-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RDDeCQU01h6Vv/v045DQrR+ntnHUywGxe8TCjHRwzY51CNfnms1DayV6Wsk7cfyE tazs9WmZIVqf0jj8nptdOg== 0000950130-98-005251.txt : 19981105 0000950130-98-005251.hdr.sgml : 19981105 ACCESSION NUMBER: 0000950130-98-005251 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980929 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WILSHIRE REAL ESTATE INVESTMENT TRUST INC CENTRAL INDEX KEY: 0001048566 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 911851535 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-23911 FILM NUMBER: 98737861 BUSINESS ADDRESS: STREET 1: C/O WILSHIRE FINANCIAL SERVICES GROUP IN STREET 2: 1776 SW MADISON STREET CITY: PORTLAND STATE: OR ZIP: 97205 BUSINESS PHONE: 5032235600 MAIL ADDRESS: STREET 1: C/O WILSHIRE FINANCIAL SERVICES GROUP IN STREET 2: 1776 SW MADISON STREET CITY: PORTLAND STATE: OR ZIP: 97205 8-K/A 1 FORM 8-K/A DATED SEPTEMBER 29, 1998 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------------------------------------- FORM 8-K/A ----------------------------------------------------- CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 SEPTEMBER 29, 1998 Date of report (Date of earliest event reported) WILSHIRE REAL ESTATE INVESTMENT TRUST INC. (Exact name of registrant as specified in its charter) MARYLAND 0-23911 52-2081138 -------- ------- ---------- (State or other Commission File Number (I.R.S. Employer jurisdiction of Identification Number) incorporation) 1776 SW MADISON STREET, PORTLAND, OR97205 --------------------------------------------------------- (Address of principal executive offices)(Zip Code) (503) 223-5600 Registrant's telephone number, including area code NOT APPLICABLE --------------------------------------------------------- (Former name or former address, if changed since last report) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by Wilshire Real Estate Investment Trust Inc. (the "Company") on October 14, 1998. It provides the pro forma financial information for loan pool purchased from Salomon Smith Barney Inc. and the financing thereto ("Salomon Loan Pool"). As previously reported, on October 14, 1998, the Company acquired a pool of approximately 3,766 one-to-four family fully amortizing mortgage loans secured by first liens for $421.8 million in cash plus closing costs from Salomon Smith Barney Inc., an unaffiliated third party (the "Seller"). The acquisition was financed by securitizing loans for $374.2 million, less closing costs and other borrowings including an existing repurchase agreement. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (b) Pro forma financial information related to the loans and related financing listed under Item 2 is attached hereto, and incorporated herein by reference, as Exhibit 99. (c) Exhibits The following exhibits are filed as part of this report: 2.1 Assignment, assumption and recognition agreement dated September 30, 1998 among Salomon Brothers Realty Corp., Wilshire Real Estate Investment Trust Inc. and Ameriquest Mortgage Co. 2.2 Assignment, assumption and recognition agreement dated September 30, 1998 among Salomon Brothers Realty Corp., Wilshire Real Estate Investment Trust Inc. and Ameriquest Mortgage Co. 2.3 Assignment, assumption and recognition agreement dated September 30, 1998 among Salomon Brothers Realty Corp., Wilshire Real Estate Investment Trust Inc. and Long Beach Mortgage Co. 2.4 Assignment, assumption and recognition agreement dated September 30, 1998 among Salomon Brothers Realty Corp., Wilshire Real Estate Investment Trust Inc. and National Mortgage Sales Corp. 2.5 Assignment, assumption and recognition agreement dated September 30, 1998 among Salomon Brothers Realty Corp., Wilshire Real Estate Investment Trust Inc. and Ameriquest Mortgage Co. 99 Pro forma financial information - 2 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WILSHIRE REAL ESTATE INVESTMENT TRUST INC. Date: November 4, 1998 By: /s/ Chris Tassos --------------------------- Chris Tassos Executive Vice President and Chief Financial Officer - 3 - INDEX TO EXHIBITS FILED HEREWITH EXHIBIT DESCRIPTION ------- ---------------------------------------------------- 2.1 Assignment, assumption and recognition agreement dated September 30, 1998 among Salomon Brothers Realty Corp., Wilshire Real Estate Investment Trust Inc. and Ameriquest Mortgage Co. 2.2 Assignment, assumption and recognition agreement dated September 30, 1998 among Salomon Brothers Realty Corp., Wilshire Real Estate Investment Trust Inc. and Ameriquest Mortgage Co. 2.3 Assignment, assumption and recognition agreement dated September 30, 1998 among Salomon Brothers Realty Corp., Wilshire Real Estate Investment Trust Inc. and Long Beach Mortgage Co. 2.4 Assignment, assumption and recognition agreement dated September 30, 1998 among Salomon Brothers Realty Corp., Wilshire Real Estate Investment Trust Inc. and National Mortgage Sales Corp. 2.5 Assignment, assumption and recognition agreement dated September 30, 1998 among Salomon Brothers Realty Corp., Wilshire Real Estate Investment Trust Inc. and Ameriquest Mortgage Co. 99 Pro Forma Financial Information - Narrative Format - 4 - EX-2.1 2 AMERIQUEST MORTGAGE CO. AGREEMENT DATED 9/30/98 ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT ------------------------------------------------ This is an Assignment, Assumption and Recognition Agreement made this 30th day of September, 1998, among Salomon Brothers Realty Corp. (the "Seller"), Wilshire Real Estate Investment Trust Inc. (the "Purchaser") and Ameriquest Mortgage Company (the "Company"). In consideration of the mutual promises contained herein the parties hereto agree that the mortgage loans listed on EXHIBIT ONE annexed hereto (the "Mortgage Loans") now serviced by the Company for the Seller pursuant to the Master Mortgage Loan Purchase and Servicing Agreement (the "Purchase Agreement"), dated as of June 1, 1997, between the Seller and the Company shall be subject to the terms of this Agreement. WARRANTIES ---------- 1. (a) The Company and the Seller warrant and represent that attached hereto as EXHIBIT TWO is a true, accurate and complete copy of the Purchase Agreement, which Purchase Agreement is in full force and effect as of the date hereof and which has not been amended or modified in any respect nor has any notice of termination been given thereunder. (b) The Seller warrants and represents that it is the lawful owner of the Mortgage Loans with the full right to transfer the Mortgage Loans free from any claim or encumbrance whatsoever. (c) The Seller hereby warrants and represents to the Purchaser that no event has occurred from the related Closing Date (as defined in the Purchase Agreement) with respect to a Mortgage Loan to the date hereof that would result in any representation and warranty made pursuant to Section 3.01 of the Purchase Agreement being untrue if made as of the date hereof with respect to the Mortgage Loans (other than any statistical information with respect to the Mortgage Loans and any changes due to the receipt of payments on the Mortgage Loans, adjustment of the Mortgage Interest Rates on the Mortgage Loans and similar changes, which information reflected on EXHIBIT ONE hereto is accurate in all material respects as of September 1, 1998). In the event of a breach of the foregoing representation and warranty which materially and adversely affects the value of any Mortgage Loan or the Purchaser's interest therein, the Seller shall repurchase such affected Mortgage Loan at a repurchase price equal to the unpaid principal balance of such Mortgage Loan plus accrued interest at the net Mortgage Interest Rate from the paid through date of the Mortgage Loan to the first day of the month following the month in which such repurchase is effected; provided, that to the extent that the Company would otherwise be required to repurchase a Mortgage Loan due to the breach of any of the representations and warranties that are made or deemed to have been made by the Company as of the related Closing Date, then the Seller shall repurchase the affected Mortgage Loan from the Purchaser upon the reassignment of the Liquidation Agreement from the Purchaser to the Seller with respect to such Mortgage Loan. It is understood and agreed that the obligations of the Seller set forth in this Section 1(c) to repurchase an affected Mortgage Loan constitutes the sole remedy of the Purchaser respecting a breach of the representation and warranty made in this Section 1(c). ASSIGNMENT AND ASSUMPTION ------------------------- 2. The Seller hereby assigns to the Purchaser (i) all of its right, title and interest in and to the Mortgage Loans and (ii) all of its right, title, and interest in, to, and under the Purchase Agreement to the extent of the Mortgage Loans, and the Purchaser hereby assumes all of the Seller's obligations under the Purchase Agreement with respect to the Mortgage Loans from and after the date hereof, and the parties hereto agree that the Seller shall be relieved and released of all of its obligations under the Purchase Agreement to the extent of the Mortgage Loans from and after the date hereof. RECOGNITION OF THE PURCHASER ---------------------------- 3. From and after the date hereof, the Company shall recognize the Purchaser as the owner of the Mortgage Loans and will service the Mortgage Loans for the Purchaser as if the Purchaser and the Company had entered into a separate servicing agreement for the servicing of the Mortgage Loans in the form of the Purchase Agreement, the terms of which are incorporated herein by reference. It is the intention of the Seller, the Company and the Purchaser that this Agreement will be a separate and distinct agreement, and the entire agreement, between the Company and the Purchaser to the extent of the Mortgage Loans and shall be binding upon and for the benefit of the respective successors and assigns of the parties hereto. ACKNOWLEDGEMENT --------------- 4. It is hereby acknowledged and agreed by the Purchaser, the Seller and the Company that the assignment of the Seller's rights under this Agreement to the extent of the Mortgage Loans and the Purchaser's assumption of such rights shall not entitle the Purchaser to purchase mortgage loans pursuant to the Purchase Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. SALOMON BROTHERS REALTY CORP., Seller By:___________________________ Name:_________________________ Title:________________________ WILSHIRE REAL ESTATE INVESTMENT TRUST INC. Purchaser By:___________________________ Name:_________________________ Title:________________________ AMERIQUEST MORTGAGE COMPANY Company By:___________________________ Name:_________________________ Title:________________________ MASTER MORTGAGE LOAN PURCHASE AND SERVICING AGREEMENT Dated and effective as of June 1, 1997 SALOMON BROTHERS REALTY CORP. (Purchaser) and AMERIQUEST MORTGAGE COMPANY (Company) Fixed Rate and Adjustable Rate Mortgage Loans Flow Delivery Program TABLE OF CONTENTS _____________________
ARTICLE IDEFINITIONS....................................................... 1 ----------- Adjustable Rate Mortgage Loan......................................... 1 Adjustment Date....................................................... 1 Agreement............................................................. 2 Appraised Value....................................................... 2 Assignment and Conveyance............................................. 2 Assignment of Mortgage................................................ 2 Available Remittance Amount........................................... 2 Balloon Loan.......................................................... 2 Business Day.......................................................... 2 Closing Date.......................................................... 2 Commitment Letters.................................................... 2 Company............................................................... 2 Confirmation.......................................................... 3 Custodial Account..................................................... 3 Custodial Agreement................................................... 3 Custodian............................................................. 3 Customary Servicing Procedures........................................ 3 Cut-off Date.......................................................... 3 Cut-off Date Principal Balance........................................ 3 Deleted Mortgage Loan................................................. 3 Determination Date.................................................... 3 Due Date.............................................................. 3 Due Period............................................................ 4 Eligible Account...................................................... 4 Escrow Account........................................................ 4 Escrow Payments....................................................... 4 Event of Default...................................................... 4 FDIC.................................................................. 4 FHLMC................................................................. 4 Fidelity Bond......................................................... 4 Final Closing Date.................................................... 4 Final Due Diligence Date.............................................. 4 Final Closing Date Principal Balance.................................. 4 FNMA.................................................................. 4 HUD................................................................... 5 Index................................................................. 5 Initial Closing Date.................................................. 5 Initial Custodial Account Deposit..................................... 5 Liquidated Mortgage Loan.............................................. 5
i Liquidation Proceeds.................................................. 5 Loan-to-Value Ratio................................................... 5 LTV................................................................... 5 Margin................................................................ 5 Maximum Rate.......................................................... 5 Minimum Rate.......................................................... 5 Monthly Payment....................................................... 6 Mortgage.............................................................. 6 Mortgage File......................................................... 6 Mortgage Interest Rate................................................ 6 Mortgage Loan......................................................... 6 Mortgage Loan Documents............................................... 6 Mortgage Loan Package................................................. 6 Mortgage Loan Remittance Rate......................................... 6 Mortgage Loan Schedule................................................ 6 Mortgage Note......................................................... 8 Mortgaged Property.................................................... 8 Mortgagor............................................................. 8 Net Liquidation Proceeds.............................................. 8 Net REO Disposition Proceeds.......................................... 8 Nonrecoverable Advance................................................ 8 Officers' Certificate................................................. 8 Opinion of Counsel.................................................... 9 OTS................................................................... 9 P&I Advance........................................................... 9 Pass-Through Transfer................................................. 9 Periodic Rate Cap..................................................... 9 Person................................................................ 9 Prepayment Interest Excess............................................ 9 Prepayment Interest Shortfall......................................... 9 Principal Prepayment.................................................. 10 Purchaser............................................................. 10 Purchase Price........................................................ 10 Qualified Substitute Mortgage Loan.................................... 10 Realized Loss......................................................... 10 Reconstitution Agreements............................................. 11 Reconstitution Date................................................... 11 Remittance Date....................................................... 11 REO Account........................................................... 11 REO Disposition....................................................... 11 REO Disposition Proceeds.............................................. 11 REO Property.......................................................... 11 Servicer.............................................................. 11 Servicing Advances.................................................... 11
ii Servicing Compensation............................................................................................. 12 Servicing Fee...................................................................................................... 12 Servicing Fee Rate................................................................................................. 12 Servicing Officer.................................................................................................. 12 Stated Principal Balance........................................................................................... 12 Sub-Servicer....................................................................................................... 12 ARTICLE IIAGREEMENT TO PURCHASE; MORTGAGE LOAN SCHEDULE;PURCHASE PRICE; ------------------------------------------------------------- CONVEYANCE OF MORTGAGE LOANS;POSSESSION OF MORTGAGE FILES; BOOK AND ------------------------------------------------------------------- RECORDS;DELIVERY OF MORTGAGE LOAN DOCUMENTS........................................................................ 14 ------------------------------------------- Section 2.01 Agreement to Purchase; Mortgage Loan Schedules; Purchase Price..................................... 14 -------------------------------------------------------------- Section 2.02 Conveyance of Mortgage Loans; Possession of Mortgage Files......................................... 15 ---------------------------------------------------------- Section 2.03 Books and Records.................................................................................. 15 ----------------- Section 2.04 Delivery of Mortgage Loan Documents................................................................ 16 ----------------------------------- Section 2.05 Underwriting: Review of the Mortgage Files......................................................... 17 ------------------------------------------ ARTICLE IIIREPRESENTATIONS AND WARRANTIES OF THE COMPANY;REPURCHASE OF MORTGAGE -------------------------------------------------------------------- LOANS; CLOSING;CLOSING DOCUMENTS; COSTS............................................................................ 19 --------------------------------------- Section 3.01 Individual Mortgage Loans.......................................................................... 19 ------------------------- Section 3.02 Company Representations............................................................................ 25 ----------------------- Section 3.03 Repurchase and Substitution........................................................................ 26 --------------------------- Section 3.04 Closing............................................................................................ 28 ------- Section 3.05 Closing Documents.................................................................................. 29 ----------------- Section 3.06 Costs.............................................................................................. 30 ----- ARTICLE IVADMINISTRATION AND SERVICING OF MORTGAGE LOANS................................................................ 32 ---------------------------------------------- Section 4.01 Company to Act as Servicer......................................................................... 32 -------------------------- Section 4.02 Liquidation of Mortgage Loans...................................................................... 33 ----------------------------- Section 4.03 Collection of Mortgage Loan Payments............................................................... 33 ------------------------------------ Section 4.04 Establishment of Custodial Account; Deposits in Custodial Account.................................. 33 ----------------------------------------------------------------- Section 4.05 Withdrawals From the Custodial Account............................................................. 35 -------------------------------------- Section 4.06 Establishment of Escrow Account; Deposits in Escrow Account........................................ 36 ----------------------------------------------------------- Section 4.07 Withdrawals From Escrow Account.................................................................... 36 ------------------------------- Section 4.08 Payment of Taxes, Insurance and Other Charges...................................................... 37 --------------------------------------------- Section 4.09 Transfer of Accounts............................................................................... 37 -------------------- Section 4.10 Maintenance of Hazard Insurance.................................................................... 38 ------------------------------- Section 4.11 Fidelity Bond; Errors and Omissions Insurance...................................................... 39 --------------------------------------------- Section 4.12 Title, Management and Disposition of REO Property.................................................. 39 ------------------------------------------------- Section 4.13 Liquidation Reports................................................................................ 41 ------------------- Section 4.14 Delivery of Documents in Possession of Custodian................................................... 41 ------------------------------------------------ Section 4.15 Notification of Adjustments........................................................................ 41 --------------------------- ARTICLE VPAYMENTS TO THE PURCHASER...................................................................................... 43 -------------------------
iii Section 5.01 Distributions....................................................................................... 43 ------------- Section 5.02 Statements to the Purchaser......................................................................... 43 --------------------------- Section 5.03 Advances by the Company............................................................................. 45 ----------------------- Section 5.04 Prepayment Interest Shortfalls...................................................................... 45 ------------------------------ ARTICLE VIGENERAL SERVICING PROCEDURE.................................................................................... 46 --------------------------- Section 6.01 Assumption Agreements............................................................................... 46 --------------------- Section 6.02 Satisfaction of Mortgages and Release of Mortgage Files............................................. 46 ------------------------------------------------------- Section 6.03 Servicing Compensation.............................................................................. 47 ---------------------- Section 6.04 Annual Statement as to Compliance................................................................... 47 --------------------------------- Section 6.05 Annual Independent Public Accountants' Servicing Report............................................. 47 ------------------------------------------------------- Section 6.06 Option to Acquire Servicing; Continuation of Company as Servicer.................................... 48 ---------------------------------------------------------------- Section 6.07 Purchaser's Right to Examine Company Records........................................................ 48 -------------------------------------------- ARTICLE VII.............................................................................................................. 49 REPORTS TO BE PREPARED BY COMPANY........................................................................................ 49 - --------------------------------- Section 7.01 Company Shall Provide Access and Information as Reasonably Required................................. 49 ------------------------------------------------------------------- Section 7.02 Financial Statements................................................................................ 49 -------------------- ARTICLE VIII............................................................................................................. 50 REMOVAL OF MORTGAGE LOANS FROM INCLUSION UNDER THE AGREEMENTUPON A WHOLE LOAN - ----------------------------------------------------------------------------- TRANSFER OR A PASS-THROUGH TRANSFER ON ONE ORMORE RECONSTITUTION ---------------------------------------------------------------- DATES............................................................................................................... 50 ----- Section 8.01 Removal of Mortgage Loans from Inclusion Under this Agreement Upon a Whole Loan Transfer or a Pass-Through Transfer on One or More Reconstitution Dates........................................... 50 ------------------------- ARTICLE IXTHE COMPANY.................................................................................................... 53 ----------- Section 9.01 Indemnification; Third Party Claims................................................................. 53 ----------------------------------- Section 9.02 Merger or Consolidation of the Company.............................................................. 53 -------------------------------------- Section 9.03 Limitation on Liability of the Company and Others................................................... 54 ------------------------------------------------- Section 9.04 Company Not to Resign............................................................................... 54 --------------------- Section 9.05 No Transfer of Servicing; Sub-Servicing Agreement................................................... 54 ------------------------------------------------- ARTICLE XDEFAULT......................................................................................................... 56 ------- Section 10.01 Events of Default................................................................................... 56 ----------------- Section 10.02 Waiver of Defaults.................................................................................. 57 ------------------ Section 10.03 Servicer to Retain Previous Entitlement............................................................. 57 --------------------------------------- ARTICLE XITERMINATION.................................................................................................... 58 ----------- Section 11.01 Termination......................................................................................... 58 -----------
iv ARTICLE XII............................................................................................................. 59 MANDATORY DELIVERY; GRANT OF A SECURITY INTEREST........................................................................ 59 - ------------------------------------------------ Section 12.01 Mandatory Delivery; Grant of Security Interest....................................................... 59 ---------------------------------------------- ARTICLE XIII............................................................................................................ 60 MISCELLANEOUS PROVISIONS................................................................................................ 60 - --------------------------- Section 13.01 Successor to the Company............................................................................. 60 ------------------------ Section 13.02 Amendment............................................................................................ 61 --------- Section 13.03 Recordation of Agreement............................................................................. 61 ------------------------ Section 13.04 Recordation of Assignment of Mortgages............................................................... 61 -------------------------------------- Section 13.05 Duration of Agreement................................................................................ 61 --------------------- Section 13.06 Governing Law........................................................................................ 61 ------------- Section 13.07 General Interpretive Principles...................................................................... 62 ------------------------------- Section 13.08 Reproduction of Documents............................................................................ 62 ------------------------- Section 13.09 Notices.............................................................................................. 63 ------- Section 13.10 Severability of Provisions........................................................................... 63 -------------------------- Section 13.11 No Partnership....................................................................................... 63 -------------- Section 13.12 Execution; Successors and Assigns.................................................................... 63 ---------------------------------
v Exhibits - -------- EXHIBIT A Contents of Mortgage Files EXHIBIT B Custodial Account Letter Agreement EXHIBIT C Escrow Account Letter Agreement EXHIBIT D REO Account Letter Agreement EXHIBIT E Assignment and Conveyance EXHIBIT F Mortgage Loan Schedule EXHIBIT G Form of Mortgage Note and Mortgage/Deed of Trust EXHIBIT H Company's Underwriting Guidelines EXHIBIT I [Intentionally Deleted] EXHIBIT J Officer's Certificate EXHIBIT K Resolutions EXHIBIT L Security Release Certification EXHIBIT M Representations and Warranties with Respect to the Pool Characteristics of each Mortgage Loan Package EXHIBIT N Commitment Letters vi This is a Master Mortgage Loan Purchase and Servicing Agreement, dated and effective as of June 1, 1997, and is executed between Salomon Brothers Realty Corp., as purchaser (hereinafter, the "Purchaser"), and Ameriquest Mortgage Company, as seller and servicer (hereinafter, the "Company"). The Purchaser has agreed to purchase from the Company and the Company has agreed to sell to the Purchaser Mortgage Loans, as described herein and in the related Confirmations, on a servicing retained basis that shall be delivered in groups of whole loans on various Closing Dates as provided herein. All of the Mortgage Loans are secured by first mortgages or deeds of trust on residential dwellings situated within the State(s) indicated on the Mortgage Loan Schedule for the related Mortgage Loan Package, which is to be annexed hereto on the related Closing Date as part of Exhibit F. The Purchaser and the Company wish to prescribe the manner of purchase by the Purchaser of the Mortgage Loans and the management, servicing and control of the Mortgage Loans. The Purchaser has purchased certain Mortgage Loans from the Company pursuant to the Commitment Letters and such Mortgage Loans will be governed by the terms of this Agreement. Following its purchase of the Mortgage Loans from the Company, the Purchaser desires to sell some or all of the Mortgage Loans to one or more purchasers as a whole loan transfer in a whole loan or participation format or a public or private mortgage-backed securities transaction. In consideration of the premises and the mutual agreements hereinafter set forth, the Purchaser and the Company agree as follows: ARTICLE I DEFINITIONS ----------- Whenever used herein, the following words and phrases, unless the context otherwise requires, shall have the following meanings: "Adjustable Rate Mortgage Loan": A Mortgage Loan which bears interest at a rate which adjusts from time to time in accordance with the terms of the Mortgage Note. "Adjustment Date": As to each Adjustable Rate Mortgage Loan, the date on which the Mortgage Interest Rate adjusts as provided in the related Mortgage Note. "Agreement": This Master Mortgage Loan Purchase and Servicing Agreement, including all exhibits hereto, and all amendments hereof and supplements hereto. "Appraised Value": With respect to a Mortgage Loan, the value of the related Mortgaged Property based upon the appraisal made at the origination of the Mortgage Loan or the sale price of the Mortgaged Property at the origination of the Mortgage Loan, whichever is less. "Assignment and Conveyance": An assignment and conveyance of the Mortgage Loans purchased on a Closing Date in the form attached hereto as Exhibit E. "Assignment of Mortgage": An assignment of the Mortgage, notice of transfer or equivalent instrument, in recordable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect of record the sale of the Mortgage Loan to the Purchaser. "Available Remittance Amount": With respect to each Remittance Date, (a) all amounts deposited in the Custodial Account as of the close of business on the preceding Determination Date (net of charges against or withdrawals from the Custodial Account pursuant to Section 4.05 except 4.05(i)), plus (b) all amounts, if any, which the Company is obligated to deposit pursuant to Section 5.03, Section 5.04 or Section 4.12 and minus (c) any amounts attributable to Monthly Payments collected but due on a Due Date or Dates subsequent to the Due Period ending on the first day of the month of the Remittance Date, which amounts shall be remitted on the Remittance Date next succeeding the Due Period for such amounts. "Balloon Loan": Any Mortgage Loan that by its original terms or by virtue of any modification entered into as of the Closing Date provides for an amortization schedule extending beyond its stated maturity date. "Business Day": Any day other than (i) a Saturday or Sunday, or (ii) a day on which banking or savings and loan institutions in the State of California or the State of New York are authorized or obligated by law or executive order to be closed. "Closing Date": With respect to any Mortgage Loan Package, the date on which the Purchaser shall purchase from the Company and the Company shall sell to the Purchaser the Mortgage Loans listed on the related Mortgage Loan Schedule. "Commitment Letters": The letter agreements between the Purchaser and the Company, including all exhibits thereto, a copy of each of which is attached hereto as Exhibit N. -3- "Company": Ameriquest Mortgage Company, or its successor in interest or any successor to the Company under this Agreement appointed as herein provided. "Confirmation": With respect to the purchase and sale of any Mortgage Loan Package, the agreement between the Purchaser and the Company setting forth the variances, if any, of the terms and conditions of such purchase and sale from the terms and conditions set forth in the related Commitment Letter. "Custodial Account": The separate Eligible Account or Accounts created and maintained pursuant to Section 4.04. "Custodial Agreement": The agreement among the Purchaser, the Company and the Custodian for the retention of each Mortgage Note, Mortgage, Assignment of Mortgage and other documents. "Custodian": The custodian under the Custodial Agreement, initially Texas Commerce Bank, N.A., or its successor. "Customary Servicing Procedures": Procedures (including collection procedures) that the Company customarily employs and exercises in servicing and administering mortgage loans similar to the Mortgage Loans for its own account and which are in accordance with accepted mortgage servicing practices of prudent lending institutions servicing mortgage loans similar to the Mortgage Loans, giving due consideration to the Purchaser's reliance on the Company. "Cut-off Date": With respect to any Mortgage Loan, the first day of the month in which the related Closing Date occurs. "Cut-off Date Principal Balance": As to any Mortgage Loan, the scheduled unpaid principal balance thereof as of the close of business on the related Cut-off Date after application of all payments of principal due on or prior thereto, whether or not received, and all Principal Prepayments received on or prior to the related Cut-off Date, but without giving effect to any installments of principal received in respect of Due Dates after the related Cut-off Date; provided that with respect to any Mortgage Loan originated after the related Cut-off Date, the "Cut-off Date Principal Balance" shall mean the original principal balance thereof. "Deleted Mortgage Loan": A Mortgage Loan replaced or to be replaced with a Qualified Substitute Mortgage Loan. "Determination Date": The 20th day (or if such 20th day is not a Business Day, the Business Day immediately preceding such 20th day) of the month of the related Remittance Date. -4- "Due Date": The first day of the month of the related Remittance Date. "Due Period": With respect to each Remittance Date, the applicable Due Period shall be the period beginning on the second day of the month preceding the month of the Remittance Date, and ending on the first day of the month of the Remittance Date. "Eligible Account": (i) an account or accounts maintained with a depository institution the short-term debt obligations of which are rated A-1 or better by Standard & Poor's Corporation, or (ii) an account or accounts the deposits in which are fully insured by the FDIC, or (iii) a trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity. "Escrow Account": The separate Eligible Account or Accounts created and maintained pursuant to Section 4.06. "Escrow Payments": The amounts constituting ground rents, taxes, assessments, water rates, mortgage insurance premiums, fire and hazard insurance premiums and other payments required to be escrowed by the Mortgagor with the mortgagee pursuant to any Mortgage Loan. "Event of Default": Any one of the conditions or circumstances enumerated in Section 10.01. "FDIC": The Federal Deposit Insurance Corporation or any successor. "FHLMC": The Federal Home Loan Mortgage Corporation or any successor. "Fidelity Bond": A fidelity bond required to be obtained by the Company pursuant to Section 4.11. "Final Closing Date": With respect to each Mortgage Loan, the Final Closing Date set forth in the related Commitment Letter. "Final Due Diligence Date": With respect to each Mortgage Loan, the date which is 30 days after the Final Closing Date. "Final Closing Date Principal Balance": The aggregate unpaid principal balance of the related Mortgage Loans as of the Final Closing Date. "Final Settlement Date": With respect to each Mortgage Loan, the Final Settlement Date set forth in the related Commitment Letter. -5- "FNMA": The Federal National Mortgage Association or any successor. "HUD": The United States Department of Housing and Urban Development or any successor organization. "Index": As to each Adjustable Rate Mortgage Loan, the index for the adjustment of the Mortgage Interest Rate set forth as such in the related Mortgage Note. Should the Index become unavailable, the Purchaser, with the consent of the Servicer, will select a new index that is based upon comparable information. "Initial Closing Date": ____________, 1997. "Initial Custodial Account Deposit": An amount equal to, with respect to each Mortgage Loan, the amount of all payments in respect of such Mortgage Loan received by the Servicer before the applicable Closing Date in respect of Due Dates after the applicable Cut-off Date. "Liquidated Mortgage Loan": Any defaulted Mortgage Loan as to which the Company has determined that all amounts which it reasonably and in good faith expects to recover have been recovered from or on account of such Mortgage Loan. "Liquidation Proceeds": Cash (other than REO Disposition Proceeds), including but not limited to insurance proceeds, and any other amounts (including the sales price) received in connection with the liquidation of a defaulted Mortgage Loan, whether through the sale or assignment of the Mortgage Loan, trustee's sale, foreclosure sale or otherwise. "Loan-to-Value Ratio" or "LTV": With respect to any Mortgage Loan, the original principal balance of such Mortgage Loan divided by the Appraised Value. "Margin": With respect to each Adjustable Rate Mortgage Loan, the fixed amount set forth in the related Mortgage Note to be added to the Index on each Adjustment Date in accordance with the terms of the related Mortgage Note to determine the Mortgage Interest Rate for such Adjustable Rate Mortgage Loan. The Margin as to each Adjustable Rate Mortgage Loan is set forth on the related Mortgage Loan Schedule. "Maximum Rate": With respect to each Adjustable Rate Mortgage Loan, the rate per annum set forth in the related Mortgage Note as the maximum Mortgage Interest Rate thereunder. The Maximum Rate as to each Mortgage Loan is set forth on the related Mortgage Loan Schedule. "Minimum Rate": With respect to each Adjustable Rate Mortgage Loan, the rate per annum set forth in the related Mortgage Note as the minimum Mortgage Interest Rate -6- thereunder. The Minimum Rate as to each Mortgage Loan is set forth on the related Mortgage Loan Schedule. "Monthly Payment": The scheduled monthly payment of principal and interest on a Mortgage Loan which is payable by a Mortgagor from time to time under the related Mortgage Note. "Mortgage": The mortgage, deed of trust or other instrument creating a first lien on or first priority ownership interest in an estate in fee simple in real property securing a Mortgage Note. "Mortgage File": The items referred to in Exhibit A annexed hereto pertaining to a particular Mortgage Loan (and any additional documents required to be added to the Mortgage File pursuant to this Agreement). "Mortgage Interest Rate": The annual rate at which interest accrues on any Mortgage Loan in accordance with the provisions of the related Mortgage Note. The Mortgage Interest Rate as of the Cut-off Date as to each Mortgage Loan is set forth on the related Mortgage Loan Schedule. "Mortgage Loan": An individual mortgage loan which is the subject of this Agreement, each mortgage loan originally sold and subject to this Agreement being identified on the related Mortgage Loan Schedule, including without limitation the contents of the Mortgage File, the Monthly Payments, Principal Prepayments, Liquidation Proceeds, insurance proceeds, condemnation proceeds, REO Disposition Proceeds and all other rights, benefits, proceeds and obligations arising from or in connection with such mortgage loan after the related Cut-off Date. "Mortgage Loan Documents": The documents set forth in Section 2.04. "Mortgage Loan Package": The Mortgage Loans listed on a Mortgage Loan Schedule. "Mortgage Loan Remittance Rate": As to each Mortgage Loan, the annual rate of interest remitted to the Purchaser, which shall be equal to the related Mortgage Interest Rate minus the related Servicing Fee Rate. "Mortgage Loan Schedule": With respect to each Mortgage Loan Package, the schedule of Mortgage Loans subject to this Agreement and identified as being part of such Mortgage Loan Package to be attached hereto as part of Exhibit F on the related Closing Date, which schedule (as amended from time to time to reflect the addition of any Qualified Substitute Mortgage Loans) shall set forth the following information with respect to each Mortgage Loan in such Mortgage Loan Package: -7- (i) the loan number and name of the Mortgagor; (ii) the address, including zip codes, of the Mortgaged Property; (iii) the initial Mortgage Interest Rate and the current Mortgage Interest Rate; (iv) the maturity date; (v) the principal balance at origination; (vi) the first payment date; (vii) the type of Mortgaged Property; (viii) the Monthly Payment in effect as of the related Cut-off Date; (ix) the principal balance as of the related Cut-off Date as used in determining the Cut-off Date Principal Balance; (x) the Loan-to-Value Ratio at origination; (xi) with respect to each Adjustable Rate Mortgage Loan, the Margin; (xii) with respect to each Adjustable Rate Mortgage Loan, the next Adjustment Date after the related Cut-off Date; (xiii) with respect to each Adjustable Rate Mortgage Loan, the Minimum Rate and Maximum Rate; (xiv) the occupancy status; (xv) the Appraised Value of the Mortgaged Property at origination; (xvi) a code indicating the Company's credit grade category of the Mortgage Loan at origination; (xv) a code indicating whether such Mortgage Loan is a step- down mortgage loan; (xvi) a documentation code; (xvii) a code indicating the existence of a prepayment penalty; -8- (xviii) a code indicating the term of the prepayment penalty, if applicable; (xix) a code indicating the expiration date of the prepayment penalty, if applicable; (xx) a code indicating the charge description for the prepayment penalty, if applicable; (xxi) the Borrower's FICO score; (xxii) a code indicating the purpose of the Mortgage Loan; and (xxiii) the interest paid to date as of the related Cut-off Date. "Mortgage Note": The note or other evidence of the indebtedness of a Mortgagor secured by a Mortgage. "Mortgaged Property": The real property securing repayment of the debt evidenced by a Mortgage Note, consisting of a single parcel of property considered to be real estate under the law of the state in which it is located. "Mortgagor": The obligor on a Mortgage Note. "Net Liquidation Proceeds": Liquidation Proceeds net of the sum of any reimbursements to the Servicer for such Liquidated Mortgage Loan made therefrom pursuant to Section 4.05(ii). "Net REO Disposition Proceeds": REO Disposition Proceeds net of the sum of any unreimbursed Servicing Advances, accrued and unpaid servicing fees and P&I Advances with respect to the related Mortgage Loan and reimbursements to the Servicer for such REO Disposition and the related Mortgage Loan made therefrom pursuant to Section 4.05(ii). "Nonrecoverable Advance": As of any date of determination, any P&I Advance previously made or any P&I Advance or Servicing Advance proposed to be made in respect of a Mortgage Loan which, in the good faith judgment of the Company, will not or, in the case of a proposed advance, would not be ultimately recoverable pursuant to Section 4.05(ii). The determination by the Company that it has made a Nonrecoverable Advance or that any proposed advance would constitute a Nonrecoverable Advance shall be evidenced by an Officer's Certificate delivered to the Purchaser on or before the Determination Date in any month. -9- "Officers' Certificate": A certificate signed by the Chairman of the Board, or the Vice Chairman of the Board, the President, a Vice President, an Assistant Vice President, the Treasurer, the Secretary, one of the Assistant Treasurers or Assistant Secretaries or other officer whose position is of equivalent responsibility of the Company, and delivered to the Purchaser as required by this Agreement. "Opinion of Counsel": A written opinion of counsel, who may be in-house counsel of the Company, reasonably acceptable to the Purchaser. "OTS": The Office of Thrift Supervision or any successor. "P&I Advance": Any advance made pursuant to Section 5.03. "Pass-Through Transfer": The sale or transfer of some or all of the Mortgage Loans by the Purchaser to a trust to be formed as part of a publicly issued or privately placed mortgage-backed securities transaction. "Periodic Rate Cap": With respect to each Adjustable Rate Mortgage Loan, the provision in each Mortgage Note that limits permissible increases and decreases in the Mortgage Interest Rate on any Adjustment Date to not more than one percentage point. "Person": Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Prepayment Charge": The prepayment charge, if any, payable under the terms of the related Mortgage Note by the Mortgagor in connection with a full and voluntary Principal Prepayment on the related Mortgage Loan on or after July 1, 1997 transferred and assigned to the Purchaser, and so identified in the Mortgage Loan Schedule. "Prepayment Interest Excess": With respect to any Remittance Date after the first Remittance Date for the related Mortgage Loan, for each Mortgage Loan that was the subject of a Principal Prepayment in full from the first day through the twentieth day of the month of such Remittance Date, any payment of interest received in connection therewith (net of the Servicing Fee) representing interest accrued for any portion of such month of receipt after the Due Date. "Prepayment Interest Shortfall": With respect to each Principal Prepayment received after the previous Determination Date during the calendar month preceding the month of a Remittance Date (or in the case of such first Remittance Date, from the related Cut-off Date), an amount to be deposited in the Custodial Account prior to the related Remittance Date, to the extent of and limited to the amount of the Servicing Fee received in respect of the related Due Period equal to the difference between (a) 30 days' interest on the -10- Stated Principal Balance as of the beginning of the Due Period at the Mortgage Loan Remittance Rate and (b) the amount of interest actually received on each such Mortgage Loan for such Due Period net of the Servicing Fee. "Principal Prepayment": Any payment or other recovery of principal on a Mortgage Loan which is received in advance of its scheduled Due Date, including any prepayment penalty or premium thereon, if any, and is not accompanied by an amount of interest representing scheduled interest due on any date or dates in any month or months subsequent to the month of prepayment. "Purchaser": Salomon Brothers Realty Corp. "Purchase Price": With respect to any Mortgage Loan, the price paid by the Purchaser to the Company in connection with the purchase and sale of such Mortgage Loan on the related Closing Date, calculated in accordance with Section 2.01. "Qualified Substitute Mortgage Loan": A mortgage loan substituted by the Company for a Deleted Mortgage Loan which must, on the date of such substitution, (i) have an outstanding principal balance, after deduction of all scheduled payments due and received in the month of substitution (or in the case of a substitution of more than one mortgage loan for a Deleted Mortgage Loan, an aggregate principal balance), not in excess of the Stated Principal Balance of the Deleted Mortgage Loan and not less than ninety percent (90%) of the Stated Principal Balance of the Deleted Mortgage Loan (the amount of any shortfall to be distributed by the Company to the Purchaser in the month of substitution), (ii) have a remaining term to maturity not greater than (and not more than one year less than) that of the Deleted Mortgage Loan, (iii) have a Mortgage Interest Rate not less than (and not more than one percentage point greater than) the Mortgage Interest Rate of the Deleted Mortgage Loan, (iv) have a Servicing Fee Rate as provided herein for all Mortgage Loans subject to this Agreement, (v) with respect to each Adjustable Rate Mortgage Loan, have a Minimum Rate not less than that of the Deleted Mortgage Loan, (vi) with respect to each Adjustable Rate Mortgage Loan, have a Maximum Rate not less than that of the Deleted Mortgage Loan and not more than two (2) percentage points above that of the Deleted Mortgage Loan, (vii) with respect to each Adjustable Rate Mortgage Loan, have a Margin not less than that of the Deleted Mortgage Loan, (viii) with respect to each Adjustable Rate Mortgage Loan, have a Periodic Rate Cap equal to that of the Deleted Mortgage Loan, (ix) have a Loan-to-Value Ratio at the time of substitution equal to or less than the Loan-to-Value Ratio of the Deleted Mortgage Loan at the time of substitution, (x) with respect to each Adjustable Rate Mortgage Loan, have the same Adjustment Date as that of the Deleted Mortgage Loan, (xi) with respect to each Adjustable Rate Mortgage Loan, have an Index as provided herein for all Adjustable Rate Mortgage Loans subject to this Agreement, (xii) comply as of the date of substitution with each representation and warranty set forth in Sections 3.01 and 3.02 and (xiii) be in the same credit grade category as the Deleted Mortgage Loan. -11- "Realized Loss": As to any Liquidated Mortgage Loan, the amount, if any, by which (i) the Stated Principal Balance (including any accrued and unpaid interest) thereof as of the date of liquidation exceeds (ii) Net Liquidation Proceeds realized thereon. "Reconstitution Agreements": The agreement or agreements entered into by the Company and the Purchaser and/or certain third parties on the Reconstitution Date or Dates with respect to any or all of the Mortgage Loans serviced hereunder, in connection with a Whole Loan Transfer or a Pass-Through Transfer as set forth in Article XII, including, but not limited to, a pooling and servicing agreement substantially in the form previously entered into by the Company in connection with public offerings of pass-through securities backed by mortgage loans similar to the Mortgage Loans and sold by the Company or such other form that has been entered into between the Purchaser (or an affiliate of the Purchaser) and the Company since the Initial Closing Date. Such agreement or agreements shall prescribe the rights and obligations of the Company in servicing the related Mortgage Loans. "Reconstitution Date": With respect to any Mortgage Loan, the date on which such Mortgage Loan serviced under this Agreement shall be removed from this Agreement and reconstituted as part of a Whole Loan Transfer or Pass- Through Transfer pursuant to Article 12 hereof. On such date, the Mortgage Loans transferred shall cease to be covered by this Agreement and the Company shall cease to service those Mortgage Loans under this Agreement in accordance with the termination provisions set forth in Article XII hereof. "Remittance Date": The 24th day of any month, beginning in the month next following the month in which the related Cut-off Date occurs, or if such 24th day is not a Business Day, the first Business Day immediately following. "REO Account": The Eligible Account or Accounts maintained pursuant to Section 4.12. "REO Disposition": The final sale by the Company on behalf of the Purchaser of a Mortgaged Property acquired by the Company in foreclosure or by deed in lieu of foreclosure. "REO Disposition Proceeds": All amounts received with respect to an REO Disposition pursuant to Section 4.12. "REO Property": A Mortgaged Property acquired by the Company on behalf of the Purchaser through foreclosure or by deed in lieu of foreclosure, as described in Section 4.12. "Servicer": Ameriquest Mortgage Company, or any successor appointed as herein provided. -12- "Servicing Advances": All customary, reasonable and necessary "out-of- pocket" costs and expenses incurred in the performance by the Company of its servicing obligations, including, but not limited to, the cost of (a) payments made by the Company pursuant to Section 4.08, (b) the preservation, restoration and protection of the Mortgaged Property, (c) any enforcement or judicial proceedings, including foreclosures and (d) the management and liquidation of the Mortgaged Property if the Mortgaged Property is acquired in satisfaction of the Mortgage. "Servicing Compensation": The Servicing Fee and other amounts to which the Servicer is entitled pursuant to Section 6.03. "Servicing Fee": With respect to each Mortgage Loan, the amount of the annual fee to be paid to the Servicer, which shall be equal to one-twelfth of the product of (a) the Servicing Fee Rate and (b) the principal balance of such Mortgage Loan. Such fee shall be payable monthly, computed on the basis of the same principal amount and period respecting which any related interest payment on a Mortgage Loan is computed. The Servicing Fee is limited to, and payable solely from, full payments of the interest portion (including recoveries with respect to interest from Liquidation Proceeds, condemnation proceeds, REO Disposition Proceeds and all other proceeds) of such Monthly Payments collected by the Company, or as otherwise provided under Section 4.05. In the event of a transfer of servicing to an unrelated third party or a termination of servicing as to any Mortgage Loan, the Servicing Fee shall not be prorated for a partial month of servicing. "Servicing Fee Rate": 0.50% per annum. "Servicing Officer": Any officer of the Company involved in, or responsible for, the administration and servicing of the Mortgage Loans whose name appears on a list of servicing officers furnished to the Purchaser by the Company, as such list may from time to time be amended. "Stated Principal Balance": As to each Mortgage Loan, (i) the Cut-off Date Principal Balance of the Mortgage Loan, minus (ii) all amounts previously distributed to the Purchaser with respect to the Mortgage Loan representing payments or recoveries of principal, or advances in lieu thereof. "Sub-Servicer": Any Person with which the Company has entered into a sub-servicing agreement and which shall be (A) either (i) an institution the accounts of which are insured by the FDIC or (ii) another entity that engages in the business of originating mortgage loans, and in either case shall be authorized to transact business in the state or states in which the related Mortgaged Properties it is to service are situated, if and to the extent required by applicable law to enable the sub-servicer to perform its obligations hereunder and under the sub-servicing agreement, and in either case shall be a FHLMC or FNMA approved mortgage servicer and (B) approved by the Purchaser. -13- "Subservicing Agreement": Any Sub-Servicing Agreement between the Company, as Master Servicer, and a Sub-Servicer, as Sub-Servicer. "Whole Loan Transfer": The sale or transfer by Purchaser of some or all of the Mortgage Loans in a whole loan format or a certificated participation format pursuant to a Reconstitution Agreement. -14- ARTICLE II AGREEMENT TO PURCHASE; MORTGAGE LOAN SCHEDULE; ---------------------------------------------- PURCHASE PRICE; CONVEYANCE OF MORTGAGE LOANS; --------------------------------------------- POSSESSION OF MORTGAGE FILES; BOOK AND RECORDS; ----------------------------------------------- DELIVERY OF MORTGAGE LOAN DOCUMENTS ----------------------------------- Section 2.01 Agreement to Purchase; Mortgage Loan Schedules; Purchase -------------------------------------------------------- Price. ----- The Company agrees to sell, and the Purchaser agrees to purchase, Mortgage Loans having an aggregate principal balance on the related Cut-off Date in an amount as set forth in the related Commitment Letter, subject to the permitted variances set forth therein. The Company agrees to use its best efforts to deliver the principal amount of loans in accordance with the delivery schedule set forth as an Exhibit to the related Commitment Letter. In any event, the Company shall deliver the Mortgage Loans no later than the related Final Settlement Date. The Company shall deliver the Mortgage Loan Schedule for a Mortgage Loan Package to be purchased on a particular Closing Date to the Purchaser on or prior to the related Closing Date. The Purchase Price for each Mortgage Loan listed on the related Mortgage Loan Schedule shall be calculated as provided in the related Commitment Letter. In addition to the Purchase Price as described above, the Purchaser shall pay to the Company, on a particular Closing Date, accrued interest as set forth in the related Commitment Letter. The Purchaser shall be entitled to all scheduled payments of principal due after the Cut-off Date, all other recoveries of principal collected and due after the Cut-off Date, and all payments of interest on the Mortgage Loans (minus that portion of any such payment which is allocable to the period prior to the Cut-off Date). The principal balance of each Mortgage Loan as of the Cut-off Date is determined after application of payments of principal due on or before the Cut-off Date, whether or not collected. Therefore, payments of scheduled principal and interest prepaid for a due date beyond the Cut-off Date shall not be applied to the principal balance as of the Cut-off Date. Such prepaid amounts shall be the property of the Purchaser. The Company shall deposit any such prepaid amounts into the Custodial Account, which account is established for the benefit of the Purchaser for subsequent remittance by the Company to the -15- Purchaser. All scheduled payments of principal due on or before the Cut-off Date and collected by the Company after the Cut-off Date shall belong to the Company. Section 2.02 Conveyance of Mortgage Loans; Possession of Mortgage ---------------------------------------------------- Files. ----- The Company, simultaneously with the payment of the Purchase Price, shall execute and deliver to the Purchaser an Assignment and Conveyance with respect to the related Mortgage Loan Package in the form attached hereto as Exhibit E. The contents of each Mortgage File not delivered to the Custodian shall be held in trust by the Company for the benefit of the Purchaser as the owner thereof and the Company's possession of the portion of each Mortgage File so retained shall be at the will of the Purchaser for the sole purpose of servicing the related Mortgage Loan, and such retention and possession by the Company is in a custodial capacity only. Upon the purchase of the Mortgage Loans, the ownership of each Mortgage Note, Mortgage and each related Mortgage File shall be vested in the Purchaser and the ownership of all records and documents with respect to each related Mortgage Loan prepared by or which come into the possession of the Company shall immediately vest in the Purchaser and shall be retained and maintained, in trust, by the Company at the will of the Purchaser in such custodial capacity only. The Company shall release from its custody the contents of any Mortgage File only in accordance with written instructions from the Purchaser, unless such release is required as incidental to the Company's servicing of the Mortgage Loans or is in connection with a repurchase of any Mortgage Loan pursuant to Section 3.03. Section 2.03 Books and Records. ----------------- Notwithstanding the sale of the Mortgage Loans to the Purchaser, record title to each Mortgage and the related Mortgage Note for which the Mortgaged Property is located in California shall continue in the name of the Company and be retained by the Company in trust for the Purchaser for the sole purpose of facilitating the servicing and the supervision of the servicing of the Mortgage Loans. The foregoing procedures shall be applicable only so long as the related Mortgage Files are maintained in the State of California. In the event that (i) the Company or the Servicer gives written notice to the Custodian that recording is required to protect the right, title and interest of the Purchaser in and to any Mortgage Loan for which the Mortgaged Property is located in California, or (ii) in case a court should recharacterize the sale of the Mortgage Loans as a financing or, (iii) as a result of any change in or amendment to the laws of California or any applicable political subdivision thereof, or any change in official position regarding application or interpretation of such laws, including a holding by a court of competent jurisdiction that such recording is so required, or (iv) if the Company or the Servicer admits in writing its inability to pay its debts as they become due, files a petition to take advantage of any applicable insolvency or reorganization statute, makes an assignment for the benefit of its creditors, or if the Company or the Servicer voluntarily suspends payment of its obligations, or (v) if the Servicer receives a notice of termination pursuant to Section 10.01 or the Purchaser receives the resignation of the Servicer evidenced by an Opinion of Counsel pursuant -16- to Section 7.04, or the Servicer is removed as servicer, then the Servicer shall cause each such previously unrecorded Assignment of Mortgage to be submitted for recording in the applicable jurisdiction as specified in the definition of Assignment of Mortgage. However, in the event the Servicer fails to cause each such previously unrecorded Assignment of Mortgage to be submitted for recording as set forth in clauses (i) through (v) above, the successor Servicer shall cause such previously unrecorded Assignment of Mortgage to be submitted for recording in the manner specified above and at the expense of the Company. All rights arising out of the Mortgage Loans including, but not limited to, all funds received on or in connection with a Mortgage Loan as provided in Section 2.01 shall be held by the Company in trust for the benefit of the Purchaser as the owner of the Mortgage Loans. The sale of each Mortgage Loan shall be reflected on the Company's balance sheet and other financial statements as a sale of assets by the Company. The Company shall be responsible for maintaining, and shall maintain, a complete set of books and records for each Mortgage Loan which shall be clearly marked to reflect the ownership of each Mortgage Loan by the Purchaser. Section 2.04 Delivery of Mortgage Loan Documents. ----------------------------------- The Company shall in connection with each Closing Date deliver to the Custodian, as agent of and custodian for the Purchaser, each of the following documents for each Mortgage Loan to be purchased and sold on such Closing Date: (a) The original Mortgage Note including any addendums thereto, endorsed by the Company without recourse in the following form: "Pay to the order of ________________, without recourse" and signed, by facsimile or manual signature, in the name of the Company by an officer, together with all intervening endorsements showing a complete chain of endorsement from the originator to the Company; (b) The original recorded Mortgage or, if the original Mortgage has not yet been returned from the applicable recording office, a copy of the Mortgage certified by an appropriate officer of the Company to be a true and complete copy of the original Mortgage submitted for recording; (c) A duly executed Assignment of Mortgage, in blank, from the Company, which assignment shall be in form and substance acceptable for recording or, if as a result of the related Mortgage not having been returned from the applicable recording office, a copy of the Assignment of Mortgage excluding information to be provided by the recording office; (d) the original recorded Assignment or Assignments of the Mortgage, if any, showing a complete chain of assignment from the originator to the Company or, if any such -17- Assignment of Mortgage has not been returned from the applicable public recording office, a copy of such Assignment of Mortgage certified by an appropriate officer of the Company to be a true and complete copy of the original Assignment of Mortgage submitted or to be submitted for recording; (e) the original or duplicate original title insurance policy (or a commitment (binder) to issue same) relating to the Mortgage Loan; (f) the original or copies of each assumption, modification, written assurance or substitution agreement, if any; (g) the original power of attorney, if any, or if the original power of attorney has not been returned from the applicable public recording office, a copy thereof certified by an appropriate officer of the Company to be a true and complete copy of the original submitted for recording, if any; and (h) if identified on the Mortgage Loan Schedule as a step-down Mortgage Loan, the related Addendum to Promissory Note. In the event that the original Mortgage was not delivered pursuant to (b) above, the original title insurance policy was not delivered pursuant to (e) above, the duly executed Assignment of Mortgage was not delivered pursuant to (c) above or the original recorded Assignment or Assignments of the Mortgage, if any, showing a complete chain of assignment from the originator to the Company was not delivered pursuant to (d) above, the Company shall use best reasonable efforts to promptly secure the delivery of such originals and shall cause such originals to be delivered to the Custodian promptly upon receipt thereof. In the event that the Company cannot deliver the original Mortgage, the Company shall deliver a copy of such Mortgage certified as true and complete by the appropriate recording office in those instances where a copy thereof certified by the Company was delivered pursuant to clause (b) above. In the event that the original Mortgage or a certified copy thereof or the original policy of title insurance is not so delivered to the Custodian within 365 days following the related Closing Date, the related Mortgage Loan shall, upon the written request of the Purchaser, be repurchased by the Company at the price and in the manner specified in Section 3.03. The Custodian has certified its receipt of each document set forth in clauses (a) through (e) above as evidenced by its Initial Certification in the form annexed to the Custodial Agreement. Section 2.05 Underwriting: Review of the Mortgage Files. ------------------------------------------ With respect to each Mortgage Loan, the Company shall make all documents and instruments relating to such Mortgage Loan (including copies of any original documents previously delivered to the Custodian and the mortgagor payment histories specifying the number of times each Mortgage Loan was delinquent within the immediately preceding twelve month period) available at its offices for review during normal business hours, or such other location as -18- the Purchaser and the Company shall mutually agree. Until the Final Due Diligence Date, the Purchaser and any certificate guaranty insurance company designated by the Purchaser and their designees shall have the right to review the files and documents relating to each Mortgage Loan, to inspect, evaluate and appraise the real property securing each such Mortgage Loan and to obtain appraisal recertifications and otherwise to underwrite each such Mortgage Loan, which shall not be an expense of the Company. Prior to the Final Due Diligence Date, the Purchaser may reject any such Mortgage Loan which, either individually or as part of a pool of all or some of the Mortgage Loans, does not, in its sole discretion, conform to the underwriting standards of the Company, regardless of whether a Closing Date has already occurred with respect to such Mortgage Loans. With respect to any Mortgage Loan rejected by the Purchaser pursuant to the preceding sentence as to which a Closing Date has already occurred, the Company shall repurchase such Mortgage Loan at a price equal to the Purchase Price paid for such Mortgage Loan by the Purchaser hereunder. The underwriting described in this paragraph shall not impair or diminish the rights of the Purchaser, or any assignee of the Purchaser, under this Agreement with respect to a breach of representations and warranties contained in this Agreement. -19- ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY; ---------------------------------------------- REPURCHASE OF MORTGAGE LOANS; CLOSING; -------------------------------------- CLOSING DOCUMENTS; COSTS ------------------------ Section 3.01 Individual Mortgage Loans. ------------------------- The Company hereby represents and warrants to the Purchaser that, as to each Mortgage Loan, as of the related Closing Date (or such other date as may be specified herein or in the applicable Assignment and Conveyance): (a) The information set forth on the related Mortgage Loan Schedule with respect to each Mortgage Loan is true and correct in all material respects; (b) Except as set forth on Exhibit M, all payments due prior to the related Cut-off Date have been made and none of the Mortgage Loans will have been contractually delinquent for more than one calendar month more than once since the origination thereof; (c) Each Mortgage is a valid and enforceable first lien on the Mortgaged Property, including all improvements thereon, subject only to (a) the lien of nondelinquent current real property taxes and assessments, (b) covenants, conditions and restrictions, rights of way, easements and other matters of public record as of the date of recording of such Mortgage, such exceptions appearing of record being acceptable to mortgage lending institutions generally or specifically reflected in the appraisal made in connection with the origination of the related Mortgage Loan, and (c) other matters to which like properties are commonly subject which do not materially interfere with the benefits of the security intended to be provided by such Mortgage; (d) Immediately prior to the assignment of the Mortgage Loans to the Purchaser, the Company had good title to, and was the sole legal and beneficial owner of, each Mortgage Loan free and clear of any pledge, lien, encumbrance or security interest and has full right and authority, subject to no interest or participation of, or agreement with, any other party to sell and assign the same; (e) To the best of the Company's knowledge, there is no delinquent tax or assessment lien against any Mortgaged Property; -20- (f) There is no valid offset, defense or counterclaim to any Mortgage Note or Mortgage, including the obligation of the Mortgagor to pay the unpaid principal of or interest on such Mortgage Note, nor will the operation of any of the terms of the Mortgage Note and the Mortgage, or the exercise of any right thereunder, render the 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; (g) To the best of the Company's knowledge, there are no mechanics' liens or claims for work, labor or material affecting any Mortgaged Property which are or may be a lien prior to, or equal with, the lien of the related Mortgage, except those which are insured against by the title insurance policy referred to in (k) below; (h) To the best of the Company's knowledge, each Mortgaged Property is free of material damage and is in good repair; (i) Each Mortgage Loan at origination complied in all material respects with applicable local, state and federal laws, including, without limitation, usury, equal credit opportunity, real estate settlement procedures, truth-in-lending and disclosure laws, and consummation of the transactions contemplated hereby will not involve the violation of any such laws; (j) Neither the Company nor any prior holder of any Mortgage has modified the Mortgage in any material respect (except that a Mortgage Loan may have been modified by a written instrument which has been recorded, if necessary, to protect the interests of the Purchaser and which has been delivered to the Custodian); satisfied, cancelled or subordinated such Mortgage in whole or in part; released the related Mortgaged Property in whole or in part from the lien of such Mortgage; or executed any instrument of release, cancellation, modification or satisfaction with respect thereto; (k) A lender's policy of title insurance together with a condominium endorsement and extended coverage endorsement, if applicable, and, with respect to each Adjustable Rate Mortgage Loan, an adjustable rate mortgage endorsement in an amount at least equal to the related Cut- off Date Principal Balance of each such Mortgage Loan or a commitment (binder) to issue the same was effective on the date of the origination of each Mortgage Loan, each such policy is valid and remains in full force and effect, the transfer of the related Mortgage Loan to the Purchaser will not affect the validity or enforceability of such policy and each such policy was issued by a title insurer qualified to do business in the jurisdiction where the Mortgaged Property is located and acceptable to FNMA or FHLMC and in a form acceptable to FNMA or FHLMC, which policy insures the Company and successor owners of indebtedness secured by the insured Mortgage, as to the first priority lien of the Mortgage; to the best of the -21- Company's knowledge, no claims have been made under such mortgage title insurance policy and no prior holder of the related Mortgage, including the Company, has done, by act or omission, anything which would impair the coverage of such mortgage title insurance policy; (l) Each Mortgage Loan was originated by the Company (or, if generated on behalf of the Company by a Person other than the Company, is subject to the same standards and procedures used by the Company in originating mortgage loans directly) or by a savings and loan association, savings bank, commercial bank, credit union, insurance company or similar institution which is supervised and examined by a federal or state authority, or by a mortgagee approved by the Secretary of Housing and Urban Development pursuant to sections 203 and 211 of the National Housing Act; (m) With respect to each Adjustable Rate Mortgage Loan on each Adjustment Date, the Mortgage Interest Rate will be adjusted to equal the Index plus the Margin, rounded to the nearest 0.125%, subject to the Periodic Rate Cap, the Maximum Rate and the Minimum Rate. Except for Balloon Loans, the related Mortgage Note is payable on the first day of each month in self-amortizing monthly installments of principal and interest, with interest payable in arrears, and requires a Monthly Payment which is sufficient to fully amortize the outstanding principal balance of the Mortgage Loan over its remaining term and to pay interest at the applicable Mortgage Interest Rate. No Mortgage Loan is subject to negative amortization; (n) To the best of the Company's knowledge, all of the improvements which were included for the purpose of determining the Appraised Value of the Mortgaged Property lie wholly within the boundaries and building restriction lines of such property, and no improvements on adjoining properties encroach upon the Mortgaged Property, except those, if any, which are insured against by the title insurance policy referred to in (k) above. (o) All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of the Mortgaged Property and, with respect to the use and occupancy of the same, including but not limited to certificates of occupancy, have been made or obtained from the appropriate authorities and the Mortgaged Property is lawfully occupied under applicable law; (p) All parties which have had any interest in the Mortgage, whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period in which they held and disposed of such interest, were) in compliance with any and all applicable licensing requirements of the laws of the state wherein the Mortgaged Property is located; (q) The Mortgage Note and the related Mortgage are genuine, and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance with its terms -22- and with applicable laws. All parties to the Mortgage Note and the Mortgage had legal capacity to execute the Mortgage Note and the Mortgage and each Mortgage Note and Mortgage have been duly and properly executed by such parties; (r) The proceeds of each Mortgage Loan have been fully disbursed, there is no requirement for future advances thereunder and any and all requirements as to completion of any on-site or off-site improvements and as to disbursements of any escrow funds therefor have been complied with, excepting therefrom any Mortgaged Property or Mortgage Loan subject to an Escrow Withhold as defined in the Company's Underwriting Guidelines and administrated in accordance with FNMA guidelines. All costs, fees and expenses incurred in making, closing or recording the Mortgage Loans were paid. (s) The related Mortgage contains customary and enforceable provisions which render the rights and remedies of the holder thereof adequate for the realization against the Mortgaged Property of the benefits of the security, including, (i) in the case of a Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. There is no homestead or other exemption available to the Mortgagor which would materially interfere with the right to sell the Mortgaged Property at a trustee's sale or the right to foreclose the Mortgage. (t) With respect to each Mortgage constituting 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 such Mortgage, and no fees or expenses are or will become payable by the Purchaser to the trustee under the deed of trust, except in connection with a trustee's sale after default by the Mortgagor; (u) Each Mortgage Note and each Mortgage is in substantially the forms attached hereto as Exhibit G; (v) There exist no deficiencies with respect to escrow deposits and payments, if such are required, for which customary arrangements for repayment thereof have not been made, and no escrow deposits or payments of other charges or payments due the Company have been capitalized under the Mortgage or the related Mortgage Note; (w) The origination, collection and servicing practices used by the Company with respect to each Mortgage Loan have been in all material respects legal, proper, prudent and customary in the mortgage origination and servicing business; (x) There is no pledged account or other security other than real estate securing the Mortgagor's obligations; -23- (y) No Mortgage Loan has a shared appreciation feature, or other contingent interest feature; (z) No Mortgage Loan provides for primary mortgage insurance; (aa) The improvements upon each Mortgaged Property are covered by a valid and existing hazard insurance policy with a generally acceptable carrier that provides for fire extended coverage and such other hazards as are customary in the area where the Mortgaged Property is located representing coverage not less than the lesser of the outstanding principal balance of the related Mortgage Loan or the minimum amount required to compensate for damage or loss on a replacement cost basis. All individual insurance policies and flood policies referred to in clause (bb) below contain a standard mortgagee clause naming the Company or the original mortgagee, and its successors in interest, as mortgagee, and the Company has received no notice that any premiums due and payable thereon have not been paid; the Mortgage obligates the Mortgagor thereunder to maintain all such insurance, including flood insurance, at the Mortgagor's cost and expense, and upon the Mortgagor's failure to do so, authorizes the holder of the Mortgage to obtain and maintain such insurance at the Mortgagor's cost and expense and to seek reimbursement therefor from the Mortgagor, except as may be limited or restricted by applicable law. (bb) If the Mortgaged Property is in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, a flood insurance policy in a form meeting the requirements of the current guidelines of the Flood Insurance Administration is in effect with respect to such Mortgaged Property with a generally acceptable carrier in an amount representing coverage not less than the least of (A) the original outstanding principal balance of the Mortgage Loan, (B) the minimum amount required to compensate for damage or loss on a replacement cost basis or (C) the maximum amount of insurance that is available under the Flood Disaster Protection Act of 1973; (cc) To the best of the Company's knowledge, there is no default, breach, violation or event of acceleration existing under the Mortgage or the related Mortgage Note; and the Company has not waived any default, breach, violation or event of acceleration; (dd) Each Mortgaged Property is improved by a