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MASTER LOAN AND SECURITY AGREEMENT
MASTER LOAN AND SECURITY AGREEMENT, dated as of December 8, 1997, between
HANOVER CAPITAL MORTGAGE HOLDINGS, INC., a Maryland corporation (the
"BORROWER"), and XXXXXX XXXXXXX MORTGAGE CAPITAL INC., a Delaware corporation
(the "LENDER").
RECITALS
The Borrower has requested that the Lender from time to time make revolving
credit loans to it to finance certain residential mortgage loans owned by the
Borrower, and the Lender is prepared to make such loans upon the terms and
conditions hereof. Accordingly, the parties hereto agree as follows:
Section 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.01 CERTAIN DEFINED TERMS. As used herein, the following terms shall have
the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Loan Agreement in the singular to have the same meanings when
used in the plural and VICE VERSA):
"AFFILIATE" shall mean, (i) with respect to the Lender, MS & Co. and Xxxxxx
Xxxxxxx, Xxxx Xxxxxx, Discover & Co., and Xxxxxx Xxxxxxx Group Inc. and MS & Co.
and (ii) with respect to the Borrower, any "affiliate" of the Borrower as such
term is defined in the United States Bankruptcy Code in effect from time to
time.
"APPLICABLE COLLATERAL PERCENTAGE" shall mean (a) with respect to all
Eligible Mortgage Loans other than Second Lien Mortgage Loans and Delinquent
Mortgage Loans, 97%, (b) with respect to all Eligible Mortgage Loans that are
Second Lien Mortgage Loans, 90%, and (c) with respect to all Eligible Mortgage
Loans that are Delinquent Mortgage Loans, 85%.
"APPLICABLE MARGIN" shall mean 60 basis points (0.60%).
"APPRAISED VALUE" shall mean the value set forth in an appraisal made in
connection with the origination of the related Mortgage Loan as the value of the
Mortgaged Property.
"BANKRUPTCY CODE" shall mean the United States Bankruptcy Code of 1978, as
amended from time to time.
"BLOCKED ACCOUNT AGREEMENT" shall mean an agreement between the Servicer
and the Lender, substantially in the form of EXHIBIT G hereto, as the same may
be amended, supplemented or otherwise modified from time to time, in which the
Servicer acknowledges the Lender's lien on the Collection Account, and agrees
that, in the event that it receives notice that an Event of Default hereunder
has occurred and until such notice is rescinded by the Lender, the Servicer
shall only withdraw funds from the Collection Account on instruction from the
Lender.
"BORROWER" shall have the meaning provided in the heading hereof.
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"BORROWING BASE" shall mean the aggregate Collateral Value of all Eligible
Mortgage Loans.
"BORROWING BASE DEFICIENCY" shall have the meaning provided in Section 2.06
hereof.
"BUSINESS DAY" shall mean any day other than (i) a Saturday or Sunday or
(ii) a day on which the New York Stock Exchange, the Federal Reserve Bank of New
York or the Custodian is authorized or obligated by law or executive order to be
closed.
"CAPITAL EXPENDITURES" shall mean, as to any Person for any period, the
aggregate amount paid or accrued by such Person and its Affiliates for the
rental, lease, purchase (including by way of the acquisition of securities of
any Person), construction or use of any Property during such period, the value
or cost of which, in accordance with GAAP, would appear on such Person's
consolidated balance sheet in the category of property, plant or equipment at
the end of such period.
"CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) Property to the extent such obligations are required
to be classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP, and, for purposes of this Loan Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"COLLATERAL" shall have the meaning provided in Section 4.01(b) hereof.
"COLLATERAL VALUE" shall mean, with respect to each Eligible Mortgage Loan,
the lesser of (a) the Applicable Collateral Percentage of the Market Value of
such Mortgage Loan, and (b) the outstanding principal balance of such Mortgage
Loan; provided that,
(a) the Collateral Value shall be deemed to be zero with respect to each
Mortgage Loan (1) in respect of which there is a breach of a representation and
warranty set forth on SCHEDULE 1 (assuming each representation and warranty is
made as of the date Collateral Value is determined), (2) which is an Eligible
Mortgage Loan which remains pledged to the Lender hereunder later than 270 days
after the date on which it is first included in the Collateral, (3) in respect
of which there is a delinquency in the payment of principal and/or interest
which continues for a period of 90 days or more (without regard to any
applicable grace periods), or (4) which has been released from the possession of
the Custodian under the Custodial Agreement to the Borrower for a period in
excess of 14 days;
(b) the aggregate Collateral Value of Eligible Mortgage Loans which are
Second Lien Mortgage Loans may not exceed 4% of the aggregate principal amount
outstanding under the Loans;
(c) the aggregate Collateral Value of Eligible Mortgage Loans which are 30
Day Delinquent Mortgage Loans may not exceed 7% of the aggregate principal
amount outstanding under the Loans; and
(d) the aggregate Collateral Value of Eligible Mortgage Loans which are 60
Day Delinquent Mortgage Loans may not exceed 3% of the aggregate principal
amount outstanding under the Loans.
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"COLLECTION ACCOUNT" shall mean one or more accounts established by the
Borrower with the Servicer subject to a security interest in favor of the Lender
and to the Blocked Account Agreement, into which all Collections shall be
deposited by the Servicer.
"COLLECTIONS" shall mean, collectively, all Principal Collections, all Sale
Proceeds and other collections and proceeds on or in respect of the Mortgage
Loans, excluding collections required to be paid to the Servicer or a mortgagor
on the Mortgage Loans.
"COMBINED LTV" OR "CLTV" shall mean with respect to any Mortgage Loan, the
ratio of (a) the outstanding principal balance as of the related date of
origination of such Mortgage Loan of (i) the Mortgage Loan plus (ii) the
mortgage loan constituting the first lien (if any) to (b) the Appraised Value of
the Mortgaged Property.
"COMMITTED LOAN" shall have the meaning assigned thereto in Section 2.01(a)
hereof.
"CUSTODIAL AGREEMENT" shall mean the Custodial Agreement, dated as of the
date hereof, among the Borrower, the Custodian and the Lender, substantially in
the form of EXHIBIT B hereto, as the same shall be modified and supplemented and
in effect from time to time.
"CUSTODIAN" shall mean First Chicago National Processing Corp., as
custodian under the Custodial Agreement, and its successors and permitted
assigns thereunder.
"DEFAULT" shall mean an Event of Default or an event that with notice or
lapse of time or both would become an Event of Default.
"DELINQUENT MORTGAGE LOAN" shall mean a 30 Day Delinquent Mortgage Loan or
a 60 Day Delinquent Mortgage Loan, as applicable.
"DOLLARS" and "$" shall mean lawful money of the United States of America.
"DUE DILIGENCE REVIEW" shall mean the performance by the Lender of any or
all of the reviews permitted under Section 11.15 hereof with respect to any or
all of the Mortgage Loans, as desired by the Lender from time to time.
"EFFECTIVE DATE" shall mean the date upon which the conditions precedent
set forth in Section 5.01 shall have been satisfied.
"ELIGIBLE MORTGAGE LOAN" shall mean a Mortgage Loan secured by a first or
second mortgage lien on a one-to-four family residential property, as to which
the representations and warranties in Section 6.10 and Part I of Schedule 1
hereof are correct.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA AFFILIATE" shall mean any corporation or trade or business that is a
member of any group of organizations (i) described in Section 414(b) or (c) of
the Code of which the Borrower is a member and (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which the
Borrower is a member.
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"EURODOLLAR BASE RATE" shall mean:
(a) for any One-Month LIBOR Loan, with respect to each day such Loan is
outstanding (or if such day is not a Business Day, the next succeeding Business
Day), the rate per annum equal to the rate appearing at page 5 of the Telerate
Screen as one-month LIBOR on the first day of such Interest Period, and if such
rate shall not be so quoted, the rate per annum at which the Lender is offered
Dollar deposits at or about 10:00 A.M., New York City time, on such date by
prime banks in the interbank eurodollar market where the eurodollar and foreign
currency and exchange operations in respect of its Loans are then being
conducted for delivery on such day for a period of thirty (30) days and in an
amount comparable to the amount of the Loans to be outstanding on such day; and
(b) for any Loan other than a One-Month LIBOR Loan, with respect to each
day during each Interest Period pertaining to such Loan, the rate per annum as
of the first day of such Interest Period equal to the interpolated percentage
based on the rates appearing at page 5 of the Telerate screen as the LIBOR rates
closest to the number of days in the applicable Interest Period, and if such
rates shall not be so quoted, the rates per annum at which the Lender is offered
Dollar deposits at or about 10:00 A.M., New York City time, on the first day of
such Interest Period, by prime banks in the interbank eurodollar market where
the eurodollar and foreign currency and exchange operations in respect of its
Loans are then being conducted for delivery on the first day of such Interest
Period for the number of days comprised therein and in an amount comparable to
the amount of the Loans to be outstanding during such Interest Period.
"EVENT OF DEFAULT" shall have the meaning provided in Section 8 hereof.
"FEDERAL FUNDS RATE" shall mean, for any day, the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Lender from three
federal funds brokers of recognized standing selected by it.
"FIRST LIEN MORTGAGE LOAN" shall mean an Eligible Mortgage Loan secured by
the lien on the Mortgaged Property, subject to no prior liens on such Mortgaged
Property.
"FUNDING DATE" shall mean the date on which a Loan is made hereunder.
"GAAP" shall mean generally accepted accounting principles as in effect
from time to time in the United States.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any court or arbitrator having jurisdiction over the Borrower,
any of its Subsidiaries or any of its properties.
"GUARANTEE" shall mean, as to any Person, any obligation of such Person
directly or indirectly guaranteeing any Indebtedness of any other Person or in
any manner providing for the payment of any Indebtedness of any other Person or
otherwise protecting the holder of such Indebtedness against loss (whether by
virtue of partnership arrangements, by agreement to keep-well,
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to purchase assets, goods, securities or services, or to take-or-pay or
otherwise); provided that the term "Guarantee" shall not include (i)
endorsements for collection or deposit in the ordinary course of business, or
(ii) obligations to make servicing advances for delinquent taxes and insurance
or other obligations in respect of a Mortgaged Property, to the extent required
by the Lender. The amount of any Guarantee of a Person shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
such Person in good faith. The terms "GUARANTEE" and "GUARANTEED" used as verbs
shall have correlative meanings.
"INDEBTEDNESS" shall mean, for any Person: (a) obligations created, issued
or incurred by such Person for borrowed money (whether by loan, the issuance and
sale of debt securities or the sale of Property to another Person subject to an
understanding or agreement, contingent or otherwise, to repurchase such Property
from such Person); (b) obligations of such Person to pay the deferred purchase
or acquisition price of Property or services, other than trade accounts payable
(other than for borrowed money) arising, and accrued expenses incurred, in the
ordinary course of business so long as such trade accounts payable are payable
within 90 days of the date the respective goods are delivered or the respective
services are rendered; (c) Indebtedness of others secured by a Lien on the
Property of such Person, whether or not the respective Indebtedness so secured
has been assumed by such Person; (d) obligations (contingent or otherwise) of
such Person in respect of letters of credit or similar instruments issued or
accepted by banks and other financial institutions for account of such Person;
(e) Capital Lease Obligations of such Person; (f) obligations of such Person
under repurchase agreements or like arrangements; (g) Indebtedness of others
Guaranteed by such Person; (h) all obligations of such Person incurred in
connection with the acquisition or carrying of fixed assets by such Person; and
(i) Indebtedness of general partnerships of which such Person is a general
partner.
"INTEREST PERIOD" shall mean, either (i) with respect to One-Month Libor
Loans, one month or (ii) with respect to Loans other than One-Month Libor Loans,
an interest period requested by the Borrower under Section 2.03(a), and approved
by the Lender in its sole discretion, which interest period shall be a minimum
of thirty-one (31) days. With respect to One-Month Libor Loans, each such
Interest Period shall (a) initially commence on the Funding Date and continue to
but excluding the first Payment Date; and (b) thereafter, commence on a Payment
Date and continue to but excluding the next Payment Date. With respect to Loans
other than One-Month Libor Loans, each such Interest Period shall continue to
the last day of such Interest Period and thereafter, commence on the day
following the last day of the previous Interest Period. Notwithstanding the
foregoing, no Interest Period may end after the Termination Date.
"INTEREST RATE PROTECTION AGREEMENT" shall mean, with respect to any or all
of the Mortgage Loans, any short sale of US Treasury Security, or futures
contract, or mortgage related security or Eurodollar futures contract, or
options related contract, or interest rate swap, cap or collar agreement or
similar arrangements providing for protection against fluctuations in interest
rates or the exchange of nominal interest obligations, either generally or under
specific contingencies, entered into by the Borrower and reasonably acceptable
to the Lender.
"LENDER" shall have the meaning provided in the heading hereto.
"LIEN" shall mean any mortgage, lien, pledge, charge, security interest or
similar encumbrance.
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"LOAN" shall mean any Committed Loan or Uncommitted Loan, as applicable,
and collectively "Loans" shall mean the sum of all Committed Loans and
Uncommitted Loans.
"LOAN AGREEMENT" shall mean this Master Loan and Security Agreement, as the
same may be amended, supplemented or otherwise modified from time to time.
"LOAN DOCUMENTS" shall mean, collectively, this Loan Agreement, the Note,
the Custodial Agreement, and the Blocked Account Agreement.
"MARKET VALUE" shall mean, as of any date in respect of an Eligible
Mortgage Loan, the price at which such Eligible Mortgage Loan could readily be
sold as determined in good faith by the Lender, which price may be determined to
be zero. The Lender's determination of Market Value shall be conclusive upon the
parties absent manifest error on the part of the Lender.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a) the
Property, business, operations, financial condition or prospects of the
Borrower, (b) the ability of the Borrower to perform its obligations under any
of the Loan Documents to which it is a party, (c) the validity or enforceability
of any of the Loan Documents, (d) the rights and remedies of the Lender under
any of the Loan Documents, (e) the timely payment of the principal of or
interest on the Loans or other amounts payable in connection therewith or (f)
the Collateral.
"MAXIMUM COMMITTED AMOUNT" shall mean $100,000,000.
"MAXIMUM CREDIT" shall mean the sum of the Maximum Committed Amount and the
Maximum Uncommitted Amount, which shall equal $125,000,000.
"MAXIMUM UNCOMMITTED AMOUNT" shall mean $25,000,000.
"MORTGAGE" shall mean the mortgage, deed of trust or other instrument
securing a Mortgage Note, which creates a first lien on the fee in real property
securing the Mortgage Note.
"MORTGAGE FILE" shall have the meaning assigned thereto in the Custodial
Agreement.
"MORTGAGE LOAN" shall mean a mortgage loan which the Custodian has been
instructed to hold for the Lender pursuant to the Custodial Agreement, and which
Mortgage Loan includes, without limitation, (i) a Mortgage Note and related
Mortgage and (ii) all right, title and interest of the Borrower in and to the
Mortgaged Property covered by such Mortgage.
"MORTGAGE LOAN DOCUMENTS" shall mean, with respect to a Mortgage Loan, the
documents comprising the Mortgage File for such Mortgage Loan.
"MORTGAGE LOAN SCHEDULE" shall have the meaning assigned thereto in the
Custodial Agreement.
"MORTGAGE LOAN SCHEDULE AND EXCEPTION REPORT" shall mean the mortgage loan
schedule and exception report prepared by the Custodian pursuant to the
Custodial Agreement.
"MORTGAGE LOAN TAPE" shall mean a computer-readable magnetic tape
containing such fields as shall be mutually agreed upon by the Borrower and the
Lender with respect to each Mortgage Loan to be delivered by the Borrower to the
Lender pursuant to Section 2.03(a) hereof.
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"MORTGAGE NOTE" shall mean the original executed promissory note or other
evidence of the indebtedness of a mortgagor/borrower with respect to a Mortgage
Loan.
"MORTGAGED PROPERTY" shall mean the real property (including all
improvements, buildings, fixtures, building equipment and personal property
thereon and all additions, alterations and replacements made at any time with
respect to the foregoing) and all other collateral securing repayment of the
debt evidenced by a Mortgage Note.
"MORTGAGOR" shall mean the obligor on a Mortgage Note.
"MS & CO." shall mean Xxxxxx Xxxxxxx & Co. Incorporated, a registered
broker-dealer.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been or are required to be
made by the Borrower or any ERISA Affiliate and that is covered by Title IV of
ERISA.
"NET INCOME" shall mean, for any period, the net income of the Borrower for
such period as determined in accordance with GAAP.
"NOTE" shall mean the promissory note provided for by Section 2.02(a)
hereof for Loans and any promissory note delivered in substitution or exchange
therefor, in each case as the same shall be modified and supplemented and in
effect from time to time.
"ONE-MONTH LIBOR LOANS" shall mean Loans that bear interest at rates based
on the rate referred to as the rate for One-Month LIBOR Loans in the definition
of Eurodollar Base Rate.
"PAYMENT DATE" shall mean (a) the first Business Day of each calendar
month, commencing with January 2, 1998, and (b) the Termination Date.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERSON" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, limited liability company, trust,
unincorporated association or government (or any agency, instrumentality or
political subdivision thereof).
"PLAN" shall mean an employee benefit or other plan established or
maintained by the Borrower or any ERISA Affiliate and covered by Title IV of
ERISA, other than a Multiemployer Plan.
"POST-DEFAULT RATE" shall mean, in respect of any principal of any Loan or
any other amount under this Loan Agreement, the Note or any other Loan Document
that is not paid when due to the Lender (whether at stated maturity, by
acceleration, by optional or mandatory prepayment or otherwise), a rate per
annum during the period from and including the due date to but excluding the
date on which such amount is paid in full equal to 2% per annum PLUS the Prime
Rate.
"PRIME RATE" shall mean the prime rate announced to be in effect from time
to time, as published as the average rate in THE WALL STREET JOURNAL.
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"PRINCIPAL COLLECTIONS" shall mean collections on the Mortgage Loans
attributable to principal payments thereon.
"PROPERTY" shall mean any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible.
"REGULATIONS G, T, U AND X" shall mean Regulations G, T, U and X of the
Board of Governors of the Federal Reserve System (or any successor), as the same
may be modified and supplemented and in effect from time to time.
"REQUEST FOR BORROWING" shall have the meaning provided in Section 2.03(a).
"RESPONSIBLE OFFICER" shall mean, as to any Person, the chief executive
officer or, with respect to financial matters, the chief financial officer of
such Person.
"SALE PROCEEDS" shall mean (i) any proceeds of any sales, transfers or
dispositions of any Mortgage Loan, net of reasonable and customary costs,
including reasonable and necessary attorneys' fees, and (ii) any proceeds of any
sales, dispositions, condemnations, casualty insurance and other amounts from
any disposition, taking, damage or destruction of all or any portion of any real
property acquired upon foreclosure (or deed in lieu of foreclosure) of Mortgage
Loans, net of reasonable and customary costs of closing, including brokerage
commissions, make-ready expenses, title insurance, financing costs, recording
fees, transfer taxes, tax certificates, title and closing agent fees and
pro-rated items.
"SECOND LIEN MORTGAGE LOAN" shall mean an Eligible Mortgage Loan secured by
the lien on the Mortgaged Property, subject to only one prior lien on such
Mortgaged Property.
"SECURED OBLIGATIONS" shall have the meaning provided in Section 4.01(c)
hereof.
"SERVICER" shall have the meaning provided in Section 11.14(c) hereof.
"SERVICING AGREEMENT" shall have the meaning provided in Section 11.14(c)
hereof.
"SERVICING RECORDS" shall have the meaning provided in Section 11.14(b)
hereof.
"60 DAY DELINQUENT MORTGAGE LOAN" shall mean an Eligible Mortgage Loan
which is at least 60 days, but not more than 89 days, delinquent with respect to
the payment of principal or interest (without regard to any applicable grace
period).
"SUBSIDIARY" shall mean, with respect to any Person, any corporation,
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions of such corporation, partnership or other entity (irrespective of
whether or not at the time securities or other ownership interests of any other
class or classes of such corporation, partnership or other entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person.
"TANGIBLE NET WORTH" shall mean, as of a particular date,
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(a) all amounts which would be included under capital on a balance sheet of
the Borrower at such date, determined in accordance with GAAP, LESS
(b) (i) amounts owing to the Borrower from Affiliates and (ii) intangible
assets.
"TERMINATION DATE" shall mean December 8, 1998 or such earlier date on
which this Loan Agreement shall terminate in accordance with the provisions
hereof or by operation of law.
"TEST PERIOD" shall have the meaning provided in Section 7.16 hereof.
"30 DAY DELINQUENT MORTGAGE LOAN" shall mean an Eligible Mortgage Loan
which is at least 30 days, but not more than 59 days, delinquent with respect to
the payment of principal or interest (without regard to any applicable grace
period).
"TOTAL INDEBTEDNESS" shall mean, for any period, the aggregate Indebtedness
of the Borrower during such period LESS the amount of any nonspecific balance
sheet reserves maintained in accordance with GAAP.
"UNCOMMITTED LOAN" shall have the meaning assigned thereto in Section
2.01(b) hereof.
"UNDERWRITING GUIDELINES" shall mean the underwriting guidelines attached
as EXHIBIT F hereto.
"UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as in
effect on the date hereof in the State of New York; provided that if by reason
of mandatory provisions of law, the perfection or the effect of perfection or
non-perfection of the security interest in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than New York,
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.
