================================================================================
SALE AND SERVICING AGREEMENT
Dated as of November 1, 1998
among
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3
(Issuer)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
(Depositor)
EMPIRE FUNDING CORP.
(Transferor and Servicer)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Master Servicer)
and
U.S. BANK NATIONAL ASSOCIATION
(Indenture Trustee and Grantor Trustee)
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3
HOME LOAN ASSET BACKED NOTES
SERIES 1998-3
================================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
Section 1.01 Definitions .....................................................1
Section 1.02 Other Definitional Provisions ..................................24
ARTICLE II
CONVEYANCE OF THE GRANTOR TRUST CERTIFICATE
Section 2.01 Conveyance of the Grantor Trust Certificate ....................24
Section 2.02 Ownership and Possession of Grantor Trust Certificate ..........25
Section 2.03 Books and Records; Principal Place of Business .................25
Section 2.04 Delivery of Grantor Trust Certificate; Further Assurances ......26
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor ................26
Section 3.02 Representations and Warranties of the Transferor ...............28
Section 3.03 Representations, Warranties and Covenants of the Servicer ......30
Section 3.03A Representations and Warranties of the Master Servicer .........32
Section 3.04 Representations and Warranties Regarding Individual Home Loans..34
Section 3.05 Purchase and Substitution ......................................42
ARTICLE IV
ADMINISTRATION AND SERVICING OF THE HOME LOANS
Section 4.01 Duties of the Servicer .........................................45
Section 4.01A Appointment and Term of the Servicer ..........................47
Section 4.02 Appointment and Duties of the Master Servicer ..................48
Section 4.03 Fidelity Bond; Errors and Omissions Insurance ..................50
Section 4.04 Filing of Continuation Statements ..............................50
Section 4.05 [Reserved] .....................................................51
Section 4.06 Subservicing ...................................................51
Section 4.07 Successor Servicers ............................................53
Section 4.08 Collections from Property Insurance Policies ...................53
Section 4.09 Reports to the Securities and Exchange Commission ..............54
Section 4.10 Recovery from Defaulted Home Loans and Liquidated Home Loans....54
Section 4.11 Title, Management and Disposition of Foreclosure Property ......58
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Payment Account ....................59
Section 5.01A Claims Under Guaranty Policy ..................................63
Section 5.02 Certificate Distribution Account ...............................64
Section 5.03 Trust Accounts; Trust Account Property .........................65
Section 5.04 Allocation of Losses ...........................................68
ARTICLE VI
STATEMENTS AND REPORTS; WITHHOLDING
Section 6.01 Statements .....................................................68
Section 6.02 Withholding ....................................................71
ARTICLE VII
GENERAL SERVICING PROCEDURES
Section 7.01 Due-On-Sale; Due-on-Encumbrance ................................72
Section 7.02 Release of Home Loan Files .....................................73
Section 7.03 Servicing Compensation .........................................74
Section 7.04 Statement as to Compliance and Financial Statements ............74
Section 7.05 Independent Public Accountants'Servicing Report ................75
Section 7.06 Right to Examine Servicer Records ..............................75
Section 7.07 Reports to the Indenture Trustee; Collection Account
Statements ...................................................76
Section 7.08 Financial Statements ...........................................76
ARTICLE VIII
(RESERVED)
ARTICLE IX
THE SERVICER
Section 9.01 Indemnification; Third Party Claims ............................77
Section 9.02 Merger or Consolidation of the Servicer ........................78
Section 9.03 Limitation on Liability of the Servicer and Others 78
Section 9.04 Servicer Not to Resign; Assignment .............................78
Section 9.05 Relationship of Servicer to the Grantor Trust and the
Grantor Trustee ..............................................79
Section 9.06 Servicer May Own Securities ....................................79
ARTICLE X
DEFAULT
Section 10.01 Events of Default .............................................80
Section 10.02 Master Servicer to Act; Appointment of Successor ..............83
Section 10.03 Waiver of Defaults ............................................85
Section 10.04 Accounting Upon Termination of Servicer .......................86
ARTICLE XI
TERMINATION
Section 11.01 Termination ...................................................86
Section 11.02 Optional Termination ..........................................87
Section 11.03 Notice of Termination .........................................87
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Noteholders ...........................................88
Section 12.02 Amendment .....................................................88
Section 12.03 Recordation of Agreement ......................................89
Section 12.04 Duration of Agreement .........................................89
Section 12.05 Governing Law .................................................89
Section 12.06 Notices .......................................................89
Section 12.07 Severability of Provisions ....................................90
Section 12.08 No Partnership ................................................90
Section 12.09 Counterparts ..................................................90
Section 12.10 Successors and Assigns ........................................91
Section 12.11 Headings ......................................................91
Section 12.12 Actions of Securityholders ....................................91
Section 12.13 Reports to Rating Agencies ....................................91
Section 12.14 Holders of the Residual Interest Certificates .................92
Section 12.15 Year 2000 Compliance ..........................................92
Section 12.16 Grant of Noteholder Rights to Securities Insurer ..............92
Section 12.17 Third Party Beneficiary .......................................93
Section 12.18 Suspension and Termination of Securities Insurer's Rights .....93
EXHIBITS:
A - Home Loan Schedule
B - Form of Servicer's Monthly Remittance Report to Indenture Trustee
C - Form of Loan Liquidation Report
D - Form of Servicer Renewal Notice
This Sale and Servicing Agreement is entered into effective as of November
1, 1998, among EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3, a Delaware business
trust (the "Issuer" or the "Owner Trust"), PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV, a Delaware corporation, as Depositor (the "Depositor"), EMPIRE
FUNDING CORP., an Oklahoma corporation ("Empire Funding"), as Transferor (in
such capacity, the "Transferor") and Servicer (in such capacity, the
"Servicer"), NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking
association, as Master Servicer (the "Master Servicer"), and U.S. BANK NATIONAL
ASSOCIATION, a national banking association, as Indenture Trustee on behalf of
the Noteholders (in such capacity, the "Indenture Trustee") and as Grantor
Trustee on behalf of the holder of the Grantor Trust Certificate (in such
capacity, the "Grantor Trustee").
W I T N E S S E T H:
In consideration of the mutual agreements herein contained, the parties
hereto hereby agree as follows for the benefit of each of them and for the
benefit of the holders of the Notes issued under the Indenture, the Residual
Interest Certificates issued under the Owner Trust Agreement and the Grantor
Trust Certificate issued under the Grantor Trust Agreement and the Securities
Insurer for issuing the Guaranty Policy:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions.
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the meanings specified in this
Article. Unless otherwise specified, all calculations of interest described
herein shall be made on the basis of a 360-day year consisting of twelve 30-day
months.
Accepted Servicing Procedures: Servicing procedures that satisfy the
following: (a) meet at least the same standards the Servicer would follow in
exercising reasonable care in servicing mortgage loans such as the Home Loans
held for its own account; (b) comply with applicable state and federal law; (c)
comply with the provisions of the related Debt Instruments and Mortgages; and
(d) give due consideration to the accepted standards of practice of prudent
consumer loan servicers that service mortgage loans comparable to the Home Loans
and the reliance placed by the Grantor Trust Holders, the Securities Insurer,
the Master Servicer and Securityholders on the Servicer for the servicing of the
Home Loans, but without regard to:
(i) any relationship that the Servicer, any Subservicer or any
Affiliate of the Servicer or any Subservicer may have with the related
Obligor;
(ii) the ownership of any Notes, the Grantor Trust Certificate or the
Residual Interest Certificates by the Servicer or any Affiliate of the
Servicer;
(iii) the Servicer's obligation to make Servicing Advances; or
(iv) the Servicer's or any Subservicer's right to receive compensation
for its services hereunder with respect to any particular transaction.
In determining whether to undertake certain servicing actions with respect
to one or more delinquent or defaulted Home Loans, the Servicer is expected to
consider the reasonable likelihood of (A) recovering an economically significant
amount attributable to the outstanding interest and principal owing on such Home
Loan as a result of such actions, in excess of (B) the costs and expenses to
obtain such recovery (including without limitation any Servicing Advances and,
if applicable, the outstanding indebtedness of all Superior Liens), and in
relation to (C) the expected timing of such recovery therefrom.
Accrual Period: With respect to the Notes, the calendar month preceding the
month in which the related Payment Date occurs (except in the case of the first
Payment Date, the partial monthly period commencing on the Closing Date and
ending on the last day of the month in which the Closing Date occurs).
Affiliate: With respect to any specified Person, any other Person
controlling, controlled by, or under common control with such specified Person.
For the purposes of this definition, the term "control", when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have corresponding meanings.
Agreement: This Sale and Servicing Agreement and all amendments hereof and
supplements hereto.
Assignment of Mortgage: With respect to each Home Loan (other than an
Unsecured Home Loan), an assignment, notice of transfer or equivalent instrument
sufficient under the laws of the jurisdiction wherein the related Mortgaged
Property is located to reflect or record the sale of the related Home Loan which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering Mortgages secured by Mortgaged
Properties located in the same county, if permitted by law.
Available Collection Amount: With respect to any Payment Date, an amount
without duplication equal to the sum of: (i) all amounts received on the Home
Loans or required to be paid by the Servicer or the Transferor during the
related Due Period (exclusive of amounts not required to be deposited by the
Servicer in the Collection Account pursuant to Section 5.01(b)(1) hereof and
amounts permitted to be withdrawn by the Indenture Trustee from the Collection
Account pursuant to Section 5.01(b)(3) hereof); (ii) any and all income or gain
from investments in the Collection Account, Note Payment Account and Certificate
Distribution Account; (iii) upon exercise of optional termination of the Notes
pursuant to Section 11.02 hereof, the Termination Price; and (iv) the Purchase
Price paid for any Home Loans purchased pursuant to Section 3.05 hereof prior to
the related Determination Date and the Substitution Adjustment to be deposited
in the Collection Account in connection with any substitution, in each case
prior to the related Determination Date.
Available Payment Amount: With respect to any Payment Date, the Available
Collection Amount deposited into the Note Payment Account, minus the amount
required to be
paid from the Note Payment Account pursuant to Section 5.01(c)(i) hereof (which
consists of the Trust Fees and Expenses).
Business Day: Any day other than (a) a Saturday or Sunday, or (b) a day on
which the banking institutions are authorized or obligated by law or executive
order to be closed in a city at any of the following locations: (i) The City of
New York, (ii) where the Securities Insurer is located, (iii) where the
corporate trust office of the Indenture Trustee or Grantor Trustee is located,
(iv) where the servicing operations of the Servicer are located or (v) where the
master servicing operations of the Master Servicer are located.
Certificate Distribution Account: The account designated as such,
established and maintained pursuant to Section 5.02 hereof.
Certificate Register: The register established pursuant to Section 3.4 of
the Owner Trust Agreement.
Certificateholder: A holder of a Residual Interest Certificate.
Clean-up Call Date: The first Payment Date on which the Pool Principal
Balance declines to 10% or less of the Original Pool Principal Balance.
Closing Date: November 5, 1998.
Code: The Internal Revenue Code of 1986, as amended from time to time, and
Treasury Regulations promulgated thereunder.
Collection Account: The Eligible Account established and maintained by the
Indenture Trustee pursuant to Section 5.01(a)(1) hereof.
Combination Loan: A loan, including an Unsecured Home Loan, the proceeds of
which were used by the Obligor in combination to finance property improvements
and for debt consolidation, cash out refinancing or other purposes.
Combined Loan-to-Value Ratio: With respect to any Home Loan (other than an
Unsecured Home Loan), the fraction, expressed as a percentage, (a) the numerator
of which is the principal balance of such Home Loan at origination plus, in the
case of a junior lien Home Loan, the aggregate outstanding principal balance of
each related Superior Lien on the date of origination of such Home Loan, and (b)
the denominator of which is the value as determined pursuant to the Transferor's
underwriting guidelines of the related Mortgaged Property at the time of
origination of such Home Loan.
Credit Score: The credit evaluation scoring methodology developed by Fair,
▇▇▇▇� and Company.
Custodial Agreement: The custodial agreement dated as of November 1, 1998
by and among the Depositor, Empire Funding, as the Transferor and the Servicer,
and U.S. Bank National Association, a national banking association, as the
custodian and the Grantor Trustee, providing for the retention of the applicable
Grantor Trustee's Home Loan Files by such
custodian on behalf of the Grantor Trustee.
Custodian: Any custodian acceptable to the Securities Insurer and appointed
by the Grantor Trustee pursuant to the Custodial Agreement, which custodian
shall not be affiliated with the Servicer, the Transferor, any Subservicer or
the Depositor. U.S. Bank National Association, shall be the initial Custodian
pursuant to the terms of the Custodial Agreement.
Custodian Fee: If applicable, the annual fee payable to any Custodian,
calculated and payable monthly on each Payment Date pursuant to Section
5.01(c)(i) hereof equal to the fee, if any, set forth in the Custodial
Agreement.
Custodian's Final Certification: As defined in Section 2.06(c) of the
Grantor Trust Agreement.
Custodian's Initial Certification: As defined in Section 2.06(a) of the
Grantor Trust Agreement.
Custodian's Updated Certification: As defined in Section 2.06(c) of the
Grantor Trust Agreement.
Cut-Off Date: The close of business on October 31, 1998.
Debt Consolidation Loan: A loan, including any Unsecured Home Loan, the
proceeds of which were primarily used by the related Obligor for debt
consolidation or cash out refinance purposes or for purposes other than to
finance property improvements.
Debt Instrument: The note or other evidence of indebtedness evidencing the
indebtedness of an Obligor under a Home Loan.
Defaulted Home Loan: With respect to any date of determination, any Home
Loan, including, without limitation, any Liquidated Home Loan with respect to
which any of the following has occurred as of the end of the preceding Due
Period: (a) foreclosure or similar proceedings have been commenced; (b) any
portion of a Monthly Payment becomes 180 days past due by the related Obligor;
or (c) the Servicer or any Subservicer has determined in good faith and in
accordance with the Accepted Servicing Procedures that such Home Loan is in
default for a period in excess of 30 days or imminent default and that such
default or imminent default involves the nonpayment of any Monthly Payment or a
default which has or would have a material adverse affect on such Home Loan.
Defective Home Loan: As defined in Section 3.05 hereof.
Deficiency Amount: As of any Payment Date, the sum of (a) the amount by
which (1) the Noteholders' Interest Payment Amount for the Notes on such Payment
Date, exceeds (2) the Available Payment Amount for such Payment Date, and (b)
the Noteholders' Principal Deficiency Amount for such Payment Date.
Deleted Home Loan: A Home Loan replaced or to be replaced by one or more
than one Qualified Substitute Home Loan.
Delinquent: A Home Loan is "Delinquent" if any Monthly Payment due thereon
is not made by the close of business on the day such Monthly Payment is
scheduled to be paid; provided, that such Home Loan shall not be "Delinquent" if
the Monthly Payment for such Home Loan has been modified pursuant to a Chapter
13 bankruptcy proceeding by the Obligor and such modified Monthly Payment due
thereon is made by the close of business on the day such modified Monthly
Payment is scheduled to be paid. A Home Loan is "30 days Delinquent" if such
Monthly Payment has not been received by the close of business on the thirtieth
(30th) day following the Due Date for such Monthly Payment (e.g., delinquency
status is determined based on the actual number of days elapsed from a Due
Date). The determination of whether a Home Loan is "60 days Delinquent," "90
days Delinquent", etc. shall be made in like manner.
Delivery: When used with respect to Trust Account Property means the
delivery of such Trust Account Property in a manner that results in the
transferee having either the status of a perfected security interest free of any
adverse claims or a holder in due course in accordance with the following: (a)
in the case of "certificated securities" or "uncertificated securities" (in
either case as defined in Article 8 of the UCC), the applicable provisions of
Article 8 of the UCC, and in the case of "instruments", "accounts" or "general
intangibles" (in either case as defined in Article 9 of the UCC), the applicable
provisions of Article 9 of the UCC; or (b) in the case of book-entry securities
governed by Federal law, the applicable provisions of Federal law.
Denomination: With respect to a Note, the portion of the Original Note
Principal Balance represented by such Note as specified on the face thereof.
Depositor: PaineWebber Mortgage Acceptance Corporation IV, a Delaware
corporation, and any successor thereto.
Determination Date: With respect to any Payment Date, the 14th calendar day
of the month in which such Payment Date occurs or if such day is not a Business
Day, the immediately preceding Business Day.
Due Date: With respect to a Monthly Payment, the day of the month on which
such Monthly Payment is due from the Obligor on a Home Loan.
Due Period: With respect to any Determination Date or Payment Date, the
calendar month immediately preceding such Determination Date or Payment Date, as
the case may be.
EFHC: Empire Funding Holding Corporation, a Delaware corporation.
Eligible Account: At any time, an account that is either:
(a) A segregated account or accounts maintained with an institution
that satisfies the following: (1) whose deposits are insured by the FDIC;
(2) whose unsecured and uncollateralized long-term debt obligations of
which are then rated by each Rating Agency in one of their two highest
long-term rating categories and short-term debt obligations of which are
then rated by each Rating Agency in their highest short-term rating
category; and (3) which is either (i) a federal savings and loan
association duly
organized, validly existing and in good standing under the federal banking
laws, (ii) an institution duly organized, validly existing and in good
standing under the applicable banking laws of any state, (iii) a national
banking association duly organized, validly existing and in good standing
under the federal banking laws, (iv) a principal subsidiary of a bank
holding company, or (v) an institution approved in writing by the
Securities Insurer and each Rating Agency;
(b) A segregated trust account or accounts maintained with the
corporate trust department of a federal or state chartered depository
institution that satisfies the following: (1) is acceptable to the
Securities Insurer and each Rating Agency; (2) has capital and surplus of
not less than $100,000,000; and (3) is acting in its fiduciary capacity.
Eligible Servicer: A Person that (i) has demonstrated the ability
professionally and competently to service a portfolio of mortgage loans similar
to the Home Loans, (ii) has a net worth calculated in accordance with GAAP of at
least $500,000, and (iii) is acceptable to the Securities Insurer.
Empire Funding: Empire Funding Corp., an Oklahoma corporation.
Event of Default: As described in Section 10.01 hereof.
Excess Spread: With respect to any Payment Date, the excess of (a) the
Available Payment Amount over (b) the Regular Payment Amount.
FDIC: The Federal Deposit Insurance Corporation and any successor thereto.
FHLMC: ▇▇▇▇▇▇� Mac (f/k/a Federal Home Loan Mortgage Corporation) and any
successor thereto.
Fidelity Bond: As described in Section 4.03 hereof.
Fitch: Fitch IBCA, Inc. or any successor thereto.
FNMA: ▇▇▇▇▇▇ ▇▇� (f/k/a Federal National Mortgage Association) and any
successor thereto.
Foreclosed Loan: As of any date of determination, any Home Loan that has
been discharged as a result of (i) the completion of foreclosure or comparable
proceedings; (ii) the Grantor Trustee's acceptance of the deed or other evidence
of title to any related Mortgaged Property in lieu of foreclosure or other
comparable proceeding; or (iii) the acquisition by the Grantor Trustee of title
to any related Mortgaged Property by operation of law.
Foreclosure Property: Any real property securing a Foreclosed Loan that has
been acquired by the Servicer through foreclosure, deed in lieu of foreclosure
or similar proceedings in respect of the related Home Loan.
GAAP: Generally accepted accounting principles as in effect in the United
States.
Grantor Trust: Empire Funding Grantor Trust 1998-3, formed pursuant to the
Grantor Trust Agreement.
Grantor Trust Agreement: The Grantor Trust Agreement dated as of November
1, 1998, among PaineWebber Mortgage Acceptance Corporation IV, as Depositor,
Empire Funding and the Grantor Trustee.
Grantor Trust Certificate: The trust certificate issued by the Grantor
Trust evidencing an undivided beneficial ownership interest of 100% of the
Grantor Trust.
Grantor Trust Holder: The holder of the Grantor Trust Certificate.
Grantor Trustee: U.S. Bank National Association, a national banking
association, as Grantor Trustee under the Grantor Trust Agreement, or any
successor Grantor Trustee hereunder.
Grantor Trustee Fee: As to any Payment Date, $0.00.
Grantor Trustee's Home Loan File: As defined in Section 2.05(a) of the
Grantor Trust Agreement.
Guaranty Insurance Premium: The premium payable monthly that is specified
in the Securities Insurer Commitment.
Guaranty Policy: That certain financial guaranty insurance policy for the
Securities, number 27890 dated November 5, 1998, and issued by the Securities
Insurer to the Indenture Trustee and guaranteeing payment of any Insured Payment
thereunder.
Home Loan: Any Debt Consolidation Loan or Combination Loan that is included
in the Home Loan Pool. As applicable, a Home Loan shall be deemed to refer to
the related Debt Instrument, the Mortgage (except with respect to any Unsecured
Home Loans) and any related Foreclosure Property, and shall include, among other
items, all Monthly Payments collected after the Cut-Off Date, except that the
Transferor shall retain 13.33% of the interest collected thereon during the
first Due Period.
Home Loan File: As to each Home Loan, the Grantor Trustee's Home Loan File
and the Servicer's Home Loan File.
Home Loan Interest Rate: The fixed annual rate of interest borne by a Debt
Instrument, as shown on the related Home Loan Schedule as the same may be
modified by the Servicer in accordance with Section 4.01(c) or 4.10 hereof.
Home Loan Pool: The pool of Home Loans conveyed to the Grantor Trustee
pursuant to the Grantor Trust Agreement on the Closing Date, together with the
rights and obligations of a holder thereof, and the payments thereon and
proceeds therefrom received after the applicable Cut-Off Date, as identified on
the Home Loan Schedule annexed hereto as Exhibit A.
Home Loan Purchase Agreement: The Home Loan Purchase Agreement between the
Transferor and the Depositor, dated as of November 1, 1998.
Home Loan Schedule: The schedule of Home Loans set forth on Exhibit A
attached hereto, as amended or supplemented from time to time specifying, with
respect to each Home Loan, the following information: (i) the Transferor's Home
Loan number; (ii) the Obligor's name and the street address; (iii) the current
principal balance; (iv) the original principal amount with respect to any Home
Loan originated by the Transferor and the principal amount purchased by the
Transferor with respect to a Home Loan acquired by the Transferor subsequent to
its origination; (v) any related Combined Loan-to-Value Ratio as of the date of
the origination of the related Home Loan; (vi) the paid through date; (vii) the
Home Loan Interest Rate; (viii) the final maturity date under the Debt
Instrument; (ix) the Monthly Payment; (x) the occupancy status of the Mortgaged
Property, if any; (xi) the lien priority of the Mortgage, if any; (xii) the
original term of the Debt Instrument; (xiii) the Credit Score, if applicable;
and (xiv) the debt to income ratio of the related Obligor.
Indenture: The Indenture, dated as of November 1, 1998, between the Issuer
and the Indenture Trustee.
Indenture Trustee: U.S. Bank National Association, a national banking
association, as Indenture Trustee under the Indenture and this Agreement acting
on behalf of the Noteholders, or any successor indenture trustee under the
Indenture or this Agreement.
Indenture Trustee Fee: As to any Payment Date, the greater of (a)
one-twelfth (1/12) of the Indenture Trustee Fee Rate times the Pool Principal
Balance as of the opening of business on the first day of the calendar month
preceding the calendar month of such Payment Date (or, with respect to the first
Payment Date, the Original Pool Principal Balance) and (b) one-twelfth (1/12) of
$8,400.00.
Indenture Trustee Fee Rate: 0.0067% (0.67 basis points) per annum.
Independent: When used with respect to any specified Person, such Person
(i) is in fact independent of the Transferor, the Servicer, the Master Servicer,
the Depositor, the Securities Insurer or any of their respective Affiliates,
(ii) does not have any direct financial interest in, or any material indirect
financial interest in, any of the Transferor, the Servicer, the Master Servicer,
the Depositor, the Securities Insurer or any of their respective Affiliates and
(iii) is not connected with any of the Transferor, the Servicer, the Depositor
or any of their respective Affiliates, as an officer, employee, promoter,
underwriter, trustee, partner, director or Person performing similar functions;
provided, however, that a Person shall not fail to be Independent of the
Transferor, the Servicer, the Depositor or any of their respective Affiliates
merely because such Person is the beneficial owner of 1% or less of any the
securities issued by the Transferor, the Servicer, the Depositor or any of their
respective Affiliates, as the case may be.
Independent Accountants: A firm of nationally recognized certified public
accountants, which is Independent.
Insurance Agreement: The Insurance and Indemnification Agreement, dated as
of November 1, 1998, among the MBIA Insurance Corporation, as Securities
Insurer, Empire
Funding Corp., as Transferor and Servicer, PaineWebber Mortgage Acceptance
Corporation IV, as Depositor, Empire Funding Home Loan Owner Trust 1998-3, as
Issuer, U.S. Bank National Association, as Indenture Trustee, Grantor Trustee,
Paying Agent, Administrator and Custodian, and Norwest Bank Minnesota, National
Association, as Master Servicer.
Insured Payment: With respect to the Guaranty Policy, (i) as of any Payment
Date any Deficiency Amount and (ii) any Preference Amount.
Insured Securities: Each of the Notes.
Liquidated Home Loan: With respect to any date of determination, any
Foreclosure Property or any Home Loan in respect of which a Monthly Payment is
in excess of 30 days past due and as to which the Servicer has determined that
all amounts which it reasonably and in good faith expects to collect have been
recovered from or on account of such Home Loan or the related Foreclosure
Property; provided, however, that in any event any Home Loan or the related
Foreclosure Property shall be deemed uncollectible and therefore be a Liquidated
Home Loan upon the earliest to occur of: (i) the liquidation or disposition of
such Home Loan or the related Foreclosure Property; (ii) the determination by
the Servicer in accordance with the Accepted Servicing Procedures that there is
no reasonable likelihood of (A) recovering an economically significant amount
attributable to the outstanding interest and principal owing on such Home Loan
from either the related Mortgaged Property or the Obligor, in excess of (B) the
costs and expenses to obtain such recovery (including without limitation any
Servicing Advances and, if applicable, the outstanding indebtedness of all
Superior Liens), and in relation to (C) the expected timing of such recovery
therefrom, or (iii) the date on which any portion of a Monthly Payment on any
Home Loan is in excess of 180 days past due.
Liquidation Proceeds: With respect to a Liquidated Home Loan, any cash
amounts received in connection with the liquidation or disposition of such
Liquidated Home Loan, whether through trustee's sale, foreclosure sale or other
disposition, any cash amounts received in connection with the management of the
Foreclosure Properties from Foreclosed Home Loans and any other amounts required
to be deposited in the Collection Account pursuant to Section 5.01(b) hereof, in
each case other than Property Insurance Proceeds and Released Mortgaged Property
Proceeds.
Majority Noteholders: Until such time as the Note Principal Balance of all
Notes has been reduced to zero, the holder or holders of in excess of 50% of the
Note Principal Balance of all the Notes then Outstanding.
Majority Residual Interestholders: The holder or holders of more than 50%
of the Residual Interest.
Master Servicer: Norwest Bank Minnesota, National Association, a national
banking association, as Master Servicer hereunder, or any successor Master
Servicer hereunder.
Master Servicer Compensation: The Master Servicer Fee and other amounts to
which the Master Servicer is entitled pursuant to Section 4.02(a) hereof.
Master Servicer Fee: As to each Home Loan (including any Home Loan that has
been
foreclosed and has become a Foreclosure Property, but excluding any Liquidated
Home Loan), the fee payable monthly to the Master Servicer on each Payment Date,
which shall equal the product of (a) one-twelfth (1/12) of 0.045% (4.5 basis
points) and (b) the Principal Balance of such Home Loan as of the beginning of
the immediately preceding Due Period.
Maturity Date means, with respect to the Notes, the Payment Date occurring
in November 2024.
Monthly Cut-Off Date: The last day of any calendar month and, with respect
to any Payment Date, the last day of the calendar month immediately preceding
such Payment Date.
Monthly Payment: The scheduled monthly payment of principal and/or interest
required to be made by an Obligor on the related Home Loan, as set forth in the
related Debt Instrument.
Moody's: ▇▇▇▇�'� Investors Service, Inc., or any successor thereto.
Mortgage: The mortgage, deed of trust or other security instrument creating
a lien in accordance with applicable law on a Mortgaged Property to secure the
Debt Instrument which evidences a Home Loan (other than any Unsecured Home
Loan).
Mortgaged Property: The real property encumbered by the Mortgage that
secures the Debt Instrument evidencing a Home Loan (other than an Unsecured Home
Loan).
Mortgaged Property States: Each state in which any Mortgaged Property
securing a Home Loan is located as set forth in the Home Loan Schedule.
Net Liquidation Proceeds: With respect to any Payment Date, Liquidation
Proceeds received during the related Due Period, net of any reimbursements to
the Servicer made from such amounts for the following: (i) any unreimbursed
Servicing Compensation; and (ii) Servicing Advances (including Nonrecoverable
Servicing Advances) made and any other fees and expenses paid in connection with
the foreclosure, conservation or liquidation of the related Liquidated Home Loan
or Foreclosure Property pursuant to Sections 4.10 or 4.11 hereof.
Net Loan Losses: With respect to any Defaulted Home Loan that is subject to
a modification pursuant to Section 4.10 hereof or pursuant to a legal proceeding
(including a Chapter 13 bankruptcy proceeding), an amount equal to the portion
of the Principal Balance, if any, released in connection with such modification.
Nonrecoverable Servicing Advance: With respect to any Defaulted Home Loan
or any Foreclosure Property, any Servicing Advance previously made and not
reimbursed from late or other fee collections, Liquidation Proceeds, Property
Insurance Proceeds or the Released Mortgaged Property Proceeds following the
liquidation or disposition of such Defaulted Home Loan or Foreclosure Property,
as evidenced by an Officer's Certificate delivered to the Indenture Trustee, the
Master Servicer and the Securities Insurer.
Note: Any of the Notes.
Note Factor: With respect to any date of determination, the Note Principal
Balance divided by the Original Note Principal Balance.
Note Interest Rate: The annual rate of interest payable to the holders of
the Notes will be 6.75%. Commencing on the first day of the Accrual Period in
which the Clean-up Call Date occurs, the Note Interest Rate shall be increased
by 0.50% per annum.
Note Payment Account: The Eligible Account established and maintained
pursuant to Section 5.01(a)(2) hereof.
Note Principal Balance: As of any date of determination, the Original Note
Principal Balance reduced by the sum of all amounts previously distributed in
respect of principal of such Notes on all previous Payment Dates.
Note Redemption Amount: As of any date of determination, an amount without
duplication equal to the sum of (i) the then outstanding Note Principal Balance
of all Notes plus all accrued and unpaid interest thereon, (ii) any Trust Fees
and Expenses due and unpaid on such date, (iii) any Servicing Advance
Reimbursement Amount, and (iv) any Securities Insurer Reimbursement Amount.
Noteholder: A holder of a Note.
Noteholders' Interest Carry-Forward Amount: With respect to any Payment
Date, the excess, if any, of (A) the Noteholders' Monthly Interest Payment
Amount for the preceding Payment Date plus any outstanding Noteholders' Interest
Carry-Forward Amount on such preceding Payment Date, over (B) the amount in
respect of interest that is actually deposited in the Note Payment Account on
such preceding Payment Date.
Noteholders' Interest Payment Amount: With respect to any Payment Date, the
sum of the Noteholders' Monthly Interest Payment Amount for such Payment Date
and the Noteholders' Interest Carry-Forward Amount for such Payment Date.
Noteholders' Monthly Interest Payment Amount: With respect to each Payment
Date and the Notes, the interest accrued during the related Accrual Period at
the Note Interest Rate on the Note Principal Balance of the Notes immediately
preceding such Payment Date (or, in the case of the first Payment Date,
beginning on the Closing Date), after giving effect to all payments of principal
to the holders of the Notes on or prior to such preceding Payment Date.