one- to four-family residential dwelling, including condominium units and dwelling units in planned unit developments, which, to the best of the Company's knowledge, does not include cooperatives or mobile homes which are treated as other than real property under the applicable state law; -24- (ee) There is no obligation on the part of the Company or any other party under the terms of the Mortgage or related Mortgage Note to make payments in addition to those made by the Mortgagor; (ff) Any future advances made prior to the related Cut-off Date have been consolidated with the outstanding principal amount secured by the Mortgage, and the secured principal amount, as consolidated, bears a single interest rate and single repayment term reflected on the related Mortgage Loan Schedule. The consolidated principal amount does not exceed the original principal amount of the Mortgage Loan; (gg) Each Mortgage Loan was underwritten in accordance with the Company's underwriting guidelines set forth as an exhibit hereto; (hh) The Mortgage File contains an appraisal which was performed by an appraiser who satisfied, and which was conducted in accordance with, all of the applicable requirements of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended; (ii) None of the Mortgage Loans is a graduated payment mortgage loan, nor is any Mortgage Loan subject to a temporary buydown or similar arrangement; (jj) With respect to each Mortgage Loan, no loan junior in lien priority to such Mortgage Loan and secured by the related Mortgaged Property was originated by the Company at the time of origination of such Mortgage Loan; (kk) The characteristics of the related Mortgage Loan Package are as set forth in the form of Exhibit M delivered in respect of the related Closing Date; (ll) Except as set forth in the related Confirmation, on the Final Closing Date, the Mortgage Loans comply with the conditions set forth in Section 2 of the related Commitment Letter; and (mm) The Mortgage contains an enforceable provision for the acceleration of the payment of the unpaid principal balance of the Mortgage Loan in the event that the Mortgaged Property is sold or transferred without the prior written consent of the mortgagee thereunder, except as may be limited by applicable law; and (nn) The information set forth in the applicable part of the Mortgage Loan Schedule relating to the existence of a prepayment penalty is complete, true and correct in all material respects at the date or dates respecting which such information is furnished and each Prepayment Charge is permissible and enforceable in accordance with its terms (except to the extent that: (1) the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, receivership and other similar laws relating to -25- creditors' rights generally; (2) the collectability thereof may be limited due to acceleration in connection with a foreclosure; or (3) subsequent charges in applicable law may limit or prohibit enforceability thereof) under applicable law. Section 3.02 Company Representations. ----------------------- The Company hereby represents and warrants to the Purchaser as of the Initial Closing Date and each subsequent Closing Date (or such other date as may be specified herein or in the applicable Assignment and Conveyance): (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly authorized and qualified to transact any and all business contemplated by this Agreement to be conducted by the Company in any state in which a Mortgaged Property is located or is otherwise not required under applicable law to effect such qualification and, in any event, is in compliance with the doing business laws of any such State, to the extent necessary to ensure its ability to enforce each Mortgage Loan and to service the Mortgage Loans in accordance with the terms of this Agreement; (b) The Company has the full corporate power and authority to originate, hold, sell and service each Mortgage Loan, and to execute, deliver and perform, and to enter into and consummate the transactions contemplated by this Agreement and has duly authorized by all necessary corporate action on the part of the Company the execution, delivery and performance of this Agreement; and this Agreement, assuming the due authorization, execution and delivery thereof by the Purchaser, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that (a) the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, receivership and other similar laws relating to creditors' rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought; (c) The execution and delivery of this Agreement by the Company, the servicing of the Mortgage Loans by the Company hereunder, the consummation of any other of the transactions herein contemplated, and the fulfillment of or compliance with the terms hereof are in the ordinary course of business of the Company and will not (A) result in a breach of any term or provision of the charter or by-laws of the Company or (B) conflict with, result in a breach, violation or acceleration of, or result in a default under, the terms of any other material agreement or instrument to which the Company is a party or by which it may be bound, or any statute, order or regulation applicable to the Company of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Company; and the Company is not a -26- party to, bound by, or in breach or violation of any indenture or other agreement or instrument, or subject to or in violation of any statute, order or regulation of any court, regulatory body, administrative agency or governmental body having jurisdiction over it, which materially and adversely affects or, to the Company's knowledge, would in the future materially and adversely affect, (x) the ability of the Company to perform its obligations under this Agreement or (y) the business, operations, financial condition, properties or assets of the Company taken as a whole; (d) The Company is an approved seller/servicer for FNMA or FHLMC in good standing and is a HUD approved mortgagee pursuant to Section 203 of the National Housing Act; (e) No litigation is pending against the Company that would materially and adversely affect the execution, delivery or enforceability of this Agreement or the ability of the Company to service the Mortgage Loans or to perform any of its other obligations hereunder in accordance with the terms hereof; (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 Company of, or compliance by the Company with, this Agreement or the consummation of the transactions contemplated hereby, or if any such consent, approval, authorization or order is required, the Company has obtained the same; Section 3.03 Repurchase and Substitution. --------------------------- It is understood and agreed that the representations and warranties set forth in Sections 3.01 and 3.02 shall survive delivery of the Mortgage Loans to the Purchaser and shall inure to the benefit of the Purchaser, notwithstanding any restrictive or qualified endorsement on any Mortgage Note or Assignment of Mortgage or the examination of any Mortgage File. Upon discovery (including receipt of notice to such effect from the Purchaser) by either the Company or the Purchaser of a breach of any of the foregoing representations and warranties, without regard to any limitation set forth in such representation or warranty concerning the knowledge of the Company as to the facts stated therein, which materially and adversely affects the interest of the Purchaser in any Mortgage Loan, the party discovering such breach shall give prompt notice to the other parties. Within 90 days of the earlier of either discovery by or notice to the Company of any breach of a representation or warranty, the Company shall use its best efforts to promptly cure such breach in all material respects and, if such breach cannot be cured, the Company shall repurchase such Mortgage -27- Loan at a price equal to (i) the Stated Principal Balance of the Mortgage Loan, plus (ii) interest on such Stated Principal Balance at the Mortgage Loan Remittance Rate from the date to which interest has last been paid by the Mortgagor to the first day of the month in which such purchase price is to be distributed which purchase price shall be deposited in the Custodial Account on the next succeeding Determination Date (after deducting therefrom any principal and interest amounts received in respect of such repurchased Mortgage Loan and being held in the Custodial Account for future distribution). However, the Company may, at its option and assuming that the Company has a Qualified Substitute Mortgage Loan or Loans, rather than repurchase the Mortgage Loan as provided above, remove such Mortgage Loan ("Deleted Mortgage Loan") and substitute in its place a Qualified Substitute Mortgage Loan or Loans, provided, however, that (i) if the Purchaser exercises its rights under Section 2.05, the Company may not effect a substitution without the prior written consent of the Purchaser and (ii) any such substitution shall be effected not later than 120 days after the related Closing Date. If the Company has no Qualified Substitute Mortgage Loan, it shall repurchase the deficient Mortgage Loan. Any repurchase of a Mortgage Loan or Loans pursuant to the foregoing provisions of this Section 3.03 shall be accomplished by deposit in the Custodial Account of the amount of the repurchase price set forth above (after deducting therefrom any principal and interest amounts received in respect of such repurchased Mortgage Loan or Loans and being held in the Custodial Account for future distribution). As to any Deleted Mortgage Loan for which the Company substitutes a Qualified Substitute Mortgage Loan or Loans, the Company shall effect such substitution by delivering to the Custodian for such Qualified Substitute Mortgage Loan or Loans the Mortgage Note, the Mortgage, the Assignment of Mortgage and such other documents and agreements as are required by Section 2.04, with the Mortgage Note endorsed as required by Section 2.04. No substitution will be made in any calendar month after the Determination Date for such month. The Company shall deposit in the Custodial Account the Monthly Payment less the Servicing Fee due on such Qualified Substitute Mortgage Loan or Loans in the month following the date of such substitution. Monthly Payments due with respect to Qualified Substitute Mortgage Loans in the month of substitution will be retained by the Company. For the month of substitution, distributions to the Purchaser will include the Monthly Payment less the Servicing Fee due on such Deleted Mortgage Loan or Loans in the month of substitution, and the Company shall thereafter be entitled to retain all amounts subsequently received by the Company in respect of such Deleted Mortgage Loan. The Company shall give written notice to the Purchaser that such substitution has taken place and shall amend the related Mortgage Loan Schedule to reflect the removal of such Deleted Mortgage Loan from the terms of this Agreement and the substitution of the Qualified Substitute Mortgage Loan or Loans. Upon such substitution, such Qualified Substitute Mortgage Loan or Loans shall be subject to the terms of this Agreement in all respects, and the Company shall be deemed to have made with respect to such Qualified Substitute Mortgage Loan or Loans, as of the date of substitution, the covenants, representations and warranties set forth in Sections 3.01 and 3.02. For any month in which the Company substitutes one or more Qualified Substitute Mortgage Loan or Loans for one or more Deleted Mortgage Loans, the Company will determine the amount (if any) by which the aggregate principal balance of all such Qualified Substitute Mortgage Loans as of the date of substitution (after application of scheduled principal payments due in the month of substitution which have been received or as to which an advance has been made) is less than the aggregate Stated Principal Balance of all such Deleted Mortgage Loans. The amount of such shortfall shall be distributed by the Company in the month of substitution -28- pursuant to Section 5.01. Accordingly, on the date of such substitution, the Company will deposit from its own funds into the Custodial Account an amount equal to the amount of such shortfall. In addition to such cure, repurchase and substitution obligation, the Company shall indemnify the Purchaser and hold it harmless 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 of the Company's representations and warranties contained in this Article III. It is understood and agreed that the obligations of the Company set forth in this Section 3.03 to cure or repurchase a defective Mortgage Loan and to indemnify the Purchaser as provided in this Section 3.03 constitute the sole remedies of the Purchaser except as provided in the last paragraph of Section 3.03 respecting a breach of the foregoing representations and warranties. Any cause of action against the Company relating to or arising out of the breach of any representations and warranties made in Sections 3.01 or 3.02 shall accrue as to any Mortgage Loan upon (i) discovery of such breach by the Purchaser or notice thereof by the Company to the Purchaser, (ii) failure by the Company to cure such breach or repurchase such Mortgage Loan as specified above, and (iii) demand upon the Company by the Purchaser for all amounts payable in respect of such Mortgage Loan. In the event of a breach of the representation in Section 3.01(nn), the Company shall not have the right or obligation to cure, substitute or repurchase the affected Mortgage Loan but shall deposit in the Custodial Account, prior to the next succeeding Remittance Date, the amount of the Prepayment Charge indicated on the applicable part of the Mortgage Loan Schedule to be due from the Mortgagor in the circumstances; provided, however, that if a representation in addition to that set forth in Section 3.01(nn) is breached with respect to a Mortgage Loan or Mortgage Loans, the Company shall both deposit the applicable Prepayment Charge as provided in this paragraph and cure, substitute or repurchase the affected Mortgage Loan or Mortgage Loans as provided in this Section 3.03. In the instance of a substitution, any prepayment charge available under the substitute Mortgage Loan shall belong to the Company. Section 3.04 Closing. ------- The closing for the purchase and sale of each Mortgage Loan Package shall take place on the related Closing Date. The closing shall, at the Purchaser's option, be either: by telephone, confirmed by letter or wire as the parties shall agree; or conducted in person, at such place as the parties shall agree. The closing for the Mortgage Loans to be purchased on each Closing Date shall be subject to each of the following conditions: (a) All of the representations and warranties of the Company under this Agreement shall be true and correct as of the related Closing Date and no event shall have -29- occurred which, with notice or the passage of time, would constitute a default or Event of Default under this Agreement; (b) The Purchaser and the Company shall have received, or the Company's attorneys shall have received in escrow, all closing documents as specified in Section 3.05 of this Agreement, in such forms as are agreed upon and acceptable to the Purchaser and the Company, duly executed by all signatories as required pursuant to the respective terms thereof; (c) The Company shall have delivered and released to the Purchaser under this Agreement all documents required pursuant thereto; and (d) All other terms and conditions of this Agreement shall have been complied with. Subject to the foregoing conditions, the Purchaser shall pay to the Company on the related Closing Date the Purchase Price, plus accrued interest pursuant to Section 2.01 of this Agreement, by wire transfer of immediately available funds to the account designated by the Company. Section 3.05 Closing Documents. ----------------- (a) On or before the Initial Closing Date, the Company shall submit to the Purchaser fully executed originals of the following closing documents: 1. This Agreement, in two counterparts; 2. Custodial Account Letter Agreement, in the form of Exhibit B of this Agreement; 3. Escrow Account Letter Agreement, in the form of Exhibit C of this Agreement; and 4. Officer's Certificate, in substantially the form of Exhibit J, and attached thereto the Resolutions of the Company, in the form of Exhibit K hereto, together with copies of the charter, by-laws and a Certificate of Good Standing of the Company. (b) The closing documents for the Mortgage Loans to be purchased on each Closing Date shall consist of fully executed originals of the following documents: 1. The related Mortgage Loan Documents required pursuant to Section 2.04 of this Agreement; -30- 2. The related Mortgage Loan Schedule, one copy to be attached to each counterpart of this Agreement; 3. If requested by the Purchaser, an Officer's Certificate, in the form of Exhibit J, and attached thereto the Resolutions of the Company, in the form of Exhibit K hereto, together with copies of the charter and by-laws of the Company, or a statement from the Company that the Company's charter and by- laws have not changed since the last Closing Date; 4. Security Release Certification, in substantially the form of Exhibit L executed by any other person as requested by Purchaser if any of the Mortgage Loans have at any time been subject to any security interest, pledge or hypothecation for the benefit of such person; 5. The related Commitment Letter, to be attached hereto as Exhibit N, and the related Confirmation; 6. Assignment and Conveyance, in the form of Exhibit E; 7. Certificate or other evidence of merger or change of name, signed or stamped by the applicable regulatory authority, if any of the Mortgage Loans were acquired by the Company by merger or acquired or originated by the Company while conducting business under a name other than its present name; and 8. The Initial Certification of the Custodian in the form annexed to the Custodial Agreement. Section 3.06 Costs. ----- The Purchaser will pay any commissions due its salesmen and the legal fees and expenses of its attorneys. All other costs and expenses incurred in connection with the transfer and delivery of the Mortgage Loans, including fees for title policy endorsements and continuations and the Company's attorney's fees (but not assignment of mortgage recording fees) shall be paid by the Company. -31- ARTICLE IV ADMINISTRATION AND SERVICING OF MORTGAGE LOANS ---------------------------------------------- Section 4.01 Company to Act as Servicer. -------------------------- The Company, as independent contract servicer, shall service and administer the Mortgage 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 Company may deem necessary or desirable and consistent with the terms of this Agreement. Consistent with the terms of this Agreement, the Company may waive, modify or vary any term of any Mortgage Loan or consent to the postponement of strict compliance with any such term or in any manner grant indulgence to any Mortgagor, provided, however, that (unless the Mortgagor is in default with respect to the Mortgage Loan, or such default is, in the judgment of the Company, imminent, and the Company has the consent of the Purchaser) the Company may not permit any modification with respect to any Mortgage Loan that would change the Mortgage Interest Rate (except for any change made pursuant to the adjustment provisions, if any, of the related Mortgage Note), defer or forgive the payment of any principal or interest, change the outstanding principal amount, make any future advances or extend the final maturity date on such Mortgage Loan. Without limiting the generality of the foregoing, the Company shall continue, and is hereby authorized and empowered to execute and deliver on behalf of itself, and the Purchaser, all instruments of satisfaction or cancellation, or of partial or full release, discharge and all other comparable instruments, with respect to the Mortgage Loans and the Mortgaged Properties. If reasonably required by the Company, the Purchaser shall furnish the Company with any powers of attorney and other documents necessary or appropriate to enable the Company to carry out its servicing and administrative duties under this Agreement. The Company will not waive any Prepayment Charge permitted under the terms of the related Mortgage Note (including any waiver of a Prepayment Charge in connection with a refinancing of a Mortgage Loan that is related to a default or a reasonably foreseeable default) unless such waiver would maximize recovery of total proceeds taking into account the value of the Prepayment Charge and related Mortgage Loan and doing so is standard and customary in servicing similar Mortgage Loans, and in no event will it waive a Prepayment Charge in connection with a refinancing of a Mortgage Loan that is not related to a default or a reasonably foreseeable default. If the Company waives a Prepayment Charge, in whole or in part, in violation of this Paragraph, the Company shall deposit into the Custodial Account, from its own funds the amount of the Prepayment Charge so waived for the benefit of the Purchaser. In servicing and administering the Mortgage Loans, the Company shall employ Customary Servicing Procedures. -32- Section 4.02 Liquidation of Mortgage Loans. ----------------------------- In the event that any payment due under any Mortgage Loan is not paid when the same becomes due and payable, or in the event the Mortgagor fails to perform any other covenant or obligation under the Mortgage Loan and such failure continues beyond any applicable grace period, the Company shall take such action as it shall deem to be in the best interest of the Purchaser. In the event that any payment due under any Mortgage Loan remains delinquent for a period of 60 days or more, the Company shall exercise reasonable efforts to foreclose upon or otherwise comparably convert (which may include an REO Disposition) the ownership of properties securing such of the Mortgage Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments. The Company shall use reasonable efforts to realize upon such defaulted Mortgage Loans in such manner as will maximize the receipt of principal and interest by the Purchaser, taking into account, among other things, the timing of foreclosure proceedings. In such connection, the Company shall from its own funds make all necessary and proper Servicing Advances if it is deemed to increase the proceeds to the Purchaser or is necessary to preserve the lien of the related Mortgage. Section 4.03 Collection of Mortgage Loan Payments. ------------------------------------ Continuously from the date hereof until the principal and interest on all Mortgage Loans are paid in full, the Company will proceed diligently to collect all payments due under each of the Mortgage Loans when the same shall become due and payable and will take special care in ascertaining and estimating annual ground rents, taxes, assessments, water rates, fire and hazard insurance premiums, mortgage insurance premiums, and all other charges that, as provided in any Mortgage, will become due and payable to the end that the installments payable by the Mortgagors will be sufficient to pay such charges as and when they become due and payable. Section 4.04 Establishment of Custodial Account; Deposits in ----------------------------------------------- Custodial Account. ----------------- The Company shall segregate and hold all funds collected and received pursuant to each Mortgage Loan separate and apart from any of its own funds and general assets and shall establish and maintain one or more Custodial Accounts (collectively, the "Custodial Account"), in the form of time deposit or demand accounts, which may be interest bearing, titled "Ameriquest Mortgage Company, in trust for the Purchaser - Fixed Rate and Adjustable Rate Mortgage Loans, Flow Delivery Program". Such Custodial Account shall be established with a commercial bank, a national bank, a national banking association, a mutual savings bank or a savings and loan association. Funds in the Custodial Account shall be fully insured by the FDIC, -33- or such account shall be a trust account, and in either case may be drawn on by the Company. The creation of any Custodial Account shall be evidenced by a letter agreement substantially in the form of Exhibit B hereto. A copy of such letter agreement shall be furnished to the Purchaser upon request. The Company shall deposit, without duplication, in the Custodial Account on a daily basis within one day of receipt of good funds or as otherwise required by this Agreement, and retain therein the following payments and collections due and received or made by it subsequent to the related Cut-off Date: (i) all payments on account of principal, including Principal Prepayments on the Mortgage Loans; (ii) all payments on account of interest on the Mortgage Loans adjusted to the Mortgage Loan Remittance Rate; (iii) all Liquidation Proceeds and other amounts required to be deposited pursuant to Section 4.02; (iv) all proceeds received by the Company under any title, hazard, primary mortgage guaranty or other insurance policy, including amounts required to be deposited pursuant to Section 4.10, other than proceeds to be held in the Escrow Account and applied to the restoration or repair of the Mortgaged Property or released to the Mortgagor in accordance with Customary Servicing Procedures; (v) all awards or settlements in respect of condemnation proceedings or eminent domain affecting any Mortgaged Property which are not released to the Mortgagor in accordance with Customary Servicing Procedures; (vi) any amount required to be deposited in the Custodial Account pursuant to Sections 5.03 and 6.02; (vii) any amounts payable in connection with the repurchase of any Mortgage Loan pursuant to Section 3.03, and all amounts required to be deposited by the Company in connection with shortfalls in principal amount of Qualified Substitute Mortgage Loans pursuant to Section 3.03; (viii) any amounts payable in connection with Prepayment Interest Shortfalls pursuant to Section 5.04; and (ix) any amount required to be deposited in the Custodial Account pursuant to Section 4.12. -34- The foregoing requirements for deposit in the Custodial Account shall be exclusive, it being understood and agreed that, without limiting the generality of the foregoing, payments in the nature of late payment charges and assumption fees, to the extent permitted by Section 6.01, in addition to Prepayment Interest Excess and prepayment penalties other than Prepayment Charges, need not be deposited by the Company in the Custodial Account. Any interest earned on the funds deposited in the Custodial Account shall belong to the Company. Section 4.05 Withdrawals From the Custodial Account. -------------------------------------- The Company shall, from time to time, withdraw funds from the Custodial Account for the following purposes: (i) to make payments to the Purchaser in the amounts and in the manner provided for in Section 5.01; (ii) to reimburse itself for unreimbursed Servicing Advances, any unpaid Servicing Fees and for unreimbursed P&I Advances, the Company's right to reimburse itself pursuant to this subclause (ii) being limited to related Liquidation Proceeds, condemnation proceeds, amounts representing proceeds of insurance policies covering the related Mortgaged Property, late payments of principal and/or interest and such other amounts as may be collected by the Company from the Mortgagor or otherwise relating to the Mortgage Loan, it being understood that, in the case of any such reimbursement, the Company's right thereto shall be prior to the rights of the Purchaser unless the Company is required to repurchase a Mortgage Loan pursuant to Section 3.03, in which case the Company's right to such reimbursement shall be subsequent to the payment to the Purchaser of the repurchase price pursuant to Section 3.03 and all other amounts required to be paid to the Purchaser with respect to such Mortgage Loan; (iii) to reimburse itself for expenses incurred by and reimbursable to it pursuant to Section 9.01; (iv) to pay to itself any interest earned on funds deposited in the Custodial Account and to pay itself any unpaid Servicing Compensation, such withdrawal to be made monthly not later than the Remittance Date; (v) to reimburse itself for any P&I Advance previously made which the Company has determined to be a Nonrecoverable Advance; (vi) to utilize any excess funds on deposit to make any advance pursuant to the last sentence of Section 5.03, provided that such withdrawal does not reduce the amount that would otherwise be available pursuant to clauses (i) through (v), inclusive, of this Section 4.05 in respect of the current or future Determination Dates; -35- (vii) to clear and terminate the Custodial Account upon the termination of this Agreement and to distribute funds therein at such time to the Purchaser, exclusive of funds therein payable to the Company pursuant to this Agreement; and (viii) to withdraw any amounts deposited in the Custodial Account in error. On each Remittance Date, the Company shall withdraw all funds from the Custodial Account except for those amounts which the Company is not obligated to remit on such Remittance Date. The Company may use such withdrawn funds only for the purposes described in this Section 4.05. Section 4.06 Establishment of Escrow Account; Deposits in Escrow --------------------------------------------------- Account. ------- The Company shall segregate and hold all funds collected and received pursuant to each Mortgage Loan which constitute Escrow Payments separate and apart from any of its own funds and general assets and shall establish and maintain one or more Escrow Accounts (collectively, the "Escrow Account"), in the form of time deposit or demand accounts, which may be interest bearing, titled "Ameriquest Mortgage Company, in trust for the Purchaser of Fixed Rate and Adjustable Rate Mortgage Loans, Flow Delivery Program". The Escrow Account shall be established with a commercial bank, a national bank, a national banking association, a mutual savings bank or a savings and loan association. Funds in the Escrow Account shall be fully insured by the FDIC, or such account shall be a trust account, and in either case may be drawn on by the Company. The creation of any Escrow Account shall be evidenced by a letter agreement substantially in the form of Exhibit C hereto. A copy of such letter agreement shall be furnished to the Purchaser upon request. The Company shall deposit in the Escrow Account on a daily basis, and retain therein: (i) all Escrow Payments collected on account of the Mortgage Loans, for the purpose of effecting timely payment of any such items as required under the terms of this Agreement, and (ii) all amounts representing proceeds of any hazard insurance policy which are to be applied to the restoration or repair of any Mortgaged Property. The Company shall make withdrawals therefrom only in accordance with Section 4.07 hereof. To the extent required by law, the Company shall pay, without right of reimbursement, interest on escrowed funds to the Mortgagor notwithstanding that the Escrow Account may not bear interest. Section 4.07 Withdrawals From Escrow Account. ------------------------------- -36- Withdrawals from the Escrow Account shall be made by the Company only (a) to effect timely payments of taxes, assessments, water rates, fire and hazard insurance premiums or other items constituting Escrow Payments for the related Mortgage, (b) to refund to any Mortgagor any funds found to be in excess of the amounts required under the terms of the related Mortgage Loan, (c) for application to restoration or repair of the Mortgaged Property, (d) to pay to the Mortgagor, to the extent required by law, any interest due on the funds deposited in the Escrow Account, (e) to pay to itself any interest earned on funds deposited in the Escrow Account (and not required to be paid to the Mortgagor), such withdrawal to be made monthly not later than the Remittance Date, (f) to withdraw any amounts deposited in the Escrow Account in error, (g) to reimburse the Company for any Servicing Advance made by the Company with respect to a related Mortgage Loan but only from amounts received on the related Mortgage Loan which represent late payments or collections of Escrow Payments thereunder or (h) to clear and terminate the Escrow Account upon the termination of this Agreement. -37- Section 4.08 Payment of Taxes, Insurance and Other Charges. --------------------------------------------- With respect to each Mortgage Loan that provides for Escrow Payments, the Company shall maintain accurate records reflecting the status of ground rents, taxes, assessments, water rates and other charges which are or may become a lien upon the Mortgaged Property and the status of primary insurance policy premiums (if any) and fire and hazard insurance coverage and shall obtain, from time to time, all bills for the payment of such charges, including insurance renewal premiums and shall effect payment thereof prior to the applicable penalty or termination date and at a time appropriate for securing maximum discounts allowable, employing for such purpose deposits of the Mortgagor in the Escrow Account which shall have been estimated and accumulated by the Company in amounts sufficient for such purposes, as allowed under the terms of the Mortgage and applicable law. To the extent that the Mortgage does not provide for Escrow Payments, the Company shall determine whether any such payments are made by the Mortgagor. The Company assumes full responsibility for the payment of all such bills and shall effect payments of all such bills in a manner and at a time that assures that the lien priority of the Mortgage is not jeopardized (or, with respect to the payment of taxes, in a manner and at a time that avoids the loss of the Mortgaged Property due to a tax sale or the foreclosure of a tax lien), irrespective of the Mortgagor's faithful performance in the payment of same or the making of the Escrow Payments, and shall make advances from its own funds to effect such payments. The Company will be responsible for the administration of the Escrow Account and will be obligated to make advances to such account when and as necessary to avoid the lapse of insurance coverage on the Mortgaged Property, or which the Company knows, or in the exercise of the required standard of care of the Company hereunder should know, is necessary to avoid the loss of the Mortgaged Property due to a tax sale or the foreclosure of a tax lien. If any such payment has not been made and the Company receives notice of a tax lien with respect to the Mortgage being imposed, the Company will, within thirty (30) days of such notice, advance or cause to be advanced funds necessary to discharge such lien on the Mortgaged Property unless the payment of such tax lien would in the good faith judgment of the Company constitute a Nonrecoverable Advance. Section 4.09 Transfer of Accounts. -------------------- With prior written notice to the Purchaser, the Company may transfer the Custodial Account or the Escrow Account to a different depository institution satisfying the requirements of Section 4.04 or 4.06, respectively. -38- Section 4.10 Maintenance of Hazard Insurance. ------------------------------- The Servicer shall maintain or cause to be maintained for each Mortgage Loan and REO Property with insurance companies satisfactory to FNMA or FHLMC primary hazard insurance with extended coverage on the related Mortgaged Property in an amount which is at least equal to the replacement value of the improvements, as determined by the insurance company, on such Mortgaged Property. Pursuant to Section 4.04, any amounts collected by the Servicer under any such policies (other than amounts to be applied to the restoration or repair of the property subject to the related Mortgage or amounts released to the Mortgagor in accordance with Customary Servicing Procedures) shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 4.05. Any cost incurred by the Servicer in maintaining any such insurance shall not, for the purpose of calculating monthly distributions to the Purchaser, be added to the unpaid principal balance of the related Mortgage Loan, notwithstanding that the terms of such Mortgage Loan so permit. It is understood and agreed that no earthquake or other additional insurance is to be required of any Mortgagor or maintained on property acquired in respect of a Mortgage Loan, other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance. If the Mortgaged Property or REO Property is located at the time of origination of the Mortgage Loan in a federally designated special flood hazard area, the Servicer will cause to be maintained flood insurance in respect thereof. Such flood insurance shall be in an amount equal to the lesser of (i) the replacement value of the improvements which are part of such Mortgaged Property, (ii) the maximum amount of such insurance available for the related Mortgaged Property under the national flood insurance program (regardless of whether the area in which such Mortgaged Property is located is participating in such program) and (iii) the original face value of the Mortgage Loan securing such Mortgaged Property. All such policies shall be endorsed with standard mortgagee clauses with loss payable to the Company, or upon request to the Purchaser, and shall provide for at least thirty days prior written notice of any cancellation, reduction in the amount of, or material change in, coverage to the Company. The Company shall not interfere with the Mortgagor's freedom of choice in selecting either his insurance carrier or agent, provided, however, that the Company shall not accept any such insurance policies from insurance companies unless such companies currently reflect a General Policy Rating of A:VI or better in Best's Key Rating Guide and are licensed to do business in the state wherein the property subject to the policy is located. In the event that the Servicer shall obtain and maintain a blanket policy insuring against hazard losses on all of the Mortgage Loans in an amount consistent with Customary Servicing Procedures, it shall conclusively be deemed to have satisfied its obligations as set forth in the first sentence of this Section 4.10, it being understood and agreed that such policy may contain a deductible clause, in which case the Servicer shall, in the event that there shall not have been maintained on the related Mortgaged Property or REO Property a policy complying with the first sentence of this Section 4.10, and there shall have been one or more losses which would -39- have been covered by such policy, deposit from its own funds in the Custodial Account the amount not otherwise payable under the blanket policy because of such deductible clause. In connection with its activities as administrator and servicer of the Mortgage Loans, the Servicer agrees to prepare and present, on behalf of itself and the Purchaser, claims under any such blanket policy in a timely fashion in accordance with the terms of such policy. Upon request of the Purchaser, the Company shall cause to be delivered to the Purchaser a certified true copy of such policy and a statement from the insurer thereunder that such policy shall in no event be terminated or materially modified without thirty days prior written notice to the Purchaser. Section 4.11 Fidelity Bond; Errors and Omissions Insurance. --------------------------------------------- The Company shall maintain with responsible companies, at its own expense, a blanket fidelity bond and an errors and omissions insurance policy, 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 Mortgage Loans ("Company Employees"). Any such fidelity bond and errors and omissions insurance shall be in the form of the Mortgage Banker's Blanket Bond and shall protect and insure the Company against losses, including forgery, theft, embezzlement, fraud, errors and omissions, failure to maintain any insurance policies required pursuant to this Agreement, and negligent acts of such Company Employees. Such fidelity bond shall also protect and insure the Company against losses in connection with the release or satisfaction of a Mortgage Loan without having obtained payment in full of the indebtedness secured thereby. No provision of this Section 4.11 requiring such fidelity bond and errors and omissions insurance shall diminish or relieve the Company from its duties and obligations as set forth in this Agreement. The minimum coverage under any such bond and insurance policy shall be at least equal to the corresponding amounts required by FNMA in the FNMA MBS Selling and Servicing Guide or by FHLMC in the FHLMC Sellers' & Servicer's Guide, as amended or restated from time to time. Upon the request of the Purchaser, the Company shall cause to be delivered to the Purchaser a certified true copy of such fidelity bond and insurance policy and a statement from the surety and the insurer that such fidelity bond and insurance policy shall in no event be terminated or materially modified without 30 days prior written notice to the Purchaser. Section 4.12 Title, Management and Disposition of REO Property. ------------------------------------------------- In the event that title to the Mortgaged Property is acquired in foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale shall be taken in the name of the Purchaser or its designee of record on the date of acquisition of title. Purchaser or its designee shall provide the Company with one or more powers of attorney, if requested, to enable the Company to fulfill its duties under this Agreement. -40- The Company shall manage, conserve, protect and operate each REO Property in trust for the Purchaser solely for the purpose of its prompt disposition and sale. The Company shall either itself or through an agent selected by the Company, manage, conserve, protect and operate the REO Property in the same manner that it manages, conserves, protects and operates other foreclosed property for its own account, and in the same manner that similar property in the same locality as the REO Property is managed. The Company shall attempt to sell the same (and may temporarily rent the same) on such terms and conditions as the Company deems to be in the best interest of the Purchaser. Notwithstanding anything to the contrary in this Section 4.12, the Company shall not be required to advance any of its own funds pursuant to this Section 4.12 if such advance would be a Nonrecoverable Advance. With respect to each REO Property, the Company shall hold all funds collected and received in connection with the operation of the REO Property separate and apart from its own funds or general assets and shall establish and maintain with respect to all REO Property a REO Account or Accounts, in the form of a demand account, titled "Ameriquest Mortgage Company, in trust for the Purchaser as of [date of acquisition of title] of Fixed Rate and Adjustable Rate Mortgage Loans, Flow Delivery Program" unless an Opinion of Counsel is obtained by the Company to the effect that the classification for federal income tax purposes of the arrangement under which the Mortgage Loans and the REO Property are held will not be adversely affected by holding such funds in another manner specified in such Opinion of Counsel. Such REO Accounts shall be established with a commercial bank, a national bank, a national banking association, a mutual savings bank or a savings and loan association. Funds in the REO Account shall be fully insured by the FDIC, or such account shall be a trust account, and in either case may be drawn on by the Company. The creation of any REO Account shall be evidenced by a letter agreement substantially in the form of Exhibit D hereto. A copy of such letter agreement shall be furnished to the Purchaser upon request. The Company shall cause to be deposited on a daily basis in each REO Account all revenues received with respect to the conservation and disposition of the related REO Property and shall withdraw therefrom funds necessary for the proper operation, management and maintenance of the REO Property, including the cost of maintaining any hazard insurance pursuant to Section 4.10 hereof and the fees of any managing agent acting on behalf of the Company. The Company shall not be entitled to retain interest paid or other earnings, if any, on funds deposited in such REO Account. The Company shall use its best efforts to dispose of the REO Property as soon as possible and shall sell such REO Property in any event within two years after title has been taken to such REO Property, unless (i) a REMIC election has not been made with respect to the arrangement under which the REO Property is held, and (ii) the Company determines, and gives an appropriate notice to the Purchaser, that a longer period is necessary for the orderly liquidation of such REO Property. If a period longer than two years is permitted under this Agreement and is necessary to sell any REO Property, (i) the Company shall report monthly to the Owners as to the progress being made in selling such REO Property and (ii) if, a purchase money mortgage is -41- taken in connection with such sale by the Company the proceeds of such purchase money mortgage shall be deposited in the Custodial Account and distributed in accordance with Section 4.05. The disposition of REO Property shall be carried out by the Company only with the prior written consent of the Purchaser (which consent shall not be unreasonably withheld or delayed) and shall be made at such price, and upon such terms and conditions, as the Company deems to be in the best interests of the Purchaser. The proceeds of sale of the REO Property shall be promptly deposited in the REO Account and, as soon as practical thereafter, the expenses of such sale shall be paid. Prior to each Remittance Date, the Company shall deposit in the Custodial Account all funds in the REO Accounts, net of unreimbursed Servicing Advances, accrued and unpaid Servicing Fees and unreimbursed advances made pursuant to Section 5.03 which shall be retained by the Company with respect to the related Mortgage Loan. Upon request, with respect to any REO Property, the Company shall furnish to the Purchaser a statement covering the Company's efforts in connection with the sale of that REO Property and any rental of the REO Property incidental to the sale thereof for the previous month (together with an operating statement). That statement shall be accompanied by such other information as the Purchaser shall reasonably request. Section 4.13 Liquidation Reports. ------------------- The Company shall submit to the Purchaser monthly, at the time of the remittance report required pursuant to Section 5.02, a liquidation report with respect to each Mortgaged Property sold in a foreclosure sale as of the related Record Date and not previously reported. Section 4.14 Delivery of Documents in Possession of Custodian. ------------------------------------------------ The Purchaser shall cause the Custodian to deliver to the Company, on a timely basis, those Mortgage Files that the Company may request from the Custodian from time to time. Should the Custodian fail to deliver requested Mortgage Files on a timely basis, the Company shall not be liable for any related loss and any Event of Default which is attributable to the failure to deliver, or the untimely delivery of, the requested Mortgage Files shall be deemed to have not occurred. Section 4.15 Notification of Adjustments. --------------------------- On each Adjustment Date, the Company shall make interest rate adjustments for each Mortgage Loan in compliance with the requirements of the related Mortgage and Mortgage Note. The Company shall execute and deliver the notices required by each Mortgage and Mortgage Note regarding interest rate adjustments. The Company shall also provide timely notification to the Purchaser of all applicable data and information regarding such interest rate adjustments and the Company's methods of implementing such interest rate adjustments. Upon the discovery by -42- the Company or the Purchaser that the Company has failed to adjust a Mortgage Interest Rate or a Monthly Payment pursuant to the terms of the related Mortgage Note and Mortgage, the Company shall immediately deposit in the Custodial Account from its own funds the amount of any interest loss caused thereby without reimbursement therefor. -43- ARTICLE V PAYMENTS TO THE PURCHASER ------------------------- Section 5.01 Distributions. ------------- On each Remittance Date the Company shall remit by wire transfer of immediately available funds to the account designated in writing by the Purchaser the Available Remittance Amount. Section 5.02 Statements to the Purchaser. --------------------------- Not later than each Remittance Date, the Company will furnish to the Purchaser a statement in a computer readable format setting forth the following information with respect to the related remittance: (i) the amount of such remittance allocable to principal (including a separate breakdown of any Principal Prepayments, including the date of such prepayment); (ii) the amount of such distribution allocable to interest; (iii) the amount of Servicing Compensation received by the Company during the prior Due Period; (iv) the aggregate Stated Principal Balance of the Mortgage Loans as of the close of business on the related Determination Date; (v) the aggregate of any expenses reimbursed to the Company during the prior distribution period pursuant to Section 9.01; (vi) the weighted average maturity of the Mortgage Loans as of the close of business on the applicable Determination Date; (vii) in the event the Mortgage Loans bear different Mortgage Interest Rates, the weighted average Mortgage Interest Rate and Mortgage Loan Remittance Rate of the Mortgage Loans as of the close of business on the applicable Determination Date; (viii) the number and aggregate principal balances of Mortgage Loans (a) delinquent (1) 31 days, (2) 61 days, (3) 91 days or more, (b) as to which foreclosure has commenced, and (c) as to which REO Property has been acquired; -44- (ix) the aggregate amount of advances made pursuant to Section 5.03 included in such distribution, and the aggregate amount of such advances outstanding as of the close of business on such Remittance Date; (x) the amount of all Liquidation Proceeds; (xi) the amount of all proceeds received by the Company under any title, hazard, primary mortgage guaranty or other insurance policy, including amounts required to be deposited pursuant to Section 4.10, other than proceeds to be held in the Escrow Account and applied to the restoration or repair of the Mortgaged Property or released to the Mortgagor in accordance with Customary Servicing Procedures; (xii) the amount of all awards or settlements in respect of condemnation proceedings or eminent domain affecting any Mortgaged Property which are not released to the Mortgagor in accordance with Customary Servicing Procedures; (xiii) the amounts, if any, required to be deposited in the Custodial Account pursuant to Sections 4.12, 5.03, 5.04 and 6.02; and (xiv) the amounts, if any, payable in connection with the repurchase of any Mortgage Loan pursuant to Section 3.03, and all amounts required to be deposited by the Company in connection with shortfalls in principal amount of Qualified Substitute Mortgage Loans pursuant to Section 3.03. Within 60 days after the end of each calendar year, the Company will furnish a report to the Purchaser. Such report shall state the aggregate of amounts reported pursuant to (i) through (iii) and (v) above for such calendar year. Such obligation of the Company shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Company pursuant to any requirements of the Internal Revenue Code of 1986 as from time to time in force. The Company shall prepare and file any and all tax returns, information statements or other filings required to be delivered to any governmental taxing authority or to the Purchaser pursuant to any applicable law with respect to the Mortgage Loans and the transactions contemplated hereby. In addition, the Company shall provide the Purchaser with such information concerning the Mortgage Loans as is necessary for the Purchaser to prepare its federal income tax return as the Purchaser may reasonably request from time to time. Section 5.03 Advances by the Company. ----------------------- On the second Business Day preceding each Remittance Date, the Company shall deposit in the Custodial Account an amount equal to all Monthly Payments (with interest adjusted to the Mortgage Loan Remittance Rate) which were due on the Mortgage Loans on the -45- Due Date in the month of the Remittance Date and not received by the close of business on the immediately preceding Determination Date. The Company's obligation to make such advances as to any Mortgage Loan will continue until the liquidation thereof, an REO Disposition in connection therewith or the purchase or repurchase thereof. Notwithstanding anything to the contrary, the obligation of the Company to make such advances pursuant to this Section 5.03 is mandatory, except that no advance shall be required to be made hereunder that would, if made, constitute a Nonrecoverable Advance. The Company may pay all or a portion of any advance out of excess amounts on deposit in the Custodial Account and held for future distribution on the date such advance is made; any such excess amounts so used shall be replaced by the Company by deposit to the Custodial Account on or before the next succeeding Determination Date. Section 5.04 Prepayment Interest Shortfalls. ------------------------------ Prior to each Remittance Date, the Servicer shall either deposit in the Custodial Account from its own funds and without any right of reimbursement therefor, or leave on deposit in the Custodial Account to the extent not previously retained or withdrawn, a total amount equal to the aggregate of the Prepayment Interest Shortfalls for such Remittance Date; provided that the Servicer's obligations under this Section on any Remittance Date shall not be more than the total amount of Servicing Fee paid to or retained by the Servicer since the preceding Remittance Date. -46- ARTICLE VI GENERAL SERVICING PROCEDURE --------------------------- Section 6.01 Assumption Agreements. --------------------- The Company will use its best efforts to enforce any "due-on-sale" provision contained in any Mortgage or Mortgage Note and to deny assumption by the person to whom the Mortgaged Property has been or is about to be sold whether by absolute conveyance or by contract of sale, and whether or not the Mortgagor remains liable on the Mortgage and the Mortgage Note. When the Mortgaged Property has been or will be conveyed by the Mortgagor, the Company will, to the extent it has knowledge of such conveyance, exercise its rights to accelerate the maturity of such Mortgage Loan under the "due-on-sale" clause applicable thereto, provided, however, the Company will not exercise such rights if prohibited by law from doing so. If the Company reasonably believes it is unable under applicable law to enforce such "due-on-sale" clause, the Company will obtain the written permission of the Purchaser (which consent shall not be unreasonably withheld or delayed) prior to entering into an assumption and modification agreement with the person to whom such property has been conveyed, pursuant to which such person becomes liable under the Mortgage Note and, to the extent permitted by applicable law, the Mortgagor remains liable thereon. If an assumption fee is collected by the Company for entering into an assumption agreement the entire such fee will be retained by the Company as additional Servicing Compensation. In connection with any such assumption, the outstanding principal amount, the Monthly Payment and (except pursuant to the adjustable rate provisions, if any, of the Mortgage Loan) the Mortgage Interest Rate of the related Mortgage Note shall not be changed, and the term of the Mortgage Loan will not be increased or decreased. If an assumption is allowed pursuant to this Section 6.01, the Company with the prior consent of the primary mortgage guaranty insurer, if any, is authorized to enter into a substitution of liability agreement with the purchaser of the Mortgaged Property pursuant to which the original Mortgagor is released from liability and the purchaser of the Mortgaged Property is substituted as Mortgagor and becomes liable under the Mortgage Note. Section 6.02 Satisfaction of Mortgages and Release of Mortgage Files. ------------------------------------------------------- Upon the payment in full of any Mortgage Loan, or the receipt by the Company of a notification that payment in full will be escrowed in a manner customary for such purposes, the Company will obtain the portion of the Mortgage File that is in the possession of the Custodian, prepare and process any required satisfaction or release of the Mortgage and notify the Purchaser. No expense incurred in connection with any instrument of satisfaction or deed of reconveyance shall be chargeable to the Custodial Account or the Purchaser. Any reconveyance and/or demand fee actually collected by the Company shall belong to the Company. -47- Immediately after the payment in full of such Mortgage Loan, the Company shall give prompt written notice to the Purchaser of such payment in full. In the event the Company grants a satisfaction or release of a Mortgage without having obtained payment in full of the indebtedness secured by the Mortgage or should the Company otherwise prejudice any right the Purchaser may have under the mortgage instruments, the Company shall remit to the Purchaser the Stated Principal Balance of the related Mortgage Loan by deposit thereof in the Custodial Account including Prepayment Interest Shortfall, if any. The Company shall maintain the Fidelity Bond as provided for in Section 4.11 insuring the Company against any loss it may sustain with respect to any Mortgage Loan not satisfied in accordance with the procedures set forth herein. Section 6.03 Servicing Compensation. ---------------------- As compensation for its services hereunder, the Company shall be entitled to retain from interest payments on the Mortgage Loans the Company's Servicing Fee. Additional servicing compensation in the form of assumption fees and other administrative fees and late payment charges shall be retained by the Company. The Company also shall be entitled to receive from the Custodial Account as additional servicing compensation interest or other income earned on deposits therein, as well as any Prepayment Interest Excess and prepayment penalties other than Prepayment Charges. The Company 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. Section 6.04 Annual Statement as to Compliance. --------------------------------- The Company will deliver to the Purchaser, on or before April 15 of each year beginning April 15, 1998, an Officer's Certificate stating that (i) the Company has fully complied with the provisions of Article IV, (ii) a review of the activities of the Company during the preceding calendar year and of performance under this Agreement has been made under such officer's supervision, and (iii) to the best of such officer's knowledge, based on such review, the Company has fulfilled all 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 the action being taken by the Company to cure such default. Section 6.05 Annual Independent Public Accountants' Servicing Report. ------------------------------------------------------- On or before the later of (i) April 15 of each year beginning April 15, 1998, or (ii) within 30 days of the issuance of the annual audited Financial Statements beginning with the audit for the period ending December 31, 1997, the Company at its expense shall cause a firm of -48- independent public accountants which is a member of the American Institute of Certified Public Accountants to furnish a statement to the Purchaser to the effect that based on an examination of certain specified documents and records relating to the servicing of the Company's mortgage loan portfolio conducted substantially in compliance with the audit program for mortgages serviced for FNMA and FHLMC, the United States Department of Housing and Urban Development Mortgage Audit Standards, or the Uniform Single Attestation Program for Mortgage Bankers (the "Applicable Accounting Standards"), such firm is of the opinion that such servicing has been conducted in compliance with the Applicable Accounting Standards except for (a) such exceptions as such firm shall believe to be immaterial and (b) such other exceptions as shall be set forth in such statement. Section 6.06 Option to Acquire Servicing; Continuation of Company as ------------------------------------------------------- Servicer. -------- If so provided in the related Commitment Letter, the Purchaser shall have the right to purchase the servicing rights for the related Mortgage Loans, in accordance with the terms set forth in such Commitment Letter. Subject to exercise of the option, if any, to acquire servicing as described above, the Purchaser hereby agrees that any agreement entered into by the Purchaser in connection with any Pass-Through Transfer shall provide for the continuation of the Company as the servicer of the Mortgage Loans pursuant to the related Reconstitution Agreement without diminution of the Company's rights hereunder. Section 6.07 Purchaser's Right to Examine Company Records. -------------------------------------------- The Purchaser shall have the right, at all reasonable times and as often as reasonably required, to examine and audit any and all of the books, records or other information of the Company, whether held by the Company or by another on behalf of the Company, which may be relevant to the performance or observance by the Company of the terms, covenants or conditions of this Agreement. -49- ARTICLE VII REPORTS TO BE PREPARED BY COMPANY --------------------------------- Section 7.01 Company Shall Provide Access and Information as Reasonably ---------------------------------------------------------- Required. -------- The Company shall provide to the Purchaser access to any documentation regarding the Mortgage Loans which is required by applicable regulations. Such access shall be afforded without charge, but only upon reasonable request, during normal business hours and at the offices of the Company. In addition, the Company shall furnish to the Purchaser upon request, during the term of this Agreement, such periodic, special or other reports or information, whether or not provided for herein, as shall be necessary, reasonable or appropriate with respect to the purposes of this Agreement and the applicable regulations. All such reports or information shall be provided by and in accordance with all reasonable instructions and directions the Purchaser may require. The Company agrees to execute and deliver all such instruments and take all such action as the Purchaser, from time to time, may reasonably request in order to effectuate the purposes and to carry out the terms of this Agreement. Section 7.02 Financial Statements. -------------------- Upon written request of the Purchaser, the Company shall provide a Consolidated Statement of Income of the Company for the most recently completed three fiscal years respecting which such statements are available, as well as a Consolidated Balance Sheet at the end of the last two fiscal years covered by such Consolidated Statement of Income, and any comparable interim statements, to the extent any such statements have been prepared by the Company (and are available upon request to members or stockholders of the Company, or to the public at large). Upon reasonable request, during normal business hours and at the offices of the Company, the Company also agrees to make available to the Purchaser or prospective purchaser of the Mortgage Loans a knowledgeable financial or accounting officer for the purpose of answering questions respecting recent developments affecting the Company or the financial statements of the Company and to permit the Purchaser or prospective purchaser of the Mortgage Loans to inspect the Company's servicing facilities for the purpose of satisfying the Purchaser or prospective purchaser of the Mortgage Loans that the Company has the ability to service the Mortgage Loans in accordance with this Agreement. Notwithstanding the preceding sentence, the Company shall not be required to provide any information that it deems confidential. -50- ARTICLE VIII REMOVAL OF MORTGAGE LOANS FROM INCLUSION UNDER THE AGREEMENT ------------------------------------------------------------ UPON A WHOLE LOAN TRANSFER OR A PASS-THROUGH TRANSFER ------------------------------------------------------ ON ONE OR MORE RECONSTITUTION DATES ----------------------------------- Section 8.01 Removal of Mortgage Loans from Inclusion Under this --------------------------------------------------- Agreement Upon a Whole Loan Transfer or a Pass-Through ------------------------------------------------------ Transfer on One or More Reconstitution Dates. -------------------------------------------- Company and Purchaser agree that with respect to some or all of the Mortgage Loans, within 12 months from the respective Closing Date, the Purchaser shall effect either: (1) one or more Whole Loan Transfers; and/or (2) one or more Pass-Through Transfers; provided, however, that no Mortgage Loan shall be the subject of more than one Whole Loan Transfer or one Pass-Through Transfer hereunder. The Company and Purchaser agree that in no event will the Company be required to remit funds or send remittance reports to more than four (4) persons at any given time with respect to any Whole Loan Transfer or Pass-Through Transfer. With respect to each Whole Loan Transfer or Pass-Through Transfer, as the case may be, entered into by Purchaser, Company agrees: (1) to cooperate fully with Purchaser and any prospective purchaser with respect to all reasonable requests and due diligence procedures; (2) to execute all Reconstitution Agreements and such ancillary documents (including a Custodial Agreement) that are standard in the industry provided that each of the Company and the Purchaser is given an opportunity to review and reasonably negotiate in good faith the content of such documents not specifically referenced or provided for herein; and provided, further, that any such agreement entered into in connection with a Whole Loan Transfer or Pass-Through Transfer, servicing retained, shall permit the related Mortgage Loans to be sub-serviced by a Sub- Servicer and master serviced by the Company; -51- (3) with respect to any Whole Loan Transfer or Pass-Through Transfer occurring within 6 months (unless otherwise specified in the related Confirmation) of the Final Closing Date, the Company shall make the representations and warranties regarding the Company and the Mortgage Loans as of the date of the Whole Loan Transfer or Pass-Through Transfer, modified to the extent necessary to accurately reflect the pool statistics of the Mortgage Loans as of the date of such Whole Loan Transfer or Pass-Through Transfer; (4) to deliver to the Purchaser for inclusion in any prospectus or other offering material such publicly available information regarding the Company, its financial condition and its mortgage loan delinquency, foreclosure and loss experience, underwriting standards, lending activities and loan sales, production, and servicing and collection practices, generally as is set forth in prospectus supplements previously delivered in connection with public offerings of pass-through securities backed by mortgage loans similar to the Mortgage Loans and sold by the Company, and to deliver to the Purchaser any similar nonpublic, unaudited financial information, in which case the Purchaser shall bear the cost of having such information audited by certified public accountants if the Purchaser desires such an audit, or as is otherwise reasonably requested by the Purchaser and which the Company is capable of providing without unreasonable effort or expense, and to indemnify the Purchaser and its affiliates for material misstatements contained in such information; (5) to deliver to the Purchaser and to any Person designated by the Purchaser, at the Purchaser's expense, such statements and audit letters of reputable, certified public accounts pertaining to information provided by the Company pursuant to clause 4 above as shall be reasonably requested by the Purchaser; (6) to deliver to the Purchaser, and to any Person designated by the Purchaser, such in-house opinions of counsel as are customarily delivered by originators or servicers, as the case may be, in connection with Whole Loan Transfers or Pass-Through Transfers, as the case may be, it being understood that the cost of any opinions of outside special counsel that may be required for a Whole Loan Transfer or Pass-Through Transfer, as the case may be, shall be the responsibility of the Purchaser; and (7) to cooperate fully with the Purchaser and any prospective purchaser with respect to the preparation of Mortgage Loan Documents and other -52- documents with respect to servicing requirements reasonably requested by the rating agencies and credit enhancers. All Mortgage Loans not sold or transferred pursuant to a Whole Loan Transfer or Pass-Through Transfer shall be subject to this Agreement and shall continue to be serviced in accordance with the terms of this Agreement and with respect thereto this Agreement shall remain in full force and effect. -53- ARTICLE IX THE COMPANY ----------- Section 9.01 Indemnification; Third Party Claims. ----------------------------------- The Company agrees to indemnify and hold harmless the Purchaser against any and all claims, losses, penalties, fines, forfeitures, legal fees and related costs, judgments, and any other costs, fees and expenses that the Purchaser may sustain in any way related to the failure of the Company to perform its duties and service the Mortgage Loans in strict compliance with the terms of this Agreement. The Company shall immediately notify the Purchaser if a claim is made by a third party with respect to this Agreement or the Mortgage Loans, and the Company shall assume the defense of any such claim and advance all expenses in connection therewith, including counsel fees, and promptly pay, discharge and satisfy any judgment or decree which may be entered against the Company or the Purchaser in respect of such claim. The Purchaser shall promptly reimburse the Company for all amounts advanced by it pursuant to the preceding sentence except when the claim in any way relates to the Company's failure to service and administer the Mortgage Loans in strict compliance with the terms of this Agreement. Section 9.02 Merger or Consolidation of the Company. -------------------------------------- The Company will keep in full effect its existence, rights and franchises as a corporation, and will obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement or any of the Mortgage Loans and to perform its duties under this Agreement. Any Person into which the Company may be merged or consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Company shall be a party, or any Person succeeding to substantially all of the business of the Company (whether or not related to loan servicing), shall be the successor of the Company 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; provided, however, that the successor or surviving Person shall be an institution (i) having a GAAP net worth of not less than $15,000,000, (ii) the deposits of which are insured by the FDIC or which is a HUD-approved mortgagee whose primary business is in origination and servicing of mortgage loans comparable to the Mortgage Loans and (iii) who is a FNMA approved seller/servicer in good standing. -54- Section 9.03 Limitation on Liability of the Company and Others. ------------------------------------------------- The Company and any director, officer, employee or agent of the Company 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, the Company shall have no obligation to appear with respect to, prosecute or defend any legal action which is not incidental to the Company's duty to service the Mortgage Loans in accordance with this Agreement. Section 9.04 Company Not to Resign. --------------------- The Company shall not assign this Agreement nor resign from the obligations and duties hereby imposed on it except by mutual consent of the Company and the Purchaser or upon the determination that the Company's duties hereunder are no longer permissible under applicable law and such incapacity cannot be readily cured by the Company without additional expenses. Any such determination permitting the resignation of the Company shall be evidenced by an Opinion of Counsel to such effect delivered to the Purchaser. No such resignation shall become effective until a successor which satisfies the requirements of Section 9.02 has assumed the Company's responsibilities and obligations hereunder in accordance with Section 13.01. Section 9.05 No Transfer of Servicing; Sub-Servicing Agreement. ------------------------------------------------- With respect to the retention of the Company to service the Mortgage Loans hereunder, the Company acknowledges that the Purchaser has acted in reliance upon the Company's independent status, the adequacy of its servicing facilities, plant, personnel, records and procedures, its integrity, reputation and financial standing and the continuance thereof. Without in any way limiting the generality of this Section, and subject to Section 6.06 and this 9.05, the Company shall not either assign this Agreement or the servicing hereunder or delegate its rights or duties hereunder or any portion thereof. Notwithstanding the foregoing, the Company may enter into the Sub- Servicing Agreement with the Sub-Servicer for the servicing and administration of the Mortgage Loans. Notwithstanding any Sub-Servicing Agreement, any of the provisions of this Agreement relating to agreements or arrangements between the Company and a Sub-Servicer or reference to actions taken through a Sub-Servicer or otherwise, the Company shall remain obligated and primarily liable to the Purchaser for the servicing and administering of the Mortgage Loans in accordance with the provisions of Section 4.01 without diminution of such obligation or liability by virtue of such Sub-Servicing Agreements or arrangements or by virtue of indemnification from the Sub-Servicer and to the same extent and under the same terms and conditions as if the Company alone were servicing and administering the Mortgage Loans. The -55- Company shall be entitled to enter into any agreement with a Sub-Servicer for indemnification of the Company by such Sub-Servicer and nothing contained in this Agreement shall be deemed to limit or modify such indemnification. Any Sub-Servicing Agreement that may be entered into and any transactions or services relating to the Mortgage Loans involving a Sub-Servicer in its capacity as such shall be deemed to be between the Sub-Servicer and the Company alone, and the Purchaser shall not be deemed parties thereto and shall have no claims, rights, obligations, duties or liabilities with respect to the Sub-Servicer except as set forth in the Sub-Servicing Agreement. The Company shall be solely liable for all fees owed by it to any Sub-Servicer, irrespective of whether the Company's compensation pursuant to this Agreement is sufficient to pay such fees. -56- ARTICLE X DEFAULT ------- Section 10.01 Events of Default. ----------------- In case one or more of the following Events of Default by the Company shall occur and be continuing, that is to say: (i) any failure by the Company to remit to the Purchaser any payment required to be made under the terms of this Agreement which continues unremedied for a period of 5 days after the date upon which written notice of such failure, requiring the same to be remedied, shall have been given to the Company by the Purchaser; or (ii) failure by the Company to duly observe or perform, in any material respect, any other covenants, obligations or agreements of the Company as set forth in this Agreement which failure continues unremedied for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Company by the Purchaser; or (iii) a decree or order of a court or agency or supervisory authority having jurisdiction for the appointment of a receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Company and such decree or order shall have remained in force, undischarged or unstayed for a period of 60 days; or (iv) the Company shall consent to the appointment of a receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to the Company or relating to all or substantially all of the Company's property; or (v) the Company 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) any failure of the Company to make any advance when required to be made pursuant to Section 5.03 that continues unremedied for a period of one Business Day after the date on which telecopied notice of such failure, requiring the same to be remedied, shall have been given to the Company by the Purchaser (followed by written notice delivered within one Business Day thereafter); -57- then, and in each and every such case, so long as an Event of Default shall not have been remedied, the Purchaser, by notice in writing to the Company, may, in addition to whatever rights the Purchaser may have at law or equity to damages, including injunctive relief and specific performance, commence termination of all the rights and obligations of the Company under this Agreement and in and to the Mortgage Loans and the proceeds thereof. Upon receipt by the Company of a second written notice from the Purchaser stating that they intend to terminate the Company as a result of such Event of Default, all authority and power of the Company under this Agreement, whether with respect to the Mortgage Loans or otherwise, shall pass to and be vested in the successor appointed pursuant to Section 13.01. Upon receipt of such second written notice, the Company shall prepare, execute and deliver to a successor any and all documents and other instruments, place in such successor's possession all Mortgage Files 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 Mortgage Loans and related documents to the successor, all at the Company's sole expense. The Company agrees to cooperate with the Purchaser and such successor in effecting the termination of the Company's responsibilities and rights hereunder, including, without limitation, the transfer to such successor for administration by it of all amounts which shall at the time be credited or should have been credited by the Company to the Custodial Account or Escrow Account or REO Account or thereafter received with respect to the Mortgage Loans. Section 10.02 Waiver of Defaults. ------------------ The Purchaser may waive any default by the Company in the performance of its obligations hereunder and its consequences. 