreement shall be controlling.
Section 9.13 Rights of the Insurer to Exercise Rights of Noteholders. By
accepting its Note, each Noteholder agrees that unless an Insurer Default exists
and is continuing, the Insurer shall have the right to exercise all rights of
the Noteholders as specified under this Agreement without any further consent of
the Noteholders; provided that
(i) any direction provided by the Insurer shall not be in conflict
with any rule of law or with any of the Transaction Documents; and
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(ii) the Trust and the Indenture Trustee may take any other action
deemed proper by the Trust or the Indenture that is not inconsistent with
any direction;
provided, however, that the Trust or the Indenture Trustee need not take
any action that is determined might involve it in liability or might
materially adversely affect the rights of any Noteholders not consenting
to an action.
Notwithstanding any other provision of this Agreement, any right conferred to
the Insurer hereunder shall be suspended and shall run to the benefit of the
Noteholders during any period in which there exists an Insurer Default.
Section 9.14 Limitation on Voting of Preferred Stock. The Indenture
Trustee shall hold all of the preferred stock ("Preferred Stock") of the
Depositor in trust, for the benefit of the Noteholders and the Insurer, and,
during the continuance of a Master Servicer Termination Event, shall vote such
stock only pursuant to the written instructions of the Insurer (so long as no
Insurer Default has occurred and is continuing) or the Majority Noteholder (so
long as an Insurer Default has occurred and is continuing). The Indenture
Trustee shall not permit a transfer of any of the Preferred Stock to HFC or any
of its Affiliates. Concurrently with any retransfer of the Home Equity Loans to
the Master Servicer pursuant to Section 7.01, the Indenture Trustee shall
transfer to the Depositor for cancellation all shares of Preferred Stock held by
the Indenture Trustee.
Section 9.15 Perfection Representations. The Perfection Representations
shall be a part of this Agreement for all purposes.
Section 9.16 Limitation of Liability. It is understood by each party
hereto that the sole recourse of each party hereto in respect of the obligations
of the Trust hereunder and under the other Transaction Documents to which it is
a party shall be to the assets of the Trust. In addition, The Bank of New York
("BNY") is entering into this Agreement and the other Transaction Documents to
which the Trust is a party solely in its capacity as trustee under the Trust
Agreement and not in its individual capacity and in no case shall BNY (or any
Person acting as successor trustee under the Trust Agreement) be personally
liable for or on account of any of the statements, representations, warranties,
covenants or obligations stated to be those of the Trust hereunder or
thereunder, all such liability, if any, being expressly waived by the parties
hereto and any person claiming by, through or under such party.
Section 9.17 Inspection of Mortgage Files. Following the time that the
Mortgage Files have been delivered to the Indenture Trustee upon reasonable
prior notice and during regular business hours, the Indenture Trustee shall
permit representatives of applicable state regulatory agencies to inspect the
Mortgage Files on the Indenture Trustee's premises or shall provide such
documents at such places required by state regulations, including the offices of
the Servicers. Any loss incurred by the Indenture Trustee in fulfilling such
obligations shall be paid by the Master Servicer.
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ARTICLE X.
MISCELLANEOUS PROVISIONS
Section 10.01 Administrative Duties.
(a) Duties with Respect to the Indenture. The Master Servicer shall
perform all its duties and the duties of the Issuer under the Indenture. In
addition, the Master Servicer shall consult with the Owner Trustee as the Master
Servicer deems appropriate regarding the duties of the Issuer under the
Indenture. The Master 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 Master 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 Master Servicer
shall take all necessary action that is the duty of the Issuer to take pursuant
to the Indenture, including, without limitation, pursuant to Sections 3.1, 3.3,
3.4, 3.5, 3.6, 3.7, 3.9, 3.16, 3.17, 7.3, 8.6, 9.2, 9.3, 11.1 and 11.15 of the
Indenture.
(b) Duties with Respect to the Issuer.
(i) In addition to the duties of the Master Servicer set forth
in this Agreement or any of the Transaction Documents, the
Master 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 Agreement or any of the Transaction Documents
or under state and federal tax and securities laws, and at the
request of the Owner Trustee shall take all appropriate action
that it is the duty of the Issuer to take pursuant to this
Agreement or any of the Transaction Documents, including,
without limitation, pursuant to Sections 2.6 of the Trust
Agreement. In accordance with the directions of the Issuer or
the Owner Trustee, the Master Servicer shall administer,
perform or supervise the performance of such other activities
in connection with the Owner Trust Estate (including the
Transaction Documents) as are not covered by any of the
foregoing provisions and as are expressly requested by the
Issuer or the Owner Trustee and are reasonably within the
capability of the Master Servicer.
