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Hanover Capital Mortgage Holdings, Inc.
November 10, 1998
Residential Funding Corporation
0000 Xxxxxxxxxx Xxxx Xxxxxxxxx, Xxxxx 000
Minneapolis, MN 55437
Attention: Xx. Xxx XxXxxxxxx
Re: Purchase Price and Terms Letter
Ladies and Gentleman:
Hanover Capital Mortgage Holdings, Inc. (the "Seller") hereby confirms its
intent to sell and Residential Funding Corporation (the "Purchaser") hereby
confirms its intent to purchase, without recourse (except as expressly agreed by
the parties), certain residential 1-4 family mortgage loans as identified on
Exhibit A attached hereto (the "Mortgage Loans"), on a servicing retained basis
on the terms and conditions set forth below. The parties acknowledge and agree
that consummation of the transactions contemplated herein shall be subject to
further documentation in form and substance satisfactory to the parties hereto.
The sale of the Mortgage Loans shall be made pursuant to a purchase agreement
(the "Purchase Agreement") which sets forth further the terms and provisions
with respect to the sale and servicing of the Mortgage Loans. Ownership of the
Mortgage Loans shall be evidenced by delivery of the Mortgage Loans as whole
loans pursuant to the Purchase Agreement and Custody Agreement, each in form and
substance satisfactory to the parties hereto.
1. Term of this Commitment
The Mortgage Loans shall be purchased by the Purchaser and sold by the Seller on
such date as shall be mutually agreed upon by the parties, which date shall be
no later than November 10, 1998 (the "Closing Date").
2. Aggregate Amount of Mortgage Loans
The aggregate outstanding principal balance as of the Cut-off Date (as defined
below) of the Mortgage Loans shall be approximately $98,057,542 with a final
reconciliation to be reflected on Exhibit 6 to the Purchase Agreement.
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3. Purchase Price
The purchase price (the "Purchase Price") for the Mortgage Loans shall be 97.5%
of the aggregate outstanding scheduled principal balance of the Mortgage Loans
as of November 1, 1998 (the "Cut-off Date") (after application of payments due
on the Mortgage Loans on or before the Cut-off Date, whether or not such
payments were actually made), plus no more than thirty days accrued interest at
the mortgage interest rate minus the applicable Servicing Fee Rate from the
Cut-off Date through the day prior to the Closing Date, inclusive. The Purchase
Price shall be paid to the Seller in immediately available federal funds by wire
transfer on the Closing Date.
4. Mandatory Repurchase
On or after the 90th day following the Closing Date (such 90th day, the
"Termination Date"), with at least one business day's prior written notice to
the Seller, the Purchaser shall have the right to require the Seller to
repurchase all of the Remaining Mortgage Loans at a price equal to 98% of the
aggregate outstanding scheduled principal balance of the Remaining Mortgage
Loans as of the date of repurchase plus accrued and unpaid interest from the
last scheduled due date up to but not including the date of repurchase (the
"Repurchase Price"). For purposes hereof, "Remaining Mortgage Loans" shall mean
the Mortgage Loans, as of any date of determination, not sold, paid in full or
otherwise liquidated by the Purchaser.
5. Optional Repurchase
On or prior to the Termination Date, with at least one business day's prior
written notice to the Purchaser, the Seller shall have the right at any time to
repurchase all of the Remaining Mortgage Loans from the Purchaser at the
Repurchase Price. In addition, on or prior to the Termination Date, with at
least one business day's prior written notice to the Purchaser, the Seller shall
have the right to repurchase a portion of the Remaining Mortgage Loans with an
aggregate outstanding principal balance of at least $10,000,000. Any such
partial repurchase of the Remaining Mortgage Loans shall be subject, however, to
the following conditions: (a) that the Mortgage Loans shall be repurchased by
the Seller only if the Seller has secured a commitment for the purchase of such
Mortgage Loans for a price equal to or in excess of the aggregate outstanding
principal balance of such Mortgage Loans, and (b) that the Seller shall cause
the buyer of such Mortgage Loans to deposit in the Reserve Fund (defined below)
an amount equal to the excess of the Resale Price (defined below) with respect
to such Mortgage Loans over the Repurchase Price. In the event however, that the
Seller sells any portion of the Mortgage Loans it has repurchased for the
purpose of resale to Household Bank f.s.b. ("Household") in accordance with the
terms of the Mortgage Loan Sale Agreement by and between Household and Hanover
Capital Partners, Ltd. ("Hanover Partners"), the Seller shall cause Household to
wire such resale amount to the Reserve Fund. Within one business day following
receipt of such funds into the Reserve Fund, the Purchaser shall remit to the
Seller from the Reserve Fund the positive difference, if any, between the Resale
Price and the aggregate outstanding principal balance of such Mortgage Loans.