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 10.03 Servicer to Retain Previous Entitlement. --------------------------------------- Notwithstanding any termination of the activities of the Servicer hereunder pursuant to Section 10.01, the Servicer shall be entitled to receive, out of any late collection of a Monthly Payment on a Mortgage Loan which was due prior to the notice terminating the Servicer's rights and obligations as Servicer hereunder and received after such notice, that portion thereof to which the Servicer would have been entitled pursuant to Section 4.05, and any other amounts payable to the Servicer hereunder the entitlement to which arose prior to the termination of its activities hereunder. -58- ARTICLE XI TERMINATION ----------- Section 11.01 Termination. ----------- This Agreement shall terminate upon either: (i) the later of the distribution to the Purchaser of final payment or liquidation with respect to the last Mortgage Loan (or advances of same by the Company), or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure with respect to the last Mortgage Loan and the remittance of all funds due hereunder; (ii) the mutual consent of the Company and the Purchaser in writing; or (iii) the acquisition of all servicing pursuant to Section 6.06 hereof. -59- ARTICLE XII MANDATORY DELIVERY; GRANT OF A SECURITY INTEREST ------------------------------------------------ Section 12.01 Mandatory Delivery; Grant of Security Interest. ---------------------------------------------- The sale and delivery on the related Closing Date of the Mortgage Loans described on the related Mortgage Loan Schedule is mandatory from and after the date of the execution of the related Confirmation unless otherwise noted on the Confirmation, it being specifically understood and agreed that each Mortgage Loan is unique and identifiable on the date thereof and that an award of money damages would be insufficient to compensate the Purchaser for the losses and damages incurred by the Purchaser (including damages to prospective purchasers of the Mortgage Loans) in the event of the Company's failure to deliver (i) each of the related Mortgage Loans or (ii) one or more Qualified Substitute Mortgage Loans or (iii) one or more Mortgage Loans otherwise acceptable to the Purchaser on or before the related Closing Date. As of the date of each mandatory delivery Confirmation, the Company hereby grants to the Purchaser a lien on and a continuing security interest in each related Mortgage Loan and each document and instrument evidencing each such Mortgage Loan to secure the performance by the Company of its obligation to deliver the Mortgage Loans on the Closing Date therefor, and the Company agrees that it holds such Mortgage Loans in custody for the Purchaser subject to the Purchaser's (i) right to reject any Mortgage Loan (or Qualified Substitute Mortgage Loan) under the terms of this Agreement and to require another Mortgage Loan (or Qualified Substitute Mortgage Loan) to be substituted therefor, and (ii) obligation to pay the Purchase Price for the Mortgage Loans. The Company intends that the conveyance of the Company's right, title and interest in and to the Mortgage Loans to the Purchaser shall constitute a sale and not a pledge of security for a loan. If such conveyance is deemed to be a pledge of security for a loan, however, the Company intends that the rights and obligations of the parties to such loan shall be established pursuant to the terms of the Agreement. The Company also intends and agrees that, in such event, (i) the Company shall be deemed to have granted to the Purchaser and its assigns a first priority security interest in the Company's entire right, title and interest in and to the Mortgage Loans, all principal and interest received or receivable with respect to the Mortgage Loans, all amounts held from time to time in the accounts mentioned pursuant to this Agreement and all reinvestment earnings on such amounts, together with all of the Company's right, title and interest in and to the proceeds of any title, hazard or other insurance policies related to such Mortgage Loans and (ii) the Agreement shall constitute a security agreement under applicable law. All rights and remedies of the Purchaser under this Agreement are distinct from, and cumulative with, any other rights or remedies under this Agreement or afforded by law or equity and all such rights and remedies may be exercised concurrently, independently or successively. -60- ARTICLE XIII MISCELLANEOUS PROVISIONS ------------------------ Section 13.01 Successor to the Company. ------------------------ Prior to termination of the Company's responsibilities and duties under this Agreement pursuant to Sections 9.04, 10.01 or 11.01, the Purchaser shall (i) succeed to and assume all of the Company's responsibilities, rights, duties and obligations under this Agreement, or (ii) appoint a successor having the characteristics set forth in Section 9.02 hereof and which shall succeed to all rights and assume all of the responsibilities, duties and liabilities of the Company under this Agreement prior to the termination of the Company's responsibilities, duties and liabilities under this Agreement. In connection with such appointment and assumption, the Purchaser may make such arrangements for the compensation of such successor out of payments on Mortgage Loans as it and such successor shall agree. In the event that the Company's duties, responsibilities and liabilities under this Agreement should be terminated pursuant to the aforementioned Sections, the Company shall discharge such duties and responsibilities during the period from the date it acquires knowledge of such termination until the effective date thereof with the same degree of diligence and prudence which it is obligated to exercise under this Agreement, and shall take no action whatsoever that might impair or prejudice the rights or financial condition of its successor. The resignation or removal of the Company pursuant to the aforementioned Sections shall not become effective until a successor shall be appointed pursuant to this Section and shall in no event relieve the Company of the representations and warranties made pursuant to Sections 3.01 and 3.02 or its obligations under Section 9.01 and the remedies available to the Purchaser under Section 3.03, it being understood and agreed that the provisions of such Sections 3.01, 3.02, 3.03 and 9.01 shall be applicable to the Company notwithstanding any such resignation or termination of the Company, or the termination of this Agreement. In addition, notwithstanding any such resignation or termination, the Company shall cooperate with all reasonable requests for information by the Purchaser in connection with a Whole Loan Transfer or a Pass-Through Transfer occurring within 180 days of such termination; provided such information is in the possession of the Company and the Purchaser pays for all out-of-pocket expenses of the Company incurred in providing the same. Any successor appointed as provided herein shall execute, acknowledge and deliver to the Company and to the Purchaser an instrument accepting such appointment, whereupon such successor shall become fully vested with all the rights, powers, duties, responsibilities, obligations and liabilities of the Company, with like effect as if originally named as a party to this Agreement. Any termination or resignation of the Company or this Agreement pursuant to Section 9.04, 10.01 or 11.01 shall not affect any claims that the Purchaser may have against the Company arising prior to any such termination or resignation. -61- The Company shall promptly deliver to the successor the funds in the Custodial Account, Escrow Account and REO Account and all Mortgage Files and related documents and statements held by it hereunder and the Company shall account for all funds and shall execute and deliver such instruments and do such other things as may reasonably be required to more fully and definitively vest in the successor all such rights, powers, duties, responsibilities, obligations and liabilities of the Company, all at the Company's sole expense. Section 13.02 Amendment. --------- This Agreement may be amended from time to time by the Company and the Purchaser by written agreement signed by the Company and the Purchaser. Section 13.03 Recordation of Agreement. ------------------------ To the extent permitted by applicable law, this Agreement is subject to recordation in all appropriate public offices for real property records in all the counties or other comparable jurisdictions in which any or all of the properties subject to the Mortgages are situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Company at the Company's expense upon direction of the Purchaser, but only when such direction is accompanied by an Opinion of Counsel to the effect that such recordation materially and beneficially affects the interests of the Purchaser or is necessary for the administration or servicing of the Mortgage Loans. Section 13.04 Recordation of Assignment of Mortgages. -------------------------------------- As provided in the Custodial Agreement, each Assignment of Mortgage shall be in a form acceptable for recording in all appropriate public offices for real property records in the jurisdiction in which the Mortgaged Property recited in each such Assignment of Mortgage is situated. Section 13.05 Duration of Agreement. --------------------- This Agreement shall continue in existence and effect until terminated as herein provided. Section 13.06 Governing Law. ------------- This Agreement shall be construed in accordance with the laws of the State of New York, except to the extent preempted by Federal law, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. Section 13.07 General Interpretive Principles. ------------------------------- -62- For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender; (b) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles; (c) references herein to "Articles", "Sections", "Subsections", "Paragraphs", and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Agreement; (d) a reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions; (e) the words "herein", "hereof", "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular provision; and (f) the term "include" or "including" shall mean without limitation by reason of enumeration. Section 13.08 Reproduction of Documents. ------------------------- This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications which may hereafter be executed, (b) documents received by any party at the closing, and (c) financial statements, certificates and other information previously or hereafter furnished, may be reproduced by any photographic, photostatic, microfilm, micro- card, miniature photographic or other similar process. The parties agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. Section 13.09 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 registered mail, postage prepaid, to (a) in the case of the Company, Ameriquest Mortgage Company, 1100 Town and Country Road, Orange, California 92868, Attention: General Counsel, or such other address as may hereafter be furnished to the Purchaser in writing by the Company and (b) in the case of the -63- Purchaser, Salomon Brothers Realty Corp., Seven World Trade Center, New York, New York 10048, Attention: Mortgage Finance Group. Section 13.10 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 provisions of this Agreement. If the invalidity of any part, provision, representation or warranty of this Agreement shall deprive any party of the economic benefit intended to be conferred by this Agreement, the parties shall negotiate in good- faith to develop a structure the economic effect of which is nearly as possible the same as the economic effect of this Agreement without regard to such invalidity. Section 13.11 No Partnership. -------------- Nothing herein contained shall be deemed or construed to create a co- partnership or joint venture between the parties hereto and the services of the Company shall be rendered as an independent contractor and not as agent for the Purchaser. Section 13.12 Execution; Successors and Assigns. --------------------------------- 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. Subject to Section 7.04, Section 10.01 and Section 11.01, this Agreement shall inure to the benefit of and be binding upon the Company and the Purchaser and their respective successors and assigns. IN WITNESS WHEREOF, the Company and the Purchaser have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written. SALOMON BROTHERS REALTY CORP., Purchaser By:___________________________ Name:___________________ Title:________________________ AMERIQUEST MORTGAGE COMPANY, Company By:___________________________ Name:___________________ Title:________________________ EX-2.2 3 AMERIQUEST MORTGAGE CO. AGREEMENT DATED 9/30/98 ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT ------------------------------------------------ This is an Assignment, Assumption and Recognition Agreement made this 30th day of September, 1998, among Salomon Brothers Realty Corp. (the "Seller"), Wilshire Real Estate Investment Trust Inc. (the "Purchaser") and Ameriquest Mortgage Company (the "Company"). WHEREAS, pursuant to a Liquidation Agreement (the "Liquidation Agreement"), dated as of September 30, 1998, among Salomon Brothers Mortgage Securities VII, Inc. ("Salomon Brothers"), the Company, Norwest Bank Minnesota, National Association ("Norwest") and Salomon Smith Barney Inc. ("SSBI"), the Trust Fund (as defined in the Pooling and Servicing Agreement (the "Servicing Agreement"), dated as of January 1, 1997, relating to 1997-LB1, among Salomon Brothers, the Company f/k/a Long Beach Mortgage Company and Norwest) was liquidated and terminated, and SSBI became the owner of a 100% ownership interest in the mortgage loans identified on the Mortgage Loan Schedule annexed hereto as EXHIBIT ONE (the "Mortgage Loans"); WHEREAS, the Seller is the holder of all right, title and interest in and to the Mortgage Loans pursuant to the Liquidation Agreement; WHEREAS, the Company made certain representations and warranties with respect to the Mortgage Loans pursuant to a Mortgage Loan Purchase Agreement (the "Purchase Agreement"), dated January 22, 1997, among Salomon Brothers, the Company and the Seller which was terminated in accordance with the terms of the Liquidation Agreement; WHEREAS, pursuant to Article III of the Liquidation Agreement, the Company restated such representations and warranties with respect to the Mortgage Loans as of January 22, 1997; and WHEREAS, pursuant to Article III of the Liquidation Agreement, the Mortgage Loans are being serviced by the Company in accordance with the terms of the Servicing Agreement; WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser desires to purchase from the Seller, the Mortgage Loans; NOW, THEREFORE, in consideration of the premises and mutual agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Seller, the Purchaser and the Company agree as follows: WARRANTIES ---------- 1. (a) The Seller and the Company warrant and represent that attached hereto as EXHIBIT TWO is a true, accurate and complete copy of the Liquidation Agreement. (b) The Seller warrants and represents that attached hereto as EXHIBIT THREE is a true, accurate and complete copy of the Purchase Agreement as in effect prior to the termination of such Purchase Agreement. (c) The Seller warrants and represents that it is the lawful owner of the Mortgage Loans with the full right to transfer the Mortgage Loans free from any claim or encumbrance whatsoever. (d) The Seller hereby warrants and represents to the Purchaser that no event has occurred from January 22, 1997 to the date hereof that would result in any representation and warranty made pursuant to Section 6 of the Purchase Agreement being untrue if made as of the date hereof with respect to the Mortgage Loans (other than any statistical information with respect to the Mortgage Loans and any changes due to the receipt of payments on the Mortgage Loans, adjustment of the Mortgage Interest Rates on the Mortgage Loans and similar changes, which information reflected on EXHIBIT ONE hereto is accurate in all material respects as of September 1, 1998). In the event of a breach of the foregoing representation and warranty which materially and adversely affects the value of any Mortgage Loan or the Purchaser's interest therein, the Seller shall repurchase such affected Mortgage Loan at a repurchase price equal to the unpaid principal balance of such Mortgage Loan plus accrued interest at the net Mortgage Interest Rate from the paid through date of the Mortgage Loan to the first day of the month following the month in which such repurchase is effected; provided, that to the extent that the Company would otherwise be required to repurchase a Mortgage Loan due to the breach of any of the representations and warranties that are made or deemed to have been made by the Company as of January 22, 1997, then the Seller shall repurchase the affected Mortgage Loan from the Purchaser upon the reassignment of the Liquidation Agreement from the Purchaser to the Seller with respect to such Mortgage Loan. It is understood and agreed that the obligations of the Seller set forth in this Section 1(d) to repurchase an affected Mortgage Loan constitutes the sole remedy of the Purchaser respecting a breach of the representation and warranty made in this Section 1(d). ASSIGNMENT AND ASSUMPTION ------------------------- 2. The Seller hereby assigns to the Purchaser all of its right, title and interest in, and to the Mortgage Loans. 3. The Seller hereby assigns to the Purchaser all of its right, title and interest in, and under Article III of the Liquidation Agreement to the extent of the Mortgage Loans, and the Purchaser hereby assumes all of the Seller's obligation under Article III of the Liquidation Agreement to the extent of the Mortgage Loans from and after the date hereof. RECOGNITION OF THE PURCHASER ---------------------------- 4. From and after the date hereof, the Company shall recognize the Purchaser as the owner of the Mortgage Loans. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. SALOMON BROTHERS REALTY CORP., Seller By:____________________________ Name:__________________________ Title:_________________________ WILSHIRE REAL ESTATE INVESTMENT TRUST INC. Purchaser By:____________________________ Name:__________________________ Title:_________________________ AMERIQUEST MORTGAGE COMPANY Company By:____________________________ Name:__________________________ Title:_________________________ MORTGAGE LOAN PURCHASE AGREEMENT This is a Mortgage Loan Purchase Agreement (the "Agreement"), dated January 22, 1997, among Salomon Brothers Mortgage Securities VII, Inc., a Delaware corporation (the "Purchaser"), Long Beach Mortgage Company, a Delaware corporation (the "Originator") and Salomon Brothers Realty Corp., a New York corporation (the "Seller"). Preliminary Statement --------------------- The Seller intends to sell the Mortgage Loans (as hereinafter defined) to the Purchaser on the terms and subject to the conditions set forth in this Agreement. The Mortgage Loans were purchased by the Seller from the Originator pursuant to a certain Master Mortgage Loan Purchase and Servicing Agreement, dated as of May 1, 1996 (the "Purchase and Servicing Agreement"), among the Seller, as initial purchaser and the Originator, as seller and servicer. The Purchaser intends to deposit the Mortgage Loans into a mortgage pool comprising the trust fund. The trust fund will be evidenced by a single series of asset- backed floating rate certificates designated as Series 1997-LB1, (the "Certificates"). The Certificates will consist of four classes of certificates. The Certificates will be issued pursuant to a Pooling and Servicing Agreement, dated as of January 1, 1997 (the "Pooling and Servicing Agreement"), among the Purchaser, as depositor, Norwest Bank Minnesota, National Association, as trustee, and the Originator, as master servicer (in such capacity, the "Master Servicer"). Capitalized terms used but not defined herein shall have the meanings set forth in the Pooling and Servicing Agreement. The parties hereto agree as follows: SECTION 1. Agreement to Purchase. The Seller agrees to sell, and the --------------------- Purchaser agrees to purchase, on or before January 27, 1997 (the "Closing Date"), certain adjustable-rate conventional residential mortgage loans (the "Mortgage Loans"), having an aggregate principal balance as of the close of business on January 1, 1997 (the "Cut-off Date") of approximately $202,390,689 (the "Closing Balance"), after giving effect to all payments due on the Mortgage Loans on or before the Cut-off Date, whether or not received. SECTION 2. Mortgage Loan Schedule. The Purchaser and the Seller have ---------------------- agreed upon which of the mortgage loans owned by the Seller are to be purchased by the Purchaser pursuant to this Agreement and the Seller will prepare or cause to be prepared on or prior to the Closing Date a final schedule (the "Closing Schedule") that together shall describe such Mortgage Loans and set forth all of the Mortgage Loans to be purchased under this Agreement. The Closing Schedule will conform to the requirements set forth in this Agreement and to the definition of "Mortgage Loan Schedule" under the Pooling and Servicing Agreement. The Closing Schedule shall be used as the Mortgage Loan Schedule under the Pooling and Servicing Agreement. -2- SECTION 3. Consideration. ------------- (a) In consideration for the Mortgage Loans to be purchased hereunder, the Purchaser shall, as described in Section 8, pay to or upon the order of the Seller in immediately available funds an amount (the "Purchase Price") equal to approximately 106.6020% times the Closing Balance, plus accrued interest thereon from the Cut-off Date up to but not including the Closing Date. (b) The Purchaser or any assignee, transferee or designee of the Purchaser shall be entitled to all scheduled payments of principal due after the Cut-off Date, all other payments of principal due and collected after the Cut-off Date, and all payments of interest on the Mortgage Loans allocable to the period after the Cut-off Date. All scheduled payments of principal and interest due on or before the Cut-off Date and collected after the Cut-off Date shall belong to the Seller. (c) Pursuant to the Pooling and Servicing Agreement, the Purchaser will assign all of its right, title and interest in and to the Mortgage Loans, together with its rights under this Agreement, to the Trustee for the benefit of the related Certificateholders. SECTION 4. Transfer of the Mortgage Loans. ------------------------------ (a) Possession of Mortgage Files. The Seller does hereby sell, ---------------------------- transfer, assign, set over and convey to the Purchaser, without recourse but subject to the terms of this Agreement, all of its right, title and interest in, to and under the Mortgage Loans. The contents of each Mortgage File not delivered to the Purchaser or to any assignee, transferee or designee of the Purchaser on or prior to the Closing Date are and shall be held in trust by the Seller for the benefit of the Purchaser or any assignee, transferee or designee of the Purchaser. Upon the sale of the Mortgage Loans the ownership of each Mortgage Note, the related Mortgage and the other contents of the related Mortgage File is vested in the Purchaser and the ownership of all records and documents with respect to the related Mortgage Loan prepared by or that come into the possession of the Seller on or after the Closing Date shall immediately vest in the Purchaser and shall be delivered immediately to the Purchaser or as otherwise directed by the Purchaser. (b) Delivery of Mortgage Loan Documents. The Seller will, on or ----------------------------------- prior to the Closing Date, deliver or cause to be delivered to the Purchaser or any assignee, transferee or designee of the Purchaser each of the following documents for each Mortgage Loan: (i) the original Mortgage Note, endorsed in the following form: "Pay to the order of Norwest Bank Minnesota, National Association, as Trustee for the registered holders of Salomon Brothers Mortgage Securities VII, Inc., Asset-Backed Floating Rate Certificates, Series 1997-LB1, without recourse," with all prior and intervening endorse- -3- ments showing a complete chain of endorsement from the originator to the Person so endorsing to the Trustee; (ii) the original Mortgage with evidence of recording thereon; (iii) an original Assignment of Mortgage executed in the following form: "Norwest Bank Minnesota, National Association, as Trustee for the registered holders of Salomon Brothers Mortgage Securities VII, Inc., Asset-Backed Floating Rate Certificates, Series 1997-LB1"; (iv) the original recorded Assignment or Assignments of the Mortgage showing a complete chain of assignment from the originator to the Person assigning the Mortgage to the Trustee as contemplated by the immediately preceding clause (iii); (v) the original or copies of each assumption, modification, written assurance or substitution agreement, if any; and (vi) the original lender's title insurance policy, together with all endorsements or riders which were issued with or subsequent to the issuance of such policy, insuring the priority of the Mortgage as a first lien on the Mortgaged Property represented therein as a fee interest vested in the Mortgagor. Notwithstanding anything to the contrary contained in this Section 4, if any document referred to in Section 4(b)(ii) or 4(b)(iv) above has been submitted for recording but either (x) has not been returned from the applicable public recording office or (y) has been lost or such public recording office has retained the original of such document, the obligations of the Seller hereunder shall be deemed to have been satisfied upon (1) delivery by or on behalf of the Seller promptly upon receipt thereof to or on behalf of the Purchaser or any assignee, transferee or designee of the Purchaser of either the original or a copy of such document certified by the Originator in the case of (x) above or the public recording office in the case of (y) above to be a true and complete copy of the recorded original thereof and (2) if such copy is certified by the Originator delivery promptly upon receipt thereof of either the original or a copy of such document certified by the public recording office to be a true and complete copy of the original. In the event that the original lender's title insurance policy has not yet been issued, the Seller shall deliver to the Purchaser or any assignee, transferee or designee of the Purchaser a written commitment or interim binder or preliminary report of title issued by the title insurance or escrow company. The Seller shall deliver to the Purchaser or any assignee, transferee or designee of the Purchaser promptly upon receipt by the Seller of any such original title insurance policy or original Primary Mortgage Insurance Policy. -4- Each original document relating to a Mortgage Loan which is not delivered to the Purchaser or its assignee, transferee or designee, if held by the Seller or the Originator, shall be so held for the benefit of the Purchaser or its assignee, transferee or designee. (c) Acceptance of Mortgage Loans. The documents delivered ---------------------------- pursuant to Section 4(b) hereof shall be reviewed by the Purchaser or any assignee, transferee or designee of the Purchaser at any time before or after the Closing Date (and with respect to each document permitted to be delivered after the Closing Date within seven days of its delivery) to ascertain that all required documents have been executed and received and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule. (d) Transfer of Interest in Agreements. The Purchaser has the ---------------------------------- right to assign its interest under this Agreement, in whole or in part, to the Trustee, as may be required to effect the purposes of the Pooling and Servicing Agreement, without the consent of the Seller or the Originator, and the assignee shall succeed to the rights and obligations hereunder of the Purchaser. Any expense reasonably incurred by or on behalf of the Purchaser or the Trustee in connection with enforcing any obligations of the Seller or the Originator under this Agreement will be promptly reimbursed by the Seller or the Originator, as applicable. (e) Examination of Mortgage Files. Prior to the Closing Date, ----------------------------- the Seller shall either (i) deliver in escrow to the Purchaser or to any assignee, transferee or designee of the Purchaser, for examination, the Mortgage File pertaining to each Mortgage Loan, or (ii) make such Mortgage Files available to the Purchaser or to any assignee, transferee or designee of the Purchaser for examination. Such examination may be made by the Purchaser or the Trustee, and their respective designees, upon reasonable notice to the Seller during normal business hours before the Closing Date and within 60 days after the Closing Date. If any such person makes such examination prior to the Closing Date and identifies any Mortgage Loans that do not conform to the requirements of the Purchaser as described in this Agreement, such Mortgage Loans shall be deleted from the Closing Schedule. The Purchaser may, at its option and without notice to the Seller, purchase all or part of the Mortgage Loans without conducting any partial or complete examination. The fact that the Purchaser or any person has conducted or has failed to conduct any partial or complete examination of the Mortgage Files shall not affect the rights of the Purchaser or any assignee, transferee or designee of the Purchaser to demand repurchase or other relief as provided herein or under the Pooling and Servicing Agreement. SECTION 5. Representations, Warranties and Covenants of the ------------------------------------------------ Seller and the Originator. ------------------------- (a) The Originator hereby represents and warrants to the Seller and the Purchaser, as of the date hereof and as of the Closing Date, and covenants, that: (i) The Originator is a corporation duly organized, validly existing and -5- in good standing under the laws of the State of Delaware and is duly authorized and qualified to transact any and all business contemplated by this Agreement to be conducted by the Originator in any state in which a Mortgaged Property is located or is otherwise not required under applicable law to effect such qualification and, in any event, is in compliance with the doing business laws of any such State, to the extent necessary to ensure its ability to enforce each Mortgage Loan and to service the Mortgage Loans in accordance with the terms of the Pooling and Servicing Agreement; (ii) The Originator had the full corporate power and authority to originate, hold and sell each Mortgage Loan and has the full corporate power and authority to service each Mortgage Loan, and to execute, deliver and perform, and to enter into and consummate the transactions contemplated by this Agreement and has duly authorized by all necessary corporate action on the part of the Originator the execution, delivery and performance of this Agreement; and this Agreement, assuming the due authorization, execution and delivery thereof by the Purchaser, constitutes a legal, valid and binding obligation of the Originator, enforceable against the Originator in accordance with its terms, except to the extent that (a) the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, receivership and other similar laws relating to creditors' rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought; (iii) The execution and delivery of this Agreement by the Originator, the servicing of the Mortgage Loans by the Originator under the Pooling and Servicing Agreement, the consummation of any other of the transactions herein contemplated, and the fulfillment of or compliance with the terms hereof are in the ordinary course of business of the Originator and will not (A) result in a breach of any term or provision of the charter or by-laws of the Originator or (B) conflict with, result in a breach, violation or acceleration of, or result in a default under, the terms of any other material agreement or instrument to which the Originator is a party or by which it may be bound, or any statute, order or regulation applicable to the Originator of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Originator; and the Originator is not a party to, bound by, or in breach or violation of any indenture or other agreement or instrument, or subject to or in violation of any statute, order or regulation of any court, regulatory body, administrative agency or governmental body having jurisdiction over it, which materially and adversely affects or, to the Originator's knowledge, would in the future materially and adversely affect, (x) the ability of the Originator to perform its obligations under this Agreement or (y) the business, operations, financial condition, properties or assets of the Originator taken as a whole; (iv) No consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance by the Originator of, or compliance by the Originator with, this Agreement or the consummation of the transactions contemplated hereby, or if any such consent, approval, authorization or order is required, the Originator has obtained the same; -6- (v) The Originator is an approved seller/servicer for FNMA or FHLMC in good standing and is a HUD approved mortgagee pursuant to Section 203 of the National Housing Act; and (vi) No litigation is pending against the Originator that would materially and adversely affect the execution, delivery or enforceability of this Agreement or the ability of the Originator to service the Mortgage Loans or to perform any of its other obligations hereunder in accordance with the terms hereof; (b) The Seller hereby represents and warrants, as of the date hereof and as of the Closing Date, and covenants, that: (i) The Seller is a corporation, duly organized and validly existing and in good standing under the laws of the State of New York with full corporate power and authority to conduct its business as presently conducted by it to the extent material to the consummation of the transactions contemplated herein. The Seller had the full corporate power and authority to acquire the Mortgage Loans. The Seller has the full corporate power and authority to own the Mortgage Loans and to transfer and convey the Mortgage Loans to the Purchaser and has the full corporate power and authority to execute and deliver, engage in the transactions contemplated by, and perform and observe the terms and conditions of this Agreement; (ii) This Agreement has been duly and validly authorized, executed and delivered by the Seller, all requisite corporate action having been taken, and (assuming the due authorization, execution and delivery hereof by the Purchaser and the Originator) constitutes the valid, legal and binding obligation of the Seller, enforceable in accordance with its terms, except as such enforcement may be limited by (A) bankruptcy, insolvency, reorganization, receivership, moratorium or other similar laws relating to or affecting the rights of creditors generally, (B) general equity principles (regardless of whether such enforcement is considered in a proceeding in equity or at law) or (C) public policy considerations underlying the securities laws, to the extent that such public policy considerations limit the enforceability of the provisions of this Agreement which purport to provide indemnification from securities laws liabilities; (iii) No consent, approval, authorization or order of, registration or filing with, or notice to any governmental authority or court is required, under federal laws or the laws of the State of New York, for the execution, delivery and performance by the Seller of, or compliance by the Seller with, this Agreement or the consummation by the Seller of any other transaction contemplated hereby and by the Pooling and Servicing Agreement; provided, however, that the Seller makes no representation or warranty regarding federal or state securities laws in connection with the sale or distribution of the Certificates; -7- (iv) No certificate of an officer, statement or other information furnished in writing or report delivered by the Seller to the Purchaser, any affiliate of the Purchaser, the Certificate Insurer or the Trustee for use in connection with the purchase of the Mortgage Loans and the transactions contemplated hereunder and under the Pooling and Servicing Agreement will contain any untrue statement of a material fact, or omit a material fact necessary to make the information, certificate, statement or report not misleading in any material respect. (v) Neither the sale of the Mortgage Loans to the Purchaser, nor the execution, delivery or performance of this Agreement by the Seller, conflicts or will conflict with or results or will result in a breach of or constitutes or will constitute a default (or an event, which with notice or lapse of time or both, would constitute a default) under (A) any terms or provisions of the certificate of incorporation or by-laws of the Seller, (B) any term or provision of any material agreement, contract, instrument or indenture, to which the Seller is a party or by which the Seller or any of its property is bound, or (C) any law, rule, regulation, order, judgment, writ, injunction or decree of any court or governmental authority having jurisdiction over the Seller or any of its property, or results or will result in the creation or imposition of any lien, charge or encumbrance which would have a material adverse effect upon the Mortgage Loans or any documents or instruments evidencing or securing the Mortgage Loans; (vi) The Seller has not dealt with any broker, investment banker, agent or other person, except for the Purchaser or any of its affiliates, that may be entitled to any commission or compensation in connection with the sale of the Mortgage Loans; (vii) There is no litigation currently pending or, to the best of the Seller's knowledge, threatened against the Seller that would reasonably be expected to adversely affect the transfer of the Mortgage Loans, the issuance of the Certificates, the execution, delivery, performance or enforceability of this Agreement or that would result in a material adverse change in the financial condition of the Seller; (viii) Each Mortgage Note, each Mortgage, each Assignment and any other document required to be delivered by or on behalf of the Seller under this Agreement or the Pooling and Servicing Agreement to the Purchaser or any assignee, transferee or designee of the Purchaser for each Mortgage Loan has been or will be, in accordance with Section 4(b) hereof, delivered to the Purchaser or any such assignee, transferee or designee. With respect to each Mortgage Loan, the Seller is in possession of a complete Mortgage File in compliance with the Pooling and Servicing Agreement, except for such documents that (A) have been delivered (1) to the Purchaser or any assignee, transferee or designee of the Purchaser or (2) for recording to the appropriate public recording office and have not yet been returned or (B) are not required to be delivered to the Purchaser or any assignee, transferee or designee of the Purchaser until 90 days following the Closing Date or such later date as provided in Section 4; (ix) The transfer, assignment and conveyance of the Mortgage Notes and -8- the Mortgages by the Seller pursuant to this Agreement are not subject to the bulk transfer or any similar statutory provisions in effect in any relevant jurisdiction, except any as may have been complied with; (x) The Seller (A) is a solvent entity and is paying its debts as they become due and (B) after giving effect to the transfer of the Mortgage Loans, will be a solvent entity and will have sufficient resources to pay its debts as they become due; (xi) The form of endorsement of each Mortgage Note satisfied the requirement, if any, of endorsement in order to transfer all right, title and interest of the party so endorsing, as noteholder or assignee thereof, in and to that Mortgage Note; and each Assignment to be delivered hereunder is in recordable form and is sufficient to effect the assignment of and to transfer to the assignee thereunder the benefits of the assignor, as mortgagee or assignee thereof, under each Mortgage to which that Assignment relates; (xii) The transfer of the Mortgage Loans to the Purchaser at the Closing Date will be treated by the Seller for financial accounting and reporting purposes as a sale of assets; and (xiii) Immediately prior to the sale of the Mortgage Loans to the Purchaser as herein contemplated, the Seller had good title to, and was the sole owner of, the Mortgage Loans, and such sale validly transfers the Mortgage Loans to the Purchaser free and clear of any pledge, lien, encumbrance or security interest. (xiv) With respect to the Mortgage Loans, the Seller hereby represents and warrants, as of the date hereof and as of the Closing Date, that each Mortgage Loan constitutes a "qualified mortgage" within the meaning of Section 860(G)(a)(3) of the Code. SECTION 6. Representations and Warranties of the Originator ------------------------------------------------ Relating to the Mortgage Loans. ------------------------------ (a) Representations and Warranties as to Individual Mortgage Loans. The -------------------------------------------------------------- Originator hereby represents and warrants to the Seller and the Purchaser, that as to each Mortgage Loan as of the Closing Date: (i) The information set forth on the related Mortgage Loan Schedule with respect to each Mortgage Loan is true and correct in all material respects; (ii) Except as set forth on Exhibit 1, all payments due prior to the Cut-off Date have been made and none of the Mortgage Loans will have been contractually delinquent for more than one calendar month more than once since the origination thereof; -9- (iii) Each Mortgage is a valid and enforceable first lien on the Mortgaged Property, including all improvements thereon, subject only to (a) the lien of nondelinquent current real property taxes and assessments, (b) covenants, conditions and restrictions, rights of way, easements and other matters of public record as of the date of recording of such Mortgage, such exceptions appearing of record being acceptable to mortgage lending institutions generally or specifically reflected in the appraisal made in connection with the origination of the related Mortgage Loan, and (c) other matters to which like properties are commonly subject which do not materially interfere with the benefits of the security intended to be provided by such Mortgage; (iv) Immediately prior to the assignment of the Mortgage Loans to the Purchaser pursuant to the Purchase and Servicing Agreement, the Originator had good title to, and was the sole legal and beneficial owner of, each Mortgage Loan free and clear of any pledge, lien, encumbrance or security interest and has full right and authority, subject to no interest or participation of, or agreement with, any other party to sell and assign the same; (v) To the best of the Originator's knowledge, there is no delinquent tax or assessment lien against any Mortgaged Property; (vi) There is no valid offset, defense or counterclaim to any Mortgage Note or Mortgage, including the obligation of the Mortgagor to pay the unpaid principal of or interest on such Mortgage Note, nor will the operation of any of the terms of the Mortgage Note and the Mortgage, or the exercise of any right thereunder, render the 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; (vii) To the best of the Originator's knowledge, there are no mechanics' liens or claims for work, labor or material affecting any Mortgaged Property which are or may be a lien prior to, or equal with, the lien of the related Mortgage, except those which are insured against by the title insurance policy referred to in (xi) below; (viii) To the best of the Originator's knowledge, each Mortgaged Property is free of material damage and is in average repair; (ix) Each Mortgage Loan at origination complied in all material respects with applicable local, state and federal laws, including, without limitation, usury, equal credit opportunity, real estate settlement procedures, truth-in-lending and disclosure laws, and consummation of the transactions contemplated hereby will not involve the violation of any such laws; -10- (x) Neither the Originator nor any prior holder of any Mortgage has modified the Mortgage in any material respect (except that a Mortgage Loan may have been modified by a written instrument which has been recorded, if necessary, to protect the interests of the Seller and the Purchaser and which has been delivered to the Custodian); satisfied, cancelled or subordinated such Mortgage in whole or in part; released the related Mortgaged Property in whole or in part from the lien of such Mortgage; or executed any instrument of release, cancellation, modification or satisfaction with respect thereto; (xi) A lender's policy of title insurance together with a condominium endorsement and extended coverage endorsement, if applicable, and an adjustable rate mortgage endorsement in an amount at least equal to the Cut-off Date Principal Balance of each Mortgage Loan or a commitment (binder) to issue the same was effective on the date of the origination of each Mortgage Loan, each such policy is valid and remains in full force and effect, the transfer of the related Mortgage Loan to the Seller and Purchaser will not affect the validity or enforceability of such policy and each such policy was issued by a title insurer qualified to do business in the jurisdiction where the Mortgaged Property is located and acceptable to FNMA or FHLMC and in a form acceptable to FNMA or FHLMC, which policy insures the Originator and successor owners of indebtedness secured by the insured Mortgage, as to the first priority lien of the Mortgage; to the best of the Originator's knowledge, no claims have been made under such mortgage title insurance policy and no prior holder of the related Mortgage, including the Originator, has done, by act or omission, anything which would impair the coverage of such mortgage title insurance policy; (xii) Each Mortgage Loan was originated by the Originator or by a savings and loan association, savings bank, commercial bank, credit union, insurance company or similar institution which is supervised and examined by a federal or state authority, or by a mortgagee approved by the Secretary of Housing and Urban Development pursuant to sections 203 and 211 of the National Housing Act and, if originated on behalf of the Originator by a Person other than the Originator, is subject to the same standards and procedures used by the Originator in originating mortgage loans directly; (xiii) With respect to each Mortgage Loan on each Adjustment Date, the Mortgage Interest Rate will be adjusted to equal the Index plus the Margin, rounded to the nearest 0.125%, subject to the Periodic Rate Cap, the Maximum Rate and the Minimum Rate. Except for Balloon Loans, the related Mortgage Note is payable on the first day of each month in self-amortizing monthly installments of principal and interest, with interest payable in arrears, and requires a Monthly Payment which is sufficient to fully amortize the outstanding principal balance of the Mortgage Loan over its remaining term and to pay interest at the applicable Mortgage Interest Rate. No Mortgage Loan is subject to negative amortization. All rate adjustments have been performed in accordance with the terms of the related Mortgage Note or subsequent modifications, if any. -11- (xiv) To the best of the Originator's knowledge, all of the improvements which were included for the purpose of determining the Appraised Value of the Mortgaged Property lie wholly within the boundaries and building restriction lines of such property, and no improvements on adjoining properties encroach upon the Mortgaged Property; (xv) All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of the Mortgaged Property and, with respect to the use and occupancy of the same, including but not limited to certificates of occupancy, have been made or obtained from the appropriate authorities and the Mortgaged Property is lawfully occupied under applicable law; (xvi) All parties which have had any interest in the Mortgage, whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period in which they held and disposed of such interest, were) in compliance with any and all applicable licensing requirements of the laws of the state wherein the Mortgaged Property is located; (xvii) The Mortgage Note and the related Mortgage are genuine, and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance with its terms and with applicable laws. All parties to the Mortgage Note and the Mortgage had legal capacity to execute the Mortgage Note and the Mortgage and each Mortgage Note and Mortgage have been duly and properly executed by such parties; (xviii) The proceeds of each Mortgage Loan have been fully disbursed, there is no requirement for future advances thereunder and any and all requirements as to completion of any on-site or off-site improvements and as to disbursements of any escrow funds therefor have been complied with. All costs, fees and expenses incurred in making, closing or recording the Mortgage Loans were paid; (xix) The related Mortgage contains customary and enforceable provisions which render the rights and remedies of the holder thereof adequate for the realization against the Mortgaged Property of the benefits of the security, including, (i) in the case of a Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. There is no homestead or other exemption available to the Mortgagor which would interfere with the right to sell the Mortgaged Property at a trustee's sale or the right to foreclose the Mortgage; (xx) With respect to each Mortgage constituting 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 such Mortgage, and no fees or expenses are or will become payable by the Purchaser to the trustee under the deed of trust, except in connection with a trustee's sale after default by the Mortgagor; (xxi) Each Mortgage Note and each Mortgage is in substantially one of the -12- forms attached hereto as Exhibit 2; (xxii) There exist no deficiencies with respect to escrow deposits and payments, if such are required, for which customary arrangements for repayment thereof have not been made, and no escrow deposits or payments of other charges or payments due the Originator have been capitalized under the Mortgage or the related Mortgage Note; (xxiii) The origination, underwriting and collection practices used by the Originator with respect to each Mortgage Loan have been in all respects legal, proper, prudent and customary in the mortgage servicing business; (xxiv) There is no pledged account or other security other than real estate securing the Mortgagor's obligations; (xxv) No Mortgage Loan has a shared appreciation feature, or other contingent interest feature; (xxvi) No Mortgage Loan provides for primary mortgage insurance; (xxvii) The improvements upon each Mortgaged Property are covered by a valid and existing hazard insurance policy with a generally acceptable carrier that provides for fire extended coverage and such other hazards as are customary in the area where the Mortgaged Property is located representing coverage not less than the lesser of the outstanding principal balance of the related Mortgage Loan or the minimum amount required to compensate for damage or loss on a replacement cost basis. All individual insurance policies and flood policies referred to in clause (xxviii) below contain a standard mortgagee clause naming the Originator or the original mortgagee, and its successors in interest, as mortgagee, and the Originator has received no notice that any premiums due and payable thereon have not been paid; the Mortgage obligates the Mortgagor thereunder to maintain all such insurance, including flood insurance, at the Mortgagor's cost and expense, and upon the Mortgagor's failure to do so, authorizes the holder of the Mortgage to obtain and maintain such insurance at the Mortgagor's cost and expense and to seek reimbursement therefor from the Mortgagor; (xxviii) If the Mortgaged Property is in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, a flood insurance policy in a form meeting the requirements of the current guidelines of the Flood Insurance Administration is in effect with respect to such Mortgaged Property with a generally acceptable carrier in an amount representing coverage not less than the least of (A) the original outstanding principal balance of the Mortgage Loan, (B) the minimum amount required to compensate for damage or loss on a replacement cost basis or (C) the maximum amount of insurance that is available under the Flood Disaster Protection Act of 1973; -13- (xxix) There is no default, breach, violation or event of acceleration existing under the Mortgage or the related Mortgage Note; and the Originator has not waived any default, breach, violation or event of acceleration; (xxx) Each Mortgaged Property is improved by a one- to four- family residential dwelling, including condominium units and dwelling units in planned unit developments, which, to the best of the Originator's knowledge, does not include cooperatives or mobile homes and does not constitute other than real property under state law; (xxxi) There is no obligation on the part of the Originator or any other party under the terms of the Mortgage or related Mortgage Note to make payments in addition to those made by the Mortgagor; (xxxii) Any future advances made prior to the Cut-off Date have been consolidated with the outstanding principal amount secured by the Mortgage, and the secured principal amount, as consolidated, bears a single interest rate and single repayment term reflected on the related Mortgage Loan Schedule. The consolidated principal amount does not exceed the original principal amount of the Mortgage Loan; (xxxiii) Each Mortgage Loan was underwritten in accordance with the Originator's underwriting guidelines as described in the Prospectus Supplement; (xxxiv) The Mortgage File contains an appraisal which was performed by an appraiser who satisfied, and which was conducted in accordance with, all of the applicable requirements of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended; (xxxv) None of the Mortgage Loans is a graduated payment mortgage loan, nor is any Mortgage Loan subject to a temporary buydown or similar arrangement; (xxxvi) With respect to each Mortgage Loan, no loan junior in lien priority to such Mortgage Loan and secured by the related Mortgaged Property was originated by the Originator at the time of origination of such Mortgage Loan; (xxxvii) The characteristics of the Mortgage Loans as set forth on Exhibit 1 hereto are true and correct in all material respects; (xxxviii) The Mortgage contains an enforceable provision for the acceleration of the payment of the unpaid principal balance of the Mortgage Loan in the event that the Mortgaged Property is sold or transferred without the prior written consent of the mortgagee -14- thereunder; (xxxix) The Originator has not advanced funds, or induced, solicited or knowingly received any advance of funds by a party other than the mortgagor, directly or indirectly, for the payment of any amount required under the mortgage loan; and (xl) There is no proceeding pending, or to best of the Originator's knowledge threatened, for the total or partial condemnation of the Mortgaged Property or the taking by eminent domain of any Mortgaged Property. SECTION 7. Repurchase Obligation for Defective Documentation and ----------------------------------------------------- for Breach of Representation and Warranty. ----------------------------------------- (a) The representations and warranties contained in Section 6 shall not be impaired by any review and examination of loan files or other documents evidencing or relating to the Mortgage Loans or any failure on the part of the Seller or the Purchaser to review or examine such documents and shall inure to the benefit of any assignee, transferee or designee of the Purchaser, including the Trustee for the benefit of holders of asset-backed floating rate certificates evidencing an interest in all or a portion of the Mortgage Loans and the Certificate Insurer. With respect to the representations and warranties contained herein which are made to the knowledge or the best of knowledge of the Originator or the Seller, as the case may be, or as to which the Originator or the Seller, as the case may be, has no knowledge, if it is discovered that the substance of any such representation and warranty was inaccurate as of the date such representation and warranty was made or deemed to be made, and such inaccuracy materially and adversely affects the value of the related Mortgage Loan or the interest therein of the Purchaser or the Purchaser's assignee, transferee or designee, then notwithstanding the lack of knowledge by the Originator or the Seller, as the case may be, with respect to the substance of such representation and warranty being inaccurate at the time the representation and warranty was made, the Originator or the Seller, as the case may be, shall take such action described in the following paragraph in respect of such Mortgage Loan. -15- Upon discovery by the Originator, the Seller, the Certificate Insurer, the Purchaser or any assignee, transferee or designee of the Purchaser of any materially defective document in, or that any material document was not transferred by the Seller, and not transferred by the Originator to the Seller (as listed on the Trustee's Preliminary Exception Report), as part of, any Mortgage File or of a breach of any of the representations and warranties contained in Section 5(a) or Section 6 that materially and adversely affects the value of any Mortgage Loan or the interest therein of the Certificate Insurer, the Purchaser or the Purchaser's assignee, transferee or designee, the party discovering the breach shall give prompt written notice to the others. Within ninety (90) days of its discovery or its receipt of notice of any such missing documentation which was not transferred to the Seller as described above or materially defective documentation or any such breach of a representation and warranty the Originator promptly shall deliver such missing document or cure such defect or breach in all material respects, or in the event the Originator cannot deliver such missing document or such defect or breach cannot be cured, the Originator shall, within 90 days of its discovery or receipt of notice, either (i) repurchase the affected Mortgage Loan at the Purchase Price (as such term is defined in the Pooling and Servicing Agreement) or (ii) pursuant to the provisions of the Pooling and Servicing Agreement, cause the removal of such Mortgage Loan from the Trust Fund and substitute one or more Qualified Substitute Mortgage Loans. With respect to Mortgage Loans where the Mortgage File is missing a material document that was transferred from the Originator to the Seller or upon discovery by the Originator, the Seller, the Certificate Insurer, the Purchaser or any assignee, transferee or designee of the Purchaser of a breach of any of the representations and warranties contained in Section 5(b)(xi), (xiii) and (xiv) that materially and adversely affects the value of any Mortgage Loan or the interest therein of the Certificate Insurer, the Purchaser or the Purchaser's assignee, transferee or designee, the party discovering such breach shall give prompt written notice to the others. Within ninety (90) days of its discovery or its receipt of notice of any such missing document or any such breach of a representation and warranty the Seller promptly shall deliver such missing document or cure such defect or breach in all material respects, or in the event the Seller cannot deliver such missing document or such defect or breach cannot be cured, the Seller shall, within 90 days of its discovery or receipt of notice, either (i) repurchase the affected Mortgage Loan at the Purchase Price (as such term is defined in the Pooling and Servicing Agreement) or (ii) pursuant to the provisions of the Pooling and Servicing Agreement, cause the removal of such Mortgage Loan from the Trust Fund and substitute one or more Qualified Substitute Mortgage Loans. The Originator or the Seller, as the case may be, shall amend the Closing Schedule to reflect the withdrawal of such Mortgage Loan from the terms of this Agreement and the Pooling and Servicing Agreement and the addition, if any, of a Qualified Substitute Mortgage Loan. The Originator or the Seller, as the case may be, shall deliver to the Purchaser such amended Closing Schedule and shall deliver such other documents as are required by this Agreement or the Pooling and Servicing Agreement within five (5) days of any such amendment. Any repurchase pursuant to this Section 7(a) shall be accomplished by deposit in the Collection Account of the amount of the Purchase Price in accordance with Section 2.03 of the Pooling and Servicing Agreement. Any repurchase or substitution required by this Section shall be made in a manner consistent with Section 2.03 of the Pooling and Servicing Agreement. -16- In addition, upon discovery by the Seller, the Purchaser, the Certificate Insurer, or any assignee, transferee or designee of the Purchaser that any Mortgage Loan does not constitute a "qualified mortgage" within the meaning of Section 860G(a)(3) of the Code, the party discovering the breach shall give prompt written notice within two Business Days to the others. Within ninety (90) days of its discovery or its receipt of notice, the Seller promptly shall either (i) repurchase the affected Mortgage Loan at the Purchase Price (as such term is defined in the Pooling and Servicing Agreement) or (ii) pursuant to the provisions of the Pooling and Servicing Agreement, cause the removal of such Mortgage Loan from the Trust Fund and substitute one or more Qualified Substitute Mortgage Loans. (b) It is understood and agreed that the obligations of the Originator or the Seller, as the case may be, set forth in this Section 7 to cure, repurchase or substitute for a defective Mortgage Loan constitute the sole remedies of the Seller, the Purchaser and the Certificate Insurer against the Originator respecting a missing or defective document or a breach of the representations and warranties contained in Section 5(a) or Section 6. It is understood and agreed that the obligations of the Seller set forth in this Section 7 to repurchase or substitute for a Mortgage Loan as to which a material document is missing constitute the sole remedies of the Purchaser against the Seller respecting a missing document. SECTION 8. Closing; Payment for the Mortgage Loans. The closing of --------------------------------------- the purchase and sale of the Mortgage Loans shall be held at the New York City office of Thacher Proffitt & Wood at 10:00 AM New York City time on the Closing Date. The closing shall be subject to each of the following conditions: (a) All of the representations and warranties of the Seller under this Agreement shall be true and correct in all material respects as of the date as of which they are made and no event shall have occurred which, with notice or the passage of time, would constitute a default under this Agreement; (b) All of the representations and warranties of the Originator under this Agreement shall be true and correct in all material respects as of the date as of which they are made and no event shall have occurred which, with notice or the passage of time, would constitute a default under this Agreement; (c) The Purchaser shall have received, or the attorneys of the Purchaser shall have received in escrow (to be released from escrow at the time of closing), all Closing Documents as specified in Section 9 of this Agreement, in such forms as are agreed upon and acceptable to the Purchaser, duly executed by all signatories other than the Purchaser as required pursuant to the respective -17- terms thereof; (d) The Seller shall have delivered or caused to be delivered and released to the Purchaser or to its designee, all documents (including without limitation, the Mortgage Loans) required to be so delivered by the Purchaser pursuant to Section 2.01 of the Pooling and Servicing Agreement; and (e) All other terms and conditions of this Agreement shall have been complied with. Subject to the foregoing conditions, the Purchaser shall deliver or cause to be delivered to the Seller on the Closing Date, against delivery and release by the Seller to the Trustee of all documents required pursuant to the Pooling and Servicing Agreement, the consideration for the Mortgage Loans as specified in Section 3 of this Agreement, by delivery to the Seller of the Purchase Price in immediately available funds. SECTION 9. Closing Documents. Without limiting the generality of ----------------- Section 8 hereof, the closing shall be subject to delivery of each of the following documents: (a) An Officers' Certificate of the Seller, dated the Closing Date, upon which the Originator, the Purchaser, MBIA Insurance Corporation ("MBIA") and Salomon Brothers Inc (the "Underwriter") may rely, in the form of Exhibit 3 hereto, and attached thereto copies of the certificate of incorporation, by-laws and certificate of good standing of the Seller under the laws of New York; (b) An Officers' Certificate of the Seller, dated the Closing Date, upon which the Purchaser, MBIA and the Underwriter may rely, in the form of Exhibit 4 hereto, with respect to certain facts regarding the sale of the Mortgage Loans by the Seller to the Purchaser; (c) An Opinion of Counsel of the Seller, dated the Closing Date and addressed to the Originator, the Purchaser, MBIA and the Underwriter, substantially in the form attached hereto as Exhibit 5; (d) An Officer's Certificate of the Originator, dated the Closing Date, upon which the Seller, the Purchaser, MBIA and the Underwriter may rely, in the form of Exhibit 6 hereto, and attached thereto copies of the certificate of incorporation, by-laws and certificate of good standing of the Originator under the laws of Delaware; (e) An opinion of Counsel of the Originator, dated the Closing Date and -18- addressed to the Seller, the Purchaser, MBIA and the Underwriter, substantially in the form attached hereto as Exhibit 7; (f) Such opinions of counsel as the Rating Agencies or the Trustee may request in connection with the sale of the Mortgage Loans by the Seller to the Purchaser or the Seller's execution and delivery of, or performance under, this Agreement; (g) A letter from Deloitte & Touche L.L.P., certified public accountants, dated the date hereof and to the effect that they have performed certain specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature set forth in the Purchaser's Prospectus Supplement, dated January 22, 1997 in the Summary under the subheading "The Mortgage Pool" and under the captions "The Mortgage Pool" and "Pooling and Servicing Agreement -- The Originator and Master Servicer" agrees with the records of the Originator; (h) The Originator shall deliver to the Seller for inclusion in the Prospectus Supplement for Salomon Brothers Mortgage Securities VII, Inc., Asset-Backed Floating Rate Certificates, Series 1997-LB1, under the captions "The Mortgage Pool -- Underwriting Standards; Representations" and "Pooling and Servicing Agreement -- The Originator and Master Servicer" , or for inclusion in other offering material such publicly available information regarding the Originator, its financial condition and its mortgage loan delinquency, foreclosure and loss experience, underwriting standards, lending activities and loan sales, production, and servicing and collection practices, and any similar nonpublic, unaudited financial information; (i) A letter from Deloitte & Touche L.L.P., certified public accountants, dated the date hereof and to the effect that they have performed certain specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature set forth in the Purchaser's Prospectus Supplement, dated January 22, 1997 under the captions "Summary of Prospectus Supplement", "Yield on the Certificates" and "Description of the Certificates" agrees with the records of the Seller; and (j) Such further information, certificates, opinions and documents as the -19- Purchaser, MBIA or the Underwriter may reasonably request. SECTION 10. Costs. The Originator shall pay (or shall reimburse the ----- Purchaser or any other Person to the extent that the Purchaser or such other Person shall pay) all costs and expenses incurred in connection with the transfer and delivery of the Mortgage Loans, including without limitation, recording fees, fees for title policy endorsements and continuations and the fees for recording Assignments of Mortgage, the fees and expenses of the Originator's in-house accountants and in-house attorneys, the costs and expenses incurred in connection with producing the Originator's loan loss, foreclosure and delinquency experience, and the costs and expenses incurred in connection with obtaining the documents referred to in Sections 9(d) and 9(e). The Seller shall pay (or shall reimburse the Purchaser or any other Person to the extent that the Purchaser or such other Person shall pay) the costs and expenses of printing (or otherwise reproducing) and delivering this Agreement, the Pooling and Servicing Agreement, the Certificates, the prospectus, prospectus supplement, and private placement memorandum relating to the Certificates, the Insurance Agreement and other related documents, the initial fees, costs and expenses of the Trustee, the initial fees, costs and expenses of MBIA, the fees and expenses of the Seller's counsel in connection with the preparation of all documents relating to the securitization of the Mortgage Loans, the filing fee charged by the Securities and Exchange Commission for registration of the Certificates, the cost of outside special counsel that may be required for the Originator, the cost of obtaining the documents referred to in Section 9(g) and the fees charged by any rating agency to rate the Certificates. All other costs and expenses in connection with the transactions contemplated hereunder shall be borne by the party incurring such expense. SECTION 11. Servicing. The Seller has represented to the Purchaser --------- that the Mortgage Loans are being serviced under the Purchase and Servicing Agreement with the Originator, and it is understood and agreed by and among the Seller, the Originator and the Purchaser that the interim servicing arrangements under the Purchase and Servicing Agreement with the Originator will be superseded by the servicing arrangements set forth in the Pooling and Servicing Agreement. SECTION 12. Mandatory Delivery; Grant of Security Interest. The sale ---------------------------------------------- and delivery on the Closing Date of the Mortgage Loans described on the Mortgage Loan Schedule in accordance with the terms and conditions of this Agreement is mandatory. It is specifically understood and agreed that each Mortgage Loan is unique and identifiable on the date hereof and that an award of money damages would be insufficient to compensate the Purchaser for the losses and damages incurred by the Purchaser in the event of the Seller's failure to deliver the Mortgage Loans on or before the Closing Date. The Seller hereby grants to the Purchaser a lien on and a continuing security interest in the Seller's interest in each Mortgage Loan and each document and instrument evidencing each such Mortgage Loan to secure the performance by the Seller of its obligation hereunder, and the Seller agrees that it holds such Mortgage Loans in custody for the Purchaser, subject to the Purchaser's (i) right, prior to the Closing Date, to reject any Mortgage -20- Loan to the extent permitted by this Agreement, and (ii) obligation to deliver or cause to be delivered the consideration for the Mortgage Loans pursuant to Section 8 hereof. Any Mortgage Loans rejected by the Purchaser shall concurrently therewith be released from the security interest created hereby. The Seller agrees that, upon acceptance of the Mortgage Loans by the Purchaser or its designee and delivery of payment to the Seller, that its security interest in the Mortgage Loans shall be released. All rights and remedies of the Purchaser under this Agreement are distinct from, and cumulative with, any other rights or remedies under this Agreement or afforded by law or equity and all such rights and remedies may be exercised concurrently, independently or successively. Notwithstanding the foregoing, if on the Closing Date, each of the conditions set forth in Section 8 hereof shall have been satisfied and the Purchaser shall not have paid or caused to be paid the Purchase Price, or any such condition shall not have been waived or satisfied and the Purchaser determines not to pay or cause to be paid the Purchase Price, the Purchaser shall immediately effect the redelivery of the Mortgage Loans, if delivery to the Purchaser has occurred and the security interest created by this Section 12 shall be deemed to have been released. SECTION 13. Notices. All demands, notices and communications ------- hereunder shall be in writing and shall be deemed to have been duly given if personally delivered to or mailed by registered mail, postage prepaid, or transmitted by telex or telegraph and confirmed by a similar mailed writing, if to the Purchaser, addressed to the Purchaser at Seven World Trade Center, New York, New York 10048, Attention: Mortgage Finance Group, or such other address as may hereafter be furnished to the Seller and the Originator in writing by the Purchaser; if to the Seller, addressed to the Seller at Seven World Trade Center, New York, New York 10048, Attention: Mortgage Finance Group, or to such other address as the Seller may designate in writing to the Purchaser and the Originator; and if to the Originator, addressed to the Originator at 1100 Town and Country Road, Orange, California 92668, Attention: Del Dillingham, Esq., or to such other address as the Originator may designate in writing to the Purchaser and the Seller. SECTION 14. Severability of Provisions. Any part, provision, -------------------------- representation or warranty of this Agreement which is prohibited or which is held to be void or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any part, provision, representation or warranty of this Agreement which is prohibited or unenforceable or is held to be void or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction as to any Mortgage Loan shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereto waive any provision of law which prohibits or renders void or unenforceable any provision hereof. SECTION 15. Agreement of Parties. The Originator, the Seller and the -------------------- Purchaser -21- each agree to execute and deliver such instruments and take such actions as either of the others may, from time to time, reasonably request in order to effectuate the purpose and to carry out the terms of this Agreement and the Pooling and Servicing Agreement. SECTION 16. Survival. (a) The Seller agrees that the -------- representations, warranties and agreements made by it herein and in any certificate or other instrument delivered pursuant hereto shall be deemed to be relied upon by the Purchaser and the Certificate Insurer, notwithstanding any investigation heretofore or hereafter made by the Purchaser or the Certificate Insurer or on either of their behalf, and that the representations, warranties and agreements made by the Seller herein or in any such certificate or other instrument shall survive the delivery of and payment for the Mortgage Loans and shall continue in full force and effect, notwithstanding any restrictive or qualified endorsement on the Mortgage Notes and notwithstanding subsequent termination of this Agreement, the Pooling and Servicing Agreement or the Trust Fund. (b) The Originator agrees that the representations, warranties and agreements made by it herein and in any certificate or other instrument delivered pursuant hereto shall be deemed to be relied upon by the Seller, the Purchaser and the Certificate Insurer, notwithstanding any investigation heretofore or hereafter made by the Seller, the Purchaser or the Certificate Insurer or on the behalf of any of them, and that the representations, warranties and agreements made by the Originator herein or in any such certificate shall continue in full force and effect, notwithstanding subsequent termination of this Agreement, the Pooling and Servicing Agreement or the Trust Fund. SECTION 17. Indemnification. (a) The Originator will indemnify and --------------- hold harmless the Purchaser and each person, if any, who controls the Purchaser within the meaning of the Securities Act of 1933, as amended (the "1933 Act"), against any losses, claims, damages or liabilities to which such Purchaser or such controlling person may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Prospectus Supplement dated January 22, 1997 (the "Prospectus Supplement"), as amended or supplemented, relating to the public offering of the Certificates, representing interests in the Mortgage Loans, or in any other offering document (the "Private Placement Memorandum") relating to the offering by the Purchaser or an affiliate thereof, of the Class CE Certificates, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading to the extent that such untrue statement or alleged untrue statement or omission or alleged omission relates to information set forth in the Prospectus Supplement on the front cover in the fifth paragraph (except the last sentence thereof), in the Summary under the subheadings "Originator," "Master Servicer" and "The Mortgage Pool" and under the captions "The Mortgage Pool -- General", "-- Underwriting Standards; Representations" and "Pooling and Servicing Agreement -- The Originator and Master Servicer" (and substantially -22- identical information approved by the Originator set forth in the Private Placement Memorandum relating to the Class CE Certificates) (collectively, the "Originator Information") and will reimburse the Purchaser and each such controlling person for any legal or other expenses reasonably incurred by such Purchaser and each such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action. The Originator's liability under this Section 17 shall be in addition to any other liability the Originator may otherwise have. (b) The Purchaser agrees to indemnify and hold harmless the Originator, its officers and its directors, and each person who controls the Seller within the meaning of either the 1933 Act or the 1934 Act against any and all losses, claims, damages or liabilities, joint or several, to which they may become subject under the 1933 Act, the 1934 Act, or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based in whole or in part upon any untrue statement or alleged untrue statement of a material fact contained in the Prospectus Supplement, the Prospectus or Private Placement Memorandum, or in any revision or amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading, as of the date thereof and as of the Closing Date, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made therein in reliance upon and in conformity with the Originator's Information and will reimburse the Originator and each such controlling person for any legal or other expenses reasonably incurred by such Originator and each such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action. The Purchaser's liability under this Section 17 shall be in addition to any other liability the Purchaser may otherwise have. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to either Section 17(a) or 17(b) above, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the reasonable fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the reasonable fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same -23- jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be designated in writing by the Purchaser, in the case of parties indemnified pursuant to clause 17(a) and by the Originator, in the case of parties indemnified pursuant to clause 17(b). The indemnifying party may, at its option, at any time upon written notice to the indemnified party, assume the defense of any proceeding and may designate counsel satisfactory to the indemnified party in connection therewith provided that the counsel so designated would have no actual or potential conflict of interest in connection with such representation. Unless it shall assume the defense of any proceeding, the indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. If the indemnifying party assumes the defense of any proceeding, it shall be entitled to settle such proceeding with the consent of the indemnified party or, if such settlement provides for release of the indemnified party in connection with all matters relating to the proceeding which have been asserted against the indemnified party in such proceeding by the other parties to such settlement, without the consent of the indemnified party. (d) If the indemnification provided for in this Section 17 is unavailable to an indemnified party under Section 17(a) or 17(b) hereof or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities, in such proportion as is appropriate to reflect the relative fault of the indemnified and indemnifying parties in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the indemnified and indemnifying parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Purchaser and the Originator agree that it would not be just and equitable if contribution pursuant to Section 17 were determined by pro rata allocation or by any other method of allocation which does not take account of the considerations referred to in Section 17(d) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in this Section 17 shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim, except where the indemnified party is required to bear such expenses pursuant to this Section 17, which expenses the indemnifying party shall pay as and when incurred, at the request of the indemnified party, to the extent that the indemnifying party will be ultimately obligated to pay such expenses. In the event that any expenses so paid by the indemnifying party are subsequently determined to not be required -24- to be borne by the indemnifying party hereunder, the party which received such payment shall promptly refund the amount so paid to the party which made such payment. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) The indemnity and contribution agreements contained in this Section 17 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by the Purchaser or any person controlling the Purchaser or by or on behalf of the Originator and their respective directors or officers or any person controlling the Originator, and (iii) acceptance of and payment for any of the Certificates. SECTION 18. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS, DUTIES, ------------- OBLIGATIONS AND RESPONSIBILITIES OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS (INCLUDING THE CHOICE OF LAW PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK. THE PARTIES HERETO INTEND THAT THE PROVISIONS OF SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW SHALL APPLY TO THIS AGREEMENT. SECTION 19. Miscellaneous. This Agreement may be executed in two or ------------- more counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. This Agreement supersedes all prior agreements and understandings relating to the subject matter hereof. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. It is the express intent of the parties hereto that the conveyance of the Mortgage Loans by the Seller to the Purchaser as provided in Section 4 hereof be, and be construed as, a sale of the Mortgage Loans by the Seller to the Purchaser and not as a pledge of the Mortgage Loans by the Seller to the Purchaser to secure a debt or other obligation of the Seller. However, in the event that, notwithstanding the aforementioned intent of the parties, the Mortgage Loans are held to be property of the Seller, then, (a) it is the express intent of the parties that such conveyance be deemed a pledge of the Mortgage Loans by the Seller to the Purchaser to secure a debt or other obligation of the Seller and (b) (1) this Agreement shall also be deemed to be a security agreement within the meaning of Articles 8 and 9 of the New York Uniform Commercial Code; (2) the conveyance provided for in Section 4 hereof shall be deemed to be a grant by the Seller to the Purchaser of a security interest in all of the Seller's right, title and interest in and to the Mortgage Loans and all -25- amounts payable to the holders of the Mortgage Loans in accordance with the terms thereof and all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, instruments, securities or other property, including without limitation all amounts, other than investment earnings, from time to time held or invested in the Collection Account whether in the form of cash, instruments, securities or other property; (3) the possession by the Purchaser or its agent of Mortgage Notes, the related Mortgages and such other items of property that constitute instruments, money, negotiable documents or chattel paper shall be deemed to be "possession by the secured party" for purposes of perfecting the security interest pursuant to Section 9-305 of the New York Uniform Commercial Code; and (4) notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed notifications to, or acknowledgments, receipts or confirmations from, financial intermediaries, bailees or agents (as applicable) of the Purchaser for the purpose of perfecting such security interest under applicable law. Any assignment of the interest of the Purchaser pursuant to Section 4(d) hereof shall also be deemed to be an assignment of any security interest created hereby. The Seller and the Purchaser shall, to the extent consistent with this Agreement, take such actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in the Mortgage Loans, such security interest would be deemed to be a perfected security interest of first priority under applicable law and will be maintained as such throughout the term of this Agreement and the Pooling and Servicing Agreement. SECTION 20. Third Party Beneficiary. The Certificate Insurer shall ----------------------- be a third party beneficiary hereof and shall be entitled to enforce the provisions hereof as if a party hereto, except the provisions of Section 17. -1- IN WITNESS WHEREOF, the Purchaser, the Seller and the Originator have caused their names to be signed by their respective officers thereunto duly authorized as of the date first above written. SALOMON BROTHERS MORTGAGE SECURITIES VII, INC. By:___________________________________________ Name: Susan S. Woodbury Title: Assistant Vice President SALOMON BROTHERS REALTY CORP. By:___________________________________________ Name: Susan S. Woodbury Title: Authorized Agent LONG BEACH MORTGAGE COMPANY By:___________________________________________ Name: Jeffery A Sorensen Title: Vice President EXHIBIT 1 EX-2.3 4 LONG BEACH MORTGAGE CO. AGREEMENT DATED 9/30/98 ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT ------------------------------------------------ This is an Assignment, Assumption and Recognition Agreement made this 30th day of September, 1998, among Salomon Brothers Realty Corp. (the "Seller"), Wilshire Real Estate Investment Trust Inc. (the "Purchaser") and Long Beach Mortgage Company (the "Company"). In consideration of the mutual promises contained herein the parties hereto agree that the mortgage loans listed on EXHIBIT ONE annexed hereto purchased by the Seller from the Company in 1997 (the "1997 Mortgage Loans"), the mortgage loans listed on EXHIBIT TWO annexed hereto purchased by the Seller from the Company on February 20, 1998 (the "February Mortgage Loans"), the mortgage loans listed on EXHIBIT THREE annexed hereto purchased by the Seller from the Company on March 2, 1998 (the "March Mortgage Loans") and the mortgage loans listed on EXHIBIT FOUR annexed hereto purchased by the Seller from the Company on April 14, 1998 (the "April Mortgage Loans", collectively with the 1997 Mortgage Loans, the February Mortgage Loans and the March Mortgage Loans, the "Mortgage Loans") now serviced by the Company for the Seller pursuant to the Master Mortgage Loan Purchase and Servicing Agreement (the "Purchase Agreement"), dated as of June 1, 1997, between the Seller and the Company shall be subject to the terms of this Agreement. WARRANTIES ---------- 1. (a) The Company and the Seller warrant and represent that attached hereto as EXHIBIT FIVE is a true, accurate and complete copy of the Purchase Agreement, which Purchase Agreement is in full force and effect as of the date hereof and which has not been amended or modified in any respect nor has any notice of termination been given thereunder. (b) The Seller warrants and represents that it is the lawful owner of the Mortgage Loans with the full right to transfer the Mortgage Loans free from any claim or encumbrance whatsoever. (c) The Seller hereby warrants and represents to the Purchaser that no event has occurred from the date of origination, August 20, 1998, September 2, 1998 and September 30, 1998, respectively, with respect to the 1997 Mortgage Loans, the February Mortgage Loans, the March Mortgage Loans and the April Mortgage Loans, respectively, to the date hereof that would result in any representation and warranty made pursuant to Section 3.01 of the Purchase Agreement being untrue if made as of the date hereof with respect to the Mortgage Loans (other than any statistical information with respect to the Mortgage Loans and any changes due to the receipt of payments on the Mortgage Loans, adjustment of the Mortgage Interest Rates on the Mortgage Loans and similar changes, which information as reflected on EXHIBIT ONE, EXHIBIT TWO, EXHIBIT THREE and EXHIBIT FOUR hereto is accurate in all material respects as of September 1, 1998). In the event of a breach of the foregoing representation and warranty which materially and adversely affects the value of any Mortgage Loan or the Purchaser's interest therein, the Seller shall repurchase such affected Mortgage Loan at a repurchase price equal to the unpaid principal balance of such Mortgage Loan plus accrued interest at the net Mortgage Interest Rate from the paid through date of the Mortgage Loan to the first day of the month following the month in which such repurchase is effected; provided, that to the extent that the Company would otherwise be required to repurchase a Mortgage Loan due to the breach of any of the representations and warranties that are made or deemed to have been made by the Company (other than any statistical information with respect to the Mortgage Loans and any changes due to the receipt of payments on the Mortgage Loans, adjustment of the Mortgage Interest Rates on the Mortgage Loans and similar changes) after the date of origination with respect to the 1997 Mortgage Loans, after August 20, 1998 with respect to the February Mortgage Loans, after September 2, 1998 with respect to the March Mortgage Loans and after September 30, 1998 with respect to the April Mortgage Loans, then the Company (and not the Seller) shall be required to repurchase the affected Mortgage Loan, and the Purchaser shall have no remedy against the Seller. It is understood and agreed that the obligations of the Seller set forth in this Section 1(c) to repurchase an affected Mortgage Loan constitutes the sole remedy of the Purchaser respecting a breach of the representation and warranty made in this Section 1(c). ASSIGNMENT AND ASSUMPTION ------------------------- 2. The Seller hereby assigns to the Purchaser (i) all of its right, title and interest in and to the Mortgage Loans and (ii) all of its right, title, and interest in, to, and under the Purchase Agreement to the extent of the Mortgage Loans, and the Purchaser hereby assumes all of the Seller's obligations under the Purchase Agreement with respect to the Mortgage Loans from and after the date hereof, and the parties hereto agree that the Seller shall be relieved and released of all of its obligations under the Purchase Agreement to the extent of the Mortgage Loans from and after the date hereof. RECOGNITION OF THE PURCHASER ---------------------------- 3. From and after the date hereof, the Company shall recognize the Purchaser as the owner of the Mortgage Loans and will service the Mortgage Loans for the Purchaser as if the Purchaser and the Company had entered into a separate servicing agreement for the servicing of the Mortgage Loans in the form of the Purchase Agreement, the terms of which are incorporated herein by reference. It is the intention of the Seller, the Company and the Purchaser that this Agreement will be a separate and distinct agreement, and the entire agreement, between the Company and the Purchaser to the extent of the Mortgage Loans and shall be binding upon and for the benefit of the respective successors and assigns of the parties hereto. ACKNOWLEDGEMENT --------------- 4. It is hereby acknowledged and agreed by the Purchaser, the Seller and the Company that the assignment of the Seller's rights under this Agreement to the extent of the Mortgage Loans and the Purchaser's assumption of such rights shall not entitle the Purchaser to purchase mortgage loans pursuant to the Purchase Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. SALOMON BROTHERS REALTY CORP., Seller By:____________________________ Name:__________________________ Title:_________________________ WILSHIRE REAL ESTATE INVESTMENT TRUST, INC. Purchaser By:____________________________ Name:__________________________ Title:_________________________ LONG BEACH MORTGAGE COMPANY Company By:____________________________ Name:__________________________ Title:_________________________ EXECUTION COPY MASTER MORTGAGE LOAN PURCHASE AND SERVICING AGREEMENT Dated and effective as of June 1, 1997 SALOMON BROTHERS REALTY CORP. (Purchaser) and LONG BEACH MORTGAGE COMPANY (Company) Fixed Rate and Adjustable Rate Mortgage Loans Flow Delivery Program TABLE OF CONTENTS _________________ ARTICLE I DEFINITIONS....................................................... 1 Adjustable Rate Mortgage Loan.......................................................... 1 Adjustment Date........................................................ 1 Agreement.............................................................. 2 Appraised Value........................................................ 2 Assignment and Conveyance............................................................. 2 Assignment of Mortgage................................................. 2 Available Remittance Amount................................................................. 2 Balloon Loan........................................................... 2 Business Day........................................................... 2 Closing Date........................................................... 2 Commitment Letters..................................................... 2 Company................................................................ 2 Confirmation........................................................... 3 Custodial Account...................................................... 3 Custodial Agreement.................................................... 3 Custodian.............................................................. 3 Customary Servicing Procedures......................................... 3 Cut-off Date........................................................... 3 Cut-off Date Principal Balance......................................... 3 Deleted Mortgage Loan.................................................. 3 Determination Date..................................................... 3 Due Date............................................................... 3 Due Period............................................................. 4 Eligible Account....................................................... 4 Escrow Account......................................................... 4 Escrow Payments........................................................ 4 Event of Default....................................................... 4 FDIC................................................................... 4 FHLMC.................................................................. 4 Fidelity Bond.......................................................... 4 Final Closing Date..................................................... 4 Final Due Diligence Date............................................... 4 Final Closing Date Principal Balance................................... 4 FNMA................................................................... 4 HUD.................................................................... 5 Index.................................................................. 5 Initial Closing Date................................................... 5 Initial Custodial Account Deposit...................................... 5 Liquidated Mortgage Loan............................................... 5