(ii) Notwithstanding anything in this Agreement or any of the
Transaction Documents to the contrary, the Master Servicer
shall be responsible for promptly notifying the Owner Trustee
and the Indenture Trustee in the event that any withholding
tax is imposed on the Issuer's payments (or allocations of
income) to a Transferor as contemplated by this Agreement.
80
Any such notice shall be in writing and specify the amount of
any withholding tax required to be withheld by the Owner
Trustee or the Indenture Trustee pursuant to such provision.
(iii) Notwithstanding anything in this Agreement or the
Transaction Documents to the contrary, the Master Servicer
shall be responsible for performance of the duties of the
Issuer or the Depositor set forth in Section 5.5 of the Trust
Agreement with respect to, among other things, accounting and
reports to the Transferor (as defined in the Trust Agreement);
provided, however, that once prepared by the Master Servicer,
the Depositor shall retain responsibility under the Trust
Agreement for the distribution of the Schedule K-1s necessary
to enable the Transferor to prepare its federal and state
income tax returns.
(iv) The Master Servicer shall perform the duties of the
Depositor specified in Section 10.2 of the Trust Agreement
required to be performed in connection with the resignation or
removal of the Owner Trustee, and any other duties expressly
required to be performed by the Master Servicer under this
Agreement or any of the Transaction Documents.
(v) The Master Servicer, on behalf of the Depositor, shall
direct the Issuer to request the tender of all or a portion of
the Notes in accordance with the Indenture or this Agreement.
(vi) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Master 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
Master Servicer's opinion, no less favorable to the Issuer in
any material respect.
(vii) The Master Servicer shall take all necessary action that
is the duty of the Issuer to take pursuant to Section 7.8 of
the Trust Agreement.
(c) Tax Matters. The Master Servicer shall prepare and file, or cause to
be prepared and filed, on behalf of the Depositor, all required tax returns, tax
elections, financial statements and such annual or other reports of the Issuer
as are necessary for preparation of tax reports as provided in Article V of the
Trust Agreement, including without limitation form 1099. All tax returns will be
signed by the Depositor.
(d) Non-Ministerial Matters. With respect to matters that in the
reasonable judgment of the Master Servicer are non-ministerial, the Master
Servicer shall not take any action pursuant to this Article X unless within a
reasonable time before the taking of such action, the Master Servicer shall have
notified the Owner Trustee and the Indenture Trustee of the proposed action and
the Owner Trustee and 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
81
(i) the initiation of any claim or lawsuit by the Issuer and,
subject to the rights of the Insurer under Section 4.03, the
compromise of any action, claim or lawsuit brought by or
against the Issuer (other than in connection with the
collection of the Home Equity Loans);
(ii) the appointment of successor Note Registrars, successor
Note Paying Agents and successor Indenture Trustees pursuant
to the Indenture or the consent to the assignment by the Note
Registrar, Note Paying Agent or Indenture Trustee of its
obligations under the Indenture; and
(iii) the removal of the Indenture Trustee.
(e) Exceptions. Notwithstanding anything to the contrary in this
Agreement, except as expressly provided herein or in the Transaction Documents,
the Master Servicer, in its capacity hereunder, shall not be obligated to, and
shall not, (1) make any payments to the Noteholders or the Transferor under the
Transaction Documents, (2) sell any of the assets of the Trust, (3) take any
other action that the Issuer directs the Master Servicer not to take on its
behalf or (4) in connection with its duties hereunder assume any indemnification
obligation of any other Person.
(f) Neither the Indenture Trustee nor any successor Master Servicer shall
be responsible for any obligations or duties of a predecessor Master Servicer
under this Section 10.1.
Section 10.02 Records. The Master Servicer shall maintain appropriate
books of account and records relating to services performed under this
Agreement, which books of account and records shall be accessible for inspection
by the Issuer and the Indenture Trustee at any time during normal business
hours.
Section 10.03 Additional Information to be Furnished to the Trust. The
Master Servicer shall furnish to the Issuer and the Indenture Trustee, from time
to time such additional information regarding the Owner Trust Estate as the
Issuer and the Indenture Trustee shall reasonably request.