Noteholders' Principal Deficiency Amount: (1) With respect to any Payment
Date, the excess, if any, of (a) the Note Principal Balance as of such Payment
Date (after giving effect to all payments of principal on such Payment Date, but
without giving effect to any payments in respect of this Noteholders' Principal
Deficiency Amount to be made on such Payment Date), over (b) the Pool Principal
Balance as of the end of the related Due Period; and (2) with respect to the
Maturity Date of the Notes or any Payment Date upon which the Securities Insurer
has exercised its option to accelerate the Notes under the Indenture, the excess
of (a) the Note Principal Balance (after giving effect to all payments of
principal on such Payment Date, but without giving effect to any payments in
respect of this Noteholders' Principal Deficiency Amount to be made on such
Payment Date), over (b) the Available Payment
Amount remaining after the payment of the Noteholders' Interest Payment Amount
and the Regular Principal Payment Amount for such Payment Date.
Obligor: Each obligor on a Debt Instrument.
OC Trigger Increase Event: With respect to any Payment Date, the occurrence
of any of the following: (1) the Six-Month Average Delinquency equals or exceeds
4%; (2) Three-Month Average Annualized Losses exceed 4%; or (3) cumulative
Realized Losses (subject to adjustment pursuant to Section 3.05(b) hereof), as a
percentage of the Original Pool Principal Balance, equal or exceed the following
percentages based on the month of determination after the Closing Date:
-------------------------------------------------------------
Month of Cumulative
Determination Realized Losses
------------- ---------------
-------------------------------------------------------------
0 - 18 2.0%
-------------------------------------------------------------
19 - 32 5.0%
-------------------------------------------------------------
33 - 42 8.0%
-------------------------------------------------------------
43 - 54 11.0%
-------------------------------------------------------------
55+ 12.5%
-------------------------------------------------------------
OC Trigger Reversal Event: With respect to any Payment Date, the occurrence
for six consecutive months of each of the following: (1) the Six-Month Average
Delinquency is less than 4%; (2) Three-Month Average Annualized Losses are less
than 4%; and (3) cumulative Realized Losses (subject to adjustment pursuant to
Section 3.05(b) hereof), as a percentage of the Original Pool Principal Balance,
are less than the percentages based on the relevant month of determination after
the Closing Date as set forth in the definition of OC Trigger Increase Event
above.
Officer's Certificate: A certificate delivered to the Indenture Trustee,
the Master Servicer, the Securities Insurer or the Issuer signed by the
President or a Vice President or an Assistant Vice President or other officer of
the Depositor, the Servicer, the Master Servicer or the Transferor, in each
case, as required by this Agreement.
Opinion of Counsel: A written opinion of counsel issued by counsel (a) who
is acceptable to the Servicer, the Rating Agencies and the Securities Insurer,
and (b) who may be employed or retained by the Transferor, the Servicer, the
Master Servicer, the Depositor, the Securities Insurer or any of their
respective Affiliates.
Original Note Principal Balance: $283,580,654.
Original Pool Principal Balance: $299,607,584.50, which is the Pool
Principal Balance as of the Cut-Off Date.
Outstanding: As defined in the Indenture.
Overcollateralization Amount: With respect to any Payment Date, the amount
equal to
the excess of (A) the Pool Principal Balance as of the end of the preceding Due
Period, over (B) the Note Principal Balance (after giving effect to the payments
made on such date pursuant to Section 5.01(d) and (e) hereof). As of the Closing
Date, the initial Overcollateralization Amount attributable to such excess shall
equal approximately 5.35% of the Original Pool Principal Balance, which is
approximately $16,029,123.
Overcollateralization Reduction Amount: With respect to any Payment Date
that occurs on or after the Stepdown Date, the lesser of (1) the excess, if any,
of (a) the Overcollateralization Amount (assuming principal payments on the
Notes on such Payment Date are equal to the Regular Principal Payment Amount
without deduction of this Overcollateralization Reduction Amount), over (b) the
Overcollateralization Target Amount, and (2) the Regular Principal Payment
Amount (as determined without the deduction of this Overcollateralization
Reduction Amount therefrom) on such Payment Date. Prior to the occurrence of a
Stepdown Date, the Overcollateralization Reduction Amount shall be zero.
Overcollateralization Deficiency Amount: With respect to any Payment Date,
the excess, if any, of the Overcollateralization Target Amount over the
Overcollateralization Amount.
Overcollateralization Target Amount: With respect to any Payment Date, an
amount determined as follows:
(1) with respect to any Payment Date occurring prior to the Stepdown
Date, the amount equal to 12.65% of the Original Pool Principal Balance;
(2) with respect to any other Payment Date occurring on or after the
Stepdown Date, an amount equal to the greater of (a) 25.30% of the Pool
Principal Balance as of the end of the related Due Period, and (b) 1.0% of
the Original Pool Principal Balance;
(3) with respect to any Payment Date occurring on or after an Insured
Payment is made, notwithstanding the preceding clause (2), an amount equal
to 12.65% of the Original Pool Principal Balance; and
(4) with respect to any Payment Date occurring on or after an OC
Trigger Increase Event, notwithstanding any of the preceding clauses (1)
through (3), an amount equal to 16.00% of the Original Pool Principal
Balance; provided, however, that with respect to any Payment Date occurring
on or after an OC Trigger Reversal Event, an amount determined pursuant to
clause (1), (2) or (3) above, as applicable;
provided, however, with respect to any Payment Date, notwithstanding any of
the preceding clauses (1) through (4), the Overcollateralization Target Amount
shall not exceed the Note Principal Balance of the Notes.
Owner Trust: The Issuer.
Owner Trust Agreement: The Owner Trust Agreement dated as of November 1,
1998, among the Depositor, Empire Funding, the Owner Trustee and U.S. Bank
National
Association, a national banking association.
Owner Trust Estate: The assets subject to this Agreement, the Owner Trust
Agreement and the Indenture and assigned to the Issuer, which assets consist of:
(i) the contribution of $1 referred to in Section 2.5 of the Owner Trust
Agreement, (ii) the Grantor Trust Certificate, (iii) all payments on and
distributions in respect of the Grantor Trust Certificate, (iv) such assets and
funds as are from time to time deposited in the Trust Accounts, including
amounts on deposit in such accounts which are invested in Permitted Investments,
and (v) all proceeds of every kind and nature whatsoever in respect of any or
all of the foregoing.
Owner Trustee: Wilmington Trust Company, as owner trustee under the Owner
Trust Agreement, and any successor owner trustee under the Owner Trust
Agreement.
Owner Trustee Fee: The annual fee of $4,000 in equal monthly installments
to the Servicer which shall in turn pay such $4,000 to the Owner Trustee on the
Payment Date occurring in November each year during the term of this Agreement
commencing in November, 1999; provided, however, that the initial Owner Trustee
fee shall be paid by the Transferor on the Closing Date.
Ownership Interest: As to any Note, any ownership or security interest in
such Note, including any interest in such Note as the holder thereof and any
other interest therein, whether direct or indirect, legal or beneficial, as
owner or as pledgee.
Payment Date: The 25th day of any month or if such 25th day is not a
Business Day, the first Business Day immediately following such day, commencing
in December, 1998.
Payment Statement: As defined in Section 6.01 hereof.
Percentage Interest: As defined in the Owner Trust Agreement.
Permitted Investments: Each of the following:
(1) direct obligations of, and obligations fully guaranteed by, the
United States of America, FHLMC, FNMA, the Federal Home Loan Banks or any
agency or instrumentality of the United States of America the obligations
of which are backed by the full faith and credit of the United States of
America;
(2) (i) demand and time deposits in, certificates of deposit of,
bankers acceptances issued by, or federal funds sold by, any depository
institution or trust company (including the Indenture Trustee or its agent
acting in their respective commercial capacities) incorporated under the
laws of the United States of America or any state thereof and subject to
supervision and examination by federal or state authorities, so long as, at
the time of such investment or contractual commitment providing for such
investment, such depository institution or trust company or its ultimate
parent has a short-term unsecured debt rating in one of the two highest
available rating categories of S&P and the highest available rating
category of Moody's and provided that each such investment has an original
maturity of no more than 365 days, and (ii) any other demand or time
deposit or deposit which is fully insured by the
FDIC;
(3) repurchase obligations with a term not to exceed 30 days with
respect to any security described in clause (a) above and entered into with
a depository institution or trust company (acting as principal) rated "A"
or higher by S&P and rated "A2" or higher by Moody's; provided, however,
that collateral transferred pursuant to such repurchase obligation must be
of the type described in clause (a) above and must (i) be valued daily at
current market price plus accrued interest, (ii) pursuant to such
valuation, be equal, at all times, to at least 105% of the cash transferred
by the Indenture Trustee in exchange for such collateral, and (iii) be
delivered to the Indenture Trustee, or if the Indenture Trustee is
supplying the collateral, an agent for the Indenture Trustee, in such a
manner as to accomplish perfection of a security interest in the collateral
by possession of certificated securities;
(4) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or
any state thereof which has a long-term unsecured debt rating in the
highest available rating category of each of the Rating Agencies at the
time of such investment;
(5) commercial paper having an original maturity of less than 365 days
and issued by an institution having a short term unsecured debt rating in
the highest available rating category of each of the Rating Agencies at the
time of such investment;
(6) a guaranteed investment contract approved by each of the Rating
Agencies and the Securities Insurer and issued by an insurance company or
other corporation having a long-term unsecured debt rating in the highest
available rating category of each of the Rating Agencies at the time of
such investment;
(7) money market funds having one of the two highest available rating
categories of S&P and the highest available rating category of Moody's at
the time of such investment, which invests only in other Permitted
Investments, including any such money market funds for which the Master
Servicer or any affiliate of the Master Servicer acts as the investment
manager or advisor; provided that any such money market funds which provide
for demand withdrawals shall be conclusively deemed to satisfy any maturity
requirements for Permitted Investments set forth in this Agreement; and
(8) any investment approved in writing by the Securities Insurer and
for which the Ratings Confirmations have been obtained with respect to such
investment.
The Indenture Trustee may purchase from or sell to itself or an affiliate, as
principal or agent, the Permitted Investments listed above. All Permitted
Investments in a trust account under this Agreement shall be made in the name of
the Indenture Trustee for the benefit of the Securityholders and the Securities
Insurer; provided, that the Master Servicer shall be entitled to all investment
earnings from the Note Payment Account as part of its Master Servicer
Compensation hereunder.
Person: Any individual, corporation, partnership, joint venture, limited
liability
company, association, joint-stock company, trust, estate, national banking
association, unincorporated organization or government or any agency or
political subdivision thereof.
Physical Property: As defined in the definition of "Delivery" above.
Pool Principal Balance: With respect to any date of determination, the
aggregate Principal Balances of the Home Loans as of the end of the preceding
Due Period; provided, however, that the Pool Principal Balance on any Payment
Date on which the Termination Price is to be paid to Noteholders will be deemed
to have been equal to zero as of such date.
Preference Amount: Any amount previously distributed to the holder of an
Insured Security that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance with a final,
non-appealable order of a court having jurisdiction.
Principal Balance: With respect to any Home Loan or related Foreclosure
Property, (i) at the Cut-Off Date, the outstanding unpaid principal balance of
the Home Loan as of the Cut-Off Date and (ii) with respect to any date of
determination, the outstanding unpaid principal balance of the Home Loan as of
the last day of the preceding Due Period (after giving effect to all payments
received thereon and the allocation of any Net Loan Losses with respect thereto
which relates to such Due Period), without giving effect to amounts received in
respect of such Home Loan or related Foreclosure Property after such Due Period;
provided, however, that any Liquidated Home Loan shall have a Principal Balance
of zero and with respect to the valuation of the Issuer's assets such Liquidated
Home Loan shall not accrue interest thereon.
Principal Prepayment: With respect to any Home Loan and any Due Period, any
principal amount received on a Home Loan in excess of the principal of the
Monthly Payment due in such Due Period.
Property Insurance Policies: With respect to any Mortgaged Property, any
related insurance policy that insures such Mortgaged Property or the related
Obligor.
Property Insurance Proceeds: With respect to any Mortgaged Property, all
amounts collected in respect of Property Insurance Policies and not required to
be applied to the restoration of any such Mortgaged Property or paid to the
related Obligor (but excluding any Insured Payments).
Prospectus: The Depositor's final Prospectus dated November 3, 1998 as
supplemented by the Prospectus Supplement dated November 3, 1998.
Prospectus Supplement: The Prospectus Supplement dated November 3, 1998
prepared by the Depositor and Transferor in connection with the issuance and
sale of the Notes.
Purchase Price: With respect to a Defective Home Loan, the Principal
Balance thereof as of the date of purchase, plus all accrued and unpaid interest
on such Defective Home Loan to and including the date of repurchase computed at
the applicable Home Loan Interest Rate, plus the amount of any unreimbursed
Servicing Advances made by the Servicer with respect to such Defective Home Loan
(after deducting therefrom any amounts received in respect of such
repurchased Defective Home Loan and being held in the Collection Account for
future distribution to the extent such amounts represent recoveries of principal
not yet applied to reduce the related Principal Balance or interest (net of the
Servicing Fee) for the period from and after the date of repurchase).
Qualified Substitute Home Loan: A home loan or home loans substituted for a
Deleted Home Loan pursuant to Section 2.06 of the Grantor Trust Agreement or
Section 3.05 hereof, which satisfies the following: (i) has or have an interest
rate or rates of (a) no lower than the Home Loan Interest Rate for the Deleted
Home Loan, and (b) not more than 2.0 percentage points greater than the Home
Loan Interest Rate for the Deleted Home Loan; (ii) matures or mature not more
than one year than, and not more than one year earlier, than the maturity date
of Deleted Home Loan, has a maturity date no later than October 1, 2023 and an
original term to maturity of less than or equal to 25 years; (iii) has or have a
principal balance or principal balances (after application of all payments
received on or prior to the date of substitution) equal to or less than the
Principal Balance or Balances of the Deleted Home Loan or Loans as of such date;
(iv) has a Credit Score not less than the Credit Score of the Deleted Home Loan;
(v) has or have a lien priority equal or superior to that of the Deleted Home
Loan or Loans; (vi) has or have a borrower or borrowers with a debt-to-income
ratio no higher than the debt-to-income ratio of the Obligor with respect to the
Deleted Loan; and (vii) complies or comply as of the date of substitution with
each representation and warranty set forth in Section 3.04 hereof and is or are
not more than 29 days delinquent as of the date of substitution for such Deleted
Home Loan or Loans. For purposes of determining whether multiple mortgage loans
proposed to be substituted for one or more Deleted Home Loans pursuant to
Section 2.06 of the Grantor Trust Agreement or Section 3.05 hereof are in fact
"Qualified Substitute Home Loans" as provided above, the criteria specified in
clauses (i), (ii) and (iii) above may be considered on an aggregate or weighted
average basis, rather than on a loan-by-loan basis (i.e., so long as the
weighted average Home Loan Interest Rate of any loans proposed to be substituted
is not less than the Home Loan Interest Rate for the designated Deleted Home
Loan or Loans and not more than two percentage points greater than the Home Loan
Interest Rate for the designated Deleted Home Loan or Loans, the requirements of
clause (i) above would be deemed satisfied).
Rating Agencies: Fitch, ▇▇▇▇�'� and S&P. If no such organization or
successor is any longer in existence, "Rating Agency" shall be a nationally
recognized statistical rating organization or other comparable person designated
by the Servicer and approved by the Securities Insurer, notice of which
designation shall have been given to the Indenture Trustee, the Securities
Insurer, the Master Servicer and the Issuer.
Ratings: The ratings initially assigned to the Notes by the Rating
Agencies, as evidenced by letters from the Rating Agencies.
Ratings Confirmation: With respect to a contemplated action to be
undertaken or performed pursuant to this Agreement, a written confirmation from
each Rating Agency to the effect that such action will not result in or cause
the downgrading, withdrawal or qualification of the rating that would otherwise
be assigned by such Rating Agency to the Notes without the benefit of the
Guaranty Policy provided by the Securities Insurer.
Realized Losses: As of any Payment Date, the sum of (1) with respect to all
Home Loans that have become Liquidated Home Loans during the related Due Period,
the difference between (a) the aggregate Principal Balances of such Liquidated
Home Loans and accrued and unpaid interest thereon, minus (b) the aggregate Net
Liquidation Proceeds collected during the related Due Period, and (2) with
respect to all Defaulted Home Loans, the aggregate Net Loan Losses that occurred
during the related Due Period; provided, however, that for purposes of
determining whether an OC Trigger Increase Event or an OC Trigger Reversal Event
has occurred, the amount of such Realized Losses shall be increased by the
aggregate Principal Balances of all Defaulted Home Loans that have been
repurchased pursuant to Section 3.05(b) hereof during the related Due Period,
but only the excess, if any, of the aggregate Principal Balances of all
Defaulted Home Loans repurchased pursuant to such Section 3.05(b) during such
Due Period and all preceding Due Periods, over 2% of the Original Pool Principal
Balance.
Record Date: With respect to each Payment Date, the close of business on
the last Business Day of the month immediately preceding the month in which such
Payment Date occurs.
Regular Payment Amount: With respect to any Payment Date, the lesser of (a)
the Available Payment Amount and (b) the sum of (i) the Noteholders' Interest
Payment Amount and (ii) the Regular Principal Payment Amount.
Regular Principal Payment Amount: On each Payment Date, an amount equal to
the lesser of:
(A) the Note Principal Balance of the Notes immediately prior to such
Payment Date; and
(B) the sum of (i) each scheduled payment of principal collected by
the Servicer in the related Due Period, (ii) all Principal Prepayments
applied by the Servicer during such related Due Period, (iii) the principal
portion of all Net Liquidation Proceeds, Property Insurance Proceeds and
Released Mortgaged Property Proceeds received during the related Due
Period, (iv) that portion of the Purchase Price of any repurchased Home
Loan which represents principal received prior to the related Determination
Date, (v) the principal portion of any Substitution Adjustments required to
be deposited in the Collection Account as of the related Determination Date
and (vi) on the Payment Date on which the Issuer and the Grantor Trust are
to be terminated pursuant to Section 11.02 hereof, the Termination Price
(net of any accrued and unpaid interest, Trust Fees and Expenses due and
unpaid on such date and Servicing Advance Reimbursement Amount);
provided, however, that if such Payment Date is on or after a Stepdown
Date, then with respect to the payment of principal to the Noteholders the
foregoing amount will be reduced (but not less than zero) by the
Overcollateralization Reduction Amount, if any, for such Payment Date.
Released Mortgaged Property Proceeds: With respect to any Home Loan (other
than an
Unsecured Home Loan), proceeds received by the Servicer in connection with (i) a
taking of an entire Mortgaged Property by exercise of the power of eminent
domain or condemnation or (ii) any release of part of the Mortgaged Property
from the lien of the related Mortgage, whether by partial condemnation, sale or
otherwise; which proceeds in either case are not released to the Obligor in
accordance with applicable law, Accepted Servicing Procedures and this
Agreement.
Residual Interest: The meaning assigned thereto in the Owner Trust
Agreement.
Residual Interest Certificate: The meaning assigned thereto in the Owner
Trust Agreement.
Responsible Officer: When used with respect to the Indenture Trustee or
Grantor Trustee, any officer within the Corporate Trust Office of the Indenture
Trustee or Grantor Trustee, as the case may be, including any Vice President,
Assistant Vice President, Secretary, Assistant Secretary or any other officer of
the Indenture Trustee or Grantor Trustee, as the case may be, customarily
performing functions similar to those performed by any of the above designated
officers and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject. When used with respect to the Issuer,
any officer in the Corporate Trust Administration Department of the Owner
Trustee with direct responsibility for the administration of the Owner Trust
Agreement and this Agreement on behalf of the Issuer. When used with respect to
the Depositor, the Transferor, the Servicer or any Custodian, the President or
any Vice President, Assistant Vice President, or any Secretary or Assistant
Secretary.
S&P: Standard and Poor's Ratings Services, or any successor thereto.
Securities: The Notes or Residual Interest Certificates.
Securities Insurer: MBIA Insurance Corporation, as issuer of the Guaranty
Policy, and its successors and assigns.
Securities Insurer Commitment: The Commitment to Issue a Financial Guaranty
Insurance Policy (Application No. 1998-010258-01) dated November 4, 1998 issued
by the Securities Insurer regarding the Series 1998-3; provided that with
respect to any conflict or inconsistency between the provisions of such
commitment and this Agreement, the provisions of this Agreement shall govern and
control the relevant action or matter.
Securities Insurer Default: The existence and continuation of any of the
following:
(a) the Securities Insurer fails to make a payment required under the
Guaranty Policy in accordance with its terms; or
(b) the entry by a court having jurisdiction in the premises of (1) a
decree or order for relief in respect of the Securities Insurer in an
involuntary case or proceeding under any applicable United States federal
or state bankruptcy, insolvency, rehabilitation, reorganization or other
similar law and the continuance of any such
decree or order for relief or any such other decree or order unstayed and
in effect for a period of 90 consecutive days, or (2) a final and
non-appealable decree or order adjudging the Securities Insurer as bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, rehabilitation, arrangement, adjustment or composition of
or in respect of the Securities Insurer under any applicable United States
federal or state law, or appointing a custodian, receiver, liquidator,
rehabilitator, assignee, indenture trustee, sequestrator or other similar
official of the Securities Insurer or of any substantial part of its
property, or ordering the winding-up or liquidation of its affairs; or
(c) (1) the commencement by the Securities Insurer of a voluntary case
or proceeding under any applicable United States federal or state
bankruptcy, insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated as a bankrupt or insolvent, or (2) the
consent of the Securities Insurer to the entry of a decree or order for
relief in respect of the Securities Insurer in an involuntary case or
proceeding against the Securities Insurer under any applicable United
States federal or state bankruptcy, insolvency, reorganization or other
similar law, or (3) the filing against the Securities Insurer of any
petition for such an involuntary case or proceeding, or (3) the appointment
of or the taking possession by a custodian, receiver, liquidator,
rehabilitator, assignee, indenture trustee, sequestrator or other similar
official of the Securities Insurer or of any substantial part of its
property, or (4) the failure of the Securities Insurer to pay its debts
generally as they become due, or (5) the admission by the Securities
Insurer in writing of its inability to pay its debts generally as they
become due.
Securities Insurer Reimbursement Amount: At any time, an amount owed to the
Securities Insurer for any unreimbursed Insured Payments made under the Guaranty
Policy, together with interest thereon at the rate specified in the Insurance
Agreement and any other amounts then owing to the Securities Insurer under the
Insurance Agreement, which have not previously been reimbursed.
Securityholder: Any Noteholder or Certificateholder.
Series or Series 1998-3: Empire Funding Home Loan Asset Backed Notes,
Series 1998-3.
Servicer: Empire Funding, in its capacity as the servicer hereunder, or any
successor appointed as herein provided.
Servicer Termination Event: The termination of the Servicer hereunder,
including a resignation or a termination pursuant to Section 4.01A or 10.01(b)
hereof.
Servicer's Fiscal Year: January 1st through December 31st of each year.
Servicer's Home Loan Files: In respect of each Home Loan, all documents
customarily included in the Servicer's loan file for the related type of Home
Loan as specifically set forth in Section 2.05(b) of the Grantor Trust
Agreement.
Servicer's Monthly Remittance Report: A report prepared and computed by the
Servicer in substantially the form of Exhibit B attached hereto.
Servicing Advance Reimbursement Amount: With respect to any date of
determination and with respect to the receipt of proceeds from or the
liquidation of a Home Loan for which any Servicing Advances have been made, the
amount of any such Servicing Advances that have not been reimbursed as of such
date, including Nonrecoverable Servicing Advances.
Servicing Advances: Subject to Section 4.01(b) hereof, all reasonable,
customary and necessary "out of pocket" costs and expenses advanced or paid by
the Servicer with respect to the Home Loans in accordance with the performance
by the Servicer of its servicing obligations hereunder, including, but not
limited to, the costs and expenses for (i) the preservation, restoration and
protection of any related Mortgaged Property, including without limitation
advances in respect of real estate taxes and assessments, (ii) any collection,
enforcement or judicial proceedings, including without limitation foreclosures,
collections and liquidations pursuant to Section 4.10 hereof, (iii) the
conservation, management and sale or other disposition of a Foreclosure Property
pursuant to Section 4.11 hereof, (iv) the preservation of the security for a
Home Loan if any lienholder under a Superior Lien has accelerated or intends to
accelerate the obligations secured by such Superior Lien pursuant to Section
4.10 hereof, and (v) the satisfaction, cancellation, release or discharge of any
Home Loan or any related Mortgage in accordance with this Agreement; provided,
however, that such Servicing Advances (plus accrued interest thereon from the
date of such advance to the date of reimbursement and at the rate equal to the
Servicer's cost of funds) are reimbursable to the Servicer out of the expected
late collections, Liquidation Proceeds, Property Insurance Proceeds or Released
Mortgaged Property Proceeds from the related Home Loan, Obligor or Mortgaged
Property.
Servicing Compensation: The Servicing Fee and other amounts to which the
Servicer is entitled pursuant to Section 7.03 hereof.
Servicing Fee: As to each Home Loan (including any Home Loan that has been
foreclosed and has become a Foreclosure Property, but excluding any Liquidated
Home Loan), the fee payable monthly to the Servicer on each Payment Date, which
shall equal the product of (a) one-twelfth (1/12) of 0.75% (75 basis points) and
(b) the Principal Balance of such Home Loan as of the beginning of the
immediately preceding Due Period. The Servicing Fee includes any servicing fees
owed or payable to any Subservicer, which fees shall be paid from the Servicing
Fee.
Servicing Officer: Any officer of the Servicer, Master Servicer or
Subservicer involved in, or responsible for, the administration and servicing of
the Home Loans whose name and specimen signature appears on a list of servicing
officers annexed to an Officer's Certificate furnished by the Servicer, the
Master Servicer or the Subservicer, respectively, to the Grantor Trustee, the
Securities Insurer, the Master Servicer and the Indenture Trustee, on behalf of
the Securityholders and the Securities Insurer, as such list may from time to
time be amended.
Six-Month Average Delinquency: With respect to any Payment Date, the
average for
such Payment Date and the five preceding Payment Dates of the respective ratios,
expressed as a percentage, equal to (x) the aggregate Principal Balances of all
Home Loans that are 60 days or more Delinquent (excluding any Liquidated Home
Loans) as of the end of each of the related Due Periods, divided by (y) the
respective Pool Principal Balance as of the end of the applicable Due Period.
Stepdown Date: The first Payment Date occurring on the later of: (a) the
thirty-sixth month after the month in which the Closing Date occurs; or (b) the
Payment Date on which the Pool Principal Balance as of the end of the related
Due Period has been reduced to an amount that is less than or equal to 50% of
the Original Pool Principal Balance.
Subservicer: Any Person with which the Servicer has entered into a
Subservicing Agreement and which is an Eligible Servicer and satisfies any
requirements set forth in Section 4.06(a) hereof in respect of the
qualifications of a Subservicer.
Subservicing Account: An account established by a Subservicer pursuant to a
Subservicing Agreement, which account must be an Eligible Account.
Subservicing Agreement: Any agreement between the Servicer and any
Subservicer relating to subservicing and/or administration of any or all Home
Loans as provided in Section 4.06(a) hereof, copies of which shall be made
available, along with any modifications thereto, to the Issuer, the Grantor
Trustee, the Securities Insurer, the Master Servicer and the Indenture Trustee.
Substitute Collateral: Any Substitute Collateral as defined in Section
4.10(c) hereof.
Substitution Adjustment: As to any date on which a substitution occurs
pursuant to Sections 2.06 of the Grantor Trust Agreement or Section 3.05 hereof,
the amount, if any, by which (a) the sum of the aggregate principal balance
(after application of principal payments received on or before the date of
substitution) of any Qualified Substitute Home Loans as of the date of
substitution, plus any accrued and unpaid interest thereon to the date of
substitution, is less than (b) the sum of the Principal Balance, together with
accrued and unpaid interest thereon to the date of substitution, of the related
Deleted Home Loans.
Superior Lien: With respect to any Home Loan (other than an Unsecured Home
Loan) which is secured by a lien other than a first priority lien, the mortgage
loan(s) having a superior priority lien on the related Mortgaged Property.
Tangible Net Worth: As defined in Section 10.01(a)(x) hereof.
Three-Month Average Annualized Losses: With respect to any Payment Date,
the average for this Payment Date and the two preceding Payment Dates of the
respective ratios, expressed as a percentage, equal to (x) the Realized Losses
for each of the related Due Periods (net of any Insurance Proceeds, Net
Liquidation Proceeds and Released Mortgaged Property Proceeds), divided by (y)
the respective Pool Principal Balance as of the beginning of each such Due
Period, and multiplied by (z) twelve.
Termination Price: As of any date of determination, an amount without
duplication
equal to the greater of (A) the Note Redemption Amount and (B) the sum of (i)
the Principal Balance of each Home Loan included in the Grantor Trust as of the
applicable Monthly Cut-Off Date; (ii) all unpaid interest accrued on the
Principal Balance of each such Home Loan at the related Home Loan Interest Rate
to such Monthly Cut-Off Date; (iii) the aggregate fair market value of each
Foreclosure Property included in the Grantor Trust on such Monthly Cut-Off Date,
as determined by an Independent appraiser acceptable to the Indenture Trustee as
of a date not more than 30 days prior to such Monthly Cut-Off Date; and (iv) any
Securities Insurer Reimbursement Amount.
Transferor: Empire Funding, in its capacity as the transferor hereunder.
Treasury Regulations: Regulations, including proposed or temporary
regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
Trust: The Issuer.
Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in the Trust Accounts and all proceeds of the foregoing.
Trust Accounts: The Note Payment Account, the Certificate Distribution
Account, the Collection Account and any escrow or reserve account established
pursuant to Section 10.01(c) hereof.
Trust Fees and Expenses: As of each Payment Date, an amount equal to the
Master Servicer Compensation (which includes the Master Servicer Fee), the
Servicing Compensation (which includes the Servicing Fee), Guaranty Insurance
Premium, the Indenture Trustee Fee, the Grantor Trustee Fee, the Owner Trustee
Fee and the Custodian Fee, if any.
UCC: The Uniform Commercial Code as in effect in the State of New York.
Unsecured Home Loan: Any Home Loan that is evidenced by the related Debt
Instrument and has been underwritten to substantially the same standards as a
secured Home Loan, except that such Home Loan is not secured by a Mortgage.
Section 1.02 Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein have the
meanings assigned to them in the Indenture and the Owner Trust Agreement.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document made
or delivered pursuant hereto or thereto, accounting terms not defined in this
Agreement or in
any such certificate or other document, and accounting terms partly defined in
this Agreement or in any such certificate or other document to the extent not
defined, shall have the respective meanings given to them under GAAP. To the
extent that the definitions of accounting terms in this Agreement or in any such
certificate or other document are inconsistent with the meanings of such terms
under GAAP, the definitions contained in this Agreement or in any such
certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Article, Section, Schedule and
Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II
CONVEYANCE OF THE GRANTOR TRUST CERTIFICATE
Section 2.01 Conveyance of the Grantor Trust Certificate.
(a) As of the Closing Date, in consideration of the Issuer's delivery of
the Notes and the Residual Interest Certificates to the Depositor or its
designee, upon the order of the Depositor, the Depositor, as of the Closing Date
and concurrently with the execution and delivery hereof, does hereby sell,
transfer, assign, set over and otherwise convey to the Issuer, without recourse,
but subject to the other terms and provisions of this Agreement, all of the
right, title and interest of the Depositor in and to the Owner Trust Estate. The
foregoing sale, transfer, assignment, set over and conveyance does not, and is
not intended to, result in a creation or an assumption by the Issuer of any
obligation of the Depositor, the Transferor or any other person in connection
with the Owner Trust Estate or under any agreement or instrument relating
thereto except as specifically set forth herein.