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Any excess of the aggregate outstanding principal balance of such Mortgage Loans
over the Repurchase Price shall remain in the Reserve Fund.
6. Right of First Refusal
On or prior to the Termination Date, prior to entering any sale transaction with
any third party counterparty (the "Offering Party") for the purchase of any
portion of the Mortgage Loans at a price equal to, or greater than, the then
aggregate outstanding principal balance of such portion of the Mortgage Loans
(the "Offer Price"), the Purchaser shall, at the point in time at which the
Purchaser first receives a bona fide purchase offer, first offer the Seller the
right to purchase such Mortgage Loans at the Repurchase Price, in lieu of such
sale by the Purchaser to the applicable Offering Party. Notwithstanding the
foregoing, on or prior to the Termination Date, the Purchaser shall in no event
agree to sell, or accept an offer to sell, the Mortgage Loans to an Offering
Party at an Offer Price below the then aggregate outstanding principal balance
of any or all of the Mortgage Loans.
7. Reserve Fund; Profits and Losses; Resale Fee
Except as described in paragraph 5, if at any time while the Purchaser owns any
Remaining Mortgage Loans, the Seller sells any portion of the Mortgage Loans it
has repurchased pursuant to paragraphs 5 or 6 above for a price (the "Resale
Price") equal to an amount which exceeds the Repurchase Price, the Seller shall
cause the buyer of such Remaining Mortgage Loans to deposit the excess of the
Resale Price over the Repurchase Price into a segregated account in the name of
the Purchaser (the "Reserve Fund").
Following the Termination Date, in the event the Purchaser sells all Remaining
Mortgage Loans to one or more parties (other than an affiliate of the
Purchaser), the Purchaser shall determine its aggregate Sales Loss or Net
Profit, as applicable, as follows. In the event that the Purchaser has realized
a Sales Loss, then the Purchaser shall be entitled to receive from the Reserve
Fund (to the extent that funds are available therein) an amount up to such Sales
Loss (as defined below). For purposes hereof, the "Sales Loss" shall be an
amount equal to the excess, if any of (a) the Repurchase Price for all Remaining
Mortgage Loans over (b) the Resale Price for all Remaining Mortgage Loans
derived by the Purchaser from any resale of all of the Remaining Mortgage Loans
minus the Purchaser's reasonable out of pocket expenses incurred in connection
with the resale. In the event that the Purchaser has realized a Net Profit, then
the Purchaser shall be entitled to retain such Net Profit. For purposes hereof,
"Net Profit" shall mean the excess, if any, of (i) the Resale Price for all
Remaining Mortgage Loans minus the Purchaser's reasonable out of pocket expenses
incurred in connection with the resale over (ii) the Repurchase Price for all
Remaining Mortgage Loans. In the event that the Purchaser shall fail to resell
all Remaining Mortgage Loans within 180 days following the Termination Date,
then the Resale Price for such Remaining Mortgage Loans shall be deemed to be
the Repurchase Price therefor, and the Purchaser shall promptly calculate any
Sales Loss or Net Profit, as applicable in accordance with this paragraph.
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Notwithstanding and in addition to the foregoing, in the event that the Seller
fails to repurchase the Remaining Mortgage Loans on or prior to the Termination
Date, the Purchaser shall be entitled to receive from the Seller, within 2
business days following the Termination Date, a resale fee equal to $500,000
which shall constitute liquidated damages hereunder and which amount may be
netted by the Purchaser from the Reserve Fund to the extent not paid by the
Seller.