82
IN WITNESS WHEREOF, the following have caused their names to be signed by
their respective officers thereunto duly authorized, as of the day and year
first above written, to this Sale and Servicing Agreement.
HOUSEHOLD HOME EQUITY LOAN TRUST 2002-2,
By: The Bank of New York, not in its individual
capacity but solely as Owner Trustee
By: /s/ Xxxxx Xxx
-------------------------------------------
Name: Xxxxx Xxx
Title: Assistant Treasurer
S-1
HOUSEHOLD FINANCE CORPORATION,
as Master Servicer
By: /s/ Xxxxxx X. Xxxxxx
-------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Assistant Treasurer
S-2
HFC REVOLVING CORPORATION,
as Depositor
By: /s/ Xxxxxx X. Xxxxx
------------------------------------------
Name: Xxxxxx X. Xxxxx
Title: Vice President and Assistant Treasurer
S-3
BANK ONE, NATIONAL ASSOCIATION,
as Indenture Trustee
By: /s/ Xxxxxx X. Xxxxxxx
-------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Vice President
X-0
XXX XXXXX XX XXX XXXX )
)
COUNTY OF NEW YORK )
BEFORE ME, on June 20, 2002, the undersigned authority, a Notary Public,
on this day personally appeared Xxxxx Xxx, known to me to be a person and
officer whose name is subscribed to the foregoing instrument and acknowledged to
me that the same was the act of the said The Bank of New York not in its
individual capacity but in its capacity as Owner Trustee of HOUSEHOLD HOME
EQUITY LOAN TRUST 2002-2, as the Trust, and that he executed the same as the act
of such corporation for the purpose and consideration therein expressed, and in
the capacity therein stated.
/s/ Xxxxxxx X. Clan
--------------------------------
Notary Public, State of New York
[seal]
S-5
THE STATE OF ILLINOIS )
)
COUNTY OF XXXX )
BEFORE ME, on June 20, 2002, the undersigned authority, a Notary Public,
on this day personally appeared Xxxxxx X. Xxxxxx, known to me to be a person and
officer whose name is subscribed to the foregoing instrument and acknowledged to
me that the same was the act of the said Household Finance Corporation, as the
Master Servicer, and that he executed the same as the act of such corporation
for the purpose and consideration therein expressed, and in the capacity therein
stated.
/s/ Xxxxx Xxxxx
--------------------------------
Notary Public, State of Illinois
[seal]
S-6
THE STATE OF ILLINOIS )
)
COUNTY OF XXXX )
BEFORE ME, on June 20, 2002, the undersigned authority, a Notary Public,
on this day personally appeared Xxxxxx X. Xxxxx, known to me to be a person and
officer whose name is subscribed to the foregoing instrument and acknowledged to
me that the same was the act of the said HFC Revolving Corporation, as the
Depositor, and that he executed the same as the act of such corporation for the
purpose and consideration therein expressed, and in the capacity therein stated.
/s/ Xxxxx Xxxxx
--------------------------------
Notary Public, State of Illinois
[seal]
S-7
THE STATE OF ILLINOIS )
)
COUNTY OF XXXX )
BEFORE ME, on June 20, 2002, the undersigned authority, a Notary Public,
on this day personally appeared Xxxxxx X. Xxxxxxx, known to me to be the person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said Bank One, National
Association, as Indenture Trustee, and that he executed the same as the act of
such corporation for the purposes and consideration therein expressed, and in
the capacity therein stated.
/s/ Caesar Xxxxx Xxxxxx
--------------------------------
Notary Public, State of Illinois
[seal]
S-8
SCHEDULE 1
PERFECTION REPRESENTATIONS, WARRANTIES AND COVENANTS
The Depositor hereby represents, warrants, and covenants to the Indenture
Trustee and the Insurer as to itself and the Sellers as follows on the Closing
Date and on each Payment Date thereafter:
General
1. This Agreement creates a valid and continuing security interest (as defined
in the applicable UCC) in the Home Equity Loans in favor of the Indenture
Trustee, and the Indenture creates a valid and continuing security interest (as
defined in the applicable UCC), each of which security interest is prior to all
other Liens, and is enforceable as such as against creditors of and purchasers
from the Depositor.
2. The Home Equity Loans constitute "general intangibles" or "instruments"
within the meaning of the applicable UCC.
3. The Collection Account and all subaccounts thereof constitute either a
deposit account or a securities account.