(b) As of the Closing Date, the Issuer acknowledges the conveyance to it of
the Owner Trust Estate, including all right, title and interest of the Depositor
in and to the Owner Trust Estate, receipt of which is hereby acknowledged by the
Issuer. Concurrently with such delivery and in exchange therefor, the Issuer has
pledged the Owner Trust Estate to the Indenture Trustee for the benefit of the
Noteholders and the Securities Insurer, and the Indenture Trustee, pursuant to
the written instructions of the Issuer, has executed and caused the Notes to be
authenticated and delivered to the Depositor or its designee, upon the order of
the Issuer. In addition, concurrently with such delivery and in exchange
therefor, the Owner Trustee, pursuant to the instructions of the Depositor, has
executed (not in its individual capacity, but solely as Owner Trustee on behalf
of the Issuer) and caused the Residual Interest Certificates to be authenticated
and delivered to the Depositor or its designee, upon the order of the Depositor.
Section 2.02 Ownership and Possession of Grantor Trust Certificate.
Upon the issuance of the Notes, the ownership of the Grantor Trust
Certificate shall be vested in the Indenture Trustee for the benefit of the
Securityholders and the Securities Insurer.
Section 2.03 Books and Records; Principal Place of Business.
The sale of the Grantor Trust Certificate shall be reflected on the balance
sheets and other financial statements of the Depositor, as a sale of assets by
the Depositor under GAAP.
It is the intention of the parties hereto that the transfers and
assignments contemplated by this Agreement shall constitute a sale of the
Grantor Trust Certificate and the other property specified in Section 2.01(a)
hereof from the Depositor to the Issuer and such property shall not be property
of the Depositor. If the assignment and transfer of the Grantor Trust
Certificate and the other property specified in Section 2.01(a) hereof to the
Owner Trustee pursuant to this Agreement or the conveyance of the Grantor Trust
Certificate or any of such other property to the Owner Trustee is held or deemed
not to be a sale or is held or deemed to be a pledge of security for a loan, the
Depositor intends that the rights and obligations of the parties shall be
established pursuant to the terms of this Agreement and that, in such event, (i)
the Depositor shall be deemed to have granted and does hereby grant to the Owner
Trustee a first priority security interest in the entire right, title and
interest of the Depositor in and to the Grantor Trust Certificate and all other
property conveyed to the Owner Trustee pursuant to Section 2.01 hereof and all
proceeds thereof and (ii) this Agreement shall constitute a security agreement
under applicable law. Within ten (10) days of the Closing Date, the Depositor
shall cause to be filed UCC-1 financing statements naming the Owner Trustee as
"secured parties" and describing the Grantor Trust Certificate being sold by the
Depositor to the Issuer with the office of the Secretary of State of the state
in which the Depositor is located.
Section 2.04 Delivery of Grantor Trust Certificate; Further Assurances.
(a) The Depositor shall, on the Closing Date, upon the order of the Issuer,
deliver or cause to be delivered, the Grantor Trust Certificate registered in
the name of U.S. Bank National Association, as Indenture Trustee for Empire
Funding Home Loan Owner Trust 1998-3, to the Indenture Trustee for the benefit
of the Noteholders and the Securities Insurer.
(b) The Depositor shall execute and deliver all such other instruments,
documents and certificates and take all such other actions deemed necessary by
the Owner Trustee in connection with, or in furtherance of, the transactions
contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Depositor.
The Depositor hereby represents and warrants to the Transferor, the Master
Servicer, the Servicer, the Grantor Trustee, the Indenture Trustee, the Owner
Trustee, the Securities Insurer and the Noteholders that as of the Closing Date:
(a) The Depositor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has, and had at all
relevant times, full power to own its property, to carry on its business as
currently conducted, to enter into and perform its obligations under this
Agreement and to create the Owner Trust pursuant to the Owner Trust Agreement.
(b) The execution and delivery of this Agreement by the Depositor and its
performance of and compliance with the terms of this Agreement will not violate
the Depositor's certificate of incorporation or by-laws or constitute a default
(or an event which, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach or acceleration of, any material
contract, agreement or other instrument to which the Depositor is a party or
which may be applicable to the Depositor or any of its assets.
(c) The Depositor has the full power and authority to enter into and
consummate the transactions contemplated by this Agreement, has duly authorized
the execution, delivery and performance of this Agreement and has duly executed
and delivered this Agreement. This Agreement, assuming due authorization,
execution and delivery by the Owner Trustee, the Indenture Trustee, the Grantor
Trustee, the Transferor, the Master Servicer and the Servicer, constitutes a
valid, legal and binding obligation of the Depositor, enforceable against it in
accordance with the terms hereof, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium or other
similar laws relating to or affecting the rights of creditors generally, and by
general equity principles (regardless of whether such enforcement is considered
in a proceeding in equity or at law).
(d) The Depositor is not in violation of, and the execution and delivery of
this Agreement by the Depositor and its performance and compliance with the
terms of this Agreement will not constitute a violation with respect to, any
order or decree of any court or any order or regulation of any federal, state,
municipal or governmental agency having jurisdiction, which violation would
materially and adversely affect the condition (financial or otherwise) or
operations of the Depositor or its properties or materially and adversely affect
the performance of its duties hereunder.
(e) There are no actions or proceedings against, or investigations of, the
Depositor currently pending with regard to which the Depositor has received
service of process and no action or proceeding against, or investigation of, the
Depositor is, to the knowledge of the Depositor, threatened or otherwise pending
before any court, administrative agency or other tribunal that (A) if determined
adversely, would prohibit its entering into this Agreement or render the Notes
invalid, (B) seek to prevent the issuance of the Notes or the consummation of
any of the transactions contemplated by this Agreement or (C) if determined
adversely, would prohibit or materially and adversely affect the performance by
the Depositor of its obligations under, or the validity or enforceability of,
this Agreement or the Notes.
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Depositor of, or compliance by the Depositor with, this
Agreement or the Notes, or for the consummation of the transactions contemplated
by this Agreement, except for such consents, approvals, authorizations and
orders, if any, that have been obtained prior to the Closing Date.
(g) The Depositor is solvent, is able to pay its debts as they become due
and has capital sufficient to carry on its business and its obligations
hereunder; it will not be rendered insolvent by the execution and delivery of
this Agreement or its obligations hereunder; no petition of bankruptcy (or
similar insolvency proceeding) has been filed by or against the Depositor prior
to the date hereof.
(h) The Depositor did not sell (i) the Home Loans to the Grantor Trustee or
(ii) the Grantor Trust Certificate to the Issuer, with any intent to hinder,
delay or defraud any of its creditors; the Depositor will not be rendered
insolvent as a result of the sale of the Home Loans to the Grantor Trustee and
the sale of the Grantor Trust Certificate to the Issuer.
(i) As of the Closing Date, the Depositor had good title to, and was the
sole beneficial owner of, the Grantor Trust Certificate and had good and
marketable title thereto, free and clear of any lien or options in favor of, or
claims of, any other Person, other than any such lien released simultaneously
with the sale contemplated herein, and, immediately upon each transfer and
assignment herein contemplated, the Depositor will have delivered to the Issuer
good title to, and the Issuer will be the sole beneficial owner of, the Grantor
Trust Certificate free and clear of any lien or options in favor of, or claims
of, any other Person.
(j) The Grantor Trust Certificate has been validly issued, and is fully
paid and non-assessable and not subject to preemptive rights, and the Grantor
Trust Certificate has been offered, issued and sold in compliance with all
applicable laws and (A) there are no outstanding rights, options, warrants or
agreements for the purchase from, or sale or issuance, in connection with the
Grantor Trust Certificate; (B) there are no agreements on the part of the
Depositor to issue, sell or distribute the Grantor Trust Certificate; and (C)
the Depositor has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any securities or any interest therein or to pay any dividend
or make any distribution in respect of the Grantor Trust Certificate.
(k) The Depositor acquired title to the Grantor Trust Certificate in good
faith, without notice of any adverse claim.
(l) No Officers' Certificate, statement, report or other document prepared
by the Depositor and furnished or to be furnished by it pursuant to this
Agreement or in connection with the transactions contemplated hereby contains
any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading.
(m) The Depositor is not required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended.
Section 3.02 Representations and Warranties of the Transferor.
The Transferor hereby represents and warrants to the Servicer, the
Indenture Trustee, the Owner Trustee, the Grantor Trustee, the Securities
Insurer, the Noteholders and the Depositor that as of the Closing Date (except
as otherwise specifically provided herein):
(a) The Transferor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Oklahoma and has and had at all
relevant times, full corporate power to originate or purchase the Home Loans, to
own its property, to carry on its business as presently conducted and to enter
into and perform its obligations under this Agreement.
(b) The execution and delivery of this Agreement by the Transferor and its
performance of and compliance with the terms of this Agreement will not violate
the Transferor's certificate of incorporation or by-laws or constitute a default
(or an event which, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach or acceleration of, any material
contract, agreement or other instrument to which the Transferor is a party or
which may be applicable to the Transferor or any of its assets.
(c) The Transferor has the full power and authority to enter into and
consummate all transactions contemplated by this Agreement to be consummated by
it, has duly authorized the execution, delivery and performance of this
Agreement and has duly executed and delivered this Agreement. This Agreement,
assuming due authorization, execution and delivery by the Owner Trustee, the
Indenture Trustee, the Grantor Trustee, the Master Servicer, and the Depositor,
constitutes a valid, legal and binding obligation of the Transferor, enforceable
against it in accordance with the terms hereof, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, receivership, moratorium
or other similar laws relating to or affecting the rights of creditors
generally, and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
(d) The Transferor is not in violation of, and the execution and delivery
of this Agreement by the Transferor and its performance and compliance with the
terms of this Agreement will not constitute a violation with respect to, any
order or decree of any court or any order or regulation of any federal, state,
municipal or governmental agency having jurisdiction, which violation would
materially and adversely affect the condition (financial or otherwise) or
operations of the Transferor or its properties or materially and adversely
affect the performance of its duties hereunder.
(e) There are no actions or proceedings against, or investigations of, the
Transferor currently pending with regard to which the Transferor has received
service of process and no action or proceeding against, or investigation of, the
Transferor is, to the knowledge of the Transferor, threatened or otherwise
pending, before any court, administrative agency or other tribunal that (A) if
determined adversely, would
prohibit its entering into this Agreement or render the Notes invalid, (B) seek
to prevent the issuance of the Notes or the consummation of any of the
transactions contemplated by this Agreement or (C) if determined adversely,
would prohibit or materially and adversely affect the sale of the Home Loans to
the Depositor, the performance by the Transferor of its obligations under, or
the validity or enforceability of, this Agreement or the Notes.
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for: (1) the execution, delivery and
performance by the Transferor of, or compliance by the Transferor with, this
Agreement or the Grantor Trust Agreement, (2) the issuance of the Notes, (3) the
sale of the Home Loans under the Home Loan Purchase Agreement or (4) the
consummation of the transactions required of it by this Agreement, except such
as shall have been obtained before the Closing Date.
(g) The Transferor acquired title to the Home Loans in good faith, without
notice of any adverse claim.
(h) The collection practices used by the Transferor with respect to the
Home Loans have been, in all material respects, legal, proper, prudent and
customary in the servicing of loans of the same type as the Home Loans.
(i) No Officer's Certificate, statement, report or other document prepared
by the Transferor and furnished or to be furnished by it pursuant to this
Agreement or in connection with the transactions contemplated hereby contains
any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading.
(j) The Transferor is solvent, is able to pay its debts as they become due
and has capital sufficient to carry on its business and its obligations
hereunder; it will not be rendered insolvent by the execution and delivery of
this Agreement or by the performance of its obligations hereunder; no petition
of bankruptcy (or similar insolvency proceeding) has been filed by or against
the Transferor prior to the date hereof.
(k) The Prospectus Supplement does not contain an untrue statement of a
material fact and does not omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the Transferor makes no statement with
respect to: (1) the statements set forth in the final two paragraphs of the
cover of the Prospectus Supplement; and (2) statements set forth under the
following captions: (i) "SUMMARY - Tax Status", "-- ERISA Considerations", and
"-- Legal Investment"; (ii) "DESCRIPTION OF CREDIT ENHANCEMENT - The Guaranty
Policy", and "-- The Securities Insurer"; (iii) "FEDERAL INCOME TAX
CONSEQUENCES"; (iv) "ERISA CONSIDERATIONS"; (v) "LEGAL INVESTMENT MATTERS"; and
(vi) "UNDERWRITING" (except for the last paragraph thereunder).
(l) The Transferor has transferred the Home Loans without any intent to
hinder, delay or defraud any of its creditors.
It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive delivery of the respective Grantor
Trustee's Home Loan Files to the Custodian (as the agent of the Grantor Trustee)
and shall inure to the benefit of the Securityholders, the Securities Insurer,
the Depositor, the Master Servicer, the Servicer, the
Indenture Trustee, the Owner Trustee, the Grantor Trustee, the Grantor Trust and
the Owner Trust. Upon discovery by any of the Transferor, the Securities
Insurer, the Depositor, the Master Servicer, the Servicer, the Indenture
Trustee, the Grantor Trustee or the Owner Trustee of a breach of any of the
foregoing representations and warranties that materially and adversely affects
the value of any Home Loan or the interests of the Grantor Trust Holder therein,
the party discovering such breach shall give prompt written notice (but in no
event later than two Business Days following such discovery) to the other
parties. The obligations of the Transferor set forth in Section 3.05 hereof
shall constitute the sole remedies available hereunder to the Securityholders,
the Depositor, the Master Servicer, the Servicer, the Indenture Trustee, the
Grantor Trustee or the Owner Trustee respecting a breach of the representations
and warranties contained in this Section 3.02.
Section 3.03 Representations, Warranties and Covenants of the Servicer.
The Servicer hereby represents and warrants to and covenants with the Owner
Trustee, the Indenture Trustee, the Grantor Trustee, the Securities Insurer, the
Noteholders, the Depositor, the Master Servicer and the Transferor that as of
the Closing Date or as of such date specifically provided herein:
(a) The Servicer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Oklahoma and is or will be in
compliance with the laws of each state in which any Mortgaged Property is
located to the extent necessary to ensure the enforceability of each Loan in
accordance with the terms of this Agreement.
(b) The execution and delivery of this Agreement by the Servicer and its
performance of and compliance with the terms of this Agreement will not violate
the Servicer's certificate of incorporation or by-laws or constitute a default
(or an event which, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach or acceleration of, any material
contract, agreement or other instrument to which the Servicer is a party or
which may be applicable to the Servicer or any of its assets.
(c) The Servicer has the full power and authority to enter into and
consummate all transactions contemplated by this Agreement, has duly authorized
the execution, delivery and performance of this Agreement and has duly executed
and delivered this Agreement. This Agreement, assuming due authorization,
execution and delivery by the Indenture Trustee, the Owner Trustee, the Grantor
Trustee, the Master Servicer, and the Depositor, constitutes a valid, legal and
binding obligation of the Servicer, enforceable against it in accordance with
the terms hereof, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, receivership, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(d) The Servicer is not in violation of, and the execution and delivery of
this Agreement by the Servicer and its performance and compliance with the terms
of this Agreement will not constitute a violation with respect to, any order or
decree of any court or any order or regulation of any federal, state, municipal
or governmental agency having jurisdiction, which violation would materially and
adversely affect the condition (financial or
otherwise) or operations of the Servicer or materially and adversely affect the
performance of its duties hereunder.
(e) There are no actions or proceedings against, or investigations of, the
Servicer currently pending with regard to which the Servicer has received
service of process and no action or proceeding against, or investigation of, the
Servicer is to the knowledge of the Servicer, threatened or otherwise pending,
before any court, administrative agency or other tribunal that (A) if determined
adversely, would prohibit its entering into this Agreement or render the Notes
invalid, (B) seek to prevent the issuance of the Notes or the consummation of
any of the transactions contemplated by this Agreement or (C) if determined
adversely, would prohibit or materially and adversely affect the performance by
the Servicer of its obligations under, or the validity or enforceability of,
this Agreement or the Notes.
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Servicer of, or compliance by the Servicer with, this
Agreement or the Notes, or for the consummation of the transactions contemplated
by this Agreement, except for such consents, approvals, authorizations and
orders, if any, that have been obtained prior to the Closing Date.
(g) The Servicer is duly licensed where required as a "Licensee" or is
otherwise authorized or qualified in each state in which it transacts business
and is not in default of such state's applicable licensing, authorization or
qualification laws, rules and regulations, except where the failure to be so
authorized or qualified or such default would not have a material adverse effect
on the ability of the Servicer to conduct its business or perform its
obligations hereunder.
(h) The Servicer is an Eligible Servicer and services mortgage loans in
accordance with Accepted Servicing Procedures.
(i) No Officer's Certificate, statement, report or other document prepared
by the Servicer and furnished or to be furnished by it pursuant to this
Agreement or in connection with the transactions contemplated hereby contains
any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading.
(j) The Servicer is solvent and will not be rendered insolvent as a result
of the performance of its obligations pursuant to this Agreement.
(k) With respect to any Mortgage that evidences a first lien on the related
Mortgaged Property, the Servicer will cause to be performed any and all acts
required to be performed by the Servicer to preserve the rights and remedies of
the Grantor Trustee, the Owner Trustee, the Securities Insurer and the Indenture
Trustee in any Property Insurance Policies applicable to the Home Loans
including, without limitation, in each case, any necessary notifications of
insurers, assignments of policies or interests therein, and establishments of
co-insured, joint loss payee and mortgagee rights in favor of the Grantor
Trustee, the Owner Trustee and the Indenture Trustee.
(l) The Servicer shall comply with, and shall service, or cause to be
serviced, each
Home Loan, in accordance with the Accepted Servicing Procedures.
(m) The Servicer agrees that, so long as it shall continue to serve in the
capacity contemplated under the terms of this Agreement, it shall remain in good
standing under the laws governing its creation and existence and authorized or
qualified to transact business under the laws of each state in which it is
necessary to perform its obligations under this Agreement or in which the nature
of its business requires such authorization or qualification; it shall maintain
all licenses, permits and other approvals required by any law or regulations as
may be necessary to perform its obligations under this Agreement and to retain
all rights to service the Loans; and it shall not dissolve or otherwise dispose
of all or substantially all of its assets.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.03 shall survive delivery of the
respective Grantor Trustee's Home Loan Files to the Indenture Trustee and shall
inure to the benefit of the Depositor, the Noteholders, the Owner Trustee, the
Grantor Trustee, the Securities Insurer, the Master Servicer, and the Indenture
Trustee. Upon discovery by any of the Transferor, the Depositor, the Master
Servicer, the Servicer, the Indenture Trustee, the Grantor Trustee, the
Securities Insurer or the Owner Trustee of a breach of any of the foregoing
representations, warranties and covenants that materially and adversely affects
the value of any Home Loan or the interests of such Person therein, the party
discovering such breach shall give prompt written notice (but in no event later
than two Business Days following such discovery) to the other parties.
Section 3.03A Representations and Warranties of the Master Servicer.
The Master Servicer hereby represents and warrants to the Servicer, the
Indenture Trustee, the Owner Trustee, the Grantor Trustee, the Securities
Insurer, the Noteholders and the Depositor that as of the Closing Date (except
as otherwise specifically provided herein):
(a) The Master Servicer a national banking association duly organized,
validly existing, and in good standing under the laws of the United States of
America and has, and had at all relevant times, full power to own its property,
to carry on its business as presently conducted and to enter into and perform
its obligations under this Agreement.
(b) The execution and delivery of this Agreement by the Master Servicer and
its performance of and compliance with the terms of this Agreement will not
violate the Master Servicer's articles of association or by-laws or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in the breach or acceleration of, any
material contract, agreement or other instrument to which the Master Servicer is
a party or which may be applicable to the Master Servicer or any of its assets.
(c) The Master Servicer has the full power and authority to enter into and
consummate all transactions contemplated by this Agreement to be consummated by
it, has duly authorized the execution, delivery and performance of this
Agreement and has duly executed and delivered this Agreement. This Agreement,
assuming due authorization, execution and delivery by the Owner Trustee, the
Indenture Trustee, the Grantor Trustee, the Servicer and Transferor, and the
Depositor, constitutes a valid, legal and binding obligation of the Master
Servicer, enforceable against it in accordance with the terms hereof, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership,
moratorium or other similar laws relating to or affecting the rights of
creditors generally, and by general equity principles (regardless of whether
such enforcement is considered in a proceeding in equity or at law).
(d) The Master Servicer is not in violation of, and the execution and
delivery of this Agreement by the Master Servicer and its performance and
compliance with the terms of this Agreement will not constitute a violation with
respect to, any order or decree of any court or any order or regulation of any
federal, state, municipal or governmental agency having jurisdiction, which
violation would materially and adversely affect the condition (financial or
otherwise) or operations of the Master Servicer or its properties or materially
and adversely affect the performance of its duties hereunder.
(e) There are no actions or proceedings against, or investigations of, the
Master Servicer currently pending with regard to which the Master Servicer has
received service of process and no action or proceeding against, or
investigation of, the Master Servicer is, to the knowledge of the Master
Servicer, threatened or otherwise pending, before any court, administrative
agency or other tribunal that (A) if determined adversely, would prohibit its
entering into this Agreement or render the Notes invalid, (B) seek to prevent
the issuance of the Notes or the consummation of any of the transactions
contemplated by this Agreement or (C) if determined adversely, would prohibit or
materially and adversely affect the sale of the Home Loans to the Depositor, the
performance by the Master Servicer of its obligations under, or the validity or
enforceability of, this Agreement or the Notes.
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for: (1) the execution, delivery and
performance by the Master Servicer of, or compliance by the Master Servicer
with, this Agreement or the Notes, or (2) the consummation of the transactions
required of it by this Agreement, except such as shall have been obtained before
the Closing Date.
(g) No Officer's Certificate, statement, report or other document prepared
by the Master Servicer and furnished or to be furnished by it pursuant to this
Agreement or in connection with the transactions contemplated hereby contains
any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading.
(h) The statements set forth in the section of Prospectus Supplement under
the caption "THE MASTER SERVICER" do not contain an untrue statement of a
material fact and do not omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(i) The Master Servicer shall not solicit any refinancing of any of the
Home Loans; provided, however, that this covenant shall not prevent or restrict
either (1) the Master Servicer from making general solicitations, by mail,
advertisement or otherwise of the general public or persons on a targeted list,
so long as the list was not generated from the Home Loan Schedule or (2) any
refinancing in connection with an Obligor's unsolicited request for refinancing.
(m) The Master Servicer shall not sell, transfer, assign or otherwise
dispose of a
customer or similar list comprised of the names of the Obligors under the Home
Loans to any third party.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.03A shall survive the execution and
delivery of the Agreement by the Master Servicer and shall inure to the benefit
of the Depositor, the Noteholders, the Owner Trustee, the Grantor Trustee, the
Securities Insurer, the Servicer, the Transferor and the Indenture Trustee. Upon
discovery by any of the Depositor, the Servicer, the Transferor, the Master
Servicer, the Indenture Trustee, the Grantor Trustee, the Securities Insurer or
the Owner Trustee of a breach of any of the foregoing representations,
warranties and covenants that materially and adversely affects the value of any
Home Loan or the interests of such Person therein, the party discovering such
breach shall give prompt written notice (but in no event later than two Business
Days following such discovery) to the other parties.
Section 3.04 Representations and Warranties Regarding Individual Home
Loans.
The Transferor hereby represents and warrants to the Depositor, the Issuer,
the Indenture Trustee, the Grantor Trustee, the Owner Trustee, the Securities
Insurer, the Master Servicer and the Noteholders, with respect to each Home Loan
as of the Closing Date, except as otherwise expressly stated:
(1) Loan Information. The information pertaining to each Home Loan set
forth in the Home Loan Schedule was true and correct in all material respects as
of the Cut-Off Date.
(2) Payments Current; No Transferor Advances or Payments. As of the
applicable Cut-Off Date, none of the Home Loans was 30 or more days past due
(without giving effect to any grace period); the Transferor has not advanced
funds, induced, solicited or knowingly received any advance of funds from a
party other than the Obligor, directly or indirectly, for the payment of any
amount required by any Home Loan and there is no obligation on the part of the
Transferor or any other party other than the Obligor to make payments with
respect to the Home Loan and the Obligor is not entitled to any refund of any
amounts paid or due to the lender pursuant to the Debt Instrument or any related
Mortgage.
(3) No Waiver or Modification. The terms of the Debt Instrument and any
related Mortgage contain the entire agreement of the parties thereto and have
not been impaired, waived, altered or modified in any respect, except by written
instruments reflected in the related Grantor Trustee's Home Loan File and
recorded, if necessary, to maintain the lien priority of the any related
Mortgage, or except in connection with an assumption agreement which assumption
agreement is part of the related Grantor Trustee's Home Loan File and the
payment terms of which are reflected in the related Home Loan Schedule, and to
the extent required by the applicable title insurance policy for any Mortgaged
Property secured by a first lien Mortgage at origination, the substance of any
waiver, alteration or modification has been approved by the applicable title
insurer and its terms are reflected in the related Home Loan Schedule. No
Obligor has been released, in whole or in part from the Debt Instrument and any
related Mortgage.
(4) No Defenses. The Debt Instrument and any related Mortgage are not
subject to any set-off, claims, counterclaim or defense, including the defense
of usury or of fraud in the
inducement, and will not be so subject in the future with respect to any goods
and services provided under the Debt Instrument; and neither the operation of
any of the terms of the Debt Instrument and any related Mortgage, nor the
exercise of any right thereunder, will render such Debt Instrument or any such
Mortgage unenforceable, in whole or in part, or subject to any right of
rescission, set-off, counterclaim or defense, including the defense of usury,
and no such right of rescission, set-off, counterclaim or defense has been
asserted with respect thereto.
(5) Compliance with Laws. Any and all requirements of any federal, state or
local law applicable to the Home Loan (including, without limitation, any usury,
truth-in-lending, real estate settlement procedures, consumer protection, equal
credit opportunity, environmental and any other law applicable to the
origination, servicing and collection practices with respect thereto) have been
complied with. With respect to each Home Loan that is a "mortgage" as such term
is defined in 15 U.S.C. 1602(aa) (the "▇▇▇▇▇▇ Act"), no Obligor has or will have
a claim or defense under the ▇▇▇▇▇▇ Act with respect to such Home Loan. No fraud
or misrepresentation was committed by any Person in connection with the
origination and servicing of such Home Loan.
(6) No Satisfaction or Release of Lien. No Debt Instrument or any related
Mortgage has been satisfied, canceled, rescinded or subordinated, in whole or
part; and the Transferor, except as otherwise permitted by subsection (3) of
this Section 3.04, has not waived the performance by the Obligor of any action,
if the Obligor's failure to perform such action would cause the Debt Instrument
or Home Loan to be in default; and, any related Mortgaged Property has not been
released from the lien of any related Mortgage, in whole or in part, nor has any
instrument been executed that would effect any such satisfaction, subordination,
release, cancellation or rescission.
(7) Valid Lien. Any related Mortgage is a valid, subsisting and enforceable
lien on any related Mortgaged Property, including the land and all buildings on
any such Mortgaged Property.
(8) Validity and Enforceability of Loan Documents. The Debt Instrument and
any related Mortgage (i) are genuine and each is the legal, valid and binding
obligation of the maker thereof, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights in general and
by general principles of equity and (ii) contain customary and enforceable
provisions so as to render the rights and remedies of the holder thereof
adequate for the realization against any related Mortgaged Property of the
benefits of the security provided thereby, including, (A) in the case of any
related Mortgage designated as a deed of trust, by trustee's sale, and (B)
otherwise by judicial foreclosure. There are no proceedings pending, or to the
Transferor's knowledge, threatened, wherein the Obligor or any governmental
agency has alleged that any Home Loan is illegal or unenforceable.
(9) Capacity of Parties. To the best of the Transferor's knowledge, all
parties to the Debt Instrument and any related Mortgage had legal capacity at
the time to enter into the Home Loan and to execute and deliver the Debt
Instrument and any related Mortgage, and the Debt Instrument and any related
Mortgage have been duly and properly executed by such parties.
(10) Full Disbursement of Proceeds. As of the applicable Cut-Off Date, the
proceeds of the Home Loan have been fully disbursed and there is no requirement
for future advances thereunder, and any and all requirements applicable to the
disbursement of proceeds set forth in the Home Loan documents have been complied
with; the Obligor is not entitled to any refund of any amounts paid or due under
the Debt Instrument or any related Mortgage.
(11) Ownership by Transferor. Immediately prior to the sale, transfer and
assignment to the Depositor, the Transferor will have good and indefeasible
legal title to the Home Loan, the related Debt Instrument and any related
Mortgage and the full right to transfer such Home Loan, the related Debt
Instrument and any related Mortgage, and the Transferor will have been the sole
owner thereof, subject to no liens, pledges, charges, mortgages, encumbrances or
rights of others, except for such liens as will be released simultaneously with
the transfer and assignment of the Home Loans to the Depositor (and the Grantor
Trustee's Home Loan File will contain no evidence inconsistent with the
foregoing) ; and immediately upon the sale, transfer and assignment contemplated
by the Home Loan Purchase Agreement, the Depositor will hold good title to, and
be the sole owner of each Home Loan, the related Debt Instrument and any related
Mortgage, free of all liens, pledges, charges, mortgages, encumbrances or rights
of others.
(12) No Defaults. Except for those Home Loans referred to in subsection (2)
of this Section 3.04 that are delinquent as of the Cut-Off Date, there is no
default, breach, violation or event of acceleration known to the Transferor
under the Home Loan, the related Debt Instrument and any related Mortgage and
there is no event known to the Transferor 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 thereunder and neither the
Transferor nor its predecessors have waived any such default, breach, violation
or event of acceleration.
(13) Interest, Term and Amortization. Each Home Loan is a fixed rate loan;
the Debt Instrument shall mature within not more than 25 years from the date of
origination of the Home Loan; the Debt Instrument is payable in substantially
equal Monthly Payments, with interest payable in arrears, and requires a Monthly
Payment which is sufficient to fully amortize the original principal balance
over the original term and to pay interest at the related Home Loan Interest
Rate; interest on each Home Loan is calculated on the basis of a 360-day year
consisting of twelve 30-day months, and the Debt Instrument does not provide for
any extension of the original term.
(14) Security. The related Debt Instrument is not and has not been secured
by any collateral except, the lien of any related Mortgage.
(15) Deed of Trust. If any related Mortgage constitutes a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in any such Mortgage, or a valid
substitution of trustee has been recorded, and no extraordinary fees or expenses
are or will become payable to the trustee under the deed of trust, except in
connection with default proceedings and a trustee's sale after default by the
Obligor.
(16) Value and Marketability. The Transferor has no knowledge of any
circumstances or conditions not reflected in the representations set forth
herein, or in the Home Loan Schedule, or in the related Grantor Trustee's Home
Loan File with respect to any related Mortgage, related Mortgaged Property or
the Obligor which could reasonably be expected to materially and adversely
affect the value of any such Mortgaged Property or the marketability of the Home
Loan or cause the Home Loan to become delinquent or otherwise be in default.
(17) Loan Documents and Delivery of Loan File. There exists a Home Loan
File relating to each Home Loan and such Home Loan File contains all of the
original or certified documentation listed in Section 2.04 hereof for such Home
Loan. Each Grantor Trustee's Home Loan File has been delivered to the applicable
Custodian and each Servicer's Home Loan File is being held in trust by the
Servicer for the benefit of, and as agent for, the Grantor Trust Holder and the
Grantor Trustee as their respective interest appear herein. Each document
included in the Home Loan File, which is required to be executed by the Obligor,
has been executed by the Obligor in the appropriate places. With respect to each
Home Loan, any related Assignment of Mortgage to the Grantor Trustee is in
recordable form and is acceptable for recording under the laws of the
jurisdiction in which the related Mortgaged Property is located. All blanks on
any form required to be completed have been so completed.