1.02 ACCOUNTING TERMS AND DETERMINATIONS. Except as otherwise expressly
provided herein, all accounting terms used herein shall be interpreted, and all
financial statements and certificates and reports as to financial matters
required to be delivered to the Lender hereunder shall be prepared, in
accordance with GAAP.
Section 2. LOANS, NOTE AND PREPAYMENTS.
2.01 LOANS.
(a) Subject to fulfillment of the conditions precedent set forth in
Sections 5.01 and 5.02 hereof, and provided that no Default shall have occurred
and be continuing hereunder, the Lender agrees from time to time, on the terms
and conditions of this Agreement, to make loans (individually, a "COMMITTED
LOAN"; collectively, the "COMMITTED LOANS") to the Borrower in Dollars, from and
including the Effective Date to and including the Termination Date in an
aggregate principal amount at any one time outstanding up to but not exceeding
the Maximum Committed Amount as in effect from time to time.
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(b) In addition to the foregoing, the Lender may from time to time in its
sole discretion, on the terms and conditions of this Agreement, make loans
(individually, an "UNCOMMITTED LOAN"; collectively, the "UNCOMMITTED LOANS") to
the Borrower in Dollars during the period from and including the Effective Date
to and including the Termination Date in an aggregate principal amount at any
one time outstanding up to but not exceeding the Maximum Uncommitted Amount as
in effect from time to time. In determining whether Loans outstanding secured by
Eligible Mortgage Loans are Committed Loans or Uncommitted Loans, such Loans
shall first be deemed Committed Loans up to the Maximum Committed Amount, and
then the remainder shall be deemed Uncommitted Loans.
(c) Subject to the terms and conditions of this Loan Agreement, during the
term of the Loan Agreement the Borrower may borrow, repay and reborrow
hereunder.
(d) In no event shall a Loan be made when any Default or Event of Default
has occurred and is continuing.
2.02 NOTES.
(a) The Loans made by the Lender shall be evidenced by a single promissory
note of the Borrower substantially in the form of EXHIBIT A hereto (the "NOTE"),
dated the date hereof, payable to the Lender in a principal amount equal to the
amount of the Maximum Credit as originally in effect and otherwise duly
completed. The Lender shall have the right to have its Note subdivided, by
exchange for promissory notes of lesser denominations or otherwise.
(b) The date, amount and interest rate of each Loan made by the Lender to
the Borrower, and each payment made on account of the principal thereof, shall
be recorded by the Lender on its books and, prior to any transfer of the Note,
endorsed by the Lender on the schedule attached to the Note or any continuation
thereof; PROVIDED that the failure of the Lender to make any such recordation or
endorsement shall not affect the obligations of the Borrower to make a payment
when due of any amount owing hereunder or under the Note in respect of the
Loans.
2.03 PROCEDURE FOR BORROWING.
(a) The Borrower may request a borrowing hereunder, on any Business Day
during the period from and including the Effective Date to and including the
Termination Date, by delivering to the Lender, with a copy to the Custodian, an
irrevocable written request for borrowing, substantially in the form of EXHIBIT
D attached hereto (a "REQUEST FOR BORROWING"), which request must be received by
the Lender prior to 3:00 p.m., New York City time, one (l) Business Day prior to
the requested Funding Date. Such Request for Borrowing shall (i) attach a
schedule identifying the Eligible Mortgage Loans that the Borrower proposes to
pledge to the Lender and to be included in the Borrowing Base in connection with
such borrowing, (ii) specify if the requested Loan shall be a One-Month LIBOR
Loan, and if not a One-Month LIBOR Loan, specify the applicable Interest Period
requested, which Interest Period shall be at least thirty-one (31) days, and
subject to the approval of the Lender in the Lender's sole discretion, (iii) the
requested Funding Date, and (iv) include a Mortgage Loan Tape containing
information with respect to the Eligible Mortgage Loans that the Borrower
proposes to pledge to the Lender and to be included in the Borrowing Base in
connection with such borrowing, and (v) attach an officer's certificate signed
by a Responsible Officer of the Borrower as required by Section 5.02(b) hereof.
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(b) Upon the Borrower's request for a borrowing pursuant to Section
2.03(a), the Lender shall, assuming all conditions precedent set forth in
Section 5.01 and 5.02 have been met and provided no Default shall have occurred
and be continuing, make a Committed Loan to the Borrower on the requested
Funding Date, in the amount so requested.
(c) Upon the Borrower's request for a borrowing pursuant to Section
2.03(a), the Lender may at its sole option, assuming all conditions precedent
set forth in Section 5.01 and 5.02 have been met and provided no Default shall
have occurred and be continuing, make an Uncommitted Loan to the Borrower on the
requested Funding Date, in the amount so requested.
(d) The Borrower shall release to the Custodian no later than 12:00 p.m.,
New York City time, two (2) Business Days prior to the requested Funding Date,
the Mortgage File pertaining to each Eligible Mortgage Loan to be pledged to the
Lender and included in the Borrowing Base on such requested Funding Date, so
long as there are no more than two hundred such Mortgage Files delivered on such
Business Day (if the number of Mortgage Files equals or exceeds two hundred, the
Borrower shall deliver to the Custodian such Mortgage Files in as many Business
Days prior to the Funding Date as is reasonably acceptable to the Custodian), as
in accordance with the terms and conditions of the Custodial Agreement.
(e) Pursuant to the Custodial Agreement, the Custodian shall deliver to the
Lender and the Borrower, no later than 11:00 a.m. on a Funding Date, a Trust
Receipt (as defined in the Custodial Agreement) in respect of all Mortgage Loans
pledged to the Lender on such Funding Date, and a Mortgage Loan Schedule and
Exception Report. Subject to Section 5 hereof, such borrowing will then be made
available to the Borrower by the Lender transferring, via wire transfer, to the
account set forth in the applicable Request for Borrowing, in the aggregate
amount of such borrowing in funds immediately available to the Borrower.
2.04 LIMITATION ON TYPES OF LOANS; ILLEGALITY. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any Eurodollar
Rate:
(a) the Lender determines, which determination shall be conclusive, that
quotations of interest rates for the relevant deposits referred to in the
definition of "Eurodollar Rate" in Section 1.01 hereof are not being provided
in the relevant amounts or for the relevant maturities for purposes of
determining rates of interest for Loans as provided herein; or
(b) the Lender determines, which determination shall be conclusive, that
the relevant rate of interest referred to in the definition of "Eurodollar
Rate" in Section 1.01 hereof upon the basis of which the rate of interest for
Loans is to be determined is not likely adequately to cover the cost to the
Lender of making or maintaining Loans; or
(c) it becomes unlawful for the Lender to honor its obligation to make or
maintain Loans hereunder using a Eurodollar Rate;
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then the Lender shall give the Borrower prompt notice thereof and, so long as
such condition remains in effect, the Lender shall be under no obligation to
make additional Loans, and the Borrower shall, either prepay all such Loans as
may be outstanding or pay interest on such Loans at a rate per annum equal to
the Federal Funds Rate plus 1%.
2.05 REPAYMENT OF LOANS; INTEREST.
(a) The Borrower hereby promises to repay in full on the Termination Date
the then aggregate outstanding principal amount of the Loans.
(b) The Borrower hereby promises to pay to the Lender interest on the
unpaid principal amount of each Loan for the period from and including the date
of such Loan to but excluding the date such Loan shall be paid in full, at a
rate per annum equal to the Eurodollar Rate PLUS the Applicable Margin.
Notwithstanding the foregoing, the Borrower hereby promises to pay to the Lender
interest at the applicable Post-Default Rate on any principal of any Loan and on
any other amount payable by the Borrower hereunder or under the Note that shall
not be paid in full when due (whether at stated maturity, by acceleration or by
mandatory prepayment or otherwise) for the period from and including the due
date thereof to but excluding the date the same is paid in full. Accrued
interest on each Loan shall be payable monthly on the first Business Day of each
month following the month for which it accrues and for the last month of the
Loan Agreement on the first Business Day of such last month and on the
Termination Date, except that interest payable at the Post-Default Rate shall
accrue daily and shall be payable upon such accrual. Promptly after the
determination of any interest rate provided for herein or any change therein,
the Lender shall give notice thereof to the Borrower.
(c) It is understood and agreed that, unless and until a Default shall have
occurred and be continuing, the Borrower shall be entitled to the proceeds of
the Mortgage Loans pledged to the Lender hereunder.
2.06 MANDATORY PREPAYMENTS; ADDITIONAL PLEDGE.
(a) The Borrower shall prepay the principal of the Loans on each Payment
Date in an amount equal to all Principal Collections with respect to the
Mortgage Loans received during the calendar month ended most recently prior to
such Payment Date.
(b) The Borrower shall prepay the principal of the Loans on each Payment
Date in an amount equal to all Sale Proceeds with respect to the Mortgage Loans
received during the calendar month ended most recently prior to such Payment
Date.
(c) If at any time the aggregate outstanding principal amount of Loans
exceeds the Borrowing Base (a "BORROWING BASE DEFICIENCY"), as determined by the
Lender and notified to the Borrower on any Business Day, the Borrower shall no
later than one Business Day after receipt of such notice, either prepay the
Loans in part or in whole or pledge additional Eligible Mortgage Loans (which
Collateral shall be in all respects acceptable to the Lender) to the Lender,
such that after giving effect to such prepayment or pledge the aggregate
outstanding principal amount of the Loans does not exceed the Borrowing Base.
2.07 OPTIONAL PREPAYMENTS. The Loans are prepayable on any Payment Date
without premium or penalty, in whole or in part, and may be prepaid on any other
date subject to Section 2.08 hereof. Any amounts prepaid shall be applied to
repay the outstanding principal amount of any Loans
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(together with interest thereon) until paid in full. Amounts repaid may be
reborrowed in accordance with the terms of this Loan Agreement. If the Borrower
intends to prepay a Loan in whole or in part from a source other than the
proceeds of the Mortgage Loans, the Borrower shall give three (3) Business Days'
prior written notice thereof to the Lender. If such notice is given, the amount
specified in such notice shall be due and payable on the date specified therein,
together with accrued interest to such date on the amount prepaid. Partial
prepayments shall be in a minimum aggregate principal amount of $1,000,000.
2.08 INDEMNITY
If the Borrower makes a prepayment of the Loans on any day which is not a
Payment Date, the Borrower shall indemnify the Lender and hold the Lender
harmless from any actual loss or expense which the Lender may sustain or incur
arising from the reemployment of funds obtained by the Lender to maintain the
Loans hereunder or from fees payable to terminate the deposits from which such
funds were obtained. This Section 2.08 shall survive termination of Loan
Agreement and payment of the Note.
Section 3. PAYMENTS; COMPUTATIONS; ETC.
3.01 PAYMENTS.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Borrower under this Loan
Agreement and the Note, shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Lender at the
following account maintained by the Lender: Account No. 00000000, For the A/C of
Xxxxxx Xxxxxxx Mortgage Capital Inc., ABA# 000000000, not later than 1:00 p.m.,
New York City time, on the date on which such payment shall become due (and each
such payment made after such time on such due date shall be deemed to have been
made on the next succeeding Business Day). The Borrower acknowledges that it has
no rights of withdrawal from the foregoing account.
(b) Except to the extent otherwise expressly provided herein, if the due
date of any payment under this Loan Agreement or the Note would otherwise fall
on a day that is not a Business Day, such date shall be extended to the next
succeeding Business Day, and interest shall be payable for any principal so
extended for the period of such extension.
3.02 COMPUTATIONS. Interest on the Loans shall be computed in arrears on
the basis of a 360-day year for the actual days elapsed (including the first day
but excluding the last day) occurring in the period for which payable.
3.03 COMMITMENT FEE. The Borrower agrees to pay to the Lender a one-time
commitment fee equal to $100,000, such payment to be made in Dollars, in
immediately available funds, without deduction, set-off or counterclaim, to the
Lender on or prior to the Effective Date. The Lender may, in its sole
discretion, net such commitment fee from the proceeds of any Loan advanced to
the Borrower on the Effective Date.
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Section 4. COLLATERAL SECURITY.
4.01 COLLATERAL; SECURITY INTEREST.
(a) Pursuant to the Custodial Agreement, the Custodian shall hold the
Mortgage Loan Documents as exclusive bailee and agent for the Lender pursuant to
terms of the Custodial Agreement and shall deliver to the Lender Trust Receipts
(as defined in the Custodial Agreement) each to the effect that it has reviewed
such Mortgage Loan Documents in the manner and to the extent required by the
Custodial Agreement and identifying any deficiencies in such Mortgage Loan
Documents as so reviewed.
(b) All of the Borrower's right, title and interest in, to and under each
of the following items of property, whether now owned or hereafter acquired, now
existing or hereafter created and wherever located, is hereinafter referred to
as the "COLLATERAL":
(i) all Mortgage Loans;
(ii) all Mortgage Loan Documents, including without limitation all
promissory notes, and all Servicing Records (as defined in Section 11.14(b)
below), servicing agreements and any other collateral pledged or otherwise
relating to such Mortgage Loans, together with all files, documents,
instruments, surveys, certificates, correspondence, appraisals, computer
programs, computer storage media, accounting records and other books and
records relating thereto;
(iii) all mortgage guaranties and insurance (issued by governmental
agencies or otherwise) and any mortgage insurance certificate or other
document evidencing such mortgage guaranties or insurance relating to any
Mortgage Loan and all claims and payments thereunder;
(iv) all other insurance policies and insurance proceeds relating to any
Mortgage Loan or the related Mortgaged Property;
(v) all Interest Rate Protection Agreements;
(vi) the Collection Account and all monies from time to time on deposit in
the Collection Account;
(vii) all "general intangibles" as defined in the Uniform Commercial Code
relating to or constituting any and all of the foregoing; and
(viii) any and all replacements, substitutions, distributions on or
proceeds of any and all of the foregoing.
(c) The Borrower hereby assigns, pledges and grants a security interest in
all of its right, title and interest in, to and under the Collateral to the
Lender to secure the repayment of principal of and interest on all Loans and all
other amounts owing to the Lender hereunder, under the Note and under the other
Loan Documents (collectively, the "SECURED OBLIGATIONS"). The Borrower agrees to
xxxx its computer records and tapes to evidence the interests granted to the
Lender hereunder.
4.02 FURTHER DOCUMENTATION. At any time and from time to time, upon the
written request of the Lender, and at the sole expense of the Borrower, the
Borrower will promptly and duly
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execute and deliver, or will promptly cause to be executed and delivered, such
further instruments and documents and take such further action as the Lender may
reasonably request for the purpose of obtaining or preserving the full benefits
of this Loan Agreement and of the rights and powers herein granted, including,
without limitation, the filing of any financing or continuation statements under
the Uniform Commercial Code in effect in any jurisdiction with respect to the
Liens created hereby. The Borrower also hereby authorizes the Lender to file any
such financing or continuation statement without the signature of the Borrower
to the extent permitted by applicable law. A carbon, photographic or other
reproduction of this Loan Agreement shall be sufficient as a financing statement
for filing in any jurisdiction.
4.03 CHANGES IN LOCATIONS, NAME, ETC. The Borrower shall not (i) change the
location of its chief executive office/chief place of business from that
specified in Section 6 hereof or (ii) change its name, identity or corporate
structure (or the equivalent) or change the location where it maintains its
records with respect to the Collateral unless it shall have given the Lender at
least 30 days prior written notice thereof and shall have delivered to the
Lender all Uniform Commercial Code financing statements and amendments thereto
as the Lender shall request and taken all other actions deemed necessary by the
Lender to continue its perfected status in the Collateral with the same or
better priority.
4.04. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) The Borrower hereby irrevocably constitutes and appoints the Lender and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of the Borrower and in the name of the Borrower or in its own name,
from time to time in the Lender's discretion, for the purpose of carrying out
the terms of this Loan Agreement, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Loan Agreement, and, without
limiting the generality of the foregoing, the Borrower hereby gives the Lender
the power and right, on behalf of the Borrower, without assent by, but with
notice to, the Borrower, if an Event of Default shall have occurred and be
continuing, to do the following:
(i) in the name of the Borrower or its own name, or otherwise, to take
possession of and endorse and collect any checks, drafts, notes, acceptances
or other instruments for the payment of moneys due under any mortgage
insurance or with respect to any other Collateral and to file any claim or to
take any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by the Lender for the purpose of collecting any
and all such moneys due under any such mortgage insurance or with respect to
any other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed on or threatened
against the Collateral; and
(iii) (A) to direct any party liable for any payment under any Collateral
to make payment of any and all moneys due or to become due thereunder
directly to the Lender or as the Lender shall direct; (B) to ask or demand
for, collect, receive payment of and receipt for, any and all moneys, claims
and other amounts due or to become due at any time in respect of or arising
out of any Collateral; (C) to sign and endorse any invoices, assignments,
verifications, notices and other documents in connection with any of the
Collateral; (D) to commence and prosecute any suits, actions or proceedings
at law or in equity in any court of
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competent jurisdiction to collect the Collateral or any thereof and to
enforce any other right in respect of any Collateral; (E) to defend any
suit, action or proceeding brought against the Borrower with respect to
any Collateral; (F) to settle, compromise or adjust any suit, action or
proceeding described in clause (E) above and, in connection therewith,
to give such discharges or releases as the Lender may deem appropriate;
and (G) generally, to sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though the Lender were the absolute owner thereof for all
purposes, and to do, at the Lender's option and the Borrower's expense,
at any time, and from time to time, all acts and things which the Lender
deems necessary to protect, preserve or realize upon the Collateral and
the Lender's Liens thereon and to effect the intent of this Loan
Agreement, all as fully and effectively as the Borrower might do.
The Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) The Borrower also authorizes the Lender, at any time and from time to
time, to execute, in connection with any sale provided for in Section 4.07
hereof, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
(c) The powers conferred on the Lender are solely to protect the Lender's
interests in the Collateral and shall not impose any duty upon the Lender to
exercise any such powers. The Lender shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers, and neither the
Lender nor any of its officers, directors, or employees shall be responsible to
the Borrower for any act or failure to act hereunder, except for its own gross
negligence or willful misconduct.
4.05. PERFORMANCE BY LENDER OF BORROWER'S OBLIGATIONS. If the Borrower
fails to perform or comply with any of its agreements contained in the Loan
Documents and the Lender may itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the expenses of the Lender
incurred in connection with such performance or compliance, together with
interest thereon at a rate per annum equal to the Post-Default Rate, shall be
payable by the Borrower to the Lender on demand and shall constitute Secured
Obligations.
4.06. PROCEEDS. If an Event of Default shall occur and be continuing, (a)
all proceeds of Collateral received by the Borrower consisting of cash, checks
and other near-cash items shall be held by the Borrower in trust for the Lender,
segregated from other funds of the Borrower, and shall forthwith upon receipt by
the Borrower be turned over to the Lender in the exact form received by the
Borrower (duly endorsed by the Borrower to the Lender, if required) and (b) any
and all such proceeds received by the Lender (whether from the Borrower or
otherwise) may, in the sole discretion of the Lender, be held by the Lender as
collateral security for, and/or then or at any time thereafter may be applied by
the Lender against, the Secured Obligations (whether matured or unmatured), such
application to be in such order as the Lender shall elect. Any balance of such
proceeds remaining after the Secured Obligations shall have been paid in full
and this Loan Agreement shall have been terminated shall be paid over to the
Borrower or to whomsoever may be lawfully entitled to receive the same. For
purposes hereof, proceeds shall include, but not be limited to, all principal
and interest payments, all prepayments and payoffs, insurance claims,
condemnation awards, sale proceeds, real estate owned rents and any other income
and all other amounts received with respect to the Collateral.
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4.07. REMEDIES. If an Event of Default shall occur and be continuing, the
Lender may exercise, in addition to all other rights and remedies granted to it
in this Loan Agreement and in any other instrument or agreement securing,
evidencing or relating to the Secured Obligations, all rights and remedies of a
secured party under the Uniform Commercial Code. Without limiting the generality
of the foregoing, the Lender without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Borrower or any other Person
(each and all of which demands, presentments, protests, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, give option or options to purchase, or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels or as an entirety at public
or private sale or sales, at any exchange, broker's board or office of the
Lender or elsewhere upon such terms and conditions as it may deem advisable and
at such prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. The Lender shall have the right upon any
such public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of the Collateral so
sold, free of any right or equity of redemption in the Borrower, which right or
equity is hereby waived or released. The Borrower further agrees, at the
Lender's request, to assemble the Collateral and make it available to the Lender
at places which the Lender shall reasonably select, whether at the Borrower's
premises or elsewhere. The Lender shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Lender hereunder, including
without limitation reasonable attorneys' fees and disbursements, to the payment
in whole or in part of the Secured Obligations, in such order as the Lender may
elect, and only after such application and after the payment by the Lender of
any other amount required or permitted by any provision of law, including
without limitation Section 9-504(1)(c) of the Uniform Commercial Code, need the
Lender account for the surplus, if any, to the Borrower. To the extent permitted
by applicable law, the Borrower waives all claims, damages and demands it may
acquire against the Lender arising out of the exercise by the Lender of any of
its rights hereunder, other than those claims, damages and demands arising from
the gross negligence or willful misconduct of the Lender. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least 10 days before
such sale or other disposition. The Borrower shall remain liable for any
deficiency (plus accrued interest thereon as contemplated pursuant to Section
2.05(b) hereof) if the proceeds of any sale or other disposition of the
Collateral are insufficient to pay the Secured Obligations and the fees and
disbursements of any attorneys employed by the Lender to collect such
deficiency.