Subject to the preceding paragraphs herein, within two business days following
the consummation of the sale (or deemed sale) of all Remaining Mortgage Loans by
the Purchaser (including any resale back to the Seller as contemplated in
paragraphs 4, 5 and 6 above) the Seller shall be entitled to receipt of all
amounts then remaining in the Reserve Fund.
8. Servicing
The Seller shall service the Mortgage Loans on a "scheduled/scheduled" basis in
accordance with the Purchaser's Servicing Guide and shall cause any Subservicer
(as defined below) to remit all amounts received on account of the Mortgage
Loans directly to the Purchaser at an account designated by the Purchaser and
shall cause a remittance report to be delivered to the Seller. Within 5 business
days of receipt of any such remittance report, the Seller shall provide the
Purchaser with an accounting of the excess over 98% of any amounts received on
account of prepayments of principal, which amount shall be deposited into the
Reserve Fund by the Purchaser within 2 business days of receipt of such
accounting and instruction from the Seller. The Seller shall be entitled to
contract with Fleet Mortgage Corp., f/k/a Fleet Real Estate Funding Corp. for
the subservicing of the Mortgage Loans or any other subservicer expressly
approved by the Purchaser which approval shall not be unreasonably withheld
(each a "Subservicer").
The servicing fee with respect to the Mortgage Loans shall be paid by the
Purchaser on a monthly basis at a rate per annum equal to (a) 0.25% of the
aggregate outstanding principal balance of all Mortgage Loans which have a fixed
mortgage interest rate, and (b) 0.375% of the aggregate outstanding principal
balance of all Mortgage Loans which have an adjustable mortgage interest rate.
9. Warrants
On or prior to the 30th day following the Closing Date, the Seller shall issue
and deliver to the Purchaser warrants to purchase that number of shares of the
Seller's common stock equal to 4.7454% of the number of shares of the Seller's
common stock issued and outstanding on the date of the exercise of such warrants
on a fully diluted basis; provided that those warrants identified on Exhibit B
attached hereto shall be excluded from such calculation. Such warrants will be
exercisable at a price equal to the closing price of the Seller's shares of
common stock on the American Stock Exchange on the date hereof. The terms of
such warrants shall be set forth in a Warrant Agreement and related Registration
Rights Agreement between the Seller and the Purchaser and will include, but not
be limited to, (i) an exercise period running for five years from the date of
issuance
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during which the Purchaser may exercise the warrants in whole or in part, (ii)
registration rights with respect to the shares of the Seller's common stock to
be issued upon exercise of the warrants, with the costs and expenses of any
registration thereunder to be borne by the Seller and (iii) antidilution
provisions mutually agreeable to the parties.
10. Letter Agreement Terms
On or prior to the Termination Date, the Purchaser and the Seller shall enter
into a letter agreement which shall set forth the following agreements:
a) Securitization
The Seller, Hanover Capital Mortgage Corporation, or any of the Seller's
affiliates (each a "Hanover Entity"), shall retain and compensate Residential
Funding Securities Corporation (the "Broker") (such compensation to be mutually
agreed upon by applicable Hanover Entity and the Broker) as a co-lead
underwriter in connection with the consummation of the greater of (i) two
securitization transactions backed by residential mortgage loans (each a
"Securitization Transaction"), or (ii) the number of Securitization Transactions
that have in the aggregate a total par amount of residential mortgage loans of
at least $500,000,000.
b) Commercial Loan Origination
For a period of two years from the Closing Date, prior to entering any sale
transaction with any third party for the purchase by such third party of any
commercial mortgage loans (the "Commercial Loans") originated or purchased by
any Hanover Entity, such Hanover Entity shall, within one business day's notice
prior to any such sale, first offer the Purchaser the right to purchase such
Commercial Loans at the same purchase price and on the same terms and conditions
as it would offer such third party, in lieu of such sale by such Hanover Entity
to any third party. In the event that the Purchaser declines such offer, such
Hanover Entity shall have no further obligation to the Purchaser with respect to
such offered Commercial Loans.