(18) Mortgaged Property. Any related Mortgaged Property is improved by a
residential dwelling and is not a Home Loan in respect of a manufactured home or
mobile home or the land on which a manufactured home or mobile home has been
placed, unless such manufactured home or mobile home is treated as real estate
under applicable law. In the aggregate, no more than 1.0% of the Home Loans (as
calculated on the basis of the Original Pool Principal Balance) are secured by
manufactured homes or mobile homes.
(19) Underwriting and Origination. Each Home Loan was (i) underwritten or
re-underwritten in accordance with the Transferor's underwriting guidelines by
the Transferor or another lender that has been granted "delegated underwriting
authority" by the Transferor (except for any Home Loans acquired through the
Transferor's portfolio acquisition program, which have been reviewed on a sample
basis for compliance with the originating seller's underwriting guidelines),
(ii) originated by the Transferor or through the Transferor's network of
brokers, dealers and correspondents (including Home Loans acquired by such
correspondents) or through the Transferor's portfolio acquisition program, and
(iii) originated no earlier than September 1996.
(20) Flood and Hazard Insurance. To the best of the Transferor's knowledge,
if any related Mortgaged Property securing any Home Loan is in an area
identified by the Federal Emergency Management Agency ("FEMA") as having special
flood hazards, unless the community in which the area is situated is not
participating in the National Flood Insurance Program and the regulations
thereunder or less than a year has passed since FEMA notification regarding such
hazards, a flood insurance policy is in effect with respect to any related
Mortgaged Property with a generally acceptable carrier which complies with
section 102(a) of the Flood Disaster Protection Act of 1968, as amended. With
respect to each Home Loan that is secured by a first lien priority Mortgage at
origination, all improvements upon any related Mortgaged Property securing a
Home Loan are insured by a generally acceptable insurer against loss by fire,
hazards of extended coverage and such other hazards as are customary in
the area where any such Mortgaged Property is located and such insurance
policies satisfy the applicable requirements of the Federal Housing
Administration and conform to the requirements of the FNMA Seller's Guide and
FNMA Servicer's Guide, and the Transferor has caused to be performed or shall
cause to be performed within a reasonable time following the Closing Date any
and all acts required to preserve the rights and remedies of the Servicer, on
behalf of the Grantor Trustee, in any such hazard insurance or flood Property
Insurance Policies applicable to any such Mortgaged Properties, including
without limitation any necessary notifications of insurers, assignments of
policies or interests therein, and establishment of co-insured, joint loss payee
and mortgagee rights in favor of the Servicer, on behalf of the Grantor Trustee.
(21) Superior Lien. At the time of origination of the Home Loan (other than
an Unsecured Home Loan), each related Superior Lien, if any, was certified by
the Obligor or verified by the applicable Superior Lien lender as not being 30
or more days delinquent.
(22) Licensing and Qualification. To the best of the Transferor's
knowledge, each party which had any interest as an owner of servicer of the Home
Loan, whether as mortgagee, assignee, or servicer, is (or, during the period in
which they held and disposed of such interest, was) (i) in compliance with any
and all applicable licensing requirements of the laws of the state wherein any
related Mortgaged Property, or with respect to an Unsecured Loan, the related
Obligor is located, and (ii) either (A) organized under the laws of such state,
or (B) authorized or qualified to do business in such state, or (C) a federal
savings and loan association or a national bank having principal offices in such
state, or (D) not doing business in such state.
(23) Assumption. Any related Mortgage contains an enforceable provision
requiring the acceleration of the payment of the unpaid principal balance in the
event that the related Mortgaged Property is sold or transferred without the
consent of the mortgagee.
(24) No Homestead or Relief Act. There is no homestead or other exemption
available to the mortgagor which would materially interfere with the right to
sell any related Mortgaged Property at a trustee's sale or the right to
foreclose any related Mortgage; no relief has been requested or allowed to the
Obligor under the Soldiers' and Sailors' Civil Relief Act of 1940.
(25) Ownership of Mortgaged Property. The related Servicer's Home Loan File
for each Home Loan (other than an Unsecured Home Loan) contains a title document
with respect to such Home Loan reflecting that title to any related Mortgaged
Property is vested at least 50% in the related Obligor or (ii) a lease agreement
with an attorney's opinion letter with respect to such Home Loan reflecting that
the leasehold in a ground lease which is included as part of the Mortgaged
Property is vested at least 50% in the related Obligor.
(26) No Condemnation or Damage. To the best of the Transferor's knowledge,
each related Mortgaged Property (including each residential dwelling improvement
thereon) is free of damage which materially and adversely affects the value
thereof and there is no proceeding pending for the total or partial condemnation
of any such Mortgaged Property.
(27) No Bulk Transfer or Adverse Selection. The transfer, assignment and
conveyance of the Debt Instruments and the related Mortgages by the Transferor
to the Depositor were not subject to the bulk transfer laws or any similar
statutory provisions in effect in any applicable jurisdiction; no Home Loan was
adversely selected as to credit risk from the pool of home loans owned by the
Transferor.
(28) No Current Bankruptcy. As of the applicable Cut-Off Date, no Obligor
is a debtor under proceedings under the United States Bankruptcy Code, and no
Obligor has defaulted in payments on a Home Loan after the filing of such
bankruptcy case, whether under a plan or reorganization or otherwise.
(29) Environmental Compliance. To the best of the Transferor's knowledge,
any related Mortgaged Property is free from any and all toxic and hazardous
substances and there exists no violation of any environmental law, rule or
regulation (whether local, state or federal) in respect of any such Mortgaged
Property which violation has or could have a material adverse effect on the
market value of such Mortgaged Property. The Transferor has no knowledge of any
pending action or proceeding directly involving any related Mortgaged Property
in which compliance with any environmental law, rule or regulation is in issue;
and, to the Transferor's best knowledge, nothing further remains to be done to
satisfy in full all requirements of each such law, rule or regulation
constituting a prerequisite to the use and enjoyment of such Mortgaged Property.
(30) No Taxable Mortgage Pool. With respect to Home Loans, on the Closing
Date, 55% or more (by aggregate Principal Balance) of the Home Loans do not
constitute "real estate mortgages" for the purpose of Treasury Regulations
Section 301.7701(i). For this purpose, a Home Loan does not constitute a "real
estate mortgage" if:
(i) The Home Loan is not secured by an interest in real property, or
(ii) The Home Loan is not an "obligation principally secured by an
interest in real property." For this purpose an "obligation is principally
secured by an interest in real property", if it satisfies either test set
out in paragraph (1) or paragraph (2) below.
(1) The 80-percent test. An obligation is principally secured by
an interest in real property if the fair market value of the interest
in real property securing the obligation (A) was at least equal to 80
percent of the adjusted issue price of the obligation at the time the
obligation was originated (or, if later, the time the obligation was
significantly modified); or (B) is at least equal to 80 percent of the
adjusted issue price of the obligation on the Closing Date.
For purposes of this paragraph (1), the fair market value of the
real property interest must be first reduced by the amount of any lien
on the real property interest that is senior to the obligation being
tested, and must be further reduced by a proportionate amount of any
lien that is in parity with the obligation being tested, in each case
before the percentages set forth in (1)(A) and (1)(B) are determined.
The adjusted issue price of an obligation is its issue price plus the
amount of accrued original issue discount, if any, as of the date of
determination.
(2) Alternative test. An obligation is principally secured by an
interest in real property if substantially all of the proceeds of the
obligation were used to acquire or to improve or protect an interest
in real property that, at the origination date, is the only security
for the obligation. For purposes of this test, loan guarantees made by
the United States or any state (or any political subdivision, agency,
or instrumentality of the United States or of any state), or other
third party credit enhancement are not viewed as additional security
for a loan. An obligation is not considered to be secured by property
other than real property solely because the obligor is personally
liable on the obligation. For this purpose only, substantially all of
the proceeds of the obligations means 66 2/3% or more of the gross
proceeds.
(31) Consent of Superior Lien. With respect to each Home Loan (other than
Unsecured Home Loans) that is not a first lien mortgage loan, either (i) no
consent for the Home Loan was required by the holder of the related Superior
Lien or (ii) such consent has been obtained and has been delivered to the
Indenture Trustee.
(32) Loan Types; Owner Occupied Properties. Each Home Loan is a Combination
Loan, a Debt Consolidation Loan or a home equity loan and at the time of its
origination no Home Loan was secured by a Mortgage on a non-owner occupied
Mortgaged Property.
(33) Debt Instrument. Each Debt Instrument is comprised of an original
promissory note and each promissory note constitutes an "instrument" or "chattel
paper" for purposes of Article 9 of the UCC; each Debt Instrument has been
delivered to the Custodian.
(34) No Encroachment. To the best of the Transferor's knowledge, all
improvements which were considered in determining the appraised value of any
related Mortgaged Property lay wholly within the boundaries and building
restriction lines of any such Mortgaged Property and no improvements on
adjoining properties encroach upon any such Mortgaged Property. No improvement
located on or being part of the Mortgaged Property is in violation of any
applicable zoning law or regulation.
(35) Enforcement Against Originator. If the Home Loan was originated by an
entity (such entity, the "Originator") other than the Transferor or an affiliate
of the Transferor, then the Grantor Trustee and the Indenture Trustee may
enforce any remedies for breach of representations and warranties made by the
Transferor with respect to such Home Loan.
(36) No Buydown or GPM Loans. The Home 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 Transferor, the Obligor or
anyone on behalf of the Obligor, or paid by any source other than the Obligor,
nor does it contain any other similar provisions currently in effect which may
constitute a "buydown" provision. The Home Loan is not a graduated payment Home
Loan and the Home Loan does not have a shared appreciation or other contingent
interest feature.
(37) No Tax or Mechanics Liens. With respect to any related Mortgaged
Property, at origination there were no liens against such Mortgaged Property for
delinquent taxes and there were no mechanics' or similar liens or claims which
had been filed for work, labor or
material (and to the Transferor's knowledge, no rights were outstanding which
could have given rise to such liens) affecting such Mortgaged Property, which
were or may be liens prior to, or equal or coordinate with, the lien of the
related Mortgage.
(38) Conformity to Prospectus Supplement. Each Home Loan conforms, and the
Home Loans in the aggregate conform, in all material respects to the applicable
description thereof set forth in the Prospectus Supplement. The computer data,
from which the Home Loans being acquired by the Issuer on the Closing Date were
selected, was made available to the accountants of the Transferor who are
providing the comfort letter to the Securities Insurer and the Underwriter in
connection with information contained in the Prospectus Supplement regarding the
Home Loan Pool; and such data was complete and accurate as of its date and with
respect to its intended use and includes a description of the same Home Loans
that are included on the Home Loan Schedule, including the Principal Balances
thereof as the Cut-Off Date or the Statistical Calculation Date (as defined in
the Prospectus Supplement).
(39) Characteristics of Home Loans. (i) Coupon Rate. The Debt Instrument
bears a Home Loan Interest Rate of at least 9.5% per annum. (ii) Combined
Loan-to-Value Ratio. At origination, each Home Loan had a Combined Loan-to-Value
Ratio that was not greater than 133%. (iii) Geographic Concentration. In the
aggregate as of the Cut-Off Date, no more than 0.2% of the Home Loans are
secured by Mortgaged Properties sharing a single zip code. (iv) First Payment
Date. The first Due Date for each Home Loan is no later than November 30, 1998.
(v) Remaining Term. At origination, no Home Loan had a remaining term to
maturity in excess of 25 years. (vi) Date-of-Payment Loans. As of the Cut-Off
Date, none of the Home Loans are being serviced under a date-of-payment, daily
accrual or simple interest method. (vii) Condominiums & PUDs. No more than 1.0%
of the Home Loans are secured by Mortgaged Properties that consist of
condominiums, townhouses or planned unit developments.
(40) Current Servicing. Each Home Loan is being serviced by the Servicer or
its Affiliate, which is qualified to service Home Loans.
(41) No Transfer Taxes. The sale, transfer, assignment and conveyance of
the Home Loans by the Transferor pursuant to the relevant Transaction Documents
is not subject to and will not result in any governmental tax, fee or charge
payable by the Transferor, the Depositor or the Grantor Trustee to any federal,
state or local government ("Taxes"), other than any Taxes which have or will be
paid by the Transferor as due. If the Transferor receives notice of any Taxes
arising out of the sale, transfer, assignment and conveyance of the Home Loans,
the Transferor shall pay all such Taxes (It being understood that the
Securityholders, the Grantor Trustee, Indenture Trustee and the Securities
Insurer shall not have any obligation to pay such Taxes).
(42) No Prior Default. No Home Loan is due from an Obligor who has
defaulted under a previous loan in which the Transferor was lender thereunder or
acting as the servicer thereof at the time of such default.
(43) FTC Holder Regulations. With respect to each Home Loan that is subject
to the FTC regulation contained in 16 C.F.R. Part 433 (the "FTC Holder
Regulation"), no Obligor
has or will have a claim or defense with respect to goods or services provided
under the FTC Holder Regulation with respect to such Home Loan.
(44) Review of Loan Documents. The Transferor has reviewed all of the
documents constituting the Mortgage File and has made such inquiries, as it
deems reasonable under the circumstances to make and confirm the accuracy of the
representations set forth herein.
Section 3.05 Purchase and Substitution.
(a) Repurchase and Substitution of Defective Home Loans. It is understood
and agreed that the representations and warranties set forth in Section 3.02 and
Section 3.04 hereof shall survive the conveyance of the Home Loans from the
Transferor to the Depositor and from the Depositor to the Grantor Trustee, the
conveyance of the Grantor Trust Certificate to the Issuer, the pledge of the
Grantor Trust Certificate to the Indenture Trustee and the delivery of the Notes
to the Noteholders. Upon discovery by the Depositor, the Master Servicer, the
Servicer, the Transferor, any Custodian, the Issuer, the Indenture Trustee, the
Grantor Trustee, the Owner Trustee, the Securities Insurer or any Securityholder
of a breach of any of the representations and warranties set forth in Section
3.02 and Section 3.04 which materially and adversely affects the value of the
Home Loans or the interests of the Grantor Trustee, the Owner Trustee, the
Securities Insurer or the Indenture Trustee in the related Home Loan
(notwithstanding that such representation and warranty was made to the
Transferor's best knowledge), the party discovering such breach shall give
prompt written notice to the others. The Transferor shall within 60 days of the
earlier of its discovery or its receipt of notice of any breach of a
representation or warranty, including any breach of the representation set forth
in Section 3.04(30) hereof regarding No Taxable Mortgage Pool as a result of an
aggregate of Home Loans which would not otherwise cause a breach of any other
representation or warranty, promptly cure such breach in all material respects
unless such requirement is waived by the Securities Insurer. If within 60 days
after the earlier of the Transferor's discovery of such breach or the
Transferor's receiving notice thereof such breach has not been remedied by the
Transferor or waived by the Securities Insurer and such breach materially and
adversely affects the interests of the Grantor Trustee, the Owner Trustee or the
Indenture Trustee in, or the value of, the related Home Loan (the "Defective
Home Loan"), the Transferor shall on or before the Determination Date next
succeeding the end of such 60-day period either (i) remove such Defective Home
Loan from the Grantor Trust (in which case it shall become a Deleted Home Loan)
and substitute one or more Qualified Substitute Home Loans in the manner and
subject to the conditions set forth in this Section 3.05 or (ii) purchase such
Defective Home Loan at a purchase price equal to the Purchase Price by
depositing such Purchase Price in the Collection Account. The Transferor shall
provide the Master Servicer, the Servicer, the Indenture Trustee, the Grantor
Trustee, the Securities Insurer and the Owner Trustee with a certification of a
Responsible Officer on the Determination Date next succeeding the end of such
60-day period indicating whether the Transferor is purchasing the Defective Home
Loan or substituting in lieu of such Defective Home Loan a Qualified Substitute
Home Loan.
Any substitution of Home Loans pursuant to this Section 3.05(a) shall be
accompanied by payment by the Transferor of the Substitution Adjustment, if any,
to be deposited in the Collection Account. For purposes of calculating the
Available Collection Amount for any Payment Date, amounts paid by the Transferor
pursuant to this Section 3.05 in connection with
the repurchase or substitution of any Defective Home Loan that are on deposit in
the Collection Account as of the Determination Date for such Payment Date shall
be deemed to have been paid during the related Due Period and shall be
transferred to the Note Payment Account as part of the Available Collection
Amount to be retained therein or transferred to the Certificate Distribution
Account, if applicable, pursuant to Section 5.01(c) hereof.
In addition to such cure, repurchase or substitution obligation, the
Transferor shall indemnify the Issuer, the Depositor, the Master Servicer, the
Indenture Trustee, the Grantor Trustee, the Securities Insurer and the
Securityholders against any losses, damages, penalties, fines, forfeitures,
reasonable and necessary legal fees and related costs, judgments, and other
costs and expenses resulting from any claim, demand, defense or assertion based
on or grounded upon, or resulting from, a breach by the Transferor of any of it
representations and warranties contained in Section 3.02 and Section 3.04.
(b) Repurchase of Defaulted Home Loans. In addition to the preceding
repurchase obligations, each of the Transferor and Servicer shall have the
option, exercisable in its sole discretion at any time, to repurchase from the
Grantor Trustee any Defaulted Home Loan (in which case such Defaulted Home Loan
shall become a Deleted Home Loan); provided, however, that any such repurchase
of a Defaulted Home Loan pursuant to this Subsection shall be conducted in the
same manner as the repurchase of a Defective Home Loan pursuant to this Section
3.05. If the Defaulted Home Loans are repurchased pursuant to this Subsection
3.05(b) in excess of 2% of the Original Pool Principal Balance, then the
Principal Balances of such repurchased Defaulted Home Loans that exceed 2% of
the Original Pool Principal Balance shall be included as Realized Losses for
purposes of determining the Realized Losses under the OC Trigger Increase Event
and the OC Trigger Reversal Event (but not with respect to the determination of
a Servicer Event of Default under Section 10.01(a) hereof).
(c) Substitutions. As to any Deleted Home Loan for which the Transferor
substitutes a Qualified Substitute Home Loan(s), the Transferor shall effect
such substitution by delivering to the Indenture Trustee, the Master Servicer
and Grantor Trustee (i) a certification executed by a Responsible Officer of the
Transferor to the effect that the Substitution Adjustment has been credited to
the Collection Account and (ii) the documents constituting the Grantor Trustee's
Home Loan File for such Qualified Substitute Home Loan(s).
In accordance with Section 5.01(b)(1) hereof, the Servicer shall deposit in
the Collection Account all payments received in connection with such Qualified
Substitute Home Loan(s) after the date of such substitution. Monthly Payments
received with respect to Qualified Substitute Home Loans on or before the date
of substitution will be retained by the Transferor. The Indenture Trustee will
be entitled to all payments received on the Deleted Home Loan on or before the
date of substitution and the Transferor shall thereafter be entitled to retain
all amounts subsequently received in respect of such Deleted Home Loan. The
Transferor shall give written notice to the Grantor Trustee, the Master
Servicer, the Servicer (if the Transferor is not then acting as such), the
Indenture Trustee, the Securities Insurer and Owner Trustee that such
substitution has taken place and the Servicer shall amend the Home Loan Schedule
pursuant to Subsection (g) below. Upon such substitution, such Qualified
Substitute Home Loan(s) shall be subject to the terms of this Agreement in all
respects, and
the Transferor shall be deemed to have made with respect to such Qualified
Substitute Home Loan(s), as of the date of substitution, the covenants,
representations and warranties set forth in Section 3.02 and Section 3.04
hereof. On the date of such substitution, the Transferor will deposit into the
Collection Account an amount equal to the related Substitution Adjustment, if
any.
(d) Reassignment of Defective Home Loans. With respect to all Defective
Home Loans or other Home Loans repurchased by the Transferor pursuant to this
Agreement, upon the deposit of the Purchase Price therefor into the Collection
Account, the Grantor Trustee shall assign to the Transferor, without recourse,
representation or warranty, all the Grantor Trustee's right, title and interest
in and to such Defective Home Loans or other Home Loans, which right, title and
interest were conveyed to the Grantor Trustee pursuant to the Grantor Trust
Agreement. The Grantor Trustee shall take any actions as shall be reasonably
requested by the Transferor to effect the repurchase of any such Home Loans.
(e) Sole Remedies Against Transferor. It is understood and agreed that the
obligations of the Transferor to cure or to repurchase or substitute any such
Home Loan, and to indemnify for any breach of any representation or warranty
with respect thereto, pursuant to this Section 3.05 shall constitute the sole
remedies against it with respect to such breach of the foregoing representations
or warranties or the existence of the foregoing conditions, except for section
3.04(b) of the Insurance Agreement. Any cause of action against the Transferor
relating to or arising out of a defect in a Grantor Trustee's Home Loan File as
contemplated by Section 2.06 of the Grantor Trust Agreement or against the
Transferor relating to or arising out of a breach of any representations and
warranties made in Section 3.02 and Section 3.04 hereof shall accrue as to any
Home Loan upon (i) discovery of such defect or breach by any party and notice
thereof to the Transferor or notice thereof by the Transferor to the Indenture
Trustee, (ii) failure by the Transferor to cure such defect or breach or
purchase or substitute such Home Loan as specified above, and (iii) demand upon
the Transferor, as applicable, by the Grantor Trustee or the Grantor Trust
Holder for all amounts payable in respect of such Home Loan.
(f) No Duty to Investigate. Neither the Securities Insurer, the Master
Servicer, the Grantor Trustee, the Owner Trustee nor the Indenture Trustee shall
have any duty to conduct any affirmative investigation other than as
specifically set forth in this Agreement as to the occurrence of any condition
requiring the repurchase or substitution of any Home Loan pursuant to this
Section or the eligibility of any Home Loan for purposes of this Agreement.
(g) Amendment of Home Loan Schedule. In connection with a repurchase or
substitution of any Home Loan pursuant to this Section 3.05, the Servicer shall
amend the Home Loan Schedule to reflect (i) the removal of the applicable
Deleted Home Loan from the terms of this Agreement, and (ii) if applicable, the
substitution of the applicable Qualified Substitute Home Loan. In connection
with its monthly reporting here under, the Servicer shall deliver a copy of the
amended Home Loan Schedule to the Securities Insurer, the Master Servicer, the
Grantor Trustee, the Indenture Trustee, and the Transferor (if Empire Funding is
not then acting as the Servicer).
ARTICLE IV
ADMINISTRATION AND SERVICING OF THE HOME LOANS
Section 4.01 Duties of the Servicer.
(a) Servicing Standard. The Servicer, as an independent contractor, shall
service and administer the Home Loans and shall have full power and authority,
acting alone, to do any and all things in connection with such servicing and
administration which the Servicer may deem necessary or desirable and consistent
with the terms of this Agreement and the Accepted Servicing Procedures.
Notwithstanding anything to the contrary contained herein, the Servicer, in
servicing and administering the Home Loans, shall employ or cause to be employed
procedures (including collection, modification, foreclosure and liquidation
procedures) that conform to the Accepted Servicing Procedures. In performing its
obligations hereunder, the Servicer shall at all times act in good faith and in
a commercially reasonable manner. The Servicer shall provide to the Obligors any
reports and statements that are required by applicable state or federal law. The
Servicer has and shall maintain the facilities, procedures and experienced
personnel that are reasonably necessary to comply with the servicing standard
set forth in this Section 4.01(a) and the duties of the Servicer set forth in
this Agreement relating to the servicing and administration of the Home Loans.
(b) Servicing Advances. In accordance with the preceding general servicing
standard, the Servicer, or any Subservicer on behalf of the Servicer, shall make
all Servicing Advances in connection with the servicing of each Home Loan
hereunder. Notwithstanding any provision to the contrary herein, neither the
Servicer nor any Subservicer on behalf of the Servicer shall have any obligation
to advance its own funds (i) for any delinquent scheduled payments of principal
and interest on any Home Loan, (ii) to cure, keep current or, in connection with
any proceeding against the related Mortgaged Property, satisfy the indebtedness
secured by any Superior Liens on such Mortgaged Property. No costs incurred by
the Servicer or any Subservicer in respect of Servicing Advances shall, for the
purposes of distributions in respect of the Grantor Trust Certificate to
Securityholders, be added to the amount owing under the related Home Loan.
Notwithstanding any obligation by the Servicer to make a Servicing Advance
hereunder with respect to a Home Loan, the Servicer shall only make a Servicing
Advance for such Home Loan, if the Servicer, in good faith, determines there is
a reasonable likelihood of (i) recovering such Servicing Advance, together with
any expected future Servicing Advances and any prior Servicing Advances for such
Home Loan, and (ii) recovering an economically significant amount attributable
to the outstanding interest and principal owing on such Home Loan for the
benefit of the Securityholders and the Securities Insurer in excess of the costs
and expenses to obtain such recovery, including without limitation any Servicing
Advances therefor and, if applicable, the outstanding indebtedness of all
Superior Liens. Pursuant to this Agreement the Servicer will be entitled to be
reimbursed for any Servicing Advances pursuant to Section 5.01(b) hereof and for
any Nonrecoverable Servicing Advance pursuant to Section 5.01(e) hereof.
(c) Waivers, Modifications and Extensions; Subordination. In accordance
with the servicing standard in Section 4.01(a), the Servicer shall collect all
payments called for under the terms and provisions of the Home Loans. The
Servicer in its discretion may waive or
permit to be waived any penalty interest or any other fee or charge which the
Servicer would be entitled to retain hereunder as servicing compensation and
extend the Due Date on a Debt Instrument for a period (with respect to each
payment as to which the Due Date is extended) not greater than 90 days after the
initially scheduled Due Date for such payment. Notwithstanding anything in this
Agreement to the contrary, the Servicer shall not permit any additional
extension or modification with respect to any Home Loan other than that
permitted by the immediately preceding sentence, unless the Home Loan is a
Defaulted Home Loan. (See Section 4.10 hereof for a description of the recovery
procedures for Defaulted Home Loans.) The Servicer may in its discretion enter
in subordination agreements with respect to any Home Loan, provided that the
Servicer determines, consistent with this Agreement and the Accepted Servicing
Procedures, that the entering into of such subordination agreement is in the
best interests of the Grantor Trust. The Servicer may grant a waiver or enter
into a subordination agreement with respect to the refinancing of the
indebtedness secured by a Superior Lien on the related Mortgaged Property,
provided that the Obligor is in a better financial or cash flow position as a
result of such refinancing, which may include a reduction in the Obligor's
scheduled monthly payment on the indebtedness secured by such Superior Lien or
the conversion of an adjustable rate loan into a new fixed rate loan. The
Servicer shall notify the Securities Insurer, the Master Servicer, the Grantor
Trustee and the Indenture Trustee of any modification, waiver or amendment of
any provision of any Home Loan and the date thereof, and shall deliver to the
Custodian for deposit in the related Grantor Trustee's Home Loan File, a true
and correct copy or, if available, an original of the agreement relating to such
modification, waiver or amendment promptly following the execution thereof.
(d) Instruments of Satisfaction or Release. Without limiting the generality
of Section 4.01(c), the Servicer, in its own name or in the name of a
Subservicer, is hereby authorized and empowered, when the Servicer believes it
appropriate in its best judgment, to execute and deliver, on behalf of the
Grantor Trust Holder, the Grantor Trustee, the Securities Insurer or any of
them, and upon notice to the Grantor Trustee and the Securities Insurer, any and
all instruments of satisfaction or cancellation or of partial or full release or
discharge, and all other comparable instruments with respect to the Home Loans
and the Mortgaged Properties and to institute foreclosure proceedings or obtain
a deed in lieu of foreclosure so as to convert the ownership of such properties,
and to hold or cause to be held title to such properties, on behalf of the
Grantor Trustee and the Grantor Trust Holder, subject to Section 4.10(f) hereof.
(e) Powers of Attorney. The Grantor Trustee shall execute, at the written
direction of the Servicer or the Master Servicer, any limited or special powers
of attorney and other documents reasonably acceptable to the Grantor Trustee to
enable the Servicer, the Master Servicer or any Subservicer to carry out their
servicing and administrative duties hereunder, including, without limitation,
limited or special powers of attorney with respect to any Foreclosure Property,
and the Grantor Trustee shall not be accountable for the actions of the
Servicer, the Master Servicer or any Subservicers under such powers of attorney
and shall be indemnified by such parties with respect to such actions.
Section 4.01A Appointment and Term of the Servicer.
(a) Initial Appointment. The Issuer, the Securityholders, the Master
Servicer, the
Securities Insurer and the Indenture Trustee hereby appoint the Servicer to act
as the Servicer for the Home Loans (including all of the duties, obligations and
rights of the Servicer) under this Agreement, which appointment shall be for an
initial term that begins on the Closing Date and ends on February 28, 1999. The
Servicer hereby accepts its appointment as Servicer hereunder.
(b) Two Month Renewal of Servicer Term. Beginning with March 1999, the term
of the Servicer shall be extended for successive two calendar month terms that
end on April 30, June 30, August 31, October 31, December 31 and February 28,
until the Notes are paid in full; provided that the Indenture Trustee delivers
written notice of renewal (the "Servicer Renewal Notice") prior to expiration of
the preceding two month term. The Indenture Trustee, on behalf of the Securities
Insurer, shall send such Servicer Renewal Notice at least 30 days prior to the
beginning of the next successive two calendar month term, unless at least 45
days prior to such next two calendar month term the Securities Insurer delivers
written notice to the Indenture Trustee (with a copy to the Master Servicer)
that instructs the Indenture Trustee not to renew the term of the Servicer
hereunder. Each such Servicer Renewal Notice shall be delivered by the Indenture
Trustee to the other parties hereto and the Securities Insurer.
The Servicer agrees that, as of the date hereof and upon its receipt of any
such Servicer Renewal Notice, the Servicer shall be bound for the duration of
the initial term and each successive two month term covered by such Servicer
Renewal Notice to act as the Servicer for the Home Loans hereunder, unless the
Servicer is otherwise terminated in accordance with Section 4.01A(c) or Article
X hereof. If the Indenture Trustee has not sent the Servicer Renewal Notice at
least 30 days prior to expiration of the preceding two month term, then the
Securities Insurer may deliver the Servicer Renewal Notice to the Servicer,
which shall be binding upon the parties hereto, with the same effect as if the
Indenture Trustee had delivered such Servicer Renewal Notice.
(d) Non-renewal or Termination. Upon any non-renewal or termination of the
Servicer pursuant to this Section 4.01A, the servicing of the Home Loans
hereunder shall be transferred to a successor servicer in accordance with
Section 10.02 hereof.
Section 4.02 Appointment and Duties of the Master Servicer.
(a) Appointment and Compensation of Master Servicer. The Issuer, the
Securityholders and the Indenture Trustee hereby assign and appoint the Master
Servicer to act as the Master Servicer for the Home Loans (including all of the
duties, obligations and rights of the Master Servicer) under this Agreement. The
Master Servicer hereby accepts its appointment as the Master Servicer hereunder.
The Master Servicer shall not consent to any material amendment, modification or
waiver of the servicing provisions of this Agreement, without the consent of the
Securities Insurer and the Indenture Trustee.
As compensation for its services hereunder, the Master Servicer shall be
entitled to receive from the Note Payment Account the Master Servicer Fee. In
addition to the Master Servicer Fee, additional compensation attributable to the
investment earnings from the Note
Payment Account shall be part of the Master Servicer Compensation payable to the
Master Servicer pursuant to Section 5.01(c) hereof. The Master Servicer shall be
required to pay all expenses incurred by it in connection with its Master
Servicer duties and activities hereunder and shall not be entitled to
reimbursement therefor except as specifically provided for herein.
(b) Master Servicer Assumes Servicing Responsibility. If a Servicer
Termination Event occurs, then the Master Servicer shall be obligated (1) to
select a successor Servicer, that is reasonably acceptable to the Indenture
Trustee and the Securities Insurer, or (2) to act as the Servicer of the Home
Loans hereunder.