4.08. LIMITATION ON DUTIES REGARDING PRESENTATION OF COLLATERAL. The
Lender's duty with respect to the custody, safekeeping and physical preservation
of the Collateral in its possession, under Section 9-207 of the Uniform
Commercial Code or otherwise, shall be to deal with it in the same manner as the
Lender deals with similar property for its own account. Neither the Lender nor
any of its directors, officers or employees shall be liable for failure to
demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Borrower or otherwise.
4.09. POWERS COUPLED WITH AN INTEREST. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
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4.10 RELEASE OF SECURITY INTEREST. Upon termination of this Loan Agreement
and repayment to the Lender of all Secured Obligations and the performance of
all obligations under the Loan Documents the Lender shall release its security
interest in any remaining Collateral.
Section 5. CONDITIONS PRECEDENT.
5.01 INITIAL LOAN. The obligation of the Lender to make its initial Loan
hereunder is subject to the satisfaction, immediately prior to or concurrently
with the making of such Loan, of the condition precedent that the Lender shall
have received all of the following documents, each of which shall be
satisfactory to the Lender and its counsel in form and substance:
(a) LOAN DOCUMENTS.
(i) NOTE. The Note, duly completed and executed;
(ii) CUSTODIAL AGREEMENT. The Custodial Agreement, duly executed and
delivered by the Borrower, the Lender and the Custodian. In addition, the
Borrower shall have taken such other action as the Lender shall have
requested in order to perfect the security interests created pursuant to
the Loan Agreement;
(iii) BLOCKED ACCOUNT AGREEMENT. A Blocked Account Agreement, duly
executed by the parties thereto;
(b) ORGANIZATIONAL DOCUMENTS. A good standing certificate and certified
copies of the operating agreement and by-laws (or equivalent documents) of
the Borrower and of all corporate or other authority for the Borrower with
respect to the execution, delivery and performance of the Loan Documents
and each other document to be delivered by the Borrower from time to time
in connection herewith (and the Lender may conclusively rely on such
certificate until it receives notice in writing from the Borrower to the
contrary);
(c) LEGAL OPINION. A legal opinion of counsel to the Borrower,
substantially in the form attached hereto as EXHIBIT C.
(d) MORTGAGE LOAN SCHEDULE AND EXCEPTION REPORT. A Mortgage Loan
Schedule and Exception Report, dated the Effective Date, from the Custodian,
duly completed;
(e) SERVICING AGREEMENT(S). Any Servicing Agreement, certified as a
true, correct and complete copy of the original;
(f) OTHER DOCUMENTS. Such other documents as the Lender may reasonably
request.
(g) PAYMENT OF COMMITMENT FEE. The Borrower shall pay the commitment fee
pursuant to Section 3.03 hereof.
5.02 INITIAL AND SUBSEQUENT LOANS. The making of each Loan to the
Borrower (including the initial Loan) on any Business Day is subject to the
satisfaction of the following further conditions precedent, both immediately
prior to the making of such Loan and also after giving effect thereto and to
the intended use thereof:
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(a) no Default or Event of Default shall have occurred and be
continuing;
(b) both immediately prior to the making of such Loan and also after
giving effect thereto and to the intended use thereof, the representations
and warranties made by the Borrower in Section 6 and Schedule 1 hereof, and
elsewhere in each of the Loan Documents, shall be true and complete on and as
of the date of the making of such Loan in all material respects (in the case
of the representations and warranties in Section 6.10 and Schedule 1, solely
with respect to Mortgage Loans included in the Borrowing Base) with the same
force and effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date). The Lender shall have received an
officer's certificate signed by a Responsible Officer of the Borrower
certifying as to the truth and accuracy of the above, which certificate shall
specifically include a statement that the Borrower is in compliance with all
governmental licenses and authorizations and is qualified to do business and
in good standing in all required jurisdictions.
(c) the aggregate outstanding principal amount of the Loans shall not
exceed the Borrowing Base;
(d) subject to the Lender's right to perform one or more Due Diligence
Reviews pursuant to Section 11.15 hereof, the Lender shall have completed its
due diligence review of the Mortgage Loan Documents for each Loan and such
other documents, records, agreements, instruments, mortgaged properties or
information relating to such Loans as the Lender in its sole discretion deems
appropriate to review and such review shall be satisfactory to the Lender in
its sole discretion;
(e) the Lender shall have received from the Custodian a Trust Receipt
with exceptions as are acceptable to the Lender in its sole discretion in
respect of Eligible Mortgage Loans to be pledged hereunder on such Business
Day and a Mortgage Loan Schedule and Exception Report, in each case dated
such Business Day and duly completed;
(f) the Lender shall have received from the Borrower a Warehouse
Lender's Release Letter substantially in the form of EXHIBIT E-2 hereto (or
such other form acceptable to the Lender) or a Seller's Release Letter
substantially in the form of EXHIBIT E-1 hereto (or such other form
acceptable to the Lender) covering each Mortgage Loan to be pledged to the
Lender;
(g) none of the following shall have occurred and/or be continuing:
(i) an event or events shall have occurred resulting in the effective
absence of a "repo market" or comparable "lending market" for financing debt
obligations secured by mortgage loans or securities for a period of (or
reasonably expected to be) at least 30 consecutive days or an event or events
shall have occurred resulting in the Lender not being able to finance any
Loans through the "repo market" or "lending market" with traditional
counterparties at rates which would have been reasonable prior to the
occurrence of such event or events;
(ii) an event or events shall have occurred resulting in the effective
absence of a "securities market" for securities backed by mortgage loans for
a period of (or reasonably expected to be) at least 30 consecutive days or an
event or events shall have occurred resulting
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in the Lender not being able to sell securities backed by mortgage loans at
prices which would have been reasonable prior to such event or events; or
(iii) there shall have occurred a material adverse change in the
financial condition of the Lender which effects (or can reasonably be
expected to effect) materially and adversely the ability of the Lender to
fund its obligations under this Loan Agreement.
Each request for a borrowing by the Borrower hereunder shall constitute a
certification by the Borrower that all the conditions set forth in this
Section 5 have been satisfied (both as of the date of such notice, request or
confirmation and as of the date of such borrowing). In the event that the
Lender fails to make a Loan to the Borrower due solely to any of the
circumstances set forth in Section 5.02(g) hereof, then, upon request of the
Borrower, the Lender shall refund to the Borrower that portion of the
commitment fee paid pursuant to Section 3.03 hereof, pro-rated over the
number of days during which the Lender fails to make Loans requested by the
Borrower solely because of the circumstances set forth in Section 5.02 (g)
hereof.
Section 6. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants to the Lender that throughout the term of this Loan Agreement:
6.01 EXISTENCE. The Borrower (a) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization, (b) has all requisite corporate or other power, and has all
governmental licenses, authorizations, consents and approvals necessary to
own its assets and carry on its business as now being or as proposed to be
conducted, except where the lack of such licenses, authorizations, consents
and approvals would not be reasonably likely to have a material adverse
effect on its Property, business or financial condition or prospects; and (c)
is qualified to do business and is in good standing in all other
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary, except where failure so to qualify would not be
reasonably likely (either individually or in the aggregate) to have a
material adverse effect on its Property, business or financial condition or
prospects.
6.02 FINANCIAL CONDITION. The Borrower has heretofore furnished to the
Lender a copy of its Form 10Q (as filed with the SEC) showing its balance
sheet for the quarterly fiscal periods of the Borrower ended September 30,
1997 and the related consolidated statements of income and retained earnings
and of cash flows for the Borrower for such quarterly fiscal periods. All
such financial statements are complete and correct and fairly present, in all
material respects, the financial condition of the Borrower and the results of
its operations as at such dates and for such fiscal periods, all in
accordance with GAAP applied on a consistent basis. Since September 30, 1997,
there has been no material adverse change in the business, operations or
financial condition of the Borrower from that set forth in said financial
statements.
6.03 LITIGATION. There are no actions, suits, arbitrations,
investigations or proceedings pending or, to its knowledge, threatened
against the Borrower or affecting any of its Property before any Governmental
Authority (i) as to which there is a reasonable likelihood of an adverse
decision which would be reasonably likely to have a material adverse effect
on its Property, business or financial condition or prospects or (ii) which
questions the validity or enforceability of any of the Loan Documents or any
action to be taken in connection with the transactions contemplated hereby.
6.04 NO BREACH. Neither (a) the execution and delivery of the Loan
Documents nor (b) the consummation of the transactions therein contemplated
in compliance with the terms and
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provisions thereof will conflict with or result in a breach of the operating
agreement or by-laws of the Borrower, or any applicable law, rule or
regulation, or any order, writ, injunction or decree of any Governmental
Authority, or any Servicing Agreement or other material agreement or
instrument to which the Borrower is a party or by which it or any of its
Property is bound or to which it is subject, or constitute a default under
any such material agreement or instrument or result in the creation or
imposition of any Lien (except for the Liens created pursuant to this Loan
Agreement) upon any Property of the Borrower pursuant to the terms of any
such agreement or instrument.
6.05 ACTION. The Borrower has all necessary corporate or other power,
authority and legal right to execute, deliver and perform its obligations
under each of the Loan Documents; the execution, delivery and performance by
the Borrower of each of the Loan Documents have been duly authorized by all
necessary corporate or other action on its part; and each Loan Document has
been duly and validly executed and delivered by the Borrower and constitutes
a legal, valid and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its terms.
6.06 APPROVALS. No authorizations, approvals or consents of, and no
filings or registrations with, any Governmental Authority or any securities
exchange are necessary for the execution, delivery or performance by the
Borrower of the Loan Documents or for the legality, validity or
enforceability thereof, except for filings and recordings in respect of the
Liens created pursuant to this Loan Agreement.
6.07 MARGIN REGULATIONS. Neither the making of any Loan hereunder, nor
the use of the proceeds thereof, will violate or be inconsistent with the
provisions of Regulation G, T, U or X.
6.08 TAXES. The Borrower has filed all Federal income tax returns and
all other material tax returns that are required to be filed by it and has
paid all taxes due pursuant to such returns or pursuant to any assessment
received by it, except for any such taxes as are being appropriately
contested in good faith by appropriate proceedings diligently conducted and
with respect to which adequate reserves have been provided. The charges,
accruals and reserves on the books of the Borrower in respect of taxes and
other governmental charges are, in the opinion of the Borrower, adequate.
6.09 INVESTMENT COMPANY ACT. The Borrower is not an "investment
company", or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
6.10 COLLATERAL; COLLATERAL SECURITY.
(a) The Borrower has not assigned, pledged, or otherwise conveyed or
encumbered any Mortgage Loan to any other Person, and immediately prior to
the pledge of such Mortgage Loan to the Lender, the Borrower was the sole
owner of such Mortgage Loan and had good and marketable title thereto, free
and clear of all Liens, in each case except for Liens to be released
simultaneously with the Liens granted in favor of the Lender hereunder. No
Mortgage Loan pledged to the Lender hereunder was acquired by the Borrower
from an Affiliate of the Borrower
(b) The provisions of this Loan Agreement are effective to create in
favor of the Lender a valid security interest in all right, title and
interest of the Borrower in, to and under the Collateral.
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(c) Upon receipt by the Custodian of each Mortgage Note, endorsed in
blank by a duly authorized officer of the Borrower, the Lender shall have a
fully perfected first priority security interest therein, in the Mortgage
Loan evidenced thereby and in the Borrower's interest in the related
Mortgaged Property.
(d) Upon the filing of financing statements on Form UCC-1 naming the
Lender as "Secured Party" and the Borrower as "Debtor", and describing the
Collateral, in the jurisdictions and recording offices listed on Schedule 2
attached hereto, the security interests granted hereunder in the Collateral
will constitute fully perfected first priority security interests under the
Uniform Commercial Code in all right, title and interest of the Borrower in,
to and under such Collateral which can be perfected by filing under the
Uniform Commercial Code.
6.11 CHIEF EXECUTIVE OFFICE. The Borrower's chief executive office on
the Effective Date is located at 00 Xxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, XX
00000.
6.12 LOCATION OF BOOKS AND RECORDS. The location where the Borrower
keeps its books and records, including all computer tapes and records
relating to the Collateral is its chief executive office.
6.13 HEDGING. The Borrower has entered into Interest Rate Protection
Agreements, having a notional amount not less than 80% of the aggregate
unpaid principal amount of the fixed-rate Mortgage Loans having terms with
respect to protection against fluctuations in interest rates reasonably
acceptable to the Lender.
6.14 TRUE AND COMPLETE DISCLOSURE. The information, reports, financial
statements, exhibits and schedules furnished in writing by or on behalf of
the Borrower to the Lender in connection with the negotiation, preparation or
delivery of this Loan Agreement and the other Loan Documents or included
herein or therein or delivered pursuant hereto or thereto, when taken as a
whole, do not contain any untrue statement of material fact or omit to state
any material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading. All
written information furnished after the date hereof by or on behalf of the
Borrower to the Lender in connection with this Loan Agreement and the other
Loan Documents and the transactions contemplated hereby and thereby will be
true, complete and accurate in every material respect, or (in the case of
projections) based on reasonable estimates, on the date as of which such
information is stated or certified. There is no fact known to a Responsible
Officer of the Borrower, after due inquiry, that could reasonably be expected
to have a Material Adverse Effect that has not been disclosed herein, in the
other Loan Documents or in a report, financial statement, exhibit, schedule,
disclosure letter or other writing furnished to the Lender for use in
connection with the transactions contemplated hereby or thereby.
6.15 TANGIBLE NET WORTH. On the Effective Date, the Tangible Net Worth
is not less than $65,000,000.
6.16 ERISA. Each Plan to which the Borrower or its Subsidiaries make
direct contributions, and, to the knowledge of the Borrower, each other Plan
and each Multiemployer Plan, is in compliance in all material respects with,
and has been administered in all material respects in compliance with, the
applicable provisions of ERISA, the Code and any other Federal or State law.
No event or condition has occurred and is continuing as to which the Borrower
would be under an obligation to furnish a report to the Lender under Section
7.01(d) hereof.
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6.17 PERCENTAGE OWNERSHIP. No Person beneficially owns (directly or
indirectly) more than 49% of the Borrower.
Section 7. COVENANTS OF THE BORROWER. The Borrower covenants and agrees
with the Lender that, so long as any Loan is outstanding and until payment in
full of all Secured Obligations:
7.01 FINANCIAL STATEMENTS. The Borrower shall deliver to the Lender:
(a) as soon as available and in any event within 45 days after the end
of each of the first three quarterly fiscal periods of each fiscal year of
the Borrower, the unaudited balance sheets of the Borrower as at the end of
such period and the related unaudited statements of income and retained
earnings and of cash flows for the Borrower for such period and the portion
of the fiscal year through the end of such period, setting forth in each case
in comparative form the figures for the previous year, accompanied by a
certificate of a Responsible Officer of the Borrower, which certificate shall
state that said consolidated financial statements fairly present the
financial condition and results of operations of the Borrower in accordance
with GAAP, consistently applied, as at the end of, and for, such period
(subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 90 days after the end
of each fiscal year of the Borrower, the balance sheets of the Borrower as at
the end of such fiscal year and the related statements of income and retained
earnings and of cash flows for the Borrower for such year, setting forth in
each case in comparative form the figures for the previous year, accompanied
by an opinion thereon of independent certified public accountants of
recognized national standing, which opinion shall not be qualified as to
scope of audit or going concern and shall state that said financial
statements fairly present the financial condition and results of operations
of the Borrower as at the end of, and for, such fiscal year in accordance
with GAAP, and a certificate of such accountants stating that, in making the
examination necessary for their opinion, they obtained no knowledge, except
as specifically stated, of any Default or Event of Default;
(c) from time to time such other information regarding the financial
condition, operations, or business of the Borrower as the Lender may
reasonably request; and
(d) as soon as reasonably possible, and in any event within thirty (30)
days after a Responsible Officer of the Borrower knows, or with respect to
any Plan or Multiemployer Plan to which the Borrower or any of its
Subsidiaries makes direct contributions, has reason to believe, that any of
the events or conditions specified below with respect to any Plan or
Multiemployer Plan has occurred or exists, a statement signed by a senior
financial officer of the Borrower setting forth details respecting such event
or condition and the action, if any, that the Borrower or its ERISA Affiliate
proposes to take with respect thereto (and a copy of any report or notice
required to be filed with or given to PBGC by the Borrower or an ERISA
Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA
and the regulations issued thereunder, with respect to a Plan, as to
which PBGC has not by regulation waived the requirement of Section
4043(a) of ERISA that it be notified within thirty (30) days of the
occurrence of such event (PROVIDED that a failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of ERISA,
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including without limitation the failure to make on or before its due
date a required installment under Section 412(m) of the Code or Section
302(e) of ERISA, shall be a reportable event regardless of the issuance
of any waivers in accordance with Section 412(d) of the Code); and any
request for a waiver under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041(c) of ERISA of a notice of
intent to terminate any Plan or any action taken by the Borrower or an
ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Borrower or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer Plan
by the Borrower or any ERISA Affiliate that results in liability under
Section 4201 or 4204 of ERISA (including the obligation to satisfy
secondary liability as a result of a purchaser default) or the receipt
by the Borrower or any ERISA Affiliate of notice from a Multiemployer
Plan that it is in reorganization or insolvency pursuant to Section 4241
or 4245 of ERISA or that it intends to terminate or has terminated under
Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Borrower or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed within
30 days; and
(vi) the adoption of an amendment to any Plan that, pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA, would result in
the loss of tax-exempt status of the trust of which such Plan is a part
if the Borrower or an ERISA Affiliate fails to provide timely security
to such Plan in accordance with the provisions of said Sections.
The Borrower will furnish to the Lender, at the time it furnishes each set of
financial statements pursuant to paragraphs (a) and (b) above, a certificate
of a Responsible Officer of the Borrower to the effect that, to the best of
such Responsible Officer's knowledge, the Borrower during such fiscal period
or year has observed or performed all of its covenants and other agreements,
and satisfied every condition, contained in this Loan Agreement and the other
Loan Documents to be observed, performed or satisfied by it, and that such
Responsible Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate (and, if any Default or Event
of Default has occurred and is continuing, describing the same in reasonable
detail and describing the action the Borrower has taken or proposes to take
with respect thereto).
7.02 LITIGATION. The Borrower will promptly, and in any event within 10
days after service of process on any of the following, give to the Lender
notice of all legal or arbitrable proceedings affecting the Borrower that
questions or challenges the validity or enforceability of any of the Loan
Documents or as to which there is a reasonable likelihood of adverse
determination which would result in a Material Adverse Effect.
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7.03 EXISTENCE, ETC. The Borrower will:
(a) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises (provided that
nothing in this Section 7.03(a) shall prohibit any transaction expressly
permitted under Section 7.04 hereof);
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of Governmental Authorities (including, without
limitation, all environmental laws) if failure to comply with such
requirements would be reasonably likely (either individually or in the
aggregate) to have a material adverse effect on its Property, business
or financial condition, or prospects;
(c) keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied;
(d) not move its chief executive office from the address referred
to in Section 6.11 unless it shall have provided the Lender 30 days'
prior written notice of such change;
(e) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any of
its Property prior to the date on which penalties attach thereto, except
for any such tax, assessment, charge or levy the payment of which is
being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained; and
(f) permit representatives of the Lender, during normal business
hours, to examine, copy and make extracts from its books and records, to
inspect any of its Properties, and to discuss its business and affairs
with its officers, all to the extent reasonably requested by the Lender.
7.04 PROHIBITION OF FUNDAMENTAL CHANGES. The Borrower shall not enter
into any transaction of merger or consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation, winding up
or dissolution) or sell all or substantially all of its assets; PROVIDED,
that the Borrower may merge or consolidate with (a) any wholly owned
subsidiary of the Borrower, or (b) any other Person if the Borrower is the
surviving corporation; and PROVIDED FURTHER, that if after giving effect
thereto, no Default would exist hereunder.
7.05 BORROWING BASE DEFICIENCY. If at any time there exists a
Borrowing Base Deficiency the Borrower shall cure same in accordance with
Section 2.06 hereof.
7.06 NOTICES. The Borrower shall give notice to the Lender:
(a) promptly upon receipt of notice or knowledge of the occurrence
of any Default or Event of Default;
(b) with respect to any Mortgage Loan pledged to the Lender
hereunder, immediately upon receipt of any principal prepayment (in full
or partial) of such pledged Mortgage Loan;
(c) with respect to any Mortgage Loan pledged to the Lender
hereunder, immediately upon receipt of notice or knowledge that the
underlying Mortgaged Property has
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been damaged by waste, fire, earthquake or earth movement, windstorm,
flood, tornado or other casualty, or otherwise damaged so as to affect
adversely the Collateral Value of such pledged Mortgage Loan; and
(d) promptly upon receipt of notice or knowledge of (i) any default
related to any Collateral, (ii) any Lien or security interest (other
than security interests created hereby or by the other Loan Documents)
on, or claim asserted against, any of the Collateral or (iii) any event
or change in circumstances which could reasonably be expected to have a
material adverse effect on the Property, business or financial condition
or prospects of the Borrower.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer of the Borrower setting forth details of the occurrence
referred to therein and stating what action the Borrower has taken or proposes
to take with respect thereto.
7.07 HEDGING. The Borrower shall at all times maintain Interest Rate
Protection Agreements, having a notional amount not less than 80% of the
aggregate outstanding principal balance of all fixed-rate Mortgage Loans
having terms with respect to protection against fluctuations in interest
rates reasonably acceptable to the Lender. The Borrower shall deliver to the
Lender monthly a written summary of the notional amount of all outstanding
Interest Rate Protection Agreements.