c) Master Servicing
For a period of two years from the Closing Date, prior to entering into any
agreement with any third party to act as master servicer on any loan
securitization effected by any Hanover Entity, such Hanover Entity shall, within
one business day's notice prior to entering such agreement, first offer such
right to act as master servicer on any loan securitization effected by the
Seller to the Purchaser on the same terms and conditions as it would offer such
master servicing to such third party. In the event that the Purchaser declines
such offer, such Hanover Entity shall have no further obligation to the
Purchaser with respect to such master servicing offered with respect to the
related loan securitization.
d) Due Diligence
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For a period of two years from the Closing Date, prior to entering into any
agreement with any third party to undertake whole loan due diligence services
for Portfolio Transactions or for Securitization Transactions in which the
Broker is not undertaking the due diligence or is otherwise contracting with
third parties for such due diligence services (the "Broker-Contracted Due
Diligence"), the Purchaser or Broker, as applicable, shall, within one business
day's notice prior to entering into any agreement, first offer such right to
undertake such due diligence services to the Seller on the same terms and
conditions as it would offer to such third party. In the event the Broker
contracts with the Seller for due diligence services hereunder, the Seller shall
not be permitted to bid on any Portfolio Transaction unless such bid is made
jointly with the Purchaser. For the purposes hereof, "Portfolio Transactions"
shall mean residential whole loan acquisition opportunities pursued by the
Purchaser's Institutional Client Segment Portfolio Transaction Group and which
represent loan pools containing loan characteristics or features that do not
conform with program eligibility criteria specified within Purchaser's Client
Guide.
11. Commitment Fee
Seller shall pay the Purchaser $500,000.00 upon Purchaser's execution and
delivery of this letter (the "Commitment Fee"). The Commitment Fee shall be
reimbursed to the Seller upon the last to occur of the execution and delivery by
all parties of the final documentation of all of the transactions contemplated
by this Purchase Price and Terms Letter, and the purchase of the Mortgage Loans
by the Purchaser. In the event that such final documentation has not been
executed and delivered by all parties prior to the Termination Date, the
Purchaser shall be entitled to retain the Commitment Fee as liquidated damages
hereunder.
12. Legal Fees; Costs
The Seller shall pay all reasonable out-of-pocket expenses of the Purchaser
associated with the preparation, execution and delivery of this letter and all
documents contemplated by this letter not to exceed $50,000. The Seller shall
pay all delivery and recording costs, if any, associated with the sale, resale
or repurchase of the Mortgage Loans between the Seller and the Purchaser.
13. Termination of Obligations
In the event that the Purchaser shall fail to purchase the Mortgage Loans by the
Closing Date for any reason whatsoever, all obligations pursuant to this
Purchase Price and Terms Letter (other than the Purchaser's obligation to
reimburse the Commitment Fee to the Seller in accordance with paragraph 11
herein) shall terminate.
14. Survival; Governing Law
The parties acknowledge and agree that the provisions of this letter, other than
paragraphs
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1 through 8 which shall be superseded by the Purchase Agreement, shall survive
the Closing Date. This letter shall be construed in accordance with the laws of
the State of Minnesota, and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with the laws of the State of
Minnesota except to the extent preempted by Federal law.
[signatures commence on the following page]
Kindly acknowledge receipt of this confirmation by signing and promptly
returning the enclosed duplicate of this letter on or before November 10, 1998.
Your failure to return a countersigned duplicate of this letter to us within the
time indicated shall give us the right, at our sole option, to declare the oral
agreement confirmed hereby null and void.
Very truly yours,
HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
By: ___________________________________
Name: ___________________________________
Title:___________________________________
Receipt of this confirmation is
xxxxxx acknowledged:
RESIDENTIAL FUNDING CORPORATION
By: __________________________________
Title: __________________________________
Date: __________________________________
EXHIBIT A
Mortgage Loan Characteristics
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EXHIBIT B
Excluded Warrants
The 5,920,378 outstanding warrants (the "Warrants") issued in connection
with the September 1997 initial public offering of Hanover Capital Mortgage
Holdings, Inc. (the "Company"), each of which allows for the purchase of one
share of Common Stock, par value $.01 per share (the "Common Stock") of the
Company at a price of $15.00 per share of Common Stock and expires in September
2000, shall be excluded from the antidilution calculations otherwise called for
by Section 9 of the Purchase Price and Terms Letter to which this Exhibit is
attached.