(c) Monitoring of Servicing. The Master Servicer shall: (i) review the
servicing reports, loan level information or other relevant information prepared
by the Servicer (1) to determine whether such reports are inaccurate or
incomplete, in any material respect, (2) to ascertain that the Servicer is in
compliance, in all material respects, with its duties and obligations with
respect to such reports under this Agreement and (3) in the event that any
servicing report is inaccurate or incomplete, to prepare and deliver an
exception report to the Indenture Trustee, the Grantor Trustee, the Securities
Insurer and the Rating Agencies, which describes such inaccuracy or
incompleteness; (ii) otherwise monitor the performance by the Servicer of its
duties and obligations hereunder and notify the Indenture Trustee, the Grantor
Trustee, the Securities Insurer and the Rating Agencies of any Event of Default
of which it has received notice or has actual knowledge; and (iii) be obligated
to verify that the Servicer has deposited all payments and proceeds required to
be deposited into the Collection Account pursuant to Section 5.01(b)(1) hereof.
On the 19th calendar day of each month (or the next Business Day, if the 19th is
not a Business Day), the Master Servicer shall provide the Indenture Trustee
with an Officer's Certificate to the effect that the Master Servicer has
performed its obligations under this Subsection 4.02(c) with respect to the
servicing information for such month.
(d) Successor Servicer. The Master Servicer agrees that it shall at all
times be prepared (and shall take all steps reasonably required by the
Securities Insurer to ensure such preparation), to perform the duties and
obligations of the Servicer and become the successor servicer, if the Servicer
fails to perform its duties and obligations hereunder.
(e) Servicer Termination. At the direction of the Securities Insurer, or
the Master Servicer (with the prior consent of the Securities Insurer) or the
Majority Noteholders (with the prior consent of the Securities Insurer), the
Indenture Trustee, on behalf of the Issuer and the Securityholders, shall
terminate the Servicer upon the occurrence and continuance of an Event of
Default pursuant to Article X hereof.
(f) Servicing Transfer Report. No later than December 28, 1998, the Master
Servicer shall provide the Securities Insurer with a report indicating that the
Master Servicer has completed the preliminary planning necessary to assure that
the Master Servicer or an Affiliate of the Master Servicer is capable of
assuming the servicing of the Home Loans hereunder within 30 days of any
Servicer Termination Event, including without limitation the planning to effect
the transfer, in a compatible computer readable format, of necessary data for
the servicing of the Home Loans and generation of the Servicer's Monthly
Remittance Report.
(g) Servicer Cooperation. The Servicer shall act, in a good faith and
reasonable manner, to assist and cooperate with the Master Servicer in
performing its duties and obligations under this Section 4.02. On a monthly
basis pursuant to Section 6.01 hereof, the Servicer shall provide the Master
Servicer with its Servicer's Monthly Remittance Report in a compatible computer
readable format.
(h) Resignation of Master Servicer. The Master Servicer shall resign as
Master Servicer hereunder if it determines that its duties hereunder are no
longer permissible under applicable law or are in material conflict by reason of
applicable law with any other activities carried on by it and cannot be cured,
provided that such determination shall be evidenced by an Opinion of Counsel
(which shall be Independent) to such effect delivered to the Grantor Trustee,
the Indenture Trustee and the Securities Insurer. In addition, the Master
Servicer may resign for any reason with 30 day's prior written notice to the
Grantor Trustee, the Indenture Trustee and the Securities Insurer. No
resignation of the Master Servicer shall become effective until a successor
master servicer reasonably acceptable to the Indenture Trustee and the
Securities Insurer shall have assumed the obligations of the Master Servicer
hereunder.
(i) Limitation on Liability of Master Servicer. Neither the Master Servicer
nor any other the directors, officers, employees or agents of the Master
Servicer shall be under any liability to the Grantor Trustee, the Indenture
Trustee, the Servicer, the Securities Insurer, the Noteholders or any other
Person for any action taken or for refraining from the taking of any action in
good faith pursuant to this Agreement, or for errors in judgment; provided,
however, that this provision shall not protect the Master Servicer or any such
Person against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in its performance of its duties or
by reason of reckless disregard for its obligations and duties under this
Agreement. The Master Servicer and any directors, officer, employee or agent of
the Master Servicer may rely in good faith on any document of any kind prima
facie properly executed and submitted by any Person respecting any matters
arising hereunder.
Section 4.03 Fidelity Bond; Errors and Omissions Insurance.
The Servicer shall maintain with a responsible company, and at its own
expense, a blanket fidelity bond and an errors and omissions insurance policy in
such amounts as required by, and satisfying any other requirements of, the
Federal Housing Administration and the FHLMC, with broad coverage on all
officers, employees or other persons acting in any capacity requiring such
persons to handle funds, money, documents or papers relating to the Home Loans
("Servicer Employees"). Any such fidelity bond and errors and omissions
insurance shall protect and insure the Servicer against losses, including losses
resulting from forgery, theft, embezzlement, fraud, errors and omissions and
negligent acts (including acts relating to the origination and servicing of
loans of the same type as the Home Loans) of such Servicer Employees. Such
fidelity bond shall also protect and insure the Servicer against losses in
connection with the release or satisfaction of a Home Loan without having
obtained payment in full of the indebtedness secured thereby. In the event of
any loss of principal or interest on a Home Loan for which reimbursement is
received from the Servicer's fidelity bond or
errors and omissions insurance, the proceeds from any such insurance will be
deposited in the Collection Account. No provision of this Section 4.03 requiring
such fidelity bond and errors and omissions insurance shall diminish or relieve
the Servicer from its duties and obligations as set forth in this Agreement.
Upon the request of the Securities Insurer, the Master Servicer, the Grantor
Trustee or the Indenture Trustee, the Servicer shall deliver to the requesting
party a certified true copy of such fidelity bond and insurance policy.
Section 4.04 Filing of Continuation Statements.
On or before the fifth anniversary of the filing of any financing
statements by the Transferor and the Depositor, respectively, with respect to
the assets conveyed to the Grantor Trustee or to the Owner Trust, the Transferor
and the Depositor shall prepare, have executed by the necessary parties and file
in the proper jurisdictions at their expense all financing and continuation
statements necessary to maintain the liens, security interests and priorities of
such liens and security interests that have been granted by the Transferor and
the Depositor, respectively, the Transferor and the Depositor shall continue to
file on or before each fifth anniversary of the filing of any financing and
continuation statements such additional financing and continuation statements
until the Owner Trust and Grantor Trust have terminated pursuant to Section 9.1
of the Owner Trust Agreement and Section 7.01 of the Grantor Trust Agreement,
respectively. The Indenture Trustee and Grantor Trustee agree to cooperate with
the Transferor and the Depositor in preparing, executing and filing such
statements. The Indenture Trustee and Grantor Trustee agree to notify the
Transferor and the Depositor on the third Payment Date prior to each such fifth
anniversary of the requirement that they file such financing and continuation
statements. The filing of any such statement with respect to the Transferor and
the Depositor shall not be construed as any indication of an intent of any party
contrary to the expressed intent set forth in Section 2.03 hereof and Section
2.04 of the Grantor Trust Agreement. If the Transferor or the Depositor has
ceased to do business whenever any such financing and continuation statements
must be filed or the Transferor or the Depositor fails to file any such
financing statements or continuation statements at least one month prior to the
expiration thereof, each of the Transferor and the Depositor does hereby make,
constitute and appoint the Grantor Trustee its attorney-in-fact, with full power
and authority, to execute and file in its name and on its behalf any such
financing statements or continuation statements required under this Section 4.04
relating to assets conveyed to the Grantor Trustee and the Depositor does hereby
make, constitute and appoint the Indenture Trustee its attorney-in-fact, with
full power and authority, to execute and file in its name and on its behalf any
such financing statements or continuation statements required under this Section
4.04 relating to assets conveyed to the Owner Trust.
Section 4.05 [Reserved]
Section 4.06 Subservicing.
(a) Appointment and Termination of Subservicers. The Servicer may enter
into Subservicing Agreements for any servicing and administration of Home Loans
with any institution that satisfies the following: (1) is an Eligible Servicer;
(2) is approved by the Master Servicer and the Securities Insurer; and (3) is in
compliance with the laws of each state necessary to enable it to perform its
obligations under such Subservicing Agreement. The
Servicer shall give prior written notice to the Master Servicer, the Securities
Insurer, the Grantor Trustee and the Indenture Trustee of the appointment of any
Subservicer. The Servicer shall be entitled to terminate any Subservicing
Agreement in accordance with the terms and conditions of such Subservicing
Agreement and to either service the related Home Loans directly or enter into a
Subservicing Agreement with a successor subservicer which qualifies hereunder.
In the event of termination of any Subservicer, and unless a successor
Subservicer has otherwise been appointed, all servicing obligations of such
Subservicer shall be assumed simultaneously by the Servicer without any
additional act or deed on the part of such Subservicer or the Servicer, and the
Servicer shall service directly the related Home Loans.
Each Subservicing Agreement shall include the provision that such agreement
may be immediately terminated by the Master Servicer or the Grantor Trustee in
the event that the Servicer shall, for any reason, no longer be the Servicer. In
no event shall any Subservicing Agreement require the Grantor Trustee, as
Successor Servicer, for any reason whatsoever to pay compensation to a
Subservicer in order to terminate such Subservicer.
(b) Servicer Liability. Notwithstanding any Subservicing Agreement, any of
the provisions of this Agreement relating to agreements or arrangements between
the Servicer and a Subservicer or reference to actions taken through a
Subservicer or otherwise, the Servicer shall remain obligated and primarily
liable to the Master Servicer, the Securities Insurer, the Grantor Trustee and
the Grantor Trust Holder for the servicing and administration of the Home Loans
in accordance with the provisions of this Agreement without diminution of such
obligation or liability by virtue of such Subservicing Agreements or
arrangements or by virtue of indemnification from the Subservicer and to the
same extent and under the same terms and conditions as if the Servicer alone
were servicing and administering the Home Loans. For purposes of this Agreement,
the Servicer shall be deemed to have received payments on Home Loans when the
Subservicer has actually received such payments and, unless the context
otherwise requires, references in this Agreement to actions taken or to be taken
by the Servicer in servicing the Home Loans include actions taken or to be taken
by a Subservicer on behalf of the Servicer. The Servicer shall be entitled to
enter into any agreement with a Subservicer for indemnification of the Servicer
by such Subservicer, and nothing contained in this Agreement shall be deemed to
limit or modify such indemnification.
(c) Assumption by Successor Servicer. In the event the Servicer shall for
any reason no longer be the Servicer (including by reason of an Event of
Default), the successor Servicer, on behalf of the Grantor Trustee, the
Indenture Trustee, the Securities Insurer, the Securityholders and the Grantor
Trust Holder pursuant to Section 4.07 hereof, shall thereupon assume all of the
rights and obligations of the Servicer under each Subservicing Agreement that
the Servicer may have entered into, unless the successor servicer elects to
terminate any Subservicing Agreement in accordance with its terms. The successor
servicer shall be deemed to have assumed all of the Servicer's interest therein
and to have replaced the Servicer as a party to each Subservicing Agreement to
the same extent as if the Subservicing Agreements had been assigned to the
assuming party, except that the Servicer shall not thereby be relieved of any
liability or obligations under the Subservicing Agreements which accrued prior
to the transfer of servicing to the successor Servicer. The Servicer, at its
expense and without right
of reimbursement therefor, shall, upon request of the successor Servicer,
deliver to the assuming party all documents and records relating to each
Subservicing Agreement and the Home Loans then being serviced and an accounting
of amounts collected and held by it and otherwise use its best efforts to effect
the orderly and efficient transfer of the Subservicing Agreements to the
assuming party.
(d) Enforcement of Subservicing. As part of its servicing activities
hereunder, the Servicer, for the benefit of the Securities Insurer, the Grantor
Trustee, the Grantor Trust Holder, the Indenture Trustee and the
Securityholders, shall enforce the obligations of each Subservicer under the
related Subservicing Agreement. Such enforcement, including, without limitation,
the legal prosecution of claims and the pursuit of other appropriate remedies,
shall be in such form and carried out to such an extent and at such time as the
Servicer, in its good faith business judgment, would require were it the owner
of the related Home Loans. The Servicer shall pay the costs of such enforcement
at its own expense and shall be reimbursed therefor only (i) from a general
recovery resulting from such enforcement to the extent, if any, that such
recovery exceeds all amounts due in respect of the related Home Loan or (ii)
from a specific recovery of costs, expenses or attorneys' fees against the party
against whom such enforcement is directed.
(e) Limitations on Parties. Any Subservicing Agreement that may be entered
into and any other transactions or services relating to the Home Loans involving
a Subservicer shall be deemed to be between the Subservicer and the Servicer
alone and none of the Master Servicer, the Securities Insurer, the Grantor
Trustee, the Owner Trustee, the Indenture Trustee, the Securityholders or the
Grantor Trust Holder shall be deemed parties thereto or shall have any claims,
rights, obligations, duties or liabilities with respect to the Subservicer in
its capacity as such, except as set forth in Section 4.06(c) hereof.
(f) Subservicing Account. In those cases where a Subservicer receives or
collects any payments from a Home Loan, the Subservicer will be required to
establish and maintain one or more accounts (collectively, the "Subservicing
Account"). The Subservicing Account shall be an Eligible Account. The
Subservicer will be required to deposit into the Subservicing Account, no later
than the first Business Day after receipt, all proceeds of Home Loans received
by the Subservicer and remit such proceeds to the Servicer for deposit in the
Collection Account not later than the Business Day following receipt thereof by
the Subservicer. Notwithstanding anything in this Subsection to the contrary,
the Subservicer shall only be able to withdraw funds from the Subservicing
Account for the purpose of remitting such funds to the Servicer for deposit into
the Collection Account. The Servicer shall require the Subservicer to cause any
collection agent of the Subservicer to send a copy to the Servicer of each
statement of monthly payments collected by or on behalf of the Subservicer
within five Business Days after the end of every month, and the Servicer shall
compare the information provided in such reports with the deposits made by the
Subservicer into the Collection Account for the same period. The Servicer shall
be deemed to have received payments on the Home Loans on the date on which the
Subservicer has received such payments.
Section 4.07 Successor Servicers.
In the event that the Servicer is terminated pursuant to Section 10.01
hereof, or resigns
pursuant to Section 9.04 hereof or otherwise becomes unable to perform its
obligations under this Agreement, the Master Servicer or the Grantor Trustee, as
applicable, will become the successor servicer or will appoint a successor
servicer in accordance with the provisions of Section 10.02 hereof; provided,
however, that any successor servicer, excluding the Master Servicer or the
Grantor Trustee, as applicable, shall satisfy the requirements of an Eligible
Servicer and shall be approved by the Securities Insurer and have received the
Ratings Confirmation.
Section 4.08 Collections from Property Insurance Policies.
Any amounts collected by the Servicer under any Property Insurance Policies
shall be paid over or applied by the Servicer as follows:
(i) In the case of amounts received in respect of any Home Loan:
(A) for the restoration or repair of the affected Mortgaged
Property, in which event such amounts shall be released to the Obligor
in accordance with the terms of the related Debt Instrument or
Mortgage, or
(B) to the extent not so used, in reduction of the Principal
Balance of the related Home Loan, in which event such amounts shall be
deposited into the Collection Account,
unless the related Debt Instrument or Mortgage require a different
application, in which case such amounts shall be applied in the manner
provided therein; and
(ii) Subject to Section 4.10 and 4.11(c) hereof, in the case of
amounts received in respect of any Foreclosure Property, for the
restoration or repair of such Foreclosure Property, unless the Servicer
determines, consistent with the servicing standard set forth in Section
4.01 hereof, that such restoration or repair is not in the best economic
interest of the Grantor Trust Holder, in which event such amounts shall be
deposited into the Collection Account pursuant to Section 5.01(b)(1) hereof
as a payment received from the operation of such Foreclosure Property.
Section 4.09 Reports to the Securities and Exchange Commission.
(a) The Indenture Trustee shall, on behalf of the Issuer, cause to be filed
with the Securities and Exchange Commission all monthly reports on Form 8-K and
annual reports on Form 10-K required to be filed under the provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Securities and Exchange Commission thereunder. Upon the request of the
Indenture Trustee, each of the Servicer and the Transferor shall cooperate with
the Indenture Trustee in the preparation of any such report and shall provide to
the Indenture Trustee in a timely manner all such information or documentation
as the Indenture Trustee may reasonably request in connection with the
performance of its duties and obligations under this Section 4.09. The Indenture
Trustee shall indemnify and hold harmless each of the Issuer and the Depositor
for any costs, expenses or liability arising as a result of the failure of the
Indenture Trustee to perform its duties and obligations under this Section 4.09.
(b) [Reserved]
Section 4.10 Recovery from Defaulted Home Loans and Liquidated Home Loans.
(a) General Standard. If any Home Loan becomes a Defaulted Home Loan, then
the Servicer, in accordance with the servicing standard in Section 4.01(a),
shall take such action as it shall deem to be in the best interest of the
Grantor Trust Holder and Securityholders, including but not limited to (i)
repurchasing or substituting such Defaulted Home Loan pursuant to Section 3.05,
(ii) accepting short payoffs or short sales, (iii) entering into assumptions and
modifications, (iv) referring such Defaulted Home Loan to a collection agency or
attorney, or pursuing collection litigation or alternative court proceedings to
foreclosure actions, (v) selling such Defaulted Home Loan to another person, or
(vi) foreclosing or proceeding against the Mortgaged Property securing such
Defaulted Home Loan. The Servicer shall be acting in the best interests of the
Grantor Trust Holder and Securityholders, when the Servicer, in accordance with
the Accepted Servicing Procedures, undertakes actions to collect a Defaulted
Home Loan that have a higher likelihood of a reasonable recovery within a
shorter time period, and foregoes taking actions that have a lower likelihood of
a larger recovery over a longer time period. If with respect to a Defaulted Home
Loan the Servicer decides not to proceed against the Mortgaged Property or
Obligor, as applicable, then the Servicer shall determine in accordance with the
Accepted Servicing Procedures that there is not a reasonable likelihood of (A)
recovering an economically significant amount attributable to the outstanding
interest and principal owing on such Home Loan as a result of such proceeding,
in excess of (B) the costs and expenses to obtain such recovery (including
without limitation any Servicing Advances and, if applicable, the outstanding
indebtedness of all Superior Liens), and in relation to (C) the expected timing
of such recovery therefrom. If the Servicer makes a determination not to proceed
either against the Mortgaged Property or the Obligor, then the Servicer shall
give notice to such effect to the Master Servicer, the Securities Insurer, the
Grantor Trustee and the Indenture Trustee.
In connection with the monthly reporting in Section 6.01(a) hereof, the
Servicer shall deliver to the Indenture Trustee, the Master Servicer and the
Securities Insurer a report (in the form of Exhibit C attached hereto) (the
"Loan Liquidation Report"), which sets forth the liquidation information for
each Home Loan that became a Liquidated Home Loan during the preceding Due
Period. In addition, on a monthly basis, the Servicer shall provide a report to
the Master Servicer that summarizes the final actions of the Servicer taken
during the preceding Due Period with respect to any Home Loans pursuant to this
Section.
None of the Master Servicer, the Grantor Trustee, the Indenture Trustee,
the Issuer nor the Depositor shall have any responsibility or obligation to
review or verify any determination or approve any actions, made by the Servicer
pursuant to this Section 4.10.
(b) Modifications of Defaulted Home Loans. Notwithstanding Section 4.01(c)
hereof, in accordance with Section 4.10(a), the Servicer may modify, vary or
waive the terms of any Defaulted Home Loan in a manner that will be likely to
obtain a reasonable recovery of net proceeds therefrom under the circumstances,
including without limitation the deferment or forgiveness of any principal or
interest payments due or to become due thereon; provided, however, that no such
modification, variation or waiver of a Home Loan shall involve the
execution by the related Obligor of a new Debt Instrument. Notwithstanding the
preceding sentence, if the aggregate Principal Balances of Defaulted Home Loans
modified pursuant to this Subsection 4.10(b) exceeds 1% of the Original Pool
Principal Balance, then the Servicer shall obtain the prior written consent of
the Securities Insurer to any such modification of a Defaulted Home Loan. If a
Defaulted Home Loan is modified pursuant to this Section in a manner that
releases a portion of the Principal Balance thereof, then such released amount
shall be included as "Net Loan Losses" hereunder.
(c) Short Sales and Substitutions of Collateral. In accordance with the
Accepted Servicing Procedures, the Servicer may permit an Obligor, who is
selling their Mortgaged Property that constitutes such Obligor's principal
residence and relocating to another location, to substitute as collateral for
the related Home Loan the Obligor's new single family residence in place of the
Mortgaged Property being sold or any other real or personal property of the
Obligor, which may include an interim substitution of personal property pending
the Obligor's acquisition of a new residence; provided, however, that the
Servicer shall obtain the prior written consent of the Securities Insurer to any
such substitution of collateral. Other than the pledge of any incident or
ancillary personal property in connection with the pledge of real property, any
pledge of personal property by an Obligor as for the related Home Loan pursuant
to this Subsection ("Substitute Collateral") shall be limited to personal
property consisting of one or more of the following types: (1) a deposit account
at any federally insured depository institution; (2) a certificate of deposit or
time deposit of any federally insured depository institution; or (3) such other
types of personal property that have been approved by the Grantor Trustee, the
Indenture Trustee, the Securities Insurer and each Rating Agency as a form of
Substitute Collateral hereunder, which may include an instrument (within the
meaning of Section 9-105(1) of the UCC) or a security (within the meaning of
Section 8-102(1) of the UCC). Under certain circumstances, if such Obligor has
received net proceeds from the sale of the prior residence that will not be
applied to the purchase of the new residence, then the Servicer, in its
discretion, may require that such Obligor either (i) make a partial prepayment
in reduction of the principal balance of the Home Loan, or (ii) place such funds
into a depository account or certificate of deposit as collateral for the
related Home Loan. The Servicer shall undertake all actions, as deemed necessary
or appropriate by the Servicer to effectuate the substitution of any real or
personal property by an Obligor as collateral for the related Home Loan pursuant
to this Subsection and the release of the then existing Mortgaged Property
including all such actions to effectuate: (1) the inclusion of the security
interests in such Substitute Collateral as part of the Grantor Trust Estate; (2)
the delivery to the Custodian for inclusion in the related Grantor Trustee's
Home Loan File of an appropriate security agreement with respect to such
Substitute Collateral (including a new Mortgage with respect to any real
property being substituted); (3) the delivery and pledge of the security
interests in such Substitute Collateral to the Grantor Trustee under the Grantor
Trust Agreement, including the delivery of any substitute Collateral consisting
of primarily personal property in the same manner as provided by the definition
of "Delivery" in Section 1.01 hereof; and (4) any other actions as reasonably
requested by the Grantor Trustee or Indenture Trustee to accomplish such
substitution of Substitute Collateral.
In addition, if an Obligor is selling their Mortgaged Property and the
circumstances relating to such sale involve compensating factors or a distressed
situation, in each case as determined solely by the Servicer, then in accordance
with the Accepted Servicing Procedures
the Servicer may: (i) accept a partial prepayment by the Obligor of the
Principal Balance in consideration for a release of the Mortgaged Property as
security for the Home Loan, but with a continuation of the Debt Instrument and
the Home Loan on an unsecured basis (i.e., a "short sale"); or (ii) accept a
settlement involving a partial payment by the Obligor in consideration for the
termination of the Home Loan, the cancellation of the Debt Instrument and the
release of the Mortgaged Property (i.e., a "short pay-off"); provided, however,
that if the aggregate Principal Balances of Home Loans disposed of through short
sales or short pay-offs exceeds 1% of the Original Pool Principal Balance, then
the Servicer shall obtain the prior written consent of the Securities Insurer to
any such short sale or short pay-off.
(d) Sale and Charge-Off of Defaulted Home Loans. In accordance with Section
4.10(a) hereof, the Servicer, in its discretion, shall have the power and
authority to sell any Defaulted Home Loan or Liquidated Home Loan, on behalf of
the Grantor Trustee for the benefit of the Grantor Trust Holder, the Securities
Insurer and the Securityholders, to one or more Persons in a manner that will be
likely to obtain a reasonable recovery of net proceeds therefrom under the
circumstances. Notwithstanding the preceding sentence, an Affiliate of the
Servicer shall have the right to purchase any Defaulted Home Loan, if at the
time of such purchase none of the original ratings assigned to the Notes by any
Rating Agency have been downgraded, or, if a ratings downgrade has occurred,
each Rating Agency consents to such purchase; provided, however, that the
Servicer shall obtain the prior written consent of the Securities Insurer to any
such sale of Defaulted Home Loans to an Affiliate of the Servicer. The purchase
price paid for any Defaulted Home Loan sold to an Affiliate of the Servicer
shall not be less than the price that, in the reasonable judgment of the
Servicer, would have been paid for such Defaulted Home Loan by Person who is not
an Affiliate of the Servicer. The Servicer shall promptly deposit the Net
Liquidation Proceeds from the sale of any Defaulted Home Loans or Liquidated
Home Loans into the Collection Account in accordance with Section 5.01 hereof.
(e) Defaulted Superior Liens. If the Servicer is notified that any
lienholder under a Superior Lien has accelerated or intends to accelerate the
obligations secured by such Superior Lien, or has declared or intends to declare
a default under the related mortgage or the promissory note secured thereby, or
has filed or intends to file an election to have any Mortgaged Property sold or
foreclosed, then, in accordance with the Section 4.10(a) hereof and on behalf of
the Grantor Trust and the Grantor Trustee, the Servicer shall take all
reasonable actions that are necessary to protect the interests of the Grantor
Trust Holder and/or to preserve the security of the related Home Loan. The
Servicer shall promptly notify the Grantor Trustee if it determines not to take
action with respect to such Superior Lien.
(f) Foreclosure Actions. In accordance with the criteria for proceeding
against the Mortgaged Property set forth in Section 4.10(a) hereof, unless
otherwise prohibited by applicable law or court or administrative order, the
Servicer, on behalf of the Grantor Trust Holders, may, at any time, institute
foreclosure proceedings to the extent permitted by law, exercise any power of
sale to the extent permitted by law, obtain a deed in lieu of foreclosure, or
otherwise acquire possession of or title to the related Mortgaged Property, by
operation of law or otherwise. In accordance with Section 4.10(a) hereof, and
(i) in the case of any Mortgage in a first lien position the Servicer shall, or
(ii) in the case of any Mortgage in a subordinate lien position the Servicer
shall have the option to, institute foreclosure
proceedings, repossess, exercise any power of sale to the extent permitted by
law, obtain a deed in lieu of foreclosure or otherwise acquire possession of or
title to any Mortgaged Property, by operation of law or otherwise; provided,
however, that in each case the Servicer shall have determined there is a
reasonable likelihood of (A) recovering an economically significant amount
attributable to the outstanding interest and principal owing on such Home Loan
as a result of such actions, in excess of (B) the costs and expenses to obtain
such recovery (including without limitation any Servicing Advances and, if
applicable, the outstanding indebtedness of all Superior Liens), and in relation
to (C) the expected timing of such recovery therefrom.
Prior to acquiring any Foreclosure Property, however, the Servicer shall
cause a review to be performed, in accordance with the Accepted Servicing
Procedures, on the related Mortgaged Property by a company such as Equifax, Inc.
or Toxicheck, and the scope of such review shall be limited to the review of
public records and documents for indications that such Mortgaged Property has on
it, has under it, or is near hazardous or toxic material or waste. If such
review reveals that the Mortgaged Property has on it, under it or is near
hazardous or toxic material or waste or reveals any other environmental problem,
and the Servicer decides to proceed with the acquisition of such Mortgaged
Property, then the Servicer shall provide to the Master Servicer, the Securities
Insurer, the Grantor Trustee and the Indenture Trustee an Officer's Certificate
with a copy of the related report that substantiates such decision. Such
Officer's Certificate shall provide that based on an analysis of all available
information in the report (including potential clean up costs and liability
claims) at the time it is the best judgment of the Responsible Officer making
such certification that such foreclosure shall increase Net Liquidation Proceeds
to the Grantor Trust. Upon the receipt of any such Officer's Certificate, the
Grantor Trustee, in its reasonable discretion, shall instruct the Servicer
whether to take title to such Mortgaged Property; provided, however, that the
Grantor Trustee and the Servicer shall obtain the prior written consent of the
Securities Insurer to take title to such Mortgaged Property. The Grantor Trustee
shall promptly forward such report and Officer's Certificate to the Grantor
Trust Holder.
(g) Powers of Attorney. The Grantor Trustee shall furnish the Servicer,
within 5 days after request of the Servicer therefor, any powers of attorney and
other documents necessary and appropriate to carry out its duties under Sections
4.10 and 4.11 hereof, including any documents or powers of attorney necessary to
foreclose any Mortgage. The forms of any such powers or documents shall be
appended to such requests.
(h) Post Liquidation Proceeds. During any Due Period occurring after a Home
Loan becomes a Liquidated Home Loan, the Servicer shall deposit into the
Collection Account any Net Liquidation Proceeds received by it with respect to
such Liquidated Home Loan or the related Foreclosure Property.
Section 4.11 Title, Management and Disposition of Foreclosure Property.
(a) General Standard. If any Mortgaged Property is acquired in foreclosure
or by deed in lieu of foreclosure (a "Foreclosure Property") pursuant to Section
4.10, the deed or certificate of sale shall be taken in the name of the Grantor
Trustee for the benefit of the Grantor Trust Holder. The Servicer, or its
agents, shall manage, conserve, protect, operate,
market, sell and liquidate each Foreclosure Property for the Grantor Trustee and
the Grantor Trust Holder solely for the purpose of the prudent and prompt
disposition and sale of such Foreclosure Property in accordance with the
Accepted Servicing Procedures. The Servicer shall be responsible for all costs
and expenses incurred by it with respect to any Foreclosure Property; provided,
however, that such costs and expenses will be recoverable as Servicing Advances
by the Servicer as contemplated herein.
(b) Sale of Foreclosure Property. The Servicer may offer to sell to any
Person any Foreclosure Property, if and when the Servicer determines, in a
manner consistent with the Accepted Servicing Procedures, that such a sale would
be in the best interests of the Grantor Trust. The Servicer shall give the
Master Servicer, the Securities Insurer, the Grantor Trustee and the Indenture
Trustee notice of its intention to sell any Foreclosure Property and shall
accept the highest bid received from any Person that is determined to be a fair
price for such Foreclosure Property by the Servicer, if the highest bidder is a
Person other than an Affiliate of the Servicer, or by an Independent appraiser
retained by the Servicer, if the highest bidder is an Affiliate of the Servicer.
In the absence of any bid determined to be fair as aforesaid, the Servicer shall
offer the affected Foreclosure Property for sale to any Person, other than an
Affiliate of the Servicer, in a commercially reasonable manner for a period of
not less than 10 or more than 30 days, and shall accept the highest cash bid
received therefor in excess of the highest bid previously submitted. If no such
bid is received, any Affiliate of the Servicer may resubmit its original bid and
the Servicer shall accept the highest outstanding cash bid, regardless of from
whom received. No Affiliate of the Servicer shall be obligated to submit a bid
to purchase any Foreclosure Property and, notwithstanding anything to the
contrary herein, neither the Grantor Trustee, the Owner Trustee or the Indenture
Trustee, in its individual capacity, nor any of its Affiliates may bid for or
purchase any Foreclosure Property pursuant hereto.
Subject to the provisions of Section 4.10 hereof, the Servicer shall act on
behalf of the Grantor Trustee in negotiating and taking any other action
necessary or appropriate in connection with the sale of any Foreclosure
Property, including the collection of all amounts payable in connection
therewith. Any sale of a Foreclosure Property shall be without recourse to the
Grantor Trustee, the Master Servicer, the Servicer or the Grantor Trust and, if
consummated in accordance with the terms of this Agreement, neither the Servicer
nor the Grantor Trustee shall have any liability to any Grantor Trust Holder,
the Master Servicer, the Securities Insurer or Securityholder with respect to
the purchase price therefor accepted by the Servicer or the Grantor Trustee.