7.08 REPORTS. The Borrower shall provide the Lender with a
quarterly report, which report shall include, among other items, a summary of
the Borrower's delinquency and loss experience with respect to mortgage loans
serviced by the Borrower, if applicable, any Servicer or any designee of either,
if applicable, plus any such additional reports as the Lender may reasonably
request with respect to the Borrower's or any Servicer's servicing portfolio.
7.09 UNDERWRITING GUIDELINES. Without the prior written consent
of the Lender, the Borrower shall not amend or otherwise modify the
Underwriting Guidelines.
7.10 TRANSACTIONS WITH AFFILIATES. The Borrower will not enter
into any transaction, including without limitation any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Loan Agreement, (b) in
the ordinary course of the Borrower's business and (c) upon fair and reasonable
terms no less favorable to the Borrower than it would obtain in a comparable
arm's length transaction with a Person which is not an Affiliate, or make a
payment that is not otherwise permitted by this Section 7.10 to any Affiliate.
In no event shall the Borrower pledge to the Lender hereunder any Mortgage Loan
acquired by the Borrower from an Affiliate of the Borrower.
7.11 LIMITATION ON LIENS. The Borrower will defend the
Collateral against, and will take such other action as is necessary to remove,
any Lien, security interest or claim on or to the Collateral, other than the
security interests created under this Loan Agreement, and the Borrower will
defend the right, title and interest of the Lenders in and to any of the
Collateral against the claims and demands of all persons whomsoever.
7.12 LIMITATION ON GUARANTEES. The Borrower shall not create,
incur, assume or suffer to exist any Guarantees, except with respect to those
Guarantees previously disclosed to and approved by the Lender guaranteeing
Indebtedness in amounts previously disclosed to and approved by the Lender to
Hanover Capital Partners, Ltd.
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7.13 LIMITATION ON DISTRIBUTIONS. After the occurrence and
during the continuation of any Event of Default, the Borrower shall not make any
payment on account of, or set apart assets for, a sinking or other analogous
fund for the purchase, redemption, defeasance, retirement or other acquisition
of any equity or partnership interest of the Borrower, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of the Borrower.
7.14 MAINTENANCE OF TANGIBLE NET WORTH. The Borrower shall not
permit Tangible Net Worth at any time to be less than $60,000,000.
7.15 MAINTENANCE OF RATIO OF TOTAL INDEBTEDNESS TO TANGIBLE NET
WORTH. The Borrower shall not permit the ratio of Total Indebtedness to
Tangible Net Worth at any time to be greater than 10:1.
7.16 MAINTENANCE OF PROFITABILITY. The Borrower shall not permit, for
any period of three consecutive fiscal quarters (each such period, a
"TEST PERIOD"), Net Income for such Test Period, before income taxes for such
Test Period and distributions made during such Test Period, to be less than
$1.00.
7.17 SERVICING TAPE. The Borrower shall provide to the Lender
on a monthly basis a computer readable magnetic tape containing servicing
information, including without limitation those fields specified by the Lender
from time to time, on a loan-by-loan basis and in the aggregate, with respect to
the Mortgage Loans serviced hereunder by the Borrower or any Servicer.
7.18 LIMITATION ON SUBSIDIARY FORMATION. Except with respect
to those Subsidiaries formed solely for the purpose of issuing collateralized
mortgage obligations, the Borrower shall not form any Subsidiaries.
Section 8. EVENTS OF DEFAULT. Each of the following events
shall constitute an event of default (an "EVENT OF DEFAULT") hereunder:
(a) the Borrower shall default in the payment of any principal of
or interest on any Loan when due (whether at stated maturity, upon
acceleration or at mandatory prepayment); or
(b) the Borrower shall default in the payment of any other amount
payable by it hereunder or under any other Loan Document after
notification by the Lender of such default, and such default shall have
continued unremedied for five Business Days; or
(c) any representation, warranty or certification made or deemed
made herein or in any other Loan Document by the Borrower or any
certificate furnished to the Lender pursuant to the provisions hereof or
thereof shall prove to have been false or misleading in any material
respect as of the time made or furnished (other than the representations
and warranties set forth in Schedule 1, which shall be considered solely
for the purpose of determining the Collateral Value of the Mortgage
Loans; unless the Borrower shall have made any such representations and
warranties with knowledge that they were materially false or misleading
at the time made); or
(d) the Borrower shall fail to comply with the requirements of
Section 7.03(a), Section 7.04, Section 7.06, or Sections 7.09 through
7.18 hereof; or the Borrower shall default in the performance of its
obligations under Section 7.05 hereof and such default shall continue
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unremedied for a period of one (1) Business Day; or the Borrower shall
otherwise fail to comply with the requirements of Section 7.03 hereof
and such default shall continue unremedied for a period of five Business
Days; or the Borrower shall fail to observe or perform any other
covenant or agreement contained in this Loan Agreement or any other Loan
Document and such failure to observe or perform shall continue
unremedied for a period of seven Business Days; or
(e) a final judgment or judgments for the payment of money in
excess of $5,000,000 in the aggregate shall be rendered against the
Borrower by one or more courts, administrative tribunals or other bodies
having jurisdiction and the same shall not be discharged (or provision
shall not be made for such discharge) or bonded, or a stay of execution
thereof shall not be procured, within 60 days from the date of entry
thereof, and the Borrower shall not, within said period of 60 days, or
such longer period during which execution of the same shall have been
stayed or bonded, appeal therefrom and cause the execution thereof to be
stayed during such appeal; or
(f) the Borrower shall admit in writing its inability to pay its
debts as such debts become due; or
(g) the Borrower shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee,
examiner or liquidator or the like of itself or of all or a substantial
part of its property, (ii) make a general assignment for the benefit of
its creditors, (iii) commence a voluntary case under the Bankruptcy
Code, (iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement or winding-up, or composition or readjustment
of debts, (v) fail to controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an involuntary
case under the Bankruptcy Code or (vi) take any corporate or other
action for the purpose of effecting any of the foregoing; or
(h) a proceeding or case shall be commenced, without the
application or consent of the Borrower, in any court of competent
jurisdiction, seeking (i) its reorganization, liquidation, dissolution,
arrangement or winding-up, or the composition or readjustment of its
debts, (ii) the appointment of, or the taking of possession by, a
receiver, custodian, trustee, examiner, liquidator or the like of the
Borrower or of all or any substantial part of its property, or (iii)
similar relief in respect of the Borrower under any law relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution,
arrangement or winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of 60 or more
days; or an order for relief against the Borrower shall be entered in an
involuntary case under the Bankruptcy Code; or
(i) the Custodial Agreement or any Loan Document shall for whatever
reason be terminated or cease to be in full force and effect, or the
enforceability thereof shall be contested by the Borrower; or
(j) the Borrower shall grant, or suffer to exist, any Lien on any
Collateral except the Liens contemplated hereby; or the Liens
contemplated hereby shall cease to be first priority perfected Liens on
the Collateral in favor of the Lender or shall be Liens in favor of any
Person other than the Lender; or
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(k) any materially adverse change in the Property, business,
financial condition or prospects of the Borrower shall occur, in each
case as determined by the Lender in its sole discretion, or any other
condition shall exist which, in the Lender's sole discretion,
constitutes a material impairment of the Borrower's ability to perform
its obligations under this Loan Agreement, the Note or any other Loan
Document; or
(l) any person shall beneficially own (directly or indirectly) more
than 49% of the Borrower; or
(m) the Borrower or any Affiliate of the Borrower shall default
under any other agreement with the Lender or an Affiliate of the Lender.
Section 9. REMEDIES UPON DEFAULT.
(a) Upon the occurrence of one or more Events of Default other than
those referred to in Section 8(g) or (h), the Lender may immediately declare
the principal amount of the Loans then outstanding under the Note to be
immediately due and payable, together with all interest thereon and fees and
expenses accruing under this Loan Agreement. Upon the occurrence of an Event
of Default referred to in Sections 8(g) or (h), such amounts shall
immediately and automatically become due and payable without any further
action by any Person. Upon such declaration or such automatic acceleration,
the balance then outstanding on the Note shall become immediately due and
payable, without presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Borrower.
(b) Upon the occurrence of one or more Events of Default, the Lender
shall have the right to obtain physical possession of the Servicing Records and
all other files of the Borrower relating to the Collateral and all documents
relating to the Collateral which are then or may thereafter come in to
the possession of the Borrower or any third party acting for the Borrower and
the Borrower shall deliver to the Lender such assignments as the Lender shall
request. The Lender shall be entitled to specific performance of all agreements
of the Borrower contained in this Loan Agreement.
Section 10. NO DUTY OF LENDER. The powers conferred on the Lender
hereunder are solely to protect the Lender's interests in the Collateral
and shall not impose any duty upon it to exercise any such powers. The Lender
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrower for any act or failure
to act hereunder, except for its or their own gross negligence or willful
misconduct.
Section 11. MISCELLANEOUS.
11.01 WAIVER. No failure on the part of the Lender to exercise and no
delay in exercising, and no course of dealing with respect to, any right,
power or privilege under any Loan Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
any Loan Document preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
11.02 NOTICES. Except as otherwise expressly permitted by this Loan
Agreement, all notices, requests and other communications provided for
herein and under the Custodial Agreement
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(including without limitation any modifications of, or waivers, requests or
consents under, this Loan Agreement) shall be given or made in writing
(including without limitation by telex or telecopy) delivered to the intended
recipient at the "Address for Notices" specified below its name on the
signature pages hereof or thereof); or, as to any party, at such other
address as shall be designated by such party in a written notice to each
other party. Except as otherwise provided in this Loan Agreement and except
for notices given under Section 2 (which shall be effective only on receipt),
all such communications shall be deemed to have been duly given when
transmitted by telex or telecopy or personally delivered or, in the case of a
mailed notice, upon receipt, in each case given or addressed as aforesaid.
11.03 INDEMNIFICATION AND EXPENSES.
(a) The Borrower agrees to hold the Lender harmless from and
indemnify the Lender against all liabilities, losses, damages, judgments, costs
and expenses of any kind which may be imposed on, incurred by or asserted
against the Lender relating to or arising out of this Loan Agreement, the Note,
any other Loan Document or any transaction contemplated hereby or thereby, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Loan Agreement, the Note, any other Loan Document or any
transaction contemplated hereby or thereby, that, in each case, results from
anything other than the Lender's gross negligence or willful misconduct. In any
suit, proceeding or action brought by the Lender in connection with any Mortgage
Loan for any sum owing thereunder, or to enforce any provisions of any Mortgage
Loan, the Borrower will save, indemnify and hold the Lender harmless from and
against all expense, loss or damage suffered by reason of any defense, set-off,
counterclaim, recoupment or reduction or liability whatsoever of the account
debtor or obligor thereunder, arising out of a breach by the Borrower of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or obligor or
its successors from the Borrower. The Borrower also agrees to reimburse the
Lender as and when billed by the Lender for all the Lender's costs and expenses
incurred in connection with the enforcement or the preservation of the Lender's
rights under this Loan Agreement, the Note, any other Loan Document or any
transaction contemplated hereby or thereby, including without limitation the
reasonable fees and disbursements of its counsel. The Borrower hereby
acknowledges that, notwithstanding the fact that the Note is secured by the
Collateral, the obligation of the Borrower under the Note is a recourse
obligation of the Borrower.
(b) The Borrower agrees to pay as and when billed by the
Lender all of the out-of-pocket costs and expenses incurred by the Lender in
connection with the development, preparation and execution of, and any
amendment, supplement or modification to, this Loan Agreement, the Note, any
other Loan Document or any other documents prepared in connection herewith or
therewith. The Borrower agrees to pay as and when billed by the Lender all of
the out-of-pocket costs and expenses incurred in connection with the
consummation and administration of the transactions contemplated hereby and
thereby including without limitation (i) all the reasonable fees, disbursements
and expenses of counsel to the Lender and (ii) all the due diligence,
inspection, testing and review costs and expenses incurred by the Lender with
respect to Collateral under this Loan Agreement, including, but not limited to,
those costs and expenses incurred by the Lender pursuant to Sections 11.03(a),
11.14 and 11.15 hereof.
11.04 AMENDMENTS. Except as otherwise expressly provided in
this Loan Agreement, any provision of this Loan Agreement may be modified or
supplemented only by an instrument in writing signed by the Borrower and the
Lender and any provision of this Loan Agreement may be waived by the Lender.
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11.05 SUCCESSORS AND ASSIGNS. This Loan Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.06 SURVIVAL. The obligations of the Borrower under Sections
3.03 and 11.03 hereof shall survive the repayment of the Loans and the
termination of this Loan Agreement. In addition, each representation and
warranty made or deemed to be made by a request for a borrowing, herein or
pursuant hereto shall survive the making of such representation and warranty,
and the Lender shall not be deemed to have waived, by reason of making any Loan,
any Default that may arise because any such representation or warranty shall
have proved to be false or misleading, notwithstanding that the Lender may have
had notice or knowledge or reason to believe that such representation or
warranty was false or misleading at the time such Loan was made.
11.07 CAPTIONS. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this Loan
Agreement.
11.08 COUNTERPARTS. This Loan Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any of the parties hereto may execute this Loan Agreement
by signing any such counterpart.
11.09 LOAN AGREEMENT CONSTITUTES SECURITY AGREEMENT; GOVERNING
LAW. This Loan Agreement shall be governed by New York law without reference to
choice of law doctrine, and shall constitute a security agreement within the
meaning of the Uniform Commercial Code.
11.10 SUBMISSION TO JURISDICTION; WAIVERS. THE BORROWER
HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS LOAN AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK, THE FEDERAL COURTS OF THE UNITED
STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE
COURTS FROM ANY THEREOF;
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT
IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH
ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD
OR CLAIM THE SAME;
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH
OTHER ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN NOTIFIED; AND
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(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT TO XXX IN ANY OTHER JURISDICTION.
11.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE
LENDER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
11.12 ACKNOWLEDGMENTS. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Loan Agreement, the Note and the other
Loan Documents;
(b) the Lender has no fiduciary relationship to the
Borrower, and the relationship between the Borrower and the Lender is
solely that of debtor and creditor; and
(c) no joint venture exists between the Lender and the
Borrower.
11.13 HYPOTHECATION OR PLEDGE OF LOANS. The Lender shall have
free and unrestricted use of all Collateral and nothing in this Loan Agreement
shall preclude the Lender from engaging in repurchase transactions with the
Collateral or otherwise pledging, repledging, hypothecating, or rehypothecating
the Collateral. Nothing contained in this Loan Agreement shall obligate the
Lender to segregate any Collateral delivered to the Lender by the Borrower.
11.14 SERVICING.
(a) The Borrower covenants to maintain or cause the servicing
of the Mortgage Loans to be maintained in conformity with accepted and prudent
servicing practices in the industry for the same type of mortgage loans as the
Mortgage Loans and in a manner at least equal in quality to the servicing the
Borrower provides for mortgage loans which it owns. In the event that the
preceding language is interpreted as constituting one or more servicing
contracts, each such servicing contract shall terminate automatically upon the
earliest of (i) an Event of Default, (ii) the date on which all the Secured
Obligations have been paid in full or (iii) the transfer of servicing approved
by the Borrower.
(b) If the Mortgage Loans are serviced by the Borrower, (i)
the Borrower agrees that the Lender is the collateral assignee of all servicing
records, including but not limited to any and all servicing agreements, files,
documents, records, data bases, computer tapes, copies of computer tapes, proof
of insurance coverage, insurance policies, appraisals, other closing
documentation, payment history records, and any other records relating to or
evidencing the servicing of Mortgage Loans (the "SERVICING RECORDS"), and (ii)
the Borrower grants the Lender a security interest in all servicing fees and
rights relating to the Mortgage Loans and all Servicing Records to secure the
obligation of the Borrower or its designee to service in conformity with this
Section and any other obligation of the Borrower to the Lender. The Borrower
covenants to safeguard such Servicing Records and to deliver them promptly to
the Lender or its designee (including the Custodian) at the Lender's request.
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(e) NO DEFENSES. The Mortgage Loan is not subject to any right
of rescission, set-off, counterclaim or defense, including without limitation
the defense of usury, nor will the operation of any of the terms of the Mortgage
Note or the Mortgage, or the exercise of any right thereunder, render either the
Mortgage Note or the Mortgage unenforceable, in whole or in part and no such
right of rescission, set-off, counterclaim or defense has been asserted with
respect thereto, and no Mortgagor in respect of the Mortgage Loan was a debtor
in any state or Federal bankruptcy or insolvency proceeding at the time the
Mortgage Loan was originated. The Borrower has no knowledge nor has it received
any notice that any Mortgagor in respect of the Mortgage Loan is a debtor in any
state or federal bankruptcy or insolvency proceeding.
(f) HAZARD INSURANCE. The Mortgaged Property is insured by a
fire and extended perils insurance policy, issued by a Qualified Insurer, and
such other hazards as are customary in the area where the Mortgaged Property is
located, and to the extent required by the Borrower as of the date of
origination consistent with the Underwriting Guidelines, against earthquake and
other risks insured against by Persons operating like properties in the locality
of the Mortgaged Property, in an amount not less than the greatest of (i) 100%
of the replacement cost of all improvements to the Mortgaged Property, (ii)
either (A) the outstanding principal balance of the Mortgage Loan with respect
to each First Lien Mortgage Loan (as identified on the Mortgage Loan Tape) or
(B) with respect to each Second Lien Mortgage Loan (as identified on the
Mortgage Loan Tape), the sum of the outstanding principal balance of the First
Lien Mortgage Loan and the outstanding principal balance of the Second Lien
Mortgage Loan, or (iii) the amount necessary to avoid the operation of any
co-insurance provisions with respect to the Mortgaged Property, and consistent
with the amount that would have been required as of the date of origination in
accordance with the Underwriting Guidelines. If any portion of the Mortgaged
Property is in an area identified by any federal Governmental Authority as
having special flood hazards, and flood insurance is available, a flood
insurance policy meeting the current guidelines of the Federal Insurance
Administration is in effect with a generally acceptable insurance carrier, in an
amount representing coverage not less than the least of (1) the outstanding
principal balance of the Mortgage Loan, (2) the full insurable value of the
Mortgaged Property, and (3) the maximum amount of insurance available under the
Flood Disaster Protection Act of 1973, as amended. All such insurance policies
(collectively, the "hazard insurance policy") contain a standard mortgagee
clause naming the Borrower, its successors and assigns (including without
limitation, subsequent owners of the Mortgage Loan), as mortgagee, and may not
be reduced, terminated or canceled without 30 days' prior written notice to the
mortgagee. No such notice has been received by the Borrower. All premiums on
such insurance policy have been paid. The related Mortgage obligates the
Mortgagor to maintain all such insurance and, at such Mortgagor's failure to do
so, authorizes the mortgagee to maintain such insurance at the Mortgagor's cost
and expense and to seek reimbursement therefor from such Mortgagor. Where
required by state law or regulation, the Mortgagor has been given an opportunity
to choose the carrier of the required hazard insurance, provided the policy is
not a "master" or "blanket" hazard insurance policy covering a condominium, or
any hazard insurance policy covering the common facilities of a planned unit
development. The hazard insurance policy is the valid and binding obligation of
the insurer and is in full force and effect. The Borrower has not engaged in,
and has no knowledge of the Mortgagor's having engaged in, any act or omission
which would impair the coverage of any such policy, the benefits of the
endorsement provided for herein, or the validity and binding effect of either
including, without limitation, no unlawful fee, commission, kickback or other
unlawful compensation or value of any kind has been or will be received,
retained or realized by any attorney, firm or other Person, and no such unlawful
items have been received, retained or realized by the Borrower.
Schedule 1-2
34
(g) COMPLIANCE WITH APPLICABLE LAWS. Any and all requirements
of any federal, state or local law including, without limitation, usury,
truth-in-lending, real estate settlement procedures, consumer credit protection,
equal credit opportunity or disclosure laws applicable to the Mortgage Loan have
been complied with, the consummation of the transactions contemplated hereby
will not involve the violation of any such laws or regulations, and the Borrower
shall maintain or shall cause its agent to maintain in its possession, available
for the inspection of the Lender, and shall deliver to the Lender, upon demand,
evidence of compliance with all such requirements.
(h) NO SATISFACTION OF MORTGAGE. The Mortgage has not 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 effect any such
release, cancellation, subordination or rescission. The Borrower has not waived
the performance by the Mortgagor of any action, if the Mortgagor's failure to
perform such action would cause the Mortgage Loan to be in default, nor has the
Borrower waived any default resulting from any action or inaction by the
Mortgagor.
(i) LOCATION AND TYPE OF MORTGAGED PROPERTY. The Mortgaged
Property is located in an Acceptable State as identified in the Mortgage Loan
Schedule and consists of a single parcel of real property with a detached single
family residence erected thereon, or a two- to four-family dwelling, or an
individual condominium unit in a low-rise condominium project, or an individual
unit in a planned unit development or a de minimis planned unit development,
provided, however, that any condominium unit or planned unit development shall
conform with the applicable FNMA and FHLMC requirements regarding such dwellings
and that no residence or dwelling is a mobile home or a manufactured dwelling.
No portion of the Mortgaged Property is used for commercial purposes.