i Liquidation Proceeds................................................... 5 Loan-to-Value Ratio.................................................... 5 LTV.................................................................... 5 Margin................................................................. 5 Maximum Rate........................................................... 5 Minimum Rate........................................................... 5 Monthly Payment........................................................ 6 Mortgage............................................................... 6 Mortgage File.......................................................... 6 Mortgage Interest Rate................................................. 6 Mortgage Loan.......................................................... 6 Mortgage Loan Documents................................................ 6 Mortgage Loan Package.................................................. 6 Mortgage Loan Remittance Rate.......................................... 6 Mortgage Loan Schedule................................................. 6 Mortgage Note.......................................................... 8 Mortgaged Property..................................................... 8 Mortgagor.............................................................. 8 Net Liquidation Proceeds............................................... 8 Net REO Disposition Proceeds........................................... 8 Nonrecoverable Advance................................................. 8 Officers' Certificate.................................................. 8 Opinion of Counsel..................................................... 8 OTS.................................................................... 8 P&I Advance............................................................ 8 Pass-Through Transfer.................................................. 9 Periodic Rate Cap...................................................... 9 Person................................................................. 9 Prepayment Interest Excess............................................. 9 Prepayment Interest Shortfall.......................................... 9 Principal Prepayment................................................... 9 Purchaser.............................................................. 9 Purchase Price......................................................... 9 Qualified Substitute Mortgage Loan..................................... 9 Realized Loss.......................................................... 10 Reconstitution Agreements.............................................. 10 Reconstitution Date.................................................... 10 Remittance Date........................................................ 11 REO Account............................................................ 11 REO Disposition........................................................ 11 REO Disposition Proceeds............................................... 11 REO Property........................................................... 11 Servicer............................................................... 11 Servicing Advances..................................................... 11
ii Servicing Compensation.................................................. 11 Servicing Fee........................................................... 11 Servicing Fee Rate...................................................... 11 Servicing Officer....................................................... 12 Stated Principal Balance................................................ 12 Sub-Servicer............................................................ 12 ARTICLE II AGREEMENT TO PURCHASE; MORTGAGE LOAN SCHEDULE;PURCHASE PRICE; ------------------------------------------------------------ CONVEYANCE OF MORTGAGE LOANS;POSSESSION OF MORTGAGE FILES; BOOK AND ------------------------------------------------------------------- RECORDS;DELIVERY OF MORTGAGE LOAN DOCUMENTS............................. 13 ------------------------------------------- Section 2.01 Agreement to Purchase; Mortgage Loan Schedules; Purchase -------------------------------------------------------- Price..................................................... 13 ----- Section 2.02 Conveyance of Mortgage Loans; Possession of Mortgage ---------------------------------------------------- Files..................................................... 14 ----- Section 2.03 Books and Records......................................... 14 ----------------- Section 2.04 Delivery of Mortgage Loan Documents....................... 15 ----------------------------------- Section 2.05 Underwriting: Review of the Mortgage Files................ 16 ------------------------------------------ ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY; REPURCHASE OF ------------------------------------------------------------ MORTGAGE LOANS; CLOSING; CLOSING DOCUMENTS; COSTS....................... 18 ------------------------------------------------- Section 3.01 Individual Mortgage Loans ....................... 18 ------------------------- Section 3.02 Company Representations................................... 23 ----------------------- Section 3.03 Repurchase and Substitution............................... 25 --------------------------- Section 3.04 Closing................................................... 27 ------- Section 3.05 Closing Documents......................................... 27 ----------------- Section 3.06 Costs..................................................... 29 ----- ARTICLE IV ADMINISTRATION AND SERVICING OF MORTGAGE LOANS.................... 30 ---------------------------------------------- Section 4.01 Company to Act as Servicer................................ 30 -------------------------- Section 4.02 Liquidation of Mortgage Loans............................. 30 ----------------------------- Section 4.03 Collection of Mortgage Loan Payments...................... 31 ------------------------------------ Section 4.04 Establishment of Custodial Account; Deposits in Custodial --------------------------------------------------------- Account................................................... 31 ------- Section 4.05 Withdrawals From the Custodial Account.................... 32 -------------------------------------- Section 4.06 Establishment of Escrow Account; Deposits in Escrow --------------------------------------------------- Account................................................... 34 ------- Section 4.07 Withdrawals From Escrow Account........................... 34 ------------------------------- Section 4.08 Payment of Taxes, Insurance and Other Charges............. 35 --------------------------------------------- Section 4.09 Transfer of Accounts...................................... 35 -------------------- Section 4.10 Maintenance of Hazard Insurance........................... 35 ------------------------------- Section 4.11 Fidelity Bond; Errors and Omissions Insurance............. 36 --------------------------------------------- Section 4.12 Title, Management and Disposition of REO Property......... 37 ------------------------------------------------- Section 4.13 Liquidation Reports....................................... 38 ------------------- Section 4.14 Delivery of Documents in Possession of Custodian.......... 39 ------------------------------------------------ Section 4.15 Notification of Adjustments............................... 39 --------------------------- ARTICLE V PAYMENTS TO THE PURCHASER.......................................... 40 -------------------------
iii Section 5.01 Distributions............................................. 40 ------------- Section 5.02 Statements to the Purchaser............................... 40 --------------------------- Section 5.03 Advances by the Company................................... 42 ----------------------- Section 5.04 Prepayment Interest Shortfalls............................ 42 ------------------------------ ARTICLE VI GENERAL SERVICING PROCEDURE....................................... 43 --------------------------- Section 6.01 Assumption Agreements..................................... 43 --------------------- Section 6.02 Satisfaction of Mortgages and Release of Mortgage Files... 43 ------------------------------------------------------- Section 6.03 Servicing Compensation.................................... 44 ---------------------- Section 6.04 Annual Statement as to Compliance......................... 44 --------------------------------- Section 6.05 Annual Independent Public Accountants' Servicing Report... 44 ------------------------------------------------------- Section 6.06 Option to Acquire Servicing; Continuation of Company as ------------------------------------------------------- Servicer.................................................. 45 Section 6.07 Purchaser's Right to Examine Company Records.............. 45 -------------------------------------------- ARTICLE VII.................................................................. 46 REPORTS TO BE PREPARED BY COMPANY............................................ 46 - --------------------------- Section 7.01 Company Shall Provide Access and Information as Reasonably ---------------------------------------------------------- Required.................................................. 46 -------- Section 7.02 Financial Statements...................................... 46 -------------------- ARTICLE VIII................................................................. 47 REMOVAL OF MORTGAGE LOANS FROM INCLUSION UNDER THE AGREEMENT UPON A WHOLE - ------------------------------------------------------------------------- LOAN TRANSFER OR A PASS-THROUGH TRANSFER ON ONE OR MORE RECONSTITUTION ---------------------------------------------------------------------- DATES................................................................... 47 ----- Section 8.01 Removal of Mortgage Loans from Inclusion Under this Agreement Upon a Whole Loan Transfer or a Pass-Through Transfer on One or More Reconstitution Dates.............. 47 ------------------------- ARTICLE IX THE COMPANY....................................................... 50 ----------- Section 9.01 Indemnification; Third Party Claims....................... 50 ----------------------------------- Section 9.02 Merger or Consolidation of the Company.................... 50 -------------------------------------- Section 9.03 Limitation on Liability of the Company and Others..........51 ------------------------------------------------- Section 9.04 Company Not to Resign..................................... 51 --------------------- Section 9.05 No Transfer of Servicing; Sub-Servicing Agreement......... 51 ------------------------------------------------- ARTICLE X DEFAULT............................................................ 53 ------- Section 10.01 Events of Default..........................................53 ----------------- Section 10.02 Waiver of Defaults........................................ 54 ------------------ Section 10.03 Servicer to Retain Previous Entitlement................... 54 --------------------------------------- ARTICLE XI TERMINATION....................................................... 55 ----------- Section 11.01 Termination............................................... 55 -----------
iv ARTICLE XII.................................................................. 56 MANDATORY DELIVERY; GRANT OF A SECURITY INTEREST............................. 56 - ------------------------------------------------ Section 12.01 Mandatory Delivery; Grant of Security Interest............ 56 ARTICLE XIII................................................................. 57 MISCELLANEOUS PROVISIONS..................................................... 57 - ------------------------ Section 13.01 Successor to the Company.................................. 57 ------------------------ Section 13.02 Amendment................................................. 58 --------- Section 13.03 Recordation of Agreement.................................. 58 ------------------------ Section 13.04 Recordation of Assignment of Mortgages.................... 58 -------------------------------------- Section 13.05 Duration of Agreement..................................... 58 --------------------- Section 13.06 Governing Law............................................. 58 ------------- Section 13.07 General Interpretive Principles........................... 59 ------------------------------- Section 13.08 Reproduction of Documents................................. 59 ------------------------- Section 13.09 Notices................................................... 60 ------- Section 13.10 Severability of Provisions................................ 60 -------------------------- Section 13.11 No Partnership............................................ 60 -------------- Section 13.12 Execution; Successors and Assigns......................... 60 ---------------------------------
v Exhibits - -------- EXHIBIT A Contents of Mortgage Files EXHIBIT B Custodial Account Letter Agreement EXHIBIT C Escrow Account Letter Agreement EXHIBIT D REO Account Letter Agreement EXHIBIT E Assignment and Conveyance EXHIBIT F Mortgage Loan Schedule EXHIBIT G Form of Mortgage Note and Mortgage/Deed of Trust EXHIBIT H Company's Underwriting Guidelines EXHIBIT I [Intentionally Deleted] EXHIBIT J Officer's Certificate EXHIBIT K Resolutions EXHIBIT L Security Release Certification EXHIBIT M Representations and Warranties with Respect to the Pool Characteristics of each Mortgage Loan Package EXHIBIT N Commitment Letters EXHIBIT O Sub-Servicing Agreement vi This is a Master Mortgage Loan Purchase and Servicing Agreement, dated and effective as of June 1, 1997, and is executed between Salomon Brothers Realty Corp., as purchaser (hereinafter, the "Purchaser"), and Long Beach Mortgage Company, as seller and servicer (hereinafter, the "Company"). The Purchaser has agreed to purchase from the Company and the Company has agreed to sell to the Purchaser Mortgage Loans, as described herein and in the related Confirmations, on a servicing retained basis that shall be delivered in groups of whole loans on various Closing Dates as provided herein. All of the Mortgage Loans are secured by first mortgages or deeds of trust on residential dwellings situated within the State(s) indicated on the Mortgage Loan Schedule for the related Mortgage Loan Package, which is to be annexed hereto on the related Closing Date as part of Exhibit F. The Purchaser and the Company wish to prescribe the manner of purchase by the Purchaser of the Mortgage Loans and the management, servicing and control of the Mortgage Loans. The Purchaser has purchased certain Mortgage Loans from the Company pursuant to the Commitment Letters and such Mortgage Loans will be governed by the terms of this Agreement. Following its purchase of the Mortgage Loans from the Company, the Purchaser desires to sell some or all of the Mortgage Loans to one or more purchasers as a whole loan transfer in a whole loan or participation format or a public or private mortgage-backed securities transaction. In consideration of the premises and the mutual agreements hereinafter set forth, the Purchaser and the Company agree as follows: ARTICLE I DEFINITIONS ----------- Whenever used herein, the following words and phrases, unless the context otherwise requires, shall have the following meanings: "Adjustable Rate Mortgage Loan": A Mortgage Loan which bears interest at a rate which adjusts from time to time in accordance with the terms of the Mortgage Note. "Adjustment Date": As to each Adjustable Rate Mortgage Loan, the date on which the Mortgage Interest Rate adjusts as provided in the related Mortgage Note. "Agreement": This Master Mortgage Loan Purchase and Servicing Agreement, including all exhibits hereto, and all amendments hereof and supplements hereto. "Appraised Value": With respect to a Mortgage Loan, the value of the related Mortgaged Property based upon the appraisal made at the origination of the Mortgage Loan or the sale price of the Mortgaged Property at the origination of the Mortgage Loan, whichever is less. "Assignment and Conveyance": An assignment and conveyance of the Mortgage Loans purchased on a Closing Date in the form attached hereto as Exhibit E. "Assignment of Mortgage": An assignment of the Mortgage, notice of transfer or equivalent instrument, in recordable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect of record the sale of the Mortgage Loan to the Purchaser. "Available Remittance Amount": With respect to each Remittance Date, (a) all amounts deposited in the Custodial Account as of the close of business on the preceding Determination Date (net of charges against or withdrawals from the Custodial Account pursuant to Section 4.05 except 4.05(i)), plus (b) all amounts, if any, which the Company is obligated to deposit pursuant to Section 5.03, Section 5.04 or Section 4.12 and minus (c) any amounts attributable to Monthly Payments collected but due on a Due Date or Dates subsequent to the Due Period ending on the first day of the month of the Remittance Date, which amounts shall be remitted on the Remittance Date next succeeding the Due Period for such amounts. "Balloon Loan": Any Mortgage Loan that by its original terms or by virtue of any modification entered into as of the Closing Date provides for an amortization schedule extending beyond its stated maturity date. "Business Day": Any day other than (i) a Saturday or Sunday, or (ii) a day on which banking or savings and loan institutions in the State of California or the State of New York are authorized or obligated by law or executive order to be closed. "Closing Date": With respect to any Mortgage Loan Package, the date on which the Purchaser shall purchase from the Company and the Company shall sell to the Purchaser the Mortgage Loans listed on the related Mortgage Loan Schedule. "Commitment Letters": The letter agreements between the Purchaser and the Company, including all exhibits thereto, a copy of each of which is attached hereto as Exhibit N. -3- "Company": Long Beach Mortgage Company, or its successor in interest or any successor to the Company under this Agreement appointed as herein provided. "Confirmation": With respect to the purchase and sale of any Mortgage Loan Package, the agreement between the Purchaser and the Company setting forth the variances, if any, of the terms and conditions of such purchase and sale from the terms and conditions set forth in the related Commitment Letter. "Custodial Account": The separate Eligible Account or Accounts created and maintained pursuant to Section 4.04. "Custodial Agreement": The agreement among the Purchaser, the Company and the Custodian for the retention of each Mortgage Note, Mortgage, Assignment of Mortgage and other documents. "Custodian": The custodian under the Custodial Agreement, initially Texas Commerce Bank, N.A., or its successor. "Customary Servicing Procedures": Procedures (including collection procedures) that the Company customarily employs and exercises in servicing and administering mortgage loans similar to the Mortgage Loans for its own account and which are in accordance with accepted mortgage servicing practices of prudent lending institutions servicing mortgage loans similar to the Mortgage Loans, giving due consideration to the Purchaser's reliance on the Company. "Cut-off Date": With respect to any Mortgage Loan, the first day of the month in which the related Closing Date occurs. "Cut-off Date Principal Balance": As to any Mortgage Loan, the scheduled unpaid principal balance thereof as of the close of business on the related Cut-off Date after application of all payments of principal due on or prior thereto, whether or not received, and all Principal Prepayments received on or prior to the related Cut-off Date, but without giving effect to any installments of principal received in respect of Due Dates after the related Cut-off Date; provided that with respect to any Mortgage Loan originated after the related Cut-off Date, the "Cut-off Date Principal Balance" shall mean the original principal balance thereof. "Deleted Mortgage Loan": A Mortgage Loan replaced or to be replaced with a Qualified Substitute Mortgage Loan. "Determination Date": The 20th day (or if such 20th day is not a Business Day, the Business Day immediately preceding such 20th day) of the month of the related Remittance Date. -4- "Due Date": The first day of the month of the related Remittance Date. "Due Period": With respect to each Remittance Date, the applicable Due Period shall be the period beginning on the second day of the month preceding the month of the Remittance Date, and ending on the first day of the month of the Remittance Date. "Eligible Account": (i) an account or accounts maintained with a depository institution the short-term debt obligations of which are rated A-1 or better by Standard & Poor's Corporation, or (ii) an account or accounts the deposits in which are fully insured by the FDIC, or (iii) a trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity. "Escrow Account": The separate Eligible Account or Accounts created and maintained pursuant to Section 4.06. "Escrow Payments": The amounts constituting ground rents, taxes, assessments, water rates, mortgage insurance premiums, fire and hazard insurance premiums and other payments required to be escrowed by the Mortgagor with the mortgagee pursuant to any Mortgage Loan. "Event of Default": Any one of the conditions or circumstances enumerated in Section 10.01. "FDIC": The Federal Deposit Insurance Corporation or any successor. "FHLMC": The Federal Home Loan Mortgage Corporation or any successor. "Fidelity Bond": A fidelity bond required to be obtained by the Company pursuant to Section 4.11. "Final Closing Date": With respect to each Mortgage Loan, the Final Closing Date set forth in the related Commitment Letter. "Final Due Diligence Date": With respect to each Mortgage Loan, the date which is 30 days after the Final Closing Date. "Final Closing Date Principal Balance": The aggregate unpaid principal balance of the related Mortgage Loans as of the Final Closing Date. "Final Settlement Date": With respect to each Mortgage Loan, the Final Settlement Date set forth in the related Commitment Letter. -5- "FNMA": The Federal National Mortgage Association or any successor. "HUD": The United States Department of Housing and Urban Development or any successor organization. "Index": As to each Adjustable Rate Mortgage Loan, the index for the adjustment of the Mortgage Interest Rate set forth as such in the related Mortgage Note. Should the Index become unavailable, the Purchaser, with the consent of the Servicer, will select a new index that is based upon comparable information. "Initial Closing Date": July 30, 1997. "Initial Custodial Account Deposit": An amount equal to, with respect to each Mortgage Loan, the amount of all payments in respect of such Mortgage Loan received by the Servicer before the applicable Closing Date in respect of Due Dates after the applicable Cut-off Date. "Liquidated Mortgage Loan": Any defaulted Mortgage Loan as to which the Company has determined that all amounts which it reasonably and in good faith expects to recover have been recovered from or on account of such Mortgage Loan. "Liquidation Proceeds": Cash (other than REO Disposition Proceeds), including but not limited to insurance proceeds, and any other amounts (including the sales price) received in connection with the liquidation of a defaulted Mortgage Loan, whether through the sale or assignment of the Mortgage Loan, trustee's sale, foreclosure sale or otherwise. "Loan-to-Value Ratio" or "LTV": With respect to any Mortgage Loan, the original principal balance of such Mortgage Loan divided by the Appraised Value. "Margin": With respect to each Adjustable Rate Mortgage Loan, the fixed amount set forth in the related Mortgage Note to be added to the Index on each Adjustment Date in accordance with the terms of the related Mortgage Note to determine the Mortgage Interest Rate for such Adjustable Rate Mortgage Loan. The Margin as to each Adjustable Rate Mortgage Loan is set forth on the related Mortgage Loan Schedule. "Maximum Rate": With respect to each Adjustable Rate Mortgage Loan, the rate per annum set forth in the related Mortgage Note as the maximum Mortgage Interest Rate thereunder. The Maximum Rate as to each Mortgage Loan is set forth on the related Mortgage Loan Schedule. "Minimum Rate": With respect to each Adjustable Rate Mortgage Loan, the rate per annum set forth in the related Mortgage Note as the minimum Mortgage Interest Rate -6- thereunder. The Minimum Rate as to each Mortgage Loan is set forth on the related Mortgage Loan Schedule. "Monthly Payment": The scheduled monthly payment of principal and interest on a Mortgage Loan which is payable by a Mortgagor from time to time under the related Mortgage Note. "Mortgage": The mortgage, deed of trust or other instrument creating a first lien on or first priority ownership interest in an estate in fee simple in real property securing a Mortgage Note. "Mortgage File": The items referred to in Exhibit A annexed hereto pertaining to a particular Mortgage Loan (and any additional documents required to be added to the Mortgage File pursuant to this Agreement). "Mortgage Interest Rate": The annual rate at which interest accrues on any Mortgage Loan in accordance with the provisions of the related Mortgage Note. The Mortgage Interest Rate as of the Cut-off Date as to each Mortgage Loan is set forth on the related Mortgage Loan Schedule. "Mortgage Loan": An individual mortgage loan which is the subject of this Agreement, each mortgage loan originally sold and subject to this Agreement being identified on the related Mortgage Loan Schedule, including without limitation the contents of the Mortgage File, the Monthly Payments, Principal Prepayments, Liquidation Proceeds, insurance proceeds, condemnation proceeds, REO Disposition Proceeds and all other rights, benefits, proceeds and obligations arising from or in connection with such mortgage loan after the related Cut-off Date. "Mortgage Loan Documents": The documents set forth in Section 2.04. "Mortgage Loan Package": The Mortgage Loans listed on a Mortgage Loan Schedule. "Mortgage Loan Remittance Rate": As to each Mortgage Loan, the annual rate of interest remitted to the Purchaser, which shall be equal to the related Mortgage Interest Rate minus the related Servicing Fee Rate. "Mortgage Loan Schedule": With respect to each Mortgage Loan Package, the schedule of Mortgage Loans subject to this Agreement and identified as being part of such Mortgage Loan Package to be attached hereto as part of Exhibit F on the related Closing Date, which schedule (as amended from time to time to reflect the addition of any Qualified Substitute Mortgage Loans) shall have attached thereto a Prepayment Charge summary, if applicable, in the form mutually agreed upon by the parties, and shall set forth the following information with respect to each Mortgage Loan in such Mortgage Loan Package: -7- (i) the loan number and name of the Mortgagor; (ii) the address, including zip codes, of the Mortgaged Property; (iii) the initial Mortgage Interest Rate and the current Mortgage Interest Rate; (iv) the maturity date; (v) the principal balance at origination; (vi) the first payment date; (vii) the type of Mortgaged Property; (viii) the Monthly Payment in effect as of the related Cut-off Date; (ix) the principal balance as of the related Cut-off Date as used in determining the Cut-off Date Principal Balance; (x) the Loan-to-Value Ratio at origination; (xi) with respect to each Adjustable Rate Mortgage Loan, the Margin; (xii) with respect to each Adjustable Rate Mortgage Loan, the next Adjustment Date after the related Cut-off Date; (xiii) with respect to each Adjustable Rate Mortgage Loan, the Minimum Rate and Maximum Rate; (xiv) the occupancy status; (xv) the Appraised Value of the Mortgaged Property at origination; (xvi) a code indicating the Company's credit grade category of the Mortgage Loan at origination; (xv) a code indicating whether such Mortgage Loan is a step- down mortgage loan; (xvi) a documentation code; (xvii) a code indicating the existence of a prepayment penalty; -8- (xviii) a code indicating the purpose of the Mortgage Loan; (xix) the interest paid to date as of the related Cut-off Date; (xx) a code indicating the type of Prepayment Charge, if applicable; and (xxi) the expiration date of the Prepayment Charge, if applicable. "Mortgage Note": The note or other evidence of the indebtedness of a Mortgagor secured by a Mortgage. "Mortgaged Property": The real property securing repayment of the debt evidenced by a Mortgage Note, consisting of a single parcel of property considered to be real estate under the law of the state in which it is located. "Mortgagor": The obligor on a Mortgage Note. "Net Liquidation Proceeds": Liquidation Proceeds net of the sum of any reimbursements to the Servicer for such Liquidated Mortgage Loan made therefrom pursuant to Section 4.05(ii). "Net REO Disposition Proceeds": REO Disposition Proceeds net of the sum of any unreimbursed Servicing Advances, accrued and unpaid servicing fees and P&I Advances with respect to the related Mortgage Loan and reimbursements to the Servicer for such REO Disposition and the related Mortgage Loan made therefrom pursuant to Section 4.05(ii). "Nonrecoverable Advance": As of any date of determination, any P&I Advance previously made or any P&I Advance or Servicing Advance proposed to be made in respect of a Mortgage Loan which, in the good faith judgment of the Company, will not or, in the case of a proposed advance, would not be ultimately recoverable pursuant to Section 4.05(ii). The determination by the Company that it has made a Nonrecoverable Advance or that any proposed advance would constitute a Nonrecoverable Advance shall be evidenced by an Officer's Certificate delivered to the Purchaser on or before the Determination Date in any month. "Officers' Certificate": A certificate signed by the Chairman of the Board, or the Vice Chairman of the Board, the President, a Vice President, an Assistant Vice President, the Treasurer, the Secretary, one of the Assistant Treasurers or Assistant Secretaries or other officer whose position is of equivalent responsibility of the Company, and delivered to the Purchaser as required by this Agreement. -9- "Opinion of Counsel": A written opinion of counsel, who may be in-house counsel of the Company, reasonably acceptable to the Purchaser. "OTS": The Office of Thrift Supervision or any successor. "P&I Advance": Any advance made pursuant to Section 5.03. "Pass-Through Transfer": The sale or transfer of some or all of the Mortgage Loans by the Purchaser to a trust to be formed as part of a publicly issued or privately placed mortgage-backed securities transaction. "Periodic Rate Cap": With respect to each Adjustable Rate Mortgage Loan, the provision in each Mortgage Note that limits permissible increases and decreases in the Mortgage Interest Rate on any Adjustment Date to not more than one percentage point. "Person": Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Prepayment Charge": Each prepayment charge payable in connection with Principal Prepayments on the Mortgage Loans transferred and assigned to the Purchaser, the Prepayment Charges so held being identified in the Mortgage Loan Schedule. "Prepayment Interest Excess": With respect to any Remittance Date after the first Remittance Date for the related Mortgage Loan, for each Mortgage Loan that was the subject of a Principal Prepayment in full from the first day through the twentieth day of the month of such Remittance Date, any payment of interest received in connection therewith (net of the Servicing Fee) representing interest accrued for any portion of such month of receipt after the Due Date. "Prepayment Interest Shortfall": With respect to each Principal Prepayment received after the previous Determination Date during the calendar month preceding the month of a Remittance Date (or in the case of such first Remittance Date, from the related Cut-off Date), an amount to be deposited in the Custodial Account prior to the related Remittance Date, to the extent of and limited to the amount of the Servicing Fee received in respect of the related Due Period equal to the difference between (a) 30 days' interest on the Stated Principal Balance as of the beginning of the Due Period at the Mortgage Loan Remittance Rate and (b) the amount of interest actually received on each such Mortgage Loan for such Due Period net of the Servicing Fee. "Principal Prepayment": Any payment or other recovery of principal on a Mortgage Loan which is received in advance of its scheduled Due Date, including any prepayment penalty or premium thereon, if any, and is not accompanied by an amount of interest -10- representing scheduled interest due on any date or dates in any month or months subsequent to the month of prepayment. "Purchaser": Salomon Brothers Realty Corp. "Purchase Price": With respect to any Mortgage Loan, the price paid by the Purchaser to the Company in connection with the purchase and sale of such Mortgage Loan on the related Closing Date, calculated in accordance with Section 2.01. "Qualified Substitute Mortgage Loan": A mortgage loan substituted by the Company for a Deleted Mortgage Loan which must, on the date of such substitution, (i) have an outstanding principal balance, after deduction of all scheduled payments due and received in the month of substitution (or in the case of a substitution of more than one mortgage loan for a Deleted Mortgage Loan, an aggregate principal balance), not in excess of the Stated Principal Balance of the Deleted Mortgage Loan and not less than ninety percent (90%) of the Stated Principal Balance of the Deleted Mortgage Loan (the amount of any shortfall to be distributed by the Company to the Purchaser in the month of substitution), (ii) have a remaining term to maturity not greater than (and not more than one year less than) that of the Deleted Mortgage Loan, (iii) have a Mortgage Interest Rate not less than (and not more than one percentage point greater than) the Mortgage Interest Rate of the Deleted Mortgage Loan, (iv) have a Servicing Fee Rate as provided herein for all Mortgage Loans subject to this Agreement, (v) with respect to each Adjustable Rate Mortgage Loan, have a Minimum Rate not less than that of the Deleted Mortgage Loan, (vi) with respect to each Adjustable Rate Mortgage Loan, have a Maximum Rate not less than that of the Deleted Mortgage Loan and not more than two (2) percentage points above that of the Deleted Mortgage Loan, (vii) with respect to each Adjustable Rate Mortgage Loan, have a Margin not less than that of the Deleted Mortgage Loan, (viii) with respect to each Adjustable Rate Mortgage Loan, have a Periodic Rate Cap equal to that of the Deleted Mortgage Loan, (ix) have a Loan-to-Value Ratio at the time of substitution equal to or less than the Loan-to-Value Ratio of the Deleted Mortgage Loan at the time of substitution, (x) with respect to each Adjustable Rate Mortgage Loan, have the same Adjustment Date as that of the Deleted Mortgage Loan, (xi) with respect to each Adjustable Rate Mortgage Loan, have an Index as provided herein for all Adjustable Rate Mortgage Loans subject to this Agreement, (xii) comply as of the date of substitution with each representation and warranty set forth in Sections 3.01 and 3.02 and (xiii) be in the same credit grade category as the Deleted Mortgage Loan. "Realized Loss": As to any Liquidated Mortgage Loan, the amount, if any, by which (i) the Stated Principal Balance (including any accrued and unpaid interest) thereof as of the date of liquidation exceeds (ii) Net Liquidation Proceeds realized thereon. "Reconstitution Agreements": The agreement or agreements entered into by the Company and the Purchaser and/or certain third parties on the Reconstitution Date or Dates with respect to any or all of the Mortgage Loans serviced hereunder, in connection with a Whole Loan Transfer or a Pass-Through Transfer as set forth in Article XII, including, but not limited to, a pooling and servicing agreement substantially in the form previously entered into by -11- the Company in connection with public offerings of pass-through securities backed by mortgage loans similar to the Mortgage Loans and sold by the Company or such other form that has been entered into between the Purchaser (or an affiliate of the Purchaser) and the Company since the Initial Closing Date. Such agreement or agreements shall prescribe the rights and obligations of the Company in servicing the related Mortgage Loans. "Reconstitution Date": With respect to any Mortgage Loan, the date on which such Mortgage Loan serviced under this Agreement shall be removed from this Agreement and reconstituted as part of a Whole Loan Transfer or Pass- Through Transfer pursuant to Article 12 hereof. On such date, the Mortgage Loans transferred shall cease to be covered by this Agreement and the Company shall cease to service those Mortgage Loans under this Agreement in accordance with the termination provisions set forth in Article XII hereof. "Remittance Date": The 24th day of any month, beginning in the month next following the month in which the related Cut-off Date occurs, or if such 24th day is not a Business Day, the first Business Day immediately following. "REO Account": The Eligible Account or Accounts maintained pursuant to Section 4.12. "REO Disposition": The final sale by the Company on behalf of the Purchaser of a Mortgaged Property acquired by the Company in foreclosure or by deed in lieu of foreclosure. "REO Disposition Proceeds": All amounts received with respect to an REO Disposition pursuant to Section 4.12. "REO Property": A Mortgaged Property acquired by the Company on behalf of the Purchaser through foreclosure or by deed in lieu of foreclosure, as described in Section 4.12. "Servicer": Long Beach Mortgage Company, or any successor appointed as herein provided. "Servicing Advances": All customary, reasonable and necessary "out-of- pocket" costs and expenses incurred in the performance by the Company of its servicing obligations, including, but not limited to, the cost of (a) payments made by the Company pursuant to Section 4.08, (b) the preservation, restoration and protection of the Mortgaged Property, (c) any enforcement or judicial proceedings, including foreclosures and (d) the management and liquidation of the Mortgaged Property if the Mortgaged Property is acquired in satisfaction of the Mortgage. "Servicing Compensation": The Servicing Fee and other amounts to which the Servicer is entitled pursuant to Section 6.03. -12- "Servicing Fee": With respect to each Mortgage Loan, the amount of the annual fee to be paid to the Servicer, which shall, for a period of one full month, be equal to one-twelfth of the product of (a) the Servicing Fee Rate and (b) the principal balance of such Mortgage Loan. Such fee shall be payable monthly, computed on the basis of the same principal amount and period respecting which any related interest payment on a Mortgage Loan is computed. The Servicing Fee is limited to, and payable solely from, full payments of the interest portion (including recoveries with respect to interest from Liquidation Proceeds, condemnation proceeds, REO Disposition Proceeds and all other proceeds) of such Monthly Payments collected by the Company, or as otherwise provided under Section 4.05. "Servicing Fee Rate": 0.50% per annum. "Servicing Officer": Any officer of the Company involved in, or responsible for, the administration and servicing of the Mortgage Loans whose name appears on a list of servicing officers furnished to the Purchaser by the Company, as such list may from time to time be amended. "Stated Principal Balance": As to each Mortgage Loan, (i) the Cut-off Date Principal Balance of the Mortgage Loan, minus (ii) all amounts previously distributed to the Purchaser with respect to the Mortgage Loan representing payments or recoveries of principal, or advances in lieu thereof. "Sub-Servicer": Any Person with which the Company has entered into a sub-servicing agreement and which shall be (A) either (i) an institution the accounts of which are insured by the FDIC or (ii) another entity that engages in the business of originating mortgage loans, and in either case shall be authorized to transact business in the state or states in which the related Mortgaged Properties it is to service are situated, if and to the extent required by applicable law to enable the sub-servicer to perform its obligations hereunder and under the sub-servicing agreement, and in either case shall be a FHLMC or FNMA approved mortgage servicer and (B) approved by the Purchaser. "Subservicing Agreement": As applicable, the Master Sub-Servicing Agreement between Long Beach Mortgage Company (formerly known as Ameriquest Mortgage Corporation), as Master Servicer, and Ameriquest Mortgage Company (formerly known as Long Beach Mortgage Company), as Sub-Servicer, dated as of April 28, 1997, substantially in the form attached hereto as Exhibit O. "Whole Loan Transfer": The sale or transfer by Purchaser of some or all of the Mortgage Loans in a whole loan format or a certificated participation format pursuant to a Reconstitution Agreement. -13- ARTICLE II AGREEMENT TO PURCHASE; MORTGAGE LOAN SCHEDULE; ---------------------------------------------- PURCHASE PRICE; CONVEYANCE OF MORTGAGE LOANS; --------------------------------------------- POSSESSION OF MORTGAGE FILES; BOOK AND RECORDS; ----------------------------------------------- DELIVERY OF MORTGAGE LOAN DOCUMENTS ----------------------------------- Section 2.01 Agreement to Purchase; Mortgage Loan Schedules; Purchase -------------------------------------------------------- Price. ----- The Company agrees to sell, and the Purchaser agrees to purchase, Mortgage Loans having an aggregate principal balance on the related Cut-off Date in an amount as set forth in the related Commitment Letter, subject to the permitted variances set forth therein. The Company agrees to use its best efforts to deliver the principal amount of loans in accordance with the delivery schedule set forth as Exhibit B to the related Commitment Letter. In any event, the Company shall deliver the Mortgage Loans no later than the related Final Settlement Date. The Company shall deliver the Mortgage Loan Schedule for a Mortgage Loan Package to be purchased on a particular Closing Date to the Purchaser on or prior to the related Closing Date. The Purchase Price for each Mortgage Loan listed on the related Mortgage Loan Schedule shall be calculated as provided in the related Commitment Letter. In addition to the Purchase Price as described above, the Purchaser shall pay to the Company, on a particular Closing Date, accrued interest as set forth in the related Commitment Letter. The Purchaser shall be entitled to all scheduled payments of principal due after the Cut-off Date, all other recoveries of principal collected and due after the Cut-off Date, and all payments of interest on the Mortgage Loans (minus that portion of any such payment which is allocable to the period prior to the Cut-off Date). The principal balance of each Mortgage Loan as of the Cut- off Date is determined after application of payments of principal due on or before the Cut-off Date, whether or not collected. Therefore, payments of scheduled principal and interest prepaid for a due date beyond the Cut-off Date shall not be applied to the principal balance as of the Cut-off Date. Such prepaid amounts shall be the property of the Purchaser. The Company shall deposit any such prepaid amounts into the Custodial Account, which account is established for the benefit of the Purchaser for subsequent remittance by the Company to the -14- Purchaser. All scheduled payments of principal due on or before the Cut-off Date and collected by the Company after the Cut-off Date shall belong to the Company. Section 2.02 Conveyance of Mortgage Loans; Possession of Mortgage ---------------------------------------------------- Files. ----- The Company, simultaneously with the payment of the Purchase Price, shall execute and deliver to the Purchaser an Assignment and Conveyance with respect to the related Mortgage Loan Package in the form attached hereto as Exhibit E. The contents of each Mortgage File not delivered to the Custodian shall be held in trust by the Company for the benefit of the Purchaser as the owner thereof and the Company's possession of the portion of each Mortgage File so retained shall be at the will of the Purchaser for the sole purpose of servicing the related Mortgage Loan, and such retention and possession by the Company is in a custodial capacity only. Upon the purchase of the Mortgage Loans, the ownership of each Mortgage Note, Mortgage and each related Mortgage File shall be vested in the Purchaser and the ownership of all records and documents with respect to each related Mortgage Loan prepared by or which come into the possession of the Company shall immediately vest in the Purchaser and shall be retained and maintained, in trust, by the Company at the will of the Purchaser in such custodial capacity only. The Company shall release from its custody the contents of any Mortgage File only in accordance with written instructions from the Purchaser, unless such release is required as incidental to the Company's servicing of the Mortgage Loans or is in connection with a repurchase of any Mortgage Loan pursuant to Section 3.03. Section 2.03 Books and Records. ----------------- Notwithstanding the sale of the Mortgage Loans to the Purchaser, record title to each Mortgage and the related Mortgage Note for which the Mortgaged Property is located in California shall continue in the name of the Company and be retained by the Company in trust for the Purchaser for the sole purpose of facilitating the servicing and the supervision of the servicing of the Mortgage Loans. The foregoing procedures shall be applicable only so long as the related Mortgage Files are maintained in the State of California. In the event that (i) the Company or the Servicer gives written notice to the Custodian that recording is required to protect the right, title and interest of the Purchaser in and to any Mortgage Loan for which the Mortgaged Property is located in California, or (ii) in case a court should recharacterize the sale of the Mortgage Loans as a financing or, (iii) as a result of any change in or amendment to the laws of California or any applicable political subdivision thereof, or any change in official position regarding application or interpretation of such laws, including a holding by a court of competent jurisdiction that such recording is so required, or (iv) if the Company or the Servicer admits in writing its inability to pay its debts as they become due, files a petition to take advantage of any applicable insolvency or reorganization statute, makes an assignment for the benefit of its creditors, or if the Company or the Servicer voluntarily suspends payment of its obligations, or (v) if the Servicer receives a notice of termination pursuant to Section 10.01 or the Purchaser receives the resignation of the Servicer evidenced by an Opinion of Counsel pursuant -15- to Section 7.04, or the Servicer is removed as servicer, then the Servicer shall cause each such previously unrecorded Assignment of Mortgage to be submitted for recording in the applicable jurisdiction as specified in the definition of Assignment of Mortgage. However, in the event the Servicer fails to cause each such previously unrecorded Assignment of Mortgage to be submitted for recording as set forth in clauses (i) through (v) above, the successor Servicer shall cause such previously unrecorded Assignment of Mortgage to be submitted for recording in the manner specified above and at the expense of the Company. All rights arising out of the Mortgage Loans including, but not limited to, all funds received on or in connection with a Mortgage Loan as provided in Section 2.01 shall be held by the Company in trust for the benefit of the Purchaser as the owner of the Mortgage Loans. The sale of each Mortgage Loan shall be reflected on the Company's balance sheet and other financial statements as a sale of assets by the Company. The Company shall be responsible for maintaining, and shall maintain, a complete set of books and records for each Mortgage Loan which shall be clearly marked to reflect the ownership of each Mortgage Loan by the Purchaser. Section 2.04 Delivery of Mortgage Loan Documents. ----------------------------------- The Company shall in connection with each Closing Date deliver to the Custodian, as agent of and custodian for the Purchaser, each of the following documents for each Mortgage Loan to be purchased and sold on such Closing Date: (a) The original Mortgage Note including any addendums thereto, endorsed by the Company without recourse in the following form: "Pay to the order of ________________, without recourse" and signed, by facsimile or manual signature, in the name of the Company by an officer, together with all intervening endorsements showing a complete chain of endorsement from the originator to the Company; (b) The original recorded Mortgage or, if the original Mortgage has not yet been returned from the applicable recording office, a copy of the Mortgage certified by an appropriate officer of the Company to be a true and complete copy of the original Mortgage submitted for recording; (c) A duly executed Assignment of Mortgage, in blank, from the Company, which assignment shall be in form and substance acceptable for recording or, if as a result of the related Mortgage not having been returned from the applicable recording office, a copy of the Assignment of Mortgage excluding information to be provided by the recording office; (d) the original recorded Assignment or Assignments of the Mortgage, if any, showing a complete chain of assignment from the originator to the Company or, if any such -16- Assignment of Mortgage has not been returned from the applicable public recording office, a copy of such Assignment of Mortgage certified by an appropriate officer of the Company to be a true and complete copy of the original Assignment of Mortgage submitted or to be submitted for recording; (e) the original or duplicate original title insurance policy (or a commitment (binder) to issue same) relating to the Mortgage Loan; (f) the original or copies of each assumption, modification, written assurance or substitution agreement, if any; (g) the original power of attorney, if any, or if the original power of attorney has not been returned from the applicable public recording office, a copy thereof certified by an appropriate officer of the Company to be a true and complete copy of the original submitted for recording, if any; and (h) if identified on the Mortgage Loan Schedule as a step-down Mortgage Loan, the related Addendum to Promissory Note. In the event that the original Mortgage was not delivered pursuant to (b) above, the original title insurance policy was not delivered pursuant to (e) above, the duly executed Assignment of Mortgage was not delivered pursuant to (c) above or the original recorded Assignment or Assignments of the Mortgage, if any, showing a complete chain of assignment from the originator to the Company was not delivered pursuant to (d) above, the Company shall use best reasonable efforts to promptly secure the delivery of such originals and shall cause such originals to be delivered to the Custodian promptly upon receipt thereof. In the event that the Company cannot deliver the original Mortgage, the Company shall deliver a copy of such Mortgage certified as true and complete by the appropriate recording office in those instances where a copy thereof certified by the Company was delivered pursuant to clause (b) above. In the event that the original Mortgage or a certified copy thereof or the original policy of title insurance is not so delivered to the Custodian within 365 days following the related Closing Date, the related Mortgage Loan shall, upon the written request of the Purchaser, be repurchased by the Company at the price and in the manner specified in Section 3.03. The Custodian has certified its receipt of each document set forth in clauses (a) through (e) above as evidenced by its Initial Certification in the form annexed to the Custodial Agreement. Section 2.05 Underwriting: Review of the Mortgage Files. ------------------------------------------ With respect to each Mortgage Loan, the Company shall make all documents and instruments relating to such Mortgage Loan (including copies of any original documents previously delivered to the Custodian and the mortgagor payment histories specifying the number of times each Mortgage Loan was delinquent within the immediately preceding twelve month period) available at its offices for review during normal business hours, or such other location as -17- the Purchaser and the Company shall mutually agree. Until the Final Due Diligence Date, the Purchaser and any certificate guaranty insurance company designated by the Purchaser and their designees shall have the right to review the files and documents relating to each Mortgage Loan, to inspect, evaluate and appraise the real property securing each such Mortgage Loan and to obtain appraisal recertifications and otherwise to underwrite each such Mortgage Loan, which shall not be an expense of the Company. Prior to the Final Due Diligence Date, the Purchaser may reject any such Mortgage Loan which, either individually or as part of a pool of all or some of the Mortgage Loans, does not, in its sole discretion, conform to the underwriting standards of the Company, regardless of whether a Closing Date has already occurred with respect to such Mortgage Loans. With respect to any Mortgage Loan rejected by the Purchaser pursuant to the preceding sentence as to which a Closing Date has already occurred, the Company shall repurchase such Mortgage Loan at a price equal to the Purchase Price paid for such Mortgage Loan by the Purchaser hereunder. The underwriting described in this paragraph shall not impair or diminish the rights of the Purchaser, or any assignee of the Purchaser, under this Agreement with respect to a breach of representations and warranties contained in this Agreement. -18- ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY; ---------------------------------------------- REPURCHASE OF MORTGAGE LOANS; CLOSING; -------------------------------------- CLOSING DOCUMENTS; COSTS ------------------------ Section 3.01 Individual Mortgage Loans. ------------------------- The Company hereby represents and warrants to the Purchaser that, as to each Mortgage Loan, as of the related Closing Date (or such other date as may be specified herein or in the applicable Assignment and Conveyance): (a) The information set forth on the related Mortgage Loan Schedule with respect to each Mortgage Loan is true and correct in all material respects; (b) Except as set forth on Exhibit M, all payments due prior to the related Cut-off Date have been made and none of the Mortgage Loans will have been contractually delinquent for more than one calendar month more than once since the origination thereof; (c) Each Mortgage is a valid and enforceable first lien on the Mortgaged Property, including all improvements thereon, subject only to (a) the lien of nondelinquent current real property taxes and assessments, (b) covenants, conditions and restrictions, rights of way, easements and other matters of public record as of the date of recording of such Mortgage, such exceptions appearing of record being acceptable to mortgage lending institutions generally or specifically reflected in the appraisal made in connection with the origination of the related Mortgage Loan, and (c) other matters to which like properties are commonly subject which do not materially interfere with the benefits of the security intended to be provided by such Mortgage; (d) Immediately prior to the assignment of the Mortgage Loans to the Purchaser, the Company had good title to, and was the sole legal and beneficial owner of, each Mortgage Loan free and clear of any pledge, lien, encumbrance or security interest and has full right and authority, subject to no interest or participation of, or agreement with, any other party to sell and assign the same; (e) To the best of the Company's knowledge, there is no delinquent tax or assessment lien against any Mortgaged Property; -19- (f) There is no valid offset, defense or counterclaim to any Mortgage Note or Mortgage, including the obligation of the Mortgagor to pay the unpaid principal of or interest on such Mortgage Note, nor will the operation of any of the terms of the Mortgage Note and the Mortgage, or the exercise of any right thereunder, render the 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; (g) To the best of the Company's knowledge, there are no mechanics' liens or claims for work, labor or material affecting any Mortgaged Property which are or may be a lien prior to, or equal with, the lien of the related Mortgage, except those which are insured against by the title insurance policy referred to in (k) below; (h) To the best of the Company's knowledge, each Mortgaged Property is free of material damage and is in good repair; (i) Each Mortgage Loan at origination complied in all material respects with applicable local, state and federal laws, including, without limitation, usury, equal credit opportunity, real estate settlement procedures, truth-in-lending and disclosure laws, and consummation of the transactions contemplated hereby will not involve the violation of any such laws; (j) Neither the Company nor any prior holder of any Mortgage has modified the Mortgage in any material respect (except that a Mortgage Loan may have been modified by a written instrument which has been recorded, if necessary, to protect the interests of the Purchaser and which has been delivered to the Custodian); satisfied, cancelled or subordinated such Mortgage in whole or in part; released the related Mortgaged Property in whole or in part from the lien of such Mortgage; or executed any instrument of release, cancellation, modification or satisfaction with respect thereto; (k) A lender's policy of title insurance together with a condominium endorsement and extended coverage endorsement, if applicable, and, with respect to each Adjustable Rate Mortgage Loan, an adjustable rate mortgage endorsement in an amount at least equal to the related Cut-off Date Principal Balance of each such Mortgage Loan or a commitment (binder) to issue the same was effective on the date of the origination of each Mortgage Loan, each such policy is valid and remains in full force and effect, the transfer of the related Mortgage Loan to the Purchaser will not affect the validity or enforceability of such policy and each such policy was issued by a title insurer qualified to do business in the jurisdiction where the Mortgaged Property is located and acceptable to FNMA or FHLMC and in a form acceptable to FNMA or FHLMC, which policy insures the Company and successor owners of indebtedness secured by the insured Mortgage, as to the first priority lien of the Mortgage; to the best of the -20- Company's knowledge, no claims have been made under such mortgage title insurance policy and no prior holder of the related Mortgage, including the Company, has done, by act or omission, anything which would impair the coverage of such mortgage title insurance policy; (l) Each Mortgage Loan was originated by the Company (or, if generated on behalf of the Company by a Person other than the Company, is subject to the same standards and procedures used by the Company in originating mortgage loans directly) or by a savings and loan association, savings bank, commercial bank, credit union, insurance company or similar institution which is supervised and examined by a federal or state authority, or by a mortgagee approved by the Secretary of Housing and Urban Development pursuant to sections 203 and 211 of the National Housing Act; (m) With respect to each Adjustable Rate Mortgage Loan on each Adjustment Date, the Mortgage Interest Rate will be adjusted to equal the Index plus the Margin, rounded to the nearest 0.125%, subject to the Periodic Rate Cap, the Maximum Rate and the Minimum Rate. Except for Balloon Loans, the related Mortgage Note is payable on the first day of each month in self-amortizing monthly installments of principal and interest, with interest payable in arrears, and requires a Monthly Payment which is sufficient to fully amortize the outstanding principal balance of the Mortgage Loan over its remaining term and to pay interest at the applicable Mortgage Interest Rate. No Mortgage Loan is subject to negative amortization; (n) To the best of the Company's knowledge, all of the improvements which were included for the purpose of determining the Appraised Value of the Mortgaged Property lie wholly within the boundaries and building restriction lines of such property, and no improvements on adjoining properties encroach upon the Mortgaged Property; (o) All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of the Mortgaged Property and, with respect to the use and occupancy of the same, including but not limited to certificates of occupancy, have been made or obtained from the appropriate authorities and the Mortgaged Property is lawfully occupied under applicable law; (p) All parties which have had any interest in the Mortgage, whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period in which they held and disposed of such interest, were) in compliance with any and all applicable licensing requirements of the laws of the state wherein the Mortgaged Property is located; (q) The Mortgage Note and the related Mortgage are genuine, and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance with its terms and with applicable laws. All parties to the Mortgage Note and the Mortgage had -21- legal capacity to execute the Mortgage Note and the Mortgage and each Mortgage Note and Mortgage have been duly and properly executed by such parties; (r) The proceeds of each Mortgage Loan have been fully disbursed, there is no requirement for future advances thereunder and any and all requirements as to completion of any on-site or off-site improvements and as to disbursements of any escrow funds therefor have been complied with. All costs, fees and expenses incurred in making, closing or recording the Mortgage Loans were paid; (s) The related Mortgage contains customary and enforceable provisions which render the rights and remedies of the holder thereof adequate for the realization against the Mortgaged Property of the benefits of the security, including, (i) in the case of a Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. There is no homestead or other exemption available to the Mortgagor which would interfere with the right to sell the Mortgaged Property at a trustee's sale or the right to foreclose the Mortgage; (t) With respect to each Mortgage constituting 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 such Mortgage, and no fees or expenses are or will become payable by the Purchaser to the trustee under the deed of trust, except in connection with a trustee's sale after default by the Mortgagor; (u) Each Mortgage Note and each Mortgage is in substantially the forms attached hereto as Exhibit G; (v) There exist no deficiencies with respect to escrow deposits and payments, if such are required, for which customary arrangements for repayment thereof have not been made, and no escrow deposits or payments of other charges or payments due the Company have been capitalized under the Mortgage or the related Mortgage Note; (w) The origination, underwriting and collection practices used by the Company with respect to each Mortgage Loan have been in all respects legal, proper, prudent and customary in the mortgage servicing business; (x) There is no pledged account or other security other than real estate securing the Mortgagor's obligations; (y) No Mortgage Loan has a shared appreciation feature, or other contingent interest feature; (z) No Mortgage Loan provides for primary mortgage insurance; -22- (aa) The improvements upon each Mortgaged Property are covered by a valid and existing hazard insurance policy with a generally acceptable carrier that provides for fire extended coverage and such other hazards as are customary in the area where the Mortgaged Property is located representing coverage not less than the lesser of the outstanding principal balance of the related Mortgage Loan or the minimum amount required to compensate for damage or loss on a replacement cost basis. All individual insurance policies and flood policies referred to in clause (bb) below contain a standard mortgagee clause naming the Company or the original mortgagee, and its successors in interest, as mortgagee, and the Company has received no notice that any premiums due and payable thereon have not been paid; the Mortgage obligates the Mortgagor thereunder to maintain all such insurance, including flood insurance, at the Mortgagor's cost and expense, and upon the Mortgagor's failure to do so, authorizes the holder of the Mortgage to obtain and maintain such insurance at the Mortgagor's cost and expense and to seek reimbursement therefor from the Mortgagor; (bb) If the Mortgaged Property is in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, a flood insurance policy in a form meeting the requirements of the current guidelines of the Flood Insurance Administration is in effect with respect to such Mortgaged Property with a generally acceptable carrier in an amount representing coverage not less than the least of (A) the original outstanding principal balance of the Mortgage Loan, (B) the minimum amount required to compensate for damage or loss on a replacement cost basis or (C) the maximum amount of insurance that is available under the Flood Disaster Protection Act of 1973; (cc) There is no default, breach, violation or event of acceleration existing under the Mortgage or the related Mortgage Note; and the Company has not waived any default, breach, violation or event of acceleration; (dd) Each Mortgaged Property is improved by a one- to four-family residential dwelling, including condominium units and dwelling units in planned unit developments, which, to the best of the Company's knowledge, does not include cooperatives or mobile homes and does not constitute other than real property under state law; (ee) There is no obligation on the part of the Company or any other party under the terms of the Mortgage or related Mortgage Note to make payments in addition to those made by the Mortgagor; (ff) Any future advances made prior to the related Cut-off Date have been consolidated with the outstanding principal amount secured by the Mortgage, and the secured principal amount, as consolidated, bears a single interest rate and single repayment -23- term reflected on the related Mortgage Loan Schedule. The consolidated principal amount does not exceed the original principal amount of the Mortgage Loan; (gg) Each Mortgage Loan was underwritten in accordance with the Company's underwriting guidelines set forth as an exhibit hereto; (hh) The Mortgage File contains an appraisal which was performed by an appraiser who satisfied, and which was conducted in accordance with, all of the applicable requirements of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended; (ii) None of the Mortgage Loans is a graduated payment mortgage loan, nor is any Mortgage Loan subject to a temporary buydown or similar arrangement; (jj) With respect to each Mortgage Loan, no loan junior in lien priority to such Mortgage Loan and secured by the related Mortgaged Property was originated by the Company at the time of origination of such Mortgage Loan; (kk) The characteristics of the related Mortgage Loan Package are as set forth in the form of Exhibit M delivered in respect of the related Closing Date; (ll) Except as set forth in the related Confirmation, on the Final Closing Date, the Mortgage Loans comply with the conditions set forth in Section 2 of the related Commitment Letter; and (mm) The Mortgage contains an enforceable provision for the acceleration of the payment of the unpaid principal balance of the Mortgage Loan in the event that the Mortgaged Property is sold or transferred without the prior written consent of the mortgagee thereunder. Section 3.02 Company Representations. ----------------------- The Company hereby represents and warrants to the Purchaser as of the Initial Closing Date and each subsequent Closing Date (or such other date as may be specified herein or in the applicable Assignment and Conveyance): (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly authorized and qualified to transact any and all business contemplated by this Agreement to be conducted by the Company in any state in which a Mortgaged Property is located or is otherwise not required under applicable law to effect such qualification and, in any event, is in compliance with the doing business laws of any such State, to the extent necessary to -24- ensure its ability to enforce each Mortgage Loan and to service the Mortgage Loans in accordance with the terms of this Agreement; (b) The Company has the full corporate power and authority to originate, hold, sell and service each Mortgage Loan, and to execute, deliver and perform, and to enter into and consummate the transactions contemplated by this Agreement and has duly authorized by all necessary corporate action on the part of the Company the execution, delivery and performance of this Agreement; and this Agreement, assuming the due authorization, execution and delivery thereof by the Purchaser, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that (a) the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, receivership and other similar laws relating to creditors' rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought; (c) The execution and delivery of this Agreement by the Company, the servicing of the Mortgage Loans by the Company hereunder, the consummation of any other of the transactions herein contemplated, and the fulfillment of or compliance with the terms hereof are in the ordinary course of business of the Company and will not (A) result in a breach of any term or provision of the charter or by-laws of the Company or (B) conflict with, result in a breach, violation or acceleration of, or result in a default under, the terms of any other material agreement or instrument to which the Company is a party or by which it may be bound, or any statute, order or regulation applicable to the Company of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Company; and the Company is not a party to, bound by, or in breach or violation of any indenture or other agreement or instrument, or subject to or in violation of any statute, order or regulation of any court, regulatory body, administrative agency or governmental body having jurisdiction over it, which materially and adversely affects or, to the Company's knowledge, would in the future materially and adversely affect, (x) the ability of the Company to perform its obligations under this Agreement or (y) the business, operations, financial condition, properties or assets of the Company taken as a whole; (d) The Company is an approved seller/servicer for FNMA or FHLMC in good standing and is a HUD approved mortgagee pursuant to Section 203 of the National Housing Act; (e) No litigation is pending against the Company that would materially and adversely affect the execution, delivery or enforceability of this Agreement or the ability of the Company to service the Mortgage Loans or to perform any of its other obligations hereunder in accordance with the terms hereof; -25- (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 Company of, or compliance by the Company with, this Agreement or the consummation of the transactions contemplated hereby, or if any such consent, approval, authorization or order is required, the Company has obtained the same; (g) The information set forth in the applicable part of the Mortgage Loan Schedule relating to the existence of a prepayment penalty is complete, true and correct in all material respects at the date or dates respecting which such information is furnished and each Prepayment Charge is permissible and enforceable in accordance with its terms (except to the extent that the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, receivership and other similar laws relating to creditors' rights generally or the collectability thereof may be limited due to acceleration in connection with a foreclosure) under the applicable state law; and (h) The Company will not waive the Prepayment Charge (including any waiver of a Prepayment Charge in connection with a refinancing of a Mortgage Loan that is related to a default or a reasonably foreseeable default) unless such waiver would maximize recovery of total proceeds taking into account the value of the Prepayment Charge and related Mortgage Loan and doing so is standard and customary in servicing similar Mortgage Loans, and in no event will it waive a Prepayment Charge in connection with a refinancing of a Mortgage Loan that is not related to a default or a reasonably foreseeable default. Section 3.03 Repurchase and Substitution. --------------------------- It is understood and agreed that the representations and warranties set forth in Sections 3.01 and 3.02 shall survive delivery of the Mortgage Loans to the Purchaser and shall inure to the benefit of the Purchaser, notwithstanding any restrictive or qualified endorsement on any Mortgage Note or Assignment of Mortgage or the examination of any Mortgage File. Upon discovery (including receipt of notice to such effect from the Purchaser) by either the Company or the Purchaser of a breach of any of the foregoing representations and warranties, without regard to any limitation set forth in such representation or warranty concerning the knowledge of the Company as to the facts stated therein, which materially and adversely affects the interest of the Purchaser in any Mortgage Loan, the party discovering such breach shall give prompt notice to the other parties. Within 90 days of the earlier of either discovery by or notice to the Company of any breach of a representation or warranty, the Company shall use its best efforts to promptly cure such breach in all material respects and, if such breach cannot be cured, the Company shall repurchase such Mortgage Loan at a price equal to (i) the Stated Principal Balance of the Mortgage Loan, plus (ii) interest on such Stated Principal Balance at the Mortgage Loan Remittance