(c) Restoration of Foreclosure Property. If a Foreclosure Property has
suffered damage and the complete restoration of such property is not fully
reimbursable by the proceeds from any hazard Property Insurance Policies, then
the Servicer shall not be required to make any Servicing Advance for the
restoration of such Foreclosure Property, unless in the reasonable judgment of
the Servicer, as evidenced by an Officer's Certificate (which shall be delivered
to the Master Servicer, the Grantor Trustee and the Securities Insurer), such
restoration is likely to increase the net proceeds from the liquidation of the
related Home Loan after reimbursement for all Servicing Advances. (See also
Section 4.08 regarding collections from Property Insurance Policies.)
(d) Contracting for Operation of Foreclosure Property. In accordance with
the Accepted Servicing Procedures, the Servicer may contract with any
independent contractor for the operation, management, marketing or sale of any
Foreclosure Property; provided, however, that the terms and conditions of any
such contract shall not be inconsistent with this Agreement; provided further
that none of the provisions of this Section 4.11 relating to any such contract
or to actions taken through any such independent contractor shall be deemed to
relieve the Servicer of any of its duties and obligations hereunder with respect
to the operation, management, marketing or sale of any such Foreclosure
Property. The Servicer shall be entitled to enter into any agreement with any
independent contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Servicer by such independent
contractor, and nothing in this Agreement shall be deemed to limit or modify
such indemnification. The Servicer shall not be liable for any fees owed by it
to any such independent contractor and any amounts so expended shall be deemed
Servicing Advances.
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01 Collection Account and Note Payment Account.
(a) (1) Establishment of Collection Account. The Servicer, for the benefit
of the Securityholders, the Indenture Trustee and the Securities Insurer,
shall cause to be established and maintained in the name of the Indenture
Trustee one or more Collection Accounts (collectively, the "Collection
Account"), which shall be separate Eligible Accounts and may be
interest-bearing, and which shall be entitled "Collection Account of U.S.
Bank National Association, as Indenture Trustee, in trust for the Empire
Funding Home Loan Asset Backed Notes, Series 1998-3". The Collection
Account may be maintained with the Indenture Trustee or any other
depository institution, which satisfies the requirements set forth in the
definition of Eligible Account. The creation of any Collection Account
other than one maintained with the Indenture Trustee shall be evidenced by
a letter agreement between the Servicer and the depository institution
acceptable to the Indenture Trustee and the Securities Insurer. A copy of
such letter agreement shall be furnished to the Securities Insurer, the
Indenture Trustee and, upon request of any Grantor Trust Holder, to such
Grantor Trust Holder. Funds in the Collection Account shall be invested in
accordance with Section 5.03 hereof.
The Collection Account shall be established, as of the Closing Date,
with the Indenture Trustee as an Eligible Account pursuant to the
definition thereof. The Collection Account may, upon written notice to the
Indenture Trustee, and upon the written consent of the Securities Insurer,
be transferred to a different depository institution so long as such
transfer is to an Eligible Account acceptable to the Indenture Trustee.
(2) Establishment of Note Payment Account. No later than the Closing
Date, the Servicer, for the benefit of the Noteholders and the Securities
Insurer, shall cause to be established and maintained with the Indenture
Trustee one or more Note Payment Accounts (collectively, the "Note Payment
Account"), which shall be separate
Eligible Accounts and may be interest-bearing, and which shall be entitled
"Note Payment Account of U.S. Bank National Association, as Indenture
Trustee, in trust for the Empire Funding Home Loan Asset Backed Notes,
Series 1998-3". Funds in the Note Payment Account shall be invested in
accordance with Section 5.03 hereof.
(b) (1) Deposits to Collection Account. The Servicer shall use its best
efforts to deposit or cause to be deposited (without duplication), within
two (2) Business Days after receipt thereof, into the Collection Account
and retain therein in trust for the benefit of the Grantor Trust Holder and
the Securities Insurer:
(i) all payments of principal and interest on the Home Loans
collected after the Cut-Off Date, except for 13.33% of the interest
collected on the Home Loans during the first Due Period, which shall
be retained by the Transferor;
(ii) all Net Liquidation Proceeds pursuant to Section 4.11
hereof;
(iii) all Property Insurance Proceeds;
(iv) all Released Mortgaged Property Proceeds;
(v) any amounts payable in connection with the repurchase of any
Home Loan and the amount of any Substitution Adjustment pursuant to
Section 2.06 of the Grantor Trust Agreement and Section 3.05 hereof;
(vi) the deposit of the Termination Price under Section 11.01
hereof; and
(vii) interest and gains on funds held in the Collection Account.
The Servicer shall be entitled to retain and not deposit into the
Collection Account any amounts received with respect to a Home Loan that
constitute additional servicing compensation pursuant to Section 7.03
hereof, and such amounts retained by the Servicer during a Due Period shall
be excluded from the calculation of the Servicing Compensation that is
distributable to the Servicer from the Note Payment Account on the next
Payment Date following such Due Period.
(2) Deposits to Note Payment Account. On the seventh (7th) Business
Day prior to each Payment Date, the Indenture Trustee (based on information
provided by the Servicer for such Payment Date) shall withdraw from the
Collection Account the Available Collection Amount as a distribution in
respect of the Grantor Trust Certificate pursuant to Section 5.01 of the
Grantor Trust Agreement and deposit such into the Note Payment Account for
such Payment Date.
(3) Withdrawals from Collection Account. The Indenture Trustee, at the
direction of the Servicer, shall also make the following withdrawals from
the Collection Account, in no particular order of priority:
(i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error;
(ii) to withdraw any Servicing Advance Reimbursement Amounts; and
(iii) to clear and terminate the Collection Account in connection
with the termination of this Agreement.
(c) Initial Withdrawals from Note Payment Account. To the extent funds are
available in the Note Payment Account, the Indenture Trustee (based on the
information provided by the Servicer contained in the Servicer's Monthly
Remittance Report for such Payment Date) shall make withdrawals therefrom by
9:00 a.m. (New York City time) on each Payment Date, for application in the
following order of priority:
(i) to distribute on such Payment Date the following amounts
related to such Payment Date pursuant to the Indenture in the
following order: (1) to the Master Servicer an amount equal to the
Master Servicer Compensation and all unpaid Master Servicer
Compensation from prior Payment Dates; (2) to the Servicer, on behalf
of the Grantor Trustee, an amount equal to the Servicing Compensation
(net of the sum of any amounts retained prior to deposit into the
Collection Account pursuant to subsection (b)(1) above) and all unpaid
Servicing Compensation from prior Payment Dates; (3) to the Securities
Insurer, an amount equal to the Guaranty Insurance Premium and all
unpaid Guaranty Insurance Premiums from prior Payment Dates; (4) to
the Indenture Trustee, an amount equal to the Indenture Trustee Fee
and all unpaid Indenture Trustee Fees from prior Payment Dates; (5) to
the Owner Trustee, an amount equal to the Owner Trustee Fee and all
unpaid Owner Trustee Fees from prior Payment Dates; (6) to the
Custodian on behalf of the Grantor Trustee, an amount equal to the
Custodian Fee, if any, and all unpaid Custodian Fees from prior
Payment Dates; and (7) to the Grantor Trustee, an amount equal to the
Grantor Trustee Fee, if any, and all unpaid Grantor Trustee Fees from
prior Payment Dates; and
(ii) subject to the priority of payments in Subsections 5.01(d)
and (e) below, to deposit into the Certificate Distribution Account
the applicable portions of the Available Payment Amount payable to the
holders of the Residual Interest Certificates as calculated pursuant
to Subsection 5.01(e) below on such Payment Date.
Notwithstanding that the Notes have been paid in full, the Indenture
Trustee and the Servicer shall continue to maintain the Collection Account and
the Note Payment Account hereunder until the Note Principal Balance of each Note
has been reduced to zero.
(d) Regular Payment Amount Withdrawals from Note Payment Account. On each
Payment Date, the Indenture Trustee (based on the information provided by the
Servicer contained in the Servicer's Monthly Remittance Report for such Payment
Date) shall distribute the Regular Payment Amount and any Insured Payment from
the Note Payment Account (in the case of all amounts distributable to
Noteholders) and from the Certificate Distribution
Account (in the case of all amounts distributable to Certificateholders), in the
following order of priority:
(i) to pay the holders of the Notes the Noteholders' Interest
Payment Amount for such Payment Date;
(ii) to pay the holders of the Notes principal thereof in an
amount up to the sum of the Regular Principal Payment Amount and the
Noteholders' Principal Deficiency Amount, until the Note Principal
Balances thereof are reduced to zero; and
(iii) to apply any remaining amount together with Excess Spread
in the manner specified in Subsection (e) below.
(e) Excess Spread Withdrawals from Note Payment Account. On each Payment
Date, the Indenture Trustee (based on the information provided by the Servicer
contained in the Servicer's Monthly Remittance Report for such Payment Date)
shall distribute the Excess Spread, if any, in the following order of priority
(in each case after giving effect to all payments specified in Section 5.01(d)
hereof):
(i) to pay the Securities Insurer in an amount up to the
Securities Insurer Reimbursement Amount;
(ii) to pay the holders of the Notes, as principal thereof, any
remaining Excess Spread in an amount up to any Overcollateralization
Deficiency Amount (after giving effect to payments made pursuant to
subsection (d) above), until the Note Principal Balances thereof are
reduced to zero; and
(iii) to pay any remaining Excess Spread (A) first, to the
Servicer in an amount equal to any outstanding Nonrecoverable
Servicing Advances, and (B) then, for deposit into the Certificate
Distribution Account for payment to the holders of the Residual
Interest Certificates any amount remaining after the preceding clause
(A).
(f) All payments made on the Notes on each Payment Date will be made on a
pro rata basis among the Noteholders of record of such Notes on the next
preceding Record Date, without preference or priority of any kind, and, except
as otherwise provided in the next sentence, shall be made by wire transfer of
immediately available funds to the account of such Noteholder, if such
Noteholder shall own of record Notes in original Denominations aggregating at
least $250,000 and shall have so notified the Indenture Trustee, and otherwise
by check mailed to the address of such Noteholder appearing in the Notes
Register. The final payment on each Note will be made in like manner, but only
upon presentment and surrender of such Note at the location specified in the
notice to Noteholders of such final payment.
Section 5.01A Claims Under Guaranty Policy.
(a) The Notes will be insured by the Guaranty Policy pursuant to the terms
set forth therein, notwithstanding any provisions to the contrary contained in
the Indenture or this Agreement. All amounts received under the Guaranty Policy
shall be used solely for the payment to Noteholders of principal and interest on
the Notes.
(b) (i) If for any Payment Date a Deficiency Amount exists, the Indenture
Trustee shall complete a notice in the form set forth as Exhibit A to the
Guaranty Policy (the "Notice") and shall submit such Notice to the Fiscal
Agent designated in the Guaranty Policy no later than 12:00 noon, New York
time, on the third Business Day preceding such Date. The Notice shall
constitute a claim for an Insured Payment pursuant to the Guaranty Policy
for an amount equal to such Deficiency Amount. Upon receipt of the Insured
Payments, at or prior to the latest time payments of the Insured Payments
are to be made by the Securities Insurer pursuant to the Guaranty Policy,
on behalf of the Noteholders, the Indenture Trustee shall distribute such
Insured Payments as part of the Regular Payment Amount under the Indenture
to the extent such Insured Payments relate to the Notes.
(ii) In addition, if the Indenture Trustee has notice that any of the
Noteholders have been required to disgorge payments of interest or
principal on the Notes pursuant to a final judgment by a court of competent
jurisdiction that such payment constitutes a voidable preference to such
Noteholders within the meaning of any applicable bankruptcy laws, then the
Indenture Trustee shall notify the Securities Insurer as set forth in the
Guaranty Policy for making a claim for a Preference Amount. Such payment
for a Preference Amount shall be disbursed to the receiver or trustee in
bankruptcy named in the final order of the court exercising jurisdiction on
behalf of the Noteholders and not to any Noteholder directly unless such
Noteholder has returned principal or interest paid on the Notes to such
receiver or trustee in bankruptcy, in which case such payment shall be
disbursed to such Noteholder.
(c) The Securities Insurer is entitled to the benefit of the following
provisions in the event that an Insured Payment has been made. Notwithstanding
any other provision hereof:
(i) The Indenture Trustee shall immediately apply all moneys
constituting an Insured Payment to the payment to Noteholders of principal
and interest on the Notes by depositing such amounts in the Note Payment
Account for Insured Payments payable on the Notes. All amounts received
under the Guaranty Policy shall be used solely for the payment to
Noteholders of principal and interest on the Notes. The Securities
Insurer's obligations under the Guaranty Policy with respect to a
particular Insured Payment shall be discharged to the extent funds equal to
the applicable Insured Payment are received by the Indenture Trustee,
whether or not such funds are properly applied by the Indenture Trustee,
the Owner Trustee or the Paying Agent. The parties hereto recognize that
the making of the Insured Payment does not relieve any of the parties
hereto of any obligation hereunder or any of the Basic Documents.
(ii) The parties hereto recognize that, to the extent that the
Securities Insurer makes payments, directly or indirectly, on account of
principal of or interest on the Notes, the Securities Insurer shall be
subrogated to the rights of the Noteholders of the Notes to receive
payments of principal and interest in accordance with the terms hereof.
(iii) To the extent the Securities Insurer is owed any Securities
Insurer Reimbursement Amount (including without limitation any unreimbursed
Insured Payments made under the Guaranty Policy plus interest accrued
thereon as provided in the Insurance Agreement), the Securities Insurer
shall be entitled to payments pursuant to Section 5.01(e), and the
Indenture Trustee and the Paying Agent shall otherwise treat the Securities
Insurer as the owner of such rights to payments of any Securities Insurer
Reimbursement Amount.
(iv) The Securities Insurer shall have the right to institute any
suit, action or proceeding at law or in equity under the same terms as a
Noteholder of a Note may institute any action.
Section 5.02 Certificate Distribution Account.
(a) Establishment of Certificate Distribution Account. No later than the
Closing Date, the Servicer, for the benefit of the Certificateholders, shall
cause to be established and maintained with the Indenture Trustee for the
benefit of the Owner Trustee, on behalf of the Issuer and the
Certificateholders, one or more Certificate Distribution Accounts (collectively,
the "Certificate Distribution Account"), which shall be separate Eligible
Accounts and may be interest-bearing, entitled "Certificate Distribution
Account, U.S. Bank National Association, as Indenture Trustee, in trust for the
Empire Funding Home Loan Owner Trust Series 1998-3". Funds in the Certificate
Distribution Account shall be invested in accordance with Section 5.03 hereof.
(b) Deposits to and Distributions from Certificate Distribution Account. On
each Payment Date the Indenture Trustee shall withdraw from the Note Payment
Account all amounts required to be deposited into the Certificate Distribution
Account with respect to such Payment Date pursuant to Section 5.01(c)(ii) hereof
and, on behalf of the Owner Trustee, shall deposit such amounts into the
Certificate Distribution Account. The Indenture Trustee shall make payments of
all remaining amounts on deposit in the Note Payment Account to the holders of
the Notes to the extent of amounts due and unpaid on the Notes for principal
thereof and interest thereon in accordance with Section 5.01(d) and (e) hereof.
The Indenture Trustee, on behalf of the Owner Trustee, shall distribute all
amounts on deposit in the Certificate Distribution Account to the holders of the
Residual Interest Certificates. The Indenture Trustee, on behalf of the Owner
Trustee, also shall withdraw from the Certificate Distribution Account any
amount not required to be deposited in the Certificate Distribution Account or
deposited therein in error.
(c) Distributions on the Residual Interest Certificates. All distributions
made on the Residual Interest Certificates on each Payment Date will be made pro
rata among the holders of the Residual Interest Certificates of record on the
next preceding Record Date based on their
percentage holdings in the Residual Interest, without preference or priority of
any kind, and, except as otherwise provided in the next succeeding sentence,
shall be made by wire transfer of immediately available funds to the account of
each such holder, if such holder shall own of record a Residual Interest
Certificate in an original denomination aggregating at least a 50% holding of
the Residual Interest and shall have so notified the Indenture Trustee at least
5 Business Days prior thereto, and otherwise by check mailed to the address of
such Residual Interest holder appearing in the Certificate Register. The final
distribution on each Residual Interest Certificate will be made in like manner,
but only upon presentment and surrender of such Residual Interest Certificate at
the location specified in the notice to holders of the Residual Interest
Certificates of such final distribution. Any amount distributed to the holders
of the Residual Interest Certificates on any Payment Date shall not be subject
to any claim or interest of holders of the other Notes.
Section 5.03 Trust Accounts; Trust Account Property.
(a) Control of Trust Accounts. Each of the Trust Accounts (or interests
therein) established hereunder has been pledged by the Issuer to the Indenture
Trustee under the Indenture and shall be subject to the lien of the Indenture.
In addition to the provisions hereunder, each of the Trust Accounts shall also
be established and maintained pursuant to the Indenture. Amounts distributed
from each Trust Account in accordance with the Indenture and this Agreement
shall be released from the lien of the Indenture upon such distribution
thereunder or hereunder. Subject to Sections 5.01 and 5.02 hereof, the Indenture
Trustee shall possess all right, title and interest in and to all funds on
deposit from time to time in the Trust Accounts (other than the Certificate
Distribution Account) and in all proceeds thereof (including all income thereon)
and all such funds, investments, proceeds and income shall be part of the Trust
Account Property and the Owner Trust Estate. If, at any time, any Trust Account
ceases to be an Eligible Account, the Indenture Trustee (or the Servicer on its
behalf) shall, within ten Business Days (or such longer period, not to exceed 30
calendar days, as to which each Rating Agency and the Securities Insurer may
consent) (i) establish a new Trust Account as an Eligible Account, (ii)
terminate the ineligible Trust Account, and (iii) transfer any cash and
investments from such ineligible Trust Account to such new Trust Account.
With respect to the Trust Accounts (other than the Certificate Distribution
Account), the Indenture Trustee agrees, by its acceptance hereof, that each such
Trust Account shall be subject to the sole and exclusive custody and control of
the Indenture Trustee for the benefit of the Securityholders, the Securities
Insurer and the Issuer, as the case may be, and the Indenture Trustee shall have
sole signature and withdrawal authority with respect thereto.
In addition to this Agreement and the Indenture, the Certificate
Distribution Account established hereunder shall also be subject to and
established and maintained in accordance with the Owner Trust Agreement. Subject
to rights of the Indenture Trustee, the Noteholders and the Securities Insurer
hereunder and under the Indenture, the Owner Trustee shall possess for the
benefit of the Certificateholders and the Securities Insurer all right, title
and interest in all funds on deposit from time to time in the Certificate
Distribution Account and in all proceeds thereof (including all income thereon)
and all such funds, investments, proceeds and income shall be part of the Trust
Account Property and the Owner Trust Estate. Subject to the rights of the
Indenture Trustee, the Noteholders and the Securities Insurer, the Owner Trustee
agrees, by its acceptance hereof, that such Certificate Distribution Account
shall be subject to the sole and exclusive custody and control of the Owner
Trustee for the benefit of the Issuer and the parties entitled to payments and
distributions therefrom, including, without limitation, the Certificateholders
and the Securities Insurer, and the Owner Trustee shall have sole signature and
withdrawal authority with respect to the Certificate Distribution Account.
Notwithstanding the preceding, the distribution of amounts from the Certificate
Distribution Account in accordance with Section 5.01(c)(ii) hereof shall also be
made for the benefit of the Indenture Trustee (including without limitation with
respect to its duties under the Indenture and this Agreement relating to the
Owner Trust Estate), and the Indenture Trustee (in its capacity as Indenture
Trustee) shall have the right, but not the obligation, to take custody and
control of the Certificate Distribution Account and to cause the distribution of
amounts therefrom in the event that the Owner Trustee fails to distribute such
amounts in accordance with subsections (c) and (d) of Section 5.02.
In accordance with Sections 5.01 and 5.02 hereof, the Servicer or the
Master Servicer shall have the power, revocable by the Indenture Trustee or by
the Owner Trustee with the consent of the Indenture Trustee, to instruct the
Indenture Trustee or Owner Trustee to make withdrawals and payments from the
Trust Accounts for the purpose of permitting the Servicer, the Master Servicer
or the Issuer to carry out their respective duties hereunder or permitting the
Indenture Trustee or Owner Trustee to carry out their respective duties herein
or under the Indenture, the Owner Trust Agreement or the Grantor Trust
Agreement, as applicable.
(b) (1) Investment of Funds. So long as no Event of Default shall have
occurred and be continuing, the funds held in any Trust Account (other than
the Note Payment Account) may be invested (to the extent practicable and
consistent with any requirements of the Code) in Permitted Investments, as
directed by the Transferor. The funds held in the Note Payment Account
shall be invested in Permitted Investments, as directed by the Master
Servicer. Any directions for investment of funds in any Trust Account shall
be made in writing or by telephone or facsimile transmission with
confirmation in writing. In any case, funds in any Trust Account must be
available for withdrawal without penalty, and any Permitted Investments
must mature or otherwise be available for withdrawal, not later than the
Business Day immediately preceding the Payment Date next following the date
of such investment and shall not be sold or disposed of prior to its
maturity subject to subsection (b)(2) of this Section. All interest and any
other investment earnings on amounts or investments held in any Trust
Account shall be deposited into such Trust Account immediately upon receipt
by the Indenture Trustee. All Permitted Investments in which funds in any
Trust Account (other than the Certificate Distribution Account) are
invested must be held by or registered in the name of U.S. Bank National
Association, as Indenture Trustee, in trust for the Empire Funding Home
Loan Asset Backed Notes, Series 1998-3. While the Indenture Trustee holds
the Certificate Distribution Account, on behalf of the Owner Trustee, all
Permitted Investments in which funds in the Certificate Distribution
Account are invested shall be held by or registered in the name U.S. Bank
National Association, on behalf of the Owner Trustee, in trust for the
Empire Funding Home Loan Asset Backed Notes, Series 1998-3.
(2) Insufficiency and Losses in Trust Accounts. If any amounts are
needed
for disbursement from any Trust Account held by or on behalf of the
Indenture Trustee and sufficient uninvested funds are not available to make
such disbursement, the Indenture Trustee shall cause to be sold or
otherwise converted to cash a sufficient amount of the investments in such
Trust Account. The Indenture Trustee shall not be liable for any investment
loss or other charge resulting therefrom, unless such loss or charge is
caused by the failure of the Indenture Trustee or Owner Trustee,
respectively, to perform in accordance with this Section 5.03 hereof or the
Indenture Trustee is the obligor under the Permitted Investment and has
defaulted thereon.
If any losses are realized in connection with any investment in any
Trust Account pursuant to this Agreement and the Indenture, then the
Transferor, in the case of the Collection Account, and the Master Servicer,
in the case of the Note Payment Account, shall deposit the amount of such
losses (to the extent not offset by income from other investments in such
Trust Account) into such Trust Account immediately upon the realization of
such loss. All interest and any other investment earnings on amounts held
in any Trust Account shall be the income of the Issuer (or, when there is a
single beneficial owner of a Residual Interest Certificate, such owner),
and for federal and state income tax purposes the Issuer (or such single
beneficial owner) shall be the owner (or beneficial owner in the case of
the Collection Account).
(c) No Liability for Losses. Subject to section 6.01 of the Indenture, the
Indenture Trustee shall not in any way be held liable by reason of any
insufficiency in any Trust Account held by the Indenture Trustee resulting from
any investment loss on any Permitted Investment included therein (except to the
extent that the Indenture Trustee is the obligor and has defaulted thereon).
(d) Delivery of Trust Account Property. With respect to the Trust Account
Property, the Indenture Trustee acknowledges and agrees that:
(1) any Trust Account Property that is held in deposit accounts shall
be held solely in the Eligible Accounts, subject to the last sentence of
subsection (a) of this Section 5.03; and each such Eligible Account shall
be subject to the sole and exclusive dominion, custody and control of the
Indenture Trustee; and, without limitation on the foregoing, the Indenture
Trustee shall have sole signature authority with respect thereto;
(2) any Trust Account Property that constitutes property within clause
(a) of the definition of "Delivery" in Section 1.1 hereof shall be
delivered to and maintained by the Indenture Trustee in accordance with the
definition of "Delivery" in Section 1.1 hereof and shall be held, pending
maturity or disposition, solely by or on behalf of the Indenture Trustee;
and
(3) any Trust Account Property that is a book-entry security held
through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered to and maintained by the Indenture Trustee
in accordance with the definition of "Delivery" in Section 1.1 hereof.
Section 5.04 Allocation of Losses.
(a) In the event that Net Liquidation Proceeds, Property Insurance Proceeds
or Released Mortgaged Property Proceeds on a Liquidated Home Loan are less than
the related Principal Balance plus accrued interest thereon, or any Obligor
makes a partial payment of any Monthly Payment due on a Home Loan, such Net
Liquidation Proceeds, Property Insurance Proceeds, Released Mortgaged Property
Proceeds or partial payment shall be applied to payment of the related Debt
Instrument, first, to interest accrued at the Home Loan Interest Rate and, then,
to principal.
(b) [Reserved]
ARTICLE VI
STATEMENTS AND REPORTS; WITHHOLDING
Section 6.01 Statements.
(a) No later than each Determination Date, the Servicer shall deliver to
the Indenture Trustee and the Master Servicer by facsimile, the receipt and
legibility of which shall be confirmed by telephone, and with hard copy thereof
to be delivered no later than one (1) Business Day after such Determination
Date, the Servicer's Monthly Remittance Report, setting forth the date of such
Report (day, month and year), the name of the Issuer (i.e. "Empire Funding Home
Loan Owner Trust 1998-3"), the Series designation of the Notes (i.e. "Series
1998-3") and the date of this Agreement, all in substantially the form set out
in Exhibit B hereto. Furthermore, the Servicer shall deliver to the Master
Servicer and the Indenture Trustee no later than each Determination Date, a
magnetic tape or computer disk providing such information regarding the
Servicer's activities in servicing the Home Loans during the related Due Period
as the Indenture Trustee or the Master Servicer may reasonably require. The
Servicer also shall deliver any Loan Liquidation Reports pursuant to Section
4.10(a) hereof.
(b) On each Payment Date, Indenture Trustee shall distribute, based on
information provided by the Servicer, a monthly statement (the "Payment
Statement") to the Depositor, the Securities Insurer, the Master Servicer, the
Securityholders and the Rating Agencies, stating the date of original issuance
of the Notes (day, month and year), the name of the Issuer (i.e. "Empire Funding
Home Loan Owner Trust 1998-3"), the Series designation of the Notes (i.e.,
"Series 1998-3"), the date of this Agreement and the following information:
(1) the Available Collection Amount, Available Payment Amount, the
Regular Payment Amount and the Excess Spread for the related Payment Date;
(2) the Note Principal Balance of the Notes before and after giving
effect to payments made to the holders of such Notes on such Payment Date,
and the Pool Principal Balance as of the first and last day of the related
Due Period;
(3) the Note Factor with respect to the Notes then outstanding;
(4) the amount of principal, if any, and interest to be distributed to
the Notes on the related Payment Date;
(5) [Reserved];
(6) as of such Payment Date, the Overcollateralization Amount, the
Overcollateralization Target Amount and any Overcollateralization
Deficiency Amount or any Overcollateralization Reduction Amount, and any
such amount to be distributed to the Noteholders or the holders of the
Residual Interest on such Payment Date;
(7) the Master Servicer Compensation, the Servicing Compensation, the
Indenture Trustee Fee, the Grantor Trustee Fee, the Owner Trustee Fee, the
Guaranty Insurance Premium, and, the Custodian Fee, if any, for such
Payment Date;
(8) as of such Payment Date, the Net Loan Losses incurred during the
related Due Period, the cumulative Net Loan Losses as of such Payment Date;
(9) the weighted average maturity of the Home Loans and the weighted
average Home Loan Interest Rate of the Home Loans;
(10) certain performance information, including, without limitation,
delinquency and foreclosure information with respect to the Home Loans as
set forth in the Servicer's Monthly Remittance Report;
(11) the number of and aggregate Principal Balance of all Home Loans
in foreclosure proceedings and the percent of the aggregate Principal
Balances of such Home Loans to the aggregate Principal Balances of all Home
Loans, all as of the close of business on the last day of the related Due
Period;
(12) the number of and the aggregate Principal Balance of the Home
Loans in bankruptcy proceedings and the percent of the aggregate Principal
Balances of such Home Loans to the aggregate Principal Balances of all Home
Loans, all as of the close of business on the last day of the related Due
Period;
(13) the number of Foreclosure Properties, the aggregate Principal
Balance of the related Home Loans, the book value of such Foreclosure
Properties and the percent of the aggregate Principal Balances of such Home
Loans to the aggregate Principal Balances of all Home Loans, all as of the
close of business on the last day of the related Due Period;
(14) during the related Due Period (and cumulatively, from the Closing
Date through the most current Due Period), the number and aggregate
Principal Balance of Home Loans for each of the following: (A) that became
Defaulted Home Loans, (B) that became Liquidated Home Loans, (C) that
became Deleted Home Loans pursuant to Section 3.05 hereof as a result of
such Deleted Home Loans being Defective Home Loans, and (D) that became
Deleted Home loans pursuant to Section 3.05 hereof as a result of such
Deleted Home Loans being Defaulted Home Loans or a Home Loan in default or
imminent default, including the foregoing amounts by loan type (i.e.,
Combination Loans, or Debt Consolidation Loans);
(15) the scheduled principal payments and the principal prepayments
received with respect to the Home Loans during the Due Period;
(16) the number and aggregate Principal Balance of Home Loans that
were 30, 60 or 90 days Delinquent as of the close of business on the last
day of the related Due Period and the Six Month Average Delinquency, the
Three-Month Average Annualized Losses and the cumulative Realized Losses;
(17) the amount of any Insured Payment included in the amounts
distributed to the Noteholders on such Payment Date; and
(18) the amount of any Securities Insurer Reimbursement Amount to be
paid to the Securities Insurer on such Payment Date and the amount of any
Securities Insurer Reimbursement Amount remaining unsatisfied following
such payment.
In the case of information furnished to Noteholders pursuant to subclause
(b)(4) of this Section 6.01, the amounts shall be expressed as a dollar amount
per Note with a $1,000 Denomination.
All reports prepared by the Indenture Trustee of the withdrawals from and
deposits in the Collection Account will be based in whole or in part upon the
information provided to the Indenture Trustee by the Servicer, and the Indenture
Trustee may fully rely upon and shall have no liability with respect to such
information provided by the Servicer.
(c) Within a reasonable period of time after the end of each calendar year,
the Indenture Trustee shall prepare and distribute to each Person who at any
time during the calendar year was a Noteholder such information as is reasonably
necessary to provide to such Person a statement containing the information set
forth in subclauses (b)(iv) of this Section 6.01, aggregated for such calendar
year or applicable portion thereof during which such Person was a Noteholder.
(d) On each Payment Date, the Indenture Trustee shall forward to The
Depository Trust Company and to the holders of the Residual Interest
Certificates a copy of the Payment Statement in respect of such Payment Date and
a statement setting forth the amounts actually distributed to such holders of
the Residual Interest Certificates on such Payment Date, together with such
other information as the Indenture Trustee deems necessary or appropriate.
(e) Within a reasonable period of time after the end of each calendar year,
the Indenture Trustee shall prepare and distribute to each Person who at any
time during the calendar year was a holder of Residual Interest Certificates, if
requested in writing by such Person, a statement containing the information
provided pursuant to the previous paragraph aggregated for such calendar year or
applicable portion thereof during which such Person was a holder of Residual
Interest Certificates.
(f) The Indenture Trustee shall forward to each Noteholder and each holder
of a Residual Interest Certificate, during the term of this Agreement, such
periodic, special or other
reports, including information tax returns or reports required with respect to
the Notes and the Residual Interest Certificates, as shall be necessary,
reasonable, or appropriate with respect to the Noteholders or the holders of
Residual Interest Certificates, or otherwise with respect to the purposes of
this Agreement, all such reports or information in the case of the Residual
Interest Certificates to be provided by and in accordance with such applicable
instructions and directions as the Majority Residual Interestholders may
reasonably require.