(j) VALID FIRST LIEN. The Mortgage is a valid, subsisting,
enforceable and perfected (A) first lien and first priority security interest
with respect to each Mortgage Loan which is indicated by such Borrower to be a
First Lien Mortgage Loan (as reflected on the Mortgage Loan Tape), or (B) second
lien and second priority security interest with respect to each Mortgage Loan
which is indicated by such Borrower to be a Second Lien Mortgage Loan (as
reflected on the Mortgage Loan Tape), in either case, on the real property
included in the Mortgaged Property, including all buildings on the Mortgaged
Property and all installations and mechanical, electrical, plumbing, heating and
air conditioning systems located in or annexed to such buildings, and all
additions, alterations and replacements made at any time with respect to the
foregoing. The lien of the Mortgage is subject only to:
(1) the lien of current real property taxes and
assessments not yet due and payable;
(2) covenants, conditions and restrictions, rights of way,
easements and other matters of the public record as of the date of
recording acceptable to prudent mortgage lending institutions generally
and specifically referred to in the lender's title insurance policy
delivered to the originator of the Mortgage Loan and (a) referred to or
otherwise considered in the appraisal made for the originator of the
Mortgage Loan or (b) which do not adversely affect the Appraised Value
of the Mortgaged Property set forth in such appraisal; and
(3) 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 the Mortgage or the use, enjoyment,
value or marketability of the related Mortgaged Property.
Schedule 1-3
35
(4) with respect to each Mortgage Loan which is indicated by
such Borrower to be a Second Lien Mortgage Loan (as reflected on the
Mortgage Loan Tape) a prior first mortgage lien on the Mortgaged
Property.
Any security agreement, chattel mortgage or equivalent document related to and
delivered in connection with the Mortgage Loan establishes and creates a valid,
subsisting and enforceable (A) first lien and first priority security interest
with respect to each Mortgage Loan which is indicated by such Borrower to be a
First Lien Mortgage Loan (as reflected on the Mortgage Loan Tape), or (B) second
lien and second priority security interest with respect to each Mortgage Loan
which is indicated by such Borrower to be a Second Lien Mortgage Loan (as
reflected on the Mortgage Loan Tape), in either case, on the property described
therein and the Borrower has full right to pledge and assign the same to the
Lender. The Mortgaged Property was not, as of the date of origination of the
Mortgage Loan, subject to a mortgage, deed of trust, deed to secure debt or
other security instrument creating a lien subordinate to the lien of the
Mortgage.
(k) VALIDITY OF MORTGAGE DOCUMENTS. The Mortgage Note and the
Mortgage and any other agreement executed and delivered by a Mortgagor or
guarantor, if applicable, in connection with a Mortgage Loan are genuine, and
each is the legal, valid and binding obligation of the maker thereof enforceable
in accordance with its terms. All parties to the Mortgage Note, the Mortgage and
any other such related agreement had legal capacity to enter into the Mortgage
Loan and to execute and deliver the Mortgage Note, the Mortgage and any such
agreement, and the Mortgage Note, the Mortgage and any other such related
agreement have been duly and properly executed by such related parties. No
fraud, error, omission, misrepresentation, negligence or similar occurrence with
respect to a Mortgage Loan has taken placed on the part of any Person,
including, without limitation, the Mortgagor, any appraiser, any builder or
developer, or any other party involved in the origination of the Mortgage Loan.
The Borrower has reviewed all of the documents constituting the Servicing File
and has made such inquiries as it deems necessary to make and confirm the
accuracy of the representations set forth herein.
(l) FULL DISBURSEMENT OF PROCEEDS. The Mortgage Loan has been
closed and the proceeds of the Mortgage Loan have been fully disbursed and there
is no further requirement for future advances thereunder, and any and all
requirements as to completion of any on-site or off-site improvement and as to
disbursements of any escrow funds therefor have been complied with. All costs,
fees and expenses incurred in making or closing the Mortgage Loan and the
recording of the Mortgage were paid, and the Mortgagor is not entitled to any
refund of any amounts paid or due under the Mortgage Note or Mortgage.
(m) OWNERSHIP. The Borrower is the sole owner and holder of
the Mortgage Loan. The Mortgage Loan is not assigned or pledged, and the
Borrower has good, indefeasible and marketable title thereto, and has full right
to transfer, pledge and assign the Mortgage Loan to the Lender free and clear of
any encumbrance, equity, participation interest, lien, pledge, charge, claim or
security interest, and has full right and authority subject to no interest or
participation of, or agreement with, any other party, to assign, transfer and
pledge each Mortgage Loan pursuant to this Loan Agreement and following the
pledge of each Mortgage Loan, the Lender will hold such Mortgage Loan free and
clear of any encumbrance, equity, participation interest, lien, pledge, charge,
claim or security interest except any such security interest created pursuant to
the terms of this Loan Agreement.
(n) DOING BUSINESS. All parties which have had any interest in
the Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are
(or, during the period in which they held
Schedule 1-4
36
and disposed of such interest, were) (i) in compliance with any and all
applicable licensing requirements of the laws of the state wherein the
Mortgaged Property is located, and (ii) either (A) organized under the laws
of such state, (B) qualified to do business in such state, (C) a federal
savings and loan association, a savings bank or a national bank having a
principal office in such state, or (D) not doing business in such state.
(o) LTV. No First Lien Mortgage Loan has an LTV
greater than 125%. No Second Lien Mortgage Loan has a Combined LTV greater
than 100%.
(p) TITLE INSURANCE. The Mortgage Loan is covered by either
(i) an attorney's opinion of title and abstract of title, the form and substance
of which is acceptable to prudent mortgage lending institutions making mortgage
loans in the area wherein the Mortgaged Property is located or (ii) an ALTA
lender's title insurance policy or other generally acceptable form of policy or
insurance acceptable to FNMA or FHLMC and each such title insurance policy is
issued by a title insurer acceptable to FNMA or FHLMC and qualified to do
business in the jurisdiction where the Mortgaged Property is located, insuring
the Borrower, its successors and assigns, as to the first priority lien of the
Mortgage in the original principal amount of the Mortgage Loan (or to the extent
a Mortgage Note provides for negative amortization, the maximum amount of
negative amortization in accordance with the Mortgage), subject only to the
exceptions contained in clauses (1), (2) and (3) , and with respect to each
Mortgage Loan which is indicated by the Borrower to be a Second Lien Mortgage
Loan (as reflected on the Mortgage Loan Schedule) clause (4) of paragraph (j) of
this Part I of Schedule 1, and in the case of adjustable rate Mortgage Loans,
against any loss by reason of the invalidity or unenforceability of the lien
resulting from the provisions of the Mortgage providing for adjustment to the
Mortgage Interest Rate and Monthly Payment. Where required by state law or
regulation, the Mortgagor has been given the opportunity to choose the carrier
of the required mortgage title insurance. Additionally, such lender's title
insurance policy affirmatively insures ingress and egress and against
encroachments by or upon the Mortgaged Property or any interest therein. The
title policy does not contain any special exceptions (other than the standard
exclusions) for zoning and uses and has been marked to delete the standard
survey exception or to replace the standard survey exception with a specific
survey reading. The Borrower, its successors and assigns, are the sole insureds
of such lender's title insurance policy, and such lender's title insurance
policy is valid and remains in full force and effect and will be in force and
effect upon the consummation of the transactions contemplated by this Loan
Agreement. No claims have been made under such lender's title insurance policy,
and no prior holder or servicer of the related Mortgage, including the Borrower,
has done, by act or omission, anything which would impair the coverage of such
lender's title insurance policy, including, without limitation, no unlawful fee,
commission, kickback or other unlawful compensation or value of any kind has
been or will be received, retained or realized by any attorney, firm or other
Person, and no such unlawful items have been received, retained or realized by
the Borrower.
(q) NO DEFAULTS. There is no default, breach, violation or
event of acceleration existing under the Mortgage or the Mortgage Note and no
event has occurred which, with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a default, breach,
violation or event of acceleration, and neither the Borrower nor its
predecessors have waived any default, breach, violation or event of
acceleration. With respect to each Mortgage Loan which is indicated by such
Borrower to be a Second Lien Mortgage Loan (as reflected on the Mortgage Loan
Schedule) to the best of Borrower's knowledge (i) the prior mortgage is in full
force and effect, (ii) there is no default, breach, violation or event of
acceleration existing under such prior mortgage or the related mortgage note,
(iii) no event which, with the passage of time or with notice and the expiration
of any grace or cure period, would constitute a default, breach, violation or
event of acceleration
Schedule 1-5
37
thereunder, and either (A) the prior mortgage contains a provision which
allows or (B) applicable law requires, the mortgagee under the Second Lien
Mortgage Loan to receive notice of, and affords such mortgagee an opportunity
to cure any default by payment in full or otherwise under the prior mortgage.
(r) NO MECHANICS' LIENS. There are no mechanics' or similar
liens or claims which have been filed for work, labor or material (and no rights
are outstanding that under the law could give rise to such liens) affecting the
Mortgaged Property which are or may be liens prior to, or equal or coordinate
with, the lien of the Mortgage.
(s) LOCATION OF IMPROVEMENTS; NO ENCROACHMENTS. All
improvements which were considered in determining the Appraised Value of the
Mortgaged Property lie wholly within the boundaries and building restriction
lines of the Mortgaged Property, and no improvements on adjoining properties
encroach upon the Mortgaged Property. No improvement located on or being part of
the Mortgaged Property is in violation of any applicable zoning and building
law, ordinance or regulation.
(t) ORIGINATION; PAYMENT TERMS. The Mortgage Loan was
originated by or in conjunction with a mortgagee approved by the Secretary of
Housing and Urban Development pursuant to Sections 203 and 211 of the National
Housing Act, a savings and loan association, a savings bank, a commercial bank,
credit union, insurance company or similar banking institution which is
supervised and examined by a federal or state authority. Principal payments on
the Mortgage Loan commenced no more than 60 days after funds were disbursed in
connection with the Mortgage Loan. The Mortgage Interest Rate is adjusted, with
respect to adjustable rate Mortgage Loans, on each Interest Rate Adjustment Date
to equal the Index plus the Gross Margin (rounded up or down to the nearest
.125%), subject to the Mortgage Interest Rate Cap. The Mortgage Note is payable
on the first day of each month in equal monthly installments of principal and
interest, which installments of interest, with respect to adjustable rate
Mortgage Loans, are subject to change due to the adjustments to the Mortgage
Interest Rate on each Interest Rate Adjustment Date, with interest calculated
and payable in arrears, sufficient to amortize the Mortgage Loan fully by the
stated maturity date, over an original term of not more than 30 years from
commencement of amortization; provided, however, in the case of a balloon
Mortgage Loan, the Mortgage Loan matures at least five years after the first
payment date thereby requiring a final payment of the outstanding principal
prior to full amortization of the Mortgage Loan. The due date of the first
payment under the Mortgage Note is no more than 60 days from the date of the
Mortgage Note.
(u) CUSTOMARY PROVISIONS. The Mortgage Note has a stated
maturity. The Mortgage contains customary and enforceable provisions such as to
render the rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the security
provided thereby, including, (i) in the case of a Mortgage designated as a deed
of trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. Upon
default by a Mortgagor on a Mortgage Loan and foreclosure on, or trustee's sale
of, the Mortgaged Property pursuant to the proper procedures, the holder of the
Mortgage Loan will be able to deliver good and merchantable title to the
Mortgaged Property. There is no homestead or other exemption available to a
Mortgagor which would interfere with the right to sell the Mortgaged Property at
a trustee's sale or the right to foreclose the Mortgage.
(v) CONFORMANCE WITH UNDERWRITING GUIDELINES AND AGENCY
STANDARDS. The Mortgage Loan was underwritten in accordance with the
Underwriting Guidelines. The Mortgage Note and Mortgage are on forms similar to
those used by FHLMC or FNMA and the Borrower has not made any representations to
a Mortgagor that are inconsistent with the mortgage instruments used.
Schedule 1-6
38
(w) OCCUPANCY OF THE MORTGAGED PROPERTY. As of the Funding
Date the Mortgaged Property is lawfully occupied under applicable law. All
inspections, licenses and certificates required to be made or issued with
respect to all occupied portions of the Mortgaged Property and, with respect to
the use and occupancy of the same, including but not limited to certificates of
occupancy and fire underwriting certificates, have been made or obtained from
the appropriate authorities. The Borrower has not received notification from any
governmental authority that the Mortgaged Property is in material non-compliance
with such laws or regulations, is being used, operated or occupied unlawfully or
has failed to have or obtain such inspection, licenses or certificates, as the
case may be. The Borrower has not received notice of any violation or failure to
conform with any such law, ordinance, regulation, standard, license or
certificate.
(x) NO ADDITIONAL COLLATERAL. The Mortgage Note is
not and has not been secured by any collateral except the lien of the
corresponding Mortgage and the security interest of any applicable security
agreement or chattel mortgage referred to in clause (j) above.
(y) DEEDS OF TRUST. In the event the Mortgage constitutes a
deed of trust, a trustee, authorized and duly qualified under applicable law to
serve as such, has been properly designated and currently so serves and is named
in the Mortgage, and no fees or expenses are or will become payable by the
Custodian or the Lender to the trustee under the deed of trust, except in
connection with a trustee's sale after default by the Mortgagor.
(z) DELIVERY OF MORTGAGE DOCUMENTS. The Mortgage Note, the
Mortgage, the Assignment of Mortgage and any other documents required to be
delivered under the Custodial Agreement for each Mortgage Loan have been
delivered to the Custodian. The Borrower or its agent is in possession of a
complete, true and accurate Mortgage File in compliance with the Custodial
Agreement, except for such documents the originals of which have been delivered
to the Custodian.
(aa) TRANSFER OF MORTGAGE LOANS. The Assignment of
Mortgage is in recordable form and is acceptable for recording under the laws
of the jurisdiction in which the Mortgaged Property is located.
(bb) DUE-ON-SALE. The Mortgage contains an enforceable
provision for the acceleration of the payment of the unpaid principal balance of
the Mortgage Loan in the event that the Mortgaged Property is sold or
transferred without the prior written consent of the mortgagee thereunder.
(cc) NO BUYDOWN PROVISIONS; NO GRADUATED PAYMENTS OR
CONTINGENT INTERESTS. The Mortgage Loan does not contain provisions pursuant to
which Monthly Payments are paid or partially paid with funds deposited in any
separate account established by the Borrower, the Mortgagor, or anyone on behalf
of the Mortgagor, or paid by any source other than the Mortgagor nor does it
contain any other similar provisions which may constitute a "buydown" provision.
The Mortgage Loan is not a graduated payment mortgage loan and the Mortgage Loan
does not have a shared appreciation or other contingent interest feature.
(dd) CONSOLIDATION OF FUTURE ADVANCES. Any future advances
made to the Mortgagor prior to the Cut-off Date have been consolidated with the
outstanding principal amount secured by the Mortgage, and the secured principal
amount, as consolidated, bears a single interest rate and single repayment term.
The lien of the Mortgage securing the consolidated principal amount is expressly
insured as having (A) first lien priority with respect to each Mortgage Loan
which is
Schedule 1-7
39
indicated by such Borrower to be a First Lien Mortgage Loan (as reflected on
the Mortgage Loan Schedule), or (B) second lien priority with respect to each
Mortgage Loan which is indicated by such Borrower to be a Second Lien
Mortgage Loan (as reflected on the Mortgage Loan Schedule), in either case,
by a title insurance policy, an endorsement to the policy insuring the
mortgagee's consolidated interest or by other title evidence acceptable to
FNMA and FHLMC. The consolidated principal amount does not exceed the
original principal amount of the Mortgage Loan.
(ee) MORTGAGED PROPERTY UNDAMAGED. The Mortgaged Property is
undamaged by waste, fire, earthquake or earth movement, windstorm, flood,
tornado or other casualty so as to affect adversely the value of the Mortgaged
Property as security for the Mortgage Loan or the use for which the premises
were intended and each Mortgaged Property is in good repair. There have not been
any condemnation proceedings with respect to the Mortgaged Property and the
Borrower has no knowledge of any such proceedings.
(ff) COLLECTION PRACTICES; ESCROW DEPOSITS; INTEREST RATE
ADJUSTMENTS. The origination and collection practices used by the originator,
each servicer of the Mortgage Loan and the Borrower with respect to the Mortgage
Loan have been in all respects in compliance with Accepted Servicing Practices,
applicable laws and regulations, and have been in all respects legal and proper.
With respect to escrow deposits and Escrow Payments (other than with respect to
each Mortgage Loan which is indicated by such Borrower to be a Second Lien
Mortgage Loan and for which the mortgagee under the prior mortgage lien is
collecting Escrow Payments (as reflected on the Mortgage Loan Schedule)), all
such payments are in the possession of, or under the control of, the Borrower or
the Servicer and there exist no deficiencies in connection therewith for which
customary arrangements for repayment thereof have not been made. All Escrow
Payments have been collected in full compliance with state and federal law. An
escrow of funds is not prohibited by applicable law and has been established in
an amount sufficient to pay for every item that remains unpaid and has been
assessed but is not yet due and payable. No escrow deposits or Escrow Payments
or other charges or payments due the Borrower have been capitalized under the
Mortgage or the Mortgage Note. All Mortgage Interest Rate adjustments have been
made in strict compliance with state and federal law and the terms of the
related Mortgage Note. Any interest required to be paid pursuant to state,
federal and local law has been properly paid and credited.
(gg) OTHER INSURANCE POLICIES. No action, inaction or event
has occurred and no state of facts exists or has existed that has resulted or
will result in the exclusion from, denial of, or defense to coverage under any
applicable special hazard insurance policy, PMI Policy or bankruptcy bond,
irrespective of the cause of such failure of coverage. In connection with the
placement of any such insurance, no commission, fee, or other compensation has
been or will be received by the Borrower or by any officer, director, or
employee of the Borrower or any designee of the Borrower or any corporation in
which the Borrower or any officer, director, or employee had a financial
interest at the time of placement of such insurance.
(hh) SOLDIERS' AND SAILORS' CIVIL RELIEF ACT. The Mortgagor
has not notified the Borrower, and the Borrower has no knowledge, of any relief
requested or allowed to the Mortgagor under the Soldiers' and Sailors' Civil
Relief Act of 1940.
(ii) APPRAISAL. The Mortgage File contains an appraisal of the
related Mortgaged Property signed prior to the approval of the Mortgage Loan
application by a qualified appraiser, duly appointed by the Borrower, who had no
interest, direct or indirect in the Mortgaged Property or in any loan made on
the security thereof, and whose compensation is not affected by the approval or
Schedule 1-8
40
disapproval of the Mortgage Loan, and the appraisal and appraiser both satisfy
the requirements of FNMA or FHLMC and Title XI of the Federal Institutions
Reform, Recovery, and Enforcement Act of 1989 as amended and the regulations
promulgated thereunder, all as in effect on the date the Mortgage Loan was
originated.
(jj) DISCLOSURE MATERIALS. The Mortgagor has executed a
statement to the effect that the Mortgagor has received all disclosure materials
required by applicable law with respect to the making of adjustable rate
mortgage loans, and the Borrower maintains such statement in the Mortgage File.
(kk) CONSTRUCTION OR REHABILITATION OF MORTGAGED
PROPERTY. No Mortgage Loan was made in connection with the construction or
rehabilitation of a Mortgaged Property or facilitating the trade-in or
exchange of a Mortgaged Property.
(ll) NO DEFENSE TO INSURANCE COVERAGE. No action has been
taken or failed to be taken, no event has occurred and no state of facts exists
or has existed on or prior to the Funding Date (whether or not known to the
Borrower on or prior to such date) which has resulted or will result in an
exclusion from, denial of, or defense to coverage under any private mortgage
insurance (including, without limitation, any exclusions, denials or defenses
which would limit or reduce the availability of the timely payment of the full
amount of the loss otherwise due thereunder to the insured) whether arising out
of actions, representations, errors, omissions, negligence, or fraud of the
Borrower, the related Mortgagor or any party involved in the application for
such coverage, including the appraisal, plans and specifications and other
exhibits or documents submitted therewith to the insurer under such insurance
policy, or for any other reason under such coverage, but not including the
failure of such insurer to pay by reason of such insurer's breach of such
insurance policy or such insurer's financial inability to pay.
(mm) CAPITALIZATION OF INTEREST. The Mortgage Note
does not by its terms provide for the capitalization or forbearance of
interest.
(nn) NO EQUITY PARTICIPATION. No document relating to the
Mortgage Loan provides for any contingent or additional interest in the form of
participation in the cash flow of the Mortgaged Property or a sharing in the
appreciation of the value of the Mortgaged Property. The indebtedness evidenced
by the Mortgage Note is not convertible to an ownership interest in the
Mortgaged Property or the Mortgagor and the Borrower has not financed nor does
it own directly or indirectly, any equity of any form in the Mortgaged Property
or the Mortgagor.
(oo) PROCEEDS OF MORTGAGE LOAN. The proceeds of the Mortgage
Loan have not been and shall not be used to satisfy, in whole or in part, any
debt owed or owing by the Mortgagor to the Borrower or any Affiliate or
correspondent of the Borrower.
(pp) WITHDRAWN MORTGAGE LOANS. If the Mortgage Loan has been
released to the Borrower pursuant to a Request for Release as permitted under
Section 5 of the Custodial Agreement, then the promissory note relating to the
Mortgage Loan was returned to the Custodian within 10 days (or if such tenth day
was not a Business Day, the next succeeding Business Day).
(qq) NO EXCEPTION. The Custodian has not noted any material
exceptions on an Exception Report (as defined in the Custodial Agreement) with
respect to the Mortgage Loan which
Schedule 1-9
41
would materially adversely affect the
Mortgage Loan or the Lender's security interest, granted by the Borrower, in the
Mortgage Loan.