Rate from the date to which interest has last been paid by the Mortgagor to the first day of the month in which such purchase price is to be distributed which purchase price shall be -26- deposited in the Custodial Account on the next succeeding Determination Date (after deducting therefrom any principal and interest amounts received in respect of such repurchased Mortgage Loan and being held in the Custodial Account for future distribution). However, the Company may, at its option and assuming that the Company has a Qualified Substitute Mortgage Loan or Loans, rather than repurchase the Mortgage Loan as provided above, remove such Mortgage Loan ("Deleted Mortgage Loan") and substitute in its place a Qualified Substitute Mortgage Loan or Loans, provided, however, that (i) if the Purchaser exercises its rights under Section 2.05, the Company may not effect a substitution without the prior written consent of the Purchaser and (ii) any such substitution shall be effected not later than 120 days after the related Closing Date. If the Company has no Qualified Substitute Mortgage Loan, it shall repurchase the deficient Mortgage Loan. Any repurchase of a Mortgage Loan or Loans pursuant to the foregoing provisions of this Section 3.03 shall be accomplished by deposit in the Custodial Account of the amount of the repurchase price set forth above (after deducting therefrom any principal and interest amounts received in respect of such repurchased Mortgage Loan or Loans and being held in the Custodial Account for future distribution). If the representation made by the Company in Section 3.02(g) is breached, the Company shall not have the right or obligation to cure, substitute or repurchase the affected Mortgage Loan but shall deposit in the Custodial Account, prior to the next succeeding Remittance Date, the amount of the Prepayment Charge indicated on the applicable part of the Mortgage Loan Schedule to be due from the Mortgagor in the circumstances less any amount collected and paid by the Company into the Custodial Account; provided, however, that if a representation in addition to that set forth in Section 3.01(g) is breached with respect to a Mortgage Loan or Mortgage Loans, the Company shall both deposit the applicable Prepayment Charge as provided in this paragraph and cure, substitute or repurchase the affected Mortgage Loan or Mortgage Loans as provided in this Section 3.03. In addition, if the covenant made by the Company in Section 3.02(h) is breached, the Company shall pay into the Custodial Account the amount of the waived Prepayment Charge. As to any Deleted Mortgage Loan for which the Company substitutes a Qualified Substitute Mortgage Loan or Loans, the Company shall effect such substitution by delivering to the Custodian for such Qualified Substitute Mortgage Loan or Loans the Mortgage Note, the Mortgage, the Assignment of Mortgage and such other documents and agreements as are required by Section 2.04, with the Mortgage Note endorsed as required by Section 2.04. No substitution will be made in any calendar month after the Determination Date for such month. The Company shall deposit in the Custodial Account the Monthly Payment less the Servicing Fee due on such Qualified Substitute Mortgage Loan or Loans in the month following the date of such substitution. Monthly Payments due with respect to Qualified Substitute Mortgage Loans in the month of substitution will be retained by the Company. For the month of substitution, distributions to the Purchaser will include the Monthly Payment less the Servicing Fee due on such Deleted Mortgage Loan or Loans in the month of substitution, and the Company shall thereafter be entitled to retain all amounts subsequently received by the Company in respect of such Deleted Mortgage Loan. The Company shall give written notice to the Purchaser that such -27- substitution has taken place and shall amend the related Mortgage Loan Schedule to reflect the removal of such Deleted Mortgage Loan from the terms of this Agreement and the substitution of the Qualified Substitute Mortgage Loan or Loans. Upon such substitution, such Qualified Substitute Mortgage Loan or Loans shall be subject to the terms of this Agreement in all respects, and the Company shall be deemed to have made with respect to such Qualified Substitute Mortgage Loan or Loans, as of the date of substitution, the covenants, representations and warranties set forth in Sections 3.01 and 3.02. For any month in which the Company substitutes one or more Qualified Substitute Mortgage Loan or Loans for one or more Deleted Mortgage Loans, the Company will determine the amount (if any) by which the aggregate principal balance of all such Qualified Substitute Mortgage Loans as of the date of substitution (after application of scheduled principal payments due in the month of substitution which have been received or as to which an advance has been made) is less than the aggregate Stated Principal Balance of all such Deleted Mortgage Loans. The amount of such shortfall shall be distributed by the Company in the month of substitution pursuant to Section 5.01. Accordingly, on the date of such substitution, the Company will deposit from its own funds into the Custodial Account an amount equal to the amount of such shortfall. In addition to such cure, repurchase and substitution obligation, the Company shall indemnify the Purchaser and hold it harmless 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 of the Company's representations and warranties contained in this Article III. It is understood and agreed that the obligations of the Company set forth in this Section 3.03 to cure or repurchase a defective Mortgage Loan and to indemnify the Purchaser as provided in this Section 3.03 constitute the sole remedies of the Purchaser respecting a breach of the foregoing representations and warranties. Any cause of action against the Company relating to or arising out of the breach of any representations and warranties made in Sections 3.01 or 3.02 shall accrue as to any Mortgage Loan upon (i) discovery of such breach by the Purchaser or notice thereof by the Company to the Purchaser, (ii) failure by the Company to cure such breach or repurchase such Mortgage Loan as specified above, and (iii) demand upon the Company by the Purchaser for all amounts payable in respect of such Mortgage Loan. Section 3.04 Closing. ------- The closing for the purchase and sale of each Mortgage Loan Package shall take place on the related Closing Date. The closing shall, at the Purchaser's option, be either: by telephone, confirmed by letter or wire as the parties shall agree; or conducted in person, at such place as the parties shall agree. -28- The closing for the Mortgage Loans to be purchased on each Closing Date shall be subject to each of the following conditions: (a) All of the representations and warranties of the Company under this Agreement shall be true and correct as of the related Closing Date and no event shall have occurred which, with notice or the passage of time, would constitute a default or Event of Default under this Agreement; (b) The Purchaser and the Company shall have received, or the Company's attorneys shall have received in escrow, all closing documents as specified in Section 3.05 of this Agreement, in such forms as are agreed upon and acceptable to the Purchaser and the Company, duly executed by all signatories as required pursuant to the respective terms thereof; (c) The Company shall have delivered and released to the Purchaser under this Agreement all documents required pursuant thereto; and (d) All other terms and conditions of this Agreement shall have been complied with. Subject to the foregoing conditions, the Purchaser shall pay to the Company on the related Closing Date the Purchase Price, plus accrued interest pursuant to Section 2.01 of this Agreement, by wire transfer of immediately available funds to the account designated by the Company. Section 3.05 Closing Documents. ----------------- (a) On or before the Initial Closing Date, the Company shall submit to the Purchaser fully executed originals of the following closing documents: 1. This Agreement, in two counterparts; 2. Custodial Account Letter Agreement, in the form of Exhibit B of this Agreement; 3. Escrow Account Letter Agreement, in the form of Exhibit C of this Agreement; and 4. Officer's Certificate, in substantially the form of Exhibit J, and attached thereto the Resolutions of the Company, in the form of Exhibit K hereto, together with copies of the charter, by-laws and a Certificate of Good Standing of the Company; and 5. Sub-Servicing Agreement in substantially the form of Exhibit O hereto. (b) The closing documents for the Mortgage Loans to be purchased on each Closing Date shall consist of fully executed originals of the following documents: 1. The related Mortgage Loan Documents required pursuant to Section 2.04 of this Agreement; 2. The related Mortgage Loan Schedule, one copy to be attached to each counterpart of this Agreement; 3. If requested by the Purchaser, an Officer's Certificate, in the form of Exhibit J, and attached thereto the Resolutions of the Company, in the form of Exhibit K hereto, together with copies of the charter and by-laws of the Company, or a statement from the Company that the Company's charter and by- laws have not changed since the last Closing Date; 4. Security Release Certification, in substantially the form of Exhibit L executed by any other person as requested by Purchaser if any of the Mortgage Loans have at any time been subject to any security interest, pledge or hypothecation for the benefit of such person; 5. The related Commitment Letter, to be attached hereto as Exhibit N, and the related Confirmation; 6. Assignment and Conveyance, in the form of Exhibit E; 7. Certificate or other evidence of merger or change of name, signed or stamped by the applicable regulatory authority, if any of the Mortgage Loans were acquired by the Company by merger or acquired or originated by the Company while conducting business under a name other than its present name; and 8. The Initial Certification of the Custodian in the form annexed to the Custodial Agreement. Section 3.06 Costs. ----- The Purchaser will pay any commissions due its salesmen and the legal fees and expenses of its attorneys. All other costs and expenses incurred in connection with the transfer -30- and delivery of the Mortgage Loans, including fees for title policy endorsements and continuations and the Company's attorney's fees, shall be paid by the Company. -31- ARTICLE IV ADMINISTRATION AND SERVICING OF MORTGAGE LOANS ---------------------------------------------- Section 4.01 Company to Act as Servicer. -------------------------- The Company, as independent contract servicer, shall service and administer the Mortgage 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 Company may deem necessary or desirable and consistent with the terms of this Agreement. Consistent with the terms of this Agreement, the Company may waive, modify or vary any term of any Mortgage Loan or consent to the postponement of strict compliance with any such term or in any manner grant indulgence to any Mortgagor, provided, however, that (unless the Mortgagor is in default with respect to the Mortgage Loan, or such default is, in the judgment of the Company, imminent, and the Company has the consent of the Purchaser) the Company may not permit any modification with respect to any Mortgage Loan that would change the Mortgage Interest Rate (except for any change made pursuant to the adjustment provisions, if any, of the related Mortgage Note), defer or forgive the payment of any principal or interest, change the outstanding principal amount, make any future advances or extend the final maturity date on such Mortgage Loan. Without limiting the generality of the foregoing, the Company shall continue, and is hereby authorized and empowered to execute and deliver on behalf of itself, and the Purchaser, all instruments of satisfaction or cancellation, or of partial or full release, discharge and all other comparable instruments, with respect to the Mortgage Loans and the Mortgaged Properties. If reasonably required by the Company, the Purchaser shall furnish the Company with any powers of attorney and other documents necessary or appropriate to enable the Company to carry out its servicing and administrative duties under this Agreement. In servicing and administering the Mortgage Loans, the Company shall employ Customary Servicing Procedures. Section 4.02 Liquidation of Mortgage Loans. ----------------------------- In the event that any payment due under any Mortgage Loan is not paid when the same becomes due and payable, or in the event the Mortgagor fails to perform any other covenant or obligation under the Mortgage Loan and such failure continues beyond any applicable grace period, the Company shall take such action as it shall deem to be in the best interest of the Purchaser. In the event that any payment due under any Mortgage Loan remains delinquent for a period of 60 days or more, the Company shall exercise reasonable efforts to foreclose upon or otherwise comparably convert (which may include an REO Disposition) the ownership of properties securing such of the Mortgage Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments. The -32- Company shall use reasonable efforts to realize upon such defaulted Mortgage Loans in such manner as will maximize the receipt of principal and interest by the Purchaser, taking into account, among other things, the timing of foreclosure proceedings. In such connection, the Company shall from its own funds make all necessary and proper Servicing Advances if it is deemed to increase the proceeds to the Purchaser or is necessary to preserve the lien of the related Mortgage. Section 4.03 Collection of Mortgage Loan Payments. ------------------------------------ Continuously from the date hereof until the principal and interest on all Mortgage Loans are paid in full, the Company will proceed diligently to collect all payments due under each of the Mortgage Loans when the same shall become due and payable and will take special care in ascertaining and estimating annual ground rents, taxes, assessments, water rates, fire and hazard insurance premiums, mortgage insurance premiums, and all other charges that, as provided in any Mortgage, will become due and payable to the end that the installments payable by the Mortgagors will be sufficient to pay such charges as and when they become due and payable. Section 4.04 Establishment of Custodial Account; Deposits in Custodial --------------------------------------------------------- Account. ------- The Company shall segregate and hold all funds collected and received pursuant to each Mortgage Loan separate and apart from any of its own funds and general assets and shall establish and maintain one or more Custodial Accounts (collectively, the "Custodial Account"), in the form of time deposit or demand accounts, which may be interest bearing, titled "Long Beach Mortgage Company, in trust for the Purchaser - Fixed Rate and Adjustable Rate Mortgage Loans, Flow Delivery Program". Such Custodial Account shall be established with a commercial bank, a national bank, a national banking association, a mutual savings bank or a savings and loan association. Funds in the Custodial Account shall be fully insured by the FDIC, or such account shall be a trust account, and in either case may be drawn on by the Company. The creation of any Custodial Account shall be evidenced by a letter agreement substantially in the form of Exhibit B hereto. A copy of such letter agreement shall be furnished to the Purchaser upon request. The Company shall deposit, without duplication, in the Custodial Account on a daily basis within one day of receipt of good funds or as otherwise required by this Agreement, and retain therein the following payments and collections due and received or made by it subsequent to the related Cut-off Date: -33- (i) all payments on account of principal, including Principal Prepayments on the Mortgage Loans; (ii) all payments on account of interest on the Mortgage Loans adjusted to the Mortgage Loan Remittance Rate; (iii) all Liquidation Proceeds and other amounts required to be deposited pursuant to Section 4.02; (iv) all proceeds received by the Company under any title, hazard, primary mortgage guaranty or other insurance policy, including amounts required to be deposited pursuant to Section 4.10, other than proceeds to be held in the Escrow Account and applied to the restoration or repair of the Mortgaged Property or released to the Mortgagor in accordance with Customary Servicing Procedures; (v) all awards or settlements in respect of condemnation proceedings or eminent domain affecting any Mortgaged Property which are not released to the Mortgagor in accordance with Customary Servicing Procedures; (vi) any amount required to be deposited in the Custodial Account pursuant to Sections 5.03 and 6.02; (vii) any amounts payable in connection with the repurchase of any Mortgage Loan pursuant to Section 3.03, and all amounts required to be deposited by the Company in connection with shortfalls in principal amount of Qualified Substitute Mortgage Loans pursuant to Section 3.03; (viii) any amounts payable in connection with Prepayment Interest Shortfalls pursuant to Section 5.04; and (ix) any amount required to be deposited in the Custodial Account pursuant to Section 4.12. The foregoing requirements for deposit in the Custodial Account shall be exclusive, it being understood and agreed that, without limiting the generality of the foregoing, payments in the nature of late payment charges and assumption fees, to the extent permitted by Section 6.01, in addition to Prepayment Interest Excess and prepayment penalties other than Prepayment Charges, need not be deposited by the Company in the Custodial Account. -34- Section 4.05 Withdrawals From the Custodial Account. -------------------------------------- The Company shall, from time to time, withdraw funds from the Custodial Account for the following purposes: (i) to make payments to the Purchaser in the amounts and in the manner provided for in Section 5.01; (ii) to reimburse itself for unreimbursed Servicing Advances, any unpaid Servicing Fees and for unreimbursed P&I Advances, the Company's right to reimburse itself pursuant to this subclause (ii) being limited to related Liquidation Proceeds, condemnation proceeds, amounts representing proceeds of insurance policies covering the related Mortgaged Property, late payments of principal and/or interest and such other amounts as may be collected by the Company from the Mortgagor or otherwise relating to the Mortgage Loan, it being understood that, in the case of any such reimbursement, the Company's right thereto shall be prior to the rights of the Purchaser unless the Company is required to repurchase a Mortgage Loan pursuant to Section 3.03, in which case the Company's right to such reimbursement shall be subsequent to the payment to the Purchaser of the repurchase price pursuant to Section 3.03 and all other amounts required to be paid to the Purchaser with respect to such Mortgage Loan; (iii) to reimburse itself for expenses incurred by and reimbursable to it pursuant to Section 9.01; (iv) to pay to itself any interest earned on funds deposited in the Custodial Account and to pay itself any unpaid Servicing Compensation, such withdrawal to be made monthly not later than the Remittance Date; (v) to reimburse itself for any P&I Advance previously made which the Company has determined to be a Nonrecoverable Advance; (vi) to utilize any excess funds on deposit to make any advance pursuant to the last sentence of Section 5.03, provided that such withdrawal does not reduce the amount that would otherwise be available pursuant to clauses (i) through (v), inclusive, of this Section 4.05 in respect of the current or future Determination Dates; (vii) to clear and terminate the Custodial Account upon the termination of this Agreement and to distribute funds therein at such time to the Purchaser, exclusive of funds therein payable to the Company pursuant to this Agreement; and (viii) to withdraw any amounts deposited in the Custodial Account in error. -35- On each Remittance Date, the Company shall withdraw all funds from the Custodial Account except for those amounts which the Company is not obligated to remit on such Remittance Date. The Company may use such withdrawn funds only for the purposes described in this Section 4.05. Section 4.06 Establishment of Escrow Account; Deposits in Escrow --------------------------------------------------- Account. ------- The Company shall segregate and hold all funds collected and received pursuant to each Mortgage Loan which constitute Escrow Payments separate and apart from any of its own funds and general assets and shall establish and maintain one or more Escrow Accounts (collectively, the "Escrow Account"), in the form of time deposit or demand accounts, which may be interest bearing, titled "Long Beach Mortgage Company, in trust for the Purchaser of Fixed Rate and Adjustable Rate Mortgage Loans, Flow Delivery Program". The Escrow Account shall be established with a commercial bank, a national bank, a national banking association, a mutual savings bank or a savings and loan association. Funds in the Escrow Account shall be fully insured by the FDIC, or such account shall be a trust account, and in either case may be drawn on by the Company. The creation of any Escrow Account shall be evidenced by a letter agreement substantially in the form of Exhibit C hereto. A copy of such letter agreement shall be furnished to the Purchaser upon request. The Company shall deposit in the Escrow Account on a daily basis, and retain therein: (i) all Escrow Payments collected on account of the Mortgage Loans, for the purpose of effecting timely payment of any such items as required under the terms of this Agreement, and (ii) all amounts representing proceeds of any hazard insurance policy which are to be applied to the restoration or repair of any Mortgaged Property. The Company shall make withdrawals therefrom only in accordance with Section 4.07 hereof. To the extent required by law, the Company shall pay, without right of reimbursement, interest on escrowed funds to the Mortgagor notwithstanding that the Escrow Account may not bear interest. -36- Section 4.07 Withdrawals From Escrow Account. ------------------------------- Withdrawals from the Escrow Account shall be made by the Company only (a) to effect timely payments of taxes, assessments, water rates, fire and hazard insurance premiums or other items constituting Escrow Payments for the related Mortgage, (b) to refund to any Mortgagor any funds found to be in excess of the amounts required under the terms of the related Mortgage Loan, (c) for application to restoration or repair of the Mortgaged Property, (d) to pay to the Mortgagor, to the extent required by law, any interest due on the funds deposited in the Escrow Account, (e) to pay to itself any interest earned on funds deposited in the Escrow Account (and not required to be paid to the Mortgagor), such withdrawal to be made monthly not later than the Remittance Date, (f) to withdraw any amounts deposited in the Escrow Account in error, (g) to reimburse the Company for any Servicing Advance made by the Company with respect to a related Mortgage Loan but only from amounts received on the related Mortgage Loan which represent late payments or collections of Escrow Payments thereunder or (h) to clear and terminate the Escrow Account upon the termination of this Agreement. Section 4.08 Payment of Taxes, Insurance and Other Charges. --------------------------------------------- With respect to each Mortgage Loan, the Company shall maintain accurate records reflecting the status of taxes, assessments, water rates and other charges which are or may become a lien upon the Mortgaged Property and the status of fire and hazard insurance coverage and shall obtain, from time to time, all bills for the payment of such charges (including renewal premiums) and shall effect payment thereof prior to the applicable penalty or termination date and at a time appropriate for securing maximum discounts allowable, employing for such purpose deposits of the Mortgagor in the Escrow Account which shall have been estimated and accumulated by the Company in amounts sufficient for such purposes, as allowed under the terms of the Mortgage. To the extent that a Mortgage does not provide for Escrow Payments, the Company shall determine that any such payments are made by the Mortgagor at the time they first become due. The Company assumes full responsibility for the timely payment of all such bills and shall effect timely payments of all such bills irrespective of the Mortgagor's faithful performance in the payment of same or the making of the Escrow Payments and shall make advances from its own funds to effect such payments. Section 4.09 Transfer of Accounts. -------------------- With prior written notice to the Purchaser, the Company may transfer the Custodial Account or the Escrow Account to a different depository institution satisfying the requirements of Section 4.04 or 4.06, respectively. Section 4.10 Maintenance of Hazard Insurance. ------------------------------- -37- The Servicer shall maintain or cause to be maintained for each Mortgage Loan and REO Property with insurance companies satisfactory to FNMA or FHLMC primary hazard insurance with extended coverage on the related Mortgaged Property in an amount which is at least equal to the replacement value of the improvements, as determined by the insurance company, on such Mortgaged Property. Pursuant to Section 4.04, any amounts collected by the Servicer under any such policies (other than amounts to be applied to the restoration or repair of the property subject to the related Mortgage or amounts released to the Mortgagor in accordance with Customary Servicing Procedures) shall be deposited in the Custodial Account, subject to withdrawal pursuant to Section 4.05. Any cost incurred by the Servicer in maintaining any such insurance shall not, for the purpose of calculating monthly distributions to the Purchaser, be added to the unpaid principal balance of the related Mortgage Loan, notwithstanding that the terms of such Mortgage Loan so permit. It is understood and agreed that no earthquake or other additional insurance is to be required of any Mortgagor or maintained on property acquired in respect of a Mortgage Loan, other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance. If the Mortgaged Property or REO Property is located at the time of origination of the Mortgage Loan in a federally designated special flood hazard area, the Servicer will cause to be maintained flood insurance in respect thereof. Such flood insurance shall be in an amount equal to the lesser of (i) the replacement value of the improvements which are part of such Mortgaged Property, (ii) the maximum amount of such insurance available for the related Mortgaged Property under the national flood insurance program (regardless of whether the area in which such Mortgaged Property is located is participating in such program) and (iii) the original face value of the Mortgage Loan securing such Mortgaged Property. All such policies shall be endorsed with standard mortgagee clauses with loss payable to the Company, or upon request to the Purchaser, and shall provide for at least thirty days prior written notice of any cancellation, reduction in the amount of, or material change in, coverage to the Company. The Company shall not interfere with the Mortgagor's freedom of choice in selecting either his insurance carrier or agent, provided, however, that the Company shall not accept any such insurance policies from insurance companies unless such companies currently reflect a General Policy Rating of A:VI or better in Best's Key Rating Guide and are licensed to do business in the state wherein the property subject to the policy is located. In the event that the Servicer shall obtain and maintain a blanket policy insuring against hazard losses on all of the Mortgage Loans in an amount consistent with Customary Servicing Procedures, it shall conclusively be deemed to have satisfied its obligations as set forth in the first sentence of this Section 4.10, it being understood and agreed that such policy may contain a deductible clause, in which case the Servicer shall, in the event that there shall not have been maintained on the related Mortgaged Property or REO Property a policy complying with the first sentence of this Section 4.10, and there shall have been one or more losses which would have been covered by such policy, deposit from its own funds in the Custodial Account the amount not otherwise payable under the blanket policy because of such deductible clause. In connection with its activities as administrator and servicer of the Mortgage Loans, the Servicer -38- agrees to prepare and present, on behalf of itself and the Purchaser, claims under any such blanket policy in a timely fashion in accordance with the terms of such policy. Upon request of the Purchaser, the Company shall cause to be delivered to the Purchaser a certified true copy of such policy and a statement from the insurer thereunder that such policy shall in no event be terminated or materially modified without thirty days prior written notice to the Purchaser. Section 4.11 Fidelity Bond; Errors and Omissions Insurance. --------------------------------------------- The Company shall maintain with responsible companies, at its own expense, a blanket fidelity bond and an errors and omissions insurance policy, 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 Mortgage Loans ("Company Employees"). Any such fidelity bond and errors and omissions insurance shall be in the form of the Mortgage Banker's Blanket Bond and shall protect and insure the Company against losses, including forgery, theft, embezzlement, fraud, errors and omissions, failure to maintain any insurance policies required pursuant to this Agreement, and negligent acts of such Company Employees. Such fidelity bond shall also protect and insure the Company against losses in connection with the release or satisfaction of a Mortgage Loan without having obtained payment in full of the indebtedness secured thereby. No provision of this Section 4.11 requiring such fidelity bond and errors and omissions insurance shall diminish or relieve the Company from its duties and obligations as set forth in this Agreement. The minimum coverage under any such bond and insurance policy shall be at least equal to the corresponding amounts required by FNMA in the FNMA MBS Selling and Servicing Guide or by FHLMC in the FHLMC Sellers' & Servicer's Guide, as amended or restated from time to time. Upon the request of the Purchaser, the Company shall cause to be delivered to the Purchaser a certified true copy of such fidelity bond and insurance policy and a statement from the surety and the insurer that such fidelity bond and insurance policy shall in no event be terminated or materially modified without 30 days prior written notice to the Purchaser. Section 4.12 Title, Management and Disposition of REO Property. ------------------------------------------------- In the event that title to the Mortgaged Property is acquired in foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale shall be taken in the name of the Purchaser or its designee of record on the date of acquisition of title. The Company shall manage, conserve, protect and operate each REO Property in trust for the Purchaser solely for the purpose of its prompt disposition and sale. The Company shall either itself or through an agent selected by the Company, manage, conserve, protect and operate the REO Property in the same manner that it manages, conserves, protects and operates other foreclosed property for its own account, and in the same manner that similar property in the same locality as the REO Property is managed. The Company shall attempt to sell the same (and -39- may temporarily rent the same) on such terms and conditions as the Company deems to be in the best interest of the Purchaser. Notwithstanding anything to the contrary in this Section 4.12, the Company shall not be required to advance any of its own funds pursuant to this Section 4.12 if such advance would be a Nonrecoverable Advance. With respect to each REO Property, the Company shall hold all funds collected and received in connection with the operation of the REO Property separate and apart from its own funds or general assets and shall establish and maintain with respect to all REO Property a REO Account or Accounts, in the form of a demand account, titled "Long Beach Mortgage Company, in trust for the Purchaser as of [date of acquisition of title] of Fixed Rate and Adjustable Rate Mortgage Loans, Flow Delivery Program" unless an Opinion of Counsel is obtained by the Company to the effect that the classification for federal income tax purposes of the arrangement under which the Mortgage Loans and the REO Property are held will not be adversely affected by holding such funds in another manner specified in such Opinion of Counsel. Such REO Accounts shall be established with a commercial bank, a national bank, a national banking association, a mutual savings bank or a savings and loan association. Funds in the REO Account shall be fully insured by the FDIC, or such account shall be a trust account, and in either case may be drawn on by the Company. The creation of any REO Account shall be evidenced by a letter agreement substantially in the form of Exhibit D hereto. A copy of such letter agreement shall be furnished to the Purchaser upon request. The Company shall cause to be deposited on a daily basis in each REO Account all revenues received with respect to the conservation and disposition of the related REO Property and shall withdraw therefrom funds necessary for the proper operation, management and maintenance of the REO Property, including the cost of maintaining any hazard insurance pursuant to Section 4.10 hereof and the fees of any managing agent acting on behalf of the Company. The Company shall not be entitled to retain interest paid or other earnings, if any, on funds deposited in such REO Account. The Company shall use its best efforts to dispose of the REO Property as soon as possible and shall sell such REO Property in any event within two years after title has been taken to such REO Property, unless (i) a REMIC election has not been made with respect to the arrangement under which the REO Property is held, and (ii) the Company determines, and gives an appropriate notice to the Purchaser, that a longer period is necessary for the orderly liquidation of such REO Property. If a period longer than two years is permitted under this Agreement and is necessary to sell any REO Property, (i) the Company shall report monthly to the Owners as to the progress being made in selling such REO Property and (ii) if, with the written consent of the Purchaser, a purchase money mortgage is taken in connection with such sale, such purchase money mortgage shall name the Company as mortgagee, and a participation agreement among the Company and the Purchaser shall be entered into with respect to such purchase money mortgage. The disposition of REO Property shall be carried out by the Company only with the prior written consent of the Purchaser (which consent shall not be unreasonably withheld or -40- delayed) and shall be made at such price, and upon such terms and conditions, as the Company deems to be in the best interests of the Purchaser. The proceeds of sale of the REO Property shall be promptly deposited in the REO Account and, as soon as practical thereafter, the expenses of such sale shall be paid. Prior to each Remittance Date, the Company shall deposit in the Custodial Account all funds in the REO Accounts, net of unreimbursed Servicing Advances, accrued and unpaid Servicing Fees and unreimbursed advances made pursuant to Section 5.03 which shall be retained by the Company with respect to the related Mortgage Loan. Upon request, with respect to any REO Property, the Company shall furnish to the Purchaser a statement covering the Company's efforts in connection with the sale of that REO Property and any rental of the REO Property incidental to the sale thereof for the previous month (together with an operating statement). That statement shall be accompanied by such other information as the Purchaser shall reasonably request. Section 4.13 Liquidation Reports. ------------------- The Company shall submit to the Purchaser monthly, at the time of the remittance report required pursuant to Section 5.02, a liquidation report with respect to each Mortgaged Property sold in a foreclosure sale as of the related Record Date and not previously reported. Section 4.14 Delivery of Documents in Possession of Custodian. ------------------------------------------------ The Purchaser shall cause the Custodian to deliver to the Company, on a timely basis, those Mortgage Files that the Company may request from the Custodian from time to time. Should the Custodian fail to deliver requested Mortgage Files on a timely basis, the Company shall not be liable for any related loss and any Event of Default which is attributable to the failure to deliver, or the untimely delivery of, the requested Mortgage Files shall be deemed to have not occurred. Section 4.15 Notification of Adjustments. --------------------------- On each Adjustment Date, the Company shall make interest rate adjustments for each Mortgage Loan in compliance with the requirements of the related Mortgage and Mortgage Note. The Company shall execute and deliver the notices required by each Mortgage and Mortgage Note regarding interest rate adjustments. The Company shall also provide timely notification to the Purchaser of all applicable data and information regarding such interest rate adjustments and the Company's methods of implementing such interest rate adjustments. Upon the discovery by the Company or the Purchaser that the Company has failed to adjust a Mortgage Interest Rate or a Monthly Payment pursuant to the terms of the related Mortgage Note and Mortgage, the Company shall immediately deposit in the Custodial Account from its own funds the amount of any interest loss caused thereby without reimbursement therefor. -41- ARTICLE V PAYMENTS TO THE PURCHASER ------------------------- Section 5.01 Distributions. ------------- On each Remittance Date the Company shall remit by wire transfer of immediately available funds to the account designated in writing by the Purchaser the Available Remittance Amount. Section 5.02 Statements to the Purchaser. --------------------------- Not later than each Remittance Date, the Company will furnish to the Purchaser a statement in a computer readable format setting forth the following information with respect to the related remittance: (i) the amount of such remittance allocable to principal (including a separate breakdown of any Principal Prepayments, including the date of such prepayment); (ii) the amount of such distribution allocable to interest; (iii) the amount of Servicing Compensation received by the Company during the prior Due Period; (iv) the aggregate Stated Principal Balance of the Mortgage Loans as of the close of business on the related Determination Date; (v) the aggregate of any expenses reimbursed to the Company during the prior distribution period pursuant to Section 9.01; (vi) the weighted average maturity of the Mortgage Loans as of the close of business on the applicable Determination Date; (vii) in the event the Mortgage Loans bear different Mortgage Interest Rates, the weighted average Mortgage Interest Rate and Mortgage Loan Remittance Rate of the Mortgage Loans as of the close of business on the applicable Determination Date; (viii) the number and aggregate principal balances of Mortgage Loans (a) delinquent (1) 31 days, (2) 61 days, (3) 91 days or more, (b) as to which foreclosure has commenced, and (c) as to which REO Property has been acquired; -42- (ix) the aggregate amount of advances made pursuant to Section 5.03 included in such distribution, and the aggregate amount of such advances outstanding as of the close of business on such Remittance Date; (x) the amount of all Liquidation Proceeds; (xi) the amount of all proceeds received by the Company under any title, hazard, primary mortgage guaranty or other insurance policy, including amounts required to be deposited pursuant to Section 4.10, other than proceeds to be held in the Escrow Account and applied to the restoration or repair of the Mortgaged Property or released to the Mortgagor in accordance with Customary Servicing Procedures; (xii) the amount of all awards or settlements in respect of condemnation proceedings or eminent domain affecting any Mortgaged Property which are not released to the Mortgagor in accordance with Customary Servicing Procedures; (xiii) the amounts, if any, required to be deposited in the Custodial Account pursuant to Sections 4.12, 5.03, 5.04 and 6.02; and (xiv) the amounts, if any, payable in connection with the repurchase of any Mortgage Loan pursuant to Section 3.03, and all amounts required to be deposited by the Company in connection with shortfalls in principal amount of Qualified Substitute Mortgage Loans pursuant to Section 3.03. Within 60 days after the end of each calendar year, the Company will furnish a report to the Purchaser. Such report shall state the aggregate of amounts reported pursuant to (i) through (iii) and (v) above for such calendar year. Such obligation of the Company shall be deemed to have been satisfied to the extent that substantially comparable information shall be provided by the Company pursuant to any requirements of the Internal Revenue Code of 1986 as from time to time in force. The Company shall prepare and file any and all tax returns, information statements or other filings required to be delivered to any governmental taxing authority or to the Purchaser pursuant to any applicable law with respect to the Mortgage Loans and the transactions contemplated hereby. In addition, the Company shall provide the Purchaser with such information concerning the Mortgage Loans as is necessary for the Purchaser to prepare its federal income tax return as the Purchaser may reasonably request from time to time. Section 5.03 Advances by the Company. ----------------------- On the second Business Day preceding each Remittance Date, the Company shall deposit in the Custodial Account an amount equal to all Monthly Payments (with interest adjusted to the Mortgage Loan Remittance Rate) which were due on the Mortgage Loans on the -43- Due Date in the month of the Remittance Date and not received by the close of business on the immediately preceding Determination Date. The Company's obligation to make such advances as to any Mortgage Loan will continue until the liquidation thereof, an REO Disposition in connection therewith or the purchase or repurchase thereof. Notwithstanding anything to the contrary, the obligation of the Company to make such advances pursuant to this Section 5.03 is mandatory, except that no advance shall be required to be made hereunder that would, if made, constitute a Nonrecoverable Advance. The Company may pay all or a portion of any advance out of excess amounts on deposit in the Custodial Account and held for future distribution on the date such advance is made; any such excess amounts so used shall be replaced by the Company by deposit to the Custodial Account on or before the next succeeding Determination Date. Section 5.04 Prepayment Interest Shortfalls. ------------------------------ Prior to each Remittance Date, the Servicer shall either deposit in the Custodial Account from its own funds and without any right of reimbursement therefor, or leave on deposit in the Custodial Account to the extent not previously retained or withdrawn, a total amount equal to the aggregate of the Prepayment Interest Shortfalls for such Remittance Date; provided that the Servicer's obligations under this Section on any Remittance Date shall not be more than the total amount of Servicing Fee paid to or retained by the Servicer since the preceding Remittance Date. -44- ARTICLE VI GENERAL SERVICING PROCEDURE --------------------------- Section 6.01 Assumption Agreements. --------------------- The Company will use its best efforts to enforce any "due-on-sale" provision contained in any Mortgage or Mortgage Note and to deny assumption by the person to whom the Mortgaged Property has been or is about to be sold whether by absolute conveyance or by contract of sale, and whether or not the Mortgagor remains liable on the Mortgage and the Mortgage Note. When the Mortgaged Property has been or will be conveyed by the Mortgagor, the Company will, to the extent it has knowledge of such conveyance, exercise its rights to accelerate the maturity of such Mortgage Loan under the "due-on-sale" clause applicable thereto, provided, however, the Company will not exercise such rights if prohibited by law from doing so. If the Company reasonably believes it is unable under applicable law to enforce such "due-on-sale" clause, the Company will obtain the written permission of the Purchaser (which consent shall not be unreasonably withheld or delayed) prior to entering into an assumption and modification agreement with the person to whom such property has been conveyed, pursuant to which such person becomes liable under the Mortgage Note and, to the extent permitted by applicable law, the Mortgagor remains liable thereon. If an assumption fee is collected by the Company for entering into an assumption agreement the entire such fee will be retained by the Company as additional Servicing Compensation. In connection with any such assumption, the outstanding principal amount, the Monthly Payment and (except pursuant to the adjustable rate provisions, if any, of the Mortgage Loan) the Mortgage Interest Rate of the related Mortgage Note shall not be changed, and the term of the Mortgage Loan will not be increased or decreased. If an assumption is allowed pursuant to this Section 6.01, the Company with the prior consent of the primary mortgage guaranty insurer, if any, is authorized to enter into a substitution of liability agreement with the purchaser of the Mortgaged Property pursuant to which the original Mortgagor is released from liability and the purchaser of the Mortgaged Property is substituted as Mortgagor and becomes liable under the Mortgage Note. Section 6.02 Satisfaction of Mortgages and Release of Mortgage Files. ------------------------------------------------------- Upon the payment in full of any Mortgage Loan, or the receipt by the Company of a notification that payment in full will be escrowed in a manner customary for such purposes, the Company will obtain the portion of the Mortgage File that is in the possession of the Custodian, prepare and process any required satisfaction or release of the Mortgage and notify the Purchaser. No expense incurred in connection with any instrument of satisfaction or deed of reconveyance shall be chargeable to the Custodial Account or the Purchaser. -45- Immediately after the payment in full of such Mortgage Loan, the Company shall give prompt written notice to the Purchaser of such payment in full. In the event the Company grants a satisfaction or release of a Mortgage without having obtained payment in full of the indebtedness secured by the Mortgage or should the Company otherwise prejudice any right the Purchaser may have under the mortgage instruments, the Company shall remit to the Purchaser the Stated Principal Balance of the related Mortgage Loan by deposit thereof in the Custodial Account including Prepayment Interest Shortfall, if any. The Company shall maintain the Fidelity Bond as provided for in Section 4.11 insuring the Company against any loss it may sustain with respect to any Mortgage Loan not satisfied in accordance with the procedures set forth herein. Section 6.03 Servicing Compensation. ---------------------- As compensation for its services hereunder, the Company shall be entitled to retain from interest payments on the Mortgage Loans the Company's Servicing Fee. Additional servicing compensation in the form of assumption fees and other administrative fees and late payment charges shall be retained by the Company. The Company also shall be entitled to receive from the Custodial Account as additional servicing compensation interest or other income earned on deposits therein, as well as any Prepayment Interest Excess and prepayment penalties other than Prepayment Charges. The Company 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. Section 6.04 Annual Statement as to Compliance. --------------------------------- The Company will deliver to the Purchaser, on or before April 15 of each year beginning April 15, 1998, an Officer's Certificate stating that (i) the Company has fully complied with the provisions of Article IV, (ii) a review of the activities of the Company during the preceding calendar year and of performance under this Agreement has been made under such officer's supervision, and (iii) to the best of such officer's knowledge, based on such review, the Company has fulfilled all 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 the action being taken by the Company to cure such default. Section 6.05 Annual Independent Public Accountants' Servicing Report. ------------------------------------------------------- On or before the later of (i) April 15 of each year beginning April 15, 1998, or (ii) within 30 days of the issuance of the annual audited Financial Statements beginning with the audit for the period ending December 31, 1997, the Company at its expense shall cause a firm of independent public accountants which is a member of the American Institute of Certified Public Accountants to furnish a statement to the Purchaser to the effect that based on an examination of -46- certain specified documents and records relating to the servicing of the Company's mortgage loan portfolio conducted substantially in compliance with the audit program for mortgages serviced for FNMA and FHLMC, the United States Department of Housing and Urban Development Mortgage Audit Standards, or the Uniform Single Attestation Program for Mortgage Bankers (the "Applicable Accounting Standards"), such firm is of the opinion that such servicing has been conducted in compliance with the Applicable Accounting Standards except for (a) such exceptions as such firm shall believe to be immaterial and (b) such other exceptions as shall be set forth in such statement. Section 6.06 Option to Acquire Servicing; Continuation of Company as ------------------------------------------------------- Servicer. -------- If so provided in the related Commitment Letter, the Purchaser shall have the right to purchase the servicing rights for the related Mortgage Loans, in accordance with the terms set forth in such Commitment Letter. Subject to exercise of the option, if any, to acquire servicing as described above, the Purchaser hereby agrees that any agreement entered into by the Purchaser in connection with any Pass-Through Transfer shall provide for the continuation of the Company as the servicer of the Mortgage Loans pursuant to the related Reconstitution Agreement without diminution of the Company's rights hereunder. Section 6.07 Purchaser's Right to Examine Company Records. -------------------------------------------- The Purchaser shall have the right, at all reasonable times and as often as reasonably required, to examine and audit any and all of the books, records or other information of the Company, whether held by the Company or by another on behalf of the Company, which may be relevant to the performance or observance by the Company of the terms, covenants or conditions of this Agreement. -47- ARTICLE VII REPORTS TO BE PREPARED BY COMPANY --------------------------------- Section 7.01 Company Shall Provide Access and Information as Reasonably ---------------------------------------------------------- Required. -------- The Company shall provide to the Purchaser access to any documentation regarding the Mortgage Loans which is required by applicable regulations. Such access shall be afforded without charge, but only upon reasonable request, during normal business hours and at the offices of the Company. In addition, the Company shall furnish to the Purchaser upon request, during the term of this Agreement, such periodic, special or other reports or information, whether or not provided for herein, as shall be necessary, reasonable or appropriate with respect to the purposes of this Agreement and the applicable regulations. All such reports or information shall be provided by and in accordance with all reasonable instructions and directions the Purchaser may require. The Company agrees to execute and deliver all such instruments and take all such action as the Purchaser, from time to time, may reasonably request in order to effectuate the purposes and to carry out the terms of this Agreement. Section 7.02 Financial Statements. -------------------- Upon written request of the Purchaser, the Company shall provide a Consolidated Statement of Income of the Company for the most recently completed three fiscal years respecting which such statements are available, as well as a Consolidated Balance Sheet at the end of the last two fiscal years covered by such Consolidated Statement of Income, and any comparable interim statements, to the extent any such statements have been prepared by the Company (and are available upon request to members or stockholders of the Company, or to the public at large). Upon reasonable request, during normal business hours and at the offices of the Company, the Company also agrees to make available to the Purchaser or prospective purchaser of the Mortgage Loans a knowledgeable financial or accounting officer for the purpose of answering questions respecting recent developments affecting the Company or the financial statements of the Company and to permit the Purchaser or prospective purchaser of the Mortgage Loans to inspect the Company's servicing facilities for the purpose of satisfying the Purchaser or prospective purchaser of the Mortgage Loans that the Company has the ability to service the Mortgage Loans in accordance with this Agreement. Notwithstanding the preceding sentence, the Company shall not be required to provide any information that it deems confidential. -48- ARTICLE VIII REMOVAL OF MORTGAGE LOANS FROM INCLUSION UNDER THE AGREEMENT UPON A WHOLE LOAN - ------------------------------------------------------------------------------ TRANSFER OR A PASS-THROUGH TRANSFER ON ONE OR MORE RECONSTITUTION DATES - ----------------------------------------------------------------------- Section 8.01 Removal of Mortgage Loans from Inclusion Under this Agreement Upon a Whole Loan Transfer or a Pass-Through Transfer on One or More Reconstitution Dates. Removal of ------------------------------------- Mortgage Loans from Inclusion Under this Agreement Upon a --------------------------------------------------------- Whole Loan Transfer or a Pass-Through Transfer on One or -------------------------------------------------------- More Reconstitution Dates. ------------------------- Company and Purchaser agree that with respect to some or all of the Mortgage Loans, within 12 months from the respective Closing Date, the Purchaser shall effect either: (1) one or more Whole Loan Transfers; and/or (2) one or more Pass-Through Transfers; provided, however, that no Mortgage Loan shall be the subject of more than one Whole Loan Transfer or one Pass-Through Transfer hereunder. The Company and Purchaser agree that in no event will the Company be required to remit funds or send remittance reports to more than four (4) persons at any given time with respect to any Whole Loan Transfer or Pass-Through Transfer. With respect to each Whole Loan Transfer or Pass-Through Transfer, as the case may be, entered into by Purchaser, Company agrees: (1) to cooperate fully with Purchaser and any prospective purchaser with respect to all reasonable requests and due diligence procedures; (2) to execute all Reconstitution Agreements and such ancillary documents (including a Custodial Agreement) that are standard in the industry provided that each of the Company and the Purchaser is given an opportunity to review and reasonably negotiate in good faith the content of such documents not specifically referenced or provided for herein; and provided, further, that any such agreement entered into in connection with a Whole Loan Transfer or Pass- Through Transfer, servicing retained, shall permit the related Mortgage Loans to be sub-serviced by the Sub-Servicer -49- and master serviced by the Company in accordance with the Sub- Servicing Agreement attached hereto as Exhibit O; (3) with respect to any Whole Loan Transfer or Pass-Through Transfer occurring within 6 months (unless otherwise specified in the related Confirmation) of the Final Closing Date, the Company shall make the representations and warranties regarding the Company and the Mortgage Loans as of the date of the Whole Loan Transfer or Pass- Through Transfer, modified to the extent necessary to accurately reflect the pool statistics of the Mortgage Loans as of the date of such Whole Loan Transfer or Pass-Through Transfer; (4) to deliver to the Purchaser for inclusion in any prospectus or other offering material such publicly available information regarding the Company, its financial condition and its mortgage loan delinquency, foreclosure and loss experience, underwriting standards, lending activities and loan sales, production, and servicing and collection practices, generally as is set forth in prospectus supplements previously delivered in connection with public offerings of pass- through securities backed by mortgage loans similar to the Mortgage Loans and sold by the Company, and to deliver to the Purchaser any similar nonpublic, unaudited financial information, in which case the Purchaser shall bear the cost of having such information audited by certified public accountants if the Purchaser desires such an audit, or as is otherwise reasonably requested by the Purchaser and which the Company is capable of providing without unreasonable effort or expense, and to indemnify the Purchaser and its affiliates for material misstatements contained in such information; (5) to deliver to the Purchaser and to any Person designated by the Purchaser, at the Purchaser's expense, such statements and audit letters of reputable, certified public accounts pertaining to information provided by the Company pursuant to clause 4 above as shall be reasonably requested by the Purchaser; (6) to deliver to the Purchaser, and to any Person designated by the Purchaser, such in-house opinions of counsel as are customarily delivered by originators or servicers, as the case may be, in connection with Whole Loan Transfers or Pass-Through Transfers, as the case may be, it being understood that the cost of any opinions of outside special counsel that may be required for a Whole Loan Transfer or Pass-Through Transfer, as the case may be, shall be the responsibility of the Purchaser; and -50- (7) to cooperate fully with the Purchaser and any prospective purchaser with respect to the preparation of Mortgage Loan Documents and other documents with respect to servicing requirements reasonably requested by the rating agencies and credit enhancers. All Mortgage Loans not sold or transferred pursuant to a Whole Loan Transfer or Pass-Through Transfer shall be subject to this Agreement and shall continue to be serviced in accordance with the terms of this Agreement and with respect thereto this Agreement shall remain in full force and effect. -51- ARTICLE IX THE COMPANY ----------- Section 9.01 Indemnification; Third Party Claims. ----------------------------------- The Company agrees to indemnify and hold harmless the Purchaser against any and all claims, losses, penalties, fines, forfeitures, legal fees and related costs, judgments, and any other costs, fees and expenses that the Purchaser may sustain in any way related to the failure of the Company to perform its duties and service the Mortgage Loans in strict compliance with the terms of this Agreement. The Company shall immediately notify the Purchaser if a claim is made by a third party with respect to this Agreement or the Mortgage Loans, and the Company shall assume the defense of any such claim and advance all expenses in connection therewith, including counsel fees, and promptly pay, discharge and satisfy any judgment or decree which may be entered against the Company or the Purchaser in respect of such claim. The Purchaser shall promptly reimburse the Company for all amounts advanced by it pursuant to the preceding sentence except when the claim in any way relates to the Company's failure to service and administer the Mortgage Loans in strict compliance with the terms of this Agreement. Section 9.02 Merger or Consolidation of the Company. -------------------------------------- The Company will keep in full effect its existence, rights and franchises as a corporation, and will obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement or any of the Mortgage Loans and to perform its duties under this Agreement. Any Person into which the Company may be merged or consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Company shall be a party, or any Person succeeding to substantially all of the business of the Company (whether or not related to loan servicing), shall be the successor of the Company 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; provided, however, that the successor or surviving Person shall be an institution (i) having a GAAP net worth of not less than $15,000,000, (ii) the deposits of which are insured by the FDIC or which is a HUD-approved mortgagee whose primary business is in origination and servicing of mortgage loans comparable to the Mortgage Loans and (iii) who is a FNMA approved seller/servicer in good standing. -52- Section 9.03 Limitation on Liability of the Company and Others. ------------------------------------------------- The Company and any director, officer, employee or agent of the Company 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, the Company shall have no obligation to appear with respect to, prosecute or defend any legal action which is not incidental to the Company's duty to service the Mortgage Loans in accordance with this Agreement. Section 9.04 Company Not to Resign. --------------------- The Company shall not assign this Agreement nor resign from the obligations and duties hereby imposed on it except by mutual consent of the Company and the Purchaser or upon the determination that the Company's duties hereunder are no longer permissible under applicable law and such incapacity cannot be readily cured by the Company without additional expenses. Any such determination permitting the resignation of the Company shall be evidenced by an Opinion of Counsel to such effect delivered to the Purchaser. No such resignation shall become effective until a successor which satisfies the requirements of Section 9.02 has assumed the Company's responsibilities and obligations hereunder in accordance with Section 13.01. Section 9.05 No Transfer of Servicing; Sub-Servicing Agreement. ------------------------------------------------- With respect to the retention of the Company to service the Mortgage Loans hereunder, the Company acknowledges that the Purchaser has acted in reliance upon the Company's independent status, the adequacy of its servicing facilities, plant, personnel, records and procedures, its integrity, reputation and financial standing and the continuance thereof. Without in any way limiting the generality of this Section, and subject to Section 6.06 and this 9.05, the Company shall not either assign this Agreement or the servicing hereunder or delegate its rights or duties hereunder or any portion thereof. Notwithstanding the foregoing, the Company may enter into the Sub- Servicing Agreement with the Sub-Servicer for the servicing and administration of the Mortgage Loans. Notwithstanding any Sub-Servicing Agreement, any of the provisions of this Agreement relating to agreements or arrangements between the Company and a Sub-Servicer or reference to actions taken through a Sub-Servicer or otherwise, the Company shall remain obligated and primarily liable to the Purchaser for the servicing and administering of the Mortgage Loans in accordance with the provisions of Section 4.01 without diminution of such obligation or liability by virtue of such Sub-Servicing Agreements or arrangements or by virtue of indemnification from the Sub-Servicer and to the same extent and under the same terms and conditions as if the Company alone were servicing and administering the Mortgage Loans. The -53- Company shall be entitled to enter into any agreement with a Sub-Servicer for indemnification of the Company by such Sub-Servicer and nothing contained in this Agreement shall be deemed to limit or modify such indemnification. Any Sub-Servicing Agreement that may be entered into and any transactions or services relating to the Mortgage Loans involving a Sub-Servicer in its capacity as such shall be deemed to be between the Sub-Servicer and the Company alone, and the Purchaser shall not be deemed parties thereto and shall have no claims, rights, obligations, duties or liabilities with respect to the Sub-Servicer except as set forth in the Sub-Servicing Agreement. The Company shall be solely liable for all fees owed by it to any Sub-Servicer, irrespective of whether the Company's compensation pursuant to this Agreement is sufficient to pay such fees. -54- ARTICLE X DEFAULT ------- Section 10.01 Events of Default. ----------------- In case one or more of the following Events of Default by the Company shall occur and be continuing, that is to say: (i) any failure by the Company to remit to the Purchaser any payment required to be made under the terms of this Agreement which continues unremedied for a period of 5 days after the date upon which written notice of such failure, requiring the same to be remedied, shall have been given to the Company by the Purchaser; or (ii) failure by the Company to duly observe or perform, in any material respect, any other covenants, obligations or agreements of the Company as set forth in this Agreement which failure continues unremedied for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Company by the Purchaser; or (iii) a decree or order of a court or agency or supervisory authority having jurisdiction for the appointment of a receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Company and such decree or order shall have remained in force, undischarged or unstayed for a period of 60 days; or (iv) the Company shall consent to the appointment of a receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to the Company or relating to all or substantially all of the Company's property; or (v) the Company 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) any failure of the Company to make any advance when required to be made pursuant to Section 5.03 that continues unremedied for a period of one Business Day after the date on which telecopied notice of such failure, requiring the same to be remedied, shall have been given to the Company by the Purchaser (followed by written notice delivered within one Business Day thereafter); -55- then, and in each and every such case, so long as an Event of Default shall not have been remedied, the Purchaser, by notice in writing to the Company, may, in addition to whatever rights the Purchaser may have at law or equity to damages, including injunctive relief and specific performance, commence termination of all the rights and obligations of the Company under this Agreement and in and to the Mortgage Loans and the proceeds thereof. Upon receipt by the Company of a second written notice from the Purchaser stating that they intend to terminate the Company as a result of such Event of Default, all authority and power of the Company under this Agreement, whether with respect to the Mortgage Loans or otherwise, shall pass to and be vested in the successor appointed pursuant to Section 13.01. Upon receipt of such second written notice, the Company shall prepare, execute and deliver to a successor any and all documents and other instruments, place in such successor's possession all Mortgage Files 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 Mortgage Loans and related documents to the successor, all at the Company's sole expense. The Company agrees to cooperate with the Purchaser and such successor in effecting the termination of the Company's responsibilities and rights hereunder, including, without limitation, the transfer to such successor for administration by it of all amounts which shall at the time be credited or should have been credited by the Company to the Custodial Account or Escrow Account or REO Account or thereafter received with respect to the Mortgage Loans. Section 10.02 Waiver of Defaults. ------------------ The Purchaser may waive any default by the Company in the performance of its obligations hereunder and its consequences. 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 10.03 Servicer to Retain Previous Entitlement. --------------------------------------- Notwithstanding any termination of the activities of the Servicer hereunder pursuant to Section 10.01, the Servicer shall be entitled to receive, out of any late collection of a Monthly Payment on a Mortgage Loan which was due prior to the notice terminating the Servicer's rights and obligations as Servicer hereunder and received after such notice, that portion thereof to which the Servicer would have been entitled pursuant to Section 4.05, and any other amounts payable to the Servicer hereunder the entitlement to which arose prior to the termination of its activities hereunder. -56- ARTICLE XI TERMINATION ----------- Section 11.01 Termination. ----------- This Agreement shall terminate upon either: (i) the later of the distribution to the Purchaser of final payment or liquidation with respect to the last Mortgage Loan (or advances of same by the Company), or the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure with respect to the last Mortgage Loan and the remittance of all funds due hereunder; (ii) the mutual consent of the Company and the Purchaser in writing; or (iii) the acquisition of all servicing pursuant to Section 6.06 hereof. -57- ARTICLE XII MANDATORY DELIVERY; GRANT OF A SECURITY INTEREST ------------------------------------------------ Section 12.01 Mandatory Delivery; Grant of Security Interest. ---------------------------------------------- The sale and delivery on the related Closing Date of the Mortgage Loans described on the related Mortgage Loan Schedule is mandatory from and after the date of the execution of the related Confirmation unless otherwise noted on the Confirmation, it being specifically understood and agreed that each Mortgage Loan is unique and identifiable on the date thereof and that an award of money damages would be insufficient to compensate the Purchaser for the losses and damages incurred by the Purchaser (including damages to prospective purchasers of the Mortgage Loans) in the event of the Company's failure to deliver (i) each of the related Mortgage Loans or (ii) one or more Qualified Substitute Mortgage Loans or (iii) one or more Mortgage Loans otherwise acceptable to the Purchaser on or before the related Closing Date. As of the date of each mandatory delivery Confirmation, the Company hereby grants to the Purchaser a lien on and a continuing security interest in each related Mortgage Loan and each document and instrument evidencing each such Mortgage Loan to secure the performance by the Company of its obligation to deliver the Mortgage Loans on the Closing Date therefor, and the Company agrees that it holds such Mortgage Loans in custody for the Purchaser subject to the Purchaser's (i) right to reject any Mortgage Loan (or Qualified Substitute Mortgage Loan) under the terms of this Agreement and to require another Mortgage Loan (or Qualified Substitute Mortgage Loan) to be substituted therefor, and (ii) obligation to pay the Purchase Price for the Mortgage Loans. The Company intends that the conveyance of the Company's right, title and interest in and to the Mortgage Loans to the Purchaser shall constitute a sale and not a pledge of security for a loan. If such conveyance is deemed to be a pledge of security for a loan, however, the Company intends that the rights and obligations of the parties to such loan shall be established pursuant to the terms of the Agreement. The Company also intends and agrees that, in such event, (i) the Company shall be deemed to have granted to the Purchaser and its assigns a first priority security interest in the Company's entire right, title and interest in and to the Mortgage Loans, all principal and interest received or receivable with respect to the Mortgage Loans, all amounts held from time to time in the accounts mentioned pursuant to this Agreement and all reinvestment earnings on such amounts, together with all of the Company's right, title and interest in and to the proceeds of any title, hazard or other insurance policies related to such Mortgage Loans and (ii) the Agreement shall constitute a security agreement under applicable law. All rights and remedies of the Purchaser under this Agreement are distinct from, and cumulative with, any other rights or remedies under this Agreement or afforded by law or equity and all such rights and remedies may be exercised concurrently, independently or successively. -58- ARTICLE XIII MISCELLANEOUS PROVISIONS ------------------------ Section 13.01 Successor to the Company. ------------------------ Prior to termination of the Company's responsibilities and duties under this Agreement pursuant to Sections 9.04, 10.01 or 11.01, the Purchaser shall (i) succeed to and assume all of the Company's responsibilities, rights, duties and obligations under this Agreement, or (ii) appoint a successor having the characteristics set forth in Section 9.02 hereof and which shall succeed to all rights and assume all of the responsibilities, duties and liabilities of the Company under this Agreement prior to the termination of the Company's responsibilities, duties and liabilities under this Agreement. In connection with such appointment and assumption, the Purchaser may make such arrangements for the compensation of such successor out of payments on Mortgage Loans as it and such successor shall agree. In the event that the Company's duties, responsibilities and liabilities under this Agreement should be terminated pursuant to the aforementioned Sections, the Company shall discharge such duties and responsibilities during the period from the date it acquires knowledge of such termination until the effective date thereof with the same degree of diligence and prudence which it is obligated to exercise under this Agreement, and shall take no action whatsoever that might impair or prejudice the rights or financial condition of its successor. The resignation or removal of the Company pursuant to the aforementioned Sections shall not become effective until a successor shall be appointed pursuant to this Section and shall in no event relieve the Company of the representations and warranties made pursuant to Sections 3.01 and 3.02 or its obligations under Section 9.01 and the remedies available to the Purchaser under Section 3.03, it being understood and agreed that the provisions of such Sections 3.01, 3.02, 3.03 and 9.01 shall be applicable to the Company notwithstanding any such resignation or termination of the Company, or the termination of this Agreement. In addition, notwithstanding any such resignation or termination, the Company shall cooperate with all reasonable requests for information by the Purchaser in connection with a Whole Loan Transfer or a Pass-Through Transfer occurring within 180 days of such termination; provided such information is in the possession of the Company and the Purchaser pays for all out-of-pocket expenses of the Company incurred in providing the same. Any successor appointed as provided herein shall execute, acknowledge and deliver to the Company and to the Purchaser an instrument accepting such appointment, whereupon such successor shall become fully vested with all the rights, powers, duties, responsibilities, obligations and liabilities of the Company, with like effect as if originally named as a party to this Agreement. Any termination or resignation of the Company or this Agreement pursuant to Section 9.04, 10.01 or 11.01 shall not affect any claims that the Purchaser may have against the Company arising prior to any such termination or resignation. -59- The Company shall promptly deliver to the successor the funds in the Custodial Account, Escrow Account and REO Account and all Mortgage Files and related documents and statements held by it hereunder and the Company shall account for all funds and shall execute and deliver such instruments and do such other things as may reasonably be required to more fully and definitively vest in the successor all such rights, powers, duties, responsibilities, obligations and liabilities of the Company, all at the Company's sole expense. Section 13.02 Amendment. --------- This Agreement may be amended from time to time by the Company and the Purchaser by written agreement signed by the Company and the Purchaser. Section 13.03 Recordation of Agreement. ------------------------ To the extent permitted by applicable law, this Agreement is subject to recordation in all appropriate public offices for real property records in all the counties or other comparable jurisdictions in which any or all of the properties subject to the Mortgages are situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Company at the Company's expense upon direction of the Purchaser, but only when such direction is accompanied by an Opinion of Counsel to the effect that such recordation materially and beneficially affects the interests of the Purchaser or is necessary for the administration or servicing of the Mortgage Loans. Section 13.04 Recordation of Assignment of Mortgages. -------------------------------------- As provided in the Custodial Agreement, each Assignment of Mortgage shall be in a form acceptable for recording in all appropriate public offices for real property records in the jurisdiction in which the Mortgaged Property recited in each such Assignment of Mortgage is situated. Section 13.05 Duration of Agreement. --------------------- This Agreement shall continue in existence and effect until terminated as herein provided. Section 13.06 Governing Law. ------------- This Agreement shall be construed in accordance with the laws of the State of New York, except to the extent preempted by Federal law, and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws. Section 13.07 General Interpretive Principles. ------------------------------- -60- For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender; (b) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles; (c) references herein to "Articles", "Sections", "Subsections", "Paragraphs", and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Agreement; (d) a reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions; (e) the words "herein", "hereof", "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular provision; and (f) the term "include" or "including" shall mean without limitation by reason of enumeration. Section 13.08 Reproduction of Documents. ------------------------- This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications which may hereafter be executed, (b) documents received by any party at the closing, and (c) financial statements, certificates and other information previously or hereafter furnished, may be reproduced by any photographic, photostatic, microfilm, micro- card, miniature photographic or other similar process. The parties agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. Section 13.09 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 registered mail, postage prepaid, to (a) in the case of the Company, Long Beach Mortgage Company, 1100 Town and Country Road, Orange, California 92868, Attention: General Counsel, or such other address as may hereafter be furnished to the Purchaser in writing by the Company and (b) in the case of the -61- Purchaser, Salomon Brothers Realty Corp., Seven World Trade Center, New York, New York 10048, Attention: Susan Mills. Section 13.10 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 provisions of this Agreement. If the invalidity of any part, provision, representation or warranty of this Agreement shall deprive any party of the economic benefit intended to be conferred by this Agreement, the parties shall negotiate in good- faith to develop a structure the economic effect of which is nearly as possible the same as the economic effect of this Agreement without regard to such invalidity. Section 13.11 No Partnership. -------------- Nothing herein contained shall be deemed or construed to create a co- partnership or joint venture between the parties hereto and the services of the Company shall be rendered as an independent contractor and not as agent for the Purchaser. Section 13.12 Execution; Successors and Assigns. --------------------------------- 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. Subject to Section 7.04, Section 10.01 and Section 11.01, this Agreement shall inure to the benefit of and be binding upon the Company and the Purchaser and their respective successors and assigns. IN WITNESS WHEREOF, the Company and the Purchaser have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written. SALOMON BROTHERS REALTY CORP., Purchaser By:_________________________ Name:___________________ Title:______________________ LONG BEACH MORTGAGE COMPANY, Company By:_________________________ Name:___________________ Title:______________________ EX-2.4 5 NATIONAL MORTGAGE SALES CORP. AGREEMENT ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT ------------------------------------------------ This is an Assignment, Assumption and Recognition Agreement made this 30th day of September, 1998, among Salomon Brothers Realty Corp. (the "Seller"), Wilshire Real Estate Investment Trust Inc. (the "Purchaser") and National Mortgage Sales Corporation (the "Company"). In consideration of the mutual promises contained herein the parties hereto agree that the mortgage loans listed on Exhibit One annexed hereto (the "Mortgage Loans") now interim serviced by the Company for the Seller pursuant to the Mortgage Loan Purchase and Interim Servicing Agreement (the "Purchase Agreement"), dated as of September 1, 1998, between the Seller and the Company shall be subject to the terms of this Agreement. WARRANTIES ---------- 1. (a) The Company and the Seller warrant and represent that attached hereto as EXHIBIT TWO is a true, accurate and complete copy of the Purchase Agreement, which Purchase Agreement is in full force and effect as of the date hereof and which has not been amended or modified in any respect nor has any notice of termination been given thereunder. (b) The Seller warrants and represents that it is the lawful owner of the Mortgage Loans with the full right to transfer the Mortgage Loans free from any claim or encumbrance whatsoever. (c) The Seller hereby warrants and represents to the Purchaser that no event has occurred from September 29, 1998 with respect to a Mortgage Loan to the date hereof that would result in any representation and warranty made pursuant to Subsection 7.02 of the Purchase Agreement being untrue if made as of the date hereof with respect to the Mortgage Loans (other than any statistical information with respect to the Mortgage Loans and any changes due to the receipt of payments on the Mortgage Loans, adjustment of the Mortgage Interest Rates on the Mortgage Loans and similar changes, which information as reflected on EXHIBIT ONE hereto is accurate in all material respects as of September 1, 1998). In the event of a breach of the foregoing representation and warranty which materially and adversely affects the value of any Mortgage Loan or the Purchaser's interest therein, the Seller shall repurchase such affected Mortgage Loan at a repurchase price equal to the unpaid principal balance of such Mortgage Loan plus accrued interest at the net Mortgage Interest Rate from the paid through date of the Mortgage Loan to the first day of the month following the month in which such repurchase is effected; provided, that to the extent that the Company would otherwise be required to repurchase a Mortgage Loan due to the breach of any of the representations and warranties that are made or deemed to have been made by the Company as of September 29, 1998, then the Company (and not the Seller) shall be required to repurchase the affected Mortgage Loan, and the Purchaser shall have no remedy against the Seller. It is understood and agreed that the obligations of the Seller set forth in this Section 1(c) to repurchase an affected Mortgage Loan constitutes the sole remedy of the Purchaser respecting a breach of the representation and warranty made in this Section 1(c). ASSIGNMENT AND ASSUMPTION ------------------------- 2. The Seller hereby assigns to the Purchaser (i) all of its right, title and interest in and to the Mortgage Loans and (ii) all of its right, title, and interest in, to, and under the Purchase Agreement to the extent of the Mortgage Loans, and the Purchaser hereby assumes all of the Seller's obligations under the Purchase Agreement with respect to the Mortgage Loans from and after the date hereof, and the parties hereto agree that the Seller shall be relieved and released of all of its obligations under the Purchase Agreement to the extent of the Mortgage Loans from and after the date hereof. RECOGNITION OF THE PURCHASER ---------------------------- 3. From and after the date hereof, the Company shall recognize the Purchaser as the owner of the Mortgage Loans and will interim service the Mortgage Loans for the Purchaser as if the Purchaser and the Company had entered into a separate servicing agreement for the servicing of the Mortgage Loans in the form of the Purchase Agreement, the terms of which are incorporated herein by reference. It is the intention of the Seller, the Company and the Purchaser that this Agreement will be a separate and distinct agreement, and the entire agreement, between the Company and the Purchaser to the extent of the Mortgage Loans and shall be binding upon and for the benefit of the respective successors and assigns of the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. SALOMON BROTHERS REALTY CORP., Seller By:____________________________ Name:__________________________ Title:_________________________ WILSHIRE REAL ESTATE INVESTMENT TRUST, INC. Purchaser By:____________________________ Name:__________________________ Title:_________________________ NATIONAL MORTGAGE SALES CORPORATION Company By:____________________________ Name:__________________________ Title:_________________________ ================================================================================ MORTGAGE LOAN PURCHASE AND INTERIM SERVICING AGREEMENT ________________________________ SALOMON BROTHERS REALTY CORP. Initial Purchaser ________________________________ NATIONAL MORTGAGE SALES CORPORATION Seller and Interim Servicer ________________________________ Dated as of September 1, 1998 Adjustable Rate Mortgage Loans ================================================================================ TABLE OF CONTENTS