4. To the extent that payments and collections received or made with respect to
the Home Equity Loans constitute securities entitlements, such payments and
collections have been and will have been credited to the Collection Account. The
securities intermediary for the Collection Account has agreed to treat all
assets credited to the Collection Account as "financial assets" within the
meaning of the applicable UCC.
Creation
5. The Depositor owns and has good and marketable title to the Home Equity Loans
free and clear of any Lien, claim or encumbrance of any Person, excepting only
liens for taxes, assessments or similar governmental charges or levies incurred
in the ordinary course of business that are not yet due and payable or as to
which any applicable grace period shall not have expired, or that are being
contested in good faith by proper proceedings and for which adequate reserves
have been established, but only so long as foreclosure with respect to such a
lien is not imminent and the use and value of the property to which the Lien
attaches is not impaired during the pendency of such proceeding.
6. The Depositor has received all consents and approvals to the sale of the Home
Equity Loans hereunder to the Trust required by the terms of the Home Equity
Loans that constitute instruments.
7. To the extent the Collection Account or subaccounts thereof constitute
securities entitlements, certificated securities or uncertificated securities,
the Depositor has received all consents and approvals required to transfer to
the Indenture Trustee its interest and rights in the Collection Account
hereunder.
1-1
Perfection
8. The Depositor has caused or will have caused, within ten days after the
effective date of this Agreement, the filing of all appropriate financing
statements in the proper filing office in the appropriate jurisdictions under
applicable law in order to perfect the sale of the Home Equity Loans from the
Depositor to the Trust, the security interest in the Home Equity Loans granted
to the Trust hereunder, the pledge of the Home Equity Loans from the Trust to
the Indenture Trustee, and the security interest in the Home Equity Loans
granted to the Indenture Trustee under the Indenture.
9. With respect to the Collection Account and all subaccounts that constitute
deposit accounts, either:
(i) the Depositor has delivered to the Indenture Trustee a fully-executed
agreement pursuant to which the bank maintaining the deposit accounts has
agreed to comply with all instructions originated by the Indenture Trustee
directing disposition of the funds in the Collection Account without
further consent by the Depositor; or
(ii) the Depositor has taken all steps necessary to cause the Indenture
Trustee to become the account holder of the Collection Account.
10. With respect to the Collection Account or subaccounts thereof that
constitute securities accounts or securities entitlements, either:
(i) the Depositor has caused or will have caused, within ten days after
the effective date of this Agreement, the filing of all appropriate
financing statements in the proper filing office in the appropriate
jurisdictions under applicable law in order to perfect the security
interest in the Collection Account granted by the Depositor to the Trust
and by the Trust to the Indenture Trustee; or
(ii) the Depositor has delivered to the Indenture Trustee a fully-executed
agreement pursuant to which the securities intermediary has agreed to
comply with all instructions originated by the Indenture Trustee relating
to the Collection Account without further consent by the Depositor; or
(iii) the Depositor has taken all steps necessary to cause the securities
intermediary to identify in its records the Indenture Trustee as the
person having a security entitlement against the securities intermediary
in the Collection Account.
Priority
11. Other than the transfer of the Transferred Assets to the Trust under the
Transfer Agreement, the transfer of the Home Equity Loans to the Depositor under
the Home Equity Loan Purchase Agreement, and the transfer of the Home Equity
Loans to the Trust pursuant to this Agreement, neither the Depositor nor the
Sellers have pledged, assigned, sold, granted a security interest in, or
otherwise conveyed any of the Home Equity Loans. Neither the Depositor nor the
Sellers have authorized the filing of, or are aware of any financing statements
against the
1-2
Depositor or any of the Sellers that include a description of collateral
covering the Home Equity Loans other than any financing statement relating to
the security interest granted to the Indenture Trustee hereunder or that has
been terminated.
12. The Depositor is not aware of any judgment, ERISA or tax lien filings
against either the Depositor or any of the Sellers.
13. The Sellers have in their possession all original copies of the Mortgage
Notes that constitute or evidence the Home Equity Loans. To the Depositor's
knowledge, none of the instruments that constitute or evidence the Home Equity
Loans has any marks or notations indicating that they have been pledged,
assigned or otherwise conveyed to any Person other than the Trust. All financing
statements filed or to be filed against the Depositor and the Sellers in favor
of the Indenture Trustee in connection herewith describing the Home Equity Loans
contain a statement to the following effect: "A purchase of or security interest
in any collateral described in this financing statement will violate the rights
of the Indenture Trustee."