(rr) QUALIFIED ORIGINATOR. The Mortgage Loan has been
originated by, and, if applicable, purchased by the Borrower from, a Qualified
Originator.
(ss) MORTGAGE SUBMITTED FOR RECORDATION. The Mortgage
either has been or will promptly be submitted for recordation in the
appropriate governmental recording office of the jurisdiction where the
Mortgaged Property is located.
Schedule 1-10
42
Part II DEFINED TERMS
In addition to terms defined elsewhere in the Loan Agreement,
the following terms shall have the following meanings when used in this Schedule
1:
"ACCEPTABLE STATE" shall mean any state notified by the
Borrower to the Lender from time to time and approved in writing by the Lender,
which approval has not been revoked by the Lender in their sole discretion, any
such notice of revocation to be given no later than 10 Business Days prior to
its intended effective date.
"ACCEPTED SERVICING PRACTICES" shall mean, with respect to any
Mortgage Loan, those mortgage servicing practices of prudent mortgage lending
institutions which service mortgage loans of the same type as such Mortgage
Loans in the jurisdiction where the related Mortgaged Property is located.
"ALTA" means the American Land Title Association.
"APPRAISED VALUE" shall mean the value set forth in an
appraisal made in connection with the origination of the related Mortgage Loan
as the value of the Mortgaged Property.
"BEST'S" means Best's Key Rating Guide, as the same shall be
amended from time to time.
"COMBINED LTV" OR "CLTV" shall mean with respect to any
Mortgage Loan, the ratio of (a) the outstanding principal balance as of the
related Cut-off Date of (i) the Mortgage Loan plus (ii) the mortgage loan
constituting the first lien to (b) the Appraised Value of the Mortgaged
Property.
"CUT-OFF DATE" means the first day of the month in which the
related Funding Date occurs.
"DUE DATE" means the day of the month on which the Monthly
Payment is due on a Mortgage Loan, exclusive of any days of grace.
"ESCROW PAYMENTS" means with respect to any Mortgage Loan, the
amounts constituting ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, mortgage insurance premiums, fire and hazard insurance
premiums, condominium charges, and any other payments required to be escrowed by
the Mortgagor with the mortgagee pursuant to the Mortgage or any other document.
"FHLMC" means the Federal Home Loan Mortgage Corporation, or
any successor thereto.
"FNMA" means the Federal National Mortgage Association, or any
successor thereto.
"GROSS MARGIN" means with respect to each adjustable rate
Mortgage Loan, the fixed percentage amount set forth in the related Mortgage
Note.
"INDEX" means with respect to each adjustable rate Mortgage
Loan, the index set forth in the related Mortgage Note for the purpose of
calculating the interest rate thereon.
Schedule 1-11
43
"INSURANCE PROCEEDS" means with respect to each Mortgage Loan,
proceeds of insurance policies insuring the Mortgage Loan or the related
Mortgaged Property.
"INTEREST RATE ADJUSTMENT DATE" means with respect to each
adjustable rate Mortgage Loan, the date, specified in the related Mortgage Note
and the Mortgage Loan Schedule, on which the Mortgage Interest Rate is adjusted.
"LOAN-TO-VALUE RATIO" or "LTV" means with respect to any
Mortgage Loan, the ratio of the original outstanding principal amount of the
Mortgage Loan to the lesser of (a) the Appraised Value of the Mortgaged Property
at origination or (b) if the Mortgaged Property was purchased within 12 months
of the origination of the Mortgage Loan, the purchase price of the Mortgaged
Property.
"MONTHLY PAYMENT" means the scheduled monthly payment of
principal and interest on a Mortgage Loan as adjusted in accordance with changes
in the Mortgage Interest Rate pursuant to the provisions of the Mortgage Note
for an adjustable rate Mortgage Loan.
"MORTGAGE INTEREST RATE" means the annual rate of interest
borne on a Mortgage Note, which shall be adjusted from time to time with respect
to adjustable rate Mortgage Loans.
"MORTGAGE INTEREST RATE CAP" means with respect to an
adjustable rate Mortgage Loan, the limit on each Mortgage Interest Rate
adjustment as set forth in the related Mortgage Note.
"MORTGAGEE" means the Borrower or any subsequent holder of a
Mortgage Loan.
"ORIGINATION DATE" shall mean, with respect to each Mortgage
Loan, the date of the Mortgage Note relating to such Mortgage Loan, unless such
information is not provided by the Borrower with respect to such Mortgage Loan,
in which case the Origination Date shall be deemed to be the date that is 40
days prior to the date of the first payment under the Mortgage Note relating to
such Mortgage Loan.
"PMI POLICY" or "PRIMARY INSURANCE POLICY" means a policy of
primary mortgage guaranty insurance issued by a Qualified Insurer.
"QUALIFIED INSURER" means an insurance company duly qualified
as such under the laws of the states in which the Mortgaged Property is located,
duly authorized and licensed in such states to transact the applicable insurance
business and to write the insurance provided, and approved as an insurer by FNMA
and FHLMC and whose claims paying ability is rated in the two highest rating
categories by any of the rating agencies with respect to primary mortgage
insurance and in the two highest rating categories by Best's with respect to
hazard and flood insurance.
"QUALIFIED ORIGINATOR" means an originator of Mortgage Loans
reasonably acceptable to the Lender.
"SERVICING FILE" means with respect to each Mortgage Loan, the
file retained by the Borrower consisting of originals of all documents in the
Mortgage File which are not delivered to a Custodian and copies of the Mortgage
Loan Documents set forth in Section 2 of the Custodial Agreement.
Schedule 1-12
44
SCHEDULE 2
FILING JURISDICTIONS AND OFFICES
Secretary of State of the State of Maryland
Secretary of State of the State of New Jersey
Secretary of State of the State of New York
Schedule 2-1
45
Exhibit A
---------
[FORM OF PROMISSORY NOTE]
$125,000,000 December 8, 0000
Xxx Xxxx, Xxx Xxxx
FOR VALUE RECEIVED, HANOVER CAPITAL MORTGAGE HOLDINGS, INC., a
Maryland corporation (the "BORROWER"), hereby promises to pay to the order of
XXXXXX XXXXXXX MORTGAGE CAPITAL INC. (the "LENDER"), at the principal office of
the Lender at 0000 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx, 00000, in lawful money of the
United States, and in immediately available funds, the principal sum of ONE
HUNDRED TWENTY-FIVE MILLION DOLLARS $125,000,000 (or such lesser amount as shall
equal the aggregate unpaid principal amount of the Loans made by the Lender to
the Borrower under the Loan Agreement), on the dates and in the principal
amounts provided in the Loan Agreement, and to pay interest on the unpaid
principal amount of each such Loan, at such office, in like money and funds, for
the period commencing on the date of such Loan until such Loan shall be paid in
full, at the rates per annum and on the dates provided in the Loan Agreement.
The date, amount and interest rate of each Loan made by the
Lender to the Borrower, and each payment made on account of the principal
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of this Note, endorsed by the Lender on the schedule attached hereto or any
continuation thereof; PROVIDED, that the failure of the Lender to make any such
recordation or endorsement shall not affect the obligations of the Borrower to
make a payment when due of any amount owing under the Loan Agreement or
hereunder in respect of the Loans made by the Lender.
This Note is the Note referred to in the Master Loan and
Security Agreement dated as of December 8, 1997 (as amended, supplemented or
otherwise modified and in effect from time to time, the "LOAN AGREEMENT")
between the Borrower and the Lender, and evidences Loans made by the Lender
thereunder. Terms used but not defined in this Note have the respective meanings
assigned to them in the Loan Agreement.
The Borrower agrees to pay all the Lender's costs of
collection and enforcement (including reasonable attorneys' fees and
disbursements of Lender's counsel) in respect of this Note when incurred,
including, without limitation, reasonable attorneys' fees through appellate
proceedings.
Notwithstanding the pledge of the Collateral, the Borrower
hereby acknowledges, admits and agrees that the Borrower's obligations under
this Note are recourse obligations of the Borrower to which the Borrower pledges
its full faith and credit.
The Borrower, and any indorsers or guarantors hereof, (a)
severally waive diligence, presentment, protest and demand and also notice of
protest, demand, dishonor and nonpayments of this Note, (b) expressly agree that
this Note, or any payment hereunder, may be extended from time to time, and
consent to the acceptance of further Collateral, the release of any Collateral
for this Note, the release of any party primarily or secondarily liable hereon,
and (c) expressly agree that it will not be necessary for the Lender, in order
to enforce payment of this Note, to first institute or exhaust the Lender's
remedies against the Borrower or any other party liable hereon or against any
Collateral for this Note. No extension of time for the payment of this Note, or
any installment hereof, made by
A-1
46
agreement by the Lender with any person now or hereafter liable for the payment
of this Note, shall affect the liability under this Note of the Borrower, even
if the Borrower is not a party to such agreement; PROVIDED, HOWEVER, that the
Lender and the Borrower, by written agreement between them, may affect the
liability of the Borrower.
Any reference herein to the Lender shall be deemed to include
and apply to every subsequent holder of this Note. Reference is made to the Loan
Agreement for provisions concerning optional and mandatory prepayments,
Collateral, acceleration and other material terms affecting this Note.
A-2
47
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF
THE STATE OF NEW YORK (WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE) WHOSE LAWS
THE BORROWER EXPRESSLY ELECTS TO APPLY TO THIS NOTE. THE BORROWER AGREES THAT
ANY ACTION OR PROCEEDING BROUGHT TO ENFORCE OR ARISING OUT OF THIS NOTE MAY BE
COMMENCED IN THE SUPREME COURT OF THE STATE OF NEW YORK, BOROUGH OF MANHATTAN,
OR IN XXX XXXXXXXX XXXXX XX XXX XXXXXX XXXXXX FOR THE SOUTHERN DISTRICT OF NEW
YORK.
HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
By: _______________________________
Name:
Title:
A-3
48
SCHEDULE OF LOANS
This Note evidences Loans made under the within-described Loan
Agreement to the Borrower, on the dates, in the principal amounts and bearing
interest at the rates set forth below, and subject to the payments and
prepayments of principal set forth below:
PRINCIPAL AMOUNT OF INTEREST AMOUNT PAID UNPAID PRINCIPAL NOTATION
DATE MADE LOAN RATE OR PREPAID AMOUNT MADE BY
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A-4
49
Exhibit B
---------
[FORM OF CUSTODIAL AGREEMENT]
[to be stored as a separate document]
B-1
50
Exhibit C
---------
[FORM OF OPINION OF COUNSEL TO BORROWER]
(date)
Xxxxxx Xxxxxxx Mortgage Capital Inc.
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Dear Sirs and Mesdames:
You have requested [our] [my] opinion, as counsel to Hanover
Capital Mortgage Holdings, Inc., a Maryland corporation (the "BORROWER"), with
respect to certain matters in connection with that certain Master Loan and
Security Agreement, dated as of December 8, 1997 (the "LOAN AND SECURITY
AGREEMENT"), by and between the Borrower and Xxxxxx Xxxxxxx Mortgage Capital
Inc. (the "LENDER"), being executed contemporaneously with a Promissory Note
dated December 8, 1997 from the Borrower to the Lender (the "NOTE"), a Custodial
Agreement, dated as of December 8, 1997 (the "CUSTODIAL AGREEMENT"), by and
among the Borrower, First Chicago National Processing Corp. (the "CUSTODIAN"),
and the Lender. Capitalized terms not otherwise defined herein have the meanings
set forth in the Loan and Security Agreement.
[We] [I] have examined the following documents:
1. the Loan and Security Agreement;
2. the Note;
3. Custodial Agreement;
4. unfiled copies of the financing statements listed on
SCHEDULE 1 (collectively, the "FINANCING STATEMENTS")
naming the Borrower as Debtor and the Lender as
Secured Party and describing the Collateral (as
defined in the Loan and Security Agreement) as to
which security interests may be perfected by filing
under the Uniform Commercial Code of the States
listed on SCHEDULE 1 (the "FILING COLLATERAL"), which
I understand will be filed in the filing offices
listed on SCHEDULE 1 (the "FILING OFFICES");
5. the reports listed on SCHEDULE 2 as to UCC financing
statements (collectively, the
"UCC SEARCH REPORT"); and
6. such other documents, records and papers as we have
deemed necessary and relevant as a
basis for this opinion.
C-1
51
To the extent [we] [I] have deemed necessary and proper, [we]
[I] have relied upon the representations and warranties of the Borrower
contained in the Loan and Security Agreement. [We] [I] have assumed the
authenticity of all documents submitted to me as originals, the genuineness of
all signatures, the legal capacity of natural persons and the conformity to the
originals of all documents.
Based upon the foregoing, it is [our] [my] opinion that:
1. The Borrower is a Maryland corporation duly organized,
validly existing and in good standing under the laws of ___________ and is
qualified to transact business in, and is in good standing under, the laws of
the state of _____________.
2. The Borrower has the power to engage in the transactions
contemplated by the Loan and Security Agreement, the Note, and the Custodial
Agreement and all requisite power, authority and legal right to execute and
deliver the Loan and Security Agreement, the Note, and the Custodial Agreement
and observe the terms and conditions of such instruments. The Borrower has all
requisite power to borrow under the Loan and Security Agreement and to grant a
security interest in the Collateral pursuant to the Loan and Security Agreement.
3. The execution, delivery and performance by the Borrower of
the Loan and Security Agreement, the Note, and the Custodial Agreement, and the
borrowings by the Borrower and the pledge of the Collateral under the Loan and
Security Agreement have been duly authorized by all necessary action on the part
of the Borrower. Each of the Loan and Security Agreement, the Note and the
Custodial Agreement have been executed and delivered by the Borrower and are
legal, valid and binding agreements enforceable in accordance with their
respective terms against the Borrower, subject to bankruptcy laws and other
similar laws of general application affecting rights of creditors and subject to
the application of the rules of equity, including those respecting the
availability of specific performance, none of which will materially interfere
with the realization of the benefits provided thereunder or with the Lender's
security interest in the Mortgage Loans.
4. No consent, approval, authorization or order of, and no
filing or registration with, any court or governmental agency or regulatory body
is required on the part of the Borrower for the execution, delivery or
performance by the Borrower of the Loan and Security Agreement, the Note and the
Custodial Agreement or for the borrowings by the Borrower under the Loan and
Security Agreement or the granting of a security interest to the Lender in the
Collateral, pursuant to the Loan and Security Agreement.
5. The execution, delivery and performance by the Borrower of,
and the consummation of the transactions contemplated by, the Loan and Security
Agreement, the Note and the Custodial Agreement do not and will not (a) violate
any provision of the Borrower's charter or by-laws, (b) violate any applicable
law, rule or regulation, (c) violate any order, writ, injunction or decree of
any court or governmental authority or agency or any arbitral award applicable
to the Borrower of which I have knowledge (after due inquiry) or (d) result in a
breach of, constitute a default under, require any consent under, or result in
the acceleration or required prepayment of any indebtedness pursuant to the
terms of, any agreement or instrument of which I have knowledge (after due
inquiry) to which the Borrower is a party or by which it is bound or to which it
is subject, or (except for the Liens created pursuant to the Loan and Security
Agreement) result in the creation or imposition of any Lien upon any Property of
the Borrower pursuant to the terms of any such agreement or instrument.
6. There is no action, suit, proceeding or investigation
pending or, to the best of [our] [my] knowledge, threatened against the Borrower
which, in [our] [my] judgment, either in any one instance or in the aggregate,
would be reasonably likely to result in any material adverse change in the
properties, business or financial condition, or prospects of the Borrower or in
any material impairment of the right or ability of the Borrower to carry on its
business substantially as now conducted or in any material liability on the part
of the Borrower or which would draw into question
C-2
52
the validity of the Loan and Security Agreement, the Note, the Custodial
Agreement or the Mortgage Loans or of any action taken or to be taken in
connection with the transactions contemplated thereby, or which would be
reasonably likely to impair materially the ability of the Borrower to perform
under the terms of the Loan and Security Agreement, the Note, the Custodial
Agreement or the Mortgage Loans.
7. The Loan and Security Agreement is effective to create, in
favor of the Lender, a valid security interest under the Uniform Commercial Code
in all of the right, title and interest of the Borrower in, to and under the
Collateral as collateral security for the payment of the Secured Obligations (as
defined in the Loan and Security Agreement), except that (a) such security
interests will continue in Collateral after its sale, exchange or other
disposition only to the extent provided in Section 9-306 of the Uniform
Commercial Code, (b) the security interests in Collateral in which the Borrower
acquires rights after the commencement of a case under the Bankruptcy Code in
respect of the Borrower may be limited by Section 552 of the Bankruptcy Code.
8. When the Mortgage Notes are delivered to the Custodian,
endorsed in blank by a duly authorized officer of the Borrower, the security
interest referred to in paragraph 7 above in the Mortgage Notes will constitute
a fully perfected first priority security interest in all right, title and
interest of the Borrower therein, in the Mortgage Loan evidenced thereby and in
the Borrower's interest in the related Mortgaged Property.
9. (a) Upon the filing of financing statements on Form UCC-1
naming the Lender as "Secured Party" and the Borrower as "Debtor", and
describing the Collateral, in the jurisdictions and recording offices listed on
SCHEDULE 1 attached hereto, the security interests referred to in paragraph 7
above will constitute fully perfected security interests under the Uniform
Commercial Code in all right, title and interest of the Borrower in, to and
under such Collateral, which can be perfected by filing under the Uniform
Commercial Code.
(b) The UCC Search Report sets forth the
proper filing offices and the proper debtors necessary to identify those
Persons who have on file in the jurisdictions listed on SCHEDULE 1 financing
statements covering the Filing Collateral as of the dates and times specified on
SCHEDULE 2. Except for the matters listed on SCHEDULE 2, the UCC Search Report
identifies no Person who has filed in any Filing Office a financing statement
describing the Filing Collateral prior to the effective dates of the UCC Search
Report.
10. The Assignments of Mortgage are in recordable form, except
for the insertion of the name of the assignee, and upon the name of the assignee
being inserted, are acceptable for recording under the laws of the state where
each related Mortgaged Property is located.
Very truly yours,
C-3
53
Exhibit D
---------
FORM OF REQUEST FOR BORROWING
Master Loan and Security Agreement, dated as of December 8, 1997
(the "LOAN AND SECURITY AGREEMENT"), by and between the
Borrower and Xxxxxx Xxxxxxx Mortgage Capital Inc. (the
"LENDER"),
Lender: Xxxxxx Xxxxxxx Mortgage Capital Inc.
Borrower: Hanover Capital Mortgage Holdings, Inc.
Requested Fund Date: ________________________________________
Transmission Date: ________________________________________
Transmission Time:
Number of Mortgage
Loans to be Pledged: ________________________________________
UPB: $________________________________________
Requested Wire Amount: $________________________________________
Wire Instructions:
Requested by:
HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
By:________________________________________
Name:
Title:
D-1
54
Exhibit E-1
FORM OF BORROWER'S RELEASE LETTER
[Date]
Xxxxxx Xxxxxxx Mortgage Capital Inc.
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: ____________________
Facsimile: ____________________
Re: Master Loan and Security Agreement, dated as of December 8,
1997 (the "LOAN AND SECURITY AGREEMENT"), by and between
Hanover Capital Mortgage Holdings, Inc. (the "BORROWER") and
Xxxxxx Xxxxxxx Mortgage Capital Inc. (the "LENDER")
Ladies and Gentlemen:
With respect to the mortgage loans described in the attached
SCHEDULE A (the "MORTGAGE LOANS") (a) we hereby certify to you that the Mortgage
Loans are not subject to a lien of any third party and (b) we hereby release all
right, interest or claim of any kind with respect to such Mortgage Loans, such
release to be effective automatically without further action by any party upon
payment from Xxxxxx Xxxxxxx Mortgage Capital Inc., of the amount of the Loan
contemplated under the Loan and Security Agreement (calculated in accordance
with the terms thereof) in accordance with the wiring instructions set forth in
the Loan and Security Agreement.
Very truly yours,
HANOVER CAPITAL MORTGAGE HOLDINGS, INC.
By: __________________________
Name: __________________________
Title: __________________________
E 1-1
55
Exhibit E-2
-----------
FORM OF WAREHOUSE LENDER'S RELEASE LETTER
(Date)
Xxxxxx Xxxxxxx Mortgage Capital Inc.
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: ________________
Facsimile:________________
Re: Certain Mortgage Loans Identified on SCHEDULE A hereto and
owned by Hanover Capital Mortgage Holdings, Inc.
The undersigned hereby releases all right, interest, lien or
claim of any kind with respect to the mortgage loan(s) described in the attached
SCHEDULE A, such release to be effective automatically without any further
action by any party upon payment in one or more installments, in immediately
available funds of $__________________, in accordance with the following wire
instructions:
------------------------
------------------------
Very truly yours,
[WAREHOUSE LENDER]
By:
---------------------------
Name:
-------------------------
Title:
------------------------
E-2-1
56
Exhibit F
---------
UNDERWRITING GUIDELINES
F-1
57
HANOVER CAPITAL
CREDIT AND RISK MANAGEMENT
POLICIES AND PROCEDURES
1
58
HANOVER CAPITAL
CREDIT AND RISK MANAGEMENT
POLICIES AND PROCEDURES
TABLE OF CONTENTS
I. General Policy Statement & Summary of Policies
II. Business Description- Overview
III. Commitment Procedures and Risk Limits
IV. Counterparty Approval
V. Asset Quality Evaluation
VI. Interest Rate Risk Management
Exhibits
i. Bid Sheet
ii. Standard Bid Letter
iii. Standard Commitment Letter
iv. Approved BPO Providers
v. Approved Credit Scoring Companies
vi. Standard Position Report
vii. Credit Grades
2
59
GENERAL POLICY STATEMENT & SUMMARY OF POLICIES
1. General Policy Statement
The primary business is investing in pools of residential mortgage
loans. Pools may be unrated or rated and traded in either the private
or public markets. Loan types eligible for purchase include fixed and
adjustable rate performing, sub-performing and non-performing mortgage
loans of varying lien positions. The strategy is to optimize
financing by securitizing loans conforming to agency standards as
Xxxxxx Mae or Xxxxxxx Mac securities and non-eligible pools as
private-label securities or whole loans. Subordinated tranches of
securitized loan pools may be retained.