(g) Reports and computer tapes furnished by the Servicer and the Indenture
Trustee, the Master Servicer and the Securities Insurer pursuant to this
Agreement shall be deemed confidential and of a proprietary nature and shall not
be copied or distributed except in connection with the purposes and requirements
of this Agreement. No Person entitled to receive copies of such reports or tapes
shall use the information therein for the purpose of soliciting the customers of
the Depositor or the Servicer or for any other purpose except as set forth in
this Agreement.
Section 6.02 Withholding.
The Indenture Trustee shall comply with all requirements of the Code, and
applicable state and local laws, with respect to the withholding from any
payments made to any Noteholder of any applicable withholding taxes imposed
thereon and with respect to any applicable reporting requirements in connection
therewith, giving due effect to any applicable exemptions from such withholding
and effective certifications or forms provided by the recipient. Any amounts
withheld pursuant to this Section 6.02 shall be deemed to have been paid to the
Noteholders for all purposes of this Agreement or the Indenture.
ARTICLE VII
GENERAL SERVICING PROCEDURES
Section 7.01 Due-On-Sale; Due-on-Encumbrance.
(a) If any Home Loan contains a provision, in the nature of a "due-on-
sale" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the related lender's
option) become due and payable upon the sale or other transfer of an
interest in any related Mortgaged Property; or
(ii) provides that such Home Loan may not be assumed without the
consent of the related lender in connection with any such sale or other
transfer,
then, for so long as such Home Loan is included in the Grantor Trust, the
Servicer, on behalf of the Grantor Trustee, shall exercise any right the Grantor
Trustee may have as the lender of record with respect to such Home Loan (x) to
accelerate the payments thereon or (y) to withhold its consent to any such sale
or other transfer, in a manner consistent with the Accepted Servicing Procedures
and subject to Section 4.10 or 7.01(c) hereof.
(b) If any Home Loan contains a provision in the nature of a "due-on-
encumbrance" clause, which by its terms:
(i) provides that such Home Loan shall (or may at the related lender's
option) become due and payable upon the creation of any lien or other
encumbrance on any related Mortgaged Property; or
(ii) requires the consent of the related lender to the creation of any
such lien or other encumbrance on any related Mortgaged Property,
then, for so long as such Home Loan is included in the Grantor Trust, the
Servicer, on behalf of the Grantor Trustee, shall exercise any right the Grantor
Trustee may have as the lender of record with respect to such Home Loan (x) to
accelerate the payments thereon or (y) to withhold its consent to the creation
of any such lien or other encumbrance, in a manner consistent with the Accepted
Servicing Standards and subject to Section 4.10 or 7.01(c) hereof.
(c) If a Home Loan does not contain a "due-on-sale" clause or such clause
is reasonably believed by the Servicer not to be enforceable under applicable
law, then the Servicer shall enter into an assumption and modification agreement
with the Person to whom any related Mortgaged Property has been or is about to
be conveyed, pursuant to which such person becomes liable under the Debt
Instrument and, unless prohibited by applicable law or the Home Loan documents,
the Obligor remains liable thereon. In accordance with the Accepted Servicing
Procedures, the Servicer shall have the authority to enter into a substitution
of liability agreement with such person, pursuant to which the original Obligor
is released from liability and such Person is substituted as Obligor and becomes
liable under the Debt Instrument. The Servicer shall notify the Custodian and
the Master Servicer that any such substitution or assumption agreement has been
completed by forwarding to the Custodian a true and correct copy or, if
available, an original of such substitution or assumption agreement, which copy
or original shall be added by the Custodian to the related Grantor Trustee's
Home Loan File. In connection with any assumption or substitution agreement
entered into pursuant to this Section 7.01(c) hereof, the Servicer shall not
change the Home Loan Interest Rate or the Monthly Payment, defer or forgive the
payment of principal or interest, reduce the outstanding principal amount or
extend the final maturity date on such Home Loan. Any fee collected by the
Servicer for consenting to any such conveyance or entering into an assumption or
substitution agreement shall be retained by or paid to the Servicer as
additional Servicing Compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Home Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.
(d) Nothing in this Section 7.01 shall constitute a waiver of the Grantor
Trustee's right to receive notice of any assumption of a Home Loan, any sale or
other transfer of the related Mortgaged Property or the creation of any lien or
other encumbrance with respect to such Mortgaged Property.
Section 7.02 Release of Home Loan Files.
(a) If with respect to any Home Loan:
(i) the outstanding Principal Balance of such Home Loan plus all
interest accrued thereon shall have been paid;
(ii) the Servicer shall have received, in escrow, payment in full of
such Home Loan in a manner customary for such purposes;
(iii) such Home Loan has become a Defective Loan and has been
repurchased or a Qualified Substitute Home Loan has been conveyed to the
Grantor Trustee pursuant to Section 3.05 hereof;
(iv) such Home Loan or the related Foreclosure Property has been sold
in connection with the termination of the Issuer and the Grantor Trust
pursuant to Section 11.01 hereof; or
(v) such Home Loan is a Defaulted Home Loan or a Liquidated Home Loan
that is liquidated or disposed of pursuant to Section 4.10 hereof or the
related Foreclosure Property has been sold pursuant to Section 4.11 hereof;
then in each such case, the Servicer shall deliver an Officer's Certificate
to the effect that the Servicer has complied with all of its obligations under
this Agreement with respect to such Home Loan and requesting that the Grantor
Trustee release to the Servicer the related Grantor Trustee's Home Loan File.
Upon the receipt of such Officer's Certificate, the Grantor Trustee shall,
within five Business Days or such shorter period as may be required by
applicable law, release, or cause the applicable Custodian to release (unless
such Grantor Trustee's Home Loan File has previously been released), the related
Grantor Trustee's Home Loan File to the Servicer and execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be necessary to vest ownership of such Home Loan in the Servicer or such other
Person as may be specified in such certificate, the forms of any such instrument
to be appended to such certificate.
(b) If a temporary release of the Grantor Trustee's Home Loan File is
necessary or appropriate for the servicing (which may include any modification
or foreclosure) of any Home Loan, then upon the request of the Servicer pursuant
to Section 3(b) of the Custodial Agreement the Grantor Trustee shall release the
related Grantor Trustee's Home Loan File (or any requested portion thereof) to
the Servicer.
Section 7.03 Servicing Compensation.
As compensation for its services hereunder, the Servicer shall be entitled
to receive from the Collection Account the Servicing Fee (which Servicing Fee is
an expense of the Grantor Trust), out of which the Servicer shall pay any
subservicing fees to the Subservicer. Additional servicing compensation in the
form of assumption fees, modification fees, and other administrative fees,
insufficient funds charges, amounts remitted pursuant to Section 7.01 hereof and
late payment charges shall be part of the Servicing Compensation payable to the
Servicer hereunder and shall be paid either by the Servicer retaining such
additional servicing compensation prior to deposit in the Collection Account
pursuant to Section 5.01(b)(1) hereof or, if deposited in the Collection
Account, as part of the Servicing Compensation withdrawn from the Note Payment
Account pursuant to Section 5.01(c)(1) hereof.
The Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder and shall not be entitled to
reimbursement therefor except as specifically provided for herein. The Servicer
also agrees to pay (i) pursuant to Section 10.02 hereof all reasonable costs and
expenses incurred by any successor Servicer, the Master Servicer or the Grantor
Trustee in replacing the Servicer upon the resignation or termination of the
Servicer and (ii) the annual monitoring fees of the Rating Agencies.
Section 7.04 Statement as to Compliance and Financial Statements.
The Servicer will deliver to the Indenture Trustee, the Grantor Trustee,
the Depositor, the Securities Insurer, the Master Servicer and the Rating
Agencies not later than 90 days following the end of each fiscal year of the
Servicer (beginning in 1999), an Officer's Certificate stating that (i) a review
of the activities of the Servicer during the preceding year and of performance
under this Agreement has been made under such officer's supervision and (ii) to
the best of such officer's knowledge, based on such review, the Servicer has
fulfilled all of its obligations under this Agreement throughout such year, or,
if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof and what action the Servicer proposes to take with respect thereto.
Contemporaneously with the submission of the Officer's Certificate required
by the preceding paragraph, the Servicer shall deliver to the Indenture Trustee,
the Securities Insurer, the Master Servicer and the Grantor Trustee a copy of
its annual audited financial statements prepared in the ordinary course of
business. The Servicer shall, upon the request of the Depositor, deliver to such
party any unaudited quarterly financial statements of the Servicer.
The Servicer shall also furnish and certify to the requesting party such
other information as to (i) its organization, activities and personnel relating
to the performance of the obligations of the Servicer hereunder, (ii) its
financial condition, (iii) the Home Loans and (iv) the performance of the
obligations of any Subservicer under the related Subservicing Agreement, in each
case as the Indenture Trustee, the Grantor Trustee, the Master Servicer, the
Securities Insurer or the Depositor may reasonably request from time to time.
Section 7.05 Independent Public Accountants' Servicing Report.
Not later than 90 days following the end of each fiscal year of the
Servicer (beginning with fiscal year 1999), the Servicer at its expense shall
cause any nationally recognized firm of Independent Certified Public Accountants
(which may also render other services to the Servicer) to furnish a statement to
the Indenture Trustee, the Grantor Trustee, the Rating Agencies, the Securities
Insurer, the Master Servicer and the Depositor to the effect that such firm has
examined certain documents and records relating to the servicing of the Home
Loans under this Agreement or of mortgage loans under pooling or sale and
servicing
agreements (including the Home Loans and this Agreement) substantially similar
to one another (such statement to have attached thereto a schedule setting forth
the pooling or sale and servicing agreements covered thereby) and that, on the
basis of such examination conducted substantially in compliance with the Uniform
Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC, such firm confirms that such servicing has been
conducted in compliance with such pooling or sale and servicing agreements
except for such significant exceptions or errors in records that, in the opinion
of such firm, the Uniform Single Attestation Program for Mortgage Bankers or the
Attestation Program for Mortgages serviced for FHLMC requires it to report, each
of which errors and omissions shall be specified in such statement. In rendering
such statement, such firm may rely, as to matters relating to direct servicing
of mortgage loans by Subservicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC (rendered within one year of such statement) of independent public
accountants with respect to the related Subservicer.
Section 7.06 Right to Examine Servicer Records.
Each Securityholder, Grantor Trust Holder, the Indenture Trustee, the
Grantor Trustee, the Owner Trustee, Depositor, the Securities Insurer, the
Master Servicer and each of their respective agents shall have the right upon
reasonable prior notice, during normal business hours and as often as reasonably
required, to examine, audit and copy, at the expense of the Person making such
examination, any and all of the books, records or other information of the
Servicer (including without limitation any Subservicer to the extent provided in
the related Subservicing Agreement), whether held by the Servicer or by another
on behalf of the Servicer, which may be relevant to the performance or
observance by the Servicer of the terms, covenants or conditions of this
Agreement. In the case of the supervisory agents and examiners of the Issuer,
the Indenture Trustee, the Grantor Trustee, the Owner Trustee, the Grantor Trust
Holder, the Securities Insurer, the Master Servicer and the Securityholders,
access to the documentation regarding the Home Loans required by applicable
state and federal regulations shall be afforded without charge but only upon
reasonable request and during normal business hours at the offices of the
Servicer designated by it.
The Servicer also agrees to make available on a reasonable basis to the
Depositor, the Securityholders or any prospective Securityholder a knowledgeable
financial or accounting officer for the purpose of answering reasonable
questions respecting recent developments affecting the Servicer or the financial
statements of the Servicer and to permit the Depositor, the Securityholders and
any prospective Securityholder to inspect the Servicer's servicing facilities
during normal business hours for the purpose of satisfying that the Servicer has
the ability to service the Home Loans in accordance with this Agreement.
Each Securityholder, Grantor Trust Holder, the Indenture Trustee, the
Grantor Trustee, the Securities Insurer, the Master Servicer and the Owner
Trustee agree that any information obtained pursuant to the terms of this
Agreement shall be held confidential.
Section 7.07 Reports to the Indenture Trustee; Collection Account
Statements.
If the Collection Account is not maintained with the Indenture Trustee,
then not later than 25 days after each Record Date, the Servicer shall forward
to the Indenture Trustee, the
Securities Insurer and the Master Servicer, a statement, certified by a
Servicing Officer, setting forth the status of the Collection Account as of the
close of business on the preceding Record Date and showing, for the period
covered by such statement, the aggregate of deposits into the Collection Account
for each category of deposit specified in Section 5.01(b)(1) hereof, the
aggregate of withdrawals from the Collection Account for each category of
withdrawal specified in Section 5.01(b)(2) and (3) hereof, in each case, for the
related Due Period.
Section 7.08 Financial Statements.
The Servicer understands that, in connection with the transfer of the
Notes, Noteholders and the Securities Insurer may request that the Servicer make
available to the Noteholders and to prospective Noteholders annual audited
financial statements of the Servicer for one or more of the most recently
completed five fiscal years for which such statements are available, which
request shall not be unreasonably denied.
ARTICLE VIII
(RESERVED)
ARTICLE IX
THE SERVICER
Section 9.01 Indemnification; Third Party Claims.
(a) The Servicer shall indemnify the Transferor, the Owner Trustee, the
Issuer, the Grantor Trust, the Depositor, the Grantor Trustee, the Securities
Insurer, the Master Servicer and the Indenture Trustee (each an "Indemnified
Party") and hold harmless each of them against any and all claims, losses,
damages, penalties, fines, forfeitures, reasonable legal fees and related costs,
judgments, and other costs and expenses resulting from any claim, demand,
defense or assertion based on or grounded upon, or resulting from, a breach of
any of the Servicer's representations and warranties and covenants contained in
this Agreement or in any way relating to the failure of the Servicer to perform
its duties and service the Home Loans in compliance with the terms of this
Agreement.
(b) The Transferor, the Depositor, the Grantor Trustee, the Owner Trustee,
the Securities Insurer, the Master Servicer or the Indenture Trustee, as the
case may be, shall promptly notify the Servicer if a claim is made by a third
party with respect to a breach of any of the Servicer's representations and
warranties and covenants contained in this Agreement or in any way relating to
the failure of the Servicer to perform its duties and service the Home Loans in
compliance with the terms of this Agreement. The Servicer shall promptly notify
the Indenture Trustee, the Grantor Trustee, the Owner Trustee, the Securities
Insurer, the Master Servicer and the Depositor of any claim of which it has been
notified pursuant to this Section 9.01 by a Person other than the Depositor,
and, in any event, shall promptly notify the Depositor of its intended course of
action with respect to any claim.
(c) The Servicer shall be entitled to participate in and, upon notice to
the
Indemnified Party, assume the defense of any such action or claim in reasonable
cooperation with, and with the reasonable cooperation of, the Indemnified Party.
The Indemnified Party will have the right to employ its own counsel in any such
action in addition to the counsel of the Servicer, but the fees and expenses of
such counsel will be at the expense of such Indemnified Party, unless (i) the
employment of counsel by the Indemnified Party at its expense has been
authorized in writing by the Servicer, (ii) the Servicer has not in fact
employed counsel to assume the defense of such action within a reasonable time
after receiving notice of the commencement of the action, or (iii) the named
parties to any such action or proceeding (including any impleaded parties)
include both the Servicer and one or more Indemnified Parties, and the
Indemnified Parties shall have been advised by counsel that there may be one or
more legal defenses available to them which are different from or additional to
those available to the Servicer. The Servicer shall not be liable for any
settlement of any such claim or action unless the Servicer shall have consented
thereto or be in default on its obligations hereunder. Any failure by an
Indemnified Party to comply with the provisions of this Section 9.01 shall
relieve the Servicer of liability only if such failure is materially prejudicial
to the position of the Servicer and then only to the extent of such prejudice.
(d) The provisions of this Section 9.01 shall survive the replacement of
the Servicer pursuant to a Servicer Termination Event; provided, that no
successor servicer shall be liable for (or required to indemnify any party for)
any act or omission of any predecessor servicer.
Section 9.02 Merger or Consolidation of the Servicer.
The Servicer shall keep in full effect its existence, rights and franchises
as a corporation, and will obtain and preserve its authorization or
qualification to do business as a foreign corporation and maintain, or cause an
affiliate previously approved by the Master Servicer to maintain, such other
licenses and permits in each jurisdiction necessary to protect the validity and
enforceability of this Agreement or any of the Home Loans and to perform its
duties under this Agreement; provided, however, that the Servicer may merge or
consolidate with any other corporation upon the satisfaction of the conditions
set forth in the following paragraph.
Any Person into which the Servicer may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an Eligible Servicer and shall be the successor of the
Servicer, as applicable hereunder, without the execution or filing of any paper
or any further act on the part of any of the parties hereto, anything herein to
the contrary notwithstanding. The Servicer shall send notice of any such merger,
conversion, consolidation or succession to the Indenture Trustee, the Grantor
Trustee, the Securities Insurer, the Master Servicer and the Issuer.
Section 9.03 Limitation on Liability of the Servicer and Others.
The Servicer and any director, officer, employee or agent of the Servicer
may rely on any document of any kind which it in good faith reasonably believes
to be genuine and to have been adopted or signed by the proper authorities
respecting any matters arising hereunder. Subject to the terms of Section 9.01
hereof, the Servicer shall have no obligation to appear
with respect to, prosecute or defend any legal action which is not incidental to
the Servicer's duty to service the Home Loans in accordance with this Agreement.
Section 9.04 Servicer Not to Resign; Assignment.
The Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) with the consent of the Grantor Trustee, the Securities
Insurer, the Master Servicer and Indenture Trustee or (b) upon determination
that its duties hereunder are no longer permissible under applicable law. Any
such determination pursuant to clause (b) of the preceding sentence permitting
the resignation of the Servicer shall be evidenced by an independent opinion of
counsel to such effect delivered (at the expense of the Servicer) to the Grantor
Trustee, the Securities Insurer, the Master Servicer and the Indenture Trustee.
No resignation of the Servicer shall become effective until the Master Servicer,
the Grantor Trustee or a successor servicer, appointed pursuant to the
provisions of Section 10.02 hereof and satisfying the requirements of Section
4.07 hereof with respect to the qualifications of a successor Servicer, shall
have assumed the Servicer's responsibilities, duties, liabilities (other than
those liabilities arising prior to the appointment of such successor) and
obligations under this Agreement.
Except as expressly provided herein, the Servicer shall not assign or
transfer any of its rights, benefits or privileges hereunder to any other
Person, or delegate to or subcontract with, or authorize or appoint any other
Person to perform any of the duties, covenants or obligations to be performed by
the Servicer hereunder and any agreement, instrument or act purporting to effect
any such assignment, transfer, delegation or appointment shall be void.
Pursuant to Section 10.02 hereof, the Servicer agrees to cooperate with any
successor Servicer and the Master Servicer in effecting the transfer of the
Servicer's servicing responsibilities and rights hereunder pursuant to the first
paragraph of this Section 9.04, including, without limitation, the transfer to
such successor of all relevant records and documents (including any Home Loan
Files in the possession of the Servicer) and all amounts received with respect
to the Home Loans and not otherwise permitted to be retained by the Servicer
pursuant to this Agreement. In addition, the Servicer, at its sole cost and
expense, shall prepare, execute and deliver any and all documents and
instruments to the successor Servicer including all Home Loan Files in its
possession and do or accomplish all other acts necessary or appropriate to
effect such termination and transfer of servicing responsibilities.
Section 9.05 Relationship of Servicer to the Grantor Trust and the Grantor
Trustee.
The relationship of the Servicer (and of any successor to the Servicer as
servicer under this Agreement) to the Grantor Trust and the Grantor Trustee
under this Agreement is intended by the parties hereto to be that of an
independent contractor and not of a joint venturer, agent or partner of the
Issuer or the Indenture Trustee.
Section 9.06 Servicer May Own Securities.
Each of the Servicer and any Affiliate of the Servicer may in its
individual or any other capacity become the owner or pledgee of Securities with
the same rights as it would have if it were not the Servicer or an Affiliate
thereof except as otherwise specifically provided herein.
Securities so owned by or pledged to the Servicer or such Affiliate shall have
an equal and proportionate benefit under the provisions of this Agreement,
without preference, priority, or distinction as among all of the Securities;
provided, however, that any Securities owned by the Servicer or any Affiliate
thereof, during the time such Securities are owned by them, shall be without
voting rights for any purpose set forth in this Agreement. The Servicer shall
notify the Indenture Trustee and the Securities Insurer promptly after it or any
of its Affiliates becomes the owner or pledgee of a Security.
ARTICLE X
DEFAULT
Section 10.01 Events of Default.
(a) Event of Default. An Event of Default by the Servicer shall include the
occurrence and continuation of one or more of the following:
(i) (1) Any failure by the Servicer to deposit in the Collection
Account in accordance with Section 5.01(b) hereof any payments in respect
of the Home Loans received by the Servicer no later than the second
Business Day following the day on which such payments were received; or (2)
any failure of the Servicer to pay when due any amount payable by it under
this Agreement and such failure results in a draw under the Guaranty
Policy.
(ii) The failure by the Servicer duly to observe or perform, in any
material respect, any other covenants, obligations or agreements of the
Servicer as set forth in this Agreement, which failure continues unremedied
for a period of 30 days after the date on which a Notice of Default
requiring such failure to be remedied shall have been given (a) to the
Servicer by the Indenture Trustee, the Grantor Trustee, the Securities
Insurer or the Master Servicer, or (b) to the Servicer, the Indenture
Trustee, the Grantor Trustee, the Securities Insurer and the Master
Servicer by the Majority Noteholders.
(iii) A decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Servicer
and such decree or order shall have remained in force, undischarged or
unstayed for a period of 60 days.
(iv) The Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshaling
of assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to all or substantially all of the Servicer's
property; or
(v) The Servicer shall admit in writing its inability to pay its debts
as they become due, file a petition to take advantage of any applicable
insolvency or
reorganization statute, make an assignment for the benefit of its
creditors, or voluntarily suspend payment of its obligations; or
(vi) The Majority Noteholders, the Securities Insurer, the Master
Servicer and the Grantor Trust Holder, collectively, or the Securities
Insurer, individually, shall determine, in their reasonable judgment and
based upon published reports (including wire services), which they
reasonably believe in good faith to be reliable, and shall give the
Servicer a Notice of Default, that:
(1) the Servicer has experienced a material adverse change in its
business, assets, liabilities, operations, condition (financial or
otherwise) or prospects (which, without limitation, shall be deemed to
have occurred upon the payment of any claim under another guaranty
policy issued by the Securities Insurer that insures another series of
asset backed securities previously issued and currently serviced by
Empire Funding or its Affiliates and for which sufficient funds are
not then available through an escrow or reserve arrangement to
reimburse such claims payment in full); or
(2) the Servicer or any of its subsidiaries or its parent has
defaulted on any of its material obligations (which, without
limitation, shall be deemed to have occurred upon a default in the
payment of any indebtedness having an outstanding principal amount at
the time of default in excess of $500,000 and the expiration of any
applicable cure period for such default); or
(3) the Servicer is no longer able to discharge its duties under
this Agreement; or
(4) the Servicer has ceased to conduct its business in the
ordinary course;
provided, however, that the Servicer shall have five Business Days
from the receipt of such Notice of Default to cure such Event of
Default by providing the foregoing parties with written assurances
that, in a reasonable and good faith manner, substantiate the
financial and operational well-being of the Servicer and adequately
refute the occurrence of a material adverse change, including, without
limitation, information, reports or written assurances obtained from
certain of its lenders.
(vii) The occurrence of the any of the following: (1) the ratio,
expressed as a percentage, of the cumulative Realized Losses over the
Original Pool Principal Balance equals or exceeds the following percentages
during the following calendar months after the Closing Date: (i) 3.0%
during months 0 to 18, (ii) 6.0% during months 19 to 32, (iii) 9.0% during
months 33 to 42, (iv) 12.0% during months 43 to 54, and (v) 13.0% on or
after month 55; or (2) the aggregate Realized Losses during any preceding
twelve-month period exceeds 3.0% of the Original Pool Principal Balance; or
(3) the Six-Month Average Delinquency exceeds 4%.
(viii) Subject to Section 10.01(d) below, a Change in Control of
Empire
Funding occurs. Where a "Change in Control" is deemed to have occurred if
ContiFinancial Corporation ("ContiFinancial") ceases to own at least 20% of
the common stock of EFHC, the parent corporation of Empire Funding;
provided, however, that a Change in Control shall not occur if (1) EFHC
completes an initial public offering, or (2) another investor, approved in
writing by the Securities Insurer (which approval shall not be unreasonably
withheld) replaces ContiFinancial with respect to its stock ownership or
otherwise becomes the owner of not less than 20% of the common stock of
EFHC.
(ix) Subject to Section 10.01(d) below, during January or February
1999, Empire Funding fails to maintain unused capacity attributable to its
committed warehouse financing facilities that at least is equal to its HLTV
loan production for the preceding two months, and during March 1999, and
each month thereafter, Empire Funding fails to maintain unused capacity
attributable to its committed warehouse financing facilities that at least
is equal to its HLTV loan production for the preceding three months.
(x) Subject to Section 10.01(d) below, EFHC has a Tangible Net Worth
(defined below) that is less than the sum of (A) 95% of approximately
$42,176,000, which is its Tangible Net Worth as of June 30, 1998, plus (B)
75% of its cumulative after tax net income for each fiscal quarter after
June 30, 1998; where "Tangible Net Worth" is equal to the excess of (a) the
tangible assets of EFHC calculated in accordance with GAAP, on a
consolidated basis, as reduced by adequate reserves as appropriate, over
(b) all indebtedness of EFHC calculated in accordance with GAAP, on a
consolidated basis; provided, however, that (1) the calculation of Tangible
Net Worth shall not include any intangible assets (including patents,
trademarks, trade names, copyrights, licenses, goodwill, organizational
costs, advances or loans to, or receivables from, directors, officers,
employees or affiliates, prepaid assets, amounts relating to covenants not
to compete, pension assets, deferred charges or treasury stock or any
securities of EFHC or its affiliates or any other securities, unless such
securities are readily marketable in the United States of America or
entitled to be used as a credit against federal income tax liabilities, (2)
such calculation shall include securities, that are included as such
intangible assets, at their current fair marker price or cost, whichever is
lower, and (3) such calculation shall not include any write-up in book
value of any assets.
(b) Remedies. If an Event of Default shall occur and be continuing, then,
and in each and every such case, so long as an Event of Default shall not have
been remedied, Securities Insurer or the Indenture Trustee, the Grantor Trustee,
the Grantor Trust Holder, the Master Servicer or the Majority Noteholders, by a
Notice of Default to the Servicer may, in addition to whatever rights such
Person may have at law or in equity to damages, including injunctive relief and
specific performance, and with the consent of the Securities Insurer (which
consent shall not be unreasonably withheld), may terminate all the rights and
obligations of the Servicer under this Agreement and in and to the Home Loans
and the proceeds thereof, as servicer under this Agreement. Upon termination of
the Servicer following such Notice of Default, subject to Section 10.02 hereof,
all authority and power of the Servicer under this Agreement, whether with
respect to the Home Loans or otherwise,
shall pass to, be transferred to, and be vested in either: (1) a successor
servicer selected by the Master Servicer and reasonably acceptable to the
Securities Insurer; (2) the Master Servicer, if a successor servicer cannot be
retained in a timely manner; or (3) the Grantor Trustee, if the Master Servicer
cannot act as the successor servicer, as evidenced by an Opinion of Counsel to
such effect that is delivered by the Master Servicer, at its expense, to the
Securities Insurer and the Grantor Trustee.
Upon the termination of the Servicer and transfer to a successor, the
successor servicer, the Master Servicer or the Grantor Trustee, as applicable,
is hereby authorized and empowered to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments and do or cause to be done all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, including, but
not limited to, the transfer and endorsement or assignment of the Home Loans and
related documents. The Servicer agrees to cooperate with the successor servicer
in effecting the termination of the Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the successor servicer
for administration by it of all amounts which shall at the time be credited by
the Servicer to each Collection Account or thereafter received with respect to
the Home Loans.
(c) Reallocation of Servicing Fee and Establishment of Escrow Account. If
an Event of Default occurs and has not been remedied, then, until the servicing
of the Home Loans hereunder is transferred to a successor servicer, the Master
Servicer or the Grantor Trustee, as applicable, the Servicing Fee otherwise
payable to the Servicer hereunder shall be paid as follows: (1) first, to the
Servicer an amount equal to the portion of the Servicing Fee as calculated based
on 0.50% (50 basis points); (2) second, to the Indenture Trustee any remaining
amount for the deposit into an escrow or reserve account for the transfer of
servicing for this Series, until the balance of such account equals $75,000; and
(3) third, to the Servicer any remaining amount. Such escrow or reserve account
shall be an Eligible Account and a Trust Account, and, except as otherwise
provided herein, such account shall be established and maintained by the
Indenture Trustee in a manner that is consistent with Collection Account
hereunder. In connection with the transfer of servicing to a successor servicer,
amounts on deposit in such escrow account shall be remitted pursuant to Section
10.02 hereof; provided, that any amounts remaining in such escrow account after
all payments have been made pursuant to Section 10.02 hereof shall be paid to
the terminated Servicer.
(d) Elimination of Certain Events of Default. Upon an additional capital
contribution to the Servicer or EFHC that is contributed as cash and is
represented by either equity securities or subordinated debt securities, and
subject to the prior written consent of the Securities Insurer, the preceding
Event of Defaults set forth in clauses (viii), (ix) and (x) of Subsection (a)
above, together with the parenthetical language included in subclauses (vi) (1)
and (2) of Subsection (a) above, shall be deemed to be eliminated and deleted
from this Agreement in their entirety and shall be of no further force or effect
hereunder.
Section 10.02 Master Servicer to Act; Appointment of Successor.
(a) Appointment of Successor. On and after the date of a Servicer
Termination Event (including a Servicer termination pursuant to Section 10.01
hereof, or a resignation of
the Servicer as evidenced by an Opinion of Counsel or accompanied by the
consents required by Section 9.04 hereof, or a removal pursuant to this Article
X, or a non-renewal pursuant to Section 4.01A hereof), then, subject to Section
4.07 hereof, the Master Servicer with the consent of the Securities Insurer
shall appoint a successor servicer to be the successor in all respects to the
Servicer in its capacity as Servicer under this Agreement and the transactions
set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof; provided, however, that the successor
servicer shall not be liable for any actions of any servicer prior to it. If a
successor servicer cannot be retained in a timely manner, then the Master
Servicer shall act as the successor servicer, or if the Master Servicer cannot
act as the successor servicer (as evidenced by an Opinion of Counsel delivered
by the Master Servicer to the Grantor Trustee, Indenture Trustee and the
Securities Insurer), then the Grantor Trustee shall act as successor servicer.
If the Master Servicer or the Grantor Trustee, as applicable, assumes the
responsibilities of the Servicer pursuant to this Section 10.02, then the Master
Servicer or the Grantor Trustee, as applicable, will make reasonable efforts
consistent with applicable law to become licensed, qualified and in good
standing in each Mortgaged Property State the laws of which require licensing or
qualification in order to perform its obligations as Servicer hereunder or,
alternatively, shall retain an agent that is so licensed, qualified and in good
standing in any such Mortgaged Property State.
If the Master Servicer or the Grantor Trustee, as applicable, serves as
successor servicer, then the Master Servicer or the Grantor Trustee, as
applicable, in such capacity shall not be liable for any servicing of the Home
Loans prior to its date of appointment and shall not be subject to any
obligations to repurchase any Home Loans. The successor servicer shall be
obligated to make Servicing Advances hereunder.
Any successor Servicer, the Master Servicer or the Grantor Trustee shall be
reimbursed for all reasonable costs and expenses incurred in connection with the
appointment of the successor servicer and the replacement of the Servicer
following a Servicer Termination Event hereunder, which reimbursement shall be
paid (1) first, by the Indenture Trustee to the extent that funds are available
in the escrow account established pursuant to Section 10.01(c) hereof, and (2)
second, by the Servicer pursuant to Section 7.03 hereof, to the extent of any
unpaid reimbursement.