Page SECTION 1. Definitions............................................................................. 1 ----------- SECTION 2. Agreement to Purchase................................................................... 12 --------------------- SECTION 3. Mortgage Loan Schedule.................................................................. 12 ---------------------- SECTION 4. Purchase Price.......................................................................... 12 -------------- SECTION 5. Examination of Mortgage Files........................................................... 13 ----------------------------- SECTION 6. Conveyance from Seller to Initial Purchaser............................................. 14 ------------------------------------------- Subsection 6.01. Conveyance of Mortgage Loans; Possession of Servicing Files.................. 14 ----------------------------------------------------------- Subsection 6.02. Books and Records............................................................ 15 ----------------- Subsection 6.03. Delivery of Mortgage Loan Documents.......................................... 15 ----------------------------------- SECTION 7. Representations, Warranties and Covenants of the Seller; Remedies for Breach............ 16 ----------------------------------------------------------------------------- Subsection 7.01. Representations and Warranties Respecting the Seller......................... 16 ---------------------------------------------------- Subsection 7.02. Representations and Warranties Regarding Individual Mortgage Loans........... 18 ------------------------------------------------------------------ Subsection 7.03. Remedies for Breach of Representations and Warranties........................ 24 ----------------------------------------------------- Subsection 7.04 Repurchase of Certain Mortgage Loans......................................... 26 ------------------------------------ Subsection 7.05 Principal Prepayments in Full................................................ 27 ----------------------------- SECTION 8. Closing................................................................................. 27 ------- SECTION 9. Closing Documents....................................................................... 28 ----------------- SECTION 10. Costs................................................................................... 29 ----- SECTION 11. Seller's Servicing Obligations.......................................................... 29 ------------------------------ Subsection 11.01 Seller to Act as Servicer.................................................... 29 ------------------------- Subsection 11.02 Collection of Mortgage Loan Payments......................................... 30 ------------------------------------ Subsection 11.03 Realization Upon Defaulted Mortgage Loans.................................... 30 ----------------------------------------- Subsection 11.04 Establishment of Custodial Accounts; Deposits in Custodial Accounts.......... 32 ------------------------------------------------------------------- Subsection 11.05 Permitted Withdrawals From the Custodial Account............................. 34 ------------------------------------------------ Subsection 11.06 Establishment of Escrow Accounts: Deposits in Escrow Accounts................ 35 ------------------------------------------------------------- Subsection 11.07 Permitted Withdrawals From Escrow Account.................................... 35 ----------------------------------------- Subsection 11.08 Payment of Taxes, Insurance and Other Charges................................ 36 ---------------------------------------------
i Subsection 11.09 Transfer of Accounts.......................................................... 36 -------------------- Subsection 11.10 Maintenance of Hazard Insurance............................................... 36 ------------------------------- Subsection 11.11 Maintenance of Mortgage Impairment Insurance Policy........................... 37 --------------------------------------------------- Subsection 11.12 Fidelity Bond; Errors and Omissions Insurance................................. 38 --------------------------------------------- Subsection 11.13 Title, Management and Disposition of REO Property............................. 38 ------------------------------------------------- Subsection 11.14 Distributions................................................................. 40 ------------- Subsection 11.15 Remittance Reports............................................................ 41 ------------------ Subsection 11.16 Statements to the Purchaser................................................... 41 --------------------------- Subsection 11.17 Real Estate Owned Reports..................................................... 42 ------------------------- Subsection 11.18 Liquidation Reports........................................................... 42 ------------------- Subsection 11.19 Assumption Agreements......................................................... 42 --------------------- Subsection 11.20 Satisfaction of Mortgages and Release of Mortgage Files....................... 43 ------------------------------------------------------- Subsection 11.21 Servicing Advance Reimbursement............................................... 44 ------------------------------- Subsection 11.22 Servicing Compensation........................................................ 44 ---------------------- Subsection 11.23 Statement as to Compliance.................................................... 44 -------------------------- Subsection 11.24 Independent Public Accountants' Servicing Report.............................. 45 ------------------------------------------------ Subsection 11.25 Access to Certain Documentation............................................... 45 ------------------------------- Subsection 11.26 Notification of Adjustments................................................... 46 --------------------------- Subsection 11.27 Sub-Servicing Agreements Between Seller and Sub-Servicers..................... 46 --------------------------------------------------------- Subsection 11.28 Successor Sub-Servicers....................................................... 47 ----------------------- Subsection 11.29 Liability of the Seller....................................................... 47 ----------------------- Subsection 11.30 No Contractual Relationship Between Sub-Servicers and Purchaser............... 48 --------------------------------------------------------------- SECTION 12. [Reserved]............................................................................... 48 SECTION 13. The Seller............................................................................... 48 ---------- Subsection 13.01. Additional Indemnification by the Seller...................................... 48 ---------------------------------------- Subsection 13.02. Merger or Consolidation of the Seller......................................... 48 ------------------------------------- Subsection 13.03. Limitation on Liability of the Seller and Others.............................. 49 ------------------------------------------------ Subsection 13.04. Seller Not to Resign.......................................................... 49 -------------------- Subsection 13.05. No Transfer of Servicing...................................................... 49 ------------------------ SECTION 14. Default.................................................................................. 50 ------- Subsection 14.01. Events of Default............................................................. 50 ----------------- Subsection 14.02. Waiver of Defaults............................................................ 51 ------------------ SECTION 15. Termination.............................................................................. 51 ----------- SECTION 16. Successor to the Seller.................................................................. 52 ----------------------- SECTION 17. Financial Statements..................................................................... 53 -------------------- SECTION 18. Mandatory Delivery; Grant of Security Interest........................................... 53 ----------------------------------------------
ii SECTION 19. Notices...................................................................... 54 ------- SECTION 20. Severability Clause.......................................................... 54 ------------------- SECTION 21. Counterparts................................................................. 55 ------------ SECTION 22. Governing Law................................................................ 55 ------------- SECTION 23. Intention of the Parties..................................................... 55 ------------------------ SECTION 24. Successors and Assigns....................................................... 55 ---------------------- SECTION 25. Waivers...................................................................... 56 ------- SECTION 26. Exhibits..................................................................... 56 -------- SECTION 27. Nonsolicitation.............................................................. 56 --------------- SECTION 28. General Interpretive Principles.............................................. 56 ------------------------------- SECTION 29. Reproduction of Documents.................................................... 56 ------------------------- SECTION 30. Further Agreements........................................................... 57 ------------------
iii EXHIBITS EXHIBIT 1 FORM OF SELLER'S OFFICER'S CERTIFICATE EXHIBIT 2 FORM OF OPINION OF COUNSEL TO THE SELLER EXHIBIT 3 [INTENTIONALLY OMITTED] EXHIBIT 4 CONTENTS OF EACH MORTGAGE FILE EXHIBIT 5 FORM OF CUSTODIAL ACCOUNT LETTER AGREEMENT EXHIBIT 6 FORM OF ESCROW ACCOUNT LETTER AGREEMENT EXHIBIT 7 MORTGAGE LOAN DOCUMENTS EXHIBIT 8 FORM OF MONTHLY DATA REPORT SCHEDULE I MORTGAGE LOAN SCHEDULE iv MORTGAGE LOAN PURCHASE AND INTERIM SERVICING AGREEMENT ------------------------------------------------------ This is a MORTGAGE LOAN PURCHASE AND INTERIM SERVICING AGREEMENT (the "Agreement"), dated as of September 1, 1998, by and between Salomon Brothers Realty Corp., having an office at Seven World Trade Center, New York, New York 10048 (the "Initial Purchaser," and the Initial Purchaser or the Person, if any, to which the Initial Purchaser has assigned its rights and obligations hereunder as Purchaser with respect to a Mortgage Loan, and each of their respective successors and assigns, the "Purchaser") and National Mortgage Sales Corporation, having an office at 7600 East Orchard Road, Suite 330S, Englewood, Colorado 80111-4943 (the "Seller"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser desires to purchase from the Seller, certain pools of 6 month LIBOR adjustable rate mortgage loans (the "Mortgage Loans") as described herein on a servicing released basis, and which shall be delivered as whole loans on the date provided herein (the "Closing Date"); WHEREAS, each Mortgage Loan is secured by a mortgage, deed of trust or other security instrument creating a first lien on a residential dwelling located in the jurisdiction indicated on the Mortgage Loan Schedule, which is to be annexed hereto on the Closing Date as Schedule I; ---------- WHEREAS, the Purchaser and the Seller wish to prescribe the manner of the conveyance, interim servicing and control of the Mortgage Loans; and WHEREAS, following its purchase of the Mortgage Loans from the Seller, the Purchaser desires to sell some or all of the Mortgage Loans to one or more purchasers as a whole loan transfer in a whole loan or participation format or a public or private mortgage-backed securities transaction; NOW, THEREFORE, in consideration of the premises and mutual agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Purchaser and the Seller agree as follows: SECTION 1. Definitions. For purposes of this Agreement the following ----------- capitalized terms shall have the respective meanings set forth below. Adjustment Date: With respect to each Mortgage Loan, the date set --------------- forth in the related Mortgage Note on which the Mortgage Interest Rate on the Mortgage Loan is adjusted in accordance with the terms of the Mortgage Note. Agreement: This Mortgage Loan Purchase and Interim Servicing --------- Agreement including all exhibits, schedules, amendments and supplements hereto. Appraised Value: With respect to any Mortgaged Property, the lesser --------------- of (i) the value thereof as determined by an appraisal made for the originator of the Mortgage Loan at the time of origination of the Mortgage Loan by an appraiser who met the minimum requirements for appraisers set forth in the NMC Non-Conforming Program Guide, and (ii) the purchase price paid for the related Mortgaged Property by the Mortgagor with the proceeds of the Mortgage Loan, provided, however, in the case of a Refinanced Mortgage Loan, such value of the Mortgaged Property is based solely upon the value determined by an appraisal made for the originator of such Refinanced Mortgage Loan at the time of origination of such Refinanced Mortgage Loan by an appraiser who met the minimum requirements for appraisers set forth in the NMC Non-Conforming Program Guide. Each appraisal was performed in accordance with the requirements of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. Assignment of Mortgage: An individual assignment of the Mortgage, ---------------------- notice of transfer or equivalent instrument in recordable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located, when the Purchaser's name is filled in as the assignee, to give record notice of the sale of the Mortgage to the Purchaser. Bankruptcy Act: The Bankruptcy Reform Act of 1978, as amended (Title -------------- 11 of the United States Code). Business Day: Any day other than a Saturday or Sunday, or a day on ------------ which banking and savings and loan institutions in the State of Colorado or the State of New York are authorized or obligated by law or executive order to be closed. Cash-Out Refinancing: A Refinanced Mortgage Loan the proceeds of -------------------- which were in excess of the principal balance of all existing mortgage loans secured by the related Mortgaged Property and related closing costs, and were used to pay off all liens on the related Mortgaged Property and related closing costs, and, in some cases, other indebtedness of the Mortgagor, and in connection with which the Mortgagor retains one percent or more of the principal balance of the Refinanced Mortgage Loan after the pay-off of such liens and indebtedness. Closing Date: September 29, 1998. ------------ Closing Documents: The documents required pursuant to Section 9. ----------------- Code: The Internal Revenue Code of 1986, or any successor statute ---- thereto. Condemnation Proceeds: All awards, compensation and settlements in --------------------- respect of a taking of all or part of a Mortgaged Property by exercise of the power of condemnation or the right of eminent domain. 3 Confirmation: With respect to the Mortgage Loans purchased and sold ------------ on the Closing Date, the letter agreement, dated September 18, 1998, between the Initial Purchaser and the Seller, setting forth the terms and conditions of such transaction and describing the Mortgage Loans to be purchased by the Purchaser on the Closing Date. Custodial Account: The separate account or accounts, each of which ----------------- shall be an Eligible Account, created and maintained by the Seller or a Sub- Servicer pursuant to this Agreement, which shall be entitled "__________________________, as servicer, in trust for the Purchaser and various Mortgagors, Adjustable Rate Mortgage Loans". Cut-off Date: September 1, 1998. ------------ Debt Consolidation Refinancing: A Refinanced Mortgage Loan, the ------------------------------ proceeds of which were used to satisfy the then-existing first mortgage loan and any subordinated mortgage loan(s) and other liens on the related Mortgaged Property and to pay related closing costs, and which were used to pay other indebtedness of the Mortgagor, and in connection with which the Mortgagor retains either no cash or cash in an amount less than one percent of the initial principal balance of such Refinanced Mortgage Loan from the proceeds of such Refinanced Mortgage Loan. Deleted Mortgage Loan: A Mortgage Loan replaced or to be replaced by --------------------- a Qualified Substitute Mortgage Loan. Determination Date: With respect to each Distribution Date, the ------------------ fifteenth (15th) day of the calendar month in which such Distribution Date occurs or, if such fifteenth (15th) day is not a Business Day, the Business Day immediately preceding such fifteenth (15th) day. Distribution Date: The eighteenth (18th) day of each month, ----------------- commencing on the eighteenth (18th) day of the month next following the month in which the Cut-off Date occurs, or if such eighteenth (18th) day is not a Business Day, the first Business Day immediately following such eighteenth (18th) day. Due Date: With respect to each Distribution Date, the day of the -------- calendar month in which such Distribution Date occurs, which is the day on which the Monthly Payment is due on a Mortgage Loan, exclusive of any days of grace. Due Period: With respect to each Distribution Date, the period ---------- commencing on the second day of the month preceding the month of the Distribution Date and ending on the first day of the month of the Distribution Date. Eligible Account: Either (i) an account or accounts maintained with a ---------------- federal or state chartered depository institution or trust company, the short- term unsecured debt obligations 4 of which (or, in the case of a depository institution or trust company that is the principal subsidiary of a holding company, the short-term unsecured debt obligations of such holding company) are rated A-1 by S&P or Prime-1 by Moody's (or a comparable rating if another rating agency is specified by the Initial Purchaser by written notice to the Seller) at the time any amounts are held on deposit therein, (ii) an account or accounts the deposits in which are fully insured by the FDIC or (iii) a trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity. Eligible Accounts may bear interest. Escrow Account: The separate trust account or accounts created and -------------- maintained by the Seller or a Sub-Servicer pursuant to this Agreement which shall be entitled "__________________________, as servicer, in trust for the Purchaser and various Mortgagors, Adjustable Rate Mortgage Loans." Escrow Payments: The amounts constituting ground rents, taxes, --------------- assessments, water charges, sewer rents, Primary Mortgage Insurance Policy premiums, fire and hazard insurance premiums and other payments required to be escrowed by the Mortgagor with the Mortgagee pursuant to the terms of any Mortgage Note or Mortgage. Event of Default: Any one of the events enumerated in Subsection ---------------- 14.01. FDIC: The Federal Deposit Insurance Corporation or any successor ---- thereto. FHLMC: The Federal Home Loan Mortgage Corporation or any successor ----- thereto. Final Recovery Determination: With respect to any defaulted Mortgage ---------------------------- Loan or any REO Property (other than a Mortgage Loan or REO Property purchased by the Seller pursuant to this Agreement), a determination made by the Seller that all Insurance Proceeds, Liquidation Proceeds and other payments or recoveries which the Seller, in its reasonable good faith judgment, expects to be finally recoverable in respect thereof have been so recovered. The Seller shall maintain records, prepared by a servicing officer of the Seller, of each Final Recovery Determination. FNMA: The Federal National Mortgage Association or any successor ---- thereto. Gross Margin: With respect to any Mortgage Loan, the fixed percentage ------------ amount set forth in the related Mortgage Note and the Mortgage Loan Schedule that is added to the Index on each Adjustment Date in accordance with the terms of the related Mortgage Note to determine the new Mortgage Interest Rate for such Mortgage Loan. 5 HUD: The United States Department of Housing and Urban Development or --- any successor thereto. Index: On each Adjustment Date, the applicable index shall be a rate ----- per annum equal to the average of interbank offered rates for six-month U.S. dollar deposits in the London Market based on quotations of major banks, as published by The Wall Street Journal, using the most recent figure available as ----------------------- of the first Business Day of the month immediately preceding the month in which each Adjustment Date occurs. If the Index ceases to be available, the Seller shall choose a new Index based on comparable information. Insurance Proceeds: With respect to each Mortgage Loan, proceeds of ------------------ insurance policies insuring the Mortgage Loan or the related Mortgaged Property. Initial Purchaser: Salomon Brothers Realty Corp. or any successor. ----------------- Interim Servicing Period: With respect to any Mortgage, the period ------------------------ during which the Seller shall service the Mortgage Loans in accordance with the provisions of this Agreement, commencing on the Closing Date and ending on the earlier to occur of (i) the close of business on the thirtieth (30th) day following the Closing Date (or if such day is not a Business Day, the Business Day immediately following such day), or such later date as specified by the Purchaser at its sole discretion in a written notice from the Purchaser to the Seller or (ii) such date as of which the Purchaser and Seller agree to terminate such period. Liquidation Event: With respect to any Mortgage Loan or REO Property, ----------------- either of the following events: (i) a Final Recovery Determination is made as to such Mortgage Loan or REO Property; or (ii) such Mortgage Loan or REO Property is removed from this Agreement by reason of its being repurchased, sold or replaced pursuant to or as contemplated by any provision of this Agreement. Liquidation Proceeds: Amounts, other than Insurance Proceeds and -------------------- Condemnation Proceeds, received in connection with the liquidation of a defaulted Mortgage Loan through trustee's sale, foreclosure sale or otherwise, other than amounts received following the acquisition of REO Property. Loan-to-Value Ratio or LTV: With respect to any Mortgage Loan as of ------------------- --- any date of determination, the ratio on such date of the outstanding principal amount of the Mortgage Loan to the Appraised Value of the Mortgaged Property. Maximum Mortgage Interest Rate: With respect to each Mortgage Loan, a ------------------------------ rate that is set forth on the Mortgage Loan Schedule and in the related Mortgage Note and is the maximum interest rate to which the Mortgage Interest Rate on such Mortgage Loan may be increased on any Adjustment Date. 6 Minimum Mortgage Interest Rate: With respect to each Mortgage Loan, a ------------------------------ rate that is set forth on the Mortgage Loan Schedule and in the related Mortgage Note and is the minimum interest rate to which the Mortgage Interest Rate on such Mortgage Loan may be decreased on any Adjustment Date. Monthly Payment: With respect to any Mortgage Loan, the scheduled --------------- combined payment of principal and interest payable by a Mortgagor under the related Mortgage Note on each Due Date, which may be changed on any Adjustment Date as provided in the related Mortgage Note. Moody's: Moody's Investors Service, Inc. or its successor in ------- interest. Mortgage: The mortgage, deed of trust or other instrument creating a -------- first lien on Mortgaged Property securing the Mortgage Note. Mortgagee: The mortgagee or beneficiary named in the Mortgage and the --------- successors and assigns of such mortgagee or beneficiary. Mortgage File: The items pertaining to a particular Mortgage Loan ------------- referred to in Exhibit 4 annexed hereto, and any additional documents required --------- to be added to the Mortgage File pursuant to this Agreement. Mortgage Interest Rate: With respect to each Mortgage Loan, the ---------------------- annual rate at which interest accrues on such Mortgage Loan from time to time in accordance with the provisions of the related Mortgage Note, which rate, (i) as of any date of determination until the first Adjustment Date following the Cut- off Date shall be the rate set forth in the Mortgage Loan Schedule as the Mortgage Interest Rate in effect immediately following the Cut-off Date and (ii) as of any date of determination thereafter shall be the rate as adjusted on the most recent Adjustment Date, to equal the sum of the applicable Index plus the related Gross Margin rounded, in some cases, to the next highest multiple of 0.125%, and, in other cases, to the nearest multiple of 0.125%; provided that the Mortgage Interest Rate on such Mortgage Loan on any Adjustment Date shall never be (a) more than the lesser of (1) the sum of the Mortgage Interest Rate in effect immediately prior to the Adjustment Date plus the related Periodic Rate Cap, if any, and (2) the related Maximum Mortgage Interest Rate or, (b) less than the greater of (1) the remainder of the Mortgage Interest Rate in effect immediately prior to the Adjustment Date minus the related Periodic Rate Cap, if any, and (2) the related Minimum Mortgage Interest Rate. Mortgage Loan: Each mortgage loan sold, assigned and transferred to ------------- the Purchaser pursuant to this Agreement and identified on the Mortgage Loan Schedule annexed to this Agreement on such Closing Date, which Mortgage Loan includes without limitation the Mortgage File, the Monthly Payments, Principal Prepayments, Liquidation Proceeds, 7 Condemnation Proceeds, Insurance Proceeds, REO Disposition proceeds, and all other rights, benefits, proceeds and obligations arising from or in connection with such Mortgage Loan. Mortgage Loan Documents: The documents listed in Exhibit 7 hereto ----------------------- --------- pertaining to any Mortgage Loan. Mortgage Loan Schedule: The schedule of Mortgage Loans to be annexed ---------------------- hereto as Schedule I on the Closing Date which shall be delivered not less than ---------- three (3) days prior to the Closing Date in both hard copy and floppy disk, such schedule setting forth the following information with respect to each Mortgage Loan: (1) the Seller's Mortgage Loan identifying number; (2) the Mortgagor's first and last name; (3) the street address of the Mortgaged Property including the state and zip code; (4) a code indicating whether the Mortgaged Property is owner-occupied; (5) the type of Residential Dwelling constituting the Mortgaged Property; (6) the original number of months to maturity; (7) the original date of the Mortgage; (8) the Loan-to-Value Ratio at origination; (9) the Mortgage Interest Rate in effect immediately following the Cut-off Date; (10) the date on which the first Monthly Payment was or is to be due on the Mortgage Loan; (11) the stated maturity date; (12) the amount of the Monthly Payment at origination; (13) the amount of the Monthly Payment as of the Cut-off Date; (14) the last Due Date on which a Monthly Payment was actually applied to the unpaid Stated Principal Balance; (15) the original principal amount of the Mortgage Loan; (16) the Stated Principal Balance of the Mortgage Loan as of the close of business on the Cut-off Date; (17) the first Adjustment Date; (18) the Gross Margin; (19) a code indicating the purpose of the loan (i.e., purchase financing, Rate/Term Refinancing, Cash-Out Refinancing, Debt-Consolidation Refinancing); (20) the Maximum Mortgage Interest Rate under the terms of the Mortgage Note; (21) the Minimum Mortgage Interest Rate under the terms of the Mortgage Note; (22) the Mortgage Interest Rate at origination; (23) the Periodic Rate Cap; (24) a code indicating the documentation style (i.e., full, alternative or reduced); (25) a code indicating if the Mortgage Loan is subject to a Primary Mortgage Insurance Policy; (26) the first Adjustment Date immediately following the Cut-off Date; (27) the Index; (28) the Appraised Value of the Mortgaged Property; (29) the sale price of the Mortgaged Property, if applicable; (30) the actual unpaid principal balance of the Mortgage Loan as of the Cut-off Date; (31) the Servicing Fee; and (32) the combined Loan-to-Value Ratio at origination. With respect to the Mortgage Loans in the aggregate, the Mortgage Loan Schedule shall set forth the following information, as of the Cut-off Date: (1) the number of Mortgage Loans; (2) the current principal balance of the Mortgage Loans; (3) the weighted average Mortgage Interest Rate of the Mortgage Loans; and (4) the weighted average remaining term to maturity of the Mortgage Loans. Mortgage Note: The original executed note or other evidence of the ------------- Mortgage Loan indebtedness of a Mortgagor. 8 Mortgaged Property: The Mortgagor's real property securing repayment ------------------ of a related Mortgage Note, consisting of a fee simple interest in a single contiguous parcel of real property improved by a Residential Dwelling. Mortgagor: The obligor on a Mortgage Note, the owner of the Mortgaged --------- Property and the grantor or mortgagor named in the related Mortgage and such grantor's or mortgagor's successor's in title to the Mortgaged Property. Net Mortgage Rate: With respect to any Mortgage Loan (or the related ----------------- REO Property), as of any date of determination, a per annum rate of interest equal to the then applicable Mortgage Interest Rate for such Mortgage Loan minus the Servicing Fee Rate. NMC Non-Conforming Program Guide: National Mortgage Corporation's "NMC -------------------------------- Non-Conforming Program Guide", as in effect on the Closing Date and as identified to the Initial Purchaser by the Seller in connection with the Initial Purchaser's examination of Mortgage Files pursuant to Section 5. Officer's Certificate: A certificate signed by the President or an --------------------- Executive Vice President or a Vice President, and by the Treasurer or the Secretary or one of the Assistant Treasurers or Assistant Secretaries of the Person on behalf of whom such certificate is being delivered. Opinion of Counsel: A written opinion of counsel, who may be salaried ------------------ counsel for the Person on behalf of whom the opinion is being given, reasonably acceptable to each Person to whom such opinion is addressed. Pass-Through Transfer: The sale or transfer of some or all of the --------------------- Mortgage Loans by the Purchaser to a trust to be formed as part of a publicly issued or privately placed mortgage-backed securities transaction. Periodic Rate Cap: With respect to each Mortgage Loan and any ----------------- Adjustment Date therefor, a number of percentage points per annum that is set forth in the Mortgage Loan Schedule and in the related Mortgage Note, which is the maximum amount by which the Mortgage Interest Rate for such Mortgage Loan may increase (without regard to the Maximum Mortgage Interest Rate) or decrease (without regard to the Minimum Mortgage Interest Rate) on such Adjustment Date from the Mortgage Interest Rate in effect immediately prior to such Adjustment Date. Person: An individual, corporation, partnership, joint venture, ------ association, joint-stock company, limited liability company, trust, unincorporated organization or government or any agency or political subdivision thereof. 9 Preliminary Servicing Period: With respect to any Mortgage Loan, the ---------------------------- period commencing on the Closing Date and ending on the date the Seller enters into a Reconstitution Agreement which amends or restates the servicing provisions of this Agreement. Principal Prepayment: Any payment or other recovery of principal on a -------------------- Mortgage Loan which is received in advance of its scheduled Due Date, including any prepayment penalty or premium thereon (which, if such penalty or premium has been waived by the Seller or an affiliate of the Seller or otherwise not collected despite still being in effect, shall be paid by the Seller to the Purchaser), which is not accompanied by an amount of interest representing scheduled interest due on any date or dates in any month or months subsequent to the month of prepayment. Purchase Price: The price paid on the Closing Date by the Purchaser -------------- to the Seller pursuant to the Confirmation in exchange for the Mortgage Loans purchased on the Closing Date as calculated as provided in Section 4. Qualified Substitute Mortgage Loan: A mortgage loan substituted for a ---------------------------------- Deleted Mortgage Loan pursuant to the terms of this Agreement which must, on the date of such substitution, (i) have an outstanding principal balance, after application of all scheduled payments of principal and interest due during or prior to the month of substitution, not in excess of the Stated Principal Balance of the Deleted Mortgage Loan as of the Due Date in the calendar month during which the substitution occurs, (ii) have a Mortgage Interest Rate not less than (and not more than one percentage point in excess of) the Mortgage Interest Rate of the Deleted Mortgage Loan, (iii) have a Net Mortgage Rate equal to the Net Mortgage Rate of the Deleted Mortgage Loan, (iv) have a remaining term to maturity not greater than (and not more than one year less than) that of the Deleted Mortgage Loan, (v) have the same Due Date as the Due Date on the Deleted Mortgage Loan, (vi) have a Loan-to-Value Ratio as of the date of substitution equal to or lower than the Loan-to-Value Ratio of the Deleted Mortgage Loan as of such date, (vii) conform to each representation and warranty set forth in Subsection 7.02 of this Agreement and (viii) have a per annum rate at which the Servicing Fee accrues equal to 0.50% per annum. In the event that one or more mortgage loans are substituted for one or more Deleted Mortgage Loans, the amounts described in clause (i) hereof shall be determined on the basis of aggregate principal balances, the Mortgage Interest Rates described in clause (ii) hereof shall be determined on the basis of weighted average Mortgage Interest Rates, the Net Mortgage Rates described in clause (iii) hereof shall be determined on the basis of weighted average Net Mortgage Rates satisfied as to each such mortgage loan, the terms described in clause (iv) shall be determined on the basis of weighted average remaining terms to maturity, the Loan-to-Value Ratios described in clause (vi) hereof shall be satisfied as to each such mortgage loan and, except to the extent otherwise provided in this sentence, the representations and warranties described in clause (vii) hereof must be satisfied as to each Qualified Substitute Mortgage Loan or in the aggregate, as the case may be. 10 Rate/Term Refinancing: A Refinanced Mortgage Loan, the proceeds of --------------------- which were used to satisfy the then-existing first mortgage loan and any subordinated mortgage loan(s) and other liens on the related Mortgaged Property and to pay related closing costs, but were not used to pay any other indebtedness of the Mortgagor, and in connection with which the Mortgagor retains either no cash or cash in an amount less than one percent of the initial principal balance of such Refinanced Mortgage Loan from the proceeds of such Refinanced Mortgage Loan. Reconstitution Agreement: Any agreement or agreements entered into by ------------------------ the Seller and the Purchaser, with or without any third Persons, on any Reconstitution Date with respect to a Pass-Through Transfer or Whole Loan Transfer of one or more Mortgage Loans serviced hereunder. Reconstitution Date: The date or dates on which any or all of the ------------------- Mortgage Loans serviced under this Agreement shall be removed from this Agreement and reconstituted as part of a Whole Loan Transfer or Pass-Through Transfer pursuant to Section 12 hereof. Record Date: With respect to each Distribution Date, the last ----------- Business Day of the month immediately preceding the month in which such Distribution Date occurs. Refinanced Mortgage Loan: A Mortgage Loan the proceeds of which were ------------------------ not used to purchase the related Mortgaged Property. REMIC: A "real estate mortgage investment conduit" within the meaning ----- of Section 860D of the Code. REO Account: The separate trust account or accounts created and ------------ maintained by the Seller or a Sub-Servicer pursuant to this Agreement which shall be entitled "____________________, in trust for the Purchaser, as of [date of acquisition of title], Adjustable Rate Mortgage Loans". REO Disposition: The final sale by the Seller of any REO Property. --------------- REO Property: A Mortgaged Property acquired as a result of the ------------ liquidation of a Mortgage Loan. Repurchase Price: With respect to any Mortgage Loan, a price equal to ---------------- (i)(A) prior to the earlier of the Reconstitution Date with respect to the Mortgage Loan, or twelve (12) months after the date hereof, the product of the Stated Principal Balance of such Mortgage Loan times the greater of (x) the Purchase Price percentage as stated in the Confirmation and (y) 100%, and (B) thereafter, the Stated Principal Balance of such Mortgage Loan, plus (ii) interest on such Stated Principal Balance at the Mortgage Interest Rate from and including the last Due Date through which interest has been paid by or on behalf of the Mortgagor to the first day of the 11 month following the date of repurchase, less amounts received in respect of such repurchased Mortgage Loan which are being held in the Custodial Account (or by any successor servicer or other agent of the Purchaser) for distribution in connection with such Mortgage Loan. Residential Dwelling: Any one of the following: (i) a detached one- -------------------- family dwelling, (ii) a detached two- to four-family dwelling, (iii) a one- family dwelling unit in a condominium project eligible under the NMC Non- Conforming Program Guide, or (iv) a detached one-family dwelling in a planned unit development, none of which is a co-operative, a mobile home or a manufactured home which is not real estate under applicable state law. Servicing Advances: All customary, reasonable and necessary "out-of- ------------------ pocket" costs and expenses incurred by the Seller in the performance of its servicing obligations, including, but not limited to, the cost of (i) preservation, restoration and repair of a Mortgaged Property, (ii) any enforcement or judicial proceedings with respect to a Mortgage Loan, including foreclosure actions, (iii) the management and liquidation of REO Property and (iv) advances of insurance premiums, taxes, assessments and other charges unpaid by the Mortgagor. Servicing Fee: With respect to each Mortgage Loan, the amount of the ------------- annual servicing fee the Purchaser shall pay to the Seller, which shall, for each month, be equal to one-twelfth of the product of (a) the Servicing Fee Rate and (b) the unpaid principal balance of the Mortgage Loan. Such fee shall be payable monthly, computed on the basis of the same principal amount and period respectively which any related interest payment on a Mortgage Loan is computed. The obligation of the Purchaser to pay the Servicing Fee is limited to, and payable solely from, the interest portion (including recoveries with respect to interest from Liquidation Proceeds and other proceeds, to the extent permitted by Section 11.05) of related Monthly Payment collected by the Seller, or as otherwise provided under Section 11.05. Servicing Fee Rate: The per annum rate at which the Servicing Fee ------------------ accrues, which rate shall be equal to 0.50% per annum. Servicing File: With respect to each Mortgage Loan, the file retained -------------- by the Seller consisting of originals of all documents in the Mortgage File which are not delivered to the Purchaser or its designee and copies of the Mortgage Loan Documents. S&P: Standard & Poor's Ratings Services or its successor in interest. --- Stated Principal Balance: As to each Mortgage Loan as of any date of ------------------------ determination, (i) the principal balance of the Mortgage Loan as of the Cut-off Date after giving effect to payments of principal due on or before such date, whether or not collected from the Mortgagor on or before such date, minus (ii) all amounts previously distributed to the Purchaser with respect to the related Mortgage Loan representing payments or recoveries of principal. 12 Sub-Servicer: Any mortgage loan servicing institution other than the ------------ Seller which is responsible for the servicing and administration of any Mortgage Loan or any successor appointed pursuant to any Sub-Servicing Agreement. Sub-Servicing Agreement: Each agreement providing for the servicing ----------------------- of any of the Mortgage Loans by a Sub-Servicer. Sub-Servicing Fee: As to each Mortgage Loan, the monthly fee payable ----------------- to the Sub-Servicer, paid by the Seller from its Servicing Fee. Whole Loan Transfer: Any sale or transfer of some or all of the ------------------- Mortgage Loans by the Purchaser to a third party, which sale or transfer is not a Pass-Through Transfer. SECTION 2. Agreement to Purchase. The Seller agrees to sell, and --------------------- the Initial Purchaser agrees to purchase, Mortgage Loans having an aggregate principal balance on the Cut-off Date in an amount as set forth in the Confirmation, or in such other amount as agreed by the Initial Purchaser and the Seller as evidenced by the actual aggregate principal balance of the Mortgage Loans accepted by the Initial Purchaser on the Closing Date. SECTION 3. Mortgage Loan Schedule. The Seller shall deliver the ---------------------- Mortgage Loan Schedule to the Initial Purchaser at least three (3) days prior to the Closing Date. SECTION 4. Purchase Price. The Purchase Price for each Mortgage -------------- Loan listed on the Mortgage Loan Schedule shall be the percentage of par as stated in the Confirmation (subject to adjustment as provided therein), multiplied by its Stated Principal Balance as of the Cut-off Date. If so provided in the Confirmation, portions of the Mortgage Loans shall be priced separately. In addition to the Purchase Price as described above, the Initial Purchaser shall pay to the Seller, at closing, accrued interest on the Stated Principal Balance of each Mortgage Loan as of the Cut-off Date at its Mortgage Interest Rate from the Cut-off Date through the day prior to the Closing Date, both inclusive, less the Servicing Fee Rate, pro rated on the basis of a 30-day month. The Purchaser shall own and be entitled to receive with respect to each Mortgage Loan purchased, (1) all scheduled principal due after the Cut-off Date, (2) all other recoveries of principal collected after the Cut-off Date (provided, however, that all scheduled payments of principal due on or before the Cut-off Date and collected by the Seller after the Cut-off Date shall belong to the Seller), and (3) all payments of interest on the Mortgage Loans net of the Servicing Fee (minus that portion of any such interest payment that is allocable to the period prior to the Cut-off Date). The Stated Principal Balance of each Mortgage Loan as of the Cut-off Date is 13 determined after application to the reduction of principal of payments of principal due on or before the Cut-off Date whether or not collected. Therefore, for the purposes of this Agreement, payments of scheduled principal and interest prepaid for a Due Date beyond the Cut-off Date shall not be applied to the principal balance as of the Cut-off Date. Such prepaid amounts (minus the applicable Servicing Fee) shall be the property of the Purchaser. The Seller shall deposit any such prepaid amounts into the Custodial Account, which account is established for the benefit of the Purchaser, for remittance by the Seller to the Purchaser on the first Distribution Date. All payments of principal and interest, less the applicable Servicing Fee, due on a Due Date following the Cut-off Date shall belong to the Purchaser. In addition to the above, the Seller hereby assigns to the Purchaser, effective upon the Seller's receipt of the Purchase Price, all of the Seller's rights (which may be enforced independently from this Agreement) and remedies (which are in addition to the Purchaser's remedies set forth in this Agreement and not in lieu thereof) under that certain letter agreement, dated September 29, 1998, between National Mortgage Corporation ("NMC") and the Seller, under which NMC made certain representations, warranties and covenants to the Seller with respect to the Mortgage Loans. SECTION 5. Examination of Mortgage Files. In addition to the rights ----------------------------- granted to the Initial Purchaser under the Confirmation to underwrite the Mortgage Loans and review the Mortgage Files prior to the Closing Date, prior to the Closing Date, the Seller shall (a) deliver to the Purchaser or its designee in escrow, for examination with respect to each Mortgage Loan to be purchased, the related Mortgage File, including the Assignment of Mortgage, pertaining to each Mortgage Loan, or (b) make the related Mortgage File available to the Initial Purchaser for examination at the Seller's offices or such other location as shall otherwise be agreed upon by the Initial Purchaser and the Seller. Such examination may be made by the Initial Purchaser or its designee at any reasonable time before or after the Closing Date. If the Initial Purchaser makes such examination prior to the Closing Date and identifies any Mortgage Loans which do not satisfy the underwriting standards set forth in the NMC Non- Conforming Program Guide (except to the extent that there are compensating factors reasonably acceptable to the Initial Purchaser), such Mortgage Loans may, at the Initial Purchaser's option, be rejected for purchase by the Initial Purchaser. If the Initial Purchaser makes such examination after the Closing Date and identifies any Mortgage Loans that do not conform to the NMC Non- Conforming Program Guide (except to the extent that there are compensating factors reasonably acceptable to the Initial Purchaser), such Mortgage Loans shall, if requested by the Initial Purchaser within thirty (30) days after the Closing Date, be repurchased by the Seller pursuant to Subsection 7.03. If not purchased by the Initial Purchaser or if repurchased by the Seller, such Mortgage Loans shall be deleted from the Mortgage Loan Schedule. The Initial Purchaser may, at its option and without notice to the Seller, purchase all or a portion of the Mortgage Loans without conducting any partial or complete examination. The fact that the Initial Purchaser has conducted or has determined not to conduct any partial or complete examination of the Mortgage Files shall not affect the Purchaser's (or any of its 14 successors') rights to demand repurchase or other relief or remedy provided for in this Agreement. SECTION 6. Conveyance from Seller to Initial Purchaser. ------------------------------------------- Subsection 6.01. Conveyance of Mortgage Loans; Possession of ------------------------------------------- Servicing Files. --------------- The Seller, simultaneously with the payment of the Purchase Price does hereby sell, transfer, assign, set over and convey to Salomon Brothers Realty Corp. as the Initial Purchaser under this Agreement, without recourse, but subject to the terms of this Agreement, all rights, title and interest of the Seller in and to the Mortgage Loans listed on the Mortgage Loan Schedule attached hereto, together with the related Mortgage Files and all rights and obligations arising under the documents contained therein. Pursuant to Subsection 6.03 of this Agreement, the Seller has delivered to the Initial Purchaser or its designee the documents for each Mortgage Loan to be purchased as set forth in Exhibit 7. The contents of each related Servicing File required to be retained by the Seller to service the Mortgage Loans pursuant to this Agreement and thus not delivered to the Purchaser are and shall be held in trust by the Seller for the benefit of the Purchaser as the owner thereof. The Seller's possession of any portion of each such Servicing File is at the will of the Purchaser for the sole purpose of facilitating servicing of the related Mortgage Loan pursuant to this Agreement, and such retention and possession by the Seller shall be in a custodial capacity only. The ownership of each Mortgage Note, Mortgage, and the contents of the Mortgage File and Servicing File is vested in the Purchaser and the ownership of all records and documents with respect to the related Mortgage Loan prepared by or which come into the possession of the Seller shall immediately vest in the Purchaser and shall be retained and maintained, in trust, by the Seller at the will of the Purchaser in such custodial capacity only. The Servicing File retained by the Seller pursuant to this Agreement shall be appropriately identified in the Seller's computer system to clearly reflect the sale of the related Mortgage Loan to the Purchaser. The Seller shall release from its custody the contents of any Servicing File retained by it only in accordance with this Agreement, except when such release is required in connection with a repurchase of any such Mortgage Loan pursuant to Subsection 7.03. Subsection 6.02. Books and Records. ----------------- Record title to each Mortgage and the related Mortgage Note as of the Closing Date shall be in the name of the Seller, the Initial Purchaser or one or more designees of the Purchaser, as such designee(s) may be designated by the Initial Purchaser. Notwithstanding the foregoing, beneficial ownership of each Mortgage and the related Mortgage Note shall be vested solely in the Purchaser or the appropriate designee of the Purchaser, as the case may be, upon 15 payment of the Purchase Price. All rights arising out of the Mortgage Loans including, but not limited to, all funds received by the Seller after the Cut- off Date on or in connection with a Mortgage Loan as provided in Section 4 shall be vested on the Closing Date, upon the Purchaser's payment of the Purchase Price, in the Purchaser or one or more designees of the Purchaser; provided, however, that all such funds received on or in connection with a Mortgage Loan as provided in Section 4 shall be received and held by the Seller in trust for the benefit of the Purchaser or the assignee of the Purchaser, as the case may be, as the owner of the Mortgage Loans pursuant to the terms of this Agreement. It is the express intention of the parties that the transactions contemplated by this Agreement be, and be construed as, a sale of the Mortgage Loans by the Seller and not a pledge of the Mortgage Loans by the Seller to the Purchaser to secure a debt or other obligation of the Seller. Consequently, the sale of each Mortgage Loan shall be reflected as a sale on the Seller's business records, tax returns and financial statements. Subsection 6.03. Delivery of Mortgage Loan Documents. ----------------------------------- The Seller shall, at least three (3) days prior to the Closing Date, deliver and release to the Purchaser or its designee those Mortgage Loan Documents as required by Exhibit 7 hereto with respect to each Mortgage Loan to --------- be purchased and sold on the Closing Date and set forth on the Mortgage Loan Schedule delivered with such Mortgage Loan Documents. The Seller shall forward to the Purchaser or its designee original documents evidencing an assumption, modification, consolidation or extension of any Mortgage Loan entered into in accordance with this Agreement within two (2) weeks of their execution, provided, however, that the Seller shall provide the Purchaser or its designee with a certified true copy of any such document submitted for recordation within two (2) weeks of its execution, and shall provide the original of any document submitted for recordation or a copy of such document certified by the appropriate public recording office to be a true and complete copy of the original promptly upon the Seller's receipt of such original document or such certified copy of an original document from the applicable public recording office. In the event that the Seller cannot deliver the original of any document submitted for recordation or a copy of such document certified by the appropriate public recording office to be a true and complete copy of the original within 180 days following the Closing Date, the Seller shall provide the Purchaser with an Officer's Certificate stating that the Seller has been unable to deliver such document because of a delay caused by the applicable recording office. SECTION 7. Representations, Warranties and Covenants of the Seller; -------------------------------------------------------- Remedies for Breach. ------------------- 16 Subsection 7.01. Representations and Warranties Respecting the Seller. ---------------------------------------------------- The Seller represents, warrants and covenants to the Purchaser as of the Closing Date and as of such date specifically provided herein: (i) The Seller is duly organized, validly existing and in good standing under the laws of the State of Colorado and is and will remain 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 Mortgage Loan and the servicing of the Mortgage Loan in accordance with the terms of this Agreement; (ii) The Seller has the full power and authority to hold each Mortgage Loan, to sell each Mortgage Loan, and to execute, deliver and perform, and to enter into and consummate, all transactions contemplated by this Agreement. The Seller has duly authorized the execution, delivery and performance of this Agreement, has duly executed and delivered this Agreement, and this Agreement, assuming due authorization, execution and delivery by the Purchaser, constitutes a legal, valid and binding obligation of the Seller, enforceable against it in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency or reorganization; (iii) The execution and delivery of this Agreement by the Seller and the performance of and compliance with the terms of this Agreement will not violate the Seller's articles of incorporation or by-laws or constitute a default under or result in a breach or acceleration of, any material contract, agreement or other instrument to which the Seller is a party or which may be applicable to the Seller or its assets; (iv) The Seller is not in violation of, and the execution and delivery of this Agreement by the Seller 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 over the Seller or its assets, which violation might have consequences that would materially and adversely affect the condition (financial or otherwise) or the operation of the Seller or its assets or might have consequences that would materially and adversely affect the performance of its obligations and duties hereunder; (v) National Mortgage Corporation is an approved seller/servicer for FNMA and FHLMC in good standing and is a HUD approved mortgagee pursuant to Section 203 of the National Housing Act. No event has occurred, including but not limited to a change in insurance coverage, which would make National Mortgage Corporation unable to comply with FNMA, FHLMC or HUD eligibility requirements or which would require notification to FNMA, FHLMC or HUD; 17 (vi) The Seller does not believe, nor does it have any reason or cause to believe, that it cannot perform each and every covenant contained in this Agreement; (vii) The Mortgage Note, the Mortgage, the Assignment of Mortgage and any other Mortgage Loan Documents have been delivered to the Purchaser or its designee. With respect to each Mortgage Loan, the Seller is in possession of a complete Mortgage File in compliance with Exhibit 4, except for such documents --------- as have been delivered to the Purchaser or its designee; (viii) Immediately prior to the payment of the Purchase Price for each Mortgage Loan, the Seller was the owner of record of the related Mortgage and the indebtedness evidenced by the related Mortgage Note and upon the payment of the Purchase Price by the Purchaser, in the event that the Seller retains record title, the Seller shall retain such record title to each Mortgage, each related Mortgage Note and the related Mortgage Files with respect thereto during the Interim Servicing Period in trust for the Purchaser as the owner thereof and only for the purpose of servicing and supervising the servicing of each Mortgage Loan during the Interim Servicing Period; (ix) There are no actions or proceedings against, or investigations of, the Seller before any court, administrative or other tribunal (A) that might prohibit its entering into this Agreement, (B) seeking to prevent the sale of the Mortgage Loans or the consummation of the transactions contemplated by this Agreement or (C) that might prohibit or materially and adversely affect the performance by the Seller of its obligations under, or the validity or enforceability of, this Agreement; (x) No consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance by the Seller of, or compliance by the Seller with, this Agreement or the consummation of the transactions contemplated by this Agreement, except for such consents, approvals, authorizations or orders, if any, that have been obtained prior to the Closing Date; (xi) The consummation of the transactions contemplated by this Agreement are in the ordinary course of business of the Seller, and the transfer, assignment and conveyance of the Mortgage Notes and the Mortgages by the Seller pursuant to this Agreement are not subject to the bulk transfer or any similar statutory provisions; (xii) The information delivered by the Seller to the Purchaser with respect to the Seller's loan loss, foreclosure and delinquency experience for the twelve (12) months immediately preceding the Closing Date on adjustable rate level payment mortgage loans underwritten to the same standards as the Mortgage Loans and covering mortgaged properties similar to the Mortgaged Properties, is true and correct in all material respects; and 18 (xiii) Neither this Agreement nor any written statement, report or other document prepared and furnished or to be prepared and furnished by the Seller 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. Subsection 7.02. Representations and Warranties Regarding Individual --------------------------------------------------- Mortgage Loans. -------------- The Seller hereby represents and warrants to the Purchaser that, as to each Mortgage Loan, as of the Closing Date: (i) The information set forth in the Mortgage Loan Schedule is complete, true and correct; (ii) All payments required to be made prior to the Cut-off Date for such Mortgage Loan under the terms of the Mortgage Note have been made; the Seller has not advanced funds, or induced, solicited or knowingly received any advance of funds from a party other than the owner of the related Mortgaged Property, directly or indirectly, for the payment of any amount required by the Mortgage Note or Mortgage; (iii) There are no delinquent taxes, ground rents, water charges, sewer rents, assessments, insurance premiums, leasehold payments, including assessments payable in future installments or other outstanding charges affecting the related Mortgaged Property; (iv) The terms of the Mortgage Note and the Mortgage have not been impaired, waived, altered or modified in any respect, except by written instruments, recorded in the applicable public recording office if necessary to maintain the lien priority of the Mortgage, and which have been delivered to the Purchaser or its designee; the substance of any such waiver, alteration or modification has been approved by the title insurer, to the extent required by the related policy, and is reflected on the Mortgage Loan Schedule. No instrument of waiver, alteration or modification has been executed, and no Mortgagor has been released, in whole or in part, except in connection with an assumption agreement approved by the title insurer, to the extent required by the policy, and which assumption agreement has been delivered to the Purchaser or its designee and the terms of which are reflected in the Mortgage Loan Schedule; (v) The Mortgage Note and the Mortgage are not subject to any right of rescission, set-off, counterclaim or defense, including the defense of usury, nor will the operation of any of the terms of the Mortgage Note and the Mortgage, or the exercise of any right thereunder, render the Mortgage unenforceable, in whole or in part, or subject to any right of 19 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; (vi) All buildings upon the Mortgaged Property 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 the Mortgaged Property is located, pursuant to insurance policies conforming to the requirements of Subsection 11.10. All such insurance policies contain a standard mortgagee clause naming the loan originator, its successors and assigns as mortgagee and all premiums thereon have been paid. If the Mortgaged Property is in an area identified on a Flood Hazard Map or Flood Insurance Rate Map issued by the Federal Emergency Management Agency as having special flood hazards (and such flood insurance has been made available), a flood insurance policy meeting the requirements of the current guidelines of the Federal Insurance Administration is in effect, which policy conforms to the requirements of the NMC Non- Conforming Program Guide. The Mortgage obligates the Mortgagor thereunder to maintain all such insurance at the Mortgagor's cost and expense, and on the Mortgagor's failure to do so, authorizes the holder of the Mortgage to maintain such insurance at Mortgagor's cost and expense and to seek reimbursement therefor from the Mortgagor; (vii) Any and all requirements of any federal, state or local law including, without limitation, usury, truth in lending, real estate settlement procedures, consumer credit protection, equal credit opportunity, fair housing or disclosure laws applicable to the origination and servicing of mortgage loans of a type similar to the Mortgage Loans have been complied with; (viii) The Mortgage has not been satisfied, canceled, subordinated or rescinded, in whole or in part, and the Mortgaged Property has not been released from the lien of the Mortgage, in whole or in part, nor has any instrument been executed that would effect any such satisfaction, cancellation, subordination, rescission or release; (ix) The Mortgage is a valid, existing and enforceable first lien on the Mortgaged Property, including all improvements on the Mortgaged Property subject only to (a) the lien of current real property taxes and assessments not yet due and payable, (b) covenants, conditions and restrictions, rights of way, easements and other matters of the public record as of the date of recording being acceptable to mortgage lending institutions generally and specifically referred to in the lender's title insurance policy delivered to the originator of the Mortgage Loan and which do not adversely affect the Appraised Value of the Mortgaged Property, and (c) other matters to which like properties are commonly subject which do not materially interfere with the benefits of the security intended to be provided by the Mortgage or the use, enjoyment, value or marketability of the related Mortgaged Property. Any security agreement, chattel mortgage or equivalent document related to and delivered in connection with the Mortgage Loan establishes and creates a valid, existing and enforceable first lien and first priority security interest on the property described therein and the Seller has full right to sell and assign the same to the 20 Purchaser. Except to the extent that the Mortgage Loan Schedule reflects a difference between the LTV and the combined LTV, the Mortgaged Property was not, as of the date of origination of the Mortgage Loan, subject to a mortgage, deed of trust, deed to secure debt or other security instrument creating a lien subordinate to the lien of the Mortgage; (x) The Mortgage Note and the related Mortgage are genuine and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance with its terms, except as such enforcement may be limited by (A) bankruptcy, insolvency or reorganization laws or other similar laws affecting creditors' rights generally or (B) general principles of equity, whether considered in a proceeding at law or in equity; (xi) All parties to the Mortgage Note and the Mortgage had legal capacity to enter into the Mortgage Loan and to execute and deliver the Mortgage Note and the Mortgage, and the Mortgage Note and the Mortgage have been duly and properly executed by such parties. The Mortgagor is a natural person; (xii) The proceeds of the Mortgage Loan have been fully disbursed to or for the account of the Mortgagor and there is no obligation for the Mortgagee to advance additional funds thereunder and any and all requirements as to completion of any on-site or off-site improvement and as to disbursements of any escrow funds therefor have been complied with. All costs, fees and expenses incurred in making or closing the Mortgage Loan and the recording of the Mortgage have been paid, and the Mortgagor is not entitled to any refund of any amounts paid or due to the Mortgagee pursuant to the Mortgage Note or Mortgage; (xiii) The Seller is the sole legal, beneficial and equitable owner of the Mortgage Note and the Mortgage (and National Mortgage Corporation is the sole record owner thereof) and has full right to transfer and sell the Mortgage Loan to the Purchaser free and clear of any encumbrance, equity, lien, pledge, charge, claim or security interest; (xiv) All parties which have had any interest in the Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period in which they held and disposed of such interest, were) in compliance with any and all applicable "doing business" and licensing requirements of the laws of the state wherein the Mortgaged Property is located; (xv) The Mortgage Loan is covered by an American Land Title Association lender's title insurance policy acceptable under the NMC Non- Conforming Program Guide, issued by a title insurer acceptable under the NMC Non-Conforming Program Guide and qualified to do business in the jurisdiction where the Mortgaged Property is located, insuring (subject to the exceptions contained in (ix)(a) and (b) above) the loan originator, its successors and assigns as to the first priority lien of the Mortgage in the original principal amount of the Mortgage Loan and against any loss by reason of the invalidity or unenforceability of the lien resulting from the provisions of the Mortgage providing for adjustment in the Mortgage Interest 21 Rate and Monthly Payment. Additionally, such lender's title insurance policy affirmatively insures ingress and egress to and from the Mortgaged Property, and against encroachments by or upon the Mortgaged Property or any interest therein. The Seller is the sole insured under such lender's title insurance policy, and such lender's title insurance policy is in full force and effect and will be in full force and effect upon the consummation of the transactions contemplated by this Agreement. No claims have been made under such lender's title insurance policy, and no prior holder of the related Mortgage, including the Seller, has done, by act or omission, anything which would impair the coverage of such lender's title insurance policy; (xvi) There is no default, breach, violation or event of acceleration existing under the Mortgage or the Mortgage Note and no event which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration (other than a payment delinquency of less than thirty (30) days), and the Seller has not waived any default, breach, violation or event of acceleration; (xvii) There are no mechanics' or similar liens or claims which have been filed for work, labor or material (and no rights are outstanding that under law could give rise to such lien) affecting the related Mortgaged Property which are or may be liens prior to, or equal or coordinate with, the lien of the related Mortgage; (xviii) All improvements which were considered in determining the Appraised Value of the related Mortgaged Property lay wholly within the boundaries and building restriction lines of the Mortgaged Property, and no improvements on adjoining properties encroach upon the Mortgaged Property. Each appraisal has been performed in accordance with the provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989; (xix) The Mortgage Loan was originated by National Mortgage Corporation or by a savings and loan association, a savings bank, a commercial bank or similar institution which is supervised and examined by a federal or state authority, or by a mortgagee approved as such by the Secretary of HUD; (xx) Principal payments on the Mortgage Loan commenced no more than sixty (60) days after the proceeds of the Mortgage Loan were disbursed. The Mortgage Loan bears interest at the Mortgage Interest Rate. With respect to each Mortgage Loan, the Mortgage Note is payable monthly in Monthly Payments which are changed on each Adjustment Date to an amount which will fully amortize the Stated Principal Balance of the Mortgage Loan over its remaining term at the Mortgage Interest Rate. The Mortgage Note does not permit negative amortization. No Mortgage Loan is convertible to a fixed rate mortgage loan; (xxi) The origination and collection practices used by the Seller and the loan originator with respect to each Mortgage Note and Mortgage have been in all respects legal, proper, prudent and customary in the mortgage origination and servicing industry. The Mortgage 22 Loan has been serviced by the Seller and any predecessor servicer in accordance with the terms of the Mortgage Note. With respect to escrow deposits and Escrow Payments, if any, all such payments are in the possession of, or under the control of, the Seller or its Sub-Servicer and there exist no deficiencies in connection therewith for which customary arrangements for repayment thereof have not been made. No escrow deposits or Escrow Payments or other charges or payments due the Seller have been capitalized under any Mortgage or the related Mortgage Note; (xxii) The Mortgaged Property is free of damage and waste that would materially adversely affect the value of the Mortgaged Property as security for the Mortgage Loan or the use of which the premises were intended and there is no proceeding pending for the total or partial condemnation thereof; (xxiii) The Mortgage and related Mortgage Note contain customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate for the realization against the Mortgaged Property of the benefits of the security provided thereby, including, (a) in the case of a Mortgage designated as a deed of trust, by trustee's sale, and (b) otherwise by judicial foreclosure. The Mortgaged Property has not been subject to any bankruptcy proceeding or foreclosure proceeding and the Mortgagor has not filed for protection under applicable bankruptcy laws, in either case since the origination of the related Mortgage Loan. There is no homestead or other exemption available to the Mortgagor which would interfere with the right to sell the Mortgaged Property at a trustee's sale or the right to foreclose the Mortgage. The Mortgagor has not notified the Seller and the Seller has no knowledge of any relief requested or allowed to the Mortgagor under the Soldiers and Sailors Civil Relief Act of 1940; (xxiv) The Mortgage Loan was underwritten in accordance with underwriting standards which are acceptable under the NMC Non-Conforming Program Guide; and the Mortgage Note and Mortgage are on forms acceptable under the NMC Non-Conforming Program Guide; (xxv) The Mortgage Note is not and has not been secured by any collateral except the lien of the corresponding Mortgage on the Mortgaged Property and the security interest of any applicable security agreement or chattel mortgage referred to in (ix) above; (xxvi) The Mortgage File contains an appraisal of the related Mortgaged Property made and signed, prior to the approval of the Mortgage Loan application, by a qualified appraiser, duly appointed by the Mortgage Loan's originator, who had no interest, direct or indirect in the Mortgaged Property or in any loan made on the security thereof, whose compensation is not affected by the approval or disapproval of the Mortgage Loan and who met the minimum qualifications of the NMC Non-Conforming Program Guide; 23 (xxvii) In the event the 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 the Mortgage, and no fees or expenses are or will become payable by the Purchaser to the trustee under the deed of trust, except in connection with a trustee's sale after default by the Mortgagor; (xxviii) No Mortgage Loan contains provisions pursuant to which Monthly Payments are (a) paid or partially paid with funds deposited in any separate account established by the Seller, the Mortgagor, or anyone on behalf of the Mortgagor or (b) paid by any source other than the Mortgagor or contains any other similar provisions which may constitute a "buydown" provision. The Mortgage Loan is not a graduated payment mortgage loan and the Mortgage Loan does not have a shared appreciation or other contingent interest feature; (xxix) The Mortgagor has executed a statement to the effect that the Mortgagor has received all disclosure materials required by applicable law with respect to the making of adjustable rate mortgage loans and rescission materials with respect to Refinanced Mortgage Loans, and such statement is and will remain in the Mortgage File; (xxx) No Mortgage Loan was made in connection with (a) the construction or rehabilitation of a Mortgaged Property or (b) facilitating the trade-in or exchange of a Mortgaged Property; (xxxi) Except for the credit rating of the related Mortgagor, the Seller has no knowledge of any circumstances or condition with respect to the Mortgage, the Mortgaged Property, the Mortgagor or the Mortgagor's credit standing that should reasonably be expected to cause the Mortgage Loan to be an unacceptable investment, cause the Mortgage Loan to become delinquent, or adversely affect the value of the Mortgage Loan; (xxxii) At origination, the Mortgaged Property was lawfully occupied under applicable law; all inspections, licenses and certificates required to be made or issued with respect to all occupied portions of the Mortgaged Property and, with respect to the use and occupancy of the same, including but not limited to certificates of occupancy, have been made or obtained from the appropriate authorities; (xxxiii) No error, omission, misrepresentation, negligence, fraud or similar occurrence with respect to a Mortgage Loan has taken place on the part of any person, including without limitation the Mortgagor, any appraiser, any builder or developer, or any other party involved in the origination of the Mortgage Loan or in the application of any insurance in relation to such Mortgage Loan; (xxxiv) The Assignment of Mortgage is in recordable form and is acceptable for recording under the laws of the jurisdiction in which the Mortgaged Property is located; 24 (xxxv) Any principal advances made to the Mortgagor prior to the Cut-off Date have been consolidated with the outstanding principal amount secured by the Mortgage, and the secured principal amount, as consolidated, bears a single interest rate and single repayment term. The lien of the Mortgage securing the consolidated principal amount is expressly insured as having first lien priority by a title insurance policy, an endorsement to the policy insuring the mortgagee's consolidated interest or by other title evidence acceptable under the NMC Non-Conforming Program Guide. The consolidated principal amount does not exceed the original principal amount of the Mortgage Loan; (xxxvi) No Mortgage Loan has a balloon payment feature; (xxxvii) Interest on each Mortgage Loan is calculated on the basis of a 360-day year consisting of twelve 30-day months; (xxxviii) If the Residential Dwelling on the Mortgaged Property is a condominium unit or a unit in a planned unit development (other than a de minimis planned unit development) such condominium or planned unit development project meets the applicable Qualified Insurer's eligibility requirements under the NMC Non-Conforming Program Guide; (xxxix) The Mortgage Loan was not prepaid in full prior to the Closing Date; and (xl) To the Seller's actual knowledge, without independent investigation, the Mortgaged Property is in material compliance with all applicable environmental laws pertaining to environmental hazards including, without limitation, asbestos, and neither the Seller nor, to the Seller's actual knowledge, without independent investigation, the related Mortgagor, has received any notice of any violation or potential violation of such law. Subsection 7.03. Remedies for Breach of Representations and ------------------------------------------ Warranties. ---------- It is understood and agreed that the representations and warranties set forth in Subsections 7.01 and 7.02 shall survive the sale of the Mortgage Loans to the Purchaser and shall inure to the benefit of the Purchaser, notwithstanding any restrictive or qualified endorsement on any Mortgage Note or Assignment of Mortgage or the examination or lack of examination of any Mortgage File. Upon discovery by either the Seller or the Purchaser of a breach of any of the foregoing representations and warranties which materially and adversely affects the value of the Mortgage Loans or the interest of the Purchaser (or which materially and adversely affects the interests of the Purchaser in the related Mortgage Loan in the case of a representation and warranty relating to a particular Mortgage Loan), the party discovering such breach shall give prompt written notice to the other. 25 Within sixty (60) days of the earlier of either discovery by or notice to the Seller of any breach of a representation or warranty which materially and adversely affects the value of a Mortgage Loan or the Mortgage Loans, the Seller shall use its best efforts promptly to cure such breach in all material respects and, if such breach cannot be cured, the Seller shall, at the Purchaser's option, repurchase such Mortgage Loan at the Repurchase Price. In the event that a breach shall involve any representation or warranty set forth in Subsection 7.01 in a manner that materially and adversely affects the value of a Mortgage Loan or Mortgage Loans or the interest of the Purchaser in such Mortgage Loan or Mortgage Loans and such breach cannot be cured within sixty (60) days of the earlier of either discovery by or notice to the Seller of such breach, all of the Mortgage Loans shall, at the Purchaser's option, be repurchased by the Seller at the Repurchase Price. The Seller may, with the consent of the Purchaser and assuming that the Seller has a Qualified Substitute Mortgage Loan, rather than repurchase the Mortgage Loan as provided above, remove such Mortgage Loan and substitute in its place a Qualified Substitute Mortgage Loan or Loans. If the Seller has no Qualified Substitute Mortgage Loan, or does not wish to substitute, it shall repurchase the deficient Mortgage Loan. Any repurchase of a Mortgage Loan(s) pursuant to the foregoing provisions of this Subsection 7.03 shall occur on a date designated by the Purchaser and shall be accomplished by deposit in the Custodial Account of the amount of the Repurchase Price for distribution to the Purchaser on the next scheduled Distribution Date. At the time of substitution or repurchase of any deficient Mortgage Loan, the Purchaser and the Seller shall arrange for the reassignment of the deficient or repurchased Mortgage Loan to the Seller and the delivery to the Seller of any documents held by the Purchaser or its designee relating to the deficient or repurchased Mortgage Loan. In the event the Repurchase Price is deposited in the Custodial Account, the Seller shall, simultaneously with such deposit, give written notice to the Purchaser that such deposit has taken place. Upon such repurchase the Mortgage Loan Schedule shall be amended to reflect the withdrawal of the repurchased Mortgage Loan from this Agreement. As to any Deleted Mortgage Loan for which the Seller substitutes a Qualified Substitute Mortgage Loan or Loans, the Seller shall effect such substitution by delivering to the Purchaser or its designee for such Qualified Substitute Mortgage Loan or Loans the Mortgage Loan Documents. The Seller shall deposit in the Custodial Account the Monthly Payment less the Servicing Fee due on such Qualified Substitute Mortgage Loan or Loans in the month following the date of such substitution. Monthly Payments due with respect to Qualified Substitute Mortgage Loans in the month of substitution will be retained by the Seller. For the month of substitution, distributions to the Purchaser will include the Monthly Payment due on such Deleted Mortgage Loan in the month of substitution, and the Seller shall thereafter be entitled to retain all amounts subsequently received by the Seller in respect of such Deleted Mortgage Loan from the terms of this Agreement in all respects, and the Seller shall be deemed to have made with respect to such Qualified Substitute Mortgage Loan or Loans, as of the date of substitution, the covenants, representations and warranties set forth in Sections 7.01 and 7.02. 