2. Summary of Policies
a) Loans types eligible for purchase are approved by the Chief Executive
Officer ("CEO"), Head of Trading and Head of Operations. Eligible loan
types are updated on a quarterly basis.
b) Monitoring and reporting of inventory levels is the responsibility of
the Head of Trading and is reported to the CEO on a weekly basis.
c) Credit exposure is the responsibility of the Chief Credit Officer and
is reported to the CEO on a monthly basis.
d) Inventory delinquency statistics and servicer performance is the
responsibility of the Head of Operations and is reported to the CEO and
the Head of Trading on a monthly basis.
e) Due diligence reviews are performed on all loan pools purchased unless
waived jointly by the CEO, Head of Trading and Head of Operations. The
nature and level of the reviews is detailed in Section V - Asset
Quality Evaluation. Any changes to the review process must be approved
by the Head of Trading and the Head of Operations.
f) All credit risks including the risks associated with servicers, buying
and selling loans and holding subordinated trenches must be approved by
the Chief Credit Officer or CEO. Counterparties are initially approved
and then reviewed on an annual basis, or more frequently as
appropriate.
3
60
GENERAL POLICY STATEMENT & SUMMARY OF POLICIES (CON'T)
g) Legal documentation for all transactions is approved by the Head of
Operations or outside law firms approved by the Head of Operations.
h) Exceptions to policy as it relates to eligible loan types and the due
diligence process must be approved the Head of Trading and the Head of
Operations. Exceptions to counterparty credit and servicing risk policy
must be approved by the Chief Credit Officer or CEO.
4
61
BUSINESS DESCRIPTION - OVERVIEW
* The primary business is investing in pools of residential mortgage loans.
Loan types eligible for purchase in the private and public markets include:
rated and unrated loan pools
fixed and adjustable rate mortgage loans
performing, sub-performing and non-performing loans
* Within the above categories mortgages may vary in terms of seasoning,
credit quality, geographic location and lien position.
* Portfolios of mortgage loans are identified through Hanover's salesforce
and from broker/dealers. Portfolios may be available from asset sales by
federal or state governmental agencies (e.g. FDIC and HUD).
* In order to evaluate a portfolio a bid sheet is completed and loan level
data obtained (see Exhibit i). For portfolios of genetic product being sold
by established counterparties summary pool data may be substituted for loan
level detail. Financial and non-financial information on the selling and
servicing entity(s) is required for credit approval.
* Purchased portfolios are hedged with respect to both financing risk and
adverse interest rate movement. Financing is secured for the expected
portfolio holding period, to the extent possible. Interest rate caps may be
purchased to protect against cap risk in ARM portfolios. Fixed-rate loans
are hedged with similar coupon mortgage-backed securities issued by Xxxxxx
Mae or Xxxxxxx Mac to minimize interest rate and basis risk. ARMs may be
hedged with a combination of mortgage-backed and US treasury securities
and options. Prepayment rates are projected and monitored during the
holding period (see Section VI - Interest Rate Risk Management).
* Due diligence is performed on all portfolios unless waived jointly by the
CEO, Head of Trading and Head of Operations. Due diligence concentrates on
validating loan level data and obtaining missing information. Particular
focus is paid to credit underwriting for loans with less than 5 years of
seasoning and to loan-to-value ratios for mortgages in volatile real estate
markets, both current and historically. (see Section V - Asset Quality
Evaluation)
5
62
BUSINESS DESCRIPTION - OVERVIEW (CON'T)
* The strategy is to optimize financing by securitizing agency eligible
product as Xxxxxx Mae or Xxxxxxx Mac securities and non-eligible pools as
private-label securities or whole loans. Hanover may retain subordinated
tranches of securitized mortgage pools.
6
63
COMMITMENT PROCEDURES AND RISK LIMITS
1. Eligible Loan Types and Risk Limits
a) Loan types eligible for purchase are jointly approved by the CEO, Head
of Trading and Head of Operations and are updated on a quarterly basis.
Exceptions must be approved by the CEO, Head of Trading and Head of
Operations.
b) Residential mortgage loan types eligible for purchase are:
Rate Classes: Fixed and Adjustable
Indexes: US Treasury, Cost of Funds, Libor, Prime
Lien Types: 1st, 2nd, 3rd & 4th
Credit Grades: A,B,C & D
Performance
Status: Performing
Current paid-to-status
Sub-Performing
30 & 60 day delinquent
Non-Performing
90 days or greater delinquent
Amortization
Types: Fully Amortizing
Balloon
Open-ended lines of credit
Property
Locations: United States of America
Puerto Rico
2. Risk limits (based upon current UPB per transaction)
Senior Vice President $10 mm of performing loans
of Trading ("SVP"):
Head of Trading: $50 mm of performing loans
$25 mm of sub-performing loans
7
64
COMMITMENT PROCEDURES AND RISK LIMITS (CON'T)
Any 2 of: CEO, Head of
Trading or SVP: $100 mm of performing loans
$ 50 mm of sub-performing loans
CEO, Head of Trading and
SVP jointly: > $100 mm of performing loans
> $ 50 mm of sub-performing loans
all non-performing loan pools
3. Commitment Procedures
a) A Bid Sheet is completed for each pool of loans being considered for
purchase (see Exhibit i). The Bid Sheet must be signed by the person
responsible for identifying the loan pool.
b) The selling institution, investor and servicer is identified, financial
statements received and submitted to the Chief Credit Officer or CEO
for approval (see Section IV - Counterparty Approval). Credit approval
must be obtained before a commitment can be issued.
c) A bid letter is submitted for all trades and must be executed by the
SVP, Head of Trading or CEO.
d) Forward trades are limited to maximum of 45 days. Approval for trade
settlement beyond 45 days must be obtained from the CEO.
e) The bid letter will contain at a minimum the following (see
Exhibit ii):
i. Name and address of the selling institution
(or loan sale advisor if applicable)
ii. Bid Price or Yield
iii. Trade Date
iv. Time and Date Bid Price is valid until
v. Settlement Date
vi. Servicing status: released or retained
vii. Description of the loan pool
viii. All conditions of the trade
ix. Name and Title of Signatory
8
65
COMMITMENT PROCEDURES AND RISK LIMITS (CON'T)
f) If a pool is purchased on a firm price basis a hedge is calculated by
the SVP of Trading and approved by the Head of Trading (see Section VI
- Interest Rate Risk Management). No hedging is required for loan pools
purchased on a yield spread basis.
g) If a loan pool is sold on a firm price basis the corresponding hedge is
closed out. Xxxxxx remain in place for sales on a yield spread basis.
h) Within 48 hours of the acceptance of a bid or offer a commitment
letter is issued by the Operations Department. The commitment letter
must be approved by the Head of Operations, trading officer responsible
for the transaction and the Chief Credit Officer or CEO.
i) The commitment letter is sent out in duplicate with one original to be
returned to the Head of Operations within 48 hours after receipt by the
counterparty. The CEO and Head of Trading must be notified if a
countersigned commitment is not received within the 48 hour period.
j) The commitment letter will contain at a minimum (see Exhibit iii):
i. Counterparty Name and Address
ii. Price or Yield Spread
iii. Current Unpaid Principal Balance
iv. Settlement Date
v. Servicing Status-retained or released
vi. Loan Types
vii. Property Types and Locations
viii. Number of Loans
ix. Maximum Loan Balance
x. Average Loan Balance
xi. Weighted Average Remaining Term
xii. Weighted Average Gross Rate
xiii. Servicing Fee (if applicable)
xiv. Servicing Type-actual/actual; scheduled/scheduled
(if applicable)
xv. Remittance Date (if applicable)
xvi. Pool Description-underwriting standards
xvii. Due Diligence Requirements
xviii. Representations & Warranties-standard;
"where-is-as-is"
xix. Closing Conditions - documents to be delivered vs.
funding
xx. Any other conditions of the trade
9
66
COUNTERPARTY APPROVAL
1. Trading Counterparties
a) Trading counterparties are purchasers and sellers of loans or
securities. Prior to issuing a commitment counterparties must be
approved by the Chief Credit Officer or the CEO.
b) Forward trades are limited to a maximum of 45 days unless an exception
is approved by the CEO.
c) Approval is based upon both financial and non-financial information.
d) Non-financial information is the counterparty's reputation in the
market and reasons for the type of transaction involved.
e) The maintenance and ongoing monitoring of financial information is the
responsibility of the Credit Department.
f) Required financial information is:
X. Xxxxx & Thrifts
1) Public Institutions
a) Audited Reports
i. Two most current fiscal years with complete
attached footnotes.
ii. Quarterly SEC 10Q reports to be submitted on a
current and ongoing basis.
b) Regulatory Reports
i. FDIC reports (cumulative year-end statements
will suffice) for the two most current calendar
years with all inclusive schedules attached.
ii. FDIC reports to be submitted on an ongoing
basis.
10
67
COUNTERPARTY APPROVAL (CON'T)
2) Private Institutions
a) Audited Reports
i. Two most current fiscal years with complete
attached footnotes.
ii. Most recent interim statement (unaudited
acceptable if audited is unavailable).
iii. Quarterly financial statements on an ongoing
basis (unaudited acceptable if audited not
available).
b) Regulatory Reports
i. FDIC reports (cumulative year-end statements
will suffice) for the two most current calendar
years with all inclusive schedules attached.
ii. FDIC reports to be submitted on an ongoing
basis.
B. Insurance Companies
Insurance companies are typically subsidiaries of publicly traded holding
companies. Insurance companies are regulated by state authorities and file
statements on a statutory basis. Financial statements on both companies are
required:
1) Public Institutions
a) Audited Reports
i. Two most current fiscal years with complete
attached footnotes.
ii. Quarterly SEC 10Q reports to be submitted on a
current and ongoing basis.
b) Statutory Statements
i. Two most current fiscal years with complete
attached footnotes.
ii. Interim statutory statements, if available, for
the current year.
iii. Statutory reports to be submitted on an ongoing
basis.
2) Private Institutions
a) Audited Reports
i. Two most current fiscal years with complete
attached footnotes.
ii. Most recent interim statement (unaudited
acceptable if audited is unavailable).
11
68
COUNTERPARTY APPROVAL (CON'T)
iii. Quarterly financial statements on an ongoing
basis (unaudited acceptable if audited not
available).
b) Statutory Statements
i. Two most current fiscal years with complete
attached footnotes.
ii. Interim statutory statements, if available,
for the current year.
iii. Statutory reports to be submitted on an ongoing
basis.
C. Other Companies
1) Public Institutions
a) Audited Reports
i. Two most current fiscal years with complete
attached footnotes.
ii. Quarterly SEC 10Q reports to be submitted on a
current and ongoing basis.
2) Private Institutions
b) Audited Reports
i. Two most current fiscal years with complete
attached footnotes.
ii. Most recent interim statement (unaudited
acceptable if audited is unavailable).
iii. Quarterly financial statements on an ongoing
basis (unaudited acceptable if audited not
available).
2. Servicing Counterparties
a) Servicers are approved by the Head of Trading, Head of Operations and the
Chief Credit Officer or CEO. The Operations Department will monitor
compliance with servicing obligations. Servicing exceptions are reported
to the Head of the Operations and Head of Trading on a monthly basis.
b) The maintenance and ongoing monitoring of financial and non-financial
servicing information is the responsibility of the Credit Department.
c) Servicers must submit the following information:
12
69
COUNTERPARTY APPROVAL (CON'T)
A. Financial
1) Public Institutions
a) Audited Reports
i. Two most current fiscal years with complete
attached footnotes.
ii. Quarterly SEC 10Q reports to be submitted on a
current and ongoing basis.
2) Private Institutions
b) Audited Reports
i. Two most current fiscal years with complete
attached footnotes.
ii. Most recent interim statement (unaudited
acceptable if audited is unavailable).
iii. Quarterly financial statements on an ongoing
basis (unaudited acceptable if audited not
available).
B. Non-Financial (for servicers of non-subordinated pools of loans):
a) Most recent two years of Xxxxxx Xxx/Xxxxxxx Mac audits
b) List of loans in foreclosure, bankruptcy or delinquency as
of most recent quarter-end.
c) Property valuation process.
d) Name of tax service company
C. Non-Financial (for servicers of subordinated tranches):
a) Most recent two years of Xxxxxx Mae/Xxxxxxx Mac audits
b) Name of Tax Service Company and copy of contract
c) List of loans with past due tax dates and no tax due dates
d) List of loans with past due insurance dates or no insurance
expiration date
e) Force Place Insurance Carrier and force place procedures
f) Schedule of Foreclosure and REO losses from the past year
g) Copy of most recent escrow analysis
h) Geographic breakdown of the portfolio
i) Geographic breakdown of delinquencies
j) Timeframes from 90 day delinquency to foreclosure to REO
sale
k) Missing document inventory listing
13
70
COUNTERPARTY APPROVAL (CON'T)
1) List of loans in foreclosure, bankruptcy or delinquency as
of most recent quarter-end
m) Flood zone determination process
n) Property valuation process
o) Quality control program
p) Attorney and broker approval process and tracking
procedures
q) Current portfolio segregated by loan delinquency and REO
r) REO Reports:
i. Current REO inventory breakdown by state
ii. Average marketing time statistics
iii. Property type breakdown
iv. Average maintenance costs
v. Initial make-ready and rehab costs
vi. Sales price to BPO percentage
vii. Expenses as a percent of BPO value
viii. Time from foreclosure sale to property
disposition
ix. REO tracking reports.
14
71
ASSET QUALITY EVALUATION
- Due Diligence is required on all loan portfolios prior to settlement unless
waived by the Head of Operations, Head of Trading and Chief Credit Officer
(or CEO).
- The scope of due diligence is determined by the Head of Operations and Head
of Trading and is a function of seasoning, missing information and the
terms and conditions of the trade.
- The following Due Diligence procedures are minimum standards and additional
due diligence may be required by the Head of Operations and Head of
Trading.
- All exceptions from due diligence as directed by the Head of Operations and
Head of Trading must be approved.
DUE DILIGENCE PROCEDURES
A. Loans with less than 18 months seasoning:
1. Sample Size: Entire pool is underwritten.
2. Documentation
a) Legal Documents: The following documents are checked for
completeness, discrepancies such as white outs and internal
consistency between the various documents themselves.
Additionally, information contained in the documents such
as mortgagor name, property address, etc., is compared to
the delivery schedule.
i. Original recorded mortgage required; must be
FNMA/HLMC standard.
ii. Original note required; must be FNMA/FHLMC
standard.
iii. All original modifications, riders, and
assumptions required; must be FNMA/FHLMC
standard.
iv. Original title policy required for all
loans. ARM, PUD, condo endorsement is
required. Policy coverage other than the
standard ALTA policy (the FNMA/FHLMC
standard) must be reviewed and approved.
15
72
ASSET QUALITY EVALUATION (CON'T)
v. If required per terms of the trade, original
mortgage insurance certificate for loans
with a current LTV in excess of 80%.
Mortgage insurance must be from a FNMA/HLMC
approved MI company.
b) Closing Documents
i. Truth-in-Lending disclosure is required with
ARM disclosure.
ii. Settlement Statement (HUD-1).
iii. Right of Rescission (Cancellation Notice)
for refinances.
iv. Current hazard insurance required with
correct mortgagee clause and coverage at
least equal to the loan amount or the
maximum amount of insurance available. This
requirement is waived where the Seller has
acceptable Errors and Omissions and Blanket
Hazard Insurance policies in amounts and
from insurance companies acceptable to the
Chief Credit Officer. Flood insurance is
required for properties in Flood Zone A and
v. Earthquake insurance must also be checked
for in recognized earthquake areas.
c) Credit Documents
i. Application required; must be FNMA/FHLMC
standard for all loans.
(Contents of a credit package will depend on the
terms of the trade, however, deviations from the
following "Full credit package" must be documented.)
ii. Full credit package, including standard
factual credit report and verifications of
employment, rental income if needed to
qualify, and deposit/downpayment may be
required. All debts "to be paid" must be
verified as having been paid. All
verifications must not have been in excess
of 90 days old at closing.
16
73
ASSET QUALITY EVALUATION (CON'T)
iii. Appraisal required; must be FNMA/FHLMC
standard and include photographs of the
property. Property must be verified as
complete including any noted repairs. Final
value and marketability must be
substantiated through the appraisal
valuation process. Appraisal must not have
been more than 6 months old at loan closing.
iv. Final sales agreement with any and all
modifications is required.
3. Pool Criteria
a) General
i. Borrower must be an individual unless, in
such instances as Trust Estates, the
Beneficiary is an individual.
ii. Fee simple title is required. Leaseholds are
allowed as long as the term of the lease
expires at least ten years after the loan
maturity date and only in areas where leases
are common.
iii. "Add-on" second mortgages are not allowed if
the combined loan-to-value ratio of the
first and second liens is in excess of 85%.
iv. Loans for investment properties and second
homes are limited to two per borrower per
pool. Investment properties are those not
occupied by the borrower and for which
rental income is necessary to qualify the
loan. Second homes, are those occupied on a
part-time basis by the borrower and for
which the borrower can support the monthly
payment without rental income.
v. Co-signers (signers of the note and not
co-title holders) are not allowed.
vi. The properties securing the loans must be
located in the states agreed upon by the
commitment letter. All property types must
meet FNMA/FHLMC requirements and in the case
of condos, be FNMA approved or approvable.
17
74
ASSET QUALITY EVALUATION (CON'T)
vii. Gifts are allowed if the borrowers made a
minimum of 5% cash downpayment. The gift
must be made prior to closing and the
relationship of the donor to the borrower
must be documented by Lender.
viii. The loan purpose may be purchase, refinance,
home-improvement or construction/permanent.
ix. Remaining and original loan terms may not
exceed 360 months.
x. The Delivery Schedule must be accurate.
b) Underwriting Criteria
i. Loans are underwritten for borrower's
ability to pay, borrower's willingness to
pay and property valuation. Loans then
assigned a credit grade based upon the
borrower's ability and willingness to pay
(see Exhibit vii for credit grade criteria).
All loans graded "A" are further analyzed
for conformance to agency standards (see
Xxxxxx Xxx/Xxxxxxx Mac underwriting
manuals).
ii. Ability to pay is measured by the housing
ratio and total debt ratio. The housing
ratio is the sum of the proposed monthly P&I
payment, property taxes and hazard
insurance divided by gross monthly income.
The total debt ratio is the sum of monthly
housing expenses (as defined in the housing
ratio) plus all installment debt with
contractual maturities of greater than 6
months divided by gross monthly income.
For ARM loans the proposed monthly P&I is
calculated using the fully indexed interest
rate.
iii. Willingness to pay is determined from credit
scores (see Exhibit v), bankruptcy and
delinquency history of mortgage and consumer
debt.
iv. Adverse property quality/condition is
grounds for rejection. Any repairs noted
and/or required by the appraiser must be
certified complete. The appraisal must be no
more than 6 months old at time of loan
closing. Loans in areas subject to
earthquakes, radon problems, mud slides must
be approved by the Head of Operations and
the Head of Trading.
18
75
ASSET QUALITY EVALUATION (CON'T)
4. Current Conditions
a) Payment histories are examined for all of the pool. Current
delinquency status and delinquency history must conform to
the terms of the trade.
b) Drive-by property inspection ("BPO") performed on 10%
random sample of the pool. The BPOs must be obtained from
an approved BPO provider (see Exhibit iv).
c) Desk reviews of the original appraisals and property
inspections on the 10% sample selected above. Reviews focus
on overall quality of the portfolio and highlight
potentially negative trends.
B. Loans with 18 through 60 months seasoning.
1. Sample Size: Selected based on the quality of the counterparty,
terms of the transaction, and particulars of the package. Minimum
sample size for credit underwriting purposes is 10% of the pool.
Should the underwriting yield a large number of rejects then sample
size should be increased. For example, in a large package if the
rejection rate is 5% or greater (for reasons other than delinquency
then the sample size should be doubled. If the rejects run 10% on
the expanded sample then Hanover will (a) do a 100% underwriting,
(b) stop there and not close the package or (c) restructure the
package with consideration given to asking for collateral from the
seller/servicer.
2. Documentation
a) Legal Documents-a 100% review is performed, identical to
the review for new loans.
19
76
ASSET QUALITY EVALUATION (CON'T)
b) Closing Documents
i. Truth-in-Lending disclosure is required.
ii. Absence of Settlement Statement is noted.
iii. Right of Recission (Cancellation Notice) for
refinances is required.
iv. Current hazard insurance is required with
correct mortgagee clause and coverage at least
equal to the loan amount. The requirement is
waived where the Seller has acceptable Errors
and Omissions and Blanket Hazard Insurance
policies in amounts and from insurance companies
acceptable to the Chief Credit Officer. Flood
insurance is required for properties in Flood
Zone A and V. Earthquake insurance must also be
checked for in recognized earthquake areas.
c) Credit Package-A complete review of the sample is
performed using the same requirements as for new loans.