14. Neither the Collection Account nor any subaccount thereof is in the name of
any person other than the Depositor or the Indenture Trustee as trustee under
the Indenture or in the name of its nominee. The Depositor has not consented for
the securities intermediary of the Collection Account to comply with entitlement
orders of any person other than the Indenture Trustee.
15. Survival of Perfection Representations. Notwithstanding any other provision
of this Agreement or any other transaction document, the Perfection
Representations contained in this Schedule shall be continuing, and remain in
full force and effect (notwithstanding any replacement of the Master Servicer or
termination of the Master Servicer's rights to act as such) until such time as
all obligations under this Agreement have been finally and fully paid and
performed.
16. No Waiver. The parties to this Agreement (i) shall not, without obtaining a
confirmation of the then-current rating of the Notes without taking into account
the existence of the Note Guaranty Insurance Policy and consent of the Insurer
(so long as no Insurer Default exists and is continuing), waive any of the
Perfection Representations, and (ii) shall provide the Rating Agencies and the
Insurer (so long as no Insurer Default exists and is continuing) with prompt
written notice of any breach of the Perfection Representations, and shall not,
without obtaining a confirmation of the then-current rating of the Notes without
taking into account the existence of the Note Guaranty Insurance Policy (as
determined after any adjustment or withdrawal of the ratings following notice of
such breach) and consent of the Insurer (so long as no Insurer Default exists
and is continuing) waive a breach of any of the Perfection Representations.
17. Master Servicer to Maintain Perfection and Priority. The Master Servicer
covenants that, in order to evidence the interests of the Depositor, the Trust,
the Insurer and the Indenture Trustee under this Agreement, the Master Servicer
shall take such action, or execute and deliver such instruments (other than
effecting a Filing (as defined below), unless such Filing is effected in
accordance with this paragraph) as may be necessary or advisable (including,
without limitation, such actions as are requested by the Indenture Trustee) to
maintain and perfect, as a first priority interest, the Indenture Trustee's
security interest in the Home Equity Loans. The Master Servicer shall, from time
to time and within the time limits established by law, prepare
1-3
and present to the Indenture Trustee for the Indenture Trustee to authorize
(based in reliance on the Opinion of Counsel hereinafter provided for) the
Master Servicer to file, all financing statements, amendments, continuations,
initial financing statements in lieu of a continuation statement, terminations,
partial terminations, releases or partial releases, or any other filings
necessary or advisable to continue, maintain and perfect the Indenture Trustee's
security interest in the Home Equity Loans as a first-priority interest (each a
"Filing"). The Master Servicer shall present each such Filing to the Indenture
Trustee and the Insurer together with (x) an Opinion of Counsel to the effect
that such Filing is (i) consistent with grant of the security interest to the
Trust pursuant to Section 2.01 of this Agreement and the grant of the security
interest to the Indenture Trustee pursuant to the Indenture, (ii) satisfies all
requirements and conditions to such Filing in this Agreement and (iii) satisfies
the requirements for a Filing of such type under the Uniform Commercial Code in
the applicable jurisdiction (or if the Uniform Commercial Code does not apply,
the applicable statute governing the perfection of security interests), and (y)
a form of authorization for the Indenture Trustee's signature. Upon receipt of
such Opinion of Counsel and form of authorization, the Indenture Trustee shall
promptly authorize in writing the Master Servicer to, and the Master Servicer
shall, effect such Filing under the Uniform Commercial Code without the
signature of the Depositor or the Trust or the Indenture Trustee where allowed
by applicable law. Notwithstanding anything else in the transaction documents to
the contrary, the Master Servicer shall not have any authority to effect a
Filing without obtaining written authorization from the Indenture Trustee.
1-4
EXHIBIT A
HOME EQUITY LOAN SCHEDULE
[ON FILE WITH SIDLEY XXXXXX XXXXX & XXXX LLP]
A-1
EXHIBIT B
[RESERVED]
B-1
EXHIBIT C
[RESERVED]
C-1
EXHIBIT D
[RESERVED]
D-1
EXHIBIT E
[FORM OF NOTES]
[ATTACHED AS EXHIBIT A TO INDENTURE]
E-1
EXHIBIT F
SPECIMEN OF THE NOTE GUARANTY INSURANCE POLICY
[FILED AS EXHIBIT 99.4 TO FORM 8-K DATED JUNE 20, 2002]
F-1