26 For any month in which the Seller substitutes one or more Qualified Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Seller will determine the amount (if any) by which the aggregate principal balance of all such Qualified Substitute Mortgage Loans as of the date of substitution is less than the aggregate Stated Principal Balance of all such Deleted Mortgage Loans (after application of scheduled principal payments due in the month of substitution). An amount equal to the product of the amount of such shortfall multiplied by the Repurchase Price shall be distributed by the Seller in the month of substitution. Accordingly, on the date of such substitution the Seller will deposit from its own funds into the Custodial Account an amount equal to such amount. In addition to such cure, repurchase and substitution obligation, the Seller shall indemnify the Purchaser and hold it harmless 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 of the Seller's representations and warranties contained in this Section 7. It is understood and agreed that the obligations of the Seller set forth in this Subsection 7.03 to cure or repurchase a defective Mortgage Loan and to indemnify the Purchaser as provided in this Subsection 7.03 constitute the sole remedies of the Purchaser respecting a breach of the foregoing representations and warranties. Any cause of action against the Seller relating to or arising out of the breach of any representations and warranties made in Subsections 7.01 or 7.02 shall accrue as to any Mortgage Loan upon (i) discovery of such breach by the Purchaser or notice thereof by the Seller to the Purchaser, (ii) failure by the Seller to cure such breach or repurchase such Mortgage Loan as specified above within the applicable cure period, and (iii) demand upon the Seller by the Purchaser for compliance with the relevant provisions of this Agreement. Subsection 7.04 Repurchase of Certain Mortgage Loans. ------------------------------------ In the event that a Mortgagor fails to make the first monthly payment required to be made under the terms of the related Mortgage Note within fifty- nine (59) days of the Due Date therefor then, in such case, the Seller shall repurchase the affected Mortgage Loan at the Repurchase Price, which shall be paid as provided for in Subsection 7.03. Subsection 7.05 Principal Prepayments in Full. ----------------------------- In the event that the principal balance due on a Mortgage Loan is paid in full by the related Mortgagor on or before December 31, 1998, the Seller shall remit to the Purchaser (to be paid by the Seller out of its own funds without reimbursement therefor) within two (2) 27 Business Days an amount equal to the product of the Principal Prepayment in full and the excess, if any, of the Purchase Price percentage as stated in the Confirmation over 100% (reduced, but not below $0, by the amount of any prepayment penalty received by the Purchaser with respect to the Mortgage Loan). SECTION 8. Closing. The closing shall take place on the Closing ------- Date. At the Purchaser's option, the closing shall be either: by telephone, confirmed by letter or wire as the parties shall agree, or conducted in person, at such place as the parties shall agree. The closing for the Mortgage Loans to be purchased on the Closing Date shall be subject to each of the following conditions: (a) all of the representations and warranties of the Seller under this Agreement shall be true and correct as of the Closing Date and no event shall have occurred which, with notice or the passage of time, would constitute a default under this Agreement; (b) the Initial Purchaser shall have received, or the Initial Purchaser's attorneys shall have received in escrow, all Closing Documents as specified in Section 9, in such forms as are agreed upon and acceptable to the Purchaser, duly executed by all signatories other than the Purchaser as required pursuant to the terms hereof; (c) the Seller shall have delivered and released to the Purchaser or its designee all documents required to be so delivered hereunder; and (d) all other terms and conditions of this Agreement shall have been complied with. Subject to the foregoing conditions, the Initial Purchaser shall pay to the Seller on the Closing Date the Purchase Price, plus accrued interest pursuant to Section 4, by wire transfer of immediately available funds to the account designated by the Seller. SECTION 9. Closing Documents. ----------------- On or before the Closing Date, the Seller shall submit to the Initial Purchaser fully executed originals of the following documents: 1 this Agreement, in four (4) counterparts; 28 2 a Custodial Account Letter Agreement in the form attached as Exhibit 5 hereto; --------- 3 an Escrow Account Letter Agreement in the form attached as Exhibit 6 hereto; --------- 4 an Officer's Certificate, in the form of Exhibit 1 hereto, --------- including all attachments thereto; 5 an Opinion of Counsel of the Seller, in the form of Exhibit 2 --------- hereto; 6 the Confirmation; 7 the Mortgage Loan Schedule, one copy to be attached hereto; 8 the Seller's underwriting guidelines; 9 a letter agreement, dated September 29, 1998, between National Mortgage Corporation and the Seller under which National Mortgage Corporation makes certain representations, warranties and covenants (which shall be identical to those made by the Seller in Section 7 hereof) to the Seller with respect to the Mortgage Loans, which shall be acceptable to the Initial Purchaser; 10 a Security Release Certification, in a form acceptable to the Initial Purchaser, if any of the Mortgage Loans has at any time been subject to any security interest, pledge or hypothecation for the benefit of any Person; and 11 a certificate or other evidence of merger or change of name, signed or stamped by the applicable regulatory authority, if any of the Mortgage Loans were acquired by the Seller by merger or acquired or originated by the Seller while conducting business under a name other than its present name, if applicable. SECTION 10. Costs. The Initial Purchaser shall pay any commissions ----- due its salesmen and the legal fees and expenses of its attorneys. All costs and expenses incurred in connection with the transfer and delivery of the Mortgage Loans, including without limitation recording fees, fees for title policy endorsements and continuations, fees for recording Assignments of Mortgage and the Seller's attorney's fees, shall be paid by the Seller. SECTION 11. Seller's Servicing Obligations. ------------------------------ 29 Subsection 11.01 Seller to Act as Servicer. ------------------------- The Seller, as independent contract servicer, shall service and administer the Mortgage Loans in accordance with this Agreement during the Interim Servicing Period and shall have full power and authority, acting alone or through Sub-Servicers as provided in Subsection 11.27, to do or cause to be done any and all things in connection with such servicing and administration which the Seller may deem necessary or desirable and consistent with the terms of this Agreement. Consistent with the terms of this Agreement, the Seller may waive, modify or vary any term of any Mortgage Loan or consent to the postponement of strict compliance with any such term or in any manner grant indulgence to any Mortgagor if in the Seller's reasonable and prudent determination such waiver, modification, postponement or indulgence is consistent with the goal of collecting all amounts due under the related Mortgage Loan; provided, however, that the Seller shall not permit any modification with respect to any Mortgage Loan that would change the Mortgage Interest Rate, defer or forgive the payment thereof or of any principal or interest payments, reduce the outstanding principal amount (except for actual payments of principal), make additional advances of additional principal or extend the final maturity date on such Mortgage Loan. Without limiting the generality of the foregoing, the Seller shall continue, and is hereby authorized and empowered, to execute and deliver on behalf of itself, and the Purchaser, all instruments of satisfaction or cancellation, or of partial or full release, discharge and all other comparable instruments, with respect to the Mortgage Loans and with respect to the Mortgaged Property. If reasonably required by the Seller, the Purchaser shall furnish the Seller and any Sub-Servicer with any powers of attorney and other documents necessary or appropriate to enable the Seller and any Sub-Servicer to carry out their servicing and administrative duties under this Agreement. In servicing and administering the Mortgage Loans, the Seller shall employ procedures, including collection procedures, and exercise the same care that it customarily employs and exercises in servicing and administering mortgage loans for its own account giving due consideration to accepted mortgage servicing practices of prudent lending institutions that service mortgage loans made to borrowers of similar credit quality as the Mortgagors on the Mortgage Loans and the Purchaser's reliance on the Seller. Subsection 11.02 Collection of Mortgage Loan Payments. ------------------------------------- Continuously from the date hereof until the principal and interest on all Mortgage Loans are paid in full, the Seller shall proceed diligently to collect all payments due under each Mortgage Loan when the same shall become due and payable and shall, to the extent such procedures shall be consistent with this Agreement, follow such collection procedures as it 30 follows with respect to mortgage loans comparable to the Mortgage Loans and held for its own account. Further, the Seller shall take special care in ascertaining and estimating annual ground rents, taxes, assessments, water rates, fire and hazard insurance premiums, mortgage insurance premiums, and all other charges that, as provided in the Mortgage, will become due and payable to the end that the installments payable by the Mortgagors will be sufficient to pay such charges as and when they become due and payable. Subsection 11.03 Realization Upon Defaulted Mortgage Loans. ----------------------------------------- (a) The Seller shall use its best efforts, consistent with the procedures that the Seller would use in servicing loans for its own account, to foreclose upon or otherwise comparably convert the ownership of those Mortgaged Properties securing Mortgage Loans that come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments pursuant to Subsection 11.01. The Seller shall use its best efforts to realize upon defaulted Mortgage Loans in such a manner as will maximize the receipt of principal and interest by the Purchaser, taking into account, among other things, the timing of foreclosure proceedings. The foregoing is subject to the provisions that, in any case in which Mortgaged Property shall have suffered damage, the Seller shall not be required to expend its own funds toward the restoration of such property in excess of $2,000 unless it shall determine in its discretion (i) that such restoration will, in the Seller's good faith judgement, increase the proceeds of liquidation of the related Mortgage Loan to the Purchaser after reimbursement to itself for such expenses, and (ii) that such expenses will be recoverable by the Seller through Insurance Proceeds or Liquidation Proceeds from the related Mortgaged Property, as contemplated in Subsection 11.05. In the event that any payment due under any Mortgage Loan is not paid when the same becomes due and payable, or in the event the Mortgagor fails to perform any other covenant or obligation under the Mortgage Loan and such failure continues beyond any applicable grace period, the Seller shall take such action as it shall deem to be in the best interest of the Purchaser. In the event that any payment due under any Mortgage Loan remains delinquent for a period of ninety (90) days or more, the Seller shall commence foreclosure proceedings, provided that prior to commencing foreclosure proceedings, the Seller shall notify the Purchaser in writing of the Seller's intention to do so, and the Seller shall not commence foreclosure proceedings if the Purchaser objects to such action within ten (10) Business Days of receiving such notice. The Seller shall notify the Purchaser in writing of the commencement of foreclosure proceedings. In such connection, the Seller shall be responsible for all costs and expenses incurred by it in any such proceedings; provided, however, that it shall be entitled to reimbursement thereof from Liquidation Proceeds or REO Disposition proceeds from the related Mortgaged Property, as contemplated in Subsection 11.05. (b) Notwithstanding the foregoing provisions of this Subsection 11.03, with respect to any Mortgage Loan as to which the Seller has received actual notice of, or has actual knowledge of, the presence of any toxic or hazardous substance on the related Mortgaged 31 Property, the Seller shall not either (i) obtain title to such Mortgaged Property as a result of or in lieu of foreclosure or otherwise, or (ii) otherwise acquire possession of, or take any other action, with respect to, such Mortgaged Property if, as a result of any such action, the Purchaser would be considered to hold title to, to be a mortgagee-in-possession of, or to be an owner or operator of such Mortgaged Property within the meaning of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, or any comparable law, unless the Seller has also previously determined, based on its reasonable judgment and a prudent report prepared by a Person who regularly conducts environmental audits using customary industry standards, that: (1) such Mortgaged Property is in compliance with applicable environmental laws or, if not, that it would be in the best economic interest of the Purchaser to take such actions as are necessary to bring the Mortgaged Property into compliance therewith; and (2) there are no circumstances present at such Mortgaged Property relating to the use, management or disposal of any hazardous substances, hazardous materials, hazardous wastes, or petroleum-based materials for which investigation, testing, monitoring, containment, clean-up or remediation could be required under any federal, state or local law or regulation, or that if any such materials are present for which such action could be required, that it would be in the best economic interest of the Purchaser to take such actions with respect to the affected Mortgaged Property. The cost of the environmental audit report contemplated by this Subsection 11.03 shall be advanced by the Seller, subject to the Seller's right to be reimbursed therefor from the Custodial Account as provided in Subsection 11.05(vii). If the Seller determines, as described above, that it is in the best economic interest of the Purchaser to take such actions as are necessary to bring any such Mortgaged Property into compliance with applicable environmental laws, or to take such action with respect to the containment, clean-up or remediation of hazardous substances, hazardous materials, hazardous wastes, or petroleum-based materials affecting any such Mortgaged Property, then the Seller shall take such action as it deems to be in the best economic interest of the Purchaser. The cost of any such compliance, containment, cleanup or remediation shall be advanced by the Seller, subject to the Seller's right to be reimbursed therefor from the Custodial Account as provided in Subsection 11.05(vii). (c) Proceeds received in connection with any Final Recovery Determination, as well as any recovery resulting from a partial collection of Insurance Proceeds or Liquidation Proceeds in respect of any Mortgage Loan, will be applied in the following order of priority: first, to reimburse the Seller ----- for any related unreimbursed Servicing Advances, pursuant to Subsection 32 11.05(iii); second, to accrued and unpaid interest on the Mortgage Loan, to the ------ date of the Final Recovery Determination, or to the Due Date prior to the Distribution Date on which such amounts are to be distributed if not in connection with a Final Recovery Determination; and third, as a recovery of ----- principal of the Mortgage Loan. If the amount of the recovery so allocated to interest is less than the full amount of accrued and unpaid interest due on such Mortgage Loan, the amount of such recovery will be allocated by the Seller as follows: first, to unpaid Servicing Fees; and second, to the balance of the ----- ------ interest then due and owing. The portion of the recovery so allocated to unpaid Servicing Fees shall be reimbursed to the Seller pursuant to Subsection 11.05(iii). The portion of the recovery allocated to interest (net of unpaid Servicing Fees) and the portion of the recovery allocated to principal of the Mortgage Loan shall be applied as part of the amounts to be distributed to the Purchaser in accordance with Subsection 11.14. Subsection 11.04 Establishment of Custodial Accounts; Deposits in ------------------------------------------------ Custodial Accounts. ------------------- The Seller shall segregate and hold or cause the Sub-Servicer to segregate and hold all funds collected and received pursuant to each Mortgage Loan separate and apart from any of its own funds and general assets and shall establish and maintain one or more Custodial Accounts, in the form of time deposit or demand accounts; provided, however, that collections on the Mortgage Loans may be held for one Business Day in the general clearing account for mortgage loan collections prior to being credited to the Custodial Account. The creation of any Custodial Account shall be evidenced by a Custodial Account Letter Agreement in the form of Exhibit 6. --------- The Seller shall deposit in the Custodial Account on a daily basis, and retain therein the following payments and collections received by it subsequent to the Cut-off Date, or received by it prior to the Cut-off Date but allocable to a period subsequent thereto, other than in respect of principal and interest on the Mortgage Loans due on or before the Cut-off Date: (i) all payments on account of principal, including Principal Prepayments, on the Mortgage Loans; (ii) all payments on account of interest on the Mortgage Loans; (iii) all Liquidation Proceeds; (iv) all Insurance Proceeds including amounts required to be deposited pursuant to Subsections 11.10 and 11.11, other than proceeds to be held in the Escrow Account and applied to the restoration or repair of the Mortgaged Property or released to the Mortgagor in accordance with the Seller's normal servicing procedures, the loan documents or applicable law; 33 (v) all Condemnation Proceeds affecting any Mortgaged Property which are not released to the Mortgagor in accordance with the Seller's normal servicing procedures, the loan documents or applicable law; (vi) [Reserved] (vii) all proceeds of any Mortgage Loan repurchased by the Seller in accordance with Subsections 7.03 and 7.04 and all amounts required to be deposited by the Seller in connection with shortfalls in principal amount of Qualified Substitute Mortgage Loans pursuant to Subsection 7.03; (viii) any amounts required to be deposited by the Seller pursuant to Subsection 11.11 in connection with the deductible clause in any blanket hazard insurance policy. Such deposit shall be made from the Seller's own funds, without reimbursement therefor; (ix) any amounts required to be deposited by the Seller in connection with any REO Property pursuant to Subsection 11.13; and (x) any amounts required to be deposited in the Custodial Account pursuant to Subsections 11.19 or 11.20. The foregoing requirements for deposit in the Custodial Account shall be exclusive, it being understood and agreed that, without limiting the generality of the foregoing, payments in the nature of late payment charges and assumption fees, to the extent permitted by Subsection 11.19, need not be deposited by the Seller in the Custodial Account, and may be retained by the Seller as additional servicing compensation. Such Custodial Account shall be an Eligible Account. Any interest or earnings on funds deposited in the Custodial Account by the depository institution shall accrue to the benefit of the Seller and the Seller shall be entitled to retain and withdraw such interest from the Custodial Account pursuant to Subsection 11.05(iv). The Seller shall give notice to the Purchaser of the location of the Custodial Account when established and prior to any change thereof. If the balance on deposit in the Custodial Account exceeds $75,000 as of the commencement of business on any Business Day and the Custodial Account constitutes an Eligible Account solely pursuant to clause (ii) of the definition of Eligible Account, the Seller shall, on or before twelve o'clock noon Eastern Standard Time on such Business Day, withdraw from the Custodial Account any and all amounts payable to the Purchaser and remit such amounts to the Purchaser by wire transfer of immediately available funds. This paragraph shall not be applicable to a Custodial Account that is an Eligible Account pursuant to clause (i) or (iii) of the definition of Eligible Account. Subsection 11.05 Permitted Withdrawals From the Custodial Account. ------------------------------------------------ 34 The Seller may, from time to time, withdraw from the Custodial Account for the following purposes: (i) to make distributions to the Purchaser in the amounts and in the manner provided for in Subsection 11.14; (ii) [Reserved]; (iii) to reimburse itself for unreimbursed Servicing Advances, the Seller's right to reimburse itself pursuant to this subclause (iii) with respect to any Mortgage Loan being limited to related Liquidation Proceeds, Condemnation Proceeds, Insurance Proceeds, REO Disposition proceeds and such other amounts as may be collected by the Seller from the Mortgagor or otherwise relating to the Mortgage Loan, it being understood that, in the case of such reimbursement, the Seller's right thereto shall be prior to the rights of the Purchaser, except that, where the Seller is required to repurchase a Mortgage Loan, pursuant to Subsection 7.03, the Seller's right to such reimbursement shall be subsequent to the payment to the Purchaser of the Repurchase Price pursuant to Subsection 7.03 and all other amounts required to be paid to the Purchaser with respect to such Mortgage Loans; (iv) to pay to itself pursuant to Subsection 11.22 as servicing compensation (a) any interest earned on funds in the Custodial Account (all such interest to be withdrawn monthly not later than each Distribution Date), and (b) the Servicing Fee from that portion of any payment or recovery as to interest on a particular Mortgage Loan; (v) to pay to itself with respect to each Mortgage Loan that has been repurchased pursuant to Subsection 7.03 all amounts received thereon and not distributed as of the date on which the related Repurchase Price is determined; (vi) [Reserved] (vii) to pay, or to reimburse the Seller for advances in respect of, expenses incurred in connection with any Mortgage Loan pursuant to Subsection 11.03, but only to the extent of amounts received in respect of the Mortgage Loans to which such expense is attributable; and (viii) to clear and terminate the Custodial Account on the termination of this Agreement. The Seller shall keep and maintain separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any withdrawal from the Custodial Account pursuant to such subclauses (iii), (v), and (vii) above. 35 Subsection 11.06 Establishment of Escrow Accounts: Deposits in Escrow ---------------------------------------------------- Accounts. -------- The Seller shall segregate and hold or cause the Sub-Servicer to segregate and hold all funds collected and received pursuant to each Mortgage Loan which constitute Escrow Payments separate and apart from any of its own funds and general assets and shall establish and maintain one or more Escrow Accounts, in the form of time deposit or demand accounts; provided, however, that collections on the Mortgage Loans (including Escrow Payments) may be held for one Business Day in the Seller's general clearing account for Mortgage Loan collections prior to being credited to the appropriate Escrow Account. The creation of any Escrow Account shall be evidenced by an Escrow Account Letter Agreement in the form of Exhibit 6. --------- The Seller or the Sub-Servicer shall deposit in the Escrow Account or Accounts on a daily basis, and retain therein, (i) all Escrow Payments collected on account of the Mortgage Loans, for the purpose of effecting timely payment of any such items as required under the terms of this Agreement, and (ii) all Insurance Proceeds which are to be applied to the restoration or repair of any Mortgaged Property. The Seller shall make withdrawals therefrom only to effect such payments as are required under this Agreement, and for such other purposes as shall be as set forth or in accordance with Subsection 11.08. The Seller shall be entitled to retain, as additional servicing compensation, any interest paid on funds deposited in the Escrow Account by the depository institution other than interest on escrowed funds required by law to be paid to the Mortgagor and, to the extent required by law, the Seller shall pay interest on escrowed funds to the Mortgagor notwithstanding that the Escrow Account is non- interest bearing or that interest paid thereon is insufficient for such purposes. Subsection 11.07 Permitted Withdrawals From Escrow Account. ----------------------------------------- Withdrawals from the Escrow Account may be made by the Seller or the Sub-Servicer (i) to effect timely payments of ground rents, taxes, assessments, water rates, hazard insurance premiums, Primary Mortgage Insurance Policy premiums, if applicable, and comparable items, (ii) to reimburse the Seller for any Servicing Advance made by the Seller with respect to a related Mortgage Loan but only from amounts received on the related Mortgage Loan which represent late payments or collections of Escrow Payments thereunder, (iii) to refund to the Mortgagor any funds as may be determined to be overages, (iv) for transfer to the Custodial Account in accordance with the terms of this Agreement, (v) for application to the restoration or repair of the Mortgaged Property, (vi) to pay to the Seller, or to the Mortgagor to the extent required by law, any interest paid on the funds deposited in the Escrow Account, or (vii) to clear and terminate the Escrow Account on the termination of this Agreement. Subsection 11.08 Payment of Taxes, Insurance and Other Charges. --------------------------------------------- 36 With respect to each Mortgage Loan, the Seller shall maintain accurate records reflecting the status of ground rents, taxes, assessments, water rates and other charges which are or may become a lien upon the Mortgaged Property and the status of Primary Mortgage Insurance Policy premiums and fire and hazard insurance coverage and shall obtain, from time to time, all bills for the payment of such charges, including insurance renewal premiums and shall effect payment thereof prior to the applicable penalty or termination date and at a time appropriate for securing maximum discounts allowable, employing for such purpose deposits of the Mortgagor in the Escrow Account which shall have been estimated and accumulated by the Seller in amounts sufficient for such purposes, as allowed under the terms of the Mortgage and applicable law. To the extent that the Mortgage does not provide for Escrow Payments, the Seller shall determine that any such payments are made by the Mortgagor at the time they first become due. The Seller assumes full responsibility for the timely payment of all such bills and shall effect timely payments of all such bills irrespective of the Mortgagor's faithful performance in the payment of same or the making of the Escrow Payments and shall make advances from its own funds to effect such payments. Subsection 11.09 Transfer of Accounts. --------------------- The Seller may transfer the Custodial Account or the Escrow Account to a different depository institution from time to time. Such transfer shall be made only upon obtaining the consent of the Purchaser, which consent shall not be unreasonably withheld. In any case, the Custodial Account and Escrow Account shall be Eligible Accounts. Subsection 11.10 Maintenance of Hazard Insurance. ------------------------------- The Seller shall cause to be maintained for each Mortgage Loan fire and hazard insurance with extended coverage as is customary in the area where the Mortgaged Property is located in an amount which is at least equal to the lesser of (i) the amount necessary to fully compensate for any damage or loss to the improvements which are a part of such property on a replacement cost basis or (ii) the outstanding principal balance of the Mortgage Loan, or (iii) the maximum insurable value of the improvements as established by the insurer in each case in an amount not less than such amount as is necessary to prevent the Mortgagor and/or the Mortgagee from becoming a co-insurer. If the Mortgaged Property is in an area identified on a Flood Hazard Boundary Map or Flood Insurance Rate Map issued by the Flood Emergency Management Agency as having special flood hazards and flood insurance has been made available, the Seller will cause to be maintained a flood insurance policy meeting the requirements of the current guidelines of the Federal Insurance Administration with a generally acceptable insurance carrier, in an amount representing coverage not less than the lesser of (i) the outstanding principal balance of the Mortgage Loan or (ii) the maximum amount of insurance which is available under the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as 37 amended. The Seller also shall maintain on any REO Property, fire and hazard insurance with extended coverage in an amount which is at least equal to the amount required to be maintained for such REO Property when it was a Mortgage Loan as provided above, liability insurance and, to the extent required and available under the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, as amended, flood insurance in an amount as provided above. Pursuant to Subsection 11.04, any amounts collected by the Seller under any such policies other than amounts to be deposited in the Escrow Account and applied to the restoration or repair of the Mortgaged Property or REO Property, or released to the Mortgagor in accordance with the Seller's normal servicing procedures, shall be deposited in the Custodial Account, subject to withdrawal pursuant to Subsection 11.05. Any cost incurred by the Seller in maintaining any such insurance shall not, for the purpose of calculating distributions to the Purchaser, be added to the unpaid principal balance of the related Mortgage Loan, notwithstanding that the terms of such Mortgage Loan so permit. It is understood and agreed that no earthquake or other additional insurance need be required by the Seller of the Mortgagor or maintained on property acquired in respect of the Mortgage Loan, other than pursuant to such applicable laws and regulations as shall at any time be in force and as shall require such additional insurance. All such policies shall be endorsed with standard mortgagee clauses with loss payable to the Seller, or upon request to the Purchaser, and shall provide for at least thirty days prior written notice of any cancellation, reduction in the amount of, or material change in, coverage to the Seller. The Seller shall not interfere with the Mortgagor's freedom of choice in selecting either his insurance carrier or agent, provided, however, that the Seller shall not accept any such insurance policies from insurance companies unless such companies currently reflect a General Policy Rating of B/III or A/II or better in Best's Key Rating Guide and are licensed to do business in the state wherein the property subject to the policy is located. Subsection 11.11 Maintenance of Mortgage Impairment Insurance Policy. --------------------------------------------------- In the event that the Seller shall obtain and maintain a mortgage impairment or blanket policy issued by an issuer that has a Best rating of A:VI insuring against hazard losses on all of Mortgaged Properties securing the Mortgage Loans, then, to the extent such policy provides coverage in an amount equal to the amount required pursuant to Subsection 11.10 and otherwise complies with all other requirements of Subsection 11.10, the Seller shall conclusively be deemed to have satisfied its obligations as set forth in Subsection 11.10, it being understood and agreed that such policy may contain a deductible clause, in which case the Seller shall, in the event that there shall not have been maintained on the related Mortgaged Property or REO Property a policy complying with Subsection 11.10, and there shall have been one or more losses which would have been covered by such policy, deposit in the Custodial Account the amount not otherwise payable under the blanket policy because of such deductible clause. In connection with its activities as servicer of the Mortgage Loans, the Seller agrees to prepare and present on behalf of the Purchaser, claims under any such blanket policy in a timely fashion in accordance 38 with the terms of such policy. Upon request of the Purchaser, the Seller shall cause to be delivered to the Purchaser a certified true copy of such policy and a statement from the insurer thereunder that such policy shall in no event be terminated or materially modified without thirty (30) days prior written notice to the Purchaser. Subsection 11.12 Fidelity Bond; Errors and Omissions Insurance. --------------------------------------------- The Seller shall maintain, at its own expense, a blanket fidelity bond and an errors and omissions insurance policy, with broad coverage with responsible companies that meet the requirements of FNMA or FHLMC on all officers, employees or other persons acting in any capacity with regard to the Mortgage Loans to handle funds, money, documents and papers relating to the Mortgage Loans. The fidelity bond and errors and omissions insurance shall be in the form of the Mortgage Banker's Blanket Bond and shall protect and insure the Seller against losses, including forgery, theft, embezzlement, fraud, errors and omissions and negligent acts of such persons. Such fidelity bond shall also protect and insure the Seller against losses in connection with the failure to maintain any insurance policies required pursuant to this Agreement. No provision of this Subsection 11.12 requiring the fidelity bond and errors and omissions insurance shall diminish or relieve the Seller from its duties and obligations as set forth in this Agreement. The minimum coverage under any such bond and insurance policy shall be at least equal to the corresponding amounts required by FNMA in the FNMA Servicing Guide or by FHLMC in the FHLMC Sellers' and Servicers' Guide. Upon request of the Purchaser, the Seller shall cause to be delivered to the Purchaser a certified true copy of the fidelity bond and insurance policy and a statement from the surety and the insurer that such fidelity bond or insurance policy shall in no event be terminated or materially modified without thirty (30) days prior written notice to the Purchaser. Subsection 11.13 Title, Management and Disposition of REO Property. ------------------------------------------------- In the event that title to the Mortgaged Property is acquired in foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale shall be taken in the name of the Seller or its Sub-Servicer or such other person, if any, designated by the Purchaser. Any Person or Persons holding such title other than the Purchaser shall acknowledge in writing that such title is being held as nominee for the benefit of the Purchaser. The Seller shall either itself or through an agent selected by the Seller, manage, conserve, protect and operate each REO Property (and may temporarily rent the same) in the same manner that it manages, conserves, protects and operates other foreclosed property for its own account, and in the same manner that similar property in the same locality as the REO Property is managed. If a REMIC election is or is to be made with respect to the arrangement under which the Mortgage Loans and any REO Property are held, the Seller shall manage, conserve, protect and operate each REO Property in a manner which does not cause such REO Property to fail to qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of 39 the Code or result in the receipt by such REMIC of any "income from non- permitted assets" within the meaning of Section 860F(a)(2)(B) of the Code or any "net income from foreclosure property" within the meaning of Section 860G(c)(2) of the Code. The Seller shall cause each REO Property to be inspected promptly upon the acquisition of title thereto and shall cause each REO Property to be inspected at least annually thereafter. The Seller shall make or cause to be made a written report of each such inspection. Such reports shall be retained in the Mortgage File and copies thereof shall be forwarded by the Seller to the Purchaser. The Seller shall use its best efforts to dispose of the REO Property as soon as possible and shall sell such REO Property in any event within one (1) year after title has been taken to such REO Property, unless the Seller determines, and gives appropriate notice to the Purchaser, that a longer period is necessary for the orderly liquidation of such REO Property. If a period longer than one (1) year is necessary to sell any REO property, (i) the Seller shall report monthly to the Purchaser as to the progress being made in selling such REO Property and (ii) if, with the written consent of the Purchaser, a purchase money mortgage is taken in connection with such sale, such purchase money mortgage shall name the Seller as mortgagee, and a separate servicing agreement between the Seller and the Purchaser shall be entered into with respect to such purchase money mortgage. Notwithstanding the foregoing, if a REMIC election is made with respect to the arrangement under which the Mortgage Loans and the REO Property are held, such REO Property shall be disposed of within two (2) years or such other period as may be permitted under Section 860G(a)(8) of the Code. With respect to each REO Property, the Seller shall segregate and hold all funds collected and received in connection with the operation of the REO Property separate and apart from its own funds or general assets and shall establish and maintain a separate REO Account for each REO Property in the form of a non-interest bearing demand account, unless an Opinion of Counsel is obtained by the Seller to the effect that the classification as a grantor trust or REMIC for federal income tax purposes of the arrangement under which the Mortgage Loans and the REO Property is held will not be adversely affected by holding such funds in another manner. Each REO Account shall be established with the Seller or, with the prior consent of the Purchaser, with a commercial bank, a mutual savings bank or a savings association. The creation of any REO Account shall be evidenced by a letter agreement substantially in the form of the Custodial Account Letter Agreement attached as Exhibit 6 hereto. An --------- original of such letter agreement shall be furnished to any Purchaser upon request. The Seller shall deposit or cause to be deposited, on a daily basis in each REO Account all revenues received with respect to the related REO Property and shall withdraw therefrom funds necessary for the proper operation, management and maintenance of the REO Property, including the cost of maintaining any hazard insurance pursuant to Subsection 11.10 hereof and the fees of any managing agent acting on behalf of the Seller. The Seller shall not be entitled to retain interest paid or other earnings, if any, on funds deposited in such REO Account. On or before each Determination Date, the Seller shall withdraw from each REO Account and 40 deposit into the Custodial Account the net income from the REO Property on deposit in the REO Account. The Seller shall furnish to the Purchaser on each Distribution Date, an operating statement for each REO Property covering the operation of each REO Property for the previous month. Such operating statement shall be accompanied by such other information as the Purchaser shall reasonably request. Each REO Disposition shall be carried out by the Seller at such price and upon such terms and conditions as the Seller deems to be in the best interest of the Purchaser only with the prior written consent of the Purchaser. If as of the date title to any REO Property was acquired by the Purchaser or its designee there were outstanding unreimbursed Servicing Advances with respect to the REO Property, the Seller, upon an REO Disposition of such REO Property, shall be entitled to reimbursement for any related unreimbursed Servicing Advances from proceeds received in connection with such REO Disposition. The proceeds from the REO Disposition, net of any payment to the Seller as provided above, shall be deposited in the REO Account and shall be transferred to the Custodial Account on the Determination Date in the month following receipt thereof for distribution on the succeeding Distribution Date in accordance with Subsection 11.14. Subsection 11.14 Distributions. ------------- On each Distribution Date, the Seller shall distribute to the Purchaser all amounts credited to the Custodial Account as of the close of business on the preceding Determination Date, net of charges against or withdrawals from the Custodial Account pursuant to Subsection 11.05, minus any amounts attributable to Monthly Payments collected but due on a Due Date or Dates subsequent to the related Due Period. All distributions made to the Purchaser on each Distribution Date will be made to the Initial Purchaser or any subsequent Purchaser as most recently identified to the Seller in writing by the previous Purchaser, and shall be based on the Mortgage Loans owned and held by the Purchaser, and shall be made by wire transfer of immediately available funds to the account of the Purchaser at a bank or other entity having appropriate facilities therefor, if the Purchaser shall have so notified the Seller or by check mailed to the address of the Purchaser. With respect to any remittance received by the Purchaser on or after the second Business Day following the Business Day on which such payment was due, the Seller shall pay to the Purchaser interest on any such late payment at an annual rate equal to the rate of interest as is publicly announced from time to time at its principal office by The Chase Manhattan Bank, New York, New York, as its prime lending rate, adjusted as of the date of each change, plus three percentage points, but in no event greater than the maximum amount permitted by applicable law. Such interest shall be paid by the Seller to the Purchaser on the date such late payment is made and shall cover the period commencing with the day following such second Business Day 41 and ending with the Business Day on which such payment is made, both inclusive. Such interest shall be remitted along with such late payment. The payment by the Seller of any such interest shall not be deemed an extension of time for payment or a waiver of any Event of Default by the Seller. Subsection 11.15 Remittance Reports. ------------------ The Seller shall furnish to the Purchaser or its designee on each Distribution Date a computer tape containing, and a hard copy of, the monthly data, the determination data and remittance report, as further described and set forth in Exhibit 8, for the Mortgage Loans for the preceding calendar month, --------- together with such other information with respect to the Mortgage Loans as the Purchaser may reasonably require to allocate distributions made pursuant to this Agreement and provide appropriate statements with respect to such distributions. Subsection 11.16 Statements to the Purchaser. --------------------------- Not later than fifteen (15) days after each Distribution Date, the Seller shall forward to the Purchaser or its designee a statement prepared by the Seller setting forth the status of the Custodial Account as of the close of business on such Distribution Date and showing, for the period covered by such statement, the aggregate amount of deposits into and withdrawals from the Custodial Account of each category of deposit specified in Subsection 11.04 and each category of withdrawal specified in Subsection 11.05. In addition, not more than sixty (60) days after the end of each calendar year, the Seller shall furnish to each Person who was the Purchaser at any time during such calendar year, (i) as to the aggregate of remittances for the applicable portion of such year, an annual statement in accordance with the requirements of applicable federal income tax law, and (ii) a listing of the principal balances of the Mortgage Loans outstanding at the end of such calendar year or at the expiration of the Interim Servicing Period if the Seller was terminated as servicer hereunder during such calendar year. The Seller shall prepare and file any and all tax returns, information statements or other filings required to be delivered to any governmental taxing authority or to any Purchaser pursuant to any applicable law with respect to the Mortgage Loans and the transactions contemplated hereby. In addition, the Seller shall provide the Purchaser with such information concerning the Mortgage Loans (during the period they were serviced by the Seller) as is necessary for the Purchaser to prepare its federal income tax return as any Purchaser may reasonably request from time to time. Subsection 11.17 Real Estate Owned Reports. ------------------------- 42 Together with the statement furnished pursuant to Subsection 11.13, with respect to any REO Property, the Seller shall furnish to the Purchaser a statement covering the Seller's efforts in connection with the sale of such REO Property and any rental of such REO Property incidental to the sale thereof for the previous month, together with the operating statement. Such statement shall be accompanied by such other information as the Purchaser shall reasonably request. Subsection 11.18 Liquidation Reports. ------------------- Upon the foreclosure sale of any Mortgaged Property or the acquisition thereof by the Purchaser pursuant to a deed-in-lieu of foreclosure, the Seller shall submit to the Purchaser a liquidation report with respect to such Mortgaged Property. Subsection 11.19 Assumption Agreements. --------------------- The Seller shall, to the extent it has knowledge of any conveyance or prospective conveyance by any Mortgagor of the Mortgaged Property (whether by absolute conveyance or by contract of sale, and whether or not the Mortgagor remains or is to remain liable under the Mortgage Note and/or the Mortgage), exercise its rights to accelerate the maturity of such Mortgage Loan under any "due-on-sale" clause applicable thereto; provided, however, that the Seller shall not exercise any such rights if prohibited by law from doing so. If the Seller reasonably believes it is unable under applicable law to enforce such "due-on-sale" clause, the Seller shall use reasonable efforts to enter into an assumption agreement with the person to whom the Mortgaged Property has been conveyed or is proposed to be conveyed, pursuant to which such person becomes liable under the Mortgage Note and, to the extent permitted by applicable state law, the Mortgagor remains liable thereon. Where an assumption is allowed pursuant to this Subsection 11.19, the Seller is authorized to enter into a substitution of liability agreement with the person to whom the Mortgaged Property has been conveyed or is proposed to be conveyed pursuant to which the original Mortgagor is released from liability and such Person is substituted as Mortgagor and becomes liable under the related Mortgage Note. Any such substitution of liability agreement shall be in lieu of an assumption agreement. In connection with any such assumption or substitution of liability, the Seller shall follow the underwriting practices and procedures included in the NMC Non-Conforming Program Guide. With respect to an assumption or substitution of liability, the Mortgage Interest Rate, the amount of the Monthly Payment, and the final maturity date of such Mortgage Note may not be changed. The Seller shall notify the Purchaser that any such substitution of liability or assumption agreement has been completed by forwarding to the Purchaser the original of any such substitution of liability or assumption agreement, which document shall be added to the related Mortgage File and shall, for all purposes, be considered a part of such Mortgage File to 43 the same extent as all other documents and instruments constituting a part thereof. Any fee collected by the Seller for entering into an assumption or substitution of liability agreement in excess of one percent (1%) of the outstanding principal balance of the Mortgage Loan shall be deposited in the Custodial Account pursuant to Subsection 11.04. Notwithstanding the foregoing paragraphs of this Subsection or any other provision of this Agreement, the Seller shall not be deemed to be in default, breach or any other violation of its obligations hereunder by reason of any assumption of a Mortgage Loan by operation of law or any assumption which the Seller may be restricted by law from preventing, for any reason whatsoever. For purposes of this Subsection 11.19, the term "assumption" is deemed to also include a sale of the Mortgaged Property subject to the Mortgage that is not accompanied by an assumption or substitution of liability agreement. Subsection 11.20 Satisfaction of Mortgages and Release of Mortgage ------------------------------------------------- Files. ----- Upon the payment in full of any Mortgage Loan, or the receipt by the Seller of a notification that payment in full will be escrowed in a manner customary for such purposes, the Seller will immediately notify the Purchaser by a certification of a servicing officer of the Seller (a "Servicing Officer"), which certification shall include a statement to the effect that all amounts received or to be received in connection with such payment which are required to be deposited in the Custodial Account pursuant to Subsection 11.04 have been or will be so deposited, and shall request execution of any document necessary to satisfy the Mortgage Loan and delivery to it of the portion of the Mortgage File held by the Purchaser or the Purchaser's designee. Upon receipt of such certification and request, the Purchaser, shall promptly release the related mortgage documents to the Seller and the Seller shall prepare and process any satisfaction or release. No expense incurred in connection with any instrument of satisfaction or deed of reconveyance shall be chargeable to the Custodial Account or the Purchaser. In the event the Seller satisfies or releases a Mortgage without having obtained payment in full of the indebtedness secured by the Mortgage and without the prior written consent of the Purchaser, the Seller, upon written demand, shall remit to the Purchaser the then outstanding principal balance of the related Mortgage Loan by deposit thereof in the Custodial Account. The Seller shall maintain the fidelity bond insuring the Seller against any loss it may sustain with respect to any Mortgage Loan not satisfied in accordance with the procedures set forth herein. From time to time and as appropriate for the servicing or foreclosure of the Mortgage Loan, the Purchaser shall, upon request of the Seller and delivery to the Purchaser of a servicing receipt signed by a Servicing Officer, release the requested portion of the related Mortgage File held by the Purchaser to the Seller. Such servicing receipt shall obligate the Seller 44 to return the related Mortgage documents to the Purchaser when the need therefor by the Seller no longer exists, unless the Mortgage Loan has been liquidated and the Liquidation Proceeds relating to the Mortgage Loan have been deposited in the Custodial Account or the Mortgage File or such document has been delivered to an attorney, or to a public trustee or other public official as required by law, for purposes of initiating or pursuing legal action or other proceedings for the foreclosure of the Mortgaged Property either judicially or non- judicially, and the Seller has delivered to the Purchaser a certificate of a Servicing Officer certifying as to the name and address of the Person to which such Mortgage File or such document was delivered and the purpose or purposes of such delivery. Upon receipt of a certificate of a Servicing Officer stating that such Mortgage Loan was liquidated, the servicing receipt shall be released by the Purchaser to the Seller. Subsection 11.21 Servicing Advance Reimbursement ------------------------------- The Purchaser shall reimburse the Seller for unreimbursed Servicing Advances that the Seller actually expended as servicer which the Seller would have otherwise been entitled to recover upon receipt of collections from the related Mortgagor pursuant to Section 11.05(iii), but for the termination of the Interim Servicing Period. The Seller shall deliver to the Purchaser a detailed statement of such unreimbursed Servicing Advances within fifteen (15) days of the termination of the Interim Servicing Period, and the Purchaser shall reimburse the Seller for such unreimbursed Servicing Advances within thirty (30) days of receipt of such statement. Subsection 11.22 Servicing Compensation. ---------------------- As compensation for its services hereunder, the Seller shall, subject to Subsection 11.04(x), be entitled to withdraw from the Custodial Account or to retain from interest payments on the Mortgage Loans the amounts provided for as the Seller's Servicing Fee. Additional servicing compensation in the form of assumption fees, as provided in Subsection 11.19, and late payment charges or otherwise during the Interim Servicing Period shall be retained by the Seller to the extent not required to be deposited in the Custodial Account. The Seller 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. Subsection 11.23 Statement as to Compliance. -------------------------- The Seller will deliver to the Purchaser not later than ninety (90) days following the end of each fiscal year of the Seller, which as of the Closing Date ends on the last day in December in each calendar year, an Officer's Certificate stating, as to each signatory thereof, that (i) a review of the activities of the Seller during the preceding year and of performance under this 45 Agreement has been made under such officer's supervision and (ii) to the best of such officer's knowledge, based on such review, the Seller 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. Copies of such statement shall be provided by the Purchaser to any Person identified as a prospective purchaser of the Mortgage Loans. Subsection 11.24 Independent Public Accountants' Servicing Report. ------------------------------------------------ Not later than ninety (90) days following the end of each fiscal year of the Seller, the Seller at its expense shall cause a firm of independent public accountants (which may also render other services to the Seller) which is a member of the American Institute of Certified Public Accountants to furnish a statement to the Purchaser or its designee to the effect that such firm has examined certain documents and records relating to the servicing of the Mortgage Loans under this Agreement or of mortgage loans under pooling and servicing agreements (including the Mortgage Loans and this Agreement) substantially similar one to another (such statement to have attached thereto a schedule setting forth the pooling 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 Attestation Program for Mortgages serviced for FHLMC, such firm confirms that such servicing has been conducted in compliance with such pooling 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. Copies of such statement shall be provided by the Purchaser to any Person identified as a prospective purchaser of the Mortgage Loans. Subsection 11.25 Access to Certain Documentation. ------------------------------- The Seller shall provide to the Office of Thrift Supervision, the FDIC and any other federal or state banking or insurance regulatory authority that may exercise authority over the Purchaser access to the documentation regarding the Mortgage Loans serviced by the Seller required by applicable laws and regulations. Such access shall be afforded without charge, but only upon reasonable request and during normal business hours at the offices of the Seller. In addition, access to the documentation will be provided to the Purchaser and any Person identified to the Seller by the Purchaser without charge, upon reasonable request during normal business hours at the offices of the Seller. Subsection 11.26 Notification of Adjustments. --------------------------- 46 On each Adjustment Date, the Seller shall make interest rate adjustments for each Mortgage Loan in compliance with the requirements of the related Mortgage and Mortgage Note. The Seller shall execute and deliver the notices required by each Mortgage and Mortgage Note regarding interest rate adjustments. The Seller also shall provide timely notification to the Purchaser of all applicable data and information regarding such interest rate adjustments and the Seller's methods of implementing such interest rate adjustments. Upon the discovery by the Seller or the Purchaser that the Seller has failed to adjust a Mortgage Interest Rate or a Monthly Payment pursuant to the terms of the related Mortgage Note and Mortgage, the Seller shall immediately deposit in the Custodial Account from its own funds the amount of any interest loss caused thereby without reimbursement therefor. Subsection 11.27 Sub-Servicing Agreements Between Seller and Sub- ----------------------------------------------- Servicers. --------- (a) The Seller may enter into Sub-Servicing Agreements with Sub- Servicers for the servicing and administration of the Mortgage Loans; provided -------- however that nothing in this Agreement shall be deemed to grant any rights in - ------- the Mortgage Loans to any Sub-Servicer following the termination of the Interim Servicing Period. Subject to Section 16, the Seller and the Sub-Servicers may make amendments to the Sub-Servicing Agreements or enter into different forms of Sub-Servicing Agreements; provided, however, that any such amendments or different forms shall be consistent with and not violate the provisions of this Agreement, and that no such amendment or different form shall be made or entered into which could be reasonably expected to be materially adverse to the interests of the Purchaser, without the consent of the Purchaser. (b) As part of its servicing activities hereunder, the Seller, for the benefit of the Purchaser, shall enforce the obligations of each Sub-Servicer under the related Sub-Servicing Agreement, including, without limitation, any obligation to make advances in respect of delinquent payments as required by a Sub-Servicing Agreement, or to purchase a Mortgage Loan on account of defective documentation or on account of a breach of a representation or warranty, as described in Subsections 7.01 and 7.02. Such enforcement, including, without limitation, the legal prosecution of claims, termination of Sub-Servicing Agreements and the pursuit of other appropriate remedies, shall be in such form and carried out to such an extent and at such time as the Seller, in its good faith business judgment, would require were it the owner of the related Mortgage Loans. The Seller shall pay the costs of such enforcement at its own expense, but shall be reimbursed therefor only (i) from a general recovery resulting from such enforcement only to the extent, if any, that such recovery exceeds all amounts due hereunder in respect of the related Mortgage Loans or (ii) from a specific recovery of costs, expenses or attorneys' fees against the party against whom such enforcement is directed. 47 (c) As of the Closing Date, the Purchaser agrees that National Mortgage Corporation is an acceptable Sub-Servicer hereunder. Subsection 11.28 Successor Sub-Servicers. ----------------------- The Seller shall be entitled to terminate any Sub-Servicing Agreement and the rights and obligations of any Sub-Servicer pursuant to any Sub-Servicing Agreement in accordance with the terms and conditions of such Sub-Servicing Agreement. In the event of termination of any Sub-Servicer, all servicing obligations of such Sub-Servicer shall be assumed simultaneously by the Seller without any act or deed on the part of such Sub-Servicer or the Seller, and the Seller either shall service directly the related Mortgage Loans or shall enter into a Sub-Servicing Agreement with a successor Sub-Servicer which qualifies under Subsection 11.27. If the Seller enters into a Sub-Servicing Agreement with a successor Sub-Servicer, the Seller shall use reasonable efforts to have the successor Sub-Servicer assume liability for the representations and warranties made by the terminated Sub-Servicer in respect of the related Mortgage Loans, and in the event of any such assumption by the successor Sub- Servicer, the Seller may, in the exercise of its business judgment, release the terminated Sub-Servicer from liability for such representations and warranties. Subsection 11.29 Liability of the Seller. ----------------------- Notwithstanding any Sub-Servicing Agreement, any of the provisions of this Agreement relating to agreements or arrangements between the Seller and a Sub-Servicer or reference to actions taken through a Sub-Servicer or otherwise, the Seller shall remain obligated and liable to the Initial Purchaser for the servicing and administering of the Mortgage Loans in accordance with the provisions of this Agreement without diminution of such obligation or liability by virtue of such Sub-Servicing Agreements or arrangements or by virtue of indemnification from the Sub-Servicer for any acts and omissions and to the same extent and under the same terms and conditions as if the Seller alone were servicing and administering the Mortgage Loans and any other transactions or services relating to the Mortgage Loans involving the Sub-Servicer shall be deemed to be between the Sub-Servicer and the Seller alone and the Purchaser shall have no obligations, duties or liabilities with respect to the Sub- Servicer including no obligation, duty or liability of the Purchaser to pay Sub- Servicer's fees and expenses except pursuant to an assumption of the Seller's obligations pursuant to Section 16. For purposes of this Agreement, the Seller shall be deemed to have received payments on Mortgage Loans when the Sub- Servicer has received such payments. The Seller shall be entitled to enter into any agreement with a Sub-Servicer for indemnification of the Seller by such Sub- Servicer and nothing contained in this Agreement shall be deemed to limit or modify such indemnification. The Seller shall pay all fees and expenses of the Sub-Servicer from its own funds, the Servicing Fee or other amounts permitted to be retained by or reimbursed to the Seller hereunder. 48 Subsection 11.30 No Contractual Relationship Between Sub-Servicers ------------------------------------------------- and Purchaser. ------------- Any Sub-Servicing Agreement that may be entered into and any transactions or services relating to the Mortgage Loans involving a Sub-Servicer in its capacity as such and not as an originator shall be deemed to be between the Sub-Servicer and the Seller alone, and the Initial Purchaser shall not be deemed a party thereto and shall have no claims, rights, obligations, duties or liabilities with respect to the Sub-Servicer except as set forth in Section 16. SECTION 12. [Reserved] SECTION 13. The Seller. ---------- Subsection 13.01. Additional Indemnification by the Seller. ---------------------------------------- In addition to the indemnification provided in Subsection 7.03, the Seller shall indemnify the Purchaser and hold the Purchaser harmless against any and all claims, losses, damages, penalties, fines, forfeitures, reasonable and necessary legal fees and related costs, judgments, and any other costs, fees and expenses that the Purchaser may sustain in any way related to the failure of the Seller to perform its obligations under this Agreement including but not limited to its obligation to service and administer the Mortgage Loans in compliance with the terms of this Agreement or any Reconstitution Agreement entered into pursuant to Section 12. Subsection 13.02. Merger or Consolidation of the Seller. ------------------------------------- The Seller shall keep in full force and effect its existence, rights and franchises as a corporation under the laws of the state of its incorporation except as permitted herein, and shall obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement or any of the Mortgage Loans, and to enable the Seller to perform its duties under this Agreement. Any Person into which the Seller may be merged or consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Seller shall be a party, or any Person succeeding to the business of the Seller, shall be the successor of the Seller 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; provided, however, that, for so long as the Seller is servicing Mortgage Loans for the Purchaser under this Agreement, the 49 successor or surviving Person shall be an institution whose deposits are insured by FDIC or a company whose business is the origination and servicing of mortgage loans, shall be a FNMA or FHLMC approved seller/servicer and shall satisfy any requirements of Section 16 with respect to the qualifications of a successor to the Seller. Subsection 13.03. Limitation on Liability of the Seller and Others. ------------------------------------------------ Neither the Seller nor any of the officers, employees or agents of the Seller shall be under any liability to the Purchaser for any action taken or for refraining from the taking of any action in good faith in connection with the servicing of the Mortgage Loans pursuant to this Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Seller or any such person against any breach of warranties or representations made herein, or failure to perform its obligations in compliance with any standard of care set forth in this Agreement, or any liability which would otherwise be imposed by reason of any breach of the terms and conditions of this Agreement. The Seller and any officer, employee or agent of the Seller may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Seller shall not be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its obligation to sell or duty to service the Mortgage Loans in accordance with this Agreement and which in its opinion may involve it in any expenses or liability; provided, however, that the Seller may, with the consent of the Purchaser, undertake any such action which it may deem necessary or desirable in respect to this Agreement and the rights and duties of the parties hereto. In such event, the legal expenses and costs of such action and any liability resulting therefrom shall be expenses, costs and liabilities for which the Purchaser shall be liable, the Seller shall be entitled to reimbursement therefor from the Purchaser upon written demand except when such expenses, costs and liabilities are subject to the Seller's indemnification under Subsections 7.03 or 13.01. Subsection 13.04. Seller Not to Resign. -------------------- The Seller shall not assign this Agreement or resign from the obligations and duties hereby imposed on it except by mutual consent of the Seller and the Purchaser or upon the determination that its servicing duties hereunder are no longer permissible under applicable law and such incapacity cannot be cured by the Seller in which event the Seller may resign as servicer. Any such determination permitting the resignation of the Seller as servicer shall be evidenced by an Opinion of Counsel to such effect delivered to the Purchaser which Opinion of Counsel shall be in form and substance reasonably acceptable to the Purchaser. No such resignation shall become effective until a successor shall have assumed the Seller's responsibilities and obligations hereunder in the manner provided in Section 16. Subsection 13.05. No Transfer of Servicing. ------------------------ 50 With respect to the retention of the Seller to service the Mortgage Loans during the Interim Servicing Period, the Seller acknowledges that the Purchaser has acted in reliance upon the Seller's independent status, the adequacy of its servicing facilities, plant, personnel, records and procedures, its integrity, reputation and financial standing and the continuance thereof. Without in any way limiting the generality of this Section, the Seller shall not either assign this Agreement or the servicing hereunder or delegate its rights or duties hereunder or any portion thereof, or sell or otherwise dispose of all or substantially all of its property or assets, without the prior written approval of the Purchaser, which consent will not be unreasonably withheld. SECTION 14. Default. ------- Subsection 14.01. Events of Default. ----------------- In case one or more of the following Events of Default by the Seller shall occur and be continuing, that is to say: (i) any failure by the Seller to remit to the Purchaser any payment required to be made under the terms of this Agreement which continues unremedied for a period of three (3) Business Days after the date upon which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Purchaser; or (ii) failure on the part of the Seller duly to observe or perform in any material respect any other of the covenants or agreements on the part of the Seller set forth in this Agreement which continues unremedied for a period of thirty (30) days (except that such number of days shall be fifteen (15) in the case of a failure to pay any premium for any insurance policy required to be maintained under this Agreement) after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Seller by the Purchaser; or (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, bankruptcy, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Seller and such decree or order shall have remained in force undischarged or unstayed for a period of sixty (60) days; or (iv) the Seller shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, bankruptcy, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to the Seller or of or relating to all or substantially all of its property; or 51 (v) the Seller shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors, or voluntarily suspend payment of its obligations; or (vi) failure by the Seller or the Sub-Servicer to be in compliance with the "doing business" or licensing laws of any jurisdiction where a Mortgaged Property is located if such failure has an adverse effect on the value of the related Mortgage Loans, the enforceability of such Mortgage Loans or the interests of the Purchaser in such Mortgage Loans; or (vii) the Sub-Servicer ceases to meet the qualifications of either a FNMA or FHLMC seller/servicer; or (viii) the Seller attempts to assign its right to servicing compensation hereunder or the Seller attempts, without the consent of the Purchaser, to sell or otherwise dispose of all or substantially all of its property or assets or to assign this Agreement or the servicing responsibilities hereunder or to delegate its duties hereunder or any portion thereof; then, and in each and every such case, so long as an Event of Default shall not have been remedied, the Purchaser, by notice in writing to the Seller may, in addition to whatever rights the Purchaser may have at law or equity to damages, including injunctive relief and specific performance, terminate all the rights and obligations of the Seller as servicer under this Agreement. On or after the receipt by the Seller of such written notice, all authority and power of the Seller to service the Mortgage Loans under this Agreement shall on the date set forth in such notice pass to and be vested in the successor appointed pursuant to Section 16. Subsection 14.02. Waiver of Defaults. ------------------ The Purchaser may waive any default by the Seller in the performance of its obligations hereunder and its consequences. Upon any such 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 thereon except to the extent expressly so waived. SECTION 15. Termination. The respective obligations and ----------- responsibilities of the Seller, as servicer, shall terminate at the expiration of the Interim Servicing Period unless terminated on an earlier date at the option of the Purchaser pursuant to Section 14. Upon written request from the Purchaser in connection with any such termination, the Seller shall prepare, execute and deliver, any and all documents and other instruments, place in the Purchaser's possession all Mortgage Files, and do or accomplish all 52 other acts or things necessary or appropriate to effect the purposes of such notice of termination, whether to complete the transfer and endorsement or assignment of the Mortgage Loans and related documents, or otherwise, at the Seller's sole expense. The Seller agrees to cooperate with the Purchaser and such successor in effecting the termination of the Seller's responsibilities and rights hereunder as servicer, including, without limitation, the transfer to such successor for administration by it of all cash amounts which shall at the time be credited by the Seller to the Custodial Account, REO Account or Escrow Account or thereafter received with respect to the Mortgage Loans. SECTION 16. Successor to the Seller. Prior to termination of the ----------------------- Seller's responsibilities and duties under this Agreement pursuant to Section 14 or 15, the Purchaser shall (i) succeed to and assume all of the Seller's responsibilities, rights, duties and obligations under this Agreement and the Sub-Servicing Agreements, or (ii) appoint a successor which shall succeed to all rights and assume all of the responsibilities, duties and liabilities of the Seller as servicer under this Agreement and the Sub-Servicing Agreements. In connection with such appointment and assumption, the Purchaser may make such arrangements for the compensation of such successor out of payments on Mortgage Loans as it and such successor shall agree. In the event that the Seller's duties, responsibilities and liabilities as servicer under this Agreement should be terminated pursuant to the aforementioned Sections, the Seller shall discharge such duties and responsibilities during the period from the date it acquires knowledge of such termination until the effective date thereof with the same degree of diligence and prudence which it is obligated to exercise under this Agreement, and shall take no action whatsoever that might impair or prejudice the rights or financial condition of the Purchaser or such successor. The termination of the Seller as servicer pursuant to the aforementioned Sections shall not become effective until a successor shall be appointed pursuant to this Section 16 and shall in no event relieve the Seller of the representations and warranties made pursuant to Subsections 7.01 and 7.02 and the remedies available to the Purchaser under Subsection 7.03 or 7.04, it being understood and agreed that the provisions of such Subsections 7.01, 7.02 and 7.03 and 7.04 shall be applicable to the Seller notwithstanding any such resignation or termination of the Seller, or the termination of this Agreement. Any successor appointed as provided herein shall execute, acknowledge and deliver to the Seller and to the Purchaser an instrument accepting such appointment, whereupon such successor shall become fully vested with all the rights, powers, duties, responsibilities, obligations and liabilities of the Seller, with like effect as if originally named as a party to this Agreement, provided, however, that such successor shall not assume, and Seller shall indemnify such successor for, any and all liabilities arising out of the Seller's acts as servicer. Any termination of the Seller as servicer pursuant to Section 14 or 15 shall not affect any claims that the Purchaser may have against the Seller arising prior to any such termination or resignation or remedies with respect to such claims. 53 The Seller shall timely deliver to the successor the funds in the Custodial Account, REO Account and the Escrow Account and the Mortgage Files and related documents and statements held by it hereunder and the Seller shall account for all funds. The Seller shall execute and deliver such instruments and do such other things all as may reasonably be required to more fully and definitely vest and confirm in the successor all such rights, powers, duties, responsibilities, obligations and liabilities of the Seller as servicer. The successor shall make arrangements as it may deem appropriate to reimburse the Seller for amounts the Seller actually expended as servicer pursuant to this Agreement which the successor is entitled to retain hereunder and which would otherwise have been recovered by the Seller pursuant to this Agreement but for the appointment of the successor servicer. SECTION 17. Financial Statements. The Seller understands that in -------------------- connection with the Purchaser's marketing of the Mortgage Loans, the Purchaser shall make available to prospective purchasers the Seller's financial statements for the most recently completed three (3) fiscal years respecting which such statements are available. The Seller also shall make available any comparable interim statements to the extent any such statements have been prepared by the Seller (and are available upon request to members or stockholders of the Seller or the public at large). The Seller, if it has not already done so, agrees to furnish promptly to the Purchaser copies of the statements specified above. The Seller also shall make available information on its servicing performance with respect to mortgage loans serviced for others, including delinquency ratios relating to the most recently completed three fiscal years.. The Seller also agrees to allow reasonable access to knowledgeable financial, accounting, origination and servicing officers of the Seller for the purpose of answering questions asked by any prospective purchaser regarding recent developments affecting the Seller, its loan origination or servicing practices or the financial statements of the Seller. SECTION 18. Mandatory Delivery; Grant of Security Interest. The sale ---------------------------------------------- and delivery of all of the Mortgage Loans on or before the Closing Date is mandatory from and after the date of the execution of the Confirmation, it being specifically understood and agreed that each Mortgage Loan is unique and identifiable on the date hereof and that an award of money damages would be insufficient to compensate the Initial Purchaser for the losses and damages incurred by the Initial Purchaser (including damages to prospective purchasers of the Mortgage Loans) in the event of the Seller's failure to deliver each of the related Mortgage Loans or one or more Mortgage Loans otherwise acceptable to the Purchaser on or before the Closing Date. The Seller hereby grants to the Initial Purchaser a lien on and a continuing security interest in each Mortgage Loan and each document and instrument evidencing each such Mortgage Loan to secure the performance by the Seller of its obligation hereunder, and the Seller agrees that it holds such Mortgage Loans in custody for the Initial Purchaser subject to the Initial Purchaser's (i) right to reject any Mortgage Loan under the terms of this Agreement and the Confirmation, and (ii) obligation to pay the Purchase Price for the Mortgage Loans. All rights and remedies of the Purchaser under this Agreement are distinct from, and cumulative with, any other rights or remedies under this Agreement or afforded by law 54 or equity and all such rights and remedies may be exercised concurrently, independently or successively. SECTION 19. Notices. All demands, notices and communications ------- hereunder shall be in writing and shall be deemed to have been duly given if mailed, by registered or certified mail, return receipt requested, or, if by other means, when received by the other party at the address as follows: (i) if to the Seller: National Mortgage Sales Corporation 7600 East Orchard Road, Suite 330S Attention: Mr. Scott Colclough and Mr. Craig Stulz (ii) with a copy to: Howard J. Glicksman, Esq. Plaza Tower One, Suite 1200 6400 South Fiddler's Green Circle Englewood, Colorado 80111 (iii) if to the Purchaser: Salomon Brothers Realty Corp. Seven World Trade Center New York, New York 10048 Attention: Mr. Matthew Bollo or such other address as may hereafter be furnished to the other party by like notice. Any such demand, notice or communication hereunder shall be deemed to have been received on the date delivered to or received at the premises of the addressee (as evidenced, in the case of registered or certified mail, by the date noted on the return receipt). SECTION 20. Severability Clause. Any part, provision, representation ------------------- or warranty of this Agreement which is prohibited or which is held to be void or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any part, provision, representation or warranty of this Agreement which is prohibited or unenforceable or is held to be void or unenforceable in any jurisdiction shall be ineffective, as to such jurisdiction, to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction as to any Mortgage Loan shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereto waive any provision of law which prohibits 55 or renders void or unenforceable any provision hereof. If the invalidity of any part, provision, representation or warranty of this Agreement shall deprive any party of the economic benefit intended to be conferred by this Agreement, the parties shall negotiate, in good-faith, to develop a structure the economic effect of which is nearly as possible the same as the economic effect of this Agreement without regard to such invalidity. SECTION 21. Counterparts. This Agreement may be executed ------------ simultaneously in any number of counterparts. Each counterpart shall be deemed to be an original, and all such counterparts shall constitute one and the same instrument. SECTION 22. Governing Law. This Agreement shall be construed in ------------- accordance with the laws of the State of New York without regard to any conflicts of laws provisions and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with the laws of the State of New York, except to the extent preempted by Federal law. SECTION 23. Intention of the Parties. It is the intention of the ------------------------ parties that the Initial Purchaser is purchasing, and the Seller is selling, the Mortgage Loans and not a debt instrument of the Seller or another security. Accordingly, the parties hereto each intend to treat the transaction for federal income tax purposes as a sale by the Seller, and a purchase by the Purchaser, of the Mortgage Loans. The Initial Purchaser shall have the right to review the Mortgage Loans and the related Mortgage Loan Files to determine the characteristics of the Mortgage Loans which shall affect the federal income tax consequences of owning the Mortgage Loans and the Seller shall cooperate with all reasonable requests made by the Initial Purchaser in the course of such review. SECTION 24. Successors and Assigns. This Agreement shall bind and ---------------------- inure to the benefit of and be enforceable by the Seller and the Purchaser and the respective successors and assigns of the Seller and the Purchaser. The Purchaser may assign this Agreement to any Person to whom any Mortgage Loan is transferred whether pursuant to a sale or financing and to any Person to whom the servicing or master servicing of any Mortgage Loan is sold or transferred. Upon any such assignment and written notice thereof to the Seller, the Person to whom such assignment is made shall succeed to all rights and obligations of the Purchaser under this Agreement to the extent of the related Mortgage Loan or Mortgage Loans and this Agreement, to the extent of the related Mortgage Loan or Loans, shall be deemed to be a separate and distinct Agreement between the Seller and such Purchaser, and a separate and distinct Agreement between the Seller and each other Purchaser to the extent of the other related Mortgage Loan or Loans. This Agreement shall not be assigned, pledged or hypothecated by the Seller to a third party without the consent of the Purchaser. 