3. Pool Criteria - Same as for new loans.
4. Current Conditions - Same as for new loans.
C. Loans with 61 months or more seasoning
1. Sample Size-The entire pool is examined for legal documents only.
No credit underwriting is done.
2. Documentation-Legal documents and Closing documents-same as for new
loans except that non-standard documents may be frequent and are
acceptable if approved by the Head of Operations and the Head of
Trading.
3. Pool Criteria-Same as for new loans except the requirements
regarding co-signers, gifts and add-on seconds are waived due to the
20
77
ASSET QUALITY EVALUATION (CON'T)
4. Current Conditions
a) Payment histories are examined for all of the pool. Current
delinquency status and delinquency history must conform to
the terms of the trade.
b) Drive-by property inspection ("BPO") performed on 10%
random sample of the pool. The BPOs must be obtained from
an approved BPO provider (see Exhibit iv).
21
78
INTEREST RATE RISK MANAGEMENT
a) Hedging strategies and amounts are calculated by the Senior Vice
President of Trading and approved by the Head of Trading.
b) Fixed rate loans are hedged with agency mortgage-backed securities
of similar coupon and duration. Treasury xxxxxx are allowed only
when an investor has committed to a trade based on a yield spread to
treasuries.
c) ARM portfolios may be hedged using a combination of mortgage-backed,
treasury securities and options.
d) Hedge counterparties are approved by the Chief Credit Officer or
CEO.
e) Actual and forecasted prepayment rates are monitored on a monthly
basis and xxxxxx are adjusted to reflect revised prepayment
assumptions. Should the Senior Vice President of Trading decide more
frequent hedge revisions are necessary such adjustments may be made
with the approval of the Head of Trading.
f) Hedge amounts are adjusted monthly to reflect the paydown of
mortgage loan balances.
g) Financing terms are matched with the expected holding period of the
loan portfolio, to the extent possible. Financing counterparties are
approved by the Chief Credit Officer or CEO.
h) For ARM portfolios interest rate caps may be purchased to attempt to
limit or partially offset adverse changes in interest rates on ARM
portfolios. The decision to purchase interest rate caps must be
approved by the Head of Trading.
i) Financing of xxxxxx is matched with the expected holding period of
the corresponding loan portfolio and is approved by either the Head
or Senior Vice President of Trading.
j) Positions are marked on a weekly basis by the Senior Vice President
of Trading and reported to the Chief Executive Officer and Head of
Trading.
22
79
INTEREST RATE RISK MANAGEMENT (CON'T)
k) Position reports will include the following information (see Exhibit vi):
Profitability Analysis
i. Deal Number
ii. Deal name
iii. Asset Gain/Loss
iv. Hedge Gain/Loss
v. Coupon interest earned on Asset
vi. Financing cost on hedge
vii. Net Gain Loss (sum of the above)
Assets
i. Deal Number
ii. Deal Name
iii. Rate Class (Fixed or ARM)
iv. Indexcode (ARM only)
v. Current Unpaid Principal Balance
vi. Gross Weighted Average Coupon
vii. Net Weighted Average Coupon
viii. Weighted Average Remaining Term
ix. Gross Margin (ARM only)
x. Periodic and Lifetime Interest Rate Caps
(ARM only)
xi. Purchase Price
xii. Prepayment Assumption
xiii. Average Life
xiv. Duration
xv. Benchmark Security
xvi. Yield Spread to Benchmark Security
xvii. Xxxx-to-Xxxx Xxxxx
xviii. Finance Rate
xix. Financed Amount
xx. Expiration Date of Financing
Xxxxxx
i. Security type
ii. Amount
iii. Coupon
iv. Maturity
v. Settlement Date
vi. Initial Price
23
80
INTEREST RATE RISK MANAGEMENT (CON'T)
vii. Strike Price (if option)
viii. Expiration Date (if option)
ix. Prepayment Assumption
x. Average Life
xi. Duration
xii. Xxxx-to-Market Price
xiii. Finance Rate
xiv. Financed Amount
xv. Expiration Date of Financing
24
81
EXHIBIT i
BID SHEET
DATE:_________
DEAL#_________ (TERM SHEET IF APPLICABLE FROM CUSTOMER MUST
BE ATTACHED!!!)
BID DATE: / /
------------------
UPB_________________ PRICE EXPECTATION__________________
PRODUCT TYPE (ARMS/FIXED/OTHER-EXPLAIN)_________________________________________
INSTITUTION NAME__________________________________
SALES PERSON______________________________________
IS BROKER INVOLVED? YES________ NO________
IF YES, BROKERS NAME:_____________________________
WHO PAYS FEE?_____________________ FEE AMOUNT__________________
WHOLE LOAN________________________ PARTICIPATION_____________
IF YES%_____________
SERVICING: RETAINED____________ RELEASED_____________
IF RETAINED, FEES ARE: IF RELEASED:
FIXED________________ TRANSFER DATE_____________________
ARM__________________
WHO IS CURRENTLY SERVICING?______________________
IF RELEASED, WILL SELLER SUB-SERVICE ON AN INTERIM BASIS? YES_____ NO____
TAPE RECEIVED? YES_____ NO____ (SEE ATTACHMENT A FOR REQUIRED DATA
FIELDS.)
IF NO WHEN / /
------------------
IS BID BASED ON SELLER TERM SHEET ONLY? YES_____ NO____
SELLER'S FINANCIALS RECEIVED: YES_____ NO____
SELLER'S REQUIRED SETTLEMENT DATE: / /
------------------
HOW MANY OTHER BIDDERS?_________________
TYPE OF ACCOUNTS:__________________________
ANY PRE-BID DUE DILIGENCE ALLOWED:__________________
82
EXHIBIT i
WHAT ARE LTV'S BASED ON? ORIGINAL APPRAISAL________ BPO'S________
WILL SELLER PROVIDE BPO DATA?___________
LIEN STATUS:
FIRST ONLY_______________
SECONDS ONLY_____________
MIXED____________________
ARE FORECLOSURES OR BANKRUPTCIES INCLUDED?_________
REPRESENTATIONS:
AS IS WHERE IS___________
ENFORCEABILITY___________
OTHER LIMITED REPS_______
FULL REPS________________
UNDERWRITING STANDARDS:
FNMA/FHLMC_______________
B CREDITS
EXPLAIN:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
C CREDITS
EXPLAIN:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
D CREDITS
EXPLAIN:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
OTHER (e.g. "WHOOPS")
EXPLAIN: (If"WHOOPS" LOAN BY LOAN COMMENTS REQUIRED)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
DUE DILIGENCE:
DO WE NEED TO TRAVEL TO SELLER'S SITE?__________
SELLER WILL DELIVER LOANS TO FIRST CHICAGO___________
*BAILEE ARRANGEMENT REQUIRED.
83
EXHIBIT i
RIGHT TO REJECT LOANS THAT DO NOT MEET
PARAMETERS OF TRADE.______________
SELLER PREPARES MORTGAGE ASSIGNMENTS IN BLANK
AND PAYS FOR RECORDING OF MORTGAGE ASSIGNMENTS.__________
ADDITIONAL COMMENTS:
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
84
EXHIBIT i
ATTACHMENT A
REQUESTED LOAN LEVEL DATA
ACCOUNT NUMBER
BORROWER NAME
ADDRESS
CITY
STATE
ZIP
ORIGINATION DATE
MATURITY DATE
ORIGINAL TERM
ORIGINAL BALANCE
CURRENT BALANCE
RATE CLASS (FIXED OR ARM)
INDEX TYPE
MONTHLY P&I PAYMENT & T&I PAYMENT
CURRENT NOTE RATE
ESCROW BALANCE
SERVICING FEE
ORIGINAL LTV
CURRENT LTV (CURRENT UPB/ORIGINAL APPRAISAL)
CURRENT PROPERTY VALUE (IF AVAILABLE)
PAID TO DATE
CUT OFF DATE
DELINQUENCY COUNTER FOR PAST 12 MONTHS
OCCUPANCY STATUS
LIEN POSITION
PROPERTY TYPE
NOTE TYPE (FHA/VA/CONVENTIONAL)
MORTGAGE INSURANCE (IF APPLICABLE)
ARM INFO INDEX
MARGIN
PERIODIC RATE CAP
LIFETIME RATE CAP
ADJUSTMENT FREQUENCY
NEGATIVE AMORTIZATION LIMIT(S)
NEXT INTEREST CHANGE DATE
ORIGINAL RATE
FIRST RATE CHANGE DATE
CONVERTIBILITY
AMORTIZATION TYPE (e.g. BALLOON)
LOAN PURPOSE
NO. OF UNITS
BANKRUPTCY/FORECLOSURE
CREDIT SCORE (IF AVAILABLE)
85
EXHIBIT ii
STANDARD BID LETTER
Date:_________
Counterparty Name & Address
Dear__________:
Hanover Capital Partners is pleased to submit to ___________________________the
following servicing released/retained bid:
POOL. DESCRIPTION PRICE UPB NO. LOANS
---------------------------------------------------------------------------
The bid is subject to the following conditions:
(conditions will vary on a deal by deal basis)
- First mortgage liens on single family, owner occupied primary
residences.
- A mutually acceptable purchase and sale agreement.
- A mutually acceptable interim servicing agreement.
- Due diligence of the loan files which may include verification
of current property values and reunderwriting of the loans.
- All legal documentation is on FHLMC/FNMA approved forms with
exception of Notes. Notes will be fully enforceable and
comply with all Federal, State and Local laws and regulations.
- Loans over 80% LTV are eligible for mortgage insurance.
- Accuracy of the mortgage loan data.
- Funding within 30 days and all loans current at funding.
- Material market movement.
- Review of payment histories.
- Credit review of the selling institution.
86
EXHIBIT ii
- Repurchase of any loan that goes 90 days delinquent during the
first 12 months.
- Valid title.
Should you have any questions please contact me at __________. Thank you for the
opportunity to bid on your portfolios.
Sincerely,
------------------
Name
------------------
Title
87
EXHIBIT iii
STANDARD COMMITMENT LETTER
Date:____________
Counterparty Name
and Address
COMMITMENT LETTER
Dear_____________:
This letter is to confirm the intention of _______________ (the
"Seller" or "Buyer") to sell/purchase to/from Hanover Capital (the "Purchaser"
or "Seller") approximately $(UNPAID PRINCIPAL BALANCE) in (LOAN DESCRIPTION)
residential mortgage loans (the "Mortgage Loans" or "Loans") which are described
on the schedule attached as Exhibit A.
The Mortgage Loans and the characteristics of the transaction are
further described as follows:
SETTLEMENT DATE: The Mortgage Loans shall be purchased by the
Purchaser and sold by the Seller on _____ or such
other date as shall be mutually agreed upon by the
parties (the "Closing Date").
LOAN TYPE: The loans are backed by (FIXED RATE OR ADJUSTABLE
RATE) mortgage loans.
PROPERTY TYPE: All of the Mortgage Loans are (OCCUPANCY and secured
by (PROPERTY TYPE).
LOCATION: The mortgaged properties are located in the States of
___________________.
NUMBER OF LOANS: Approximately _______Loans.
LOAN SIZE: The average current loan balance is approximately
$_____________.
1
88
EXHIBIT iii
WEIGHTED AVERAGE
REMAINING TERM TO
MATURITY: _________ months.
WEIGHTED AVERAGE
GROSS RATE: Approximately __________%.
SERVICING: The Loans will be sold on a (SERVICING RELEASED/
RETAINED) basis (for _____basis points). (Remittances
will be made by wire transfer on an (SERVICING TYPE)
basis on the ______ day of the month.)
WEIGHTED AVERAGE
NET RATE: Approximately __________%.
PURCHASE PRICE: The purchase price for the Loans is _________of the
unpaid principal balance of the Loans based upon a
Gross/Net Weighted Average Coupon ("WAC") of _______
and a weighted average remaining term to maturity
("WAM") of _______ months. Should the final WAC
and/or WAM differ from the current WAC and WAM a
revised purchase price for the Loans will be computed
by discounting the mortgage pool's final WAC and WAM
by a _____% semi-annual yield, using a ____ day
payment delay and ______% prepayment rate.
FINANCIAL
STATEMENTS: Purchaser's/Seller's commitment to purchase/sell the
Loans is subject to credit review of Seller's/
Purchaser's most recent audited financial statements.
UNDERWRITING: Loans have been underwritten in accordance with
generally accepted underwriting standards. All legal
documentation is on FHLMC/FNMA approved forms.
DUE DILIGENCE: The Purchaser's obligation to buy and the Seller's
obligation to sell the Loans is subject to the
Purchaser's, or its designee's, due diligence review
of the Loans and the Collateral Files to the
satisfaction of the Purchaser, in its sole
discretion, no later than ______, unless an extension
of time is mutually agreed upon by Purchaser and
Seller
2
89
EXHIBIT iii
(the "Final Review Date"). (Due diligence may include
the Purchaser's verification of current property
values and re-underwriting of the Loans.) The Seller
will arrange for the availability of the Collateral
Files, payment histories and any additional
documentation reasonably requested by Purchaser for
Purchaser's review and due diligence at the
_________'s document custodian location on
___________. No later than five (5) days after such
Final Review Date, the Purchaser may notify Seller of
those Loans that do not meet the Purchaser's
standards for purchase ("Rejected Loans"). The Seller
will then have the ability to either promptly cure
such Rejected Loan deficiencies or substitute a Loan
that conforms to the requirements of this Commitment
Letter and is found to be acceptable for purchase by
Purchaser.
FORM OF SALE: The Loans will be sold, conveyed, transferred and
assigned under a Loan Sale Agreement and (INTERIM)
Servicing Agreement mutually agreeable to the Seller
and Purchaser. The Loan Sale Agreement will contain
secondary marketing representations and warranties
which shall include, but not be limited to, the items
that follow. The Seller represents and warrants that:
(1) they are the owner of the loans being conveyed;
(2) they have the authority to sell the loans; (3)
the notes are fully enforceable and comply with all
Federal, State and Local laws and regulations; (4)
all mortgage loans sold are first liens on the
mortgaged property; (5) the coupon rate and balances
established at the time of closing are accurate; (6)
the loans have been underwritten in accordance with
generally accepted underwriting standards; (7) all
loans are current and have not been over 30 days
delinquent in the last 12 month period; (8) they
will repurchase any loan that become 90 days
delinquent during the 12 month period following the
closing of this transaction; and (9) all loans over
80% LTV are eligible for mortgage insurance; (10) all
loans conform to the same delinquency profile as of
the bid date.
CLOSING CONDITIONS: The Seller shall provide to the Purchaser, or its
designees, contemporaneously with the payment of the
Purchase Price by the Purchaser to the Seller on the
Closing Date, the following mortgage loan documents
for each Loan (in each circumstance to be
satisfactory to Purchaser): a) an original note; b)
an original recorded security instrument (Mortgage,
Deed of Trust or Security Deed); c) an original title
policy; d) original recorded interim assignments, if
3
90
EXHIBIT iii
any; e) an assignment from the Seller to blank; and
f) an endorsement from the Seller to blank. Where
applicable, modification agreements, extension
agreements, assumption agreements, mortgage insurance
certificates, HUD-1 settlement statement, and all
other appropriate legal documentation relating to
each underlying mortgage loan (the "Collateral File")
will also be provided. In addition, credit and
servicing files are to be provided to the full extent
available.
FEES: Purchaser and Seller will each bear its own incurred
costs, fees and expenses.
Sincerely,
HANOVER CAPITAL
By:_____________________________
Name:
Title:
Agreed and accepted:
(Counterparty)
By:______________________________
Name:
Title:
4
91
EXHIBIT iii
SCHEDULE A
Mortgage Loan Schedule
5
92
EXHIBIT iv
APPROVED BPO PROVIDERS
(AS OF 5/97)
1. Property & Appraisal Services Corp.
2. Spectrum Field Services
3. Market Intelligence
4. MGIC
5. Xxxxxxxx & Company
6. New City Asset Management Inc.
7. Case Schiller Xxxxx Inc.
8. Mortgage Risk Assessment Corp.
9. Greenthlal/Xxxxxx Realty Services
10. PHH Asset Management
11. HNC Software
12. PMI
93
EXHIBIT v
APPROVED CREDIT SCORING PROVIDERS
(AS OF 5/97)
1. Equifax
2. TransUnion
3. TRW
4. Experian
94
Exhibit vi
STANDARD POSITION REPORT
-------------------------------------------------------------------------------------------------------
Deal Deal Rate Index Current Gross Net Pur.
Number Name Class Code UPB WAC WAC WAM Margin Caps Price
-------------------------------------------------------------------------------------------------------------------------
Assets
-------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Total Assets
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Xxxxxx
-------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------------------------
Total Xxxxxx
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Grand Total
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
Spread to Xxxx-to Asset
Prepay Avg Life/ Bench Bench Market Finance Finance Asset Interest Finance Total
Rate Mod. Dur. Security Security Price Amount Rate Gain/Loss Income Cost Gain/Loss
-------------------------------------------------------------------------------------------------------------------------
Assets
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
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Total Assets
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Xxxxxx
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
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Total Xxxxxx
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Grand Total
-------------------------------------------------------------------------------------------------------------------------
95
EXHIBIT vii
CREDIT GRADE
UNDERWRITING GUIDELINES
----------------------------------------------------------------------------------------------------
A A- B C D
----------------------------------------------------------------------------------------------------
MORTGAGE 0 x 30 2 x 30 3 x 30 4 x 30 6 x 30
CREDIT 1 x 60 2 x 60
HISTORY (1) 1 x 90
----------------------------------------------------------------------------------------------------
CONSUMER 1 x 30 2 x 30 3 x 30 4 x 30 5 x 30
CREDIT 1 x 60 2 x 60 3 x 60 4 x 60
HISTORY (1) 1 x 90 2 x 90
----------------------------------------------------------------------------------------------------
BANKRUPTCY none none in past none in past none in past within past 2
5 years 3 years 2 years years
----------------------------------------------------------------------------------------------------
CREDIT 700 625 600 less than 600 less than 600
SCORE (2)
----------------------------------------------------------------------------------------------------
LTV (3) 90% 85% 80% 70% 65%
----------------------------------------------------------------------------------------------------
TOTAL DEBT 38% 45% 50% 55% 60%
RATIO
----------------------------------------------------------------------------------------------------
(1) Last 12 months
(2) See Exhibit v for approved credit scoring companies
(3) Mortgage insurance required for LTVs greater than 80%
96
EXHIBIT G
---------
FORM OF BLOCKED ACCOUNT AGREEMENT
December 8, 1997
------------------
------------------
------------------
Attn:________________
Re: Collection Account Established by ____________
("Servicer") Pursuant to that Certain Servicing
Agreement (as amended, supplemented or otherwise
modified from time to time, the "Servicing
Agreement"), dated __________, 1997, between
Servicer and Hanover Capital Mortgage Holdings,
Inc. ("Borrower")
Ladies and Gentlemen:
We refer to the collection account established by the Servicer
pursuant to the Servicing Agreement, at _______________, ___________, _____,
Account No._____________, ABA# ____________ (the "Blocked Account"), which
Servicer maintains in the Servicer's name in trust for Xxxxxx Xxxxxxx Mortgage
Capital Inc. (the "Lender").
The Servicer will, from time to time, deposit funds received in
accordance with the Servicing Agreement into the Blocked Account. Lender has
established a secured loan arrangement with the Borrower. By its execution of
this letter, the Servicer acknowledges that the Borrower has granted a security
interest in all of the Borrower's right, title and interest in and to the
Blocked Account and any funds from time to time on deposit therein, that such
funds are received by the Servicer in trust for the benefit of Lender and,
except as provided below, are for application against the Borrower's liabilities
to Lender.
By the Servicer's execution of this letter, it agrees: (a) that all
funds from time to time hereafter in the Blocked Account are the property of the
Borrower held in trust for the benefit of the Lender and that unless and until
the Servicer receives notice from the Lender that an event of default has
occurred and is continuing under the Lender's secured lending arrangement with
the Borrower (a "Notice of Event of Default"), the Servicer shall transfer funds
from the Blocked Account in accordance with the Borrower's instructions; (b)
that Servicer will not exercise any right of set-off, banker's lien or any
similar right in connection with such funds PROVIDED, that in the event any
check is returned to the Servicer because of insufficient funds (or is otherwise
unpaid) the Servicer shall be entitled to set off the amount of any such
returned check; (c) that until the Servicer receives written notification from
the Lender to the contrary, the Servicer will not withdraw (other than as
expressly set forth in the Servicing Agreement or herein) or permit any person
or entity to withdraw or transfer funds from the Blocked Account; and (d) that
if the Servicer receives a Notice of Event of Default from the Lender, the
Servicer shall not withdraw or permit the Borrower to withdraw or transfer funds
from
H-1
97
the Blocked Account and shall cause or permit withdrawals from the Blocked
Account in any manner as the Lender may instruct.
All bank statements in respect to the Blocked Account shall be sent
to the Borrower with copies to:
Xxxxxx Xxxxxxx Mortgage Capital Inc.
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxx Xxxxx
H-2
98
Kindly acknowledge your agreement with the terms of this agreement by
signing the enclosed copy of this letter and returning it to the undersigned.
Very truly yours,
XXXXXX XXXXXXX MORTGAGE CAPITAL INC.
By:_______________________________________
Title:
Agreed and acknowledged:
---------------------------------------
By:____________________________________
Title:
H-3