(b) Successor Servicer Compensation. The compensation of any successor
servicer (including, without limitation, the Grantor Trustee) so appointed shall
be the Servicing Fee, together with other Servicing Compensation provided for
herein. As compensation therefor, the successor servicer appointed pursuant to
the following paragraph, shall be entitled to all funds relating to the Home
Loans which the Servicer would have been entitled to receive from the Note
Payment Account pursuant to Section 5.01(c) hereof as if the Servicer had
continued to act as servicer hereunder, together with any other Servicing
Compensation.
(c) Termination Fee to Prior Servicer. The Master Servicer shall deduct
from any sum received by the Master Servicer from the successor to the Servicer
in respect of the sale, transfer and assignment of the servicing rights for the
Home Loans the sum of (1) all costs and expenses of any public announcement and
of any sale, transfer and assignment of such servicing rights, (2) the amount of
any unpaid Servicing Fees and unreimbursed Servicing
Advances made by the Master Servicer and (3) all costs and expenses of the
Master Servicer incurred in connection with the appointment of the successor
servicer. After such deductions, the remainder of such sum shall be paid by the
Master Servicer to the Servicer at the time of such sale, transfer and
assignment to the Servicer's successor. The Servicer shall not be entitled to
any termination fee, if it is terminated pursuant to Section 10.01 hereof but
shall be entitled to any accrued and unpaid Servicing Compensation to the date
of termination.
(d) Cooperation of Prior Servicer with Succession. The Master Servicer, the
Grantor Trustee, any Custodian, the Servicer and any such successor servicer
shall take such action, consistent with this Agreement, as shall be necessary to
effect any such succession. Any collections received by the Servicer after
removal or resignation shall be endorsed by it to the Grantor Trustee or the
Indenture Trustee, as assignee of the Grantor Trust Certificate, and remitted
directly to the Grantor Trustee or the Indenture Trustee or, at the direction of
the Grantor Trustee or the Indenture Trustee, to the successor servicer. The
Servicer agrees to cooperate with the Master Servicer, the Grantor Trustee and
any successor servicer, as applicable, in effecting the termination of the
Servicer's servicing responsibilities and rights hereunder and shall promptly
provide the Master Servicer, the Grantor Trustee or such successor servicer, as
applicable, all documents and records reasonably requested by it to enable it to
assume the Servicer's functions hereunder and shall promptly also transfer to
the Grantor Trustee or the Indenture Trustee, as assignee of the Grantor Trust
Certificate, or such successor servicer, as applicable, all amounts which then
have been or should have been deposited in any Trust Account maintained by the
Servicer or which are thereafter received with respect to the Home Loans.
(e) Effectiveness of Appointment. Neither the Master Servicer, the Grantor
Trustee nor any other successor servicer, as applicable, shall be held liable by
reason of any failure to make, or any delay in making, any payment or
distribution hereunder or any portion thereof caused by (i) the failure of the
Servicer to deliver, or any delay in delivering, cash, documents or records to
it or (ii) restrictions imposed by any regulatory authority having jurisdiction
over the Servicer hereunder. No appointment of a successor to the Servicer
hereunder shall be effective until (1) the Depositor, the Grantor Trust Holder,
the Securities Insurer, the Master Servicer and the Majority Noteholders shall
have consented thereto, except in the case of the appointment of the Master
Servicer or the Grantor Trustee as successor to the Servicer (when no consent
shall be required), and (2) written notice of such proposed appointment shall
have been provided by the Master Servicer or the Grantor Trustee, as applicable,
to the Indenture Trustee, each Securityholder, each Grantor Trust Holder, the
Owner Trustee, the Securities Insurer and the Depositor.
Pending appointment of a successor to the Servicer hereunder, the Master
Servicer or the Grantor Trustee, as applicable, shall act as servicer hereunder
as provided herein. In connection with such appointment and assumption, the
Master Servicer or the Grantor Trustee, as applicable, may make such
arrangements for the compensation of such successor servicer out of payments on
the Home Loans as it and such successor servicer shall agree; provided, however,
that no such compensation shall be in excess of that permitted the Servicer
pursuant to Section 7.03 hereof, together with other Servicing Compensation as
provided herein.
Section 10.03 Waiver of Defaults.
The Majority Noteholders may with prior consent of the Securities Insurer
and the Master Servicer, on behalf of all Noteholders, waive any events
permitting removal of the Servicer as servicer pursuant to this Article X;
provided, however, that the Majority Noteholders may not waive a default in
making a required payment on a Note or distribution on a Residual Interest
Certificate without the consent of the related Noteholder or holder of the
Residual Interest Certificate. Upon any waiver of a past default, such default
shall cease to exist and any Event of Default arising therefrom shall be deemed
to have been remedied for every purpose of this Agreement. No such waiver shall
extend to any subsequent or other default or impair any right consequent thereto
except to the extent expressly so waived.
Section 10.04 Accounting Upon Termination of Servicer.
Upon termination of the Servicer under this Article X, the Servicer shall,
at its own expense:
(a) deliver to its successor or, if none shall yet have been appointed, to
the Indenture Trustee the funds in any Trust Account maintained by the Servicer;
(b) deliver to its successor or, if none shall yet have been appointed, to
the Master Servicer or the Grantor Trustee, as applicable, all Home Loan Files
and related documents and statements held by it hereunder and a Home Loan
portfolio computer tape and other necessary data for the servicing of the Home
Loans hereunder in compatible computer readable format;
(c) deliver to its successor or, if none shall yet have been appointed, to
the Master Servicer, the Grantor Trustee, the Indenture Trustee, the Securities
Insurer and the Securityholders a full accounting of all funds, including a
statement showing the Monthly Payments collected by it and a statement of monies
held in trust by it for payments or charges with respect to the Home Loans;
(d) execute and deliver such instruments and perform all acts reasonably
requested in order to effect the orderly and efficient transfer of servicing of
the Home Loans to its successor and to more fully and definitively vest in such
successor all rights, powers, duties, responsibilities, obligations and
liabilities of the Servicer under this Agreement; and
(e) make available on a reasonable basis Servicing Officers and other
servicing personnel for the purpose of facilitating the transfer of servicing
hereunder to the successor servicer.
ARTICLE XI
TERMINATION
Section 11.01 Termination.
This Agreement shall terminate upon notice to the Indenture Trustee of
either:
(a) the later of (i) the satisfaction and discharge of the Indenture and
the provisions
thereof, or (ii) the disposition of all funds with respect to the last Home Loan
and the remittance of all funds due hereunder and the payment of all amounts due
and payable to the Servicer, the Indenture Trustee, the Grantor Trustee, the
Owner Trustee, the Issuer, the Master Servicer, the Securities Insurer and any
Custodian; or
(b) the mutual consent of the Servicer, the Master Servicer, the Depositor,
the Transferor, the Securities Insurer and all Securityholders in writing.
Section 11.02 Optional Termination.
On or after any Payment Date on which the Pool Principal Balance declines
to 10% or less of the Original Pool Principal Balance, then the Majority
Residual Interestholders may, at their option, effect an early termination of
the Issuer and the Grantor Trust. On or after any Payment Date on which the Pool
Principal Balance declines to 5% or less of the Original Pool Principal Balance,
then the Securities Insurer or the Master Servicer may, at their respective
options, effect an early termination of the Issuer and the Grantor Trust. The
Majority Residual Interestholders, the Securities Insurer or the Master
Servicer, as applicable, shall effect such early termination by providing prior
notice thereof to the Servicer, the Indenture Trustee, the Grantor Trustee, the
Master Servicer, the Securities Insurer and Owner Trustee and by purchasing all
of the Home Loans from the Grantor Trustee at a purchase price, payable in cash,
equal to or greater than the Termination Price. The expense of any Independent
appraiser required under this Section 11.02 shall be a nonreimbursable expense
of Majority Residual Interestholders, the Securities Insurer or the Master
Servicer, as applicable.
Any such early termination by the Majority Residual Interestholders, the
Securities Insurer or the Master Servicer, as applicable, shall be accomplished
by depositing into the Collection Account on the third Business Day prior to the
Payment Date on which the purchase is to occur the amount of the Termination
Price to be paid. The Termination Price and any amounts then on deposit in the
Collection Account (other than any amounts not required to have been deposited
therein pursuant to Section 5.01(b)(1) hereof and any amounts withdrawn
therefrom by the Indenture Trustee pursuant to Section 5.01(b)(3) hereof) shall
be transferred to the Note Payment Account pursuant to Section 5.01(b)(2) hereof
as a terminating distribution in respect of the Grantor Trust Certificate
pursuant to Section 5.02 of the Grantor Trust Agreement for payment to
Noteholders and the Securities Insurer on the succeeding Payment Date; and any
amounts received with respect to the Home Loans and Foreclosure Properties
subsequent to the Due Period immediately preceding such final Payment Date shall
belong to the purchaser thereof or the Securities Insurer, as applicable. For
purposes of calculating the Available Payment Amount for such final Payment
Date, amounts transferred to the Note Payment Account immediately preceding such
final Payment Date shall in all cases be deemed to have been received during the
related Due Period, and amounts so transferred shall be applied pursuant to
Section 5.01(d) and (e) hereof.
Section 11.03 Notice of Termination.
Notice of termination of this Agreement or of early redemption and
termination of the Issuer and the Grantor Trust shall be sent (i) by the
Indenture Trustee to the Noteholders and the Securities Insurer in accordance
with section 10.02 of the Indenture, (ii) by the Owner
Trustee to the Certificateholders in accordance with section 9.1(d) of the Owner
Trust Agreement, and (iii) by the Grantor Trustee to the Grantor Trust Holder
and the Securities Insurer in accordance with section 7.02 of the Grantor Trust
Agreement.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01 Acts of Noteholders.
Except as otherwise specifically provided herein, whenever action, consent
or approval of the Noteholders is required under this Agreement, such action,
consent or approval shall be deemed to have been taken or given on behalf of,
and shall be binding upon, all Noteholders if the Majority Noteholders agree to
take such action or give such consent or approval.
Section 12.02 Amendment.
(a) This Agreement may be amended from time to time by the Depositor, the
Servicer, the Master Servicer, the Transferor, the Indenture Trustee, the
Grantor Trustee and the Issuer by written agreement with notice thereof to the
Securityholders, without the consent of any of the Securityholders, but with the
consent of the Securities Insurer, to cure any error or ambiguity, to correct or
supplement any provisions hereof which may be defective or inconsistent with any
other provisions hereof or to add any other provisions with respect to matters
or questions arising under this Agreement; provided, however, that such action
will not adversely affect in any material respect the interests of the
Noteholders. An amendment described above shall be deemed not to adversely
affect in any material respect the interests of the Noteholders if either (i) an
Opinion of Counsel is obtained to such effect or (ii) the party requesting the
amendment obtains the Ratings Confirmations with respect to such amendment.
(b) This Agreement may also be amended from time to time by the Depositor,
the Servicer, the Master Servicer, the Transferor, the Indenture Trustee, the
Grantor Trustee and the Issuer by written agreement, with the prior written
consent of the Majority Noteholders and the Securities Insurer, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement, or of modifying in any manner the rights of the
Noteholders; provided, however, that no such amendment shall (i) reduce in any
manner the amount of, or delay the timing of, collections of payments on Home
Loans or distributions which are required to be made on any Note, without the
consent of the holders of 100% of the Notes affected thereby and the Securities
Insurer, (ii) adversely affect in any material respect the interests of the
holders of any of the Notes or the Securities Insurer in any manner other than
as described in clause (i), without the consent of the holders of 100% of such
Notes or the Securities Insurer, or (iii) reduce the percentage of any of the
Notes, the consent of which is required for any such amendment, without the
consent of the holders of 100% of such Notes and the Securities Insurer.
(c) It shall not be necessary for the consent of Noteholders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent shall approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the Issuer, the
Grantor Trustee and the Indenture Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Issuer, the Grantor Trustee and
the Indenture Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Issuer's own rights, duties or immunities of the
Issuer, the Grantor Trustee or the Indenture Trustee, as the case may be, under
this Agreement.
Section 12.03 Recordation of Agreement.
To the extent permitted by applicable law, this Agreement, or a memorandum
thereof if permitted under applicable law, is subject to recordation in all
appropriate public offices for real property records in all of the counties or
other comparable jurisdictions in which any or all of the Mortgaged Properties
are situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Servicer at the Noteholders' expense on
direction of the Majority Noteholders or the Securities Insurer, but only when
accompanied by an Opinion of Counsel to the effect that such recordation
materially and beneficially affects the interests of the Noteholders or is
necessary for the administration or servicing of the Home Loans.
Section 12.04 Duration of Agreement.
This Agreement shall continue in existence and effect until terminated as
herein provided.
Section 12.05 Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
Section 12.06 Notices.
All demands, notices and communications hereunder shall be in writing and
shall be deemed to have been duly given if personally delivered at or mailed by
overnight mail, certified mail or registered mail, postage prepaid, to:
(a) in the case of the Depositor, PaineWebber Mortgage Acceptance
Corporation IV, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇� ▇▇▇▇▇▇▇▇, ▇▇� ▇▇▇▇, ▇▇� ▇▇▇▇ ▇▇▇▇�,
Attention: ▇▇▇▇ ▇▇▇▇▇▇, Esq., or such other addresses as may hereafter be
furnished to the Securityholders and the other parties hereto in writing by the
Depositor;
(b) in the case of the Issuer, at Empire Funding Home Loan Owner Trust
1998-3, c/o Wilmington Trust Company, ▇▇▇▇▇▇ Square North, ▇▇▇▇ ▇▇▇▇� ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇�, Attention: ▇▇▇▇▇▇ �. ▇▇▇▇▇▇, or such other
address as may hereafter be furnished to the Securityholders and the other
parties hereto;
(c) in the case of the Transferor and Servicer, Empire Funding Corp., ▇▇▇▇
▇▇▇▇� ▇▇▇▇� ▇▇▇▇�, ▇▇▇▇▇▇, ▇▇▇▇� ▇▇▇▇�, Attention: ▇▇▇▇▇▇� �. ▇▇▇▇� or such
other address as may hereafter be furnished to the Securityholders and the other
parties hereto in writing by the Servicer or the Transferor;
(d) in the case of the Indenture Trustee and Grantor Trustee, U.S. Bank
National Association, ▇▇� ▇▇▇▇ ▇▇▇▇� ▇▇▇▇▇▇, ▇▇. ▇▇▇▇, ▇▇▇▇▇▇▇▇� ▇▇▇▇�;
Attention: Structured Finance/Empire Funding 1998-3;
(e) in the case of the Securityholders, as set forth in the applicable Note
Register;
(f) in the case of a claim under the Guaranty Policy, State Street Bank and
Trust Company, as Fiscal Agent, ▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇�, ▇▇� ▇▇▇▇, ▇▇� ▇▇▇▇,
▇▇▇▇�, Attention: Municipal Registrar, or such other address as may be furnished
to the Securityholders and the other parties hereto in writing by such Fiscal
Agent or the Securities Insurer;
(g) in the case of the Securities Insurer, MBIA Insurance Corporation, ▇▇�
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇� ▇▇▇▇ ▇▇▇▇�, Attention: Insured Portfolio Management -
Structured Finance (IPM-SF) (Empire Funding Home Loan Asset Backed Notes, Series
1998-3); or
(h) in the case of the Master Servicer, Norwest Bank Minnesota, National
Association, ▇▇▇▇� ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇�, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇�-▇▇▇▇,
Attention: Master Servicing Manager (Empire Funding Series 1998-3).
Any such notices shall be deemed to be effective with respect to any party
hereto upon the receipt of such notice by such party, except that notices to the
Securityholders shall be effective upon mailing or personal delivery.
Section 12.07 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
Section 12.08 No Partnership.
Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Servicer shall be rendered as an independent contractor.
Section 12.09 Counterparts.
This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same Agreement.
Section 12.10 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Transferor, the Depositor, the Indenture Trustee, the Grantor
Trustee, the Issuer, the Noteholders, the Securities Insurer, the Master
Servicer and the Grantor Trust Holder and their respective successors and
permitted assigns.
Section 12.11 Headings.
The headings of the various sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be part of this
Agreement.
Section 12.12 Actions of Securityholders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by agent
duly appointed in writing; and except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Depositor, the Servicer, the Indenture Trustee or the Issuer.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Agreement and conclusive in
favor of the Depositor, the Servicer, the Indenture Trustee and the Issuer if
made in the manner provided in this Section 12.12.
(b) The fact and date of the execution by any Securityholder of any such
instrument or writing may be proved in any reasonable manner, which the
Depositor, the Servicer, the Indenture Trustee or the Issuer deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent, waiver
or other act by a Securityholder shall bind every holder of every Security
issued upon the registration of transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done, or omitted to be done, by the
Depositor, the Servicer, the Indenture Trustee, the Securities Insurer or the
Issuer in reliance thereon, whether or not notation of such action is made upon
such Security.
(d) The Depositor, the Servicer, the Indenture Trustee or the Issuer may
require additional proof of any matter referred to in this Section 12.12 as it
shall deem necessary.
Section 12.13 Reports to Rating Agencies.
(a) The Indenture Trustee shall provide to each Rating Agency copies of
statements, reports and notices, to the extent received or prepared in
connection herewith, as follows:
(i) copies of amendments to this Agreement;
(ii) notice of any substitution or repurchase of any Home Loans;
(iii) notice of any termination, replacement, succession, merger or
consolidation of the Servicer, the Master Servicer, any Custodian or the
Issuer;
(iv) notice of final payment on the Notes;
(v) any Notice of Default;
(vi) copies of the annual independent accountants' report delivered
pursuant to Section 7.05 hereof, and copies of any compliance reports
delivered by the Servicer including under Section 7.04 hereof; and
(vii) copies of any Payment Date Statement pursuant to Section 6.01(b)
hereof.
(b) With respect to the requirement of the Indenture Trustee to provide
statements, reports and notices to the Rating Agencies, such statements, reports
and notices shall be delivered to the Rating Agencies at the following
addresses: (i) if to Standard & Poor's Ratings Services, ▇▇ ▇▇▇▇▇▇▇▇, ▇▇� ▇▇▇▇,
▇▇� ▇▇▇▇, ▇▇▇▇�, Attention: Residential Mortgage Group; (ii) if to ▇▇▇▇�'�
Investors Service, Inc., ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇� Department - ▇▇� ▇▇▇▇�, ▇▇�
▇▇▇▇, ▇▇� ▇▇▇▇ ▇▇▇▇�, Attention: Residential Mortgage Monitoring Department; and
(iii) if to Fitch IBCA, Inc., ▇▇� ▇▇▇▇� ▇▇▇▇▇▇ ▇▇▇▇�, ▇▇� ▇▇▇▇, ▇▇� ▇▇▇▇ ▇▇▇▇�,
Attention: Asset Backed Surveillance Department.
Section 12.14 Holders of the Residual Interest Certificates.
(a) Any sums to be distributed or otherwise paid hereunder or under the
Owner Trust Agreement to the holders of the Residual Interest Certificates shall
be paid to such holders pro rata based on their percentage holdings in the
Residual Interest;
(b) Where any act or event hereunder is expressed to be subject to the
consent or approval of the holders of the Residual Interest Certificates, such
consent or approval shall be capable of being given by the holder or holders of
not less than 51% of the Residual Interest in aggregate.
Section 12.15 Year 2000 Compliance.
Each of the Servicer, the Master Servicer and the Indenture Trustee shall
assure that their respective computer systems are year 2000 compliant by January
1, 2000.
Section 12.16 Grant of Noteholder Rights to Securities Insurer.
In consideration for the guarantee of the Insured Securities by the
Securities Insurer pursuant to the Guaranty Policy, and by acceptance of an
Insured Security, the Noteholders hereby grant to the Securities Insurer the
right to act as the holder of 100% of the outstanding Insured Securities for the
purpose of exercising the rights of the holders of the Insured Securities under
this Agreement, without the consent of any such Noteholders, including the
voting rights of such holders, but excluding those rights requiring the consent
of all such holders under Section 12.02(b), and any rights of such holders to
payments under Section 5.01 (d) and (e) hereof and under section 8.02(c) of the
Indenture; provided that the preceding grant of rights to the Securities Insurer
by the Noteholders shall be subject to Section 12.18 hereof. The rights of the
Securities Insurer to direct certain actions and consent to certain actions of
the
Majority Noteholders hereunder will terminate at such time as the Principal
Balance of Insured Securities have been reduced to zero and the Securities
Insurer has been paid the Securities Insurer Reimbursement Amount in full and
all other amounts owed under the Guaranty Policy and Insurance Agreement and the
Securities Insurer has no further obligation under the Guaranty Policy.
Section 12.17 Third Party Beneficiary.
The parties hereto acknowledge that the Securities Insurer is an express
third party beneficiary hereof entitled to enforce any rights reserved to it
hereunder as if it were actually a party hereto.
Section 12.18 Suspension and Termination of Securities Insurer's Rights.
(a) During the continuation of a Securities Insurer Default, the rights
granted or reserved to the Securities Insurer hereunder shall vest instead in
the Majority Noteholders; provided, however, that the Securities Insurer shall
be entitled to any payments of the Securities Insurer Reimbursement Amount, and
the Securities Insurer shall retain those rights under Section 11.01 to consent
to the termination of this Agreement and Section 12.02 to consent to any
amendment of this Agreement.
(b) At such time as either (i) the Principal Balances of the Insured
Securities have been reduced to zero or (ii) the Guaranty Policy has been
terminated, and in either case of (i) or (ii) the Securities Insurer has been
paid the Securities Insurer Reimbursement Amount in full and all other amounts
owed under the Guaranty Policy and the Insurance Agreement (and the Securities
Insurer no longer has any obligation under the Guaranty Policy, except for
breach thereof by the Securities Insurer), then the rights and benefits granted
or reserved to the Securities Insurer hereunder (including the rights to direct
certain actions and receive certain notices) shall terminate and the Noteholders
(including in certain instances the Majority Noteholders) shall be entitled to
the exercise of such rights and to receive such benefits of the Securities
Insurer following such termination to the extent that such rights and benefits
are applicable to the Noteholders (including the Majority Noteholders).
IN WITNESS WHEREOF, the Issuer, the Depositor, the Transferor, the
Servicer, the Master Servicer, the Grantor Trustee and the Indenture Trustee
have caused their names to be signed by their respective officers thereunto duly
authorized, as of the day and year first above written, to this Sale and
Servicing Agreement.
EMPIRE FUNDING HOME LOAN OWNER TRUST
SERIES 1998-3, as Issuer
By: WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as Owner Trustee
By:
--------------------------------------------
Name:
Title:
PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV, as Depositor
By:
-----------------------------------------------------
Name:
Title:
EMPIRE FUNDING CORP., as Transferor and Servicer
By:
-----------------------------------------------------
Name:
Title:
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Master Servicer
By:
-----------------------------------------------------
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION, as Indenture
Trustee and Grantor Trustee
By:
-----------------------------------------------------
Name:
Title:
THE STATE OF ___________ )
)
COUNTY OF ______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this _____ day of
November 1998, personally appeared _______________, known to me to be a person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said WILMINGTON TRUST
COMPANY, not in its individual capacity but in its capacity as Owner Trustee of
EMPIRE FUNDING HOME LOAN OWNER TRUST 1998-3 as Issuer, and that she executed the
same as the act of such corporation for the purpose and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF WILMINGTON TRUST COMPANY, this the ____ day
of November, 1998.
Notary Public, State of_______________
THE STATE OF [_________] )
)
COUNTY OF [____________] )
BEFORE ME, the undersigned authority, a Notary Public, on this _____ day of
November 1998, personally appeared _______________, known to me to be a person
and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said PAINEWEBBER MORTGAGE
ACCEPTANCE CORPORATION IV, as the Depositor, and that he/she executed the same
as the act of such corporation for the purpose and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION
IV, this the ____ day of November, 1998.
Notary Public, State of_______________
THE STATE OF ___________ )
)
COUNTY OF ______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this __ day of
November 1998, personally appeared _______________________, known to me to be
the person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said EMPIRE FUNDING CORP.,
as the Transferor and Servicer, and that he executed the same as the act of such
corporation for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF EMPIRE FUNDING CORP., this the ____ day of
November 1998.
Notary Public, State of_______________
THE STATE OF ___________ )
)
COUNTY OF ______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this __ day of
November 1998, personally appeared ____________________, known to me to be the
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, as the Master Servicer, and that she executed the same as
the act of such entity for the purposes and consideration therein expressed, and
in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, this the __ day of November 1998.
Notary Public, State of_______________
THE STATE OF ___________ )
)
COUNTY OF ______________ )
BEFORE ME, the undersigned authority, a Notary Public, on this __ day of
November 1998, personally appeared ____________________, known to me to be the
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said U.S. BANK NATIONAL
ASSSOCIATION, as the Indenture Trustee and Grantor Trustee, and that she
executed the same as the act of such entity for the purposes and consideration
therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF U.S. BANK NATIONAL ASSSOCIATION, this the
__ day of November 1998.
Notary Public, State of_______________
EXHIBIT A
HOME LOAN SCHEDULE
[Original delivered to U.S. Bank National Association,
as Indenture Trustee and Grantor Trustee, on the Closing Date.
To obtain a copy, please contact:
U.S. Bank National Association
▇▇� ▇▇▇▇ ▇▇▇▇� ▇▇▇▇▇▇
▇▇. ▇▇▇▇, ▇▇▇▇▇▇▇▇� ▇▇▇▇�
Attn: Structured Finance/
Empire Funding 1998-3]
EXHIBIT B
Form of Servicer's Monthly Remittance Report to Indenture Trustee
Servicer Monthly Activity Report Empire Funding Corp.
Empire Funding Home Loan Owner Trust 1998-3 Report Date:
Home Loan Asset Backed Notes, Series 1998-3 Report Period:
-----------------------------------------------------------------------------------------------
LOAN ACTIVITY INTEREST PRINCIPAL TOTALS
------------ ------------- ----------
Aggregate Beginning UPB 0.00
============
Loans- Repurchased 0.00
Scheduled Payments Collected 0.00 0.00 0.00
Unscheduled Payments Collected
Curtailments 0.00 0.00
Pay-offs 0.00 0.00 0.00
Prepayments 0.00 0.00 0.00
Delinquencies 0.00 0.00 0.00
Other 0.00 0.00 0.00
----------- ------------ ----------
Total Funds Collected 0.00 0.00 0.00
----------- ------------ ----------
Principal Losses 0.00
Beginning Balance of New Liquidated Loans 0.00
Aggregate Ending Balance 0.00
===========
-----------------------------------------------------------------------------------------------
POOL SUMMARY
Beginning Period
Weighted Average Coupon 0.000%
------------
Weighted Average Maturity 0
------------
Remaining Number of Loans 0
------------
Ending Period
Weighted Average Coupon 0.000%
------------
Weighted Average Remaining Term 0
------------
Remaining Number of Loans 0
------------
FUNDS DEPOSITED
Total P & I Funds Collected 0.00
------------
Total P & I Funds Collected on Liquidated Loans 0.00
------------
Total Collection Funds Deposited 0.00
============
Total Repurchased Funds Deposited 0.00
------------
Servicing Fees Due Empire Funding Corporation 0.00
------------
--------------------------------------------------------------------------------
DELINQUENCY AND FORECLOSURE INFORMATION
# of Accounts % Amount %
------------- ------ ---------- ------
30-59 Days Delinquent 0 0.000% 0.00 0.000%
60-89 Days Delinquent 0 0.000% 0.00 0.000%
90 or more Days Delinquent 0 0.000% 0.00 0.000%
Bankruptcy Filed 0 0.000% 0.00 0.000%
Real Estate Owned 0 0.000% 0.00 0.000%
Loans in Foreclosure 0 0.000% 0.00 0.000%
NET LOSS INFORMATION
Current Collection Period
Net Losses (Gains) 0.00
Write Off Mortgage Loans 0.00
Gross Principal Losses on Write Off Loans 0.00
Write Off Proceeds 0.00
Write Off Expenses 0.00
Cumulative
Net Losses (Gains) 0.00
Write Off Mortgage Loans 0.00
Gross Principal Losses on Write Off Loans 0.00
Write Off Proceeds 0.00
Write Off Expenses 0.00
EXHIBIT C
Form of Loan Liquidation Report
Customer Name:
Account No.:
Original Principal Balance:
1. Type of Liquidation (REO disposition/charge-off/short pay-off) __________
Date last paid __________
a. Foreclosure
Date of Foreclosure __________
Date of REO __________
Date of REO Disposition __________
Property Sale Price/Estimated Market Value at disposition $ __________
b. Settlement (short pay-off and collection actions)
Date of Settlement Payment __________
c. Defaulted Loan Sale
Date of Sale __________
d. Charge-off or Bankruptcy
Date of Charge-off or Bankruptcy Discharge __________
2. Liquidation Proceeds
Principal Prepayment $ __________
Property Sale Proceeds $ __________
Insurance Proceeds $ __________
Settlement Payment Loan Sale Proceeds $ __________
Other (Itemize) $ __________
Total Proceeds $ __________
3. Liquidation Expenses
Servicing Advances $ __________
Servicing Fees $ __________
Other Servicing Compensation $ __________
Collection Agent or Attorney's Fees $ __________
Total Advances $ __________
4. Net Liquidation Proceeds $ __________
(Item 2 minus Item 3)
5. Principal Balance of Mortgage Loan $ __________
6. Loss, if any (Item 5 minus Item 4) $ __________
EXHIBIT D
Form of Servicer Renewal Notice
Empire Funding Corp.
▇▇▇▇ ▇▇▇▇� ▇▇▇▇� ▇▇▇▇�
▇▇▇▇▇▇, ▇▇▇▇� ▇▇▇▇�
Attn: ▇▇▇▇▇▇� �. ▇▇▇▇�
Re: Empire Funding Home Loan Asset Backed Notes, Series 1998-3
Dear Ladies and Gentlemen:
Reference is hereby made to the Sale and Servicing Agreement dated as of
November 1, 1998 (the "Agreement") among Empire Funding Home Loan Owner Trust
1998-3, as Issuer, PaineWebber Mortgage Acceptance Corporation IV, as Depositor,
Empire Funding Corp., as Transferor and Servicer, Norwest Bank Minnesota,
National Association, as Master Servicer, and U.S. Bank National Association, as
Indenture Trustee and Grantor Trustee. The Indenture Trustee has not received
notification from MBIA Insurance Corporation, as the Securities Insurer, that
instructs the Indenture Trustee not to renew the term of Empire Funding Corp. as
the Servicer under the Agreement. Therefore, pursuant to Section 4.01A of the
Agreement, the Indenture Trustee hereby notifies Empire Funding Corp. that its
term as Servicer has been extended for a successive two calendar month period
beginning with the month of __________, _____.
U.S. BANK NATIONAL ASSOCIATION,
as Indenture Trustee
By:
--------------------------
Name:
--------------------
Title:
--------------------
cc: MBIA Insurance Corporation
▇▇� ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇� ▇▇▇▇ ▇▇▇▇�
Attn: Insured Portfolio Management--SF (Empire Funding Home Loan Asset
Backed Notes, Series 1998-3)
Norwest Bank Minnesota, National Association
▇▇▇▇� ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇�
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇� - 3562
Attn: Master Servicing Manager (Empire Funding Series 1998-3)
PaineWebber Mortgage Acceptance Corporation IV
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇� ▇▇▇▇▇▇▇▇
▇▇� ▇▇▇▇, ▇▇� ▇▇▇▇ ▇▇▇▇�
Attn: ▇▇▇▇ ▇▇▇▇▇▇, Esq.
Empire Funding Home Loan Owner Trust 1998-3
c/o Wilmington Trust Company
▇▇▇▇▇▇ Square North
▇▇▇▇ ▇▇▇▇� ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇�
Attn: ▇▇▇▇▇▇ �. ▇▇▇▇▇▇