56 SECTION 25. Waivers. No term or provision of this Agreement may be ------- waived or modified unless such waiver or modification is in writing and signed by the party against whom such waiver or modification is sought to be enforced. SECTION 26. Exhibits. The exhibits to this Agreement are hereby -------- incorporated and made a part hereof and are an integral part of this Agreement. SECTION 27. Nonsolicitation. The Seller covenants and agrees that it --------------- shall not take any action to solicit the refinancing of any Mortgage Loan following the date hereof or provide information to any other entity to solicit the refinancing of any Mortgage Loan; provided that, the foregoing shall not preclude the Seller from engaging in solicitations to the general public by newspaper, radio, television or other media which are not directed solely toward the Mortgagors or from refinancing the Mortgage Loan of any Mortgagor who, without solicitation, contacts the Seller to request the refinancing of the related Mortgage Loan. SECTION 28. General Interpretive Principles. For purposes of this ------------------------------- Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender; (b) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles; (c) references herein to "Articles," "Sections," "Subsections," "Paragraphs," and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Agreement; (d) reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions; (e) the words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular provision; and (f) the term "include" or "including" shall mean without limitation by reason of enumeration. 57 SECTION 29. Reproduction of Documents. This Agreement and all ------------------------- documents relating thereto, including, without limitation, (a) consents, waivers and modifications which may hereafter be executed, (b) documents received by any party at the closing, and (c) financial statements, certificates and other information previously or hereafter furnished, may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. SECTION 30. Further Agreements. The Seller and the Purchaser each ------------------ agree to execute and deliver to the other such reasonable and appropriate additional documents, instruments or agreements as may be necessary or appropriate to effectuate the purposes of this Agreement. Without limiting the generality of the foregoing, the Seller shall cooperate with the Purchaser in connection with any Whole Loan Transfer or Pass- Through Transfer contemplated by the Initial Purchaser pursuant to Section 12 hereof. In such connection, the Seller shall (a) execute any agreement in accordance with the provisions of Section 12, and (b) provide to the Initial Purchaser or any prospective purchaser from the Initial Purchaser: (i) any and all information and appropriate verification of information, whether through letters of its auditors and counsel or otherwise, as the Initial Purchaser shall reasonably request; and (ii) such representations, warranties, covenants, opinions of counsel, letters from auditors, and certificates of public officials or officers of the Seller as are reasonably believed necessary by the Initial Purchaser in connection with such transactions. The requirement of the Seller pursuant to (ii) above shall terminate on the final Reconstitution Date. Prior to incurring any out-of-pocket expenses pursuant to this paragraph, the Seller shall notify the Initial Purchaser in writing of the estimated amount of such expense. The Initial Purchaser shall reimburse the Seller for any such expense following its receipt of appropriate details thereof. IN WITNESS WHEREOF, the Seller and the Purchaser have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the date first above written. SALOMON BROTHERS REALTY CORP. (Initial Purchaser) By:_______________________________ Name:_____________________________ Title:____________________________ NATIONAL MORTGAGE SALES CORPORATION (Seller) By:_______________________________ Name:_____________________________ Title:____________________________ EX-2.5 6 AMERIQUEST MORTGAGE CO. AGREEMENT DATED 9/30/98 ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT ------------------------------------------------ This is an Assignment, Assumption and Recognition Agreement made this 30th day of September, 1998, among Salomon Brothers Realty Corp. (the "Seller"), Wilshire Real Estate Investment Trust Inc. (the "Purchaser") and Ameriquest Mortgage Company (the "Company"). WHEREAS, pursuant to a Liquidation Agreement (the "Liquidation Agreement"), dated as of September 30, 1998, among Salomon Brothers Mortgage Securities VII, Inc. ("Salomon Brothers"), the Company, Norwest Bank Minnesota, National Association ("Norwest") and Salomon Smith Barney Inc. ("SSBI"), the Trust Fund (as defined in the Pooling and Servicing Agreement (the "Servicing Agreement"), dated as of November 1, 1996, relating to 1996-LB3, among Salomon Brothers, the Company f/k/a Long Beach Mortgage Company and Norwest) was liquidated and terminated, and SSBI became the owner of a 100% ownership interest in the mortgage loans identified on the Mortgage Loan Schedule annexed hereto as EXHIBIT ONE (the "Mortgage Loans"); WHEREAS, the Seller is the holder of all right, title and interest in and to the Mortgage Loans pursuant to the Liquidation Agreement; WHEREAS, the Company made certain representations and warranties with respect to the Mortgage Loans pursuant to a Mortgage Loan Purchase Agreement (the "Purchase Agreement"), dated November 20, 1996, among Salomon Brothers, the Company and the Seller which was terminated in accordance with the terms of the Liquidation Agreement; WHEREAS, pursuant to Article III of the Liquidation Agreement, the Company restated such representations and warranties with respect to the Mortgage Loans as of November 20, 1996; and WHEREAS, pursuant to Article III of the Liquidation Agreement, the Mortgage Loans are being serviced by the Company in accordance with the terms of the Servicing Agreement; WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser desires to purchase from the Seller, the Mortgage Loans; NOW, THEREFORE, in consideration of the premises and mutual agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Seller, the Purchaser and the Company agree as follows: WARRANTIES ---------- 1. (a) The Seller and the Company warrant and represent that attached hereto as EXHIBIT TWO is a true, accurate and complete copy of the Liquidation Agreement. (b) The Seller warrants and represents that attached hereto as EXHIBIT THREE is a true, accurate and complete copy of the Purchase Agreement as in effect prior to the termination of such Purchase Agreement. (c) The Seller warrants and represents that it is the lawful owner of the Mortgage Loans with the full right to transfer the Mortgage Loans free from any claim or encumbrance whatsoever. (d) The Seller hereby warrants and represents to the Purchaser that no event has occurred from November 20, 1996 to the date hereof that would result in any representation and warranty made pursuant to Section 6 of the Purchase Agreement being untrue if made as of the date hereof with respect to the Mortgage Loans (other than any statistical information with respect to the Mortgage Loans and any changes due to the receipt of payments on the Mortgage Loans, adjustment of the Mortgage Interest Rates on the Mortgage Loans and similar changes, which information reflected on EXHIBIT ONE hereto is accurate in all material respects as of September 1, 1998). In the event of a breach of the foregoing representation and warranty which materially and adversely affects the value of any Mortgage Loan or the Purchaser's interest therein, the Seller shall repurchase such affected Mortgage Loan at a repurchase price equal to the unpaid principal balance of such Mortgage Loan plus accrued interest at the net Mortgage Interest Rate from the paid through date of the Mortgage Loan to the first day of the month following the month in which such repurchase is effected; provided, that to the extent that the Company would otherwise be required to repurchase a Mortgage Loan due to the breach of any of the representations and warranties that are made or deemed to have been made by the Company as of November 20, 1996, then the Seller shall repurchase the affected Mortgage Loan from the Purchaser upon the reassignment of the Liquidation Agreement from the Purchaser to the Seller with respect to such Mortgage Loan. It is understood and agreed that the obligations of the Seller set forth in this Section 1(d) to repurchase an affected Mortgage Loan constitutes the sole remedy of the Purchaser respecting a breach of the representation and warranty made in this Section 1(d). ASSIGNMENT AND ASSUMPTION ------------------------- 2. The Seller hereby assigns to the Purchaser all of its right, title and interest in, and to the Mortgage Loans. 3. The Seller hereby assigns to the Purchaser all of its right, title and interest in, and under Article III of the Liquidation Agreement to the extent of the Mortgage Loans, and the Purchaser hereby assumes all of the Seller's obligation under Article III of the Liquidation Agreement to the extent of the Mortgage Loans from and after the date hereof. RECOGNITION OF THE PURCHASER ---------------------------- 4. From and after the date hereof, the Company shall recognize the Purchaser as the owner of the Mortgage Loans. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. SALOMON BROTHERS REALTY CORP., Seller By:___________________________ Name:_________________________ Title:________________________ WILSHIRE REAL ESTATE INVESTMENT TRUST INC. Purchaser By:___________________________ Name:_________________________ Title:________________________ AMERIQUEST MORTGAGE COMPANY Company By:___________________________ Name:_________________________ Title:________________________ MORTGAGE LOAN PURCHASE AGREEMENT This is a Mortgage Loan Purchase Agreement (the "Agreement"), dated November 20, 1996, among Salomon Brothers Mortgage Securities VII, Inc., a Delaware corporation (the "Purchaser"), Long Beach Mortgage Company, a Delaware corporation (the "Originator") and Salomon Brothers Realty Corp., a New York corporation (the "Seller"). Preliminary Statement --------------------- The Seller intends to sell the Mortgage Loans (as hereinafter defined) to the Purchaser on the terms and subject to the conditions set forth in this Agreement. The Mortgage Loans were purchased by the Seller from the Originator pursuant to a certain Master Mortgage Loan Purchase and Servicing Agreement, dated as of May 1, 1996 (the "Purchase and Servicing Agreement"), among the Seller, as initial purchaser and the Originator, as seller and servicer. The Purchaser intends to deposit the Mortgage Loans into a mortgage pool comprising the trust fund. The trust fund will be evidenced by a single series of asset- backed floating rate certificates designated as Series 1996-LB3, (the "Certificates"). The Certificates will consist of four classes of certificates. The Certificates will be issued pursuant to a Pooling and Servicing Agreement, dated as of November 1, 1996 (the "Pooling and Servicing Agreement"), among the Purchaser, as depositor, Norwest Bank Minnesota, National Association, as trustee, and the Originator, as master servicer (in such capacity, the "Master Servicer"). Capitalized terms used but not defined herein shall have the meanings set forth in the Pooling and Servicing Agreement. The parties hereto agree as follows: SECTION 1. Agreement to Purchase. The Seller agrees to sell, and the --------------------- Purchaser agrees to purchase, on or before November 25, 1996 (the "Closing Date"), certain adjustable-rate conventional residential mortgage loans (the "Mortgage Loans"), having an aggregate principal balance as of the close of business on November 1, 1996 (the "Cut-off Date") of approximately $199,895,673 (the "Closing Balance"), after giving effect to all payments due on the Mortgage Loans on or before the Cut-off Date, whether or not received. SECTION 2. Mortgage Loan Schedule. The Purchaser and the Seller have ---------------------- agreed upon which of the mortgage loans owned by the Seller are to be purchased by the Purchaser pursuant to this Agreement and the Seller will prepare or cause to be prepared on or prior to the Closing Date a final schedule (the "Closing Schedule") that together shall describe such Mortgage Loans and set forth all of the Mortgage Loans to be purchased under this Agreement. The Closing Schedule will conform to the requirements set forth in this Agreement and to the definition of "Mortgage Loan Schedule" under the Pooling and Servicing Agreement. The Closing Schedule shall be used as the Mortgage Loan Schedule under the Pooling and Servicing Agreement. -2- SECTION 3. Consideration. ------------- (a) In consideration for the Mortgage Loans to be purchased hereunder, the Purchaser shall, as described in Section 8, pay to or upon the order of the Seller in immediately available funds an amount (the "Purchase Price") equal to approximately 106.644% times the Closing Balance, plus accrued interest thereon from the Cut-off Date up to but not including the Closing Date. (b) The Purchaser or any assignee, transferee or designee of the Purchaser shall be entitled to all scheduled payments of principal due after the Cut-off Date, all other payments of principal due and collected after the Cut- off Date, and all payments of interest on the Mortgage Loans allocable to the period after the Cut-off Date. All scheduled payments of principal and interest due on or before the Cut-off Date and collected after the Cut-off Date shall belong to the Seller. (c) Pursuant to the Pooling and Servicing Agreement, the Purchaser will assign all of its right, title and interest in and to the Mortgage Loans, together with its rights under this Agreement, to the Trustee for the benefit of the related Certificateholders. SECTION 4. Transfer of the Mortgage Loans. ------------------------------ (a) Possession of Mortgage Files. The Seller does hereby sell, ---------------------------- transfer, assign, set over and convey to the Purchaser, without recourse but subject to the terms of this Agreement, all of its right, title and interest in, to and under the Mortgage Loans. The contents of each Mortgage File not delivered to the Purchaser or to any assignee, transferee or designee of the Purchaser on or prior to the Closing Date are and shall be held in trust by the Seller for the benefit of the Purchaser or any assignee, transferee or designee of the Purchaser. Upon the sale of the Mortgage Loans the ownership of each Mortgage Note, the related Mortgage and the other contents of the related Mortgage File is vested in the Purchaser and the ownership of all records and documents with respect to the related Mortgage Loan prepared by or that come into the possession of the Seller on or after the Closing Date shall immediately vest in the Purchaser and shall be delivered immediately to the Purchaser or as otherwise directed by the Purchaser. (b) Delivery of Mortgage Loan Documents. The Seller will, on or ----------------------------------- prior to the Closing Date, deliver or cause to be delivered to the Purchaser or any assignee, transferee or designee of the Purchaser each of the following documents for each Mortgage Loan: (i) the original Mortgage Note, endorsed in the following form: "Pay to the order of Norwest Bank Minnesota, National Association, as Trustee for the registered holders of Salomon Brothers Mortgage Securities VII, Inc., Asset-Backed Floating Rate Certificates, Series 1996-LB3, without recourse," with all prior and intervening endorsements showing a complete chain of endorsement from the originator to the Person so endorsing to the Trustee; -3- (ii) the original Mortgage with evidence of recording thereon; (iii) an original Assignment of Mortgage executed in the following form: "Norwest Bank Minnesota, National Association, as Trustee for the registered holders of Salomon Brothers Mortgage Securities VII, Inc., Asset-Backed Floating Rate Certificates, Series 1996-LB3"; (iv) the original recorded Assignment or Assignments of the Mortgage showing a complete chain of assignment from the originator to the Person assigning the Mortgage to the Trustee as contemplated by the immediately preceding clause (iii); (v) the original or copies of each assumption, modification, written assurance or substitution agreement, if any; and (vi) the original lender's title insurance policy, together with all endorsements or riders which were issued with or subsequent to the issuance of such policy, insuring the priority of the Mortgage as a first lien on the Mortgaged Property represented therein as a fee interest vested in the Mortgagor. Notwithstanding anything to the contrary contained in this Section 4, if any document referred to in Section 4(b)(ii) or 4(b)(iv) above has been submitted for recording but either (x) has not been returned from the applicable public recording office or (y) has been lost or such public recording office has retained the original of such document, the obligations of the Seller hereunder shall be deemed to have been satisfied upon (1) delivery by or on behalf of the Seller promptly upon receipt thereof to or on behalf of the Purchaser or any assignee, transferee or designee of the Purchaser of either the original or a copy of such document certified by the Originator in the case of (x) above or the public recording office in the case of (y) above to be a true and complete copy of the recorded original thereof and (2) if such copy is certified by the Originator delivery promptly upon receipt thereof of either the original or a copy of such document certified by the public recording office to be a true and complete copy of the original. In the event that the original lender's title insurance policy has not yet been issued, the Seller shall deliver to the Purchaser or any assignee, transferee or designee of the Purchaser a written commitment or interim binder or preliminary report of title issued by the title insurance or escrow company. The Seller shall deliver to the Purchaser or any assignee, transferee or designee of the Purchaser promptly upon receipt by the Seller of any such original title insurance policy or original Primary Mortgage Insurance Policy. (c) Acceptance of Mortgage Loans. The documents delivered ---------------------------- pursuant to Section 4(b) hereof shall be reviewed by the Purchaser or any assignee, transferee or designee of the Purchaser at any time before or after the Closing Date (and with respect to each document permitted to be delivered after the Closing Date within seven days of its delivery) to ascertain that all required documents have been executed and received and that such documents relate to the Mortgage Loans identified on the Mortgage Loan Schedule. -4- (d) Transfer of Interest in Agreements. The Purchaser has the ---------------------------------- right to assign its interest under this Agreement, in whole or in part, to the Trustee, as may be required to effect the purposes of the Pooling and Servicing Agreement, without the consent of the Seller or the Originator, and the assignee shall succeed to the rights and obligations hereunder of the Purchaser. Any expense reasonably incurred by or on behalf of the Purchaser or the Trustee in connection with enforcing any obligations of the Seller or the Originator under this Agreement will be promptly reimbursed by the Seller or the Originator, as applicable. (e) Examination of Mortgage Files. Prior to the Closing Date, ----------------------------- the Seller shall either (i) deliver in escrow to the Purchaser or to any assignee, transferee or designee of the Purchaser, for examination, the Mortgage File pertaining to each Mortgage Loan, or (ii) make such Mortgage Files available to the Purchaser or to any assignee, transferee or designee of the Purchaser for examination. Such examination may be made by the Purchaser or the Trustee, and their respective designees, upon reasonable notice to the Seller during normal business hours before the Closing Date and within 60 days after the Closing Date. If any such person makes such examination prior to the Closing Date and identifies any Mortgage Loans that do not conform to the requirements of the Purchaser as described in this Agreement, such Mortgage Loans shall be deleted from the Closing Schedule. The Purchaser may, at its option and without notice to the Seller, purchase all or part of the Mortgage Loans without conducting any partial or complete examination. The fact that the Purchaser or any person has conducted or has failed to conduct any partial or complete examination of the Mortgage Files shall not affect the rights of the Purchaser or any assignee, transferee or designee of the Purchaser to demand repurchase or other relief as provided herein or under the Pooling and Servicing Agreement. SECTION 5. Representations, Warranties and Covenants of the ------------------------------------------------ Seller and the Originator. ------------------------- (a) The Originator hereby represents and warrants to the Seller and the Purchaser, as of the date hereof and as of the Closing Date, and covenants, that: (i) The Originator is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly authorized and qualified to transact any and all business contemplated by this Agreement to be conducted by the Originator in any state in which a Mortgaged Property is located or is otherwise not required under applicable law to effect such qualification and, in any event, is in compliance with the doing business laws of any such State, to the extent necessary to ensure its ability to enforce each Mortgage Loan and to service the Mortgage Loans in accordance with the terms of the Pooling and Servicing Agreement; (ii) The Originator has the full corporate power and authority to originate, hold, sell and service each Mortgage Loan, and to execute, deliver and perform, and to enter into and consummate the transactions contemplated by this Agreement and has duly authorized by all necessary corporate action on the part of the Originator the execution, delivery -5- and performance of this Agreement; and this Agreement, assuming the due authorization, execution and delivery thereof by the Purchaser, constitutes a legal, valid and binding obligation of the Originator, enforceable against the Originator in accordance with its terms, except to the extent that (a) the enforceability thereof may be limited by bankruptcy, insolvency, moratorium, receivership and other similar laws relating to creditors' rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought; (iii) The execution and delivery of this Agreement by the Originator, the servicing of the Mortgage Loans by the Originator under the Pooling and Servicing Agreement, the consummation of any other of the transactions herein contemplated, and the fulfillment of or compliance with the terms hereof are in the ordinary course of business of the Originator and will not (A) result in a breach of any term or provision of the charter or by-laws of the Originator or (B) conflict with, result in a breach, violation or acceleration of, or result in a default under, the terms of any other material agreement or instrument to which the Originator is a party or by which it may be bound, or any statute, order or regulation applicable to the Originator of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Originator; and the Originator is not a party to, bound by, or in breach or violation of any indenture or other agreement or instrument, or subject to or in violation of any statute, order or regulation of any court, regulatory body, administrative agency or governmental body having jurisdiction over it, which materially and adversely affects or, to the Originator's knowledge, would in the future materially and adversely affect, (x) the ability of the Originator to perform its obligations under this Agreement or (y) the business, operations, financial condition, properties or assets of the Originator taken as a whole; (iv) No consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance by the Originator of, or compliance by the Originator with, this Agreement or the consummation of the transactions contemplated hereby, or if any such consent, approval, authorization or order is required, the Originator has obtained the same; (v) The Originator is an approved seller/servicer for FNMA or FHLMC in good standing and is a HUD approved mortgagee pursuant to Section 203 of the National Housing Act; and (vi) No litigation is pending against the Originator that would materially and adversely affect the execution, delivery or enforceability of this Agreement or the ability of the Originator to service the Mortgage Loans or to perform any of its other obligations hereunder in accordance with the terms hereof; (b) The Seller hereby represents and warrants, as of the date hereof and as of the Closing Date, and covenants, that: -6- (i) The Seller is a corporation, duly organized and validly existing and in good standing under the laws of the State of New York with full corporate power and authority to conduct its business as presently conducted by it to the extent material to the consummation of the transactions contemplated herein. The Seller had the full corporate power and authority to acquire the Mortgage Loans. The Seller has the full corporate power and authority to own the Mortgage Loans and to transfer and convey the Mortgage Loans to the Purchaser and has the full corporate power and authority to execute and deliver, engage in the transactions contemplated by, and perform and observe the terms and conditions of this Agreement; (ii) This Agreement has been duly and validly authorized, executed and delivered by the Seller, all requisite corporate action having been taken, and (assuming the due authorization, execution and delivery hereof by the Purchaser and the Originator) constitutes the valid, legal and binding obligation of the Seller, enforceable in accordance with its terms, except as such enforcement may be limited by (A) bankruptcy, insolvency, reorganization, receivership, moratorium or other similar laws relating to or affecting the rights of creditors generally, (B) general equity principles (regardless of whether such enforcement is considered in a proceeding in equity or at law) or (C) public policy considerations underlying the securities laws, to the extent that such public policy considerations limit the enforceability of the provisions of this Agreement which purport to provide indemnification from securities laws liabilities; (iii) No consent, approval, authorization or order of, registration or filing with, or notice to any governmental authority or court is required, under federal laws or the laws of the State of New York, for the execution, delivery and performance by the Seller of, or compliance by the Seller with, this Agreement or the consummation by the Seller of any other transaction contemplated hereby and by the Pooling and Servicing Agreement; provided, however, that the Seller makes no representation or warranty regarding federal or state securities laws in connection with the sale or distribution of the Certificates; (iv) Neither the sale of the Mortgage Loans to the Purchaser, nor the execution, delivery or performance of this Agreement by the Seller, conflicts or will conflict with or results or will result in a breach of or constitutes or will constitute a default (or an event, which with notice or lapse of time or both, would constitute a default) under (A) any terms or provisions of the certificate of incorporation or by-laws of the Seller, (B) any term or provision of any material agreement, contract, instrument or indenture, to which the Seller is a party or by which the Seller or any of its property is bound, or (C) any law, rule, regulation, order, judgment, writ, injunction or decree of any court or governmental authority having jurisdiction over the Seller or any of its property, or results or will result in the creation or imposition of any lien, charge or encumbrance which would have a material adverse effect upon the Mortgage Loans or any documents or instruments evidencing or securing the Mortgage Loans; (v) The Seller has not dealt with any broker, investment banker, agent or other person, except for the Purchaser or any of its affiliates, that may be entitled to any commission or compensation in connection with the sale of the Mortgage Loans; -7- (vi) There is no litigation currently pending or, to the best of the Seller's knowledge, threatened against the Seller that would reasonably be expected to adversely affect the transfer of the Mortgage Loans, the issuance of the Certificates, the execution, delivery, performance or enforceability of this Agreement or that would result in a material adverse change in the financial condition of the Seller; (vii) Each Mortgage Note, each Mortgage, each Assignment and any other document required to be delivered by or on behalf of the Seller under this Agreement or the Pooling and Servicing Agreement to the Purchaser or any assignee, transferee or designee of the Purchaser for each Mortgage Loan has been or will be, in accordance with Section 4(b) hereof, delivered to the Purchaser or any such assignee, transferee or designee. With respect to each Mortgage Loan, the Seller is in possession of a complete Mortgage File in compliance with the Pooling and Servicing Agreement, except for such documents that (A) have been delivered (1) to the Purchaser or any assignee, transferee or designee of the Purchaser or (2) for recording to the appropriate public recording office and have not yet been returned or (B) are not required to be delivered to the Purchaser or any assignee, transferee or designee of the Purchaser until 90 days following the Closing Date or such later date as provided in Section 4; (viii) The transfer, assignment and conveyance of the Mortgage Notes and the Mortgages by the Seller pursuant to this Agreement are not subject to the bulk transfer or any similar statutory provisions in effect in any relevant jurisdiction, except any as may have been complied with; (ix) The Seller (A) is a solvent entity and is paying its debts as they become due and (B) after giving effect to the transfer of the Mortgage Loans, will be a solvent entity and will have sufficient resources to pay its debts as they become due; (x) The form of endorsement of each Mortgage Note satisfied the requirement, if any, of endorsement in order to transfer all right, title and interest of the party so endorsing, as noteholder or assignee thereof, in and to that Mortgage Note; and each Assignment to be delivered hereunder is in recordable form and is sufficient to effect the assignment of and to transfer to the assignee thereunder the benefits of the assignor, as mortgagee or assignee thereof, under each Mortgage to which that Assignment relates; (xi) The transfer of the Mortgage Loans to the Purchaser at the Closing Date will be treated by the Seller for financial accounting and reporting purposes as a sale of assets; and (xii) Immediately prior to the sale of the Mortgage Loans to the Purchaser as herein contemplated, the Seller had good title to, and was the sole owner of, the Mortgage Loans, and such sale validly transfers the Mortgage Loans to the Purchaser free and clear of any pledge, lien, encumbrance or security interest. -8- SECTION 6. Representations and Warranties of the Originator ------------------------------------------------ Relating to the Mortgage Loans. ------------------------------ (a) Representations and Warranties as to Individual Mortgage Loans. The -------------------------------------------------------------- Originator hereby represents and warrants to the Seller and the Purchaser, that as to each Mortgage Loan as of the Closing Date: (i) The information set forth on the related Mortgage Loan Schedule with respect to each Mortgage Loan is true and correct in all material respects; (ii) Except as set forth on Exhibit 1, all payments due prior to the Cut-off Date have been made and none of the Mortgage Loans will have been contractually delinquent for more than one calendar month more than once since the origination thereof; (iii) Each Mortgage is a valid and enforceable first lien on the Mortgaged Property, including all improvements thereon, subject only to (a) the lien of nondelinquent current real property taxes and assessments, (b) covenants, conditions and restrictions, rights of way, easements and other matters of public record as of the date of recording of such Mortgage, such exceptions appearing of record being acceptable to mortgage lending institutions generally or specifically reflected in the appraisal made in connection with the origination of the related Mortgage Loan, and (c) other matters to which like properties are commonly subject which do not materially interfere with the benefits of the security intended to be provided by such Mortgage; (iv) Immediately prior to the assignment of the Mortgage Loans to the Purchaser pursuant to the Purchase and Servicing Agreement, the Originator had good title to, and was the sole legal and beneficial owner of, each Mortgage Loan free and clear of any pledge, lien, encumbrance or security interest and has full right and authority, subject to no interest or participation of, or agreement with, any other party to sell and assign the same; (v) To the best of the Originator's knowledge, there is no delinquent tax or assessment lien against any Mortgaged Property; (vi) There is no valid offset, defense or counterclaim to any Mortgage Note or Mortgage, including the obligation of the Mortgagor to pay the unpaid principal of or interest on such Mortgage Note, nor will the operation of any of the terms of the Mortgage Note and the Mortgage, or the exercise of any right thereunder, render the 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; (vii) To the best of the Originator's knowledge, there are no mechanics' liens or claims for work, labor or material affecting any Mortgaged Property which are or may -9- be a lien prior to, or equal with, the lien of the related Mortgage, except those which are insured against by the title insurance policy referred to in (xi) below; (viii) To the best of the Originator's knowledge, each Mortgaged Property is free of material damage and is in average repair; (ix) Each Mortgage Loan at origination complied in all material respects with applicable local, state and federal laws, including, without limitation, usury, equal credit opportunity, real estate settlement procedures, truth-in-lending and disclosure laws, and consummation of the transactions contemplated hereby will not involve the violation of any such laws; (x) Neither the Originator nor any prior holder of any Mortgage has modified the Mortgage in any material respect (except that a Mortgage Loan may have been modified by a written instrument which has been recorded, if necessary, to protect the interests of the Seller and the Purchaser and which has been delivered to the Custodian); satisfied, cancelled or subordinated such Mortgage in whole or in part; released the related Mortgaged Property in whole or in part from the lien of such Mortgage; or executed any instrument of release, cancellation, modification or satisfaction with respect thereto; (xi) A lender's policy of title insurance together with a condominium endorsement and extended coverage endorsement, if applicable, and, with respect to each Mortgage Loan, an adjustable rate mortgage endorsement in an amount at least equal to the Cut-off Date Principal Balance of each such Mortgage Loan or a commitment (binder) to issue the same was effective on the date of the origination of each Mortgage Loan, each such policy is valid and remains in full force and effect, the transfer of the related Mortgage Loan to the Seller and Purchaser will not affect the validity or enforceability of such policy and each such policy was issued by a title insurer qualified to do business in the jurisdiction where the Mortgaged Property is located and acceptable to FNMA or FHLMC and in a form acceptable to FNMA or FHLMC, which policy insures the Originator and successor owners of indebtedness secured by the insured Mortgage, as to the first priority lien of the Mortgage; to the best of the Originator's knowledge, no claims have been made under such mortgage title insurance policy and no prior holder of the related Mortgage, including the Originator, has done, by act or omission, anything which would impair the coverage of such mortgage title insurance policy; (xii) Each Mortgage Loan was originated by the Originator or by a savings and loan association, savings bank, commercial bank, credit union, insurance company or similar institution which is supervised and examined by a federal or state authority, or by a mortgagee approved by the Secretary of Housing and Urban Development pursuant to sections 203 and 211 of the National Housing Act and, if originated on behalf of the Originator by a Person other than the Originator, is subject to the same standards and procedures used by the Originator in originating mortgage loans directly; (xiii) With respect to each Mortgage Loan on each Adjustment Date, the -10- Mortgage Interest Rate will be adjusted to equal the Index plus the Margin, rounded to the nearest 0.125%, subject to the Periodic Rate Cap, the Maximum Rate and the Minimum Rate. Except for Balloon Loans, the related Mortgage Note is payable on the first day of each month in self-amortizing monthly installments of principal and interest, with interest payable in arrears, and requires a Monthly Payment which is sufficient to fully amortize the outstanding principal balance of the Mortgage Loan over its remaining term and to pay interest at the applicable Mortgage Interest Rate. No Mortgage Loan is subject to negative amortization. All rate adjustments have been performed in accordance with the terms of the related Mortgage Note or subsequent modifications, if any. (xiv) To the best of the Originator's knowledge, all of the improvements which were included for the purpose of determining the Appraised Value of the Mortgaged Property lie wholly within the boundaries and building restriction lines of such property, and no improvements on adjoining properties encroach upon the Mortgaged Property; (xv) All inspections, licenses and certificates required to be made or issued with respect to all occupied portions of the Mortgaged Property and, with respect to the use and occupancy of the same, including but not limited to certificates of occupancy, have been made or obtained from the appropriate authorities and the Mortgaged Property is lawfully occupied under applicable law; (xvi) All parties which have had any interest in the Mortgage, whether as mortgagee, assignee, pledgee or otherwise, are (or, during the period in which they held and disposed of such interest, were) in compliance with any and all applicable licensing requirements of the laws of the state wherein the Mortgaged Property is located; (xvii) The Mortgage Note and the related Mortgage are genuine, and each is the legal, valid and binding obligation of the maker thereof, enforceable in accordance with its terms and with applicable laws. All parties to the Mortgage Note and the Mortgage had legal capacity to execute the Mortgage Note and the Mortgage and each Mortgage Note and Mortgage have been duly and properly executed by such parties; (xviii) The proceeds of each Mortgage Loan have been fully disbursed, there is no requirement for future advances thereunder and any and all requirements as to completion of any on-site or off-site improvements and as to disbursements of any escrow funds therefor have been complied with. All costs, fees and expenses incurred in making, closing or recording the Mortgage Loans were paid; (xix) The related Mortgage contains customary and enforceable provisions which render the rights and remedies of the holder thereof adequate for the realization against the Mortgaged Property of the benefits of the security, including, (i) in the case of a Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise by judicial foreclosure. There is no homestead or other exemption available to the Mortgagor which would interfere with the right to sell the Mortgaged Property at a trustee's sale or the right to foreclose -11- the Mortgage; (xx) With respect to each Mortgage constituting 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 such Mortgage, and no fees or expenses are or will become payable by the Purchaser to the trustee under the deed of trust, except in connection with a trustee's sale after default by the Mortgagor; (xxi) Each Mortgage Note and each Mortgage is in substantially one of the forms attached hereto as Exhibit 2; (xxii) There exist no deficiencies with respect to escrow deposits and payments, if such are required, for which customary arrangements for repayment thereof have not been made, and no escrow deposits or payments of other charges or payments due the Originator have been capitalized under the Mortgage or the related Mortgage Note; (xxiii) The origination, underwriting and collection practices used by the Originator with respect to each Mortgage Loan have been in all respects legal, proper, prudent and customary in the mortgage servicing business; (xxiv) There is no pledged account or other security other than real estate securing the Mortgagor's obligations; (xxv) No Mortgage Loan has a shared appreciation feature, or other contingent interest feature; (xxvi) No Mortgage Loan provides for primary mortgage insurance; (xxvii) The improvements upon each Mortgaged Property are covered by a valid and existing hazard insurance policy with a generally acceptable carrier that provides for fire extended coverage and such other hazards as are customary in the area where the Mortgaged Property is located representing coverage not less than the lesser of the outstanding principal balance of the related Mortgage Loan or the minimum amount required to compensate for damage or loss on a replacement cost basis. All individual insurance policies and flood policies referred to in clause (xxviii) below contain a standard mortgagee clause naming the Originator or the original mortgagee, and its successors in interest, as mortgagee, and the Originator has received no notice that any premiums due and payable thereon have not been paid; the Mortgage obligates the Mortgagor thereunder to maintain all such insurance, including flood insurance, at the Mortgagor's cost and expense, and upon the Mortgagor's failure to do so, authorizes the holder of the Mortgage to obtain and maintain such insurance at the Mortgagor's cost and expense and to seek reimbursement therefor from the Mortgagor; (xxviii) If the Mortgaged Property is in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards, a flood -12- insurance policy in a form meeting the requirements of the current guidelines of the Flood Insurance Administration is in effect with respect to such Mortgaged Property with a generally acceptable carrier in an amount representing coverage not less than the least of (A) the original outstanding principal balance of the Mortgage Loan, (B) the minimum amount required to compensate for damage or loss on a replacement cost basis or (C) the maximum amount of insurance that is available under the Flood Disaster Protection Act of 1973; (xxix) There is no default, breach, violation or event of acceleration existing under the Mortgage or the related Mortgage Note; and the Originator has not waived any default, breach, violation or event of acceleration; (xxx) Each Mortgaged Property is improved by a one- to four- family residential dwelling, including condominium units and dwelling units in planned unit developments, which, to the best of the Originator's knowledge, does not include cooperatives or mobile homes and does not constitute other than real property under state law; (xxxi) There is no obligation on the part of the Originator or any other party under the terms of the Mortgage or related Mortgage Note to make payments in addition to those made by the Mortgagor; (xxxii) Any future advances made prior to the Cut-off Date have been consolidated with the outstanding principal amount secured by the Mortgage, and the secured principal amount, as consolidated, bears a single interest rate and single repayment term reflected on the related Mortgage Loan Schedule. The consolidated principal amount does not exceed the original principal amount of the Mortgage Loan; (xxxiii) Each Mortgage Loan was underwritten in accordance with the Originator's underwriting guidelines as described in the Prospectus Supplement; (xxxiv) The Mortgage File contains an appraisal which was performed by an appraiser who satisfied, and which was conducted in accordance with, all of the applicable requirements of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended; (xxxv) None of the Mortgage Loans is a graduated payment mortgage loan, nor is any Mortgage Loan subject to a temporary buydown or similar arrangement; (xxxvi) With respect to each Mortgage Loan, no loan junior in lien priority to such Mortgage Loan and secured by the related Mortgaged Property was originated by the Originator at the time of origination of such Mortgage Loan; (xxxvii) The characteristics of the Mortgage Loans as set forth on Exhibit 1 hereto are true and correct in all material respects; -13- (xxxviii) The Mortgage contains an enforceable provision for the acceleration of the payment of the unpaid principal balance of the Mortgage Loan in the event that the Mortgaged Property is sold or transferred without the prior written consent of the mortgagee thereunder; (xxxix) The Originator has not advanced funds, or induced, solicited or knowingly received any advance of funds by a party other than the mortgagor, directly or indirectly, for the payment of any amount required under the mortgage loan; and (xl) There is no proceeding pending, or to best of the Originator's knowledge threatened, for the total or partial condemnation of the Mortgaged Property or the taking by eminent domain of any Mortgaged Property. SECTION 7. Repurchase Obligation for Defective Documentation and ----------------------------------------------------- for Breach of Representation and Warranty. ----------------------------------------- (a) The representations and warranties contained in Section 6 shall not be impaired by any review and examination of loan files or other documents evidencing or relating to the Mortgage Loans or any failure on the part of the Seller or the Purchaser to review or examine such documents and shall inure to the benefit of any assignee, transferee or designee of the Purchaser, including the Trustee for the benefit of holders of asset-backed floating rate certificates evidencing an interest in all or a portion of the Mortgage Loans. With respect to the representations and warranties contained herein which are made to the knowledge or the best of knowledge of the Originator or the Seller, as the case may be, or as to which the Originator or the Seller, as the case may be, has no knowledge, if it is discovered that the substance of any such representation and warranty was inaccurate as of the date such representation and warranty was made or deemed to be made, and such inaccuracy materially and adversely affects the value of the related Mortgage Loan or the interest therein of the Purchaser or the Purchaser's assignee, transferee or designee, then notwithstanding the lack of knowledge by the Originator or the Seller, as the case may be, with respect to the substance of such representation and warranty being inaccurate at the time the representation and warranty was made, the Originator or the Seller, as the case may be, shall take such action described in the following paragraph in respect of such Mortgage Loan. -14- Upon discovery by the Originator, the Seller, the Purchaser or any assignee, transferee or designee of the Purchaser of any materially defective document in, or that any material document was not transferred by the Seller, and not transferred by the Originator to the Seller (as listed on the Trustee's Preliminary Exception Report), as part of, any Mortgage File or of a breach of any of the representations and warranties contained in Section 6 that materially and adversely affects the value of any Mortgage Loan or the interest therein of the Purchaser or the Purchaser's assignee, transferee or designee, the party discovering the breach shall give prompt written notice to the others. Within ninety (90) days of its discovery or its receipt of notice of any such missing documentation which was not transferred to the Seller as described above or materially defective documentation or any such breach of a representation and warranty the Originator promptly shall deliver such missing document or cure such defect or breach in all material respects, or in the event the Originator cannot deliver such missing document or such defect or breach cannot be cured, the Originator shall, within 90 days of its discovery or receipt of notice, either (i) repurchase the affected Mortgage Loan at the Purchase Price (as such term is defined in the Pooling and Servicing Agreement) or (ii) pursuant to the provisions of the Pooling and Servicing Agreement, cause the removal of such Mortgage Loan from the Trust Fund and substitute one or more Qualified Substitute Mortgage Loans. With respect to Mortgage Loans where the Mortgage File is missing a material document that was transferred from the Originator to the Seller, within ninety (90) days of its discovery or its receipt of notice of any such missing document the Seller promptly shall deliver such missing document or in the event the Seller cannot deliver such missing document, the Seller shall, within 90 days of its discovery or receipt of notice, either (i) repurchase the affected Mortgage Loan at the Purchase Price (as such term is defined in the Pooling and Servicing Agreement) or (ii) pursuant to the provisions of the Pooling and Servicing Agreement, cause the removal of such Mortgage Loan from the Trust Fund and substitute one or more Qualified Substitute Mortgage Loans. The Originator or the Seller, as the case may be, shall amend the Closing Schedule to reflect the withdrawal of such Mortgage Loan from the terms of this Agreement and the Pooling and Servicing Agreement and the addition, if any, of a Qualified Substitute Mortgage Loan. The Originator or the Seller, as the case may be, shall deliver to the Purchaser such amended Closing Schedule and shall deliver such other documents as are required by this Agreement or the Pooling and Servicing Agreement within five (5) days of any such amendment. Any repurchase pursuant to this Section 7(a) shall be accomplished by deposit in the Collection Account of the amount of the Purchase Price in accordance with Section 2.03 of the Pooling and Servicing Agreement. Any repurchase or substitution required by this Section shall be made in a manner consistent with Section 2.03 of the Pooling and Servicing Agreement. (b) It is understood and agreed that the obligations of the Originator or the Seller, as the case may be, set forth in this Section 7 to cure, repurchase or substitute for a defective Mortgage Loan constitute the sole remedies of the Seller and the Purchaser against the Originator respecting a missing or defective document or a breach of the representations and warranties contained in Section 6. It is understood and agreed that the obligations of the Seller set forth in this Section 7 to repurchase or substitute for a Mortgage Loan as to which a material document is missing constitute the sole remedies of the Purchaser against the Seller respecting a missing document. -15- SECTION 8. Closing; Payment for the Mortgage Loans. The closing of --------------------------------------- the purchase and sale of the Mortgage Loans shall be held at the New York City office of Thacher Proffitt & Wood at 10:00 AM New York City time on the Closing Date. The closing shall be subject to each of the following conditions: (a) All of the representations and warranties of the Seller under this Agreement shall be true and correct in all material respects as of the date as of which they are made and no event shall have occurred which, with notice or the passage of time, would constitute a default under this Agreement; (b) All of the representations and warranties of the Originator under this Agreement shall be true and correct in all material respects as of the date as of which they are made and no event shall have occurred which, with notice or the passage of time, would constitute a default under this Agreement; (c) The Purchaser shall have received, or the attorneys of the Purchaser shall have received in escrow (to be released from escrow at the time of closing), all Closing Documents as specified in Section 9 of this Agreement, in such forms as are agreed upon and acceptable to the Purchaser, duly executed by all signatories other than the Purchaser as required pursuant to the respective terms thereof; (d) The Seller shall have delivered or caused to be delivered and released to the Purchaser or to its designee, all documents (including without limitation, the Mortgage Loans) required to be so delivered by the Purchaser pursuant to Section 2.01 of the Pooling and Servicing Agreement; and (e) All other terms and conditions of this Agreement shall have been complied with. Subject to the foregoing conditions, the Purchaser shall deliver or cause to be delivered to the Seller on the Closing Date, against delivery and release by the Seller to the Trustee of all documents required pursuant to the Pooling and Servicing Agreement, the consideration for the Mortgage Loans as specified in Section 3 of this Agreement, by delivery to the Seller of the Purchase Price in immediately available funds. SECTION 9. Closing Documents. Without limiting the generality of ----------------- Section 8 hereof, the closing shall be subject to delivery of each of the following documents: -16- (a) An Officers' Certificate of the Seller, dated the Closing Date, upon which the Originator, the Purchaser, Financial Security Assurance Inc. ("FSA") and Salomon Brothers Inc (the "Underwriter") may rely, in the form of Exhibit 3 hereto, and attached thereto copies of the certificate of incorporation, by-laws and certificate of good standing of the Seller under the laws of New York; (b) An Officers' Certificate of the Seller, dated the Closing Date, upon which the Purchaser, FSA and the Underwriter may rely, in the form of Exhibit 4 hereto, with respect to certain facts regarding the sale of the Mortgage Loans by the Seller to the Purchaser; (c) An Opinion of Counsel of the Seller, dated the Closing Date and addressed to the Originator, the Purchaser, FSA and the Underwriter, substantially in the form attached hereto as Exhibit 5; (d) An Officer's Certificate of the Originator, dated the Closing Date, upon which the Seller, the Purchaser, FSA and the Underwriter may rely, in the form of Exhibit 6 hereto, and attached thereto copies of the certificate of incorporation, by-laws and certificate of good standing of the Originator under the laws of Delaware; (e) An opinion of Counsel of the Originator, dated the Closing Date and addressed to the Seller, the Purchaser, FSA and the Underwriter, substantially in the form attached hereto as Exhibit 7; (f) Such opinions of counsel as the Rating Agencies or the Trustee may request in connection with the sale of the Mortgage Loans by the Seller to the Purchaser or the Seller's execution and delivery of, or performance under, this Agreement; (g) A letter from Deloitte & Touche L.L.P., certified public accountants, dated the date hereof and to the effect that they have performed certain specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature set forth in the Purchaser's Prospectus Supplement, dated November 20, 1996 in the Summary under the subheading "The Mortgage Pool" and under the captions "The Mortgage Pool" and "Pooling and Servicing Agreement -- The Originator and Master Servicer" agrees with the records of the Originator; (h) The Originator shall deliver to the Seller for inclusion in the Prospectus Supplement for Salomon Brothers Mortgage Securities -17- VII, Inc., Asset-Backed Floating Rate Certificates, Series 1996-LB3, under the captions "The Mortgage Pool -- Underwriting Standards; Representations" and "Pooling and Servicing Agreement -- The Originator and Master Servicer" , or for inclusion in other offering material such publicly available information regarding the Originator, its financial condition and its mortgage loan delinquency, foreclosure and loss experience, underwriting standards, lending activities and loan sales, production, and servicing and collection practices, and any similar nonpublic, unaudited financial information; (i) A letter from Deloitte & Touche L.L.P., certified public accountants, dated the date hereof and to the effect that they have performed certain specified procedures as a result of which they determined that certain information of an accounting, financial or statistical nature set forth in the Purchaser's Prospectus Supplement, dated November 20, 1996 under the captions "Summary of Prospectus Supplement", "Yield on the Certificates" and "Description of the Certificates" agrees with the records of the Seller; and (j) Such further information, certificates, opinions and documents as the Purchaser or the Underwriter may reasonably request. SECTION 10. Costs. The Originator shall pay (or shall reimburse the ----- Purchaser or any other Person to the extent that the Purchaser or such other Person shall pay) all costs and expenses incurred in connection with the transfer and delivery of the Mortgage Loans, including without limitation, recording fees, fees for title policy endorsements and continuations and the fees for recording Assignments of Mortgage, the fees and expenses of the Originator's in-house accountants and in-house attorneys, the costs and expenses incurred in connection with producing the Originator's loan loss, foreclosure and delinquency experience, and the costs and expenses incurred in connection with obtaining the documents referred to in Sections 9(d) and 9(e). The Seller shall pay (or shall reimburse the Purchaser or any other Person to the extent that the Purchaser or such other Person shall pay) the costs and expenses of printing (or otherwise reproducing) and delivering this Agreement, the Pooling and Servicing Agreement, the Certificates, the prospectus, prospectus supplement, and private placement memorandum relating to the Certificates, the Insurance Agreement and other related documents, the initial fees, costs and expenses of the Trustee, the initial fees, costs and expenses of FSA, the fees and expenses of the Seller's counsel in connection with the preparation of all documents relating to the securitization of the Mortgage Loans, the filing fee charged by the Securities and Exchange Commission for registration of the Certificates, the cost of outside special counsel that may be required for the Originator, the cost of obtaining the documents referred to in Section 9(g) and the fees charged by any rating agency to rate the Certificates. All other costs and expenses in connection with the transactions contemplated hereunder shall be borne by the party incurring -18- such expense. SECTION 11. Servicing. The Seller has represented to the Purchaser --------- that the Mortgage Loans are being serviced under the Purchase and Servicing Agreement with the Originator, and it is understood and agreed by and among the Seller, the Originator and the Purchaser that the interim servicing arrangements under the Purchase and Servicing Agreement with the Originator will be superseded by the servicing arrangements set forth in the Pooling and Servicing Agreement. SECTION 12. Mandatory Delivery; Grant of Security Interest. The sale ---------------------------------------------- and delivery on the Closing Date of the Mortgage Loans described on the Mortgage Loan Schedule in accordance with the terms and conditions of this Agreement is mandatory. It is specifically understood and agreed that each Mortgage Loan is unique and identifiable on the date hereof and that an award of money damages would be insufficient to compensate the Purchaser for the losses and damages incurred by the Purchaser in the event of the Seller's failure to deliver the Mortgage Loans on or before the Closing Date. The Seller hereby grants to the Purchaser a lien on and a continuing security interest in the Seller's interest in each Mortgage Loan and each document and instrument evidencing each such Mortgage Loan to secure the performance by the Seller of its obligation hereunder, and the Seller agrees that it holds such Mortgage Loans in custody for the Purchaser, subject to the Purchaser's (i) right, prior to the Closing Date, to reject any Mortgage Loan to the extent permitted by this Agreement, and (ii) obligation to deliver or cause to be delivered the consideration for the Mortgage Loans pursuant to Section 8 hereof. Any Mortgage Loans rejected by the Purchaser shall concurrently therewith be released from the security interest created hereby. All rights and remedies of the Purchaser under this Agreement are distinct from, and cumulative with, any other rights or remedies under this Agreement or afforded by law or equity and all such rights and remedies may be exercised concurrently, independently or successively. Notwithstanding the foregoing, if on the Closing Date, each of the conditions set forth in Section 8 hereof shall have been satisfied and the Purchaser shall not have paid or caused to be paid the Purchase Price, or any such condition shall not have been waived or satisfied and the Purchaser determines not to pay or cause to be paid the Purchase Price, the Purchaser shall immediately effect the redelivery of the Mortgage Loans, if delivery to the Purchaser has occurred and the security interest created by this Section 12 shall be deemed to have been released. SECTION 13. Notices. All demands, notices and communications ------- hereunder shall be in writing and shall be deemed to have been duly given if personally delivered to or mailed by registered mail, postage prepaid, or transmitted by telex or telegraph and confirmed by a similar mailed writing, if to the Purchaser, addressed to the Purchaser at Seven World Trade Center, New York, New York 10048, Attention: Mortgage Finance Group, or such other address as may hereafter be furnished to the Seller and the Originator in writing by the Purchaser; if to the Seller, addressed to the Seller at Seven World Trade Center, New York, New York 10048, Attention: Mortgage Finance Group, or to such other address as the Seller may -19- designate in writing to the Purchaser and the Originator; and if to the Originator, addressed to the Originator at 1100 Town and Country Road, Orange, California 92668, Attention: Del Dillingham, Esq., or to such other address as the Originator may designate in writing to the Purchaser and the Seller. SECTION 14. Severability of Provisions. Any part, provision, -------------------------- representation or warranty of this Agreement which is prohibited or which is held to be void or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any part, provision, representation or warranty of this Agreement which is prohibited or unenforceable or is held to be void or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction as to any Mortgage Loan shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereto waive any provision of law which prohibits or renders void or unenforceable any provision hereof. SECTION 15. Agreement of Parties. The Originator, the Seller and the -------------------- Purchaser each agree to execute and deliver such instruments and take such actions as either of the others may, from time to time, reasonably request in order to effectuate the purpose and to carry out the terms of this Agreement and the Pooling and Servicing Agreement. SECTION 16. Survival. (a) The Seller agrees that the representations, -------- warranties and agreements made by it herein and in any certificate or other instrument delivered pursuant hereto shall be deemed to be relied upon by the Purchaser, notwithstanding any investigation heretofore or hereafter made by the Purchaser or on its behalf, and that the representations, warranties and agreements made by the Seller herein or in any such certificate or other instrument shall survive the delivery of and payment for the Mortgage Loans and shall continue in full force and effect, notwithstanding any restrictive or qualified endorsement on the Mortgage Notes and notwithstanding subsequent termination of this Agreement, the Pooling and Servicing Agreement or the Trust Fund. (b) The Originator agrees that the representations, warranties and agreements made by it herein and in any certificate or other instrument delivered pursuant hereto shall be deemed to be relied upon by the Seller and the Purchaser, notwithstanding any investigation heretofore or hereafter made by the Seller or the Purchaser or on the behalf of either, and that the representations, warranties and agreements made by the Originator herein or in any such certificate shall continue in full force and effect, notwithstanding subsequent termination of this Agreement, the Pooling and Servicing Agreement or the Trust Fund. SECTION 17. Indemnification. (a) The Originator will indemnify and ---------- hold harmless the Purchaser and each person, if any, who controls the Purchaser within the meaning of the Securities Act of 1933, as amended (the "1933 Act"), against any losses, claims, damages or liabilities to which such Purchaser or such controlling person may become subject, -20- under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Prospectus Supplement dated November 20, 1996 (the "Prospectus Supplement"), as amended or supplemented, relating to the public offering of the Certificates, representing interests in the Mortgage Loans, or in any other offering document (the "Private Placement Memorandum") relating to the offering by the Purchaser or an affiliate thereof, of the Class B Certificates, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading to the extent that such untrue statement or alleged untrue statement or omission or alleged omission relates to information set forth in the Prospectus Supplement on the front cover in the fifth paragraph, in the Summary under the subheadings "Originator," "Master Servicer" and "The Mortgage Pool" and under the captions "The Mortgage Pool --General", "-- Underwriting Standards; Representations" and "Pooling and Servicing Agreement -- The Originator and Master Servicer" (and substantially identical information approved by the Originator set forth in the Private Placement Memorandum relating to the Class B Certificates) (collectively, the "Originator Information") and will reimburse the Purchaser and each such controlling person for any legal or other expenses reasonably incurred by such Purchaser and each such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action. The Originator's liability under this Section 17 shall be in addition to any other liability the Originator may otherwise have. (b) The Purchaser agrees to indemnify and hold harmless the Originator, its officers and its directors, and each person who controls the Seller within the meaning of either the 1933 Act or the 1934 Act against any and all losses, claims, damages or liabilities, joint or several, to which they may become subject under the 1933 Act, the 1934 Act, or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based in whole or in part upon any untrue statement or alleged untrue statement of a material fact contained in the Prospectus Supplement, the Prospectus or Private Placement Memorandum, or in any revision or amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading, as of the date thereof and as of the Closing Date, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made therein in reliance upon and in conformity with the Originator Information and will reimburse the Originator and each such controlling person for any legal or other expenses reasonably incurred by such Originator and each such controlling person in connection with investigating or defending any such loss, claim, damage, liability or action. The Purchaser's liability under this Section 17 shall be in addition to any other liability the Purchaser may otherwise have. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to either -21- Section 17(a) or 17(b) above, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the reasonable fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the reasonable fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be designated in writing by the Purchaser, in the case of parties indemnified pursuant to clause 17(a) and by the Originator, in the case of parties indemnified pursuant to clause 17(b). The indemnifying party may, at its option, at any time upon written notice to the indemnified party, assume the defense of any proceeding and may designate counsel satisfactory to the indemnified party in connection therewith provided that the counsel so designated would have no actual or potential conflict of interest in connection with such representation. Unless it shall assume the defense of any proceeding, the indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. If the indemnifying party assumes the defense of any proceeding, it shall be entitled to settle such proceeding with the consent of the indemnified party or, if such settlement provides for release of the indemnified party in connection with all matters relating to the proceeding which have been asserted against the indemnified party in such proceeding by the other parties to such settlement, without the consent of the indemnified party. (d) If the indemnification provided for in this Section 17 is unavailable to an indemnified party under Section 17(a) or 17(b) hereof or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities, in such proportion as is appropriate to reflect the relative fault of the indemnified and indemnifying parties in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the indemnified and indemnifying parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. -22- (e) The Purchaser and the Originator agree that it would not be just and equitable if contribution pursuant to Section 17 were determined by pro rata allocation or by any other method of allocation which does not take account of the considerations referred to in Section 17(d) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in this Section 17 shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim, except where the indemnified party is required to bear such expenses pursuant to this Section 17, which expenses the indemnifying party shall pay as and when incurred, at the request of the indemnified party, to the extent that the indemnifying party will be ultimately obligated to pay such expenses. In the event that any expenses so paid by the indemnifying party are subsequently determined to not be required to be borne by the indemnifying party hereunder, the party which received such payment shall promptly refund the amount so paid to the party which made such payment. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (f) The indemnity and contribution agreements contained in this Section 17 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by the Purchaser or any person controlling the Purchaser or by or on behalf of the Originator and their respective directors or officers or any person controlling the Originator, and (iii) acceptance of and payment for any of the Certificates. SECTION 18. GOVERNING LAW ------------- THIS AGREEMENT AND THE RIGHTS, DUTIES, OBLIGATIONS AND RESPONSIBILITIES OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS (INCLUDING THE CHOICE OF LAW PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK. THE PARTIES HERETO INTEND THAT THE PROVISIONS OF SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW SHALL APPLY TO THIS AGREEMENT. SECTION 19. Miscellaneous. This Agreement may be executed in two or ------------- more counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. This Agreement supersedes all prior agreements and understandings relating to the subject matter hereof. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. It is the express intent of the parties hereto that the conveyance of the Mortgage Loans by the Seller to the Purchaser as provided in Section 4 hereof be, and be construed as, a -23- sale of the Mortgage Loans by the Seller to the Purchaser and not as a pledge of the Mortgage Loans by the Seller to the Purchaser to secure a debt or other obligation of the Seller. However, in the event that, notwithstanding the aforementioned intent of the parties, the Mortgage Loans are held to be property of the Seller, then, (a) it is the express intent of the parties that such conveyance be deemed a pledge of the Mortgage Loans by the Seller to the Purchaser to secure a debt or other obligation of the Seller and (b) (1) this Agreement shall also be deemed to be a security agreement within the meaning of Articles 8 and 9 of the New York Uniform Commercial Code; (2) the conveyance provided for in Section 4 hereof shall be deemed to be a grant by the Seller to the Purchaser of a security interest in all of the Seller's right, title and interest in and to the Mortgage Loans and all amounts payable to the holders of the Mortgage Loans in accordance with the terms thereof and all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, instruments, securities or other property, including without limitation all amounts, other than investment earnings, from time to time held or invested in the Collection Account whether in the form of cash, instruments, securities or other property; (3) the possession by the Purchaser or its agent of Mortgage Notes, the related Mortgages and such other items of property that constitute instruments, money, negotiable documents or chattel paper shall be deemed to be "possession by the secured party" for purposes of perfecting the security interest pursuant to Section 9-305 of the New York Uniform Commercial Code; and (4) notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be deemed notifications to, or acknowledgments, receipts or confirmations from, financial intermediaries, bailees or agents (as applicable) of the Purchaser for the purpose of perfecting such security interest under applicable law. Any assignment of the interest of the Purchaser pursuant to Section 4(d) hereof shall also be deemed to be an assignment of any security interest created hereby. The Seller and the Purchaser shall, to the extent consistent with this Agreement, take such actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in the Mortgage Loans, such security interest would be deemed to be a perfected security interest of first priority under applicable law and will be maintained as such throughout the term of this Agreement and the Pooling and Servicing Agreement. IN WITNESS WHEREOF, the Purchaser, the Seller and the Originator have caused their names to be signed by their respective officers thereunto duly authorized as of the date first above written. SALOMON BROTHERS MORTGAGE SECURITIES VII, INC. By:____________________________________________ Name: Susan S. Woodbury Title:Assistant Vice President SALOMON BROTHERS REALTY CORP. By:_____________________________________________ Name: Susan S. Woodbury Title: Authorized Agent LONG BEACH MORTGAGE COMPANY By:______________________________________________ Name: Jeffery A Sorensen Title:Vice President EX-99 7 PRO FORMA FINANCIAL INFORMATION EXHIBIT 99 WILSHIRE REAL ESTATE INVESTMENT TRUST INC. PRO FORMA FINANCIAL INFORMATION - NARRATIVE FORMAT The following unaudited pro forma financial information of Wilshire Real Estate Investment Trust Inc. ("WREIT" or the "Company") gives effect to acquisition of the mortgage loan pool purchased from Salomon Smith Barney Inc., as if the transactions occurred as of January 1, 1997 with respect to the unaudited pro forma operating information and as of June 30, 1998 with respect to the unaudited pro forma financial condition information. The unaudited pro forma financial information is not necessarily indicative of the results that might have been achieved by WREIT if the significant asset acquisitions had been consummated as of the indicated dates. The unaudited pro forma financial information should be read in conjunction with the historical consolidated financial statements of WREIT, together with the related notes thereto, which were filed August 14, 1998 on Form 10-Q for the period ended June 30, 1998. ----------------------------------- On September 29, 1998, the Company purchased a pool of approximately 3,766 one-to-four family fully amortizing mortgage loans secured by first liens for approximately $421.8 million plus closing costs from Salomon Smith Barney Inc. who acquired the mortgage loans directly or indirectly from various originators. The purchase was financed by securitizing these loans through its wholly owned subsidiary, Wilshire REIT Trust Series 1998-1. The $374.2 million of investment- grade, publicly offered securities were tranched into four classes and were underwritten by Salomon Smith Barney Inc. The pro forma effect of this transaction on the June 30, 1998 consolidated statement of financial condition would have resulted in increase in total assets from $441.9 million to $850.7 million and an increase in total liabilities from $281.8 million to $690.1 million. The increase in total assets of $408.1 is a result of the acquisition of loans as described above. Liabilities and Stokholders' Equity increased by $408.1 million due to a bond payable created as a result of the securitization of $374.2 million, short-term financing of $34.2 million and by the pro forma effect of adjusting retained earnings by $0.4 million for the acquisition of these assets. Additionally, the pro forma effect of this acquisition to the consolidated statements of operations for the year ended December 31, 1997 and six months ended June 30, 1998 would be as follows: * Increase/(decrease) in net interest income by $0.8 million and $(0.2) million for the year ended December 31, 1997 and the six months ended June 30, 1998, respectively. * Increase in management fee expenses by $0.2 million and $0.1 million for the year ended December 31, 1997 and the six months ended June 30, 1998, respectively. * Increase in net income for the year ended December 31, 1997 by $0.7 million. Basic and diluted earnings per share would have increased by $0.06. * Decrease in net income for the six months ended June 30, 1998 by $0.3 million. Basic and diluted earnings per share would have decreased by $0.02. Pro forma interest income and interest expense are based on estimated cash flows. The cash flow assumptions considered other factors such as mortgage prepayments, default rates, timing of proceeds from foreclosure and other modeling factors. The loans are backed by $94.3 million fixed rate and $286.6 million adjustable rate residential mortgage loans. The weighted average coupon on the mortgage loans is approximately 10.23%. The weighted average remaining term to stated maturity for the mortgage pool is approximately 29 years. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in such statements. All of the statements contained in this report which are not identified as historical should be considered forward- looking. In connection with certain forward-looking statements contained in this report and those that may be made in the future by or on behalf of the Company which are identified as forward-looking, the Company notes that there are various factors that could cause actual results to differ materially from those set forth in any such forward-looking statements. Such factors include but are not limited to, the real estate market, the availability of real estate assets at acceptable prices, the availability of financing, interest rates, and European expansion. Accordingly, there can be no assurance that the forward-looking statements contained in this report will be realized or that actual results will not be significantly higher or lower. The forward- looking statements have not been audited by, examined by, or subjected to agreed-upon procedures by independent accountants, and no third party has independently verified or reviewed such statements. Readers of this report should consider these facts in evaluating the information contained herein. The inclusion of the forward-looking statements contained in this report should not be regarded as a representation by the Company or any other person that the forward-looking statements contained in this report will be achieved. In light of the foregoing, readers of this report are cautioned not to place undue reliance on the forward-looking statements contained herein. -----END PRIVACY-ENHANCED MESSAGE-----